SILVERLEAF RESORTS, INC.
1221 RIVER BEND DRIVE, SUITE 120
DALLAS, TEXAS 75247
PHONE: (214) 631-1166
FAX: (214) 631-1178
JULY 18, 2006
VIA EDGAR TRANSMISSION AND OVERNIGHT DELIVERY
Mr. Daniel L. Gordon
Branch Chief
Division of Corporation Finance
Mail Stop 4561
United States Securities and
Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
RE: SILVERLEAF RESORTS, INC. (THE "REGISTRANT")
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005, FILED
MARCH 17, 2006
FILE NO. 1-13003
Dear Mr. Gordon:
In response to your comment letter dated July 12, 2006, the Registrant has
responded to each one of your comments below. The Registrant's responses are
numbered to correspond to the numbered paragraphs in your comment letter.
FORM 10-K ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2005 AND DECEMBER 31,
2004, PAGE 53
1. YOUR DISCLOSURE ON PAGE 54 INDICATES THAT THE AVERAGE YIELD ON YOUR
OUTSTANDING NOTES RECEIVABLE WAS APPROXIMATELY 15.3% AT DECEMBER 31,
2005. HOWEVER, WE NOTE THAT INTEREST INCOME FOR THE YEAR IS IN
EXCESS OF 20% OF YOUR AVERAGE NET NOTES RECEIVABLE BALANCE. PLEASE
EXPLAIN TO US THE REASONS FOR THIS DIFFERENCE.
Response: Interest income for the year ended December 31, 2005 as
reported in the Consolidated Statement of Operations consists of the
following:
Interest earned on notes receivable $34,996,000
Interest income accreted on investments
in special purpose entities 2,410,000
Late charges earned from obligors on notes receivable 456,000
Investment interest earned on cash equivalent balances 292,000
-----------
Total reported interest income $38,154,000
Mr. Daniel Gordon
July 18, 2006
Page 2
We believe it is more appropriate to gauge the reasonableness of our
interest income as a percentage of gross notes receivable, as
opposed to an amount that is net of our allowance for uncollectible
notes. Interest earned on notes receivable of $34,996,000 was
approximately 14.9% of 2005 monthly average gross notes receivable
of $235,404,000, slightly less than the 15.3% average yield
disclosed at December 31, 2005 due to less than 100% interest income
recognition on delinquent accounts.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES SUMMARY
BASIS OF PRESENTATION, PAGE F-7
2. YOUR DISCLOSURE STATES THAT THE BASIS OF PRESENTATION IS THE RULES
AND REGULATIONS OF THE SEC. IN FUTURE FILINGS, PLEASE REVISE TO
REFERENCE GENERALLY ACCEPTED ACCOUNTING POLICIES RATHER THAN THE
SEC.
Response: We agree with the staff's comment. All future filings will
reference accounting policies generally accepted in the United
States of America as the basis of our presentation, rather than "the
rules and regulations of the SEC."
NOTE 4. NOTES RECEIVABLE, PAGE F-13
3. WE NOTE THAT A SIGNIFICANT AMOUNT OF YOUR NOTES RECEIVABLE HAVE BEEN
RESTRUCTURED TO BRING THE NOTES CURRENT AND EXTEND THE MATURITY
DATE. PLEASE EXPLAIN TO US WHAT CONSIDERATION YOU HAVE GIVEN TO
PARAGRAPH 34 OF SOP 04-2 AND THE PROVISIONS OF SFAS 114 IN
DETERMINING WHETHER TO RECORD AN IMPAIRMENT FOR THESE NOTES
RECEIVABLE. ALSO, CLARIFY TO US WHETHER YOU CONTINUE TO RECOGNIZE
INTEREST INCOME ON THESE NOTES RECEIVABLE.
Response: Statement of Financial Accounting Standard 152, Accounting
for Real Estate Time-Sharing Transactions, and Statement of Position
04-2, Accounting for Real Estate Time-Sharing Transactions, are
effective for financial statements for fiscal years beginning after
June 15, 2005. Therefore, paragraph 34 of SOP 04-2 is not effective
for our fiscal year ended December 31, 2005. However, we are in
compliance with the current literature and SOP 04-2 as follows:
Under SFAS No. 114, Accounting by Creditors for Impairment of a
Loan, Paragraph 5 states that the scope of the FAS is to address the
accounting by creditors for impairment of a loan, as well as the
accounting by creditors for all loans that are restructured in a
troubled debt restructuring involving a modification of terms.
Mr. Daniel Gordon
July 18, 2006
Page 3
Paragraph 8 states:
[A] loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of
the loan agreement. ... This Statement does not specify how a
creditor should determine that it is probable that it will be
unable to collect all amounts due according to the contractual
terms of a loan. A creditor should apply its normal loan
review procedures in making that judgment. An insignificant
delay or insignificant shortfall in amount of payments does
not require application of this Statement. A loan is not
impaired during a period of delay in payment if the creditor
expects to collect all amounts due including interest accrued
at the contractual interest rate for the period of delay.
Thus, a demand loan or other loan with no stated maturity is
not impaired if the creditor expects to collect all amounts
due including interest accrued at the contractual interest
rate during the period the loan is outstanding.
Based on the preceding, we have concluded that our practice of
granting limited payment concessions is not subject to SFAS No. 114
based on the following:
o The terms of the notes are not amended. Rather, we agree with
the customer to defer the missed monthly payments by agreeing
that the missed monthly payments will be paid in monthly
installments at the end of the stated term of the note. This
deferral is also contingent on the customer making two
consecutive monthly payments thereafter to establish their
ability and intent to pay the note. Typically, these deferrals
involve only two or three missed payments as our collection
department may initiate this process after two late payments.
o Under the terms of the notes, we are still entitled to collect
100% of the interest and principal originally stated to be due
under the notes even if a deferral is granted.
o As our notes do not provide for interest on late payments, no
interest is forgiven as no interest is due on the late
payments, other than the originally stated interest.
o Our notes have terms ranging from 7 to 10 years.
Based on the foregoing, we do not believe that SFAS No. 114 should
apply as the notes are not modified and the deferrals do not involve
a significant number of payments.
In regard to the preceding and your question regarding the accrual
of interest, we account for interest income on the notes with
deferred payments as follows:
Mr. Daniel Gordon
July 18, 2006
Page 4
o Initially, we only recognize 75% of accrued interest income on
notes that are 1 payment late, 50% for notes that are 2
payments late, 25% for notes that are 3 payments late, and 0%
for notes that are 4-plus payments late. (See 5th paragraph,
page 48, and 4th full paragraph, page F-8, of our Form 10-K
for the year ended December 31, 2005.)
o When a deferral concession is made on a note, any interest
income previously accrued under the immediately preceding
methodology is reversed against interest income, thereby
effectively writing off the previously accrued interest
income.
In summary, any interest income inherent in the missed payments are
reversed against interest income, and no interest is accrued on the
missed payments as the missed payments do not bear interest under
the deferred notes.
Although we do not believe that SFAS No. 114 applies, we also
believe our accounting treatment is consistent with the accounting
treatment which would result if SFAS No. 114 applied. Due to the
reversal of interest income on the notes with deferred payments, the
present value of expected future cash flows discounted at the notes'
effective interest rates are the same as the principal balances of
the notes at the time of the deferrals and the related interest
reversals. See Paragraph 13 of SFAS No. 114. Therefore, applying
SFAS No. 114 would not change the effect of the deferrals on our
income and expense.
****
In connection with the above responses to your comments, we
acknowledge that:
o we are 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 we 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.
We also understand that the Division of Enforcement has access to
all information provided to the staff of the Division of Corporation Finance in
its review of our filings or responses to your comments on our filings.
Mr. Daniel Gordon
July 18, 2006
Page 5
Please do not hesitate to contact the undersigned if I can supply you with
any further information concerning these or any further comment you may have.
Very truly yours,
SILVERLEAF RESORTS, INC.
By: /s/ Harry J. White, Jr.
-----------------------
Harry J. White, Jr.
Chief Financial Officer
cc: Bill Demarest, Staff Accountant (via facsimile 202/772-9210)
Mr. Richard Budd, Silverleaf Audit Committee Chair