WOODBRIDGE LIQUIDATION TRUST The following discussion and analysis of changes in net assets and net assets in liquidation should be read in conjunction with the accompanying unaudited consolidated financial statements ofWoodbridge Liquidation Trust and the related notes thereto. The Trust, the Remaining Debtors, the Wind-Down Entity and the Wind-Down Subsidiaries, as used herein, are defined in Note 1 to the consolidated financial statements and are collectively referred to herein as "the Company". Forward-Looking Statements Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include, without limitation, financial guidance, and projections and statements with respect to expectation of future financial condition, changes in net assets in liquidation, cash flows, plans, targets, goals, objectives and performance of the Trust. Such forward-looking statements also include statements that are preceded by, followed by, or that include the words "believes", "estimates", "plans", "expects", "intends", "is anticipated", "will continue", "project", "outlook", "evaluate", "may", "could", "would", "should" and similar expressions, and all other statements that are not historical facts. All such forward-looking statements are based on the Trust's current expectations and involve risks and uncertainties which may cause actual results to differ materially from those set forth in such statements. Such risks and uncertainties include the amount of sales proceeds, timing of sales of real estate assets, timing and amount of funds needed to complete construction of single-family homes, amount of general and administrative costs, the number and amount of successful litigation and/or settlements and the ability to recover thereon, the amount of funding required to continue litigation, the continuing impact of the COVID-19 pandemic, interest rates, adverse weather conditions in the regions in which properties to be sold are located, economic and political conditions, changes in tax and other governmental rules and regulations applicable to the Trust and its subsidiaries and other risks and uncertainties identified in Part I. Financial Information, Item 1A. Risk Factors of the Company's Annual Report on Form 10-K, or contained in any of the Trust's subsequent filings with theSEC including in Part II. Other Information, Item 1A. Risk Factors of this Form 10-Q. These risks and uncertainties are beyond the ability of the Trust to control, and in many cases, the Trust cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. In connection with the "safe harbor" provisions of the Securities Act of 1933 and the Exchange Act, the Trust has identified and is disclosing important factors, risks and uncertainties that could cause its actual results to differ materially from those projected in forward-looking statements made by the Trust, or on the Trust's behalf. (See "Part II. Other Information, Item 1A. Risk Factors" of this Form 10-Q.) These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of the Trust's subsequent filings with theSEC . Because of these factors, risks and uncertainties, the Trust cautions against placing undue reliance on forward-looking statements. Although the Trust believes that the assumptions underlying forward-looking statements are currently reasonable, any of the assumptions could be incorrect or incomplete, and there can be no assurance that forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date on which they are made. Except as may be required by law, the Trust does not undertake any obligations to modify, update or revise any forward-looking statement to take into account or otherwise reflect subsequent events, corrections in or revisions of underlying assumptions, or changes in circumstances arising after the date that the forward-looking statement was made.
Overview
Pursuant to the Plan, the Trust was formed onFebruary 15, 2019 to hold, either directly or indirectly through the Wind-Down Entity and the Wind-Down Subsidiaries, the assets and equity interests formerly owned by the Debtors. Each of the real properties formerly owned by the Debtors was, as ofFebruary 15, 2019 , owned by one of the Wind-Down Subsidiaries. The purpose of the Wind-Down Entity and the Wind-Down Subsidiaries is to develop (as applicable), market and sell those properties to generate cash. Assets formerly owned by the Debtors other than real estate assets and certain cash were transferred to the Trust. The purpose of the Trust is to receive remittances of cash from the Wind-Down Entity, to resolve disputed claims, to prosecute the Causes of Action, to pay allowed administrative and priority claims, as defined in the Plan, and, subject to the payment of Trust expenses and the retention of various reserves, to make distributions of cash to Interestholders in accordance with the Plan. 24
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Trust operates pursuant to the Plan and the Trust Agreement. The Trust was formed as aDelaware statutory trust and is administered by the Liquidation Trustee under the supervision of its Supervisory Board. The Wind-Down Entity, a wholly-owned subsidiary of the Trust, operates pursuant to the Plan and the Wind-Down Entity LLC Agreement. The Wind-Down Entity was formed as aDelaware limited liability company and is administered by itsBoard of Managers , one of which is the chief executive officer. One member of theBoard of Managers is also a member of the Supervisory Board of the Trust.The Bankruptcy Court has retained certain jurisdictions regarding the Trust, the Liquidation Trustee, the Supervisory Board, the Wind-Down Entity, theBoard of Managers , and assets of the Trust and the Wind-Down Entity, including the determination of all disputes arising out of or related to administration of the Trust and the Wind-Down Entity and its subsidiaries.
As of
Class of Interest Number Outstanding Class A Liquidation Trust Interests 11,516,439 Class B Liquidation Trust Interests 675,617 For each of the classes of Liquidation Trust Interests, the number of Liquidation Trust Interests outstanding will increase to the extent that the disputed claims become allowed claims. In addition, the number of Liquidation Trust Interests outstanding will decrease to the extent that disputed claims are settled by cancelling previously issued Liquidation Trust Interests. Since the Plan Effective Date throughMarch 31, 2022 , the Wind-Down Subsidiaries have disposed of approximately 143 properties for aggregate net sales proceeds of approximately$481.73 million . During the period fromApril 1, 2022 throughMay 13, 2022 , the Company did not sell any real estate assets. As ofMarch 31, 2022 , the Company owned seven real estate assets (including two single-family homes under construction) with a gross carrying value of approximately$100.54 million . Therefore, it is unlikely that the net proceeds for the three or nine months endedMarch 31, 2022 will be indicative of future net proceeds, which are likely to be significantly lower. In addition, it may take longer to sell the properties than the Company has estimated. The Company expects to complete the liquidation of its assets during the fiscal year endingJune 30, 2024 . 25
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Discussion of the Company's Operations
Three months ended
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the three months endedMarch 31, 2022 ($ in thousands): Restricted for All Qualifying Victims Interestholders Total Net assets in liquidation as of December 31, 2021 $
3,203 $ 124,302
Change in assets and liabilities: Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net
- - -
All Interestholders:
Change in carrying value of assets and liabilities, net - 8,266 8,266
Distributions (declared) reversed, net - (39,509 ) (39,509 )
Net change in assets and liabilities - (31,243 ) (31,243 )
Net assets in liquidation, as of March 31, 2022 $
3,203 $ 93,059
There was no change to Net assets in liquidation - Restricted for Qualifying
Victims during the three months ended
Net assets in liquidation - All Interestholders decreased by approximately
The components of the approximately
Restricted for All
Qualifying Victims Interestholders Total
Other settlement recoveries recognized, net (1) $ - $ 445 $ 445
Remeasurement of assets and liabilities, net - 7,627 7,627
Other - 194 194
Change in carrying value of assets and liabilities, net $ - $ 8,266 $ 8,266 (1) Net of the 5% payable to the Liquidation Trustee of approximately
thousands).
During the three months ended
o Declared a distribution of
approximately
o Sold the rest of the gold Forfeited Assets for net proceeds of approximately
$0.12 million .
o Completed construction of one single-family home (642
o Settled one secured loan for net proceeds of approximately
o Signed agreements to settle other Causes of Action for payment to the Trust of
approximately
o Paid construction costs of approximately
single-family homes under development.
o Paid holding costs of approximately
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
o Paid general and administrative costs of approximately
approximately
$1.84 million of payroll and other general and administrative costs and approximately$2.03 million of professional fees.
For the three months ended
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the three months endedMarch 31, 2021 ($ in thousands): Restricted for All Qualifying Victims Interestholders Total Net assets in liquidation as of December 31, 2021 $ - $ 210,476$ 210,476
Change in assets and liabilities: Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net
3,459 - 3,459
All Interestholders:
Change in carrying value of assets and liabilities, net - 1,974 1,974
Distributions (declared) reversed, net - (49,958 ) (49,958 )
Net change in assets and liabilities - (47,984 ) (47,984 )
Net assets in liquidation, as of March 31, 2021 $ 3,459 $ 162,492 $ 165,951 Net assets in liquidation - Restricted for Qualifying Victims increased by
approximately
Net assets in liquidation - All Interestholders decreased approximately$47.98 million during the three months endedMarch 31, 2021 . This decrease was due to changes in the carrying value of assets and liabilities, net of approximately$1.97 million and distributions (declared) reversed, net of approximately$49.95 million . The components of the approximately$3.46 million and$1.97 million net change in the carrying value of assets and liabilities, net are as follows ($ in thousands): Restricted for All Qualifying Victims Interestholders Total Recognition of Forfeited Assets $ 3,459 $ -$ 3,459 Remeasurement of assets and liabilities, net - 2,473 2,473 Other settlement recoveries recognized, net (1) - 1,326 1,326 Carrying value in excess of sales proceeds - (1,900 ) (1,900 ) Other - 75 75 Change in carrying value of assets and liabilities, net $ 3,459 $ 1,974$ 5,433
(1) Net of the 5% payable to the Liquidation Trustee of approximately
thousands).
During the three months ended
o Declared a distribution of
approximately
o Signed agreements to settle other Causes of Action for payment to the Trust of
approximately
o Recorded Forfeited Assets with an estimated net realizable value of
approximately
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
o Paid construction costs of approximately
single-family homes under development.
o Paid holding costs of approximately
o Paid general and administrative costs of approximately
approximately
$1.90 million of payroll and other general and administrative costs and approximately$2.18 million of professional fees.
Nine months ended
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the nine months endedMarch 31, 2022 ($ in thousands): Restricted for All Qualifying Victims Interestholders Total Net assets in liquidation as of June 30, 2021 $ 3,167 $ 126,373$ 129,540
Change in assets and liabilities: Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net
36 - 36
All Interestholders:
Change in carrying value of assets and liabilities, net - 45,922 45,922
Distributions (declared) reversed, net - (79,236 ) (79,236 )
Net change in assets and liabilities - (33,314 ) (33,314 )
Net assets in liquidation, as of March 31, 2022 $ 3,203 $ 93,059 $ 96,262 Net assets in liquidation - Restricted for Qualifying Victims increased by
approximately
Net assets in liquidation - All Interestholders decreased by approximately
The components of the approximately$0.04 million and$45.92 million of the net change in carrying value of assets and liabilities are as follows ($ in thousands): Restricted for All Qualifying Victims Interestholders Total Causes of Action, net(1) : Comerica Bank $ - $ 23,575 23,575 Other settlement agreements - 1,777 1,777 Sales proceeds in excess of carrying value - 6,460 6,460 Remeasurement of assets and liabilities, net 36 13,428 13,464 Other - 682 682 Change in carrying value of assets and liabilities, net $
36 $ 45,922
(1) Net of the 5% payable to the Liquidation Trustee of approximately
Comerica Bank and$93 for other settlement agreements ($ in thousands). 28
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
During the nine months ended
o Declared two distributions, both of
approximately
o Sold the wine and the gold Forfeited Assets for net proceeds of approximately
$0.49 million .
o Completed construction of one single-family home (642
o Sold four single-family homes and settled two secured loans for net proceeds of
approximately
construction.
o Recorded approximately
actions against
Adversary Action.
o Signed agreements to settle other Causes of Action for payment to the Trust of
approximately
o Paid construction costs of approximately
single-family homes under development.
o Paid holding costs of approximately
o Paid general and administrative costs of approximately
including approximately
approximately
costs and approximately
For the nine months ended
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the nine months endedMarch 31, 2021 ($ in thousands): Restricted for All Qualifying Victims Interestholders Total Net assets in liquidation as of June 30, 2020 $ - $ 264,517$ 264,517
Change in assets and liabilities: Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net
3,459 - 3,459
All Interestholders:
Change in carrying value of assets and liabilities, net - 7,529 7,529
Distributions (declared) reversed, net - (109,554 ) (109,554 )
Net change in assets and liabilities - (102,025 ) (102,025 )
Net assets in liquidation, as of March 31, 2021 $ 3,459 $ 162,492 $ 165,951 Net assets in liquidation - Restricted for Qualifying Victims increased by
approximately
Net assets in liquidation - All Interestholders decreased approximately$102.02 million during the nine months endedMarch 31, 2021 . This decrease was due to changes in the carrying value of assets and liabilities, net of approximately$7.53 million and distributions (declared) reversed, net of approximately$109.55 million . 29
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The components of the approximately$3.46 million and$7.53 million change in the carrying value of assets and liabilities, net are as follows ($ in thousands): Restricted for All Qualifying Victims Interestholders Total Recognition of Forfeited Assets $ 3,459 $ -$ 3,459 Settlement recoveries recognized, net (1) - 8,013 8,013 Carrying value in excess of sales proceeds - (1,540 ) (1,540 ) Remeasurement of assets and liabilities, net - 2,775 2,775 Adjustment to insurance claim receivable - (1,900 ) (1,900 ) Other $ - $ 181$ 181 Change in carrying value of assets and liabilities, net $ 3,459 $ 7,529$ 10,988
(1) Net of the 5% payable to the Liquidation Trustee of approximately
thousands).
During the nine months ended
o Declared three distributions, two each of
Interest, which totaled approximately
o Sold five single-family home, two lots and eleven other properties for net
proceeds of approximately
under construction and the buyer assumed the remaining obligations to complete
the construction of the property of approximately
o Signed agreements to settle Causes of Action for payment to the Trust of
approximately
o Recorded Forfeited Assets with an estimated net realizable value of
approximately
o Paid construction costs of approximately
single-family homes under development.
o Paid holding costs of approximately
o Paid general and administrative costs of approximately
including approximately
approximately
costs and approximately
Liquidity and Capital Resources
Liquidity
The Company's primary sources for meeting its capital requirements are its cash and cash equivalents, availability under the LOC, proceeds from the sale of its real estate assets and recoveries from Causes of Action. The Company's primary uses of funds are and will continue to be for distributions, development costs, holding costs and general and administrative costs, all of which the Company expects to be able to adequately fund over the next twelve months from its primary sources of capital.
Capital Resources
In addition to consolidated cash and cash equivalents at
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) o Revolving Line of Credit: OnJune 19, 2020 , two wholly-owned subsidiaries of
the Wind-Down Entity entered into a
the LOC was amended. Two additional wholly owned subsidiaries of the Wind-Down
Entity were joined to the LOC as co-borrowers and two properties were added as
replacement collateral. The maturity date of the LOC was changed to
2023 with an option to extend for one additional year, subject to the
availability of collateral. The LOC required the borrowers to establish an
interest reserve of
monthly interest payments. Outstanding borrowings bear interest at a fixed rate
of 3.50% per annum. Indebtedness under the LOC is secured by a deed of trust
on two properties, the personal property associated therewith and the interest
reserve. The Wind-Down Entity is the guarantor of the LOC. The Company is
required to keep a cash balance of
order to avoid a non-compliance fee of 2% of the shortfall in the required
deposit and is required to comply with various covenants. No amounts were
outstanding under the LOC as of
o Sales of Real Estate Assets: The Wind-Down Entity and the Wind-Down
Subsidiaries are in the process of developing, marketing and selling their real
estate assets, all of which are held for sale. As of
Company owned a total of seven real estate assets with a gross carrying value
of approximately
concentrated in the three single-family homes. Four single-family homes were
under construction; two that are owned as of
in
ended
approximately
Company sold four single-family homes and settled two secured loans for net
proceeds of approximately
the three or nine months ended
proceeds, which are likely to be significantly lower. In addition, it may take
longer to sell the properties than the Company has estimated.
o Recoveries: During the three and nine months ended
recognized approximately
the settlement of Causes of Action. The recoveries for the three and nine
months ended
from settling Causes of Action in the future will be consistent with the amount
recovered during the three and nine months ended
Uses of Liquidity
The primary uses of the Company's liquidity are to pay (a) distributions payable, (b) development costs, (c) holding costs, and (d) general and administrative costs. As ofMarch 31, 2022 , the Company's total liabilities were approximately$47.50 million . The total liabilities recorded as ofMarch 31, 2022 may not be indicative of the costs paid in future periods, which may be significantly higher. Given current cash and cash equivalent balances, projected sales of real estate assets, availability under the LOC, Causes of Action recoveries, distributions declared and expected cash needs, the Company does not expect a deficiency in liquidity in the next twelve months. Due to the uncertain nature of future net sales proceeds, recoveries and costs to be incurred, it is not possible to be certain that the current liquidity will be adequate to cover all future financial needs of the Company. Creating contingent obligation agreements and/or seeking methods to reduce professional costs, including legal fees, and administrative costs are strategies that could be undertaken to address liquidity issues should they arise. These strategies could impact the Company's ability to maximize recoveries from the settlement of unresolved Causes of Action.
Distributions
Distributions will be made at the sole discretion of the Liquidation Trustee in accordance with the provisions of the Plan and the Trust Agreement. As ofMay 13, 2022 , the Liquidation Trustee has declared nine distributions to the Class A Interestholders. The distributions are paid on account of the then-allowed claims and a deposit is made into a restricted cash account for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims, (b) in respect of Class A Interests on account of recently allowed claims, (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions, (d) for distributions that were withheld due to pending avoidance actions and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information. 31
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Sections 7.6 and 7.18 of the Plan provide that distributions that have not been cashed within 180 calendar days of their issuance shall be null and void and the holder of the associated Liquidation Trust Interests "shall be deemed to have forfeited its rights to any reserved and future Distributions under the Plan," with such amounts to become "Available Cash" of the Trust for all purposes.
On
February 1, 2022 , the Trust sent letters to the holders of the Class A Interests who have failed to cash distribution checks in respect of prior distributions, which checks were issued more than 180 days prior to the date of the letter. The letter informed the holders that, unless such holders contact the Trust no later thanFebruary 28, 2022 , in accordance with the Plan, the holders' reserved and future distributions will be deemed forfeited. The Trust provided this final notice simply as a one-time courtesy and reserves its rights to strictly enforce the Plan's forfeiture provisions, and any other provision of the Plan, against any person (including any recipient of the final notice) at any time in the future, without further notice. The following tables summarize the distributions declared, distributions paid and the activity in the restricted cash account for the periods fromFebruary 15, 2019 (inception) throughMarch 31, 2022 and fromFebruary 15, 2019 throughMay 13, 2022 : During the Period from During the Period from February 15, 2019 (inception) through February 15, 2019 (inception) through March 31, 2022 ($ in Millions) May 13, 2022 ($ in Millions) $ per Restricted Restricted Date Class A Total Cash Total Cash Declared Interest Declared Paid Account Declared Paid Account Distributions Declared First 3/15/2019 $ 3.75$ 44.70 $ 42.32 $ 2.38$ 44.70 $ 42.32 $ 2.38 Second 1/2/2020 4.50 53.43 51.19 2.24 53.43 51.19 2.24 Third 3/31/2020 2.12 25.00 24.19 0.81 25.00 24.19 0.81 Fourth 7/13/2020 2.56 29.97 29.24 0.73 29.97 29.24 0.73 Fifth 10/19/2020 2.56 29.95 29.20 0.75 29.95 29.20 0.75 Sixth 1/7/2021 4.28 50.01 48.67 1.34 50.01 48.67 1.34 Seventh (a) 5/13/2021 2.58 30.02 29.33 0.69 30.02 29.33 0.69 Eighth 10/8/2021 3.44 40.02 39.14 0.88 40.02 39.14 0.88 Ninth 2/4/2022 3.44 39.98 39.15 0.83 39.98 39.15 0.83 Subtotal $ 29.23$ 343.08 $ 332.43 10.65$ 343.08 $ 332.43 10.65 Distributions Reversed Disallowed/cancelled (b) (3.57 ) (3.62 ) Returned (c) 0.73 0.73 Subtotal (2.84 ) (2.89 ) Distributions Paid from Reserve Account (d) (2.78 ) (2.87 ) Distributions Payable, Net as of 3/31/2022: $ 5.03 as of 5/13/2022: $ 4.89
(a) The seventh distribution included the cash the Trust received from Fair
Funds.
(b) As a result of claims being disallowed or Class A Interests cancelled.
(c) Distribution checks returned or not cashed.
(d) Paid as claims are allowed or resolved.
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) As claims are resolved, additional Class A Interests may be issued or cancelled (see the Company's Annual Report on Form 10-K filed onSeptember 27, 2021 , "Part 1, Item 1. Business, D. Plan Provisions Regarding the Company, 2. Treatment under the Plan of holders of claims against and equity interests in the Debtors and 3. Assets and liabilities of the Company"). Therefore, the total amount of a distribution declared may change between the date declared and the date paid. The Liquidation Trustee will continue to assess the adequacy of funds held and expects to make additional cash distributions on account of Class A Interests, but does not currently know the timing or amount of any such distribution(s). Management believes that, since its inception, the Wind-Down Entity has made substantial progress toward completion of its liquidation activities and is nearing the end of the liquidation of its real estate portfolio. Holders of Liquidation Trust Interests are advised that future distributions from the Trust will be limited. Once the Company's remaining real property assets have been liquidated and the net proceeds resulting therefrom, net of reserves, have been distributed, further distribution(s) will be materially reliant on future recoveries from litigation, which are uncertain and the amount and timing of which are difficult to determine.
Contractual Obligations
As ofMarch 31, 2022 , the Company has contractual commitments related to construction contracts totaling approximately$5.20 million . The Company expects to complete the construction of the single-family homes during the fiscal year endingJune 30, 2022 . The Company has an office lease that expires inJuly 2022 . The Company has two six-month options to extend the lease. The Company expects that it will continue to lease office space until the liquidation process is completed.
Critical Accounting Policies and Practices
The Company's consolidated financial statements are prepared in accordance withU.S. GAAP. The accounting policies and practices that the Company believes are the most critical are discussed below. These accounting policies and practices require management to make decisions on subjective and/or complex matters that may inherently be uncertain. Estimates are required to prepare the consolidated financial statements in conformity withU.S. GAAP. Significant estimates, judgments and assumptions are required in a number of areas, including, but not limited to, the sales price of real estate assets, selling costs, development costs, holding costs and general and administrative costs to be incurred until the completion of the liquidation of the Company. In many instances, changes in the accounting estimates are likely to occur from period to period. Actual results may differ from the estimates. The Company believes the current assumptions and other considerations used in preparing the consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in the Company's consolidated financial statements, the resulting changes could have a material adverse effect on the Company's net assets in liquidation.
Liquidation Basis of Accounting
Under the liquidation basis of accounting, all assets are recorded at their estimated net realizable value or liquidation value, which represents the estimated amount of net cash that may be received upon the disposition of the assets (on an undiscounted basis). Liabilities are measured in accordance withU.S. GAAP that otherwise applies to those liabilities. The Company has not recorded any amount from the future settlement of unresolved Causes of Action orFair Fund recoveries in the accompanying consolidated financial statements because they cannot be reasonably estimated.
Valuation of Real Estate
The measurement of real estate assets held for sale is based on the terms of
current contracts (if any), estimates and other indications of sales value, net
of estimated selling costs. To determine the value of real estate assets held
for sale, the Company considered the three traditional approaches to value
(cost, income and sales comparison) commonly used by the real estate appraisal
community. The applicability and relevancy of each valuation approach as applied
may differ by asset. In most cases, the sales comparison approach was accorded
the greatest weight. This approach compares a property to other properties with
similar characteristics that have recently sold. To validate management's
estimate, the Company also considers opinions from qualified real estate
professionals and local real estate brokers and, in some cases, obtained third
party appraisals.
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Accrued Liquidation Costs The estimated costs associated with implementing and completing the Company's plan of liquidation are recorded as accrued liquidation costs. The Company has also recorded the estimated development costs to be incurred to prepare the assets for sale as well as the estimated holding costs to be incurred until the projected sale date and the estimated general and administrative costs to be incurred until the completion of the liquidation of the Company.
Changes in Carrying Value
On a quarterly basis, the Company reviews the estimated net realizable values, liquidation costs and the estimated date of the completion of the liquidation of the Company and records any significant changes. The Company will also evaluate an asset when it is under contract for sale and the buyer's contingencies have been removed. During the period that this occurs, the carrying value of the asset and the estimated closing and other costs will be adjusted, if necessary. If the Company has a change in its plan for the disposition of an asset, the carrying value will be adjusted to reflect this change in the period that the change is approved. The change in value may also include a change to the accrued liquidation costs related to the asset. All changes in the estimated liquidation value of the Company's assets, real estate held for sale, or other assets and liabilities are reflected as a change to the Company's net assets in liquidation.
Causes of Action
The Company does not record any amount from the future settlement of unresolved Causes of Action or recoveries fromFair Fund or Forfeited Assets (including those that may be settled, but subject to court or other regulatory agency approval) in the accompanying consolidated financial statements since they cannot be reasonably estimated. The Company recognizes recoveries from the settlement of unresolved Causes of Action when an agreement has been executed and collectability is reasonably assured. 34
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PART I. FINANCIAL INFORMATION (CONTINUED)
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