13. VARIABLE INTEREST ENTITIES

In accordance with the applicable accounting guidance for the consolidation of variable interest entities, we analyze our variable interests, including loans, guarantees and equity investments, to determine if an entity in which we have a variable interest is a variable interest entity. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the forecasted cash flows of the entity, and our qualitative analysis on our review of the design of the entity, its organizational structure including decision-making ability, and relevant financial agreements. We also use our qualitative analyses to determine if we must consolidate a variable interest entity because we are its primary beneficiary.

Variable Interest Entities Related to Our Vacation Ownership Notes Receivable Securitizations

We periodically securitize, without recourse, through bankruptcy remote special purpose entities, notes receivable originated in connection with the sale of vacation ownership products. These vacation ownership notes receivable securitizations provide funding for us and transfer the economic risks and substantially all the benefits of the loans to third parties. In a vacation ownership notes receivable securitization, various classes of debt securities issued by the special purpose entities are generally collateralized by a single tranche of transferred assets, which consist of vacation ownership notes receivable. We service the vacation ownership notes receivable. With each vacation ownership notes receivable securitization, we may retain a portion of the securities, subordinated tranches, interest-only strips, subordinated interests in accrued interest and fees on the securitized vacation ownership notes receivable or, in some cases, overcollateralization and cash reserve accounts.

We created these entities to serve as a mechanism for holding assets and related liabilities, and the entities have no equity investment at risk, making them variable interest entities. We continue to service the vacation ownership notes receivable, transfer all proceeds collected to these special purpose entities, and retain rights to receive benefits that are potentially significant to the entities. Accordingly, we concluded that we are the entities’ primary beneficiary and, therefore, consolidate them.

The following table shows consolidated assets, which are collateral for the obligations of these variable interest entities, and consolidated liabilities included on our Balance Sheet at June 19, 2015:


*($ in thousands)*	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Total
Consolidated Assets:
Vacation ownership notes receivable, net of reserves	$	547,158	$	—	$	547,158
Interest receivable		3,429		—		3,429
Restricted cash		36,879		138		37,017

Total	$	587,466	$	138	$	587,604

Consolidated Liabilities:
Interest payable	$	1,457	$	119	$	1,576
Debt		564,657		—		564,657

Total	$	566,114	$	119	$	566,233

The noncontrolling interest balance was zero. The creditors of these entities do not have general recourse to us.

The following table shows the interest income and expense recognized as a result of our involvement with these variable interest entities during the twelve weeks ended June 19, 2015:


*($ in thousands)*	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Total
Interest income	$	17,913	$	—	$	17,913
Interest expense to investors	$	3,950	$	321	$	4,271
Debt issuance cost amortization	$	697	$	280	$	977
Administrative expenses	$	45	$	25	$	70

The following table shows the interest income and expense recognized as a result of our involvement with these variable interest entities during the twenty-four weeks ended June 19, 2015:


*($ in thousands)*	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Total
Interest income	$	39,987	$	—	$	39,987
Interest expense to investors	$	8,656	$	634	$	9,290
Debt issuance cost amortization	$	1,414	$	565	$	1,979
Administrative expenses	$	152	$	67	$	219

The following table shows cash flows between us and the vacation ownership notes receivable securitization variable interest entities during the twenty-four weeks ended June 19, 2015 and June 20, 2014:


	Twenty-Four Weeks Ended
*($ in thousands)*	June 19, 2015		June 20, 2014
Cash inflows:
Net proceeds from vacation ownership notes receivable securitizations	$	—	$	22,638
Principal receipts		86,675		85,863
Interest receipts		41,549		42,236
Reserve release		2,345		1,524

Total		130,569		152,261

Cash outflows:
Principal to investors		(78,361)		(89,979)
Voluntary repurchases of defaulted vacation ownership notes receivable		(10,993)		(13,999)
Voluntary clean-up call		(54,020)		(26,722)
Interest to investors		(8,233)		(10,797)

Total		(151,607)		(141,497)

Net Cash Flows	$	(21,038)	$	10,764

The following table shows cash flows between us and the Warehouse Credit Facility variable interest entity during the twenty-four weeks ended June 19, 2015 and June 20, 2014:


	Twenty-Four Weeks Ended
*($ in thousands)*	June 19, 2015		June 20, 2014
Cash inflows:

Total	$	—	$	—

Cash outflows:
Interest to investors		(569)		(758)
Funding of restricted cash		(138)		—

Total		(707)		(758)

Net Cash Flows	$	(707)	$	(758)

Under the terms of our vacation ownership notes receivable securitizations, we have the right at our option to repurchase defaulted vacation ownership notes receivable at the outstanding principal balance. The transaction documents typically limit such repurchases to 15 to 20 percent of the transaction’s initial vacation ownership notes receivable principal balance. Our maximum exposure to loss relating to the special purpose entities that purchase, sell and own these vacation ownership notes receivable is the overcollateralization amount (the difference between the loan collateral balance and the balance on the outstanding vacation ownership notes receivable), plus cash reserves and any residual interest in future cash flows from collateral. In addition, we could be required to fund up to an aggregate of $10.0 million upon presentation of demand notes related to certain vacation ownerships notes receivable securitization transactions outstanding at June 19, 2015.

Other Variable Interest Entities

We have an equity investment in the Joint Venture, a variable interest entity that previously developed and marketed vacation ownership and residential products in Hawaii. We concluded that the Joint Venture is a variable interest entity because the equity investment at risk is not sufficient to permit it to finance its activities without additional support from other venture parties. We determined that we are not the primary beneficiary of the Joint Venture, as power to direct the activities that most significantly impact its economic performance is shared among the variable interest holders and, therefore, we do not consolidate the Joint Venture. In 2009, we fully impaired our equity investment in the Joint Venture and in certain notes receivable due from the Joint Venture and subsequently reduced the carrying value of our investment in those receivables to zero. Following the Joint Venture’s failure to pay promissory notes due in 2010 and 2011, the lenders initiated foreclosure proceedings with respect to unsold interests in the project. A sale was completed following a foreclosure auction, and on June 13, 2013, we received $7.4 million of cash as a partial repayment of our previously fully reserved receivables due from the Joint Venture. The Joint Venture’s obligations with respect to the remaining receivables have been terminated. At June 19, 2015, we had an accrual of $4.0 million for potential future funding obligations, representing our remaining expected exposure to loss related to our involvement with the Joint Venture exclusive of any future costs that may be incurred pursuant to outstanding litigation matters, including those discussed in Footnote No. 8, “Contingencies and Commitments.”