##### 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 September 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)
 
 þ o
  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
    
    
    21ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    40ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    41PART II
    
    OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    41ITEM 1A.
    
    RISK FACTORS
    
    
    42ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECUITIES AND USE OF PROCEEDS
    
    
    42ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    42ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    42ITEM 5.
    
    OTHER INFORMATION
    
    
    42ITEM 6.
    
    EXHIBITS
    
    
    42SIGNATURES
    
    
    45EX-31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICEREX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICEREX-32 OFFICERS CERTIFICATIONS PURSUANT TO SECTION 906EXHIBIT 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
 SuccessorSeptember 30, 2006
    
    
    December 31, 2005(Note 1)
    
    
    (Note 1)(Dollars in thousands)(Unaudited)ASSETSCash and cash equivalents
    
    $
    52,778
    
    
    $
    45,295Cash  restricted
    
    
    256,354
    
    
    
    153,231Finance receivables held for investment, net
    
    
    3,791,402
    
    
    
    2,596,809Retained interest in securitized assets
    
    
    114,831
    
    
    
    216,952Accounts receivable
    
    
    45,013
    
    
    
    31,438Fixed assets, net of accumulated depreciation
of $11,587 in 2006 and $5,554 in 2005
    
    
    19,244
    
    
    
    16,733Collateral held for resale
    
    
    17,830
    
    
    
    8,158Capitalized financing costs, net of
accumulated amortization of $16,910 in 2006
and $6,851 in 2005
    
    
    15,848
    
    
    
    20,263Deferred tax asset, net
    
    
    41,528
    
    
    
    13,076Goodwill
    
    
    30,446
    
    
    
    30,446Taxes receivable
    
    
    3,970
    
    
    
    Other assets
    
    
    3,083
    
    
    
    5,755Total assets
    
    $
    4,392,327
    
    
    $
    3,138,156LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesRevolving credit facilities
    
    $
    1,226,975
    
    
    $
    935,848Due to Ford Motor Credit Company
    
    
    16,989
    
    
    
    52,323Securitization notes payable
    
    
    2,509,896
    
    
    
    1,572,268Senior notes payable
    
    
    149,144
    
    
    
    149,079Taxes payable
    
    
    
    
    
    
    6,923Other liabilities
    
    
    77,130
    
    
    
    64,883Total liabilities
    
    
    3,980,134
    
    
    
    2,781,324Commitments and contingencies (Note 12)Stockholders EquityPreferred stock, no par value; authorized
3,000,000 shares; issued and outstanding
1,500,000 shares at September 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 September 30, 2006 and December 31, 2005
    
    
    
    
    
    
    Additional paid in capital
    
    
    345,000
    
    
    
    345,000Retained earnings
    
    
    28,153
    
    
    
    9,983Accumulated other comprehensive income
    
    
    9,040
    
    
    
    1,849Total stockholders equity
    
    
    412,193
    
    
    
    356,832Total liabilities and stockholders equity
    
    $
    4,392,327
    
    
    $
    3,138,156
  2




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##### Table of Contents



TRIAD FINANCIAL CORPORATION
 
 Consolidated Statements of Income
 SuccessorThree Months
    
    
    Three MonthsEnded
    
    
    EndedSeptember 30, 2006
    
    
    September 30, 2005(Note 1)
    
    
    (Note 1)(Dollars in thousands)(Unaudited)Financing and other interest income
    
    $
    162,011
    
    
    $
    78,644Interest expense
    
    
    55,482
    
    
    
    31,801Net interest margin
    
    
    106,529
    
    
    
    46,843Provision for credit losses
    
    
    68,154
    
    
    
    19,285Net interest margin after provision
for credit losses
    
    
    38,375
    
    
    
    27,558Securitization and servicing income
    
    
    4,782
    
    
    
    8,752Other income (loss)
    
    
    (3,257
    )
    
    
    7,423Total other revenues
    
    
    1,525
    
    
    
    16,175Operating expenses
    
    
    35,878
    
    
    
    36,833Total expenses
    
    
    35,878
    
    
    
    36,833Income before income taxes
    
    
    4,022
    
    
    
    6,900Provision for income taxes
    
    
    1,588
    
    
    
    2,746Net income
    
    $
    2,434
    
    
    $
    4,154
  3




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##### Table of Contents



TRIAD FINANCIAL CORPORATION
Consolidated Statements of Income
 Successor
    
    
    
    PredecessorNine Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    through
    
    
    
    throughSeptember 30, 2006
    
    
    September 30, 2005
    
    
    
    April 29, 2005(Note 1)
    
    
    (Note 1)
    
    
    
    (Note 1)(Dollars in thousands)(Unaudited)Financing and other interest income
    
    $
    411,253
    
    
    $
    124,220
    
    
    
    $
    127,243Interest expense
    
    
    144,259
    
    
    
    50,701
    
    
    
    
    21,440Net interest margin
    
    
    266,994
    
    
    
    73,519
    
    
    
    
    105,803Provision for credit losses
    
    
    163,196
    
    
    
    27,517
    
    
    
    
    Net interest margin after provision
for credit losses
    
    
    103,798
    
    
    
    46,002
    
    
    
    
    105,803Securitization and servicing income
    
    
    18,063
    
    
    
    15,782
    
    
    
    
    16,597Other income
    
    
    13,041
    
    
    
    7,296
    
    
    
    
    9,512Total other revenues
    
    
    31,104
    
    
    
    23,078
    
    
    
    
    26,109Operating expenses
    
    
    103,759
    
    
    
    55,835
    
    
    
    
    39,857Other expenses
    
    
    
    
    
    
    
    
    
    
    
    30,505Total expenses
    
    
    103,759
    
    
    
    55,835
    
    
    
    
    70,362Income before income taxes
    
    
    31,143
    
    
    
    13,245
    
    
    
    
    61,550Provision for income taxes
    
    
    12,185
    
    
    
    5,264
    
    
    
    
    23,208Net income
    
    $
    18,958
    
    
    $
    7,981
    
    
    
    $
    38,342
  4




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##### Table of Contents



TRIAD FINANCIAL CORPORATION
 
 Consolidated Statements of Cash Flows
 Successor
    
    
    
    PredecessorNine Months Ended
    
    
    April 30, 2005
    
    
    
    January 1, 2005September, 30,
    
    
    Through
    
    
    
    Through2006
    
    
    September 30, 2005
    
    
    
    April 29, 2005(Note 1)
    
    
    (Note 1)
    
    
    
    (Note 1)(Dollars in thousands)(Unaudited)Cash flows from operating activitiesNet income
    
    $
    18,958
    
    
    $
    7,981
    
    
    
    $
    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
    
    
    16,157
    
    
    
    7,415
    
    
    
    
    2,714Provision for credit losses
    
    
    163,196
    
    
    
    27,517
    
    
    
    
    Deferred income tax benefit
    
    
    (33,146
    )
    
    
    
    
    
    
    
    Accretion of present value discount
    
    
    (20,379
    )
    
    
    (18,181
    )
    
    
    
    (22,046
    )Amortization of purchase premium
    
    
    45,369
    
    
    
    54,820
    
    
    
    
    Impairment charges on retained interest
on securitizations
    
    
    
    
    
    
    1,575
    
    
    
    
    490Changes in operating assets and liabilitiesAccounts receivable
    
    
    (13,575
    )
    
    
    12,451
    
    
    
    
    (3,711
    )Other assets
    
    
    1,884
    
    
    
    (3,989
    )
    
    
    
    (375
    )Other liabilities
    
    
    12,247
    
    
    
    25,087
    
    
    
    
    (8,161
    )Current taxes receivable/payable
    
    
    (10,893
    )
    
    
    5,264
    
    
    
    
    21,259Net cash provided by (used in)
operating activities
    
    
    179,818
    
    
    
    119,940
    
    
    
    
    (383,565
    )Cash flows from investing activitiesAcquisition of Triad Financial Corporation
    
    
    
    
    
    
    (553,548
    )
    
    
    
    Distributions from gain on sale trusts
    
    
    134,386
    
    
    
    65,130
    
    
    
    
    75,675Repurchases from gain on sale trusts
    
    
    (131,212
    )
    
    
    
    
    
    
    
    Purchases of finance receivables held for
investment
    
    
    (2,223,083
    )
    
    
    (797,420
    )
    
    
    
    Collections on finance receivables held
for investment
    
    
    941,465
    
    
    
    352,181
    
    
    
    
    43,760Change in restricted cash
    
    
    (103,123
    )
    
    
    (144,225
    )
    
    
    
    Purchases of fixed assets
    
    
    (8,545
    )
    
    
    (3,618
    )
    
    
    
    (1,556
    )Net cash (used in) provided by
investing activities
    
    
    (1,390,112
    )
    
    
    (1,081,500
    )
    
    
    
    117,879Cash flows from financing activitiesNet change in warehouse credit facilities
    
    
    287,127
    
    
    
    456,321
    
    
    
    
    Net change in residual credit facilities
    
    
    4,000
    
    
    
    81,000
    
    
    
    
    Net change in due to Ford Motor Credit
Company
    
    
    (35,334
    )
    
    
    (1,808,651
    )
    
    
    
    263,546Issuance of securitization notes
    
    
    1,737,882
    
    
    
    2,009,168
    
    
    
    
    Payment on securitization notes
    
    
    (800,254
    )
    
    
    (233,898
    )
    
    
    
    Issuance of senior notes
    
    
    
    
    
    
    149,025
    
    
    
    
    Capitalized finance costs
    
    
    (5,644
    )
    
    
    (26,744
    )
    
    
    
    Issuance of preferred stock
    
    
    30,000
    
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    
    
    
    
    345,000
    
    
    
    
    Net cash provided by financing activities
    
    
    1,217,777
    
    
    
    971,221
    
    
    
    
    263,546Net increase (decrease) in cash and cash
equivalents
    
    
    7,483
    
    
    
    9,661
    
    
    
    
    (2,140
    )Cash and cash equivalentsBeginning of period
    
    
    45,295
    
    
    
    23,644
    
    
    
    
    25,784End of period
    
    $
    52,778
    
    
    $
    33,305
    
    
    
    $
    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
    
    $
    
    
    
    $
    
    
    
    
    $
    41,894Preferred Stock dividend declared
    
    $
    788
    
    
    $
    
    
    
    
    $
    Supplemental DisclosureInterest paid
    
    $
    139,679
    
    
    $
    43,584
    
    
    
    $
    Income taxes paid
    
    $
    56,220
    
    
    $
    
    
    
    
    $
    
  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
    Stock-Based Compensation
 Share-Based Payment, revised 2004
 6




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
 Accounting for Stock-Based Compensation Share-Based
Payment
 Cash Equivalents
  Restricted Cash
  Finance Receivables
     Sale of Receivables
   7




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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
  8




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Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
  Equipment
    
    3-5 yearsSoftware
    
    3-5 yearsFurniture and fixtures
    
    5 years
    Goodwill
 Goodwill and Other Intangible Assets
 Income Taxes
 Accounting for
Income Taxes Accounting for Contingencies,
  Use of Estimates
  9




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
 3. Finance Receivables
  2006
    
    
    2005(Dollars in thousands)Finance receivables held for investment
    
    $
    2,873,483
    
    
    $
    1,174,775Premiums (discounts)
    
    
    (7,603
    )
    
    
    (4,701
    )Deferred costs, net
    
    
    23,794
    
    
    
    9,584Allowance for credit losses
    
    
    (150,536
    )
    
    
    (51,259
    )Finance receivables held for investment, net
    
    
    2,739,138
    
    
    
    1,128,399Predecessor finance receivables held for investment, net
    
    
    968,214
    
    
    
    1,468,410Finance receivables repurchased from gain on sale trusts, net
    
    
    84,050
    
    
    
    Total finance receivables held for investment, net
    
    $
    3,791,402
    
    
    $
    2,596,809
    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
    
    
    (154,717
    )
    
    
    
    
    
    
    (154,717
    )
    
    
    111,395
    
    
    
    (43,322
    )Principal collections
    
    
    (456,874
    )
    
    
    
    
    
    
    (456,874
    )
    
    
    
    
    
    
    (456,874
    )Charge-offs
    
    
    (55,773
    )
    
    
    55,773
    
    
    
    
    
    
    
    
    
    
    
    Reclassification to accretable discount
    
    
    
    
    
    
    34,056
    
    
    
    34,056
    
    
    
    (34,056
    )
    
    
    Change in cash flows
    
    
    (118,215
    )
    
    
    141,437
    
    
    
    23,222
    
    
    
    (23,222
    )
    
    
    Balance, September 30, 2006
    
    $
    1,434,613
    
    
    $
    (293,444
    )
    
    $
    1,141,169
    
    
    $
    (172,955
    )
    
    $
    968,214
 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
    
    
    (131,579
    )
    
    
    
    
    
    
    (131,579
    )
    
    
    76,759
    
    
    
    (54,820
    )Principal collections
    
    
    (334,736
    )
    
    
    
    
    
    
    (334,736
    )
    
    
    
    
    
    
    (334,736
    )Charge-offs
    
    
    (41,572
    )
    
    
    41,572
    
    
    
    
    
    
    
    
    
    
    
    Change in cash flows
    
    
    (90,114
    )
    
    
    90,114
    
    
    
    
    
    
    
    
    
    
    
    Balance, September 30, 2005
    
    $
    2,565,360
    
    
    $
    (603,927
    )
    
    $
    1,961,433
    
    
    $
    (288,624
    )
    
    $
    1,672,809
 10




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
 4. Allowance For Credit Losses
  SuccessorThree Months
    
    
    Three MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005(Dollars in thousands)Balance, beginning of period
    
    $
    119,623
    
    
    $
    8,231Provision for credit losses
    
    
    68,154
    
    
    
    19,285Charge-offs
    
    
    (38,509
    )
    
    
    (294
    )Recoveries
    
    
    1,268
    
    
    
    22Balance, end of period
    
    $
    150,536
    
    
    $
    27,244
 Successor
    
    
    
    PredecessorNine Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    Through
    
    
    
    ThroughSeptember 30,
    
    
    September 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Balance, beginning of period
    
    $
    51,259
    
    
    $
    
    
    
    
    $
    16,081Provision for credit losses
    
    
    163,196
    
    
    
    27,517
    
    
    
    
    Charge-offs
    
    
    (66,382
    )
    
    
    (295
    )
    
    
    
    (7,465
    )Recoveries
    
    
    2,463
    
    
    
    22
    
    
    
    
    6,447Balance, end of period
    
    $
    150,536
    
    
    $
    27,244
    
    
    
    $
    15,063
   5. Sales of Receivables
 Servicing Portfolio
  SuccessorThree Months
    
    
    Three MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005(Dollars in thousands)Balance, beginning of period
    
    $
    778,782
    
    
    $
    1,559,771Called receivables
    
    
    (85,373
    )
    
    
    Collections and write-offs
    
    
    (117,192
    )
    
    
    (233,116
    )Balance, end of period
    
    $
    576,217
    
    
    $
    1,326,655
 11




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
 Successor
    
    
    
    PredecessorNine Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    Through
    
    
    
    ThroughSeptember 30,
    
    
    September 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Balance, beginning of period
    
    $
    1,130,352
    
    
    $
    1,719,178
    
    
    
    $
    2,082,102Called receivables
    
    
    (131,005
    )
    
    
    
    
    
    
    
    Collections and write-offs
    
    
    (423,130
    )
    
    
    (392,523
    )
    
    
    
    (362,924
    )Balance, end of period
    
    $
    576,217
    
    
    $
    1,326,655
    
    
    
    $
    1,719,178
  Retained Interest in Securitized Assets
  Successor2006
    
    
    
    2005(Dollars in thousands)Restricted cash held for the benefit of securitizations
    
    $
    57,751
    
    
    
    $
    80,298Overcollaterization
    
    
    74,908
    
    
    
    
    150,283Interest-only
    
    
    (17,828
    )
    
    
    
    (13,629
    )Retained interest in securitized assets
    
    $
    114,831
    
    
    
    $
    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
    )
    
    $
    158,584Distributions
    
    
    
    
    
    
    (13,187
    )
    
    
    (25,401
    )
    
    
    (9,592
    )
    
    
    (48,180
    )Residual interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,960
    
    
    
    5,960Impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized gains (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,533
    )
    
    
    (1,533
    )Balance, September 30, 2006
    
    $
    
    
    
    $
    57,751
    
    
    $
    74,908
    
    
    $
    (17,828
    )
    
    $
    114,831(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
    )
    
    $
    277,533Distributions
    
    
    (345
    )
    
    
    
    
    
    
    (31,969
    )
    
    
    (15,132
    )
    
    
    (47,446
    )Residual interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,579
    
    
    
    10,579Impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,382
    )
    
    
    (1,382
    )Unrealized gains (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,222
    
    
    
    3,222Balance, September 30, 2005
    
    $
    
    
    
    $
    80,298
    
    
    $
    177,170
    
    
    $
    (14,962
    )
    
    $
    242,506
   13




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
  Securitization and Servicing Income
  SuccessorThree Months
    
    
    Three MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005(Dollars in thousands)Servicing fee income
    
    $
    4,782
    
    
    $
    10,134Impairment charge on retained interest in
securitized assets
    
    
    
    
    
    
    (1,382
    )Securitization and servicing income, net
    
    $
    4,782
    
    
    $
    8,752
 Successor
    
    
    
    PredecessorNine Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    Through
    
    
    
    ThroughSeptember 30,
    
    
    September 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Servicing fee income
    
    $
    18,063
    
    
    $
    17,357
    
    
    
    $
    17,087Impairment charge on retained interest in
securitized assets
    
    
    
    
    
    
    (1,575
    )
    
    
    
    (490
    )Securitization and servicing income, net
    
    $
    18,063
    
    
    $
    15,782
    
    
    
    $
    16,597
 6. Revolving Credit Facilities
  2006
    
    
    2005(Dollars in thousands)Warehouse loan facilities
    
    $
    1,117,975
    
    
    $
    830,848Residual loan facilities
    
    
    109,000
    
    
    
    105,000Total revolving credit facilities
    
    $
    1,226,975
    
    
    $
    935,848
  Facility
    
    
    Advances
    
    
    CollateralAmount
    
    
    Outstanding
    
    
    Pledged(Dollars in thousands)Warehouse loan facility, due April 2007(a)
    
    $
    625,000
    
    
    
    $
    555,895
    
    
    
    $
    618,248Residual loan facility, due April 2007(a)
    
    
    125,000
    
    
    
    
    54,500
    
    
    
    
    211,929Warehouse loan facility, due October 2007
    
    
    625,000
    
    
    
    
    562,080
    
    
    
    
    624,717Residual loan facility, due October 2007
    
    
    125,000
    
    
    
    
    54,500
    
    
    
    
    211,929
 
 (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
    
    $
    16,989
    
    
    $
    52,323
    15




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
  SuccessorThree Months
    
    Three MonthsEnded
    
    EndedSeptember 30,
    
    September 30,2006
    
    2005(Dollars in thousands)Interest expense
    
    $
    320
    
    
    $
    1,381
 Successor
    
    
    PredecessorNine Months
    
    April 30, 2005
    
    
    January 1, 2005Ended
    
    Through
    
    
    ThroughSeptember 30,
    
    September 30,
    
    
    April 29,2006
    
    2005
    
    
    2005(Dollars in thousands)Interest expense
    
    $
    1,411
    
    
    $
    2,913
    
    
    
    $
    21,440Gain on interest rate swap agreement
    
    $
    
    
    
    $
    
    
    
    
    $
    5,164
 8. Securitization Notes Payable
  OriginalOriginal
    
    Weighted Average
    
    Finance
    
    CurrentNote
    
    Fixed Interest
    
    Receivables
    
    NoteTransaction
    
    Amount
    
    Rate
    
    Pledged
    
    Balance(Dollars in thousands)2005-A, due June 12, 2012(a)
    
    $
    1,104,000
    
    
    
    4.09
    %
    
    $
    631,156
    
    
    $
    571,4582005-B, due April 12, 2013(a)
    
    $
    905,303
    
    
    
    4.32
    %
    
    $
    566,738
    
    
    $
    512,8072006-A, due April 12, 2013(a)
    
    $
    822,500
    
    
    
    4.88
    %
    
    $
    684,077
    
    
    $
    615,5982006-B, due November 12, 2012(a)
    
    $
    915,500
    
    
    
    5.50
    %
    
    $
    874,810
    
    
    $
    810,033
 
 (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




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
 12. Commitments and Contingencies
      (Dollars in thousands)Year ending December 31,2006
    
    $
    8932007
    
    $
    3,5722008
    
    $
    2,0912009
    
    $
    1,7942010
    
    $
    1,7942011 and thereafter
    
    $
    3,440
 18




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
 13. Comprehensive Income
  Successor
    
    
    
    PredecessorNine Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    Through
    
    
    
    ThroughSeptember 30,
    
    
    September 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Net income
    
    $
    18,958
    
    
    $
    7,981
    
    
    
    $
    38,342Other comprehensive income, netUnrealized holding gains (losses) on
available for sale securities
(net of tax of $4,893, $1,414 and $898)
    
    
    7,494
    
    
    
    2,165
    
    
    
    
    (1,483
    )Net unrealized holding gains reclassified
into earnings (net of tax of $198, and $1,977)
    
    
    (303
    )
    
    
    
    
    
    
    
    (3,267
    )Total other comprehensive income, net
    
    
    7,191
    
    
    
    2,165
    
    
    
    
    (4,750
    )Comprehensive income
    
    $
    26,149
    
    
    $
    10,146
    
    
    
    $
    33,592
  Successor
    
    
    
    PredecessorNine Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    Through
    
    
    
    ThroughSeptember 30,
    
    
    September 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
    
    
    7,191
    
    
    
    2,165
    
    
    
    
    (4,750
    )Balance, end of period
    
    $
    9,040
    
    
    $
    2,165
    
    
    
    $
    17,867
 14. Stock-Based Compensation
    19




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##### Table of Contents



Triad Financial Corporation
 Notes to Consolidated Financial Statements  (Continued)
  WeightedAverageExerciseShares
    
    
    Price(Amounts in thousands exceptweighted-averageexercise price)Outstanding at July 1, 2005
    
    
    
    
    
    
    Granted
    
    
    2,000
    
    
    $
    7.50Exercised
    
    
    
    
    
    
    Canceled/forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2005
    
    
    2,000
    
    
    $
    7.50Granted
    
    
    1,000
    
    
    $
    7.73Exercised
    
    
    
    
    
    
    Canceled/forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2006
    
    
    3,000
    
    
    $
    7.58Exercisable at September 30, 2006
    
    
    1,000
    
    
    $
    7.55Weighted average remaining contractual
life in years
    
    
    
    
    
    
    9.07
 15. Subsequent Event
  20




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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
    21




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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
   22




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##### Table of Contents



Results of Operations
 Three Months Ended September 30, 2006 as Compared to Three Months Ended September 30, 2005
  Net Interest Margin
  For the Three Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Average owned finance receivables, carrying value
    
    $
    3,790,230
    
    
    $
    2,330,146
    For the Three Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Financing income
    
    $
    153,252
    
    
    $
    67,233Other interest income
    
    
    8,759
    
    
    
    11,411Interest expense
    
    
    (55,482
    )
    
    
    (31,801
    )Net interest margin
    
    $
    106,529
    
    
    $
    46,843Annualized financing income as a
percentage of average owned finance
receivables
    
    
    16.2
    %
    
    
    11.5
    %
  23




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##### Table of Contents



Provision for Credit Losses
  Securitization and Servicing Income
  For the Three Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Servicing fee income
    
    $
    4,782
    
    
    $
    10,134Impairment charge on retained interest
    
    
    
    
    
    
    (1,382
    )Securitization and servicing income
    
    $
    4,782
    
    
    $
    8,752
  24




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##### Table of Contents



Other Income (Loss)
  For the Three Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Customer fees
    
    $
    5,207
    
    
    $
    3,580Gains (losses) on interest rate swap agreements
    
    
    (8,092
    )
    
    
    3,366Other
    
    
    (372
    )
    
    
    477Other income (loss)
    
    $
    (3,257
    )
    
    $
    7,423
  Expenses
  Income Taxes
  Nine Months Ended September 30, 2006 as Compared to Nine Months Ended September 30, 2005
  25




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##### Table of Contents



Net Interest Margin
  For the Nine Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Held for sale
    
    $
    N/A
    
    
    $
    583,760Held for investment
    
    
    3,340,870
    
    
    
    1,530,289Average owned finance receivables, carrying value
    
    $
    3,340,870
    
    
    $
    2,114,049
    For the Nine Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Financing income
    
    $
    384,054
    
    
    $
    209,496Other interest income
    
    
    27,199
    
    
    
    41,967Interest expense
    
    
    (144,259
    )
    
    
    (72,141
    )Net interest margin
    
    $
    266,994
    
    
    $
    179,322Annualized financing income as a
percentage of average owned finance
receivables
    
    
    15.3
    %
    
    
    13.2
    %
    26




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##### Table of Contents



Provision for Credit Losses
  Securitization and Servicing Income
  For the Nine Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Servicing fee income
    
    $
    18,063
    
    
    
    34,444Impairment charge on retained interest
    
    
    
    
    
    
    (2,065
    )Securitization and servicing income
    
    $
    18,063
    
    
    $
    32,379
  Other Income
  For the Nine Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Customer fees
    
    $
    14,978
    
    
    $
    9,641Gains (losses) on interest rate swap agreements
    
    
    (2,528
    )
    
    
    5,991Other
    
    
    591
    
    
    
    1,176Other income
    
    $
    13,041
    
    
    $
    16,808
  27




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##### Table of Contents



Expenses
   Income Taxes
  Other Comprehensive Income
  Successor
    
    
    
    PredecessorNine Months
    
    
    April 30, 2005
    
    
    
    January 1, 2005Ended
    
    
    Through
    
    
    
    ThroughSeptember 30,
    
    
    September 30,
    
    
    
    April 29,2006
    
    
    2005
    
    
    
    2005(Dollars in thousands)Unrealized holding gains (losses) on
available for sale securities
    
    $
    12,387
    
    
    $
    3,579
    
    
    
    $
    (2,381
    )Net unrealized holding gains reclassified into earnings
    
    
    (501
    )
    
    
    
    
    
    
    
    (5,244
    )$
    11,886
    
    
    $
    3,579
    
    
    
    $
    (7,625
    )
  28




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##### Table of Contents



Credit Quality
    At September 30,
    
    
    At December 31,2006
    
    
    2005(Dollars in thousands)Finance receivables held for investment
    
    $
    2,873,483
    
    
    $
    1,174,775Allowance for credit losses
    
    
    (150,536
    )
    
    
    (51,259
    )Finance receivables held for investment, net of allowance
    
    
    2,722,947
    
    
    
    1,123,516Allowance for credit losses as a percentage of receivables
    
    
    5.2
    %
    
    
    4.4
    %Predecessor finance receivables held for investment, net
    
    
    968,214
    
    
    
    1,468,410Finance receivables repurchased from gain on sale trusts, net
    
    
    84,050
    
    
    
    Total owned finance receivables held for investment, net
    
    $
    3,775,211
    
    
    $
    2,591,926
   At September 30,
    
    
    At December 31,2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Delinquent contracts:31 to 60 days
    
    $
    222,910
    
    
    
    5.6
    %
    
    $
    155,009
    
    
    
    5.7
    %Greater than 60 days
    
    
    67,973
    
    
    
    1.7
    
    
    
    44,079
    
    
    
    1.6290,883
    
    
    
    7.3
    
    
    
    199,088
    
    
    
    7.3In repossession
    
    
    17,830
    
    
    
    0.4
    
    
    
    8,158
    
    
    
    0.3$
    308,713
    
    
    
    7.7
    %
    
    $
    207,246
    
    
    
    7.6
    %
  29




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##### Table of Contents



At September 30,
    
    At December 31,2006
    
    2005Percent
    
    PercentNever extended
    
    
    90.0
    %
    
    
    89.1
    %Extended:1-2 times
    
    
    9.8
    %
    
    
    10.6
    %3-4 times
    
    
    0.2
    %
    
    
    0.3
    %Total extended
    
    
    10.0
    %
    
    
    10.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    For the Three Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Repossession charge-offs
    
    $
    82,225
    
    
    $
    39,924Less: Recoveries
    
    
    (44,777
    )
    
    
    (21,872
    )Mandatory charge-offs(1)
    
    
    24,018
    
    
    
    12,718Net charge-offs
    
    $
    61,466
    
    
    $
    30,770Annualized net charge-offs as a
percentage of average total owned
receivables outstanding
    
    
    6.5
    %
    
    
    5.3
    %Recoveries as a percentage of charge-offs
    
    
    42.1
    %
    
    
    41.5
    %
 30




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##### Table of Contents



For the Nine Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Repossession charge-offs
    
    $
    182,645
    
    
    $
    94,839Less: Recoveries
    
    
    (110,686
    )
    
    
    (62,451
    )Mandatory charge-offs(1)
    
    
    51,417
    
    
    
    28,730Net charge-offs
    
    $
    123,376
    
    
    $
    61,118Annualized net charge-offs as a
percentage of average total owned
receivables outstanding
    
    
    4.9
    %
    
    
    3.9
    %Recoveries as a percentage of charge-offs
    
    
    47.3
    %
    
    
    50.5
    %
 
 (1)
    
    Mandatory charge-offs represent accounts charged-off in full with no recovery amounts
realized at time of charge-off.   Total Managed Information
   31




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##### Table of Contents



For the Three Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Average owned finance receivables, carrying value
    
    $
    3,790,230
    
    
    $
    2,330,146Average sold finance receivables
    
    
    674,910
    
    
    
    1,441,029Average total managed finance receivables
    
    $
    4,465,140
    
    
    $
    3,771,175
 For the Nine Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Average owned finance receivables, carrying value
    
    $
    3,340,870
    
    
    $
    2,114,049Average sold finance receivables
    
    
    844,274
    
    
    
    1,688,737Average total managed finance receivables
    
    $
    4,185,144
    
    
    $
    3,802,786
 Total Managed Net Interest Margin
  For the Three Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Financing and other interest income
    
    $
    195,984
    
    
    $
    165,197Interest expense
    
    
    (69,100
    )
    
    
    (38,910
    )Net interest margin
    
    $
    126,884
    
    
    $
    126,287
 For the Nine Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Financing and other interest income
    
    $
    551,528
    
    
    $
    486,685Interest expense
    
    
    (167,006
    )
    
    
    (99,709
    )Net interest margin
    
    $
    384,522
    
    
    $
    386,976
 32




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##### Table of Contents



For the Three Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Net margin as reflected on the consolidated statements of income
    
    $
    106,529
    
    
    $
    46,843Other interest income
    
    
    (8,759
    )
    
    
    (11,411
    )Financing revenue on sold receivables
    
    
    27,945
    
    
    
    62,225Interest expense on sold receivables
    
    
    (5,526
    )
    
    
    (10,475
    )Gain (losses) on interest rate swaps
    
    
    (8,092
    )
    
    
    3,366Premium amortization
    
    
    9,952
    
    
    
    31,682Other income
    
    
    4,835
    
    
    
    4,057Total managed net interest margin
    
    $
    126,884
    
    
    $
    126,287
 For the Nine Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Net margin as reflected on the consolidated statements of income
    
    $
    266,994
    
    
    $
    179,322Other interest income
    
    
    (27,199
    )
    
    
    (41,967
    )Financing revenue on sold receivables
    
    
    106,536
    
    
    
    211,575Interest expense on sold receivables
    
    
    (20,219
    )
    
    
    (33,582
    )Gain (losses) on interest rate swaps
    
    
    (2,528
    )
    
    
    6,014Premium amortization
    
    
    45,369
    
    
    
    54,820Other income
    
    
    15,569
    
    
    
    10,794Total managed net interest margin
    
    $
    384,522
    
    
    $
    386,976
  For the Three Months EndedSeptember 30,2006
    
    2005(Dollars in Thousands)Annualized finance revenue, fee and other income
    
    
    17.6
    %
    
    
    17.5
    %Annualized interest expense
    
    
    (6.2
    )
    
    
    (4.1
    )Annualized net interest margin as a percentage of average total managed receivables
    
    
    11.4
    %
    
    
    13.4
    %
 For the Nine Months EndedSeptember 30,2006
    
    2005(Dollars in Thousands)Annualized finance revenue, fee and other income
    
    
    17.6
    %
    
    
    17.1
    %Annualized interest expense
    
    
    (5.3
    )
    
    
    (3.5
    )Annualized net interest margin as a percentage of average total managed receivables
    
    
    12.3
    %
    
    
    13.6
    %
  33




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##### Table of Contents



Total Managed Credit Quality
   At September 30, 2006Owned
    
    
    Sold
    
    
    Total Managed(Dollars in thousands)Owned finance receivables, unpaid principal balance
    
    $
    4,009,482
    
    
    $
    
    
    
    $
    4,009,482Sold finance receivables
    
    
    
    
    
    
    576,217
    
    
    
    576,217Total managed finance receivables
    
    $
    4,009,482
    
    
    $
    576,217
    
    
    $
    4,585,699Number of outstanding contracts
    
    
    262,093
    
    
    
    61,996
    
    
    
    324,089Average principal amount of outstanding contracts (in
dollars)
    
    $
    15,298
    
    
    $
    9,294
    
    
    $
    14,150
 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 September 30, 2006Owned
    
    
    Sold
    
    
    Total ManagedDelinquent contracts:
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)31 to 60 days
    
    $
    222,910
    
    
    
    5.6
    %
    
    $
    57,867
    
    
    
    10.0
    %
    
    $
    280,777
    
    
    
    6.1
    %Greater than 60 days
    
    
    67,973
    
    
    
    1.7
    
    
    
    17,470
    
    
    
    3.1
    
    
    
    85,443
    
    
    
    1.9290,883
    
    
    
    7.3
    
    
    
    75,337
    
    
    
    13.1
    
    
    
    366,220
    
    
    
    8.0In repossession
    
    
    17,830
    
    
    
    0.4
    
    
    
    7,060
    
    
    
    1.2
    
    
    
    24,890
    
    
    
    0.5$
    308,713
    
    
    
    7.7
    %
    
    $
    82,397
    
    
    
    14.3
    %
    
    $
    391,110
    
    
    
    8.5
    %
 34




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##### Table of Contents



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
    %
     At September 30, 2006Owned
    
    Sold
    
    Total ManagedNever extended
    
    
    90.0
    %
    
    
    58.6
    %
    
    
    86.0
    %Extended:1-2 times
    
    
    9.8
    %
    
    
    40.0
    %
    
    
    13.5
    %3-4 times
    
    
    0.2
    %
    
    
    1.4
    %
    
    
    0.5
    %Total extended
    
    
    10.0
    %
    
    
    41.4
    %
    
    
    14.0
    %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
    %
   35




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##### Table of Contents



For the Three Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Owned:Repossession charge-offs
    
    $
    82,225
    
    
    $
    39,924Less: Recoveries
    
    
    (44,777
    )
    
    
    (21,872
    )Mandatory charge-offs(1)
    
    
    24,018
    
    
    
    12,718Net charge-offs
    
    $
    61,466
    
    
    $
    30,770Sold:Charge-offs
    
    $
    26,087
    
    
    $
    55,776Less: Recoveries
    
    
    (11,914
    )
    
    
    (20,330
    )Mandatory charge-offs(1)
    
    
    
    
    
    
    Net charge-offs
    
    $
    14,173
    
    
    $
    35,446Total Managed:Repossession charge-offs
    
    $
    108,312
    
    
    $
    95,700Less: Recoveries
    
    
    (56,691
    )
    
    
    (42,202
    )Mandatory charge-offs(1)
    
    
    24,018
    
    
    
    12,718Net charge-offs
    
    $
    75,639
    
    
    $
    66,216Annualized net charge-offs as a
percentage of average total managed
receivables outstanding
    
    
    6.8
    %
    
    
    7.0
    %Recoveries as a percentage of charge-offs
    
    
    42.8
    %
    
    
    38.9
    %
 For the Nine Months EndedSeptember 30,2006
    
    
    2005(Dollars in thousands)Owned:Repossession charge-offs
    
    $
    182,645
    
    
    $
    94,839Less: Recoveries
    
    
    (110,686
    )
    
    
    (62,451
    )Mandatory charge-offs(1)
    
    
    51,417
    
    
    
    28,730Net charge-offs
    
    $
    123,376
    
    
    $
    61,118Sold:Charge-offs
    
    $
    87,809
    
    
    $
    175,844Less: Recoveries
    
    
    (45,404
    )
    
    
    (73,494
    )Mandatory charge-offs(1)
    
    
    
    
    
    
    Net charge-offs
    
    $
    42,405
    
    
    $
    102,350Total Managed:Repossession charge-offs
    
    $
    270,454
    
    
    $
    270,683Less: Recoveries
    
    
    (156,090
    )
    
    
    (135,945
    )Mandatory charge-offs(1)
    
    
    51,417
    
    
    
    28,730Net charge-offs
    
    $
    165,781
    
    
    $
    163,468Annualized net charge-offs as a
percentage of average total managed
receivables outstanding
    
    
    5.3
    %
    
    
    5.7
    %Recoveries as a percentage of charge-offs
    
    
    48.5
    %
    
    
    45.4
    %
 
 (1)
    
    Mandatory charge-offs represent accounts charged-off in full with no recovery amounts
realized at time of charge-off.   36




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##### Table of Contents



Liquidity and Capital Resources
 General
       37




---



##### Table of Contents



Contractual and Long-Term Debt Obligations
  Securitizations
      Off-Balance Sheet Arrangements
  38




---



##### Table of Contents



Recent Accounting Pronouncements
 Considering the Effects
of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements
 Fair Value Measurements
 Accounting for Uncertainty in Income
Taxes, Accounting for Income Taxes.
 Accounting for Servicing of Financial Assets
 Accounting for Certain Hybrid Financial
Instruments
 39




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
 General
  Warehouse and Residual Facilities
   Securitizations
   40




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##### Table of Contents



Interest Rate Swap Agreements
   
 ITEM 4. CONTROLS AND PROCEDURES
    
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  41




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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
  
 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. (incorporated herein by reference to Exhibit 3.1 on Form
10-Q of Triad Financial Corporation, filed on August 11, 2006 (File No.
333-126538)).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)).
 42




---



##### Table of Contents



ExhibitNo.
    
    Description4.3
    
    
    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)).10.7
    
    
    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)).
 43




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##### Table of Contents



ExhibitNo.
    
    Description10.12
    
    
    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. 44




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##### Table of Contents



SIGNATURES
  Date: November 13, 2006
    /s/ CARL B. WEBBCarl B. WebbPresident & Chief Executive OfficerDate: November 13, 2006
    /s/ MIKE L. WILHELMSMike L. WilhelmsSenior Vice President & Chief Financial Officer 45




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##### Table of Contents



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. (incorporated herein by reference to Exhibit 3.1 on Form
10-Q of Triad Financial Corporation, filed on August 11, 2006 (File No.
333-126538)).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)).




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##### Table of Contents



ExhibitNo.
    
    Description4.3
    
    
    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)).




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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.