UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended December 31, 2008

Commission file number: 333-65107

TRIAD FINANCIAL SM LLC

(Exact name of registrant as specified in its charter)


Delaware (State of Incorporation) 5201 Rufe Snow Drive North Richland Hills, Texas (Address of principal executive offices)		26-3953535 (IRS Employer Identification No) 76180 (Zip Code)

(817) 656-9788

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of Acts. o Yes þ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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


o Large accelerated filer	o Accelerated filer	þ Non-accelerated filer	o Smaller reporting company

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes þ No

As of March 20, 2009, the registrant had 1,000 common units outstanding all of which were owned by the registrant’s parent Triad Financial Holdings LLC.

Table of Contents


			Page

PART I
	ITEM 1.	BUSINESS		2
	ITEM 1A.	RISK FACTORS		8
	ITEM 1B.	UNRESOLVED STAFF COMMENTS		14
	ITEM 2.	PROPERTIES		14
	ITEM 3.	LEGAL PROCEEDINGS		15
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		15

PART II
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED MEMBER /STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		15
	ITEM 6.	SELECTED FINANCIAL DATA		16
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		20
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		46
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA		49
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		77
	ITEM 9A.	CONTROLS AND PROCEDURES		77
	ITEM 9B.	OTHER INFORMATION		77

PART III
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		78
	ITEM 11.	EXECUTIVE COMPENSATION		80
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MEMBER / STOCKHOLDER MATTERS		88
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE		89
	ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES		94

PART IV
	ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES		95
SIGNATURES				98
EX-2.2
EX-3.3
EX-3.4
EX-3.5
EX-4.5
EX-4.6
EX-4.7
EX-10.24
EX-10.25
EX-10.26
EX-10.27
EX-10.28
EX-21.1
EX-31.1
EX-31.2
EX-32

Forward-Looking Statements

This annual report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on the current beliefs of the Company’s Management as well as assumptions made by and information currently available to Management. All statements other than statements of historical fact included in this annual report, including without limitation, statements under “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and plans and objectives of Management for future operations, are forward-looking statements. When used in this annual report, the words “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases of similar meaning, as they relate to the Company or the Management, are intended to identify forward-looking statements. Although Management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from Management’s expectations (“cautionary statements”) include, but are not limited to:


	•	our ability to make payments of principal and interest on our indebtedness;

	•	our reliance on our borrowing facility 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;

	•	general economic and business conditions, including wholesale auction values and interest rates;

	•	our exposure to the risk of increases in delinquencies, defaults, prepayments and losses on contracts and loans held by us or in our securitization trusts;

	•	the high degree of risk associated with non-prime borrowers;

	•	our ability to secure meaningful contracts to perform third-party servicing-related functions;

	•	our ability to retain and attract qualified personnel;

	•	our ability to maintain the material licenses and permits required for our operations; and

	•	other risks identified in this annual report under the caption “Risk Factors.”

Based upon changing conditions, if any one or more of these risks or uncertainties materialize, or if any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. We do not intend to update these forward-looking statements.

PART I


ITEM 1.	*BUSINESS*

GENERAL

On December 22, 2008, Triad Holdings Inc, the former parent of Triad Financial Corporation, formed Triad Financial Holdings LLC, a Delaware limited liability company, which was a wholly-owned subsidiary of Triad Holdings Inc. Also on December 22, 2008, Triad Financial Holdings LLC formed Triad Financial SM LLC (the “Company”), a Delaware limited liability company, which is a wholly-owned subsidiary of Triad Financial Holdings LLC.

On December 31, 2008, Triad Holdings Inc. was also liquidated and dissolved in accordance with Delaware law. Triad Financial Holdings LLC is beneficially owned by Hunter’s Glen/Ford Ltd. and affiliates of Goldman, Sachs & Co. and GTCR Golder Rauner II, L.L.C.

The Company services a $2.2 billion portfolio of automobile retail installment sales contracts and loans to consumers with limited credit histories, modest incomes or those who have experienced prior credit difficulties, generally referred to as “non-prime” borrowers. In this document, we collectively refer to these retail installment sales contracts and loans as “contracts.”

Prior to May 23, 2008, the Company was engaged in the business of purchasing and originating contracts throughout the United States through our dealer and direct originations channels. In our dealer channel, we purchased contracts from a network of franchised and select independent automobile dealerships. In our direct channel, we provided financing directly to consumers who were referred to us by internet-based consumer finance marketing and finance companies or who contacted us directly via our RoadLoans.com website.

During the period January 1, 2008 through May 23, 2008, we purchased and originated $349.5 million of contracts. Beginning on May 27, 2008 and continuing through the period preceding the completion of the sale on October 7, 2008, loans originated by RoadLoans were being sold to Santander.

We purchased and originated $1,346.5 million and $2,650.3 million of contracts during the years ended December 31, 2007 and 2006, respectively. The Company no longer purchases or originates any contracts.

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, 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 Triad Financial Corporation being the surviving corporation. Triad Holdings Inc. was beneficially owned by Hunter’s Glen/Ford Ltd. and affiliates of Goldman, Sachs & Co. and GTCR Golder Rauner II, L.L.C.

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 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.

Our main office is located at 5201 Rufe Snow Drive, North Richland Hills, Texas, 76180, and we maintain administrative offices at 7711 Center Avenue, Suite 200, Huntington Beach, California 92647 and our telephone number is (817) 656-9788. Our website address is www.triadfinancial.com. All reports filed under the Securities Exchange Act of 1934 are available on our website. Our website and the information included therein are not part of this annual report. As used herein, the terms “Company”, “we”, “us” and “our” refer collectively to Triad Financial SM LLC and its predecessor by merger Triad Financial Corporation.

History of Triad

We were formed in 1989 and originally focused on prime lending and automobile leasing. In 1993, we shifted our focus entirely to non-prime lending. In 1998, we became a subsidiary of ContiFinancial Corporation, a consumer and commercial finance company. In June 1999, we were acquired by a subsidiary of Ford Motor Company. From June 1999 until the Acquisition, we operated independently as a wholly-owned subsidiary of Ford Motor Company.

We continued to purchase and originate contracts through June 23, 2008 in our dealer originations channel and October 7, 2008 in our direct originations channel. We no longer purchase or originate any contracts.

Our Competitive Strengths

Third-Party Servicing. During the latter half of 2008, we decided to focus our efforts on utilizing our existing servicing platform and offer third-party servicing-related functions to other originators and holders of loans secured by motor vehicles. We began the process of obtaining the necessary licenses to service accounts for third parties and also began to actively market our services to others. To date, we have signed contracts with eight third-party entities to remarket their repossessed cars. This generated income of $8,100 for the year ended December 31, 2008.

Maintaining an Experienced Risk Management Team. Our risk management team is responsible for monitoring the servicing process, supporting management’s initiatives, tracking collateral value trends and pricing to achieve maximum recoveries. Our risk management team also provides strategic guidance and manages projects to improve collections and contract performance.

Managing Our Portfolio Through Technology and Best Practices. Our centralized portfolio management group continuously develops and monitors collection strategies for our contracts in order to improve portfolio performance. We establish goals regarding delinquent accounts on a monthly basis, develop strategic initiatives for the collections processes and actively manage account handling to maximize account collections. All portfolio management services are conducted from our offices in North Richland Hills, Texas.

Our Business Strategy

We continue to develop and implement enhancements to our collection process and improve information reporting to management and staff with the objective of operating efficiently while continuing to improve our account performance. These enhancements include refining automatic dialer functionality to increase the effectiveness of calls to delinquent customers and call optimization capabilities to increase the probability of reaching delinquent customers when called.

Industry Overview

Prior to 2008, the non-prime automobile finance industry was very competitive. The automobile finance market was highly fragmented and was served by a variety of financial entities, including captive finance affiliates of major automotive manufacturers, banks, thrifts, credit unions and independent finance companies. The collapse of the asset-backed securitization market combined with mounting losses in all forms of non-prime lending have

caused many banks and finance companies to either scale-back loan originations dramatically, or, to exit the automobile financing business entirely.

Automobile Finance Operations

General. Prior to our decision to cease all lending operations, we had drastically scaled-back our production, due in part to our belief that the securitization markets did not appear to be supportive of another transaction collateralized by non-prime automobile finance receivables at pricing that would allow us to maintain profitability. In addition, our losses on accounts purchased and originated throughout 2006 continued to be greater than projected, both in our dealer and our direct origination platforms. Refinements to our underwriting policies in 2007 led to better performance from those vintages, but that better performance was offset by lower yields on the loans originated in our direct origination platform, RoadLoans.

Funding and Liquidity. On January 10, 2008, we entered into a $500 million warehouse lending agreement with a consortium of lenders led by Barclays Bank PLC (the “Barclays Warehouse”). However, the Company never utilized the Barclays Warehouse, and that relationship was terminated on May 30, 2008.

On May 1, 2008, we began discussions with our primary warehouse lender, Citigroup Global Markets Realty Corp., (or “CGMRC”). On May 6, 2008, we entered into an agreement with CGMRC under the terms of which CGMRC would continue to provide funding under our warehouse lending agreement at a fixed rate of interest and using revised advance rates through June 30, 2008. With respect to our residual loan agreement with CGMRC, they agreed to fund an additional sum of up to $42.6 million on or before May 12, 2008 at which time the Company would not be permitted to make any further requests for funding under that facility.

On May 23, 2008, we entered into an agreement with Santander under the terms of which Santander would fund loans originated by our direct lending platform, RoadLoans, while they conducted due diligence with respect to a possible purchase of that platform. The agreement also proposed a sale of non-pledged, performing contracts and loans to Santander. Contemporaneously with the execution of that agreement, the Company ceased all dealer lending operations, other than the funding of previously approved loans, and laid-off the bulk of the personnel involved in the purchase of dealer contracts.

On June 20, 2008, the Company and Santander entered into definitive agreements governing:


	•	the sale of $632 million of non-pledged, performing contracts and loans to Santander;

	•	the sale of our direct lending platform, RoadLoans, to Santander;

	•	the interim servicing of the purchased contracts and loans by Santander until their conversion onto Santander’s loan servicing system; and

	•	the interim funding, maintenance and operation of the direct lending platform, Roadloans, by the Company until the closing of that sale which occurred on October 7, 2008.

With the proceeds from the sale of the $632 million of non-pledged, performing contracts and loans, the Company satisfied all if its remaining obligations to CGMRC, and on June 20, 2008, executed a termination agreement of both the warehouse lending agreement and the residual lending agreement.

Servicing and Collections Procedures

General. Our servicing responsibilities consist of collecting, processing and posting customer payments, responding to customer inquiries, initiating contact with customers who are delinquent, maintaining our security interest in financed vehicles or other collateral, repossessing and liquidating collateral when necessary and generally monitoring each contract and the related collateral. We service all contracts that we purchased and originated. Additionally, beginning in the latter half of 2008, we also provide third-party servicing-related functions to other originators and holders of loans secured by motor vehicles.

Each month, we mail the customer a billing statement directing the customer to mail payments to a lockbox bank for deposit in a lockbox account. Payment receipt data is electronically transferred from our lockbox bank to us for posting to our contract accounting system. Payments may also be received directly by us from customers or

through third-party vendors, such as Western Union. We perform all of our servicing and collection functions at our North Richland Hills, Texas facility.

In our collections activities, we use a predictive dialing system to make phone calls to customers whose payments are past due. The predictive dialer is a computer-controlled telephone dialing system that simultaneously dials phone numbers of multiple customers from a file of records extracted from our database. Once a live voice responds to the automated dialer’s call, the system automatically transfers the call to a collector and the relevant account information to the collector’s computer screen. The system also tracks and notifies collections management of phone numbers that the system has been unable to reach within a specified number of days, thereby promptly identifying for management all customers who cannot be reached by telephone. By eliminating the time spent on attempting to reach customers, the system gives a single collector the ability to speak with a greater number of customers daily.

As an account becomes more seriously delinquent, it moves to one of our later-stage collection units. The objective of these collectors is to prevent the account from becoming further delinquent. After a scheduled payment on an account becomes between 60 and 90 days contractually delinquent, we typically initiate repossession of the financed vehicle. We may repossess a financed vehicle without regard to the length of payment delinquency if an account is deemed uncollectible, the financed vehicle is deemed to be in danger of being damaged, destroyed or hidden, the customer deals in bad faith or the customer voluntarily surrenders the collateral.

At times, we offer payment extensions to customers who have encountered temporary financial difficulty, hindering their ability to pay as contracted. The account representative reviews a customer’s past payment history and assesses the customer’s ability to make future payments. Exceptions to our extension policies and guidelines for extensions must be approved by designated personnel. While payment extensions are initiated and approved in the servicing department, our portfolio management group determines the total frequency of extensions per month and recommended allocation. For example, seasonal delinquency and payment trends may influence our decision to grant more (or fewer) extensions in a given month. At December 31, 2008, approximately 48.6% of our receivables had received an extension.

Repossessions. Repossessions are subject to required statutory procedures, which may include one or more customer notifications, a waiting period prior to disposition of the repossessed automobile and return of personal items to the customer. Some jurisdictions provide the customer with reinstatement rights and most provide the borrower with a right to redeem the vehicle. Legal requirements, particularly in the event of bankruptcy, may restrict our ability to repossess or to dispose of the repossessed vehicle. Repossessions must be approved by a collections officer. The repossession assignments are handled by independent repossession firms engaged directly by us or by service companies who maintain relationships with companies who perform repossession work. Upon repossession and after any waiting period, the repossessed automobile is sold at auction. We do not sell any vehicles on a retail basis. The proceeds from the sale of automobiles at auction, together with any other recoveries, are credited against the balance of the contract. Auction proceeds from sale of the repossessed vehicle and other recoveries are usually not sufficient to cover the outstanding balance of the contract, and the resulting deficiency is charged-off. We may pursue collection of deficiencies when appropriate. If the auction proceeds from the sale of the repossessed vehicle exceed the outstanding balance of the contract, a refund is sent to the customer. The amount of the refund is calculated in accordance with the applicable law of the jurisdiction where the auction sale occurred, and generally comprises the amount in excess of the contract’s outstanding balance, less any late fees, accrued interest, auction fees and amounts owed to any junior lienholders.

Charge-Off Policy. Our policy is to charge-off a contract in the month in which the borrower becomes 120 days contractually delinquent if we have not previously repossessed the related vehicle. If a vehicle has been repossessed, we charge-off the underlying receivable upon repossession, taking into account the estimated value of our collateral, with a reconciliation upon liquidation. The net charge-off represents the difference between the actual net sales proceeds and the amount of the delinquent contract, including accrued interest. Accrual of finance charge income is suspended on accounts that are more than 30 days contractually delinquent.

Risk Management

Overview. Our risk management group prepares regular credit indicator packages reviewing portfolio performance at various levels of detail including total company, region and state. Various daily reports and analytical data also are generated by our management information systems. This information is used to monitor effectiveness of the collection process. Risk management works with operational management in establishing monthly and quarterly performance targets and leads strategic initiatives prioritized to improve business effectiveness.

Behavioral Scoring. We use statistically-based behavioral assessment models to project the relative probability that an individual account will default. Default probabilities are calculated for each borrower independent of the credit score. Projected default rates from the behavioral assessment models and credit scoring systems are compared and analyzed to monitor the effectiveness of our collection strategies.

Compliance Audits. Our internal audit departments conduct regular reviews of our servicing and other functional areas. The primary objective of the reviews is to identify risks and associated controls and measure compliance with our written policies and procedures as well as regulatory matters. We distribute written reports to departmental managers and officers for response and follow-up. Our senior executive management team also reviews these results and responses.

Securitization of Receivables

Prior to 2008, we pursued a strategy of securitizing our receivables to diversify our funding, improve liquidity and obtain a cost-effective source of funds for the purchase and origination of additional automobile finance contracts and loans. Between 2002 and 2007, we securitized approximately $10.9 billion of automobile receivables.

In our securitizations, we, through wholly-owned subsidiaries, transferred automobile receivables to newly-formed securitization trusts which issued one or more classes of asset-backed securities. The asset-backed securities were, in turn, sold to investors.

We typically arranged for a financial guaranty insurance policy to achieve a high-grade credit rating on the asset-backed securities issued by the securitization trusts. Since August 2002, the financial guaranty insurance policies have been provided primarily by Ambac Assurance Corporation, or “Ambac”, and Financial Security Assurance Inc., or “FSA”, collectively referred to as “Guarantee Insurance Providers”, each of which is a monoline insurer, which insures the payment of principal and interest due on the asset-backed securities. We have limited reimbursement obligations to these Guarantee Insurance Providers; however, credit enhancement requirements, including security interests for the benefit of the insurers of certain restricted cash accounts and subordinated interests in trusts, provide a source of funds to cover shortfalls in collections and to reimburse the insurer for any claims which may be made under the policies issued with respect to our securitizations. There have been no claims under any insurance policies in our securitization transactions.

The credit enhancement requirements for our securitizations include restricted cash accounts that are generally established with an initial deposit. Funds would be withdrawn from the restricted cash accounts to cover any shortfalls in amounts payable on the asset-backed securities. Funds generated from securitization transactions insured by Guarantee Insurance Providers are also available to be withdrawn upon an event of default to reimburse the Guarantee Insurance Providers, as applicable, for draws on their respective financial guaranty insurance policies. We are entitled to receive amounts from the restricted cash accounts to the extent the amounts deposited exceed predetermined required minimum levels.

Each Guarantee Insurance Provider has a security interest in the restricted cash accounts and investments in trust receivables with respect to securitization transactions it has insured. If the security interest is foreclosed upon in the event of a payment by the Guarantee Insurance Provider under one of its insurance policies, or the occurrence of certain material adverse changes in our business, the Guarantee Insurance Provider would control all of the restricted cash accounts, and investments in trust receivables with respect to securitization transactions it has insured. The terms of each insured securitization also provide that, under certain tests relating to delinquencies and losses, cash may be retained in the restricted cash account and not released to us until increased minimum levels of credit enhancement requirements have been reached and maintained.

Regulation

Our operations are subject to regulation, supervision and licensing under various federal, state and local statutes, ordinances and regulations.

In most states in which we operate, a consumer credit regulatory agency regulates and enforces laws relating to consumer lenders and sales finance agencies such as us. Such rules and regulations generally provide for licensing of sales finance agencies and/or direct lenders, limitations on the amount, duration and charges, including interest rates, for various categories of contracts, requirements as to the form and content of finance contracts and other documentation, and restrictions on collection practices and creditors’ rights. In certain states, we are subject to periodic examination by state regulatory authorities. Some states in which we operate do not require special licensing or provide extensive regulation of our business.

We are also subject to extensive federal regulation, including the Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act. These laws require us to provide certain disclosures to prospective borrowers and protect against discriminatory lending practices and unfair credit practices. The principal disclosures required under the Truth in Lending Act include the terms of repayment, the total finance charge and the annual percentage rate charged on each contract. The Equal Credit Opportunity Act prohibits creditors from discriminating against contract applicants on the basis of, among other factors, race, color, sex, age or marital status. Pursuant to Regulation B promulgated under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. In addition, the credit scoring system we use must comply with the requirements for such a system as set forth in the Equal Credit Opportunity Act and Regulation B. The Fair Credit Reporting Act requires us to provide certain information to consumers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency. Additionally, we are subject to the Gramm-Leach-Bliley Act, which requires us to maintain privacy with respect to certain consumer data in our possession and to periodically communicate with consumers on privacy matters. We are also subject to the Servicemembers Civil Relief Act and similar state legislation, which require us to reduce the interest rate charged on each contract to customers who have subsequently joined, enlisted, been inducted or called to active military duty and may restrict the exercise of remedies against such customers.

We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable local, state and federal regulations. There can be no assurance, however, that we will be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have a material adverse effect on our operations. Further, the adoption of additional, or the revision of existing, rules and regulations could have a material adverse effect on our business.

Competition

Competition in the field of non-prime automobile finance had been intense, though the liquidity crisis has seen a number of lenders either significantly curtail or abandon automobile financing altogether. There is significant competition in the arena of third-party servicing. Many companies have a long history of servicing loans for others, and they have the advantage of servicing significantly larger portfolios. There can be no assurance that we will be able to compete successfully in this market or against these competitors.

Employees

As of December 31, 2008, we employed approximately 700 people in Texas and California. None of our employees are a part of a collective bargaining agreement, and we believe our relationships with our employees are satisfactory.


ITEM 1A.	*RISK FACTORS*

A loss of contractual servicing rights could have a material adverse effect on our business.

As servicer of all our securitized automobile contracts, we are entitled to receive contractual servicing fees. Our base servicing fees are earned at 2.25% per annum on the outstanding balance of contracts securitized and our

supplemental servicing fees include fees and charges paid by obligors, such as late fees and extension fees. Each Guarantee Insurance Provider, as guarantor, can terminate our right to act as servicer for the securitizations it has guaranteed upon the occurrence of events defined in the sale and servicing agreements for securitized contracts, such as our bankruptcy or material breach of warranties or covenants, including covenants to maintain a specified level of delinquency, default or loss rate with respect to the receivables included in the applicable securitization trust. At December 31, 2008, no such termination events had occurred with respect to any of the trusts formed by us. The termination of any or all of our servicing rights under our securitizations would have a material adverse effect on our liquidity. For the year ended December 31, 2008, we received $64.4 million in base servicing fees and $24.0 million in supplemental servicing fees from our securitization trusts.

We may not be able to generate sufficient operating cash flows to meet our operating expenses.

Even with our decision to cease lending, our operations require substantial operating cash flows. Operating cash requirements include debt service, ongoing operating costs and capital expenditures. Our primary sources of operating cash are the excess cash flows received from securitizations, principal and interest payments on non-pledged receivables and federal and state tax refunds. The timing and amount of excess cash flows from securitizations and non-pledged receivables varies based on a number of factors, including:


	•	the rates and amounts of contract delinquencies, defaults and net credit losses;

	•	how quickly and at what price repossessed vehicles can be resold;

	•	the ages of the contracts in the portfolio;

	•	levels of voluntary prepayments; and

	•	the terms of our securitizations, which include performance-based triggers requiring higher levels of credit enhancements to the extent credit losses or delinquencies exceed certain thresholds.

Any adverse change in these factors could reduce or eliminate excess cash flows to us. Although we currently have positive operating cash flows, we may not continue to generate positive cash flows in the future. Our inability to do so could have a material adverse effect on our financial position, liquidity and results of operations.

Defaults and prepayments on contracts purchased or originated by us could adversely affect our results of operations and cash flows.

Our results of operations, financial condition and liquidity depend, to a material extent, on the performance of non-pledged receivables held by us as well as the performance of receivables in our securitization trusts. Obligors under contracts acquired or originated by us may default or prepay on the contracts at any time. We bear the full risk of losses resulting from defaults that occur while we own the contracts.

In the event of a default under the contracts we hold, the collateral value of the financed vehicle usually does not cover the outstanding contract balance and costs of recovery. We maintain an allowance for credit losses on contracts held for investment by us, which reflects management’s estimates of inherent losses for these contracts. If the allowance is inadequate, we would recognize as an expense the losses in excess of that allowance, and our results of operations could be adversely affected.

Generally, the form of credit enhancement agreement we enter into with Guarantee Insurance Providers in connection with securitization transactions contains specified limits on the delinquency and loss rates on the receivables included in each securitization trust. If, at any measurement date, the delinquency, default or loss rate with respect to any trust were to exceed the specified limits, provisions of the credit enhancement agreement would automatically increase the level of credit enhancement required for that trust, if a waiver were not obtained. During the period in which the specified delinquency and loss rates were exceeded, excess cash flow, if any, from the trust would be used to fund the increased credit enhancement levels instead of being distributed to us, which would have an adverse effect on our cash flow.

At December 31, 2008, the cumulative net loss ratio for the Company’s 2006-C securitization trust exceeded one of its target ratios, a condition which has existed since the fourth quarter of 2007. As a result, the credit

enhancement requirement to maintain cash reserves as a percentage of the portfolio immediately increased from 2% to 3%, which initially resulted in a delay in cash distributions to the Company. The Company reached this increased 3% enhancement requirement during the third quarter of 2008 and therefore has begun receiving cash distributions once again. This requirement will remain at 3% until the trust is back in compliance with its target for three consecutive months. The cumulative net loss ratio for the Company’s 2006-B securitization trust had exceeded one of its target ratios, but that situation was cured during the third quarter of 2008, which allowed the credit enhancement requirement to be reduced to 2%. It is possible that the net loss ratios on these and other securitization trusts may exceed targeted levels in the future, which would result in increased credit enhancement levels on those trusts as well.

Our declining portfolio balance will result in lower servicing fees.

In response to higher than expected losses on receivables originated during 2006, we modified our contract origination strategy to better manage our credit risk, which resulted in lower volume levels during the last quarter of 2006 and throughout 2007. Additionally, in response to problems being experienced in the asset-backed securitization market for non-prime loan originations, the Company further tightened its underwriting criteria and increased pricing during the first quarter of 2008, which further decreased loan volume during the first quarter of 2008. Our decision to cease lending altogether in 2008 meant that the portfolio began to decline at an even more rapid rate, since there would be no new loans to replace those that were being amortized. This decline was accelerated when we completed the sale of $632 million of non-pledged, performing loans to Santander in June 2008.

While we believe there is the possibility that we can replace some of the lost servicing fees through our third-party servicing efforts, there can be no assurance that we will be successful in obtaining sufficient commitments to service portfolios for others in 2009 and thereafter.

Failure to implement our business strategy could adversely affect our operations.

Our financial position and results of operations depend on our management’s ability to execute our business strategy. Key factors involved in the execution of our business strategy include:


	•	effective collection strategies to maximize account collections;

	•	the use of sophisticated risk management techniques;

	•	continued investment in technology to support operating efficiency; and

	•	achieving targeted goals with respect to third-party servicing contracts.

Our failure or inability to execute any element of our business strategy could materially adversely affect our financial position, liquidity and results of operations.

There is a high degree of risk associated with non-prime borrowers.

We specialize in servicing non-prime automobile receivables. Non-prime borrowers are associated with higher-than-average delinquency and default rates. While we believe that we effectively manage these risks with our policies and collection methods, these criteria or methods may be ineffective in the future in reducing default risk. In the event that we underestimate the default risk, our financial position, liquidity and results of operations may be adversely affected, possibly to a material degree. While we employed a credit scoring system in the credit approval process prior to our cessation of lending activity, credit scoring does not eliminate credit risk.

We are subject to general economic conditions beyond our control. Adverse general economic events, including periods of economic weakness, could have a material adverse impact on our business.

During periods of economic slowdown or recession, delinquencies, defaults, repossessions and losses generally increase. These periods also may be accompanied by decreased consumer demand for automobiles and declining values of automobiles securing outstanding contracts, which weakens collateral coverage and increases the amount of a loss in the event of default. Significant increases in the inventory of used automobiles

during periods of economic recession may also depress the prices at which repossessed automobiles may be sold or delay the timing of these sales. Because we focus on non-prime borrowers, the actual rates of delinquencies, defaults, repossessions and losses on these contracts are higher than those experienced in the general automobile finance industry and could be more dramatically affected by a general economic downturn. In addition, during an economic slowdown or recession, our servicing costs may increase without a corresponding increase in our servicing fee income. While we seek to manage the higher risk inherent among non-prime borrowers through the collection methods we employ, these criteria or methods may not afford adequate protection against these risks. Any sustained period of increased delinquencies, defaults, repossessions or losses or increased servicing costs could also adversely affect our financial position, liquidity and results of operations.

Geographic concentrations of our contracts may adversely affect payments on the contracts.

Adverse economic conditions, natural disasters or other factors affecting any state or region where a high concentration of obligors resides could adversely affect collections on the contracts and increase the delinquency or credit loss rates of our contracts. At December 31, 2008, obligors with respect to approximately 21.0%, 12.3%, 7.7%, 5.6% and 4.9% of our total managed receivables based on the contracts’ remaining principal balances were located in Texas, California, Florida, Georgia, and Illinois respectively. If adverse economic conditions, natural disasters or other factors occur that affect these regions, or if obligors in these regions experience financial difficulties, a significant number of obligors may not be able to pay, may not make timely payments or may be more prone to filing for bankruptcy protection.

Our business is highly seasonal, which may cause our results of operations and cash flows to fluctuate from quarter to quarter.

We historically have experienced and expect to continue to experience quarterly fluctuations in our net income and cash flows. We generally experience a decrease in collections in the last two to three months of each year due to consumers’ spending in anticipation of the holiday months and in the first month of the following year due to consumer spending in the previous holiday period. Collections generally tend to increase after income tax refunds are received by our customers. We expect this trend to continue for the foreseeable future. Any decrease in our collections, whether because of general economic conditions, a slowdown in the economy, increased unemployment or other factors, could have a material adverse effect on our business, financial condition and results of operations for the entire year.

Wholesale auction values may impact our profitability.

We sell repossessed automobiles at wholesale auction markets located throughout the United States. Auction proceeds from the sale of repossessed vehicles and other recoveries are usually not sufficient to cover the outstanding balance of the contract, and the resulting deficiency is charged-off. Decreased auction proceeds resulting from the depressed prices at which used automobiles may be sold during periods of economic slowdown or recession will result in higher credit losses for us. Furthermore, depressed wholesale prices for used automobiles may result from significant liquidations of rental or fleet inventories or from increased volume of trade-ins due to promotional financing programs offered by new vehicle manufacturers. Our recoveries as a percentage of net charge-offs were 42.5%, 43.2% and 46.7% in 2008, 2007 and 2006, respectively. Our recovery rates may be lower in the future, which could result in higher charge-offs and losses for us.

Our customers may not maintain adequate insurance on our collateral, which could lead to greater losses.

All of our borrowers are required to maintain insurance on their vehicles, either as a matter of state law or pursuant to their contracts, or both. Some borrowers will allow their insurance to lapse from time to time. We have not historically obtained collateral protection insurance on these vehicles, even though most states allow creditors to do so. We have not done this because the cost of such coverage is difficult to recoup from the customers, and the litigation risks involved in maintaining such a program can be significant. Our losses attributable to lapses in insurance coverage have not been material in nature, but there can be no assurance that such losses will remain immaterial.

Our profitability may be directly affected by the level of and fluctuations in interest rates.

Our earnings are affected by changes in interest rates as a result of our issuance of variable rate debt in certain of our securitization transactions. Fluctuations in market interest rates impact the amount of interest payments by the applicable securitization trusts on this variable rate debt, which, in turn, impact the amount of excess cash flows received from those securitization trusts. We have utilized several strategies to minimize the impact of interest rate fluctuations on our net interest income, including the use of derivative financial instruments.

Our inability to recruit or retain senior management or other qualified personnel could have an adverse impact on our operations.

We depend on the continued services of our senior executive officers. The loss of any key officer could have a material adverse effect on our business, financial condition and results of operations. We do not carry key man insurance for any of our management executives.

Competition to hire personnel possessing the skills and experience we require could contribute to an increase in our employee turnover rate. High turnover or an inability to attract and retain qualified replacement personnel could have an adverse effect on our delinquency, default and net loss rates and, ultimately, our financial condition, results of operations and liquidity.

Regulatory requirements may have a material adverse effect on our business, financial condition or operating results.

Our operations are subject to regulation, supervision and licensing under various federal, state and local statutes, ordinances and regulations.

In most states in which we operate, a consumer credit regulatory agency regulates and enforces laws relating to consumer lenders and sales finance agencies such as us. These rules and regulations generally provide for licensing of sales finance agencies and direct lenders, limitations on the amount, duration and charges, including interest rates, for various categories of contracts, requirements as to the form and content of finance contracts and other documentation, and restrictions on collection practices and creditors’ rights. In certain states, we are subject to periodic examination by state regulatory authorities.

We are also subject to extensive federal regulation, including the Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act. These laws require us to provide certain disclosures to prospective borrowers and protect against discriminatory lending practices and unfair credit practices. The principal disclosures required under the Truth in Lending Act include the terms of repayment, the total finance charge and the annual percentage rate charged on each contract. The Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, sex, age or marital status. Pursuant to Regulation B promulgated under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. In addition, the credit scoring system we use must comply with the requirements for such a system as set forth in the Equal Credit Opportunity Act and Regulation B. The Fair Credit Reporting Act requires us to provide certain information to consumers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency. Additionally, we are subject to the Gramm-Leach-Bliley Act, which requires us to maintain privacy with respect to certain consumer data in our possession and to periodically communicate with consumers on privacy matters. We are also subject to the Servicemembers Civil Relief Act, and similar state legislation, which require us to reduce the interest rate charged on contracts to customers who have subsequently enlisted, been inducted or called to active military duty and may restrict the exercise of remedies against such customers.

We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable local, state and federal regulations. There can be no assurance; however, that we will be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have a material adverse effect on our operations. Further, the adoption of additional, or the revision of existing, rules and regulations could have a material adverse effect on our business.

Various laws and other factors may limit the collection of payments on our contracts and repossession of the vehicles.

State and federal laws, including consumer bankruptcy laws, may prohibit, limit or delay repossession and sale of the vehicles to recover on defaulted automobile contracts. As a result, we may experience delays in receiving payments and suffer losses. Additional factors that may affect our ability to recoup the full amount due on an automobile contract include:


	•	our failure to file amendments to or receive certificates of title relating to the vehicles;

	•	depreciation of the financed vehicles;

	•	damage or loss of any financed vehicle; and

	•	the application of federal and state bankruptcy and insolvency laws.

We are parties to litigation matters that could adversely affect our financial condition, results of operations and cash flows.

As a consumer finance company, although we have ceased lending operations, we remain subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, wrongful collection practices, violations of bankruptcy stay provisions, certificate of title disputes, fraud and breach of contract. Some litigation against us could take the form of class action lawsuits by consumers. As the assignee of finance contracts originated by dealers, we may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of matters can be substantial. The relief requested by the plaintiffs varies, but includes requests for compensatory, statutory and punitive damages.

Any adverse resolution of the litigation pending or threatened against us could have a material adverse effect on our financial condition, results of operations or cash flows.

We may pursue strategic acquisitions and expansion opportunities, which could have an adverse impact on our business.

We may, from time to time, consider acquiring complementary companies or businesses. To do so, we would need to identify suitable acquisition candidates, negotiate acceptable acquisition terms and obtain appropriate financing. Any acquisition that we pursue, whether or not successfully completed, may involve risks, including:


	•	the diversion of our capital and our management’s attention from other business issues and opportunities;

	•	difficulties in successfully integrating companies that we acquire, including personnel, financial systems and operations;

	•	material adverse effects on our operating results, particularly in the fiscal quarters immediately following the acquisition as it is integrated into our operations; and

	•	the incurrence of debt and contingent liabilities and impairment charges related to goodwill and other intangible assets, any of which could harm our business and financial condition.

Further, we will need to continue to effectively manage the expansion of our existing operations in order to execute our growth strategy of entering into new markets and expanding in existing markets. Growth may strain our existing resources. It is possible that our management, employees, systems and facilities currently in place may not be adequate to accommodate future growth. In this situation, we will have to improve our operational, financial and management controls, reporting systems and procedures. If we are unable to effectively manage our growth, our operations and financial results may be adversely affected.

Our financial products and services are complex, depend on a myriad of complex networks and technologies and may be subject to software or hardware errors or failures that could lead to an increase in our costs, reduction of our revenues or damage to our reputation.

Our products and services, and the networks and third-party services upon which our financial products and services are based, are complex and may contain undetected errors or may suffer unexpected failures. We are exposed to the risk of failure of our proprietary computer systems, some of which are deployed, operated, monitored and supported by third parties, whom we do not control. We rely on third parties to detect and respond to errors and failures in our proprietary computer systems. We also rely on third parties for software development and system support. We are exposed to the risk of failure of the computer systems that are owned, operated and managed by third parties, whom we do not control.

If we are unable to protect our intellectual property adequately, we may lose a valuable competitive advantage or be forced to incur costly litigation to protect our rights.

Our success depends on developing and protecting our intellectual property. We rely on the terms of license agreements, as well as copyright, patent, trademark and trade secret laws to protect our intellectual property. We also rely on other confidentiality and contractual agreements and arrangements with our employees, affiliates, business partners and customers to establish and protect our intellectual property and similar proprietary rights. If we are unable to protect our intellectual property, our operations and financial results may be adversely affected.

Our substantial indebtedness could adversely affect our business and results of operations.

We have a significant amount of indebtedness. At December 31, 2008, we had on a consolidated basis outstanding indebtedness of $2,071.2 million. This level of indebtedness could:


	•	make it more difficult for us to meet all our obligations to creditors, who could then require us to, among other things, restructure our indebtedness, sell assets or raise additional debt or equity capital;

	•	require us to dedicate a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for operations and future business opportunities;

	•	limit our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements or general corporate purposes;

	•	limit our flexibility in planning for, and reacting to, changes in our business and in our industry, which could make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;

	•	place us at a disadvantage compared to our competitors that have less debt; and

	•	make it more difficult for us to satisfy the obligations of our senior notes.

Any of the above listed factors could materially adversely affect our business and results of operations.

We will continue to require significant amounts of cash to fund our operations.

We require substantial amounts of cash to fund our operations which include:


	•	credit enhancement requirements in connection with the securitization of the receivables;

	•	interest and principal payments under our senior notes and other indebtedness;

	•	fees and expenses incurred in connection with the servicing of securitized receivables;

	•	capital expenditures for technology and facilities; and

	•	on-going operating expenses.

Our primary sources of liquidity in the future are expected to be:


	•	borrowings under the facility extended by two of our equity sponsors;

	•	cash flow received from securitization trusts;

	•	cash flow from operating activities other than securitizations of receivables;


	•	servicing fees from securitization trusts;

	•	further issuances of debt or equity securities, depending on capital market conditions; and

	•	federal and state income tax refunds.

We may be required to borrow in the future under the borrowing facility provided by our equity sponsors in order to fund our future liquidity needs. If these sources of funding are unavailable to us on a regular basis or are only available on terms unacceptable to us, we will be required to implement other expense reductions, all of which may have a material adverse affect on our ability to achieve our business and financial objectives.


ITEM 1B.	*UNRESOLVED STAFF COMMENTS*

Not applicable.


ITEM 2.	*PROPERTIES*

Our executive offices are located at 5201 Rufe Snow Drive, North Richland Hills, Texas, 76180, in 164,812 square feet of office space under a lease that expires in 2012. We currently sublease 26,663 square feet of office space under a sublease agreement that expires in October 2009.

We also have administrative offices at 7711 Center Ave., Suite 200, Huntington Beach, California 92647 in 28,186 square feet of office space under a lease that expires in 2011.


ITEM 3.	*LEGAL PROCEEDINGS*

As a consumer finance company, we are subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, wrongful collection practices, violations of bankruptcy stay provisions, certificate of title disputes, fraud and breach of contract. Some litigation against us may take the form of class action lawsuits by consumers. As the assignee of finance contracts originated by dealers, we may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of matters can be substantial. The relief requested by the plaintiffs varies, but includes requests for compensatory, statutory and punitive damages.

We believe that we have taken prudent steps to address the litigation risks associated with our business activities. We are vigorously defending the litigation against us and, while we are unable to estimate a range of possible losses with respect to our pending litigation due to the preliminary stages of most of our proceedings, we do not believe that the outcome of these proceedings, individually or in the aggregate, will have a material effect on our financial condition, results of operations or cash flows.


ITEM 4.	*SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*

Not applicable.

PART II


ITEM 5.	*MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED MEMBER/STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES*

There is no trading market for our common units. All of the outstanding shares of our common units are held by Triad Financial Holdings LLC.


ITEM 6.	*SELECTED FINANCIAL DATA*

Set forth below is selected historical consolidated financial data. We derived the historical statement of operations and balance sheet data for the periods indicated from our consolidated financial statements. We have derived the selected historical consolidated financial data at December 31, 2008, 2007, 2006 and 2005, for the years ended December 31, 2008, 2007 and 2006 and for the period April 30, 2005 through December 31, 2005 from our audited financial statements. We have derived the selected historical financial data at December 31, 2004, for the period January 1, 2005 through April 29, 2005 and for the year ended December 31, 2004 from the predecessor’s audited financial statements. The information presented below should be read in conjunction with, and qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited historical consolidated financial statements and related notes and other financial information appearing elsewhere in this document.



	Successor												Predecessor
	Year			Year			Year			April 30,			January 1,			Year
	Ended			Ended			Ended			2005 to			2005 to			Ended
	December 31,			December 31,			December 31,			December 31,			April 29,			December 31,
	2008			2007			2006			2005			2005			2004
	(Dollars in thousands)
Statement of Operations Data:
Financing and other interest income	$	461,092		$	629,898		$	577,340		$	215,114		$	127,243		$	302,715
Interest expense		168,984			218,668			202,929			85,958			21,440			38,793

Net interest margin		292,108			411,230			374,411			129,156			105,803			263,922
Provision for credit losses on owned finance receivables		228,380			284,457			256,762			58,909			—			1,135

Net interest margin after provision for credit losses		63,728			126,773			117,649			70,247			105,803			262,787
Securitization and servicing income		3,193			7,824			21,966			19,275			16,597			82,579
Gain on partial redemption of senior notes		14,558			—			—			—			—			—
Other income (expense)		911			(3,942	)		21,602			12,803			9,512			8,825

Total other revenues		18,662			3,882			43,568			32,078			26,109			91,404

Operating expenses		129,743			146,753			138,605			85,889			39,857			123,894
Other expenses		—			—			—			—			30,505			73,713
Impairment of goodwill(1)		30,446			—			—			—			—			61,192

Total expenses		160,189			146,753			138,605			85,889			70,362			258,799

(Loss) income before income taxes		(77,801	)		(16,098	)		22,612			16,436			61,550			95,392
(Provision) benefit for income taxes		(34,067	)		5,520			(8,945	)		(6,453	)		(23,208	)		(43,503	)

Net (loss) income	$	(111,868	)	$	(10,578	)	$	13,667		$	9,983		$	38,342		$	51,889

Cash Flow Data:
Cash flows provided by (used in) operating activities		221,437			285,399			252,389			170,541			(383,565	)		(1,048,224	)
Cash flows provided by (used in) investing activities		1,347,778			(1,083	)		(1,485,481	)		(1,295,832	)		117,879			419,272
Cash flows (used in) provided by financing activities		(1,575,226	)		(292,178	)		1,248,164			1,146,942			263,546			640,082

Net (decrease) increase in cash	$	(6,011	)	$	(7,862	)	$	15,072		$	21,651		$	(2,140	)	$	11,130


	Successor									Predecessor
	At and for the Year Ended December 31,
	2008		2007		2006		2005			2004
	(Dollars in thousands)
Balance Sheet Data (at end of period):
Cash and cash equivalents	$	46,494	$	52,505	$	60,367	$	45,295		$	25,784
Cash-restricted		252,300		295,786		274,059		153,231			—
Finance receivables, net		1,988,339		3,514,979		3,781,469		2,596,809			1,721,334
Retained interest in securitized assets		—		10,916		102,531		216,952			355,081
Total assets		2,390,663		4,107,552		4,418,535		3,138,156			2,162,314
Total debt		2,071,239		3,679,135		3,936,513		2,709,518			1,603,510
Total member’s/stockholder’s equity		260,610		356,591		406,159		356,832			458,713

								(Unaudited	)
Other Data(2):
Contract originations		349,486		1,346,490		2,650,257		1,880,230			2,056,195
Contracts securitized		—		1,517,520		3,052,914		2,184,026			736,545
Average Receivables(2):
Held for sale		N/A		N/A		N/A		N/A			912,497
Held for investment		2,903,839		3,844,915		3,498,717		2,221,927			284,536

Average owned receivables, carrying value		2,903,839		3,844,915		3,498,717		2,221,927			1,197,033
Sold receivables		30,133		274,668		765,416		1,573,103			2,532,340

Average total managed receivables(3)	$	2,933,972	$	4,119,583	$	4,264,133	$	3,795,030		$	3,729,373


	Successor(2)												Predecessor
	At and for the Year Ended December 31,
	2008			2007			2006			2005			2004
	(Dollars in thousands)
	(Unaudited)
Owned Data:
Net margin(4)	$	292,108		$	411,230		$	374,411		$	234,959		$	263,922
Net charge-offs(5)		303,037			309,492			192,513			95,617			99,966
Owned receivables, unpaid principal balance (at end of period)		2,172,559			3,774,481			4,032,551			2,736,183			1,762,669
Owned receivables greater than 60 days delinquent (at end of period)		98,600			156,036			97,332			44,079			30,432
Owned Ratios:
Ratio of earnings to fixed charges(6)		—			—			1.1	x		1.7	x		3.4	x
Annualized net margin as a percentage of average owned receivables(4)		10.1	%		10.7	%		10.7	%		8.2	%		13.4	%
Annualized net charge-offs as a percentage of average owned receivables(5)		10.4	%		8.0	%		5.5	%		4.3	%		8.4	%
Owned receivables greater than 60 days delinquent as a percentage of owned receivables (at end of period)		4.5	%		4.1	%		2.4	%		1.6	%		1.7	%
Total Managed Data:
Net margin(4)(7)	$	308,477		$	441,940		$	519,978		$	504,720		$	522,232
Net charge-offs(5)		305,888			327,674			246,392			231,653			280,333
Total managed receivables (at end of period)		2,172,559			3,868,578			4,517,369			3,866,535			3,844,771
Average principal amount per total managed contracts outstanding (in dollars)		11,851			13,657			14,101			13,382			13,316
Total managed receivables greater than 60 days delinquent (at end of period)		98,600			161,203			115,302			81,319			90,416
Total Managed Ratios:
Annualized net margin as a percentage of average total managed receivables		10.5	%		11.0	%		12.2	%		13.3	%		14.0	%
Annualized net charge-offs as a percentage of average total managed receivables(5)		10.4	%		8.0	%		5.8	%		6.1	%		7.5	%
Annualized operating expenses as percentage of average total managed receivables		5.5	%		3.6	%		3.3	%		3.3	%		3.3	%
Receivables greater than 60 days delinquent as a percentage of total managed receivables (at end of period)		4.5	%		4.2	%		2.6	%		2.1	%		2.4	%


(1)		As a result of the terms of the Acquisition, we determined that there was an impairment of goodwill and recorded a $61.2 million pre-tax charge to earnings in 2004. As a result of Company’s decision to cease lending operations in 2008, we determined that there was an impairment of goodwill and recorded a $30.4 million pre-tax charge to operations in 2008.

(2)		To assist in the evaluation of our financial results and to make it easier to understand our results of operations, the “predecessor” period (January 1 through April 29, 2005) and the “successor” period (April 30 through December 31, 2005) have been combined for the year ended December 31, 2005. These combined results should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this document for information on items impacting the comparability of predecessor and successor periods.

(3)		Total managed receivables consist of our total owned receivables and our total sold receivables in securitization transactions accounted for as off-balance sheet securitizations.

(4)		Net margin as reflected on the consolidated statements of operations for the successor period (years ended December 31, 2008, 2007 and 2006 and the period April 30, 2005 through December 31, 2005) includes $12.8 million, $29.4 million, $56.4 million and $83.6 million, respectively, of premium amortization related to our predecessor finance receivables held for investment and our receivables repurchased from gain on sale trusts. Excluding the $12.8 million, $29.4 million, $56.4 million and $83.6 million of premium amortization,


		owned net margin as a percentage of average owned receivables would have been 10.5%, 11.5%, 12.3% and 14.3%, respectively.

(5)		In April 2004, we changed our charge-off policy such that all owned contracts which are more than 120 days delinquent are charged off, regardless of whether an obligor under the owned contract has filed for bankruptcy. Previously, we charged-off owned contracts with bankrupt obligors upon resolution of their bankruptcy cases. As a result of this change, net charge-offs for the year ended December 31, 2004 included a one-time charge-off of $32.6 million for contracts over 120 days delinquent with obligors who had filed for bankruptcy but whose bankruptcy cases had not yet been resolved. Excluding this one-time charge-off, our net charge-offs as a percentage of average owned and average total managed receivables would have been 5.6% and 6.6%, respectively, for the year ended December 31, 2004.

(6)		For purposes of calculating the ratio of earnings to fixed charges, earnings represent (loss) income before income taxes plus fixed charges. Fixed charges consist of total interest expense and one-third of rental expenses, which management believes are representative of the interest component of all operating leases. Earnings, as defined, were insufficient to cover our fixed charges for 2008 and 2007 by $77.8 million and $16.1 million, respectively.

(7)		Total managed net interest margin is the difference between (a) financing revenue, fee and other income earned on our total managed receivables and (b) the cost to fund the receivables and the cost of debt incurred for general corporate purposes. Total managed net interest margin is a calculation that assumes that securitized receivables have not been sold and are still on our consolidated balance sheet. Total managed net interest margin is not a measurement of financial performance determined under generally accepted accounting principles and should not be considered as an alternative to any other measures of performance determined under generally accepted accounting principles. We evaluate the profitability of our financing activities based partly upon the net margin related to our total managed receivables, including owned receivables and sold receivables. We use this information to help us determine the profitability of our finance products and if sufficient spreads exist between our revenues and cost of funds to cover operating expenses and achieve corporate profitability objectives. Additionally, net interest margin on a total managed basis facilitates comparisons of our results with other finance companies that do not securitize their receivables or other finance companies that securitize their receivables in securitization transactions that do not meet the criteria for sales of receivables.

The following is a reconciliation of net interest margin as reflected on our consolidated statements of income to our total managed net interest margin:


	For the Years Ended December 31,
	2008			2007			2006			2005			2004
	(Dollars in thousands)

Net interest margin as reflected on the consolidated statements of income	$	292,108		$	411,230		$	374,411		$	234,959		$	263,922
Less: other interest income		(12,476	)		(35,847	)		(34,875	)		(53,784	)		(103,959	)
Financing revenue on sold receivables		4,538			43,322			128,039			262,691			422,866
Interest expense on sold receivables		(653	)		(7,507	)		(24,627	)		(43,462	)		(67,961	)
Gain (losses) on forward-starting swap agreements		(1,755	)		(7,808	)		691			7,432			24
Premium amortization(4)		12,785			29,379			56,378			83,562			—
Customer fees		13,930			18,856			19,961			13,322			7,340

Total managed net interest margin	$	308,477		$	451,625		$	519,978		$	504,720		$	522,232


ITEM 7.	*MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*

On December 29, 2008, pursuant to an Agreement and Plan of Merger by and between Triad Financial Corporation and the Company, Triad Financial Corporation merged with and into the Company, with the Company being the entity surviving from that merger. In accordance with Statement of Financial Accounting Standards, or “SFAS”, No. 141, “Business Combinations”, the assets and liabilities of Triad Financial Corporation were transferred to the Company at their historical carrying values on the date of transfer. References to the Company in this document shall mean Triad Financial SM LLC and its predecessor by merger, Triad Financial Corporation.

On December 31, 2008, Triad Holdings Inc. was liquidated and dissolved in accordance with Delaware law.

The statements in the discussion and analysis regarding our expectations of 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, including, but not limited to, the risks and uncertainties described in “Risk Factors.” Our actual results may differ materially from those contained in or implied by any of these forward-looking statements.

General

Historically, we have generated earnings and cash flow primarily from the purchase, origination, retention, subsequent securitization and servicing of retail installment contracts and loans secured by automobiles. We purchased retail installment contracts from franchised and select independent automobile dealerships and originated auto loans directly to consumers. As used in this document, “contracts” include retail installment contracts originated by dealers and purchased by us and note and security agreements evidencing loans made directly by us to consumers.

The Company services a $2.2 billion portfolio of contracts to consumers with limited credit histories, modest incomes or those who have experienced prior credit difficulties, generally referred to as “non-prime” borrowers.

On May 23, 2008, due to economic conditions, the Company ceased accepting credit applications in its dealer originations channel. Approvals previously issued continued to be processed, and qualifying contracts continued to be funded through the close of business on June 23, 2008. The Company incurred $9.6 million of expense during the year ended December 31, 2008 related to the shutdown of the dealer channel comprised primarily of severance, the write-down of certain fixed and other assets and an accrual for future excess facility capacity.

On June 20, 2008, the Company agreed to sell its direct lending business, RoadLoans, to Santander Consumer USA Inc. (“Santander”). The sale was consummated on October 7, 2008. The Company incurred $3.7 million of expense during the year ended December 31, 2008 related to the sale of the direct channel comprised primarily of severance and the write-down of certain fixed assets.

Beginning on May 27, 2008 and continuing through the period preceding the completion of the sale, loans originated by the Company’s RoadLoans division were being sold to Santander. The Company no longer purchases or originates any contracts.

On June 20, 2008, the Company completed a whole loan sale of approximately $632 million of contracts to Santander, effective June 1, 2008. This portfolio was comprised of receivables financed through our warehouse lending facility that met criteria similar to our securitization eligibility criteria, including no receivables more than 30 days past due. The Company continued to service these receivables through August 2, 2008 in return for a servicing fee paid by Santander. The Company recognized a $0.8 million loss on the sale of these receivables during the year ended December 31, 2008.

In October 2008, the Company announced plans to actively market its servicing capabilities to third parties. With the infrastructure for a servicing platform already in place, and the expectation that entities that own or acquire loan portfolios containing obligations secured by motor vehicles may be interested in outsourcing some or all of their servicing activities, we decided to proceed with efforts to market these services to others. The Company had previously embarked on a program to obtain licenses to service loans for others in those states where licensing is necessary in order to service loans for others. During the year ended December 31, 2008, the Company entered into an agreement to remarket repossessed vehicles for eight third-party clients. While it is believed that there is a significant market for the types of services the Company can offer to the holders of such obligations, there are a number of established third-party portfolio servicers already in the market, and there is no assurance that the Company’s efforts in connection with this new venture will be successful.

In November 2008, the Company launched a tender offer to purchase for cash up to $90 million aggregate principal amount of its outstanding senior notes. On December 16, 2008, the Company successfully completed its tender offer and purchased $89.4 million of the senior notes outstanding at a purchase price of $71.5 million plus accrued and unpaid interest of $1.2 million. The Company recognized a $14.6 million gain on the tender offer during the year ended December 31, 2008.

We have periodically sold receivables to securitization trusts, or “Trusts,” that, in turn, sold asset-backed securities to investors. Prior to our May 2005 securitization transaction, all of our securitizations were accounted for as sales in accordance with accounting principles generally accepted in the United States of America, or “GAAP”. Beginning with our May 2005 securitization, we made a decision to alter the structure of our securitization transactions to no longer meet the criteria for sales of auto receivables, but instead to meet the criteria for on-balance sheet reporting. Accordingly, following a securitization accounted for as a secured financing, the receivables and the related securitization indebtedness remained on our balance sheet. We recognize finance revenue and fee income on the receivables and interest expense on the securities issued in the securitization and record a provision for credit losses over the life of the securitization. The principal changes to our securitization structures that resulted in the differing accounting treatment included the right of the trust to enter into interest rate derivative contracts with respect to retained interests and also allowed the servicer to sell charged-off finance receivable contracts. Provisions such as these precluded the use of sale treatment in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.

For all securitizations accounted for as sales, the Company retained certain interests in the sold receivables representing the present value of the estimated future excess cash flows to be received by us over the life of the securitization. Excess cash flows resulted from the difference between the interest received from the obligors on the receivables and the interest paid to investors in the asset-backed securities, net of credit losses and expenses. Excess cash flows from the Trusts were initially utilized to fund credit enhancement requirements in order to attain specific credit ratings for the asset-backed securities issued by the Trusts. Once predetermined credit enhancement requirements were reached and maintained, excess cash flows were distributed to us. In addition to excess cash flows, we earned monthly base servicing fee income of 2.25% per annum on the outstanding principal balance of receivables securitized, or “sold receivables,” and collected other fees such as late charges and extension fees as servicer for those Trusts. The Company called the last of its off-balance sheet securitizations in May 2008.

Critical Accounting Policies and Use of Estimates

We prepare our financial statements in conformity with GAAP, which require management to make certain estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to the inherent uncertainty involved in determining these estimates, actual results reported in future periods may differ from these estimates and could therefore affect the value of our assets and liabilities.

Critical estimates inherent within our financial statements include the allowance for credit losses.

Allowance for Credit Losses

The allowance for credit losses is maintained at a level adequate to cover probable incurred credit losses related to impaired receivables originated subsequent to April 29, 2005 and classified as held for investment as of the date of the financial statements, taking into account the credit quality of the portfolio, historical credit loss trends, trends in projected used car values and general economic factors. We continuously evaluate actual portfolio performance

of our finance receivables as compared to our assumptions. Should we determine that the portfolio performance, including delinquencies, defaults and net charge-offs, is worse than expected, we may be required to increase our allowance for credit losses. This increase in our allowance for credit losses would reduce the carrying value of our finance receivables held for investment and would also result in a higher provision for credit losses in the consolidated statements of operations.

Components of Revenues and Expenses

Most of our revenues are generated from our portfolio of finance receivables and the ancillary fees earned in connection with our servicing activities. Our revenues include financing revenue, other interest income, servicing income and other income. We earn financing revenue from contracts and loans we purchased and originated. Other interest income includes: (1) residual interest income on the retained interest in securitized assets we retain from securitization transactions; and (2) income on our restricted cash accounts. Our servicing income includes: (1) the base servicing fee income we receive from servicing receivables; and (2) the supplemental servicing fee income we receive from servicing receivables. Our other income includes fees we collect on receivables, such as late charges, extension fees, proceeds from sales of gap insurance and extended service contracts, referral fees received from other lenders, payment convenience fees and fees received from Santander pursuant to an administrative services agreement. Our other income also includes gains and losses on our derivative financial instruments, gains and losses related to the repurchase of receivables from gain on sale trusts, our loss on the sale of finance receivables and our gain on the partial redemption of our Senior Notes. Certain of these items comprising other income, including the proceeds from the sales of gap insurance and extended service contracts and referral fees received from other lenders, will no longer be available as a result of our decision to cease lending operations during 2008.

Our costs and expenses consist of interest expense, operating expenses, provision for credit losses and provision for income taxes. Our interest expense is the amount of interest and fees we pay on borrowings used to finance our receivables and working capital needs. Our operating expenses represent costs associated with operating our dealer and direct channels and servicing our receivables, including rent and occupancy expense, compensation expense and servicing costs. Our provision for credit losses represents the charge necessary to maintain our allowance for credit losses at a level considered adequate to cover probable credit losses on receivables that are held for investment and originated subsequent to April 29, 2005. Certain of these interest and operating expenses will no longer be incurred as a result of our decision to cease lending operations during 2008.

Results of Operations

Year Ended December 31, 2008 as Compared to Year Ended December 31, 2007

Our net loss was $111.9 million for the year ended December 31, 2008 as compared to a net loss of $10.6 million for 2007. The higher net loss was primarily due to lower net interest margin combined with higher operating expenses and provision for income taxes, partially offset by a lower provision for credit losses and lower other revenues.

Our results for the year ended December 31, 2008 included the following:


	•	$74.0 million charge to establish a valuation allowance against our tax assets;

	•	$30.4 million goodwill impairment charge;

	•	$15.8 million in losses on our derivative financial instruments;

	•	$13.3 million of expenses related to shutdown of the dealer originations channel and sale of the direct originations channel; and

	•	$14.6 million gain on the partial redemption of our senior notes.

Net Interest Margin

Our revenues are primarily generated from our portfolio of finance receivables and the ancillary fees earned in connection with our servicing activities. Our average owned finance receivables outstanding are summarized as follows:


	For the Years Ended December 31,
	2008		2007
	(Dollars in thousands)

Average owned finance receivables, carrying value	$	2,903,839	$	3,844,915

Average owned finance receivables decreased by 24.5% for the year ended December 31, 2008 as compared to 2007. This decrease was primarily attributable to the decrease in our level of loan originations during 2007 and 2008, culminating in our decision during the second quarter of 2008 to cease all lending activities, combined with the $632 million sale of receivables in June 2008. We purchased and originated $349.5 million of contracts and loans during the year ended December 31, 2008 as compared to $1,346.5 million during 2007.

Net interest margin on our owned finance receivables is summarized as follows:


	For the Years Ended December 31,
	2008			2007
	(Dollars in thousands)

Financing income	$	448,616		$	594,051
Other interest income		12,476			35,847
Interest expense		(168,984	)		(218,668	)

Net interest margin	$	292,108		$	411,230

Financing income as a percentage of average owned finance receivables		15.4	%		15.5	%

The 29.0% decrease in net interest margin for the year ended December 31, 2008 as compared to 2007 was due to a decrease in financing income and other interest income, partially offset by a decrease in interest expense. The decrease in financing income was primarily due to a lower average owned receivables balance.

Effective April 30, 2005 in connection with the Acquisition, we adjusted predecessor finance receivables held for investment to fair market value taking into account future expected credit losses and a required rate of return commensurate with the associated risk in connection with the purchase transaction. Financing income was reduced by $12.8 million and $29.4 million of premium amortization for the years ended December 31, 2008 and 2007, respectively, related to these receivables and receivables repurchased from gain on sale trusts. Excluding the premium amortization, the average yield on receivables for the years ended December 31, 2008 and 2007 would have been 15.9% and 16.2%, respectively.

During 2008 and 2007, expected cash flows from predecessor finance receivables held for investment and receivables repurchases from gain on sale trusts were reevaluated and determined to be greater than originally expected. This resulted in a reclassification of cash flows from non-accretable discount to accretable discount. This also resulted in a higher net yield being recognized on these receivables which is expected to continue in future periods.

Other interest income decreased to $12.5 million for the year ended December 31, 2008 as compared to $35.8 million for 2007. This decrease was mainly due to a decrease in residual interest income caused by lower retained interest in securitized asset balances combined with a decrease in interest income received on restricted cash accounts, resulting from declining interest rates.

The decrease in interest expense was primarily due to lower average debt levels. Our effective cost of funds was 5.8% for both the years ended December 31, 2008 and 2007. Average debt outstanding was $2,921.4 million and $3,777.3 million for 2008 and 2007, respectively.

Provision for Credit Losses

Our provision for credit losses was $228.4 million for the year ended December 31, 2008 as compared to $284.5 million for 2007. While our provision for credit losses decreased, it did not decrease as much as expected given the significant decrease in the corresponding receivables balance. This is a result of the current economic conditions, including higher unemployment levels and higher energy prices during the year, and the corresponding affect this is having on our borrowers’ ability to service their debt. Additionally, our provision for credit losses was impacted by an increase in the average age of the portfolio and a decline in the net proceeds from the sale of recovered vehicles sold at auctions, as well as continued higher than expected net charge-offs on our receivables originated during 2006.

Servicing Income

Servicing income decreased to $3.2 million for the year ended December 31, 2008 as compared to $7.8 million for 2007. Servicing income represents servicing fees and late fees collected on sold receivables. The decrease in servicing income for the year ended December 31, 2008 as compared to 2007 was primarily attributable to the declining balance of our sold receivables.

Gain on Partial Redemption of Senior Notes

On December 16, 2008, the Company completed a tender offer and purchased $89.4 million of its senior notes outstanding. The Company recognized a $14.6 million gain on the tender offer during the year ended December 31, 2008.

Other Income (Expense)

Other income (expense) is summarized as follows:


	For the Years Ended December 31,
	2008			2007
	(Dollars in thousands)

Customer fees	$	13,930		$	18,856
Losses on derivative financial instruments		(15,799	)		(17,493	)
Other		2,780			(5,305	)

Other income (expense)	$	911		$	(3,942	)

Our other income (expense) includes customer fees we collect on owned finance receivables, such as late charges and extension fees, proceeds from sales of gap insurance and extended service contracts, referral fees received from other lenders, payment convenience fees, and fees received from Santander pursuant to an administrative services agreement. Our other income (expense) also includes gains and losses on our derivative financial instruments, losses related to the repurchase of receivables from gain on sale trusts and our loss on the sale finance receivables. As a result of our decision to cease lending operations, several of these sources of income ceased during the 2008.

Customer fees decreased to $13.9 million for year ended December 31, 2008 as compared to $18.9 million for 2007 primarily due to a decrease in our average owned receivables combined with a decrease in late charges collected attributable to rising delinquencies.

Our derivative financial instruments are recognized on our consolidated balance sheet at fair value with changes in the value recorded in operations as a component of other income (expense). During the year, our derivative financial instruments included forward-starting swap agreements utilized to lock in the cost of funds on outstanding notional amounts of receivables prior to their securitization. Our derivative financial instruments also included interest rate swap agreements utilized to convert variable rate exposure on our 2007 securitization transactions to fixed rates. For the year ended December 31, 2008, our $15.8 million in losses on derivative financial instruments was comprised of $14.0 million in losses on our interest rate swap agreements and $1.8 million in losses on our forward-starting swap agreements. For the year ended December 31, 2007, our $17.5 million in losses on derivative financial instruments was comprised of $9.7 million in losses on our interest rate swap agreements and $7.8 million in losses on our forward-starting swap agreements.

Other is comprised of $2.8 million of income for the year ended December 31, 2008 as compared to $5.3 million of expense for 2007. For the year ended December 31, 2008, other included $5.4 million of administrative fees received from Santander pursuant to an administrative services agreement which was in effect from June 20, 2008 until the sale of Roadloans was completed on October 7, 2008. This other income was partially offset by $3.0 million in losses recorded on the repurchase of receivables from gain on sale trusts during the year ended December 31, 2008 and an $0.8 million loss on sale of finance receivables. For the year ended December 31, 2007, other included $7.0 million in losses recorded on the repurchase of receivables from gain on sale trusts.

Expenses

Operating expenses were $160.2 million for the year ended December 31, 2008 as compared to $146.8 million for 2007. Operating expenses as a percentage of average total managed receivables were 5.5% for the year ended December 31, 2008 as compared to 3.6% for 2007. This increase in operating expenses as a percentage of average total managed receivables for the year ended December 31, 2008 as compared to 2007 was due to an increase in operating expenses combined with a decrease in our average total managed receivables. Our operating expenses for the year ended December 31, 2008 included the following:


	•	$6.1 million charge to compensation and employee benefits representing severance payments to employees impacted by the shutdown of the dealer origination channel and sale of the direct originations channel;

	•	$3.4 million charge to occupancy and equipment representing the write-off of certain fixed assets as a result of the shutdown of the dealer originations channel and sale of direct originations channel;

	•	$2.6 million charge to occupancy and equipment representing an accrual for future excess facility capacity resulting from the shutdown of the dealer originations channel and the sale of $632 million of receivables;

	•	$2.1 million charge to professional services representing legal and professional fees incurred in the termination of existing warehouse and residual lending facilities and the establishment of alternative funding sources;

	•	$30.4 million goodwill impairment charge; and

	•	$1.2 million charge to other expenses representing the write-off of certain other assets as a result of the shutdown of the dealer originations channel and sale of the direct originations channel.

Income Taxes

We recognized an income tax expense of $34.1 million for the year ended December 31, 2008 as compared to tax benefit of $5.5 million for the year ended December 31, 2007. Our effective income tax rate was (43.8)% and 34.3% for the year ended December 31, 2008 and 2007, respectively. Income tax expense for the year ended December 31, 2008 included a $74.0 million valuation allowance established to reduce our tax assets to an amount which is more likely than not to be realized.

Credit Quality

Prior to our decision to cease lending operations, we provided financing in relatively high-risk markets, and, therefore, anticipated a correspondingly higher level of delinquencies and charge-offs.

Provisions for credit losses are charged to operations in amounts sufficient to maintain the allowance for credit losses on the balance sheet at a level considered adequate to cover our estimate of incurred credit losses related to held for investment receivables as of the date of the balance sheet. Receivables held for investment are charged-off to the allowance for credit losses at the earlier of repossession of the collateral or when the account is otherwise deemed uncollectible. Predecessor finance receivables held for investment were adjusted to fair market value in connection with the purchase transaction taking into account future expected credit losses and a required rate of return commensurate with the associated risk.

The following table presents certain data related to our owned finance receivables:


	At December 31,
	2008			2007
	(Dollars in thousands)

Finance receivables held for investment	$	1,865,449		$	3,124,036
Allowance for credit losses		(171,462	)		(230,500	)

Finance receivables held for investment, net of allowance		1,693,987			2,893,536

Allowance for credit losses as a percentage of receivables		9.2	%		7.4	%
Predecessor finance receivables held for investment, net		248,409			475,296
Finance receivables repurchased from gain on sale trusts, net		32,922			123,972

Total owned finance receivables held for investment, net	$	1,975,318		$	3,492,804

The increase in the allowance for credit losses as a percentage of receivables at December 31, 2008 as compared to 2007 was due to the current economic conditions, including higher unemployment levels, and the corresponding affects this is having on our borrowers’ ability to service their debt combined with the continued aging of our owned finance receivables held for investment and higher than expected net charge-offs on our receivables originated during 2006. As of December 31, 2008 and 2007, the finance receivables held for investment are aged, on a weighted average basis, 26.3 months and 14.2 months, respectively.

Finance receivables that are (1) more than 30 days delinquent, but not yet in repossession, and (2) in repossession are summarized as follows:


	At December 31,
	2008					2007
	Amount		Percent			Amount		Percent
	(Dollars in thousands)

Delinquent contracts:
31 to 60 days	$	287,032		13.2	%	$	377,862		10.0	%
Greater than 60 days		98,600		4.5			156,036		4.1

		385,632		17.7			533,898		14.1
In repossession		14,083		0.6			29,383		0.8

	$	399,715		18.3	%	$	563,281		14.9	%

Delinquencies in our receivables portfolio may vary from period to period based upon credit quality, the average age of the portfolio, seasonality within the calendar year and economic factors. Due to our target customer base, a relatively high percentage of accounts become delinquent at some point in the life of a contract and there is a fairly high rate of account movement between current and delinquent status in the portfolio. Total delinquencies were higher at December 31, 2008 as compared to 2007 due to the current economic conditions affecting our borrowers and the $632 million sale of receivables, effective June 1, 2008, none of which were more than 30 days delinquent at the time of sale.

We at times offer payment extensions, in accordance with our policies and guidelines, to consumers to assist them when temporary financial difficulties interfere with their ability to make scheduled payments. Our policies and guidelines, as well as certain contractual restrictions in our securitization transactions, limit the number and frequency of extensions that may be granted. An account for which all delinquent payments are extended is classified as current at the time the extension is granted, resulting in lower delinquencies. Thereafter, such account’s delinquency status is determined in the same manner as any other account.

We evaluate the results of our extension strategies based upon the portfolio performance on accounts that have been extended versus accounts that have not been extended over the same period of time and as a result of that evaluation, we make periodic adjustments to our extension strategy. We believe that payment extensions granted according to our policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.

Payment extensions as a percentage of owned finance receivables outstanding are summarized as follows:


	At December 31,
	2008			2007
	Percent			Percent

Never extended		51.4	%		73.2	%
Extended:
1-2 times		46.5	%		26.1	%
3-4 times		2.1	%		0.7	%

Total extended		48.6	%		26.8	%

Total		100.0	%		100.0	%

As the finance receivables portfolio ages, more accounts become eligible for extensions. Payment extensions as a percentage of total owned finance receivables increased to 48.6% at December 31, 2008 as compared with 26.8% at December 31, 2007, mainly driven by an increase in 1-2 times payment extensions, which increased to 46.5% December 31, 2008 as compared to 26.1% at December 31, 2007. The increase payment extensions was due to the current economic conditions affecting our borrowers combined with the continued aging of our portfolio and the $632 million sale of receivables, effective June 1, 2008, many of which would not have been eligible for an extension at the time of sale.

We have guidelines concerning when accounts become eligible for extensions, including a requirement that the borrower has made a minimum of six installment payments. We continue to monitor our extension strategy, and we believe that the judicious use of payment extensions is an effective portfolio management technique.

Payment extensions do not have a direct impact on the amount of our finance receivables charged-off and the corresponding credit quality ratios. Payment extensions may, however, impact the timing of these charge-offs in the event a previously extended account is ultimately charged-off. Additionally, the impact of payment extensions is considered in determining the allowance for credit losses and the resulting provision for credit losses.

Charge-off data with respect to our average owned finance receivables is summarized as follows:


	For the Years Ended December 31,
	2008			2007
	(Dollars in thousands)

Repossession charge-offs	$	414,165		$	392,026
Less: Sale Proceeds and recoveries		(223,175	)		(229,206	)
Mandatory charge-offs(1)		112,047			146,672

Net charge-offs(2)	$	303,037		$	309,492

Net charge-offs as a percentage of average total owned receivables outstanding		10.4	%		8.0	%
Sales proceeds and recoveries as a percentage of charge-offs		42.4	%		42.5	%


(1)		Mandatory charge-offs represent accounts charged-off in full with no recovery amounts realized at time of charge-off.

(2)		Net charge-offs for our owned portfolio include charge-offs from our finance receivables held for investment, our predecessor finance receivables held for investment and our finance receivables repurchased from gain on sale trusts.

Net charge-offs as a percentage of our average owned finance receivables outstanding may vary from period to period based upon the credit quality of the portfolio, average age of the portfolio and economic factors. The increase in annualized net charge-offs as a percentage of average owned finance receivables for the year ended December 31, 2008, as compared with 2007, was due to higher repossession charge-offs, net of sales proceeds and recoveries, combined with the impact of a declining receivables portfolio, partially offset by a decrease in mandatory charge-offs. The increase in repossession charge-offs, net of sales proceeds and recoveries, was due to various factors,

including the current economic conditions affecting our borrowers, increases in the average age of our portfolio, historically high levels of receivables more than 30 days delinquent at December 31, 2007 and continuing throughout 2008 and higher than expected credit losses on receivables originated in 2006. The decrease in mandatory charge-offs was due to the Company assigning accounts for repossession earlier in their delinquency stage and therefore, reducing the number of receivables going to mandatory charge-off.

Total Managed Information

We evaluate the profitability of our financing activities based partly upon our total managed auto finance receivables portfolio, including both owned finance receivables and sold finance receivables. We have historically securitized our receivables in transactions that met the criteria for a sale of such receivables. The net margin and credit quality information presented below on a total managed basis assumes that securitized and sold receivables had not been sold and are still on our consolidated balance sheet. Accordingly, no gain on sale or servicing fee income would have been recognized. Instead, finance charge and fee income would be recognized over the life of the securitized receivables as accrued, and interest expense and other costs related to the asset-backed securities would be recognized as incurred.

We use this information to help us determine the profitability of our finance products and if sufficient spreads exist between our revenues and cost of funds to cover operating expenses and achieve corporate profitability objectives. Additionally, total managed information facilitates comparisons of our results with other finance companies that do not securitize their receivables or other finance companies that securitize their receivables in securitization transactions that do not meet the criteria for sales of receivables. Total managed information is not a measurement of financial performance under GAAP and should not be considered as an alternative to any other measures of performance determined under GAAP.

Our average total managed finance receivables outstanding are summarized as follows:


	For the Years Ended December 31,
	2008		2007
	(Dollars in thousands)

Average owned finance receivables, carrying value	$	2,903,839	$	3,844,915
Average sold finance receivables		30,133		274,668

Average total managed finance receivables	$	2,933,972	$	4,119,583

Total Managed Net Interest Margin

Net interest margin for our total managed receivables portfolio are summarized as follows:


	For the Years Ended December 31,
	2008			2007
	(Dollars in thousands)

Financing income and customer fees	$	479,869		$	685,608
Interest expense		(171,392	)		(233,983	)

Net interest margin	$	308,477		$	451,625

Reconciliation of net interest margin as reflected in our consolidated statements of income to total managed net interest margin is summarized as follows:


	For the Years Ended December 31,
	2008			2007
	(Dollars in thousands)

Net margin as reflected on the consolidated statements of income	$	292,108		$	411,230
Other interest income		(12,476	)		(35,847	)
Financing revenue on sold receivables		4,538			43,322
Interest expense on sold receivables		(653	)		(7,507	)
Losses on forward-starting swap agreements		(1,755	)		(7,808	)
Premium amortization		12,785			29,379
Customer fees		13,930			18,856

Total managed net interest margin	$	308,477		$	451,625

Net interest margin as a percentage of average total managed receivables is summarized as follows:


	For the Years Ended December 31,
	2008			2007

Financing income and customer fees		16.3	%		16.7	%
Interest expense		(5.8	)		(5.7	)

Net interest margin as a percentage of average total managed receivables		10.5	%		11.0	%

Net interest margin as a percentage of average total managed receivables decreased to 10.5% for the year ended December 31, 2008 as compared to 11.0% for 2007. This decrease in net interest margin was primarily due to lower levels of premium amortization and customer fees, partially offset by lower losses on our forward-starting swap agreements.

Total Managed Credit Quality

Certain data related to our total managed receivables finance receivable portfolio are summarized as follows:


	At December 31, 2008
	Owned		Sold		Total Managed
	(Dollars in thousands)

Owned finance receivables, unpaid principal balance	$	2,172,559	$	—	$	2,172,559
Sold finance receivables		—		—		—

Total managed finance receivables	$	2,172,559	$	—	$	2,172,559

Number of outstanding contracts		183,321		—		183,321

Average principal amount of outstanding contracts (in dollars)	$	11,851	$	—	$	11,851


	At December 31, 2007
	Owned		Sold		Total Managed
	(Dollars in thousands)

Owned finance receivables, unpaid principal balance	$	3,774,481	$	—	$	3,774,481
Sold finance receivables		—		94,097		94,097

Total managed finance receivables	$	3,774,481	$	94,097	$	3,868,578

Number of outstanding contracts		271,384		11,886		283,270

Average principal amount of outstanding contracts (in dollars)	$	13,908	$	7,917	$	13,657

Receivables that are (1) more than 30 days delinquent, but not yet in repossession, and (2) in repossession are summarized as follows:


	At December 31, 2008
	Owned					Sold				Total Managed
	Amount		Percent			Amount		Percent		Amount		Percent
	(Dollars in thousands)

Delinquent contracts:
31 to 60 days	$	287,032		13.2	%	$	—		—	$	287,032		13.2	%
Greater than 60 days		98,600		4.5			—		—		98,600		4.5

		385,632		17.7			—		—		385,632		17.7
In repossession		14,083		0.6			—		—		14,083		0.6

	$	399,715		18.3	%	$	—		—	$	399,715		18.3	%


	At December 31, 2007
	Owned					Sold					Total Managed
	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)

Delinquent contracts:
31 to 60 days	$	377,862		10.0	%	$	12,599		13.4	%	$	390,461		10.1	%
Greater than 60 days		156,036		4.1			5,168		5.5			161,204		4.2

		533,898		14.1			17,767		18.9			551,665		14.3
In repossession		29,383		0.8			1,768		1.9			31,151		0.8

	$	563,281		14.9	%	$	19,535		20.8	%	$	582,816		15.1	%

We at times offer payment extensions, in accordance with our policies and guidelines, to consumers to assist them when temporary financial difficulties interfere with their ability to make scheduled payments. Our policies and guidelines, as well as certain contractual restrictions in our securitization transactions, limit the number and frequency of extensions that may be granted. An account for which all delinquent payments are extended is classified as current at the time the extension is granted. Thereafter, such account is aged based on the timely payment of future installments in the same manner as any other account, resulting in lower delinquencies.

The following is a summary of payment extensions as a percentage of owned, sold and total managed receivables outstanding:


	At December 31, 2008
	Owned			Sold			Total Managed

Never extended		51.4	%		—	%		51.4	%
Extended:
1-2 times		46.5	%		—	%		46.5	%
3-4 times		2.1	%		—	%		2.1	%

Total extended		48.6	%		—	%		48.6	%

Total		100.0	%		—	%		100.0	%


	At December 31, 2007
	Owned			Sold			Total Managed

Never extended		73.2	%		46.1	%		72.6	%
Extended:
1-2 times		26.1	%		47.3	%		26.6	%
3-4 times		0.7	%		6.6	%		0.8	%

Total extended		26.8	%		53.9	%		27.4	%

Total		100.0	%		100.0	%		100.0	%

As the finance receivables portfolio ages, more accounts become eligible for extensions. Payment extensions as a percentage of total managed finance receivables increased to 48.6% at December 31, 2008 as compared with 26.8% at December 31, 2007, mainly driven by an increase in 1-2 times payment extensions, which increased to 46.5% December 31, 2008 as compared to 26.1% at December 31, 2007. The increase payment extensions was due to the current economic conditions affecting our borrowers combined with the continued aging of our portfolio and the $632 million sale of receivables, effective June 1, 2008, many of which would not have been eligible for an extension at the time of sale.

Charge-off data with respect to our finance receivables portfolio is summarized as follows:


	For the Years Ended December 31,
	2008			2007
	(Dollars in thousands)

Owned:
Repossession charge-offs	$	414,165		$	392,026
Less: Sale Proceeds and recoveries		(223,175	)		(229,206	)
Mandatory charge-offs(1)		112,047			146,672

Net charge-offs(2)	$	303,037		$	309,492


	For the Years Ended December 31,
	2008			2007
	(Dollars in thousands)

Sold:
Charge-offs	$	5,537		$	38,471
Less: Sale Proceeds and recoveries		(2,686	)		(20,289	)
Mandatory charge-offs(1)		—			—

Net charge-offs	$	2,851		$	18,182

Total Managed:
Repossession charge-offs	$	419,702		$	430,497
Less: Sale Proceeds and recoveries		(225,861	)		(249,495	)
Mandatory charge-offs(1)		112,047			146,672

Net charge-offs	$	305,888		$	327,674

Net charge-offs as a percentage of average total managed receivables outstanding		10.4	%		8.0	%
Sale proceeds and recoveries as a percentage of charge-offs		42.5	%		43.2	%


(1)		Mandatory charge-offs represent accounts charged-off in full with no recovery amounts realized at time of charge-off.

(2)		Net charge-offs for our owned portfolio include charge-offs from our finance receivables held for investment, our predecessor finance receivables held for investment and our finance receivables repurchased from gain on sale trusts.

Net charge-offs as a percentage of our average total managed finance receivables outstanding may vary from period to period based upon the credit quality of the portfolio, average age of the portfolio and economic factors. The increase in net charge-offs as a percentage of average total managed finance receivables for the year ended December 31, 2008, as compared with 2007, was due to higher repossession charge-offs, net of sales proceeds and recoveries, combined with the impact of a declining receivables portfolio, partially offset by a decrease in mandatory charge-offs. The increase in repossession charge-offs, net of sales proceeds and recoveries, was due to various factors, including the current economic conditions affecting our borrowers, increases in the average age of our portfolio, historically high levels of receivables more than 30 days delinquent at December 31, 2007 and continuing throughout 2008 and higher than expected credit losses on receivables originated in 2006. The decrease in mandatory charge-offs was due to the Company assigning accounts for repossession earlier in their delinquency stage and therefore, reducing the number of receivables going to mandatory charge-off.

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006

Our net loss was $10.6 million for the year ended December 31, 2007 as compared to net income of $13.7 million for 2006. The decrease in net income was primarily due to a higher provision for credit losses, a decline in revenue from other sources and higher operating expenses partially offset by higher net interest margin. Our 2007 results included $17.5 million in losses on our derivative financial instruments and $5.3 million in expenses related to the transition of certain functions to our North Richland Hills, Texas facility.

Net Interest Margin

Our revenues are primarily generated from the purchase, origination, retention, subsequent securitization and servicing of auto receivables. Our average owned finance receivables outstanding are summarized as follows:


	For the Years Ended December 31,
	2007		2006
	(Dollars in thousands)

Average owned finance receivables, carrying value	$	3,844,915	$	3,498,717

Average owned finance receivables increased by 9.9% for the year ended December 31, 2007 as compared to 2006. This increase was primarily attributable to an increased level of loan originations during 2006. We purchased and originated $1,346.5 million of contracts during the year ended December 31, 2007 as compared to $2,650.3 million during 2006. This decrease in originations was primarily due to lower levels of originations in our dealer channel. In response to higher than expected losses on receivables originated during 2006, we modified our contract origination strategy to better manage our credit risk, which resulted in lower volume levels during the last quarter of 2006 and 2007.

The average new contract size was $18,793 for the year ended December 31, 2007 as compared to $18,619 for the year ended December 31, 2006. The average annual percentage rate on contracts purchased and originated was 14.7% and 17.2% during the years ended December 31, 2007 and 2006, respectively. This decrease was due to an increased concentration of contracts from our direct channel during 2007, which had a lower weighted-average coupon. Our yields were also impacted by the implementation of new proprietary scorecards for the direct channel during the first quarter of 2007, combined with new pricing strategies within the direct channel designed to attract customers with higher expected credit quality.

Net interest margin on our owned finance receivables is summarized as follows:


	For the Years Ended December 31,
	2007			2006
	(Dollars in thousands)

Financing income	$	594,051		$	542,465
Other interest income		35,847			34,875
Interest expense		(218,668	)		(202,929	)

Net interest margin	$	411,230		$	374,411

Financing income as a percentage of average owned finance receivables		15.5	%		15.5	%

The 9.8% increase in net interest margin for the year ended December 31, 2007 as compared to 2006 was due to an increase in financing income and other interest income, partially offset by an increase in interest expense.

The increase in financing income was due to increase in our average owned receivables and a lower level of premium amortization, partially offset by a decrease in yields on new contract originations. Effective April 30, 2005, we adjusted predecessor finance receivables held for investment to fair market value taking into account future expected credit losses and a required rate of return commensurate with the associated risk in connection with the purchase transaction. Financing income was reduced by $29.4 million and $56.4 million of premium amortization for the year ended December 31, 2007 and 2006, respectively, related to these receivables and receivables repurchased from gain on sale trusts. Excluding the premium amortization, the average yield on receivables for the years ended December 31, 2007 and 2006 would have been 16.2% and 17.1%, respectively.

During 2007 and 2006, expected cash flows from predecessor finance receivables held for investment and receivables repurchases from gain on sale trusts were reevaluated and determined to be greater than originally expected. This resulted in a reclassification of cash flows from nonaccretable discount to accretable discount. This also resulted in a higher net yield being recognized on these receivables which is expected to continue in future periods.

Other interest income increased to $35.8 million for the year ended December 31, 2007 as compared to $34.9 million for 2006. This increase was mainly due to the realization of $14.2 million in previously unrealized gains on our retained interest in securitized assets, combined with an increase in interest income received on restricted cash accounts, partially offset by a decrease in residual interest income caused by lower retained interest in securitized asset balances.

The increase in interest expense was due to both a higher cost of funds and higher average debt levels. Our effective cost of funds was 5.8% for the year ended December 31, 2007 as compared to 5.7% for the year ended December 31, 2006. This increase in our effective cost of funds was primarily due to higher interest rates on our 2006 and 2007 securitization transactions. Average debt outstanding was $3,777.3 million and $3,559.2 million for 2007 and 2006, respectively.

Provision for Credit Losses

Our provision for credit losses was $284.5 million for the year ended December 31, 2007 as compared to $256.8 million for 2006. Our provision for credit losses increased as a result of the increase in size of the portfolio of finance receivables originated subsequent to the Acquisition, an increase in the average age of the portfolio and higher net charge-offs, partially offset by lower net charge-offs on our recent direct channel originations with higher expected credit quality. The increase in net charge-offs is attributable to a number of factors including higher than expected losses on receivables originated during 2006, the impact of a larger percentage of those 2006 receivables reaching the age at which higher delinquencies and losses are more likely to occur and higher mandatory charge-offs.

Servicing Income

Servicing income decreased to $7.8 million for the year ended December 31, 2007 as compared to $22.0 million for the year ended December 31, 2006. Servicing income represents servicing fees and late fees collected on sold receivables. The decrease in servicing income for the year ended December 31, 2007 as compared to the year ended December 31, 2006 was primarily attributable to the declining balance of our sold receivables.

Other Income (Expense)

Other income (expense) is summarized as follows:


	For the Years Ended December 31,
	2007			2006
	(Dollars in thousands)

Customer fees	$	18,856		$	19,961
Gains (losses) on derivative financial instruments		(17,493	)		691
Other		(5,305	)		950

Other income (expense)	$	(3,942	)	$	21,602

Customer fees decreased to $18.9 million for year ended December 31, 2007 as compared to $20.0 million for the year ended December 31, 2006 primarily due to a decrease in late charges collected attributable to rising delinquencies.

Our derivative financial instruments are recognized on our consolidated balance sheet at fair value with changes in the value recorded in earnings as a component of other income (expense). Our derivative financial instruments include forward-starting swap agreements utilized to lock in the cost of funds on outstanding notional amounts of receivables prior to their securitization. During 2007, our derivative financial instruments also included interest rate swap agreements utilized to convert variable rate exposure on our 2007 securitization transactions to fixed rates. For the year ended December 31, 2007, our $17.5 million in losses on derivative financial instruments

was comprised of $9.7 million in losses on our interest rate swap agreements and $7.8 million in losses on our forward-starting swap agreements. These losses were a result of a declining interest rate environment throughout the latter half of the year. For the year ended December 31, 2006, our $0.7 million in gains on derivative financial instruments were comprised entirely of gains on our forward-starting swap agreements.

Other decreased to an expense of $5.3 million for the year ended December 31, 2007 as compared to income of $1.0 million for the year ended December 31 2006 primarily due to a $7.0 million loss recorded on the repurchase of receivables from gain on sale trusts during 2007.

Expenses

Operating expenses were $146.8 million for the year ended December 31, 2007 as compared to $138.6 million for the year ended December 31, 2006. The $8.2 million increase in operating expenses for the year ended December 31, 2007 as compared to 2006 was due to higher levels of compensation and employee benefits and advertising expenses, partially offset by a decrease in system and data processing expenses. Additionally, operating expenses for the year ended December 31, 2007 included $5.3 million in expenses related to the transition of certain functions to our North Richland Hills, Texas facility and a $1.6 million payment to a former chief executive officer for the repurchase of his option shares vested as of his July 2005 termination date. Operating expenses for the year ended December 31, 2006 included a $2.0 million charge associated with sale of extended service contracts. Annualized operating expenses as a percentage of average total managed receivables were 3.6% for the year ended December 31, 2007 as compared to 3.3% for the year ended December 31, 2006.

Income Taxes

We recognized an income tax benefit of $5.5 million for the year ended December 31, 2007 as compared to tax expense of $8.9 million for the year ended December 31, 2006. Our effective income tax rate was 34.3% and 39.6% for the year ended December 31, 2007 and 2006, respectively. Our income tax benefit for the year ended December 31, 2007 was partially offset by $0.7 million recognized for the potential payment of interest.

Credit Quality

We provide financing in relatively high-risk markets, and, therefore, anticipate a corresponding higher level of delinquencies and charge-offs.

The following table presents certain data related to our owned finance receivables:


	At December 31,
	2007			2006
	(Dollars in thousands)

Finance receivables held for investment	$	3,124,036		$	3,045,938
Allowance for credit losses		(230,500	)		(195,000	)

Finance receivables held for investment, net of allowance		2,893,536			2,850,938

Allowance for credit losses as a percentage of receivables		7.4	%		6.4	%
Predecessor finance receivables held for investment, net		475,296			849,246
Finance receivables repurchased from gain on sale trusts, net		123,972			62,659

Total owned finance receivables held for investment, net	$	3,492,804		$	3,762,843

The increase in the allowance for credit losses as a percentage of receivables at December 31, 2007 as compared to December 31, 2006 was due to the continued aging of our owned finance receivables held for investment. As of December 31, 2007 and 2006, the finance receivables held for investment are aged, on a weighted average basis, 14.2 months and 8.0 months, respectively.

Finance receivables that are (1) more than 30 days delinquent, but not yet in repossession, and (2) in repossession are summarized as follows:


	At December 31,
	2007					2006
	Amount		Percent			Amount		Percent
	(Dollars in thousands)

Delinquent contracts:
31 to 60 days	$	377,862		10.0	%	$	269,861		6.7	%
Greater than 60 days		156,036		4.1			97,332		2.4

		533,898		14.1			367,193		9.1
In repossession		29,383		0.8			17,072		0.4

	$	563,281		14.9	%	$	384,265		9.5	%

Delinquencies in our receivables portfolio may vary from period to period based upon credit quality, the average age of the portfolio, seasonality within the calendar year and economic factors. Due to our target customer base, a relatively high percentage of accounts become delinquent at some point in the life of a contract and there is a fairly high rate of account movement between current and delinquent status in the portfolio. Total delinquencies were higher at December 31, 2007 as compared to December 31, 2006 due, in part, to an increase in the average age of our portfolio. Specifically, as the receivables originated in 2006 increase in age, a larger percentage of that vintage is reaching the stage at which higher delinquencies and losses are more likely to occur. Additional reasons for the rising delinquencies include macroeconomic factors, servicing practices and credit characteristics of the portfolio.

Payment extensions as a percentage of owned finance receivables outstanding are summarized as follows:


	At December 31,
	2007			2006
	Percent			Percent

Never extended		73.2	%		83.3	%
Extended:
1-2 times		26.1	%		16.4	%
3-4 times		0.7	%		0.3	%

Total extended		26.8	%		16.7	%

Total		100.0	%		100.0	%

As the finance receivables portfolio ages, more accounts become eligible for extensions. Payment extensions as a percentage of total owned finance receivables increased to 26.8% at December 31, 2007 as compared with 16.7% at December 31, 2006, mainly driven by an increase in 1-2 times payment extensions, which increased to 26.1% at December 31, 2007 as compared to 16.4% at December 31, 2006. We have guidelines concerning when accounts become eligible for extensions, including a requirement that the borrower has made a minimum of six installment payments. At December 31, 2007, nearly all of the finance receivable accounts originated during 2006 were extension-eligible. As a result, a greater proportion of extensions were granted on accounts originated in 2006 than to those accounts originated in other years. This factor, as well as the increase in the average age of the overall portfolio, contributed to the increase in the number of extensions granted. In addition, we adopted a strategy to increase the number of extensions granted as our historical data indicated that contracts extended are more likely than not to result in additional collections over the life of the contract. We continue to monitor our extension strategy, and we believe that the judicious use of payment extensions is an effective portfolio management technique.

Charge-off data with respect to our average owned finance receivables is summarized as follows:


	For the Years Ended December 31,
	2007			2006
	(Dollars in thousands)

Repossession charge-offs	$	392,026		$	269,935
Less: Sale Proceeds and recoveries		(229,206	)		(160,422	)
Mandatory charge-offs(1)		146,672			83,000

Net charge-offs(2)	$	309,492		$	192,513

Net charge-offs as a percentage of average total owned receivables outstanding		8.0	%		5.5	%
Sales proceeds and recoveries as a percentage of charge-offs		42.5	%		45.5	%


(1)		Mandatory charge-offs represent accounts charged-off in full with no recovery amounts realized at time of charge-off.

(2)		Net charge-offs for our owned portfolio include charge-offs from our finance receivables held for investment, our predecessor finance receivables held for investment and our finance receivables repurchased from gain on sale trusts.

Annualized net charge-offs as a percentage of our average owned finance receivables outstanding may vary from period to period based upon the credit quality of the portfolio, average age of the portfolio and economic factors. The increase in annualized net charge-offs as a percentage of average owned finance receivables to 8.0% for the year ended December 31, 2007 as compared to 5.5% for the year ended December 31, 2006 was due to higher charge-offs and a decrease in recoveries as a percentage of charge-offs. The increase in charge-offs was due to an increase in the average age of our portfolio, higher than expected credit losses on receivables originated in 2006 and higher mandatory charge-offs. The increase in mandatory charge-offs was due to, among other things, an increase in the average days to repossess, which resulted in a greater percentage of accounts reaching 120 days’ delinquency prior to the recovery of the collateral. The decrease in recoveries as a percentage of charge-offs was primarily due to a higher level of mandatory charge-offs.

Total Managed Information

credit quality information presented below on a total managed basis assumes that securitized and sold receivables had not been sold and are still on our consolidated balance sheet. Accordingly, no gain on sale or servicing fee income would have been recognized. Instead, finance charge and fee income would be recognized over the life of the securitized receivables as accrued, and interest expense and other costs related to the asset-backed securities would be recognized as incurred.

We use this information to help us to determine the profitability of our finance products and if sufficient spreads exist between our revenues and cost of funds to cover operating expenses and achieve corporate profitability objectives. Additionally, total managed information facilitates comparisons of our results with other finance companies that do not securitize their receivables or other finance companies that securitize their receivables in securitization transactions that do not meet the criteria for sales of receivables. Total managed information is not a measurement of financial performance under GAAP and should not be considered as an alternative to any other measures of performance determined under GAAP.

Beginning with our May 2005 securitization transaction, we altered the structure of our securitization transactions to no longer meet the criteria for sales of auto receivables, but instead to meet the criteria for on-balance sheet reporting. Accordingly, following a securitization accounted for as a secured financing, the receivables and the related securitization indebtedness will remain on our balance sheet. Additionally, we will recognize finance revenue and fee income on the receivables and interest expense on the securities issued in the securitization and record a provision for credit losses over the life of the securitization. As a result of this change, our provision for credit losses and our net margin increased significantly, with our provision for credit losses increasing initially at a greater rate than our net margin because we began recording a provision for credit losses upon the purchase of each contract. In addition, our securitization income decreased and net income initially decreased, with no change to our cash flows, as a result of this accounting change.

Our average total managed finance receivables outstanding are summarized as follows:


	For the Years Ended December 31,
	2007		2006
	(Dollars in thousands)

Average owned finance receivables, carrying value	$	3,844,915	$	3,498,717
Average sold finance receivables		274,668		765,416

Average total managed finance receivables	$	4,119,583	$	4,264,133

Total Managed Net Interest Margin

Net interest margin for our total managed receivables portfolio are summarized as follows:


	For the Years Ended December 31,
	2007			2006
	(Dollars in thousands)

Financing income and customer fees	$	685,608		$	746,843
Interest expense		(233,983	)		(226,865	)

Net interest margin	$	451,625		$	519,978

Reconciliation of net interest margin as reflected in our consolidated statements of income to total managed net interest margin is summarized as follows:


	For the Years Ended December 31,
	2007			2006
	(Dollars in thousands)

Net margin as reflected on the consolidated statements of income	$	411,230		$	374,411
Other interest income		(35,847	)		(34,875	)
Financing revenue on sold receivables		43,322			128,039
Interest expense on sold receivables		(7,507	)		(24,627	)
Gain (losses) on forward-starting swap agreements		(7,808	)		691
Premium amortization		29,379			56,378
Customer fees		18,856			19,961

Total managed net interest margin	$	451,625		$	519,978

Net interest margin as a percentage of average total managed receivables is summarized as follows:


	For the Years Ended December 31,
	2007			2006

Financing income and customer fees		16.6	%		17.5	%
Interest expense		(5.7	)		(5.3	)

Net interest margin as a percentage of average total managed receivables		11.0	%		12.2	%

Net interest margin as a percentage of average total managed receivables decreased to 11.0% for the year ended December 31, 2007 as compared to 12.2% for the year ended December 31, 2006. This decrease in net interest margin was due to a decrease in yield on receivables combined with an increase in average cost of funds. The decrease in yield was mainly due to a greater volume of loans in our direct channel to customers with higher expected credit quality. The increase in our cost of funds was primarily due to higher interest rates on our 2006 and 2007 securitization transactions and higher losses on our interest rate swaps. Excluding gain (losses) on our forward- starting swap agreements, annualized net interest margin as a percentage of average total managed receivables would have been 11.2% for the year ended December 31, 2007 as compared to 12.2% for the year ended December 31, 2006.

Total Managed Credit Quality

We have periodically sold receivables in securitization transactions to Trusts and retained an interest in the receivables sold in the form of retained interest in securitized assets. Retained interests in securitized assets are reflected on our balance sheet at fair value, calculated based upon the present value of estimated excess future cash flows from the Trusts using, among other assumptions, probable future cumulative credit losses on the receivables sold. Charge-offs of receivables that have been sold to Trusts decrease the amount of excess future cash flows from the Trusts. If such charge-offs are expected to exceed our original probable cumulative credit losses, the fair value of retained interest in securitized assets could be written down through an impairment charge to earnings.

Certain data related to our total managed receivables finance receivable portfolio are summarized as follows:


	At December 31, 2007
	Owned		Sold		Total Managed
	(Dollars in thousands)

Owned finance receivables, unpaid principal balance	$	3,774,481	$	—	$	3,774,481
Sold finance receivables		—		94,097		94,097

Total managed finance receivables	$	3,774,481	$	94,097	$	3,868,578

Number of outstanding contracts		271,384		11,886		283,270

Average principal amount of outstanding contracts (in dollars)	$	13,908	$	7,917	$	13,657


	At December 31, 2006
	Owned		Sold		Total Managed
	(Dollars in thousands)

Owned finance receivables, unpaid principal balance	$	4,032,551	$	—	$	4,032,551
Sold finance receivables		—		484,818		484,818

Total managed finance receivables	$	4,032,551	$	484,818	$	4,517,369

Number of outstanding contracts		264,559		55,802		320,361

Average principal amount of outstanding contracts (in dollars)	$	15,243	$	8,688	$	14,101

Receivables that are (1) more than 30 days delinquent, but not yet in repossession, and (2) in repossession are summarized as follows:


	At December 31, 2007
	Owned					Sold					Total Managed
	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)

Delinquent contracts:
31 to 60 days	$	377,862		10.0	%	$	12,599		13.4	%	$	390,461		10.1	%
Greater than 60 days		156,036		4.1			5,168		5.5			161,204		4.2

		533,898		14.1			17,767		18.9			551,665		14.3
In repossession		29,383		0.8			1,768		1.9			31,151		0.8

	$	563,281		14.9	%	$	19,535		20.8	%	$	582,816		15.1	%


	At December 31, 2006
	Owned					Sold					Total Managed
	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)

Delinquent contracts:
31 to 60 days	$	269,861		6.7	%	$	51,827		10.7	%	$	321,688		7.1	%
Greater than 60 days		97,332		2.4			17,970		3.7			115,302		2.6

		367,193		9.1			69,797		14.4			436,990		9.7
In repossession		17,072		0.4			4,819		1.0			21,891		0.5

	$	384,265		9.5	%	$	74,616		15.4	%	$	458,881		10.2	%

Delinquencies in our total managed receivables portfolio may vary from period to period based upon credit quality, the average age of the portfolio, seasonality within the calendar year and economic factors. Delinquencies for our total managed portfolio were higher at December 31, 2007 as compared to December 31, 2006 due, in part,

to an increase in the average age of our portfolio. Specifically, as the receivables originated in 2006 increase in age, a larger percentage of that vintage is reaching the stage at which higher delinquencies and losses are more likely to occur. Additional reasons for the rising delinquencies include macroeconomic factors, servicing practices and credit characteristics of the portfolio.

We at times offer payment extensions, in accordance with our policies and guidelines, to consumers to assist them when temporary financial difficulties interfere with their ability to make scheduled payments. Our policies and guidelines, as well as certain contractual restrictions in our securitization transactions, limit the number and frequency of extensions that may be granted. An account for which all delinquent payments are extended is classified as current at the time the extension is granted. Thereafter, such account is aged based on the timely payment of future installments in the same manner as any other account, resulting in lower delinquencies.

The following is a summary of payment extensions as a percentage of owned, sold and total managed receivables outstanding:


	At December 31, 2007
	Owned			Sold			Total Managed

Never extended		73.2	%		46.1	%		72.6	%
Extended:
1-2 times		26.1	%		47.3	%		26.6	%
3-4 times		0.7	%		6.6	%		0.8	%

Total extended		26.8	%		53.9	%		27.4	%

Total		100.0	%		100.0	%		100.0	%


	At December 31, 2006
	Owned			Sold			Total Managed

Never extended		83.3	%		53.1	%		80.1	%
Extended:
1-2 times		16.4	%		43.8	%		19.3	%
3-4 times		0.3	%		3.1	%		0.6	%

Total extended		16.7	%		46.9	%		19.9	%

Total		100.0	%		100.0	%		100.0	%

As of December 31, 2007 and 2006, the total managed finance receivables are aged, on a weighted average basis, 19.4 months and 15.6 months, respectively. As the total managed finance receivables portfolio ages, more accounts become eligible for extensions. We have guidelines concerning when accounts become eligible for extensions, including a requirement that the borrower has made a minimum of six installment payments. At December 31, 2007, nearly all of the finance receivable accounts originated during 2006 were extension-eligible. As a result, a greater proportion of extensions were granted on accounts originated in 2006 than to those accounts originated in other years. This factor, as well as the increase in the average age of the overall portfolio, contributed to the increase in the number of extensions granted. In addition, we adopted a strategy to increase the number of extensions granted as our historical data indicated that contracts extended are more likely than not to result in additional collections over the life of the contract. At December 31, 2007 and December 31, 2006, our sold receivables portfolio was more seasoned than our owned receivables and therefore, had a higher level of extensions. We continue to monitor our extension strategy, and we believe that the judicious use of payment extensions is an effective portfolio management technique.

Charge-off data with respect to our finance receivables portfolio is summarized as follows:


	For the Years Ended December 31,
	2007			2006
	(Dollars in thousands)

Owned:
Repossession charge-offs	$	392,026		$	269,935
Less: Sale Proceeds and recoveries		(229,206	)		(160,422	)
Mandatory charge-offs(1)		146,672			83,000

Net charge-offs(2)	$	309,492		$	192,513

Sold:
Charge-offs	$	38,471		$	109,092
Less: Sale Proceeds and recoveries		(20,289	)		(55,213	)
Mandatory charge-offs(1)		—			—

Net charge-offs	$	18,182		$	53,879

Total Managed:
Repossession charge-offs	$	430,497		$	379,027
Less: Sale Proceeds and recoveries		(249,495	)		(215,635	)
Mandatory charge-offs(1)		146,672			83,000

Net charge-offs	$	327,674		$	246,392

Net charge-offs as a percentage of average total managed receivables outstanding		8.0	%		5.8	%
Sale proceeds and recoveries as a percentage of charge-offs		43.2	%		46.7	%


(1)		Mandatory charge-offs represent accounts charged-off in full with no recovery amounts realized at time of charge-off.

(2)		Net charge-offs for our owned portfolio include charge-offs from our finance receivables held for investment, our predecessor finance receivables held for investment and our finance receivables repurchased from gain on sale trusts.

Net charge-offs as a percentage of our average total managed finance receivables outstanding may vary from period to period based upon the credit quality of the portfolio, average age of the portfolio and economic factors. The increase in annualized net charge-offs as a percentage of average total managed finance receivables to 8.0% for the year ended December 31, 2007 as compared to 5.8% for the year ended December 31, 2006 was due to higher charge-offs and a decrease in recoveries as a percentage of charge-offs. The increase in charge-offs was due to an increase in the average age of our portfolio, higher than expected credit losses on receivables originated in 2006 and higher mandatory charge-offs. The increase in mandatory charge-offs was due to, among other things, an increase in the average days to repossess which resulted in a greater percentage of accounts reaching 120 days’ delinquency prior to the recovery of the collateral. The decrease in recoveries as a percentage of charge-offs was primarily due to a higher level of mandatory charge-offs.

Liquidity and Capital Resources

General

Our primary sources of cash are cash flows from operations, collections on our finance receivables, borrowings under our promissory note, and prior to June 2008, our warehouse and residual credit facilities. Our primary uses of cash are operating costs and expenses, funding credit enhancement requirements for securitization transactions, debt service requirements and prior to June 2008, purchases and originations of receivables.

On December 31, 2008, the Company’s parent, Triad Financial Holdings LLC, purchased 17.0 million of Series 1 preferred units of the Company for $17.0 million. The preferred units carry a coupon of 15% per annum, payable quarterly. The preferred units are pledged as collateral for notes issued by Triad Financial Holdings LLC and payable to Hunter’s Glen Ford, Ltd. and certain entities controlled by GTCR Golder Rauner II, L.L.C. The notes have a demand feature which is triggered when the principal value of the assets serviced by the Company, as defined, falls below $2 billion. On February 27, 2009, 10.0 million units of the Series 1 Preferred Units were redeemed at par; the remaining units were redeemed at par on March 17, 2009.

Net cash provided by operating activities was $221.4 million, $285.4 million, and $252.4 million in 2008, 2007 and 2006, respectively. Cash flows from operating activities are affected by net (loss) income as adjusted for non-cash items, including depreciation and amortization, provisions for credit losses, deferred income taxes, accretion of present value discount, amortization of purchase premiums, impairment charges and gains and losses. The $221.4 million of cash flows provided by operating activities for the year ended December 31, 2008 was primarily due to a net loss of $111.9 million as adjusted by $228.4 million of provision for credit losses, $90.3 million deferred tax expense and $30.4 million goodwill impairment. The $285.4 million of cash flows provided by operating activities for the year ended December 31, 2007 was primarily due to a net loss of $10.6 million as adjusted by $284.5 million of provision for credit losses. The $252.4 million of cash flows provided by operating activities for the year ended December 31, 2006 was primarily due to $13.7 million of net income as adjusted by $256.8 million of provision for credit losses.

Net cash provided by (used in) investing activities was $1,347.8 million, $(1.1) million, and $(1,485.5) million in 2008, 2007 and 2006, respectively. Cash flows from investing activities are highly dependent upon purchases of and collections on finance receivables held for investment. During the year ended December 31, 2008, net cash provided by investing activities included $1,101.4 million in collections on finance receivables held for investment and $615.3 million in sales of finance receivables, partially offset by $352.0 million related to purchases of finance receivables held for investment. During the year ended December 31, 2007, net cash used in investing activities included $1,479.1 million in collections on finance receivables held for investment, offset by $1,359.9 million related to purchases of finance receivables held for investment. During the year ended December 31, 2006, net cash used in investing activities included $1,289.1 million in collections on finance receivables held for investment, offset by $2,662.2 million related to purchases of finance receivables held for investment.

Net cash (used in) provided by financing activities was $(1,575.2) million, $(292.2) million, and $1,248.2 million in 2008, 2007 and 2006, respectively. Cash flows from financing activities reflect the net change in amounts required to be borrowed under our various revolving and term borrowing facilities. The $1,575.2 million of cash used in financing activities for the year ended December 31, 2008 was due to $1,184.6 million in payments on securitization notes, $334.4 million in net change in warehouse and residual credit facilities and $72.5 million in redemption of senior notes, partially offset by $17.0 million in proceeds from issuance of preferred units. The $292.2 million of cash used in financing activities for the year ended December 31, 2007 was due to $1,436.1 million in payments on securitization notes, $194.7 million in net change in warehouse and residual credit facilities and $30.0 million in redemption of preferred stock, partially offset by $1,373.4 million in proceeds from issuance of securitization notes. The $1,248.2 million of cash provided by financing activities for the year ended December 31, 2006 was due to $2,830.0 million in proceeds from issuance of securitization notes and $30.0 million in proceeds from issuance of preferred stock, partially offset by $1,144.0 million in payments on securitization notes and $406.7 million in net change in warehouse and residual credit facilities.

Borrowing Facilities

Prior to our decision to cease lending operations, we had two warehouse lending facilities and one residual facility. We used borrowings under our warehouse facility with Citigroup Global Markets Realty Corp., (or “CGMRC”) to fund our ongoing purchase and origination of contracts and loans. The residual facility, also extended by CGMRC, provided us with working capital. Special purpose subsidiaries were the borrowers under these facilities.

On January 10, 2008, we entered into a warehouse facility with Barclays Bank PLC. This facility provided up to $500.0 million of funding for automobile retail installment sales contract receivables originated or purchased by us. The facility had a two year commitment. The Company never utilized this warehouse facility, and it was terminated by mutual agreement in May 2008.

Following the sale of receivables to Santander on June 20, 2008, the Company satisfied its obligations under our warehouse and residual loan facilities with CGMRC. As a result of this, along with the termination of the warehouse facility with Barclays Bank PLC in May 2008, the Company has no remaining obligations to its warehouse lenders.

On June 17, 2008, the Company entered into a $40.0 million unsecured promissory note with Hunter’s Glen/Ford Ltd. and an additional $40.0 million unsecured promissory note with GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P. and GTCR Co-Invest II, L.P. These promissory notes accrue interest at 15% and the interest shall be payable quarterly, on the last day of each March, June, September and December while the notes are outstanding. Each promissory note is due and payable the earlier of (1) three years of the date of its issuance, and (2) fourteen days after receipt of demand for payment and the entering into of comparable facilities with the lenders. There have been no draws on this facility subsequent to June 20, 2008 and there were no amounts outstanding as of December 31, 2008.

It is anticipated that in early 2009, the $80.0 million unsecured promissory notes will be replaced by a secured credit facility between Hunter’s Glen/Ford Ltd. and certain entities controlled by GTCR Golder Rauner II, L.L.C., as lenders, and Triad Financial Residual Special Purpose LLC, as borrower. The credit facility will be secured by the residual interests in our securitization trusts.

We believe that our cash flows from operations combined with collections on our finance receivables and borrowings under our promissory notes and residual credit facility will be sufficient to fund our future liquidity needs.

Contractual and Long-Term Debt Obligations

The following table summarizes the scheduled payments under our contractual long-term debt obligations at December 31, 2008:


	Payments Due by Period
	Less than		1 to		3 to		More than
	1 Year		3 Years		5 Years		5 Years		Total
	(Dollars in thousands)

Operating leases	$	2,846	$	5,697	$	2,112	$	—	$	10,655
Securitization notes payable		779,344		925,797		305,748		—		2,010,889
Senior notes		—		—		60,350		—		60,350
Estimated interest payments on debt		87,384		87,492		20,105		—		194,981

Total	$	869,574	$	1,018,986	$	388,315	$	—	$	2,276,875

Securitizations

We completed seven auto receivables securitization transactions from May 2005 through December 31, 2008. In these transactions, we securitized approximately $10.9 billion of automobile receivables, issuing $9.9 billion of class A notes. The proceeds from the transactions were primarily used to repay borrowings outstanding under our warehouse facilities.

All of the Company’s securitization transactions are covered by financial guaranty insurance policies, which agreements provide that if certain portfolio performance ratios (delinquency or cumulative net loss triggers) in a Trust’s pool of receivables exceed certain targets, the specified credit enhancement levels will increase by increasing the required spread account level and the premiums paid to the guarantee insurance providers will increase as defined in the agreements. At December 31, 2008, the cumulative net loss ratio for the Company’s 2006-C securitization trust was in excess of one of its target ratios, a condition which has existed since the fourth quarter of 2007. As a result, the credit enhancement requirement to maintain cash reserves as a percentage of the portfolio has increased from 2% to 3%, which initially resulted in a delay in cash distributions to the Company. The Company reached this increased 3% enhancement requirement during the third quarter of 2008 and therefore, has begun receiving cash distributions once again. This requirement will remain at 3% until the trust is back in compliance with its target for three consecutive months. The cumulative net loss ratio for the Company’s 2006-B securitization trust had exceeded one of its target ratios, but that situation was cured during the third quarter of 2008, which allowed the credit enhancement requirement to be reduced to 2%.

Deterioration in the economy could cause one or more of the ratios to exceed the targeted levels, resulting in stress on our liquidity position. If that occurred, we could be required to implement other significant expense reductions, if securitization distributions to us are materially decreased for a prolonged period of time.

The past 18 months have seen sustained uncertainty in the global credit markets in general, and the asset-backed securitization markets in particular. The Company executed an insured securitization in November 2007, and was unable to complete another securitization prior to the cessation of all lending activity.

Off-Balance Sheet Arrangements

Prior to our May 2005 securitization transaction, we structured our securitization transactions to meet the criteria for sales of finance receivables. Under this structure, notes issued by our unconsolidated qualified special purpose finance subsidiaries are not recorded as a liability on our consolidated balance sheets. Beginning with the securitization completed in May 2005, our securitization transactions were being structured to meet the criteria for on-balance sheet reporting. Our last off-balance sheet securitizations transaction, the 2004-A trust, was closed in May 2008.

Recent Accounting Pronouncements

In the first quarter of 2008, we adopted SFAS No. 157, Fair Value Measurements, (“SFAS 157”) for all financial assets and financial liabilities and for all non-financial assets and non-financial liabilities recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS 157 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure. The adoption of SFAS 157 did not have a significant impact on our consolidated financial statements, and the resulting fair values calculated under SFAS 157 after adoption were not significantly different than the fair values that would have been calculated under previous guidance. See Note 14 — “Fair Value of Financial Instruments” for further details on our fair value measurements.

In October 2008, the Financial Accounting Standards Board (“FASB”) issued Financial Staff Position (“FSP”) 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active, and addresses application issues such as the use of internal assumptions when relevant observable data does not exist, the use of observable market information when the market is not active, and the use of market quotes when assessing the relevance of observable and unobservable data. FSP 157-3 is effective for all periods presented in accordance with SFAS 157. The adoption

of FSP 157-3 did not have a significant impact on our consolidated financial statements or the fair values of our financial assets and liabilities.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS 161), an amendment of FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), to expand disclosure requirements for an entity’s derivative and hedging activities. Under SFAS 161, entities are required to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. In order to meet these requirements, entities shall include qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008 with early adoption encouraged. The Company plans to adopt SFAS 161 on January 1, 2009, and there should be no impact on the consolidated financial statements as it only addresses disclosures.


ITEM 7A.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*

Interest Rate Risk

General

Following the termination of the Barclays warehouse facility and the satisfaction of our warehouse and residual facility with CGMRC, our sole remaining borrowing facility is the $80.0 million unsecured promissory note with our equity sponsors. The Company owed nothing with respect to this facility at December 31, 2008.

Securitizations

In our securitization transactions, we sold fixed rate contracts to Trusts that then issued either fixed rate or floating rate securities to investors. The fixed rates on securities issued by the Trusts were indexed to market interest rate swap spreads for transactions of similar duration and do not fluctuate during the term of the securitization. The floating rates on securities issued by the Trusts are indexed to LIBOR and fluctuate periodically based on movements in LIBOR. We have utilized derivative financial instruments, such as interest rate swap agreements, to convert variable rate exposures of the Trusts on these floating rate securities to fixed rates, thereby locking in the gross interest rate spread to be earned by the Trusts over the life of each securitization. Derivative financial instruments purchased by us do not impact the amount of cash flows to be received by holders of the asset-backed securities issued by the Trusts. These instruments serve to offset the impact of increased or decreased interest paid by the Trusts on floating rate asset-backed securities and, therefore, the cash flows to be received by us from the Trusts.

Interest Rate Swap Agreements

We periodically enter into interest rate swap agreements whereby we pay a fixed interest rate and receive a variable interest rate. For the forward-starting swap agreements, if interest rates increased above the starting-swap rate on the settlement date, the market value of the forward-starting swap was positive, and we received an amount from the counterparty equal to such market value. Likewise, if the market value was negative on the settlement date, we paid an amount to the counterparty equal to such market value. These agreements were intended to ensure the economics of future securitization transactions and minimize the risk of interest rate fluctuations on our gross interest rate margin prior to the execution of securitization transactions.

Interest Rate Sensitivity

The following tables provide information about our financial assets and liabilities, as well as our existing derivative financial instruments that are sensitive to changes in interest rates at December 31, 2008 and 2007. For contracts and liabilities with contractual maturities secured by contracts, the table presents principal cash flows and related weighted average interest rates by contractual maturities, as well as our historical experience of the impact of interest rate fluctuations on the credit loss and prepayment of contracts. For the forward-starting and the interest rate swap agreements, the table presents the notional amount and weighted average interest rate by contractual maturity date. The notional amount is used to calculate the contractual payment to be exchanged under the contract.

The following table provides information about our interest rate-sensitive financial instruments by expected maturity as of December 31, 2008.


	For the Year Ending December 31,
	2009			2010			2011			2012			2013			Thereafter			Total
	(Dollars in thousands)

Rate Sensitive Assets:
Finance receivables held for investment	$	674,974		$	498,509		$	375,027		$	238,229		$	78,391		$	319		$	1,865,449
Average interest rate		16.57	%		15.96	%		15.31	%		14.37	%		12.82	%		12.82	%		14.64	%
Predecessor finance receivables held for investment, net		137,179			96,964			14,266			—			—			—			248,409
Average interest rate		16.95	%		16.66	%		16.58	%		—			—			—			16.73	%
Finance receivables repurchased from gain on sale trusts, net		32,395			526			—			—			—			—			32,922
Average interest rate		16.49	%		16.93	%		—			—			—			—			16.71	%
Rate Sensitive Liabilities:
Securitization notes payable		779,330			556,199			369,611			227,029			78,719			—			2,010,889
Average interest rate		5.25	%		5.34	%		5.45	%		5.55	%		5.60	%		—			5.44	%
Senior notes		—			—			—			—			60,350			—			60,350
Average interest rate		—			—			—			—			11.25	%		—			11.25	%
Interest Rate Derivatives:
Interest rate swap agreements Notional amount		348,399			455,015			665,545			—			—			—			1,468,959
Average pay rate		4.58	%		4.84	%		4.95	%		—			—			—			4.82	%
Average receive rate		1.31	%		0.96	%		0.91	%		—			—			—			1.02	%

The following table provides information about our interest rate-sensitive financial instruments by expected maturity as of December 31, 2007.


	For the Year Ending December 31,
	2008			2009			2010			2011			2012			Thereafter			Total
	(Dollars in thousands)

Rate Sensitive Assets:
Finance receivables held for investment	$	1,199,677		$	882,239		$	561,094		$	327,851		$	127,206		$	25,969		$	3,124,036
Average interest rate		16.19	%		15.91	%		15.60	%		14.81	%		12.20	%		12.20	%		15.90	%
Predecessor finance receivables held for investment, net		280,319			165,537			29,440			—			—		$	—			475,296
Average interest rate		12.91	%		12.91	%		12.91	%		—			—			—			12.91	%
Finance receivables repurchased from gain on sale trusts, net		110,995			12,977			—			—			—			—			123,972
Average interest rate		12.50	%		12.50	%		—			—			—			—			12.50	%
Retained interest in securitized assets		10,916			—			—			—			—			—			10,916
Average interest rate		16.00	%		—			—			—			—			—			16.00	%
Rate Sensitive Liabilities:
Warehouse payable		280,390			—			—			—			—			—			280,390
Average interest rate		5.05	%		—			—			—			—			—			5.05	%
Residual financing		54,000			—			—			—			—			—			54,000
Average interest rate		7.10	%		—			—			—			—			—			7.10	%
Securitization notes payable		1,417,483			1,013,272			764,734			—			—			—			3,195,489
Average interest rate		5.11	%		5.33	%		5.49	%		—			—			—			5.27	%
Senior notes		—			—			—			—			—			149,256			149,256
Average interest rate		—			—			—			—			—			11.25	%		11.25	%
Interest Rate Derivatives:
Forward-starting swap agreements Notional amount		75,908			—			—			—			—			—			75,908
Average pay rate		4.38	%		—			—			—			—			—			4.38	%
Average receive rate		4.78	%		—			—			—			—			—			4.78	%
Interest rate swap agreements Notional amount		—			—			—			1,125,310			216,000			300,000			1,641,310
Average pay rate		—			—			—			4.65	%		4.65	%		4.65	%		4.65	%
Average receive rate		—			—			—			4.60	%		4.60	%		4.60	%		4.60	%


ITEM 8.	*FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA*

The following financial statements and report of independent registered public accounting firm are included herein:


Audited Consolidated Financial Statements:	Page

Report of Management on Internal Control Over Financial Reporting		50
Report of Independent Registered Public Accounting Firm		51
Consolidated Balance Sheets		52
Consolidated Statements of Operations		53
Consolidated Statements of Member’s/Stockholder’s Equity		54
Consolidated Statements of Cash Flows		55
Notes to Consolidated Financial Statements		56

Report of Management on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of the Company’s internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making its assessment of the effectiveness of the Company’s internal control over financial reporting, management of the Company has utilized the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on management’s assessment, we concluded that, as of December 31, 2008, the Company’s internal control over financial reporting is effective based on those criteria.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

/s/ Daniel D. Leonard

Daniel D. Leonard

President & Chief Executive Officer

Date: March 30, 2009

/s/ Jeffrey O. Butcher

Jeffrey O. Butcher

Vice President & Chief Financial Officer

Date: March 30, 2009

Report of Independent Registered Public Accounting Firm

To The Board of Directors and Member

of Triad Financial SM LLC:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, member’s/stockholder’s equity and cash flows present fairly, in all material respects, the financial position of Triad Financial SM LLC (formerly Triad Financial Corporation) and its subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Dallas, Texas

March 30, 2009

TRIAD FINANCIAL SM LLC

Consolidated Balance Sheets


	December 31,			December 31,
	2008			2007
	(Dollars in thousands)

ASSETS
Cash and cash equivalents	$	46,494		$	52,505
Cash — restricted		252,300			295,786
Finance receivables held for investment, net		1,988,339			3,514,979
Retained interest in securitized assets		—			10,916
Accounts receivable, net		28,332			46,965
Fixed assets, net of accumulated depreciation of $28,858 in 2008 and $23,235 in 2007		8,087			15,222
Collateral held for resale		14,083			29,383
Capitalized financing costs, net of accumulated amortization of $16,364 in 2008 and $13,369 in 2007		4,691			11,532
Deferred tax asset, net		—			89,028
Goodwill		—			30,446
Taxes receivable		46,240			8,054
Other assets		2,097			2,736

Total assets	$	2,390,663		$	4,107,552


LIABILITIES AND MEMBER’S/STOCKHOLDER’S EQUITY

LIABILITIES
Revolving credit facilities	$	—		$	334,390
Securitization notes payable		2,010,889			3,195,489
Senior notes payable		60,350			149,256
Taxes payable		—			—
Other liabilities		58,814			71,826

Total liabilities		2,130,053			3,750,961

Commitments and contingencies (Note 12)
Member’s/Stockholder’s Equity
Preferred units, no par value; authorized 20,000,000 units; issued and outstanding 17,000,000 units at December 31, 2008		17,000			—
Common units, authorized 1,000 units; issued and outstanding 1,000 units at December 31, 2008		—			—
Common stock, no par value; authorized 9,069 shares; issued and outstanding 9,069 shares at December 31, 2007		—			—
Additional paid in capital		345,788			345,000
(Accumulated deficit) retained earnings		(102,178	)		9,690
Accumulated other comprehensive income		—			1,901

Total member’s/stockholder’s equity		260,610			356,591

Total liabilities and member’s/stockholder’s equity	$	2,390,663		$	4,107,552

TRIAD FINANCIAL SM LLC

Consolidated Statements of Operations


	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2008			2007			2006
	(Dollars in thousands)

Financing and other interest income	$	461,092		$	629,898		$	577,340
Interest expense		168,984			218,668			202,929

Net interest margin		292,108			411,230			374,411
Provision for credit losses		228,380			284,457			256,762

Net interest margin after provision for credit losses		63,728			126,773			117,649
Servicing income		3,193			7,824			21,966
Gain on partial redemption of senior notes		14,558			—			—
Other income (expense)		911			(3,942	)		21,602

Total other revenues		18,662			3,882			43,568

Operating expenses
Compensation and employee benefits		75,567			87,318			78,685
Occupancy and equipment		18,637			16,231			15,501
System and data processing		9,938			13,235			14,570
Professional services		8,929			6,887			7,632
Advertising		3,743			3,997			1,627
Telecommunications		2,881			3,649			3,315
Impairment of goodwill		30,446			—			—
Other		10,050			15,436			17,275

Total operating expenses		160,191			146,753			138,605

(Loss) income before income taxes		(77,801	)		(16,098	)		22,612
(Provision) benefit for income taxes		(34,067	)		5,520			(8,945	)

Net (loss) income	$	(111,868	)	$	(10,578	)	$	13,667

TRIAD FINANCIAL SM LLC

Consolidated Statements of Member’s/Stockholder’s Equity


								Retained			Accumulated
						Additional		Earnings			Other
	Preferred			Common		Paid-In		(Accumulated			Comprehensive
	Stock			Stock/Units		Capital		Deficit)			Income			Total
	(Dollars in thousands)

Balance, December 31, 2005	$	—		$	—	$	345,000	$	9,983		$	1,849		$	356,832
Issuance of preferred stock		30,000			—		—		—			—			30,000
Preferred stock dividends declared		—			—		—		(1,575	)		—			(1,575	)
Comprehensive income
Net income		—			—		—		13,667			—			13,667
Net unrealized gain on retained interest in securitized assets (net of tax of $4,724)		—			—		—		—			7,235			7,235

Total comprehensive income, net of tax		—			—		—		13,667			7,235			20,902

Balance, December 31, 2006	$	30,000		$	—	$	345,000	$	22,075		$	9,084		$	406,159
Redemption of preferred stock		(30,000	)		—		—		—			—			(30,000	)
Preferred stock dividends declared		—			—		—		(788	)		—			(788	)
Common stock dividends declared		—			—		—		(1,019	)		—			(1,019	)
Comprehensive income (loss)
Net loss		—			—		—		(10,578	)		—			(10,578	)
Net unrealized loss on retained interest in securitized assets (net of tax of $4,691)		—			—		—		—			(7,183	)		(7,183	)

Total comprehensive loss, net of tax		—			—		—		(10,578	)		(7,183	)		(17,761	)

Balance, December 31, 2007	$	—		$	—	$	345,000	$	9,690		$	1,901		$	356,591

Issuance of preferred units		17,000			—		—		—			—			17,000
Capital contributed by parent		—			—		788		—			—			788
Comprehensive income (loss)
Net loss		—			—		—		(111,868	)		—			(111,868	)
Net unrealized loss on retained interest in securitized assets (net of tax of $1,240)		—			—		—		—			(1,901	)		(1,901	)

Total comprehensive loss, net of tax		—			—		—		(111,868	)		(1,901	)		(113,769	)

Balance, December 31, 2008	$	17,000		$	—	$	345,788	$	(102,178	)	$	—		$	260,610

TRIAD FINANCIAL SM LLC

Consolidated Statements of Cash Flows


	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2008			2007			2006
	(Dollars in thousands)

Cash flows from operating activities
Net (loss) income	$	(111,868	)	$	(10,578	)	$	13,667
Adjustments to reconcile net (loss) income to net cash provided by activities:
Depreciation and amortization		19,646			27,425			20,624
Provision for credit losses		228,380			284,457			256,762
Deferred income tax expense (benefit)		90,268			(20,606	)		(55,379	)
Impairment of goodwill		30,446			—			—
Accretion of present value discount		(4,410	)		(22,593	)		(24,803	)
Amortization of purchase premium		12,785			29,379			56,378
Loss on repurchase of receivables from gain on sale trusts		3,040			7,016			—
Loss on write-down of fixed assets		3,375			1,014			—
Gain on partial redemption of senior notes payable		(14,558	)		—			—
Loss on sale of receivables		762			—			—
Changes in operating assets and liabilities
Accounts receivable		13,372			3,953			(19,480	)
Other assets		639			(926	)		563
Other liabilities		(12,254	)		(1,589	)		7,481
Current tax receivable/payable		(38,186	)		(11,553	)		(3,424	)

Net cash provided by operating activities		221,437			285,399			252,389

Cash flows from investing activities
Distributions from gain on sale trusts		28,031			111,972			150,331
Payments to Ford Motor Credit		(15,665	)		(9,801	)		—
Repurchases from gain on sale trusts		(69,746	)		(195,569	)		(131,005	)
Purchases of finance receivables held for investment		(352,017	)		(1,359,842	)		(2,662,201	)
Collections on finance receivables held for investment		1,101,395			1,479,097			1,289,143
Sale of finance receivables		615,263			—			—
Change in restricted cash		43,486			(21,727	)		(120,828	)
Purchases of fixed assets		(2,969	)		(5,213	)		(10,921	)

Net cash provided by (used in) investing activities		1,347,778			(1,083	)		(1,485,481	)

Cash flows from financing activities
Net change in warehouse credit facilities		(280,390	)		(153,741	)		(396,717	)
Net change in residual credit facilities		(54,000	)		(41,000	)		(10,000	)
Net change in due to Ford Motor Credit Company		—			—			(52,323	)
Issuance of securitization notes		—			1,373,410			2,829,995
Payment on securitization notes		(1,184,600	)		(1,436,136	)		(1,144,048	)
Partial redemption of senior notes payable		(72,472	)		—			—
Capitalized finance costs		(764	)		(4,711	)		(8,743	)
Issuance of preferred units/stock		17,000			—			30,000
Redemption of preferred stock		—			(30,000	)		—

Net cash (used in) provided by financing activities		(1,575,226	)		(292,178	)		1,248,164

Net (decrease) increase in cash		(6,011	)		(7,862	)		15,072

Cash
Beginning of period		52,505			60,367			45,295

End of period	$	46,494		$	52,505		$	60,367

Non-cash activity
Preferred stock dividends declared	$	—		$	788		$	1,575

Common stock dividends declared	$	—		$	1,019		$	—

Supplemental Disclosure
Interest paid	$	174,713		$	219,482		$	199,217

Income taxes (received) paid	$	(19,267	)	$	26,855		$	69,078

Triad Financial SM LLC

Notes to Consolidated Financial Statements


1.	Organization and Nature of Business

On December 29, 2008, pursuant to an Agreement and Plan of Merger by and between Triad Financial Corporation and the Company, Triad Financial Corporation merged with and into the Company, with the Company being the entity surviving from that merger. In accordance with Statement of Financial Accounting Standards, or “SFAS”, No. 141, “Business Combinations”, the assets and liabilities of Triad Financial Corporation were transferred to the Company at their historical carrying values on the date of transfer. In connection with the merger, Triad Financial SM Inc., a newly formed Delaware corporation and wholly-owned subsidiary of Triad Financial SM LLC, became a co-issuer under the indenture for our 11.125% Senior Notes, due May 1, 2013. References to the Company in this document shall mean Triad Financial SM LLC and its predecessor by merger, Triad Financial Corporation.

On June 20, 2008, the Company agreed to sell its direct lending business, RoadLoans, to Santander Consumer USA Inc. (“Santander”). The sale was consummated on October 7, 2008. Also on June 20, 2008, the Company completed a whole loan sale of approximately $632 million of contracts and loans to Santander, effective June 1, 2008. The Company incurred $3.7 million of expense during the year ended December 31, 2008 related to the sale of the direct channel comprised primarily of severance and the write-down of certain fixed assets.

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”).

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

Acquisition, Triad Acquisition Corp. was merged with and into Triad Financial Corporation, with Triad Financial Corporation being the surviving corporation.

As of the acquisition date, we recorded our assets and liabilities at their estimated fair values. The purchase price paid by Triad Holdings Inc. plus acquisition and closing costs, exceeded the fair value of net assets acquired, resulting in approximately $30.4 million of goodwill. This goodwill was deemed to be impaired and written off in the second quarter of 2008.


2.	Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, all of which are Delaware companies, Triad Financial SM Inc., Triad Financial Special Purpose LLC, Triad Financial Residual Special Purpose LLC, and Triad Financial Warehouse Special Purpose LLC (the “Subsidiaries”). Triad Financial Warehouse Special Purpose LLC includes its wholly-owned subsidiary, Triad Automobile Receivables Warehouse Trust, a Delaware trust.

Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

Cash Equivalents

Investments in highly liquid securities with original maturities of 90 days or less are included in cash and cash equivalents.

Restricted Cash

Cash pledged to support securitization transactions is deposited into restricted accounts and recorded on the Company’s consolidated balance sheets as restricted cash.

Finance Receivables

Finance receivables are classified as held for investment and carried at amortized cost, net of an allowance for credit losses, as the Company has the ability and intent to hold these receivables until maturity. Financing income for finance receivables originated and purchased subsequent to the Acquisition is recognized using the interest method based on contractual cash flows. Premiums and discounts and origination costs are deferred and amortized as adjustments to financing income over the estimated life of the related receivables.

In connection with the Acquisition, the carrying value of our predecessor finance receivables held for investment owned as of the Acquisition was adjusted to fair market value taking into account future expected credit losses and a required rate of return commensurate with the associated risk. The carrying value of our finance receivables repurchased from gain on sale trusts was recorded at fair market value upon repurchase, taking into account future expected credit losses and a required rate of return commensurate with the associated risk. Financing income on these receivables includes interest income recognized using the interest method based on contractual cash flows and taking into account expected prepayments and is net of premium amortization.

The accrual of financing income is suspended on accounts when they are deemed impaired. Accounts are generally deemed impaired when they are 30 days past due. We generally recognize interest income on impaired contracts on a cash basis when received.

Sale of Receivables

All securitization transactions executed by the Company subsequent to April 29, 2005 have been accounted for as secured financings in accordance with accounting principles generally accepted in the United States of America

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

(“GAAP”). These transaction structures allow the trust to enter into interest rate derivative contracts with respect to retained interests and also allow the servicer the discretion to sell charged-off finance receivable contracts. No charged-off receivables were sold subsequent to April 29, 2005.

Prior to April 30, 2005, finance receivables were sold in securitization transactions that were accounted for as sales of finance receivables in accordance with GAAP. These transaction structures involved the Company surrendering control over these assets by selling finance receivables to off-balance sheet securitization entities. The securitization entities issued interest-bearing securities collateralized by future collections on the sold receivables. The Company exercised the clean-up call on the last of its off-balance sheet securitizations in May 2008.

The Company retained certain interests in the sold receivables. These retained interests were classified as securities available for sale and were reported at fair value. If there was a decline in fair value and it was judged to be other than temporary, the individual security was written down to fair value and the amount of the write-down was included in earnings. If there was a change in fair value and it was judged to be temporary, the securities were recorded at fair value with unrealized gains and losses recorded, net of tax, as a separate component of accumulated other comprehensive income in member’s / stockholder’s equity. In securitization transactions accounted for as a sale of receivables, the Company retained the servicing rights and received a servicing fee.

On June 20, 2008, the Company completed a whole loan sale of approximately $632 million of contracts and loans to Santander, effective June 1, 2008. The sale was made subject to customary representations and warranties, concerning, among other things, the enforceability of the finance receivables included in the sale. The Company continued to service these finance receivables through August 2, 2008 in return for a servicing fee paid by Santander. Since the servicing fee adequately compensated us for retaining the servicing rights, no servicing asset or liability was recorded and the fee was recognized as collected over the remaining term of the related sold finance receivables.

Allowance for Credit Losses

The allowance for credit losses is determined based on projected losses for the next twelve months and represents our estimate of incurred credit losses related to held for investment receivables as of the date of the financial statements. This allowance is based on such factors as the credit quality of the portfolio, historical credit loss trends, trends in projected used car values and general economic factors. Finance receivables are charged off to the allowance for credit losses when an account is deemed to be uncollectible. This charge takes into account the estimated value of any collateral. Recoveries on finance receivables previously charged off as uncollectible are credited to the allowance for credit losses.

Charge-offs on predecessor finance receivables held for investment and finance receivables repurchased from gain on sale trusts are charged against the Company’s probable future expected credit losses established as a component of the asset’s net carrying value.

Charge-Off Policy

Our policy is to charge-off receivables in the month in which the borrowers become 120 days contractually delinquent if we have not previously repossessed the related vehicle. If a vehicle has been repossessed, and the underlying contract is an owned receivable, we charge off the underlying receivable upon repossession, taking into account the estimated value of our collateral, with a reconciliation upon liquidation. The net charge-off represents the difference between the actual net sales proceeds and the amount of the delinquent contract, including accrued interest. Accrual of finance charge income is suspended on accounts that are more than 30 days contractually delinquent.

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

Derivative Financial Instruments

In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, our interest rate swap agreements outstanding are recognized on our consolidated balance sheet at fair value with changes in the value recorded in earnings as a component of other income (expense). Fair value is calculated using observable inputs including interest rate and notional amounts. These calculations are compared to current market values for similar instruments with the same remaining maturities.

Fair Value Disclosures

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”) which provides enhanced guidance for using fair value to measure assets and liabilities. The adoption of SFAS 157 for financial assets and liabilities did not have a material impact on the consolidated financial statements.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

SFAS 157 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, SFAS 157 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:


	•	Level 1 Inputs — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

	•	Level 2 Inputs — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

	•	Level 3 Inputs — Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

The Company’s derivative financial instruments are reported at fair value based on Level 2 Inputs. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2008, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	Fair Value Measurement at December 31, 2008
	Level 1		Level 2			Level 3		Total Fair
	Inputs		Inputs			Inputs		Value
	(Dollars in thousands)

Assets (Liabilities):
Derivative financial instruments	$	—	$	(23,745	)	$	—	$	(23,745	)

In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities including an amendment of FASB Statement No. 115” (“SFAS 159”) which provides companies with an option to report selected financial assets and liabilities at fair value. The standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. The Company has elected not to report any assets or liabilities at fair value in accordance with SFAS 159.

Fixed Assets

Fixed assets are carried at cost less accumulated depreciation. Depreciation is calculated principally on the straight-line method over their remaining useful lives of the assets as follows:


Equipment			3-5 years
Software			3-5 years
Furniture and fixtures			5 years

Depreciation expense totaled $6.7 million, $9.3 million and $8.4 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Leasehold improvements are stated at cost and depreciated over the useful lives of the improvements or term of the lease, whichever is less. Upon sale or retirement, the cost of assets and related accumulated depreciation is eliminated from the respective accounts, and the resulting gain or loss is included in operations. Repairs and maintenance expenses are charged to operations as incurred.

In connection with the shutdown of its dealer originations channel and the sale of its direct originations channel discussed in Note 1, the Company wrote down certain fixed assets with a net book value of approximately $3.4 million during the year ended December 31, 2008.

Goodwill

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, the Company reviews its goodwill for impairment annually and when events or changes in circumstances indicate the carrying amount may not be recoverable. Management evaluates the recoverability of goodwill by comparing the carrying value of the Company’s only reporting unit to its fair value.

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

As a result of the shutdown of its dealer originations channel and the sale of its direct originations channel discussed in Note 1, the Company determined that there was an impairment of goodwill and recorded a $30.4 million pre-tax charge to operations during the year ended December 31, 2008.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”, resulting in two components of income tax expense; current and deferred. Current income tax expense approximates taxes to be paid or refunded for the current period. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years which those temporary differences are expected to be recovered or settled.

Effective January 1, 2007, the Company accounts for uncertainty in income taxes recognized in the financial statements in accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 requires that a more likely than not threshold be met before the benefit of a tax position may be recognized in the financial statements and prescribes how such benefit should be measured. It also provides guidance on de-recognition, measurement, classification, interest and penalties, interim accounting periods, disclosure and transition. FIN 48 required that the standard be applied to the balances of the assets and liabilities as of the beginning of the period of adoption and that any corresponding adjustment be made to the opening balance of retained earnings. Upon adoption of FIN 48, the Company identified certain tax positions for which deductibility is highly certain, but for which there is uncertainty as to the timing of such deductibility. As a result, the Company reclassified approximately $3.4 million of tax benefit from its deferred tax liability to its FIN 48 current tax liability as of January 1, 2007.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with SFAS No. 123(R), “Share-Based Payment”, revised 2004, (“SFAS 123R”) for all awards granted, modified or settled after June 30, 2005. SFAS 123R requires that the cost resulting from all share-based payment transactions be measured at fair value and recognized in the financial statements.

Use of Estimates

The preparation of the financial statements, in conformity with generally accepted accounting principles, requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from those estimates.

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)


3.	Finance Receivables

Finance receivables at December 31, 2008 and 2007 are summarized as follows:


	2008			2007
	(Dollars in thousands)

Finance receivables held for investment	$	1,865,449		$	3,124,036
Premiums and discounts, net		(2,271	)		(3,592	)
Deferred costs, net		15,292			25,767

Finance receivables held for investment, gross		1,878,470			3,146,211
Allowance for credit losses		(171,462	)		(230,500	)

Finance receivables held for investment, net		1,707,008			2,915,711

Predecessor finance receivables held for investment, net		248,409			475,296
Finance receivables repurchased from gain on sale trusts, net		32,922			123,972

Finance receivables, net	$	1,988,339		$	3,514,979

On June 20, 2008, the Company completed a whole loan sale of approximately $632 million of contracts and loans to Santander, effective June 1, 2008. The Company continued to service these finance receivables through August 2, 2008 in return for a servicing fee paid by Santander. The Company recognized a $0.8 million loss on the sale of these finance receivables during the year ended December 31, 2008.

The aggregate unpaid principal balances of finance receivables more than 60 days past due were $98.6 million at December 31, 2008 and $156.0 million at December 31, 2007.

The activity in the predecessor finance receivables held for investment for the years ended December 31, 2008, 2007 and 2006 is summarized as follows:


	Contractual			Nonaccretable			Expected			Accretable			Carrying
	Payments			Discount			Payments			Discount			Value
	(Dollars in thousands)

Balance, December 31, 2007	$	639,854		$	(105,391	)	$	534,463		$	(59,167	)	$	475,296
Interest income		(60,893	)		—			(60,893	)		45,703			(15,190	)
Sale of finance receivables		(375	)		48			(327	)		(16	)		(343	)
Principal collections		(211,354	)		—			(211,354	)		—			(211,354	)
Charge-offs, net of sales proceeds and recoveries		(35,511	)		35,511			—			—			—
Reclassifications		—			21,693			21,693			(21,693	)		—
Change in cash flows		(17,409	)		17,409			—			—			—

Balance, December 31, 2008	$	314,312		$	(30,730	)	$	283,582		$	(35,173	)	$	248,409


	Contractual			Nonaccretable			Expected			Accretable			Carrying
	Payments			Discount			Payments			Discount			Value
	(Dollars in thousands)

Balance, December 31, 2006	$	1,246,836		$	(253,238	)	$	993,598		$	(144,352	)	$	849,246
Interest income		(111,258	)		—			(111,258	)		85,202			(26,056	)
Principal collections		(347,894	)		—			(347,894	)		—			(347,894	)
Charge-offs, net of sales proceeds and recoveries		(55,292	)		55,292			—			—			—
Reclassifications		—			17			17			(17	)		—
Change in cash flows		(92,538	)		92,538			—			—			—

Balance, December 31, 2007	$	639,854		$	(105,391	)	$	534,463		$	(59,167	)	$	475,296

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)


	Contractual			Nonaccretable			Expected			Accretable			Carrying
	Payments			Discount			Payments			Discount			Value
	(Dollars in thousands)

Balance, December 31, 2005	$	2,220,192		$	(524,710	)	$	1,695,482		$	(227,072	)	$	1,468,410
Interest income		(193,929	)		—			(193,929	)		140,836			(53,093	)
Principal collections		(566,071	)		—			(566,071	)		—			(566,071	)
Charge-offs, net of sales proceeds and recoveries		(74,005	)		74,005			—			—			—
Reclassifications		—			58,116			58,116			(58,116	)		—
Change in cash flows		(139,351	)		139,351			—			—			—

Balance, December 31, 2006	$	1,246,836		$	(253,238	)	$	993,598		$	(144,352	)	$	849,246

The activity in the finance receivables repurchased from gain on sale trusts for the years ended December 31, 2008, 2007 and 2006 is summarized as follows:


	Contractual			Nonaccretable			Expected			Accretable			Carrying
	Payments			Discount			Payments			Discount			Value
	(Dollars in thousands)

Balance, December 31, 2007	$	145,125		$	(12,852	)	$	132,273		$	(8,301	)	$	123,972
Finance receivables repurchased		80,191			(7,471	)		72,720			(5,564	)		67,156
Interest income		(13,106	)		—			(13,106	)		15,511			2,405
Sale of finance receivables		(66,005	)		6,578			(59,427	)		4,525			(54,902	)
Principal collections		(105,709	)		—			(105,709	)		—			(105,709	)
Charge-offs		(2,600	)		2,600			—			—			—
Reclassifications		—			9,305			9,305			(9,305	)		—
Change in cash flows		54			(54	)		—			—			—

Balance, December 31, 2008	$	37,950		$	(1,894	)	$	36,056		$	(3,134	)	$	32,922


	Contractual			Nonaccretable			Expected			Accretable			Carrying
	Payments			Discount			Payments			Discount			Value
	(Dollars in thousands)

Balance, December 31, 2006	$	70,453		$	(4,137	)	$	66,316		$	(3,657	)	$	62,659
Finance receivables repurchased		216,159			(17,862	)		198,297			(12,631	)		185,666
Interest income		(17,563	)		—			(17,563	)		14,239			(3,324	)
Principal collections		(121,029	)		—			(121,029	)		—			(121,029	)
Charge-offs		(5,243	)		5,243			—			—			—
Reclassifications		—			6,252			6,252			(6,252	)		—
Change in cash flows		2,348			(2,348	)		—			—			—

Balance, December 31, 2007	$	145,125		$	(12,852	)	$	132,273		$	(8,301	)	$	123,972

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)


	Contractual			Nonaccretable			Expected			Accretable			Carrying
	Payments			Discount			Payments			Discount			Value
	(Dollars in thousands)

Balance, December 31, 2005	$	—		$	—		$	—		$	—		$	—
Finance receivables repurchased		145,203			(12,018	)		133,185			(7,662	)		125,523
Interest income		(9,810	)		—			(9,810	)		6,525			(3,285	)
Principal collections		(59,579	)		—			(59,579	)		—			(59,579	)
Charge-offs		(5,486	)		5,486			—			—			—
Reclassifications		—			2,520			2,520			(2,520	)		—
Change in cash flows		125			(125	)		—			—			—

Balance, December 31, 2006	$	70,453		$	(4,137	)	$	66,316		$	(3,657	)	$	62,659

During 2008, 2007 and 2006 expected cash flows from predecessor finance receivables held for investment and receivables repurchased from gain on sale trusts were reevaluated and determined to be greater than originally expected. This resulted in a reclassification of cash flows from non-accretable discount to accretable discount. This also resulted in a higher net yield being recognized on these receivables.


4.	Allowance for Credit Losses

The changes in the allowance for credit losses for the years indicated are summarized as follows:


	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2008			2007			2006
	(Dollars in thousands)

Balance, beginning of year	$	230,500		$	195,000		$	51,259
Provision for credit losses		228,380			284,457			256,762
Sold receivables		(22,504	)		—			—
Charge-offs		(300,176	)		(274,553	)		(118,089	)
Recoveries		35,262			25,596			5,068

Balance, end of year	$	171,462		$	230,500		$	195,000

The allowance for credit losses is maintained at a level adequate to cover incurred credit losses related to receivables originated subsequent to April 29, 2005 and classified as held for investment as of the date of the financial statements, taking into account the credit quality of the portfolio, historical credit loss trends, trends in projected used car values and general economic factors.


5.	Sales of Receivables

Servicing Portfolio

The Company retains servicing rights for receivables sold in securitization transactions meeting the criteria for sales of receivables. The activity in the servicing portfolio for the years indicated is summarized as follows:


	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2008			2007			2006
	(Dollars in thousands)

Balance, beginning of year	$	94,097		$	484,818		$	1,130,352
Called receivables		(69,746	)		(195,569	)		(131,005	)
Collections and charge-offs		(24,351	)		(195,152	)		(514,529	)

Balance, end of year	$	—		$	94,097		$	484,818

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

The aggregate unpaid principal balances of sold finance receivables more than 60 days past due were $5.2 million at December 31, 2007. Credit losses, net of recoveries, totaled $2.9 million, $18.2 million and $53.9 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Accrued servicing fees due from the securitization trusts are included in accounts receivable in our consolidated balance sheets. The amount of accounts receivable representing receivables from securitization trusts totaled $5.8 million at December 31, 2008 and $8.6 million at December 31, 2007.

Retained Interest in Securitized Assets

The components of the retained interest in securitized assets, carried at fair value, at December 31, 2008 and 2007 are summarized as follows:


	2008		2007
	(Dollars in thousands)

Restricted cash held for the benefit of securitizations	$	—	$	14,731
Over-collaterization receivable		—		12,233
Interest-only		—		(447	)

Retained interest in securitized assets, gross		—		26,517
Payable to Ford Credit		—		(15,601	)

Retained interest in securitized assets, net	$	—	$	10,916

The Company exercised the clean-up call on the last of its off-balance sheet securitizations in May 2008. The Company’s retained interests in securitization transactions included the value associated with future cash flows generated from over-collateralization and any excess spread amounts. Over-collateralization receivable represented the difference between securitized receivables outstanding and notes outstanding. Retained interests in securitized assets were recorded at fair value. The fair value of retained interests was determined based on calculating the present value of the projected cash flows to be received using management’s best estimates of key assumptions, including discount rate, prepayment rate and credit losses.

Retained interests in securitized assets were net of an estimated amount owed to Ford Credit pursuant to a contractual agreement entered into with Ford Credit at the closing of the Acquisition. We made payments to Ford Credit totaling $14.5 million during the year ended December 31, 2008 pursuant to the agreement. The Company transferred a remaining $1.2 million payable to Ford Credit, representing potential additional payments to Ford Credit, to other liabilities during the year ended December 31, 2008.

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

The activity in the retained interest in securitized assets for the years ended December 31, 2008, 2007 and 2006 is summarized as follows:


																Retained
										Retained Interest						Interest in
	Restricted			Over-			Interest-			in Securitized			Payable to			Securitized
	Cash			Collateralization			Only			Assets, Gross			Ford Credit			Assets, Net
	(Dollars in thousands)

Balance, December 31, 2005	$	80,298		$	150,283		$	(7,555	)	$	223,026		$	(6,074	)	$	216,952
Distributions		(22,547	)		(87,257	)		(41,456	)		(151,260	)		—			(151,260	)
Residual interest income		—			—			26,696			26,696			(1,893	)		24,803
Realized losses		—			—			152			152			(76	)		76
Unrealized gains (losses)		—			—			24,420			24,420			(12,460	)		11,960

Balance, December 31, 2006	$	57,751		$	63,026		$	2,257		$	123,034		$	(20,503	)	$	102,531

Distributions		(43,020	)		(50,793	)		(18,159	)		(111,972	)		—			(111,972	)
Residual interest income		—			—			25,374			25,374			(2,781	)		22,593
Realized gain (losses)		—			—			(325	)		(325	)		164			(161	)
Unrealized gains (losses)		—			—			(9,594	)		(9,594	)		(2,282	)		(11,876	)
Payments to Ford Credit		—			—			—			—			9,801			9,801

Balance, December 31, 2007	$	14,731		$	12,233		$	(447	)	$	26,517		$	(15,601	)	$	10,916

Distributions		(14,731	)		(12,233	)		(1,068	)		(28,032	)		—			(28,032	)
Residual interest income		—			—			4,410			4,410			—			4,410
Realized gain (losses)		—			—			363			363			(182	)		181
Unrealized gains (losses)		—			—			(3,258	)		(3,258	)		118			(3,140	)
Transfer to other liabilities														1,154			1,154
Payments to Ford Credit		—			—			—			—			14,511			14,511

Balance, December 31, 2008	$	—		$	—		$	—		$	—		$	—		$	—


6.	Revolving Credit Facilities

Amounts outstanding under our warehouse and residual loan facilities at December 31, 2008 and 2007 are summarized as follows:


	2008		2007
	(Dollars in thousands)

Warehouse loan facilities	$	—	$	280,390
Residual loan facilities		—		54,000

Total revolving credit facilities	$	—	$	334,390

There were no advances outstanding under our warehouse and residual loan facilities at December 31, 2008. Our warehouse facility with Citigroup Global Markets Realty Corp. (“CGMRC”) previously provided up to $750 million of funding for automobile retail installment sales contract receivables originated or purchased by the Company that met certain eligibility requirements. Our residual facility previously provided up to $125 million of funding for general corporate purposes.

On January 10, 2008, we entered into a warehouse facility with Barclays Bank PLC. This facility provided up to $500 million of funding for automobile retail installment sales contract receivables originated or purchased by us.

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

The facility had a two year commitment but would expire after 364 days if the liquidity facility was not renewed. On May 30, 2008, the Company and certain of its subsidiaries terminated its warehouse facility with Barclays Bank PLC. In connection with the termination of this facility, the Company wrote-off $0.4 million of unamortized capitalized finance costs during the year ended December 31, 2008.

Following the sale of receivables to Santander on June 20, 2008, the Company satisfied its obligations under our warehouse and residual loan facilities with CGMRC and terminated the facilities. As a result of this, along with the termination of the warehouse facility with Barclays Bank PLC in May 2008, the Company has no remaining obligations to its warehouse lenders.

Interest expense for the years ended December 31, 2007 and 2006 includes $14.4 million and $17.7 million, respectively, of expense incurred to Goldman Sachs Mortgage Company.

On May 11, 2008, the Company entered into a $49.5 million unsecured promissory note with Hunter’s Glen/Ford Ltd. to provide interim funding while the negotiations with CGMRC were continuing. This promissory note accrued interest at 20% and was payable quarterly, on the last day of each March, June, September and December while the note was outstanding. The promissory note was due and payable the earlier of one year of its issuance and fourteen days after receipt of demand for payment. On May 28, 2008, GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P. and GTCR Co-Invest II, L.P., entities controlled by GTCR Golder Rauner II, L.L.C., agreed to assume 50% of the funding obligation under the $49.5 million unsecured promissory note. Hunter’s Glen/Ford Ltd. and these entities controlled by GTCR Golder Rauner II, L.L.C. are indirect equity owners of the Company.

On June 17, 2008, the Company entered into a $40.0 million unsecured promissory note with Hunter’s Glen/Ford Ltd. and an additional $40.0 million unsecured promissory note with GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P. and GTCR Co-Invest II, L.P., to provide funding. These promissory notes will accrue interest at 15% and the interest shall be payable quarterly, on the last day of each March, June, September and December while the notes are outstanding. Each promissory note is due and payable the earlier of (1) three years of the date of its issuance, and (2) fourteen days after receipt of demand for payment and the entering into of comparable facilities with the lenders. These combined $80.0 million notes replaced the previous $49.5 million unsecured demand promissory note. The amounts outstanding under the $49.5 million promissory note were paid in full and there have been no additional draws on this facility subsequent to June 20, 2008.

The lenders under the new $80.0 million promissory notes were also issued Class B Preferred Units in Triad Holdings, LLC (“Triad LLC”), the prior indirect parent of the Company and predecessor to Triad Financial Holdings LLC. Triad LLC’s limited liability company agreement was amended to allow for the issuance of these units and also for an increase in the number of board of manager members at Triad LLC. Upon any liquidation or other distribution by Triad LLC and its successor, Triad Financial Holdings LLC, the holders of the Class B Preferred Units will be entitled to a first priority liquidation preference equal to $130 million, less the aggregate amount of either cash or payment in kind interest paid to the lenders. In addition, the Stockholders Agreement, dated April 29, 2005, among Triad Holdings Inc., Triad LLC and other parties thereto also was amended to reflect an increase in the number of board of director members at Triad Holdings Inc. and the Company.

It is anticipated that in early 2009, the $80.0 million unsecured promissory notes will be replaced by a secured credit facility between Hunter’s Glen/Ford Ltd. and GTCR Golder Rauner II, L.L.C., as lenders, and Triad Financial Residual Special Purpose LLC, as borrower. The credit facility will be secured by the residual interests in our securitization trusts.

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)


7.	Securitization Notes Payable

Securitization notes payable represent debt issued by the Company in securitization transactions accounted for as secured financings. Securitization notes payable outstanding at December 31, 2008 are summarized as follows:


			Original
			Weighted			Collateral		Note
	Original		Average			Pledged at		Balance at
	Note		Interest			December 31,		December 31,
Transaction	Amount		Rate			2008		2008
	(Dollars in thousands)

2005-A, due June 12, 2012(a)	$	1,104,000		4.09	%	$	167,836	$	158,799
2005-B, due April 12, 2013(a)	$	905,303		4.32	%	$	160,890	$	151,991
2006-A, due April 12, 2013(a)	$	822,500		4.88	%	$	228,721	$	213,888
2006-B, due November 12, 2012(a)	$	915,500		5.50	%	$	308,076	$	293,277
2006-C, due May 13, 2013(a)	$	1,092,200		5.37	%	$	443,039	$	406,362
2007-A, due February 12, 2014(a)	$	775,110		5.34	%	$	429,722	$	388,430
2007-B, due July 14, 2014(a)	$	598,330		5.70	%	$	446,276	$	398,142

						$	2,184,560	$	2,010,889


(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.

Under the terms of our securitization transactions, the Company transfers finance receivables to special purpose finance subsidiaries of the Company. While these subsidiaries are included in the Company’s consolidated financial statements, these subsidiaries are separate legal entities and the collateral and other assets held by these subsidiaries are legally owned by these subsidiaries and are not available to creditors of the Company or its other subsidiaries.

Capitalized financing costs with an unamortized balance of $3.3 million at December 31, 2008 are being amortized over the expected term of the securitization transactions. Capitalized financing costs include $0.6 million in remaining unamortized underwriting fees paid to Goldman, Sachs & Co., an affiliate of one of our equity investors.

Agreements with the Company’s guarantee insurance providers contain additional specified targeted portfolio performance ratios. If, at any measurement date, the targeted portfolio performance ratios with respect to any insured Trust were to exceed these additional levels, provisions of the agreements permit the Company’s guaranty insurance providers to terminate the Company’s servicing rights to the receivables sold to that Trust. These financial

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

guaranty insurance policies also contain minimum financial ratio requirements. Except as discussed above, the Company was in compliance with its agreements with its guarantee insurance providers at December 31, 2008.


8.	Senior Notes Payable

On April 29, 2005, Triad Acquisition Corp. issued $150.0 million of senior notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 (the “Securities Act”), to certain accredited investors pursuant to Rule 501 under the Securities Act, and to non-U.S. persons in reliance on Regulation S under the Securities Act. The senior notes also included a registration rights agreement requiring the Company to file a registration statement under the Securities Act and to consummate an exchange offer after the effective date of the registration statement. The exchange offer was consummated on January 9, 2006. In connection with the Acquisition, Triad Acquisition Corp. was merged with and into Triad Financial Corporation.

The senior notes have a stated coupon of 11.125% and were issued at a discount to yield 11.25%. The senior notes mature on May 1, 2013 but can be redeemed, in whole or in part, on or after May 1, 2010, at specified redemption prices, and on or after May 1, 2012, at par value.

Capitalized financing costs with an unamortized balance of $1.3 million at December 31, 2008 are being amortized over the contractual term of the notes. Capitalized financing costs include $0.9 million in remaining unamortized fees paid to Goldman, Sachs & Co., an affiliate of one of our equity investors.


9.	Preferred Stock

On June 30, 2006, the Company sold 1,500,000 shares of Non-Voting Preferred Stock to Triad Holdings Inc. for an aggregate purchase price of $30.0 million in cash. No underwriting discounts or commissions were paid. The Non-Voting Preferred Stock was issued without registration under the Securities Act in reliance on Section 4(2) of the Securities Act based on Triad Holdings Inc. investment intent, financial and business matters sophistication and other typical investment representations. To the extent declared by the board of directors of the Company, quarterly dividends were payable at an annual rate of 10.5%. Triad Holdings pledged its Non-Voting Preferred Stock of Triad Financial Corporation to secure its loan with Citigroup Global Markets Realty Corp. The Non-Voting Preferred Stock was redeemed at par on April 27, 2007.

On December 31, 2008, the Company sold 17.0 million units of Series 1 Preferred Units to Triad Financial Holdings LLC for an aggregate purchase price of $17.0 million in cash. No underwriting discounts or commissions were paid. The Series 1 Preferred Units were issued without registration under the Securities Act in reliance on Section 4(2) of the Securities Act based on Triad Financial Holdings LLC’s investment intent, financial and business matters sophistication and other typical investment representations.

These units are restricted securities and may not be resold unless registered under the Securities Act or exempt from the registration requirements thereof. The Series 1 Preferred Units are not convertible or exchangeable into the Company’s common units. The Series 1 Preferred Units are not redeemable at the option of any holder of the Series 1 Preferred Units. To the extent declared by the board of managers of the Company, quarterly dividends are payable at an annual rate of 15.0%.

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

Triad Financial Holdings LLC pledged its Series 1 Preferred Units to secure a loan with Hunters Glen/Ford Ltd. and certain partnerships controlled by GTCR Golder Rauner II, L.L.C. On February 27, 2009, 10.0 million units of the Series 1 Preferred Units were redeemed at par; the remaining units were redeemed at par on March 17, 2009.


10.	Income Taxes

The provision (benefit) for income taxes and the reconciliation between the federal statutory income tax rate and the effective income tax rate for the years indicated are summarized as follows:


	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2008			2007			2006
	(Dollars in thousands)

Current:
Federal	$	(53,943	)	$	12,436		$	54,208
State		(2,258	)		2,650			10,116

Total current (benefit) expense		(56,201	)		15,086			64,324
Deferred:
Federal		75,945			(16,997	)		(46,704	)
State		14,323			(3,609	)		(8,675	)

Total deferred expense (benefit)		90,268			(20,606	)		(55,379	)

Total:
Federal		22,002			(4,561	)		7,504
State		12,065			(959	)		1,441

Provision (benefit) for income taxes	$	34,067		$	(5,520	)	$	8,945

Expected federal income tax at 35%	$	(27,230	)	$	(5,634	)	$	7,914
State taxes, net of federal tax		(3,328	)		(689	)		926
Accrued interest		(160	)		679			—
Deferred tax asset allowance		74,015			—			—
Permanent differences		(8,674	)		116			105
Other		(556	)		8			—

Provision (benefit) for income taxes	$	34,067		$	(5,520	)	$	8,945

Effective income tax rate		(43.8	)%		(34.3	)%		39.6	%

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007 are summarized as follows:


	2008		2007
	(Dollars in thousands)

Deferred tax assets:
Allowance for credit losses	$	—	$	56,715
Goodwill		—		45,545
Securitizations		—		2,934
Other		—		6,549

Gross deferred tax assets		—		111,743

Deferred tax liabilities:
Discount on predecessor finance receivables held for investment		—		(11,354	)
Deferred loan origination costs		—		(10,121	)
Other comprehensive income		—		(1,240	)

Gross deferred tax liabilities		—		(22,715	)

Net deferred tax asset	$	—	$	89,028

A valuation allowance on tax assets is recorded if it is more likely than not that some portion or all of the tax assets will not be realized through recovery of taxes previously paid and/or future taxable income. The allowance is subject to ongoing adjustments based on changes in circumstances that affect our assessment of the realizability of the tax assets. We reviewed our tax assets and based upon this review, we established a valuation allowance of $74.0 million during the year ended December 31, 2008 to reduce our tax assets to an amount which is more likely than not to be realized. There was no valuation allowance at December 31, 2007.

As a result of the corporate reorganization discussed in Note 1, the Company became a pass-through entity for tax purposes and any taxable income or loss generated after December 31, 2008 will be passed through and reported by the respective owners of Triad Financial Holdings LLC. This corporate reorganization also resulted in the reversal of the previously recorded deferred tax assets and liabilities, therefore, the Company had a $46.2 million federal and state taxes receivable at December 31, 2008.

The Company accounts for uncertainty in income taxes recognized in the financial statements in accordance with FIN 48. The Company has identified certain tax positions for which deductibility is highly certain, but for which there is uncertainty as to the timing of such deductibility. As of December 31, 2007, the Company had reclassified approximately $4.6 million of tax benefit from its deferred tax liability to its FIN 48 current tax liability.

The changes in the Company’s gross unrecognized tax benefits for the years indicated are summarized as follows:


	Year Ended			Year Ended
	December 31,			December 31,
	2008			2007
	(Dollars in thousands)

Balance, beginning of year	$	3,825		$	3,407
Additions (reductions) for tax positions of prior periods		(3,825	)		418
Additions (reductions) for tax positions relating to the current period		—			—
Settlements		—			—
Lapses in statutes of limitations		—			—

Balance, end of year	$	—		$	3,825

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

The Company’s policy is to recognize interest and/or penalties related to income tax matters as a component of income tax expense. At December 31, 2008 and 2007, the Company had accrued, net of tax, $0.2 million and $0.7 million, respectively, for the potential payment of interest and/or penalties.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. All tax periods subsequent to the Acquisition are open to examination by the Internal Revenue Service and the states to which we are subject to tax.


11.	Derivative Financial Instruments

At December 31, 2008, the Company had interest rate swap agreements with external third parties with underlying notional amounts of $1.5 billion. These agreements were valued at a loss of $23.7 million at December 31, 2008. Other income (expense) for the years ended December 31, 2008 and 2007 included $15.8 million and $17.5 million in losses on our interest rate swap agreements, respectively. Other income (expense) for the year ended December 31, 2006 included $0.7 million in gains on our interest rate swap agreements. At December 31, 2008 and 2007, the Company had $11.9 million and $2.9 million, respectively, in collateral on deposit with the counterparties to the derivative financial instruments. These amounts are included in restricted cash on our balance sheets.


12.	Commitments and Contingencies

Various legal actions, governmental proceedings and other claims are pending or may be instituted or asserted in the future against the Company and its subsidiaries. As a consumer finance company, the Company is subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud, breach of contract and discriminatory treatment of credit applicants. Some litigation against the Company could take the form of class action complaints by consumers. As the assignee of finance contracts originated by dealers, the Company may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of matters can be substantial. The relief requested by the plaintiffs varies but can include requests for compensatory, statutory and punitive damages.

Litigation is subject to many uncertainties, the outcome of individual litigated matters is not predictable with assurance and it is reasonably possible that some of the foregoing matters could be decided unfavorably to the Company or the subsidiary involved. Although the amount of liability at December 31, 2008 with respect to these matters cannot be ascertained, the Company believes that any resulting liability would not materially affect the consolidated financial position, results of operations or cash flows of the Company and its subsidiaries.

Under the management agreement among the Company, Triad Financial Holdings LLC and Hunter’s Glen/Ford Ltd., the parties engaged Hunter’s Glen/Ford as a financial and management consultant. During the term of the engagement, Hunter’s Glen/Ford will provide Gerald J. Ford to serve as the chief executive officer of Triad Financial Holdings LLC and executive chairman of the Company as specified in the agreement and will provide Carl B. Webb and J. Randy Staff, or similarly qualified individuals, to furnish a portion of the services required by the management agreement. The Company agreed to pay Hunter’s Glen/Ford Ltd a management fee of $1.5 million per annum for the services described above.

During the third quarter of 2007, the Company entered into a consulting agreement with Carl B. Webb. Under the terms of the agreement, Mr. Webb will provide consulting services to the Company in return for a fee of $250,000 per annum. This consulting agreement was amended in the first quarter of 2008 to change the annual fee to $500,000.

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

In July 2007, the Company announced that it would be transitioning certain functions from its Huntington Beach, California facility to its North Richland Hills, Texas facility. These functions include loss recovery, remarketing, risk management, human resources and corporate legal. The Company also announced that it would be designating North Richland Hills, Texas as its corporate headquarters. This transition was substantially completed by the end of 2007. During 2007, the Company recorded charges totaling $5.3 million related to the transition, of which $1.5 million was accrued at December 31, 2007.

The Company’s operations are conducted from leased facilities under non-cancellable lease agreements accounted for as operating leases. The Company also leases certain equipment. Rental expense charged to operations amounted to $5.8 million, $4.2 million and $4.1 million for the years ended December 31, 2008, 2007 and 2006, respectively. Rental expense for the year ended December 31, 2008 included a $2.6 million accrual related to future excess facility capacity resulting from the shutdown of the dealer originations channel discussed in Note 1.

Effective October 8, 2008, Santander agreed to sublease approximately 27,000 square feet of space in the Company’s North Richland Hills facility. The space had historically been occupied by the RoadLoans division of Triad. The sublease has a term of one year, subject to a 60-day termination clause held by Triad as Sublandlord, upon the occurrence of certain conditions. The sublease also contains a one-year renewal option on the same terms and conditions as the primary term. For the year ended December 31, 2008, Santander made sublease payments totaling $0.1 million.

Future minimum rental commitments under all non-cancellable leases at December 31, 2008 are summarized as follows. For the year ended December 31, 2009, future minimum rental commitments are net of the sublease commitments from Santander amounting to $0.3 million.


	(Dollars in thousands)

Year ending December 31,
2009	$	2,846
2010	$	3,238
2011	$	2,459
2012	$	2,112


13.	Stock-Based Compensation

Following the closing of the Acquisition, Triad Holdings Inc. adopted a stock plan under which employees, officers, directors and consultants of the Company could be granted options to purchase common stock of Triad Holdings Inc. The maximum number of shares available for grant was equal to approximately 8% of the fully diluted shares of Triad Holdings Inc. The stock options vested annually, generally at the rate of 20% per year, provided the grantees continued to provide services to the Company. All options not exercised expired ten years after the date of grant.

Because the Company is considered to be nonpublic under SFAS 123R, the Company elected to use the formula value (book value) method to calculate compensation expense, in which the Company re-measured its liability each period. The awards were liability-classified based on a repurchase feature of the option agreements. The Company had elected to use a straight-line vesting attribution method for awards granted upon its adoption of SFAS 123R.

The Company recorded a (credit) charge to compensation expense of $(1.2) million, $2.1 million and $0.9 million for stock-based employee compensation for the years ended December 31, 2008, 2007 and 2006, respectively. Compensation expense for the year ended December 31, 2007 included a $1.6 million payment to a former chief executive officer for the repurchase of his option shares vested as of his July 2005 termination date. No options were granted during the year ended December 31, 2008. The Company granted 366,000 and 1.0 million options during the years ended December 31, 2007 and 2006, respectively. Since the inception of the plan, no options have been exercised.

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

In connection with the corporate reorganization discussed in Note 1, Triad Holdings Inc. was liquidated and dissolved and approximately 1.1 million in remaining outstanding stock options were canceled as of December 31, 2008. A summary of stock option activity under the Company’s stock option plan is summarized as follows:


				Weighted Average
	Shares			Exercise Price
	(Amounts in thousands except weighted-average exercise price )

Outstanding at December 31, 2005		2,000		$	7.50
Granted		1,000		$	7.73
Canceled		(2	)	$	7.73
Forfeited		(10	)	$	7.73

Outstanding at December 31, 2006		2,988		$	7.58

Granted		366		$	8.37
Canceled		(220	)	$	7.54
Forfeited		(267	)	$	7.58

Outstanding at December 31, 2007		2,867		$	7.68

Canceled		(1,439	)	$	7.71
Forfeited		(1,428	)	$	7.64

Outstanding at December 31, 2008		—		$	—


14.	Fair Value of Financial Instruments

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, “Disclosure about Fair Value of Financial Instruments” (“SFAS 107”). Fair value estimates methods and assumptions, set forth below for our financial instruments, are made solely to comply with requirements of SFAS 107 and should be read in conjunction with our consolidated financial statement and related notes.

The estimated fair value of financial instruments has been determined by the Company using available market information and appropriate valuation methodologies available to management at December 31, 2008 and 2007. However, considerable judgment is required to interpret market data in order to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Furthermore, fair values disclosed hereinafter do not reflect any premium or discount that could result from offering the instruments for sale. Potential taxes and other expenses that would be incurred in an actual sale or settlement are not reflected in amounts disclosed.

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)

The estimated fair values and related carrying amounts of the Company’s financial instruments are as follows:


	December 31, 2008						December 31, 2007
	Carrying or						Carrying or
	Contract			Estimated			Contract			Estimated
	Amount			Fair Value			Amount			Fair Value
	(Dollars in thousands)

Assets:
Cash and cash equivalents	$	46,494		$	46,494		$	52,505		$	52,505
Cash — restricted		252,300			252,300			295,786			295,786
Finance receivables held for investment, net		1,988,339			1,879,969			3,514,979			3,520,556
Retained interest in securitized assets		—			—			10,916			10,916
Interest rate swap agreements		(23,745	)		(23,745	)		(10,548	)		(10,548	)
Liabilities:
Revolving credit facilities	$	—		$	—		$	334,390		$	334,390
Securitization notes payable		2,010,889			1,875,209			3,195,489			2,884,285
Senior notes payable		60,350			48,498			149,256			149,256

The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value are explained below:

Cash and Cash Equivalents — The carrying amounts are considered to be a reasonable estimate of fair value since these investments bear interest at market rates and have maturities of less than 90 days.

Cash Restricted — The carrying amounts are considered to be a reasonable estimate of fair value.

Finance Receivables Held For Investment — The fair value of finance receivables is estimated by discounting future net cash flows expected to be collected using a current risk-adjusted rate.

Retained Interest in Securitized Assets — The fair value of retained interest in securitized assets is estimated by discounting the associated future net cash flows using discount rate, prepayment and credit loss assumptions similar to the Company’s experience.

Interest Rate Swap Agreements — Fair value is calculated using observable inputs including interest rate and notional amounts. These calculations are compared to current market values for similar instruments with the same remaining maturities.

Revolving Credit Facilities — Revolving credit facilities have variable rates of interest and maturities of three years or less. Therefore, the carrying value is considered to be a reasonable estimate of fair value.

Securitization Notes Payable — The fair value is based on quoted market prices, when available. If quoted market prices are not available, the market value is estimated by discounting future net cash flows expected to be settled using a current risk-adjusted rate.

Senior Notes Payable — The fair value at December 31, 2008 is based on the recently completed tender offer purchase price. The fair value at December 31, 2007 was based on rates available at that time for debt with similar terms and remaining maturities.

Triad Financial SM LLC

Notes to Consolidated Financial Statements — (Continued)


15.	Quarterly Financial Data (unaudited)

The following table summarizes the quarterly financial results:


	First		Second			Third			Fourth
	Quarter		Quarter			Quarter			Quarter
	(Dollars in thousands)

Year ended December 31, 2008:
Total revenues	$	132,410	$	141,597		$	111,548		$	94,199
Income (loss) before income taxes		1,099		(27,234	)		(40,602	)		(11,064	)
Net income (loss)		929		(48,599	)		(50,214	)		(13,984	)


	First		Second		Third			Fourth
	Quarter		Quarter		Quarter			Quarter
	(Dollars in thousands)

Year ended December 31, 2007:
Total revenues	$	167,166	$	167,138	$	153,973		$	145,503
Income (loss) before income taxes		14,703		14,966		(7,625	)		(38,142	)
Net income (loss)		8,934		8,695		(4,673	)		(23,534	)


ITEM 9.	*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*

Not applicable.


ITEM 9A.	*CONTROLS AND PROCEDURES*

Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, management of the Company has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of December 31, 2008 (“Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective (i) to ensure that information required to be disclosed in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.


ITEM 9B.	*OTHER INFORMATION*

On March 27, 2009, the Company and Triad Financial SM Inc. entered into the Third Supplemental Indenture to the Indenture governing its 11.125% Senior Notes due 2013. The Third Supplemental Indenture eliminated substantially all of the covenants and certain events of default in the Indenture, including, among others, the covenant that requires the Company to file reports under the Exchange Act. Accordingly, the Company will no longer file reports with the Securities and Exchange Commission following the filing of this report on Form 10-K, unless it becomes subject to provisions of the Exchange Act at a later date.

PART III


ITEM 10.	*DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE*

The principal officers and directors of the Company, and their positions and ages at February 28, 2009, are as follows:


Name	Age		Position

Daniel D. Leonard		60	President, CEO and Director
Jeffrey O. Butcher		44	Vice President and Chief Financial Officer
Scott A. France		46	Senior Vice President — Portfolio Management
Mark A. Kelly		40	Senior Vice President — Director of Risk Management
Gerald J. Ford		64	Co-Chairman of the Board of Directors
Carl B. Webb		59	Co-Chairman of the Board of Directors
Philip A. Canfield		41	Director
Aaron D. Cohen		32	Director
David A. Donnini		43	Director
Donald J. Edwards		43	Director
J. Randy Staff		61	Director

The present principal occupations and recent employment history of each of our executive officers and directors listed above is as follows:

Daniel D. Leonard currently serves as our President and Chief Executive Officer, which positions he assumed in June 2007. He became a member of the Board of Directors in May, 2008. Prior to his appointment as President and CEO, Mr. Leonard served as our Senior Vice President — Portfolio Management, a position he held since May 2003. He has over 30 years experience in the finance industry. Prior to joining Triad, Mr. Leonard served from 1991 in several positions with California Federal Bank, including as its Senior Vice President — Consumer and Business Banking, Senior Vice President — Retail Distribution, and most recently as President of its subsidiary, Auto One Acceptance Corp., an auto loan financing company. Prior to joining California Federal Bank, Mr. Leonard served in several senior management positions with BankAmerica Corp.

Jeffrey O. Butcher currently serves as our Vice President and Chief Financial Officer, a position he assumed in October 2008. Mr. Butcher has been with the Company since July 2003 and previously served as Corporate Controller. From 1987 through 2003, he was Senior Vice President and Controller for Bay View Capital Corporation, a San Francisco Bay Area community bank. Prior to that, he was with KPMG, where he was a Senior Manager in the financial services practice.

Scott A. France currently serves as our SVP — Portfolio Management and joined Triad in August 2007. Prior to joining Triad, Mr. France served for 11 years as Senior Vice President Call Center Operations and Executive Vice President Portfolio Services at AmeriCredit where he was responsible for Collections, Loss Recovery, Asset Remarketing and Bankruptcy Management. Prior to AmeriCredit, Mr. France worked for World Omni Financial Corp. for 12 years in Credit, Collections and Portfolio Servicing.

Mark A. Kelly currently serves as our Senior Vice President — Director of Risk Management and joined Triad in June 2007 as Senior Vice President. Prior to joining Triad, Mr. Kelly was with Hunter’s Glen Ford, Ltd. in the acquisition group. Previously, Mr. Kelly served as an executive vice president and chief financial officer of Auto One Acceptance Corporation, where he was responsible for financial accounting, risk management, and regulatory compliance.

Gerald J. Ford is currently Chairman of the Board of Directors of First Acceptance Corporation and has been since 1996. Mr. Ford was Chairman of the Board of Directors and Chief Executive Officer of Golden State Bancorp and its predecessors from 1994 to 2002. During that period, Mr. Ford also served as Chairman of the Board of Directors and Chief Executive Officer of Golden State Bancorp’s wholly-owned subsidiary, California Federal Bank, FSB. Additionally, Mr. Ford served as a Director of Auto One Acceptance Corporation, a wholly-owned auto

finance subsidiary of California Federal Bank, FSB. Mr. Ford was Chairman of the Board of Directors and Chief Executive Officer of First Gibraltar Bank, FSB from 1988 to 1993. Mr. Ford was the principal shareholder, Chairman of the Board of Directors and Chief Executive Officer of First United Bank Group, Inc. and its predecessors from 1975 to 1994. Mr. Ford is currently a Director of Hilltop Holdings, Inc., Scientific Games Corporation, Freeport-McMoRan Copper & Gold Co. and McMoRan Exploration Co. Mr. Ford also served as a Director of AmeriCredit Corp. from June 2003 until he resigned in August 2004. Mr. Ford currently is on the Board of Trustees of Southern Methodist University and was formerly the Chairman of the Board.

Carl B. Webb resigned as President and Chief Executive Officer in June 2007, and now serves as Co-Chairman of the Board of Directors of the Company. Mr. Webb has served as a director since April 29, 2005. He was President and Chief Operating Officer of Golden State Bancorp and its predecessors from 1994 to 2002. During that period, Mr. Webb also served as President and Chief Operating Officer of Golden State Bancorp’s wholly-owned subsidiary, California Federal Bank, FSB. Additionally, Mr. Webb served as a Director of Auto One Acceptance Corporation, a wholly-owned auto finance subsidiary of California Federal Bank, FSB. Prior to Golden State Bancorp, Mr. Webb was the President and Chief Operating Officer of First Gibraltar Bank, FSB from 1988 to 1993. Mr. Webb was the President of the First National Bank of Lubbock, Texas from 1983 to 1989. Mr. Webb is currently a Director of Hilltop Holdings, Inc., MacAndrews & Forbes Worldwide Corp., and AMB Property Corporation.

Philip A. Canfield is a Principal of GTCR Golder Rauner, L.L.C. and has worked at GTCR since 1992. His primary area of focus is information technology investments. In addition, Mr. Canfield is experienced in general business services investments. Mr. Canfield serves on the board of directors of TNS, Inc. and several private companies in GTCR’s portfolio. Prior to joining GTCR, Mr. Canfield was employed in the corporate finance department of Kidder, Peabody & Co. Incorporated where he focused on public offerings and merger and acquisitions.

Aaron D. Cohen is a Vice President with GTCR Golder Rauner, L.L.C. and has been with GTCR since April 2003. Prior to joining GTCR, Mr. Cohen worked as an analyst at the private equity firm of Hicks, Muse, Tate & Furst from 2000. He worked as an analyst in the Mergers & Acquisitions Group of Salomon Smith Barney from 1998 to 2000. Mr. Cohen is currently a director of Wilton Products, Inc., a GTCR private portfolio company.

David A. Donnini is a Principal of GTCR Golder Rauner, L.L.C., which he joined in 1991. Prior to joining GTCR, he worked as a management consultant at Bain & Company. He received a BA in Economics from Yale University. He also holds an MBA from Stanford University. In addition to his service on the board of Triad, Mr. Donnini serves on the boards of Coinmach Service Corp., Prestige Brands Holdings, Inc., Syniverse Technologies, Inc. and several private GTCR portfolio companies.

Donald J. Edwards is Managing Principal of Flexpoint Partners, LLC, an equity investment firm. From July 2002 to April 2004, Mr. Edwards served as President and Chief Executive Officer of First Acceptance Corporation, formerly known as Liberté Investors Inc. From 1994 to 2002, Mr. Edwards was a Principal at GTCR Golder Rauner, L.L.C., where he headed the firm’s healthcare investment effort. Prior to joining GTCR, Mr. Edwards was an Associate at Lazard Frères & Co. LLC. Mr. Edwards is a Director of First Acceptance Corporation.

J. Randy Staff was Executive Vice President and Chief Financial Advisor of Golden State Bancorp and its predecessors from 1994 to 2002, where Mr. Staff was primarily responsible for mergers and acquisitions. During that period, Mr. Staff also served as Executive Vice President and Chief Financial Advisor of Golden State Bancorp’s wholly-owned subsidiary, California Federal Bank, FSB. Additionally, Mr. Staff served as a Director and an interim President of Auto One Acceptance Corporation, a wholly-owned auto finance subsidiary of California Federal Bank, FSB. From 1973 to 1994, Mr. Staff was a Partner specializing in financial services at KPMG. Mr. Staff currently serves as a director of Hilltop Holdings, Inc., and is Chairman of the Board of Directors and the majority shareholder of the American Bank, N.A., Dallas, Texas and the Citizens State Bank, Jackson County, Texas and has been since 1987 and 1985, respectively.

Family Relationships

There are no family relationships between any of our executive officers or directors.

Code of Ethics

Our Corporate Governance Committee reviewed and approved the Company’s Business Conduct Manual and Ethics Code, or the “Ethics Code”, which provides, among other things, an employee hotline to report suspected violations of our policies in this regard. The program is monitored by the Office of General Counsel. There have been no reports received either through this hotline number of by any other medium since the Ethics Code was introduced. Those who wish to review a copy of the Ethics Code can do so by contacting the Office of General Counsel at Triad Financial SM LLC, 5201 Rufe Snow Drive, North Richland Hills, Texas, 76180.

Board Meetings

The Board of Directors convenes quarterly and will conduct other meetings from time to time in order to address issues that arise which require board approval. In addition to full board meetings, the following committees made up board members meet as needed to address the items delegated to them by the full board:

Audit Committee

The Audit Committee of the company meets no less frequently than quarterly to discuss, among other things, audit results presented by the Company’s independent registered public accounting firm and filings required to be made by the company from time to time. In addition to the members of the committee, members of the independent registered public accounting firm, the Senior Manager of Internal Audit, the Chief Financial Officer and others may be asked to join and make presentations at such meetings. Mr. J. Randy Staff, who serves as Chairman of the Audit Committee, has been designated as the financial expert. He is joined on the Committee by Mr. David A. Donnini, Mr. Donald J. Edwards and Mr. Aaron D. Cohen. Mr. Staff is not independent as defined in Rule 4200(a)(15) of the Nasdaq Marketplace Rules.

Nominating and Corporate Governance Committee

The Nominating and Governance Committee of the company meets periodically to, among other things, approve the slate of officers for the Company and, if applicable, establish approval and contracting authority for such officers. Mr. Gerald J. Ford, Mr. Philip A. Canfield and Mr. Carl B. Webb serve on the committee.

All committees are authorized to meet telephonically in order to conduct the tasks required of them.


ITEM 11.	*EXECUTIVE COMPENSATION*

COMPENSATION DISCUSSION AND ANALYSIS

In this Compensation Discussion and Analysis, we address the compensation paid to our executive officers listed in the Summary Compensation Table that immediately follows this discussion. We refer to these executives as the “Senior Executive Officers.”

The Compensation Committee has, upon consideration of the recommendations of the Co-Chairmen of the Board and/or the CEO, determined the salary component for Senior Executive Officer compensation. The Compensation Committee, also based on the recommendations of the Co-Chairmen of the Board and the CEO, sets the performance criteria and target levels for Senior Executive Officers (other than the CEO) with respect to potential annual incentive payments for the upcoming year. Our process begins with establishing corporate performance objectives for the year. The Compensation Committee and our Co-Chairmen of the Board discuss strategic objectives and performance targets. We review the appropriateness of the financial measures used in our incentive plan and the degree of difficulty in achieving specific performance targets.

The recommendations to the Compensation Committee for Senior Executive Officer’s compensation, and the Compensation Committee’s review of those recommendations, are based primarily upon an assessment of corporate performance and potential to enhance long-term stockholder value in determining the amount and mix of compensation elements, and whether each particular payment or award provides an appropriate incentive and reward for performance that sustains and enhances long-term shareholder value. Key factors affecting our judgment include: (1) performance compared to the financial, operational and strategic goals established at the beginning of

the year; (2) nature, scope and level of responsibilities; (3) achievement of our financial results, particularly with respect to key metrics such as credit quality, revenue, earnings and return on equity; (4) effectiveness in leading our initiatives to increase productivity and stockholder value; and (5) contribution to our commitment to corporate responsibility, including success in creating a culture of compliance with both applicable laws and our ethics policies.

We may also consider each Senior Executive Officer’s current salary and the appropriate balance between incentives for long-term and short-term performance.

Since April 2005, we have used three categories of eligible compensation for the Senior Executive Officers: base salary, annual incentive payments and stock option grants. As a privately held corporation, the Board of Directors sought to align the interests of the Senior Executive Officers with those of the investors. In that regard, the board, in 2005, adopted the 2005 Long Term Incentive Plan for Triad Holdings Inc., or the “2005 Plan” for the Senior Executive Officers of the Company. Grants were made to the Senior Executive Officers under the 2005 Plan shortly after its adoption. Additional grants were made in 2006 to certain Senior Executive Officers, and the Compensation Committee also approved the award of grants to other key employees, to be based upon recommendations from their supervisors, subject to the approval of the President and CEO. No grants were made to the existing Senior Executive Officers in 2008.

Compensation Consultant

Neither the Company nor the Compensation Committee retained any compensation consultants during 2008. In 2005, we established compensation levels using a limited benchmarking survey, relying on data provided to us by our independent compensation consultant, Towers Perrin. During 2008, the Compensation Committee reviewed the compensation packages of the Senior Executive Officers, and approved changes to the base salary of a number of those individuals. We will continue to monitor the compensation practices of our competitors and similarly situated financial institutions to ensure that our salary structure and benefits offered to our Senior Executive Officers remains competitive, so that we may attract and retain talented and experienced leaders.

Overview of Compensation Philosophy and Program

The Compensation Committee believes that the most effective executive compensation program is one that is designed to reward the achievement of specific annual, long-term and strategic goals by the Company, and which aligns the executives’ interests with those of the shareholders by rewarding performance above established goals, with the ultimate objective of improving shareholder value. The Compensation Committee evaluates both performance and compensation to ensure that the Company maintains its ability to attract and retain superior employees in key positions and that compensation provided to the Senior Executive Officers remains competitive relative to the compensation paid to similarly situated executives in our industry. To that end, the Compensation Committee believes executive compensation packages provided by the Company to its Senior Executive Officers should include both cash and stock-based compensation that reward performance as measured against established goals.

The following compensation objectives are considered in setting the compensation programs for our Senior Executive Officers:


	•	drive and reward performance which supports our core values;

	•	provide a significant percentage of total compensation that is “at-risk,” or variable, based on predetermined performance criteria;

	•	design competitive total compensation and rewards programs to enhance our ability to attract and retain knowledgeable and experienced Senior Executive Officers; and

	•	set compensation and incentive levels that reward significant achievement.

We believe the adjustments made to the salaries of our Senior Executive Officers in 2008 achieved the goal of providing competitive salaries, but we will continue to informally monitor the compensation practices in the financial services industry.

Role of Senior Executives in Compensation Decisions

The Co-Chairmen of the Board, or the “Co-Chairmen”, annually review the performance of the Senior Executive Officers, including the Chief Executive Officer. The conclusions resulting from their recommendations, including proposed salary adjustments and annual award amounts, are then presented to the Compensation Committee for consideration and approval. The Compensation Committee can exercise its discretion in modifying those recommendations.

Compensation Elements and Rationale for Pay Mix Decisions

To reward both short and long-term performance in the compensation program and in furtherance of our compensation objectives noted above, the compensation philosophy for our Senior Executive Officers includes the following four principles:


(1)	Compensation should be related to the Company’s performance

We believe that a significant portion of a Senior Executive Officer’s compensation should be tied to the overall Company performance measured against our financial goals and objectives. During periods when performance meets or exceeds the established objectives, Senior Executive Officers should be paid at or more than expected levels, respectively. When our performance does not meet key objectives, incentive award payments, if any, should be less than such levels.


(2)	Incentive compensation should represent a large portion of a Senior Executive’s total compensation

We intend to minimize the amount of fixed compensation paid to Senior Executive Officers in order to minimize costs when our performance is not optimal. A significant portion of compensation should be paid in the form of short-term and long-term incentives, which are calculated and paid based primarily on financial measures of profitability and shareholder value creation. Senior Executive Officers are incented to increase our profitability and shareholder return in order to earn the major portion of their compensation.


(3)	Compensation levels should be competitive

The Compensation Committee believes that a competitive compensation program enhances our ability to attract and retain Senior Executive Officers. They have been empowered by the board with the flexibility to ensure that the compensation program is competitive with that provided by comparable firms.


(4)	Incentive compensation should balance short-term and long-term performance

The Compensation Committee seeks to achieve a balance between encouraging strong short-term annual results and ensuring our long-term viability and success. To reinforce the importance of balancing these perspectives, Senior Executive Officers will be provided both short and long term incentives. Short term incentives are embodied in our annual incentive plans, while, for the longer term, we provided Senior Executive Officers and a number of key employees with the opportunity to become indirect shareholders of Triad.

Metrics Used in Compensation Programs

The Compensation Committee, working with the CEO in the first quarter of 2008, adopted a general outline of performance-based metrics for defining Senior Executive Officer incentive compensation during 2008. These metrics (the “Performance Metrics”) are defined, and their use in Senior Executive Officer’s annual compensation is described below:

Credit Quality: While there is a loss expectation inherent in the loans we originate and the contracts we purchase, we seek to manage the credit quality of the overall portfolio through prudent servicing practices with respect to the loans and contracts already booked, and through sound underwriting practices across all channels.

Profit Before Taxes: This measurement takes into account overall earnings, whether they came from the pool of receivables acquired at the closing of the Acquisition, or from the contracts originated since that time.

Operating Costs: This final financial metric is based on a targeted percentage set at the beginning of the fiscal year. The Senior Executive Officers are encouraged to control expenditures in order to meet or exceed the established goals.

The compensation program also includes a discretionary aspect to the Incentive Compensation for Senior Executive Officers.

Review of Senior Executive Officer Performance

In addition to considering the recommendations made by the Co-Chairmen, the Compensation Committee has the opportunity to meet with the Senior Executive Officers at various times during the year, which allows them to consider and independently assess each individual’s performance and contribution.

Components of the Executive Compensation Program

We believe the total compensation and benefits program for the Senior Executive Officers should consist of the following:


	•	base salaries;

	•	annual incentive payment;

	•	long-term incentive compensation, through stock option grants; and

	•	other customary health and welfare benefits.

Base Salaries

TRIAD FINANCIAL SM LLC 10-K