VARIABLE INTEREST ENTITIES (“VIEs”)

We formed Jack in the Box Franchise Finance, LLC (“FFE”) for the purpose of operating a franchisee lending program which may provide up to $100.0 million to assist Jack in the Box franchisees in re-imaging their restaurants. We are the sole equity investor in FFE. The $100.0 million lending program is comprised of a $20.0 million commitment from the Company in the form of a capital note and an $80.0 million Senior Secured Revolving Securitization Facility (“FFE Facility”) entered into with a third party. The FFE Facility is a revolving loan and security agreement bearing a variable interest rate. The revolving period expired in June 2012 and we do not plan to make any future contributions.

We have determined that FFE is a VIE and that the Company is its primary beneficiary. We considered a variety of factors in identifying the primary beneficiary of FFE including, but not limited to, who holds the power to direct matters that most significantly impact FFE’s economic performance (such as determining the underwriting standards and credit management policies), as well as what party has the obligation to absorb the losses of FFE. Based on these considerations, we have determined that the Company is the primary beneficiary and have reflected the entity in the accompanying condensed consolidated financial statements.

FFE’s assets consolidated by the Company represent assets that can be used only to settle obligations of the consolidated VIE. Likewise, FFE’s liabilities consolidated by the Company do not represent additional claims on the Company’s general assets; rather they represent claims against the specific assets of FFE. The impacts of FFE’s results were not material to the Company’s condensed consolidated statements of earnings or cash flows. The FFE’s balance sheet consisted of the following at the end of each period (in thousands):



	July 8, 2012			October 2, 2011
Cash	$	707		$	531
Other current assets (1)	2,286			2,086
Other assets, net (1)	11,876			12,292
Total assets	$	14,869		$	14,909

Current liabilities	$	89		$	140
Revolving credit facility	—			1,160
Other long-term liabilities (2)	15,248			14,046
Retained earnings	(468		)	(437		)
Total liabilities and stockholders’ equity	$	14,869		$	14,909

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(1)	Consists primarily of amounts due from franchisees.


(2)	Consists primarily of the capital note contributions from Jack in the Box which are eliminated in consolidation.

The Company’s maximum exposure to loss is equal to its outstanding contributions, which were approximately $15.2 million as of July 8, 2012. This amount represents estimated losses that would be incurred should all franchisees default on their loans without any consideration of recovery. To offset the credit risk associated with the Company’s variable interest in FFE, the Company holds a security interest in the assets of FFE subordinate and junior to all other obligations of FFE.