Liability for Estimated Costs in Excess of Estimated Receipts During Liquidation

9 Months Ended

May 31, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Liability for Estimated Costs in Excess of Estimated Receipts During Liquidation

Liability for Estimated Costs in Excess of Estimated Receipts During Liquidation

The liquidation basis of accounting requires the estimation of net cash flows from operations and all costs associated with implementing and completing the Plan of Liquidation. We project that we will have estimated costs in excess of estimated receipts during the liquidation period. These amounts can vary significantly due to, among other things, the timing and estimates for receipts and costs associated with the operations of our business units until they are sold, the timing of business and property sales, estimates of direct costs incurred to complete the sales, the timing and amounts associated with discharging known and contingent liabilities, the costs associated with the winding up of operations, and other costs that we may incur which are not currently foreseeable. These receipts and accruals will be adjusted periodically as projections and assumptions change. These receipts and costs are estimated and are anticipated to be collected and paid out over the liquidation period. Upon transition to the liquidation basis of accounting on November 19, 2020, the Company accrued revenues and expenses expected to be earned or incurred during liquidation. The liability for estimated costs in excess of estimated receipts during liquidation at May 31, 2022, August 25, 2021 and November 19, 2020 were comprised of the following (in thousands):

	May 31, 2022		August 25, 2021		November 19, 2020
Total estimated receipts during remaining liquidation period	$	8,560	$	25,045	$	92,017
Total estimated costs of operations	(438)		(20,763)		(76,151)
Selling, general and administrative expenses	(8,503)		(9,585)		(18,745)
Interest expense	—		(151)		(2,305)
Interest component of operating lease payments	(1,315)		(2,307)		(7,064)
Capital expenditures	(5)		(120)		(943)
Sales costs	(1,264)		(3,408)		(4,079)
Total estimated costs during remaining liquidation period	(11,525)		(36,334)		(109,287)
Liability for estimated costs in excess of estimated receipts during liquidation	$	(2,965)	$	(11,289)	$	(17,270)

The change in the liability for estimated costs in excess of estimated receipts during liquidation between November 19, 2020 and August 25, 2021 and between August 25, 2021 and May 31, 2022 are as follows (in thousands).

	August 25, 2021		Net Change in Working Capital (3)		Changes in Estimated Future Cash Flows During Liquidation (4)				May 31, 2022
Assets:
Estimated net inflows from operations (1)	$	1,855	$	(882)	$	5,829	$	6,802	$	6,802
	1,855		(882)		5,829		6,802		6,802
Liabilities:
Sales costs	(3,408)		2,599		(455)		(1,264)		(1,264)
Corporate expenditures (2)	(9,736)		14,542		(13,309)		(8,503)		(8,503)
	(13,144)		17,141		(13,764)		(9,767)		(9,767)
Liability for estimated costs in excess of estimated receipts during liquidation	$	(11,289)	$	16,259	$	(7,935)	$	(2,965)	$	(2,965)

	November 19, 2020		Net Change in Working Capital (3)		Changes in Estimated Future Cash Flows During Liquidation (4)		August 25, 2021
Assets:
Estimated net inflows from operations (1)	$	7,859	$	(21,423)	$	15,419	$	1,855
	7,859		(21,423)		15,419		1,855
Liabilities:
Sales costs	(4,079)		1,876		(1,205)		(3,408)
Corporate expenditures (2)	(21,050)		10,445		869		(9,736)
	(25,129)		12,321		(336)		(13,144)
Liability for estimated costs in excess of estimated receipts during liquidation	$	(17,270)	$	(9,102)	$	15,083	$	(11,289)

(1) Estimated net inflows from operations consists of total estimated receipts during liquidation less the sum of total estimated (i) costs of operations, (ii) interest component of operating lease payments and (iii) capital expenditures.

(2) Corporate expenditures consists of (i) selling, general and administrative expenses and (ii) interest expense.

(3) Net change in working capital represents changes in cash, restricted cash, accounts receivable, accounts payable, and accrued expenses and other liabilities as a result of the Company's operating activities for the respective periods.

(4) Changes in estimated future cash flows during liquidation includes adjustments to previous estimates and changes in estimated holding periods of our assets.

Net Assets in Liquidation

Current Fiscal Period Activity

Net assets in liquidation decreased by $93.3 million during the period from August 26, 2021 through May 31, 2022. The decrease was primarily due to liquidating distributions to shareholders of $84.0 million, a $7.9 million net decrease due to the remeasurement of assets and liabilities and a $1.7 million net decrease in the estimated value of properties and business units held for sale.

The net decrease in properties and business units for sale was due to changes in values attributable to properties that have been sold, or are under contract to sell with non-refundable deposits, at prices that were different than our previously estimated liquidation values..

The $7.9 million net decrease generated by the remeasurement of assets and liabilities was mainly due to a $9.3 million decrease in projected future cash flows from operations and corporate activity, primarily as a result of changes in estimated holding periods for our operating properties, as well as increases in actual and projected sales closing costs of $0.4 million. These decreases were partially offset by actual operating results exceeding projected operating results for the period by $1.8 million.

Prior to May 31, 2022, we had one class of common stock. As further discussed at Note 1. Nature of Operations and Significant Accounting Policies, the dissolution and termination of the Company resulted in holders of our common stock receiving one unit of the Trust for each share of common stock and the common stock was cancelled. The net assets in liquidation at May 31, 2022 would result in liquidating distributions of $1.96 per unit in the Trust based on 31,300,837 common shares that were converted to units in the Trust on that date. This estimate is dependent on projections of costs and expenses to be incurred during the period required to complete the Plan and the realization of estimated net realizable value of our properties and business units. There is inherent uncertainty with these estimates, and they could change materially based on the timing of the remaining property sales, the performance of the underlying assets, and changes in the underlying assumptions of the projected cash flows. No assurance can be given that the liquidating distributions will equal or exceed the estimate presented in these consolidated financial statements.

Initial Net Assets In Liquidation

The following is a reconciliation of total shareholders’ equity under the going concern basis of accounting as of November 18, 2020 to net assets in liquidation under the liquidation basis of accounting as of November 19, 2020 (in thousands):

Total Shareholders' Equity as of November 18, 2020	$	70,763
Increase due to estimated net realizable value of properties and business units (1)	78,985
Decrease due to write-off of deferred financing costs	(2,260)
Decrease due to write-off of operating lease right-of-use assets	(14,829)
Net increase due to write-off of deferred assets, deferred income and goodwill	1,952
Liability for estimated costs in excess of estimated receipts during liquidation	(17,270)
Adjustment to reflect the change to the liquidation basis of accounting	46,578
Estimated value of net assets in liquidation as of November 19, 2020	$	117,341

(1) Under the liquidation basis of accounting, all assets are recorded at net realizable value which implicitly includes the tangible and intangible value of all assets. This adjustment at November 19, 2020 reflects adjusting real properties to net realizable value and recording an estimated value for our business units, Luby's Cafeterias, Fuddruckers Restaurants and franchise operations, and Culinary Services.

Prior Fiscal Period Activity

Net assets in liquidation increased by $37.5 million during the period from November 19, 2020 through August 25, 2021. The increase was primarily due to a $18.4 million increase in properties and business units for sale and a $15.1 million net increase due to a remeasurement of assets and liabilities.

The increase in properties and business units for sale was due to a change in value attributable to properties that have closed, or are under contract to sell with non-refundable deposits, at prices that were different than our previous liquidation values and to the sale and conversion to franchise locations of Fuddruckers restaurants. This increase was partially offset by a change in the estimated value of our business units and some of our real estate assets.

The $15.1 million increase generated by the remeasurement of assets and liabilities was mainly due to the $10.0 million forgiveness of our PPP loan, $1.8 million increase in projected future operating results for the remainder of the holding period, and $6.5 million increase from our actual operating results for the period from November 19, 2020 to August 25, 2021. This increase was partially offset by increases in actual and projected sale closing costs of $1.2 million and an increase in corporate general and administrative costs of $2.0 million.

Lease Obligations

Under both the going concern basis of accounting and the liquidation basis of accounting, lease obligations are recorded at the present value of the total fixed lease payments over the reasonably certain lease term using discount rates as of the effective date of the lease and the obligation is reduced as we make lease payments.

We continue to negotiate with our landlords to settle and terminate our existing leases; however, we can offer no assurances that we will settle any lease obligations for less than the total undiscounted base rent payments, or for less than their discounted value recorded within net assets in liquidation.