##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark one)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    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: 333-126538
 
 TRIAD FINANCIAL CORPORATION
 (Exact name of registrant as specified in its charter)
 California
    
    33-0356705(State of Incorporation)
    
    (IRS Employer Identification No)7711 Center Avenue, Suite 100
    
    92647Huntington Beach, California
    
    (Zip Code)(Address of principal executive offices)
 (714) 373-8300  (Registrants telephone number, including area code)
 
 R £
 
 o o þ
 o þ




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##### 



TRIAD FINANCIAL CORPORATION
INDEX TO FORM 10-Q
 PagePART I
    
    FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS
    
    
    2CONSOLIDATED STATEMENTS OF INCOME
    
    
    3CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    5NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    6ITEM 2.
    
    MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    20ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    38ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    40PART II
    
    OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    40ITEM 1A.
    
    RISK FACTORS
    
    
    41ITEM 2.
    
    UNREGISTERED SALES
OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    41ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    41ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    41ITEM 5.
    
    OTHER INFORMATION
    
    
    41ITEM 6.
    
    EXHIBITS
    
    
    42SIGNATURES
    
    
    44EX-31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICEREX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICEREX-32 OFFICERS CERTIFICATIONS PURSUANT TO SECTION 906Exhibit 3.1Exhibit 31.1Exhibit 31.2Exhibit 32




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TRIAD FINANCIAL CORPORATION
 Forward-Looking Statements
  
    
    our ability to make payments of principal and interest on, or refinance, our
substantial indebtedness;
    
    our reliance on our warehouse facilities, residual facilities, securitization program
and credit enhancement arrangements;
    
    our ability to generate significant amounts of cash to service our debt and fund our operations;
    
    loss of contractual servicing rights;
    
    our exposure to the risk of increases in defaults and prepayments of contracts
purchased and held by us prior to their securitization and the subsequent performance of
receivables held in securitization trusts;
    
    changes in the delinquency, default and loss rates on the receivables included in each securitization trust;
    
    failure to implement our business strategy;
    
    the high degree of risk associated with non-prime borrowers;
    
    general economic conditions, including wholesale auction values and interest rates;
    
    our ability to successfully compete in our industry; and
    
    our ability to maintain the material licenses and permits required for our operations.
  1




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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 TRIAD FINANCIAL CORPORATION
 
 Consolidated Balance Sheets
 SuccessorJune 30, 2006
    
    
    December 31, 2005(Note 1)
    
    
    (Note 1)(Dollars in thousands)(Unaudited)ASSETSCash and cash equivalents
    
    $
    47,836
    
    
    $
    45,295Cash  restricted
    
    
    236,562
    
    
    
    153,231Finance receivables held for investment, net
    
    
    3,515,941
    
    
    
    2,596,809Retained interest in securitized assets
    
    
    158,584
    
    
    
    216,952Accounts receivable
    
    
    42,157
    
    
    
    31,438Fixed assets, net of accumulated depreciation of $9,681 in
2006 and $5,554 in 2005
    
    
    18,874
    
    
    
    16,733Collateral held for resale
    
    
    10,816
    
    
    
    8,158Capitalized financing costs, net of accumulated amortization
of $13,297 in 2006 and $6,851 in 2005
    
    
    19,502
    
    
    
    20,263Deferred tax asset, net
    
    
    28,710
    
    
    
    13,076Goodwill
    
    
    30,446
    
    
    
    30,446Other assets
    
    
    5,874
    
    
    
    5,755Total assets
    
    $
    4,115,302
    
    
    $
    3,138,156LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesRevolving credit facilities
    
    $
    640,209
    
    
    $
    935,848Due to Ford Motor Credit Company
    
    
    25,571
    
    
    
    52,323Securitization notes payable
    
    
    2,818,655
    
    
    
    1,572,268Senior notes payable
    
    
    149,122
    
    
    
    149,079Taxes payable
    
    
    5,685
    
    
    
    6,923Other liabilities
    
    
    64,541
    
    
    
    64,883Total liabilities
    
    
    3,703,783
    
    
    
    2,781,324Commitments and contingencies (Note 12)Stockholders EquityPreferred stock, no par value; authorized 3,000,000 shares;
issued and outstanding 1,500,000 shares at June 30, 2006
and none at December 31, 2005
    
    
    30,000
    
    
    
    Common stock, no par value; authorized 9,069 shares; issued
and outstanding 9,069 shares at June 30, 2006 and December
31, 2005
    
    
    
    
    
    
    Additional paid in capital
    
    
    345,000
    
    
    
    345,000Retained earnings
    
    
    26,507
    
    
    
    9,983Accumulated other comprehensive income
    
    
    10,012
    
    
    
    1,849Total stockholders equity
    
    
    411,519
    
    
    
    356,832Total liabilities and stockholders equity
    
    $
    4,115,302
    
    
    $
    3,138,156
  2




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##### Table of Contents



TRIAD FINANCIAL CORPORATION
 
 Consolidated Statements of Income
 Successor
    
    
    
    PredecessorThree Months
    
    
    April 30, 2005
    
    
    
    April 1, 2005Ended
    
    
    through
    
    
    
    throughJune 30, 2006
    
    
    June 30, 2005
    
    
    
    April 29, 2005(Note 1)
    
    
    (Note 1)
    
    
    
    (Note 1)(Dollars in thousands)(Unaudited)Financing and other interest income
    
    $
    138,641
    
    
    $
    45,576
    
    
    
    $
    32,639Interest expense
    
    
    48,873
    
    
    
    18,900
    
    
    
    
    5,834Net interest margin
    
    
    89,768
    
    
    
    26,676
    
    
    
    
    26,805Provision for credit losses
    
    
    52,510
    
    
    
    8,231
    
    
    
    
    Net interest margin after provision
for credit losses
    
    
    37,258
    
    
    
    18,445
    
    
    
    
    26,805Securitization and servicing income
    
    
    5,978
    
    
    
    7,030
    
    
    
    
    3,735Other income
    
    
    8,769
    
    
    
    (128
    )
    
    
    
    (3,263
    )Total other revenues
    
    
    14,747
    
    
    
    6,902
    
    
    
    
    472Operating expenses
    
    
    35,652
    
    
    
    19,002
    
    
    
    
    9,794Other expenses
    
    
    
    
    
    
    
    
    
    
    
    8,754Total expenses
    
    
    35,652
    
    
    
    19,002
    
    
    
    
    18,548Income before income taxes
    
    
    16,353
    
    
    
    6,345
    
    
    
    
    8,729Provision for income taxes
    
    
    6,387
    
    
    
    2,518
    
    
    
    
    3,289Net income
    
    $
    9,966
    
    
    $
    3,827
    
    
    
    $
    5,440
  3




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##### Table of Contents



TRIAD FINANCIAL CORPORATION
Consolidated Statements of Income
 Successor
    
    
    
    PredecessorSix Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    through
    
    
    
    throughJune 30, 2006
    
    
    June 30, 2005
    
    
    
    April 29, 2005(Note 1)
    
    
    (Note 1)
    
    
    
    (Note 1)(Dollars in thousands)(Unaudited)Financing and other interest income
    
    $
    249,242
    
    
    $
    45,576
    
    
    
    $
    127,243Interest expense
    
    
    88,777
    
    
    
    18,900
    
    
    
    
    21,440Net interest margin
    
    
    160,465
    
    
    
    26,676
    
    
    
    
    105,803Provision for credit losses
    
    
    95,042
    
    
    
    8,231
    
    
    
    
    Net interest margin after provision
for credit losses
    
    
    65,423
    
    
    
    18,445
    
    
    
    
    105,803Securitization and servicing income
    
    
    13,281
    
    
    
    7,030
    
    
    
    
    16,597Other income
    
    
    16,298
    
    
    
    (128
    )
    
    
    
    9,512Total other revenues
    
    
    29,579
    
    
    
    6,902
    
    
    
    
    26,109Operating expenses
    
    
    67,881
    
    
    
    19,002
    
    
    
    
    39,857Other expenses
    
    
    
    
    
    
    
    
    
    
    
    30,505Total expenses
    
    
    67,881
    
    
    
    19,002
    
    
    
    
    70,362Income before income taxes
    
    
    27,121
    
    
    
    6,345
    
    
    
    
    61,550Provision for income taxes
    
    
    10,597
    
    
    
    2,518
    
    
    
    
    23,208Net income
    
    $
    16,524
    
    
    $
    3,827
    
    
    
    $
    38,342
  4




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##### Table of Contents



TRIAD FINANCIAL CORPORATION
 
 Consolidated Statements of Cash Flows
 Successor
    
    
    
    PredecessorSix Months Ended
    
    
    April 30, 2005
    
    
    
    January 1, 2005June 30,
    
    
    Through
    
    
    
    Through2006
    
    
    June 30, 2005
    
    
    
    April 29, 2005(Note 1)
    
    
    (Note 1)
    
    
    
    (Note 1)(Dollars in thousands)(Unaudited)Cash flows from operating activitiesNet income
    
    $
    16,524
    
    
    $
    3,827
    
    
    
    $
    38,342Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:Purchases of finance receivables held
for sale
    
    
    
    
    
    
    
    
    
    
    
    (627,399
    )Collections on finance receivables
held for sale
    
    
    
    
    
    
    
    
    
    
    
    215,322Depreciation and amortization
    
    
    10,617
    
    
    
    2,772
    
    
    
    
    2,714Provision for credit losses
    
    
    95,042
    
    
    
    8,231
    
    
    
    
    Deferred income tax (benefit) expense
    
    
    (20,964
    )
    
    
    
    
    
    
    
    Accretion of present value discount
    
    
    (14,420
    )
    
    
    (7,602
    )
    
    
    
    (22,046
    )Amortization of purchase premium
    
    
    35,417
    
    
    
    23,137
    
    
    
    
    Impairment charges on retained interest
on securitizations
    
    
    
    
    
    
    193
    
    
    
    
    490Changes in operating assets and liabilitiesAccounts receivable
    
    
    (10,719
    )
    
    
    15,602
    
    
    
    
    (3,711
    )Other assets
    
    
    (119
    )
    
    
    (3,361
    )
    
    
    
    (375
    )Accounts payable and accrued expenses
    
    
    (342
    )
    
    
    18,420
    
    
    
    
    (8,161
    )Current tax liability
    
    
    (1,238
    )
    
    
    2,518
    
    
    
    
    21,259Net cash provided by (used in)
operating activities
    
    
    109,798
    
    
    
    63,737
    
    
    
    
    (383,565
    )Cash flows from investing activitiesAcquisition of Triad Financial Corporation
    
    
    
    
    
    
    (553,548
    )
    
    
    
    Distributions from gain on sale trusts
    
    
    86,282
    
    
    
    18,530
    
    
    
    
    75,675Repurchases from gain on sale trusts
    
    
    (44,986
    )
    
    
    
    
    
    
    
    Purchases of finance receivables held for
investment
    
    
    (1,641,446
    )
    
    
    (306,642
    )
    
    
    
    Collections on finance receivables held
for investment
    
    
    634,182
    
    
    
    130,051
    
    
    
    
    43,760Change in restricted cash
    
    
    (83,331
    )
    
    
    
    
    
    
    
    Purchases of fixed assets
    
    
    (6,269
    )
    
    
    (1,296
    )
    
    
    
    (1,556
    )Net cash (used in) provided by
investing activities
    
    
    (1,055,568
    )
    
    
    (712,905
    )
    
    
    
    117,879Cash flows from financing activitiesNet change in warehouse credit facilities
    
    
    (298,639
    )
    
    
    928,248
    
    
    
    
    Net change in residual credit facilities
    
    
    3,000
    
    
    
    80,000
    
    
    
    
    Net change in due to Ford Motor Credit
Company
    
    
    (26,752
    )
    
    
    (1,768,534
    )
    
    
    
    263,546Issuance of securitization notes
    
    
    1,737,882
    
    
    
    1,103,959
    
    
    
    
    Payment on securitization notes
    
    
    (491,495
    )
    
    
    (38,056
    )
    
    
    
    Issuance of senior notes
    
    
    
    
    
    
    149,025
    
    
    
    
    Capitalized finance costs
    
    
    (5,685
    )
    
    
    (24,044
    )
    
    
    
    Issuance of preferred stock
    
    
    30,000
    
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    
    
    
    
    345,000
    
    
    
    
    Net cash provided by financing activities
    
    
    948,311
    
    
    
    775,598
    
    
    
    
    263,546Net increase (decrease) in cash and cash
equivalents
    
    
    2,541
    
    
    
    126,430
    
    
    
    
    (2,140
    )Cash and cash equivalentsBeginning of period
    
    
    45,295
    
    
    
    23,644
    
    
    
    
    25,784End of period
    
    $
    47,836
    
    
    $
    150,074
    
    
    
    $
    23,644Non-cash ActivityGoodwill generated from acquisition of Triad
Financial Corporation (Note 1)
    
    $
    
    
    
    $
    30,446
    
    
    
    $
    Transfer of finance receivables from held
for sale to held for investment
    
    $
    
    
    
    $
    
    
    
    
    $
    41,894Supplemental DisclosureInterest paid
    
    $
    86,374
    
    
    $
    19,599
    
    
    
    $
    Income taxes paid
    
    $
    32,793
    
    
    $
    
    
    
    
    $
    
  5




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##### Table of Contents



Triad Financial Corporation
 
 Notes to Consolidated Financial Statements
 1. Organization and Nature of Business
      2. Accounting Policies
 Basis of Presentation
    Cash Equivalents
  6




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
 Restricted Cash
  Finance Receivables
     Sale of Receivables
    7




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
  Allowance for Credit Losses
   Charge-Off Policy
  Derivative Financial Instruments
 Accounting
for Derivative Instruments and Hedging Activities,
 Fixed Assets
   Equipment
    
    3-5 yearsSoftware
    
    3-5 yearsFurniture and fixtures
    
    5 years
   8




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
  Goodwill
 Goodwill and Other Intangible Assets
 Income Taxes
 Accounting for
Income Taxes
  Use of Estimates
  3. Finance Receivables
  2006
    
    
    2005(Dollars in thousands)Predecessor finance receivables held for investment, net
    
    $
    1,116,663
    
    
    $
    1,468,410Finance receivables repurchased from gain on sale trusts, net
    
    
    19,643
    
    
    
    Finance receivables held for investment
    
    
    2,486,111
    
    
    
    1,174,775Premiums (discounts)
    
    
    (6,741
    )
    
    
    (4,701
    )Deferred costs, net
    
    
    19,888
    
    
    
    9,584Allowance for credit losses
    
    
    (119,623
    )
    
    
    (51,259
    )Finance receivables held for investment, net
    
    
    2,379,635
    
    
    
    1,128,399Finance receivables, net
    
    $
    3,515,941
    
    
    $
    2,596,809
  9




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
    SuccessorContractual
    
    
    Nonaccretable
    
    
    Expected
    
    
    Accretable
    
    
    CarryingPayments
    
    
    Discount
    
    
    Payments
    
    
    Discount
    
    
    Value(Dollars in thousands)Balance, March 31, 2006
    
    $
    1,925,061
    
    
    $
    (436,195
    )
    
    $
    1,488,866
    
    
    $
    (212,139
    )
    
    $
    1,276,727Interest income
    
    
    (51,307
    )
    
    
    
    
    
    
    (51,307
    )
    
    
    37,580
    
    
    
    (13,727
    )Principal collections
    
    
    (146,337
    )
    
    
    
    
    
    
    (146,337
    )
    
    
    
    
    
    
    (146,337
    )Charge-offs
    
    
    (14,189
    )
    
    
    14,189
    
    
    
    
    
    
    
    
    
    
    
    Reclassification to accretable discount
    
    
    
    
    
    
    32,224
    
    
    
    32,224
    
    
    
    (32,224
    )
    
    
    Change in cash flows
    
    
    (38,559
    )
    
    
    85,171
    
    
    
    46,612
    
    
    
    (46,612
    )
    
    
    Balance, June 30, 2006
    
    $
    1,674,669
    
    
    $
    (304,611
    )
    
    $
    1,370,058
    
    
    $
    (253,395
    )
    
    $
    1,116,663
 SuccessorContractual
    
    
    Nonaccretable
    
    
    Expected
    
    
    Accretable
    
    
    CarryingPayments
    
    
    Discount
    
    
    Payments
    
    
    Discount
    
    
    Value(Dollars in thousands)Balance, December 31, 2005
    
    $
    2,220,192
    
    
    $
    (524,710
    )
    
    $
    1,695,482
    
    
    $
    (227,072
    )
    
    $
    1,468,410Interest income
    
    
    (109,557
    )
    
    
    
    
    
    
    (109,557
    )
    
    
    75,945
    
    
    
    (33,612
    )Principal collections
    
    
    (318,135
    )
    
    
    
    
    
    
    (318,135
    )
    
    
    
    
    
    
    (318,135
    )Charge-offs
    
    
    (33,707
    )
    
    
    33,707
    
    
    
    
    
    
    
    
    
    
    
    Reclassification to accretable discount
    
    
    
    
    
    
    32,224
    
    
    
    32,224
    
    
    
    (32,224
    )
    
    
    Change in cash flows
    
    
    (84,124
    )
    
    
    154,168
    
    
    
    70,044
    
    
    
    (70,044
    )
    
    
    Balance, June 30, 2006
    
    $
    1,674,669
    
    
    $
    (304,611
    )
    
    $
    1,370,058
    
    
    $
    (253,395
    )
    
    $
    1,116,663
 SuccessorContractual
    
    
    Nonaccretable
    
    
    Expected
    
    
    Accretable
    
    
    CarryingPayments
    
    
    Discount
    
    
    Payments
    
    
    Discount
    
    
    Value(Dollars in thousands)Balance, April 29, 2005
    
    $
    3,163,361
    
    
    $
    (735,613
    )
    
    $
    2,427,748
    
    
    $
    (365,383
    )
    
    $
    2,062,365Interest income
    
    
    (55,751
    )
    
    
    
    
    
    
    (55,751
    )
    
    
    32,614
    
    
    
    (23,137
    )Principal collections
    
    
    (128,272
    )
    
    
    
    
    
    
    (128,272
    )
    
    
    
    
    
    
    (128,272
    )Charge-offs
    
    
    (11,075
    )
    
    
    11,075
    
    
    
    
    
    
    
    
    
    
    
    Change in cash flows
    
    
    (32,210
    )
    
    
    32,210
    
    
    
    
    
    
    
    
    
    
    
    Balance, June 30, 2005
    
    $
    2,936,053
    
    
    $
    (692,328
    )
    
    $
    2,243,725
    
    
    $
    (332,769
    )
    
    $
    1,910,956
 10




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
 4. Allowance For Credit Losses
  Successor
    
    
    
    PredecessorThree Months
    
    
    April 30, 2005
    
    
    
    April 1, 2005Ended
    
    
    Through
    
    
    
    ThroughJune 30,
    
    
    June 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Balance, beginning of period
    
    $
    82,962
    
    
    $
    
    
    
    
    $
    14,812Provision for credit losses
    
    
    52,510
    
    
    
    8,231
    
    
    
    
    Charge-offs
    
    
    (16,577
    )
    
    
    
    
    
    
    
    (1,433
    )Recoveries
    
    
    728
    
    
    
    
    
    
    
    
    1,684Balance, end of period
    
    $
    119,623
    
    
    $
    8,231
    
    
    
    $
    15,063
 Successor
    
    
    
    PredecessorSix Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    Through
    
    
    
    ThroughJune 30,
    
    
    June 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Balance, beginning of period
    
    $
    51,259
    
    
    $
    
    
    
    
    $
    16,081Provision for credit losses
    
    
    95,042
    
    
    
    8,231
    
    
    
    
    Charge-offs
    
    
    (27,873
    )
    
    
    
    
    
    
    
    (7,465
    )Recoveries
    
    
    1,195
    
    
    
    
    
    
    
    
    6,447Balance, end of period
    
    $
    119,623
    
    
    $
    8,231
    
    
    
    $
    15,063
   11




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
 5. Sales of Receivables
 Servicing Portfolio
  Successor
    
    
    
    PredecessorThree Months
    
    
    April 30, 2005
    
    
    
    April 1, 2005Ended
    
    
    Through
    
    
    
    ThroughJune 30,
    
    
    June 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Balance, beginning of period
    
    $
    917,878
    
    
    $
    1,719,178
    
    
    
    $
    1,804,020Called receivables
    
    
    
    
    
    
    
    
    
    
    
    Collections and write-offs
    
    
    (139,096
    )
    
    
    (159,407
    )
    
    
    
    (84,842
    )Balance, end of period
    
    $
    778,782
    
    
    $
    1,559,771
    
    
    
    $
    1,719,178
 Successor
    
    
    
    PredecessorSix Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    Through
    
    
    
    ThroughJune 30,
    
    
    June 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Balance, beginning of period
    
    $
    1,130,352
    
    
    $
    1,719,178
    
    
    
    $
    2,082,102Called receivables
    
    
    (45,632
    )
    
    
    
    
    
    
    
    Collections and write-offs
    
    
    (305,938
    )
    
    
    (159,407
    )
    
    
    
    (362,924
    )Balance, end of period
    
    $
    778,782
    
    
    $
    1,559,771
    
    
    
    $
    1,719,178
  Retained Interest in Securitized Assets
  Successor
    
    
    
    Successor2006
    
    
    
    2005(Dollars in thousands)Restricted cash held for the benefit of securitizations
    
    
    70,938
    
    
    
    
    80,298Overcollaterization
    
    
    100,309
    
    
    
    
    150,283Interest-only
    
    
    (12,663
    )
    
    
    
    (13,629
    )Retained interest in securitized assets
    
    $
    158,584
    
    
    
    $
    216,952
   12




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
    Subordinated
    
    
    Restricted
    
    
    Over-
    
    
    Interest-Certificates
    
    
    Cash
    
    
    Collateralization
    
    
    Only
    
    
    Total(Dollars in thousands)(Successor, Note 1)Balance, December 31, 2005
    
    $
    
    
    
    $
    80,298
    
    
    $
    150,283
    
    
    $
    (13,629
    )
    
    $
    216,952Distributions
    
    
    
    
    
    
    (9,360
    )
    
    
    (32,121
    )
    
    
    (10,151
    )
    
    
    (51,632
    )Residual interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,171
    
    
    
    8,171Impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized gains (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,276
    
    
    
    1,276Balance, March 31, 2006
    
    $
    
    
    
    $
    70,938
    
    
    $
    118,162
    
    
    $
    (14,333
    )
    
    $
    174,767Distributions
    
    
    
    
    
    
    
    
    
    
    (17,853
    )
    
    
    (16,798
    )
    
    
    (34,651
    )Residual interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,249
    
    
    
    6,249Impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized gains (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,219
    
    
    
    12,219Balance, June 30, 2006
    
    $
    
    
    
    $
    70,938
    
    
    $
    100,309
    
    
    $
    (12,663
    )
    
    $
    158,584(Predecessor, Note 1)Balance, December 31, 2004
    
    $
    26,934
    
    
    $
    82,225
    
    
    $
    254,445
    
    
    $
    (8,523
    )
    
    $
    355,081Distributions
    
    
    (16,849
    )
    
    
    (1,893
    )
    
    
    (21,759
    )
    
    
    (15,570
    )
    
    
    (56,071
    )Residual interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,786
    
    
    
    16,786Impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (369
    )
    
    
    (369
    )Unrealized gains (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,160
    )
    
    
    (5,160
    )Balance, March 31, 2005
    
    $
    10,085
    
    
    $
    80,332
    
    
    $
    232,686
    
    
    $
    (12,836
    )
    
    $
    310,267Distributions
    
    
    (4,978
    )
    
    
    (34
    )
    
    
    (6,705
    )
    
    
    (7,887
    )
    
    
    (19,604
    )Residual interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,260
    
    
    
    5,260Impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    (120
    )Unrealized gains (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,466
    )
    
    
    (2,466
    )Balance, April 29, 2005
    
    $
    5,107
    
    
    $
    80,298
    
    
    $
    225,981
    
    
    $
    (18,049
    )
    
    $
    293,337(Successor, Note 1)Distributions
    
    
    (4,762
    )
    
    
    
    
    
    
    (16,842
    )
    
    
    (1,966
    )
    
    
    (23,570
    )Residual interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,602
    
    
    
    7,602Impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (193
    )
    
    
    (193
    )Unrealized gains (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    357
    
    
    
    357Balance, June 30, 2005
    
    $
    345
    
    
    $
    80,298
    
    
    $
    209,139
    
    
    $
    (12,249
    )
    
    $
    277,533
   13




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
 Securitization and Servicing Income
  Successor
    
    
    
    PredecessorThree Months
    
    
    April 30, 2005
    
    
    
    April 1, 2005Ended
    
    
    Through
    
    
    
    ThroughJune 30,
    
    
    June 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Servicing fee income
    
    $
    5,978
    
    
    $
    7,223
    
    
    
    $
    3,855Impairment charge on retained interest in
securitized assets
    
    
    
    
    
    
    (193
    )
    
    
    
    (120
    )Securitization and servicing income, net
    
    $
    5,978
    
    
    $
    7,030
    
    
    
    $
    3,735
 Successor
    
    
    
    PredecessorSix Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    Through
    
    
    
    ThroughJune 30,
    
    
    June 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Servicing fee income
    
    $
    13,281
    
    
    $
    7,223
    
    
    
    $
    17,087Impairment charge on retained interest in
securitized assets
    
    
    
    
    
    
    (193
    )
    
    
    
    (490
    )Securitization and servicing income, net
    
    $
    13,281
    
    
    $
    7,030
    
    
    
    $
    16,597
 6. Revolving Credit Facilities
  2006
    
    
    2005(Dollars in thousands)Warehouse loan facilities
    
    $
    532,209
    
    
    $
    830,848Residual loan facilities
    
    
    108,000
    
    
    
    105,000Total revolving credit facilities
    
    $
    640,209
    
    
    $
    935,848
  Facility
    
    
    Advances
    
    
    CollateralAmount
    
    
    Outstanding
    
    
    Pledged(Dollars in thousands)Warehouse loan facility, due April 2007(a)
    
    $
    625,000
    
    
    
    $
    269,775
    
    
    
    $
    301,887Residual loan facility, due April 2007(a)
    
    
    125,000
    
    
    
    
    54,000
    
    
    
    
    250,632Warehouse loan facility, due October 2007
    
    
    625,000
    
    
    
    
    262,434
    
    
    
    
    293,959Residual loan facility, due October 2007
    
    
    125,000
    
    
    
    
    54,000
    
    
    
    
    250,632
 
 (a)
    
    Warehouse and residual loan facilities provided by Goldman Sachs Mortgage Company, an
affiliate of one of our equity investors.  14




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
     7. Due to Ford Motor Credit Company
  2006
    
    
    2005(Dollars in thousands)Note payable
    
    $
    25,571
    
    
    $
    52,323
    15




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
  Successor
    
    
    PredecessorThree Months
    
    April 30, 2005
    
    
    April 1, 2005Ended
    
    Through
    
    
    ThroughJune 30,
    
    June 30,
    
    
    April 29,2006
    
    2005
    
    
    2005(Dollars in thousands)Interest expense
    
    $
    469
    
    
    $
    1,532
    
    
    
    $
    5,834Gain on interest rate swap agreement
    
    
    
    
    
    
    
    
    
    
    
    (4,394
    )
 Successor
    
    
    PredecessorSix Months
    
    April 30, 2005
    
    
    January 1, 2005Ended
    
    Through
    
    
    ThroughJune 30,
    
    June 30,
    
    
    April 29,2006
    
    2005
    
    
    2005(Dollars in thousands)Interest expense
    
    $
    1,091
    
    
    $
    1,532
    
    
    
    $
    21,440Gain on interest rate swap agreement
    
    
    
    
    
    
    
    
    
    
    
    5,164
 8. Securitization Notes Payable
  OriginalWeightedAverageOriginal
    
    
    Fixed
    
    
    Finance
    
    
    CurrentNote
    
    
    Interest
    
    
    Receivables
    
    
    NoteTransaction
    
    Amount
    
    
    Rate
    
    
    Pledged
    
    
    Balance(Dollars in thousands)2005-A, due June 12, 2012(a)
    
    $
    1,104,000
    
    
    
    4.09
    %
    
    $
    721,409
    
    
    $
    651,3062005-B, due April 12, 2013(a)
    
    $
    905,303
    
    
    
    4.32
    %
    
    $
    646,305
    
    
    $
    583,2372006-A, due April 12, 2013(a)
    
    $
    822,500
    
    
    
    4.88
    %
    
    $
    766,179
    
    
    $
    691,8792006-B, due November 12, 2012(a)
    
    $
    915,500
    
    
    
    5.52
    %
    
    $
    952,456
    
    
    $
    892,233
 
 (a)
    
    Maturity date represents final legal maturity of securitization notes payable. Securitization
notes payable are expected to be paid based on amortization of the finance receivables pledged
to the Trusts.    16




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
  9. Senior Notes Payable
    10. Preferred Stock
  11. Derivative Financial Instruments
  17




---



##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
 12. Commitments and Contingencies
      (Dollars in thousands)Year ending December 31,2006
    
    $
    1,7412007
    
    $
    3,4822008
    
    $
    2,0012009
    
    $
    1,7042010
    
    $
    1,7042011 and thereafter
    
    $
    3,266
 18




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
 13. Comprehensive Income
  Successor
    
    
    
    PredecessorSix Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    Through
    
    
    
    ThroughJune 30,
    
    
    June 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Net income
    
    $
    16,524
    
    
    $
    3,827
    
    
    
    $
    38,342Other comprehensive income, netUnrealized holding gains (losses) on
available for sale securities
(net of tax of $5,376, $140 and $898)
    
    
    8,231
    
    
    
    216
    
    
    
    
    (1,483
    )Net unrealized holding gains reclassified
into earnings (net of tax of $44, and $1,977)
    
    
    (68
    )
    
    
    
    
    
    
    
    (3,267
    )Total other comprehensive income, net
    
    
    8,163
    
    
    
    216
    
    
    
    
    (4,750
    )Comprehensive income
    
    $
    24,687
    
    
    $
    4,043
    
    
    
    $
    33,592
  Successor
    
    
    
    PredecessorSix Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    Through
    
    
    
    ThroughJune 30,
    
    
    June 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Balance, beginning of period
    
    $
    1,849
    
    
    $
    17,867
    
    
    
    $
    22,617Purchase accounting adjustments
    
    
    
    
    
    
    (17,867
    )
    
    
    
    Current period change
    
    
    8,163
    
    
    
    216
    
    
    
    
    (4,750
    )Balance, end of period
    
    $
    10,012
    
    
    $
    216
    
    
    
    $
    17,867
 19




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis of Triad Financial Corporations (the Companys)
historical consolidated financial statements covers periods before the consummation of the
Acquisition. From June 1999 through April 29, 2005, the Company was a wholly owned subsidiary of
Fairlane Credit, LLC, a wholly owned subsidiary of Ford Motor Credit Company (Ford Credit). On
April 29, 2005, a newly formed entity, Triad Holdings Inc. and its wholly owned subsidiary, Triad
Acquisition Corp., acquired all of the outstanding capital stock of the Company from Fairlane
Credit, LLC (the Acquisition). As part of the Acquisition, Triad Acquisition Corp. was merged
with and into Triad Financial Corporation with the Company being the surviving corporation.
 In accordance with the guidelines for accounting for business combinations, the purchase price
paid by Triad Holdings Inc. plus related purchase accounting adjustments have been pushed-down and
recorded in our financial statements for the period subsequent to April 29, 2005. This has resulted
in a new basis of accounting reflecting the fair market value of our assets and liabilities for the
successor period beginning April 30, 2005. Information for all predecessor periods prior to the
Acquisition is presented using our historical basis of accounting. The following discussion and
analysis of results of operations contains information on items impacting the comparability of the
predecessor and successor periods.
 The statements in the discussion and analysis regarding our expectations regarding the
performance of our business, our liquidity and capital resources and other non-historical
statements are forward-looking statements. These forward-looking statements are subject to numerous
risks and uncertainties. Our actual results may differ materially from those contained in or
implied by any of these forward-looking statements.
 General
    20




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##### Table of Contents



Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities
  Critical Accounting Policies and Use of Estimates
  Effects of the Transactions
  Components of Revenues and Expenses
   21




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##### Table of Contents



Results of Operations
 Three Months Ended June 30, 2006 as Compared to Three Months Ended June 30, 2005
  Net Interest Margin
  For the Three Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Average owned finance receivables, carrying value
    
    $
    3,369,959
    
    
    $
    2,110,853
    For the Three Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Financing income
    
    $
    130,247
    
    
    $
    64,919Other interest income
    
    
    8,394
    
    
    
    13,296Interest expense
    
    
    (48,873
    )
    
    
    (24,734
    )Net interest margin
    
    $
    89,768
    
    
    $
    53,481Annualized financing income as a
percentage of average owned finance
receivables
    
    
    15.5
    %
    
    
    12.3
    %
  22




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##### Table of Contents



Provision for Credit Losses
  Securitization and Servicing Income
  For the Three Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Servicing fee income
    
    $
    5,978
    
    
    
    11,078Impairment charge on retained interest
    
    
    
    
    
    
    (313
    )Securitization and servicing income
    
    $
    5,978
    
    
    $
    10,765
  23




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##### Table of Contents



Other Income
  For the Three Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Customer fees
    
    $
    4,701
    
    
    $
    3,223Gains (losses) on interest rate swap agreements
    
    
    3,573
    
    
    
    (6,934
    )Other
    
    
    495
    
    
    
    320Other income
    
    $
    8,769
    
    
    $
    (3,391
    )
  Expenses
   Income Taxes
  24




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##### Table of Contents



Six Months Ended June 30, 2006 as Compared to Six Months Ended June 30, 2005
  Net Interest Margin
  For the Six Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Held for sale
    
    $
    N/A
    
    
    $
    1,036,342Held for investment
    
    
    3,116,190
    
    
    
    969,658Average owned finance receivables, carrying value
    
    $
    3,116,190
    
    
    $
    2,006,000
    For the Six Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Financing income
    
    $
    230,802
    
    
    $
    142,263Other interest income
    
    
    18,440
    
    
    
    30,556Interest expense
    
    
    (88,777
    )
    
    
    (40,340
    )Net interest margin
    
    $
    160,465
    
    
    $
    132,479Annualized financing income as a
percentage of average owned finance
receivables
    
    
    14.8
    %
    
    
    14.2
    %
   25




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##### Table of Contents



Provision for Credit Losses
  Securitization and Servicing Income
  For the Six Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Servicing fee income
    
    $
    13,281
    
    
    
    24,310Impairment charge on retained interest
    
    
    
    
    
    
    (683
    )Securitization and servicing income
    
    $
    13,281
    
    
    $
    23,627
  26




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##### Table of Contents



Other Income
  For the Six Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Customer fees
    
    $
    9,771
    
    
    $
    6,061Gains on interest rate swap agreements
    
    
    5,565
    
    
    
    2,624Other
    
    
    962
    
    
    
    699Other income
    
    $
    16,298
    
    
    $
    9,384
  Expenses
   Income Taxes
  27




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##### Table of Contents



Other Comprehensive Income
  Successor
    
    
    
    PredecessorSix Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    Through
    
    
    
    ThroughJune 30,
    
    
    June 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Unrealized holding gains (losses) on
available for sale securities
    
    $
    13,607
    
    
    $
    356
    
    
    
    $
    (2,381
    )Net unrealized holding gains reclassified into earnings
    
    
    (112
    )
    
    
    
    
    
    
    
    (5,244
    )$
    13,495
    
    
    $
    356
    
    
    
    $
    (7,625
    )
  Credit Quality
    At June 30,
    
    
    At December 31,2006
    
    
    2005(Dollars in thousands)Predecessor finance receivables held for investment, net
    
    $
    1,116,663
    
    
    $
    1,468,410Finance receivables repurchased from gain on sale trusts, net
    
    
    19,643
    
    
    
    Owned finance receivables held for investment
    
    
    2,486,111
    
    
    
    1,174,775Allowance for credit losses
    
    
    (119,623
    )
    
    
    (51,259
    )Owned finance receivables held for investment, net of allowance
    
    
    2,366,488
    
    
    
    1,123,516Allowance for credit losses as a percentage of receivables
    
    
    4.8
    %
    
    
    4.4
    %Total owned finance receivables, net
    
    $
    3,502,794
    
    
    $
    2,591,926
  28




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##### Table of Contents



At June 30,
    
    
    At December 31,2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Delinquent contracts:31 to 60 days
    
    $
    173,847
    
    
    
    4.7
    %
    
    $
    155,009
    
    
    
    5.7
    %Greater than 60 days
    
    
    49,652
    
    
    
    1.3
    
    
    
    44,079
    
    
    
    1.6223,499
    
    
    
    6.0
    
    
    
    199,088
    
    
    
    7.3In repossession
    
    
    10,816
    
    
    
    0.3
    
    
    
    8,158
    
    
    
    0.3$
    234,315
    
    
    
    6.3
    %
    
    $
    207,246
    
    
    
    7.6
    %
     At June 30,
    
    At December 31,2006
    
    2005Percent
    
    PercentNever extended
    
    
    88.6
    %
    
    
    89.1
    %Extended:1-2 times
    
    
    11.1
    %
    
    
    10.6
    %3-4 times
    
    
    0.3
    %
    
    
    0.3
    %Total extended
    
    
    11.4
    %
    
    
    10.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
   29




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##### Table of Contents



For the Three Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Repossession charge-offs
    
    $
    49,753
    
    
    $
    25,797Less: Recoveries
    
    
    (31,147
    )
    
    
    (19,228
    )Mandatory charge-offs(1)
    
    
    11,816
    
    
    
    7,388Net charge-offs
    
    $
    30,422
    
    
    $
    13,957Annualized net charge-offs as a
percentage of average total owned
receivables outstanding
    
    
    3.6
    %
    
    
    2.6
    %Recoveries as a percentage of charge-offs
    
    
    50.6
    %
    
    
    57.9
    %
 For the Six Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Repossession charge-offs
    
    $
    100,421
    
    
    $
    54,916Less: Recoveries
    
    
    (65,910
    )
    
    
    (40,579
    )Mandatory charge-offs(1)
    
    
    27,400
    
    
    
    16,012Net charge-offs
    
    $
    61,911
    
    
    $
    30,349Annualized net charge-offs as a
percentage of average total owned
receivables outstanding
    
    
    4.0
    %
    
    
    3.0
    %Recoveries as a percentage of charge-offs
    
    
    51.6
    %
    
    
    57.2
    %
 
 (1)
    
    Mandatory charge-offs represent accounts charged-off in full with no recovery amounts
realized at time of charge-off.  Total Managed Information
   30




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##### Table of Contents



For the Three Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Average owned finance receivables, carrying value
    
    $
    3,369,959
    
    
    $
    2,110,853Average sold finance receivables
    
    
    848,846
    
    
    
    1,680,625Average total managed finance receivables
    
    $
    4,218,805
    
    
    $
    3,791,478
 For the Six Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Average owned finance receivables, carrying value
    
    $
    3,116,190
    
    
    $
    2,006,000Average sold finance receivables
    
    
    993,855
    
    
    
    1,812,591Average total managed finance receivables
    
    $
    4,110,045
    
    
    $
    3,818,591
 Total Managed Net Interest Margin
  For the Three Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Financing and other interest income
    
    $
    188,979
    
    
    $
    152,937Interest expense
    
    
    (55,761
    )
    
    
    (35,157
    )Net interest margin
    
    $
    133,218
    
    
    $
    117,780
 For the Six Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Financing and other interest income
    
    $
    361,108
    
    
    $
    324,136Interest expense
    
    
    (103,470
    )
    
    
    (63,447
    )Net interest margin
    
    $
    257,638
    
    
    $
    260,689
 31




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##### Table of Contents



For the Three Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Net margin as reflected on the consolidated statements of income
    
    $
    89,768
    
    
    $
    53,481Other interest income
    
    
    (8,394
    )
    
    
    (13,296
    )Financing revenue on sold receivables
    
    
    35,409
    
    
    
    68,272Interest expense on sold receivables
    
    
    (6,889
    )
    
    
    (10,423
    )Premium amortization
    
    
    14,555
    
    
    
    23,137Other income
    
    
    8,769
    
    
    
    (3,391
    )Total managed net interest margin
    
    $
    133,218
    
    
    $
    117,780
 For the Six Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Net margin as reflected on the consolidated statements of income
    
    $
    160,465
    
    
    $
    132,479Other interest income
    
    
    (18,440
    )
    
    
    (30,556
    )Financing revenue on sold receivables
    
    
    78,591
    
    
    
    149,351Interest expense on sold receivables
    
    
    (14,693
    )
    
    
    (23,106
    )Premium amortization
    
    
    35,417
    
    
    
    23,137Other income
    
    
    16,298
    
    
    
    9,384Total managed net interest margin
    
    $
    257,638
    
    
    $
    260,689
  For the Three Months EndedJune 30,2006
    
    
    2005(Dollars in Thousands)Annualized finance revenue, fee and other income
    
    
    17.9
    %
    
    
    16.0
    %Annualized interest expense
    
    
    (5.3
    )
    
    
    (3.6
    )Annualized net interest margin as a percentage of average total managed receivables
    
    
    12.6
    %
    
    
    12.4
    %
 For the Six Months EndedJune 30,2006
    
    
    2005(Dollars in Thousands)Annualized finance revenue, fee and other income
    
    
    17.6
    %
    
    
    17.0
    %Annualized interest expense
    
    
    (5.0
    )
    
    
    (3.3
    )Annualized net interest margin as a percentage of average total managed receivables
    
    
    12.6
    %
    
    
    13.7
    %
  32




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##### Table of Contents



Total Managed Credit Quality
   At June 30, 2006Owned
    
    
    Sold
    
    
    Total Managed(Dollars in thousands)Owned finance receivables, unpaid principal balance
    
    $
    3,718,943
    
    
    $
    
    
    
    $
    3,718,943Sold finance receivables
    
    
    
    
    
    
    778,782
    
    
    
    778,782Total managed finance receivables
    
    $
    3,718,943
    
    
    $
    778,782
    
    
    $
    4,497,725Number of outstanding contracts
    
    
    236,399
    
    
    
    84,385
    
    
    
    320,784Average principal amount of outstanding contracts (in
dollars)
    
    $
    15,732
    
    
    $
    9,229
    
    
    $
    14,021
 At December 31, 2005Owned
    
    
    Sold
    
    
    Total Managed(Dollars in thousands)Owned finance receivables
    
    $
    2,736,183
    
    
    $
    
    
    
    $
    2,736,183Sold finance receivables
    
    
    
    
    
    
    1,130,352
    
    
    
    1,130,352Total managed finance receivables
    
    $
    2,736,183
    
    
    $
    1,130,352
    
    
    $
    3,866,535Number of outstanding contracts
    
    
    176,617
    
    
    
    112,317
    
    
    
    288,934Average principal amount of
outstanding contracts (in
dollars)
    
    $
    15,492
    
    
    $
    10,064
    
    
    $
    13,382
  At June 30, 2006Owned
    
    
    Sold
    
    
    Total ManagedDelinquent contracts:
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)31 to 60 days
    
    $
    173,847
    
    
    
    4.7
    %
    
    $
    75,698
    
    
    
    9.7
    %
    
    $
    249,545
    
    
    
    5.5
    %Greater than 60 days
    
    
    49,652
    
    
    
    1.3
    
    
    
    20,797
    
    
    
    2.7
    
    
    
    70,449
    
    
    
    1.6223,499
    
    
    
    6.0
    
    
    
    96,495
    
    
    
    12.4
    
    
    
    319,994
    
    
    
    7.1In repossession
    
    
    10,816
    
    
    
    0.3
    
    
    
    7,875
    
    
    
    1.0
    
    
    
    18,691
    
    
    
    0.4$
    234,315
    
    
    
    6.3
    %
    
    $
    104,370
    
    
    
    13.4
    %
    
    $
    338,685
    
    
    
    7.5
    %
 At December 31, 2005Owned
    
    
    Sold
    
    
    Total ManagedDelinquent contracts:
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)31 to 60 days
    
    $
    155,009
    
    
    
    5.7
    %
    
    $
    120,474
    
    
    
    10.7
    %
    
    $
    275,483
    
    
    
    7.1
    %Greater than 60 days
    
    
    44,079
    
    
    
    1.6
    
    
    
    37,240
    
    
    
    3.3
    
    
    
    81,319
    
    
    
    2.1199,088
    
    
    
    7.3
    
    
    
    157,714
    
    
    
    14.0
    
    
    
    356,802
    
    
    
    9.2In repossession
    
    
    8,158
    
    
    
    0.3
    
    
    
    13,476
    
    
    
    1.2
    
    
    
    21,634
    
    
    
    0.6$
    207,246
    
    
    
    7.6
    %
    
    $
    171,190
    
    
    
    15.2
    %
    
    $
    378,436
    
    
    
    9.8
    %
  33




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##### Table of Contents



At June 30, 2006Owned
    
    Sold
    
    Total ManagedNever extended
    
    
    88.6
    %
    
    
    57.2
    %
    
    
    83.2
    %Extended:1-2 times
    
    
    11.1
    %
    
    
    40.9
    %
    
    
    16.2
    %3-4 times
    
    
    0.3
    %
    
    
    1.9
    %
    
    
    0.6
    %Total extended
    
    
    11.4
    %
    
    
    42.8
    %
    
    
    16.8
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 At December 31, 2005Owned
    
    Sold
    
    Total ManagedNever extended
    
    
    89.1
    %
    
    
    60.8
    %
    
    
    80.8
    %Extended:1-2 times
    
    
    10.6
    %
    
    
    37.7
    %
    
    
    18.5
    %3-4 times
    
    
    0.3
    %
    
    
    1.5
    %
    
    
    0.7
    %Total extended
    
    
    10.9
    %
    
    
    39.2
    %
    
    
    19.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   34




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##### Table of Contents



For the Three Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Owned:Repossession charge-offs
    
    $
    49,753
    
    
    $
    25,797Less: Recoveries
    
    
    (31,147
    )
    
    
    (19,228
    )Mandatory charge-offs(1)
    
    
    11,816
    
    
    
    7,388Net charge-offs
    
    $
    30,422
    
    
    $
    13,957Sold:Charge-offs
    
    $
    24,712
    
    
    $
    50,216Less: Recoveries
    
    
    (14,016
    )
    
    
    (23,569
    )Mandatory charge-offs(1)
    
    
    
    
    
    
    Net charge-offs
    
    $
    10,696
    
    
    $
    26,647Total Managed:Repossession charge-offs
    
    $
    74,465
    
    
    $
    76,013Less: Recoveries
    
    
    (45,163
    )
    
    
    (42,797
    )Mandatory charge-offs(1)
    
    
    11,816
    
    
    
    7,388Net charge-offs
    
    $
    41,118
    
    
    $
    40,604Annualized net charge-offs as a
percentage of average total managed
receivables outstanding
    
    
    3.9
    %
    
    
    4.3
    %Recoveries as a percentage of charge-offs
    
    
    52.3
    %
    
    
    51.3
    %
 For the Six Months EndedJune 30,2006
    
    
    2005(Dollars in thousands)Owned:Repossession charge-offs
    
    $
    100,421
    
    
    $
    54,916Less: Recoveries
    
    
    (65,910
    )
    
    
    (40,579
    )Mandatory charge-offs(1)
    
    
    27,400
    
    
    
    16,012Net charge-offs
    
    $
    61,911
    
    
    $
    30,349Sold:Charge-offs
    
    $
    61,721
    
    
    $
    120,068Less: Recoveries
    
    
    (33,490
    )
    
    
    (53,164
    )Mandatory charge-offs(1)
    
    
    
    
    
    
    Net charge-offs
    
    $
    28,231
    
    
    $
    66,904Total Managed:Repossession charge-offs
    
    $
    162,142
    
    
    $
    174,984Less: Recoveries
    
    
    (99,400
    )
    
    
    (93,743
    )Mandatory charge-offs(1)
    
    
    27,400
    
    
    
    16,012Net charge-offs
    
    $
    90,142
    
    
    $
    97,253Annualized net charge-offs as a
percentage of average total managed
receivables outstanding
    
    
    4.4
    %
    
    
    5.1
    %Recoveries as a percentage of charge-offs
    
    
    52.4
    %
    
    
    49.1
    %
 
 (1)
    
    Mandatory charge-offs represent accounts charged-off in full with no recovery amounts
realized at time of charge-off.   35




---



##### Table of Contents



Liquidity and Capital Resources
 General
       36




---



##### Table of Contents



Contractual and Long-Term Debt Obligations
  Securitizations
      Off-Balance Sheet Arrangements
  37




---



##### Table of Contents



Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes, Accounting for Income Taxes.
 Accounting for Servicing of Financial Assets
 Accounting for Certain Hybrid Financial
Instruments
 Accounting Changes and Error Corrections
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
 General
  38




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##### Table of Contents



Warehouse and Residual Facilities
   Securitizations
    39




---



##### Table of Contents



Interest Rate Swap Agreements
   
 ITEM 4. CONTROLS AND PROCEDURES
    
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   40




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##### Table of Contents



ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  41




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##### Table of Contents



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
 EXHIBIT INDEX
 ExhibitNo.
    
    Description2.1
    
    Stock Purchase Agreement, dated as of December 23, 2004, among Triad Holdings Inc.,
Triad Acquisition Corp. and Fairlane Credit LLC (incorporated herein by reference to
Exhibit 2.1 to the Registration Statement on Form S-4/A of Triad Financial
Corporation, filed on November 15, 2005 (File No. 333-126538)).3.1
    
    Third Amended and Restated Articles of Incorporation of Triad Financial Corporation. 3.2
    
    Third Amended and Restated Bylaws of Triad Financial Corporation (incorporated herein
by reference to Exhibit 3.2 to the Registration Statement on Form S-4 of Triad
Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).4.1
    
    Indenture, dated as of April 29, 2005, among Triad Acquisition Corp. and JPMorgan
Chase Bank, N.A., as Trustee (incorporated herein by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12,
2005 (File No. 333-126538)).4.2
    
    Supplemental Indenture, dated as of April 29, 2005, among Triad Financial Corporation
and JPMorgan Chase Bank, N.A., as Trustee (incorporated herein by reference to
Exhibit 4.2 to the Registration Statement on Form S-4 of Triad Financial Corporation,
filed on July 12, 2005 (File No. 333-126538)).4.3
    
    Exchange and Registration Rights Agreement, dated as of April 29, 2005, among Triad
Acquisition Corp. and Goldman, Sachs & Co., and Citigroup Global Markets Inc., as
representatives of the several Purchasers (incorporated herein by reference to
Exhibit 4.3 to the Registration Statement on Form S-4 of Triad Financial Corporation,
filed on July 12, 2005 (File No. 333-126538)).4.4
    
    Form of Senior Note (attached as exhibit to Exhibit 4.1).10.1
    
    Employment Agreement, dated as of April 29, 2005, between the Company and James M.
Landy (incorporated herein by reference to Exhibit 10.1 to the Registration Statement
on Form S-4 of Triad Financial Corporation, filed on July 12, 2005 (File No.
333-126538)).*10.2
    
    Employment Agreement, dated as of November 11, 2005, between the Company and Chris A.
Goodman (incorporated herein by reference to Exhibit 10.2 on Form 10-K of Triad
Financial Corporation, filed on March 31, 2006 (File No. 333-126538)).*10.3
    
    Management Agreement, dated as of April 29, 2005, among the Company, Triad Holdings,
LLC, Triad Holdings Inc. and Hunters Glen/Ford Ltd (incorporated herein by reference
to Exhibit 10.2 to the Registration Statement on Form S-4 of Triad Financial
Corporation, filed on July 12, 2005 (File No. 333-126538)).10.4
    
    Warehouse Lending Agreement, dated as of April 29, 2005, among the Company, Triad
Financial Warehouse Special Purpose LLC, Triad Automobile Receivables Warehouse
Trust, JPMorgan Chase Bank, as Collection Account Bank and Citigroup Global Markets
Realty Corp., as lender (incorporated herein by reference to Exhibit 10.3 to the
Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12,
2005 (File No. 333-126538)).10.5
    
    Warehouse Lending Agreement, dated as of April 29, 2005, among the Company, Triad
Financial Warehouse Special Purpose LLC, Triad Automobile Receivables Warehouse
Trust, JPMorgan Chase Bank, as Collection Account Bank and Goldman Sachs Mortgage
Company, as lender (incorporated herein by reference to Exhibit 10.4 to the
Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12,
2005 (File No. 333-126538)).10.6
    
    Master Residual Loan Agreement, dated as of April 29, 2005, among Triad Financial
Residual Special Purpose LLC, JPMorgan Chase Bank, N.A., as Collection Account Bank
and Citigroup Global Markets Realty Corp (incorporated herein by reference to Exhibit
10.5 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed
on July 12, 2005 (File No. 333-126538)).
 42




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##### Table of Contents



ExhibitNo.
    
    Description10.7
    
    Master Residual Loan Agreement, dated as of April 29, 2005, among Triad Financial
Residual Special Purpose LLC, JPMorgan Chase Bank, N.A., as Collection Account Bank
and Goldman Sachs Mortgage Company (incorporated herein by reference to Exhibit 10.6
to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on
July 12, 2005 (File No. 333-126538)).10.8
    
    Registration Rights Agreement dated as of April 29, 2005 among Triad Holdings Inc.
and certain holders of common stock (incorporated herein by reference to Exhibit 10.7
to the Registration Statement on Form S-4 of Triad Financial Corporation, filed on
July 12, 2005 (File No. 333-126538)).10.9
    
    Stockholders Agreement, dated as of April 29, 2005, among Triad Holdings Inc., Triad
Holdings, LLC and James M. Landy (incorporated herein by reference to Exhibit 10.8 to
the Registration Statement on Form S-4 of Triad Financial Corporation, filed on July
12, 2005 (File No. 333-126538)).10.10
    
    Limited Liability Company Agreement of Triad Holdings, LLC (incorporated herein by
reference to Exhibit 10.9 to the Registration Statement on Form S-4 of Triad
Financial Corporation, filed on July 12, 2005 (File No. 333-126538)).10.11
    
    HFI Loan and Security Agreement, dated as of April 29, 2005, between the Company and
Ford Motor Credit Company (incorporated herein by reference to Exhibit 10.10 to the
Registration Statement on Form S-4 of Triad Financial Corporation, filed on July 12,
2005 (File No. 333-126538)).10.12
    
    Carl B. Webb Compensation Arrangement (incorporated herein by reference to Exhibit
10.11 to the Registration Statement on Form S-4 of Triad Financial Corporation, filed
on July 12, 2005 (File No. 333-126538)).*31.1
    
    Certification of Chief Executive Officer (Section 302 Certification).31.2
    
    Certification of Principal Financial Officer (Section 302 Certification).32.
    
    Certification of Periodic Financial Report (Section 906 Certification).
 
 *
    
    Management contract or compensatory plan or arrangement.
    
    Filed herewith. 43




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##### Table of Contents



SIGNATURES
  Date: August 11, 2006
    
    /s/ CARL B. WEBB

Carl B. WebbPresident & Chief Executive OfficerDate: August 11, 2006
    
    /s/ MIKE L. WILHELMSMike L. WilhelmsSenior Vice President & Chief Financial Officer
 44