Steven Jacobs
Senior Staff Accountant
United States Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Dear Mr. Jacobs,
I have received your comment letter of January 12, 2005 regarding Westland
Development Co., Inc.'s (the 'Company') June 30, 2004 10-KSB and September 30,
2004 10-Q filings. I hope that the additional information provided below will
assist you in your review and adequately address your concerns regarding the
disclosures made.
Form 10-KSB for the Year Ended June 30, 2004
Managements Discussion and Analysis of Financial Condition and Results of
Operations
Critical Accounting Policies
1. We note your disclosure that allocable subdivision costs (e.g. road,
sewer and sidewalks) and community wide costs (engineering fees and other
costs that benefit the entire community) related to your residential lot
development are allocated to residential units based on the number of lots
or acreage. Please tell us how this policy is consistent with paragraph 11
of SFAS No. 67.
Preconstruction costs such as land cost, initial engineering and other
preliminary costs that occur prior to platting are generally allocated
based upon the area method as calculation of the relative fair value is
impracticable in accordance with paragraph 11 of SFAS 67. Development costs
which may include engineering, roads, sewer, sidewalk, etc. and can not be
reasonably identified to a specific lot, or project, are allocated based
upon relative sales value (where relative sales value can be determined)
or, in the event that the relative sales value can not be readily determined
at the time of capitalization, are allocated using the area method, in
accordance with paragraph 11 of SFAS 67. Historically, the Company's
developments have been homogeneous in nature with nearly identical lot size,
and sales price within any given project. As such, allocation methods
utilizing relative sales value, lot size or simple average allocation result
in the same allocation percentages. These methods have been applied
consistently.
Notes to the Consolidated Financial Statements
Note A-Nature of Operations and Summary of Accounting Policies
7-Recognition of Income on Real Estate Transactions and Rentals
2. Please tell us your policy with respect to your revenue recognition for sales
of developed lots to homebuilders (e.g. full accrual method vs. percentage
completion). For instance, please clarify for us whether you have a
contractual commitment to complete any of the following development
activities with respect to your residential lot sales to homebuilders: 1)
construction of roads providing access to or through the land, 2) provide
water and sewer utilities to the land or 3) construct amenities such as a
clubhouse, tennis courts and swimming pool in the future. In such cases
the percentage completion method is generally followed. Specifically refer to
paragraphs 41 and 42 of SFAS 66.
Sales of developed lots to home builders are recognized on a case by case
basis dependent upon the transactions satisfaction of the full accrual method
requirements. Under New Mexico law, conveyance may begin once a final plat
is filed for a given development. Obtaining a plat requires that the
developer either complete in its entirety the infrastructure related to the
project or provide financial guarantees in the form of bonds to ensure that
the project will be completed. Generally, a homebuilder will contract to
purchase a fixed number of lots in a given development. Westland's contracts
generally require the homebuilder to conclude the purchase of a small number
of contracted lots (typically 5-10) at the time the final plat is recorded.
Remaining lots are then scheduled in increments x # of days from 'substantial
completion'. In this event, the Company utilizes the City of Albuquerque
Engineer's Acceptance Letter as the event that triggers 'substantial
completion'. The vast majority of the Company's sales to homebuilders
occur under non recourse cash transactions, subsequent to the 'substantial
completion' of the development and as such are recorded utilizing the full
accrual method. During the fiscal year ended June 30, 2004 and the quarter
ended September 30, 2004, the Company had not recognized income on any
lot or development that had not reached substantial completion. At the fiscal
year end June 30, 2004 and the quarter ended September 30, 2004, the Company
was not obligated to any homebuilder under any additional construction
commitments related to any recorded sale. As such, there were no open
transactions requiring percentage of completion treatment pursuant to
paragraphs 41 and 42 of SFAS 66. In October, 2005, during the 2nd quarter
2005 reporting period, the company accepted full payment of a large number of
lots at the time of final plat filing in advance of its normal contract
terms. This will be the first instance of an event requiring the reporting of
a sale under the percentage of completion method and will be included in the
Company's December 31, 2005 report.
3. Please clarify for us whether you have any grazing or oil and gas lease
income associated with any of the land that is currently undergoing
development or is being held for development (such as the 6,400 acres held
for the master planned community of The Petroglyphs) and how you account for
such income. Refer to paragraph 10 of SFAS No. 67.
The company does not have any grazing lease income associated with any land
to which the Company has capitalized project costs. Once a project is under
construction or costs related to the development of a project begins being
capitalized, no further leasing activities occur which could be offset
against capitalized costs under paragraph 10 of SFAS 67. No land held for oil
and gas drilling is subject to foreseeable future real estate development.
Form 10-Q for the Quarter Ended September 30, 2004
General
4. Please amend the filing to include the Section 302 and 906 Certifications of
the Sarbanes-Oxley Act in Exhibits 31 and 32, respectively of your Form lO-Q.
Refer to Item 601 of Regulation S-B.
As requested, the Company has amended its 10Q for the Quarter ended September
30, 2004 to include Section 302 and 906 Certifications of the Sarbanes-Oxley
Act in Exhibits 31 and 32.
Attached please find our proposed revisions for future filings.
The revisions have been highlighted in bold italic for ease of your review.
The Company acknowledges that:
o The Company is responsible for the adequacy and accuracy of the disclosure
in the filing;
o staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from taking any action with respect to the
filing; and
o the company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
If you have any other questions or concerns please feel free to contact me at
505.831.9600.
Sincerely,
Barbara Page, Chief Executive Officer, Chief Financial Officer and Director
Westland Development Co., Inc.
Attachment 1
Proposed Revisions to Future Filings
Form 10-KSB for the Year Ended June 30, 2004 Managements Discussion and Analysis
of Financial Condition and Results of Operations
Critical Accounting Policies:
Income recognition and cost allocation: In recent years, the Company has had
very few installment sales, so income is recognized under the full accrual
method (pursuant to SFAS 66 paragraph 5) (Issue 2) when a property is sold with
financing provided by the buyer. Some of the sales are basically raw land which
has little more than its original cost of $2.60 per acre. Preconstruction costs
such as land cost, initial engineering and other preliminary costs that occur
prior to platting are allocated based upon the area method as calculation of the
relative fair value is impracticable. Development costs which may include
engineering, roads, sewer, sidewalk, etc. and can not be reasonably identified
to a specific lot, or project, are allocated based upon relative sales value
(where relative sales value can be determined) or, in the event that the
relative sales value can not be readily determined at the time of
capitalization, are allocated using the area method, in accordance with
paragraph 11 of SFAS 67. This policy has been consistently applied.
Note A: Nature of Operations and Summary of Accounting Policies
7. Recognition of Income on Real Estate Transactions and Rentals
Sales of developed lots to home builders are recognized on a case by case basis
dependent upon the transactions satisfaction of the full accrual method
requirements. Under New Mexico law, conveyance may begin once a final plat is
filed for a given development. Obtaining a plat requires that the developer
either complete in its entirety the infrastructure related to the project or
provide financial guarantees in the form of bonds to ensure that the project
will be completed. Generally, a homebuilder will contract to purchase a fixed
number of lots in a given development. Westland's contracts generally require
the homebuilder to conclude the purchase of a small number of contracted lots
(typically 5-10) at the time the final plat is recorded. Remaining lots are
then scheduled in increments x # of days from 'substantial completion'. In this
event, the Company utilizes the City of Albuquerque Engineer's Acceptance Letter
as the event that triggers 'substantial completion'. The vast majority of the
Company's sales to homebuilders occur under non recourse cash transactions,
subsequent to the 'substantial completion' of the development and as such are
recorded utilizing the full accrual method. At the period ended ________, the
Company was (was not) obligated under additional construction commitments
related to______________ (any recorded sale). These sales have been recorded
under the percentage of completion method (As such, there are no open
transactions requiring percentage of completion treatment pursuant to paragraphs
41 and 42 of SFAS 66).
Rental income is recognized when earned under lease agreements. Rents received
in advance are deferred until earned. Revenue from leases with escalating rental
payments are recognized on a straight-line basis over the minimum lease term.
For leases with provisions for additional rental payments based on percentage of
annual sales, contingent rental income is recognized when the lessee provides
an accounting which reflects the contingent rental income has been earned under
the terms of the lease agreements. The company does not have any grazing lease
income associated with any land to which the Company has capitalized project
costs. Once a project is under construction or costs related to the development
of a project begins being capitalized, no further leasing activities occur which
could be offset against capitalized costs under paragraph 10 of SFAS 67. No land
held for oil and gas drilling is subject to foreseeable future real estate
development.