Filed with the SEC from Aug 09 to Aug 15:
Mistral Equity Partners decreased its holdings to 9,764,900 shares (12.6%) by selling 1,150,000 on Aug. 6 and Aug. 7 at prices ranging from $2.50 to $2.55.
Background of Jamba, Inc.
Jamba, Inc. owns and franchises, on a global basis, Jamba Juice stores through its wholly-owned subsidiary, Jamba Juice Company. Jamba Juice Company is a leading restaurant retailer of better-for-you specialty beverages and food offerings which include great tasting fruit smoothies, fresh squeezed juices, hot teas, hot oatmeal made with organic steel cut oats, fruit and veggie smoothies, Fitâ€™n Fruitfulâ„˘ smoothies with Weight Burner Boostâ„˘, Whirlâ€™nsâ„˘ Frozen Yogurt, breakfast wraps, side salads, sandwiches, California Flatbreadsâ„˘, and a variety of baked goods and snacks. Jamba Juice Company has expanded the Jamba brand by licensing its trademark to sell consumer packaged goods through retail channels such as grocery, mass, club and convenience.
Jamba, Inc. was incorporated in Delaware on January 6, 2005 as a blank check company formed to serve as a vehicle for the acquisition of a then unidentified operating business. On July 6, 2005, Jamba, Inc. consummated its initial public offering. On March 10, 2006, Jamba, Inc. entered into an Agreement and Plan of Merger with Jamba Juice Company, which first began operations in 1990. The merger between Jamba, Inc. and Jamba Juice Company (the â€śMergerâ€ť) was completed on November 29, 2006.
Unless the context otherwise requires, Jamba, Inc., the registrant, together with Jamba Juice Company, are referred to in this Form 10-K annual report (â€śForm 10-Kâ€ť) as the â€śCompanyâ€ť, â€śJambaâ€ť, â€śweâ€ť, â€śusâ€ť and â€śour.â€ť Information regarding the Companyâ€™s fiscal periods is included in Item 7, â€śManagementâ€™s Discussion and Analysis of Financial Condition and Results of Operations.â€ť
Narrative Description of Business
As of January 3, 2012, there were 769 Jamba Juice stores globally, consisting of 307 Company-owned and operated stores (â€śCompany Storesâ€ť),443 franchise-operated stores (â€śFranchise Storesâ€ť) in the United States, and 19 international Franchise Stores (â€śInternational Stores). As of January 3, 2012, Jamba Juice had a retail consumer products program that included ten license agreements covering a variety of consumer packaged goods (â€śCPGâ€ť).
These strategic priorities support the Companyâ€™s mission to grow and develop Jamba as a premier healthy, active lifestyle brand, by offering consumers differentiated products and experiences at Jamba Juice stores and through other retail distribution channels. One of the keys to our success is the Jamba culture, a unique set of core values and actions that manifest themselves in team members executing at the highest levels of service while expressing their passion for the brand.
Make Jamba a top-of-mind healthy food and beverage brand
We have traditionally provided a range of freshly blended beverages, baked goods and snacks in our stores. Product innovation is a high priority at the Company. Our menu items are designed to offer our customers products that are relevant to pursuing a healthy, active lifestyle. Our research and development team, composed of food scientists, quality assurance specialists and food industry experts, is continually developing and testing new and improved menu items that support not only the integrity of the Jamba Juice brand but our commitment to offering great tasting innovative products made from high quality ingredients.
We utilize premium ingredients in our menu offerings and other products. We offer a range of high-quality, packaged, good-for-you snacks. The items in our food portfolio are continually being refined and optimized. We continue to believe there is consumer demand for better-for-you on-the-go food items that is not being fulfilled by other quick service restaurants. Our menu options meet our four mandatory core standards: no trans fat, no high fructose corn syrup, no artificial preservatives, and no artificial flavors. Our goal is for Jamba Juice to be the leader in the specialty, better-for-you beverage retailer segment.
Our research and development team continually seeks to enhance the product offerings available to customers, and where possible, reduce product and labor costs. Our research and development process includes both the development of new products and the optimization of existing menu items to ensure only the most appealing products are developed and offered to customers. We are passionate about creating differentiated, healthy, active lifestyle products that meet an even greater breadth and depth of customer health and wellness needs. There is no certainty that product development efforts will lead to the introduction and success of new product offerings or a potential increase in operating margins.
Embody a healthy, active lifestyle at store level and broadly across the enterprise
We were founded on the belief that maintaining a balance of physical activity, good nutrition, and community involvement are critical to healthy living. Our focus is on how we communicate with consumers, and how we engage them on achieving and maintaining a healthy, active lifestyle. Our recently announced Live Fruitfullyâ„˘ consumer marketing campaign, along with our Ambassadors of Wow and two Company spokespersons, tennis star Venus Williams and nutrition expert Tara Gidus, will continue to educate and inspire consumers on leading a healthy, active lifestyle. In addition, we are planning to significantly increase the nutrition education and product training provided to our team members to build their knowledge.
Our strategy of engaging customers in healthy lifestyle activities is a continuation of our focus on improving the quality and consistency of customer service at our stores. We believe our continued focus on our customers, including encouraging them to lead a healthy, active lifestyle, will lead to an enhanced brand experience, thereby heightening customer loyalty and satisfaction, and ultimately increasing frequency of visits and our market share.
Our commitment to health and wellness in schools is evidenced in the growth of our participation in school lunch programs in over 40 California school districts. Another component of our community engagement effort is the enhancement of our fundraising opportunities for non-profit organizations. We continue to work with a variety of non-profit organizations, including the National Parent-Teacher Association and the National Gardening Association, to provide fundraising opportunities for school and youth oriented programs. We also sponsor a grant program to promote nutrition education and gardening among youth organizations and schools through KidsGardening.org, a division of the National Gardening Association.
During 2011, we launched a social responsibility program called Team Up for a Healthy America, with the aim of raising consumer awareness of Jambaâ€™s focus on critical national health issues. This program gained nationwide attention as a result of our partnership with several organizations including National Geographic Kids, the Womenâ€™s National Basketball Association (WNBA), the U.S. Water Polo Association, the Girl Scouts of America and our Company spokesperson, Venus Williams.
Our mission to inspire and simplify healthy living extends to our Company Store team members, who enjoy access to a broad offering of benefits in support of maintaining a healthy, active lifestyle. During 2011, Jamba was named one of the San Francisco Bay Areaâ€™s healthiest employers by The Silicon Valley/San Jose Business Journal and the San Francisco Business Times.
Accelerate global retail growth through new and existing formats
The focus of our global retail expansion is the development of traditional and non-traditional Franchise Stores. We believe this franchise strategy will better position us for growth in market share, reduce capital outlays, provide better overall margins, allow us to open more locations at an accelerated rate, increase our brand presence to support other Company initiatives such as consumer products licensing, and increase customer frequency.
A primary goal of the Company is to grow the Jamba brand by establishing more points of distribution inherently giving us a broader brand awareness and deepening brand loyalty by making it easier for consumers to access and enjoy all the products and services Jamba has to offer. We believe we have significant market expansion opportunities globally.
We have grown our concept and brand through Company Store and Franchise Store locations. As of January 3, 2012 there were 750 Jamba Juice store locations in the United States consisting of 307 Company Stores and 443 Franchise Stores operating in 25 states. Of the 750 locations, 394 stores are located in California, of which 292 are Company Stores and 102 are Franchise Stores. We lease the real estate for all of our Company Stores. Our market planning has shown that there is potential for at least 2,700 total Jamba Juice stores in the United States, all of which we believe can be profitable and would meet our current store opening criteria. During 2011, Franchisees opened 22 new Franchise Stores, closed eight Franchise Stores, and acquired 42 Company Stores, which are now operating as Franchise Stores. We also converted four Franchise Stores to the JambaGo format. As a result, Franchise Stores represented approximately 60% of the Jamba Juice system as of January 3, 2012.
We generally characterize our stores as either â€śtraditionalâ€ť or â€śnon-traditionalâ€ť locations. A traditional location is characterized as a business premises that exists primarily as a Jamba Juice store. Traditional stores average approximately 1,200 â€” 1,400 square feet in size. These stores are located either in major urban centers or in suburban strip mall centers. As of January 3, 2012, there were 583 traditional Jamba Juice store locations.
A non-traditional location is characterized as a Jamba Juice store located within another primary business in conjunction with other businesses or at institutional settings such as colleges and universities, entertainment venues, shopping malls, transportation centers, supermarkets and airports. A â€ścaptiveâ€ť audience is a common characteristic of non-traditional locations. We believe one benefit of the development of non-traditional stores is to increase awareness of the Jamba Juice brand to complement the traditional stores in the area. As of January 3, 2012, there were 167 non-traditional Jamba Juice store locations.
We continue to innovate in the design of traditional and non-traditional stores as well. Our goal is to vary the size and format of our stores to allow us to locate them in or near a variety of settings. As a result, the typical costs to construct a Jamba Juice non-traditional store ranges from $185,000 to $408,000 and the typical costs to construct a traditional Jamba Juice store ranges from $264,000 to $462,000. Our flexibility in store construction enables us to develop stores in a variety of venues, broadening the visibility of the Jamba brand and giving more customers easier, more convenient access. In turn, we hope format flexibility will help us to attract qualified franchisees and to assure them of potentially achieving a higher return on their investment in capital expenditures.
In October, 2011, we announced the test of a new growth concept called JambaGoâ„˘. This growth concept is an innovative express service utilizing compact technology to make select smoothie flavors in â€śstationsâ€ť using pre-packaged ingredients. This new concept will enable Jamba to rapidly expand brand presence. The JambaGo platform targets venues servicing captive audiences with greater demand for higher volumes where the need for high-speed service is essential and where a full-sized Jamba Juice store or kiosk would not be feasible. Such venues include schools, grocery and convenience stores, stadiums, theaters, event centers and select airport locations. As of January 3, 2012, there were 35 JambaGo locations in six states.
Through our franchising program, we offer franchisees choices in store format and number of stores they wish to operate including (i) traditional store venues such as single store franchises, (ii) nontraditional store venues such as mall, university, supermarket or transit hub locations, and (iii) multi-unit license agreements which grant the franchisee exclusive rights to develop and operate a specified number of stores within a specified period of time within a specified geographic area, which we call area development agreements.
Our current traditional store franchise agreement provides for an initial 10-year term. The agreement is renewable for two consecutive 10-year terms, subject to various conditions and state law. The royalty rate in the current franchise agreement for domestic locations is generally 5.5% â€” 6% of revenue, with franchisees required to contribute up to an additional 4% of revenue to a company-administered advertising fund. At the present time, in general, we are charging 2% of revenue as the marketing contribution for our traditional store franchisees. Traditional store franchisees are also expected to spend 1.5% of sales on local marketing efforts. There is typically up to a one-mile geographic radius restriction for traditional stores in non-downtown areas. The royalty rates and marketing contributions for non-traditional stores vary depending upon type (transit hub, college or university or supermarket). Franchisees typically pay an initial fee of $20,000 or $25,000 for traditional store locations, and an initial fee ranging from zero to $15,000 for non-traditional store locations. We generally do not provide any form of financing to our franchisees.
As of January 3, 2012, we had fifteen area developers with rights to develop additional Franchise Stores pursuant to development agreements. The exclusive territories covered by these agreements include selected markets in the states of Arizona, Colorado, Connecticut, Florida, Hawaii, Illinois, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, Ohio, Oregon, Pennsylvania, Utah, Washington State, Washington D.C., and Wisconsin. These developers had contractual commitments to open an aggregate of 78 new Franchise Stores in their respective territories over the next several years . Eight of the fifteen development agreements were entered into in connection with refranchising transactions, where a purchaser of Company Stores also agreed to develop new Franchise Stores.
Area developers typically enter into a separate franchise agreement for each store opened. Under typical development agreements, upon execution of the multi-unit development agreement, the area developer generally pays, as a development fee, one-half of a $20,000-$25,000 initial fee, or $10,000-$12,500, for each store required to be developed. Area developers are obligated to finance their own build-out of each store location according to our specifications.
We also continue to strengthen our relationships with beverage and food concessionaires operating at non-traditional venues such as colleges, universities, airports and other transit hubs, and other retail and entertainment venues to help maximize our non-traditional franchise development. In addition to our own efforts, we are approached by sophisticated concessionaires and contract feeders whose independent research has identified us as ideal for locations such as colleges and universities, sport venues, airports, and other
non-traditional venues where they have exclusive rights from venue owners to develop. When it fits our expansion strategies, these opportunities are incorporated into our own plans.
Our market planning and site selection process is integral to the successful execution of our growth strategy. We have processes for identifying, analyzing, and assigning undeveloped markets for either Company Store or Franchise Store development. Once a market is selected, we carefully screen trade areas for demand based on demographic, psychographic and Jamba Juice specific variables to assess the risk of developing a store or permitting a franchisee to do so. We review trade areas to ensure that they meet our guidelines for new store development and begin the site selection or approval process. Once a trade area is approved, we carefully screen prospective locations for visibility, traffic patterns, ease-of-use and co-tenancy for potential Company Store and Franchise Store locations. Our expansion strategy involves using this market planning and site selection process to leverage areas of demand within each market. We intend to use this approach to encourage the clustering of stores in specific geographic areas of demand, which we believe will drive brand awareness, improve operating and marketing efficiencies for Franchise Stores while leveraging the costs associated with regional supervision. Distribution efficiencies can also be realized through this strategy. In addition, we believe the ability to hire qualified team members is enhanced in markets where Jamba is a broadly recognized brand.
Under our refranchising initiative, which was announced in May 2009 and concluded in April 2011, we sold 174 Company Stores to new or existing franchisees. Such sales have helped us to accelerate growth, achieve certain operational efficiencies, and position franchisees and aspiring area developers with local or regional expertise to succeed by providing a core of established stores within their exclusive development area. In many refranchising transactions, we entered into development agreements committing buyers to build additional Franchise Stores in the regions their purchased stores occupy. In addition, as part of these refranchising transactions, buyers of mature Company Stores are obligated to refresh and refurbish these stores.
Jamba Juiceâ€”International Franchising
We have accelerated our international growth agenda, resulting in the increase of our International Store count from one store as of December 28, 2010 to 19 stores as of January 3, 2012. As of January 3, 2012, there were Jamba Juice locations in South Korea, the Philippines, Canada and the Bahamas.
In 2010, we signed a master development agreement with SPC Group, a leading specialty food company in South Korea with over 4,500 retail locations across several brands, to develop 200 Jamba Juice stores in South Korea over the next 10 years. The first Jamba Juice store opened at the Incheon airport in January 2011. By January 3, 2012, there were 16 Jamba Juice stores operating in the South Korea market.
In April 2011, Jamba announced a master development agreement with Maxâ€™s Group of Companies, a well-established restaurant and franchise operator, to develop 40 stores in the Philippines over the next 10 years. The first store opened in Manila in November 2011. In May 2011, we signed a master development agreement with Canadian Juice Corp., the principals of which are world leaders in the frozen yogurt category with over 1,200 stores in 25 countries, to develop 80 Jamba Juice stores over the next 10 years. The first Jamba Juice store opened in Toronto in October 2011. We work closely with all our international partners to build the Jamba Juice brand and implement the Jamba Juice system locally, and to maximize revenue and margin growth opportunities, recognizing commercial, cultural and dietary diversity in each market.
Our brand and products have international appeal and we continue to engage in discussions with additional potential partners regarding the expansion of Jamba Juice stores into more international markets. The success of further international expansion will depend on, among other things, local acceptance of the Jamba Juice concept and menu offerings, and our ability to attract qualified franchisees. Our agreements take the form of development and franchise agreements under which we typically receive an initial territory fee, store opening fees, and ongoing royalty revenues based on a percentage of sales.
Build a global CPG platform in Jamba-relevant categories
Extending the Jamba brand into mass retail across all 50 states by continued development of CPG solutions provides significant business opportunities. As of January 3, 2012, we had license agreements in place reflecting over 30 individual products, where we receive ongoing royalties based on a percentage of wholesale product sales. These include Jamba-branded make-at-home frozen smoothie kits, frozen yogurt novelty bars, all natural energy drinks, coconut water fruit juice beverages, functional daily Brazilian super fruit shots, boosted trail mixes and functionally boosted fruit cups. Significant retail distribution gains were realized in 2011, growing to approximately 30,000 points of distribution as of January 3, 2012, up from 10,000 in the prior year. Two of our licensing partners, Inventure Foods and Oregon Ice Cream, led the growth with key retail partners across grocery, mass and club channels.
During the fourth quarter of 2011, we signed license agreements with Bare Fruit LLC to develop a line of all natural bake-dried, 100% fruit chips and with Core-Mark Holdings Company, Inc. to create wraps and sandwiches for the convenience channel. Discussions with potential licensees regarding new and complementary product categories are ongoing.
Our CPG products will help extend Jamba brand accessibility, offer additional product solutions and increase usage occasions. In addition, we believe the growth in our CPG platform will help reinforce Jamba as a healthy, active lifestyle brand with products that are better-for-you, convenient and portable. All of our agreements to date have been structured as license agreements, whereby we receive ongoing royalties based on a percentage of product sales. In the future, to support and optimize our brand extension, we may structure these relationships in other ways such as joint venture agreements, co-packing agreements and sales and distribution agreements.
Pursue new ways to reduce costs and drive productivity
This strategic priority affects all aspects of our system in our efforts to continue to drive store-level profitability and improve returns for Company Stores and Franchise Stores. Strong store-level economics are critical to the Companyâ€™s success and therefore management is diligently focused on initiatives to improve these metrics.
During 2011, we introduced innovative technologies, such as Google Wallet for point of sale efficiency. Google Wallet is a virtual wallet that stores customer payment information, enabling customers the ease and speed of paying in-store by tapping their mobile devices at the point of sale terminal.
In February 2011, we announced an alliance with SYGMA, a subsidiary of Sysco, a global leader in foodservice distribution. The alliance has allowed us to reduce costs and improve our overall service due to SYGMAâ€™s strong national distribution network. In December 2011, we expanded our alliance to increase Jambaâ€™s system-wide access to SYGMAâ€™s highly efficient freight and logistics technology to ensure delivery of the right product at the right time at the right price. This alliance is expected to help us to meet our efficiency goals. We also utilize workforce management technology to help optimize work schedules, resulting in improved productivity and reduced labor costs as well as improved customer service.
We also monitor our general and administrative expenses so that we may better leverage our existing infrastructure in support of our growth strategy. We continue to look for opportunities, including the use of innovative technological solutions, for functional improvement in order to drive down expenses and improve productivity.
JAMES D. WHITE has served as a member of our Board of Directors and our President and Chief Executive Officer since December 2008. Previously, Mr. White was Senior Vice President of Consumer Brands for Safeway, Inc. with responsibility for brand strategy, innovation, manufacturing and commercial sales from 2005 to 2008. Prior to Safeway, Mr. White was Senior Vice President of Business Development, North America at the Gillette Company, where his responsibilities included centralized marketing, sales, retail execution, marketing planning and Canadian operations from 2002 to 2005. Mr. White also held executive and management roles with NestlĂ© Purina from 1987 to 2005, including Vice President, Customer Interface Group from 1999 to 2002, and Vice President, Customer Development East from 1997 to 1999.
Mr. White has been re-appointed Chairman of the Board contingent upon his re-election to the Board at the Annual Meeting. Mr. Whiteâ€™s position as our President and Chief Executive Officer and his extensive consumer products and senior management experience make him particularly qualified for service on our Board.
LESLEY H. HOWE has been a member of our Board of Directors since December 2007. Mr. Howe has over 40 years of financial and management experience, spending more than 30 years with the international accounting firm of KPMG LLP, where he was a senior partner and from 1994-1997 served as Area Managing Partner for the Los Angeles office. He served as Chief Executive Officer of Consumer Networks LLC, a San Diego-based internet marketing and promotions company from 2001 until its sale in 2007. Mr. Howe is a member of the Board of Directors of P.F. Changâ€™s China Bistro Inc., NuVasive, Inc. and Volcano Corporation.
Mr. Howe has been re-appointed Lead Director contingent upon his re-election to the Board at the Annual Meeting. The Lead Director chairs executive sessions of Jambaâ€™s independent directors and has the authority to call such sessions. The Lead Director also participates in the preparation of agendas and schedules for meetings of the Board, coordinates with the Chairman regarding the flow of information to the directors, serves as a liaison between the independent directors and management, and chairs meetings of the Board in the Chairmanâ€™s absence. Mr. Howeâ€™s extensive experience in public accounting and his financial expertise make him particularly qualified for service on our Board and our Audit Committee of the Board.
RICHARD L. FEDERICO has been a member of our Board of Directors since November 2006. Mr. Federico had previously served as a director of Jamba Juice Company from October 2004 to November 2006. Since February 1996, Mr. Federico has served as a director of P.F. Changâ€™s China Bistro Inc., and he has served as Chief Executive Officer of P.F. Changâ€™s China Bistro Inc. since September 1997. In December 2000, Mr. Federico was named Chairman of the Board of P.F. Changâ€™s China Bistro Inc. From February 1989 to January 1996, Mr. Federico served as President of the Italian Concepts division of Brinker International, Inc., where he was responsible for concept development and operations. Since February 2011, Mr. Federico has served on the Board of Directors of Dominoâ€™s Pizza. Mr. Federicoâ€™s business acumen and experience in leading a successful publicly-held restaurant concept make him particularly qualified for service on our Board, our Nominating and Corporate Governance Committee of the Board and our Compensation and Executive Development Committee of the Board.
BRIAN SWETTE has been a member of our Board of Directors since November 2006. Mr. Swette served as a board member of Burger King Corporation between 2002 and 2011 and as Chairman of its Board from April 2006 until June 2008. He is also an investor and board member in CBL Partners, FRS Company, Care.com, Shutterfly and Schiff Nutrition International. Mr. Swette served in several capacities at eBay from 1998 through the end of 2002, including Chief Operating Officer and Vice President of Marketing. He led eBayâ€™s penetration into international markets, oversaw the development of its marketing, managed the implementation of its fixed-price strategy and charted a course into new business categories such as automotive and business-to-business. Prior to eBay, Mr. Swette was Executive Vice President and Chief Marketing Officer of Pepsi-Cola where he was one of the architects of Pepsiâ€™s move into the water, tea, coffee and juice categories. Prior to Pepsi-Cola, Mr. Swette spent four years as a Brand Manager at Procter & Gamble. Mr. Swette is a Trustee of Arizona State University, Endeavor.org and The Global Institute of Sustainability. Mr. Swetteâ€™s knowledge and expertise on brand and marketing, and his experience on other public company boards of directors, make him particularly qualified for service on our Board and our Compensation and Executive Development Committee of the Board.
MICHAEL A. DEPATIE has been a member of our Board of Directors since November 2010. Mr. Depatie has served as Chief Executive Officer of Kimpton Hotels and Restaurants, LLC since July 2006 and is also a member of Kimptonâ€™s Board of Directors. Prior to being elected as Kimptonâ€™s Chief Executive Officer, Mr. Depatie served as their president from September 2005 having joined the Kimpton family of companies as Chief Executive Officer for real estate for Kimpton Group Holding, LLC in 2003. Kimpton is the largest developer and operator of boutique hotels with 51 hotels presently in 23 U.S. cities. Mr. Depatie is responsible for all aspects of Kimptonâ€™s development and operating activities. He also oversees the investment of the $157 million Kimpton Hospitality Partners Fund I and $202 million Kimpton Hospitality Partners Fund II. Prior to Kimpton, Mr. Depatie held senior finance and development roles in a number of rapidly growing lodging companies including Residence Inn and Summerfield Suites. Prior to his current position, Mr. Depatie was the Chief Financial Officer of Sunterra, a NYSE listed resort hotel vacation ownership company and NYSE listed La Quinta, a national chain of limited service hotels. Mr. Depatieâ€™s extensive senior management experience and his financial expertise make him particularly qualified for service on our Board and our Audit Committee of the Board.
FRITZI G. WOODS has been a member of our Board of Directors since May 2011. Ms. Woods has served as Chief Executive Officer and President of Womenâ€™s Foodservice Forum, the premier organization for delivering relevant content, developing competence and building connections to advance women and drive growth for foodservice manufacturers, distributors and operators since 2010. From 2003 to 2010, Ms. Woods served as Chief Executive Officer and President of PrimeSource FoodService Equipment, Inc., a leading restaurant equipment distribution company, supporting over 20,000 restaurants from the worldâ€™s leading restaurant chains in over 40 countries. Ms. Woods continues to serve as the Chairman of the Board of PrimeSource. Ms. Woodsâ€™ extensive senior management experience and her financial expertise make her particularly qualified for service on our Board and our Audit Committee of the Board.
BETH BRONNER has been a member of our Board since June 2009. Ms. Bronner is a Managing Director of Mistral Equity Partners and has served in that capacity since September 2007. Ms. Bronner served as Senior Vice President and Chief Marketing Officer for Jim Beam Brands Worldwide, Inc., from September 2003 to July 2006. From May 2001 to September 2003, Ms. Bronner served as a private consultant and president of a private realty company. She has also previously served in executive roles at ADVO, Inc., Sunbeam Corporation, Citibank, N.A., AT&T Company, Revlon and Haagen-Dazs and has held senior marketing positions across a diverse group of consumer focused product and service industries during her career. Ms. Bronner currently serves on the Board of Directors and chairs the Compensation Committee of Assurant, Inc. Ms. Bronner was also a member of the Board of Directors and the Governance Committee of The Hain Celestial Group, Inc. from 1993 to 2010. Previously, Ms. Bronner served on the board of directors and audit committee of Coolbrands International, Inc. from 2003 to 2006. She also currently serves on the boards of several not for profit organizations including The Goodman Theater. Ms. Bronnerâ€™s business and management experience in the consumer focused product and services industries makes her particularly qualified for service on our Board and our Nominating and Corporate Governance Committee of the Board.
ANDREW R. HEYER has been a member of our Board of Directors since June 2009. Mr. Heyer is the Chief Executive Officer and a Managing Director of Mistral Capital Management, LLC, a private equity fund. From 2000 to 2007, Mr. Heyer was a Managing Partner of Trimaran Capital Partners, L.L.C., a private equity firm and a member of the Investment Committee of Trimaran Advisors, L.L.C., which is the investment advisor to a series of collateralized loan obligation funds. Mr. Heyer was formerly a vice chairman of CIBC World Markets Corp., which he joined in 1995, and a co-head of the CIBC Argosy Merchant Banking Funds. Mr. Heyer also served on the board of directors and audit committees of Las Vegas Sands and Hain Celestial Group from 2007-2008 and 2007-2009, respectively. Mr. Heyer currently serves on the Board of Directors of Shearers Food, Country Pure Foods and Worldwise, Inc., and he serves on the Board of Overseers of the University of Pennsylvania School Health Systems and is a Member of the Board of Trustees of the University of Pennsylvania. Mr. Heyerâ€™s business, financial and investment experience in the consumer focused product and services industries makes him particularly qualified for service on our Board and our Compensation and Executive Development Committee of the Board.
MARVIN IGELMAN has been a member of our Board since May 2011. Mr. Igelman is the Chief Executive Officer of Sprylogics International Inc., a semantic search company based in Toronto, Canada. From February 2010 to June 2011, Mr. Igelman served as a director and the Chief Strategy Officer of Poynt Corporation, a Canadian company that offers mobile location-based search services. From May 2006 to February 2010, Mr. Igelman served as the Chief Executive Officer of Unomobi Incorporated, a mobile advertising and messaging platform he founded, which was acquired by Poynt Corporation in February 2010. From 2002 to 2006, Mr. Igelman served as a business development consultant for numerous technology companies and established a number of other ventures, including founding Unomobi Incorporated. Mr. Igelman serves on the Board of Directors of NorthCore Technology Inc. and American Apparel Inc. Mr. Igelman is a graduate of Torontoâ€™s Osgoode Hall Law School. Mr. Igelmanâ€™s extensive business and senior management experience make him particularly qualified for service on our Board and our Nominating and Corporate Governance Committee of the Board.
MANAGEMENT DISCUSSION FROM LATEST 10K
Key Overall Strategies
During 2011, we made solid progress against our BLEND Plan 1.0, which we first announced in January 2009. The key strategic priorities of our multi-year BLEND Plan have been focused on the transformation of our brand into a leading healthy, active lifestyle brand with strategically aligned initiatives aimed at ensuring a customer-first service culture, improving our menu offerings across all day-parts, accelerating the development of our franchise system, building a robust portfolio of consumer products through our licensing platform and reducing costs and expenses.
Fiscal 2011 Accomplishments
During fiscal 2011, sales at system-wide Jamba Juice Stores opened more than 13 full fiscal periods increased 3.7% reflecting increases of 4.0% for Company Stores and 3.4% for Franchise Stores compared to the prior year. For Company Stores, this increase represents the first full fiscal year of Company Store comparable sales growth since the end of fiscal 2007. The increase in Company Store comparable sales during fiscal 2011 was largely attributable to an average check increase, increased traffic during the fourth quarter and to more efficient marketing promotions. As part of building a customer first operationally focused culture, we instituted a customer survey program that has driven increasingly improved levels of customer satisfaction. Our store excellence guide has improved store operations by clarifying operating procedures and measuring priorities. In addition, we instituted a bonus program that rewards Company Store managers for achievement of customer service goals, and we continue to make technological as well as procedural enhancements in areas such as labor and inventory management. These enhancements have relieved our store managers from manual administrative tasks, enabling them to more diligently concentrate on delivering exceptional customer service.
We expanded our beverage and food offerings with a goal of increasing sales across all day-parts. We believe that our growing portfolio of â€śbetter-for-youâ€ť specialty beverage and food offerings, with smoothies and fresh juices as the core offering, provides us with a competitive advantage over other quick service restaurants. During 2011, we launched a series of smoothie platforms, including probiotic yogurt, fruit and veggie smoothies and coconut water refreshers. We also expanded our Whirlâ€™nsâ„˘ Frozen Yogurt line to an additional 127 stores. As a result, the Whirlâ€™nsâ„˘ Frozen Yogurt line was available at 157 locations in California as of January 3, 2012. We also launched our breakfast wrap platform to complement our already strong breakfast offering of slow-cooked oatmeal, freshly squeezed juices, Fruit & Yogurt parfaits and hot beverages.
We implemented various marketing promotions and consumer communications including value offerings, targeted discounts, sampling, improved messaging focusing on the better-for-you qualities of our menu offerings, and expanding our social media activities to further drive consumer awareness and customer usage frequency. We also launched a social responsibility program called Team Up for a Healthy America, with the aim of raising awareness among consumers of Jambaâ€™s focus on critical national health issues like childhood obesity and related health risks. This program gained nationwide attention as a result of our partnership with several organizations including National Geographic Kids, the WNBA, the U.S. Water Polo Association, the Girl Scouts of America and our Company spokesperson Venus Williams. We believe our promotional activities and public relations efforts for this program enabled us to reach over eight million households with our brand message, significantly raising awareness of Jamba as a mission-based brand and socially responsible company. We believe that our focus on optimizing media and digital marketing platforms, value offerings and efficient price promotions contributed to our success in increasing sales across all day-parts. We remain focused on opportunities to develop our beverage and food portfolio in order to optimize each of the offerings across all day-parts, and to refine our promotional and communication efforts to make Jamba a top-of-mind healthy food and beverage brand that offers consumers solutions for leading a healthy, active lifestyle.
We continue to grow our restaurant concept primarily through the development of new Franchise Stores. As a result of our refranchising initiative and the development of new Franchise Stores, Jamba Juice locations at the end of fiscal 2011 were comprised of approximately 40% Company Store locations and 60% Franchise Store locations globally, compared to approximately 47% Company Store locations and 53% Franchise Store locations at the end of fiscal 2010.
Domestically, we completed our refranchising initiative with the sale of 42 Company Stores, bringing the refranchising program total to 174 Company Stores sold. In fiscal 2011, franchisees also developed and opened 22 new Franchise Stores, including four traditional stores and 18 non-traditional stores.
We believe a more heavily franchised business model requires less capital investment and reduces the volatility of cash flow performance over time. Our refranchising effort has resulted in lower revenue for fiscal 2011, as we have traded retail sales at Company Stores for royalties and franchise fees to be received from our franchisees globally.
In October 2011, we announced that we were testing a new growth concept called JambaGoâ„˘. This growth concept is an innovative express service utilizing compact technology to make select smoothie flavors in â€śstationsâ€ť using pre-packaged ingredients. This new concept will enable us to rapidly expand the Jamba brand presence. The JambaGo platform targets venues servicing captive audiences, where there is a greater demand for higher volumes and where the need for high-speed service is essential and a full-sized Jamba Juice store or kiosk would not be feasible. Such venues include K-12 schools, grocery stores, stadiums, theaters, event centers and select airport locations. As of January 3, 2012, there were 35 JambaGo locations in six states.
The first Jamba Juice store in South Korea was opened at the Incheon airport in January 2011. By the end of fiscal 2011, there were 16 Jamba Juice stores operating in the South Korea market. We expect our master developer, SPC Group, to build 200 stores in South Korea over the next ten years. In April 2011, Jamba announced a master development agreement with Maxâ€™s Group of Companies, a well-established restaurant and franchise operator, to develop 40 stores in the Philippines over the next 10 years. The first store opened in Manila in November 2011. Also, in May 2011, we signed a master development agreement with Canadian Juice Corp., the principals of which are world leaders in the frozen yogurt category with over 1,200 stores in 25 countries, to develop 80 Jamba Juice stores over the next 10 years. The first Jamba Juice store opened in Toronto in October 2011. We believe international stores represent a significant growth opportunity.
As of January 3, 2012, we have 769 Jamba Juice stores, globally, represented by 307 Company Stores, 443 Franchise Stores in the United States, and 19 International stores. We plan to continue to accelerate global retail growth through new and existing formats to make it easier for customers to experience the Jamba brand offerings.
Consumer Packaged Goods
As of January 3, 2012, we had ten license agreements in place reflecting eight commercialized product lines. These products include Jamba-branded make-at-home frozen smoothie kits, frozen yogurt novelty bars, all natural energy drinks, coconut water fruit juice beverages, functional daily Brazilian super fruit shots, boosted trail mixes and functionally boosted fruit cups. We gained additional points of distribution for existing product lines and had over 30 individual Jamba products at approximately 30,000 points of retail distribution across all 50 states. We believe extending the Jamba brand into mass retail by continued development of CPG solutions provides significant growth opportunities.
During the fourth quarter of 2011, we signed agreements with Bare Fruit LLC to develop a line of all natural bake-dried, 100% fruit chips and with Core-Mark Holdings Company, Inc. to create wraps and sandwiches in the convenience channel. Discussions with potential licensees regarding new and complementary product categories are ongoing.
Our CPG products will help extend brand accessibility, offer additional product solutions and increase usage occasions. We plan to build a global CPG platform in Jamba-relevant categories and to reinforce Jamba as a healthy, active lifestyle brand with products that are better-for-you, convenient and portable. Although all of our agreements to date have been structured as license agreements, whereby we receive ongoing royalties based on a percentage of product sales, in future, we may structure these relationships in other ways such as joint venture agreements, co-packing agreements and sales and distribution agreements to support and optimize our brand extension.
We were able to improve Company Store financial performance by continuing to reduce labor expenses through operational efficiencies, leveraging technology, improving labor planning, and by implementing initiatives to lower costs of goods and mitigate waste. We also realized improved cost of sales and labor efficiencies as a result of our smaller, more geographically concentrated and better performing Company store base. Although we anticipate some increases in commodity prices, we continue to focus on cost savings to mitigate the cost increases.
To the extent possible, we are continuing to extend these cost saving initiatives and benefits to Franchise Stores with the goal of improving store-level economics for our franchisees, by passing through our negotiated volume rates with suppliers and vendors to our franchisees and through the utilization of best practice operating models. We strongly believe that increased sales coupled with continued cost and expense management improvements will drive better store-level economics for Company Stores and Franchise Stores alike.
We continued to manage our general and administrative expenses. Our refranchising strategy has resulted in a decrease in the number of Company Stores and a commensurate reduction in the related overhead expenses required to manage and support these Company Stores. Concurrently, we have chosen to invest in our future by strategically adding headcount to help accelerate critical growth initiatives, such as consumer products licensing, domestic and international franchise development, and product innovation. We will continue to explore new ways to reduce costs and drive productivity, for example, by strategically leveraging new technology, implementing process improvements and other means.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements in conformity with generally accepted accounting principles (â€śGAAPâ€ť) requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions about future events and their impact on amounts reported in our consolidated financial statements and related notes. Since future events and their impact cannot be determined with certainty, actual results may differ from our estimates. Such differences may be material to the consolidated financial statements.
We believe our application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change.
Our accounting policies are more fully described in Note 1 â€ś Business and Summary of Significant Accounting Policies â€ť in the â€śNotes to Consolidated Financial Statements,â€ť included elsewhere in this annual report on Form 10-K (â€ś2011 Form 10-Kâ€ť). We consider the following policies to be the most critical in understanding the judgments that are involved in preparing the consolidated financial statements.
Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment when facts and circumstances indicate that the carrying values of long-lived assets may not be recoverable. The impairment evaluation is generally performed at the individual store asset group level. We first compare the carrying value of the asset to the assetâ€™s estimated future undiscounted cash flows. If the estimated future cash flows are less than the carrying value of the asset, we measure an impairment loss based on the assetâ€™s estimated fair value. The fair value of a storeâ€™s assets is estimated using a discounted cash flow model based on internal projections and taking into consideration the view of a market participant. The estimate of cash flows is based on, among other things, certain assumptions about expected future operating performance. Factors considered during the impairment evaluation include factors related to actual operating cash flows, the period of time since a store has been opened or remodeled, refranchising expectations and the maturity of the relevant market.
Our estimates of cash flows used to assess impairment are subject to a high degree of judgment. If our estimates of future cash flows differ from actual cash flows due to, among other things, changes in economic conditions, changes to our business model or changes in operating performance, it would result in an adjustment to results of operations.
Intangible Asset Impairment
We evaluate trademarks not subject to amortization for impairment annually (at year-end), or more frequently if events or changes in circumstances indicated that the asset might be impaired. We perform our 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 exceeds the fair value. The fair value of trademarks was estimated using the income approach, which is based on assumptions about future cash flows resulting from our franchise and license agreements.
Intangible assets subject to amortization (primarily franchise agreements, reacquired franchise rights and a favorable lease portfolio intangible asset recognized in the purchase of Jamba Juice in 2006) 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. Estimated useful lives for the franchise agreements are 13.4 years. The useful life of reacquired franchise rights is the remaining term of the respective franchise agreement. The useful life of the favorable lease portfolio intangible is based on the related lease term.
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 operations 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 is 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. If our revenue for certain leases increases, it would result in higher contingent rent expense.
Jambacard Revenue Recognition
We sell our jambacards to our customers in our retail stores and through our website at www.jambajuice.com. Our jambacards do not have an expiration date. We recognize 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 â€śbreakageâ€ť) and we determine that we do not have a legal obligation to remit the value of unredeemed jambacards to the relevant jurisdictions. We determine the jambacard breakage amount based upon historical redemption patterns. We have concluded that after three years of inactivity the likelihood of redemption becomes remote and we recognize breakage at that time. Jambacard breakage income is included in other operating, net in the consolidated statements of operations. If the historical redemption pattern changes, our financial statements could be materially affected.
We have sold jambacards since November of 2002. The jambacard works as a reloadable gift or debit card. At the time of the initial load, in an amount between $5 and $500, we record an obligation that is reflected as jambacard liability on the consolidated balance sheets. We relieve the liability and record the related revenue at the time a customer redeems any part of the amount on the card. The card does not have any expiration provisions and is not refundable, except as otherwise required by law.
We are self-insured for healthcare benefits. The estimated accruals for these liabilities are based on statistical analyses of historical industry data as well as actual historical trends. For our workersâ€™ compensation benefits, we were self-insured for existing and prior yearsâ€™ exposures through September 30, 2008. Liabilities associated with the risks that we retain for workers compensation benefits are estimated in part, by considering historical claims experience, demographic factors, severity factors, and other actuarial assumptions.
If actual claims experience differs from our assumptions, historical trends, and estimates, changes in our insurance reserves would impact the expense recorded in our consolidated statements of operations.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the enactment date. In establishing deferred income tax assets and liabilities, we make judgments and interpretations based on enacted tax laws and published tax guidance applicable to our operations. We record deferred tax assets and liabilities and evaluate the need for valuation allowances to reduce deferred tax assets to amounts more likely than not of being realized. Changes in our valuation of the deferred tax assets or changes in the income tax provision may affect our annual effective income tax rate.
A valuation allowance is provided for deferred tax assets when it is â€śmore likely than notâ€ť that some portion of the deferred tax asset will not be realized. Because of our recent history of operating losses, we believe the recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, have maintained a full valuation allowance against our deferred tax assets as of January 3, 2012.
The benefits of uncertain tax positions are recognized as the greatest amount more than 50% likely of being sustained upon audit based on the technical merits of the position. On a quarterly basis, we review and update our inventory of tax positions as necessary to add any new uncertain tax positions taken, or to remove previously identified uncertain positions that have been adequately resolved. Additionally, uncertain positions may be re-measured as warranted by changes in facts or law. Accounting for uncertain tax positions requires significant judgments, including estimating the amount, timing and likelihood of ultimate settlement. Although we believe that these estimates are reasonable, actual results could differ from these estimates. We classify estimated interest and penalties related to the underpayment of income taxes as a component of income taxes in the consolidated statements of operations.
We account for share-based compensation based on fair value measurement guidance. The fair value of options granted is estimated at the date of grant using a Black-Scholes option-pricing model. Option valuation models, including Black-Scholes, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award.
These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award. The risk-free rate of interest is based on the zero coupon U.S. Treasury rates appropriate for the expected term of the award. Expected dividends are zero based on history of not paying cash dividends on our common stock. Expected volatility is based on a 75/25 blend of historic daily stock price observations of our common stock since our inception and historic, daily stock price observations of our peers (companies in our industry that are viewed as a â€śconceptâ€ť and a leader in the premium, specialty growth segment) during the period immediately preceding the share-based award grant that is equal in length to the awardâ€™s expected term. We make assumptions for the number of awards that will ultimately not vest (â€śforfeituresâ€ť) in determining the share-based compensation expense for these awards. We use historical data to estimate expected employee behaviors related to option forfeitures. We apply the guidance provided by the SEC Staff Accounting Bulletin No. 110 to determine expected life. Currently, there is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models or assumptions, nor is there a means to compare and adjust the estimates to actual values, except for annual adjustments to reflect actual forfeitures.
The fair value of restricted stock units is determined based on our closing stock price on the date of grant. These restricted stock units vest and become unrestricted three years after the date of grant. Share-based compensation expense is recognized ratably over the three-year service period for restricted stock units.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Key Overall Strategies
The BLEND Plan continues to guide the Companyâ€™s strategic plan to become a globally recognized healthy, active lifestyle brand. The key components of our plan for fiscal year 2012, are driving brand strength, improving store economics, accelerating store or unit development and expansion of our CPG program, and are captured in our BLEND Plan 2.0:
â€˘ make Jamba a top-of-mind healthy food and beverage brand;
â€˘ embody a healthy, active lifestyle at store level and broadly across the enterprise;
â€˘ accelerate global retail growth through new and existing formats;
â€˘ build a global CPG platform in Jamba-relevant categories; and
â€˘ pursue new ways to reduce costs and drive productivity.
Change in Fiscal Quarter
Effective for fiscal 2012, the Company changed the end of its fiscal quarters. Each quarter has 13 weeks, resulting in a 12 period fiscal year. Prior to fiscal 2012, the first quarter had 16 weeks and each of the three subsequent quarters had 12 weeks. The Companyâ€™s year-end continues to be the Tuesday closest to December 31.
The prior year comparative financial and other information reported in the financial statements herein continue to be presented based on our prior year fiscal quarter end calendar. Our results for the second quarter of fiscal 2012, which was the 13 week period ended July 3, 2012, are compared to our results for the second quarter of fiscal 2011, which was the 12 week period ended July 12, 2011. The comparison of these two quarters is primarily affected by the difference of one week between the second quarter of fiscal 2012 and the second quarter of 2011. There were 26 weeks in the first half of fiscal 2012 and 28 weeks in the first half of fiscal 2011. The most significant impacts of the fiscal quarter change occurred in the first fiscal quarter.
Although we have not submitted financial information for the 13 week period ended June 28, 2011 in this Form 10-Q, pro-forma information for the 13 week period for the prior year is included in the press release dated August 1, 2012.
2012 Second Quarter Business Highlights
During the 13 week period ended July 3, 2012, sales at system-wide Jamba Juice Stores opened more than one full fiscal year increased 5.7% reflecting increases of 5.1% for Company Stores and 6.4% for Franchise Stores. For Company Stores, this increase represents the seventh consecutive fiscal quarter of Company Store comparable sales growth. The increase in Company Store comparable sales during the quarter was largely attributable to improved traffic and an average check increase which also reflected a price increase. We also achieved growth in Company same store sales for all day parts.
We continue to drive repeat and habitual traffic with our product and menu expansion. During the quarter, we introduced our Make It Lightâ„˘ versions of our top 10 classic smoothie beverages, which contain one-third fewer calories, carbohydrates and sugar than the original recipes. For the summer season, we reintroduced our product line of Fruit Refreshers, including a new flavor, Watermelon Splashâ„˘. Our Fruit Refreshers are made with coconut water and whole fruit and deliver the natural hydration benefits of coconut water and have essential electrolytes. After doubling the number of juice blend flavors to six in Phase One of our fresh juice initiative, we continued our work in anticipation of Phase Two. We intend to launch a new juice bar concept, which will be tested in a selection of Jamba Juice Stores.
During the quarter, we took a leadership position to inspire a healthy, active lifestyle by announcing the formation of the JambaÂ® Healthy Living Council (the â€śCouncilâ€ť). The Council was established with the goal to provide consumers with useful, practical information to help them live a healthier lifestyle. The Council is comprised of nationally renowned nutrition and dietary experts who will work with Jamba to create healthy living education materials, online content for Jambaâ€™s website, develop school nutrition outreach initiatives, advise management on nutrition trends, and provide input on new menu concepts and healthy choice options as we continue to evolve our product line.
As part of raising awareness around the importance of healthy active lifestyles, we entered into an agreement with Competitor Group, Inc., a leading active lifestyle sports media and event entertainment company, to be the â€śOfficial Blended Fruit Beverage and Smoothieâ€ť sponsor of seven events in the popular Rockâ€™nâ€™Roll Marathon series. The Organic Center, the leading research and education institute focused on the science of organic food and farming, pledged along with other partners including the WNBA, National PTA, USA Water Polo, the Golden State Warriors and nutrition expert Tara Gidus, to support our annual Team Up for a Healthy Americaâ„˘ program to raise awareness of the nationâ€™s obesity epidemic, by encouraging individuals to make weekly pledges to live a healthier lifestyle. In addition, international tennis star Venus Williams is the spokesperson for our Team Up for a Healthy America campaign.
In order to deepen the education and nutritional expertise available to consumers in our stores, we have launched a â€śMaster of Blending Artsâ€ť (MBA) program. We believe the program will elevate the customer experience of Jamba as a premier provider of healthy lifestyle products by advancing our team members knowledge in product nutrition, the benefits of juice and juicing, and their expertise in custom beverage creation. In addition, we have developed and are currently testing new service standards called BOOST. We intend to roll out our BOOST service standards to create a unique and memorable experience for each customer at the start of 2013. We remain focused on opportunities to refine our promotional and communication efforts to drive traffic, build loyalty and to make Jamba a top-of-mind healthy food and beverage brand.
We continue to grow our restaurant concept primarily through the development of new Franchise Stores. As of July 3, 2012, the Jamba system is comprised of approximately 61% Franchise Store locations and 39% Company Store locations globally.
During the 13 week period ended July 3, 2012, franchisees developed and opened seven new Franchise Stores, consisting of three traditional stores and four non-traditional stores. We expect to open 40 to 50 stores in fiscal 2012 primarily through franchises. The actual number of openings may differ from our expectations due to various factors, including franchisee access to capital and economic conditions.
During the quarter, international tennis star and Jamba franchise owner Venus Williams opened two stores in the Washington D.C. area at Dupont Circle and Union Station. Ms. Williams is a member of the Washington Kastles, a Washington D.C. professional tennis team and is a long-time philanthropist and supporter of academic enrichment and sports programs in the Washington, D.C. community.
The expansion of our new growth concept, JambaGo TM , continued to progress in K-12 schools, convenience stores and other locations during the quarter. This innovative "stationâ€ť concept utilizes compact technology to serve smoothies in select flavors using pre-packaged ingredients. This concept will enable us to provide a healthy alternative for schools seeking solutions to combat childhood obesity.
During July 2012, we accelerated our initiative for launching JambaGo in schools. In partnership with the National Dairy Council, we unveiled a new fruit and dairy beverage for K-12 schools at the School Nutrition Association conference in Denver. As of July 3, 2012, there were 130 JambaGo locations and we expect to open 400 to 500 locations during fiscal 2012.
During the 13 week period ended July 3, 2012, our master developers opened a total of six international locations, one in South Korea, four in Canada and one in the Philippines. We expect to open up to 15 international locations during fiscal 2012 and continue to actively pursue international development opportunities.
As of July 3, 2012, we had 783 Jamba Juice stores, globally, represented by 305 Company Stores and 448 Franchise Stores in the United States, and 30 International Stores.
During the 13 week period ended July 3, 2012, our Company Store-level margins increased 260 basis points as compared to the prior year period primarily due to continued improvements in cost of sales, labor and leverage in our fixed costs as a result of our comparable store sales growth. This improvement comes despite commodity pricing pressure, particularly in areas such as dairy and fuel. We continue to focus on cost savings initiatives to help mitigate commodity price increases. We also continue to refine our labor deployment and service tools to ensure efficient service to our customers.
Consumer Packaged Goods
We continue to shift our business model to assume more control over development, manufacturing, distribution and ultimately gain more of the profit pool. In June 2012, we finalized an agreement with Nestle to acquire the product formulation and intellectual property for the Jamba All-Natural Energy Drink. As part of our strategic goal to accelerate our consumer products platform, we have started to expand distribution of the energy drink beyond the Northeast where Nestle initially focused. We have made arrangements with several retailers with national presence to increase the distribution of the Jamba All-Natural Energy Drink.
Our Jamba-branded CPG product line was expanded during the quarter by the addition of two new varieties of dried Apple Chips, two new varieties of Multigrain Crisps, two new varieties of the at-home blend-and-serve smoothie kit and four new varieties of Wraps. We had approximately 40 individual Jamba products at retail distribution points across all 50 states. We believe extending the Jamba brand into mass retail by continued development of CPG solutions provides significant growth opportunities.
Cost of sales
Cost of sales is mostly comprised of fruit, dairy, and other products used to make smoothies and juices, paper products, costs related to managing our procurement program and vendor rebates. As a percentage of Company Store revenue, cost of sales decreased to 22.3% for the 13 week period ended July 3, 2012, compared to 22.9% for the 12 week period ended July 12, 2011. The decrease of cost of sales as a percentage of Company Store revenue was primarily due to a net favorable product mix shift (approximately 0.7%) partially offset by increases in commodity costs (approximately 0.2%). Cost of sales for the 13 week period ended July 3, 2012 was $14.0 million compared to $12.8 million for the 12 week period ended July 12, 2011. The change from a 12 week second quarter in fiscal 2011 to a 13 week second quarter in fiscal 2012 has resulted in an increase in Company Stores cost of sales attributed to the quarter.
Labor costs are comprised of store management salaries and bonuses, hourly team member payroll, training costs and other associated fringe benefits. As a percentage of Company Store revenue, labor costs decreased to 27.4% for the 13 week period ended July 3, 2012, compared to 29.7% for the 12 week period ended July 12, 2011. The 2.3 % decrease of labor costs as a percentage of Company Store revenue was primarily due to labor efficiencies, improved sales volumes and more effective wage management achieved. Labor costs for the 13 week period ended July 3, 2012 were $17.1 million, an increase of $0.5 million, or 3.2%, compared to $16.6 million for the 12 week period ended July 12, 2011. The change from a 12 week second quarter in fiscal 2011 to a 13 week second quarter in fiscal 2012 has resulted in an increase in Company Stores labor costs partially offset by labor efficiencies, improved sales volumes and more effective wage management.
Occupancy costs include both fixed and variable portions of rent, common area maintenance charges, property taxes, licenses and property insurance for all Company Store locations. As a percentage of Company Store revenue, occupancy costs decreased to 11.7% for the 13 week period ended July 3, 2012, compared to 12.0% for the 12 week period ended July 12, 2011. The decrease in occupancy costs as a percentage of Company store revenue was primarily due to the impact of leverage as a result of the increase in Company Store comparable sales (approximately 0.2%). Occupancy costs for the 13 week period ended July 3, 2012 were $7.3 million, an increase of $0.6 million, or 8.9%, compared to $6.7 million for the 12 week period ended July 12, 2011. The change from a 12 week second quarter in fiscal 2011 to a 13 week second quarter in fiscal 2012 has resulted in an increase in Company Stores occupancy expenses attributable to the quarter.
Store operating expenses consist primarily of various store-level costs such as utilities, marketing, repairs and maintenance, credit card fees and other store operating expenses. As a percentage of Company Store revenue, total store operating expenses increased to 14.3% for the 13 week period ended July 3, 2012, compared to 13.7% for the 12 week period ended July 12, 2011. The increase in total store operating expenses as a percentage of Company Store revenue was primarily due to an increase in marketing expense (approximately 0.5%) and increased credit card usage as a percentage of Company Store sales (approximately 0.3%) partially offset by leverage gained as a result of higher sales (approximately 0.2%). Total store operating expenses for the 13 week period ended July 3, 2012 were $9.0 million, an increase of $1.3 million, or 16.8%, compared to $7.7 million for the 12 week period ended July 12, 2011. The change from a 12 week second quarter in fiscal 2011 to a 13 week second quarter in fiscal 2012 has resulted in an increase in Company Stores operating expenses attributable to the quarter.
Depreciation and amortization
Depreciation and amortization expenses include the depreciation of fixed assets and the amortization of intangible assets. As a percentage of total revenue, depreciation and amortization decreased to 4.3% for the 13 week period ended July 3, 2012, compared to 4.9% for the 12 week period ended July 12, 2011. The decrease in depreciation and amortization as a percentage of total revenue was primarily due to the impact of leverage as a result of the increase in Company Store comparable sales (approximately 0.3%). Depreciation and amortization for the 13 week period ended July 3, 2012 was $2.8 million, a decrease of $0.1 million, or 1.6%, compared to $2.9 million for the 12 week period ended July 12, 2011 was primarily due to a net decrease in the number of Company Stores and related assets resulting in a reduction in the carrying value of Company Store fixed assets, partially offset by the change from a 12 week second quarter in fiscal 2011 to a 13 week second quarter in fiscal 2012. The number of Company Stores as of July 3, 2012 and July 12, 2011 was 305 and 310, respectively.
General and administrative
General and administrative (â€śG&Aâ€ť) expenses include costs associated with our corporate headquarters in Emeryville, CA, field supervision, bonuses, outside and contract services, accounting and legal fees, travel and travel-related expenses, share-based compensation and other. As a percentage of total revenue, total G&A expenses increased to 16.4% for the 13 week period ended July 3, 2012 compared to 13.7% for the 12 week period ended July 12, 2011. Total G&A expenses for the 13 week period ended July 3, 2012 were $10.8 million, an increase of $2.8 million, or 34.6%, compared to $8.0 million for the 12 week period ended July 12, 2011. The increase of total G&A expenses was primarily due to semi-annual performance related incentives (approximately $2.0 million), fees resulting from accelerated investment in new and expanded growth initiatives (approximately $0.5 million) and the change to 13 weeks in the fiscal 2012 second quarter compared to 12 weeks in the fiscal 2011 second quarter (approximately $0.7 million ).
Impairment of long-lived assets
Long-lived assets are reviewed for impairment when indicators of impairment are present. Expected future cash flows associated with an asset, in addition to other quantitative and qualitative analyses, including certain assumptions about expected future operating performance and changes in economic conditions are the key factors in determining undiscounted future cash flows. If the sum of the undiscounted cash flows is less than the carrying value of the asset, we recognize an impairment loss equal to the amount by which carrying value exceeds the fair value of the asset.
Impairment of long-lived assets for the 13 week period ended July 3, 2012 was $0.2 million, a decrease of $0.1 million, or 46.3%, compared to $0.3 million for the 12 week period ended July 12, 2011. The decrease of impairment charge for long-lived assets was primarily due to fewer underperforming stores that had not been previously partially impaired compared to the prior year period.
Other operating, net
Other operating, net consists primarily of gain or loss on disposals, income from jambacard breakage, store lease termination and closure costs, pre-opening costs and franchise related expense, net. For the 13 week period ended July 3, 2012, other operating, net was income of $0.2 million, compared to income of $0.1 million for the 12 week period ended July 12, 2011. The increase in income is primarily due to lower loss on disposal of fixed assets (approximately $0.3 million), a reduction in the estimated charges for sales tax audits (approximately $0.2 million) and lower pre-opening costs (approximately $0.1 million); partially offset by lower jambacard breakage, net of related expense (approximately $0.3 million) and higher franchise related expense, net (approximately $0.2 million).
Karen L. Luey - Chief Financial Officer, Principal Accounting Officer, Chief Administrative Officer, Executive Vice President and Secretary
Thank you, operator, and good afternoon. With me on today's call is James D. White, our Chairman, President and CEO.
During today's call, I will review our second quarter financial results. James will follow with an update on our BLEND Plan 2.0 initiative and accomplishments. We will then open up the call for questions. I would like to remind all listeners that this call is being broadcast and recorded live over the Internet at jambajuice.com. The webcast is available on our website, and a replay will be available via telephone until August 22, 2012.
This conference call will include forward-looking statements within the meanings of the securities law. These forward-looking statements will include statements about the company's strategic priorities, and certain statements of our expectation and plans. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements that are contained in the company's filings with the SEC, including the Risk Factors section in our Form 10-K. The company does not assume any obligation to publicly release any revision to the forward-looking statements discussed during the call.
With that said, I'd like to turn it over to James.
James D. White - Chairman, Chief Executive Officer and President
Thank you, Karen, welcome to our second quarter call. On our last earnings call, I said that increases in our same-store sales were continuing in the start of our second quarter. For the second quarter though, same-store sales gains position Jamba as a leader in our peer group, with year-to-date performance that led us to increase our guidance for 2012. So we have some good results to review today. I'll highlight some of the quarterly accomplishments and then expand on a few of them later.
Our same-store sales now have been positive for 7 consecutive quarters for company-owned stores and 2 full years for our franchise stores. The increases in Q2 were 5.1% for company stores, 6.4% for franchise units. Systemwide, the increase was 5.7%. Both improved traffic and higher average check drove the increases in all day parts. The store profitability improved by 270 basis points to 24.3%. Our balance sheet remains strong with 0 debt and almost $29 million in cash. All strategic initiatives in our BLEND Plan 2.0 are in place and helping accelerate our growth.
Product and menu innovation move forward significantly around our expanded Make It Light, line-up of lower calorie smoothies, the return of our better-for-you Fruit Refresher beverages made with whole fruit and coconut water, featuring a summertime watermelon flavor and our expanded offering of fresh juice blends. We have 130 locations served by JambaGo units at the end of the second quarter. We're now accelerating this initiative and plan 400 to 500 by year end. Our milestone partnership with the National Dairy Council resulted in a fruit and dairy beverage for K-12 schools that combines the benefits of fat-free milk with real fruit and a naturally sweetened great-tasting smoothie.
Our target for JambaGo now has moved up to 1,500 by the end of 2013. Our international units have reached 30 and are on track to reach our annual target of 10 to 15 locations. Our CPG platform is now strengthened with our acquisition of the intellectual property and planned relaunch of Jamba Energy and the opportunistic expansion of Talbott Teas. CPG revenue is on track to reach around $3 million this year. Our unrelenting focus on taking cost out of the system and managing our cost structure continue to yield excellent results.
With that overview, I'll now ask Karen to take us through the financials.
Karen L. Luey - Chief Financial Officer, Principal Accounting Officer, Chief Administrative Officer, Executive Vice President and Secretary
Thank you, James. The press release that was issued today has comparisons against prior-year GAAP results and prior-year pro forma results. The 10-Q, which will be filed on or around August 2, 2012, will only include comparisons against prior-year GAAP results. The pro forma results compare the 13-week quarter of 2012 to the comparable 13-week period in 2011. A supplemental schedule was provided in today's press release. I will focus most of my comments on the pro forma comparison. We continue to make progress on strengthening the financial health of our company especially in our core restaurant business and it is reflected in our second quarter results. Our quarter-over-quarter comparisons on both the GAAP and pro forma basis reflects significant improvement in comparable same-store sales, total revenue, 4-wall store margins, adjusted operating profit, and we continue to improve on our bottom-line results.
Our restaurant business is strengthening and it's reflected in our improved of 4-wall store results which includes Company Store revenue less total Company Store expenses of cost of sales, labor, occupancy and other store operating expenses. Our store level profitability on a pro forma basis improved by $2.1 million to $15.1 million or 24.2% of Company Store revenue for the second quarter of 2012. That's compared to $13 million or 21.5% of Company Store revenue from the prior year. The 270 basis point improvement in 4-wall store margin is attributable to our company same-store sales increase of 5.1% and the continued disciplined focus on all expenses.
And as a result of our strong performance by our company and franchise stores, our pro forma adjusted operating profit improved by 280 basis points or $2.5 million to $18.6 million or 28.2% of total revenue from $16.1 million or 25.4% of total revenue in the prior-year same quarter. We feel confident that the full year guidance of adjusted operating profit of 20% to 23% is achievable.
Net income for the second quarter on a pro forma basis improved by $1 million to $4.6 million or $0.05 per diluted share. Total revenue for the second quarter increased 3.7% to $66 million and Company Store revenue increased 3.2% to $62.5 million as compared to the prior-year pro forma quarter. Across our entire system, we showed increases in comparable store sales for the second quarter. Our company comparable store sales increased 5.1% and franchise comparable store sales increased 6.4%. The results of our company comparable store sales increase included a 90-basis point increase in traffic and a 420-basis point increase due to average check.
We continue to accelerate the strategy to expand our menu to create more products that are relevant and habitual to our consumer. During the quarter, we introduced our Make It Light platform which includes 10 classic smoothie flavors with 1/3 less calories in addition to our new juice blend lineup. We've continued to reflect positive same-store sales in all 4 day parts and our attachment rate for beverage with another item was approximately 20% for the second quarter of 2012.
Our franchise and other revenue for the second quarter increased by 13.2% to $3.5 million compared to $3.1 million from the pro forma prior-year quarter. The increase was attributable to royalties related to the increase in franchise comparable store sales and the number of franchise stores. Our CPG revenue was $300,000 for the quarter and we remain on track to achieve our annual guidance of $3 million in CPG revenue.
The outstanding performance for the first half of the year in driving same-store sales and adjusted operating profit, while successfully keeping G&A in line with our budget, resulted in a performance compensation accrual in the second quarter of $2 million. Similar to the last year, our performance compensation plan divides the year into half. This accrual aligns with the overall company budget and our full year guidance for G&A is unchanged.
As we strengthened our overall business, we also began to accelerate our growth initiative by strategically investing in infrastructure and research and development of new opportunities. With the school season about to begin, we deployed additional resources to be able to capture the opportunities with our JambaGo platform. Our presence at the school Nutrition Association in mid-July garnered significant interest and we will have at least 400 to 500 locations by the end of this year.
In the prior-year same quarter, under a similar performance compensation plan, the targets were not achieved, therefore the accrual recorded was $300,000. Compared to the prior year, our base G&A excluding the compensation accrual was slightly better than the prior-year same quarter. For the full year, our effective tax rate is 6.5%, and we continue to have a full valuation allowance against our deferred tax assets.
Our cumulative federal net operating loss at the end of the quarter was $116 million. We can and will utilize our tax NOLs to offset federal and state income taxes. Although we are forecasting to be an Alternative Minimum Tax position, where full NOLs cannot be utilized. Of the $450,000 tax adjustment recorded in the second quarter, about half related to the reversal of the tax benefit recognized in the first quarter.
Our balance sheet remains strong with almost $29 million in cash and cash equivalents and no debt at the end of the quarter. Our capital expenditures for the quarter were $900,000 related to maintenance capital, revenue-driving initiatives and investments in our information technology platforms. There was no activity under the redeemable preferred stock, and the outstanding convertible shares at the end of the quarter remains the same at 168,389 convertible shares. Although we did not draw on the senior revolving credit line, we did use it to collateralize several letters of credit that were formerly collateralized by cash.
With that said, I'd like to turn the call back to James.
James D. White - Chairman, Chief Executive Officer and President
Thanks, Karen. Let me start by saying that our new BLEND Plan 2.0 strategic initiatives are demonstrating their power. As I've mentioned, our strong performance in Q1 and Q2 led us to raise our guidance for the year. We now anticipate same-store sales of 4% to 6%, up from 3% to 5%; and an increase in our adjusted operating profit to 20% to 23%, up from 19% to 22%.
We feel very good about this progress and about our initiatives that focus on 5 areas for accelerated, sustainable growth, making Jamba a top-of-mind healthy food and beverage brand, embodying a healthy active lifestyle in our stores and throughout our entire enterprise; accelerating global retail growth through new and existing formats; building CPG as a global platform in relevant Jamba categories; and pursuing new ways to reduce cost and increase productivity.
Since these strategies extend the plan that guided us for the last 3 years, we did move quickly from development to marketing with several efforts. As I noted, our lower calorie Make It Light smoothies now offer all 10 of our classic smoothies with 1/3 fewer calories, less sugar and lower carbohydrates. Our Fruit Refreshers with coconut water and whole fruit are a great way to quench thirst, provide hydration and get essential vitamin C. Watermelon is a new summer flavor for our Refreshers, as well as our Yogurt platform. And our fresh juice blends offer fresh squeezed juices with at least 2 full servings of fruit or vegetables in 16 ounces. And there will be more innovative products with good-for-you benefits coming.
During the quarter, we launched the Jamba Healthy Living Council. This advisory team of renowned nutrition and dietary experts will develop nutrition outreach materials and provide input on new menu concepts and healthy choice options for the evolving Jamba product line. Importantly, they will be major contributors in Jamba's effort to fight against obesity and foster healthy active lifestyles. Supporting this effort will be a number of summer promotions highlighted by a summer sweepstakes that offers the chance to join Venus Williams at a major tennis event as the grand prize. We are also deepening the nutritional expertise available to consumers with our unique MBA program, our Masters of Blending Arts. This program advances knowledge of Jamba team members in product nutrition, the benefits of juice and juicing and their expertise in creating custom beverages.
The focus of our Associates and across-the-board initiative, we've developed new systems improved productivity in our stores and labor cost as a percent of sales continue to decrease. We have increased our efforts with innovative technology like PayPal, Google Wallet and Isis. We have significantly improved our customer engagement programs to assure top consumer service and satisfaction and we're encouraging all Associates to become active and engaged in our community efforts that foster active healthy lifestyles.
One of our related efforts is participation in the National 2012 Summer Jobs Plus campaign, a nationwide effort led by President Obama and the Department of Labor to curb youth unemployment. This summer, we're hiring 2,500 youngsters so they can gain the skills and work experience that will help them get started with their careers. Reaching youngsters is also an important aspect of our JambaGo express units that we're placing in K-12 schools. We deployed 130 units by the end of Q2. During the year, our accelerated schedule calls for the deployment of 400 to 500 JambaGos that will provide a healthy alternative for schools seeking solutions to combat the epidemic of juvenile obesity throughout the country.
We believe JambaGo represents a win-win-win, it provides great tasting smoothies that children love, a wonderful healthy alternative to fight obesity and a good investment for Jamba. During the quarter, we initiated a collaborative effort with the National Dairy Council to create an entirely new beverage that we announced just last month. It uses our fruit expertise and the Dairy Council's knowledge to combine fat-free milk with nutrient-rich fruit for a naturally sweetened smoothie that's receiving high marks from nutritionists. This innovative product will be added to the JambaGo platform and over time, to our stores and the CPG channels. In addition to schools, JambaGo will also be installed in convenience stores, colleges, entertainment centers and other locations. We now think the number of JambaGo installations could reach 1,500 by the end of 2013.
In addition to new formats, we continue to accelerate our retail growth with the addition of 3 traditional and 4 nontraditional stores in the U.S. Internationally, we added 4 stores in Canada, 1 in South Korea and another in the Philippines. Our international growth has been remarkable, going from 0 to 30 stores in 1.5 years. For 2012, we're on target to open up the 15 units internationally and 40 to 50 in the U.S. We recently signed 8 new franchise development agreements that will broaden our presence in the central and eastern regions of the U.S., adding a total of 32 stores over the next 5 to 7 years.
Beyond our retail growth, we also continue to sharpen our marketing efforts which are doing a better job of focusing on driving traffic, building loyalty and making our brand more relevant to more people. Our revamped menu offerings are supporting food combinations and pairings. These ongoing efforts will be a key contributor to our accelerated growth. We're looking forward to the national relaunch of our All Natural Energy Drink, the expansion of SKUs and our recently acquired premium line of Talbott Tea and CPG revenue increases across the board.
So Q2 was strong and we see good progress ahead. As a result, we did raise our guidance during the quarter. We now expect to deliver positive company comparable store sales of 4% to 6%; achieve adjusted operating profit margins of 20% to 23%; develop 40 to 50 new stores in the U.S. and build up to 15 new stores internationally, plus 400 to 500 JambaGo units; maintain general and administrative expenses flat in dollars with fiscal 2011, excluding performance compensation; and deliver CPG licensing revenue of approximately $3 million. As I said, I'm very pleased with Jamba's results and achievements.
We continue to create new ways to build on our heritage and transform Jamba into a leading, global, healthy lifestyle brand. We have an exceptional brand franchise, focused strategy and talented and disciplined organization. And as I always say, promises made will be kept.
Before I conclude, I'd like to welcome our new partners in the U.S. and around the world to the Jamba family. I also would like to thank Jamba team members and franchise operators across the system for their continuing efforts to build our company and deliver outstanding service to our customers.
I will now turn the call over to the operator so that we can open up the call for questions.