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Stamford Division of Corporate Finance
Tokyo Securities and Exchange Commission
Washington, DC 100 F Street, NE
Mail Stop 7010
Washington, DC 20549-7010
Re: Ashton Woods USA L.L.C.
Amendment No. 1 to Registration Statement on Form S-4
Filed January 31, 2006
File No.: 333-129906 and 333-129906-01 through 22
Dear Ms. Long:
On behalf of our clients, Ashton Woods USA L.L.C., a Nevada
limited liability company (the "Issuer"), Ashton Woods Finance
Co., a Delaware corporation (the "Co-Issuer" and together with
the Issuer, the "Issuers") and the subsidiary guarantors
referred to in the Form S-4 referenced above (each, a
"Subsidiary Guarantor" and collectively, the "Subsidiary
Guarantors"), we are submitting the Issuers' response to Staff
comments conveyed in the Staff comment letter dated February
17, 2006. This letter is submitted along with Amendment No. 2
to the Registration Statement on Form S-4 of the Issuers (the
"S-4") for the registration under the Securities Act of 1933,
as amended (the "Securities Act") of $125,000,000 aggregate
principal amount of the Issuers' 9.5% senior subordinated
notes due 2015 (the "New Notes") and guarantees thereof by the
Subsidiary Guarantors (the "New Guarantees") issuable in
exchange for the Issuers' existing 9.5% senior subordinated
notes due 2015 and the related guarantees thereof by the
Subsidiary Guarantors, which were offered and sold in a
transaction exempt from registration under the Securities Act.
Amendment No. 2 to the S-4 was transmitted for filing to the
Commission via Edgar on the date hereof.
With respect to the Staff comment letter, the response of the
Issuers to each of the Staff's comments are set forth below on
the Issuers' behalf, together with the related comments. The
headings and numbers of the responses coincide with the
headings and comment numbers set forth in the comment letter.
The page numbers in the Issuers' responses below correspond to
the page numbers in the Form S-4 amendment filed herewith.
Pamela A Long
February 24, 2006
Page 2
Summary consolidated financial information and operating data,
page 8
Selected historical consolidated financial and operating data,
page 33
1. We note your response to prior comment 18. However,
it appears to us that you should revise your
disclosures to address the specific limitations of
eliminating each material recurring item from the
non-GAAP measure you present, similar to the
following:
o It does not include interest expense.
Because you borrow money to finance your
inventory purchases and operations, interest
expense is a necessary element of your costs
and ability to generate revenue. Therefore
any performance measure that excludes
interest expense has material limitations.
o It does not include depreciation and
amortization. Because you use capital
assets, depreciation and amortization are
necessary elements of your costs and ability
to generate revenue. Therefore any
performance measure that excludes
depreciation and amortization has material
limitations.
Response:
The disclosure in footnote 2 to the "Summary consolidated
financial information and operating data" on page 9 and to the
"Selected historical consolidated financial and operating
data" on page 34 has been revised to further describe the
specific limitations noted in the staff's comment.
Specifically, the third paragraph of footnote 2 has been
revised to read as follows:
"EBITDA does have certain limitations as a tool for
measuring Company performance from period to period,
because that performance is affected by the use of
cash to purchase capital assets and to pay interest
and taxes. These amounts, as well as depreciation and
amortization associated with capital assets, can
fluctuate significantly over time due to fluctuations
in our debt levels used to finance our inventory,
purchases of capital assets and operations, income
levels and other performance issues, which is not
apparent if EBITDA is used as an evaluation tool.
Because we borrow money to finance our inventory
purchases and operations, interest expense is a
necessary element of our costs and affects our
ability to generate revenue. Further, because we use
capital assets, depreciation and amortization are
necessary elements of our costs and also affect our
ability to generate revenue. Any performance measure
that excludes interest expense, depreciation and
amortization has material limitations. To compensate
for these limitations, our management uses both
EBITDA and net income, the most directly comparable
GAAP measurement, to evaluate our performance."
Pamela A Long
February 24, 2006
Page 3
Overview, page 36
2. We note your additional disclosures in response to
prior comment 22. Please further disclose the
specific factors you use to determine that land does
not fit your home development program.
Response:
The disclosure on page 36 has been further revised to
address the specific factors used to determine that
land does not fit the Issuer's home development
program. The following has been added as a new fourth
sentence in the second paragraph on page 36:
"Parcels of land or finished lots may be
deemed not to fit within our home
development program for a variety of
reasons, including, when a specific parcel
contains a greater supply of lots than
deemed appropriate for the particular
development or specific lots are designed
for a housing product that is not within our
business plan for that area, such as custom
built homes or homes that are not within the
size specifications for the particular
development."
Off-Balance Sheet Arrangements and Aggregate and Contractual
Commitments, page 48
3. Please clarify why the aggregate exercise price of
options disclosed on page 48 is inconsistent with the
total amount presented on page 49.
Response:
The table on page 48 shows the option contract
amounts net of cash deposits, as is indicated in the
lead-in to that table. The dollar amounts included in
the table on page 49 include these cash deposits.
Therefore, the sentence leading into the table on
page 49 has been revised to read as follows to
clarify this point:
"Under the terms, and assuming no
significant changes in market conditions or
other factors, we expect to exercise our
land options as shown in the table below.
Amounts (in thousands) shown in the
following table include amounts paid as cash
deposits under our outstanding option
contracts, totaling an aggregate of
approximately $4.8 million."
Note 1 -- Summary of Significant Accounting Policies --
Presentation, page F-7
4. We reviewed your response to prior comment 58. Please
confirm that you will continue to assess whether your
markets exhibit similar economic factors. Please also
confirm that to the extent that short-term economic
factors in any markets impact your consolidated
operations and margins, you will continue to disclose
and discuss them in MD&A.
Pamela A Long
February 24, 2006
Page 4
Response:
We have been informed by the Issuers that they will
continue to assess whether their markets exhibit
similar economic factors. To the extent that
short-term economic factors impact the Issuer's
consolidated operations and margins, the Issuer has
confirmed that it will continue to disclose such
factors and discuss the impact in Management's
Discussion and Analysis.
Note 1 -- Summary of Significant Accounting Policies --
Revenue Recognition, page F-8
5. We note your response to prior comment 61. We also
note the balance of restricted cash at May 31, 2004.
Please provide as additional information related to
the transaction that resulted in the restricted cash
as of May 31, 2004 and help us understand why, in
light of the restrictions, revenue recognition was
not impacted.
Response:
The May 31, 2004 restricted cash balance resulted
from a transaction in which the final sales price was
predicated on the completion of development and
platting activities. The cash was held as restricted
until these tasks were complete. As was discussed in
the response to comment 61 in the prior response
letter, the Issuer generally recognizes revenue from
home sales and lot sales at the time of the closing
of the sale, when title to and possession of the
property is transferred to the buyer. In the
transaction generating the restricted cash, the
Issuer did not recognize revenue until the
restrictions lapsed and the Issuer had unrestricted
access to the cash. This was a unique transaction
related to the Issuer's Denver land activities and
involved an immaterial amount of money. It is not
expected that similar transactions will occur with
any frequency in the Issuer's business. As a result,
the Issuer does not view the need to delay
recognition of this revenue until the restrictions
were lifted in this one circumstance as material to
its revenue recognition policy. If the Issuer's
circumstances were to change in the future such that
similar transactions become a material part of its
business, it will update the discussion of its
revenue recognition policy to discuss such
situations.
Note 6 -- Notes Payable, page F-20
6. As noted in prior comment 63, please include all the
disclosures required by Rule 3-10 of Regulation S-X
in the notes to your audited financial statements and
ensure they are covered by the auditors' report.
Response:
A subsequent event footnote has been added on page
F-15 to the footnotes to the audited financial
statements to include the disclosures required by
Rule 3-10 of Regulation S-X. The auditors' report has
now been dual dated to cover the subsequent event
footnote. As noted in our prior letter in response to
comment 63, there are no significant restrictions on
the ability of the Issuers or any subsidiary
guarantor to obtain funds from its
Pamela A Long
February 24, 2006
Page 5
subsidiaries, thus the narrative disclosure specified
in Rules 3-10(i)(9) and (i)(10) is not necessary.
* * * *
If you have any questions regarding the foregoing responses,
please call the undersigned at 404-815-2287 or Jay Rodriguez
at 404-815-2283.
Sincerely,
/s/ Elizabeth Hardy Noe
Elizabeth Hardy Noe
for PAUL, HASTINGS, JANOFSKY & WALKER LLP
EN:bew