UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




(Mark
One)


S
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934








For the
quarterly period ended March 31, 2009





OR





£
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from _____________ to _____________





Commission
file number:  001-13003








SILVERLEAF
RESORTS, INC.


(Exact
name of registrant as specified in its charter)





TEXAS
              75-2259890(State
      of incorporation)
              (I.R.S.
      Employer   Identification
No.)








1221
RIVER BEND DRIVE, SUITE 120


DALLAS,
TEXAS  75247


(Address
of principal executive offices, including zip code)








214-631-1166


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes S    No
£





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes £    No
£





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.  (Check
one):


Large
      accelerated filer   £
              
              Accelerated
      filer   £Non-accelerated
      filer   S
              
              Smaller
      reporting company   £





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes £    No
S





As of May
11, 2009, 38,146,943 shares of the registrant’s common stock, $0.01 par value,
were outstanding.














SILVERLEAF
RESORTS, INC.





INDEX





PagePART
      I. FINANCIAL INFORMATIONItem
      1.
                            Condensed Consolidated Statements of Operations for the three
      months ended March 31, 2009 and 2008
                            2Condensed Consolidated Balance Sheets as of March 31, 2009 and
      December 31, 2008
                            3Condensed Consolidated Statement of Shareholders' Equity for
      the three months ended March 31, 2009
                            4Condensed Consolidated Statements of Cash Flows for the three
      months ended March 31, 2009 and 2008
                            5Notes to the Condensed Consolidated Financial
      Statements
                            6Item
      2.
                            Management's Discussion and Analysis of Financial Condition
      and Results
      of Operations
                            15Item
      3.
                            Quantitative and Qualitative Disclosures about Market
      Risk
                            21Item
      4.
                            Controls and Procedures
                            22PART
      II. OTHER INFORMATIONItem
      1.
                            Legal Proceedings
                            23Item
      1A.
                            Risk Factors
                            23Item
      5.
                            Other Information
                            23Item
      6.
                            Exhibits
                            24Signatures
                            25




1
 Table of Contents





PART
I: FINANCIAL INFORMATION


Item
1. Financial Statements


SILVERLEAF
RESORTS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(in
thousands, except share and per share amounts)


(Unaudited)





Three
      Months Ended March
      31,2009
                                                                                                                  
                                                                                                                  
                                                                                                                  2008Revenues:Vacation
      Interval sales
                                                                                                                  
                                                                                                                  $
                                                                                                                  58,658
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  65,081Estimated
      uncollectible revenue
                                                                                                                  
                                                                                                                  
                                                                                                                  (14,606
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (14,318
                                                                                                                  )Net
      sales
                                                                                                                  
                                                                                                                  
                                                                                                                  44,052
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  50,763Interest
      income
                                                                                                                  
                                                                                                                  
                                                                                                                  15,502
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  14,507Management
      fee income
                                                                                                                  
                                                                                                                  
                                                                                                                  930
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  780Other
      income
                                                                                                                  
                                                                                                                  
                                                                                                                  2,679
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  976Total
      revenues
                                                                                                                  
                                                                                                                  
                                                                                                                  63,163
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  67,026Costs
      and Operating Expenses:Cost
      of Vacation Interval sales
                                                                                                                  
                                                                                                                  
                                                                                                                  5,980
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  4,874Sales
      and marketing
                                                                                                                  
                                                                                                                  
                                                                                                                  30,758
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  33,537Operating,
      general and administrative
                                                                                                                  
                                                                                                                  
                                                                                                                  10,435
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  9,292Depreciation
                                                                                                                  
                                                                                                                  
                                                                                                                  1,356
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  1,114Interest
      expense and lender fees:Related
      to receivables-based credit facilities
                                                                                                                  
                                                                                                                  
                                                                                                                  5,595
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  4,602Related
      to other indebtedness
                                                                                                                  
                                                                                                                  
                                                                                                                  1,519
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  1,500Total
      costs and operating expenses
                                                                                                                  
                                                                                                                  
                                                                                                                  55,643
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  54,919Income
      before provision for income taxes
                                                                                                                  
                                                                                                                  
                                                                                                                  7,520
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  12,107Provision
      for income taxes
                                                                                                                  
                                                                                                                  
                                                                                                                  (2,933
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (4,661
                                                                                                                  )Net
      income
                                                                                                                  
                                                                                                                  $
                                                                                                                  4,587
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  7,446Basic net income per
      share
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.12
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.20Diluted
      net income per share
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.12
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  0.19Weighted
      average basic common shares issuedand
      outstanding
                                                                                                                  
                                                                                                                  
                                                                                                                  38,146,943
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  37,926,835Weighted average diluted common
      shares issued and outstanding
                                                                                                                  
                                                                                                                  
                                                                                                                  38,823,170
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  39,377,595





The
accompanying notes are an integral part of these condensed consolidated
financial statements.





2
 Table of Contents




SILVERLEAF
RESORTS, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands, except share and per share amounts)





ASSETS
                                                                              
                                                                              March
      31, 2009
                                                                              
                                                                              
                                                                              December
      31, 2008(Unaudited)Cash
      and cash equivalents
                                                                              
                                                                              $
                                                                              7,284
                                                                              
                                                                              
                                                                              $
                                                                              11,431Restricted
      cash
                                                                              
                                                                              
                                                                              22,691
                                                                              
                                                                              
                                                                              
                                                                              22,623Notes
      receivable, net of allowance for uncollectible notes of $74,529 and
      $76,696, respectively
                                                                              
                                                                              
                                                                              330,133
                                                                              
                                                                              
                                                                              
                                                                              320,306Accrued
      interest receivable
                                                                              
                                                                              
                                                                              4,081
                                                                              
                                                                              
                                                                              
                                                                              4,154Investment
      in special purpose entity
                                                                              
                                                                              
                                                                              4,878
                                                                              
                                                                              
                                                                              
                                                                              4,908Amounts
      due from affiliates
                                                                              
                                                                              
                                                                              1,642
                                                                              
                                                                              
                                                                              
                                                                              1,738Inventories
                                                                              
                                                                              
                                                                              192,979
                                                                              
                                                                              
                                                                              
                                                                              190,318Land,
      equipment, buildings, and leasehold improvements, net
                                                                              
                                                                              
                                                                              55,650
                                                                              
                                                                              
                                                                              
                                                                              55,393Prepaid
      and other assets
                                                                              
                                                                              
                                                                              33,436
                                                                              
                                                                              
                                                                              
                                                                              33,951TOTAL
      ASSETS
                                                                              
                                                                              $
                                                                              652,774
                                                                              
                                                                              
                                                                              $
                                                                              644,822LIABILITIES
      AND SHAREHOLDERS' EQUITYLIABILITIESAccounts
      payable and accrued expenses
                                                                              
                                                                              $
                                                                              13,062
                                                                              
                                                                              
                                                                              $
                                                                              12,701Accrued
      interest payable
                                                                              
                                                                              
                                                                              2,519
                                                                              
                                                                              
                                                                              
                                                                              2,380Unearned
      samplers
                                                                              
                                                                              
                                                                              6,343
                                                                              
                                                                              
                                                                              
                                                                              6,247Income
      taxes payable
                                                                              
                                                                              
                                                                              1,688
                                                                              
                                                                              
                                                                              
                                                                              1,942Deferred
      income taxes
                                                                              
                                                                              
                                                                              37,225
                                                                              
                                                                              
                                                                              
                                                                              35,114Notes
      payable and capital lease obligations
                                                                              
                                                                              
                                                                              370,166
                                                                              
                                                                              
                                                                              
                                                                              369,071Senior
      subordinated notes
                                                                              
                                                                              
                                                                              22,814
                                                                              
                                                                              
                                                                              
                                                                              23,121Total
      Liabilities
                                                                              
                                                                              
                                                                              453,817
                                                                              
                                                                              
                                                                              
                                                                              450,576COMMITMENTS
      AND CONTINGENCIES (Note 8)SHAREHOLDERS'
      EQUITYPreferred
      stock, 10,000,000 shares authorized, none issued and
      outstanding
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -Common
      stock, par value $0.01 per share, 100,000,000 shares authorized,
      38,146,943 shares issued and outstanding at March 31, 2009 and December
      31, 2008
                                                                              
                                                                              
                                                                              381
                                                                              
                                                                              
                                                                              
                                                                              381Additional
      paid-in capital
                                                                              
                                                                              
                                                                              113,100
                                                                              
                                                                              
                                                                              
                                                                              112,976Retained
      earnings
                                                                              
                                                                              
                                                                              85,476
                                                                              
                                                                              
                                                                              
                                                                              80,889Total
      Shareholders' Equity
                                                                              
                                                                              
                                                                              198,957
                                                                              
                                                                              
                                                                              
                                                                              194,246TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                              
                                                                              $
                                                                              652,774
                                                                              
                                                                              
                                                                              $
                                                                              644,822





The
accompanying notes are an integral part of these condensed consolidated
financial statements.


3
 Table of Contents




SILVERLEAF
RESORTS, INC.


CONDENSED
CONSOLIDATEDSTATEMENT OF SHAREHOLDERS' EQUITY


(in
thousands, except share amounts)


(Unaudited)





Common
      StockNumber
      of Shares Issued
                                                                    
                                                                    
                                                                    $0.01
      Par Value
                                                                    
                                                                    
                                                                    Additional
      Paid-in Capital
                                                                    
                                                                    
                                                                    Retained
      Earnings
                                                                    
                                                                    
                                                                    TotalJanuary
      1, 2009
                                                                    
                                                                    
                                                                    38,146,943
                                                                    
                                                                    
                                                                    $
                                                                    381
                                                                    
                                                                    
                                                                    $
                                                                    112,976
                                                                    
                                                                    
                                                                    $
                                                                    80,889
                                                                    
                                                                    
                                                                    $
                                                                    194,246Stock-based
      compensation
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    124
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    124Net
      income
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    4,587
                                                                    
                                                                    
                                                                    
                                                                    4,587March
      31, 2009
                                                                    
                                                                    
                                                                    38,146,943
                                                                    
                                                                    
                                                                    $
                                                                    381
                                                                    
                                                                    
                                                                    $
                                                                    113,100
                                                                    
                                                                    
                                                                    $
                                                                    85,476
                                                                    
                                                                    
                                                                    $
                                                                    198,957





The
accompanying notes are an integral part of these condensed consolidated
financial statements.




4
 Table of Contents





SILVERLEAF
RESORTS, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)


(Unaudited)





Three
      Months Ended March 31,2009
                                                                      
                                                                      
                                                                      2008OPERATING
      ACTIVITIES:Net
      income
                                                                      
                                                                      $
                                                                      4,587
                                                                      
                                                                      
                                                                      $
                                                                      7,446Adjustments
      to reconcile net income to net cash used in operating
      activities:Estimated
      uncollectible revenue
                                                                      
                                                                      
                                                                      14,606
                                                                      
                                                                      
                                                                      
                                                                      14,318Deferred
      income taxes
                                                                      
                                                                      
                                                                      2,111
                                                                      
                                                                      
                                                                      
                                                                      3,038Depreciation
                                                                      
                                                                      
                                                                      1,356
                                                                      
                                                                      
                                                                      
                                                                      1,114Debt
      discount amortization
                                                                      
                                                                      
                                                                      751
                                                                      
                                                                      
                                                                      
                                                                      -Stock-based
      compensation
                                                                      
                                                                      
                                                                      124
                                                                      
                                                                      
                                                                      
                                                                      35Cash
      effect from changes in operating assets and liabilities:Restricted
      cash
                                                                      
                                                                      
                                                                      363
                                                                      
                                                                      
                                                                      
                                                                      (18
                                                                      )Notes
      receivable
                                                                      
                                                                      
                                                                      (24,433
                                                                      )
                                                                      
                                                                      
                                                                      (28,731
                                                                      )Accrued
      interest receivable
                                                                      
                                                                      
                                                                      73
                                                                      
                                                                      
                                                                      
                                                                      3Investment
      in special purpose entity
                                                                      
                                                                      
                                                                      30
                                                                      
                                                                      
                                                                      
                                                                      622Amounts
      due from affiliates
                                                                      
                                                                      
                                                                      96
                                                                      
                                                                      
                                                                      
                                                                      (613
                                                                      )Inventories
                                                                      
                                                                      
                                                                      (2,661
                                                                      )
                                                                      
                                                                      
                                                                      (3,903
                                                                      )Prepaid
      and other assets
                                                                      
                                                                      
                                                                      515
                                                                      
                                                                      
                                                                      
                                                                      2,178Accounts
      payable and accrued expenses
                                                                      
                                                                      
                                                                      453
                                                                      
                                                                      
                                                                      
                                                                      (2,121
                                                                      )Accrued
      interest payable
                                                                      
                                                                      
                                                                      139
                                                                      
                                                                      
                                                                      
                                                                      285Unearned
      Vacation Interval sales
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (91
                                                                      )Unearned
      samplers
                                                                      
                                                                      
                                                                      96
                                                                      
                                                                      
                                                                      
                                                                      76Income
      taxes payable
                                                                      
                                                                      
                                                                      (254
                                                                      )
                                                                      
                                                                      
                                                                      73Net
      cash used in operating activities
                                                                      
                                                                      
                                                                      (2,048
                                                                      )
                                                                      
                                                                      
                                                                      (6,289
                                                                      )INVESTING
      ACTIVITIES:Purchases
      of land, equipment, buildings, and leasehold improvements
                                                                      
                                                                      
                                                                      (1,705
                                                                      )
                                                                      
                                                                      
                                                                      (6,212
                                                                      )Net
      cash used in investing activities
                                                                      
                                                                      
                                                                      (1,705
                                                                      )
                                                                      
                                                                      
                                                                      (6,212
                                                                      )FINANCING
      ACTIVITIES:Proceeds
      from borrowings of debt
                                                                      
                                                                      
                                                                      55,069
                                                                      
                                                                      
                                                                      
                                                                      51,888Payments
      of debt and capital leases
                                                                      
                                                                      
                                                                      (55,032
                                                                      )
                                                                      
                                                                      
                                                                      (42,053
                                                                      )Restricted
      cash reserved for payments of debt
                                                                      
                                                                      
                                                                      (431
                                                                      )
                                                                      
                                                                      
                                                                      (101
                                                                      )Proceeds
      from exercise of stock options
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      68Net
      cash (used in) provided by financing activities
                                                                      
                                                                      
                                                                      (394
                                                                      )
                                                                      
                                                                      
                                                                      9,802Net
      change in cash and cash equivalents
                                                                      
                                                                      
                                                                      (4,147
                                                                      )
                                                                      
                                                                      
                                                                      (2,699
                                                                      )CASH
      AND CASH EQUIVALENTS:Beginning
      of period
                                                                      
                                                                      
                                                                      11,431
                                                                      
                                                                      
                                                                      
                                                                      13,170End
      of period
                                                                      
                                                                      $
                                                                      7,284
                                                                      
                                                                      
                                                                      $
                                                                      10,471SUPPLEMENTAL
      CASH FLOW INFORMATION:Interest
      paid, net of amounts capitalized
                                                                      
                                                                      $
                                                                      4,933
                                                                      
                                                                      
                                                                      $
                                                                      5,009Income
      taxes paid
                                                                      
                                                                      $
                                                                      1,178
                                                                      
                                                                      
                                                                      $
                                                                      -





The
accompanying notes are an integral part of these condensed consolidated
financial statements.





5
 Table of Contents





SILVERLEAF
RESORTS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





Note
1 – Background





The
primary business of Silverleaf Resorts, Inc. (the “Company,” “Silverleaf,” “we,”
or “our”) is marketing and selling vacation intervals (“Vacation Intervals”)
related to our 13 owned resorts.  The condensed consolidated financial
statements should be read in conjunction with our audited consolidated financial
statements and footnotes included in our Form 10-K for the year ended December
31, 2008, as filed with the Securities and Exchange Commission (“SEC”), as well
as all financial information contained in interim and other reports filed with
the SEC since then.  The accounting policies used in preparing these
condensed consolidated financial statements are consistent with those described
in such Form 10-K.  In addition, operating results for the three
months ended March 31, 2009 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2009.





Note
2 – Significant Accounting Policies Summary





Basis of Presentation —The
accompanying condensed consolidated financial statements have been prepared in
conformity with accounting policies generally accepted in the United States of
America for interim financial information and in accordance with the rules and
regulations of the SEC.  Accordingly, these financial statements do
not include certain information and disclosures required by GAAP for complete
financial statements.  However, in the opinion of management, all
adjustments, consisting of normal recurring adjustments and accruals, considered
necessary for a fair presentation have been included.





Use of Estimates — The
preparation of these condensed consolidated financial statements requires the
use of management’s estimates and assumptions in determining the carrying values
of certain assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the condensed consolidated financial statements, and
the reported amounts for certain revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant management
estimates include the allowance for uncollectible notes, estimates for income
taxes, valuation of our investment in Silverleaf Finance III, LLC (“SF-III”),
our wholly-owned off-balance-sheet qualified special purpose finance subsidiary,
and the future sales plan and estimated recoveries used to allocate certain
costs to inventory phases and cost of sales.





Principles of Consolidation —The condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, excluding SF-III. All significant
intercompany accounts and transactions have been eliminated in the condensed
consolidated financial statements.





Timeshare Accounting Practices —We follow industry specific guidance established by Statement of
Financial Accounting Standards No. 152, “Accounting for Real Estate Time-Sharing
Transactions” (“SFAS No. 152”).  In general, SFAS No. 152 provides
guidance on determining revenue recognition for timeshare transactions,
evaluation of uncollectibility of Vacation Interval receivables, accounting for
costs of Vacation Interval sales, accounting for operations during holding
periods (or incidental operations), and other accounting transactions specific
to timeshare operations.





Revenue and Expense Recognition
(including Cost of Sales) —Vacation Interval sales are primarily
consummated in exchange for installment notes receivable secured by deeds of
trust on each Vacation Interval sold.  If development costs related to
a particular project or phase are complete, we recognize related Vacation
Interval sales under the full accrual method after a binding sales contract has
been executed, the buyer has made a down payment of at least 10%, and the
statutory rescission period has expired.  If all such criteria are met
yet significant development costs remain to complete the project or phase,
revenues are recognized on the percentage-of-completion basis.  Under
this method, once the sales criteria are met, revenues are recognized
proportionate to costs already incurred relative to total costs expected for the
project or phase.  As of March 31, 2009, no sales were deferred
related to the percentage-of-completion method.





Both of
these revenue recognition methods employ the relative sales value method in
determining related costs of sales and inventory applicable to each Vacation
Interval sale recognized. Under the relative sales value method, a cost of sales
percentage is used to apply costs to related sales as follows:





·
            Total
      revenues to be recognized over an entire project or phase, considering
      both revenues recognized to date plus estimated revenues to be recognized
      over future periods (considering an estimate of uncollectibility and
      subsequent resale of recovered Vacation Intervals), are
      determined.





6
 Table of Contents





·
            Total
      costs of a project or phase, considering both costs already incurred plus
      estimated costs to complete the phase, if any, are determined. Common
      costs, including amenities, are included in total estimated costs and
      allocated to inventory phases that such costs are expected to
      benefit.


·
            The
      cost of sales ratio applied to each sale represents total estimated costs
      as a percentage of total estimated revenues, which is specific to each
      inventory phase.  Generally, each building type is considered a
      separate phase.





The
estimate of total revenue for a particular phase also 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 sales programs to sell slow moving inventory units.  At least
quarterly, we evaluate the estimated cost of sales percentage applied to each
sale using updated information for total estimated phase revenue and total
estimated phase costs.  The effects of changes in estimates are
accounted for in the period in which such changes first become known on a
retrospective basis, such that the balance sheet at the end of the period of
change and the accounting in subsequent periods reflect the revised estimates as
if such estimates had been the original estimates.





As
mentioned, certain Vacation Interval sales transactions are deferred until the
minimum down payment has been received.  We account for these
transactions utilizing the deposit method. Under this method, the sale is not
recognized, a receivable is not recorded, and inventory is not relieved. Any
cash received is carried as a deposit until the sale can be recognized. When
these types of sales are cancelled without a refund, deposits forfeited are
recognized as other income and the interest portion is recognized as interest
income.  This income is not significant.





We also
sell additional and upgraded Vacation Intervals to existing
owners.  Revenues are recognized on an additional Vacation Interval
sale, which represents a new Vacation Interval sale treated as a separate
transaction from the original Vacation Interval sale, when the buyer makes a
down payment of at least 10%, excluding any equity from the original Vacation
Interval purchased.  Revenues are recognized on an upgrade Vacation
Interval sale, which is a modification and continuation of the original sale, by
including the buyer’s equity from the original Vacation Interval towards the
down payment of at least 10%.  Revenue recognized on upgrade Vacation
Interval sales represents the difference between the upgrade sales price and
traded-in sales price, while related cost of sales represents the incremental
increase in the cost of the Vacation Interval purchased.





Interest
income is recognized as earned.  Interest income is accrued on notes
receivable, net of an estimated amount that will not be collected, until the
individual notes become 90 days delinquent.  Once a note becomes 90
days delinquent, the accrual of interest income ceases until collection is
deemed probable.





Management
fees for services provided to Silverleaf Club and Orlando Breeze Resort Club are
recognized in the period such services are provided if collection is deemed
probable.





Services
and other income are recognized in the period such services are
provided.





Sales and
marketing costs are recognized in the period incurred.  Commissions,
however, are recognized in the period the related revenues are
recognized.





Cash and Cash Equivalents —Cash and cash equivalents consist of all highly liquid investments with
an original maturity at the date of purchase of three months or
less.  Cash and cash equivalents include cash, certificates of
deposit, and money market funds.





Restricted Cash — Restricted
cash consists of certificates of deposit, collateral for construction bonds,
surety bonds, and cash reserved for payments of debt.





Allowance for Uncollectible Notes —Estimated uncollectible revenue is recorded at an amount sufficient to
maintain the allowance for uncollectible notes at a level management considers
adequate to provide for anticipated losses resulting from customers' failure to
fulfill their obligations under the terms of their notes.  The
allowance for uncollectible notes is adjusted based upon a periodic static-pool
analysis of the notes receivable portfolio, which tracks uncollectible notes for
each year’s sales over the lives of the notes.  Other factors
considered in the assessment of uncollectibility include the aging of notes
receivable, historical collection experience and credit losses, customer credit
scores (FICO® scores), and current economic factors.




7
 Table of Contents





Credit
losses represent three varieties as follows:





·
            A
      full cancellation, whereby a customer is relieved of the note obligation
      and we recover the underlying
inventory,


·
            A
      deemed cancellation, whereby we record the cancellation of all notes that
      become 90 days delinquent, net of notes that are no longer 90 days
      delinquent, and


·
            A
      note receivable reduction that occurs when a customer trades a higher
      value product for a lower value
product.





The
allowance for uncollectible notes is reduced by actual cancellations and losses
experienced, including losses related to previously sold notes receivable which
became delinquent and were reacquired pursuant to certain recourse obligations.
Recourse on sales of customer notes receivable is governed by agreements between
us and the purchasers of said notes, though we typically do not have an
obligation to repurchase defaulted notes held by our financing
subsidiaries.





Investment in Special Purpose
Entity — In 2005, we consummated a securitization transaction with
SF-III, which is a qualified special purpose entity (“SPE”) formed for the
purpose of issuing $108.7 million of Timeshare Loan-Backed Notes Series 2005-A
(“Series 2005-A Notes”) in a private placement.  In connection with
this transaction, we sold SF-III $132.8 million in timeshare receivables that
were previously pledged as collateral under revolving credit facilities with our
senior lenders and Silverleaf Finance I, Inc. (“SF-I”), our former qualified SPE
which was dissolved in 2005.  This transaction qualified as a sale for
accounting purposes.  The Series 2005-A Notes are secured by timeshare
receivables we sold to SF-III.  The timeshare receivables we sold to
SF-III are without recourse, except for breaches of certain representations and
warranties at the time of sale.  Pursuant to the terms of an
agreement, we continue servicing these timeshare receivables and receive fees
for our services.  As such fees approximate both our internal cost of
servicing such timeshare receivables and fees a third party would charge to
service such receivables, the related servicing asset or liability was estimated
to be insignificant.





We
account for and evaluate the investment in our SPE in accordance with Statement
of Financial Accounting Standards No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS No.
140”), EITF 99-20, “Recognition of Interest Income and Impairment on Purchased
Beneficial Interests and Beneficial Interests That Continue to Be Held by a
Transferor in Securitized Financial Assets,” and Statement of Financial
Accounting Standards No. 115, “Accounting for Certain Investments in Debt and
Equity Securities,” as applicable.  Effective January 1, 2007, SFAS
No. 140 was amended by Statement of Financial Accounting Standards No. 156,
“Accounting for Servicing of Financial Assets” (“SFAS No. 156”), which did not
affect the manner in which we account for our investment in our
SPE.  On January 1, 2008, we adopted the provisions of Statement of
Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No.
157”), which also amended SFAS No. 140.  Although the adoption of SFAS
No. 157 did not impact the method in which we calculate the fair value of the
investment in our SPE, expanded disclosures regarding fair value measurements
were required.  See Note 6.  In December 2008, we adopted
the provisions of FASB Staff Position (“FSP”) FAS 140-4 and FIN 46(R)-8,
“Disclosures by Public Entities (Enterprises) about Transfers of Financial
Assets and Interests in Variable Interest Entities.”  The adoption of
FSP FAS 140-4 and FIN 46(R)-8 required expanded disclosures, which are included
herein.





In
accordance with SFAS No. 140, our bases for classifying SF-III as a qualified
SPE are (i) SF-III is demonstrably distinct from the transferor as dissolution
of the SPE would require an affirmative vote of 100% of the SPE’s Board of
Directors, one of which is independent, (ii) prescribed restrictions on
permitted activities sufficiently limit the SPE’s authority, and (iii) financial
assets transferred to the SPE are passive in nature.





The fair
value of the investment in our SPE is estimated based on the present value of
future cash flows we expect to receive from the notes receivable
sold.  We utilized the following key assumptions to estimate the fair
value of such cash flows: customer prepayment rate (including expected accounts
paid in full as a result of upgrades) – 15.9% to 23.7%; expected credit losses –
16.2%; discount rate – 0% to 44.9%; base interest rate – 5.37%; and loan
servicing fees – 1.75%.  Our assumptions are based on experience with
our notes receivable portfolio, available market data, estimated prepayments,
the cost of servicing, and net transaction costs.  Such assumptions
are assessed quarterly and, if necessary, adjustments are made to the carrying
value of the investment in our SPE on a prospective basis as a change in
accounting estimate, with the amount of periodic interest accretion adjusted
over the remaining life of the beneficial interest.  The carrying
value of the investment in our SPE represents our maximum exposure to loss
regarding our involvement with our SPE.  We periodically review the
carrying value of our investment in SPE for impairment to ensure that the
carrying value does not exceed market value.





8
 Table of Contents





Inventories —Inventories are
stated at the lower of cost or market value less cost to sell.  Cost
includes amounts for land, construction materials, amenities and common costs,
direct labor and overhead, taxes, and capitalized interest incurred in the
construction or through the acquisition of resort dwellings held for timeshare
sale.  At March 31, 2009, the estimated costs not yet incurred but
expected to complete promised amenities was $503,000.  Inventory costs
are allocated to cost of Vacation Interval sales using the relative sales value
method, as described above.  We periodically review the carrying value
of our inventory on an individual project basis for impairment to ensure that
the carrying value does not exceed market value.





Vacation
Intervals may be reacquired as a result of (i) foreclosure (or deed in lieu of
foreclosure) or (ii) trade-in associated with the purchase of an upgraded or
downgraded Vacation Interval. Vacation Intervals reacquired are recorded in
inventory at the lower of their original cost or market value.





Land, Equipment, Buildings, and
Leasehold Improvements — Land, equipment (including equipment under
capital lease), buildings, and leasehold improvements are stated at
cost.  When assets are disposed of, the cost and related accumulated
depreciation are removed, and any resulting gain or loss is reflected in income
for the period.  Maintenance and repairs are charged to expense as
incurred.  Significant betterments and renewals, which extend the
useful life of a particular asset, are capitalized.  Depreciation is
calculated for all fixed assets, other than land, using the straight-line method
over the estimated useful life of the assets, which range from 3 to 20
years.





Valuation of Long-Lived
Assets — We assess potential impairments to our long-lived assets,
including land, equipment, buildings, and leasehold improvements, whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.  If circumstances require a long-lived asset
be tested for possible impairment, we compare undiscounted cash flows expected
to be generated by an asset to the carrying value of the asset.  If
the carrying value of the long-lived asset is not recoverable on an undiscounted
cash-flow basis, an impairment is recognized to the extent that the carrying
value exceeds its fair value.  Fair value is determined through
various valuation techniques including discounted cash-flow models, quoted
market values, and third-party independent appraisals, as considered
necessary.  We did not recognize any impairments for our long-lived
assets in the first three months of 2009 and 2008.





Prepaid and Other Assets —
Prepaid and other assets consist primarily of prepaid insurance, prepaid
postage, commitment fees, debt issuance costs, deferred commissions, novelty
inventories, deposits, collected cash in senior lender lock boxes which has not
yet been applied to related loan balances, and miscellaneous
receivables.  Commitment fees and debt issuance costs are amortized
over the lives of the related debt.





Income Taxes —Deferred
income taxes are recorded for temporary differences between the basis of assets
and liabilities as recognized by tax laws and their carrying values as reported
in the condensed consolidated financial statements. A provision or benefit is
recognized for deferred income taxes relating to such temporary
differences.  To the extent a deferred tax asset does not meet the
"more likely than not" criteria for realization, a valuation allowance is
recorded.  We classify interest and penalties within the provision for
income taxes.  However, for the three months ended March 31, 2009 and
2008, such charges have not been material.  Our federal tax return
includes all items of income, gain, loss, expense, and credit of SF-III, which
is a non-consolidated subsidiary for reporting purposes and a disregarded entity
for federal income tax purposes.  We have a tax sharing agreement with
SF-III.





We file
U.S. federal income tax returns as well as income tax returns in various
states.  We are no longer subject to income tax examinations by the
Internal Revenue Service for years prior to 2004, although carryforward
attributes that were generated prior to 2004 may still be subject to
examination.  For the majority of state tax jurisdictions, we are no
longer subject to income tax examinations for years prior to 2004.  In
the state of Texas, we are no longer subject to franchise tax examinations for
years prior to 2003.





As of
March 31, 2009, we had no unrecognized tax benefits and, as a result, no
benefits that would affect our effective income tax rate. We do not anticipate
any significant changes related to unrecognized tax benefits in the next 12
months.  As of March 31, 2009, we did not require an accrual for
interest and penalties related to unrecognized tax benefits.





Derivative Financial Instruments —All derivatives, whether designed as hedging relationships or not, are
required to be recorded on the balance sheet at fair
value.  Accounting for changes in the fair value of derivatives
depends on the intended use of the derivative and the resulting
designation.  Derivatives used to hedge exposure to changes in the
fair value of an asset, liability, or firm commitment attributable to a
particular risk, such as interest rate risk, are considered fair value
hedges.  Derivatives used to hedge exposure to variability in expected
future cash flows, or other types of forecasted transactions, are considered
cash flow hedges.





9
 Table of Contents





For
derivatives designated as fair value hedges, changes in the fair value of the
derivative and the hedged item related to the hedged risk are recognized in
earnings.  For derivatives designated as cash flow hedges, the
effective portion of changes in the fair value of the derivative is initially
reported in other comprehensive income (outside of earnings) and subsequently
reclassified to earnings when the hedged transaction affects earnings, while the
ineffective portion of changes in the fair value of the derivative is recognized
directly in earnings.  We assess the effectiveness of each hedging
relationship by comparing the changes in fair value or cash flows of the
derivative hedging instrument with the changes in fair value or cash flows of
the designated hedged item or transaction.  For derivatives not
designated as hedges, changes in the fair value are recognized in
earnings.





Our
objective in using derivatives is to increase stability related to interest
expense and to manage our exposure to interest rate movements or other
identified risks.  To accomplish this objective, we primarily use
interest rate swaps and caps within our cash-flow hedging
strategy.  Interest rate swaps involve the receipt of variable-rate
amounts in exchange for fixed-rate payments over the life of the agreements
without exchange of the underlying principal amount.  Interest rate
caps provide interest rate protection above the strike rate on the cap and
result in our receipt of interest payments when actual rates exceed the cap
strike.  We recognize changes in fair value of our derivatives in
earnings.  The amounts recognized for such derivatives for the three
months ended March 31, 2009 and 2008 were not significant.





Earnings Per Share — Basic
earnings per share is computed by dividing net income by the weighted average
common shares outstanding during the period.  Earnings per share
assuming dilution is computed by dividing net income by the weighted average
number of common shares and potentially dilutive shares outstanding during the
period.  The number of potentially dilutive shares is computed using
the treasury stock method, which assumes that the increase in the number of
common shares resulting from the exercise of stock options is reduced by the
number of common shares that we could have repurchased with the proceeds from
the exercise of stock options.





Stock-Based Compensation— We
adopted Statement of Financial Accounting Standards No. 123R, “Share Based
Payment” (“SFAS No. 123R”), as of January 1, 2006, using the modified
prospective method for all stock options granted on or prior to December 31,
2005 that were outstanding as of that date.  Under this transition
method, compensation cost is recognized for the unvested portion of stock option
grants outstanding at December 31, 2005 over the remaining requisite service
period using the fair value for these options as estimated at the date of grant
using the Black-Scholes option-pricing model under the original provisions of
SFAS No. 123 for pro-forma disclosure purposes. We recognize stock-based
compensation for all stock options granted after the adoption of SFAS No. 123R
over the requisite service period using the fair value for these options as
estimated at the date of grant using the Black-Scholes option-pricing
model.





For the
three months ended March 31, 2009 and 2008, we recognized stock-based
compensation of $124,000 and $35,000, respectively.  Stock-based
compensation expense for the three months ended March 31, 2009 is related to the
stock options granted during the third quarter of 2008, while stock-based
compensation expense for the comparable period of 2008 is related to the stock
options granted prior to 2006.  There were no stock options granted
during the three months ended March 31, 2009 and 2008.  As of March
31, 2009, unamortized stock-based compensation expense was $2.1 million, which
will be fully recognized by the third quarter of 2013.





The
following table summarizes our outstanding stock options for the three months
ended March 31, 2009 and 2008:





2009
                                            
                                            
                                            2008Options
      outstanding, January 1
                                            
                                            
                                            3,790,307
                                            
                                            
                                            
                                            2,513,807Granted
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —Exercised
                                            
                                            
                                            —
                                            
                                            
                                            
                                            (230,000
                                            )Expired
                                            
                                            
                                            (5,000
                                            )
                                            
                                            
                                            (40,000
                                            )Forfeited
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —Options
      outstanding, March 31
                                            
                                            
                                            3,785,307
                                            
                                            
                                            
                                            2,243,807Exercisable,
      March 31
                                            
                                            
                                            1,785,307
                                            
                                            
                                            
                                            2,154,807





The
weighted average exercise price of the 230,000 stock options exercised during
the first three months of 2008 was $0.30 per share, and the intrinsic value was
$555,000.





Stock Repurchase Program— On
July 29, 2008, we authorized the repurchase of up to two million shares of our
common stock to be acquired from time to time in the open market or in
negotiated transactions.  This stock repurchase program expires in
July 2010.  We did not repurchase any treasury shares in the first
quarter of 2009.  As of March 31, 2009, 1,943,789 shares remain
available for repurchase under this program.





10
 Table of Contents





Other Recent Accounting
Pronouncements—





SFAS No. 157– SFAS No.
157 defines fair value, establishes a market-based framework or hierarchy for
measuring fair value, and expands disclosures about fair value
measurements.  SFAS No. 157 is applicable whenever another accounting
pronouncement requires or permits assets and liabilities to be measured at fair
value. SFAS No. 157 does not expand or require any new fair value
measures.  In February 2008, the FASB issued FSP No. 157-2, which
deferred its effective date for one year relative to non-financial assets and
liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis.  Accordingly, our adoption of this
standard on January 1, 2008 was limited to financial assets and liabilities,
which primarily affected the disclosures for the investment in our SPE and our
derivative contracts as shown in Note 6.  This adoption did not impact
our consolidated financial position, results of operations, or cash
flows.  On January 1, 2009, we adopted the remaining aspects of SFAS
No. 157, which apply to our non-financial long-lived assets (land, equipment,
buildings, and leasehold improvements) which are measured at fair value based on
a periodic impairment assessment.  This adoption resulted in
additional disclosures for land, equipment, buildings, and leasehold
improvements, which are included herein; however the adoption of SFAS No. 157
for these assets did not impact our consolidated financial position, results of
operations, or cash flows.





SFAS No. 141R–In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141 (revised 2007), “Business Combinations” (“SFAS No. 141R”), which changes the
accounting for business combinations including the following: (i) the
measurement of acquirer shares issued in consideration for a business
combination, (ii) the recognition of contingent consideration, (iii) the
accounting for preacquisition gain and loss contingencies, (iv) the recognition
of capitalized in-process research and development, (v) the accounting for
acquisition-related restructuring cost accruals, (vi) the treatment of
acquisition related transaction costs, and (vii) the recognition of changes in
the acquirer’s income tax valuation allowance.  SFAS No. 141R is
effective prospectively for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning
after December 15, 2008.  The adoption of SFAS No. 141(R) on January
1, 2009 did not impact our consolidated financial position, results of
operations, or cash flows as we do not have any planned acquisitions that fall
under the definition of a business combination.





SFAS No. 160– In December
2007, the FASB issued Statement of Financial Accounting Standards No. 160,
“Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No.
160”).  SFAS No. 160 amends Accounting Research Bulletin No. 51,
“Consolidated Financial Statements,” and Financial Accounting Standards Board
Statement No. 128, “Earnings Per Share.”  A noncontrolling interest is
defined in SFAS No. 160 as the portion of equity in a subsidiary not
attributable, directly or indirectly, to a parent.  SFAS No. 160
states that accounting and reporting for minority interests shall be
recharacterized as noncontrolling interests and classified as a component of
equity.  SFAS No. 160 applies to all entities that prepare
consolidated financial statements, except not-for-profit
organizations.  SFAS No. 160 is effective prospectively for fiscal
years beginning after December 15, 2008.  The adoption of SFAS No. 160
on January 1, 2009 did not impact our consolidated financial position, results
of operations, or cash flows as we do not own minority interests in any
entities.





SFAS No. 161–In
March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No.
161”). SFAS No. 161 amends and expands the disclosure requirements of Statement
of Financial Accounting Standard No. 133, “Accounting for Derivative Instruments
and Hedging Activities” (“SFAS No. 133”).  Entities are required to
provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  SFAS No. 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008.  The adoption of SFAS No. 161 on
January 1, 2009 did not impact our consolidated financial position, results of
operations, or cash flows. Disclosures regarding our derivative instruments and
hedging activities are included in Note 2 and in disclosures related to interest
rate risk and market risk.





SFAS No. 162 –In May 2008,
the FASB issued Statement of Financial Accounting Standards No. 162, “The
Hierarchy of Generally Accepted Accounting Principles” (“SFAS No.
162”).  SFAS No. 162 identifies the sources of accounting principles
and a framework for selecting the principles to be used in preparation of
financial statements of nongovernmental entities that are prepared in conformity
with generally accepted accounting principles in the United States (“the GAAP
hierarchy”).  The current GAAP hierarchy is set forth in the AICPA
Statement on Auditing Standards No. 69, “The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles” (“SAS No.
69”).  However, the FASB believes the GAAP hierarchy should be
directed to entities rather than auditors because the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with GAAP.  SFAS No. 162 was effective November 15,
2008.  The adoption of SFAS No. 162 did not impact our consolidated
financial position, results of operations, or cash flows.





11
 Table of Contents





Note
3 – Earnings Per Share





The
following table illustrates the reconciliation between basic and diluted
weighted average common shares outstanding for the three months ended March 31,
2009 and 2008:





2009
                              
                              
                              2008Weighted
      average shares outstanding - basic
                              
                              
                              38,146,943
                              
                              
                              
                              37,926,835Issuance
      of shares from stock options exercisable
                              
                              
                              1,294,807
                              
                              
                              
                              1,839,389Repurchase
      of shares from stock options proceeds
                              
                              
                              (618,580
                              )
                              
                              
                              (388,629
                              )Weighted
      average shares outstanding - diluted
                              
                              
                              38,823,170
                              
                              
                              
                              39,377,595





Outstanding
stock options totaling 1.3 million and 1.7 million were dilutive securities that
were included in the computation of diluted earnings per share at March 31, 2009
and 2008, respectively.  Outstanding stock options totaling 2.5
million and 527,000 were not dilutive at March 31, 2009 and 2008, respectively,
because the exercise price for such options exceeded the average market price
for our common shares for the three-month periods ended March 31, 2009 and 2008,
respectively.





Note 4–Notes Receivable





We
provide financing to the purchasers of Vacation Intervals in the form of notes
receivable, which are collateralized by their interest in such Vacation
Intervals.  Such notes receivable generally have initial terms of
seven to ten years.  The weighted average yield on outstanding notes
receivable at March
31, 2009 and 2008 was 16.8% and 16.6%, respectively, with individual
rates ranging from 0% to 17.9%.  As of March 31, 2009, $1.1 million of
timeshare notes receivable have interest rates below 10%.  In
connection with the sampler program, we routinely enter into notes receivable
with terms of 10 months.  Notes receivable from sampler sales were
$2.6 million and $3.4 million at March 31, 2009 and
2008, respectively, and are non-interest bearing.





We
consider accounts over 60 days past due to be delinquent.  As of March
31, 2009, $5.5 million of notes receivable, net of accounts charged off, were
considered delinquent.  An additional $35.3 million of notes
receivable, of which $30.7 million is pledged to senior lenders, would have been
considered to be delinquent had we not granted payment concessions to the
customers, which brings a delinquent note current and extends the maturity date
once a payment is made.





Notes
receivable are scheduled to mature as follows at March 31, 2009 (in
thousands):





For
      the 12-Month Period Ending March 31,2010
                  
                  $
                  44,4992011
                  
                  
                  45,3742012
                  
                  
                  52,0022013
                  
                  
                  56,6552014
                  
                  
                  57,317Thereafter
                  
                  
                  148,815404,662Less
      allowance for uncollectible notes
                  
                  
                  (74,529
                  )Notes
      receivable, net
                  
                  $
                  330,133





The
activity in gross notes receivable is as follows for the three months ended
March 31, 2009 and 2008 (in thousands):





2009
                              
                              
                              2008Balance,
      beginning of period
                              
                              $
                              397,002
                              
                              
                              $
                              359,035Sales
                              
                              
                              45,023
                              
                              
                              
                              50,456Collections
                              
                              
                              (20,590
                              )
                              
                              
                              (21,725
                              )Receivables
      charged off, gross
                              
                              
                              (16,773
                              )
                              
                              
                              (13,045
                              )Balance,
      end of period
                              
                              $
                              404,662
                              
                              
                              $
                              374,721





The
activity in the allowance for uncollectible notes is as follows for the three
months ended March 31, 2009 and 2008 (in thousands):





2009
                              
                              
                              2008Balance,
      beginning of period
                              
                              $
                              76,696
                              
                              
                              $
                              69,128Estimated
      uncollectible revenue
                              
                              
                              14,606
                              
                              
                              
                              14,318Receivables
      charged off, gross
                              
                              
                              (16,773
                              )
                              
                              
                              (13,045
                              )Balance,
      end of period
                              
                              $
                              74,529
                              
                              
                              $
                              70,401




12
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Note
5 – Debt





The
following table summarizes our notes payable, capital lease obligations, and
senior subordinated notes at March 31, 2009 and December 31, 2008 (in
thousands):




March
      31, 2009
                                                                                                
                                                                                                
                                                                                                December
      31, 2008
                                                                                                
                                                                                                
                                                                                                Revolving
      Term
                                                                                                
                                                                                                Maturity$100
      million receivables-based revolver ($100 million maximum combined
      receivable, inventory, and acquisition commitments, see inventory /
      acquisition component below)
                                                                                                
                                                                                                $
                                                                                                42,187
                                                                                                
                                                                                                
                                                                                                $
                                                                                                31,284
                                                                                                
                                                                                                
                                                                                                1/31/10
                                                                                                
                                                                                                1/31/13$20
      million receivables-based revolver
                                                                                                
                                                                                                
                                                                                                11,019
                                                                                                
                                                                                                
                                                                                                
                                                                                                9,746
                                                                                                
                                                                                                
                                                                                                6/29/10
                                                                                                
                                                                                                6/29/10$50
      million receivables-based revolver
                                                                                                
                                                                                                
                                                                                                6,775
                                                                                                
                                                                                                
                                                                                                
                                                                                                5,789
                                                                                                
                                                                                                
                                                                                                8/31/11
                                                                                                
                                                                                                8/31/14$150
      million receivables-based revolver
                                                                                                
                                                                                                
                                                                                                91,567
                                                                                                
                                                                                                
                                                                                                
                                                                                                70,183
                                                                                                
                                                                                                
                                                                                                9/03/09
                                                                                                
                                                                                                9/03/11$72.5
      million receivables-based revolver
                                                                                                
                                                                                                
                                                                                                27,548
                                                                                                
                                                                                                
                                                                                                
                                                                                                43,504
                                                                                                
                                                                                                
                                                                                                7/02/10
                                                                                                
                                                                                                7/02/13$66.4
      million receivables-based non-revolving conduit loan
                                                                                                
                                                                                                
                                                                                                5,195
                                                                                                
                                                                                                
                                                                                                
                                                                                                6,549
                                                                                                
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                3/22/14$26.3
      million receivables-based non-revolving conduit loan
                                                                                                
                                                                                                
                                                                                                3,303
                                                                                                
                                                                                                
                                                                                                
                                                                                                4,140
                                                                                                
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                9/22/11$128.1
      million receivables-based non-revolver
                                                                                                
                                                                                                
                                                                                                38,502
                                                                                                
                                                                                                
                                                                                                
                                                                                                43,526
                                                                                                
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                7/16/18$115.4
      million receivables-based non-revolver, including a total remaining
      discount of approximately $5.1 million
                                                                                                
                                                                                                
                                                                                                75,118
                                                                                                
                                                                                                
                                                                                                
                                                                                                84,885
                                                                                                
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                3/15/20Inventory
      / acquisition loan agreement (see $100 million receivables-based revolver
      above)
                                                                                                
                                                                                                
                                                                                                26,007
                                                                                                
                                                                                                
                                                                                                
                                                                                                28,407
                                                                                                
                                                                                                
                                                                                                1/31/10
                                                                                                
                                                                                                1/31/12$50
      million inventory loan agreement
                                                                                                
                                                                                                
                                                                                                36,704
                                                                                                
                                                                                                
                                                                                                
                                                                                                34,464
                                                                                                
                                                                                                
                                                                                                4/29/10
                                                                                                
                                                                                                4/29/12Various
      notes, due from November 2009 through August 2016, collateralized by
      various assets
                                                                                                
                                                                                                
                                                                                                4,563
                                                                                                
                                                                                                
                                                                                                
                                                                                                4,684
                                                                                                
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                variousTotal
      notes payable
                                                                                                
                                                                                                
                                                                                                368,488
                                                                                                
                                                                                                
                                                                                                
                                                                                                367,161Capital
      lease obligations
                                                                                                
                                                                                                
                                                                                                1,678
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,910
                                                                                                
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                variousTotal
      notes payable and capital lease obligations
                                                                                                
                                                                                                
                                                                                                370,166
                                                                                                
                                                                                                
                                                                                                
                                                                                                369,0718.0%
      senior subordinated notes
                                                                                                
                                                                                                
                                                                                                22,814
                                                                                                
                                                                                                
                                                                                                
                                                                                                23,121
                                                                                                
                                                                                                
                                                                                                
                                                                                                —
                                                                                                
                                                                                                4/01/10Total
                                                                                                
                                                                                                $
                                                                                                392,980
                                                                                                
                                                                                                
                                                                                                $
                                                                                                392,192




At March
31, 2009, our senior credit facilities provided for loans of up to $535.9
million, of which $172.0 million was available for future
advances.  Our weighted average cost of borrowings was 6.4% for each
of the three-month periods ended March 31, 2009 and 2008.





In
February 2009, we retired $307,000 of 8.0% senior subordinated notes, due April
2010, for $246,000, which resulted in a gain of approximately
$61,000.





Note
6 – Fair Value Measurements





SFAS No.
157 established a fair value hierarchy to increase consistency and comparability
in fair value measurements and related disclosures.  The fair value
hierarchy is based on inputs to valuation techniques that are used to measure
fair value that are either observable or unobservable.  Observable
inputs reflect assumptions market participants would use in pricing an asset or
liability based on market data obtained from independent sources while
unobservable inputs reflect a reporting entity’s pricing based upon its own
market assumptions.  The fair value hierarchy consists of the
following three levels:





Level
      1  -
            Inputs
      are quoted prices in active markets for identical assets or
      liabilities.


Level
      2  -
            Inputs
      are quoted prices for similar assets or liabilities in an active market,
      quoted prices for identical or similar assets or liabilities in markets
      that are not active, inputs other than quoted prices that are observable,
      and market-corroborated inputs derived principally from or corroborated by
      observable market data.


Level
      3  -
            Inputs
      are derived from valuation techniques in which one or more significant
      inputs or value drivers are
unobservable.





13
 Table of Contents





The
following table represents our assets measured at fair value on a recurring
basis as of March 31, 2009 and the basis for that measurement (in
thousands):





Fair Value Measurements at Reporting Date
      UsingDescription
                                              
                                              March
      31,2009
                                              
                                              
                                              Quoted
      Prices in Active Markets for Identical Assets
                                                (Level 1)
                                              
                                              
                                              Significant
      Other Observable Inputs
                                                (Level 2)
                                              
                                              
                                              Significant
      Unobservable Inputs
                                                (Level 3)Investment
      in special purpose entity
                                              
                                              $
                                              4,878
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              4,878Interest
      rate cap derivative
                                              
                                              
                                              5
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              5
                                              
                                              
                                              
                                              —Total
                                              
                                              $
                                              4,883
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              5
                                              
                                              
                                              $
                                              4,878





The
activity in the investment in our SPE measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) is as follows for the
three months ended March 31, 2009 and 2008 (in thousands):




2009
                                
                                
                                2008Balance,
      beginning of period
                                
                                $
                                4,908
                                
                                
                                $
                                7,315Net
      investment returns
                                
                                
                                (30
                                )
                                
                                
                                (622
                                )Balance,
      end of period
                                
                                $
                                4,878
                                
                                
                                $
                                6,693





Assets Measured at Fair Value on a
Non-Recurring Basis— We assess potential impairments to our long-lived
assets, including land, equipment, buildings, and leasehold improvements,
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.  For these assets, measurement at
fair value in periods subsequent to their initial recognition is applicable if
one or more is determined to be impaired.  During the three months
ended March 31, 2009 and 2008, we had no impairments related to these
assets.  See Note 2 for an additional disclosure regarding our
long-lived assets.





Note
7 – Subsidiary Guarantees





All
subsidiaries of the Company, except Silverleaf Finance II,
Inc. (“SF-II”), SF-III, Silverleaf Finance IV, LLC (“SF-IV”), Silverleaf
Finance V, L.P. (“SF-V”), and Silverleaf Finance VI, LLC (“SF-VI”), have
guaranteed our 8.0% senior subordinated notes of $22.8 million at March 31,
2009.  Separate financial statements and other disclosures concerning
these guaranteeing subsidiaries are not presented herein because such guarantees
are full and unconditional and joint and several, and such subsidiaries
represent wholly-owned subsidiaries of the Company.  In addition,
these subsidiaries had nominal balance sheets at March 31, 2009 and December 31,
2008, and no operations for the three months ended March 31, 2009 and
2008.





Note 8–Commitments and
Contingencies





Litigation –We
are currently subject to litigation arising in the normal course of our
business. From time to time, such litigation includes claims regarding
employment, tort, contract, truth-in-lending, the marketing and sale of Vacation
Intervals, and other consumer protection matters.  Litigation has been
initiated from time to time by persons seeking individual recoveries for
themselves, as well as, in some instances, persons seeking recoveries on behalf
of an alleged class.  In our judgment, none of the lawsuits currently
pending against us, either individually or in the aggregate, is expected to have
a material adverse effect on our business, results of operations, or financial
position.





Various
legal actions and claims may be instituted or asserted in the future against us
and our subsidiaries, including those arising out of our sales and marketing
activities and contractual arrangements.  Some of these matters may
involve claims, which, if granted, could be materially adverse to our financial
position.





As
litigation is subject to many uncertainties, the outcome of individual litigated
matters is not predictable with assurance. We will establish reserves from time
to time when deemed appropriate under generally acceptable accounting
principles. However, the outcome of a claim for which we have not deemed a
reserve to be necessary may be decided unfavorably against us and could require
us to pay damages or incur other expenditures that could be materially adverse
to our business, results of operations, or financial position.




14
 Table of Contents





Insurance Losses — On
September 13, 2008, Hurricane Ike caused property damage and business
interruption related to our Seaside Resort in Galveston, Texas, and our Piney
Shores Resort just north of Houston, Texas.  As a result, Seaside
Resort was closed from September 10 through October 17, at which time we began
taking reservations and gradually opening units.  The resort was fully
operational by December 12.  Piney Shores Resort was closed from
September 13 to September 25.  We maintain insurance that covers both
physical damage and business-interruption losses.  In the last half of
2008, we accrued $291,000 related to this incident, which represented our
insurance deductibles and expenditures deemed uncollectible.  No
additional expenses related to this incident were incurred in the first quarter
of 2009.  In addition, in February 2009, we received $1.5 million in
business-interruption proceeds, which was recorded in other income at the time
of receipt.





Note
9 – Subsequent Events





In April
2009, we retired $347,000 of 8.0% senior subordinated debt, due April 2010, for
$243,000, which resulted in a gain of approximately $104,000.





In April
2009, we received $879,000 in additional business-interruption proceeds related
to Hurricane Ike, which was recorded in other income.  These proceeds
were received upon completion of our assessment of the full extent of
business-interruption losses related to this hurricane.





In May
2009, we amended our $100 million consolidated receivables, inventory, and
acquisition revolving line of credit.  The revolving loan term of the
receivables component was extended from January 2010 to January
2011.  In addition, the maximum aggregate commitment under the
facility will be reduced from $100 million to $80 million effective July 8,
2009, and further reduced to $75 million effective December 31,
2009.  The commitment under the receivables financing arrangement is
the same as the total aggregate commitment, provided we have no borrowings under
either of the inventory or acquisition financing arrangements.  The
total availability under the inventory financing arrangement and the maximum
aggregate combined commitment for the inventory and acquisition financing
arrangements will be reduced from $50 million to $30 million effective July 8,
2009, and further reduced to $25 million effective December 31,
2009.  The commitment on the acquisition line will remain the same at
$10 million.  The total availability under the facility will continue
to be reduced by (a) the aggregate outstanding principal owned by this senior
lender of the Series 2008-A Notes related to SF-VI, which was $27.8 million at
March 31, 2009, and (b) an amount equal to 10.5%, or $892,000 at March 31, 2009,
of the outstanding principal of the two conduit loan facilities provided by this
senior lender to SF-II.  The maturity dates and interest rates for all
three components remained the same.





Item
2.    Management’s Discussion and Analysis of
Financial Condition and Results of Operations





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.





15
 Table of Contents





Executive
Overview





As of
March 31, 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 111,000 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 months ended March 31, 2009 and 2008:





2009
                              
                              
                              2008As
      a percentage of total revenues:Vacation
      Interval sales
                              
                              
                              92.9
                              %
                              
                              
                              97.1
                              %Estimated
      uncollectible revenue
                              
                              
                              (23.1
                              )%
                              
                              
                              (21.4
                              )%Net
      sales
                              
                              
                              69.8
                              %
                              
                              
                              75.7
                              %Interest
      income
                              
                              
                              24.5
                              %
                              
                              
                              21.6
                              %Management
      fee income
                              
                              
                              1.5
                              %
                              
                              
                              1.2
                              %Other
      income
                              
                              
                              4.2
                              %
                              
                              
                              1.5
                              %Total
      revenues
                              
                              
                              100.0
                              %
                              
                              
                              100.0
                              %As
      a percentage of Vacation Interval sales:Cost
      of Vacation Interval sales
                              
                              
                              10.2
                              %
                              
                              
                              7.5
                              %Sales
      and marketing
                              
                              
                              52.4
                              %
                              
                              
                              51.5
                              %As
      a percentage of total revenues:Operating,
      general and administrative
                              
                              
                              16.5
                              %
                              
                              
                              13.9
                              %Depreciation
                              
                              
                              2.1
                              %
                              
                              
                              1.7
                              %As
      a percentage of interest income:Interest
      expense and lender fees
                              
                              
                              45.9
                              %
                              
                              
                              42.1
                              %





Results
of Operations for the Three Months Ended March 31, 2009 and 2008





Revenues





Revenues
for the quarter ended March 31, 2009 were $63.2 million, representing a $3.9
million, or 5.8%, decrease compared to revenues for the quarter ended March 31,
2008.  As discussed below, the decrease is primarily attributable to a
$6.4 million decrease in Vacation Interval sales offset by a $1.7 million
increase in other income and a $1.0 million increase in interest income during
the quarter ended March 31, 2009.





The
following table summarizes our Vacation Interval sales for the three months
ended March 31, 2009 and 2008 (dollars in thousands, except average
price):





2009
                                                                                                                        
                                                                                                                        
                                                                                                                        2008Average
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        AverageSales
                                                                                                                        
                                                                                                                        
                                                                                                                        Intervals
                                                                                                                        
                                                                                                                        
                                                                                                                        Price
                                                                                                                        
                                                                                                                        
                                                                                                                        Sales
                                                                                                                        
                                                                                                                        
                                                                                                                        Intervals
                                                                                                                        
                                                                                                                        
                                                                                                                        PriceInterval
      Sales to New Customers
                                                                                                                        
                                                                                                                        $
                                                                                                                        22,818
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        2,100
                                                                                                                        
                                                                                                                        
                                                                                                                        $
                                                                                                                        10,866
                                                                                                                        
                                                                                                                        
                                                                                                                        $
                                                                                                                        27,035
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        2,502
                                                                                                                        
                                                                                                                        
                                                                                                                        $
                                                                                                                        10,805Upgrade
      Interval Sales to Existing Customers
                                                                                                                        
                                                                                                                        
                                                                                                                        25,449
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        2,713
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        9,380
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        21,473
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        2,314
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        9,280Additional
      Interval Sales to Existing Customers
                                                                                                                        
                                                                                                                        
                                                                                                                        10,391
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        949
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        10,949
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        16,573
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        1,966
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        8,430Total
                                                                                                                        
                                                                                                                        $
                                                                                                                        58,658
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        $
                                                                                                                        65,081
  Vacation
Interval sales decreased 9.9% during the first quarter of 2009 versus the same
period of 2008.  The decrease is primarily attributable to a 6.6%
decrease in tours and a 1.2% 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 16.1% offset by an increase in average prices of 0.6%, which resulted
in a 15.6% net decrease in sales to new customers in the first quarter of 2009
versus the same period of 2008.  The number of upgrade interval sales
to existing customers increased 17.2% and average prices increased 1.1%,
resulting in an 18.5% increase in upgrade interval sales to existing customers
during the first quarter of 2009 compared to the same period of
2008.  The number of additional interval sales to existing customers
decreased 51.7% but average prices increased 29.9% resulting in a 37.3% net
decrease in additional interval sales to existing customers during the first
quarter of 2009 versus the same period of 2008.  Vacation Interval
sales to existing owners comprised 61.1% and 58.5% of total Vacation Interval
sales in the first 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.





16
 Table of Contents




Estimated
uncollectible revenue, which represents estimated future gross cancellations of
notes receivable, was $14.6 million for the first quarter of 2009 versus $14.3
million for the same period of 2008.  Our estimated uncollectible
revenue as a percentage of Vacation Interval sales was 24.9% for the quarter
ended March 31, 2009 and 22.0% for the same period of 2008.  Our
receivables charged off as a percentage of beginning of period gross notes
receivable was 4.2% for the first quarter of 2009 compared to 3.6% 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 $1.0 million, or 6.9%, to $15.5 million for the first quarter
of 2009 from $14.5 million for the first quarter of 2008.  The
increase primarily resulted from a higher average notes receivable balance
during the first 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
March 31, 2009 from 16.6% at March 31, 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
first quarter of 2009 compared to $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
$2.7 million for the first quarter of 2009 compared to $976,000 for the first
quarter of 2008.  The increase is primarily attributable to the
receipt of $1.5
million in business-interruption proceeds related to Hurricane Ike in February
2009, which as previously discussed, struck our Seaside Resort in Galveston,
Texas, on September 13, 2008.





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 10.2% of Vacation Interval sales for the
first quarter of 2009 compared to 7.5% in the 2008 comparable
period.  This increase resulted from sales of higher cost-basis
inventory during the first quarter of 2009 compared to the first quarter of
2008.  In addition, quarterly revisions to our future relative sales
value in 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 52.4%
for the first quarter of 2009 versus 51.5% 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 quarter
of 2009 compared to the same period of 2008 with 61.1% of sales to existing
customers in 2009 versus 58.5% 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, $1.1 million and $988,000 of sampler revenues
were recorded as a reduction to sales and marketing expense for the quarters
ended March 31, 2009 and 2008, respectively.





17
 Table of Contents




Operating, General and
Administrative





Operating,
general and administrative expenses as a percentage of total revenues increased
to 16.5% in the first quarter of 2009 from 13.9% for the same period of
2008.  Overall, operating, general and administrative expenses
increased by $1.1 million for the first quarter of 2009 compared to the same
period of 2008, primarily due to an increase in salaries of $368,000, an
increase in recording fees of $245,000 related to increased fundings under
SF-IV, and an increase in group insurance of $187,000.





Depreciation





Depreciation
expense as a percentage of total revenues increased to 2.1% for the quarter
ended March 31, 2009 versus 1.7% for the same quarter of
2008.  Overall, depreciation expense increased by $242,000 for the
first quarter of 2009 compared to the same period of 2008 due to capital
expenditures of $15.0 million since March 31, 2008.





Interest Expense and Lender
Fees





Interest
expense and lender fees as a percentage of interest income increased to 45.9%
for the first quarter of 2009 compared to 42.1% for the same period of
2008.  Overall, interest expense and lender fees increased $1.0
million for the first quarter of 2009 versus the same period of 2008 primarily
due to a larger average debt balance outstanding during the first quarter of
2009, which was $392.6 million compared to $347.9 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 the second quarter of
2008.





Income before Provision for
Income Taxes





Income
before provision for income taxes decreased to $7.5 million for the quarter
ended March 31, 2009 compared to $12.1 million for the quarter ended March 31,
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
39.0% for the first quarter of 2009 compared to 38.5% for the first quarter of
2008.





Net
Income





Net
income was $4.6 million for the quarter ended March 31, 2009 compared to $7.4
million for the quarter ended March 31, 2008 as a result of the above-mentioned
operating results.





Liquidity
and Capital Resources





At March
31, 2009, our senior credit facilities provided for loans of up to $535.9
million, of which $363.9 million of principal related to advances under the
credit facilities was outstanding and $172.0 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 March 31, 2009
(in thousands):





MaximumAmountAvailable
                                      
                                      
                                      BalanceReceivables-Based
      Revolvers
                                      
                                      $
                                      337,809
                                      
                                      
                                      $
                                      179,096Receivables-Based
      Non-Revolvers
                                      
                                      
                                      122,118
                                      
                                      
                                      
                                      122,118Inventory
      Loans
                                      
                                      
                                      76,007
                                      
                                      
                                      
                                      62,711Subtotal
      Senior Credit Facilities
                                      
                                      
                                      535,934
                                      
                                      
                                      
                                      363,925Senior
      Subordinated Debt
                                      
                                      
                                      22,814
                                      
                                      
                                      
                                      22,814Other
      Debt
                                      
                                      
                                      6,241
                                      
                                      
                                      
                                      6,241Subtotal
      On-Balance-Sheet
                                      
                                      
                                      564,989
                                      
                                      
                                      
                                      392,980Off-Balance-Sheet
      Receivables-Based Term Loan
                                      
                                      
                                      14,802
                                      
                                      
                                      
                                      14,802Grand
      Total
                                      
                                      $
                                      579,791
                                      
                                      
                                      $
                                      407,782


18
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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
collateralized (or cross-collateralized) by customer notes receivable,
inventory, construction in process, land, improvements, and related equipment at
certain of our resorts. Our fixed-to-floating debt ratio at March 31, 2009 was
34% fixed to 66% floating.  However, the majority of our floating-rate
debt is subject to interest-rate floors between 5.25% and 8.00%.  The
credit facilities that bear interest at variable rates are tied to the Prime
rate or LIBOR.  At March 31, 2009, the one-month LIBOR rate on our
senior credit facilities was 0.50% and the annual Prime rate on these facilities
was 3.25%.  For the quarter ended March 31, 2009, the weighted average
cost of funds for all borrowings was 6.4%.  The credit facilities
secured by customer notes receivable allow advances of 75% to 80% of eligible
customer notes receivable.  Customer defaults have a significant
impact on our cash available from financing customer notes receivable in that
notes more than 60 days past due are not eligible as collateral.  As a
result, we must repay borrowings against such delinquent notes.  As of
March 31, 2009, $5.5 million of notes, net of accounts charged off, were more
than 60 days past due.





In
addition, we have $22.8 million of senior subordinated notes due April 2010,
with interest payable semi-annually on April 1 and October 1, guaranteed by all
of our present and future domestic restricted subsidiaries.  We are
aware that our outstanding senior subordinated debt securities are currently
trading at substantial discounts to face amount.  During the first
quarter of 2009, we retired $307,000 of these senior subordinated notes for
$246,000, which resulted in a gain of approximately $61,000.  In order
to reduce future amounts due at maturity or upon redemption, we may from time to
time seek to retire, purchase, or extend the maturity dates of our outstanding
senior subordinated notes through cash purchases and/or exchanges for equity or
debt securities, in open market purchases, privately negotiated transactions, or
otherwise.  Such repurchases or exchanges, if any, will depend on
prevailing market conditions, our liquidity requirements, contractual
restrictions, and other factors.  The amounts involved may be
material.





We
anticipate a continuation of the difficult economic environment we experienced
throughout 2008 and the first quarter of 2009. These economic weaknesses present
formidable challenges related to constrained consumer spending,
collection of customer receivables, access to capital markets, and ability to
manage inventory levels.  Although we do not anticipate a significant
decline in our Vacation Interval sales during the remainder of 2009 than we
experienced in the first quarter, our success in collecting payments due on
customers’ loans in this challenging environment will continue to pressure our
bottom-line.  However, we believe that conservative business decisions
and aggressive cash flow management into 2010, along with other measures in the
coming year, will allow us to maintain adequate liquidity into 2010, including
the payment of our outstanding 8.0% senior subordinated notes, due April 1,
2010.  These other measures include continuing to focus on improving
the credit quality of our notes receivable, a continued favorable sales mix
trend toward upgrades and second-week sales to existing customers as such sales
have relatively lower associated sales and marketing costs, reductions in
capital expenditures for expansion at existing resorts, including construction
of lodging units and additional amenities, and the prudent management of our
liquidity through controlled and measured growth.  However, there can
be no assurance that economic conditions will not deteriorate further, which
could increase customer loan delinquencies and defaults.  Increases in
loan delinquencies and defaults could impair our ability to pledge or sell such
loans to lenders in order to obtain sufficient cash advances to meet our
obligations through 2010, including payment of the aforementioned 8.0% senior
subordinated notes.





To
finance our growth, development, and any future expansion plans, we may at some
time be required to consider the issuance of other debt, equity, or
collateralized mortgage-backed securities.  Any debt we incur or issue
may be secured or unsecured, have fixed or variable rate interest, and may be
subject to such terms as we deem prudent.  In addition, certain
existing debt agreements include restrictions on our ability to pay dividends
based on minimum levels of net income and cash flow.  Our ability to
pay dividends might also be restricted by the Texas Business Corporation
Act.





Net Cash Used in
Operating Activities.We generate cash primarily from the cash
received from the sale of Vacation Intervals, the financing and collection
of customer notes receivable from Vacation Interval owners, the sale of notes
receivable to our special purpose entities, management fees, sampler sales,
marina income, golf course and pro shop income, water park income, and hotel
income.  We typically receive a 10% to 15% down payment on sales of
Vacation Intervals and finance the remainder with the issuance of a
seven-to-ten-year customer promissory note.  We generate cash from customer
notes receivable (i) by borrowing at an advance rate of 75% to 80% of eligible
customer notes receivable, (ii) by selling notes receivable, and (iii) from the
spread between interest received on customer notes receivable and interest paid
on related borrowings.  Because we use significant amounts of cash in the
development and marketing of Vacation Intervals but collect cash on customer
notes receivable over a seven-to-ten-year period, borrowing against receivables
has historically been a necessary part of normal operations.





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During
the three months ended March 31, 2009, cash used in operating activities was
$2.0 million compared to $6.3 million during the same period of
2008.  This $4.3 million decrease in cash used in operating activities
during the first three months of 2009 versus the comparable 2008 period
primarily resulted from a decrease in the growth of our notes receivable
portfolio for the first quarter of 2009 versus the first quarter of
2008.  This decrease was directly related to the decrease in Vacation
Interval sales.





Net Cash Used in
Investing Activities.During the first quarter of 2009, cash used in
investing activities, which represents purchases of equipment, leasehold
improvements, and other general capital expenditures, was $1.7 million compared
to $6.2 million during the first quarter of 2008.  The reduction in
capital expenditures is consistent with our moderate growth initiative in effect
for 2009 as well as 2008 expenditures related to the water park at The Villages
Resort, which was opened in January 2008.





Net Cash Provided
by Financing Activities.During
the first three months of 2009, financing activities used $394,000 of cash
compared to $9.8 million of cash provided in the comparable 2008
period.  Net cash used of $394,000 in 2009 was primarily the result of
$55.1 million of proceeds received from borrowings against pledged notes
receivable and inventory loans, offset by $55.0 million of payments on
borrowings against pledged notes receivable and inventory loans and
$431,000 restricted cash reserved for payments of debt.  Net cash provided of $9.8
million in 2008 was primarily the result of $51.9 million of proceeds received
from borrowings against pledged notes receivable and inventory loans,
partially offset by $42.1 million of payments on borrowings against pledged
notes receivable and inventory loans.





Off-Balance-Sheet Arrangements.In 2005, we consummated a securitization transaction with our
wholly-owned off-balance-sheet qualified special purpose finance subsidiary,
SF-III, which was formed for the purpose of issuing $108.7 million of its Series
2005-A Notes in a private placement.  In connection with this
transaction, we sold SF-III $132.8 million in timeshare receivables that were
previously pledged as collateral under revolving credit facilities with our
senior lenders and SF-I, our former qualified SPE which was dissolved in
2005.  The Series 2005-A Notes are secured by timeshare receivables we
sold to SF-III.  The timeshare receivables we sold to SF-III are
without recourse to us, except for breaches of certain representations and
warranties at the time of sale.  Pursuant to the terms of an
agreement, we continue servicing these timeshare receivables and receive fees
for our services equal to 1.75% of eligible timeshare receivables held by the
facility.  Such fees were $85,000 and $150,000 for the three months
ended March 31, 2009 and 2008, respectively.





At March
31, 2009, SF-III held notes receivable totaling $19.7 million with related
borrowings of $14.8 million.  Except for the repurchase of notes that
fail to meet initial eligibility requirements, we are not obligated to
repurchase defaulted or any other contracts sold to SF-III.  As the
servicer of notes receivable sold to SF-III, we are obligated to foreclose upon
Vacation Intervals securing defaulted note receivables.  Although we
are not obligated, we may purchase foreclosed Vacation Intervals for an amount
equal to the net fair market value of such Vacation Intervals, which may not be
less than fifteen percent of the original acquisition price that the customer
paid for the Vacation Interval.  For the three months ended March 31,
2009, we paid $126,000 to repurchase Vacation Intervals securing defaulted notes
receivable to facilitate the re-marketing of those Vacation
Intervals.  The carrying value of our
investment in SF-III was $4.9 million atMarch 31, 2009, which represents
our maximum exposure to loss regarding our investment in
SF-III.





In
accordance with SFAS No. 140, our bases for classifying SF-III as a qualified
SPE are (i) SF-III is demonstrably distinct from the transferor as dissolution
of the SPE would require an affirmative vote of 100% of the SPE’s Board of
Directors, one of which is independent, (ii) prescribed restrictions on
permitted activities sufficiently limit the SPE’s authority, and (iii) financial
assets transferred to the SPE are passive in nature.





Our
special purpose entities provide us with additional credit availability under
our facilities with our current senior lenders.  As we require credit
facilities to provide liquidity necessary to fund our costs and expenses, it is
vitally important to our liquidity plan to have financing available to us in
order to continue to finance the majority of our timeshare sales over seven to
ten years.





Income Taxes.For regular
federal income tax purposes, we report substantially all of the Vacation
Interval sales we finance under the installment method.  Under this
method, income on sales of Vacation Intervals is not recognized until cash is
received, either in the form of a down payment or as installment payments on
customer notes receivable.  The deferral of income tax liability
conserves cash resources on a current basis.  Interest is imposed,
however, on the amount of tax attributable to the installment payments for the
period beginning on the date of sale and ending on the date the payment is
received.  If we are not subject to tax in a particular year, no
interest is imposed since the interest is based on the amount of tax paid in
that year.  The condensed consolidated financial statements do not
contain an accrual for any interest expense that would be paid on the deferred
taxes related to the installment method as the interest expense is not
reasonably estimable.  As we expect to fully realize our deferred tax
assets, we do not currently have a valuation reserve for deferred
taxes.





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In
addition, we are subject to current alternative minimum tax ("AMT") as a result
of the deferred income that results from the installment sales
treatment.  Payment of AMT creates a deferred tax asset in the form of
a minimum tax credit, which, unless otherwise limited, reduces the future
regular tax liability attributable to Vacation Interval sales. This deferred tax
asset has an unlimited carryover period.  The AMT credit can be
utilized to the extent regular tax exceeds AMT tax liability for a given
year.  Due to AMT losses in certain years prior to 2003, which offset
all AMT income for years prior to 2003, no minimum tax credit exists for years
prior to 2003.  However, AMT has been paid in subsequent years and is
anticipated in future periods.





Federal
net operating losses (“NOLs”) of $140.6 million existing at December 31, 2008
expire between 2020 and 2021. Realization of the deferred tax assets arising
from NOLs is dependent on generating sufficient taxable income prior to the
expiration of the loss carryforwards.





Due to a
2002 corporate restructuring, an ownership change within the meaning of Section
382(g) of the Internal Revenue Code (the “Code”) occurred.  As a
result, a portion of our NOL is subject to an annual limitation for the current
and future taxable years.  This annual limitation may be increased for
any recognized built-in gain to the extent allowed in Section 382(h) of the
Code.  The current annual limitation of $768,000 represents the value
of our stock immediately before the ownership change multiplied by the
applicable long-term tax-exempt rate.  We believe that $15.0 million
of our net operating loss carryforwards as of December 31, 2008 were subject to
the Section 382 limitations.





Item
3.    Quantitative and Qualitative Disclosures
About Market Risk





General— Interest on our
notes receivable portfolio, senior subordinated debt, capital leases, and
miscellaneous notes is fixed, whereas interest on our primary loan agreements,
which had a total facility amount of $535.9 million at March 31, 2009, have a
fixed-to-floating debt ratio of 34% fixed to 66% floating.  However,
the majority of our floating-rate debt is subject to interest-rate floors
between 5.25% and 8.00%.  The impact of a one-point effective interest
rate change on the $241.8 million balance of variable-rate financial instruments
at March 31, 2009 would be approximately $141,000 on our results of operations,
after taxes, for the three months ended March 31, 2009, or less than $0.01 per
diluted share.





At March
31, 2009, the carrying value of our notes receivable portfolio approximates fair
value because the weighted average interest rate on the portfolio approximates
current interest rates received on similar notes.  Our fixed-rate
notes receivable are subject to interest rate risk and will decrease in fair
value if market rates increase, which may negatively impact our ability to sell
our fixed-rate notes in the marketplace.  A hypothetical one-point
interest rate increase in the marketplace at March 31, 2009 would result in a
fair value decrease of approximately $13.0 million on our notes receivable
portfolio.





Credit Risk — We are exposed
to on-balance-sheet credit risk related to our notes receivable. We are exposed
to off-balance-sheet credit risk related to notes sold.





We offer
financing to the buyers of Vacation Intervals at our resorts.  These
buyers generally make a down payment of 10% to 15% of the purchase price and
deliver a promissory note to us for the balance.  The promissory notes
generally bear interest at a fixed rate, are payable over a seven to ten year
period, and are secured by a deed of trust on the Vacation Interval. We bear the
risk of defaults on these promissory notes. Although we prescreen prospects via
credit scoring techniques in the early stages of the marketing and sales
process, we generally do not perform a detailed credit history review of our
customers.  Due to the state of the economy in general, and related
deterioration of the residential real estate market and sub-prime mortgage
markets, the risk of Vacation Interval defaults has
heightened.  Because we use various mass-marketing techniques, a
certain percentage of our sales are generated from customers who may be
considered to have marginal credit quality.  During the first quarters
of 2009 and 2008, approximately 13.9% and 22.7%, respectively, of our sales were
made to customers with FICO® scores below 600.  In addition, we have
experienced an increase in defaults in our loan portfolio as compared to
historical rates.  Due to deteriorating economic conditions, there can
be no assurance that defaults have stabilized or that they will not increase
further.  Customer default levels, other recent adverse changes in the
credit markets, and related uncertain economic conditions may eliminate or
reduce the availability or increase the cost of significant sources of funding
for us in the future.  We increased our estimated uncollectible
revenue as a percentage of Vacation Interval sales to 24.9% for the first
quarter of 2009 from 22.0% for the comparable period of
2008.  However, if default rates for our borrowers were to continue to
rise, it may require an additional increase in our estimated uncollectible
revenue.  We will continue to evaluate our collections process and
marketing programs with a view toward establishing procedures aimed at reducing
note defaults and improving the credit quality of our
customers.  However, there can be no assurance that these efforts will
be successful.





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If a
buyer of a Vacation Interval defaults, we generally must foreclose on the
Vacation Interval and attempt to resell it; the associated marketing, selling,
and administrative costs from the original sale are not recovered; and such
costs must be incurred again to resell the Vacation
Interval.  Although in many cases we may have recourse against a
Vacation Interval buyer for the unpaid note balance, certain states have laws
that limit our ability to recover personal judgments against customers who have
defaulted on their loans.  Accordingly, we have generally not pursued
this remedy.





Interest Rate Risk —We have
historically derived net interest income from our financing activities because
the interest rates we charge our customers who finance the purchase of their
Vacation Intervals exceed the interest rates we pay to our senior
lenders.  As 66% of our senior indebtedness bears interest at variable
rates and our customer notes receivable bear interest at fixed rates, increases
in interest rates will erode the spread in interest rates that we have
historically experienced and could cause our interest expense on borrowings to
exceed our interest income on our portfolio of customer
loans.  Although interest rates declined throughout 2008, any increase
in interest rates above applicable floor rates, particularly if sustained, could
have a material adverse effect on our results of operations, cash flows, and
financial position.





To
partially offset potential increases in interest rates, we have executed two
interest rate swaps related to our conduit loan with SF-II, with fixed rates of
7.04% and 7.90%, for a total notional amount of $2.2 million at March 31,
2009.  Such interest rate swaps expire between September 2011 and
March 2014.  Our variable funding note with SF-IV also acts as an
interest rate hedge since it contains a provision for an interest rate
cap.  The balance outstanding under this line of credit at March 31,
2009 was $91.6 million.  Such variable funding note will mature in
September 2011.





In
addition, the Series 2005-A Notes related to our off-balance-sheet special
purpose finance subsidiary, SF-III, with a balance of $14.8 million at March 31,
2009, bear interest at a blended fixed rate of 5.4%.





Availability of Funding Sources —We fund substantially all of our notes receivable, timeshare inventories,
and land inventories which we originate or purchase with borrowings through our
financing facilities, sales of notes receivable, internally generated funds, and
proceeds from public debt and equity offerings. Borrowings are in turn repaid
with the proceeds we receive from collections on such notes
receivable.  To the extent that we are not successful in maintaining
or replacing existing financings, we would have to curtail our operations or
sell assets, thereby having a material adverse effect on our results of
operations, cash flows, and financial position.





Geographic Concentration —Our notes receivable and Vacation Interval inventories are primarily
originated in Texas, Missouri, Illinois, Massachusetts, Georgia, and
Florida.  Risks inherent in such concentrations are:





·
            regional
      and general economic stability, which affects property values and the
      financial stability of the borrowers,
and


·
            the
      continued popularity of our resort destinations, which affects the
      marketability of our products and the collection of notes
      receivable.





Item
4.    Controls and Procedures





Management's
Report on Internal Control over Financial Reporting





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures as of March
31, 2009.  Based on that evaluation, management concluded that our
disclosure controls and procedures as of the end of the period covered by this
report have been designed and are functioning effectively to provide reasonable
assurance that the information required to be disclosed by us in reports filed
under the Securities Exchange Act of 1934 is recorded, processed, summarized,
and reported within the time periods specified in the SEC’s rules and
forms.  We believe that a controls system, no matter how well designed
and operated, cannot provide absolute assurance that the objectives of the
controls system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected.  Management is required to apply judgment
in evaluating the cost-benefit relationship of possible controls and
procedures.





There
have been no changes in our internal control over financial reporting during our
most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.





22
 Table of Contents





PART
II: OTHER INFORMATION





Item
1.    Legal Proceedings





We are
currently subject to litigation arising in the normal course of our business.
From time to time, such litigation includes claims regarding employment, tort,
contract, truth-in-lending, the marketing and sale of Vacation Intervals, and
other consumer protection matters.  Litigation has been initiated from
time to time by persons seeking individual recoveries for themselves, as well
as, in some instances, persons seeking recoveries on behalf of an alleged
class.  In our judgment, none of the lawsuits currently pending
against us, either individually or in the aggregate, is expected to have a
material adverse effect on our business, results of operations, liquidity, or
financial position.





Various
legal actions and claims may be instituted or asserted in the future against us
and our subsidiaries, including those arising out of our sales and marketing
activities and contractual arrangements.  Some of the matters may
involve claims, which, if granted, could be materially adverse to our financial
position.





As
litigation is subject to many uncertainties, the outcome of individual litigated
matters is not predictable with assurance.  We will establish reserves
from time to time when deemed appropriate under generally acceptable accounting
principles.  However, the outcome of a claim for which we have not
deemed a reserve to be necessary may be decided unfavorably against us and could
require us to pay damages or incur other expenditures that could be materially
adverse to our business, results of operations, or financial
position.





We are a
co-plaintiff with two other parties in two related matters brought in the Land
Court Department of the Trial Court of the Commonwealth of Massachusetts, each
styled as Silverleaf Resorts,
Inc., et al. v. Zoning Board of Appeals of the Town of Lanesborough, et al.,Civil Action No. 07 MISC 351155 and Civil Action No. 09 MISC
393464.  In these actions, we and the co-plaintiffs have challenged
the validity of a special permit issued by the Lanesborough Zoning Board of
Appeals to Berkshire Wind Power Cooperative Corporation’s
predecessor-in-interest for a portion of a road that the Cooperative needs to
access property located where it plans to construct a wind farm.  We
initiated these lawsuits because the predecessor-in-interest of the defendant
was seeking to construct a wind farm directly adjacent to the property line of a
500-acre tract of land we own in Berkshire County, Massachusetts.  Our
concern was that if the defendant was ultimately successful in developing this
neighboring site in accordance with its plans, the proximity of such a wind farm
facility to our property line could adversely affect our property.  We
seek a court decree that the special permit expired from non-use and is
therefore no longer valid, or alternatively, that the road was not built as
permitted.  The court has denied our motion to consolidate the two
cases, but the cases will be tried at the same time.  A trial date has
been set for August 11, 2009.





Item
1A.  Risk Factors





No
changes.





Item
5.    Other Information





In May
2009, we amended our $100 million consolidated receivables, inventory, and
acquisition revolving line of credit.  The revolving loan term of the
receivables component was extended from January 2010 to January
2011.  In addition, the maximum aggregate commitment under the
facility will be reduced from $100 million to $80 million effective July 8,
2009, and further reduced to $75 million effective December 31,
2009.  The commitment under the receivables financing arrangement is
the same as the total aggregate commitment, provided we have no borrowings under
either of the inventory or acquisition financing arrangements.  The
total availability under the inventory financing arrangement and the maximum
aggregate combined commitment for the inventory and acquisition financing
arrangements will be reduced from $50 million to $30 million effective July 8,
2009, and further reduced to $25 million effective December 31,
2009.  The commitment on the acquisition line will remain the same at
$10 million.  The total availability under the facility will continue
to be reduced by (a) the aggregate outstanding principal owned by this senior
lender of the Series 2008-A Notes related to SF-VI, which was $27.8 million at
March 31, 2009, and (b) an amount equal to 10.5%, or $892,000 at March 31, 2009,
of the outstanding principal of the two conduit loan facilities provided by this
senior lender to SF-II.  The maturity dates and interest rates for all
three components remained the same.




23
 Table of Contents





Item
6.    Exhibits




(a)
                Exhibits
      filed herewith:10.1
                Third
      Amendment to Consolidated, Amended and Restated Loan and Security
      Agreement dated as of May 8, 2009 between the Registrant and Textron
      Financial Corporation31.1
                Certification
      of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of
    200231.2
                Certification
      of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of
    200232.1
                Certification
      of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of
    200232.2
                Certification
      of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of
    2002


24
 Table of Contents




SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.







Dated:  May
      11, 2009
                      By:
                      /s/  ROBERT E.
    MEADRobert
      E. MeadChairman
      of the Board,Chief
      Executive Officer and PresidentDated:  May
      11, 2009
                      By:
                      /s/  ROBERT M.
      SINNOTTRobert
      M. SinnottChief
      Financial Officer





25
 Table of Contents






INDEX
TO EXHIBITS


Exhibit No.
                          Description10.1
                          Third
      Amendment to Consolidated, Amended and Restated Loan and Security
      Agreement dated as of May 8, 2009 between the Registrant and Textron
      Financial Corporation31.1
                          Certification
      of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of
      200231.2
                          Certification
      of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of
      200232.1
                          Certification
      of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
                          Certification
      of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002