Loan ~~servicing~~Servicing. . We perform all loan servicing ~~functions~~operations for our ~~loan portfolio,~~portfolio. This includes everything from centralized payment collections ~~through~~to the resale of repossessed ~~vehicles.~~vehicles at auction. We place a strong emphasis on employee training, customer service and regulatory compliance through systematic processes. Customers can make cash payments through an electronic payment network atof over ~~3,900~~16,000 ~~Wal-Mart stores~~locations nationwide and ~~more than~~ ~~17,000~~ ~~other locations nationwide. Customers also can make payments~~ through a variety of traditional payment ~~methods~~channels. We promote the use of the most cost effective payment avenues such as ~~check, money order,~~ACH and bill-pay, ~~and ACH.~~since we are sensitive to our customers cash needs. Our experienced collection staff utilizes our proprietary collection software, which we developed specifically for subprime auto loans. We use ~~behavioral models designed to predict payment habits, as well as~~ automated dialer and messaging systems to enhance collection ~~efficiency.~~efficiency and to monitor call volumes. We utilize our vehicle acquisition and sales expertise in representing our vehicles at auction in order to maximize the recovery value of repossessed vehicles.

After Sale Product Support. We provide all customers with a 30 day, 1,500 mile limited warranty (“DriveCare® Limited Warranty”) with the purchase of any vehicle as well as a 5 day, no questions asked, vehicle return policy. The 30 day warranty covers all labor and parts of the vehicle for major mechanical items and A/C and provides for reimbursement of specified costs for rental cars and towing/roadside assistance. Customers that lease a vehicle are provided with our extended service contract as a standard feature embedded into the lease contract. During 2013, we began offering DriveTime customers the DriveCare® Extended Vehicle Service Contract (VSC) as a separately priced, optional product.

~~Beginning in 2012, each~~DriveTime Ancillary Product Offerings

Background

Prior to 2013, the pricing of our vehicles included our 3 year/36,000 mile DriveCare® limited warranty as part of the bundled retail price of each vehicle sold. Over the course of 2013, we transitioned to an “unbundled” pricing model to make it easier for our customers to compare the value of vehicles at our dealerships to others in the marketplace. As a result of this transition, we now provide customers the option to purchase certain ancillary products such as extended vehicle service contracts (VSC), guaranteed asset protection (GAP) and GPS monitoring subscription (GPS) on an a la carte basis and no longer embed these ancillary products in the base price of the vehicle. By unbundling our service offerings, we believe we will drive incremental web traffic to our dealerships and increase overall volume of sales.

Products

DriveCare® Extended Vehicle Service Contract (VSC). VSC is ~~equipped with an anti-theft GPS device that not only assists in tracking~~as a separately priced, optional product for customers choosing to purchase a vehicle through us. The VSC includes either a 36 month/36,000 mile or 60 month/50,000 mile service contract which covers labor and ~~recovering vehicles if stolen, but in many cases helps to lower auto insurance rates. This device~~parts of the vehicle for major mechanical items and A/C and provides for reimbursement of specified costs for rental cars and towing.

Guaranteed Asset Protection (GAP). GAP is also ~~used~~a separately priced, optional product for customers choosing to purchase a vehicle through us. GAP covers the difference between the actual cash value of a vehicle paid by ~~our collections team in~~ the ~~event we need to recover~~customer’s insurance and the ~~vehicle post-charge-off. The device does not contain a starter interrupt feature.~~

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~~After sale support. After-sale support consists of our DriveCare~~^® limited warranty. In the majority of the states in which we operate, the warranty is included with each vehicle we sell as part of the sales price. In certain states, the warranty is sold as a separate service contract. During the fourth quarter of 2012 we began a pilot, whereby we're offering the DriveCare^® ~~warranty as a separately priced product, apart from the price~~balance owed on the financing of the vehicle. We both self-administer our warranty program through our in-house team of customer service representatives, as well as use a third party warranty administrator. Our DriveCare® limited warranty includes a 36 month/36,000 mile warranty which covers major mechanical and other electronic components of the engine block, the transmission, climate control, and drive axles.

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~~Dealership Operations~~

Each of our dealerships features a wide selection of makes and models to satisfy the preferences and budgets of our potential customers. Our dealerships generally maintain an inventory of approximatelyGPS Monitoring Subscription (GPS). 75 ~~vehicles and we~~We offer a ~~broad spectrum of brands. Over~~ ~~75%~~ ofcombination GPS monitoring subscription to our ~~inventory~~customers. In the event a customers’ vehicle is ~~comprised of vehicles from Chevrolet, Ford, Dodge, Chrysler, Nissan, Toyota, Pontiac, Hyundai, Kia~~stolen, the GPS enables the provider and ~~Mitsubishi. To~~the police to locate the vehicle in a ~~lesser extent, our current inventory also features brands such as Honda, Audi, BMW, Mercedes, Volvo and Infiniti. Our newly renovated and branded dealership facilities feature~~timely manner. The GPS monitoring subscription is a ~~contemporary, open floor plan~~robust product that provides customers with a degree of transparency throughout the buying experience that is uncommon in the subprime market. Spacious floor plans are supplemented with interactive workspace, no "back-office," and a customer friendly atmosphere.

~~Customers are guided through the retail process by our personnel. Our retail process is designed to be transparent and to let~~ the customer ~~“drive”~~with the ~~process. Customers are provided with information on~~ability to track the ~~purchase process~~vehicle’s location, mileage and ~~transactions move at the customer’s pace. Our dealerships are generally located in high traffic commercial districts and showcase our DriveTime logos and color schemes.~~

Each dealership is operated by a general manager, who has responsibility for the operations of the dealership facility and is compensated in part based on overall dealership profitability and other operating metrics. Our dealerships also typically employ between one to three sales managers, seven to ten sales advisors, and administrative support personnel. Sales advisors' primary compensation is comprised of a base salary and incentive bonus programs focused on dealership profitability,speed, create geo fences, as well as ~~the achievement of monthly sales targets.~~other monitoring features. The customer is able to access their subscription and obtain their vehicle tracking data at any time through their mobile device and/or a web based portal.

~~Underwriting and~~Loan Servicing & Credit Scoring Models

We provide financing for substantially all ~~of the used~~ vehicles we sell at our dealerships through retail installment sales ~~contracts. The~~contracts (“loans”).The foundation for underwriting these loans is our proprietary credit scoring ~~models.~~models and our loan servicing platform. Our loan servicing objectives are structured to ensure regulatory compliance, while also delivering excellent customer service.

Subsequent to completing a sale, each loan is systematically boarded to our loan servicing and accounting system. Our proprietary collection system was developed specifically for subprime auto loans, providing the transparency and information necessary to produce a positive customer experience. We use a centralized collections approach using a combination of two larger domestic locations and two smaller offshore partners.

Our loan servicing platform is segmented into various stages of delinquency, which enables us to provide specialized training for each of our collection groups. We believe our servicing policies and procedures provide excellent customer service, compliance with regulatory guidelines, and maximum recovery of past due amounts. Early stage delinquent accounts generally receive reminder phone calls from our automated dialer using a prescribed timing element based on where each customer is located. We follow a pre-defined set of procedures within each delinquency stage in order to optimize our collection efforts, monitor our collector’s activities, and ensure compliance with regulatory standards.

Collectors focus their efforts on obtaining customer payments, educating customers on payment options and explaining their service contract (for vehicles in need of repair). All collector calls are recorded and are randomly selected for quality review with many calls monitored in a live environment. Calls are evaluated based on (i) Respect - listening to the customers and showing that we understand their situation; (ii) Transparency - empowering customers with information to help them be successful; and (iii) Options - being solution focused and helping to educate customers about different tools and programs available to them. Our quality control group provides visibility and transparency of our loan servicing personnel and provides us a platform to enhance collection strategies and the overall customer experience.

Consumer complaints are monitored and serviced by an independent internal group reporting directly to the executive team. Complaints are originated via consumer direct, federal and state regulatory bodies, consumer rights organizations and consumer web sites. All complaints, regardless of source, are logged and tracked systemically. The team servicing complaints/concerns received are responsible for timely follow up and are empowered to provide satisfactory resolution for all parties. On a monthly basis complaints are discussed with senior leadership in an effort to improve business practices.

We have dedicated, and will continue to dedicate substantial resources to developing, maintaining, and updating our proprietary credit scoring models that are focused on predicting the credit risk of our customers. We have over twelve years of experience in developing credit scoring models that are more finely tuned to the nuances within the subprime auto segment. Many companies use FICO scores as a standard metric to assess the credit risk of customers. ~~Our~~We believe our scoring models ~~provide~~provides a substantial improvement over traditional FICO scores in rank-ordering the likelihood of credit risk default specifically within the subprime auto segment. Our scoring models utilize alternative data sources along with traditional credit bureau data to enhance the ability ~~to separate~~of further segmenting the credit risk levels of the subprime auto segment into different, but distinct categories. Our alternative data sources span hundreds of different metrics and are utilized to enhance the predictability of loan performance through additional behavioral statistics and external reference data. Our centralized proprietary credit scoring models are currently used to classify customers into various risk grades that are linked to financing parameters. We have over ten years of experience in developing credit scoring models that are more finely tuned to the nuances within the subprime auto segment. Our internal scoring model is comprised of eight credit grades ranging from A+ to D-, with A+ being the highest and D- being the lowest credit grade. Approximately 93% of our portfolio is graded C and above, with just 7% scored C- and below. We believe our ability to quantify a customer's risk profile based upon historical data, breadth of data, and sophisticated modeling techniques, allows us to better predict loan performance, manage the blended quality of our portfolio of loans, and obtain more appropriate risk adjusted returns than relying on more generic predictors such as FICO scores.

Our scoring models are periodically updated to account for changes in loan performance, data sources, economic cycles, and business processes. We deployed our first credit scoring model in July 2001. Since then, we have implemented seven subsequent generations of credit scoring models. We generally update and enhance our models on an 18-24 month rotation. The credit scoring models have evolved over time to better leverage data collected from additional data sources than in prior models, resulting in improvements in identifying differences in the credit risk of our customers and in our ability to more accurately predict loan performance.

Prior to each sale, we require our customers to complete a credit application. Upon entering the customer information into our origination system, our proprietary credit scoring system determines the customer's credit grade. The credit grade and down payment generates the selection of vehicles that meet the customer's needs and are within the parameters of the available financing terms. The customer's credit grade and type of vehicle determine the term, maximum installment payment, and minimum payment amounts. The annual percentage rate (APR) charged is a function of the customer's credit grade, down payment, and model year of the vehicle along with state mandated limits. Our centralized risk management and pricing departments set these terms and they cannot be altered by dealership personnel.

Our centralized risk management group manages the credit mix of our loan portfolio on a company-wide basis. This group is also responsible for monitoring the origination and underwriting processes, providing underwriting training to the dealerships, monitoring loan servicing, and static-pool tracking of portfolio loss performance and profitability. The static-pool tracking of portfolio loss performance is also monitored by our internal credit grade. ~~Over the past several years, the unit loss~~

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~~rate results by credit grade have been relatively consistent through economic cycles and across different generations of scoring models.~~

We actively monitor our portfolio performance and ~~the credit grade mix of originations. We~~ regularly analyze the grade mix of originations ~~through~~and the related financing terms provided to our customers, which are established centrally. We have higher minimum down payments and lower maximum installment payments for our lower credit grade customers, resulting in lower close rates for our lower credit grade customers. Our loans have an average original term of approximately 57 ~~months and an average life of~~ 31 ~~months, due to charge-offs and pay-offs. Due to the fact that our loans have a relatively short average life, we~~ are able to closely monitor credit trends and make appropriate adjustments to both the grade mix and pricing of our ~~originations.~~originations, as our loans have a relatively short average outstanding life due to frequency of charge-off.

Other Business Ventures

~~Monitoring and Collections~~

~~After completing~~Included within the DriveTime family of companies, are other business ventures which are either in the early stages of development, or are immaterial in nature to DriveTime as a sale, each loan is automatically added to our comprehensive loan servicing and collection system. Our proprietary collection system was developed specifically for subprime auto loans and provides the transparency and tools necessary to effectively and efficiently service our loan portfolio. We use a centralized collections approach and do not have collectors residing in dealership locations.

Our early delinquencies are managed through the use of an automated dialer and messaging system to provide optimum collection efficiency for early delinquencies. The early delinquencies (one to 16 days past due) are managed by our offshore collections partner, and are actively overseen by domestic collections management.

Our delinquencies 17 to 43 days past due are managed by our Dallas, Texas collection facility personnel utilizing a manual and dialer effort. Delinquencies 44 to 60 days past due are managed by our Mesa, Arizona collection facility personnel. These collections are primarily manual (non-dialer) and are managed through daily queues of delinquent accounts for each collector to manage based on the customer's delinquency status.

Our back-end collections (generally 61+ days past due) are all handled through our Mesa collections facility primarily through our strategic manual process. The Mesa facility also manages our specialty groups such as new loans, bankruptcy, repossession, insurance, and military programs.

Collectors focus their efforts on obtaining customer payments, educating our customers on payment options and explaining our warranty (for vehicles in need of repair). All collector calls are recorded and recorded calls are randomly selected for quality review. Calls are evaluated based on (i) respect - listening to the customers and showing that we understand their situation; (ii) transparency - empowering customers with information to help them be successful; and (iii) options - being solution focused and helping to educate customers about different tools and programs available to them.

During 2011, we began installing anti-theft/GPS units on our vehicles. For collection purposes, these units are used to locate vehicles and assist us in repossessing vehicles more effectively when collection efforts have been exhausted. These units can also assist the customer in locating a stolen vehicle. These units do not include starter-interrupt functionality.

We also employ a recovery team that utilizes an extensive network of qualified third-party repossession agents throughout the country. These agents are assigned repossession rights to recover the vehicles at our direction and transport recovered vehicles to vehicle auctions. All repossessed vehicles are then sold at auction to establish a fair market recovery value. We utilize our vehicle acquisition and sales expertise in representing our vehicles at auction in order to maximize the recovery value of repossessed vehicles.

~~Indirect Lending - GO Financial~~

In December 2011, we launched a new indirect lending line of business, GFC Lending, LLC dba GO Financial (“GO Financial” or "GO"). GO provides subprime auto financing to third-party automobile dealerships. The third-party automobile dealerships originate retail installment sales contracts to finance purchases of vehicles by customers with demographics similar to DriveTime. GO enters into a dealer servicing agreement with each of the third-party automobile dealerships whereby, subsequent to verification of a qualifying customer loan, GO advances funds to the dealership through a non-recourse loan (“dealer advance”). Once originated, GO performs the loan servicing of both the dealer advance to the dealership and the underlying customer loan to the end customer. Another subsidiary of DT Acceptance Corporation ("DTAC") (“DTCC”) serves as the servicer of the underlying customer loans, on behalf of GO. GO generally does not have recourse to the dealerships with respect to customer loan performance. GO has a secured interest in each customer loan and the underlying collateral (the vehicle) and receives priority repayment of customer loans from cash flows collected by GO from customers.

The amount of each dealer advance from GO to a dealership is dependent upon the vehicle, our credit rating of the dealership and the credit quality of the customer, and is a percentage of the amount financed. GO provides the third-party dealership with a credit scoring model and underwriting guidelines. The dealer advance amount generally ranges from sixtywhole.

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percent (60%) to eighty percent (80%) of the customer loan. The exact amount of each dealer advance from GO to the dealership varies from loan to loan, based on a predetermined set of risk characteristics. Each individual dealership builds discrete pools of loans and dealer advances are repaid by the dealerships based on cash flows collected by GO from the pool of underlying customer loans. Based on certain qualifications, GO offers a pool-closing advance, which provides dealers incentive to originate the minimum number of loans required to close a pool.

In general terms, each dealer agreement is a form of cash flow sharing arrangement. The dealer agreement assigns the responsibilities for administering, servicing, and collecting the amounts due on customer loans from the dealership to GO. The dealer agreement states that as cash payments are received from the underlying pool of customer loans, twenty percent (20%) of the cash is allocated to GO as a return, covering both GO’s interest income on the dealer advance and a servicing fee related to the customer loan. Cash collections are then allocated to repayment of incremental and direct servicing expenses incurred by GO and then allocated to the pay down of the dealer advance. Once all dealer advances within a pool have been paid in full, the future payments received from customers continue to be allocated twenty percent (20%) to GO and the remaining cash, net of any incremental and direct servicing expenses, is allocated and remitted to the dealership.

We believe this indirect lending program provides an opportunity for independent dealerships to sell additional vehicles to customers with subprime credit, and provides us with incremental profitability to supplement our existing operations. At ~~December 31, 2012~~Carvana. ~~and~~ ~~2011, we had~~ ~~$41.0 million~~ ~~and~~ ~~$24.0 thousand, respectively, in dealer finance receivables outstanding.~~

~~GO's capital to date has been generated by contributions from its parent, DTAC. For the year-ended December 31, 2012, DTAC contributed approximately $41.7 million~~ to GO for its funding needs and for general corporate purposes. GO does not currently have a third party lending arrangement and is seeking to obtain its own warehouse lending facility apart from that of DriveTime.

With the introduction of the indirect lending line of business through GO, we have determined that we have two reportable business segments, one for our core DriveTime operations and one for GO. See Note 20 to our consolidated financial statements under “Item 8—Financial Statements and Supplementary Data” for financial information regarding our operating segments.

~~On-Line Auto Sales - Carvana~~

In January 2013, we launched Carvana. Carvana ~~LLC~~ is a ~~new~~ sales channel that enables a customer to buy a car, from click to delivery, 100% online over the internet. Carvana's target customer demographic is not specific to credit, and is geared to attract a broader credit spectrum and income classification than that of ~~DriveTime and GO Financial.~~DriveTime. Carvana (www.Carvana.com) is a ~~360-degree,~~360- degree, integrated used car buying experience that enables consumers to purchase used vehicles online through a highly efficient and transparent process. Initially ~~launching~~launched in Georgia, Carvana has expanded regionally with plans to expand ~~regionally, then nationally,~~nationally. Carvana’s business and operations ~~will~~ fully integrate all steps of the vehicle sales process, including: (a) vehicle search (b) vehicle tour and detail (c) credit scoring (d) customer financing (e) eContracting (f) verification of customer data (g) electronic down payment, and (h) vehicle delivery. In 2013 Carvana ~~is not expected~~opened up the Carvana Vending Machine, a facility in midtown Atlanta, which allows our customers to ~~have~~pick up their vehicle using a ~~significant net impact to our consolidated results for 2013.~~confirmation code generated during the sales process. To a certain extent, Carvana will continue to utilize DriveTime's existing infrastructure, with customized aspects of each component of the DriveTime business process. The customization has, and will continue to add value to the DriveTime infrastructure, as Carvana continues to develop.

Inilex. In June 2013 we acquired a 51% controlling interest in Inilex. Inilex is a provider of GPS technology and telemetry solutions and is our provider of GPS devices installed on vehicle inventory and is the provider of our GPS monitoring subscription offered to our customers.

Go Auto Exchange. In the fourth quarter of 2013, we entered into a joint venture partnership (as a minority partner) with Manheim to form Go Auto Exchange, LLC, a new separate and independent wholesale auction company focusing on independent dealers and the low-end vehicle segment. The first locations for Go Auto Exchange reside in Atlanta and Phoenix, with more locations expected in 2014. We believe this partnership will create economic efficiencies in our repo remarketing division of the Company.

Segments

On December 5, 2013, DTAC and GFC Lending ("GO Financial") entered into an agreement to sell GO Financial to the shareholders of DTAC. In consideration for the sale of GO Financial, DTAC received aggregate cash proceeds of $85.1 million and notes from the shareholders in the principal amount of $28.5 million. Through the sale of GO Financial we eliminated our direct lending operating segment. We have determined the sale of GO Financial qualifies for and is presented as a discontinued operation based on the guidance provided in ASC 205-20-55-3, and that we currently operate with only one reportable segment for operations. See Note 19 — Discontinued Operations to our consolidated financial statements for further information.

Industry

We operate in both the highly fragmented used vehicle sales and financing markets. During 2013, used vehicle sales were generated from approximately 53,000 franchise and independent dealers nationwide, according to industry data.

Used vehicle sales. The market for used vehicles is among the largest and most highly fragmented retail markets in the United States, with no single used vehicle retailer holding more than 1% of market share. Although the number of industry- wide dealerships has contracted in recent years due to the recessionary environment and franchise terminations, unit sales of used vehicles continue to increase. According to industry data, in 2013 there were 42 million used vehicle sale transactions, representing 73% of the overall vehicle market by unit sales. Sales typically occur through one of three channels: (i) the used vehicle retail operations of the approximately 15,800 manufacturer-franchised new car dealerships, which represented 37% of industry sales in 2013, (ii) approximately 37,000 independent used vehicle dealerships, which represented 34% of industry sales in 2013, and (iii) individuals who sell used vehicles in private transactions, which represented 29% of industry sales in 2013.

We believe that our integrated business model has several advantages over our competition and enables us to provide our customers with a unique buying experience featuring:

Ø Professional and courteous buying experience with “no haggle” pricing

Ø A variety of financing options including a traditional sale and our Cancel Anytime Lease™

Ø A five day “no questions asked” vehicle return policy and optional extended warranty programs

Ø Affordable low down payments relative to our industry peers

Ø Branded dealership facilities, each of which maintains a large inventory of quality, reconditioned used vehicles;

Ø Attractive suite of ancillary products including service contracts, GAP, and GPS, to meet the needs of our customer base

Ø Full service credit underwriting and loan servicing capabilities

Ø Ability for customers to make cash payments at over 16,000 locations nationwide

Ø College educated, retail experienced sales staff

Ø Ability to source quality and quantity of vehicles to meet our needs based on the significant amount of volume we represent at national wholesale auction houses.

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Our aptitude and experience in delivering customer satisfaction in an end-to-end solution, including the sale and financing of a vehicle and related products is supplemented through our vehicle variety, breadth and the interactive nature of our website.

Vehicle financing. The used vehicle financing segment is highly fragmented and is served by a variety of financing sources that include independent finance companies, “buy-here, pay-here dealers,” select traditional lending sources such as banks, savings and loans, credit unions, and captive finance subsidiaries of vehicle manufacturers. Many traditional lending sources have historically avoided the subprime market due to its relatively high credit risk along with the associated collection efforts and costs. However, due in part to the relatively strong performance of the subprime auto finance segment since the recession, in recent years traditional lending sources have increased their subprime lending.

The industry is generally segmented by credit characteristics of the borrower (prime versus subprime) with subprime borrowers generally classified as those with credit scores below 620. According to industry data, the percentage of U.S. population with a FICO score under 620 is approximately 24.5%. Originations for customers within the subprime used vehicle market averaged $32.6 billion per annum over the last six years, with 2013 reaching over $50.0 billion, up from just over $40.0 billion in 2012.

Within the subprime market, we cater to customers who have the income necessary to purchase a used vehicle, but because of their impaired or limited credit histories, cannot qualify for financing from traditional third-party sources as they generally do not have the required down payment. Our average customer is 26 to 42 years of age, has an annual income of $37,000 to $50,000, and has a FICO score between 461 and 554. Over the last five years, we have originated over 285,000 loans representing approximately $4.2 billion in receivable value and, as of December 31, 2013, our portfolio size was just under $2.0 billion.

DriveTime’s advantages in this industry include the integration of the retail vehicle sale and finance aspect of a used auto transaction. We believe our integrated sales and financing process, our human capital, transparent pricing, vehicle reconditioning and delivery processes and over 20 years of evaluating customer credit all provide us the unique ability to be competitive, agile and flexible in an ever changing industry and offer critical customer service to those who have been underserved elsewhere in the market.

Competition

Our vertically integrated business model exposes us to competition from both the used automotive retail industry and subprime financing industry. Both industries are highly fragmented and competitive. According to industry sources, as of December 31, 2013, there were approximately 35 million used car sales from both dealership and private sales with the top 100 groups representing 6% total market share combined. Our direct retail competition includes franchised and independent used vehicle dealers that operate in the subprime space and “buy-here, pay-here” dealerships. Financing entities such as national and regional banks, credit unions, and other financial institutions have also become significant lenders in the subprime space to take advantage of incrementally higher interest rates and margins available under this segment.

We believe we can effectively distinguish ourselves from the competition due to our over 20 year experience serving the subprime market, proprietary risk and pricing model and an established nationwide infrastructure for both retail sales and collections. We have also developed and maintained strategic relationships with both banking and industry auction houses that provide the financing and inventory needed to take advantage of business opportunities as they arise. We have maintained continuity in our executive leadership with extensive subprime lender/dealer experience with proven success through multiple economic cycles.

Integrated Information Systems

We manage the operations of our reconditioning facilities, dealerships, loan servicing centers, and our accounting and reporting functions with an integrated information system. When a vehicle is purchased, the acquisition is recorded and a unique identifier is assigned to the vehicle which is utilized within the system to track and report on the vehicle throughout the reconditioning and sales processes. When a sale is consummated and a loan is generated, the system adds the loan to our loan servicing and collection systems. We use both local and wide-area data and voice communication networks that allow us to centrally account for all purchase and sale activity and service large volumes of contracts from our collections facilities. We have developed comprehensive databases and management tools, including credit scoring models, static pool analyses, behavioral scoring, and predictive modeling to set inventory acquisition and underwriting guidelines, structure contract terms, establish collection strategies and monitor underwriting effectiveness.

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Our systems and databases are maintained in secured data centers which are configured with redundant power, cooling, and network access. Firewalls, access controls and other advanced features are used to protect customer information from unauthorized access. Fire protection systems, including passive and active design elements, are installed. We utilize multiple electrical backup systems in an effort to ensure uninterruptible power. Our network features multiple wide area network connections using redundant routing architecture with multiple access points to public networks. Systems and databases are configured for high availability with a comprehensive disaster recovery plan in place to cover intermittent or extended periods of interruption in one or more of our critical systems. We periodically test our disaster recovery procedures.

Regulation

Our sales, finance, and collections operations are subject to ongoing regulation, supervision, and licensing under various federal, state, and local statutes, ordinances, and regulations. Among other things, these laws require that we obtain and maintain certain licenses and qualifications, limit or prescribe terms of the contracts that we originate, provide specified disclosures to customers, limit our right to repossess and sell collateral, and prohibit us from discriminating against certain customers.

Our financing activities with customers are subject to federal truth-in-lending, fair credit reporting, and equal credit opportunity laws and regulations, as well as state and local motor vehicle finance laws, installment finance laws, usury laws, and other installment sales laws. Our debt collection activities with customers are subject to federal fair debt collection practices and fair credit reporting laws and regulations. We are also subject to federal and state consumer protection, privacy, and related laws and regulations. We charge fixed interest rates in excess of traditional prime and non-prime finance companies on the contracts originated at our dealerships. Some states regulate finance fees and charges that may be paid as a result of vehicle sales.

The U.S. lending and used vehicle sale industries are highly regulated under various U.S. Federal laws, including the Truth-in-Lending, Truth-in-Savings, Equal Credit Opportunity, Fair Credit Reporting, Fair Debt Collection Practices Service Members Civil Relief, and Unfair and Deceptive Practices Acts, as well as various state laws. We are subject to inspections, examinations, supervision, and regulation by each state in which we are licensed and the Federal Trade Commission. Additional legal and regulatory matters affecting the Company’s activities are further discussed in the Item 1A-Risk Factors section of this annual report on Form 10-K.

At the federal level, Congress enacted comprehensive financial regulatory reform legislation on July 21, 2010. A significant focus of the new law (the Dodd-Frank Act) is heightened consumer protection. The Dodd-Frank Act established a new body, the Consumer Financial Protection Bureau (“CFPB), which has regulatory, supervisory, and enforcement powers over providers of consumer financial products and services, including us, including explicit supervisory authority to examine and require registration of non-depository lenders and promulgate rules that can affect the practices and activities of lenders. Future rule making could also ultimately lead to our being under the examination authority of the CFPB.

Although the Dodd-Frank Act expressly provides that the CFPB has no authority to establish usury limits, some consumer advocacy groups have suggested that various forms of alternative financial services or specific features of consumer loan products should be a regulatory priority, and it is possible that at some time in the future the CFPB could propose and adopt rules making such lending services materially less profitable or impractical, which may impact finance loans or other products that we offer.

In March 2013, the CFPB issued a bulletin recommending that indirect vehicle lenders take steps to monitor and impose controls over dealer markup policies whereby dealers charge consumers higher interest rates, with the markup shared between the dealer and the lender. While we are not an indirect lender, changes such as this could be a precursor to other changes, any or all of which could adversely affect the profitability of vehicle financing.

The CFPB is also conducting supervisory audits of large vehicle lenders and has indicated it intends to study and take action with respect to possible Equal Credit Opportunity Act (“ECOA”) “disparate impact” credit discrimination in indirect vehicle finance. The CFPB has entered into a consent decree with one lender and could enter into consent decrees with more lenders on disparate impact claims. These actions could negatively impact the business of the affected lenders, and potentially the business of dealers and other lenders in the vehicle finance market. This impact on dealers and lenders could increase our regulatory compliance requirements and associated costs.

In addition to the grant of certain regulatory powers to the CFPB, the Dodd-Frank Act gives the CFPB authority to pursue administrative proceedings or litigation for violations of federal consumer financial laws. In these proceedings, the CFPB can obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief) and monetary penalties. See "—Item 1A. Risk Factors" for additional information on the CFPB investigation.

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To ensure compliance with the various regulations affecting our business, we have implemented certain systematic processes to notify us of potential compliance violations. We produce certain exception reports to track compliance and to identify trends within our collection activities. We utilize this information to promptly identify and address issues or deficiencies and to provide targeted training to our collectors.

Environmental

We are subject to a complex variety of federal, state, and local laws, regulations, and permits relating to the environment and human health and safety. These requirements change frequently tend to become more stringent over time and are a significant consideration for us as our operations involve the use of storage tanks, disposal of wastewater, and emission of hazardous substances to the air. We use, store, recycle, and dispose of hazardous materials, such as motor oil, oil filters, transmission fluids, antifreeze, refrigerants, paints, thinners, batteries, cleaning products, lubricants, degreasing agents, tires, and fuel. If we violate or fail to comply with these laws, regulations, or permits, we could be fined or otherwise sanctioned by regulators. Pursuant to such requirements, we have made and will continue to make capital and other expenditures.

Intellectual Property

We have an ongoing program under which we evaluate our intellectual property and consider appropriate federal and state intellectual property related filings. We believe that there is significant value in our trademarks, but that our business as a whole is not materially dependent on our trademarks. We believe we have taken appropriate measures to protect our proprietary rights.

Employees

At December 31, ~~2012~~2013 we employed ~~2,530~~3,165 people, consisting of ~~1,820~~2,143 people in ~~our~~ retail operations, ~~440~~786 people in ~~our~~ portfolio operations and ~~230~~236 people in ~~our~~ corporate ~~operations and~~ 40 ~~in our indirect lending~~ operations. None of our employees are covered by a collective bargaining agreement and we generally believe ~~that~~ relations with our employees are good.

~~Competition~~

We operate in a highly fragmented and competitive industry. Our primary competitors include a number of used vehicle departments of franchise dealers, “buy-here, pay-here” dealerships, and independent used vehicle dealers that operate within the subprime segment of the used vehicle sales industry. We also compete with a broad range of financial institutions and independent finance companies offering financing in the subprime segment and the banks and finance companies that purchase their loans. We continually strive to successfully distinguish ourselves from our competitors and compete in this

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industry in a cost-effective manner. In addition, periodically larger companies with significant financial and other resources have entered or announced plans to enter the used vehicle sales and/or finance industry, or relax their credit standards and compete with us, at least at the upper end of our customer segment. These dealerships also compete with us in areas such as the purchase of inventory, which can result in increased wholesale costs for used vehicles and lower margins. These dealerships and finance companies could also enter into direct competition with us at any time at the lower end of the subprime market.

While traditional financial institutions have not consistently serviced subprime borrowers, the high interest rates and margins of companies involved in subprime financing have, at times, encouraged certain of these traditional institutions to enter, or to contemplate entering, this market. During the past economic downturn, many finance companies reduced or eliminated subprime auto financing. More recently, however, companies have re-entered our market presenting new competition, which has resulted in increased subprime auto originations nationwide. Traditional lenders have also increased their subprime auto finance originations.

~~Integrated Information Systems~~

We manage the operations of our reconditioning facilities, dealerships, loan servicing centers, and our accounting and reporting functions with an integrated information system. When we purchase a used vehicle, our purchasing group records the purchase in our system, and the system adds the vehicle to inventory and makes the appropriate accounting entries for vehicle cost. Reconditioning costs are also tracked for each vehicle. When a sale occurs and a loan is generated, the system adds the loan to our loan servicing and collection systems. We use both local and wide-area data and voice communication networks that allow us to account for all purchase and sale activity centrally and to service large volumes of contracts from our centralized collections facilities. We also have internally developed comprehensive databases and management tools, including credit scoring models, static pool analyses, behavioral scoring, and predictive modeling to set inventory acquisition and underwriting guidelines, structure contract terms, establish collection strategies, and monitor underwriting effectiveness.

Our systems and databases are maintained in secured data centers. Our data centers are configured with redundant power, cooling, and network access. Fire protection systems, including passive and active design elements, are installed. We utilize multiple backup systems in an effort to ensure uninterruptible power. Our network features multiple wide area network connections using a redundant routing architecture and multiple access points to public networks. Systems and databases are configured for high availability and disaster recovery. We have a comprehensive disaster recovery plan in place to cover intermittent or extended periods of interruption in one or more of our critical systems and we periodically test our disaster recovery procedures.

~~Industry~~

~~We operate in the large and highly fragmented used vehicle sales and financing markets. According to CNW Research, for~~ ~~2012, used vehicle sales were generated from~~ ~~54,000~~ ~~franchise and independent dealers nationwide.~~

~~Used vehicle sales~~. The market for used vehicles is among the largest and most highly fragmented retail markets in the United States, with no single used vehicle retailer holding more than 1% of market share. Although the number of industry-wide dealerships has contracted in recent years, due to the recessionary environment and franchise terminations, unit sales of used vehicles have recently increased. According to CNW, in ~~2012~~ ~~there were~~ ~~40.5 million~~ ~~used vehicle sale transactions, representing~~ ~~73.7%~~ ~~of the overall vehicle market by unit sales. Sales typically occur through one of three channels: (i) the used vehicle retail operations of the approximately~~ ~~16,000~~ ~~manufacturer-franchised new car dealerships, which represented~~ ~~37.0%~~ ~~of industry sales in~~ ~~2012, (ii) approximately~~ ~~38,000~~ ~~independent used vehicle dealerships, which represented~~ ~~34.6%~~ ~~of industry sales in~~ ~~2012, and (iii) individuals who sell used vehicles in private transactions, which represented~~ ~~28.4%~~ ~~of industry sales in~~ ~~2012~~.

~~Vehicle financing. The industry is generally segmented by credit characteristics of the borrower (prime versus subprime). According to CNW, originations for customers within the subprime used vehicle market averaged~~ ~~$29.1 billion~~ ~~per annum over the last five years ending~~ ~~December 31, 2012, and increased to~~ ~~$43.1 billion~~ in ~~2012, a~~ ~~$2.5 billion~~ ~~increase over~~ ~~2011~~.

The used vehicle financing segment is highly fragmented and is served by a variety of financing sources that include independent finance companies, “buy-here, pay-here dealers,” and select traditional lending sources such as banks, savings and loans, credit unions, and captive finance subsidiaries of vehicle manufacturers. Many traditional lending sources have historically avoided the subprime market due to its relatively high credit risk and the associated collection efforts and costs, however, in recent years traditional lending sources have increased their subprime lending.

~~Our market~~. Within the subprime market, we cater to customers who have the income necessary to purchase a used vehicle, but because of their impaired credit histories, cannot qualify for financing from traditional third-party sources

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~~generally because they do not have the required down payment. Our average customer is~~ 30 to 45 ~~years of age, has an annual income of $35,000 to $50,000, and has a FICO score between~~ ~~475~~ ~~and~~ ~~550. A customer with a FICO score below 620 is typically considered to have subprime credit.~~

~~Regulation~~

The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law on July 21, 2010, established a new regulator, the Consumer Financial Protection Bureau, to oversee consumer financial products and services, including mortgage, credit card, payday lending and auto finance. The Bureau’s authority includes rule making, enforcement and an array of enforcement tools ranging from fines to legal action. The Bureau is also establishing cooperation agreements with various agencies including the Federal Trade Commission and State Attorneys General. The Federal Trade Commission retains certain of its rule making and enforcement authority, including enforcement authority over the Federal Debt Collections Practices Act and for warranty issues, and under the new law it is required to prescribe rules addressing unfair and deceptive practices by auto dealers.

~~Environmental~~

We are subject to a complex variety of federal, state, and local laws, regulations, and permits relating to the environment and human health and safety. These requirements change frequently and tend to become more stringent over time, and are a significant consideration for us as our operations involve the use of storage tanks, the disposal of wastewater, and the emission of hazardous substances to the air, as well as the use, storage, recycling, and disposal of hazardous materials, such as motor oil and filters, transmission fluids, antifreeze, refrigerants, paints, thinners, batteries, cleaning products, lubricants, degreasing agents, tires, and fuel. If we violate or fail to comply with these laws, regulations, or permits, we could be fined or otherwise sanctioned by regulators. Pursuant to such requirements, we have made and will continue to make capital and other expenditures.

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Item 1A. Risk Factors

You should carefully consider the following risks and the other information contained in this report, including our consolidated financial statements and related notes and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The risks described below are those that we believe are the material risks we face. Any of the risks described below, and others that we may not anticipate, could significantly and adversely affect our business, prospects, financial condition, operating results ~~of operations,~~ and liquidity.

~~We require substantial capital~~Business Risks

Our business could be negatively impacted if our access to ~~finance our business.~~funding is reduced.

We rely in part on asset-backed securitizations to fund our business operations. The asset-backed securities (“ABS”) market, along with credit markets in general, experienced unprecedented disruptions during the recent economic downturn. Although market conditions have ~~borrowed,~~improved since 2009, for a number of years following the recent economic downturn, certain issuers experienced increased risk premiums while there was a relatively lower level of investor demand for certain ABS (particularly those securities backed by subprime collateral). In addition, the risk of volatility surrounding the global economic system and uncertainty surrounding regulatory reforms such as the Dodd-Frank Act continue to create uncertainty around access to the capital markets. As a result, there can be no assurance that we will continue to ~~borrow, substantial amounts~~be successful in selling securities in the ABS market. Adverse changes in our ABS program or in the ABS market generally could materially adversely affect our ability to securitize loans on a timely basis or on terms acceptable to us. This could increase our cost of ~~capital~~funding, reduce our margins or cause us to hold assets until investor demand improves.

We also depend on bond financings, such as our Senior Secured Notes due 2017 ("Senior Secured Notes"), and various credit facilities, including our portfolio warehouse facilities, to fund our operations and liquidity needs. We cannot guarantee that these financing sources will continue to be available beyond the current maturity dates, on reasonable terms, or at all. As we ~~periodically refinance such debt. If~~continue to expand our operations and our volume of loan originations increases, we may require the expansion of our borrowing capacity on our existing credit facilities or the addition of new credit facilities. The availability of these financing sources depends, in part, on factors outside of our control, including regulatory capital treatment for unfunded bank lines of credit, the financial strength and strategic objectives of the banks that participate in our credit facilities, and the availability of bank liquidity in general. In the event of a sudden or unexpected shortage of funds in the banking system, we cannot ~~obtain the financing~~be sure that we ~~need, or cannot do so on a timely basis and on favorable terms, our liquidity could be materially adversely affected.~~

At ~~December 31, 2012, we had approximately~~ ~~$1.4 billion~~ ~~in aggregate principal amount of indebtedness outstanding, which includes~~ ~~$57.2 million~~ under portfolio warehouse facilities that are due to expire between 2013 and 2014, depending on the facility. The portfolio warehouse facilities contain term-out features resulting in final maturities between 12 and 24 months from their expiration dates, depending on the facility.

We historically have restored capacity under our portfolio warehouse facilities from time to time by securitizing portfolios of finance receivables and/or obtaining bank term financing. The volatility of the securitization market and our ability to successfully and efficiently complete securitizations and bank term financings are affected by the condition of the financial markets generally, conditions in the asset-backed securities market specifically, the performance of our securitized portfolio and the macro-economic environment generally.

Since the disruption in the securitization markets at the onset of the financial crisis a few years ago, we have obtained alternative financing through a variety of debt instruments, including bank term financing through which we entered into private securitization transactions, securing over $800.0 million in portfolio financing, $60.1 million in third party junior secured notes, $200.0 million in senior secured notes, and $75.0 million in shareholder financings.

~~There is a risk that in the future, we may not~~will be able to ~~secure similar additional~~avail ourselves of new financing execute securitizations, or renew loans and facilities if lenders and counterparties are also facing liquidity and capital challenges. Such an inability to obtain or renew financing could adversely affect our liquidity, financial condition, and results of operations.

~~Our substantial debt could have adverse effects on our business and we may incur additional indebtedness~~without incurring high funding costs, a reduction in the ~~future.~~term of funding instruments, or the liquidation of certain assets.

For the year ended December 31, 2012, we paid $73.0 million in cash for interest charges associated with our debt obligations. We may incur additional debt in the future, causing our cash payments for interest to increase. The degree to which we are leveraged, and to which we may become leveraged, could ~~have adverse effects on~~negatively impact our ~~business, including as follows:~~

~~Our~~ ability to obtain additional financing in the future, ~~may be impaired.~~

A significant portion of our cash flow from operations must be dedicated to the payment of interest and principal on our debt, and related expenses, which reduces the funds available to us for our operations.

~~Some of our debt is and will continue to be at variable rates of interest, which may result in higher interest expense in the event of increases in market interest rates.~~

The agreements that govern our indebtedness contain, and any agreements to refinance our indebtedness likely will contain, financial and restrictive covenants, and our failure to comply with such covenants may result in an event of default, decrease in advance rate, or increase in interest rate, which, if not cured or waived, could result in the acceleration of that indebtedness and trigger an event of default under other indebtedness.

~~Our level of indebtedness will~~ increase our vulnerability to general economic downturns and adverse industry ~~conditions.~~

~~Our debt service obligations could~~conditions, limit our ~~flexibility in planning for, or reacting~~ability to respond to changes in our ~~industry.~~

~~Our leverage could~~industry, and place us at a competitive disadvantage vis-à-vis our ~~competitors who~~competitors. If continued access to the sources of funding described above is not available to us on a regular basis for any reason, we may have ~~less leverage relative~~ to ~~their overall capital structures.~~

~~Interest rates affect our profitability and cash flows and an increase in interest rates will increase our interest expense and lower our profitability, cash flows, and liquidity.~~

~~Much~~curtail or suspend certain business operations, including loan origination activities. Downsizing the scale of our financing income results from the difference between the rate of interest that we pay on the funds we borrow and the rate of interest that we earn on the finance receivables in our portfolio. While we earn interest on our finance receivables at a fixed rate, we pay interest on certain of our borrowings at variable rates. When interest rates increase, our

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~~interest expense increases. Increases in our interest expense that we cannot offset by increases in interest income could~~business would have a material adverse ~~impact~~effect on our ~~profitability~~financial position, liquidity, and ~~liquidity. Correspondingly, a significant~~operating results.

A reduction in our average APR could have a material adverse impact on our profitability, if not offset by a corresponding reduction in our loan losses, borrowing costs, or increases to gross margin on vehicles sold.

~~Reduction~~ in the credit rating of our ~~senior secured notes due 2017 ("~~Senior ~~Notes")~~Secured Notes, or any of our credit facilities, could restrict our access to the capital markets ~~and adversely affect our liquidity, financial condition and results of operations.~~

Credit rating agencies evaluate us, and their ratings of our Senior Secured Notes and creditworthiness are based on a number of factors. These factors include our financial strength and other factors not entirely within our control, including conditions affecting the financial services industry generally. There can be no assurance that we will maintain our current ratings. Failure to maintain those ratings could, among other things, adversely limit our access to the capital markets and affect the cost and other terms upon which we are able to obtain financing, which may adversely affect our liquidity, financial condition and ~~results of operations.~~

~~We may not be able to generate sufficient cash flow to meet our debt service obligations.~~operating results.

Our ~~ability to generate sufficient cash flow from operations to make scheduled payments on our debt~~indebtedness and related obligations ~~will depend on our future financial performance~~are significant and cash flows, which will be affected by a range of economic, competitive, and business factors, many of which are outside of our control. If we do not generate sufficient cash flow from operations, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments, or seeking to raise additional capital. The terms of the agreements that govern our indebtedness contain limitations on our ability to incur additional indebtedness. We cannot assure you that any refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, or that additional financing could be obtained on acceptable terms, if at all, or would be permitted under the terms of the agreements governing our indebtedness then outstanding. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms or at all, would have a material adverse effectthem impose restrictions on our ~~business, financial condition,~~business.

At December 31, 2013, we had approximately $1.7 billion in aggregate principal amount of indebtedness outstanding, which includes $283.4 million under portfolio warehouse facilities that are due to expire between 2014 and ~~results~~2015, depending on the facility. This indebtedness reduces operational flexibility and creates default risks.

Table of ~~operations, as well as on our ability to satisfy our debt obligations.~~Contents

Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in an event of default or limits on our ability to borrow funds to finance our business.

The agreements that govern our indebtedness (including the indenture governing the ~~notes)~~Senior Secured Notes) contain, and any agreements that govern future indebtedness may contain, covenants that impose significant operating and financial restrictions on us, including, among other things, our ability to:

incur additional ~~debt;~~indebtedness;

incur liens;

sell or otherwise dispose of assets;

make investments, loans, or advances;

engage in merger and acquisition activity;

pay dividends, redeem capital stock, or make certain other restricted payments or investments;

engage in certain sale and leaseback transactions;

enter into new lines of business; and

enter into transactions with our affiliates.

~~The agreements that govern our indebtedness also contain certain covenants relating to~~Additionally, the ~~performance of our portfolio, which ultimately impacts the manner in which we operate our business. The~~ advance rates on our portfolio warehouse facilities may be reduced if our portfolio does not perform as expected, we exceed certain extension limits, term limits, delinquency limits, or fail to meet the required collateral levels. The ~~agreements governing any future indebtedness could~~portfolio warehouse facilities also contain ~~financial~~term-out features resulting in final maturities between 12 and ~~other covenants more restrictive than those that are currently applicable to us.~~24 months from their expiration dates, depending on the facility.

Failure to comply with the agreements governing our indebtedness could result in an event of default under one or more such agreements, cause cross-defaults on other agreements governing our indebtedness, including the Senior Notes, and prevent us from securing alternate sources of funds necessary to operate our business. Any of these events could have a material adverse effect on our results of operations and financial condition. From time to time in the past, we have breached certain of these technical or other ~~covenants under the agreements governing our indebtedness,~~restrictions, and have obtained waivers from the applicable lenders in such instances. In a future event of default or breach of covenants, there can be no assurance we will be able to receive such waivers, and our inability to obtain these waivers may result in events of default and cross default under, and the acceleration of, applicable indebtedness, each of which would have a material adverse impact on our ability to maintain the levels of funding needed to continue to expand and operate our business.

Our ability to obtain certain financings in the future is also restricted by the fixed charge coverage ratio of the debt incurrence test under the indenture relating to the Senior Secured Notes. We do not currently meet ~~these requirements nor do we anticipate meeting~~

~~Table~~the fixed charge coverage ratio test under the indenture, which does not constitute a breach of ~~Contents~~

~~these requirements for the foreseeable future, which~~covenant but will limit our ability to obtain certain financings, ~~especially~~including the incurrence of ~~senior~~ unsecured debt.

~~There is a high degree~~Our business will be negatively impacted if we are not able to generate sufficient cash flow to meet our debt service obligations.

Our ability to make payments of ~~risk associated with borrowers with subprime credit. The allowance for credit losses that we have established to cover losses inherent~~principal and interest on indebtedness will depend in ~~our loan portfolio may not be sufficient or may need to be increased, which could have a material adverse effect~~part on our ~~results of~~cash flows from operations, ~~and the value of your collateral.~~

~~Substantially all of the sales financing we extend and the loans that we service are with borrowers with subprime credit. Loans to borrowers with subprime credit have lower collection rates and~~which are subject to ~~higher loss rates than loans to borrowers~~economic, financial, competitive and other factors beyond our control. For the year ended December 31, 2013, we paid $75.0 million in cash for interest charges associated with ~~prime credit. Although~~our debt obligations. We cannot be certain that we ~~have extensive experience in subprime auto lending, there can be no assurance that our collections and loss rates~~ will ~~not increase over time.~~

We maintain ~~an allowance for credit losses to cover losses on an aggregate basis at~~ a level ~~we consider~~of cash flows from operations sufficient to ~~cover estimated losses inherent in~~permit us to meet our portfolio of receivables. On a quarterly basis we review and may make upward or downward adjustments to the allowance. However, our allowance may not be sufficient to cover losses inherent in our portfolio, and we may need to increase our allowance for reasons related to, among other things, the continued weak economic environment and uncertaintydebt service obligations in the housing market, or significant increases in delinquencies or charge-offs. A significant variation in the timing of or increase in credit losses in our portfolio or a substantial increase in our allowance or provision for credit losses would have a material adverse effect on our results of operations.

In addition, because a portion of the collateral securing the notes consists of receivables, the remaining residual property rights in receivables securing other financings (and the value of which are therefore determined by the value of receivables sold or otherwise pledged) or the remaining residual value of special purpose entities that have themselves put in place financings secured by receivables (and the value of which are therefore determined by the value of receivables owned), the value of the collateral securing the notes will be sensitive to the performance of the underlying receivables.

~~Our focus on customers with subprime credit may raise concerns on the part of future business partners, lenders, counterparties, and regulators, which may adversely affect our business.~~

We focus solely on the subprime segment of the used vehicle sales and financing market and provide loans to borrowers with subprime credit who, as a class, have lower collection rates and are subject to higher loss rates than prime and near prime borrowers. In addition, the subprime industry has been the subject of extensive media attention, enhanced regulatory scrutiny, and Congressional hearings as a result of what has been characterized as inappropriate consumer practices by subprime lenders in the mortgage industry.

~~These issues may raise concerns on the part of future business partners, lenders, counterparties, and regulators. As a result,~~future. If we are unable to ~~assess whether, and~~generate sufficient cash flows from operations to ~~what extent, they~~service our debt, we may ~~have an adverse effect on our business in the future, including on our reputation, revenues and profitability. In particular, we cannot predict whether these issues may negatively affect our ability~~be required to ~~obtain new~~undertake alternative financing ~~to support our operations~~plans, such as selling assets, refinancing all or ~~any necessary regulatory approvals or business licenses in connection with our plans to expand our business, either of which could have~~ a ~~material adverse effect on our business.~~

Our proprietary credit scoring system may not perform as expected and fail to properly quantify the credit risks associated with our customers, which could have a material adverse effect on our financial condition and results of operations.

~~We depend on the accuracy and completeness of information furnished to us by~~existing debt, reducing or on behalf of our customers. If we and our systems are unable to detect any misrepresentations in this information, we could experience a material adverse effect on our results of operations and financial condition.

~~Our typical customers have limited~~delaying capital investments, or no credit histories. In deciding whether to extend credit to customers, we rely heavily on information furnished to us by or on behalf of our customers, including employment and personal financial information. If a significant percentage of our customers intentionally or negligently misrepresented any of this information, and we and our systems did not detect such misrepresentations, this could have a material adverse effect on our ability to effectively manage our credit risk, which could have a material adverse effect on our results of operations, cash flows, and financial condition.

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~~Our proprietary vehicle pricing system may not perform as expected and fail to properly set the retail price and effective margin associated with our used vehicle inventory for sale.~~

We have developed, and revise from time to time, a complex pricing engine that utilizes several variables in determining the retail price of our vehicles, including cost of vehicle, cost of reconditioning, relative market prices, and other external data to price our vehicles competitively. The failure of our pricing engine to properly calculate a retail price for each vehicle could have a material adverse effect on our results of operations and financial condition.

~~General economic conditions and their effect on automobile sales may adversely affect our business.~~

Vehicles sales historically have been impacted by economic factors. Many factors affect the industry, including general economic conditions, consumer confidence, the level of personal discretionary income, interest rates, the price of fuel, and credit availability. Deteriorating economic and market conditions throughout the United States or within a region in which we do business could result in a decline in vehicle sales, a decrease in collectability of our finance receivables, or an increase in vehicle pricing. We cannot assure you that the industry will not experience sustained periods of decline in vehicle sales in the future. Any future decline could have a material adverse effect on our business.

We are subject to significant governmental regulation, and if we are found to be in violation of any of the federal, state, or local laws or regulations applicable to us, our business could suffer. We are also subject to legal and administrative proceedings which, if the outcomes are unfavorable to us, could adversely affect our business, operating results, and prospects.

The automotive retail and finance industries are subject to a wide range of federal, state, and local laws and regulations, such as local licensing requirements, and retail financing, debt collection, consumer protection, environmental, health and safety, creditor, wage-hour, anti-discrimination, and other employment practices laws and regulations. The violation of these or future requirements or laws and regulations can result in administrative, civil, or criminal sanctions against us, which may include a cease and desist order against the subject operations or even revocation or suspension of our license to operate the subject business. As a result, we have incurred and will continue to incur capital and operating expenditures and other costs to comply with these requirements, laws, and regulations. Further, over the past several years, private plaintiffs and federal, state, and local regulatory and law enforcement authorities have increased their scrutiny of advertising, sales, financing, and insurance activities in the sale and leasing of motor vehicles. In addition, many state attorneys general have been increasingly active in the area of consumer protection. We are also subject, and may be subject in the future, to inquiries and audits from state and federal regulators.obtaining additional financing. There can be no assurance that ~~such activities will not continue in the future or have a material adverse effect on our business.~~

From time to time, we may be involved in various legal and administrative proceedings. We are also currently the subject of investigative inquiries from the Consumer Protection Division of the Office of Texas Attorney General. See “Item 3—Legal Proceedings.” It is not feasible to predict the outcomeany of these ~~proceedings~~alternatives will be available on terms acceptable to us, or ~~any claims made against us, and the outcome of any such proceedings or claims could adversely affect our reputation, results of operations, or financial condition.~~

We are also subject to the Dodd-Frank Act of 2010, which represents a comprehensive overhaul of the rules and regulations governing the financial services industry. Although the regulatory decisions regarding its implementation continue many parts of the Dodd-Frank Act are now in effect, including the establishment and operation of the Consumer Financial Protection Bureau (the “CFPB”), as an independent entity within the Federal Reserve. The CFPB has the authority to promulgate consumer protection regulations applicable to all entities offering consumer financial services or products, including non-bank commercial companies in the business of extending credit and servicing consumer loans. Although the CFPB has begun operations and now has a director, the exact scope and substance of the regulations that may be adopted by the CFPB, particularly as they relate to our operations, are still unknown at this time. However, on April 12, 2012, the CFPB delivered a Civil Investigative Demand to DriveTime Automotive Group ("DTAG") requesting that DTAG produce certain documents and information and answer questions relating to certain components of the business of DTAG and its affiliates. The CFPB has not alleged a violation by DTAG of any law and DTAG is cooperating with the CFPB's requests for information. We are currently in the process of providing the documents and information requested by the CFPB. It is not feasible to predict the outcome of this investigation, and although no assertions or claims have been made against us, an adverse action by the CFPB could adversely affect our reputation, results of operations, or financial condition.

The Dodd-Frank Act contains numerous other provisions affecting financial industry participants of all types, including third parties that we deal with in the course of our business, such as rating agencies, insurance companies, and investors. Its implementing regulations have had, and likely will continue to have, the effect of increasing the compliance costs of operating our business. Additionally, its continued implementation may further impact our operating environment in other substantial and unpredictable ways that could have a material adverse effect on our financial condition and results of operations.all.

Changes in ~~laws, regulations, or policies~~interest rates may adversely impact our profitability and risk profile

Our profitability is dependent, at least in part, on the difference between the interest rates we earn on our finance receivables (which are fixed) and the interest rates we pay on our borrowings (which may be variable). Thus, when interest rates increase, the overall rates we pay on our borrowings may increase, while the rates we earn on our finance receivables remain the same, potentially reducing our profitability. In addition, rates charged on new customer loan originations may be limited by market and competitive conditions, restricting our ability to pass on increased interest costs to the consumer. Further, increases in interest rates may reduce the volume of vehicles we sell and loans we originate, which would negatively affect our ~~business.~~

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The laws and regulations governing our lending, servicing, debt collection, and insurance activities or the regulatory or enforcement environment at the federal level or in any of the states in which we operate may change at any time and may have an adverse effect on our business. For example, the CFPB is currently conducting studies on and reviewing consumer lending related regulations that affect our industry. The CFPB has also commenced the examination of banks and non-banking institutions, with a focus on consumer lending compliance. These activities may lead to changes in laws and regulations governing these activities that apply to our business.

In addition, the Patient Protection and Affordable Care Act of 2010, as it is phased in over time, will significantly affect the administration of health care services and could significantly impact our cost of providing employees with health-care insurance.

We are unable to predict how these or any other future legislative or regulatory proposals or programs will be administered or implemented or in what form, or whether any additional or similar changes to statutes or regulations, including the interpretation or implementation thereof, will occuroperating results in the ~~future. Any such action could affect us in substantial and unpredictable ways and could have an adverse effect on our results~~absence of ~~operations and financial condition.~~

Our inability to remain in compliance with regulatory requirements in a particular jurisdiction could have a material adverse effect on our operations in that market and on our reputation generally. No assurance can be given that applicable laws or regulations will not be amended or construed differently or that new laws and regulations will not be adopted, either of which could materially adversely affect our business, financial condition, or results of operations.

Due to the most recent economic recession and continued uncertainty in capital markets, we have in the past, and could be required in the future to reduce the scope of our operations, which could have a material adverse effect on our results of operations, cash flows, and financial condition.

During 2008 and early 2009, we contracted our operations in response to the economic crisis. While we expanded our operations and opened new dealerships during 2010, 2011, and 2012, if we again experience economic uncertainty or economic deterioration, we could be required to reduce the scope of our operations. If we choose to close dealerships and/or reduce portfolio originations in the future, we will face certain additional risks, including risks related to:

~~an inability to obtain anticipated cost reductions;~~

~~legal and regulatory risks related to closed stores and lay-offs, including the risk of lawsuits;~~

~~vandalism, theft, or other damages to vacant stores;~~

~~diversion of management's attention from normal business operations; and~~

~~failure to generate sufficient cash flows to help fund our operations.~~mitigating factors.

If we were to lose the right to service our portfolio of receivables, we could experience a decrease in collections, which could have a material adverse ~~effect~~impact on our ~~results of operations and financial condition.~~business

We retain the right to service all receivables that we finance, including those pledged as collateral to our portfolio warehouse facilities and those sold to securitization trusts. We are entitled to a fee for our servicing activities, which generates cash flow for operations. Subject to certain conditions, if we experience an event of default under the agreements governing our financing arrangements, we may lose the right to service our receivables. Loss of this right could have a material adverse effect on our cash flows. In addition, if we lose our servicing rights, ~~transitioning~~these servicing activities could be transitioned to a ~~third party could result in interruptions in collections, which could decrease the likelihood that the receivables will be repaid. Moreover, a replacement servicer~~third-party who might lack the requisite experience in servicing ~~such~~ subprime receivables. As a result, we may experience decreased collections, which could have a material adverse effect on our operating results ~~of operations~~ and financial condition and on the value of the collateral securing the ~~notes.~~Senior Secured Notes and certain of our credit facilities.

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There is a high degree of risk associated with borrowers with subprime credit. The allowance for credit losses that we have established to cover losses in our loan portfolio may not be sufficient or may need to be increased, which could have a material adverse effect on our operating results and the value of the collateral securing the Senior Secured Notes and certain of our credit facilities.

Substantially all of the loans that we originate and service are with borrowers with subprime credit. Loans to borrowers with subprime credit have lower collection rates and are subject to higher loss rates than loans to borrowers with prime or near prime credit. Although we have extensive experience in subprime auto lending, there can be no assurance that our collection rates will not decrease and that our loss rates will not increase over time.

We maintain an allowance for credit losses to cover losses on an aggregate basis at a level we consider sufficient to cover estimated losses inherent in our portfolio of receivables, though our allowance is not meant to cover life of loan losses. On a quarterly basis we review and may make upward or downward adjustments to the allowance. However, our allowance may not be sufficient to the actual cover losses in our portfolio, and we may need to increase our allowance for reasons related to, among other things, continued economic uncertainty or significant increases in delinquencies or charge-offs. A significant variation in the timing of or increase in credit losses in our portfolio or a substantial increase in our allowance or provision for credit losses would have a material adverse effect on our operating results.

In addition, because certain elements of our financings are collateralized by the loans we originate, including the Senior Secured Notes (which are secured, in part, by receivables), other financings secured by receivables, and the financings of special purpose entities that have issued securities secured by receivables, the value of such collateral will be sensitive to the performance of the underlying receivables.

Our proprietary credit scoring system may fail to properly quantify the credit risks associated with our customers, which could have a material adverse effect on our financial condition and operating results.

We have developed, and revise from time to time, complex proprietary credit scoring models that use traditional and non-traditional variables to classify our customers into various risk grades that are linked to loan parameters. We cannot guarantee that these credit scoring models will perform as intended in current or future market conditions. In addition, given that our typical customer has limited or no credit history, our models rely on customer-related data provided by third parties (including credit agencies) or obtained from publicly available sources, in addition to any information provided to us by our customers. If data obtained from these sources are inaccurate or volatile, or if any such data or categories of data became unavailable to us, the ability of our credit scoring models to properly assess customer risk could be compromised, or our models could fail altogether, which could have a material adverse effect on our operating results and financial condition.

Our failure to effectively manage our growth, including the risks associated with new products, services or business ventures, could harm our business.

We continue to pursue growth opportunities, acquisitions, joint ventures and the introduction of new products and services, including the following:

Our recent acquisition of a majority interest in Inilex, our GPS supplier.

Our recent investment in GO Auto Exchange, LLC, a joint venture with Manheim to create a wholesale auction company focused on independent dealers and the low-end vehicle segments.

The launch in 2013 of Carvana, our new on-line used vehicle sales channel.

The introduction of our Cancel Anytime Lease™, which we began offering as a way to expand our service offerings to meet the expanding needs of our customers.

The unbundling of our VSC, GAP and GPS subscription from the sale of our vehicles, which involves deferral of revenue related to these products that was previously included in the purchase price of our used vehicles.

These and other business expansion initiatives could have unintended consequences, including negative impacts to our brand, the diversion of excessive time and attention of personnel away from our core business, and additional strain on our capital resources, information and reporting systems, financial management controls and personnel, and regulatory compliance systems and personnel.

There can be no assurance that these or any other new business ventures, products or services will be successful. When entering into any new business or venture we run the risk of losing our initial investment and incurring operational losses if the venture does not perform according to expectations, which could result in material adverse effects to our business, operating results or financial condition. In addition, we may not be able to effectively manage or integrate our expanding operations, (including new dealerships and reconditioning centers) or achieve planned growth on a timely or profitable basis. If we are unable to achieve our planned growth or effectively manage our growth, we may experience operating inefficiencies that could have a material adverse effect on our operating results.

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If our vehicle leasing program underperforms our expectations, or the value of our leasing vehicle fleet declines more than we expect, we could be materially adversely affected.

We have a vehicle leasing fleet. When we acquire these vehicles, we make certain assumptions regarding our ability to lease the vehicles to our customers and certain estimates regarding vehicle reliability, remaining useful life and residual value. If we are unable to lease fleet vehicles to our customers, or our customers cancel their leases sooner than we anticipate, our cash flows could be materially impacted. If we fail to accurately predict vehicle reliability, vehicle service costs and useful life, we may need to replace fleet vehicles sooner than anticipated, which could result in unexpected costs and diminished cash flows. If we fail to properly estimate residual values, or deviation from expected residual values occurs due to excessive wear and tear or other factors, our vehicle leasing operations could incur significant losses and have a materially adverse impact on our operating results and financial condition.

Reliance on third parties to administer our ancillary product offerings and perform certain company functions could adversely affect our business and financial results.

We have relationships with third party providers to administer the VSC and GAP products we offer to our customers and we outsource certain collection operations and other activities to foreign companies located outside the contiguous United States. Our dependence on third party service providers may increase our operational complexity, decrease our control over certain functions, and subject us to additional risks, such as inadequate service, work strikes, or other work stoppages in foreign countries where certain outsourced services are located. Further, if our relationships with such third party providers were modified, disrupted, or terminated, we would need to obtain these services from alternative sources. We may be unable to replace these third party providers with a suitable alternative in a timely and efficient manner on terms acceptable to us, or at all, and we may not be able to provide these services effectively using our internal resources. In any such scenario, our market reputation could suffer, and our operating results and financial position could be adversely affected.

Adverse macro-economic conditions and their effect on automobile sales may adversely affect our business.

Changes in macro or regional U.S. economic conditions may adversely impact the used vehicle industry, and our business. Relevant economic factors include, among other things, consumer credit availability, consumer credit delinquency and loss rates, interest rates, gasoline prices, inflation, unemployment levels, the state of the housing market and changes in stock market values. During periods of economic slowdown, these and other factors could increase loss frequency and decrease consumer demand for automobiles as well as weaken collateral values on certain types of automobiles. Because our historical focus has been on subprime consumers, the actual rates of delinquencies, defaults, repossessions, and losses on loans to our customers could be dramatically impacted by a general economic downturn.

The most recent economic downturn adversely impacted the used vehicle industry, including us. Although market conditions have improved and we have since expanded our operations, economic uncertainty and unemployment in the U.S. remain at elevated levels, and should declining economic conditions recur, we would expect a similar recurrence of adverse impacts to our industry, operating results and financial condition.

Our operations ~~and the finance receivables we generate~~ are geographically concentrated, ~~geographically,~~ and a downturn in the economies or markets in which we operate could adversely affect vehicle sales and collections.

As of December 31, ~~2012,~~2013, we operated our dealerships in ~~19 states. Approximately~~20 states, though approximately 43% of our sales volume and 50% of our servicing portfolio is concentrated in three ~~states,~~states: Texas, Florida and North Carolina. ~~These states also account for approximately 45% of~~Accordingly, our ~~sales volume.~~operating results depend substantially on general economic conditions and consumer spending habits in these markets. Adverse economic conditions, natural disasters, or other factors affecting any state or region where high concentrations of our customers reside could adversely affect vehicle sales and ~~collections. If~~collections and materially impact our overall operating results and financial condition.

Our industry is highly competitive and fragmented, and if we are unable to compete, we may experience material adverse ~~economic conditions, natural disasters,~~effects on our operating results and financial condition.

Used vehicle retailing and financing is a highly competitive industry. In addition to “buy-here, pay-here” dealerships, our competition includes publicly and privately owned used car dealers and the banks, finance companies and indirect lenders that purchase their loans. Many of our retail competitors buy and sell the same or ~~other factors occur~~similar makes of vehicles that ~~affect~~we offer in the ~~regions~~same or similar markets and at competitive prices, which can result in ~~which we do business, or if borrowers in these regions experience financial difficulties, a significant number~~margin pressure due to increased inventory costs and lower retail prices. The financing side of ~~borrowers may not be able to make timely loan payments, if at all, or~~the market is served by banks, captive finance affiliates of automobile manufacturers, credit unions and independent finance companies that may be ~~more prone~~much larger and have greater financial resources than are available to ~~filing for bankruptcy protection,~~us, which may allow them to compete favorably with us. Along with lower operating margins on retail sales, increased competition may cause downward pressure on the interest rates that we charge on finance receivables originated by our dealerships, all of which together could have a material adverse effect on our operating results and financial condition.

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If we are unable to obtain sufficient inventory in a cost-effective manner, our operating results and financial condition will be adversely impacted.

We require a large number of quality used vehicles for our dealerships, and our ability to manage inventory costs while maintaining affordability for our customers is critical to the success of our business. We acquire most of our used vehicle inventory through auctions, primarily through two auction companies. We also source inventory from wholesalers and fleet owners, such as leasing and rental companies. The number of sources that can supply acceptable quantities of vehicles meeting our quality standards is limited, and we face substantial competition to acquire the vehicles we purchase. Additionally, rising auction prices may lead us to acquire older or higher mileage vehicles, which could cause an increase in reconditioning and warranty costs, both of which would also negatively affect our sales margins and overall profitability.

We also rely on logistics in transporting vehicles from auctions to reconditioning facilities and to our dealerships. Our failure to manage this process both internally and through our network of transportation partners, or disruptions in the vehicle transport industry beyond our control, could cause a disruption in inventory supply chain and distribution, which may adversely affect our operating results and financial condition.

We may experience seasonal and other fluctuations in our ~~results of operations.~~operating results.

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Sales of motor vehicles historically have been subject to substantial cyclical variation characterized by periods of oversupply and weak demand. We believe that many factors affect the industry, including consumer confidence in the economy, the level of personal discretionary spending, interest rates, fuel prices, credit availability, and unemployment rates. A recession or an industry or general economic slowdown could materially adversely impact our business.

Historically, we have experienced higher revenues in the first quarter of the calendar year than in the last three quarters of the calendar year. We believe these results are due to seasonal buying patterns ~~resulting~~driven in part ~~because many~~by the timing of ~~our customers receive~~ income tax refunds, which are a primary source of our customers’ down payments on used vehicle ~~purchases, during the first quarter of the year.~~purchases. Our loan performance also has ~~historically~~ followed a seasonal pattern, with delinquencies and charge-offs being the highest in the second half of the year. A significant portion of our general and administrative expenses, however, do not vary proportionately with fluctuations in revenues. Accordingly, our results in any quarter may not indicate the results we may achieve in any subsequent quarter or for the full year. ~~A significant portion of our general and administrative expenses do not vary proportionately with fluctuations in revenues.~~ We expect quarterly fluctuations in our operating results to continue as a result of seasonal patterns. ~~Such patterns may change, however, due~~

We are subject to ~~factors affecting the automotive industry or otherwise.~~

~~Our~~fluctuations in demand for our products and our failure to ~~effectively manage our growth could harm our business, we may not be able to access the additional financing required to fund our growth,~~adequately meet such demand, including through inventory re-mixing and ~~our plans to expand our operations will expose us to increased legal and regulatory risks that may adversely affect our business.~~

We continually evaluate expanding our operations by opening new dealerships and reconditioning centers, some of which will potentially be located in existing DriveTime markets and some of which are expected to be located in markets in which we do not currently operate. This growth may result in the incurrence of additional debt and operating expenses, whichproduct pricing, could adversely affect our ~~profitability~~business, operating results, and ~~liquidity. Moreover, growth~~financial condition.

The demand for the products we offer may be reduced due to a variety of factors, such as demographic patterns, changes in customer preferences or financial conditions, regulatory restrictions that decrease customer access to particular products, or the availability of alternative or competing products. For example, if customer preferences change and ~~expansion of~~we fail to re-align our inventory mix and ancillary products and services to such preferences, our revenues could decrease significantly and our operations may place a significant strain on our resources and increase demands on our executive management team, management information and reporting systems, financial management controls and personnel, and regulatory compliance systems and personnel. We may not be able to expand our operations or effectively manage or integrate our expanding operations, or achieve planned growth on a timely or profitable basis. If we are unable to achieve our planned growth or manage our growth effectively, we may experience operating inefficiencies and our results of operations may be materially adversely affected.

In addition, expansion into new states will increase our legal and regulatory risk. Our failure or alleged failure to comply with applicable laws and regulations in any new jurisdiction, and ensuing inquiries or investigations by regulatory and enforcement authorities, may result in regulatory action, including suspension or revocation of one or more of our licenses, civil or criminal penalties, or other disciplinary actions, and restrictions on or suspension of some or all of our business operations. As a result, our business could suffer, our reputation could be ~~harmed,~~harmed. If used vehicle retail prices rise significantly due to supply constraints, consumer demand for used vehicles could decline as customers delay purchases or pursue alternative options. If our pricing models fail to properly calculate retail vehicle prices aligned with market demand our sales and wesales margin could be subject to additional legal risk. This could, in turn, increase the size and number of claims and damages asserted against us, subject us to regulatory investigations, enforcement actions, or other proceedings, or lead to increased regulatory or supervisory concerns. We may also be required to spend additional time and resources on any necessary remedial measures,decrease, which ~~could have an adverse effect on our business. We cannot predict the timing or form of any current or future regulatory or law enforcement initiatives, and any such initiatives~~ could have a material adverse effect on our operating results ~~of operations~~ and financial condition.

~~We operate~~Our reputation is a key aspect of our business, and our business may be affected by how we are viewed in the marketplace.

The DriveTime brand represents transparency, value and a ~~highly competitive environment,~~customer-centric used vehicle buying experience. The reputation of our brand is critical to our success. If we fail to maintain the high standards on which this reputation is built, or if an event occurs that damages this reputation, it could adversely affect our brand and consumer demand for our products and have a material adverse effect on our business, sales and operating results. Additionally, if we ~~are unable~~fail to ~~compete~~correct or mitigate misinformation or negative information about the vehicles we offer, our customer experience, or any aspect of our brand, we could experience a material adverse effect on our business, sales and operating results.

Adverse outcomes to current and future litigation against us may adversely impact our financial position, liquidity and operating results.

We may be involved in various litigation matters from time to time, which may include product liability claims and other litigation with ~~our competitors, our results of operations~~customers, labor and ~~financial condition could be materially adversely affected.~~

~~Our primary competitors are the “buy-here, pay-here” dealerships, independent used vehicle dealers,~~employment-related lawsuits, environmental claims, class actions, purported class actions, and used vehicle departments of franchise dealers that operate in the subprime segment of the used vehicle sales industry, and the banks, finance companies and indirect lenders that purchase their loans. There is no assurance that we can successfully distinguish ourselves from ourother actions brought by competitors or compete in this industry in a cost-effective manner or at all. Moreover, if our competitors grow and strengthen through consolidation in the industry while we are unable to identify attractive consolidation opportunities, we could end up at a competitive disadvantage and experience declining market share and revenue. In addition, larger companies with significant financial and other resources have periodically entered or announced plans to enter the used vehicle sales and/or finance industry, or relax their credit standards and compete with us, at least at the upper end of our customer segment. These dealerships also compete with us in areas such as the purchase of inventory, which can result in increased wholesale costs for used vehicles and lower margins, and the dealerships and finance companies could also enter into direct competition with us atgovernmental authorities, any ~~time at the lower end of the subprime market.~~

Increased competition may cause downward pressure on the interest rates that we charge on finance receivables originated by our dealerships, or lower margins, or may cause an increase in our operating costs, all of which could have a material adverse effect on our ~~results~~business and operating results. These actions could expose us to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil fines and penalties, reduced demand for our products, and adverse publicity, among other consequences. We cannot assure you that we will have sufficient resources, including insurance to the extent it is available, to cover such legal actions and claims, and adverse outcomes of ~~operations~~such legal actions could have a material adverse effect on our operating results and financial condition.

~~If we are unable to obtain sufficient numbers of used vehicles~~ See “Item 3-Legal Proceedings,” for ~~our inventory in a cost-effective manner, our operations and financial results will be adversely impacted.~~more information.

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We require a large number of quality used vehicles for our dealerships. We acquire most of our used-vehicle inventory through auctions, and primarily through two auction companies. To a lesser extent, we also acquire used vehicles from wholesalers, franchised and independent dealers, and fleet owners, such as leasing companies and rental companies. The sources from which we can purchase vehicles of a quality and in a quantity acceptable to us are limited, and there is substantial competition to acquire the vehicles we purchase. Consequently, we may not be able to obtain sufficient inventory in a cost-effective manner or at all. Any decline in the number of or increased competition for quality vehicles could diminish our ability to obtain sufficient inventory at a price that we can reflect in retail market prices and would adversely affect our business.

~~If our inventory or other costs of operations increase and we are unable to pass along these costs to our customers, we may be unable to maintain or grow margins.~~

Our inventory and other costs are variable and dependent upon various factors, many of which are outside of our control. A rise in vehicle acquisition cost could erode our sales margins and negatively affect our results of operations. Rising auction prices have also led to the acquisition of a higher mileage and older age vehicle, which could cause an increase in reconditioning and warranty costs, both of which would also negatively affect our sales margins and overall profitability. If we incur cost increases, we may seek to pass those increases along to our customers. However, the income of our average customer limits the maximum monthly payment our customers can afford, and we may be unable to pass these costs along to our customers in the form of higher sales prices, which would adversely affect our ability to maintain or increase margins. Recently, used vehicle values have continued to increase.

We rely heavily on logistics in transporting vehicles for delivery from auctions to reconditioning facilities and to our dealerships. Our ability to manage this process both internally and through our network of transportation partners could cause a rise in inventory costs and disruption in inventory supply chain and distribution. Further, any disruption in the vehicle transport industry or the cost of transport could adversely affect our results of operations.

A failure of ~~or interruption in~~ our ~~communications and~~ information systems or any security breach or unauthorized disclosure of confidential information could ~~adversely affect~~have a material adverse effect on our ~~revenues and profitability.~~business

Our business is highly dependent on communications and information systems. In particular, we rely on our information systems to effectively manage our pricing strategy and tools, sales, inventory, and service efforts, the preparation of our consolidated financial and operating data, consumer financing, and loan servicing and collections. Our information systems also collect, process and retain sensitive and confidential information regarding our customers, employees and others. Despite the security measures and business controls we have in place (which include, among other things, backup systems, disaster recovery measures, and the adoption of procedures in compliance with the Red Flags Rule promulgated under the Fair Credit Reporting Act) our facilities and systems, and ~~is exposed~~those of third-party service providers, could be vulnerable to ~~many types~~external or internal security breaches, acts of ~~operational risks, including the risk of fraud by employees~~vandalism, computer viruses, employee theft or misuse, misplaced or lost data, programming or human errors, malfunction, or other parties, record-keeping error, errors resulting from faulty computer or telecommunication systems, computer failures or interruption, and damage to computer and telecommunication systems caused by internal or externalsimilar events. ~~We periodically update or change the integrated computer systems and other components~~Some threats are out of our operating systems. Any significant failure of such systems, whether as a result of third-party actions or in connection with planned upgrades and conversions, could disrupt our operations and adversely affect our ability to collect on contracts and comply with legal and regulatory requirements. Additionally, our systems are vulnerable to interruption or malfunction due to events beyond our control, including natural disasters and network and telecommunications failures. ~~Our systems~~Others may also be vulnerable to unauthorized access, computer hackers, computer viruses, and other security problems. A user who circumvents security measures could misappropriate proprietary information or cause interruptions to or malfunctions in operations. As a result, we may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by these incidents. We have backup systems and we periodically test disaster recovery scenarios; however, this may not prevent a systems failure or allow us to timely resolve any systems failures. Any interruption to our systems could have a material adverse effect on our results of operations and financial condition.

~~Reliance on our outsourced business functions could adversely affect our business.~~

We outsource a portion of our collections and internet sales functions to companies located outside the contiguous United States. While we believe there are benefits to these arrangements, outsourcing increases our operational complexity and decreases our control. We rely on these service providers to provide a high level of service and support, which subjects us to risks associated with inadequate or untimely service. For example, the outsourcing of collection functions could result in lower collection rates than we would have achieved had we performed the same functions internally. In addition, if these outsourcing arrangements were not renewed or were terminated or the services provided to us were otherwise disrupted, we would have to obtain these services from an alternative provider or provide them using our internal resources. We may be unable to replace, or be delayed in replacing, these sources and there is a risk that we would be unable to enter into a similar agreement with an alternate provider on terms that we consider favorable or in a timely manner. In the future, we may outsource other business functions. If any of these or other risks related to outsourcing were realized, our financial position, liquidity and results of operations could be adversely affected. We are also subject to work strikes and work stoppages in the countries/regions in which we operate, which could adversely affect our collections.

~~Anti-outsourcing legislation, if adopted, could adversely affect our business, financial condition and results of operations.~~

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Outsourcing services and corporate functions to organizations operating in countries outside the U.S. is a topic of political discussion in many countries, including the United States. Federal and state legislation has been proposed, and enacted in some states, that could restrict or discourage U.S. companies from outsourcing their services to companies outside the United States in order to address concerns over the perceived association between offshore outsourcing and the loss of jobs domestically. The enactment of additional such legislation could broaden existing restrictions on outsourcing and impact private industry with measures that include, but are not limited to, tax disincentives, fees or penalties, intellectual property transfer restrictions, mandatory government audit requirements, and new standards that have the effect of restricting the use of certain business and/or work visas.

~~The personal information that we collect may be vulnerable to breach, theft, or loss, the occurrence of any of which could adversely affect our reputation and operations.~~

Possession and use of personal information in our operations subjects us to risks and costs that could harm our business. We collect, use, and retain large amounts of personal information regarding our customers, employees, and their families, including social security numbers, tax return information, personal and family financial data, and credit card numbers. Our computer networks and the networks of certain of our vendors that hold and manage confidential information on our behalf may be vulnerable to unauthorized access, employee theft or misuse, computer hackers, computer viruses, and other security threats. Confidential information may also inadvertently ~~become available to third parties~~occur when we integrate systems or migrate data to our servers following an acquisition or in connection with periodic hardware or software upgrades.

~~Due to the sensitive nature of the personal information stored on our servers, our networks may be targeted by hackers seeking to access this data. A user who circumvents~~ Regardless, any security ~~measures could misappropriate sensitive information~~breach or cause interruptions or malfunctions in our operations. Although we use security and business controls to limit access and use of personal information, a third party may be able to circumvent those security and business controls, which could result in a breach of privacy. In addition, errorsevent resulting in the ~~storage, use,~~misappropriation, loss, or ~~transmission~~other unauthorized disclosure of ~~personal~~confidential information, could result in a breach of privacy. Possession and use of personal information in our operations also subjects us to legislative and regulatory burdens that could require us to implement certain policies and procedures, such as the procedures we adopted to comply with the Red Flags Rule that was promulgated by the Federal Trade Commission under the federal Fair Credit Reporting Act and that requires the establishment of guidelines and policies regarding identity theft, and could require us to make certain notifications of data breaches and restrict our use of personal information. A violation of any laws or regulations relating to the collection or use of personal information could result in the imposition of fines against us. As a result, we may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by these breaches. A major breach, theft, or loss of personal information that is heldwhether by us directly or by our ~~vendors, or a violation of laws or regulations relating to the same,~~third-party service providers, could ~~have a material adverse effect on~~damage our reputation, ~~and result in further regulation and oversight by federal and state authorities and increased costs of compliance.~~

~~New business ventures could~~ expose us to ~~business~~the risks ~~not previously encountered.~~

~~In the fourth quarter~~ of ~~2011, we introduced an indirect lending line of the business through our wholly-owned subsidiary GO Financial. This line of business is a complement to our other operations,~~litigation and does not replace DriveTime vehicle sales or financings. Although we have leveraged much of the knowledge and resources of our existing infrastructure, the third party nature of GO transactions exposes GO's portfolio to risk that has not been traditionally present in the DriveTime portfolio. We will continue to monitor and make changes toliability, disrupt our business, ~~plan to minimize risks to the GO portfolio; however, the following risks are inherent in GO:~~

~~GO relies on third party dealers, not owned~~ or operated by DriveTime, for its originations; the quality and accuracy of the loans originated, including customer fraud, vehicle quality, and the presence or absence of warranties or extended services contracts covering vehicle repair, will impact the quality of receivables in our GO portfolio.

~~GO deals have customer payment terms different from our traditional arrangements, but which are customary in the indirect lending business.~~

~~The infrastructure we built to facilitate GO transactions could fail, resulting in substantial write-offs to capitalized software projects.~~

~~GO may experience operating difficulty in certain states in which we are operating due to regulatory restrictions specific to subprime lending.~~

~~Loan portfolio performance may prove to be unprofitable if loss rates of the GO portfolio exceed our expectations.~~

~~The GO brand could negatively impact the DriveTime brand.~~

~~As GO grows, it may end up with a concentration of third-party dealers in a state or states increasing credit quality and dealer risks.~~

Third parties administer ancillary product offerings, such as vehicle service contracts, and if they fail to perform our loans may perform worse than anticipated and we will have the cost and risk of finding competent, cost effective alternatives in a timely manner.

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Our third-party dealers must also comply with credit and trade practice statutes and regulations. Their failure to comply with these statutes and regulations could result in consumers having rights of rescission and other remedies.

The sale of vehicle service contracts and other products by our third party dealers in connection with loans assigned to us is also subject to state laws and regulations. As we are the holder of loans that may, in part, finance these products, some of these state laws and regulations may apply to our servicing and collection of the loans. Although these laws and regulations do not significantlyotherwise affect our business, there can be no assurance that insurance or other regulatory authorities in the jurisdictions in which these products are offered will not seek to regulate or restrict the operation of our business in these jurisdictions.

A number of risks related to DriveTime also apply to GO, including capital to finance the business, our substantial debt, cash flow, compliance with our agreements with our lenders, the risk of being in the subprime segment of the market, interest rates, efficacy of our credit scoring model, servicing of our loans, key personnel, confidentiality of customer information, and regulatory changes and concerns.

There can be no assurance that GO will be successful, and it could have unintended consequences which would have an adverse effect on our results of operations or financial condition. GO also involves numerous other risks, including the diversion of management's attention from other business concerns.

In the first quarter of 2013, we introduced a new on-line used vehicle sales channel through Carvana, LLC, which is a wholly-owned subsidiary of DTAG. The Carvana business model is designed to facilitate the sale of a used vehicle through a sale process that is 100% on-line. Carvana is a complement to our other operations, however, and does not replace our core DriveTime businesses of vehicle sales and financings. Although we have leveraged much of the knowledge and resources of our existing infrastructure, the prospect of this new business venture presents risks to our core operations. We will continue to monitor and make changes to our business plan to minimize risks to DriveTime. However, the following risks, among others, are inherent in Carvana:

~~The infrastructure we built to facilitate Carvana transactions could fail, resulting in substantial write-offs to capitalized software projects.~~

~~Carvana may experience~~ operating ~~difficulty in certain states in which we are operating due to regulatory restrictions.~~

~~The Carvana brand could negatively impact the DriveTime brand.~~

~~Operating the Carvana business could divert excessive time and attention of DriveTime management and personnel away from core DriveTime businesses.~~

Carvana is initially concentrated in Atlanta, Georgia. Any economic disruption, geographic natural disaster, or other negative impact in the local area could cause a negative financial impact to DriveTime.

Third parties may administer ancillary product offerings, such as vehicle service contracts, and if they fail to perform our loans may perform worse than anticipated and we will have the cost and risk of finding competent, cost effective alternatives in a timely manner.

A number of risks related to DriveTime also apply to Carvana, including capital to finance the business, our substantial debt, risks to operating cash flow, compliance with lender agreements, interest rates, efficacy of our credit scoring model, our reliance on key personnel, confidentiality of customer information, and regulatory changes and concerns.

~~Carvana's business focus as an on-line retailer could be significantly affected by internet fraud, identity theft, credit card, debit card and ACH fraud.~~

Carvana will rely heavily on logistics in transporting vehicles for delivery. Our ability to manage this process both internally and through a potential network of transportation partners could cause a disruption in business. Further, any disruption in the vehicle transport industry or the cost of transport could adversely affect both Carvana and DriveTime.

~~There can be no assurance that Carvana will be successful, and it could have unintended consequences which would have an adverse effect on our results of operations or financial condition.~~

~~We are dependent on the services of certain key personnel and the loss of their services could harm our business.~~

~~We believe that our success depends on the continued employment of our senior executive management team, including~~our Chief Executive Officer and President, Raymond C. Fidel, our Chief Financial Officer, Mark G. Sauder, and our Executive Vice President and General Counsel, Jon D. Ehlinger. The unexpected loss of the services of any of our key executive management personnel or our inability to attract new management when necessary could have a material adverse effect on our operations. We do not currently maintain key person life insurance on any member of our executive management team.

Additionally, our success depends on the key management personnel at our corporate offices and the dealerships in our local markets. The market for qualified employees in the automotive and finance industries and in the markets in which we operate, particularly for qualified general managers, loan managers, and collections personnel, is highly competitive and may

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subject us to increased labor costs during periods of low unemployment. We also believe that our competitors pursue many of our managerial and collections and sales and service personnel from time to time. The loss of a group of key employees in any of our markets could have a material adverse effect on our business and results of operations in that market or across many or all markets in which we operate.results.

If all or some portion of our employees elect to collectively bargain or join a union, these actions could adversely affect our operations.

As of December 31, ~~2012,~~2013, none of our employees were represented by a labor union. The automotive industry is historically an industry in which there is a high degree of labor union participation. If all or some portion of our employees elects to join a labor union, we could experience increased operational costs, work stoppages or strikes, and/or barriers to communication between management and employees. These factors could lead to inefficiencies in the operation of the affected facilities or groups and could cause us to experience a material adverse effect.

We are ~~subject to environmental laws, regulations, and permits that could impose significant liabilities, costs, and obligations.~~

~~We are subject to a complex variety~~dependent on the services of federal, state, and local laws, regulations, and permits relating to the environment and human health and safety. If we violate or fail to comply with these laws, regulations, or permits, we could be fined or otherwise sanctioned by regulators. These environmental requirements,certain key personnel and the ~~enforcement thereof, change frequently, have tended~~loss of their services, or an inability to ~~become more stringent over time,~~attract such personnel, could harm our business.

Our continued success depends in part on the continued employment of our senior management team, including our Chief Executive Officer and ~~may necessitate substantial capital expenditures or operating costs. Under certain environmental laws, we could be responsible for~~President, Raymond C. Fidel, our Executive Vice President and Chief Financial Officer, Mark G. Sauder, our Executive Vice President and General Counsel, Jon D. Ehlinger and our Senior Vice President and Chief Risk Officer, Paul I. Kaplan. We do not currently maintain key person life insurance on any member of our senior management team, and the ~~costs relating to~~unexpected loss of the services of any ~~contamination at our~~of these key personnel, or our ~~predecessors' current or former owned or operated properties or third-party waste disposal sites. We cannot assure you that our costs and liabilities relating~~inability to ~~environmental matters will not adversely affect our results of operations, business, financial condition, reputation, or liquidity.~~

We could also be responsible for costs relating to any contamination at our current or formerly owned or operated properties or third party waste disposal sites. This liability may be imposed even if we were not at fault. In addition to potentially significant expenses to investigate and remediate contamination, such matters can give rise to claims from governmental authorities and other third parties for fines or penalties, natural resource damages, or personal injury or property damage.

~~States impose limits on the interest rates we can charge on the installment sales contracts we provide to our customers, and~~attract new ~~or lower limits may harm our ability to offset increased interest expenses and can adversely affect our profitability and liquidity.~~

We operate in states that impose limits on the contract interest rate that a lender may charge, and laws or regulations that limit the interest rates that we can charge can adversely affect our profitability and liquidity. When a state limits the amount of interest that we can charge on our installment sales contracts, we may not be able to offset an increase in interest expense caused by rising interest rates or greater levels of borrowings under our credit facilities. In addition, no assurance can be given that we will not be prohibited by new state laws from charging the interest rates we are currently able to charge on our installment sales contracts or from raising interest rates above certain desired levels. Therefore, these interest rate limitations can adversely affect our profitability and liquidity.

~~A change in state laws, or the application thereof, relating to the extent to which we can obtain a refund of sales tax for customer defaults~~key personnel, could have a material adverse effect on our ~~business.~~

~~In general, we are required to collect~~operations. See “Item 10—Directors, Executive Officers, and remit state and local sales tax on each vehicle we sell. Subject to certain requirements, certain states allow us to collect a refund of prior sales taxes paid to the extent that the receivable becomes uncollectible. If state laws change with respect to the extent to which we can claim a refundCorporate Governance” for sales tax in such situations, or state taxing authorities change their position with respect thereto, we could experience a material adverse effect. In this regard, on February 24, 2011, we received an unfavorable ruling from the Nevada Supreme Court with respect to the efficacy of certain sales tax refunds we requested for prior tax years. While only applicable to 2002 and 2003, this ruling could affect subsequent tax years as well.

~~Reliability and safety of vehicle manufactured products could have a material adverse effect on our results of operations.~~

Manufacturer recalls, product reliability, safety issues and overall vehicle quality could adversely affect the demand for used vehicles at our dealerships and adversely affect loan performance. Such issues could also expose us to litigation and negative publicity related to the sale of the vehicles in question, which could have an adverse material effect on our sales, reputation, and results of operations.

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~~We may be adversely affected by product liability exposure claims.~~

DriveTime, and the automotive industry generally, is exposed to product liability claims in the event that the failure of our products to perform to specifications results, or is alleged to result, in property damage, bodily injury, and/or death. In connection with such product liability claims, we may incur significant costs to defend such claims and we may experience material product liability losses in the future. We cannot assure you that we will have sufficient resources, including insurance to the extent it is available, to cover such product liability claims, and the outcome of various legal actions and claims could have a material adverse effect on our results of operations and financial condition.

We have programs for our customers to provide insurance covering our collateral in the event of theft or an accident. If our customers do not maintain insurance, it could negatively impact our operations and/or profitability.

Certain of our customers have difficulty obtaining and maintaining affordable insurance for their vehicles. We offer a separate collateral protection insurance program. Under this program, we offer customers dual interest collateral protection insurance administered through a third party with whom we have a contractual relationship. We do not offer a liability insurance product. There is a risk customers will not maintain collateral protection insurance, which could adversely affect our recoveries.

~~Failure to register our dealership sales business subsidiary in the relevant jurisdictions would cause a severe disruption in our operations.~~

In connection with our applications for renewal of the relevant license or registration, a state licensing authority could decide to withhold or delay approval of the relevant license or registration and prohibit DriveTime Car Sales, a subsidiary of DTAG, from operating one or more of our dealerships until certain requirements are met. We cannot anticipate what these requirements might entail or whether we will be able to comply with any such requirements in a timely manner. If the relevant license or registration is not granted for DriveTime Car Sales to operate in any state, it would cause a severe disruption in our operations in that state, which could have a material adverse effect on our business, financial condition and results of operations. We have recently expanded our operations into new states and intend to continue our expansion. A failure to attain the proper licensing and registration requirements for our expansion could disrupt our ability to further expand our business.

~~We could suffer a material adverse effect if the IRS challenged our position on intercompany sales of receivables.~~

We generally recognize losses for U.S. federal income tax purposes on the intercompany sales of receivables from DTAG to DTAC. This practice is standard within our industry and our interpretation is not meaningfully different from other companies in our industry. However, the IRS may challenge our position and seek to defer our recognition of such losses. If the IRS were able to successfully challenge our position, there could be a material adverse effect on our results of operations and financial condition.information.

Our Executive Chairman and principal shareholder can direct our management and policies through his right to elect our ~~board~~Board of ~~directors~~Directors (the "Board") and to control substantially all matters requiring a stockholder vote.

Ernest C. Garcia II, our Executive Chairman and principal shareholder, beneficially owns the majority of our outstanding common stock. Certain agreements to which we are a party, including the indenture governing the ~~notes,~~Senior Secured Notes, the agreements governing our other indebtedness, and our origination agreement with DTAC pursuant to which DTAC purchases all of the auto loan receivables we originate, limit the control Mr. Garcia otherwise could exercise over our business and operations. Mr. Garcia has the power to elect our entire board of directors and determine the terms and outcome of any corporate transaction or other matters required to be submitted to shareholders for approval, including the amendment of our certificate of incorporation, mergers, consolidations and the sale of all or substantially all of our assets. Because his interests as an equity holder may conflict with the interests of holders of ~~the notes,~~our Senior Secured Notes, he may cause us to take actions that, in his judgment, could enhance his equity but may be prejudicial to the holders of the ~~notes.~~Senior Secured Notes.

Conflicts of interest may arise as a result of affiliations that our ~~directors or executive officers have~~principal shareholder has with Verde Investments, Inc. or other companies with which we have material relationships.

~~Ernest C. Garcia II, our Chairman and controlling stockholder,~~Our principal shareholder is also the owner of Verde Investments, Inc. ~~("Verde"~~(“Verde”), a company with which we have ~~historically~~and have had material leasing and financing relationships. See “Item 13—Certain Relationships and Related Transactions, and Director Independence.” ~~In addition, there may occur future~~Future transactions between us and Verde, or other affiliated companies with which we have a material relationship, could give rise to a conflict of interest on the part of ~~Mr. Garcia.~~our principal shareholder or any of our directors or executive officers. While transactions that we enter into in which a director or officer has a conflict of interest are generally permissible so long as the material facts relating to the ~~director's~~director’s or ~~officer's~~officer’s relationship or interest as to the transaction are disclosed to our Board ~~of Directors~~ and a majority of our

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disinterested directors, or a committee consisting solely of disinterested directors, approves the transaction, any such conflict of interest could have a material adverse effect on our business, operating results ~~of operations~~ or financial condition.

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Changes in accounting policies could adversely affect our reported ~~results of operations.~~operating results.

We have identified several accounting policies as being “critical” to the fair presentation of our financial condition and operating results ~~of operations~~ because they involve major aspects of our business and require management to make judgments about matters that are inherently uncertain. Materially different amounts could be recorded under different conditions or using different assumptions. These policies are described in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the notes to the consolidated financial statements included in Item 8.

Additionally, the U.S. based Financial Accounting Standards Board is currently working together with the International Accounting Standards Board on several projects to converge certain accounting principles and facilitate more comparable financial reporting between companies that are required to follow U.S. ~~GAAP~~generally accepted accounting principles (“GAAP”) and those that are required to follow International Financial Reporting Standards (“IFRS”) outside of the U.S. These efforts may result in different accounting principles under GAAP, which may have a material impact on the way in which we report financial results in areas including, but not limited to, potential changes in accounting for leases, revenue recognition, and impairment of financial assets. The U.S. Securities and Exchange Commission (the “SEC”) may make a determination in the future regarding the incorporation of IFRS into the financial reporting system for ~~U.S.~~companies based ~~companies.~~in the U.S. A change in accounting principles from ~~U.S.~~ GAAP to IFRS, or the implementation of these or other converged or new accounting requirements, could adversely affect our reported operating results ~~of operations~~ and financial condition, and cause us to restate prior period reported results under the proposed guidance.

Regulatory Risks

The automotive retail and finance industries are subject to a wide range of federal, state, and local laws and regulations, such as dealership and other licensing and registration requirements, and retail financing, debt collection, consumer protection, environmental, health and safety, creditor, wage-hour, anti-discrimination, and other related laws and regulations. During the past several years, governmental authorities have increased their scrutiny of advertising, sales, financing, and insurance activities involved in the sale and leasing of motor vehicles, and many state attorneys general have been increasingly active in the area of consumer protection. Our violation of these or future requirements, laws or regulations could result in administrative, civil, or criminal sanctions against us, which may include, among other things, withheld or delayed approval of business licenses, cease and desist orders against our operations, and suspension or revocation of our existing operating licenses. As a result, we have incurred and will continue to incur capital and operating expenditures to comply with these requirements, laws, and regulations. Despite the significant efforts we make to comply with these laws and regulations, we are subject, and may be subject in the future, to inquiries and audits from state and federal regulators. There can be no assurance that such activities will not result in material adverse effects on our business.

The Dodd-Frank Act and the creation of the CFPB has and likely will continue to increase our regulatory compliance efforts and associated costs.

We are subject to the Dodd-Frank Act of 2010 (the “Dodd-Frank Act”), which represents a comprehensive overhaul of the rules and regulations governing the financial services industry, including the establishment and operation of the Consumer Financial Protection Bureau (the “CFPB”) as an independent entity within the Federal Reserve. The CFPB has broad regulatory authority over consumer protection matters applicable to entities offering consumer financial services or products, including non-bank commercial companies in the business of extending credit and servicing consumer loans.

The CFPB has issued rules allowing it to supervise non-bank “larger participants” in certain markets for consumer financial services and products and may in the future issue rules to supervise non-bank larger participants in the direct and/or indirect auto lending industries, which may include us. For example, in March 2013, the CFPB issued Bulletin 2013-02 highlighting its concern that the practice of automotive dealers being compensated for arranging customer financing through discretionary markup of wholesale rates offered by financial institutions (“dealer markup”) results in a significant risk of pricing disparity in violation of The Equal Credit Opportunity Act (“ECOA”). The CFPB recommended that financial institutions under its jurisdiction take steps to ensure compliance with the ECOA, which may include imposing controls on dealer markup, monitoring and addressing the effects of dealer markup policies, and eliminating dealer discretion to markup buy rates and fairly compensating dealers using a different mechanism. In December 2013, the CFPB and the U.S. Department of Justice (the “DOJ”), based on a proxy methodology that combines geography-based and name-based probabilities, alleged that certain presumed-minority borrowers who had obtained automobile financing from a national lender were charged higher dealer markups as a result of such lender’s policy and practice of allowing dealer markup. In connection with the investigation, the lender consented to the issuance of a consent order and agreed to pay damages, to implement a compliance plan, and to pay a monetary penalty.

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The CFPB’s commencement of regulatory and enforcement activities related to consumer lending activities has and may continue to affect us. On April 12, 2012, the CFPB delivered a Civil Investigative Demand to DTAG requesting that DTAG produce certain documents and information and answer questions relating to certain components of the business of DTAG and its affiliates, which we provided. The CFPB made supplemental requests for information on February 21, 2013 and May 1, 2013, to which we also fully responded. In January 2014, the CFPB notified us that, in accordance with the CFPB’s discretionary NORA process, the CFPB is considering whether to pursue an enforcement action against us based on allegations relating to our collection practices. If such action is brought, the CFPB may seek injunctive and monetary relief.

We understand that a NORA notice from the CFPB is intended to ensure that potential subjects of enforcement actions have the opportunity to present their positions to the CFPB before an enforcement action is recommended or commenced. In response to the NORA notice, we made a NORA submission on February 20, 2014, which is a written statement setting forth any reasons of law or policy why we believe the CFPB should not pursue an enforcement action against us. We continue to believe that our practices relating to loan collections are lawful. We cannot provide any assurance, however, that the CFPB will not ultimately take legal action against us or that the outcome of any such action, if brought, will not have a material adverse effect on our reputation, operating results, or financial condition.

The Dodd-Frank Act contains numerous other provisions affecting financial industry participants of all types, including third parties that we deal with in the course of our business, such as rating agencies, insurance companies, and investors. It also provided the Federal Trade Commission (“FTC”) with new and expanded authority regarding automotive dealers, and the FTC recently announced an enforcement initiative relating to the advertising practices of automotive dealers. We believe that the implementing regulations of the Dodd-Frank Act likely will continue to have the effect of increasing the compliance costs of operating our business and further impact our operating environment in other substantial and unpredictable ways that could have a material adverse effect on our financial condition and operating results.

Changes in laws, regulations, or policies may adversely affect our business.

The laws and regulations governing our retail, lending, servicing, debt collection, and insurance activities or the regulatory or enforcement environment at the federal level or in any of the states in which we operate may change at any time and may have an adverse effect on our business. Examples of such changes or potential changes include the following:

Additional regulatory actions and investigations by the CFPB and the DOJ against automotive lenders are likely to occur in the future and, while it is difficult to predict how any such changes might impact us, any adverse changes in applicable laws or regulations resulting from such actions and investigations could have a material adverse impact on our business and operating results.

We operate in some states that impose limits on the interest rates we can charge on the installment sales contracts we provide to our customers, and new or lower limits may harm our ability to offset increased interest expenses and could adversely affect our profitability and liquidity.

Certain states allow us to apply for sales taxes credits to the extent that the related receivable becomes uncollectible. If state laws or the position of state taxing authorities change with respect to these refunds, we could experience a material adverse effect. In this regard, on February 24, 2011, the Nevada Supreme Court ruled against our sales tax refund requests for prior tax years in that state. While only applicable to 2002 and 2003, this ruling could affect our ability to receive or retain refunds in subsequent tax years as well.

Federal and state legislation has been proposed, and enacted in some states, that could broaden restrictions on U.S. companies outsourcing their services to companies outside the U.S. Such restrictions may include tax disincentives, fees or penalties, intellectual property transfer restrictions, mandatory government audit requirements, and new work visa restrictions that could impact collections and other activities that we outsource to companies located outside the U.S.

We are unable to predict how these or any other future legislative or regulatory proposals or programs will be administered or implemented or in what form, or whether any additional or similar changes to statutes or regulations, including the interpretation or implementation thereof, will occur in the future. Any such action could affect us in substantial and unpredictable ways and could have an adverse effect on our operating results and financial condition.

We are subject to environmental laws, regulations, and permits that could impose significant liabilities, costs, and obligations.

We are subject to a complex variety of federal, state, and local laws, regulations, and permits relating to the environment and human health and safety. If we violate or fail to comply with, or otherwise incur liability under these laws, regulations, or permits, incur significant costs, including fines and sanctions by regulators, clean up costs, and damages for third-party claims. These environmental requirements, and the enforcement thereof, change frequently, have become more stringent over time, and compliance may necessitate substantial capital expenditures or operating costs. A number of our facilities have a history as commercial operations involving the use of underground storage tanks. Under certain environmental laws, we could be responsible for the costs relating to any contamination at these or any of our, or our

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predecessors’, current or former owned or operated properties or third-party waste disposal sites, whether or not we were at fault. Such matters also may lead to claims from governmental authorities and other third parties for fines or penalties, natural resource damages, or personal injury or property damage. We cannot assure you that our costs and liabilities relating to environmental matters will not adversely affect our operating results, business, financial condition, reputation, or liquidity.

We could suffer material effects of regulatory challenges to certain transactions effected within our related finance company structure.

Our treatment of certain intercompany transactions within our related party finance company structure, including the tax treatment of intercompany sales of receivables from DTAG to DTAC could be subjected to review by federal and state tax authorities. We believe that our intercompany transactions are standard within our industry and our interpretation of the applicable tax rules is not meaningfully different from other companies therein. However, tax authorities may challenge our position causing an accelerated tax obligation, which could have a material adverse effect on our operating results and financial condition.

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

Dealerships and Facilities

As of December 31, ~~2012~~,2013, we operated 97110 dealerships and 1720 reconditioning facilities in 4450 geographic regions in 1920 states. Select information regarding these dealerships and other facilities, organized by region, is as follows:


Region	Total SQ Footage of Facilities	Date first Facility opened	Number of Dealerships	Number of Reconditioning Facilities	DriveTime Owned Facilities	Total SQ Footage of Facilities	Date first Facility opened	Number of Dealerships	Number of Reconditioning Facilities	DriveTime Owned Facilities
Houston						168,846	June 2011	3	1	1
Atlanta	128,010	September 1997	5	1	2	136,860	September 1997	6	1	3
Dallas	103,128	September 1997	8	2	—	126,341	September 1997	8	2	—
Charlotte	102,534	August 2006	5	1	1	102,534	August 2006	5	1	1
Indianapolis	95,971	April 2011	2	1	1	95,971	April 2011	2	1	1
Houston	92,676	June 2011	2	1	1
Memphis						88,098	November 2010	2	1	1
Tampa	81,391	January 1997	5	1	2	81,391	January 1997	5	1	2
Orlando	76,236	September 1999	6	1	—	76,236	September 1999	6	1	—
Phoenix	71,826	December 1994	5	1	1	71,826	December 1994	5	1	1
Denver						71,764	May 2007	2	1	—
San Antonio	68,086	March 1997	4	1	1	68,086	March 1997	4	1	1
Las Vegas						64,944	October 1996	2	1	1
Los Angeles						56,530	September 1997	4	1	—
Columbus	47,552	September 2012	1	—	—	54,877	September 2012	2	1	—
Denver	41,660	May 2007	2	1	—
Los Angeles	41,530	September 1997	4	1	—
Las Vegas	40,697	October 1996	2	1	1
Memphis	38,992	November 2010	1	1	1
Cincinnati	37,571	September 2011	2	—	—	37,571	September 2011	2	—	—
Richmond	32,276	December 1999	3	1	1	32,276	December 1999	3	1	1
Austin	31,800	November 2004	3	—	—	31,800	November 2004	3	—	—
St. Louis						27,854	September 2012	2	—	—
Mobile						27,517	December 2010	1	1	—
Nashville	26,678	December 2009	2	—	—	26,678	December 2009	2	1	1
St. Louis	24,000	September 2012	1	—	—
Little Rock	23,738	July 2012	1	—	—	23,738	July 2012	1	—	—
Columbia	23,733	June 2010	1	—	—	23,733	June 2010	1	—	—
Albuquerque						21,470	October 1997	3	1	—
Greensboro	21,137	February 2007	3	—	—	21,137	February 2007	3	—	—
Greenville	18,950	May 2010	1	—	—	18,950	May 2010	1	—	—
Mobile	18,017	December 2010	1	1	—
Albuquerque	16,810	October 1997	3	1	—
Miami						18,140	March 2013	2	—	—
Fayetteville	15,000	July 2010	1	—	—	15,000	July 2010	1	—	—
Myrtle Beach	14,200	December 2012	1	—	—	14,200	December 2012	1	—	—
McAllen	13,400	November 2012	1	—	—	13,400	November 2012	1	—	—
Jacksonville	12,582	April 2006	3	—	—	12,582	April 2006	3	—	—
Birmingham	12,300	October 2010	2	—	—	12,300	October 2010	2	—	—
Norfolk	11,779	May 2005	3	—	—	11,779	May 2005	3	—	—
Charleston	10,790	March 2011	1	—	—	10,790	March 2011	1	—	—
Chattanooga	10,010	October 2010	1	—	—	10,010	October 2010	1	—	—
Knoxville	9,931	December 2010	1	—	—	9,931	December 2010	1	—	—
Oklahoma City						8,768	January 2010	2	—	—
Tulsa	8,651	July 2010	1	—	—	8,651	July 2010	1	—	—
Huntsville	8,623	November 2012	1	—	—	8,623	November 2012	1	—	—
Tallahassee	8,570	November 2012	1	—	—	8,570	November 2012	1	—	—
Jackson	8,000	May 2011	1	—	—	8,000	May 2011	1	—	—
Augusta	7,618	September 2011	1	—	—	7,618	September 2011	1	—	—
Pensacola	7,215	March 2012	1	—	—	7,215	March 2012	1	—	—
Savannah	6,600	November 2011	1	—	—	6,600	November 2011	1	—	—
Oklahoma City	4,348	January 2010	1	—	—
Columbus, GA						5,316	April 2013	1	—	—
Corpus Christi						5,000	December 2013	1	—	—
Fort Myers						4,900	March 2013	1	—	—
West Palm Beach						4,272	September 2013	1	1	—
Louisville						4,217	August 2013	1	—	—
Montgomery	4,000	September 2012	1	—	—	4,000	September 2012	1	—	—
Tucson	3,821	May 1994	1	—	—	3,821	May 1994	1	—	—
			97	17	12			110	20	14

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Item 3. Legal Proceedings

We are involved in various claims and actions arising in the ordinary course of business. In the opinion of management, based on consultation with legal counsel, the ultimate disposition of these matters will not have a material adverse effect on us. We believe appropriate accruals have been made for the disposition of these matters. In accordance with ASC 450, Contingencies, we establish an accrual for a liability when it is both probable that the liability has been incurred and the amount of the loss can be reasonably estimated. These accruals are reviewed monthly and adjusted to reflect the impact of negotiations, settlements and payments, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Legal expenses related to defense, negotiations, settlements, rulings, and advice of outside legal counsel are expensed as incurred. At December 31, 2013, we do not have any material accruals for legal contingencies.

In August 2008, we received a Civil Investigative Demand from the Texas Office of Attorney General, Consumer Protection Division, asking for the production of certain materials. The demand indicates it is the subject of an investigation of possible violations of the Deceptive Trade Practices Act, Sections 17.46(a) and (b) in the marketing, advertising, financing, and selling of used vehicles. We provided the Texas Office of Attorney General with all requested information in August 2008. At that time, we met with the state’s Attorney General’s Office to provide them with an overview of the Company and discuss the requested materials. In addition, the Attorney General’s Office indicated that itthey would review the materials we provided to itthem and if there were any concerns they would contact us to meet, discuss and resolve the concerns. The Texas Attorney General has requested additional information and documentation from time to time, most recently in February 2010 when it requested clarifying information limited to vehicle inspections, after sale repairs, warranty, loan servicing, and consumer concerns. We believe the request is routine in nature and we have responded accordingly. We believe we are in compliance with all applicable state laws and regulations and we intend to continue to cooperate with state officials, and we will continue to fully cooperate with the ~~Texas~~state’s Attorney General’s Office in responding to the demand and any follow up ~~discussions.~~discussions with them. We believe we do not have loss contingencies related to this matter.

On April 12, 2012, the Consumer Financial Protection Bureau (the “CFPB”) delivered a Civil Investigative Demand to DTAG requesting ~~that~~ DTAG produce certain documents and information and answer questions relating to certain components of the business of DTAG and its affiliates. ~~The CFPB has not alleged a violation by DTAG of any law and DTAG is cooperating~~We have continued to work closely with the ~~CFPB's requests for information. We have provided~~CFPB to provide details and clarity related to their original request. Our counsel had a Jan 29, 2014 Notice of Response and Advice call with the ~~documents and information initially requested by the CFPB. On~~CFPB, to which we responded on February ~~21, 2013, we also received a limited request to clarify and supplement certain information provided to the CFPB. Such information has since been provided.~~

On March 4, 2013, Credit Acceptance Corporation filed a patent infringement complaint against DTAG, DTAC and GO in the U.S. District Court for the Central District of California, Western Division. In its complaint, the plaintiff alleges infringement of its U.S. Patent No. 6,950,897, entitled “System and Method for Providing Financing.” The complaint seeks injunctive relief as well as awards of damages and attorneys' fees.20, 2014. We have not ~~yet answered~~had any contact with them since that time. See "—Item 1A. Risk Factors" for additional information on the ~~complaint but we believe we do not have loss contingencies related to this matter.~~CFPB investigation.

Additionally, in the ordinary course of business, we are a defendant in various other types of legal proceedings. Although we cannot determine at this time the amount of the ultimate exposure from these lawsuits, if any, based on the advice of counsel management does not expect the final outcome to have a material adverse effect on us.

Item 4. Mine Safety Disclosures

None.

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Part II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

There is no established public trading market for our common equity. Approximately 98.3% of our common equity is beneficially owned by our Executive Chairman and principal shareholder, Ernest C. Garcia, II. The remaining 1.7% is held by our Chief Executive Officer, Raymond C. ~~Fidel, subject to vesting as described more fully under “Item 11—Executive Compensation— Compensation Discussion and Analysis—Chief Executive Officer Restricted Stock Grant.”~~Fidel. See ~~also~~ Note ~~12—~~13 — Shareholders’ Equity, Dividends & ~~Dividends~~Stock Compensation to our consolidated financial statements for information regarding cash dividends.

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Item 6. Selected Financial Data

The following table sets forth our selected historical consolidated financial and operating data as of the dates and for the periods indicated. The consolidated statements of operations for the years ended December 31, 2013, 2012, ~~2011~~, and ~~2010~~,2011, and data from the consolidated balance sheet as of December 31, ~~2012~~2013 and ~~2011~~,2012, have been derived from our audited financial statements, which are included elsewhere in this report. The consolidated statements of operations for the years ended December 31,~~2009~~ 2010 and ~~2008~~,2009, and the consolidated balance sheet data as of December 31, 2011, 2010, ~~2009~~ and ~~2008~~,2009, have been derived from our audited financial statements, which are not included in this report. Our historical results are not necessarily indicative of our results for any future period.

The selected historical consolidated financial and operating data are adjusted to account for the sale of GO Financial to our shareholders in December 2013. We have determined that the sale of GO Financial qualifies for and is presented as a discontinued operation based on the guidance provided in ASC 205-20-55-3. See “Note 19—Discontinued Operations” to our consolidated financial statements for more information.

The following selected financial and other data should be read in conjunction with “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this report.



	As of December 31,
	2013			2012			2011			2010			2009
Consolidated Statements of Operations Data	(Unaudited) (In thousands, except per vehicle sold data)
Total revenue	$	1,400,896		$	1,221,064		$	1,121,967		$	1,025,741		$	946,282
Income Before Income Taxes	$	33,325		$	62,416		$	90,148		$	71,086		$	52,727
Net income from continuing operations	$	31,716		$	61,222		$	88,927		$	70,682		$	51,997
Other Financial Data:
Pretax economic earnings ⁽¹⁾	$	73,449		$	64,527		$	90,148		$	71,086		$	52,727
Recurring adjusted EBITDA ⁽²⁾	$	173,965		$	162,929		$	180,532		$	197,899		$	159,478
Dealerships:
Dealerships in operation at end of period	110			97			89			85			78
Average number of dealerships	104			91			87			81			79
Retail Sales:
Number of vehicles sold	68,177			59,930			56,109			52,498			49,500
Number of vehicles leased	5,132			—			—			—			—
Total vehicles sold and leased	73,309			59,930			56,109			52,498			49,500
Loan Portfolio:
Principal balances originated	$	1,106,422		$	917,093		$	829,164		$	747,329		$	686,214
Average amount financed	$	16,229		$	15,303		$	14,781		$	14,244		$	13,867
Number of loans outstanding – end of period	150,830			140,748			137,293			134,264			127,737
Average principal outstanding	$	1,763,403		$	1,588,471		$	1,469,528		$	1,378,486		$	1,364,782
Average effective yield on portfolio ⁽³⁾	19.0		%	19.4		%	19.5		%	19.9		%	19.3		%
Allowance for credit losses as a percentage of portfolio principal	16.0		%	15.7		%	15.1		%	15.0		%	16.6		%
Portfolio delinquencies 31-90 days	13.9		%	15.1		%	10.9		%	9.1		%	7.4		%
Net charge-offs as a percentage of average principal outstanding	14.8		%	13.9		%	13.1		%	13.5		%	18.2		%
Lease Information:
Number of leases outstanding - end of period	4,293			—			—			—			—
Vehicle Lease Fleet - end of period	$	31,161		$	—		$	—		$	—		$	—
Financing and Liquidity:
Unrestricted cash and availability ⁽⁴⁾	$	134,283		$	138,400		$	230,267		$	145,837		$	40,407
	3.0x			2.8x			2.4x			2.4x			3.4x
Average total debt	$	1,551,750		$	1,263,432		$	1,100,128		$	1,141,428		$	1,047,522
Weighted average effective borrowing rate on total debt ⁽⁶⁾	5.0		%	5.7		%	6.6		%	9.2		%	10.6		%

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As of and for the Years Ended December 31,
2012 2011 2010 2009 2008

(Unaudited)
($ in thousands, except per vehicle sold data)
Consolidated Statement of Operations Data
Total Revenue $ 1,222,866
$ 1,121,307
$ 1,025,741
$ 946,282
$ 1,058,625
Total Costs and Expenses $ 1,162,319
$ 1,031,948
$ 954,655
$ 893,555
$ 1,057,815
Income Before Income Taxes $ 60,547
$ 89,359
$ 71,086
$ 52,727
$ 810
Net Income/(Loss) $ 59,353
$ 88,138
$ 70,682
$ 51,997
$ (280 )
Other Financial Data:
EBITDA⁽¹⁾
$ 153,789
$ 178,484
$ 182,939
$ 176,454
$ 111,980
Adjusted EBITDA⁽¹⁾
$ 160,083
$ 179,642
$ 197,899
$ 159,478
$ 104,515

Dealerships:*
Dealerships in operation at end of period 97
89
85
78
86
Average number of vehicles sold per dealership per month 55
54
54
52
49
Retail Sales:*
Number of used vehicles sold 59,930
56,109
52,498
49,500
55,415
Average age of vehicles sold (in years) 6.0
5.4
4.3
4.1
4.1
Average mileage of vehicles sold 86,972
79,741
71,300
68,076
67,428
Per vehicle sold data:
Average net revenue per vehicle sold $ 15,360
$ 14,940
$ 14,491
$ 14,029
$ 14,378
Average cost of used vehicle sold $ 10,144
$ 9,704
$ 9,166
$ 7,967
$ 8,612
Average gross margin $ 5,216
$ 5,236
$ 5,325
$ 6,062
$ 5,766
Gross margin percentage 34.0 % 35.0 % 36.7 % 43.2 % 40.1 %
Loan Portfolio:*
Principal balances originated $ 917,093
$ 829,164
$ 747,329
$ 686,214
$ 789,360
Average amount financed per origination $ 15,418
$ 14,781
$ 14,244
$ 13,867
$ 14,250
Number of loans outstanding – end of period 140,748
137,293
134,264
127,737
125,070
Principal outstanding – end of period $ 1,601,710
$ 1,466,680
$ 1,381,092
$ 1,312,216
$ 1,342,855
Average principal outstanding $ 1,588,471
$ 1,469,528
$ 1,378,486
$ 1,364,782
$ 1,410,292
Average effective yield on portfolio ⁽²⁾
18.9 % 19.5 % 19.9 % 19.3 % 19.3 %
Allowance for credit losses as a percentage of portfolio principal 15.7 % 15.1 % 15.0 % 16.6 % 18.1 %
Portfolio performance data:*
Portfolio delinquencies 31-90 days ⁽³⁾
15.1 % 10.9 % 9.1 % 7.4 % 9.4 %
Principal charged-off as a percentage of average principal outstanding 23.4 % 23.0 % 22.0 % 26.6 % 30.3 %
Recoveries as a percentage of principal charged-off 40.3 % 42.8 % 38.5 % 31.7 % 29.4 %
Net charge-offs as a percentage of average principal outstanding 13.9 % 13.1 % 13.5 % 18.2 % 21.4 %
Financing and Liquidity:*
Unrestricted cash and availability ⁽⁴⁾
$ 138,402
$ 230,267
$ 145,837
$ 40,407
$ 50,232
Ratio of net debt to shareholder's equity ⁽⁵⁾
2.8x
2.4x
2.4x
3.4x
3.9x
Total average debt $ 1,263,432
$ 1,100,128
$ 1,141,428
$ 1,047,522
$ 1,153,122
Weighted average effective borrowing rate on total debt ⁽⁶⁾
5.7 % 6.6 % 9.2 % 10.6 % 8.4 %

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As of December 31,
2012 2011 2010 2009 2008
($ in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 26,480
$ 25,930
$ 23,677
$ 21,526
$ 25,533
DriveTime and GO Finance receivables ⁽⁷⁾
1,675,578
1,495,364
1,408,741
1,340,591
1,375,019
Allowance for credit losses (252,590 ) (221,533 ) (208,000 ) (218,259 ) (242,600 )
Inventory 270,733
212,330
145,961
115,257
100,211
Total assets 1,989,117
1,766,829
1,568,154
1,432,080
1,430,738
Total debt ⁽⁸⁾
1,422,279
1,221,380
1,070,207
1,087,215
1,107,067
Shareholders’ equity 467,553
457,849
418,767
293,145
266,008

*Denotes Selected Financial Data which is only representative of DriveTime and excludes GO.



	As of December 31,
	2013			2012			2011			2010			2009
Consolidated Balance Sheet Data:	(In thousands)
Cash and cash equivalents	$	30,754		$	26,478		$	25,930		$	23,677		$	21,526
Finance receivables ⁽⁷⁾	1,938,931			1,661,662			1,521,955			1,425,918			1,349,312
Allowance for credit losses	(299,516		)	(252,590		)	(221,533		)	(208,000		)	(218,259		)
Vehicle inventory	319,567			270,733			212,330			145,961			115,257
Total assets	2,326,054			1,989,117			1,766,829			1,568,154			1,432,080
Deferred revenue	42,133			2,501			—			—			—
Total debt	1,686,501			1,422,279			1,221,380			1,070,207			1,087,215
Long term debt	1,080,604			928,916			832,901			861,500			618,679
Shareholders’ equity	488,024			467,553			457,849			418,767			293,145


⁽¹⁾	~~See definition~~ ^{Pretax Economic Earnings is pretax income from continuing operations plus the change in deferred revenue net of EBITDA and Adjusted EBITDA in Management's Discussion and Analysis - Non GAAP discussion.expected costs associated with ancillary products.}


⁽²⁾	^{See definition of Recurring Adjusted EBITDA in Item 7—Management's Discussion and Analysis—Non GAAP discussion.}


⁽³⁾	^{Average effective yield represents the interest income earned at the contractual rate (stated APR) less the write-off of accrued interest on charged-off loans and amortization of loan origination costs (which includes the write-off of unamortized loan origination costs on charged-off loans), plus interest earned on investments held in trust and late fees earned.}

~~(3)~~

⁽⁴⁾

Delinquencies are presented on a Sunday-to-Sunday basis, which reflects delinquencies as of the nearest Sunday to period end. Sunday is used to eliminate any impact of the day of the week on delinquencies since delinquencies tend to be higher mid-week. We modified our charge-off policy in December 2011. See Item 7.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Comparability—Modification to

~~Charge-off Policy, for more information.~~


~~(4)~~	^{Unrestricted cash and availability consists of cash and cash equivalents plus available borrowings under the portfolio warehouse, residual, and inventory facilities, based on assets pledged or available to be pledged to the facilities.}


⁽⁵⁾	^{Net debt is calculated as total debt less restricted cash and investments held in trust securing various debt facilities. Ratio of net debt toAdjusted shareholders’ equity is calculated as net debt divided by total shareholders’ equity.equity plus deferred income.}


⁽⁶⁾	^{Weighted average effective borrowing rate includes the effect of unused line fees and amortization of discounts, and debt issuance costs.costs and unused line fees.}


⁽⁷⁾	^{Includes DriveTime principal balances, recovery receivables, accrued interest, and capitalized loan origination costs, and GO carrying value of dealer finance receivables.costs.}


~~(8)~~	~~Total debt excludes accounts payable, accrued expenses, and other liabilities.~~

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations and our liquidity and capital resources should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Item 1A—Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

Overview

We are the leading used vehicle retailer in the United States with a primary focus on the sale and financing of quality vehicles to the subprime market. Through our branded dealerships, we provide our customers with a comprehensive end-to-end solution for their automotive needs, including the ~~sale,~~ financing and maintenance of their vehicles. As of December 31, ~~2012~~,2013, we ~~owned and~~ operated 97110 dealerships and 1720 reconditioning facilities located in 4450 geographic regions throughout 1920 states. For the year ended December 31, ~~2012~~,2013, we sold and leased ~~59,930~~73,309 vehicles, generated $~~1.2~~1.4 billion of total revenue, and $~~160.1~~174.0 million of Recurring Adjusted EBITDA. As of December 31, ~~2012~~,2013, our loan portfolio had a total outstanding principal balance of $~~1.6~~1.9 billion. We maintain our loan portfolio and related financings on our balance sheet.

Fiscal ~~2012~~2013 Highlights

Completed the unbundling of our ancillary products from the price of the vehicle in the fourth quarter 2013.

Designed and implemented the Cancel Anytime Lease™ in all dealerships during 2013.

Total revenue increased by 9%15% to $1.4 billion in 2013, compared to $1.2 billion in ~~2012, from~~ ~~$1.1 billion~~ in ~~2011~~.2012.

~~Unit sales~~Number of vehicles sold or leased increased by 7%22% to 73,309 in 2013, compared to 59,930 financed in ~~2012, from~~ ~~56,109~~ ~~in 2011.~~2012.

Originations increased by ~~11%~~21% to $~~917.1 million~~1.1 billion, compared to $~~829.2~~917.1 million originated in ~~2011.~~

~~GO Financial increased its active dealer base to~~ ~~191~~ ~~dealers and funded~~ ~~$45.4 million~~ ~~in advances.~~2012.

We opened 1013 stores in ~~nine~~six new geographic regions including: ~~Pensacola,~~Fort Myers, Miami and West Palm Beach, Florida; ~~Little Rock, Arkansas;~~ Columbus, ~~Ohio; Montgomery, Alabama; St. Louis, Missouri; McAllen, Texas; Tallahassee, Florida; Huntsville, Alabama,~~Georgia; Louisville, Kentucky and ~~Myrtle Beach, South Carolina.~~Corpus Christi, Texas.

We completed two securitizations by issuing an aggregate of ~~$482.2~~$468.9 million of ~~asset backed~~asset-backed securities.

We issued an additional $50.0 million of Senior Secured Notes at a price of 111.0%, resulting in an effective "yield to first call date" of 7.67%.

In December ~~2012~~2013 we ~~executed a $350.0 million bank term financing secured by $458.0 million~~sold all membership interests of ~~finance receivables.~~GO Financial to our shareholders.

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Discontinued Operation

~~Entered~~On December 5, 2013, DTAC and ~~terminated definitive agreements~~GFC Lending ("GO Financial") entered into an agreement to sell ~~DTAG and DTAC in two separate transactions - See "Termination of Material Definitive Agreements" immediately following.~~

~~Termination of Material Definitive Agreements~~

~~On September 11, 2012, DTAG and DTAC entered into definitive agreements to sell DriveTime in separate~~

~~transactions. Pursuant~~GO Financial to the ~~definitive agreements, DTAC agreed to sell its finance receivable portfolio, which consists~~shareholders of vehicle related installment sales contracts, certificates representing its residual interests in securitizations of finance receivables, and certain other assets to Santander Consumer USA Inc. Immediately thereafter, a group of third-party investors was to purchase all ofDTAC. In consideration for the outstanding stock of DTAG and DTAC, effectively acquiring DTAG's used vehicle dealership operations, including its owned and leased dealerships and reconditioning and other facilities located throughout the United States. In connection with the pending sale of ~~DriveTime,~~GO Financial, DTAC received aggregate cash proceeds of $85.1 million and notes from the shareholders in the principal amount of $28.5 million. Through the sale of GO Financial we eliminated our direct lending operating segment. We have determined the sale of GO Financial qualifies for and is presented as a discontinued operation based on ~~September 24, 2012,~~the guidance provided in ASC 205-20-55-3, and that we ~~commenced an offer to purchase and consent solicitation~~currently operate with ~~respect~~only one reportable segment for operations. See Note 19 — Discontinued Operations to our ~~outstanding Senior Notes.~~

On November 14, 2012, we terminated the definitive agreements entered into on September 11, 2012 to sell DriveTime due to certain unsatisfied conditions to the closings of the transactions contemplated therein. We also terminated and withdrew the offer to purchase and consent solicitation commenced on September 24, 2012.consolidated financial statements for further information.

Statement of Operations—Line Item Descriptions

Revenue

Sales ~~of used vehicles~~revenue

We derive a significant portion of our revenue from the sale of used ~~vehicles.~~vehicles and related ancillary products. Ancillary products include items such as extended vehicle service contracts ("VSC"), Guaranteed Asset Protection ("GAP") and GPS Monitoring Subscription ("GPS"). Revenue from sales of used vehicles is derived by the number of vehicles sold multiplied by the sales price per ~~vehicle. Sales revenue~~vehicle and is reported net of a reserve for

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~~returns, and net of deferred service contract revenue, where applicable.~~ expected returns. Factors affecting revenue from sales of used vehicles and ancillary products include the number of used vehicles ~~we sell~~sold, cost of used vehicles sold, penetration rate of ancillary products and the price at which we sell our ~~vehicles.~~vehicles and products.

The number of used vehicles we sell depends on the volume of customer applications received and the conversion rate from customer application to sale. Application volume is a function of ~~the~~advertised vehicle prices, number of regions, number of dealerships, advertising, customer referrals, repeat customer volume, other marketing efforts, competition from other used car dealerships, availability of credit from other subprime finance companies and general economic conditions. The conversion rate from customer application to sale is a function of ~~our~~competitive pricing, underwriting standards, customer sales experience, customer affordability, selection of vehicle inventory and ~~warranty provided.~~ancillary products available. The price at which we sell our vehicles is dependent on base inventory cost, reconditioning costs and our pricing strategy. The price at which we sell our ancillary products is dependent on penetration rates, competitive pricing, product features and regional and statutory restrictions.

Interest income

Interest income consists of interest earned on finance receivables, net of amortization of loan origination costs, plus late payment fees and interest earned on investments held in trust. We write-off accrued interest on charged-off loans as a reduction to interest income. Interest income is affected by (i) the principal balance of our loan portfolio, (ii) the average APR of our loan portfolio, and (iii) the payment performance by our borrowers on their loans.

~~Dealer Finance and~~ Other Income

~~Dealer finance and other~~Other income consists primarily of third party GPS revenue ~~recognized~~and lease revenue. GPS revenue is provided from ~~GO Financial's~~the sale of GPS units by Inilex our consolidated majority owned telemetry subsidiary. Factors affecting GPS revenue are the number of affiliated dealers, number of vehicles sold per dealer ~~finance receivables under~~and price at which the ~~effective interest method~~units are sold. Lease revenue is driven by the number of vehicles leased, the type of vehicle leased, term of lease, origination fees, lease payment performance and ~~income from other ancillary products offered by GO Financial, respectively.~~our pricing strategies.

Costs and Expenses

Cost of ~~used vehicles sold~~sales

Cost of ~~used vehicles sold~~sales includes the cost to acquire vehicles, ~~reconditioning~~the cost to recondition and ~~transportation costs associated with preparing the vehicles~~transport each vehicle in preparation for resale ~~vehicle warranty,~~ and ~~other related costs.~~the cost of ancillary products. The cost to acquire vehicles includes the vehicle purchase price, auction fees, salaries and wages, reconditioning center overhead and ~~other~~ buyer related costs. AFor units sold where a service contract was bundled with the price of the vehicle (mostly pre-2013 sales), a liability for the estimated cost of vehicle repairs ~~under our DriveCare~~^® ~~limited vehicle warranty program is~~was established at the time ~~a used vehicle is sold~~of sale by charging cost of ~~used vehicles sold.~~sales. Repair expenses related to separately priced service contracts is recorded to cost sales when incurred.

The cost of ~~used vehicles sold~~sales is affected by a variety of factors, including the following: (i) the cost of vehicles purchased at auction, (ii) the supply and demand of vehicles purchased at auction which affects the auction market, (iii) the quality, make, model, and age of vehicles acquired, (iv) transportation costs, (v) reconditioning parts and labor costs along with costs to operate our reconditioning facilities, and (vi) ~~warranty costs.~~vehicle service contract claims and expenses.

Provision for credit losses

Provision for credit losses is the charge recorded to operations to maintain an allowance for credit losses adequate to cover losses inherent in ~~the~~our loan portfolio. We ~~charge-off~~charge off the entire principal balance of receivables that are contractually 91 or more days past due at the end of athe month unless the customer has made a qualifying minimum payment, ~~within the previous 30 days from month-end,~~ in which case, the customer loan would not ~~charge-off~~charge off until ~~121~~120 days contractually past due. ~~At time of charge-off, we record a receivable for estimated recoveries on charged-off receivables, which is included in other assets.~~ The allowance for credit losses varies based on size

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of the loan portfolio and the expected performance of the ~~loans.~~loan portfolio. Loan performance is a function of the underlying credit quality of the portfolio, the effectiveness of collection activities, auction values for repossessed vehicles, other ancillary collections, ancillary product refunds and overall economic conditions.

We generally anticipate the dollar amount of allowance for credit losses to grow as we increase origination volume and grow our portfolio. However, the allowance as a percentage of portfolio principal may increase or decrease based on the underlying performance of loans originated, value of collateral, refunds for ancillary products and the change in credit grade mix of loans originated.

Interest expense

Portfolio debt interest expense consists of interest and related amortization of debt issuance costs on our portfolio warehouse facilities, securitizations, bank term ~~financings,~~financing, and term residual ~~financings.~~financing. Portfolio interest expense fluctuates based on the average size of our loan portfolio, average borrowings against loan collateral, and market rates available in the securitization market.

Non-portfolio debt interest expense consists of interest expense and related amortization of discounts and debt issuance costs on our ~~senior unsecured notes payable,~~ inventory facility, mortgage note payable, real estate ~~mortgage financing,~~facility and an equipment note payable. Non-portfolio debt interest expense is ~~dependent on~~determined by the amount of indebtedness and ~~the~~ interest expense associated therewith, both of which are dependent on the financial markets and economy as a whole.

Senior secured debt interest expense consists of interest expense and the related amortization of premium, discount and other fees on our ~~12.625%~~ Senior Secured ~~Notes due 2017.~~Notes.

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Selling and marketing

Selling and marketing expenses ~~are generally affected by sales volume,~~include the cost of advertising media and ~~our~~other marketing ~~strategy.~~activities. Selling and marketing expenses ~~include advertising~~are influenced by the number of regions and dealerships, sales volume and changes in marketing ~~related costs.~~strategy.

General and administrative

General and administrative expenses include compensation and benefits, corporate overhead, software, property and property-related expenses, collection expenses on our portfolio, ~~store closing costs,~~ and other ancillary expenses, such as professional fees and services.

General and administrative expenses increase and decrease primarily as a result of costs associated with expansion and contraction of our dealership base. As we grow our portfolio, certain collection related costs may increase as we manage a larger servicing platform.

~~Loss on extinguishment~~Depreciation

Depreciation expense includes depreciation for all of ~~debt~~

~~Loss on extinguishment of debt represents the difference between the carrying value of the debt~~our buildings, improvements, furniture, equipment and lease fleet. Depreciation will increase as we ~~repurchased~~expand our dealership operations and ~~the purchase price at which~~as we ~~repurchased the debt, net of the write-off of unamortized debt issuance costs and discounts.~~continue to grow our lease fleet.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (GAAP). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.

Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of assets and liabilities and the recognition of income and expenses. Management considers these accounting policies to be critical accounting policies. The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described below.

Revenue Recognition ~~- DriveTime~~

Revenue is recognized differently for each of the products we sell. Revenue from the sale of used vehicles is recognized upon delivery, when the sales contract is signed, and the agreed-upon down payment or purchase price has been received. ~~Sales of used vehicles include revenue~~Revenue from the sale of used vehicles ~~at the contractual sales price,~~is recorded net of athe reserve for returns and ~~excludes~~ sales tax. The reserve for returns is estimated using historical experience and trends and could be affected if future vehicle returns differ from historical averages. A 10% increase in our rate of returns would result in a $0.2 million ~~and~~ ~~$0.1 million~~increase in our sales return allowance ~~(and~~and a corresponding decrease in ~~revenue)~~revenue for each of the years ended December 31, ~~2012~~2013 and 2012.~~2011~~, respectively. Revenue is recognized at time of sale since persuasive evidence of an arrangement in the form of an installment sales contract exists, we have delivered the vehicle to the customer, transferred title, the sale has a fixed and determinable price, and collectability is reasonably assured.

Interest income consists of interest earned on finance receivables, net of amortization of loan origination costs, plus late payment fees and interest earned on investments held in trust. Interest income is recognized on the accrual basis, when earned, based on a simple interest method. Finance receivables continue to accrue interest until repayment or charge-off. Customer loans may be prepaid without penalty. Direct loan origination costs related to loans originated at our dealerships are deferred and charged against interest income over the life of the related loans using the effective interest method.

~~Revenue Recognition - GO Financial~~

We recognize revenue for dealer finance receivables (Dealer Finance Income) under the effective interest method, by applying a loss adjusted forecast of cash flows for each dealer pool, such that revenue is recognized on a level-yield basis. Open pools establish an effective yield at either their first fiscal quarter, or upon maturation of the pool. The effective yield established is held constant for an open pool until pool closure, unless circumstances warrant a yield adjustment or impairment assessment prior to pool closure. For each accounting period subsequent to pool closure, expected cash flows are re-estimated. Deterioration in expected cash flows, both in the open and closed pool stage, is reflected as a provision for loan loss and corresponding allowance for credit losses, at the pool level. Any subsequent improvement in expected cash flows of the impaired pool(s) will first reverse any previous allowance for credit loss and be prospectively reflected as an increase in the pool yield. For closed pools, if the re-estimation of expected cash flows results in a higher effective yield, an increase in the pool yield is reflected prospectively.

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Revenue from the sale of VSC, GAP and GPS is deferred at the time of sale and recognized over time. The requirement to defer revenue related to the sale of our ancillary products as separately price products will have a significant impact on future GAAP earnings, however, the economic margin and underlying cash flow of selling these products has not changed. We believe the net economic benefit of selling these products will be positive to the Company, as we anticipate that the volume of applications and sales will increase as our vehicle price becomes more comparable to others in the marketplace. For the years ended December 31, 2013 and 2012, the deferred net impact to GAAP revenues of our decision to separately sell these products was $39.6 million and $2.5 million, respectively.

We lease vehicles to customers under a Cancel Anytime Lease™ agreement, therefore, leased vehicles are classified as operating leases with lease revenue recognized as payments are received. Origination fees received at lease inception are deferred and recognized on a straight line basis over the term of the lease. Lease revenue is recorded within other income on the consolidated statements of operations. The GAAP earnings impact will become greater in future years if we expand our leasing program. We anticipate the economic benefit of our leasing program will be positive as we believe the increase in financing options will allow us to attract a broader range of customers.

Allowance for Credit Losses

DriveTime maintains an allowance for estimated credit losses ~~on an aggregate basis at a level we consider sufficient~~as of each reporting date to ~~cover probable~~provide for credit losses inherent in our ~~portfolio of receivables as of each reporting date utilizing~~loan portfolio. The allowance estimate considers a loss ~~emergence~~emergent period, ~~to cover estimated losses. The allowance takes into account~~ historical credit loss experience, including the timing, frequency and severity of losses. ~~This estimate of existing probable credit losses inherent in the portfolio~~Our analysis is primarily based onupon monthly origination static pool ~~analyses by month of origination based~~data on origination principal, credit grade mix and deal structure, including down payment and term. The evaluation of the adequacy of the allowance also considers factors and assumptions regarding the overall portfolio quality, delinquency ~~status, the~~trends, value of the underlying collateral, current economic conditions that may affect the borrowers’ ability to pay, and the overall effectiveness of collection efforts.

The static pool loss curves by grade are adjusted for actual performance to date and historical seasonality patterns. The forecasted periodic loss rates, which drive the forecast for estimated gross losses (before recoveries) are calculated by factoring amortization speed and origination terms. Charge-offs have a natural seasonality pattern such that they are typically lower during the first and second quarters of each calendar year because customers tend to have additional money from tax refunds to apply to their loans, compared to the third and fourth quarters when charge-offs tend to increase. Recoveries are estimated using historical unit and dollar static pool recovery activity to forecast recoveries for estimated charge-offs at the balance sheet date. The forecasted recovery rates (on a per unit basis) are based on the historical unit recovery trend by recovery type ~~and~~as adjusted for ~~the~~ estimated ~~impact~~impacts of economic and market conditions. Recovery estimates include proceeds from selling repossessed vehicles at auction, sales tax credits, insurance, refunds to be applied from canceled or terminated VSC and GAP, bankruptcy collections, and deficiency collections.

The allowance model is sensitive to changes in assumptions, such that an increase or decrease in our forecasted net charge-offs would increase or decrease the allowance as a percentage of principal outstanding required to be maintained. The amount of our allowance is sensitive to losses within credit grades, recovery values, deal structure, ~~the~~ loss emergence period and overall credit grade mix of the portfolio. In the event loss assumptions used in the calculation of ~~the~~our allowance ~~for credit losses~~ were to increase, ~~there would be~~ a corresponding increase in the amount of the allowance ~~for credit losses,~~would result, which would decrease the net carrying value of finance receivables and increase the amount of provision for credit losses recorded, thereby decreasing net income. A 5%5.0% increase in our frequency loss assumption would increase the allowance for credit losses and our provision for credit losses by $~~11.0~~12.2 million and $~~10.4~~11.0 million as of December 31, ~~2012~~2013 and ~~2011~~,2012, respectively. Also, a 5%5.0% decrease in our assumed recoveries per loan charged-off, would result in an increase to the allowance for credit losses and provision for credit losses of $~~6.1~~6.6 million and $~~6.0~~6.1 million as of December 31, ~~2012~~2013 and ~~2011~~,2012, respectively. Our ability to forecast net charge-offs and track static pool net losses by month of origination are a critical aspect of this analysis.

Although it is reasonably possible that events or circumstances could occur in the future that are not presently foreseen, which could cause actual credit losses to be materially different from the recorded allowance for credit losses, we believe that we have given appropriate consideration to the relevant factors and have made reasonable assumptions in determining the level of the allowance. Our credit and underwriting policies, adherence to such policies, and the execution of collections processes have a significant impact on collection results, as does the economy as a whole. Changes to the economy, unemployment, auction prices for repossessed vehicles, and collections and recovery processes could materially affect our reported results.

~~See “Revenue Recognition - GO Financial” for a description of allowance for credit losses on GO finance receivables.~~

Recovery Receivables

Recovery receivables are a component of finance receivables and consist of estimated recoveries to be received on charged-off ~~receivables,~~vehicle loans, including proceeds from selling repossessed vehicles at auction, ~~along with~~net of sales tax, insurance proceeds, bankruptcy and deficiency collections. The recovery amount from selling repossessed vehicles at auction is a forecast of vehicles to be recovered from loans previously charged-off and vehicles currently in our possession. Based on our extensive experience and historical database of auction recoveries, we estimate the number of units we will recover and the value ~~that~~ we will receive for these vehicles at auction. Our forecast utilizes historical data with respect to recovery rates, values, and time from charge-off to ~~repossession.~~repossession, as well as seasonal patterns in prices at wholesale auctions. In order to estimate auction recoveries we utilize historical static pool unit recovery ~~rates, as~~dollars, adjusted for recent market trends, to arrive at the forecasted recovery dollars by static pool month of charge-off. A 1.0% decrease in the estimated value of vehicles at auction at December 31, 2013 would result in a decrease in net income of approximately $1.2 million. Insurance, bankruptcy and deficiency collections are estimated using historical trends adjusted for changes to recovery practices. Changes in recovery receivables are treated as increases or decreases to net charge-offs and ultimately the allowance for credit losses.

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Valuation of Inventory

Inventory consists of used vehicles held-for-sale or currently undergoing reconditioning and is stated at the lower of cost or market value. Vehicle inventory cost is determined by specific identification. Direct and indirect vehicle reconditioning costs including parts and labor, overhead, costs to transport the vehicles to our reconditioning and dealership locations, buyer costs, and other incremental costs are capitalized as a component of ~~inventory cost.~~our inventory. Determination of the market value of inventory involves assumptions regarding wholesale loss rates derived from historical trends and could be affected by changes in supply and demand at our retail locations and at ~~the auctions.~~auction. A 1.0% decrease in the valuation of our inventory at December 31, ~~2012~~2013 would result in a decrease in net income of approximately $~~2.7~~3.2 million.

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Secured Financings

We sell loans originated at our dealerships to ~~our~~ bankruptcy-remote securitization subsidiaries, which, in turn, transfer the loans to separate trusts that issue notes and certificates collateralized by these loans. The notes (asset-backed securities) are sold to investors, and we retain the certificates. We continue to service all securitized loans. We have determined ~~that~~ the trusts ~~are~~to be variable interest entities ~~and that~~with DTAC isbeing the primary ~~beneficiary of those trusts.~~beneficiary. Therefore, loans included inwithin the securitization transactions are recorded as finance receivables, ~~and~~with the asset-backed securities ~~that are~~ issued by the trusts ~~are~~ recorded as a component of portfolio term financings in the accompanying consolidated balance sheets.

~~Limited Warranty~~

~~A liability~~Note: See Note 2 to the Consolidated Financial Statements - Significant Accounting Policies, appearing elsewhere in this document for ~~the estimated cost of vehicle repairs under~~more detailed information regarding our ~~DriveCare~~^® limited warranty is established at the time a used vehicle is sold by charging costs of used vehicles sold. The liability is evaluated for adequacy through an analysis based on the program’s historical performance of cost incurred per unit sold, management’s estimate of frequency of vehicles to be repaired and severity of claims based on vehicles currently under warranty, the make, mileage, and age of vehicles under warranty, which are based on the program’s historical performance and our expectation of future usage. These assumptions are further affected by mix, mileage, and age of vehicles sold and our ability to recondition vehicles prior to sale. A 5.0% increase in our warranty frequency assumptions related to warranty usage and a 5.0% increase in our warranty severity assumptions would result in a ~~$0.9 million~~ ~~increase in our warranty accrual at~~ ~~December 31, 2012, and a corresponding reduction in net income.~~accounting policies.

Factors Affecting Comparability

We have set forth below selected factors that we believe have had, or can be expected to have, a significant effect on the comparability of recent or future results of operations:

Revenue Recognition

Beginning in the fourth quarter of 2012 we began offering our DriveCare^® ~~limited warranty~~extended vehicle service contract as a separately priced optional product in certain regions in which we operate, with all dealerships offering the service contract ~~in our dealerships located in Tennessee, Virginia~~as a separately priced product by the end of 2013. In addition, during 2013 we began offering GAP and ~~Ohio.~~GPS as separately priced optional products. As a result, ~~the~~ revenue associated with separately sold VSC, GAP and ~~costs of the sale of these service~~GPS contracts is deferred and recognized over the life of the ~~warranty contract,~~agreement, in relation to the usage and expected duration of the contracts. AtFor the years ending December 31, 2013 and 2012, the ~~amount~~gross negative impact to GAAP revenue due to the deferment of ~~deferred~~ revenue ~~(and~~associated with the unbundling of ancillary products was $39.6 million and $2.5 million, respectively. The deferral of revenue ~~recognized) on~~related to the ~~consolidated balance sheet and consolidated statement~~sale of ~~operations, was immaterial. An increase in the number of locations where we offer the warranty as a separately priced product~~these products will continue to have a direct material impact on our gross revenue, ~~and~~ gross margin and net profitability of vehicle sales in future periods compared to historical results. However, we believe the economic impact of the unbundling will be accretive to the business due to the expected positive impact to volume.

~~GO Financial~~

~~In December 2011,~~Beginning in 2013 we ~~launched GO Financial. GO provides indirect subprime auto financing to non-DriveTime dealers. This business line was launched during our fourth quarter of 2011 and was not material~~began offering Cancel Anytime Lease™ to our ~~financial results for~~customers as an alternative financing option to purchasing a vehicle through an installment sales contract. Recognition of lease revenue is deferred over the ~~fiscal year ended December 31, 2011. However, at December 31, 2012, GO Financial had~~ ~~$41.0 million~~term of the lease and is included in ~~dealer finance receivables~~other income on the consolidated statements of operations.

Recoveries

During 2013, we evaluated our recovery estimates related to sales tax credits in certain states in which we operate. As a result, we now include an estimate of credits to be received on certain state sales tax returns related to accrued but charged-off interest and ~~$42.4 million~~ ~~in total assets, combined with~~ ~~$41.7 million~~post charge-off interest assessed to customer's accounts. Recoveries as a percent of ~~equity on~~charge-offs were approximately 2.0% higher as a ~~stand-alone basis. GO has generated~~ ~~$3.0 million~~ ~~in total revenue during fiscal 2012, with a pre-tax loss~~result of ~~$1.9 million~~ for the year. We expect that GO’s originations of dealer financings will continue to grow during 2013, thereby increasing our total revenue, portfolio size, and operating expenses as GO hires personnel, organizes and registers in various states with various regulatory authorities, and incurs other costs of doing business.this change.

~~New Business Line - Carvana~~Inilex

In ~~January~~June 2013 we ~~launched Carvana. Carvana, LLC is~~acquired a ~~new sales channel that enables~~controlling interest in Inilex, a provider of GPS technology and telemetry solutions. In accordance with ASC 810 we consolidate Inilex's results into our financial statements and eliminate all intercompany transactions. The impact of this consolidation leads to $8.1 million of additional revenue included in other income as compared to the ~~customer to buy~~prior years. As a car, from click to delivery, 100% online over the internet. Carvana's target customer demographic is not specific to credit, and is geared to attract a broader credit spectrum and income classification than that of DriveTime and GO Financial. Carvana (www.Carvana.com) is a 360-degree, integrated used car buying experience that enables consumers to purchase used vehicles online through a highly efficient and transparent process. Initially launching in Georgia, with plans to expand regionally, then nationally, Carvana’s business and operations will fully integrate all stepsresult of the ~~vehicle sales process, including: (a) vehicle search, (b) vehicle tour and detail, (c) credit scoring, (d) customer financing, (e) eContracting (f) verification~~application of ~~customer data (g) electronic down payment, and (h) vehicle delivery. Carvana is not expected~~this guidance, the consolidated statements of operations show a net loss attributable to have a significant net impact to our consolidated results for 2013, though it will incur operating expenses as it hires personnel, obtains state licensing and registers with regulatory agencies and incurs other coststhe noncontrolling interest in Inilex in the amount of ~~doing business, thereby increasing our general and administrative expenses. To a certain extent, Carvana will utilize DriveTime's existing infrastructure, with customized aspects of each component~~$0.50 million. The benefit of the ~~DriveTime business process.~~ownership in Inilex to us is represented in a lower per unit cost resulting in a higher net income margin.

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~~Transaction Costs~~

We incurred certain legal, accounting, tax consulting, and other professional service fees in connection with a planned sale of DTAG and DTAC in 2012 (see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ~~- Termination~~

Comparison of ~~Material Definitive Agreement~~years ended December 31, 2013 and 2012

The following table sets forth our results of operations for ~~more information). The aggregate expense paid to third parties associated therewith of approximately $3.9 million was recorded in General and administration expenses~~the periods indicated:



	Year Ended December 31,				% Change
	2013		2012		% Change
Revenue:	($ in thousands)
Sales revenue	$	1,055,504	$	920,507	14.7	%
Interest income	327,798		299,382		9.5	%
Other income	17,594		1,175		1,397.4	%
Total revenue	1,400,896		1,221,064		14.7	%
Costs and expenses:
Cost of sales	731,190		607,932		20.3	%
Provision for credit losses	308,332		253,603		21.6	%
Portfolio debt interest expense	42,196		41,978		0.5	%
Non-portfolio debt interest expense	2,552		4,644		(45.0	)%
Senior secured debt interest expense	30,325		26,470		14.6	%
Selling and marketing	32,138		28,015		14.7	%
General and administrative	195,806		176,266		11.1	%
Depreciation expense	25,032		19,740		26.8	%
Total costs and expenses	1,367,571		1,158,648		18.0	%
Income before income taxes	33,325		62,416		(46.6	)%
Income tax expense	1,609		1,194		34.8	%
Net income from continuing operations	$	31,716	$	61,222	(48.2	)%

Sales Revenue

Sales revenue increased by 14.7% for the year ended December 31, ~~2012. We have incurred all costs associated with this transaction~~2013 due to a 13.8% increase in the ~~2012 fiscal year~~unit volume of used vehicles sold and ~~do not expect these costs~~a 0.8% increase in our average combined sales price of the vehicle and ancillary products compared to 2012. The increase was partially offset by a 5.3% decrease in revenue due to the impact of unbundling our ancillary products. The increase in sales volume is primarily attributable to an increase in the ~~future, nor did we incur such costs~~average number of stores in ~~2011.~~operations related to a full year of operations for the net increase of eight stores in 2012 combined with the partial year of operations for the 13 stores opened in 2013. Sales volume was also positively impacted from an increase in the number of applications received per store, as a result of unbundling our ancillary products from the sales price of the vehicle, which made the pricing of our vehicles more comparable in the marketplace. See also "Critical Accounting Policies - Revenue Recognition" above for additional discussion surrounding the impact of selling our vehicle service contract as a separately price product.

Interest income

Interest income increased for the year ended December 31, 2013 compared to 2012 primarily due to a $174.9 million increase in our average portfolio principal outstanding, compared to 2012, partially offset by a decrease in average portfolio yield. The increase in average portfolio size was driven by the increase in origination volume and an increase in the average amount financed per loan origination. The decrease in the average effective yield was attributed to a result of a decrease in average APR of contracts originated. See “Originations” below for further discussion.

Other income

Other income includes Inilex revenue from the sale of its GPS product to third parties, as well as the revenue recognized on our lease financing product. Other income increased for the year ended December 31, 2013 compared to 2012 primarily due to the acquisition of Inilex and the inception of our leasing program.

Cost of sales

Cost of sales increased for the year ended December 31, 2013 compared to 2012 as a result of an increase in the number of vehicles sold combined with an increase in the per unit average cost of vehicles sold. The increase in per unit cost of vehicles sold is attributable to an overall increase in the average cost of vehicles acquired at auction, which is the result of selling a lower mileage and newer model year vehicle in 2013 compared to 2012.

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Gross margin



	As of December 31,
	2013		2012
GAAP gross margin percentage	32.0	%	33.9	%
Economic gross margin percentage	35.8	%	34.2	%

The decrease in gross margin as a percentage of sales revenue for the year ended December 31, 2013 compared to 2012, is primarily attributable to the accounting effects related to offering our vehicle service contract as a separately priced product. Excluding the effects of selling our ancillary products as separately priced items, gross economic margin percentage would have increased 1.6% for the year ended December 31, 2013 as compared to 2012. Gross margin was also affected by higher vehicle acquisition costs. As we experience wholesale pricing pressure, our ability to pass on costs to our customers is limited, because our customers are generally sensitive to down payment, monthly payment amounts and financing terms.

Provision for credit losses

Provision for credit losses increased for the year ended December 31, 2013 compared to 2012 primarily as a result of an increase in the principal balance of loans outstanding as a result of increased origination volume, coupled with an increase in the allowance as a percentage of principal.

Net charge-offs as a percent of average outstanding principal increased to 14.8% from 13.9% for the year ended December 31, 2013 compared to 2012. The increase in net charge-offs percentage is the result of an increase in gross charge-offs, coupled with a decrease in our recovery rate. Gross principal charged-off increased slightly to 23.8% compared to 23.4% for the year ended December 31, 2013 compared to 2012. Influencing gross loss rates were higher average principal charge-offs due in part to higher vehicle acquisition cost, which resulted in a higher amount financed and longer financing terms to maintain customer payment affordability, plus general economic conditions including unemployment and underemployment rates, and the latent impact of the disruption of our collection operations resulting from the terminated transaction for the sale of the Company in 2012. Recoveries as a percentage of principal charged-off decreased to 37.6% from 40.3% for the year ended December 31, 2013 compared to 2012. Beginning in the second quarter of 2012 and continuing throughout 2013, the wholesale market softened partially as a result of rising new vehicle sales, increasing the inventory of used vehicles from trade-ins, and an increase in supply of fleet vehicles as rental companies are retiring more vehicles. Recoveries for 2013 were positively impacted by a change in our estimated sales tax credits.

Our allowance as a percent of principal outstanding increased from 15.7% at December 31, 2012 to 16.0% at December 31, 2013. The increase in the allowance rate is due to an increase in gross charge-off expectations as a result of an increase in average term and an expectation that recovery values will continue to decline in 2014.

Portfolio debt interest expense

Total portfolio debt interest expense increased for the year ended December 31, 2013 compared to 2012. This increase is the result of an increase in the average portfolio debt outstanding to $1.2 billion from $961.1 million for the years ending December 31, 2013 and 2012, respectively, partially offset by a decrease in the overall cost of funds as a result of lower borrowing costs on our recent securitizations, bank term financing and warehouse facilities.

Non-portfolio debt interest expense

Total non-portfolio debt interest expense decreased for the year ended December 31, 2013 compared to 2012. The decrease was due to the sale of GO Financial and subsequent reclassification of a portion of interest expense in 2013 to discontinued operations.

Senior secured debt interest expense

Senior Secured debt interest expense increased for the year ended December 31, 2013 compared to 2012. This increase is due to an additional $50.0 million of Senior Secured notes issued in May 2013.

Selling and marketing expense

Selling and marketing expenses increased for the year ended December 31, 2013 compared to 2012. These increases are primarily due to our geographic expansion into new markets.

General and administrative expense

General and administrative expenses increased for the year ended December 31, 2013 compared to 2012. This increase was primarily due to an increase in operating lease expense related to an increased number of dealerships in operation year over year, combined with a corresponding increase in salaries and wages related to an increase in average number of employees related to our operational expansion. Additionally general and administrative expense increased through the acquisition of Inilex and through the growth of our online auto sales initiative, Carvana.

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Depreciation expense

Depreciation expense increased for the year ended December 31, 2013 compared to 2012. This increase was primarily the result of an increase in capital expenditures associated with the expansion of our dealership base and information technology infrastructure.

Net income

The following table sets forth net income adjusted for factors affecting comparability:



	Year Ended December 31,
	2013	2012
	(In thousands)
Net Income from continuing operations	31,716	61,222
Change in Deferred Income ⁽¹⁾	40,124	2,111
Adjusted Net Income	71,840	63,333


⁽¹⁾	^{Deferred income is the net economic benefit of estimated deferred revenue and expense related to VSC, GAP and GPS. Although expense is recognized for GAAP purposes when incurred, for purposes of this presentation, costs are assumed to be recognized up front.}

Net income for the year ended December 31, 2013 decreased compared to 2012. The decrease in net income is primarily due to (i) the accounting effects of deferring income from the sale of our VSC, GAP and GPS products; (ii) an increase in general and administrative expenses associated with our retail expansion; and (iii) an increase in provision for loan losses for our growing portfolio balance.

Excluding the effects of deferred income, adjusted net income for the year ended December 31, 2013 and 2012 would have been $71.8 million and $63.3 million, respectively.

Originations

The following table sets forth information regarding our originations for the periods indicated:



	Year Ended December 31,						Change
	2013			2012			Change
	($ in thousands, except per loan data)
Amount originated	$	1,106,422		$	917,093		$	189,329
Number of loans originated	68,177			59,483			8,694
Average amount financed	$	16,229		$	15,418		$	811
Average APR originated	19.0		%	20.3		%	(1.3		)%
Average term (in months)	64.5			57.4			7.1
Average down payment	$	962		$	998		$	(36	)
Down payment as a percent of amount financed	5.9		%	6.5		%	(0.6		)%

Origination volume and number of loans originated increased due to an increase in the number of used vehicles sold and an increase in the average amount financed per loan originated. The number of used vehicles sold increased as a result of an increase in the average number of dealerships in operation in 2013 compared to 2012. The average amount financed per loan originated increased as a result of an increase in the average sales price per vehicle sold and financing ancillary products, coupled with a decrease in the average down payment per loan originated. Average APR decreased and average term increased for the year ended December 31, 2013 compared to 2012. These changes are a result of our overall interest rate and financing/underwriting strategy, which is designed to optimize affordability to our customers, while considering the effects of retail cost and vehicle pricing.

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Receivables portfolio

The following table shows the characteristics of our finance receivables portfolio for the periods indicated:



	As of and for the Year Ended December 31,						Change
	2013			2012			Change
Average Remaining Principal Per Loan, End Of Period	$	12,397		$	11,380		$	1,017
Weighted Average APR of Contracts Outstanding	20.0		%	20.4		%	(0.4		)%
Average Age Per Loan (in months)	13.7			14.4			(0.7)
Delinquencies:
Delinquencies 1 - 30 Days	30.0		%	33.0		%	(3.0		)%
Delinquencies 31 - 60 Days	9.0		%	10.0		%	(1.0		)%
Delinquencies 61 - 90 Days	4.9		%	5.1		%	(0.2		)%
Delinquencies 91 - 120 Days	2.4		%	2.8		%	(0.4		)%
Total Past Due	46.3		%	50.9		%	(4.6		)%

The average remaining principal balance increased as of December 31, 2013, compared to 2012, due to an increase in the average amount financed per loan coupled with an increase in term.

Delinquencies

As a percentage of total outstanding loan principal balances, delinquencies greater than 30 days decreased year over year. In May 2012 the Company entered into an agreement to sell its portfolio, which was later terminated in November 2012. As a result, we experienced greater turnover of collections personnel, while enacting a collections hiring freeze, which resulted in a general disruption of our collections operations, all leading to an adverse impact on delinquencies in 2012. During the same time, we also closed our regional collection centers in Orlando, Florida and Richmond, Virginia, which had an additional impact. In 2013 we took steps to increase collections personnel and supplement our closed regional centers, returning to our normal staffing levels.

Results of Operations ~~- DriveTime~~

Comparison of years ended December 31, 2012 and 2011

The following table sets forth our results of operations for the periods indicated:


	Year Ended December 31,
	2012		2011		% Change		Year Ended December 31,				% Change
	($ in thousands)						2012		2011		% Change
Revenue:							(In thousands)
Sales of used vehicles	$	920,507	$	838,242	9.8	%
Sales revenue							$	920,507	$	838,242	9.8	%
Interest income	299,382		283,065		5.8	%	299,382		283,065		5.8	%
Dealer Finance and Other Income	2,977		—		100.0	%
Other income							1,175		660		78.0	%
Total revenue	1,222,866		1,121,307		9.1	%	1,221,064		1,121,967		8.8	%
Costs and expenses:
Cost of used vehicles sold	607,932		544,504		11.6	%
Cost of sales							607,932		544,504		11.6	%
Provision for credit losses	253,603		207,198		22.4	%	253,603		207,198		22.4	%
Portfolio debt interest expense	41,978		43,475		(3.4	)%	41,978		43,475		(3.4	)%
Non-portfolio debt interest expense	4,644		3,034		53.1	%	4,644		3,034		53.1	%
Senior secured debt interest expense	26,470		26,541		(0.3	)%	26,470		26,541		(0.3	)%
Selling and marketing	28,139		22,790		23.5	%	28,015		22,790		22.9	%
General and administrative	179,403		168,331		6.6	%	176,266		168,202		4.8	%
Depreciation expense	20,150		16,075		25.3	%	19,740		16,075		22.8	%
Total costs and expenses	1,162,319		1,031,948		12.6	%	1,158,648		1,031,819		12.3	%
Income before income taxes	60,547		89,359		(32.2	)%	62,416		90,148		(30.8	)%
Income tax expense	1,194		1,221		(2.2	)%	1,194		1,221		(2.2	)%
Net income	$	59,353	$	88,138	(32.7	)%
Net income from continuing operations							$	61,222	$	88,927	(31.2	)%



DELAWARE		86-0721358
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)



~~ARIZONA~~		~~82-0587346~~
~~(State or other jurisdiction of~~ ~~Incorporation or organization)~~		~~(I.R.S. Employer~~ ~~Identification No.)~~



Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	¨



	Page
Part I

Item 1. Business	32

Item 1A. Risk Factors	1110

Item 1B. Unresolved Staff Comments	2218

Item 2. Properties	2319

Item 3. Legal Proceedings	2420

Item 4. Mine Safety Disclosures	2420

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities	2520

Item 6. Selected Financial Data	2621

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2922

Item 7A. Quantitative and Qualitative Disclosures about Market Risk	5342

Item 8. Financial Statements and Supplementary Data	5443

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	~~102~~86

Item 9A. Controls and Procedures	~~102~~86

Item 9B. Other Information	~~103~~86

Part III

Item 10. Directors, Executive Officers and Corporate Governance	~~104~~87

Item 11. Executive Compensation	~~105~~88

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~112~~96

Item 13. Certain Relationships and Related Transactions, and Director Independence	~~113~~96

Item 14. Principal Accounting Fees and Services	~~115~~98

Part IV

Item 15. Exhibits, Financial Statement Schedules	~~117~~100

Signatures



	Twelve Months Ended December 31, 2012			As of December 31, 2012
State	# of Units Sold	Percent of Unit Sales Volume		Number of Dealerships	Number of Reconditioning Facilities	# of Active Loans	Loan Principal		% of Portfolio
Texas	12,730	21.2	%	18	4	32,769	$	369,021	23.0	%
Florida	8,349	13.9	%	16	2	22,500	247,281		15.4	%
North Carolina	5,446	9.1	%	9	1	13,741	157,670		9.9	%
Georgia	4,903	8.2	%	7	1	10,719	122,027		7.6	%
Arizona	4,135	6.9	%	6	1	10,231	108,792		6.8	%
Virginia	3,528	5.9	%	6	1	9,977	106,749		6.7	%
Tennessee	3,518	5.9	%	5	1	5,552	72,967		4.6	%
California	2,511	4.2	%	4	1	6,547	71,005		4.4	%
South Carolina	2,446	4.1	%	4	—	4,493	58,163		3.6	%
Alabama	2,412	4.0	%	5	1	3,340	44,787		2.8	%
Nevada	2,176	3.6	%	2	1	5,846	63,346		4.0	%
New Mexico	1,622	2.7	%	3	1	4,767	48,421		3.0	%
Oklahoma	1,509	2.5	%	2	—	2,777	36,109		2.3	%
Ohio	1,203	2.0	%	3	—	1,199	17,417		1.1	%
Indiana	1,182	2.0	%	2	1	1,486	21,603		1.3	%
Colorado	1,031	1.7	%	2	1	3,343	35,268		2.2	%
Mississippi	882	1.5	%	1	—	1,116	15,847		1.0	%
Arkansas ⁽¹⁾	211	0.4	%	1	—	209	3,218		0.2	%
Missouri ⁽¹⁾	136	0.2	%	1	—	136	2,019		0.1	%
	59,930	100	%	97	17	140,748	$	1,601,710	100.0	%



ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
	For the year ended December 31, ~~2012~~2013



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to


~~(1)~~	~~Represents the dollar amount originated divided by the dollar amount of revenue from sales of used vehicles.~~


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter			Total		First Quarter		Second Quarter		Third Quarter		Fourth Quarter			Total
	($ in thousands)											(In thousands)
2013:
Total revenue												$	385,224	$	360,865	$	364,204	$	290,603		$	1,400,896
Costs and expenses												$	367,061	$	339,975	$	358,818	$	301,717		$	1,367,571
Income / (loss) before income taxes												$	18,163	$	20,890	$	5,386	$	(11,114	)	$	33,325
Net income / (loss) from continuing operations												$	17,821	$	20,620	$	5,455	$	(12,180	)	$	31,716
2012:
Total revenue	$	367,838	$	302,202	$	304,957	$	247,869		$	1,222,866	$	367,663	$	301,850	$	304,785	$	246,766		$	1,221,064
Costs and expenses	$	334,651	$	272,609	$	300,190	$	254,869		$	1,162,319	$	333,825	$	271,596	$	299,344	$	253,883		$	1,158,648
Income / (loss) before income taxes	$	33,187	$	29,593	$	4,767	$	(7,000	)	$	60,547	$	33,838	$	30,254	$	5,441	$	(7,117	)	$	62,416
Net income / (loss)	$	32,795	$	29,326	$	4,396	$	(7,164	)	$	59,353
Net income / (loss) from continuing operations												$	33,446	$	29,987	$	5,070	$	(7,281	)	$	61,222
2011:
Total revenue	$	332,856	$	275,405	$	286,012	$	227,034		$	1,121,307
Costs and expenses	$	291,841	$	242,975	$	273,575	$	223,557		$	1,031,948
Income / (loss) before income taxes	$	41,015	$	32,430	$	12,437	$	3,477		$	89,359
Net income / (loss)	$	40,503	$	32,093	$	12,376	$	3,166		$	88,138
2010:
Total revenue	$	297,038	$	245,747	$	263,323	$	219,633		$	1,025,741	$	332,856	$	275,405	$	286,012	$	227,694		$	1,121,967
Costs and expenses ⁽¹⁾	$	263,405	$	225,975	$	244,838	$	220,437		$	954,655	$	291,841	$	242,975	$	273,567	$	223,436		$	1,031,819
Income / (loss) before income taxes	$	33,633	$	19,772	$	18,485	$	(804	)	$	71,086	$	41,015	$	32,430	$	12,445	$	4,258		$	90,148
Net income / (loss)	$	33,284	$	19,322	$	19,232	$	(1,156	)	$	70,682
Net income / (loss) from continuing operations												$	40,503	$	32,093	$	12,383	$	3,948		$	88,927


⁽¹⁾	^{Fourth quarter unit sales increased as a result of the implementation of our leasing program. We expect leases to demonstrate a seasonality pattern similar to vehicle sales.}



Year	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Full Year
2008	4.9%	4.4%	5.7%	6.5%	21.5%
2009	4.9%	3.9%	4.8%	4.6%	18.2%
2010	3.3%	2.5%	3.7%	4.0%	13.5%
2011	3.0%	2.4%	3.7%	4.0%	13.1%
2012	3.0%	2.7%	3.9%	4.3%	13.9%



	Year Ended December 31, 2012
	($ in thousands)
Revenue:
Dealer Finance Income	$	2,168
Other Income	809
Total Revenue	2,977
Costs and Expenses:
Selling and Marketing	123
General and Administrative	4,313
Depreciation Expense	410
Total Costs and Expenses	4,846
Loss before Income Taxes	(1,869		)
Income Tax Expense (Benefit)	—
Net Loss	$	(1,869	)



	As of and for the Year Ended December 31, 2012
	($'s in thousands, except per deal information)
Originations:
Total dealer advance funded		$	61,109
Number of contracts funded		5,509
Average amount financed per deal		$	8,250
Average advance rate		74.4		%
Dealers:
Number of Funding Dealers		191
Total Number of Dealers		369
Dealer Turnover Rate		10.3		%
Number of Active Pools		247
Number of Closed Pools		21


1.	Portfolio term financings including asset-backed securitizations.


2.	Portfolio warehouse facilities including agreements with three different institutional lenders.


																First Quarter			Second Quarter			Third Quarter			Fourth Quarter				Full Year
Year	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Full Year			Units	%		Units	%		Units	%		Units	%			Units	%
	Units	%		Units	%		Units	%		Units	%		Units	%
2008	20,820	37.5	%	12,745	23.0	%	12,230	22.1	%	9,620	17.4	%	55,415	100	%
2013																19,607	26.7	%	17,357	23.7	%	19,563	26.7	%	16,782	22.9	%	⁽¹⁾	73,309	100	%
2012																19,145	31.9	%	14,667	24.5	%	14,839	24.8	%	11,279	18.8	%		59,930	100	%
2011																18,095	32.2	%	13,639	24.3	%	14,233	25.4	%	10,142	18.1	%		56,109	100	%
2010																16,303	31.0	%	12,284	23.4	%	13,382	25.5	%	10,529	20.1	%		52,498	100	%
2009	15,787	32.0	%	11,941	24.1	%	12,297	24.8	%	9,475	19.1	%	49,500	100	%	15,787	32.0	%	11,941	24.1	%	12,297	24.8	%	9,475	19.1	%		49,500	100	%
2010	16,303	31.0	%	12,284	23.4	%	13,382	25.5	%	10,529	20.1	%	52,498	100	%
2011	18,095	32.2	%	13,639	24.3	%	14,233	25.4	%	10,142	18.1	%	56,109	100	%
2012	19,145	31.9	%	14,667	24.5	%	14,839	24.8	%	11,279	18.8	%	59,930	100	%


6.	Operating leases for the majority of our dealerships, reconditioning centers, operations facilities and our corporate office.


7.	Other secured notes payable including, a mortgage loan for our operations call center in Mesa, Arizona and other capital leases.


	January 1, 2003 - December 31, 2009		2010		2011		2012		Totals		January 1, 2003 - December 31, 2010		2011		2012		2013		Totals
	($ in thousands)										(In thousands)
Distributions to shareholders	$	273,307	$	46,310	$	51,845	$	51,195	$	422,657	$	319,617	$	51,845	$	51,195	$	13,701	$	436,358
Less: S-corporation shareholder tax liability based on highest tax rates	104,660		18,596		26,895		26,970		177,121		123,256		25,180		26,878		9,740		185,054
Distributions in excess of amounts to pay taxes	$	168,647	$	27,714	$	24,950	$	24,225	$	245,536	$	196,361	$	26,665	$	24,317	$	3,961	$	251,304


	December 31,						December 31,
	2012		2011		2010		2013		2012		2011
	($ in thousands)						(In thousands)
Unrestricted cash	$	26,480	$	25,930	$	23,677	$	30,754	$	26,478	$	25,930
Portfolio warehouse facilities	54,185		148,837		112,160		99,850		54,185		148,837
Term Residual Facility	9,058		—		—
Term residual facility							—		9,058		—
Inventory facility	48,679		55,500		10,000		3,679		48,679		55,500
Total liquidity	$	138,402	$	230,267	$	145,837	$	134,283	$	138,400	$	230,267


As of December 31, 2012	Facility Amount		Amount Drawn		Unused Facility Amount ⁽¹⁾		Borrowing Base ⁽²⁾		Amount Drawn		Total Availability
As of December 31, 2013													Facility Amount		Amount Drawn		Unused Facility Amount		Borrowing Base		Amount Drawn		Total Availability
	($ in thousands)												(In thousands)
Deutsche Bank warehouse	$	150,000	$	19,300	$	130,700	$	25,272	$	19,300	$	5,972	$	150,000	$	98,400	$	51,600	$	116,878	$	98,400	$	18,478	⁽¹⁾
Wells Fargo warehouse	150,000		23,000		127,000		24,640		23,000		1,640		150,000		107,000		43,000		114,434		107,000		7,434		⁽²⁾
RBS warehouse	125,000		14,900		110,100		15,816		14,900		916		125,000		78,000		47,000		82,829		78,000		4,829		⁽³⁾
DTAC receivables ⁽³⁾	N/A		N/A		N/A		45,657		N/A		45,657		N/A		N/A		N/A		69,109		N/A		69,109		⁽⁴⁾
Total portfolio warehouse facilities	$	425,000	$	57,200	$	367,800	$	111,385	$	57,200	$	54,185	$	425,000	$	283,400	$	141,600	$	383,250	$	283,400	$	99,850
Santander Term Residual Line	100,000		25,000		75,000		34,058		25,000		9,058
Santander term residual line													50,000		50,000		—		50,000		50,000		—
Inventory facility	140,000		91,321		48,679		140,000		91,321		48,679		140,000		136,321		3,679		140,000		136,321		3,679
	$	665,000	$	173,521	$	491,479	$	285,443	$	173,521	$	111,922	$	615,000	$	469,721	$	145,279	$	573,250	$	469,721	$	103,529
Unrestricted cash											26,480												30,754
Total cash and availability											$	138,402											$	134,283


As of December 31, 2011	Facility Amount		Amount Drawn		Unused Facility Amount ⁽¹⁾		Borrowing Base ⁽²⁾		Amount Drawn		Total Availability
As of December 31, 2012													Facility Amount		Amount Drawn		Unused Facility Amount		Borrowing Base		Amount Drawn		Total Availability
	($ in thousands)												(In thousands)
Deutsche Bank warehouse	$	150,000	$	39,000	$	111,000	$	59,346	$	39,000	$	20,346	$	150,000	$	19,300	$	130,700	$	25,272	$	19,300	$	5,972	⁽¹⁾
UBS warehouse	125,000		31,792		93,208		61,592		31,792		29,800
RBS warehouse	125,000		30,600		94,400		53,082		30,600		22,482		150,000		23,000		127,000		24,640		23,000		1,640		⁽²⁾
Wells Fargo warehouse	150,000		40,000		110,000		45,848		40,000		5,848		125,000		14,900		110,100		15,816		14,900		916		⁽³⁾
DTAC receivables ⁽³⁾	N/A		N/A		N/A		70,361		N/A		70,361
DTAC receivables													N/A		N/A		N/A		45,657		N/A		45,657		⁽⁴⁾
Total portfolio warehouse facilities	$	550,000	$	141,392	$	408,608	$	290,229	$	141,392	$	148,837	$	425,000	$	57,200	$	367,800	$	111,385	$	57,200	$	54,185
Santander Term Residual Line	100,000		100,000		—		100,000		100,000		—
Santander term residual line													100,000		25,000		75,000		34,058		25,000		9,058
Inventory facility	140,000		84,500		55,500		140,000		84,500		55,500		140,000		91,321		48,679		140,000		91,321		48,679
	$	790,000	$	325,892	$	464,108	$	530,229	$	325,892	$	204,337	$	665,000	$	173,521	$	491,479	$	285,443	$	173,521	$	111,922
Unrestricted cash											25,930												26,478
Total cash and availability											$	230,267											$	138,400


⁽¹⁾	~~Represents amounts that can be drawn upon as long as the~~ ^{As of December 31, 2013 and December 31, 2012, amount drawn does not exceed theexcludes $4.3 million and $1.6 million of warehouse cash collections respectively per borrowing base for the credit facility.}


~~(3)~~ ⁽²⁾	~~Includes~~ ~~$79.3~~^{Assumes collection and reserve amounts on deposit of $4.2 million} for December 31, 2013 and ~~$123.7~~$1.6 million ~~as of~~ for December 31, 2012 are used to paydown amount drawn.


⁽³⁾	^{As of December 31, 2013 and December 31, 2012, amount excludes $5.0 million and $1.3 million of warehouse cash collections respectively per borrowing base definition.}


⁽⁴⁾	^{Includes $105.9 million for December 31, 2013 and}~~2011, respectively,~~$79.3 million for December 31, 2012 of unpledged qualifying receivables that can be pledged immediately and bring total borrowing to our maximum capacity. The borrowing base is the lesser of total eligible collateral multiplied by the applicable advance rate and the facility amount.


	As of December 31, 2012										As of December 31, 2013
	Payments by Period										Payments by Period
	Total		Less than 1 Year ⁽³⁾		Years 2-3		Years 4-5		More than 5 Years		Total		Less than 1 Year ⁽³⁾		Years 2-3		Years 4-5		More than 5 Years
	($ in thousands)										(In thousands)
Securitizations & bank term financing ⁽¹⁾	$	1,024,478	$	490,919	$	443,779	$	89,780	$	—	$	937,821	$	466,934	$	398,965	$	71,922	$	—
Portfolio warehouse facilities ⁽²⁾	57,200		32,350		24,850		—		—		283,400		154,953		128,447		—		—
Portfolio term residual financing	25,000		—		—		—		25,000		50,000		—		—		—		50,000
Senior Notes	198,320		—		—		198,320		—
Senior Secured Notes											253,316		—		—		253,316		—
Inventory facility	91,321		—		91,321		—		—		136,321		136,321		—		—		—
Real estate mortgage loan	12,454		223		487		11,744		—		12,231		236		515		11,480		—
Real estate facility	11,733		448		1,732		4,629		4,924		13,412		2,406		4,812		4,812		1,382
Equipment note, secured by an aircraft	1,774		1,774		—		—		—
Capital lease obligations	2,275		1,205		1,070		—		—		1,773		1,137		636		—		—
Operating lease obligations	70,261		18,858		30,441		16,062		4,900		105,920		23,503		37,341		26,393		18,683
Total contractual obligations ⁽⁴⁾	$	1,494,816	$	545,777	$	593,680	$	320,535	$	34,824	$	1,794,194	$	785,490	$	570,716	$	367,923	$	70,065


⁽¹⁾	^{Securitization obligations and bank term agreements do not have a contractual termination date. Therefore, all collections on the contracts collateralizing the securities are used to repay the asset-backed security holders based on an expected duration of the securities.}


⁽²⁾	^{On the termination date of the facilities, amounts outstanding at termination are not due and payable immediately. All collections on the contracts collateralizing these facilities are used to pay down the facilities until they are paid in full because these facilities contain term-out features.}


⁽³⁾	^{Generally and historically, we have renewed or replaced facilities expiring in less than one year.}


⁽⁴⁾	^{Total contractual obligations exclude future interest payment obligations.}


	As of December 31, 2012								As of December 31, 2013
	Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuers		Total		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Co-Issuers		Total
	($ in thousands)								(In thousands)
Collateral Amounts:
Net Receivables Value ⁽¹⁾	$	—	$	115,836	$	162,573	$	278,409	$	—	$	277,610	$	179,646	$	457,256
Net Inventory Value ⁽²⁾	133,328		—		—		133,328		125,527		—		—		125,527
Cash Equivalents ⁽³⁾	—		—		—		—		—		—		—		—
Total Collateral Amount	$	133,328	$	115,836	$	162,573	$	411,737	$	125,527	$	277,610	$	179,646	$	582,783
12.625% Senior Secured Notes							200,000								250,000
Collateral Coverage Ratio							2.1x								2.3x


⁽¹⁾	^{Net Receivables Value equals}^85%^{of the finance receivables (including accrued interest and capitalized loan costs) minus debt (exclusive of Senior Secured Notes) collateralized by finance receivables (including accrued interest) plus cash equivalents securing such debt. The Senior Secured Notes are excluded from this calculation.}


⁽²⁾	^{Net Inventory Value equals}^85%^{of the book value of inventory pledged as collateral minus debt obligations (including accrued interest) secured by inventory. The Senior Secured Notes are excluded from this calculation.}


⁽³⁾	^{Cash equivalents equal cash and equivalents pledged directly to secure the 12.625% Senior Secured Notes.}



	Years Ended December 31,
	2012			2011			2010
	(Unaudited) ($ in thousands)
Net income	$	59,353		$	88,138		$	70,682
Plus EBITDA adjustments:
Income tax expense	1,194			1,221			404
Total interest expense	73,092			73,050			98,102
Depreciation expense	20,150			16,075			13,751
EBITDA	$	153,789		$	178,484		$	182,939
Store closing costs ⁽¹⁾	724			(101		)	1,184
Non-cash compensation expense ⁽²⁾	—			—			1,125
Restricted stock compensation expense ⁽³⁾	1,546			2,789			3,874
Sales Tax Refund Adjustment ⁽⁴⁾	(3,008		)	(1,530		)	4,831
IPO expense ⁽⁵⁾	—			—			528
Loss on extinguishment of debt ⁽⁶⁾	—			—			3,418
CFPB Expenses⁽⁷⁾	$	3,090		$	—		$	—
Terminated Sale Transaction Costs⁽⁸⁾	$	3,942		$	—		$	—
Adjusted EBITDA	$	160,083		$	179,642		$	197,899