Drivetime Automotive 10-Q 2014 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________________ 

FORM 10-Q

 __________________________________________________________________________________________________

(Mark One)

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

For the quarterly period ended March 31, 2014

or

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

For the transition period from            to

Commission File Numbers: 333-188977

____________________________________________________________ 

DriveTime Automotive Group, Inc.

(Exact name of registrant as specified in its charter)

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

4020 East Indian School Road

Phoenix, Arizona 85018

(Address, including zip code, of principal executive offices)

(602) 852-6600

(Registrants’ telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    

Yes  x    No  ¨

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

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

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

The total number of shares of common stock outstanding as of April 30, 2014, was 102.1897.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013 (unaudited)	1
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2014 and 2013 (unaudited)	2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013 (unaudited)	3
Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	41
Item 4. Controls and Procedures	42
PART II. OTHER INFORMATION	43
Item 1. Legal Proceedings	43
Item 1A. Risk Factors	43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3. Defaults Upon Senior Securities	43
Item 4. Mine Safety Disclosures	43
Item 5. Other Information	43
Item 6. Exhibits	44
SIGNATURES	48

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DRIVETIME AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31, 2014			December 31, 2013
	(In thousands)
ASSETS
Cash and cash equivalents	$	31,197		$	30,754
Restricted cash and investments held in trust	143,609			115,200
Finance receivables	2,131,714			1,938,931
Allowance for credit losses	(319,753		)	(299,516		)
Finance receivables, net	1,811,961			1,639,415
Vehicle inventory	285,394			319,567
Property and equipment, net	106,715			103,660
Lease fleet vehicles, net	74,434			31,161
Other assets	70,388			58,087
Shareholder notes receivable	28,542			28,542
Total Assets	$	2,552,240		$	2,326,386
LIABILITIES & SHAREHOLDERS’ EQUITY
Liabilities:
Payables and other accrued expenses	$	148,648		$	109,081
Accrued expenses—related party	610			647
Deferred revenue	100,746			42,133
Portfolio warehouse facilities	302,000			283,400
Portfolio term financings	1,103,907			987,821
Senior secured notes payable	253,083			253,316
Other secured notes payable	154,982			161,964
Total Liabilities	2,063,976			1,838,362
Shareholders’ equity—DTAG:
Common stock	—			—
Paid-in capital	148,370			147,729
Accumulated loss	(84,920		)	(45,650		)
Total shareholders’ equity—DTAG	63,450			102,079
Noncontrolling interest-Inilex (1)	(872		)	(263		)
Noncontrolling interest-DTAC (2)	425,686			386,208
Total Equity	488,264			488,024
Total Liabilities & Shareholders’ Equity	$	2,552,240		$	2,326,386

^{(1)    Refer to Note 1 for a discussion regarding the noncontrolling interest-Inilex} 

^{(2)    Refer to Note 1 for a discussion regarding the noncontrolling interest-DTAC.} 

See accompanying notes to Condensed Consolidated Financial Statements.

1

DRIVETIME AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended
	March 31,
	2014			2013
	(In thousands)
Revenue:
Sales revenue	$	352,162		$	309,468
Interest income	88,261			74,971
Other income	13,345			589
Total Revenue	453,768			385,028
Costs and Expenses:
Cost of sales	259,248			211,638
Provision for credit losses	89,084			77,842
Portfolio debt interest expense	11,039			10,186
Non-portfolio debt interest expense	1,675			1,319
Senior secured debt interest expense	8,033			6,483
Senior secured debt interest expense—related party	—			158
Selling and marketing	12,037			8,904
General and administrative	57,809			42,407
General and administrative—related party	5,307			2,651
Depreciation expense	9,640			5,277
Total Costs and Expenses	453,872			366,865
Income (loss) before income taxes	(104		)	18,163
Income tax expense	901			342
Net income (loss) from continuing operations	$	(1,005	)	$	17,821
Income from discontinued operations, net of taxes	—			768
Net income (loss)	(1,005		)	18,589
Net (loss) attributable to noncontrolling interest—Inilex (1)	(591		)	—
Net Income (Loss) Attributable to DriveTime Consolidated	$	(414	)	$	18,589
Net loss attributable to noncontrolling interest—DTAC (2)	$	(66,730	)	$	(59,749	)
Net income attributable to DTAG	66,316			78,338
Net Income (Loss) Attributable to DriveTime Consolidated	$	(414	)	$	18,589

^{(1)    Refer to Note 1 for a discussion regarding the noncontrolling interest—Inilex} 

^{(2)    Refer to Note 1 for a discussion regarding the noncontrolling interest—DTAC.} 

See accompanying notes to Condensed Consolidated Financial Statements.

2

DRIVETIME AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three months ended March 31,
	2014			2013
Cash Flows from Operating Activities:	(In thousands)
Net income (loss)	$	(1,005	)	$	18,589
Net loss attributable to noncontrolling interest - Inilex	591			—
Net income (loss) attributable to DriveTime consolidated	(414		)	18,589
Income from discontinued operations	—			(768		)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for credit losses	89,084			77,842
Depreciation expense	9,640			5,277
Amortization of debt issuance costs and debt premium and discount	1,498			1,660
Non-cash compensation expense—related party	1,282			311
Loss from disposal of property and equipment	440			31
Originations of finance receivables	(416,390		)	(311,829		)
Collections and recoveries on finance receivable principal balances	155,636			151,103
Change in accrued interest receivable and loan origination costs	(876		)	423
Decrease in vehicle inventory	34,173			41,857
Change in other assets	(12,679		)	(28,814		)
Increase in deferred revenue	58,612			6,779
Increase in accounts payable and accrued expenses	39,567			17,100
Change in accrued expenses—related party	(37		)	123
Net cash used in operating activities from continuing operations	(40,464		)	(20,316		)
Net cash provided by operating activities from discontinued operations	—			1,351
Net cash used in operating activities	(40,464		)	(18,965		)
Cash Flows from Investing Activities:
Proceeds from disposal of property and equipment	702			641
Purchase of property and equipment	(11,077		)	(7,685		)
Purchase of lease fleet	(46,033		)	—
Net cash used in investing activities from continuing operations	(56,408		)	(7,044		)
Net cash used in investing activities from discontinued operations	—			(33,909		)
Net cash used in investing activities	(56,408		)	(40,953		)

3

Cash Flows from Financing Activities:
Increase in restricted cash	(8,704		)	(15,760		)
Deposits into investments held in trust	(5,250		)	—
Change in investments held in trust and collection account cash	(14,455		)	(4,255		)
Additions to portfolio term financings	267,751			75,000
Repayments of portfolio term financings	(151,665		)	(135,207		)
Additions to portfolio warehouse facilities	313,600			210,300
Repayment of portfolio warehouse facilities	(295,000		)	(122,500		)
Additions to other secured notes payable	—			20,000
Repayment of other secured notes payable	(6,982		)	(614		)
Payment of debt issuance costs	(1,980		)	(348		)
Net cash provided by financing activities from continuing operations	97,315			26,616
Net cash provided by financing activities from discontinued operations	—			32,553
Net cash provided by financing activities	97,315			59,169
Net increase (decrease) in cash and cash equivalents	443			(749		)
Cash and cash equivalents at beginning of period	30,754			26,480
Cash and cash equivalents at end of period	31,197			25,731
Cash and cash equivalents from discontinued operations at end of period	—			—
Cash and cash equivalents from continuing operations at end of period	$	31,197		$	25,731
Supplemental Statement of Cash Flows Information:
Interest paid	$	12,817		$	11,424
Interest paid—related party	$	—		$	158
Income taxes paid	$	704		$	518
Supplemental Statement of Non-Cash Investing and Financing Activities:
Disposal of fully depreciated property and equipment	$	4		$	—

See accompanying notes to Condensed Consolidated Financial Statements.

4

DRIVETIME AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

(1) Description of Business, Ownership Formation, Basis of Presentation, and Principles of Consolidation

Description of Business

DriveTime Automotive Group, Inc. (“DTAG”) is the leading used vehicle retailer in the United States with a primary focus on the sale and lease of quality used vehicles and related products to the subprime market. Through DTAG's sister company, DT Acceptance Corp ("DTAC"), we provide auto financing and loan servicing for substantially all of the vehicles we sell. Auto financing is provided through retail installment sales contracts (referred to herein as "loans" and/or "finance receivables"). Through our national network of Company owned and 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 March 31, 2014 we operated 110 dealerships and 21 reconditioning facilities located in 50 designated marketing areas ("DMA") in 20 states. As many of our customers may be unable to obtain financing to acquire a vehicle from another company, financing is an important component of our integrated business model and product offering. We fund this portfolio primarily through portfolio warehouse facilities, securitizations, and other portfolio term financings.

Ownership

DTAG and DTAC (collectively known as "DriveTime" and also referred to herein as “we,” “our,” “the Company,” and “us”) are sister companies operating collectively under common control and are consolidated for financial reporting purposes. Generally, DTAG directs our retail vehicle sales operations and DTAC directs our financing and loan servicing operations. As of March 31, 2014, and December 31, 2013, the shareholders of DTAG and DTAC were Ernest C. Garcia II (Executive Chairman) and the Garcia Family Trusts (collectively, herein also referred to as “Principal Shareholder” or “Mr. Garcia”) and Raymond C. Fidel (President and CEO). As of March 31, 2014 Mr. Garcia owned 100.0 shares, or 97.6% of each of DTAG and DTAC and Mr. Fidel owned 2.4939 shares, or 2.4% of each of DTAG and DTAC.

Basis of Presentation

We have determined that DTAC is a variable interest entity (“VIE”) and DTAG is the primary beneficiary of DTAC. Therefore, the accounts of DTAG and DTAC are consolidated and intercompany transactions between DTAG and DTAC are eliminated in consolidation. We determined DTAG is the primary beneficiary of DTAC because DTAG has both (1) the power to direct the activities of DTAC that most significantly impact DTAC's economic performance and (2) a potentially significant variable interest that carries with it the obligation to absorb the losses or the right to receive benefits of DTAC. DTAG has the power to direct the activities of DTAC because it originates and sells 100% of the loans DTAC is required to purchase, sets underwriting standards and origination terms, sets servicing and collection policies administered by DTAC, and DTAC was specifically created and designed by DTAG to obtain third party financing for DTAG's originations. DTAG also has potentially significant variable interests in the form of debt capital provided to DTAC through various debt issuances, guarantees of DTAC's debt, as well as operational liabilities owed to DTAG, all of which carry the obligation to absorb losses or receive benefits of DTAC. Creditors of DTAC generally do not have recourse to the general credit of DTAG, except that the special purpose entity ("SPE") related to our term residual facility entered into a demand note with DTAC. The demand note is guaranteed by DTAG.

Total assets of DTAC consolidated into DTAG are comprised primarily of net finance receivables, cash and cash equivalents, restricted cash, investments held in trust, and deferred financing costs. Total liabilities consolidated into DTAG are comprised primarily of portfolio warehouse, portfolio term, and senior secured debt. Total revenue of DTAC consolidated into DTAG is comprised of interest income and other finance charges. DTAC expenses are comprised of provision for credit losses, interest expense and general and administrative expenses.

Also included in the consolidated financial statements are SPEs of DTAC, which are all bankruptcy remote entities formed in conjunction with our securitizations, warehouse facilities, residual facility, real estate financing, and bank term financing transactions. We have determined that these SPEs are VIEs and DTAC is the primary beneficiary. Therefore, all intercompany accounts and transactions have been eliminated in consolidation for all periods presented. We determined DTAC is the primary beneficiary of these SPEs because DTAC has both (1) the power to direct the activities of the SPEs that most significantly impact the SPEs' economic performance and (2) a potentially significant variable interest that carries with it the obligation to absorb the losses or the right to receive benefits of DTAC. DTAC has the power to direct the activities of these SPEs because it services the loans in each of the securitizations, warehouse facilities and other lending arrangements. DTAC also has potentially significant variable interests in the form of holding the residual certificates for securitizations and rights to residual cash flows of the warehouse facilities. Creditors of the SPEs generally do not have recourse to the general credit of DTAC, except through servicing performance guarantees.

On December 5, 2013, DTAC sold GO Financial ("GO") to the shareholders of DTAC. GO's operations for the three months ended March 31, 2013 were reclassified out of operations and presented as a separate line on the condensed

5

consolidated statements of operations. We have determined that GO is a VIE, but that neither DTAG or DTAC are the primary beneficiary as we do not have the power to direct the most significant economic activities of GO, nor do we have the obligation to absorb losses or the right to receive benefits from GO's operations. Therefore, consolidation of GO is not required. We will not have significant continuing involvement in GO's operations. As such, GO qualifies for and is presented as a discontinued operation based on the guidance provided in ASC 205—Presentation of Financial Statements.

Reclassifications

Although not material, certain prior period amounts have been reclassified to be consistent with the current period financial statement presentation.

Noncontrolling Interests

DTAG and DTAC are consolidated for financial reporting purposes. Therefore, we are required to separately present the noncontrolling equity interest of the VIE (DTAC) on the condensed consolidated balance sheets and condensed consolidated statements of operations for all periods presented. The noncontrolling interest is DTAC’s equity and income for the periods presented. There are no third-party competing interests in DTAC. For the amounts of assets, liabilities, revenue, and income of DTAC consolidated into DTAG at March 31, 2014, see Note 16 — Supplemental Consolidating Financial Information.

In 2013, we acquired a controlling interest in Inilex through the purchase of 50% plus one share of its fully diluted outstanding common stock. Inilex is a provider of GPS technology solutions and has been our provider of GPS installed on vehicle inventory for approximately two years. In accordance with ASC 810—Consolidation, we are required to fully consolidate Inilex's operations, and eliminate all transactions between the entities.

For more information regarding DTAC's financial position and results of operations and the SPEs' financial position and results of operations consolidated into DTAG and DTAC, respectively, see Note 16 — Supplemental Consolidating Financial Information.

These condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, such interim condensed consolidated financial statements reflect all normal recurring adjustments considered necessary to present fairly the financial position, results of operations, and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes as of and for the year-ended December 31, 2013, which are included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 24, 2014.

Use of Estimates

The preparation of the consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities. Certain accounting estimates involve significant judgments, assumptions, and estimates by management that have a material impact on the carrying value of certain assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of income and expenses during the reporting period which management considers to be critical accounting estimates. The judgments, assumptions, and estimates used by management are based on historical experience, management's experience, and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ materially from these judgments and estimates, which could have a material impact on the carrying values of our assets and liabilities and our results of operations.

Significant items subject to estimates and assumptions include the allowance for credit losses, the revenue recognition pattern of ancillary products, the reserve for ancillary product refunds, inventory valuation, fair value measurements, certain legal reserves, our reserve for sales returns and allowances, our recovery receivables, and our limited warranty accrual. Estimates used in deriving these amounts are described in the footnotes herein. Actual results could differ from these estimates.

6

(2) Restricted Cash and Investments Held in Trust

We maintain various cash accounts, which are pledged and/or held in trust as collateral under our debt agreements. We are permitted to invest funds in these accounts in short-term, high quality liquid investments. The following is a summary of restricted cash and investments held in trust:

	March 31, 2014		December 31, 2013
	(In thousands)
Restricted cash	$	39,774	$	31,070
Investments held in trust	103,835		84,130
	$	143,609	$	115,200

(3) Finance Receivables

The following summarizes the components of finance receivables:

	March 31, 2014		December 31, 2013
	(In thousands)
Principal balances	$	2,068,792	$	1,871,576
Recovery receivables	24,122		29,432
Accrued interest	18,609		19,522
Loan origination costs	20,191		18,401
Total finance receivables	$	2,131,714	$	1,938,931

Our finance receivables are defined as one segment and class of loan, which is the sub-prime consumer auto loan. Therefore, the disaggregation of information into portfolio segment and classes for assets with different risk characteristics is limited, and the level of risks inherent in our financing receivables are managed as one homogeneous pool and further segmented with our proprietary credit scoring system as described below in —Credit Quality Indicators. We have chosen our internal customer credit scoring model as our key credit quality indicator because it has a direct and prominent impact in managing our portfolio of receivables and monitoring its performance.

A majority of our finance receivables are pledged in non-recourse SPEs, related to our warehouse facilities, asset backed securitizations, and bank term financings. The details of amounts pledged are provided in Note 5 — Debt Obligations. We do not place loans on nonaccrual status, nor do we classify loans as impaired, since accounts are charged-off when they become contractually past due under our charge-off policy. The amount charged-off is the difference between estimated recoveries and the carrying amount of the loan. We do not have loans that meet the definition of troubled debt restructurings.

Recovery receivables consist of estimated recoveries to be received on charged-off vehicle loans, including proceeds from selling repossessed vehicles at auction, net of sales tax, insurance proceeds, bankruptcy and deficiency collections, and estimates of expected refunds on terminated ancillary products. The recovery amount from selling repossessed vehicles at auction is a forecast of vehicles to be recovered from loans previously charged-off. Upon repossession, estimated recoveries are reclassified and recorded as a component of other assets in the accompanying condensed consolidated balance sheets.

Credit quality information for our finance receivables portfolio is provided as of the dates indicated below:

7

Age Analysis of Past Due Finance Receivables

	March 31, 2014				December 31, 2013				March 31, 2013
	Percent of Loans		Loan Principal		Percent of Loans		Loan Principal		Percent of Loans		Loan Principal
	($ In thousands)
Current	63.0	%	$	1,303,338	53.7	%	$	1,005,036	61.4	%	$	1,047,839
Days Delinquent:
01-30 Days	26.4	%	546,161		30.0	%	561,473		28.0	%	478,733
31-60 Days	6.0	%	124,128		9.0	%	168,442		6.9	%	117,699
61-90 Days	3.0	%	62,064		4.9	%	91,707		3.2	%	54,531
91-120 Days	1.6	%	33,101		2.4	%	44,918		0.5	%	7,971
Total Past Due	37.0	%	765,454		46.3	%	866,540		38.6	%	658,934
Total Finance Receivables	100.0	%	$	2,068,792	100.0	%	$	1,871,576	100.0	%	$	1,706,773

An account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Delinquencies may vary from period to period based upon the average age or seasoning of the portfolio, seasonality within the calendar year and economic factors. 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.

Credit Quality Indicators

We monitor our portfolio performance and the credit grade mix of originations. Our proprietary credit grading system segments our customers into credit grades.

Many companies use FICO scores as a standard metric to assess the credit risk of customers. Our internal scoring models include the use of alternative data sources along with traditional credit bureau data which allow us the ability to separate the credit risk levels of the subprime auto segment into different categories. Our centralized proprietary credit scoring models are currently used to classify customers into various risk grades that are linked to financing parameters. The scoring models are periodically updated to account for changes in loan performance, data sources, geographic presence, economic cycles, and business processes.

The static-pool tracking of portfolio loss performance is also monitored by credit grade. Our scoring model is comprised of credit grades ranging from A to D, with A being the lowest risk credit grade and a D being the highest risk credit grade. Generally, the lower the risk grade, the lower the unit loss rate.

A summary of our portfolio by our internally assigned credit risk ratings at March 31, 2014, and December 31, 2013, is as follows:

At March 31, 2014

Grade	Average FICO Score (1)	Percentage of Portfolio Loans	Total Loans	Percentage of Portfolio Principal	Loan Principal
					(In thousands)
A	547	28.6%	45,837	28.8%	$	596,745
B	519	38.2%	61,224	38.6%	797,989
C	506	28.9%	46,318	28.8%	595,843
C-/D	481	4.3%	6,891	3.8%	78,215
		100.0%	160,270	100.0%	$	2,068,792

8

At December 31, 2013

Grade	Average FICO Score (1)	Percentage of Portfolio Loans	Total Loans	Percentage of Portfolio Principal	Loan Principal
					(In thousands)
A	547	29.0%	43,730	29.5%	$	551,251
B	519	38.3%	57,836	38.9%	727,192
C	505	28.2%	42,480	27.8%	519,653
C-/D	484	4.5%	6,784	3.8%	73,480
		100.0%	150,830	100.0%	$	1,871,576

^{(1)  Average FICO score is provided as an external metric of credit quality. FICO score is not utilized as the primary tool in determining internal credit grade.} 

Concentration of Credit Risk

As of March 31, 2014 and December 31, 2013, our portfolio concentration by state was as follows:

As of March 31, 2014					As of December 31, 2013
State	Percent of Portfolio		Loan Principal (In thousands)		State	Percent of Portfolio		Loan Principal (In thousands)
Texas	21.0	%	$	434,384	Texas	21.2	%	$	397,438
Florida	15.6	%	323,247		Florida	15.7	%	294,043
North Carolina	8.4	%	173,269		North Carolina	8.7	%	162,749
Georgia	7.8	%	160,991		Georgia	7.6	%	142,001
Arizona	6.0	%	124,059		Arizona	6.4	%	117,861
All Others (1)	41.2	%	852,842		All Others (2)	40.4	%	757,484
	100.0	%	$	2,068,792		100.0	%	$	1,871,576

^{(1)  Consists of fifteen additional states wherein the portfolio concentration per state is at or below 5.8%}

^{(2)  Consists of fifteen additional states wherein the portfolio concentration per state is at or below 6.0%.} 

Allowance for Credit Losses

The following table sets forth the rollforward of the allowance for credit losses for the periods indicated:

	Three months ended March 31,
	2014			2013
Allowance Activity:	($ In thousands)
Balance, beginning of period	$	299,516		$	252,590
Provision for credit losses	89,084			77,842
Net charge-offs	(68,847		)	(60,810		)
Balance, end of period	$	319,753		$	269,622
Allowance as a percent of portfolio principal, end of period	15.4		%	15.7		%
Charge off Activity:
Principal balances	$	(107,905	)	$	(97,917	)
Recoveries, net	39,058			37,107
Net charge-offs	$	(68,847	)	$	(60,810	)

(4) Leased Vehicles

A summary of our vehicle lease fleet is as follows:

	March 31, 2014			December 31, 2013
	(In thousands)
Lease fleet vehicles	$	79,043		$	33,009
Less accumulated depreciation	(4,609		)	(1,848		)
Lease Fleet Vehicles, net	$	74,434		$	31,161

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(5) Debt Obligations

Portfolio Term Financings

The following is a summary of portfolio term financings:

	March 31, 2014		December 31, 2013
Securitization Debt:	(In thousands)
Asset-backed security obligations issued pursuant to the Company’s securitizations	$	869,848	$	713,953
Bank Term Financing:
Secured financing transaction for our finance receivables portfolio	184,059		223,868
Portfolio Term Residual Financing:
Variable rate financing facility secured by residual interests in finance receivables of warehouse facilities and securitization trusts	50,000		50,000
Total Portfolio Term Financings	$	1,103,907	$	987,821

Securitization debt

The following is a summary of securitization transactions with outstanding balances for each period presented:

	As of March 31, 2014							As of December 31, 2013
Transaction	Debt Balance		Gross Receivables Pledged		Cash Reserve		Interest Rate (1)	Debt Balance		Gross Receivables Pledged		Cash Reserve		Interest Rate (1)
	($ In thousands)							($ In thousands)
2011-1	$	16,922	$	22,845	$	4,200	3.0%	$	22,772	$	31,271	$	4,200	3.0%
2011-2	24,532		31,339		4,500		2.9%	34,762		41,954		4,500		2.9%
2011-3	49,515		59,724		4,500		3.9%	61,485		75,037		4,500		3.9%
2012-1	77,377		99,682		4,500		3.5%	90,175		117,529		4,500		3.5%
2012-2	97,435		119,387		4,500		2.9%	113,142		138,194		4,500		2.9%
2013-1	163,150		209,403		4,500		2.7%	181,018		233,346		4,500		2.7%
2013-2	190,510		252,096		4,500		2.9%	210,599		277,023		4,500		2.9%
2014-1	250,407		330,448		5,250		2.6%	—		—		—		—%
	$	869,848	$	1,124,924	$	36,450		$	713,953	$	914,354	$	31,200

^{(1) These rates represent the original duration weighted average rates of the outstanding asset-backed securities.}  

Asset-backed securities outstanding are secured by underlying pools of finance receivables (collateral) and investments held in trust (cash reserve). Credit enhancement for the asset-backed securities consists of a reserve account, over collateralization, and subordination of certain classes of notes in each trust to more senior classes of notes in such trust. Over collateralization represents finance receivable principal balance in excess of the face value of asset-backed securities issued. Cash reserves are funded with proceeds from the sale of asset-backed securities and through cash collections. Asset-backed securities outstanding have interest payable monthly at the fixed rates represented in the table above. All outstanding securitizations were rated in tranches with credit ratings from AAA to BBB by Standard & Poor's Ratings Service, a Standard & Poor's Financial Services LLC business, and DBRS, Inc., with the 2013-1, 2013-2 and 2014-1 securitizations also rated by Kroll Bond Rating Agency, Inc.

Individual securitization trusts are not cross-collateralized or cross-defaulted. Additionally, we have the option to purchase the remaining loans in a trust when the remaining principal balances of the loans reach 10% of their original principal balance. At March 31, 2014, we were in compliance with all financial covenants of outstanding securitizations.

Bank term financing

The bank term financing is secured by an underlying pool of finance receivables and a cash reserve account. The amounts outstanding bear interest at LIBOR plus 2.0%, resulting in an interest rate of 2.15% and 2.17% at March 31, 2014 and December 31, 2013, respectively. This financing includes overcollateralization and a cash reserve similar to a securitization transaction, but consists of only one class of bonds and is unrated. At March 31, 2014 and December 31, 2013, $226.4 million and $271.8 million in receivables were pledged as collateral to this facility, respectively. At both March 31, 2014 and December 31, 2013, $6.9 million was held as a cash reserve for this facility. At March 31, 2014, we were in compliance with all financial covenants of the facility.

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Portfolio term residual financing

The term residual facility is secured by residual interests in our warehouse facilities and securitization trusts. The amounts outstanding under the term facility bear interest at LIBOR + 4.50% at March 31, 2014 and December 31, 2013 resulting in an interest rate of 4.66% at March 31, 2014 and December 31, 2013, respectively. This facility provides for funding through December 2019, with a term-out feature resulting in a final maturity of December 2020. At March 31, 2014, we were in compliance with all financial covenants of the facility.

The SPE related to our term residual facility entered into a demand note with DTAC, which is guaranteed by DTAG. Under specific circumstances, the lender may require DTAC to fund the demand note, with proceeds used to pay down the term residual facility if any of the following were to occur: (i) termination due to a defined Event of Termination, (ii) failure to maintain borrowing base compliance after the termination date, or (iii) an Event of Termination occurs after the termination date and is continuing.

Portfolio warehouse facilities

The following is a summary of portfolio warehouse facilities:

	As of March 31, 2014
	Amount Drawn		Facility Amount		Stated Advance Rate			Collateral (1)		Interest Rate (2)		Expiration Date	Final Maturity
Portfolio warehouse facilities	($ In thousands)
Deutsche Bank	$	101,500	$	150,000	65	%		$	183,975	2.41	%	Dec 2014	Dec 2015
Wells Fargo	110,500		150,000		66	%	(3)	173,919		2.40	%	Dec 2015	Dec 2017
RBS	90,000		125,000		65	%		147,456		2.40	%	Jun 2014	Jun 2015
Total portfolio warehouse facilities	$	302,000	$	425,000

	As of December 31, 2013
	Amount Drawn		Facility Amount		Stated Advance Rate			Collateral (1)		Interest Rate (2)		Expiration Date	Final Maturity
Portfolio warehouse facilities	($ In thousands)
Deutsche Bank	$	98,400	$	150,000	65	%		$	189,970	2.41	%	Dec 2014	Dec 2015
Wells Fargo	107,000		150,000		66	%	(3)	178,685		2.42	%	Dec 2015	Dec 2017
RBS	78,000		125,000		65	%		137,497		2.42	%	Mar 2014	Mar 2015
Total portfolio warehouse facilities	$	283,400	$	425,000

^{(1)  Collateral represents underlying pools of finance receivables pledged to each facility.} 

^{(2)  Interest rate at period end equal to contractual benchmark plus index.} 

^{(3)  The Wells Fargo stated advance rate includes a cash reserve account pledged to the facility in the amount of 1% of all collateral pledged to the facility.}  

Deutsche Bank Warehouse Facility

We have a revolving warehouse facility with Deutsche Bank AG, New York Branch ("Deutsche Bank"). The amounts outstanding under the facility bear interest at the mid-month LIBOR plus 2.25%. At March 31, 2014, we were in compliance with all financial covenants of this facility.

Wells Fargo Warehouse Facility

We have a revolving warehouse facility with Wells Fargo Bank, N.A. ("Wells Fargo"). The amounts outstanding under the facility bear interest at LIBOR plus 2.25%. At March 31, 2014, we were in compliance with all financial covenants of this facility.

RBS Warehouse Facility

We have a revolving warehouse facility with The Royal Bank of Scotland plc ("RBS"). The amounts outstanding under the facility bear interest at LIBOR plus 2.25%. At March 31, 2014, we were in compliance with all financial covenants of this facility.

Collateral

The finance receivables pledged as collateral to each of the warehouse facilities is established for the benefit of the lenders. These facilities contain a borrowing base which requires us to pledge finance receivables in excess of the amounts which we can borrow under the facilities. The aggregate balance of finance receivables are presented on our consolidated balance sheets included herein, and we do not separately classify those assets serving as collateral since the creditors in each

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of the warehouse facilities do not have the right to sell or re-pledge the collateral, except in certain cases upon an event of default.

Senior Secured Notes Payable

In June 2010 we issued $200.0 million of 12.625% Senior Secured Notes (the “Senior Secured Notes”). The notes were issued with an original issuance price of 98.85%, resulting in an effective yield of 12.875%. In May 2013 we issued an additional $50.0 million of Senior Secured Notes. These notes were additional notes allowed under the indenture executed in June 2010. The additional notes were issued with an original issuance price of 111.00%, resulting in an effective "yield to first call date" of 7.67%, with interest, maturity and covenant terms identical to those of the initial offering. Interest on the Senior Secured Notes is payable semi-annually in arrears on June 15th and December 15th of each year.

As of March 31, 2014 and December 31, 2013, the amounts of our outstanding Senior Secured Notes payable were $253.1 million and $253.3 million, net of unamortized net premium of $3.1 million and $3.3 million, respectively. As of March 31, 2014, we were in compliance with all financial covenants of the Senior Secured Notes.

Other secured notes payable

A summary of other secured notes payable follows:

	As of March 31, 2014
	Balance		Max Facility Capacity			Advance Rate		Interest Rate (1)	Expiration Date
Other secured notes payable	($ In thousands)
Revolving inventory facility	$	130,000	$	130,000		75%	(2)	3.50%	Nov 2014
Mortgage note payable	12,171		n/a			n/a		5.87%	Mar 2017
Real estate facility	12,811		25,000			70%		4.05%	Oct 2020
Total other secured notes payable	$	154,982	$	155,000
	As of December 31, 2013
	Balance		Max Facility Capacity			Advance Rate		Interest Rate (1)	Expiration Date
Other secured notes payable	($ In thousands)
Revolving inventory facility	$	136,321	$	140,000	(3)	85%	(2)	3.75%	Nov 2014
Mortgage note payable	12,231		n/a			n/a		5.87%	Mar 2017
Real estate facility	13,412		25,000			70%		4.05%	Oct 2020
Total other secured notes payable	$	161,964	$	165,000

^{(1)  Interest rate at period end equal to contractual benchmark plus index.} 

^{(2)  Advance rate is based on qualifying vehicle cost and is secured by our entire vehicle inventory. At March 31, 2014 the advance rate decreased to 60% for vehicles 151-180 days old.} 

^{(3)  Inclusive of a $10.0 million seasonal increase in the months of November through the end of January.}  

Revolving inventory facility

We have a revolving inventory facility with Wells Fargo. The interest rate on the facility is based on the Daily One Month LIBOR rate plus 3.25%, and is secured by our entire vehicle inventory. At March 31, 2014, we were in compliance with all financial covenants of this facility.

Mortgage note payable

We have a mortgage note payable which is secured by our operations call center building in Mesa, Arizona (a commercial property). Terms of the note agreement provide for monthly principal and interest payments with a final balloon payment. At March 31, 2014, we were in compliance with all financial covenants of this loan.

Real Estate Facility

We have a seven year fully amortizing real estate facility with Wells Fargo. The amounts outstanding under the facility bear interest at LIBOR plus 4.0%, or LIBOR plus 3.5% for properties added to the facility subsequent to August 22, 2013. At March 31, 2014, the line was collateralized by eleven properties. At March 31, 2014, we were in compliance with all financial covenants of this facility.

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(6) Accrued Warranty Liability

The accrued limited warranty liability represents our estimated obligations related to limited warranties that were included in the bundled price of vehicle sales and is recorded as a component of payables and other accrued expenses on the accompanying condensed consolidated balance sheets for each period presented. The following table reflects activity in the accrual for the periods indicated:

	Three Months Ended March 31,
	2014			2013
Limited warranty accrual activity	(In thousands)
Balance, beginning of period	$	15,806		$	24,420
Warranty expense	—			8,556
Warranty claims paid	(3,927		)	(6,355		)
Balance, end of period	$	11,879		$	26,621

(7) Deferred Revenue

Deferred revenue represents the remaining unearned revenue balance of our DriveCare® Extended Vehicle Service Contract, a 36 month/36,000 mile or 60 month/50,000 mile service contract ("VSC"), Guaranteed Asset Protection ("GAP"), GPS monitoring subscription ("GPS") and vehicle lease revenue. The following table sets forth information regarding the changes in deferred revenue:

	Three Months Ended March 31,
	2014			2013
	(In thousands)
Deferred revenue, beginning of period	$	42,133		$	2,501
Revenue deferred	85,819			8,219
Revenue recognized (1)	(27,206		)	(1,441		)
Deferred revenue, end of period	$	100,746		$	9,279

^{(1)     Revenue is recognized as a component of sales revenue on the condensed consolidated statements of operations.}

(8) Related Party Transactions

Relationship with Verde Investments, Inc.

Verde Investments, Inc., or “Verde,” is an Arizona corporation that is wholly-owned by Mr. Garcia. Verde engages in the acquisition, development, and long-term investment in real estate and other commercial assets. Mr. Garcia is the principal shareholder, president and director of Verde. Transactions between us and Verde, as well as other related parties, are described below.

General and administrative expenses

During the three months ended March 31, 2014 and 2013, we recorded related party operating expenses as follows:

	Three Months Ended March 31,
	2014			2013
General and administrative expenses—related party	(In thousands)
Property lease expense	$	1,206		$	1,198
Restricted stock compensation expense	1,282			311
Aircraft operating and lease expense	2,768			1,088
Salaries and wages, general & administrative and other expenses	128			131
Reimbursement of certain general and administrative expenses	(77		)	(77		)
Total general and administrative expenses—related party	$	5,307		$	2,651

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Interest expense

During the three months ended March 31, 2014 and 2013, we recorded related party interest expense as follows:

	Three Months Ended March 31,
	2014		2013
	(In thousands)
Senior secured debt interest expense—related party
Senior secured debt interest expense—Verde	$	—	$	142
Senior secured debt interest expense—CEO	—		16
Total senior debt interest expense—related party	$	—	$	158

Related party interest expense relates to the $4.5 million and $0.5 million of Senior Secured Notes held by Verde and Mr. Fidel, respectively, during the first quarter of 2013. The notes were sold in August 2013, such that none of the Senior Secured Notes were held by a related party during the first quarter 2014.

Relationship with GO Financial

On December 5, 2013, DTAC entered into an agreement to sell GO to the shareholders of DTAC. Transactions between GO and us are described below.

i. Sale of loans

We have an agreement with GO, such that GO purchases certain on-line generated loans from us each month. The loans are sold at par value with no associated gain or loss. The amount of the loans purchased for the three months ended March 31, 2014 and 2013 was $4.1 million and $0.3 million, respectively.

ii. Shared services

We provide certain administrative services to GO, as they build out their business processes. For example, we provide payroll, benefits, accounting and certain other corporate ancillary services. These agreed upon services do not allow DriveTime the ability to direct GO's business activities, and are provided at a marketable rate. For the three months ended March 31, 2014, total shared service revenues recorded to other income were $0.7 million.

iii. Reimbursement of general and administrative expenses

For the three months ended March 31, 2014, GO reimbursed us in the amount of $1.4 million for certain general and administrative expenses that we incurred on GO's behalf.

iv. Inilex receivable for GPS devices provided to GO dealers

Inilex has an agreement with GO, wherein Inilex provides GPS devices to GO dealers. GO guarantees a portion of the payment for these devices on behalf of GO dealers. As of March 31, 2014, the total receivables due from GO were $0.5 million and were recorded in other assets on the condensed consolidated balance sheets. As of December 31, 2013, the total payables due to GO were $0.1 million and were recorded in payables and other accrued expenses on the condensed consolidated balance sheets.

v. Commission Expense to GO

Inilex pays GO a commission expense for each GPS unit sold through a GO dealer. Commission expense for the three months ended March 31, 2014 and 2013 was $0.3 million and $0.2 million, respectively, and is recorded as a component of general and administrative expense on the condensed consolidated statements of operations . As of March 31, 2014 and December 31, 2013, accrued commissions in the amount of $0.1 million and zero, respectively, were recorded within payables and other accrued expenses on the condensed consolidated balance sheets.

Shareholder notes receivable

In December 2013 we executed notes receivable from our shareholders in the principal amount of $28.5 million, as a result of the sale of GO Financial. Interest only payments are paid monthly with the principal amount due in full in December 2018. Interest on principal amounts outstanding bear interest at LIBOR + 2.75%. For the three months ended March 31, 2014, we recorded $0.2 million in interest income related to these notes.

(9) Income Taxes

The condensed consolidated financial statements consist of financial and operating data of DTAG and DTAC, which are both S corporations. As DTAC and DTAG are flow-through entities for federal income tax purposes, there is no federal income tax expense related to the income of DTAC and DTAG, other than for two of DTAG’s C corporation subsidiaries, one

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of which is wholly owned with the other majority owned. The taxable income of DTAG and DTAC flows through to our shareholders, who are responsible for paying the associated taxes.

The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities recorded in jurisdictions that either do not recognize the Company's S corporation status and/or assess a tax on the Company's operations at the entity level.  If determined to be necessary, the Company's policy is to record a valuation allowance against its deferred tax assets to reduce the net carrying value to an amount that management believes is more likely than not to be realized. As of March 31, 2014 and December 31, 2013, we had a net deferred tax liability of $0.8 million and $0.6 million, respectively.

Although most states follow the federal recognition of S corporation status, some states do impose an entity level tax on that income; therefore, the tax expense is adjusted accordingly. As of March 31, 2014 and December 31, 2013, we had an income tax payable of $0.5 million and $0.6 million, respectively.

At March 31, 2014 and December 31, 2013, the Company had no unrecognized tax benefits.   The Company recognizes accrued interest and penalties, if applicable, related to unrecognized tax benefits in income tax expense. The Company did not accrue any amounts related to the payment of interest and penalties as of March 31, 2014 and December 31, 2013. We do not anticipate any material changes to our unrecognized tax benefits in the next 12 months.

(10) Shareholders’ Equity, Dividends & Stock Compensation

Share Information

At March 31, 2014, DTAG had 1,000 shares of common stock authorized with a par value of $0.001 per share, of which 102.4939 were issued and outstanding. DTAC had 1,000,000 shares of common stock authorized with no par value, of which 102.4939 were issued and outstanding. On March 20, 2014 the Board of Directors approved a restricted stock award to Mr. Fidel, consisting of 0.7243 shares of restricted stock in each of DTAG and DTAC. On April 18, 2014, 0.3042 shares were repurchased to satisfy federal and state income tax obligations pursuant to Mr. Fidel's 83(b) tax election, resulting in a net increase of 0.4201 shares issued and outstanding as of April 30, 2014.

Dividends

Certain of our debt facilities place restrictions on the amount of cash dividends we are permitted to pay to our shareholders. If we are in compliance with the indebtedness ratio restriction in the Senior Secured Notes, we are permitted to pay cash dividends limited to an amount not greater than the percentage of S corporation taxable income for such quarterly period equal to the highest combined federal, state, and/or local tax rate for individuals, plus 50% of the difference between net earnings less amounts paid for tax. If we are not in compliance with the indebtedness ratio dividend restriction in the Senior Secured Notes, specifically related to our ability to pay dividends, we are only permitted to pay cash dividends limited to an amount not greater than the percentage of S corporation taxable income for such quarterly periods equal to the highest combined federal, state, and/or local tax rate for individuals. As of March 31, 2014, we exceeded the indebtedness ratio, which restricted our ability to pay dividends related to net GAAP earnings in excess of amounts to pay taxes. The indebtedness ratio dividend restriction under the Senior Secured Notes is not an aspect of the financial covenants of the Senior Secured Notes, but rather a mechanism designed to place limits on the Company’s ability to pay dividends to its shareholders.

No dividends were distributed during the three months endedMarch 31, 2014. However, in March 2014, the Board of Directors approved a cash dividend related to fourth quarter 2013 taxable income. The dividend of $3.8 million was declared and paid in April 2014 to our shareholders of record on the payment date and was not recorded as a liability as of March 31, 2014.

Chief Executive Officer Restricted Stock Grant

In March 2014, the Boards of Directors of each of DTAG and DTAC approved a new restricted stock award to Mr. Fidel, consisting of 0.7243 shares of restricted stock in each of DTAG and DTAC, pursuant to certain vesting restrictions. Mr. Fidel made an election under Section 83(b) of the United States Internal Revenue code of 1986 in April 2014, to be taxed on the fair market value of the entire restricted stock grant as of the grant date. In connection therewith, that portion of shares, the fair market value of which was sufficient to satisfy Mr. Fidel’s federal and state income tax obligations with respect to the entire award was deemed to be vested in full as of the grant date, which was determined to be March 20, 2014 under the provisions of ASC 718—Compensation—Stock Compensation. However, only those shares of a value equal to the minimum statutory federal and state withholding due from Mr. Fidel on the grant were repurchased by DTAG and DTAC, and the proceeds from such repurchase were delivered to the relevant tax authorities. One half of the remaining unvested shares of restricted stock vest subject to time based vesting of one-third each year over a period of three years commencing on March 20, 2014, and one half of the shares are subject to certain performance criteria. We believe it is probable the performance criteria will be satisfied.

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For income tax purposes, Mr. Fidel was deemed to own 0.7243 shares at the grant date. In April 2014 the Company repurchased 0.3042 shares resulting in Mr. Fidel owning 0.4201 additional shares in each of DTAG and DTAC as of April 18, 2014. In connection with the execution of the Restricted Stock Agreements, Mr. Fidel also entered into a Shareholders' Agreement with our principal shareholder and DTAG and DTAC, which, among other things, restricts his ability to transfer his shares of restricted stock and grants him certain tag-along rights in the event of a sale by our principal shareholder and certain piggy-back registration rights in connection with a public offering of our shares or any successor entity.

In April 2014, we obtained a third party valuation of the 0.707% ownership award to Mr. Fidel, resulting in a $2.6 million fair value. As the terms of the agreements do not meet the specific criteria for liability classification as set forth in ASC 718—Compensation—Stock Compensation, we determined the awards to be equity based stock compensation awards, therefore recognizing the expense over the requisite service periods based on a graded vesting. As the restricted stock agreements require the achievement of a service and a performance condition, the Company will only recognize compensation expense for those periods where the service is rendered and the performance condition is met. In addition, as the number of shares and purchase price were known by Mr. Fidel at the time of grant, compensation cost was fixed and measured as of the grant date.

As a result of this transaction, we recorded $1.3 million restricted stock compensation expense in the first quarter 2014 for the 0.3367 shares which vested in the first quarter 2014. The remaining 53.51% of the shares will vest over the vesting schedule presented below, as set forth in the Agreement, and will be recognized as compensation expense in the requisite service periods.

Period 1	Period 2	Period 3
(3/20/14-12/31/14)	(1/31/15-12/31/15)	(1/31/16-12/31/16)
9 Months	12 Months	12 Months
17.84%	17.84%	17.83%

As set forth above, the vesting is deemed to be equal each period since the performance condition contains carry-back and carry-forward rights, allowing for the CEO to compensate for any shortfalls in future periods, and use excess performance in a given period to carry forward into future periods. As such, equal vesting was deemed appropriate since although it is probable he will achieve the criteria, no weighting can be estimated for each period.

For the three months ended March 31, 2014, we recorded $1.3 million in restricted stock compensation expense associated with the 2014 restricted stock agreements between Mr. Fidel and each of DTAG and DTAC. For the three months ended March 31, 2013, we recorded $0.3 million in restricted stock compensation expense associated with the 2010 restricted stock agreements between Mr. Fidel and each of DTAG and DTAC. The stock compensation recorded for these periods also increased our Paid-in Capital accounts for both companies during these periods.

(11) Commitments and Contingencies

Lease commitments

We lease used car sales facilities, reconditioning centers, our corporate office, aircraft, and certain other office/computer equipment from unrelated and related entities under various operating leases that expire through January 2025. The leases provide for periodic rent increases and many contain escalation clauses and various renewal options from one to ten years. In certain instances, we are also responsible for occupancy and maintenance costs, including real estate taxes, insurance, and utility costs. We recognize rent expense on a straight-line basis over the length of the lease term. As of March 31, 2014, we had approximately $104.4 million in aggregate operating lease obligations.

Legal matters

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.

There have been no material changes to the status of pending litigation or our accruals for legal matters disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013, filed on March 24, 2014. On January 29, 2014 our counsel had a Notice of Response and Advice ("NORA") call with the Consumer Financial Protection Bureau ("CFPB").  On February 20, 2014, we responded in writing to the CFPB with respect to the NORA call.  We have not yet had a response back from the CFPB.

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

(12) Fair Value of Financial Instruments

Fair values of financial instruments are based on estimates using quoted market prices, discounted cash flows, or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and the estimated timing and amount of future cash flows. Therefore, the estimates of fair value may differ substantially from amounts that ultimately may be realized or paid at settlement or maturity of the financial instruments and those differences may be material. Accordingly, the aggregate fair value amounts presented do not represent our underlying institutional value.

When assessing the inputs used in calculating the fair value of our financial instruments, we use a three tier hierarchy. This hierarchy indicates to what extent the inputs used in our calculations are observable in the market. The different levels of the hierarchy are defined as follows:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2: Other than quoted prices that are observable in the market for the asset or liability, either directly or indirectly.

Level 3: Inputs are unobservable and reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.

Limitations

Fair values of financial instruments are based on relevant market information and information about the financial instrument; they are subjective in nature and involve uncertainties, matters of judgment and, therefore, cannot be determined with ultimate precision. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular instrument. Changes in assumptions could significantly affect these estimates. Because the fair value is estimated as of each balance sheet date presented, the amounts that will actually be realized or paid in settlement of the instruments could be significantly different.

The following is a summary of carrying values presented within the balance sheet and fair value of our financial instruments for each period presented:

	March 31, 2014
	Carrying Value		Level 1		Level 2		Level 3
Assets	(In thousands)
Finance receivables, net (1)	$	1,775,199	$	—	$	—	$	1,934,652
Shareholder notes receivable	28,542		—		28,542		—
Liabilities
Securitization debt	869,848		885,089		—		—
Portfolio term residual financing	50,000		—		47,573		—
Bank term financings	184,059		—		184,059		—
Portfolio warehouse facilities	302,000		—		302,000		—
Senior secured notes payable	253,083		271,748		—		—
Revolving inventory facility	130,000		—		130,298		—
Mortgage note payable	12,171		—		12,745		—
Real estate facility	12,811		—		13,086		—

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	December 31, 2013
	Carrying Value		Level 1		Level 2		Level 3
Assets	(In thousands)
Finance receivables, net (1)	$	1,598,010	$	—	$	—	$	1,692,247
Shareholder notes receivable	28,542		—		28,542		—
Liabilities
Securitization debt	713,953		729,395		—		—
Portfolio term residual financing	50,000		—		47,462		—
Bank term financings	223,868		—		223,868		—
Portfolio warehouse facilities	283,400		—		283,400		—
Senior secured notes payable	253,316		279,914		—		—
Revolving inventory facility	136,321		—		136,729		—
Mortgage note payable	12,231		—		12,808		—
Real estate facility	13,412		—		13,700		—

^{(1)  Represents finance receivable principal balances, plus accrued interest, less the allowance for credit losses.}  

Valuation methodologies

Finance receivables

The fair value of finance receivables is estimated by discounting future cash flows expected to be collected using current rates at which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities. This discounted cash flow is estimated utilizing an internal valuation model, which uses a combination of market inputs (i.e. discount rates for similar and like transactions) and our own assumptions regarding credit losses, recoveries, and prepayment rates in our portfolio, based on actual experience. We estimate the cash flow of the portfolio and the cash flow of our retained interests in securitization, warehouse and bank term financing transactions in measuring total cash flow. These cash flows are developed on a leveraged basis since our finance receivable portfolio is financed by these debt instruments and are not separable transactions.

Shareholder Notes Receivable

At March 31, 2014 and December 31, 2013, the fair value of shareholder notes approximates the carrying value as the notes were recently executed at a market rate provided by a third party.

Securitization debt

At March 31, 2014 and December 31, 2013, the fair value of securitization debt was determined using a third-party quoted market price.

Portfolio term residual financing

At March 31, 2014 and December 31, 2013, the fair value of the portfolio term residual financing was estimated by discounting future expected cash flows over the life of the facility, using market rates for similar facilities.

Bank term financing

At March 31, 2014 and December 31, 2013, the fair value of the bank term facility was determined to approximate carrying value based upon our knowledge of the securitization market.

Portfolio warehouse facilities

The portfolio warehouse facilities are short term in nature and the interest rates adjust in conjunction with the 30-day LIBOR. The Deutsche Bank Warehouse Facility was renewed in December 2012. The Royal Bank of Scotland Warehouse Facility expiration date was extended in March 2014 to June 2014. The Wells Fargo Warehouse Facility was renewed in December 2013. As these facilities were either recently renewed or extended and contain a floating market rate of interest, we believe the fair value of these facilities approximate carrying value at March 31, 2014 and December 31, 2013.

Senior secured notes payable

The fair value of senior secured notes payable at March 31, 2014 and December 31, 2013 was determined using a third-party quoted market price.

18

Revolving inventory facility

At March 31, 2014 and December 31, 2013, the fair value of the revolving inventory facility was estimated by discounting future cash flows expected to be paid over the life of the facility, using market rates for similar facilities.

Mortgage note payable

At March 31, 2014, and December 31, 2013, the fair value of this note was determined using third-party market prices for similar commercial real estate mortgages. Both periods utilize the December 31, 2013 analysis, as the market for these instruments is not considered volatile.

Real estate facility

At March 31, 2014 and December 31, 2013, the fair value of the real estate facility was determined using third-party market prices for similar real estate collateralized facilities. Both periods utilize the December 31, 2013 analysis, as the market for these instruments is not considered volatile.

(13) Subsequent Events

In April 2014, a $3.8 million dividend related to fourth quarter 2013 taxable income was declared and paid to our shareholders.

In April 2014, we completed our 2014-2 securitization, issuing $288.8 million of asset-backed securities with an original duration weighted average coupon of 2.42%. The securities were rated in tranches with credit ratings from AAA to BBB by Standard and Poor's Rating Service, and DBRS Inc.

In April 2014, DTAG acquired the shares of Pathfinder Insurance Company ("Pathfinder"), a property and casualty insurance company licensed to operate in 43 states, within the continental United States, and the District of Columbia. Pathfinder is currently inactive, does not have personnel, operations, tangible assets (other than cash reserves), or liabilities, and has not issued or assumed new insurance policies since 2007. We acquired these assets for a purchase price of $9.5 million.

(14) Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other accounting standards setting bodies, which we may adopt as of the specified date required by each standard. We believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption. However, the FASB continues to work on several projects, which will lead to new standards, which may have a material impact in future periods.

In 2014, the FASB is expected to release a new revenue recognition standard, to become effective in 2017, which will eliminate industry-specific revenue accounting, and will establish a single set of guidelines for revenue recognition across all industries. The proposed standard provides new guidance on identifying separate performance obligations in a contract, determining and allocating transaction price, and determining when a performance obligation is satisfied. Included within the exposure draft is a requirement to consider the time value of money when addressing contracts with a significant financing component. We will assess the impact of the new pronouncement when released. We believe the proposed new guidance may have a material effect on our future consolidated financial statements, but cannot determine the extent of the impact at this time.

In 2013 the FASB released a new lease accounting proposal which would eliminate the current operating and capital lease classifications and would require an asset or liability to be recorded for most leases longer than one year, similar to the current accounting treatment for capital leases. Additionally, the new guidance may change the way a lease is recorded on the income statement. The final standard is expected to be issued in 2014, and is anticipated to become effective in 2017. We will assess the impact of the new pronouncement when released, but believe the new guidance may have a material effect on our future consolidated financial statements by grossing up our assets and liabilities for leases that are currently treated as operating leases.

The FASB also continues working on a financial instruments project to address the classification and measurement of financial instruments. The FASB continues to deliberate the proposed measures of this project, but is expected to issue the final standard for impairment in 2014. We will assess the impact of the new pronouncement when released, to determine whether such pronouncement may have a material effect on our future consolidated financial statements, as this pronouncement may have an impact on our allowance for credit losses.

19

(15) Discontinued Operations—GO Financial

A summary of revenue and income before income taxes reported in discontinued operations follows:

	Three Months Ended March 31,
	2014		2013
	(In thousands)
Total revenue	$	—	$	2,803
Income before income taxes	—		768

(16) Supplemental Consolidating Financial Information

In accordance with the indenture governing the 12.625% Senior Secured Notes (see Note 5 — Debt Obligations), certain wholly-owned U.S. subsidiaries of the Company have fully and unconditionally guaranteed the Senior Secured Notes on a joint and several basis. Pursuant to Regulation S-X, Rule 3-10(f), we are required to present condensed consolidating financial information for subsidiaries that have guaranteed the debt of a registrant issued in a public offering, where the guarantee is full and unconditional, joint and several, and where the voting interest of the subsidiary is 100% owned by the registrant.

The following tables present condensed consolidating balance sheets as of March 31, 2014, and December 31, 2013; condensed consolidating statements of operations for the three months ended March 31, 2014 and 2013; and condensed consolidating statements of cash flows for the three months ended March 31, 2014 and 2013 for (i) DTAG and DTAC, —the co-issuers of the Senior Secured Notes, (ii) the separate DTAG and DTAC guarantor subsidiaries on a combined basis, (iii) the separate DTAG and DTAC non-guarantor subsidiaries on a combined basis, (iv) elimination adjustments, and (v) total consolidated amounts. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management believes that such information is not material to the senior note holders. Consolidating adjustments include elimination of investment in subsidiaries, elimination of intercompany accounts; elimination of intercompany sales between guarantor and non-guarantor subsidiaries; and elimination of equity in earnings (losses) of subsidiaries. The condensed consolidating financial information should be read in conjunction with the condensed consolidated financial statements herein.

See "Note 20—Supplemental Consolidating Financial Information" to our Annual Report on Form 10-K, filed with the SEC on March 24, 2014, for information regarding the names of the guarantor and non-guarantor subsidiaries of our Senior Secured Notes.

Consolidated amounts may be immaterially different compared to the condensed consolidated financial statements due to rounding.

20

DriveTime Automotive Group, Inc. and Subsidiaries

Condensed Consolidating Balance Sheets

March 31, 2014

(In thousands)

	DriveTime Automotive Group, Inc.												DT Acceptance Corp
	Guarantor Subsidiaries Combined		Non-Guarantor Subsidiaries		Parent Company		Eliminations			Consolidated			Guarantor Subsidiaries Combined			Non-Guarantor Subsidiaries Combined		Parent Company			Eliminations			Consolidated			Eliminations			DriveTime Automotive Group, Inc. and Subsidiaries
ASSETS
Cash and cash equivalents	$	10,231	$	4,115	$	5	$	—		$	14,351		$	5		$	736	$	16,105		$	—		$	16,846		$	—		$	31,197
Restricted cash and investments held in trust	—		—		—		—			—			21,799			121,810		—			—			143,609			—			143,609
Finance receivables	—		—		—		—			—			—			—		2,131,714			—			2,131,714			—			2,131,714
Allowance for credit losses	—		—		—		—			—			—			—		(319,753		)	—			(319,753		)	—			(319,753		)
Finance receivables, net	—		—		—		—			—			—			—		1,811,961			—			1,811,961			—			1,811,961
Vehicle inventory	286,012		—		—		(618		)	285,394			—			—		—			—			—			—			285,394
Property and equipment, net	84,738		391		—		—			85,129			4,163			15,261		2,162			—			21,586			—			106,715
Lease fleet vehicles, net	74,434		—		—		—			74,434			—			—		—			—			—			—			74,434
Investments in subsidiaries	—		—		146,965		(146,965		)	—			—			—		338,903			(338,903		)	—			—			—
Other assets	2,368,646		34,650		643,199		(704,932		)	2,341,563			1,304,398			1,948,062		2,257,632			(3,238,717		)	2,271,375			(4,542,550		)	70,388
Shareholder notes receivable	—		—		—		—			—			—			—		28,542			—			28,542			—			28,542
Total Assets	$	2,824,061	$	39,156	$	790,169	$	(852,515	)	$	2,800,871		$	1,330,365		$	2,085,869	$	4,455,305		$	(3,577,620	)	$	4,293,919		$	(4,542,550	)	$	2,552,240
LIABILITIES & SHAREHOLDERS’ EQUITY
Liabilities:
Payables and other accrued expenses	2,467,944		2,017		602,517		(704,283		)	2,368,195			1,651,449			7,804		3,903,077			(3,238,717		)	2,323,613			(4,542,550		)	149,258
Deferred revenue	100,746		—		—		—			100,746			—			—		—			—			—			—			100,746
Portfolio warehouse facilities	—		—		—		—			—			—			302,000		—			—			302,000			—			302,000
Portfolio term financings	—		—		—		—			—			—			1,103,907		—			—			1,103,907			—			1,103,907
Senior secured notes payable	—		—		126,542		—			126,542			—			—		126,541			—			126,541			—			253,083
Other secured notes payable	130,000		12,811		—		—			142,811			—			12,171		—			—			12,171			—			154,982
Total Liabilities	2,698,690		14,828		729,059		(704,283		)	2,738,294			1,651,449			1,425,882		4,029,618			(3,238,717		)	3,868,232			(4,542,550		)	2,063,976
Shareholders’ Equity:
Noncontrolling interest - Inilex	—		2,734		—		(3,942		)	(1,208		)	—			—		—			—			—			336			(872		)
Shareholders’ equity	125,371		21,594		61,110		(144,290		)	63,785			(321,084		)	659,987		425,687			(338,903		)	425,687			(336		)	489,136
Total Equity	125,371		24,328		61,110		(148,232		)	62,577			(321,084		)	659,987		425,687			(338,903		)	425,687			—			488,264
Total Liabilities & Shareholders’ Equity	$	2,824,061	$	39,156	$	790,169	$	(852,515	)	$	2,800,871		$	1,330,365		$	2,085,869	$	4,455,305		$	(3,577,620	)	$	4,293,919		$	(4,542,550	)	$	2,552,240

21

DriveTime Automotive Group, Inc. and Subsidiaries

Condensed Consolidating Balance Sheets

December 31, 2013

(In thousands)

	DriveTime Automotive Group, Inc.												DT Acceptance Corp
	Guarantor Subsidiaries Combined		Non- Guarantor Subsidiaries		Parent Company		Eliminations			Consolidated			Guarantor Subsidiaries Combined			Non- Guarantor Subsidiaries Combined		Parent Company			Eliminations			Consolidated			Eliminations			DriveTime Automotive Group, Inc. and Subsidiaries
ASSETS
Cash and cash equivalents	$	5,589	$	15,477	$	5	$	—		$	21,071		$	5		$	588	$	9,090		$	—		$	9,683		$	—		$	30,754
Restricted cash and investments held in trust	—		—		—		—			—			12,707			102,493		—			—			115,200			—			115,200
Finance receivables	—		—		—		—			—			—			—		1,938,931			—			1,938,931			—			1,938,931
Allowance for credit losses	—		—		—		—			—			—			—		(299,516		)	—			(299,516		)	—			(299,516		)
Finance receivables, net	—		—		—		—			—			—			—		1,639,415			—			1,639,415			—			1,639,415
Vehicle inventory	320,406		—		—		(839		)	319,567			—			—		—			—			—			—			319,567
Property and equipment, net	82,232		449		—		—			82,681			3,848			14,806		2,325			—			20,979			—			103,660
Lease fleet vehicles, net	31,161		—		—		—			31,161			—			—		—			—			—			—			31,161
Investments in subsidiaries	—		—		259,162		(259,162		)	—			—			—		418,091			(418,091		)	—			—			—
Other assets	2,099,928		22,221		571,097		(696,457		)	1,996,789			1,182,734			1,779,757		1,955,012			(2,956,837		)	1,960,666			(3,899,368		)	58,087
Shareholder notes receivable	—		—		—		—			—			—			—		28,542			—			28,542			—			28,542
Total Assets	$	2,539,316	$	38,147	$	830,264	$	(956,458	)	$	2,451,269		$	1,199,294		$	1,897,644	$	4,052,475		$	(3,374,928	)	$	3,774,485		$	(3,899,368	)	$	2,326,386
LIABILITIES & SHAREHOLDERS’ EQUITY
Liabilities:
Payables and other accrued expenses	2,125,853		2,067		599,332		(696,323		)	2,030,929			1,388,632			6,763		3,539,609			(2,956,837		)	1,978,167			(3,899,368		)	109,728
Deferred revenue	42,101		32		—		—			42,133			—			—		—			—			—			—			42,133
Portfolio warehouse facilities	—		—		—		—			—			—			283,400		—			—			283,400			—			283,400
Portfolio term financings	—		—		—		—			—			—			987,821		—			—			987,821			—			987,821
Senior secured notes payable	—		—		126,658		—			126,658			—			—		126,658			—			126,658			—			253,316
Other secured notes payable	136,321		13,412		—		—			149,733			—			12,231		—			—			12,231			—			161,964
Total Liabilities	2,304,275		15,511		725,990		(696,323		)	2,349,453			1,388,632			1,290,215		3,666,267			(2,956,837		)	3,388,277			(3,899,368		)	1,838,362
Shareholders’ Equity:
Noncontrolling interest - Inilex	—		2,698		—		(3,297		)	(599		)	—			—		—			—			—			336			(263		)
Shareholders’ Equity	235,041		19,938		104,274		(256,838		)	102,415			(189,338		)	607,429		386,208			(418,091		)	386,208			(336		)	488,287
Total Equity	235,041		22,636		104,274		(260,135		)	101,816			(189,338		)	607,429		386,208			(418,091		)	386,208			—			488,024
Total Liabilities & Shareholders’ Equity	$	2,539,316	$	38,147	$	830,264	$	(956,458	)	$	2,451,269		$	1,199,294		$	1,897,644	$	4,052,475		$	(3,374,928	)	$	3,774,485		$	(3,899,368	)	$	2,326,386

22

DriveTime Automotive Group, Inc. and Subsidiaries

Condensed Consolidating Statements of Operations

Three Months Ended March 31, 2014

(In thousands)

	DriveTime Automotive Group, Inc.												DT Acceptance Corp
	Guarantor Subsidiaries Combined		Non-Guarantor Subsidiaries		Parent Company		Eliminations			Consolidated			Guarantor Subsidiaries Combined		Non-Guarantor Subsidiaries Combined		Parent Company			Eliminations			Consolidated			Eliminations			DriveTime Automotive Group, Inc. and Subsidiaries
Revenue:
Sales revenue	$	365,500	$	—	$	18,145	$	—		$	383,645		$	13	$	—	$	683		$	(33	)	$	663		$	(32,146	)	$	352,162
Interest income	—		—		—		—			—			—		86,375		1,886			—			88,261			—			88,261
Other income	9,815		5,721		—		(2,659		)	12,877			19,805		—		45			(19,382		)	468			—			13,345
Equity in income of subsidiaries	—		—		56,768		(56,768		)	—			—		—		58,212			(58,212		)	—			—			—
Total Revenue	375,315		5,721		74,913		(59,427		)	396,522			19,818		86,375		60,826			(77,627		)	89,392			(32,146		)	453,768
Costs and Expenses:
Cost of sales	258,661		2,953		—		(2,366		)	259,248			—		—		—			—			—			—			259,248
Provision for credit losses	—		—		—		—			—			—		—		89,084			—			89,084			—			89,084
Portfolio debt interest expense	—		—		—		—			—			—		11,039		—			—			11,039			—			11,039
Non-portfolio debt interest expense	1,656		148		5		—			1,809			—		182		19,274			—			19,456			(19,590		)	1,675
Senior secured debt interest expense	—		—		4,016		—			4,016			—		—		4,017			—			4,017			—			8,033
Selling and marketing	12,037		—		—		—			12,037			—		—		—			—			—			—			12,037
General and administrative	38,163		1,298		4,900		—			44,361			17,843		18,427		14,456			(19,415		)	31,311			(12,556		)	63,116
Depreciation expense	8,706		76		—		—			8,782			347		143		368			—			858			—			9,640
Total Costs and Expenses	319,223		4,475		8,921		(2,366		)	330,253			18,190		29,791		127,199			(19,415		)	155,765			(32,146		)	453,872
Income (loss) before income taxes	56,092		1,246		65,992		(57,061		)	66,269			1,628		56,584		(66,373		)	(58,212		)	(66,373		)	—			(104		)
Income tax expense	—		516		28		—			544			—		—		357			—			357			—			901
Net income (loss) from continuing operations	$	56,092	$	730	$	65,964	$	(57,061	)	$	65,725		$	1,628	$	56,584	$	(66,730	)	$	(58,212	)	$	(66,730	)	$	—		$	(1,005	)
Income from discontinued operations, net of taxes	—		—		—		—			—			—		—		—			—			—			—			—
Net income (loss)	56,092		730		65,964		(57,061		)	65,725			1,628		56,584		(66,730		)	(58,212		)	(66,730		)	—			(1,005		)
Net income (loss) attributable to noncontrolling interests - Inilex	—		54		—		(645		)	(591		)	—		—		—			—			—			—			(591		)
Net Income Attributable to DriveTime Consolidated	$	56,092	$	676	$	65,964	$	(56,416	)	$	66,316		$	1,628	$	56,584	$	(66,730	)	$	(58,212	)	$	(66,730	)	$	—		$	(414	)

23

DriveTime Automotive Group, Inc. and Subsidiaries

Condensed Consolidating Statements of Operations

Three Months Ended March 31, 2013

(In thousands)

	DriveTime Automotive Group, Inc.												DT Acceptance Corp
	Guarantor Subsidiaries Combined		Non- Guarantor Subsidiaries			Parent Company		Eliminations			Consolidated		Guarantor Subsidiaries Combined		Non- Guarantor Subsidiaries Combined		Parent Company			Eliminations			Consolidated			Eliminations			DriveTime Automotive Group, Inc. and Subsidiaries
Revenue:
Sales revenue	$	309,468	$	—		$	—	$	—		$	309,468	$	—	$	—	$	—		$	—		$	—		$	—		$	309,468
Interest income	—		—			—		—			—		—		73,291		75,249			(73,569		)	74,971			—			74,971
Other income	12,130		—			12,546		—			24,676		15,980		—		523			(15,536		)	967			(25,054		)	589
Equity in income of subsidiaries	—		—			71,391		(71,391		)	—		—		—		50,153			(50,153		)	—			—			—
Total Revenue	321,598		—			83,937		(71,391		)	334,144		15,980		73,291		125,925			(139,258		)	75,938			(25,054		)	385,028
Costs and Expenses:
Cost of sales	211,638		—			—		—			211,638		—		—		—			—			—			—			211,638
Provision for credit losses	—		—			—		—			—		—		—		77,842			—			77,842			—			77,842
Portfolio debt interest expense	—		—			—		—			—		—		10,186		—			—			10,186			—			10,186
Non-portfolio debt interest expense	957		135			13		—			1,105		20		464		86,788			(73,569		)	13,703			(13,489		)	1,319
Senior secured debt interest expense	—		—			3,321		—			3,321		—		—		3,320			—			3,320			—			6,641
Selling and marketing	8,982		—			—		—			8,982		1		—		(79		)	—			(78		)	—			8,904
General and administrative	24,837		(952		)	2,195		—			26,080		14,668		14,124		17,287			(15,536		)	30,543			(11,565		)	45,058
Depreciation expense	4,527		—			—		—			4,527		288		135		327			—			750			—			5,277
Total Costs and Expenses	250,941		(817		)	5,529		—			255,653		14,977		24,909		185,485			(89,105		)	136,266			(25,054		)	366,865
Income (loss) before income taxes	70,657		817			78,408		(71,391		)	78,491		1,003		48,382		(59,560		)	(50,153		)	(60,328		)	—			18,163
Income tax expense	—		83			70		—			153		—		—		189			—			189			—			342
Net income (loss) from continuing operations	$	70,657	$	734		$	78,338	$	(71,391	)	$	78,338	$	1,003	$	48,382	$	(59,749	)	$	(50,153	)	$	(60,517	)	$	—		$	17,821
Income from discontinued operations, net of taxes	—		—			—		—			—		768		—		—			—			768			—			768
Net income (loss)	$	70,657	$	734		$	78,338	$	(71,391	)	$	78,338	$	1,771	$	48,382	$	(59,749	)	$	(50,153	)	$	(59,749	)	$	—		$	18,589
Net income (loss) attributable to noncontrolling interests - Inilex	—		—			—		—			—		—		—		—			—			—			—			—
Net Income Attributable to DriveTime Consolidated	$	70,657	$	734		$	78,338	$	(71,391	)	$	78,338	$	1,771	$	48,382	$	(59,749	)	$	(50,153	)	$	(59,749	)	$	—		$	18,589

24

DriveTime Automotive Group, Inc. and Subsidiaries

Condensed Consolidating Statements of Cash Flows

Three Months Ended March 31, 2014

(In thousands)

	DriveTime Automotive Group, Inc.															DT Acceptance Corp																		DriveTime Automotive Group, Inc. and Subsidiaries
	Guarantor Subsidiaries Combined			Non-Guarantor Subsidiaries			Parent Company			Eliminations			Consolidated			Guarantor Subsidiaries Combined			Non-Guarantor Subsidiaries Combined			Parent Company			Eliminations			Consolidated			Eliminations
Cash Flows from Operating Activities:
Net income (loss)	$	56,092		$	730		$	65,964		$	(57,061	)	$	65,725		$	1,628		$	56,584		$	(66,730	)	$	(58,212	)	$	(66,730	)	$	—		$	(1,005	)
Net loss attributable to noncontrolling interest - Inilex	—			(54		)	—			645			591			—			—			—			—			—			—			591
Net income (loss) attributable to DriveTime consolidated	$	56,092		$	676		$	65,964		$	(56,416	)	$	66,316		$	1,628		$	56,584		$	(66,730	)	$	(58,212	)	$	(66,730	)	$	—		$	(414	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for credit losses	—			—			—			—			—			—			—			89,084			—			89,084			—			89,084
Depreciation expense	8,706			76			—			—			8,782			347			143			368			—			858			—			9,640
Amortization of debt issuance costs and debt premium and discount	41			18			71			—			130			—			1,297			71			—			1,368			—			1,498
Non-cash compensation expense-related party	—			—			641			—			641			—			—			641			—			641			—			1,282
Loss (gain) from disposal of property and equipment	(111		)	—			—			—			(111		)	556			—			(5		)	—			551			—			440
Originations of finance receivables	—			—			—			—			—			—			—			(416,390		)	—			(416,390		)	—			(416,390		)
Collections and recoveries on finance receivable principal balances	—			—			—			—			—			—			—			155,636			—			155,636			—			155,636
Change in accrued interest receivable and loan origination costs	—			—			—			—			—			—			—			(876		)	—			(876		)	—			(876		)
(Increase) decrease in inventory	34,394			—			—			(221		)	34,173			—			—			—			—			—			—			34,173
Change in other assets	(434,522		)	(11,429		)	(69,860		)	64,597			(451,214		)	(255,037		)	(171,650		)	(118,052		)	340,092			(204,647		)	643,182			(12,679		)
Increase (decrease) in deferred revenue	58,645			(33		)	—			—			58,612			—			—			—			—			—			—			58,612
Increase (decrease) in accounts payable, accrued expenses and other liabilities	342,092			(49		)	3,184			(7,960		)	337,267			262,817			1,042			363,466			(281,880		)	345,445			(643,182		)	39,530
Net cash provided by (used in) operating activities	65,337			(10,741		)	—			—			54,596			10,311			(112,584		)	7,213			—			(95,060		)	—			(40,464		)
Cash Flows from Investing Activities:
Proceeds from disposal of property and equipment	678			—			—			—			678			19			—			5			—			24			—			702
Purchase of property and equipment	(9,019		)	(20		)	—			—			(9,039		)	(1,238		)	(597		)	(203		)	—			(2,038		)	—			(11,077		)
Purchase of lease fleet	(46,033		)	—			—			—			(46,033		)	—			—			—			—			—			—			(46,033		)
Net cash used in investing activities	$	(54,374	)	$	(20	)	$	—		$	—		$	(54,394	)	$	(1,219	)	$	(597	)	$	(198	)	$	—		$	(2,014	)	$	—		$	(56,408	)

25

DriveTime Automotive Group, Inc. and Subsidiaries

Condensed Consolidating Statements of Cash Flows

Three Months Ended March 31, 2014

(In thousands)

	DriveTime Automotive Group, Inc.													DT Acceptance Corp
	Guarantor Subsidiaries Combined			Non-Guarantor Subsidiary			Parent Company		Eliminations		Consolidated			Guarantor Subsidiaries Combined			Non-Guarantor Subsidiaries Combined			Parent Company		Eliminations		Consolidated			Eliminations		DriveTime Automotive Group, Inc. and Subsidiaries
Cash Flows from Financing Activities:
(Increase) decrease in restricted cash	$	—		$	—		$	—	$	—	$	—		$	(9,092	)	$	388		$	—	$	—	$	(8,704	)	$	—	$	(8,704	)
Deposits into investments held in trust	—			—			—		—		—			—			(5,250		)	—		—		(5,250		)	—		(5,250		)
Change in investments held in trust and collection account cash	—			—			—		—		—			—			(14,455		)	—		—		(14,455		)	—		(14,455		)
Additions to portfolio term financings	—			—			—		—		—			—			267,751			—		—		267,751			—		267,751
Repayment of portfolio term financings	—			—			—		—		—			—			(151,665		)	—		—		(151,665		)	—		(151,665		)
Additions to portfolio warehouse facilities	—			—			—		—		—			—			313,600			—		—		313,600			—		313,600
Repayment of portfolio warehouse facilities	—			—			—		—		—			—			(295,000		)	—		—		(295,000		)	—		(295,000		)
Additions to senior secured notes payable	—			—			—		—		—			—			—			—		—		—			—		—
Additions to other secured notes payable	—			—			—		—		—			—			—			—		—		—			—		—
Repayment of other secured notes payable	(6,321		)	(601		)	—		—		(6,922		)	—			(60		)	—		—		(60		)	—		(6,982		)
Payment of debt issuance costs	—			—			—		—		—			—			(1,980		)	—		—		(1,980		)	—		(1,980		)
Dividend distributions	—			—			—		—		—			—			—			—		—		—			—		—
Net cash provided by (used in) financing activities	(6,321		)	(601		)	—		—		(6,922		)	(9,092		)	113,329			—		—		104,237			—		97,315
Net increase (decrease) in cash and cash equivalents	4,642			(11,362		)	—		—		(6,720		)	—			148			7,015		—		7,163			—		443
Cash and cash equivalents at beginning of period	5,589			15,477			5		—		21,071			5			588			9,090		—		9,683			—		30,754
Cash and cash equivalents at end of period	$	10,231		$	4,115		$	5	$	—	$	14,351		$	5		$	736		$	16,105	$	—	$	16,846		$	—	$	31,197

26

DriveTime Automotive Group, Inc. and Subsidiaries

Condensed Consolidating Statements of Cash Flows

Three Months Ended March 31, 2013

(In thousands)

	DriveTime Automotive Group, Inc.															DT Acceptance Corp																		DriveTime Automotive Group, Inc. and Subsidiaries
	Guarantor Subsidiaries Combined			Non- Guarantor Subsidiaries			Parent Company			Eliminations			Consolidated			Guarantor Subsidiaries Combined			Non- Guarantor Subsidiaries Combined			Parent Company			Eliminations			Consolidated			Eliminations
Cash Flows from Operating Activities:
Net income (loss)	$	70,657		$	734		$	78,338		$	(71,391	)	$	78,338		$	1,771		$	48,382		$	(59,749	)	$	(50,153	)	$	(59,749	)	$	—		$	18,589
Income from discontinued operations	—			—			—			—			—			(768		)	—			—			—			(768		)	—			(768		)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for credit losses	—			—			—			—			—			—			—			77,842			—			77,842			—			77,842
Depreciation expense	4,527			—			—			—			4,527			288			135			327			—			750			—			5,277
Amortization of debt issuance costs and debt premium and discount	41			15			164			—			220			—			1,276			164			—			1,440			—			1,660
Non-cash compensation expense-related party	—			—			155			—			155			—			—			156			—			156			—			311
Loss from disposal of property and equipment	(41		)	—			—			—			(41		)	91			—			(19		)	—			72			—			31
Originations of finance receivables	—			—			—			—			—			—			—			(311,829		)	—			(311,829		)	—			(311,829		)
Collections and recoveries on finance receivable principal balances	—			—			—			—			—			—			—			151,103			—			151,103			—			151,103
Decrease in accrued interest receivable and loan origination costs	—			—			—			—			—			—			—			423			—			423			—			423
Decrease in inventory	41,857			—			—			—			41,857			—			—			—			—			—			—			41,857
Change in other assets	(398,590		)	332			(81,588		)	66,267			(413,579		)	(196,465		)	(61,554		)	(219,895		)	303,856			(174,058		)	558,823			(28,814		)
Increase in deferred revenue	6,751			28			—			—			6,779			—			—			—			—			—			—			6,779
Increase (decrease) in accounts payable, accrued expenses and other liabilities	257,929			(616		)	2,931			5,124			265,368			204,125			(108		)	364,567			(257,906		)	310,678			(558,823		)	17,223
Net cash (used in) provided by operating activities from continuing operations	(16,869		)	493			—			—			(16,376		)	9,042			(11,869		)	3,090			(4,203		)	(3,940		)	—			(20,316		)
Net cash (used in) provided by operating activities from discontinued operations	—			—			—			—			—			1,351			—			—			—			1,351			—			1,351
Net cash (used in) provided by operating activities	(16,869		)	493			—			—			(16,376		)	10,393			(11,869		)	3,090			(4,203		)	(2,589		)	—			(18,965		)
Cash Flows from Investing Activities:
Proceeds from disposal of property and equipment	453			—			—			—			453			96			—			92			—			188			—			641
Purchase of property and equipment	(7,194		)	—			—			—			(7,194		)	(133		)	(131		)	(227		)	—			(491		)	—			(7,685		)
Net cash used in investing activities from continuing operations	(6,741		)	—			—			—			(6,741		)	(37		)	(131		)	(135		)	—			(303		)	—			(7,044		)
Net cash provided by (used in) investing activities from discontinued operations	—			—			—			—			—			(33,909		)	—			—			—			(33,909		)	—			(33,909		)
Net cash used in investing activities	$	(6,741	)	$	—		$	—		$	—		$	(6,741	)	$	(33,946	)	$	(131	)	$	(135	)	$	—		$	(34,212	)	$	—		$	(40,953	)

27

DriveTime Automotive Group, Inc. and Subsidiaries

Condensed Consolidating Statements of Cash Flows

Three Months Ended March 31, 2013

(In thousands)

	DriveTime Automotive Group, Inc.													DT Acceptance Corp															DriveTime Automotive Group, Inc. and Subsidiaries
	Guarantor Subsidiaries Combined			Non- Guarantor Subsidiary			Parent Company		Eliminations		Consolidated			Guarantor Subsidiaries Combined			Non- Guarantor Subsidiaries Combined			Parent Company		Eliminations		Consolidated			Eliminations
Cash Flows from Financing Activities:
Increase in restricted cash	$	—		$	—		$	—	$	—	$	—		$	(8,864	)	$	(6,896	)	$	—	$	—	$	(15,760	)	$	—	$	(15,760	)
Change in investments held in trust and collection account cash	—			—			—		—		—			—			(4,255		)	—		—		(4,255		)	—		(4,255		)
Additions to portfolio warehouse facilities	—			—			—		—		—			—			75,000			—		—		75,000			—		75,000
Repayment of portfolio warehouse facilities	—			—			—		—		—			—			(139,410		)	—		4,203		(135,207		)	—		(135,207		)
Additions to portfolio term financings	—			—			—		—		—			—			210,300			—		—		210,300			—		210,300
Repayment of portfolio term financings	—			—			—		—		—			—			(122,500		)	—		—		(122,500		)	—		(122,500		)
Additions to other secured notes payable	20,000			—			—		—		20,000			—			—			—		—		—			—		20,000
Repayment of other secured notes payable	—			(464		)	—		—		(464		)	(93		)	(57		)	—		—		(150		)	—		(614		)
Payment of debt issuance costs	—			—			—		—		—			—			(348		)	—		—		(348		)	—		(348		)
Dividend distributions	—			—			—		—		—			—			—			—		—		—			—		—
Net cash provided by (used in) financing activities from continuing operations	20,000			(464		)	—		—		19,536			(8,957		)	11,834			—		4,203		7,080			—		26,616
Net cash provided by financing activities from discontinued operations	—			—			—		—		—			32,553			—			—		—		32,553			—		32,553
Net cash provided by (used in) financing activities	20,000			(464		)	—		—		19,536			23,596			11,834			—		4,203		39,633			—		59,169
Net increase (decrease) in cash and cash equivalents	(3,610		)	29			—		—		(3,581		)	43			(166		)	2,955		—		2,832			—		(749		)
Cash and cash equivalents at beginning of period	6,937			481			5		—		7,423			10			423			18,624		—		19,057			—		26,480
Cash and cash equivalents at end of period	3,327			510			5		—		3,842			53			257			21,579		—		21,889			—		25,731
Cash and cash equivalents from discontinued operations at end of period	—			—			—		—		—			—			—			—		—		—			—		—
Cash and cash equivalent from continuing operations at end of period	$	3,327		$	510		$	5	$	—	$	3,842		$	53		$	257		$	21,579	$	—	$	21,889		$	—	$	25,731

28

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes and the MD&A for the year ended December 31, 2013, included in our Annual Report on Form 10-K filed with the SEC on March 24, 2014, as well as our condensed consolidated financial statements and the accompanying notes included in Item 1 of this Form 10-Q.

Unless otherwise indicated in this Quarterly Report on Form 10-Q, the terms “DriveTime,” the “Company,” “we,” “our” and “us” refer to DriveTime Automotive Group, Inc. and DT Acceptance Corporation and their respective subsidiaries as a consolidated entity.

Overview

DriveTime Automotive Group, Inc. (“DTAG”) is the leading used vehicle retailer in the United States with a primary focus on the sale and lease of quality used vehicles and related products to the subprime market. Through DTAG's sister company, DT Acceptance Corp ("DTAC"), we provide auto financing and loan servicing for substantially all of the vehicles we sell. Auto financing is provided through retail installment sales contracts (referred to herein as "loans" and/or "finance receivables"). Through our national network of Company owned and 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 March 31, 2014 we operated 110 dealerships and 21 reconditioning facilities located in 50 designated marketing areas ("DMAs") in 20 states. As many of our customers may be unable to obtain financing to acquire a vehicle from another company, financing is an important component of our integrated business model and product offering. We fund this portfolio primarily through portfolio warehouse facilities, securitizations, and other portfolio term financings.

DTAG and DTAC are sister companies operating collectively under common control and are consolidated for financial reporting purposes. Generally, DTAG directs our retail vehicle sales operations and DTAC directs our financing and collections operations.

For the three months endedMarch 31, 2014, we sold and leased over 31,000 vehicles, and generated $527.7 million of total adjusted revenue, $78.9 million of adjusted EBITDA and DTAC originated $416.4 million of finance receivables to end the quarter with a loan portfolio of $2.1 billion.

First Quarter2014 Highlights

• First full quarter following the national introduction of our Driver's Seat Cancel Anytime Lease™ and unbundling initiatives.

The following items highlight our current period results compared against the first quarter of 2013:

• Vehicles sold and leased per dealership increased 43.3%.

• Total vehicles sold and leased increased 60.8% to 31,521.

• Adjusted revenue⁽¹⁾ increased 34.7% to $527.7 million.

• Adjusted EBITDA⁽¹⁾ increased 67.7% to $78.9 million.

• Economic earnings⁽¹⁾ increased 117.6% to $51.4 million.

• DTAC finance receivables portfolio increased to $2.1 billion.

^{(1) See definitions of adjusted revenue, adjusted EBITDA and economic earnings in "—Non-GAAP Discussion."} 

29

Special Note Regarding Forward-Looking Statements

This report contains “forward-looking statements,” which include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation, and availability of resources. These forward-looking statements include, without limitation, statements concerning projections, predictions, expectations, estimates, or forecasts as to our business, financial and operational results, and future economic performance; and statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to the following:

• changes to our business plan that are currently being implemented, and those that may be implemented in the future, may not be successful and may cause unintended consequences;

• interest rates affect our profitability and cash flows and an increase in interest rates will increase our interest expense and lower our profitability and liquidity;

• general, wholesale used vehicle auction prices, and economic conditions and their effect on automobile sales;

• seasonal and other fluctuations in our results of operations; and

• our ability to complete any pending financing transactions.

For additional information regarding risks that may cause our actual results to differ materially from any forward-looking statements, see the “Risk Factors” section of our Annual Report on Form 10-K, filed with the SEC on March 24, 2014, which identifies events and important risk factors that could cause actual results to differ materially from those contained in our forward-looking statements. Forward-looking statements speak only as of the date the statements are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Critical Accounting Policies

For information on critical accounting policies, see “Critical Accounting Policies” included in Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2013. These policies relate to finance receivables, revenue recognition, allowance for credit losses, valuation of inventory, secured financings, and our limited warranty accrual.

Factors Affecting Comparability

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

Revenue Recognition

In the fourth quarter of 2012 we began offering our DriveCare® Extended Vehicle Service Contract ("VSC") as a separately-priced optional product (apart from the vehicle) in certain regions in which we operate, and extended the offering to all dealerships by the end of the fourth quarter of 2013. During 2013, we expanded our selection of separately priced products to include Guaranteed Asset Protection ("GAP") and a GPS monitoring subscription ("GPS"). As a result, revenue associated with separately sold VSC, GAP and GPS ("Ancillary Products") is deferred and recognized over the life of the agreement in relation to the usage and expected duration of the products. For the three months ended March 31, 2014 and 2013, the gross negative impact to GAAP revenue due to the deferment of revenue associated with the unbundling of these ancillary products was $73.9 million and $6.8 million, respectively. The deferral of revenue, as required by GAAP, related to the sale of these products will continue to have a direct material impact on our gross revenue, gross margin and net profitability of vehicle sales in future periods compared to historical results. However, we believe the economic impact of unbundling will be accretive to the business due to the expected positive impacts to volume.

In 2013 we introduced Driver's Seat, our Cancel Anytime Lease™ program to our customers as an alternative financing option to purchasing a vehicle through an installment sales contract. Recognition of lease revenue is deferred over the expected term of the lease and is included in other income on the consolidated statements of operations.

30

Inilex

In June of 2013 we acquired a 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 resulted in $3.1 million of additional revenue included in other income for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013. As a result of the application of this guidance, the consolidated statements of operations show a net loss attributable to the noncontrolling interest in Inilex in the amount of $0.6 million.

Segments

On December 5, 2013, DTAC sold GO Financial to the shareholders of DTAC. Through the sale of GO we eliminated our indirect lending operating segment. We have determined the sale of GO qualifies for and is presented as a discontinued operation based on the guidance provided in ASC 205—Presentation of Financial Statements, and that we currently operate with only one reportable segment.

Seasonality

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, in part, because many of our customers receive income tax refunds during the first quarter of the year, which are a primary source of down payments on used vehicle purchases. Our loan portfolio also has historically followed a seasonal pattern, with delinquencies and charge-offs being the highest in the second half of the year.

Accrued limited warranty liability

The accrued limited warranty liability represents our estimated obligations related to our limited warranty that was previously included in the bundled price of vehicle sales. As a result of our unbundling initiative, estimated warranty expenses which were recorded at the time of sale are now expensed when incurred while revenue is deferred and recognized over the life of the agreement, in accordance with GAAP. Because we unbundled VSC, we no longer accrue for a warranty liability for our service contracts sold. As a result, the accrued limited warranty liability will gradually decrease as the number of vehicles covered under our bundled product diminishes through pay-offs, charge-offs and mileage/age limitations.

Allowance impact of unbundling

When certain customer's ancillary products are terminated prior to the end of the contractual service period, a prorated refund is applied to the outstanding principal balance of their loan. When analyzing the allowance for credit losses required for our portfolio of finance receivables, we now factor expected customer refunds into our estimated recoveries on charged-off loans. As a result, we expect the allowance for credit losses to be lower in future periods.

31

Selected Historical Consolidated Financial and Other Data

The following table sets forth our selected historical consolidated financial and operating data as of the dates and for the periods indicated.

	As of and for the
	Three Months Ended March 31,
	2014			2013
	(Unaudited)
Consolidated Statements of Operations Data:	($ In thousands except per vehicle data)
Total revenue	$	453,768		$	385,028
Income (loss) before income taxes	$	(104	)	$	18,163
Net income (loss) from continuing operations	$	(1,005	)	$	17,821
Other Financial Data:
Adjusted revenue (1)	$	527,669		$	391,806
Economic earnings (1)	$	51,395		$	23,618
Adjusted EBITDA (1)	$	78,903		$	47,041
Dealerships:
Dealerships in operation at end of period	110			100
Average number of dealerships (2)	110			98
Number of states	20			19
Number of DMAs	50			47
Retail Volume:
Number of used vehicles sold	24,127			19,607
Number of vehicles leased	7,394			—
Total vehicles sold and leased	31,521			19,607
Average vehicles sold and leased per dealership per month	96			67
Number of leases outstanding—end of period	10,351			—
Vehicle lease fleet—end of period	$	74,434		—
DTAC Loan Portfolio:
Principal balances originated	$	416,390		$	311,829
Portfolio debt interest expense (3)	$	11,039		$	10,186
Average amount financed per loan origination	$	17,499		$	15,982
Number of loans outstanding—end of period	160,270			145,210
Average finance receivable principal outstanding	$	1,918,167		$	1,616,127
Average effective yield on loan portfolio (4)	18.8		%	19.1		%
Allowance for credit losses as a percentage of portfolio principal	15.4		%	15.7		%
Portfolio delinquencies 31-90 days	9.0		%	10.1		%
Net charge-offs as a percentage of average principal outstanding	3.6		%	3.8		%
Financing and Liquidity:
Unrestricted cash and availability (5)	$	118,827		$	177,763
Ratio of net debt to adjusted shareholders’ equity (6)	2.9x			2.7x
Average total debt	$	1,726,239		$	1,440,300
Weighted average effective borrowing rate on total debt (7)	4.9		%	5.1		%

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	March 31, 2014			December 31, 2013
Consolidated Balance Sheet Data:	(In thousands)
Cash and cash equivalents	$	31,197		$	30,754
Finance receivables (8)	$	2,131,714		$	1,938,931
Allowance for credit losses	$	(319,753	)	$	(299,516	)
Vehicle inventory	$	285,394		$	319,567
Total assets	$	2,552,240		$	2,326,386
Deferred revenue	$	100,746		$	42,133
Total debt (9)	$	1,813,972		$	1,686,501
Long term debt	$	1,330,437		$	1,080,604
Shareholders’ equity	$	488,264		$	488,024
Adjusted shareholder's equity (1)	$	581,431		$	529,692

^{(1)  See definitions of adjusted revenue, economic earnings, adjusted EBITDA, and adjusted shareholder's equity in "—Non-GAAP Discussion."} 

^{(2)  Average number of dealerships represents the average number of dealerships open during the periods presented above.} 

^{(3)  Portfolio interest expense is the interest paid related to the outstanding amounts on our securitizations and amounts drawn on our warehouse facilities.} 

^{(4)  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 plus interest earned on investments held in trust and late fees earned.} 

^{(5)  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.} 

^{(6)  Net debt is calculated as total debt less restricted cash and investments held in trust securing various debt facilities. Adjusted shareholders’ equity is calculated as total shareholders’ equity plus deferred income. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Discussion” for a reconciliation of total shareholders’ equity to adjusted shareholders’ equity.} 

^{(7)  Weighted average effective borrowing rate includes the effect of amortization of discounts, debt issuance costs, and unused line fees.} 

^{(8)  Includes principal balances, recovery receivables, accrued interest, and capitalized loan origination costs.} 

^{(9)  Total debt includes portfolio warehouse facilities, portfolio term financings, senior secured notes and other secured notes payable.}  

Results of Operations

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

	Three months ended March 31,
	2014			2013		% Change
Revenue:	($ in thousands)
Sales revenue	$	352,162		$	309,468	13.8%
Interest income	88,261			74,971		17.7%
Other income	13,345			589		*
Total revenue	453,768			385,028		17.9%
Costs and expenses:
Cost of sales	259,248			211,638		22.5%
Provision for credit losses	89,084			77,842		14.4%
Portfolio debt interest expense	11,039			10,186		8.4%
Non-portfolio debt interest expense	1,675			1,319		27.0%
Senior secured debt interest expense	8,033			6,641		21.0%
Selling and marketing	12,037			8,904		35.2%
General and administrative	63,116			45,058		40.1%
Depreciation expense	9,640			5,277		82.7%
Total costs and expenses	453,872			366,865		23.7%
Income (loss) before income taxes	(104		)	18,163		(100.6)%
Deferred income adjustments (1)	51,499			5,455		844.1%
Economic earnings (1)	$	51,395		$	23,618	117.6%

^{(1)   Deferred income adjustments and economic earnings are non-GAAP financial measures. See "—Non-GAAP Discussion" for definitions the related terms and general discussion relating to non-GAAP financial measures.} 

^{*    Greater than 150%}     

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Sales revenue

Sales revenue increased 13.8% for the three months ended March 31, 2014 primarily due to a 9.0% increase in the average number of vehicles sold per dealership and an increase in the average number of dealerships in operation compared to 2013. The increase in average number of vehicles sold per dealership was driven by our unbundling pricing initiative, which separates the price of the vehicle from each of the ancillary products offered for sale. The average number of dealerships increased, as a result of opening a net of ten additional dealerships since March 31, 2013. These increases were partially offset by the accounting effects of deferring revenue associated with our ancillary products, including VSC, GAP and GPS. Excluding the accounting effects of unbundling, which deferred approximately $73.9 million, sales revenue would have increased 34.7% over first quarter 2013.

Interest income

Interest income increased during the three months ended March 31, 2014 compared to 2013. This increase is primarily due to an increase in our average portfolio finance receivables principal outstanding. The increase in portfolio size was driven by an increase in origination volume and an increase in the average amount financed per loan origination. These increases were partially offset by a decrease in average portfolio effective yield. The decrease in portfolio yield is directly related to a decrease in APR of newly originated loans. See also "—Originations" for further discussion.

Other income

Other income increased for the three months ended March 31, 2014 compared to 2013 primarily due to $9.6 million of revenue from our Driver's Seat Cancel Anytime Lease™ program which was introduced throughout our dealership network in the fourth quarter of 2013. For the three months ended March 31, 2014, we leased an average 23 vehicles per dealership per month, which is mostly incremental new business from a previously underserved lower credit segment of the market. Additionally, other income increased $3.1 million related to the acquisition of a controlling interest in Inilex in June of 2013.

Cost of sales

Total cost of sales increased for the three months ended March 31, 2014 compared to 2013 as a result of the increase in the number of vehicles sold combined with an increase in the average acquisition cost per vehicle sold. The average acquisition cost per vehicle increased primarily as a result of selling a lower mileage and newer model year vehicle compared to 2013.

Gross margin

	Three months ended March 31,
	2014		2013		% Change
GAAP gross margin percentage (1)	26.8	%	31.6	%	(15.2	)%
Economic gross margin percentage (2)	39.7	%	33.4	%	18.9	%

^{(1)     GAAP gross margin is the difference between sales revenue and cost of sales as a percent of sales revenue} 

^{(2)  Economic gross margin is a non-GAAP measure calculated as gross margin plus deferred income as a percentage of sales revenue. See "—Non-GAAP Discussion" for further information.} 

The decrease in gross margin as a percentage of sales revenue for the three months ended March 31, 2014 compared to 2013, is primarily attributable to the accounting effects related to offering our ancillary products as separately-priced products. Excluding the effects of selling our ancillary products as separately-priced items, gross margin would have increased 18.9% compared to 2013.

Provision for credit losses

Provision for credit losses increased for the three months ended March 31, 2014 compared to 2013, primarily as a result of an increase in the principal balance of loans outstanding due to increased origination volume, which DTAC directly finances. The increase in origination volume was partially offset by a decrease in the allowance as a percent of our portfolio loan principal due to an increase in expected recoveries. Although vehicle recovery values are expected to decrease in the near term, total recoveries are expected to increase due to a growing percentage of our loans with VSC and GAP and the positive impact resulting from the application of pro-rated customer refunds on terminated VSC and GAP applied to the customers outstanding loan balance. The effect of refunds on the allowance is further described below in the discussion on the changes in the allowance for credit losses.

Net charge-offs as a percent of average outstanding principal decreased to 3.6% from 3.8% for the three months ended March 31, 2014 compared to 2013. The decrease in net charge-off percentage is the result of a decrease in gross charge-offs, which was partially offset by a decrease in our periodic recovery rate. Gross principal charged-off decreased to 5.6% compared to 6.1% for the three months ended March 31, 2014 and 2013, respectively. Gross loss rates were positively affected by improvements in delinquencies resulting from the normalization of collections staffing levels and a decrease in the seasoning of

34

our loan portfolio. This positive effect was partially offset by a higher amount financed and longer terms of our loan portfolio, which equates to a higher principal charge-off per loan. Recoveries as a percentage of principal charged-off decreased to 36.2% from 37.9% for the three months ended March 31, 2014 and 2013, respectively, due to the continued softening of the wholesale used vehicle market 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 more active in retiring vehicles. The positive impact of expected ancillary product refunds and an increase in estimated sales tax credits partially offset the decline in vehicle recovery values.

Our allowance as a percent of loan principal outstanding decreased to 15.4% at March 31, 2014 from 16.0% at December 31, 2013. When certain customer's ancillary products are terminated prior to the end of the contractual service period, a prorated refund is applied to the outstanding principal balance of their loan. When analyzing the allowance for credit losses, we now factor expected customer refunds into our estimated recoveries on charged-off loans. As a result, we expect the allowance for credit losses to be lower in future periods. The increase in expected ancillary refunds resulted in a net benefit of 0.6% to our allowance as of March 31, 2014.

Portfolio debt interest expense

Portfolio debt interest expense increased for the three months ended March 31, 2014, compared to 2013. This increase is the result of an increase in the average portfolio debt outstanding to $1.3 billion from $1.1 billion for the three months ended March 31, 2014 and 2013, respectively, resulting from an increase in vehicle sales and loan originations. These increases were partially offset by a decrease in the overall cost of funds of our portfolio debt to 3.4% from 3.7% for the same periods. The decrease in our costs of funds is a result of lower borrowing costs of our recent securitizations, bank term financing, and warehouse facilities.

Non-portfolio debt interest expense

Non-portfolio debt interest expense increased for the three months ended March 31, 2014, compared to 2013. The increase was primarily due to increased average borrowings on our inventory facility to $132.0 million from $92.0 million for the three months ended March 31, 2014 and 2013, respectively, related to the overall increase in our vehicle inventory as we carried higher inventory levels per dealership to accommodate increased sales and lease volume.

Senior secured debt interest expense

Senior secured debt interest expense increased for the three months ended March 31, 2014, compared to 2013. The increase is due to an additional $50.0 million of Senior Secured Notes issued in May 2013.

Selling and marketing expenses

Selling and marketing expenses increased for the three months ended March 31, 2014, compared to 2013. The increase is due primarily to our geographic expansion into new markets, the introduction of new offerings such as Driver's Seat Cancel Anytime Lease™ and the commencement of a national marketing campaign. Though total selling and marketing expenses increased compared to 2013, selling and marketing per vehicle sold and leased decreased 15.9% for the three months ended March 31, 2014 compared to 2013.

General and administrative expenses

General and administrative expenses increased for the three months ended March 31, 2014 compared to 2013. This increase was primarily due to an increase in operating lease expense associated with an increased number of dealerships and reconditioning centers in operation, and a corresponding increase in salaries and wages. Operating expenses also increased due to the consolidation of Inilex in June 2013.

Depreciation expense

Depreciation expense increased for the three months ended March 31, 2014 compared to 2013. The majority of the increase was related to the launch of our Driver's Seat Cancel Anytime Lease™ program, which was introduced in the fourth quarter of 2013.

Income (loss) before income taxes

The decrease in income (loss) before income taxes is due to the accounting effects of deferring income from the sale of our ancillary products. Excluding the accounting effects of the change in deferred income, economic earnings for the three months ended March 31, 2014 and 2013 would have been $51.4 million and $23.6 million, respectively. Economic earnings increased due to an increase in the average number of vehicles sold and leased per dealership. The additional vehicle volume was driven by an increase in leads and applications stemming from our unbundling pricing initiative, coupled with incremental lease volume from our Driver's Seat Cancel Anytime Lease™ program.

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DTAC Originations

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

	Three Months Ended March 31,
	2014			2013			Change
	($ In thousands except per loan data)
Loan principal amount originated	$	416,390		$	311,829		$	104,561
Number of loans originated	23,795			19,512			4,283
Average amount financed per loan origination	$	17,499		$	15,982		$	1,517
Average APR originated	20.3		%	19.9		%	0.4		%
Average loan term (in months)	65.7			63.6			2.1
Average down payment per loan origination	$	976		$	1,194		$	(218	)
Average down payment as a percent of amount financed	5.6		%	7.5		%	(1.9		)%
Percent of vehicle sales financed	98.6		%	99.5		%	(0.9		)%

The increase in origination volume and number of loans originated was due to an increase in the number of used vehicles sold. The increase in the average amount financed and decrease in average down payment per origination are a result of an improved quality of vehicle and an improvement in the overall credit grade mix of originations. Average APR increased as a result of vehicle mix, credit grade mix, and changes to our overall pricing strategy, which are designed to optimize affordability for our customers, while considering the effects of retail cost and vehicle pricing.

Finance receivables portfolio

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

	Three Months Ended March 31,
	2014			2013			Change
Average remaining principal balance per loan, end of period	$	12,908		$	11,755		$	1,153
Weighted Average APR of loans outstanding	20.0		%	20.3		%	(0.3		)%
Average age per loan (in months)	13.8			14.5			(0.7		)
Delinquencies:
1-30 days	26.4		%	28.0		%	(1.6		)%
31-60 days	6.0		%	6.9		%	(0.9		)%
61-90 days	3.0		%	3.2		%	(0.2		)%
91-120 days	1.6		%	0.5		%	1.1		%
Total Past Due	37.0		%	38.6		%	(1.6		)%

Delinquencies

As a percentage of total outstanding loan principal balances, delinquencies 1-30 days decreased 1.6%, while delinquencies over 30 days remained consistent at 10.6% compared to 2013. Total delinquencies decreased due to a decrease in the average age of the portfolio, the return to normal staffing levels for collection personnel and improved collections attributed to enhancements in our payment and collection strategies. In addition, in the first quarter of 2014, we expanded our payment criteria for customers over 90 days past due, which increased delinquencies in the 91-120 day category.

Liquidity and Capital Resources

General

We require capital to provide financing to our customers, purchase vehicle inventory for sale or lease, to open new dealerships and reconditioning facilities, to invest in new business opportunities and joint venture partnerships and for general corporate purposes, including property and equipment acquisition and other operational expenses.

We have historically funded our capital requirements through operating cash flow, portfolio warehouse facilities, securitizations, bank term financings, residual cash flows from securitizations and warehouse facilities, term facilities, inventory and other revolving debt facilities, real estate mortgage financing, and other notes payable (including Senior Secured Notes, junior secured notes, senior unsecured notes, and subordinated notes).

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Recent financing and cash flow transactions

In January 2014, we completed our 2014-1 securitization, issuing $267.8 million of asset-backed securities with an original duration weighted average coupon of 2.57%. The securities were rated in tranches with credit ratings from AAA to BBB by Standard and Poor's Rating Service, DBRS Inc, and Kroll Bond Rating Agency.

In April 2014, we completed our 2014-2 securitization, issuing $288.8 million of asset-backed securities with an original duration weighted average coupon of 2.39%. The securities were rated in tranches with credit ratings from AAA to BBB by Standard and Poor's Rating Service and DBRS Inc.

Liquidity

The following is a summary of total available liquidity, consisting of unrestricted cash and current availability under our portfolio warehouse and inventory facilities for the periods indicated:

	March 31, 2014		December 31, 2013		March 31, 2013
Liquidity	(In thousands)
Unrestricted Cash	$	31,197	$	30,754	$	25,731
Portfolio Warehouse Facilities	87,630		99,850		103,353
Inventory Facility	—		3,679		18,679
Discontinued Operations	—		—		30,000
Total Liquidity	$	118,827	$	134,283	$	177,763

The following table presents a summary of our access to liquidity under our portfolio warehouse facilities and our inventory facility based on collateral pledged as of March 31, 2014:

Components of Liquidity	Facility Amount		Amount Drawn		Unused Facility Amount		Borrowing Base		Amount Drawn		Total Availability
	(In thousands)
Deutsche Bank Warehouse Facility	$	150,000	$	101,500	$	48,500	$	114,582	$	101,500	$	13,082	(1)
Wells Fargo Warehouse Facility	150,000		110,500		39,500		112,085		110,500		1,585		(2)
RBS Warehouse Facility	125,000		90,000		35,000		92,996		90,000		2,996		(3)
DTAC Receivables	N/A		N/A		N/A		69,967		N/A		69,967		(4)
Total Portfolio Warehouse Facilities	$	425,000	$	302,000	$	123,000	$	389,630	$	302,000	$	87,630
Term Residual Facility	50,000		50,000		—		50,000		50,000		—
Inventory Facility	130,000		130,000		—		130,000		130,000		—
	$	605,000	$	482,000	$	123,000	$	569,630	$	482,000	87,630
Unrestricted Cash											31,197
Total Cash and Availability											$	118,827

^{(1)  Excludes $5.3 million of warehouse cash collections per borrowing base definition.} 

^{(2)  Excludes $5.0 million of warehouse cash collections per borrowing base definition.}

^{(3)  Assumes collection and reserve amounts on deposit of $4.6 million are used to paydown amount drawn.}

^{(4)  Includes $107.1 million 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.}  

Changes in liquidity

Changes in liquidity are affected by increases and decreases to our operating cash flow, changes in advance rates on our portfolio warehouse and residual facilities, capacity of our portfolio warehouse and inventory facilities, portfolio term financings, issuance of senior notes and changes in other notes payable.

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The following is a summary of changes in liquidity for each period presented:

	Three months ended March 31, 2014
	2014			2013
	(In thousands)
Liquidity, Beginning of Period	$	134,283		$	138,402
Net increase (decrease) in cash and cash equivalents	443			(749		)
Increase (decrease) in portfolio warehouse availability	(12,220		)	49,168
(Decrease) in term residual facility availability	—			(9,058		)
(Decrease) in inventory facility availability	(3,679		)	(30,000		)
Increase in discontinued operations	—			30,000
Net increase (decrease) in liquidity	$	(15,456	)	$	39,361
Liquidity, End of Period	$	118,827		$	177,763

     Liquidity for the three months ended March 31, 2014 decreased $15.5 million, primarily due to the growth of our Driver's Seat lease fleet, which is not currently eligible for borrowing under our existing inventory facility. Additionally, liquidity decreased from a $10.0 million seasonal decrease in size of our inventory facility. These decreases were partially offset by the completion of our 2014-1 securitization.

Liquidity for the three months ended March 31, 2013 increased $39.4 million compared to December 31, 2012, as a result of an increase in the advance rate on our warehouse facility with RBS, obtaining $30 million of availability for GO and drawing $75.0 million from the term residual facility. These increases were partially offset by a seasonal decrease in the size of the inventory facility and an increase in operational cash requirements.

Cash flows

Operating activities

For the three months ended March 31, 2014, net cash used in operating activities increased $21.5 million compared to 2013. The increase was primarily due to an increase in originations over collections and recoveries of principal balances received, partially offset by a decrease in our vehicle inventory as a result of increased sales volume. The increases in cash used were partially offset by an increase in operational liabilities related to the growth of our business.

Investing activities

For the three months ended March 31, 2014, net cash used in investing activities increased $15.5 million compared to 2013. The increase in cash used in investing activities was primarily due to an increase in cash used to increase our Driver's Seat vehicle lease fleet.

Financing activities

For the three months ended March 31, 2014, net cash provided by financing activities increased $38.1 million compared to 2013. This increase was primarily related to increases in our loan portfolio and corresponding increases to our portfolio term financings coupled with additional borrowings on our warehouse facilities. Portfolio term financings increased due to the completion of our 2014-1 securitization, whereas we did not securitize in the first quarter 2013. The increase in warehouse borrowings were facilitated through increases in advance rates and increases in 2014 originations, both of which increased the eligible collateral under our facilities. Partially offsetting these increases were decreases in additions to other secured notes and our portfolio term residual facility. Net cash from other secured notes decreased as we reduced the amount borrowed on our inventory facility due to the seasonal reduction of our inventory facility. Net cash from our portfolio term residual facility decreased due to the reduction in size of the facility from $100.0 million in 2013 to $50.0 million in 2014.

Senior Secured Notes Collateral

Our existing Senior Secured Notes contain a collateral coverage ratio covenant of 1.5x the outstanding Senior Notes. The following is the calculation of the collateral coverage ratio as of March 31, 2014 and is not meant to portray a GAAP summary of collateral but rather a summary of collateral as it resides legally within the Guarantor Subsidiaries, Non-Guarantor Subsidiaries, and Co-Issuers.

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	As of March 31, 2014
	Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Co-Issuers		Total
Collateral amounts:	(In thousands)
Net finance receivables value (1)	$	—	$	256,023	$	207,794	$	463,817
Net vehicle inventory value (2)	99,219		—		—		99,219
Total collateral amount	$	99,219	$	256,023	$	207,794	$	563,036
12.625% senior secured notes							250,000
Collateral coverage ratio							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 Senior Secured Notes.} 

Impact of New Accounting Pronouncements

For a discussion of recent accounting pronouncements applicable to us, see Note 14 — Recent Accounting Pronouncements, to our condensed consolidated financial statements included in Item 1 of this report.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, other than operating leases, that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

We lease the majority of our dealerships and reconditioning facilities under operating leases. See "Note 11 — Commitments and Contingencies—Lease commitments" to our condensed consolidated financial statements included in Item 1 of this report.

Impact of Inflation

Inflation generally results in higher interest rates on our borrowings, which could decrease the profitability of our existing portfolio to the extent we have variable rate debt and could decrease profitability of our future originations if we are not able to pass the increase on to our customers. We may seek to limit the risk of increasing borrowing costs:

• through fixed rate portfolio term financings, which allowed us to fix a portion of our borrowing costs and generally match the term of the underlying finance receivables, and

• by increasing the interest rate charged for loans originated at our dealerships (if allowed under applicable law) while maintaining affordability of the customers’ payment.

In prior years, the used vehicle market experienced strong appreciation in used vehicle wholesale prices. The appreciation resulted, in part, from a reduced supply of used vehicles in the market due to a decline in new car industry sales coupled with a decrease in used vehicle trade-in activity compared with pre-recession levels. Higher wholesale values increased our vehicle acquisition and related costs, which led us to increase the age and mileage of vehicles we sold in order to maintain customer affordability. The increase in costs led to an increase in the average selling price for used vehicles, of which we only passed a portion of these costs to our customers to maintain customer affordability. Higher wholesale values also improved our recovery values as a percentage of principal charged-off.

Non-GAAP Discussion

Adjusted revenue, economic earnings, adjusted EBITDA, adjusted EBITDA and adjusted shareholder's equity, which we refer to as non-GAAP financial measures, are supplemental measures of our financial performance that are not required by, or presented in accordance with GAAP. The non-GAAP financial measures are not measures of our financial performance under GAAP and should not be considered as an alternative to GAAP net income (loss) or any other performance measures derived in accordance with GAAP.

We present non-GAAP financial measures because we consider them to be important supplemental measures of our operating performance. The adjustments in our calculations of adjusted revenue and economic earnings exclude the impact of deferred income and expense related to the unbundling of our ancillary products, allowing for greater comparability to revenue and pre-tax income (loss) figures from periods prior to the unbundling of our ancillary products. The deferred income adjustment in our calculation of adjusted EBITDA is made because management believes it represents our core economic operating performance. Management considers our core operating performance to be that which can be affected by our

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managers in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. The lease fleet depreciation expense adjustment in our calculation of adjusted EBITDA is made because management believes depreciation on income producing assets is part of our core operating performance. The adjustments in our calculation of adjusted shareholders' equity are made because management believes it demonstrates the core economic position of the underlying business, and considers the income that would have been recognized if not for the deferral of income associated with ancillary products.

However, because these non-GAAP financial measures are not recognized measurements under GAAP, when analyzing our operating performance investors should use these non-GAAP financial measures in addition to, and not as an alternative for, net income, operating income, or any other performance measure presented in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity. Because not all companies use identical calculations, our presentation of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies.

Adjusted revenue represents total GAAP revenue plus the change in deferred revenue for the period. The following table presents a reconciliation of total revenue to adjusted revenue for the periods indicated:

	Three Months Ended March 31,
	2014		2013
	(In thousands)
Total revenue	$	453,768	$	385,028
Change in deferred revenue (1)	58,613		6,778
Change in refund reserve (2)	15,288		—
Adjusted revenue	$	527,669	$	391,806

^{(1)  Change in deferred revenue represents the difference (change) in the amount of revenue deferred on the balance sheet at the time of sale related to the sale of our ancillary products, offset by revenue accreted into sales revenue for the period.} 

^{(2)   Change in refund reserve is the net change in the amount reserved on the balance sheet at time of sale for ancillary products. The amount reserved represents our expectation of pro-rated refunds at termination of the service of the products, which are applied to reduce the customer's outstanding loan balance.}  

Economic earnings represents GAAP pre-tax income from continuing operations plus the change in deferred revenue and refund reserve associated with the unbundling of ancillary products, net of deferred expenses and the allowance impact of refunds attributable to ancillary products. The following table presents a reconciliation of income before income taxes to economic earnings for the periods indicated:

	Three Months Ended March 31,
	2014			2013
	(In thousands)
Income before income taxes	$	(104	)	$	18,163
Change in deferred revenue (1)	58,613			6,778
Change in refund reserve (2)	15,288			—
Change in expected expense (3)	(9,037		)	(1,323		)
Allowance impact of recoveries attributable to ancillary refunds (4)	(13,365		)	—
Economic earnings	$	51,395		$	23,618

^{(1)  Change in deferred revenue represents the difference (change) in the amount of revenue deferred on the balance sheet at the time of sale related to the sale of our ancillary products, offset by revenue accreted into sales revenue for the period.}  

^{(2)  Change in refund reserve is the net change in the amount reserved on the balance sheet at time of sale for ancillary products. The amount reserved represents our expectation of pro-rated refunds at termination of the service of the products.}  

^{(3)  Change in expected expense represents the change in our estimated total future costs associated with ancillary products. Under GAAP, we do not recognize costs of these products until they are incurred, however, for purposes of this calculation, we have estimated the expected life of product cost to be comparable to prior year.} 

^{(4)  Allowance impact of recoveries attributable to ancillary refunds represents the estimated allowance for credit losses benefit associated with expected refunds generated by the termination of ancillary products. When certain customer's ancillary products are terminated prior to the end of the contractual service period, a prorated refund is applied to the outstanding principal balance of their loan. When analyzing the allowance for credit losses required for our portfolio of finance receivables, we now factor expected customer refunds into our estimated recoveries on charged-off loans. The benefit of these expected recoveries is removed from economic earnings.} 

EBITDA represents GAAP net income (loss) from continuing operations before income tax expense, total interest expense (the sum of portfolio, non-portfolio, senior secured, and senior secured–related party debt interest expense) and depreciation expense. Adjusted EBITDA represents EBITDA plus the change in deferred income less lease fleet depreciation expense.

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In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments described above. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by expenses that are unusual, non-routine, or non-recurring. EBITDA and Adjusted EBITDA have limitations as an analytical tool, and you should not consider such non-GAAP measures in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that they reflect, among other things:

• cash expenditures for capital expenditures or contractual commitments;

• changes in, or cash requirements for, our working capital requirements;

• interest expense, or the cash requirements necessary to service interest or principal payments on our indebtedness;

• the cost or cash required to replace assets that are being depreciated or amortized; and

• the impact on our reported results of earnings or charges resulting from items accounted for in the GAAP measure from which EBITDA and Adjusted EBITDA are derived.

Because of these limitations, EBITDA, Adjusted EBITDA and other non-GAAP financial measures should not be considered as discretionary cash available to us to reinvest in the growth of our business. You should compensate for these limitations by relying primarily on our GAAP results and using these non-GAAP financial measures on a supplemental basis.

The following table presents a reconciliation of GAAP net income (loss) from continuing operations to EBITDA and Adjusted EBITDA, which are non-GAAP measures, for the periods indicated:

	Three Months Ended March 31,
	2014			2013
	(In thousands)
Net income (loss) from continuing operations:	$	(1,005	)	$	17,821
EBITDA adjustments:
Income tax expense	901			342
Total interest expense (1)	20,747			18,146
Depreciation expense	9,640			5,277
EBITDA	30,283			41,586
Lease fleet depreciation expense	(2,879		)	—
Deferred income adjustments (2)	51,499			5,455
Adjusted EBITDA	$	78,903		$	47,041

^{(1)  Total interest expense is the sum of portfolio debt interest expense, non-portfolio debt interest expense, senior secured debt interest expense, and senior secured debt interest expense to related parties as presented on our consolidated statement of operations for the periods presented.} 

^{(2)  Deferred income adjustments represents the sum of the change in deferred revenue, change in refund reserve, change in expected expense and the allowance impact of recoveries attributable to ancillary refunds.} 

Adjusted shareholders' equity represents total GAAP shareholders' equity plus deferred income. The following table presents a reconciliation of total shareholders’ equity to adjusted shareholders’ equity for the periods indicated:

	March 31, 2014		December 31, 2013
	(In thousands)
Total shareholder's equity	$	488,264	$	488,024
Deferred income adjustments (1)	93,167		41,668
Adjusted shareholder's equity	$	581,431	$	529,692

^{(1)  Deferred income adjustments represents the sum of the change in deferred revenue, change in refund reserve, change in expected expense and the allowance impact of recoveries attributable to ancillary refunds.} 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to our market risk since December 31, 2013. For information on our exposure to market risk, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Form 10-K filed with the SEC on March 24, 2014.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by the Company in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Additionally, our disclosure controls and procedures were also effective in ensuring that information required to be disclosed by the Company in the reports we file or subject under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Change in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended March 31, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The description of our material pending legal proceedings is set forth in Note 11 — Commitments and Contingencies to our condensed consolidated financial statements included in Item 1 of this report and is incorporated herein by reference.

Item 1A. Risk Factors

In connection with information set forth in this quarterly report on Form 10-Q, the factors discussed under “Risk Factors” in our Form 10-K filed with the SEC on March 24, 2014, should be considered. These risks could materially and adversely affect our business, financial condition, and results of operations. There have been no material changes to the factors discussed in our Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent sales of unregistered securities

None

Purchases of equity securities by the issuer and affiliated purchasers

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

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Item 6. Exhibits

Exhibit #		Description of Document
3.1.1		Amended and Restated Certificate of Incorporation of Ugly Duckling Corporation (former name of DriveTime Automotive Group, Inc.) (incorporated by reference to Exhibit 3.1.1 to our Registration Statement on Form S-4/A filed on October 19, 2010)
3.1.2.1		Articles of Incorporation of DriveTime Acceptance Corporation (former name of DT Acceptance Corporation) (incorporated by reference to Exhibit 3.1.2.1 to our Registration Statement on Form S-4/A filed on October 19, 2010)
3.1.2.2		Articles of Amendment to the Articles of Incorporation of DriveTime Acceptance Corporation (former name of DT Acceptance Corporation) (incorporated by reference to Exhibit 3.1.2.2 to our Registration Statement on Form S-4/A filed on October 19, 2010)
3.1.3		Articles of Organization of DriveTime Car Sales Company, LLC (incorporated by reference to Exhibit 3.1.3 to our Registration Statement on Form S-4/A filed on October 19, 2010)
3.1.4		Articles of Organization of DriveTime Sales and Finance Company, LLC (incorporated by reference to Exhibit 3.1.4 to our Registration Statement on Form S-4/A filed on October 19, 2010)
3.1.5	��	Articles of Organization of DT Credit Company, LLC (incorporated by reference to Exhibit 3.1.5 to our Registration Statement on Form S-4/A filed on October 19, 2010)
3.1.6		Articles of Organization of DT Jet Leasing, LLC (incorporated by reference to Exhibit 3.1.6 to our Registration Statement on Form S- 4/A filed on October 19, 2010)
3.1.7		Amended and Restated Articles of Organization of DriveTime Ohio Company, LLC (incorporated by reference to Exhibit 3.1.7 to our Registration Statement on Form S-4 filed on May 31, 2013)
3.1.8		Articles of Organization of Carvana, LLC (incorporated by reference to Exhibit 3.1.8 to our Registration Statement on Form S-4 filed on May 31, 2013)
3.1.9		Certificate of Formation of Driver’s Seat, LLC (incorporated by reference to Exhibit 3.1.10 to our Quarterly Report on Form 10-Q filed on November 13, 2013)
3.2.1		By-laws of Ugly Duckling Corporation (former name of DriveTime Automotive Group, Inc.) (incorporated by reference to Exhibit 3.2.1 to our Registration Statement on Form S-4/A filed on October 19, 2010)
3.2.2		Bylaws of DriveTime Acceptance Corporation (former name of DT Acceptance Corporation) (incorporated by reference to Exhibit 3.2.2 to our Registration Statement on Form S-4/A filed on October 19, 2010)
3.2.3		Operating Agreement of DriveTime Car Sales Company, LLC (incorporated by reference to Exhibit 3.2.3 to our Registration Statement on Form S-4/A filed on October 19, 2010)
3.2.4		Operating Agreement of DriveTime Sales and Finance Company, LLC (incorporated by reference to Exhibit 3.2.4 to our Registration Statement on Form S-4/A filed on October 19, 2010)
3.2.5		Operating Agreement of DT Credit Company, LLC (incorporated by reference to Exhibit 3.2.5 to our Registration Statement on Form S-4/A filed on October 19, 2010)
3.2.6		Operating Agreement of DT Jet Leasing, LLC (incorporated by reference to Exhibit 3.2.6 to our Registration Statement on Form S-4/A filed on October 19, 2010)
3.2.7		Operating Agreement of DriveTime Ohio Company, LLC (incorporated by reference to Exhibit 3.2.7 to our Registration Statement on Form S-4 filed on May 31, 2013)
3.2.8		Operating Agreement of Carvana, LLC (incorporated by reference to Exhibit 3.2.8 to our Registration Statement on Form S-4 filed on May 31, 2013)
3.2.9		Operating Agreement of Driver’s Seat, LLC (incorporated by reference to Exhibit 3.2.10 to our Quarterly Report on Form 10-Q filed on November 13, 2013)
4.1.1		Indenture governing 12.625% Senior Secured Notes due 2017, including the form of 12.625% Senior Secured Notes due 2017, among DriveTime Automotive Group, Inc., DT Acceptance Corporation, DriveTime Car Sales Company, LLC, DriveTime Sales and Finance Company, LLC, DT Credit Company, LLC, DT Jet Leasing, LLC and Wells Fargo Bank, National Association, dated as of June 4, 2010 (incorporated by reference to Exhibit 3.1.1 to our Registration Statement on Form S-4/A filed on October 19, 2010)

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Exhibit #	Description of Document
4.1.2	First Supplemental Indenture governing 12.625% Senior Secured Notes due 2017, dated as of September 20, 2010, among DriveTime Automotive Group, Inc., DT Acceptance Corporation, Approval Services Company, LLC and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1.2 to our Registration Statement on Form S-4/A filed on October 19, 2010)
4.1.3	Second Supplemental Indenture, dated as of August 16, 2011, by and among DriveTime Automotive Group, Inc., DT Acceptance Corporation, Wells Fargo Bank, National Association and Go Financial Company LLC (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on August 22, 2011)
4.1.4	Third Supplemental Indenture, dated as of October 6, 2011, by and among DriveTime Automotive Group, Inc., DT Acceptance Corporation, Wells Fargo Bank, National Association and DriveTime Ohio Company, LLC (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on October 13, 2011)
4.1.5	Fourth Supplemental Indenture, dated as of March 30, 2012, by and among DriveTime Automotive Group, Inc., DT Acceptance Corporation, Wells Fargo Bank, National Association, as Trustee and Collateral Agent and Carvana, LLC (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on April 5, 2012)
4.1.6	Fifth Supplemental Indenture, dated as of May 21, 2013, by and among DriveTime Automotive Group, Inc., DT Acceptance Corporation, Wells Fargo Bank, National Association, as Trustee and Collateral Agent (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on May 28, 2013)
4.1.7	Sixth Supplemental Indenture, dated September 27, 2013, by and among DriveTime Automotive Group, Inc., DT Acceptance Corporation, Wells Fargo Bank, National Association, as Trustee and Collateral Agent and Driver’s Seat, LLC (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on October 3, 2013)
4.1.8	Seventh Supplemental Indenture, dated January 8, 2014, by and among DriveTime Automotive Group, Inc., DT Acceptance Corporation, Wells Fargo Bank, National Association, as Trustee and Collateral Agent and Driver’s Seat, LLC (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on January 14, 2014)
4.2.1	Security Agreement dated as of June 4, 2010, among DT Acceptance Corporation, DriveTime Automotive Group, Inc., DriveTime Car Sales Company, LLC, and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1.3 to our Registration Statement on Form S-4/A filed on February 2, 2011)†
4.2.2	Supplement No. 1 dated as of October 28, 2011 to the Security Agreement dated as of June 4, 2010, among DriveTime Automotive Group, Inc., DT Acceptance Corporation, DriveTime Car Sales Company, LLC, and Wells Fargo Bank, National Association or the Secured Parties (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on November 3, 2011)
4.2.3	Supplement No. 2, dated as of March 30, 2012 to the Security Agreement dated as of June 4, 2010, among DriveTime Automotive Group, Inc., DT Acceptance Corporation, DriveTime Car Sales Company, LLC and Wells Fargo Bank, National Association, as collateral agent for the Secured Parties (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on April 5, 2012)
4.2.4	Supplement No. 3, dated September 27, 2013, to the Security Agreement dated as of June 4, 2010, among DriveTime Automotive Group, Inc., DT Acceptance Corporation, DriveTime Car Sales Company, LLC and Wells Fargo Bank, National Association, as collateral agent for the Secured Parties (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on October 3, 2013)
4.3	Pledge Agreement dated as of June 4, 2010, between DT Acceptance Corporation and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1.4 to our Registration Statement on Form S-4/A filed on February 2, 2011)†
4.4	Pledge Letter dated as of August 2, 2010, amending the Pledge Agreement dated as of June 4, 2010 (incorporated by reference to Exhibit 4.1.5 to our Registration Statement on Form S-4/A filed on February 2, 2011)
4.5	Pledge Letter dated as of May 1, 2013, amending the Pledge Agreement dated as of June 4, 2010 (incorporated by reference to Exhibit 4.9 to our Quarterly Report on Form 10-Q filed on August 9, 2013)
4.6	Pledge Letter dated as of December 30, 2013, amending the Pledge Agreement dated as of June 4, 2010 (incorporated by reference to Exhibit 4.6 to our Annual Report on Form 10-K filed on March 25, 2014)

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Exhibit #	Description of Document
4.7	Intercreditor Agreement, dated as of June 4, 2010, among Santander Consumer USA Inc. and Manheim Automotive Financial Services, Inc., Wells Fargo Bank, National Association, and as Trustee for the Holders (as defined therein), DriveTime Automotive Group, Inc., DriveTime Sales and Finance Company, LLC, DriveTime Car Sales Company, LLC, and DT Acceptance Corporation, and each of the other Loan Parties party thereto (incorporated by reference to Exhibit 4.1.6 to our Registration Statement on Form S-4/A filed on February 2, 2011)
4.8	Registration Rights Agreement, dated June 4, 2010, among DriveTime Automotive Group, Inc., DT Acceptance Corporation, DriveTime Car Sales Company, LLC, DriveTime Sales and Finance Company, LLC, DT Credit Company, LLC, DT Jet Leasing, LLC, Jefferies & Company, Inc., RBS Securities Inc. and UBS Securities LLC (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-4/A filed on October 19, 2010)
4.9	Registration Rights Agreement, dated June 6, 2011, by and among DT Acceptance Corporation, DriveTime Automotive Group, Inc., DriveTime Sales and Finance Company, LLC, DriveTime Car Sales Company, LLC, DT Credit Company, LLC, DT Jet Leasing, LLC, Approval Services Company, LLC and RBS Securities Inc. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 10, 2011)
4.10	Registration Rights Agreement, dated May 2, 2013, by and among DriveTime Automotive Group, Inc., DT Acceptance Corporation, the subsidiary guarantors named therein and the Initial Purchases set forth on Schedule I thereto. (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on May 8, 2013)
10.1	Amendment No. 1, dated January 31, 2014, to the Loan and Security Agreement, dated November 20, 2012, by and among DT Funding, LLC, DT Credit Company, LLC, Wells Fargo Securities, LLC, and Wells Fargo Bank, N.A.*
10.2	Amendment No. 4, dated March 3, 2014, to Loan and Servicing Agreement dated December 28, 2011, by and among DT Warehouse, LLC, DT Credit Company, LLC, Wells Fargo Bank, National Association, Deutsche Bank AG, New York Branch and the other partied listed therein (incorporated by reference to Exhibit 10.13.5 to our Annual Report on Form 10-K filed on March 25, 2014)††
10.3	Amendment No. 5 to the Loan and Security Agreement, dated March 31, 2014, among DriveTime Automotive Group, Inc., DT Acceptance Corporation, LLC, DT Warehouse V, LLC, DT Credit Company, LLC, Wells Fargo Bank, National Association, as lender, Wells Fargo Securities, LLC, as administrative agent, and Wells Fargo Bank, National Association, as collateral custodian (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 7, 2014)
10.4	Amendment No. 2 to the Fourth Amended and Restated Loan and Security Agreement, dated March 31, 2014, among DriveTime Automotive Group, Inc., DriveTime Sales and Finance Company, LLC, DriveTime Car Sales Company, LLC, DriveTime Ohio Company, LLC, Carvana, LLC, Driver’s Seat, LLC, and Wells Fargo Bank, N.A., as the agent and as lender (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on April 7, 2014)
10.5	Amendment No. 2 to Loan and Security Agreement, dated March 31, 2014, among DT Funding, LLC, DT Credit Company, LLC, and Wells Fargo Bank, National Association, in its capacities as lender, administrative agent, collateral custodian, and backup servicer (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on April 7, 2014)
10.6	Modification Number Two to Master Loan Agreement, dated March 31, 2014, by and between DT-WF SPE and Wells Fargo Bank, N.A., as lender (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on April 7, 2014)
10.7	Restricted Stock Agreement, dated as of April 18, 2014, by and between DriveTime Automotive Group, Inc. and Raymond C. Fidel*+
10.8	Restricted Stock Agreement, dated as of April 18, 2014, by and between DT Acceptance Corporation and Raymond C. Fidel*+
10.9	Amended and Restated Shareholders’ Agreement, dated as of April 18, 2014, among DriveTime Automotive Group, Inc., Ernest C. Garcia II, the Ernest C. Garcia III Multi-Generational Trust III, the Ernest Irrevocable 2004 Trust III, and Raymond C. Fidel*
10.10	Amended and Restated Shareholders’ Agreement, dated as of April 18, 2014, among DT Acceptance Corporation, Ernest C. Garcia II, the Ernest C. Garcia III Multi-Generational Trust III, the Ernest Irrevocable 2004 Trust III, and Raymond C. Fidel*
10.11	DriveTime Senior Management Executive Incentive Program, dated March 20, 2014*+
31.1	Certification of Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

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Exhibit #	Description of Document
31.2	Certification of Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

* Filed herewith.

** Furnished herewith.

† Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission in accordance with an order granting confidential treatment pursuant to the Securities Exchange Act of 1934, as amended.

†† Certain confidential information contained in this exhibit was omitted by means of redacting a portion of the text and replacing it with an asterisk. This exhibit has been filed separately with the Secretary of the SEC without the redaction pursuant to a Confidential Treatment Request under Rule 406 of the Securities Act.

+ Indicates a management contract or any compensatory plan, contract, or arrangement.

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SIGNATURES

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

	DRIVETIME AUTOMOTIVE GROUP, INC.
Date: May 8, 2014	By:	/s/ Mark G. Sauder
		Name: Mark G. Sauder
		Title: Chief Financial Officer & Executive VP

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