Forward-Looking Statements

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein. This report contains forward-looking statements within the meaning of applicable federal securities laws. Silverleaf Resorts, Inc. (the "Company" or "we" or "our" or "us") cautions investors that any forward-looking statements presented herein, or which management may express orally or in writing from time to time, are based on management's beliefs and assumptions at that time. Throughout this report, words such as "anticipate," "believe," "expect," "intend," "may," "might," "plan," "estimate," "project," "should," "will," "result," and other similar expressions, which do not relate solely to historical matters, are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution investors that while forward-looking statements reflect our good-faith beliefs at the time such statements are made, such statements are not guarantees of future performance and are affected by actual events that occur after said statements are made. We expressly disclaim any responsibility to update forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which were based on results and trends existing when those statements were made, to anticipate future results or trends.

Some risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, those discussed in our Form 10-K as filed with the Securities and Exchange Commission on March 10, 2009. These risks and uncertainties continue to be relevant to our performance and financial condition. Moreover, we operate in a very competitive and rapidly changing environment where new risk factors emerge from time to time. It is not possible for management to predict all such risk factors, nor can management assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as indicators of actual results.

Executive Overview

As of June 30, 2009, we own and operate 13 timeshare resorts in various stages of development in Texas, Missouri, Illinois, Georgia, Massachusetts, and Florida, and a hotel near the Winter Park recreational area in Colorado. Our resorts offer a wide array of country club-like amenities, such as golf, an indoor water park, swimming, horseback riding, boating, and many organized activities for children and adults. We have a Vacation Interval ownership base of over 112,000 members. Our condensed consolidated financial statements include the accounts of Silverleaf Resorts, Inc. and its subsidiaries, with the exception of SF-III, all of which are wholly-owned.

Results of Operations

The following table summarizes key ratios from our consolidated statements of
operations for the three and six-month periods ended June 30, 2009 and 2008:

                                     Three Months Ended             Six Months Ended
                                          June 30,                      June 30,
                                     2009           2008           2009          2008
      As a percentage of total
      revenues:
      Vacation Interval sales           96.1 %         98.4 %         94.5 %        97.8 %
      Estimated uncollectible
      revenue                          -24.9 %        -23.5 %        -24.0 %       -22.5 %
      Net sales                         71.2 %         74.9 %         70.5 %        75.3 %

      Interest income                   23.7 %         22.2 %         24.1 %        21.9 %
      Management fee income              1.4 %          1.1 %          1.4 %         1.1 %
      Other income                       3.7 %          1.8 %          4.0 %         1.7 %
      Total revenues                   100.0 %        100.0 %        100.0 %       100.0 %

      As a percentage of
      Vacation Interval sales:
      Cost of Vacation Interval
      sales                             11.9 %         11.4 %         11.1 %         9.5 %
      Sales and marketing               50.6 %         49.9 %         51.5 %        50.7 %

      As a percentage of total
      revenues:
      Operating, general and
      administrative                    19.8 %         14.8 %         18.2 %        14.3 %
      Depreciation                       2.4 %          1.8 %          2.3 %         1.7 %

      As a percentage of
      interest income:
      Interest expense and
      lender fees                       45.7 %         41.6 %         45.8 %        41.8 %

Results of Operations for the Three Months Ended June 30, 2009 and 2008

Revenues

Revenues for the quarter ended June 30, 2009 were $67.8 million, representing a $1.3 million, or 1.9%, decrease compared to revenues for the quarter ended June 30, 2008. As discussed below, the decrease is primarily attributable to a $2.8 million decrease in Vacation Interval sales offset by a $1.3 million increase in other income during the quarter ended June 30, 2009.

The following table summarizes our Vacation Interval sales for the three months ended June 30, 2009 and 2008 (dollars in thousands, except average price):

                                                                   2009                                      2008
                                                                                Average                                   Average
                                                    Sales        Intervals       Price        Sales        Intervals       Price
Interval Sales to New Customers                    $ 23,958           2,540     $  9,432     $ 26,551           2,350     $ 11,298
Upgrade Interval Sales to Existing Customers         31,664           3,607        8,779       22,104           2,278        9,703
Additional Interval Sales to Existing Customers       9,510             946       10,053       19,304           1,894       10,192
Total                                              $ 65,132                                  $ 67,959

Vacation Interval sales decreased 4.2% during the second quarter of 2009 versus the same period of 2008. The decrease is primarily attributable to promotional pricing offered during the second quarter of 2009 on select products and a 0.4% decrease in the closing ratio. The number of interval sales to new customers increased 8.1% offset by a decrease in average prices of 16.5%, which resulted in a 9.8% net decrease in sales to new customers in the second quarter of 2009 versus the same period of 2008. The number of upgrade interval sales to existing customers increased 58.3% but average prices decreased 9.5%, resulting in a 43.3% net increase in upgrade interval sales to existing customers during the second quarter of 2009 compared to the same period of 2008. The number of additional interval sales to existing customers decreased 50.1% and average prices decreased 1.4% resulting in a 50.7% decrease in additional interval sales to existing customers during the second quarter of 2009 versus the same period of 2008. Vacation Interval sales to existing owners comprised 63.2% and 60.9% of total Vacation Interval sales in the second quarters of 2009 and 2008, respectively, which maintains our favorable sales mix trend toward upgrades and second-week sales to existing customers as such sales have relatively lower associated sales and marketing costs.

Estimated uncollectible revenue, which represents estimated future gross cancellations of notes receivable, was $16.9 million for the second quarter of 2009 versus $16.2 million for the same period of 2008. Our estimated uncollectible revenue as a percentage of Vacation Interval sales was 25.9% for the quarter ended June 30, 2009 and 23.9% for the same period of 2008. Our receivables charged off as a percentage of beginning of period gross notes receivable was 3.2% for the second quarter of 2009 compared to 2.5% for the same period of 2008. Our provision for estimated uncollectible revenue has increased to maintain the allowance for uncollectible notes at a level management considers adequate to provide for anticipated losses resulting from customer defaults. However, there can be no assurance that the percentage of estimated uncollectible revenue will remain at its current level. We review the allowance for uncollectible notes quarterly and make adjustments as necessary.

Interest income increased $744,000, or 4.9%, to $16.1 million for the second quarter of 2009 from $15.3 million for the second quarter of 2008. The increase primarily resulted from a higher average notes receivable balance during the second quarter of 2009 versus the same period of 2008 and an increase in the weighted average yield on our outstanding notes receivable to 16.8% at June 30, 2009 from 16.6% at June 30, 2008.

Management fee income, which consists of management fees collected from the resorts' management clubs, cannot exceed the management clubs' net income. Management fee income increased $150,000 to $930,000 for the second quarter of 2009 versus $780,000 for the same period of 2008 primarily due to increased profitability of the resorts' management clubs.

Other income consists of water park income, marina income, golf course and pro shop income, hotel income, and other miscellaneous items. Other income was $2.5 million for the second quarter of 2009 compared to $1.3 million for the second quarter of 2008. The increase is primarily attributable to $879,000 in business-interruption proceeds related to Hurricane Ike in April 2009, received upon completion of our assessment of the full extent of such losses related to the hurricane, and a $254,000 gain on the early extinguishment of senior subordinated debt, both recorded in other income in the second quarter of 2009.

Cost of Vacation Interval Sales

Under the relative sales value method, cost of sales is estimated as a percentage of net sales using a cost of sales percentage which represents the ratio of total estimated cost, including both costs already incurred plus estimated costs to complete the phase, if any, to total estimated Vacation Interval revenues under the project, including revenues already recognized and estimated future revenues. Common costs, including amenities, are allocated to inventory cost among the phases that those costs are expected to benefit. The estimate of total revenue for a phase considers factors such as trends in uncollectibles, changes in sales mix and unit sales prices, repossessions of Vacation Intervals, effects of upgrade programs, and past and expected future sales programs to sell slow-moving inventory units.

Cost of Vacation Interval sales increased to 11.9% of Vacation Interval sales for the second quarter of 2009 compared to 11.4% in the 2008 comparable period. This increase resulted from sales of higher cost-basis inventory during the second quarter of 2009 compared to the second quarter of 2008.

Sales and Marketing

Sales and marketing expense as a percentage of Vacation Interval sales increased to 50.6% for the second quarter of 2009 versus 49.9% for the comparable prior-year period. The increase in sales and marketing expense as a percentage of Vacation Interval sales is primarily attributable to higher commissions. The sales-mix trend was favorable for the second quarter of 2009 compared to the same period of 2008 with 63.2% of sales to existing customers in 2009 versus 60.9% of sales to existing customers in 2008.

In accordance with SFAS No. 152, sampler sales and related costs are accounted for as incidental operations, whereby incremental costs in excess of related incremental revenues are charged to expense as incurred. Since our sampler sales primarily function as a marketing program, providing us additional opportunities to sell Vacation Intervals to prospective customers, the incremental costs of our sampler sales typically exceed incremental sampler revenues. Accordingly, $858,000 and $725,000 of sampler revenues were recorded as a reduction to sales and marketing expense for the quarters ended June 30, 2009 and 2008, respectively.

Operating, General and Administrative

Operating, general and administrative expenses as a percentage of total revenues increased to 19.8% in the second quarter of 2009 from 14.8% for the same period of 2008. Overall, operating, general and administrative expenses increased by $3.2 million for the second quarter of 2009 compared to the same period of 2008, primarily due to the write-off of $2.7 million predevelopment costs associated with the termination of a potential land acquisition in June 2009 and $368,000 of fees related to the senior subordinated debt exchange transaction that occurred in June 2009.

Depreciation

Depreciation expense as a percentage of total revenues increased to 2.4% for the quarter ended June 30, 2009 versus 1.8% for the same quarter of 2008. Overall, depreciation expense increased $387,000 for the second quarter of 2009 compared to the same period of 2008 due to capital expenditures of $8.6 million since June 30, 2008.

Interest Expense and Lender Fees

Interest expense and lender fees as a percentage of interest income increased to 45.7% for the second quarter of 2009 compared to 41.6% for the same period of 2008. Overall, interest expense and lender fees increased $977,000 for the second quarter of 2009 versus the same period of 2008 primarily due to a larger average debt balance outstanding during the second quarter of 2009, which was $400.7 million compared to $366.1 million for the prior-year comparative period, and to a lesser extent an increase in lender fees related to our SF-VI securitization which closed in June of 2008.

Income before Provision for Income Taxes

Income before provision for income taxes decreased to $4.6 million for the quarter ended June 30, 2009 compared to $9.6 million for the quarter ended June 30, 2008 as a result of the above-mentioned operating results.

Provision for Income Taxes

Provision for income taxes as a percentage of income before provision for income taxes was 41.2% for the second quarter of 2009 compared to 38.5% for the second quarter of 2008.

Net Income

Net income was $2.7 million for the quarter ended June 30, 2009 compared to $5.9 million for the quarter ended June 30, 2008 as a result of the above-mentioned operating results.

Results of Operations for the Six Months Ended June 30, 2009 and 2008

Revenues

Revenues for the six months ended June 30, 2009 were $130.9 million, representing a $5.2 million, or 3.8%, decrease compared to revenues for the six months ended June 30, 2008. As discussed below, the decrease is primarily attributable to a $9.3 million decrease in Vacation Interval sales and a $915,000 increase in estimated uncollectible revenue, offset by a $3.0 million increase in other income and a $1.7 million increase in interest income during the first six months of 2009.

The following table summarizes our Vacation Interval sales for the six months ended June 30, 2009 and 2008 (dollars in thousands, except average price):

                                                                    2009                                       2008
                                                                                 Average                                    Average
                                                     Sales        Intervals       Price         Sales        Intervals       Price
Interval Sales to New Customers                    $  46,776           4,640     $ 10,081     $  53,586           4,852     $ 11,044
Upgrade Interval Sales to Existing Customers          57,113           6,320        9,037        43,577           4,592        9,490
Additional Interval Sales to Existing Customers       19,901           1,895       10,502        35,877           3,860        9,295
  Total                                            $ 123,790                                  $ 133,040

Vacation Interval sales decreased 7.0% during the first six months of 2009 versus the same period of 2008. The decrease is primarily attributable to promotional pricing offered during the first half of 2009 on select products and a 0.8% decrease in the closing ratio, partially offset by a favorable sales mix of higher-end products on additional interval sales to existing customers. The number of interval sales to new customers decreased 4.4% and average prices decreased 8.7%, which resulted in a 12.7% decrease in sales to new customers in the first half of 2009 versus the same period of 2008. The number of upgrade interval sales to existing customers increased 37.6% but average prices decreased 4.8%, resulting in a 31.1% net increase in upgrade interval sales to existing customers during the first six months of 2009 compared to the same period of 2008. The number of additional interval sales to existing customers decreased 50.9% but average prices increased 13.0%, resulting in a 44.5% net decrease in additional interval sales to existing customers during the first six months of 2009 versus the same period of 2008. In addition, Vacation Interval sales to existing owners comprised 62.2% and 59.7% of total Vacation Interval sales in the first six months of 2009 and 2008, respectively, which continues our favorable sales mix trend toward sales with relatively lower related sales and marketing costs.

Estimated uncollectible revenue, which represents estimated future gross cancellations of notes receivable, was $31.5 million for the first half of 2009 versus $30.6 million for the same period of 2008. Our estimated uncollectible revenue as a percentage of Vacation Interval sales was 25.4% for the first six months of 2009 and 23.0% for the same period of 2008. Our receivables charged off as a percentage of beginning of period gross notes receivable was 7.5% for the six months ended June 30, 2009 compared to 6.3% for the same period of 2008. Our provision for estimated uncollectible revenue has increased to maintain the allowance for uncollectible notes at a level management considers adequate to provide for anticipated losses resulting from customer defaults. However, there can be no assurance that the percentage of estimated uncollectible revenue will remain at its current level. We review the allowance for uncollectible notes quarterly and make adjustments as necessary.

Interest income increased $1.7 million, or 5.8%, to $31.6 million during the first half of 2009 from $29.8 million during the same period of 2008. The increase primarily resulted from a higher average notes receivable balance during the first half of 2009 versus the same period of 2008 and an increase in the weighted average yield on our outstanding notes receivable to 16.8% at June 30, 2008 from 16.6% at June 30, 2008.

Management fee income, which consists of management fees collected from the resorts' management clubs, cannot exceed the management clubs' net income. Management fee income increased $300,000 to $1.9 million for the first six months of 2009 versus $1.6 million for the same period of 2008 primarily due to increased profitability of the resorts' management clubs.

Other income consists of water park income, marina income, golf course and pro shop income, hotel income, and other miscellaneous items. Other income was $5.2 million for the first six months of 2009 compared to $2.2 million for the same period in 2008. The increase is primarily attributable to the receipt of $2.4 million in business-interruption proceeds related to Hurricane Ike and a $316,000 gain on the early extinguishment of senior subordinated debt, both recorded in other income in the first six months of 2009.

Cost of Vacation Interval Sales

Under the relative sales value method, cost of sales is estimated as a percentage of net sales using a cost of sales percentage which represents the ratio of total estimated cost, including costs already incurred plus estimated costs to complete the phase, if any, to total estimated Vacation Interval revenues under the project, including amounts already recognized and estimated future revenues. Common costs, including amenities, are allocated to inventory cost among the phases that those costs are expected to benefit. The estimate of total revenue for a phase considers factors such as trends in uncollectibles, changes in sales mix and unit sales prices, repossessions of Vacation Intervals, effects of upgrade programs, and past and expected future sales programs to sell slow-moving inventory units.

Cost of Vacation Interval sales increased to 11.1% of Vacation Interval sales for the first half of 2009 compared to 9.5% in the 2008 comparable period. This increase resulted from sales of higher cost-basis inventory during the first six months of 2009 compared to the first six months of 2008. In addition, quarterly revisions to our future relative sales value for the first two quarters of both 2009 and 2008 had a greater impact on decreasing cost of sales in 2008.

Sales and Marketing

Sales and marketing expense as a percentage of Vacation Interval sales increased to 51.5% for the six-month period ended June 30, 2009 versus 50.7% for the comparable prior-year period. The increase in sales and marketing expense as a percentage of Vacation Interval sales is primarily attributable to higher commissions. The sales-mix trend was favorable for the first six months of 2009 compared to the same period of 2008 with 62.2% of sales to existing customers in 2009 versus 59.7% of sales to existing customers in 2008.

In accordance with SFAS No. 152, sampler sales and related costs are accounted for as incidental operations, whereby incremental costs in excess of related incremental revenues are charged to expense as incurred. Since our sampler sales primarily function as a marketing program, providing us additional opportunities to sell Vacation Intervals to prospective customers, the incremental costs of our sampler sales typically exceed incremental sampler revenues. Accordingly, $2.0 million and $1.7 million of sampler revenues were recorded as a reduction to sales and marketing expense for the six months ended June 30, 2009 and 2008, respectively.

Operating, General and Administrative

Operating, general and administrative expenses as a percentage of total revenues increased to 18.2% for the first half of 2009 versus 14.3% for the same period of 2008. Overall, operating, general and administrative expenses increased by $4.4 million for the first six months of 2009 compared to the same period of 2008, primarily due to the write-off of $2.7 million predevelopment costs associated with the termination of a potential land acquisition in June 2009, an increase in recording fees of $602,000 related to increased pledging of notes receivable and new inventory with our senior lenders, $368,000 of fees related to the senior subordinated debt exchange transaction that occurred in June 2009, and an increase in legal fees of $246,000.

Depreciation

Depreciation expense as a percentage of total revenues increased to 2.3% for the six months ended June 30, 2009 versus 1.7% for the same period of 2008. Overall, depreciation expense increased $630,000 for the first six months of 2009 compared to the same period of 2008 due to capital expenditures of $8.6 million since June 30, 2008.

Interest Expense and Lender Fees

Interest expense and lender fees as a percentage of interest income increased to 45.8% for the first six months of 2009 compared to 41.8% for the same period of 2008. Overall, interest expense and lender fees increased $2.0 million for the first half of 2009 versus the same period of 2008 primarily due to a larger average debt balance outstanding during the first six months of 2009, which was $400.3 million compared to $361.2 million for the prior-year comparative period, and to a lesser extent an increase in lender fees related to our SF-VI securitization which closed in June of 2008.

Income before Provision for Income Taxes

Income before provision for income taxes decreased to $12.2 million for the six months ended June 30, 2009 compared to $21.7 million for the six months ended June 30, 2008 as a result of the above-mentioned operating results.

Provision for Income Taxes

Provision for income taxes as a percentage of income before provision for income taxes was 39.8% for the six months ended June 30, 2009 compared to 38.5% for the same period of 2008.

Net Income

Net income was $7.3 million for the six months ended June 30, 2009 compared to $13.3 million for the six months ended June 30, 2008 as a result of the above-mentioned operating results.

Liquidity and Capital Resources

At June 30, 2009, our senior credit facilities provided for loans of up to $524.3 million, of which $382.2 million of principal related to advances under the credit facilities was outstanding and $142.1 million was available for future advances. The following table summarizes our credit agreements with our senior lenders, our wholly-owned and consolidated special purpose finance subsidiaries, our senior subordinated debt and other debt, and our credit agreement with our off-balance-sheet qualified SPE, SF-III, as of June 30, 2009 (in thousands):

                                                     MaximumAmount
                                                       Available         Balance
    Receivables-Based Revolvers                     $       344,525     $ 205,045
    Receivables-Based Non-Revolvers                         107,006       107,006
    Inventory Loans                                          72,770        70,108
    Subtotal Senior Credit Facilities                       524,301       382,159
    Senior Subordinated Debt                                 18,467        18,467
    Other Debt                                                7,782         7,782
    Subtotal On-Balance-Sheet                               550,550       408,408
    Off-Balance-Sheet Receivables-Based Term Loan            12,665        12,665
    Grand Total                                     $       563,215     $ 421,073

We use these credit agreements to finance the sale of Vacation Intervals, to finance construction, and for working capital needs.

Our senior credit facilities mature between June 2010 and March 2020 and are . . .