10-Q 1 dta-20130930x10q.htm 10-Q DTA-2013.09.30-10Q
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 September 30, 2013
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 September 30, 2013, was 101.7696.


TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


PART I.
FINANCIAL INFORMATION

Item 1.
Financial Statements
DRIVETIME AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
 
 
September 30,
2013
 
December 31,
2012
 
(In thousands)
ASSETS
 
 
 
Cash and Cash Equivalents
$
29,046

 
$
26,480

Restricted Cash and Investments Held in Trust
121,688

 
107,072

Finance Receivables
1,886,753

 
1,634,622

Allowance for Credit Losses
(300,624
)
 
(252,590
)
Finance Receivables, net
1,586,129

 
1,382,032

Dealer Finance Receivables, net
105,796

 
40,956

Vehicle Inventory
244,744

 
270,733

Property and Equipment, net
116,378

 
94,397

Other Assets
65,405

 
67,447

Total Assets
$
2,269,186

 
$
1,989,117

LIABILITIES & SHAREHOLDERS’ EQUITY
 
 
 
Liabilities:
 
 
 
Accounts Payable
$
22,816

 
$
17,346

Accrued Expenses and Other Liabilities
90,907

 
78,909

Accrued Expenses—Related Party
685

 
818

Deferred Revenue
16,518

 
2,212

Portfolio Term Financings
1,177,818

 
1,049,478

Portfolio Warehouse Facilities
54,000

 
57,200

Senior Secured Notes Payable
253,543

 
193,320

Senior Secured Notes Payable-Related Party
—

 
5,000

Other Secured Notes Payable
148,965

 
117,281

Total Liabilities
1,765,252

 
1,521,564

Shareholders’ Equity—DTAG:
 
 
 
Common Stock
—

 
—

Paid-in Capital
117,479

 
147,117

Retained Earnings
15,160

 
8,931

Total Shareholders’ Equity—DTAG
132,639

 
156,048

Noncontrolling Interest-Inilex (1)
183

 
—

Noncontrolling Interest-DTAC (2)
371,112

 
311,505

Total Equity
503,934

 
467,553

Total Liabilities & Shareholders’ Equity
$
2,269,186

 
$
1,989,117

(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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
Sales of Used Vehicles
$
276,826

 
$
226,866

 
$
863,686

 
$
750,125

Interest Income
84,319

 
77,334

 
241,652

 
223,492

Dealer Finance and Other Income
5,927

 
757

 
13,777

 
1,380

Total Revenue
367,072

 
304,957

 
1,119,115

 
974,997

Costs and Expenses:
 
 
 
 
 
 
 
Cost of Used Vehicles Sold
185,095

 
151,264

 
584,503

 
496,680

Provision for Credit Losses - Finance Receivables
92,335

 
70,110

 
240,489

 
181,840

Provision for Credit Losses - Dealer Finance Receivables
1,115

 
—

 
2,003

 
—

Portfolio Debt Interest Expense
10,596

 
11,080

 
31,319

 
31,998

Non- Portfolio Debt Interest Expense
1,480

 
1,106

 
4,251

 
3,237

Senior Secured Debt Interest Expense
8,045

 
6,519

 
21,884

 
19,735

Senior Secured Debt Interest Expense—Related Party
90

 
103

 
406

 
103

Selling and Marketing
7,900

 
7,336

 
25,027

 
23,116

General and Administrative
47,054

 
45,000

 
139,856

 
127,487

General and Administrative—Related Party
2,762

 
2,581

 
7,966

 
8,193

Depreciation Expense
6,429

 
5,091

 
17,734

 
15,061

Total Costs and Expenses
362,901

 
300,190

 
1,075,438

 
907,450

Income Before Income Taxes
4,171

 
4,767

 
43,677

 
67,547

Income Tax Expense / (Benefit)
(69
)
 
371

 
543

 
1,030

Net Income
$
4,240

 
$
4,396

 
$
43,134

 
$
66,517

Net (Loss) Attributable to Noncontrolling Interest—Inilex (1)
(842
)
 
—

 
(102
)
 
—

Net Income Attributable to DriveTime Consolidated
$
5,082

 
$
4,396

 
$
43,236

 
$
66,517

 
 
 
 
 
 
 
 
Net Loss Attributable to Noncontrolling Interest—DTAC (2)
$
(70,254
)
 
$
(52,631
)
 
$
(176,110
)
 
$
(128,091
)
Net Income Attributable to DTAG
75,336

 
57,027

 
219,346

 
194,608

Net Income Attributable to DriveTime Consolidated
$
5,082

 
$
4,396

 
$
43,236

 
$
66,517

(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)
 
Nine months ended September 30,
 
2013
 
2012
 
(In thousands)
Cash Flows from Operating Activities:
 
 
 
Net Income
$
43,134

 
$
66,517

Adjustments to Reconcile Net Income to Net Cash (Used In) / Provided by Operating Activities:
 
 
 
Provision for Credit Losses - Finance Receivables
240,489

 
181,840

Provision for Credit Losses - Dealer Finance Receivables
2,003

 
—

Depreciation Expense
17,734

 
15,061

Amortization of Debt Issuance Costs and Debt Premium and Discount
4,803

 
5,965

Non-Cash Compensation Expense—Related Party
930

 
1,239

Gain from Disposal of Property and Equipment
(4
)
 
(138
)
Originations of Finance Receivables
(868,782
)
 
(749,268
)
Collections and Recoveries on Finance Receivable Principal Balances
426,982

 
420,709

Change in Accrued Interest Receivable and Loan Origination Costs
(2,786
)
 
(4,433
)
Decrease in Vehicle Inventory
25,989

 
53,237

Change in Other Assets
6,011

 
2,599

Increase in Deferred Revenue
14,306

 
—

Increase in Accounts Payable, Accrued Expenses and Other Liabilities
17,055

 
34,576

Change in Accrued Expenses-Related Party
(133
)
 
213

Net Cash (Used In) / Provided by Operating Activities
(72,269
)
 
28,117

Cash Flows from Investing Activities:
 
 
 
Originations of Dealer Finance Receivables
(89,273
)
 
(25,602
)
Collections and Recoveries of Dealer Finance Receivables, net
22,430

 
1,970

Proceeds from Disposal of Property and Equipment
1,377

 
1,521

Purchase of Property and Equipment
(41,090
)
 
(15,807
)
Net Cash Used in Investing Activities
(106,556
)
 
(37,918
)
Cash Flows from Financing Activities:
 
 
 
Increase in Restricted Cash
(10,546
)
 
(36
)
Deposits into Investments Held in Trust
(9,000
)
 
(9,000
)
Collections, Buybacks and Change in Investments Held in Trust
4,930

 
38

Additions to Portfolio Term Financings
543,890

 
482,246

Repayment of Portfolio Term Financings
(415,352
)
 
(345,481
)
Additions to Portfolio Warehouse Facilities
709,400

 
548,300

Repayment of Portfolio Warehouse Facilities
(712,600
)
 
(630,992
)
Additions to Senior Secured Notes Payable
55,500

 
—

Additions to Other Secured Notes Payable
33,872

 
42,969

Repayment of Other Secured Notes Payable
(2,189
)
 
(31,375
)
Payment of Debt Issuance Costs
(5,659
)
 
(3,206
)
Dividend Distributions
(10,855
)
 
(44,790
)
Net Cash Provided by Financing Activities
181,391

 
8,673

Net Increase / (Decrease) in Cash and Cash Equivalents
2,566

 
(1,128
)
Cash and Cash Equivalents at Beginning of Period
26,480

 
25,930

Cash and Cash Equivalents at End of Period
$
29,046

 
$
24,802

Supplemental Statement of Cash Flows Information:
 
 
 
Interest Paid
$
48,986

 
$
48,621

Interest Paid—Related Party
$
476

 
$
—

Income Taxes Paid
$
874

 
$
1,209

Supplemental Statement of Non-Cash Investing and Financing Activities:
 
 
 
Disposal of Fully Depreciated Property and Equipment
$
—

 
$
2,710

See accompanying notes to Condensed Consolidated Financial Statements.

3

DRIVETIME AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Unaudited Financial Statements
 
(1) Description of Business, Ownership Formation, Basis of Presentation, and Principles of Consolidation
Description of Business
DriveTime Automotive Group, Inc. (“DTAG”) and DT Acceptance Corporation ("DTAC") (together referred to herein as “we,” “our,” “the Company,” and “us”), through their subsidiaries, own and operate used automobile dealerships in the United States focusing primarily on the sale and financing of used vehicles to the subprime market. The subprime market is comprised of customers with modest incomes who have experienced credit difficulties or have very limited credit histories, and/or do not have access to obtain their own source of financing from third-party finance companies. Therefore, we provide financing for substantially all of the vehicles we sell. As many of our customers may be unable to obtain financing to purchase a vehicle from another company, financing is an essential component of the services that we provide to our customers. We fund this portfolio primarily through portfolio warehouse facilities, securitizations, and other portfolio term financings.
In December 2011, as a supplement to our core operations, we launched a new indirect lending business segment, GO Financial (“GO”). GO provides indirect auto financing to third-party automobile dealerships collateralized by pools of subprime auto loans and is a separate operating segment.
Ownership
DTAG and DTAC are sister companies, generally with DTAG directing our retail vehicle sales and operations and DTAC directing our financing and collections operations. As of September 30, 2013, and December 31, 2012, the shareholders of DTAG and DTAC were Ernest C. Garcia II (Chairman) and the Garcia Family Trusts (collectively, herein also referred to as “Principal Shareholder” or “Mr. Garcia”) owning 100.0 shares, or 98.3% of each of DTAG and DTAC and Raymond C. Fidel (President and CEO) owning 1.8 shares, or 1.7% 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, as well as the fact that 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, dealer finance receivables, cash and cash equivalents, restricted cash, investments held in trust, and deferred financing costs. Total liabilities of DTAC 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 and dealer finance income. 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.
Although not material, certain prior period amounts have been reclassified to be consistent with the current period financial statement presentation.

4

Non-controlling Interests
DTAG and DTAC are consolidated for financial reporting purposes. Therefore, we are required to separately present the non-controlling equity interest of the VIE (DTAC) on the condensed consolidated balance sheets and condensed consolidated statements of operations for all periods presented. The non-controlling interest is DTAC’s GAAP equity and income for the periods presented and there are no third-party competing interests in DTAC. For the amounts of assets, liabilities, revenue, and income of DTAC consolidated into DTAG at September 30, 2013, see Note 16 - Supplemental Consolidating Financial Information.
In June 2013 we acquired a 51% controlling interest in Inilex for $1.00. Inilex is a provider of GPS technology and telemetry solutions and has been our provider of GPS installed on vehicle inventory for approximately the last two years. Prior to June 30, 2013, we determined Inilex to be a VIE for financial reporting purposes, though we did not previously consolidate the VIE as it was not material. However, we have reflected the prior period effects of the consolidation as an adjustment to beginning retained earnings. The current period income attributable to the remaining noncontrolling interest in Inilex is presented both on the condensed consolidated statements of operations as well as in equity within the condensed consolidated balance sheets in accordance with ASC 810, which provides for no distinction between wholly-owned and partially-owned entities regarding the need to eliminate intercompany transactions. All transactions between the entities must be eliminated fully, regardless of our percentage of ownership in the VIE. As a result of the application of this guidance, the consolidated statements of operations show a net loss attributable to the non-controlling interest in Inilex, as the profitability of the entity is dependent on its transactions with DriveTime. The benefit of the ownership in Inilex to us is represented in a lower net income margin.
For more information regarding the financial position and results of operations of DTAC and the financial position and results of operations of the SPEs' 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, 2012, which are included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2013.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP 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, inventory valuation, fair value measurements, certain legal reserves, our reserve for sales returns and allowances, our recovery receivables, and our warranty accrual. Actual results could differ from these estimates.


5

(2) Restricted Cash and Investments Held in Trust
We maintain various cash accounts, which are pledged as collateral under our debt agreements. We are permitted to invest funds in these accounts in short-term liquid investments. The following is a summary of restricted cash and investments held in trust:
 
As of September 30, 2013
 
As of December 31, 2012
 
(In thousands)
Restricted cash
$
33,042

 
$
22,496

Investments Held in Trust
88,646

 
84,576

 
$
121,688

 
$
107,072

 
(3) Finance Receivables - DriveTime
The following is a summary of DriveTime customer finance receivables:
 
As of September 30, 2013
 
As of December 31, 2012
 
(In thousands)
Principal Balances
$
1,851,055

 
$
1,601,710

Accrued Interest
17,561

 
16,414

Loan Origination Costs
18,137

 
16,498

Finance Receivables
$
1,886,753

 
$
1,634,622

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 segments 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 proprietary credit scoring system to segregate risk characteristics of the portfolio as it has a direct impact in managing our portfolio risk and monitoring loan performance.
Finance receivables pledged as collateral associated with liabilities in our warehouse facilities, asset backed securitizations, and bank term financings, are provided in Note 5 - Debt Obligations. We do not place loans on nonaccrual status, nor do we classify loans as impaired, as accounts are charged-off when the loan becomes 91 -121 days contractually past due at month end under our charge-off policy. We do not have loans that meet the definition of troubled debt restructurings.
Credit quality information for our finance receivables portfolio is provided as of the dates indicated below:
Age Analysis of Past Due Finance Receivables
 
September 30, 2013
 
December 31, 2012
 
September 30, 2012
  
Percent of
Portfolio
 
Loan
Principal
 
Percent of
Portfolio
 
Loan
Principal
 
Percent of
Portfolio
 
Loan
Principal
 
($ In thousands)
Days Delinquent:
 
 
 
 
 
 
 
 
 
 
 
Current
54.9
%
 
$
1,016,229

 
49.1
%
 
$
786,765

 
56.3
%
 
$
925,332

01-30 Days
30.6
%
 
566,423

 
33.0
%
 
528,300

 
31.1
%
 
511,389

31-60 Days
8.7
%
 
161,042

 
10.0
%
 
161,157

 
8.0
%
 
132,120

61-90 Days
4.3
%
 
79,595

 
5.1
%
 
81,378

 
4.2
%
 
68,196

91-120 Days
1.5
%
 
27,766

 
2.8
%
 
44,110

 
0.4
%
 
6,244

Total Past Due
45.1
%
 
$
834,826

 
50.9
%
 
$
814,945

 
43.7
%
 
$
717,949

Total Finance Receivables
100.0
%
 
$
1,851,055

 
100.0
%
 
$
1,601,710

 
100.0
%
 
$
1,643,281

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 as delinquencies tend to be higher mid-week.

6

Credit Quality Indicators
Our proprietary credit grading system segments our customers into eight distinct credit grades. These credit grades range 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 September 30, 2013, and December 31, 2012, is as follows:
At September 30, 2013
Grade
 
Average
FICO Score (1)
 
Percentage of
Portfolio Loans
 
Total Loans
 
Percentage of
Portfolio Principal
 
Loan Principal
 
 
 
 
 
 
 
 
 
 
(In thousands)

A+
 
554
 
10.4%
 
15,692
 
10.5%
 
$
194,200

A
 
541
 
18.4%
 
27,912
 
18.8%
 
347,452

B
 
518
 
38.1%
 
57,665
 
38.6%
 
715,545

C
 
505
 
28.4%
 
43,020
 
28.0%
 
517,836

C-
 
493
 
3.4%
 
5,136
 
2.9%
 
54,345

D+/D/D-
 
486
 
1.3%
 
2,006
 
1.2%
 
21,677

 
 
 
 
100.0%
 
151,431
 
100.0%
 
$
1,851,055

At December 31, 2012 
Grade
 
Average
FICO Score (1)
 
Percentage of
Portfolio Contracts
 
Total Loans
 
Percentage of
Portfolio Principal
 
Loan Principal
 
 
 
 
 
 
 
 
 
 
(In thousands)
A+
 
556
 
10.4%
 
14,660
 
10.6%
 
$
169,023

A
 
539
 
18.5%
 
25,998
 
18.8%
 
301,173

B
 
517
 
37.3%
 
52,476
 
38.2%
 
612,084

C
 
503
 
28.4%
 
40,066
 
27.8%
 
445,497

C-
 
488
 
3.9%
 
5,447
 
3.3%
 
53,512

D+/D/D-
 
478
 
1.5%
 
2,101
 
1.3%
 
20,421

 
 
 
 
100.0%
 
140,748
 
100.0%
 
$
1,601,710

(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. 


7

Concentration of Credit Risk
As of September 30, 2013 and December 31, 2012, our portfolio concentration by state was as follows:
As of September 30, 2013
 
As of December 31, 2012
State
 
Percent of
Portfolio
 
Loan Principal
(In thousands)
 
State
 
Percent of
Portfolio
 
Loan Principal
(In thousands)
Texas
 
21.4
%
 
$
398,341

 
Texas
 
23.0
%
 
$
369,021

Florida
 
15.5
%
 
286,213

 
Florida
 
15.4
%
 
247,281

North Carolina
 
8.9
%
 
165,152

 
North Carolina
 
9.9
%
 
157,670

Georgia
 
7.7
%
 
142,390

 
Georgia
 
7.6
%
 
122,027

Arizona
 
6.3
%
 
117,849

 
Arizona
 
6.8
%
 
108,792

Virginia
 
6.1
%
 
114,118

 
Virginia
 
6.7
%
 
106,749

Tennessee
 
5.5
%
 
99,956

 
Tennessee
 
4.6
%
 
72,967

California
 
4.4
%
 
82,082

 
California
 
4.4
%
 
71,005

South Carolina
 
3.9
%
 
71,485

 
Nevada
 
4.0
%
 
63,346

Nevada
 
3.6
%
 
66,448

 
South Carolina
 
3.6
%
 
58,163

Alabama
 
3.5
%
 
64,653

 
New Mexico
 
3.0
%
 
48,421

New Mexico
 
2.6
%
 
47,784

 
Alabama
 
2.8
%
 
44,787

Oklahoma
 
2.4
%
 
44,005

 
Oklahoma
 
2.3
%
 
36,109

Ohio
 
2.4
%
 
43,935

 
Colorado
 
2.2
%
 
35,268

Colorado
 
1.9
%
 
34,396

 
Indiana
 
1.3
%
 
21,603

Indiana
 
1.5
%
 
26,888

 
Ohio
 
1.1
%
 
17,417

Mississippi
 
1.2
%
 
22,025

 
Mississippi
 
1.0
%
 
15,847

Missouri
 
0.7
%
 
12,487

 
Arkansas
 
0.2
%
 
3,218

Arkansas
 
0.5
%
 
10,128

 
Missouri
 
0.1
%
 
2,019

Kentucky
 
—
%
 
720

 
 
 
 
 
 
 
 
100.0
%
 
$
1,851,055

 
 
 
100.0
%
 
$
1,601,710

Allowance for Credit Losses
The following table sets forth the rollforward of the allowance for credit losses for the periods indicated:
  
Three months ended September 30,
 
Nine months ended September 30,
  
2013
 
2012
 
2013
 
2012
 
($ In thousands)
Allowance Activity:
 
 
 
 
 
 
 
Balance, beginning of period
$
284,719

 
$
244,811

 
$
252,590

 
$
221,533

Provision for credit losses
92,335

 
70,110

 
240,489

 
181,840

Net charge-offs
(76,430
)
 
(63,506
)
 
(192,455
)
 
(151,958
)
Balance, end of period
$
300,624

 
$
251,415

 
$
300,624

 
$
251,415

Allowance as a percent of portfolio principal, end of period
16.2
%
 
15.2
%
 
16.2
%
 
15.2
%
Charge off Activity:
 
 
 
 
 
 
 
Principal balances
$
(117,383
)
 
$
(102,060
)
 
$
(302,241
)
 
$
(257,986
)
Recoveries, net
40,953

 
38,554

 
109,786

 
106,028

Net charge-offs
$
(76,430
)
 
$
(63,506
)
 
$
(192,455
)
 
$
(151,958
)
     At September 30, 2013 and December 31, 2012, recovery receivables of $28.9 million and $37.0 million, respectively, were included as a component of other assets in the accompanying condensed consolidated balance sheets.


8

(4) Dealer Finance Receivables - GO
The following is a summary of the activity in Dealer Finance Receivables:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Balance, Beginning of Period
$
92,278

 
$
11,633

 
$
40,956

 
$
24

Advances During the Period
24,203

 
13,352

 
89,273

 
25,602

Revenue Recognized
4,500

 
681

 
10,868

 
1,214

Payments to Reduce Amount Advanced
(14,070
)
 
(2,010
)
 
(33,298
)
 
(3,184
)
Provision for Credit Losses
(1,115
)
 
—

 
(2,003
)
 
—

Balance, End of Period
$
105,796

 
$
23,656

 
$
105,796

 
$
23,656

Provision for Credit Losses
Collections on dealer finance receivables are forecasted based on the historical performance of loans with similar characteristics. Estimated cash flows from individual pools will often vary from estimated cash flows at the time of origination. If such variance is favorable, the difference is recognized prospectively into income over the remaining life of the pool through a yield adjustment. If such difference is unfavorable, a provision for credit losses is recorded as a current period expense and a corresponding allowance for credit losses is established. For the three and nine months ended September 30, 2013, we recorded $1.1 million and $2.0 million of total impairment to certain pools of dealer finance receivables, respectively. We did not recognize any impairment during the same periods in 2012.
Accretable Yield
Accretable yield represents the excess of expected net cash flows over the carrying value of our receivables over the remaining life of existing portfolios. Changes in accretable yield were as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Balance, Beginning of Period
$
40,030

 
$
2,592

 
$
8,887

 
$
—

Revenue Recognized
(4,500
)
 
(681
)
 
(10,868
)
 
(1,214
)
Additions
8,332

 
2,215

 
26,845

 
5,340

Reclassification from (to) Nonaccretable Yield
(6,582
)
 
—

 
12,416

 
—

Balance, End of Period
$
37,280

 
$
4,126

 
$
37,280

 
$
4,126

Non-Accretable Yield
Non-accretable yield represents the difference between the total contractual net cash flows of Dealer Finance Receivables and the expected cash flows. This difference is neither accreted into income nor recorded on our balance sheet as it represents the portion of cash flows not expected to be received.  Contractual net cash flows are comprised of the underlying contractual cash flows from consumer loans aggregated with the total accretable yield to be earned on Dealer Finance receivables over the life of the Dealer Pool.  Although we are required to present contractual cash flows, we do not believe that contractual net cash flows on the underlying consumer loans are relevant in assessing our potential future cash flows because we are not entitled to the contractual cash flows and do not expect to receive 100% of contractual cash. Expected net cash flows represent the loss adjusted contractual cash flows, including earnings thereon.  Components of non-accretable yield are as follows:
 
As of September 30, 2013
 
(In thousands)
Contractual Net Cash Flows (1)
$
220,330

Expected Net Cash Flows
(143,076
)
Non-accretable Yield
$
77,254

(1)    Contractual net cash flows represents total cash payments due across all dealer servicing agreements for repayment of dealer advances and contract servicing. 

9

(5) Debt Obligations
Portfolio Term Financings
The following is a summary of portfolio term financings:
 
 
As of September 30, 2013
 
As of December 31, 2012
 
(In thousands)
Securitization Debt:
 
 
 
Asset backed security obligations
$
822,677

 
$
677,118

Bank Term Financing:
 
 
 
Variable rate secured financing transactions for our finance receivable portfolio
255,141

 
347,360

Portfolio Term Residual Financing:
 
 
 
Variable rate financing facility secured by residual interests in finance receivables of certain warehouse facilities and securitization trusts
100,000

 
25,000

Total Portfolio Term Financings
$
1,177,818

 
$
1,049,478

Securitization debt
The following is a summary of securitization transactions with outstanding balances for each period presented:
 
 
 
As of September 30, 2013
 
As of December 31, 2012
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)
2010-1
 
$
—

 
$
—

 
$
—

 
—%
 
$
23,036

 
$
55,525

 
$
4,500

 
3.6%
2011-1
 
29,968

 
41,393

 
4,200

 
3.0%
 
60,335

 
84,198

 
4,200

 
3.0%
2011-2
 
44,996

 
54,110

 
4,500

 
2.9%
 
84,977

 
103,779

 
4,500

 
2.9%
2011-3
 
74,796

 
91,216

 
4,500

 
3.9%
 
130,347

 
159,068

 
4,500

 
3.9%
2012-1
 
105,484

 
135,967

 
4,500

 
3.5%
 
170,198

 
219,252

 
4,500

 
3.5%
2012-2
 
137,084

 
164,445

 
4,500

 
2.9%
 
208,225

 
251,409

 
4,500

 
2.9%
2013-1
 
198,448

 
257,431

 
4,500

 
2.7%
 
—

 
—

 
—

 
—%
2013-2
 
231,901

 
295,660

 
4,500

 
2.9%
 
—

 
—

 
—

 
—%
 
 
$
822,677

 
$
1,040,222

 
$
31,200

 
 
 
$
677,118

 
$
873,231

 
$
26,700

 
 
(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 cash reserve account, over collateralization, and subordination of certain classes of notes in each trust to more senior classes of notes in such trust. Asset-backed securities outstanding have interest payable monthly at the fixed duration weighted 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 and 2013-2 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.

10

Bank term financing
Bank term financings are secured by underlying pools of finance receivables and a cash reserve account. The amounts outstanding bear interest at LIBOR plus 2.00%, resulting in an interest rate of 2.18% and 2.20% at September 30, 2013 and December 31, 2012, respectively. This facility includes overcollateralization and a cash reserve similar to a securitization transaction, but consists of only one class of bonds and is unrated. At September 30, 2013 and December 31, 2012, $320.7 million and $443.9 million in receivables were pledged as collateral to this facility, respectively. At both September 30, 2013 and December 31, 2012, $6.9 million was held as a cash reserve for this facility.
Portfolio term residual financing
The term residual facility with Santander Consumer USA Inc. ("Santander") is secured by residual interests in our warehouse facilities and securitization trusts. The amounts outstanding under the facility bear interest at LIBOR + 3.50% or LIBOR + 6.00%, depending upon whether certain conditions are satisfied. This facility provides for funding through December 2019, with a term-out feature resulting in a final maturity of December 2020. At September 30, 2013, we were in compliance with all financial covenants of the facility. The amounts outstanding under the term residual facility bear interest at LIBOR + 3.50%, resulting in an interest rate of 3.68% and 3.70% at September 30, 2013 and December 31, 2012, respectively.
Portfolio warehouse facilities
The following is a summary of portfolio warehouse facilities:
 
As of September 30, 2013
 
Amount
Drawn
 
Facility
Amount
 
Stated Advance
Rate
 
Collateral (1)
 
Interest
Rate (2)
 
Expiration
Date
 
Final
Maturity
 
($ In thousands)
Portfolio Warehouse Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Deutsche Bank
$
23,000

 
$
150,000

 
65
%
 
$
79,424

 
2.43
%
 
Dec 2014
 
Dec 2015
Wells Fargo
19,000

 
150,000

 
58
%
 
61,290

 
2.43
%
 
Dec 2013
 
Dec 2015
RBS
12,000

 
125,000

 
65
%
 
67,244

 
2.43
%
 
Mar 2014
 
Mar 2015
Total Portfolio Warehouse Facilities
$
54,000

 
$
425,000

 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2012
 
Amount
Drawn
 
Facility
Amount
 
Stated Advance
Rate
 
Collateral (1)
 
Interest
Rate (2)
 
Expiration
Date
 
Final
Maturity
 
($ In thousands)
Portfolio Warehouse Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Deutsche Bank
$
19,300

 
$
150,000

 
65
%
 
$
44,955

 
2.46
%
 
Dec 2014
 
Dec 2015
Wells Fargo
23,000

 
150,000

 
58
%
 
43,057

 
2.46
%
 
Dec 2013
 
Dec 2015
RBS
14,900

 
125,000

 
53
%
 
31,944

 
1.65
%
 
Mar 2013
 
Mar 2014
Total Portfolio Warehouse Facilities
$
57,200

 
$
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. 
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 LIBOR plus 2.25%. At September 30, 2013, 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 September 30, 2013, we were in compliance with all financial covenants of this facility.

11

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 September 30, 2013, we were in compliance with all financial covenants of this facility.
Senior secured notes payable
A summary of Senior Secured Notes payable follows:
 
As of September 30, 2013
 
As of December 31, 2012
 
(In thousands)
Senior Secured Notes Payable
$
253,543

 
$
193,320

Senior Secured Notes Payable - Related Party
—

 
5,000

Total Senior Secured Notes Payable
$
253,543

 
$
198,320

In June 2010 we issued $200.0 million of 12.625% Senior Secured Notes due 2017 (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 in a private offering under Rule 144A and Regulation S of the Securities Act of 1933. 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%. Interest, maturity and covenant terms of this secondary offering are 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.
We agreed to file a registration statement with the SEC and to make an offer to exchange the additional $50.0 million of Senior Secured Notes issued in May 2013 for registered, publicly tradable notes that have substantially identical terms. On May 31, 2013, we filed a registration statement on Form S-4 with the SEC. On August 5, 2013, the SEC declared the registration statement effective and we subsequently completed the exchange offer on September 5, 2013.
As of September 30, 2013, we were in compliance with all financial covenants of the Senior Secured Notes. At September 30, 2013 and December 31, 2012, the Senior Secured Notes are shown net of unamortized premium of $3.5 million and unamortized discount of $1.7 million, respectively.

12

Other secured notes payable
A summary of other secured notes payable follows:
 
September 30, 2013
 
Balance
 
Max Facility
Capacity
 
Advance
Rate
 
Interest
Rate (1)
 
Expiration
Date
 
($ In thousands)
 
 
 
 
 
 
Other Secured Notes Payable
 
 
 
 
 
 
 
 
 
Revolving Inventory Facility
$
121,321

 
$
130,000

 
85%
(2) 
3.75%
 
Nov 2014
Mortgage Note Payable
12,288

 
n/a

 
n/a
 
5.87%
 
Mar 2017
Real Estate Facility
14,014

 
25,000

 
70%
 
4.05%
 
Oct 2020
Equipment Note Payable
1,342

 
n/a

 
n/a
 
4.25%
 
Apr 2015
Total Other Secured Notes Payable
$
148,965

 
$
155,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2012
 
Balance
 
Max Facility
Capacity
 
Advance
Rate
 
Interest
Rate (1)
 
Expiration
Date
 
($ In thousands)
 
 
 
 
 
 
Other Secured Notes Payable
 
 
 
 
 
 
 
 
 
Revolving Inventory Facility
$
91,320

 
$
140,000

(3) 
85%
(2) 
3.75%
 
Nov 2014
Mortgage Note Payable
12,454

 
n/a

 
n/a
 
5.87%
 
Mar 2017
Real Estate Facility
11,733

 
25,000

 
70%
 
4.21%
 
Oct 2020
Equipment Note Payable
1,774

 
n/a

 
n/a
 
4.75%
 
Apr 2013
Total Other Secured Notes Payable
$
117,281

 
$
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. 
(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, Santander and Manheim Automotive Financial Services, Inc. The interest rate on the facility is based on the Adjusted One Month LIBOR rate plus 3.5%. At September 30, 2013, 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 September 30, 2013, 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 3.5% for properties added to the facility subsequent to August 22, 2013. At September 30, 2013, we were in compliance with all financial covenants of this facility, and the line was collateralized by eleven properties.
Equipment note payable
We have an equipment note payable, which is secured by an aircraft and bears interest at the Prime rate plus 1.0%. Terms of the note agreement provide for monthly principal and interest payments with a final balloon payment. At September 30, 2013, we were in compliance with all financial covenants of this loan. 


13

(6) Accrued Service Contract Liability
Our limited service contract accrual liability is recorded as a component of Accrued Expenses and Other Liabilities 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 September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Service Contract Accrual Activity
 
 
 
 
 
 
 
Balance, Beginning of Period
$
25,910

 
$
25,778

 
$
24,420

 
$
24,004

Service Contract Expense
4,627

 
7,588

 
19,243

 
19,021

Service Contract Claims Paid
(6,229
)
 
(7,803
)
 
(19,355
)
 
(17,462
)
Balance, End of Period
$
24,308

 
$
25,563

 
$
24,308

 
$
25,563


(7) Deferred Revenue
Beginning in the fourth quarter of 2012 we began offering our DriveCare® limited warranty as a separately priced service contract in our dealerships located in certain regions in which we operate. As a result, the revenue of these service contracts are deferred and recognized over the life of the service contract, in relation to the usage and expected duration of the contracts. In 2013 we also began offering other products and services with similar deferred revenue recognition over the life of the performance obligation.
Prior to the third quarter 2013, Deferred Revenue was recorded as part of Accrued Expenses and Other Liabilities in the accompanying condensed consolidated balance sheets. To be consistent with current period financial statement presentation, for the year ended December 31, 2012, we reclassified $2.2 million from Accrued Expenses and Other Liabilities to Deferred Revenue.
The following table sets forth information regarding the changes in Deferred Revenue:
 
Three Months Ended September 30, 2013
 
Nine months ended September 30, 2013
 
(In thousands)
Deferred Balance, Beginning of Period
$
11,835

 
$
2,212

Revenue Deferred
12,409

 
23,489

Revenue Recognized
(7,726
)
 
(9,183
)
Deferred Balance, End of Period
$
16,518

 
$
16,518


(8) Related Party Transactions
Relationship with Verde Investments, Inc.
Verde Investments, Inc., or “Verde,” is an Arizona corporation that is wholly-owned by Ernest C. Garcia II, our Chairman and principal shareholder. 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. Another affiliate of Mr. Garcia is the Garcia Family Limited Partnership, LLP, of which Mr. Garcia and his wife own 7.32% and Verde owns 66.18%. The other interests are owned by his son and two related trusts.

14

During the three and nine months ended September 30, 2013 and 2012, we recorded related party operating expenses as follows:
 
Three Months Ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
General and Administrative Expenses—Related Party
 
 
 
 
 
 
 
Property lease expense
$
1,168

 
$
1,144

 
$
3,556

 
$
3,553

Restricted stock compensation expense
310

 
310

 
930

 
1,239

Aircraft operating and lease expense
1,226

 
1,091

 
3,318

 
3,173

Salaries and wages, general & administrative and other expenses
135

 
107

 
393

 
441

Reimbursement of certain general and administrative expenses
(77
)
 
(71
)
 
(231
)
 
(213
)
Total General and Administrative Expenses—Related Party
$
2,762

 
$
2,581

 
$
7,966

 
$
8,193

Senior Secured Notes Payable
In August 2013, Verde sold $4.5 million of the Senior Secured Notes on the open market at a price of 110.00% to par, plus accrued interest. In August 2013, Mr. Fidel also sold $0.5 million of the Senior Secured Notes on the open market at an identical price. As a result, at September 30, 2013 none of the Senior Secured Notes were held by a related party.
Interest Expense
During the three and nine months ended September 30, 2013 and 2012, we recorded related party interest expense as follows:
 
Three Months Ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Senior Secured Notes Interest Expense—Related Party
 
 
 
 
 
 
 
Senior Secured Notes Payable—Verde
$
81

 
$
95

 
$
365

 
$
95

Senior Secured Notes Payable—CEO
9

 
8

 
41

 
8

Total Senior Secured Notes Interest Expense—Related Party
$
90

 
$
103

 
$
406

 
$
103

For a description of the nature of these transactions, see Note 10 - Related Party Transactions to the Consolidated Financial Statements included in our Annual Report on Form 10-K filed on March 28, 2013.

(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 of which is wholly owned with the other majority owned. The taxable income 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 September 30, 2013, we had a net deferred tax liability of $0.4 million. As of December 31, 2012, we did not have any deferred tax assets or liabilities.
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 September 30, 2013 and December 31, 2012, we had an income tax receivable of $0.2 million and an income tax payable of $0.2 million, respectively.
At September 30, 2013 and December 31, 2012, 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 had not accrued any amounts related to the payment of interest and penalties as of September 30, 2013 and December 31, 2012.

15


(10) Shareholders’ Equity, Dividends & Stock Compensation
Share Information
DTAG has authorized shares with par value of $.001 per share. Of the 1,000 shares authorized, 101.8 shares are issued and outstanding. DTAC has authorized shares with no par value. Of the 1,000,000 shares authorized, 101.8 shares are issued and outstanding.
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 periods equal to the highest combined federal, state, and/or local tax rate for individuals, plus 50% of the difference between pre-tax 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 September 30, 2013, we exceeded the indebtedness ratio, which restricted our ability to pay dividends related to net GAAP earnings. 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.
During the nine months ended September 30, 2013, we distributed $10.9 million of dividends to pay taxes related to fourth quarter 2012 and first quarter 2013 taxable income, which were approved by the board of directors in April 2013.
As of September 30, 2013, we had $2.8 million of dividends related to 2012 taxable income available for distribution. In November 2013, the Board of Directors approved, and we paid such dividend.
Chief Executive Officer Restricted Stock Grant
For the three and nine months ended September 30, 2013 we recorded $0.3 million and $0.9 million, respectively, in restricted stock compensation expense associated with the December 2010 Restricted Stock Agreements between Mr. Fidel and each of DTAG and DTAC. We recorded $0.3 million and $1.2 million in restricted stock expense for the same periods in 2012. The stock compensation recorded for these periods also credited our Paid-in Capital accounts for both companies during these periods.

(11) Commitments and Contingencies
Lease commitments
At September 30, 2013, we leased the majority of our dealership and reconditioning center locations. We also leased our corporate office in Phoenix, Arizona, and operations collection facilities in Dallas, Texas. As of September 30, 2013, we had approximately $85.5 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, 2012, filed on March 28, 2013. We continue to work closely with the Consumer Financial Protection Bureau to provide details and clarity related to their original request.
Additionally, in the ordinary course of business, we are a defendant in various other types of legal proceedings. Although we cannot determine at this time the amount of the ultimate exposure from these lawsuits, if any, based on the advice of counsel, management does not expect the final outcome to have a material adverse effect on us.


16

(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 value 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:
 
September 30, 2013
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets
 
 
 
 
 
 
 
Finance Receivables, net (1)
$
1,574,760

 
$
—

 
$
—

 
$
1,648,065

Dealer Finance Receivables - GO, net
105,796

 
—

 
—

 
111,748

Liabilities
 
 
 
 
 
 
 
Securitization Debt
822,677

 
829,795

 
—

 
—

Portfolio Term Residual Financing
100,000

 
—

 
112,519

 
—

Bank Term Financings
255,141

 
—

 
255,141

 
—

Portfolio Warehouse Facilities
54,000

 
—

 
54,000

 
—

Senior Secured Notes Payable
253,543

 
281,433

 
—

 
—

Revolving Inventory Facility
121,321

 
—

 
120,284

 
—

Mortgage Note Payable
12,288

 
—

 
11,051

 
—

Real Estate Facility
14,014

 
—

 
13,975

 
—


17

 
December 31, 2012
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets
 
 
 
 
 
 
 
Finance Receivables, net (1)
$
1,370,800

 
$
—

 
$
—

 
$
1,441,026

Dealer Finance Receivables - GO, net
40,956

 
—

 
—

 
40,956

Liabilities
 
 
 
 
 
 
 
Securitization Debt
677,118

 
702,031

 
—

 
—

Portfolio Term Residual Financing
25,000

 
—

 
25,000

 
—

Bank Term Financings
347,360

 
—

 
347,360

 
—

Portfolio Warehouse Facilities
57,200

 
—

 
57,200

 
—

Senior Secured Notes Payable
198,320

 
220,135

 
—

 
—

Revolving Inventory Facility
91,320

 
—

 
91,600

 
—

Mortgage Note Payable
12,454

 
—

 
11,200

 
—

Real Estate Facility
11,733

 
—

 
11,700

 
—

(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 was 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. 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.
Dealer Finance Receivables - GO
The fair value of Dealer Finance Receivables was estimated by discounting future cash flows expected to be collected utilizing an internal loss adjusted cash flow model. The cash flow model uses internally generated assumptions regarding credit losses, recoveries, and prepayment rates in our portfolio, and a discount rate consistent with that of similar and like transactions.
Securitization debt
At September 30, 2013 and December 31, 2012, the fair value of securitization debt was determined using a third-party quoted market price.
Portfolio term residual financing
At September 30, 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. At December 31, 2012, the fair value was determined to approximate carrying value as the facility was amended December 2012.
Bank term financings
At September 30, 2013 the fair value of the bank term facility was determined to approximate fair value based upon our knowledge of the securitization market. At December 31, 2012 the bank term facility was determined to approximate fair value as the facility was recently executed with Wells Fargo in November 2012.
Portfolio warehouse facilities
The portfolio warehouse facilities are short term in nature and the interest rates adjust in conjunction with the lender’s cost of funds or 30-day LIBOR. The Deutsche Bank Warehouse Facility was renewed in December 2012. The Royal Bank of Scotland Warehouse Facility was renewed in March 2013. The Wells Fargo Warehouse Facility was executed in December 2011. Because the majority of the warehouse facilities were recently renewed or executed and contain a floating market rate of interest, we believe the fair value of these facilities approximate carrying value at September 30, 2013 and December 31, 2012.

18

Senior secured notes payable
The fair value of senior secured notes payable at September 30, 2013 and December 31, 2012 was determined using third-party quoted market prices.
Revolving inventory facility
At September 30, 2013, the fair value of 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. At December 31, 2012, the fair value of the inventory facility was determined using a third party discounted cash flow using market interest rates for this debt.
Mortgage note payable
At September 30, 2013, and December 31, 2012, 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, 2012 analysis, as the market for these instruments is not considered volatile.
Real estate facility
At September 30, 2013 and December 31, 2012, the fair value of the real estate facility was determined using a third-party discounted cash flow using market interest rates for this debt. Both periods utilize the December 31, 2012 analysis, as the market for these instruments is not considered volatile.
(13) Subsequent Events
In November 2013, the Board of Directors approved, and we paid a dividend payment of $2.8 million to pay taxes related to prior period taxable income.

(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.
    
(15) Segment Information
We operate in two principal operating business segments: DriveTime and GO Financial. We organize our business based on the nature of the services and products offered. Transactions between segments are eliminated in consolidation.
Revenue and operating income (loss) before taxes for each segment are provided below for the three and nine months ended September 30, 2013 and September 30, 2012, while assets and liabilities are presented as of September 30, 2013 and December 31, 2012.
 
Three Months Ended
 
Three Months Ended
 
September 30, 2013
 
September 30, 2012
 
Drivetime
 
GO
 
Total
 
Drivetime
 
GO
 
Total
Revenue:
(In thousands)
Sales of Used Vehicles
$
276,826

 
$
—

 
$
276,826

 
$
226,866

 
$
—

 
$
226,866

Interest Income
84,277

 
42

 
84,319

 
77,334

 
—

 
77,334

Dealer Finance and Other Income
1,186

 
4,741

 
5,927

 
—

 
757

 
757

Total Revenue:
$
362,289

 
$
4,783

 
$
367,072

 
$
304,200

 
$
757

 
$
304,957

 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Interest Expense
19,074

 
1,137

 
20,211

 
18,808

 
—

 
18,808

Depreciation Expense
6,272

 
157

 
6,429

 
4,974

 
117

 
5,091

Other Costs and Operating Expenses
331,079

 
5,182

 
336,261

 
275,726

 
565

 
276,291

Total Costs and Expenses:
$
356,425

 
$
6,476

 
$
362,901

 
$
299,508

 
$
682

 
$
300,190

 
 
 
 
 
 
 
 
 
 
 
 
Income (Loss) Before Income Taxes:
$
5,864

 
$
(1,693
)
 
$
4,171

 
$
4,692

 
$
75

 
$
4,767


19

 
Nine Months Ended
 
Nine Months Ended
 
September 30, 2013
 
September 30, 2012
 
DriveTime
 
GO
 
Total
 
DriveTime
 
GO
 
Total
Revenue:
(In thousands)
Sales of Used Vehicles
$
863,686

 
$
—

 
$
863,686

 
$
750,125

 
$
—

 
$
750,125

Interest Income
241,591

 
61

 
241,652

 
223,492

 
—

 
223,492

Dealer Finance and Other Income
1,333

 
12,444

 
13,777

 
—

 
1,380

 
1,380

Total Revenue:
$
1,106,610

 
$
12,505

 
$
1,119,115

 
$
973,617

 
$
1,380

 
$
974,997

 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Interest Expense
55,139

 
2,721

 
57,860

 
55,073

 
—

 
55,073

Depreciation Expense
17,301

 
433

 
17,734

 
14,767

 
294

 
15,061

Other Costs and Operating Expenses
989,253

 
10,591

 
999,844

 
834,244

 
3,072

 
837,316

Total Costs and Expenses:
$
1,061,693

 
$
13,745

 
$
1,075,438

 
$
904,084

 
$
3,366

 
$
907,450

 
 
 
 
 
 
 
 
 
 
 
 
Income (Loss) Before Income Taxes:
$
44,917

 
$
(1,240
)
 
$
43,677

 
$
69,533

 
$
(1,986
)
 
$
67,547


 
September 30, 2013
 
December 31, 2012
 
DriveTime
 
GO
 
Total
 
DriveTime
 
GO
 
Total
 
(In thousands)
Assets:
$
2,159,408

 
$
109,778

 
$
2,269,186

 
$
1,946,714

 
$
42,403

 
$
1,989,117

Liabilities:
$
1,670,031

 
$
95,221

 
$
1,765,252

 
$
1,520,866

 
$
698

 
$
1,521,564

Equity:
$
489,377

 
$
14,557

(1) 
$
503,934

 
$
425,848

 
$
41,705

 
$
467,553

(1)     In 2013, GO's parent, DTAC, recategorized approximately $80.0 million of GO's equity to an intercompany interest bearing note to DTAC.  
  
(16) Supplemental Consolidating Financial Information
In accordance with the indenture governing the 12.625% Senior Secured Notes due 2017 (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 September 30, 2013, and December 31, 2012; condensed consolidating statements of operations for the three and nine months ended September 30, 2013 and 2012; and cash flows for the nine months ended September 30, 2013 and 2012 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.
Included in the column for DTAG Guarantor Subsidiaries Combined are DriveTime Sales and Finance Company, LLC DriveTime Car Sales Company, LLC, DriveTime Ohio Company, LLC, Driver's Seat, LLC and Carvana, LLC. Included in the column for DTAC Guarantor Subsidiaries Combined are DT Credit Company, LLC, GFC Lending, LLC and DT Jet Leasing, LLC. Included in the column for DTAG Non-Guarantor Subsidiaries Combined are all other subsidiaries that are wholly-owned by DTAG and our 51% interest in Inilex. Included in the column for DTAC Non-Guarantor Subsidiaries Combined are all SPEs, which are VIEs and for which DTAC is the primary beneficiary. The column for the Issuers includes the accounts for DTAG and DTAC as issuers and as parent companies for each of its respective subsidiaries.
Consolidated amounts may be immaterially different compared to the condensed consolidated financial statements due to rounding.

20
Table of Contents                        
DriveTime Automotive Group, Inc. and Subsidiaries
Condensed Consolidating Balance Sheets
September 30, 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
$
8,172

 
$
2,862

 
$
5

 
$
—

 
$
11,039

 
$
770

 
$
388

 
$
16,849

 
$
—

 
$
18,007

 
$
—

 
$
29,046

Restricted Cash and Investments Held in Trust
—

 
—

 
—

 
—

 
—

 
17,609

 
104,079

 
—

 
—

 
121,688

 
—

 
121,688

Finance Receivables
—

 
—

 
—

 
—

 
—

 
1,683

 
—

 
1,885,070

 
—

 
1,886,753

 
—

 
1,886,753

Allowance for Credit Losses
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(300,624
)
 
—

 
(300,624
)
 
—

 
(300,624
)
Finance Receivables, Net
—

 
—

 
—

 
—

 
—

 
1,683

 
—

 
1,584,446

 
—

 
1,586,129

 
—

 
1,586,129

Dealer Finance Receivables
—

 
—

 
—

 
—

 
—

 
105,796

 
—

 
—

 
—

 
105,796

 
—

 
105,796

Vehicle Inventory
245,536

 
—

 
—

 
(792
)
 
244,744

 
—

 
—

 
—

 
—

 
—

 
—

 
244,744

Property and Equipment, Net
92,909

 
470

 
—

 
—

 
93,379

 
5,409

 
14,942

 
2,648

 
—

 
22,999

 
—

 
116,378

Investments in Subsidiaries
—

 
—

 
303,078

 
(303,078
)
 
—

 
—

 
—

 
351,909

 
(351,909
)
 
—

 
—

 
—

Other Assets
1,878,513

 
33,906

 
557,225

 
(719,602
)
 
1,750,042

 
1,035,131

 
1,597,141

 
1,716,520

 
(2,712,327
)
 
1,636,465

 
(3,321,102
)
 
65,405

Total Assets
$
2,225,130

 
$
37,238

 
$
860,308

 
$
(1,023,472
)
 
$
2,099,204

 
$
1,166,398

 
$
1,716,550

 
$
3,672,372

 
$
(3,064,236
)
 
$
3,491,084

 
$
(3,321,102
)
 
$
2,269,186

LIABILITIES & SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts Payable
$
22,809

 
$
—

 
$
—

 
$
—

 
$
22,809

 
$
7

 
$
—

 
$
—

 
$
—

 
$
7

 
$
—

 
$
22,816

Accrued Expenses and Other Liabilities
1,780,924

 
1,273

 
602,621

 
(719,602
)
 
1,665,216

 
1,278,944

 
6,373

 
3,174,488

 
(2,712,327
)
 
1,747,478

 
(3,321,102
)
 
91,592

Deferred Revenue
16,218

 
33

 
—

 
—

 
16,251

 
267

 
—

 
—

 
—

 
267

 
—

 
16,518

Portfolio Term Financings
—

 
—

 
—

 
—

 
—

 
—

 
1,177,818

 
—

 
—

 
1,177,818

 
—

 
1,177,818

Portfolio Warehouse Facilities
—

 
—

 
—

 
—

 
—

 
—

 
54,000

 
—

 
—

 
54,000

 
—

 
54,000

Senior Secured Notes Payable
—

 
—

 
126,771

 
—

 
126,771

 
—

 
—

 
126,772

 
—

 
126,772

 
—

 
253,543

Other Secured Notes Payable
121,321

 
14,014

 
—

 
—

 
135,335

 
1,342

 
12,288

 
—

 
—

 
13,630

 
—

 
148,965

Total Liabilities
1,941,272

 
15,320

 
729,392

 
(719,602
)
 
1,966,382

 
1,280,560

 
1,250,479

 
3,301,260

 
(2,712,327
)
 
3,119,972

 
(3,321,102
)
 
1,765,252

Shareholders’ Equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling Interest - Inilex
—

 
2,698

 
—

 
(2,843
)
 
(145
)
 
—

 
—

 
—

 
—

 
—

 
328

 
183

Shareholders’ Equity
283,858

 
19,220

 
130,916

 
(301,027
)
 
132,967

 
(114,162
)
 
466,071

 
371,112

 
(351,909
)
 
371,112

 
(328
)
 
503,751

Total Equity
283,858

 
21,918

 
130,916

 
(303,870
)
 
132,822

 
(114,162
)
 
466,071

 
371,112

 
(351,909
)
 
371,112

 
—

 
503,934

Total Liabilities & Shareholders’ Equity
$
2,225,130

 
$
37,238

 
$
860,308

 
$
(1,023,472
)
 
$
2,099,204

 
$
1,166,398

 
$
1,716,550

 
$
3,672,372

 
$
(3,064,236
)
 
$
3,491,084

 
$
(3,321,102
)
 
$
2,269,186


21
DriveTime Automotive Group, Inc. and Subsidiaries
Condensed Consolidating Balance Sheets
December 31, 2012
(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
$
6,937

 
$
482

 
$
5

 
$
—

 
$
7,424

 
$
9

 
$
423

 
$
18,624

 
$
—

 
$
19,056

 
$
—

 
$
26,480

Restricted Cash and Investments Held in Trust
—

 
—

 
—

 
—

 
—

 
16,163

 
90,909

 
—

 
—

 
107,072

 
—

 
107,072

Finance Receivables
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,634,622

 
—

 
1,634,622

 
—

 
1,634,622

Allowance for Credit Losses
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(252,590
)
 
—

 
(252,590
)
 
—

 
(252,590
)
Finance Receivables, Net
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,382,032

 
—

 
1,382,032

 
—

 
1,382,032

Dealer Finance Receivables
—

 
—

 
—

 
—

 
—

 
40,956

 
—

 
—

 
—

 
40,956

 
—

 
40,956

Vehicle Inventory
270,733

 
—

 
—

 
—

 
270,733

 
—

 
—

 
—

 
—

 
—

 
—

 
270,733

Property and Equipment, Net
70,668

 
—

 
—

 
—

 
70,668

 
5,807

 
15,216

 
2,706

 
—

 
23,729

 
—

 
94,397

Investments in Subsidiaries
—

 
—

 
473,828

 
(473,828
)
 
—

 
—

 
—

 
348,577

 
(348,577
)
 
—

 
—

 
—

Other Assets
1,226,409

 
26,480

 
383,689

 
(711,814
)
 
924,764

 
496,384

 
1,352,295

 
887,248

 
(1,857,217
)
 
878,710

 
(1,736,027
)
 
67,447

Total Assets
$
1,574,747

 
$
26,962

 
$
857,522

 
$
(1,185,642
)
 
$
1,273,589

 
$
559,319

 
$
1,458,843

 
$
2,639,187

 
$
(2,205,794
)
 
$
2,451,555

 
$
(1,736,027
)
 
$
1,989,117

LIABILITIES & SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts Payable
$
17,342

 
$
—

 
$
—

 
$
—

 
$
17,342

 
$
4

 
$
—

 
$
—

 
$
—

 
$
4

 
$
—

 
$
17,346

Accrued Expenses and Other Liabilities
1,004,766

 
609

 
602,314

 
(711,814
)
 
895,875

 
521,375

 
6,703

 
2,228,522

 
(1,836,721
)
 
919,879

 
(1,736,027
)
 
79,727

Deferred Revenue
2,025

 
86

 
—

 
—

 
2,111

 
101

 
—

 
—

 
—

 
101

 
—

 
2,212

Portfolio Term Financings
—

 
—

 
—

 
—

 
—

 
—

 
1,069,974

 
—

 
(20,496
)
 
1,049,478

 
—

 
1,049,478

Portfolio Warehouse Facilities
—

 
—

 
—

 
—

 
—

 
—

 
57,200

 
—

 
—

 
57,200

 
—

 
57,200

Senior Secured Notes Payable
—

 
—

 
99,160

 
—

 
99,160

 
—

 
—

 
99,160

 
—

 
99,160

 
—

 
198,320

Other Secured Notes Payable
91,320

 
11,733

 
—

 
—

 
103,053

 
1,774

 
12,454

 
—

 
—

 
14,228

 
—

 
117,281

Total Liabilities
1,115,453

 
12,428

 
701,474

 
(711,814
)
 
1,117,541

 
523,254

 
1,146,331

 
2,327,682

 
(1,857,217
)
 
2,140,050

 
(1,736,027
)
 
1,521,564

Shareholders’ Equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling Interest - Inilex
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Shareholders’ Equity
459,294

 
14,534

 
156,048

 
(473,828
)
 
156,048

 
36,065

 
312,512

 
311,505

 
(348,577
)
 
311,505

 
—

 
467,553

Total Equity
459,294

 
14,534

 
156,048

 
(473,828
)
 
156,048

 
36,065

 
312,512

 
311,505

 
(348,577
)
 
311,505

 
—

 
467,553

Total Liabilities & Shareholders’ Equity
$
1,574,747

 
$
26,962

 
$
857,522

 
$
(1,185,642
)
 
$
1,273,589

 
$
559,319

 
$
1,458,843

 
$
2,639,187

 
$
(2,205,794
)
 
$
2,451,555

 
$
(1,736,027
)
 
$
1,989,117


22
DriveTime Automotive Group, Inc. and Subsidiaries
Condensed Consolidating Statements of Operations
Three Months Ended September 30, 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 of Used Vehicles
$
274,299

 
$
4,537

 
$
—

 
$
(2,010
)
 
$
276,826

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
276,826

Interest Income
—

 
—

 
—

 
—

 
—

 
42

 
76,980

 
84,362

 
(77,065
)
 
84,319

 
—

 
84,319

Dealer Finance and Other Income
1,186

 
—

 
—

 
—

 
1,186

 
5,219

 
—

 
—

 
—

 
5,219

 
(478
)
 
5,927

Other Revenue
14,033

 
—

 
16,260

 
—

 
30,293

 
19,128

 
—

 
590

 
(19,141
)
 
577

 
(30,870
)
 
—

Equity in Income of Subsidiaries
—

 
—

 
63,437

 
(63,437
)
 
—

 
—

 
—

 
52,284

 
(52,284
)
 
—

 
—

 
—

Total Revenue
289,518

 
4,537

 
79,697

 
(65,447
)
 
308,305

 
24,389

 
76,980

 
137,236

 
(148,490
)
 
90,115

 
(31,348
)
 
367,072

Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Used Vehicles Sold
184,173

 
2,140

 
—

 
(1,218
)
 
185,095

 
—

 
—

 
—

 
—

 
—

 
—

 
185,095

Provision for Credit Losses - Finance Receivables
—

 
—

 
—

 
—

 
—

 
—

 
—

 
92,335

 
—

 
92,335

 
—

 
92,335

Provision for Credit Losses - Dealer Finance Receivables
—

 
—

 
—

 
—

 
—

 
1,115

 
—

 
—

 
—

 
1,115

 
—

 
1,115

Portfolio Debt Interest Expense
—

 
—

 
—

 
—

 
—

 
—

 
10,596

 
—

 
—

 
10,596

 
—

 
10,596

Non-Portfolio Debt Interest Expense
2,002

 
155

 
9

 
—

 
2,166

 
1,153

 
272

 
92,447

 
(77,065
)
 
16,807

 
(17,493
)
 
1,480

Senior Secured Debt Interest Expense
—

 
—

 
4,067

 
—

 
4,067

 
—

 
—

 
4,068

 
—

 
4,068

 
—

 
8,135

Selling and Marketing
7,945

 
—

 
—

 
—

 
7,945

 
14

 
—

 
(59
)
 
—

 
(45
)
 
—

 
7,900

General and Administrative
27,287

 
1,218

 
536

 
—

 
29,041

 
19,438

 
15,902

 
18,431

 
(19,141
)
 
34,630

 
(13,855
)
 
49,816

Depreciation Expense
5,419

 
78

 
—

 
—

 
5,497

 
458

 
137

 
337

 
—

 
932

 
—

 
6,429

Total Costs and Expenses
226,826

 
3,591

 
4,612

 
(1,218
)
 
233,811

 
22,178

 
26,907

 
207,559

 
(96,206
)
 
160,438

 
(31,348
)
 
362,901

Income (Loss) before Income Taxes
62,692

 
946

 
75,085

 
(64,229
)
 
74,494

 
2,211

 
50,073

 
(70,323
)
 
(52,284
)
 
(70,323
)
 
—

 
4,171

Income Tax Expense
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(69
)
 
—

 
(69
)
 
—

 
(69
)
Net Income (Loss)
$
62,692

 
$
946

 
$
75,085

 
$
(64,229
)
 
$
74,494

 
$
2,211

 
$
50,073

 
$
(70,254
)
 
$
(52,284
)
 
$
(70,254
)
 
$
—

 
$
4,240

Net Income (Loss) attributable to noncontrolling interests - Inilex
—

 
201

 
—

 
(1,277
)
 
(1,076
)
 
—

 
—

 
—

 
—

 
—

 
234

 
(842
)
Net Income attributable to DriveTime Consolidated
$
62,692

 
$
745

 
$
75,085

 
$
(62,952
)
 
$
75,570

 
$
2,211

 
$
50,073

 
$
(70,254
)
 
$
(52,284
)
 
$
(70,254
)
 
$
(234
)
 
$
5,082


23
DriveTime Automotive Group, Inc. and Subsidiaries
Condensed Consolidating Statements of Operations
Three Months Ended September 30, 2012
(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 of Used Vehicles
$
226,866

 
$
—

 
$
—

 
$
—

 
$
226,866

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
226,866

Interest Income
—

 
—

 
—

 
—

 
—

 
—

 
69,390

 
77,638

 
(69,694
)
 
77,334

 
—

 
77,334

Dealer Finance and Other Income
—

 
—

 
—

 
—

 
—

 
757

 
—

 
—

 
—

 
757

 
—

 
757

Other Revenue
11,189

 
—

 
10,132

 
—

 
21,321

 
16,902

 
—

 
665

 
(16,883
)
 
684

 
(22,005
)
 
—

Equity in Income of Subsidiaries
—

 
—

 
110,096

 
(110,096
)
 
—

 
—

 
—

 
55,527

 
(55,527
)
 
—

 
—

 
—

Total Revenue
238,055

 
—

 
120,228

 
(110,096
)
 
248,187

 
17,659

 
69,390

 
133,830

 
(142,104
)
 
78,775

 
(22,005
)
 
304,957

Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Used Vehicles Sold
151,264

 
—

 
—

 
—

 
151,264

 
—

 
—

 
—

 
—

 
—

 
—

 
151,264

Provision for Credit Losses
—

 
—

 
—

 
—

 
—

 
—

 
—

 
70,110

 
—

 
70,110

 
—

 
70,110

Portfolio Debt Interest Expense
—

 
—

 
—

 
—

 
—

 
—

 
11,080

 
—

 
—

 
11,080

 
—

 
11,080

Non-Portfolio Debt Interest Expense
712

 
149

 
18

 
—

 
879

 
23

 
495

 
11,067

 
(303
)
 
11,282

 
(11,055
)
 
1,106

Senior Secured Debt Interest Expense
—

 
—

 
3,311

 
—

 
3,311

 
—

 
—

 
3,311

 
—

 
3,311

 
—

 
6,622

Selling and Marketing
7,315

 
—

 
—

 
—

 
7,315

 
21

 
—

 
—

 
—

 
21

 
—

 
7,336

General and Administrative
23,436

 
(1,328
)
 
1,831

 
—

 
23,939

 
14,345

 
14,098

 
23,032

 
(16,883
)
 
34,592

 
(10,950
)
 
47,581

Depreciation Expense
4,235

 
—

 
—

 
—

 
4,235

 
411

 
132

 
313

 
—

 
856

 
—

 
5,091

Total Costs and Expenses
186,962

 
(1,179
)
 
5,160

 
—

 
190,943

 
14,800

 
25,805

 
107,833

 
(17,186
)
 
131,252

 
(22,005
)
 
300,190

Income (Loss) before Income Taxes
51,093

 
1,179

 
115,068

 
(110,096
)
 
57,244

 
2,859

 
43,585

 
25,997

 
(124,918
)
 
(52,477
)
 
—

 
4,767

Income Tax Expense
—

 
179

 
38

 
—

 
217

 
—

 
—

 
154

 
—

 
154

 
—

 
371

Net Income (Loss)
$
51,093

 
$
1,000

 
$
115,030

 
$
(110,096
)
 
$
57,027

 
$
2,859

 
$
43,585

 
$
25,843

 
$
(124,918
)
 
$
(52,631
)
 
$
—

 
$
4,396

Net Income attributable to noncontrolling interests - Inilex
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Net Income attributable to DriveTime Consolidated
$
51,093

 
$
1,000

 
$
115,030

 
$
(110,096
)
 
$
57,027

 
$
2,859

 
$
43,585

 
$
25,843

 
$
(124,918
)
 
$
(52,631
)
 
$
—

 
$
4,396


24
DriveTime Automotive Group, Inc. and Subsidiaries
Consolidating Statements of Operations
Nine Months Ended September 30, 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 of Used Vehicles
$
857,553

 
$
12,395

 
$
—

 
$
(6,262
)
 
$
863,686

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
863,686

Interest Income
—

 
—

 
—

 
—

 
—

 
60

 
224,166

 
242,162

 
(224,736
)
 
241,652

 
—

 
241,652

Dealer Finance and Other Income
1,333

 
—

 
—

 
—

 
1,333

 
12,922

 
—

 
—

 
—

 
12,922

 
(478
)
 
13,777

Other Revenue
38,495

 
—

 
43,857

 
—

 
82,352

 
52,419

 
—

 
1,686

 
(52,461
)
 
1,644

 
(83,996
)
 
—

Equity in Income of Subsidiaries
—

 
—

 
191,464

 
(191,464
)
 
—

 
—

 
—

 
152,752

 
(152,752
)
 
—

 
—

 
—

Total Revenue
897,381

 
12,395

 
235,321

 
(197,726
)
 
947,371

 
65,401

 
224,166

 
396,600

 
(429,949
)
 
256,218

 
(84,474
)
 
1,119,115

Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Used Vehicles Sold
584,374

 
5,599

 
—

 
(5,470
)
 
584,503

 
—

 
—

 
—

 
—

 
—

 
—

 
584,503

Provision for Credit Losses - Finance Receivables
—

 
—

 
—

 
—

 
—

 
—

 
—

 
240,489

 
—

 
240,489

 
—

 
240,489

Provision for Credit Losses - Dealer Finance Receivables
—

 
—

 
—

 
—

 
—

 
2,003

 
—

 
—

 
—

 
2,003

 
—

 
2,003

Portfolio Debt Interest Expense
—

 
—

 
—

 
—

 
—

 
—

 
31,319

 
—

 
—

 
31,319

 
—

 
31,319

Non-Portfolio Debt Interest Expense
4,059

 
420

 
33

 
—

 
4,512

 
2,774

 
1,131

 
267,644

 
(224,736
)
 
46,813

 
(47,074
)
 
4,251

Senior Secured Debt Interest Expense
—

 
—

 
11,145

 
—

 
11,145

 
—

 
—

 
11,145

 
—

 
11,145

 
—

 
22,290

Selling and Marketing
25,026

 
—

 
—

 
—

 
25,026

 
58

 
—

 
(57
)
 
—

 
1

 
—

 
25,027

General and Administrative
80,519

 
2,219

 
4,895

 
—

 
87,633

 
53,451

 
44,358

 
52,241

 
(52,461
)
 
97,589

 
(37,400
)
 
147,822

Depreciation Expense
14,797

 
239

 
—

 
—

 
15,036

 
1,313

 
408

 
977

 
—

 
2,698

 
—

 
17,734

Total Costs and Expenses
708,775

 
8,477

 
16,073

 
(5,470
)
 
727,855

 
59,599

 
77,216

 
572,439

 
(277,197
)
 
432,057

 
(84,474
)
 
1,075,438

Income (Loss) before Income Taxes
188,606

 
3,918

 
219,248

 
(192,256
)
 
219,516

 
5,802

 
146,950

 
(175,839
)
 
(152,752
)
 
(175,839
)
 
—

 
43,677

Income Tax Expense
—

 
119

 
153

 
—

 
272

 
—

 
—

 
271

 
—

 
271

 
—

 
543

Net Income (Loss)
$
188,606

 
$
3,799

 
$
219,095

 
$
(192,256
)
 
$
219,244

 
$
5,802

 
$
146,950

 
$
(176,110
)
 
$
(152,752
)
 
$
(176,110
)
 
$
—

 
$
43,134

Net Income attributable to noncontrolling interests - Inilex
—

 
941

 
—

 
(1,277
)
 
(336
)
 
—

 
—

 
—

 
—

 
—

 
234

 
(102
)
Net Income (Loss) attributable to DriveTime Consolidated
$
188,606

 
$
2,858

 
$
219,095

 
$
(190,979
)
 
$
219,580

 
$
5,802

 
$
146,950

 
$
(176,110
)
 
$
(152,752
)
 
$
(176,110
)
 
$
(234
)
 
$
43,236



25
DriveTime Automotive Group, Inc. and Subsidiaries
Consolidating Statements of Operations
Nine Months Ended September 30, 2012
(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 of Used Vehicles
$
750,125

 
$
—

 
$
—

 
$
—

 
$
750,125

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
750,125

Interest Income
—

 
—

 
—

 
—

 
—

 
—

 
199,148

 
224,402

 
(200,058
)
 
223,492

 
—

 
223,492

Dealer Finance and Other Income
—

 
—

 
—

 
—

 
—

 
1,380

 
—

 
—

 
—

 
1,380

 
—

 
1,380

Other Revenue
33,892

 
—

 
26,978

 
—

 
60,870

 
47,253

 
—

 
1,971

 
(47,193
)
 
2,031

 
(62,901
)
 
—

Equity in Income of Subsidiaries
—

 
—

 
186,606

 
(186,606
)
 
—

 
—

 
—

 
94,746

 
(94,746
)
 
—

 
—

 
—

Total Revenue
784,017

 
—

 
213,584

 
(186,606
)
 
810,995

 
48,633

 
199,148

 
321,119

 
(341,997
)
 
226,903

 
(62,901
)
 
974,997

Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of Used Vehicles Sold
496,680

 
—

 
—

 
—

 
496,680

 
—

 
—

 
—

 
—

 
—

 
—

 
496,680

Provision for Credit Losses
—

 
—

 
—

 
—

 
—

 
—

 
—

 
181,840

 
—

 
181,840

 
—

 
181,840

Portfolio Debt Interest Expense
—

 
—

 
—

 
—

 
—

 
—

 
31,998

 
—

 
—

 
31,998

 
—

 
31,998

Non-Portfolio Debt Interest Expense
2,247

 
260

 
55

 
—

 
2,562

 
71

 
1,482

 
29,709

 
(923
)
 
30,339

 
(29,664
)
 
3,237

Senior Secured Debt Interest Expense
—

 
—

 
9,919

 
—

 
9,919

 
—

 
—

 
9,919

 
—

 
9,919

 
—

 
19,838

Selling and Marketing
23,002

 
—

 
—

 
—

 
23,002

 
114

 
—

 
—

 
—

 
114

 
—

 
23,116

General and Administrative
67,214

 
(2,435
)
 
6,260

 
—

 
71,039

 
44,311

 
40,207

 
60,553

 
(47,193
)
 
97,878

 
(33,237
)
 
135,680

Depreciation Expense
12,662

 
—

 
—

 
—

 
12,662

 
1,026

 
414

 
959

 
—

 
2,399

 
—

 
15,061

Total Costs and Expenses
601,805

 
(2,175
)
 
16,234

 
—

 
615,864

 
45,522

 
74,101

 
282,980

 
(48,116
)
 
354,487

 
(62,901
)
 
907,450

Income (Loss) before Income Taxes
182,212

 
2,175

 
197,350

 
(186,606
)
 
195,131

 
3,111

 
125,047

 
38,139

 
(293,881
)
 
(127,584
)
 
—

 
67,547

Income Tax Expense
—

 
339

 
184

 
—

 
523

 
—

 
—

 
507

 
—

 
507

 
—

 
1,030

Net Income (Loss)
$
182,212

 
$
1,836

 
$
197,166

 
$
(186,606
)
 
$
194,608

 
$
3,111

 
$
125,047

 
$
37,632

 
$
(293,881
)
 
$
(128,091
)
 
$
—

 
$
66,517

Net Income attributable to noncontrolling interests - Inilex
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Net Income attributable to DriveTime Consolidated
$
182,212

 
$
1,836

 
$
197,166

 
$
(186,606
)
 
$
194,608

 
$
3,111

 
$
125,047

 
$
37,632

 
$
(293,881
)
 
$
(128,091
)
 
$
—

 
$
66,517



26
DriveTime Automotive Group, Inc. and Subsidiaries
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 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
Cash Flows from Operating Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
$
188,606

 
$
3,799

 
$
219,095

 
$
(192,256
)
 
$
219,244

 
$
5,802

 
$
146,950

 
$
(176,110
)
 
$
(152,752
)
 
$
(176,110
)
 
$
—

 
$
43,134

Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used In) Operating Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for Credit Losses - Finance Receivables
—

 
—

 
—

 
—

 
—

 
—

 
—

 
240,489

 
—

 
240,489

 
—

 
240,489

Provision for Credit Losses - Dealer Finance Receivables
—

 
—

 
—

 
—

 
—

 
2,003

 
—

 
—

 
—

 
2,003

 
—

 
2,003

Depreciation Expense
14,797

 
239

 
—

 
—

 
15,036

 
1,313

 
408

 
977

 
—

 
2,698

 
—

 
17,734

Amortization of Debt Issuance Costs and Debt Premium and Discount
122

 
57

 
379

 
—

 
558

 
—

 
3,866

 
379

 
—

 
4,245

 
—

 
4,803

Non-Cash Compensation Expense-Related Party
—

 
—

 
465

 
—

 
465

 
—

 
—

 
465

 
—

 
465

 
—

 
930

Loss (Gain) from Disposal of Property and Equipment
(80
)
 
—

 
—

 
—

 
(80
)
 
83

 
—

 
(7
)
 
—

 
76

 
—

 
(4
)
Originations of Finance Receivables
—

 
—

 
—

 
—

 
—

 
(1,702
)
 
—

 
(867,080
)
 
—

 
(868,782
)
 
—

 
(868,782
)
Collections and Recoveries on Finance Receivable Principal Balances
—

 
—

 
—

 
—

 
—

 
31

 
—

 
426,951

 
—

 
426,982

 
—

 
426,982

Change in Accrued Interest Receivable and Loan Origination Costs
—

 
—

 
—

 
—

 
—

 
(11
)
 
—

 
(2,775
)
 
—

 
(2,786
)
 
—

 
(2,786
)
Decrease in Inventory
25,197

 
—

 
—

 
792

 
25,989

 
—

 
—

 
—

 
—

 
—

 
—

 
25,989

Change in Other Assets
(1,016,221
)
 
(3,898
)
 
(247,225
)
 
199,252

 
(1,068,092
)
 
(694,775
)
 
(238,260
)
 
(585,799
)
 
1,007,862

 
(510,972
)
 
1,585,075

 
6,011

Increase in Deferred Revenue
14,276

 
(136
)
 
—

 
—

 
14,140

 
166

 
—

 
—

 
—

 
166

 
—

 
14,306

Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Liabilities
781,542

 
747

 
322

 
(7,788
)
 
774,823

 
757,572

 
(329
)
 
945,537

 
(875,606
)
 
827,174

 
(1,585,075
)
 
16,922

Net Cash Provided By (Used In) Operating Activities
8,239

 
808

 
(26,964
)
 
—

 
(17,917
)
 
70,482

 
(87,365
)
 
(16,973
)
 
(20,496
)
 
(54,352
)
 
—

 
(72,269
)
Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Origination of Dealer Finance Receivables
—

 
—

 
—

 
—

 
—

 
(89,273
)
 
—

 
—

 
—

 
(89,273
)
 
—

 
(89,273
)
Collections and Recoveries of Dealer Finance Receivables
—

 
—

 
—

 
—

 
—

 
22,430

 
—

 
—

 
—

 
22,430

 
—

 
22,430

Proceeds from Disposal of Property and Equipment
1,015

 
—

 
—

 
—

 
1,015

 
339

 
—

 
23

 
—

 
362

 
—

 
1,377

Purchase of Property and Equipment
(37,973
)
 
(709
)
 
—

 
—

 
(38,682
)
 
(1,338
)
 
(136
)
 
(934
)
 
—

 
(2,408
)
 
—

 
(41,090
)
Net Cash Used In Investing Activities
$
(36,958
)
 
$
(709
)
 
$
—

 
$
—

 
$
(37,667
)
 
$
(67,842
)
 
$
(136
)
 
$
(911
)
 
$
—

 
$
(68,889
)
 
$
—

 
$
(106,556
)

27
DriveTime Automotive Group, Inc. and Subsidiaries
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2013
(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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Decrease in Restricted Cash
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(1,446
)
 
$
(9,100
)
 
$
—

 
$
—

 
$
(10,546
)
 
$
—

 
$
(10,546
)
Deposits into Investments Held in Trust
—

 
—

 
—

 
—

 
—

 
—

 
(9,000
)
 
—

 
—

 
(9,000
)
 
—

 
(9,000
)
Collections, Buybacks and Change in Investments Held in Trust
—

 
—

 
—

 
—

 
—

 
—

 
4,930

 
—

 
—

 
4,930

 
—

 
4,930

Additions to Portfolio Term Financings
—

 
—

 
—

 
—

 
—

 
—

 
543,890

 
—

 
—

 
543,890

 
—

 
543,890

Repayment of Portfolio Term Financings
—

 
—

 
—

 
—

 
—

 
—

 
(435,848
)
 
—

 
20,496

 
(415,352
)
 
—

 
(415,352
)
Additions to Portfolio Warehouse Facilities
—

 
—

 
—

 
—

 
—

 
—

 
709,400

 
—

 
—

 
709,400

 
—

 
709,400

Repayment of Portfolio Warehouse Facilities
—

 
—

 
—

 
—

 
—

 
—

 
(712,600
)
 
—

 
—

 
(712,600
)
 
—

 
(712,600
)
Additions to Senior Secured Notes Payable
—

 
—

 
27,750

 
—

 
27,750

 
—

 
—

 
27,750

 
—

 
27,750

 
—

 
55,500

Additions to Other Secured Notes Payable
30,000

 
3,872

 
—

 
—

 
33,872

 
—

 
—

 
—

 
—

 
—

 
—

 
33,872

Repayment of Other Secured Notes Payable
—

 
(1,591
)
 
—

 
—

 
(1,591
)
 
(433
)
 
(165
)
 
—

 
—

 
(598
)
 
—

 
(2,189
)
Payment of Debt Issuance Costs
(46
)
 
—

 
(786
)
 
—

 
(832
)
 
—

 
(4,041
)
 
(786
)
 
—

 
(4,827
)
 
—

 
(5,659
)
Dividend Distributions
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10,855
)
 
—

 
(10,855
)
 
—

 
(10,855
)
Net Cash Provided By (Used In) Financing Activities
29,954

 
2,281

 
26,964

 
—

 
59,199

 
(1,879
)
 
87,466

 
16,109

 
20,496

 
122,192

 
—

 
181,391

Net Increase (Decrease) in Cash and Cash Equivalents
1,235

 
2,380

 
—

 
—

 
3,615

 
761

 
(35
)
 
(1,775
)
 
—

 
(1,049
)
 
—

 
2,566

Cash and Cash Equivalents at Beginning of Period
6,937

 
482

 
5

 
—

 
7,424

 
9

 
423

 
18,624

 
—

 
19,056

 
—

 
26,480

Cash and Cash Equivalents at End of Period
$
8,172

 
$
2,862

 
$
5

 
$
—

 
$
11,039

 
$
770

 
$
388

 
$
16,849

 
$
—

 
$
18,007

 
$
—

 
$
29,046


28
DriveTime Automotive Group, Inc. and Subsidiaries
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2012
(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
Cash Flows from Operating Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (Loss)
$
182,212

 
$
1,836

 
$
197,166

 
$
(186,606
)
 
$
194,608

 
$
3,111

 
$
125,047

 
$
37,632

 
$
(293,881
)
 
$
(128,091
)
 
$
—

 
$
66,517

Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used In) Operating Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for Credit Losses
—

 
—

 
—

 
—

 
—

 
—

 
—

 
181,840

 
—

 
181,840

 
—

 
181,840

Depreciation Expense
12,662

 
—

 
—

 
—

 
12,662

 
1,026

 
414

 
959

 
—

 
2,399

 
—

 
15,061

Amortization of Debt Issuance Costs and Debt Premium and Discount
75

 
—

 
450

 
—

 
525

 
—

 
4,990

 
450

 
—

 
5,440

 
—

 
5,965

Non-Cash Compensation Expense-Related Party
—

 
—

 
620

 
—

 
620

 
—

 
—

 
619

 
—

 
619

 
—

 
1,239

Loss from Disposal of Property and Equipment
(113
)
 
—

 
—

 
—

 
(113
)
 
(23
)
 
—

 
(2
)
 
—

 
(25
)
 
—

 
(138
)
Originations of Finance Receivables
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(749,268
)
 
—

 
(749,268
)
 
—

 
(749,268
)
Collections and Recoveries on Finance Receivable Principal Balances
—

 
—

 
—

 
—

 
—

 
—

 
—

 
420,709

 
—

 
420,709

 
—

 
420,709

Decrease in Accrued Interest Receivable and Loan Origination Costs
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(4,433
)
 
—

 
(4,433
)
 
—

 
(4,433
)
Decrease in Inventory
53,237

 
—

 
—

 
—

 
53,237

 
—

 
—

 
—

 
—

 
—

 
—

 
53,237

Change in Other Assets
(21,329
)
 
(14,239
)
 
(200,670
)
 
193,356

 
(42,882
)
 
325,961

 
368,780

 
263,011

 
(518,844
)
 
438,908

 
(393,427
)
 
2,599

Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Liabilities
(212,603
)
 
(153
)
 
2,441

 
(6,750
)
 
(217,065
)
 
(296,671
)
 
(387
)
 
(109,269
)
 
264,754

 
(141,573
)
 
393,427

 
34,789

Net Cash Provided By (Used In) Operating Activities
14,141

 
(12,556
)
 
7

 
—

 
1,592

 
33,404

 
498,844

 
42,248

 
(547,971
)
 
26,525

 
—

 
28,117

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Origination of Dealer Finance Receivables
—

 
—

 
—

 
—

 
—

 
(25,602
)
 
—

 
—

 
—

 
(25,602
)
 
—

 
(25,602
)
Collections and Receoveries of Dealer Finance Receivables
—

 
—

 
—

 
—

 
—

 
1,970

 
—

 
—

 
—

 
1,970

 
—

 
1,970

Proceeds from Disposal of Property and Equipment
1,345

 
—

 
—

 
—

 
1,345

 
138

 
—

 
38

 
—

 
176

 
—

 
1,521

Purchase of Property and Equipment
(12,249
)
 
—

 
—

 
—

 
(12,249
)
 
(3,017
)
 
272

 
(813
)
 
—

 
(3,558
)
 
—

 
(15,807
)
Net Cash Provided By (Used In) Investing Activities
$
(10,904
)
 
$
—

 
$
—

 
$
—

 
$
(10,904
)
 
$
(26,511
)
 
$
272

 
$
(775
)
 
$
—

 
$
(27,014
)
 
$
—

 
$
(37,918
)

29
DriveTime Automotive Group, Inc. and Subsidiaries
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2012
(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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Decrease in Restricted Cash
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(6,609
)
 
$
6,573

 
$
—

 
$
—

 
$
(36
)
 
$
—

 
$
(36
)
Deposits into Investments Held in Trust
—

 
—

 
—

 
—

 
—

 
—

 
(9,000
)
 
—

 
—

 
(9,000
)
 
—

 
(9,000
)
Collections, Buybacks and Change in Investments Held in Trust
—

 
—

 
—

 
—

 
—

 
—

 
38

 
—

 
—

 
38

 
—

 
38

Additions to Portfolio Warehouse Facilities
—

 
—

 
—

 
—

 
—

 
—

 
482,246

 
—

 
—

 
482,246

 
—

 
482,246

Repayment of Portfolio Warehouse Facilities
—

 
—

 
—

 
—

 
—

 
—

 
(345,481
)
 
—

 
—

 
(345,481
)
 
—

 
(345,481
)
Additions to Portfolio Term Financings
—

 
—

 
—

 
—

 
—

 
—

 
548,300

 
—

 
—

 
548,300

 
—

 
548,300

Repayment of Portfolio Term Financings
—

 
—

 
—

 
—

 
—

 
—

 
(630,992
)
 
—

 
—

 
(630,992
)
 
—

 
(630,992
)
Additions to Other Secured Notes Payable
30,001

 
12,968

 
—

 
—

 
42,969

 
—

 
—

 
—

 
—

 
—

 
—

 
42,969

Repayment of Other Secured Notes Payable
(30,179
)
 
(772
)
 
—

 
—

 
(30,951
)
 
(269
)
 
(155
)
 
—

 
—

 
(424
)
 
—

 
(31,375
)
Payment of Debt Issuance Costs
(410
)
 
—

 
(6
)
 
—

 
(416
)
 
—

 
(2,784
)
 
(6
)
 
—

 
(2,790
)
 
—

 
(3,206
)
Dividend Distributions
—

 
—

 
—

 
—

 
—

 
—

 
(547,971
)
 
(44,790
)
 
547,971

 
(44,790
)
 
—

 
(44,790
)
Net Cash Provided By (Used In) Financing Activities
(588
)
 
12,196

 
(6
)
 
—

 
11,602

 
(6,878
)
 
(499,226
)
 
(44,796
)
 
547,971

 
(2,929
)
 
—

 
8,673

Net Increase (Decrease) in Cash and Cash Equivalents
2,649

 
(360
)
 
1

 
—

 
2,290

 
15

 
(110
)
 
(3,323
)
 
—

 
(3,418
)
 
—

 
(1,128
)
Cash and Cash Equivalents at Beginning of Period
2,869

 
595

 
5

 
—

 
3,469

 
52

 
396

 
22,013

 
—

 
22,461

 
—

 
25,930

Cash and Cash Equivalents at End of Period
$
5,518

 
$
235

 
$
6

 
$
—

 
$
5,759

 
$
67

 
$
286

 
$
18,690

 
$
—

 
$
19,043

 
$
—

 
$
24,802



30

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, 2012, included in our Annual Report on Form 10-K filed with the SEC on March 28, 2013, 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 its subsidiaries as a consolidated entity.

Overview
DTAG and DTAC are sister companies under common control, generally with DTAG directing our retail vehicle sales and operations and DTAC directing our financing and collections operations. We have determined that DTAC is a variable interest entity (“VIE”) and DTAG is the primary beneficiary of DTAC. Therefore, DTAG and DTAC are consolidated for financial reporting purposes and intercompany transactions between DTAG and DTAC are eliminated in consolidation.
Our business operations may be classified under two operating segments: DriveTime and GO Financial. Our DriveTime segment is our historical business of selling and financing the purchase of quality used vehicles in the subprime market. Our GO Financial segment was launched in December 2011 as an indirect lending business providing subprime auto financing to third party automobile dealerships.
DriveTime – We are the leading used vehicle retailer in the United States with a primary focus on the sale and financing of quality vehicles to the subprime market. Through our branded dealerships, we provide our customers with a comprehensive end-to-end solution for their automotive needs, including the sale, financing, and maintenance of their vehicles. As of September 30, 2013, we owned and operated 107 dealerships and 19 reconditioning facilities in 20 states. For the nine months ended September 30, 2013, we sold 54,345 vehicles, generated $1.1 billion of total revenue and $133.9 million of Adjusted EBITDA. We provide our customers with financing for substantially all of the vehicles we sell. We historically have not utilized third-party finance companies or banks to finance vehicles for our customers, and many of our customers may be unable to obtain financing to purchase a vehicle from another company, therefore, financing is an essential component of the services that we provide to our customers. As of September 30, 2013, our loan portfolio had a total outstanding principal balance of $1.9 billion. We maintain our loan portfolio and related financings on our balance sheet.
Over the past 21 years, we have developed an integrated business model that consists of vehicle acquisition, reconditioning, sales, underwriting and finance, loan servicing, and after sale support. We believe that our model enables us to operate successfully in the underserved subprime market. In addition, we believe that our model allows us to systematically open new dealerships in existing and new markets throughout the United States.

31

Select information regarding the regions in which we operate our DriveTime segment is as follows:
 
 
Nine months ended
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2013
 
As of September 30, 2013
State
 
# of Units Sold
 
Percent of Unit
Sales Volume
 
Number of
Stores
 
Number of
Reconditioning
Facilities
 
# of  Active
Loans
 
Loan Principal
 
% of Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)

 
 
 Texas
 
10,581

 
19.5
%
 
19

 
4

 
32,675

 
$
398,341

 
21.4
%
 Florida
 
8,212

 
15.0
%
 
20

 
2

 
23,729

 
286,213

 
15.5
%
 Georgia
 
4,383

 
8.2
%
 
8

 
1

 
11,623

 
142,390

 
7.7
%
 North Carolina
 
4,158

 
7.6
%
 
9

 
2

 
13,613

 
165,152

 
8.9
%
 Arizona
 
3,479

 
6.3
%
 
6

 
1

 
10,447

 
117,849

 
6.3
%
 Tennessee
 
3,389

 
6.2
%
 
6

 
—

 
7,471

 
99,956

 
5.5
%
 Virginia
 
3,075

 
5.7
%
 
6

 
1

 
10,050

 
114,118

 
6.1
%
 California
 
2,458

 
4.5
%
 
4

 
1

 
7,039

 
82,082

 
4.4
%
 Alabama
 
2,405

 
4.4
%
 
5

 
1

 
4,800

 
64,653

 
3.5
%
 South Carolina
 
2,180

 
4.1
%
 
4

 
1

 
5,520

 
71,485

 
3.9
%
 Ohio
 
2,114

 
3.8
%
 
4

 
—

 
3,002

 
43,935

 
2.4
%
 Nevada
 
1,715

 
3.2
%
 
2

 
1

 
5,753

 
66,448

 
3.6
%
 Oklahoma
 
1,387

 
2.6
%
 
3

 
1

 
3,328

 
44,005

 
2.4
%
 New Mexico
 
1,173

 
2.2
%
 
3

 
1

 
4,397

 
47,784

 
2.6
%
 Indiana
 
822

 
1.5
%
 
2

 
—

 
1,884

 
26,888

 
1.5
%
 Colorado
 
789

 
1.5
%
 
2

 
—

 
3,048

 
34,396

 
1.9
%
 Missouri
 
732

 
1.3
%
 
1

 
—

 
806

 
12,487

 
0.7
%
 Mississippi
 
728

 
1.3
%
 
1

 
—

 
1,550

 
22,025

 
1.2
%
 Arkansas
 
522

 
1.0
%
 
1

 
1

 
653

 
10,128

 
0.5
%
 Kentucky
 
43

 
0.1
%
 
1

 
1

 
43

 
720

 
—
%
 
 
54,345

 
100.0
%
 
107

 
19

 
151,431

 
$
1,851,055

 
100.0
%
Indirect Lending – GO Financial. GFC Lending LLC dba GO Financial (“GO Financial” or “GO”) provides subprime auto financing to third-party automobile dealerships. The third-party automobile dealerships originate retail installment sales contracts to finance purchases of vehicles by customers with demographics similar to DriveTime. GO enters into a dealer servicing agreement with each of the third-party automobile dealerships whereby, subsequent to verification of a qualifying customer loan, GO advances funds to the dealership through a non-recourse loan (“dealer advance”). Once originated, GO performs the loan servicing of both the dealer advance to the dealership and the underlying customer loan to the end customer. At September 30, 2013 we had $105.8 million and at December 31, 2012 we had $41.0 million in dealer finance receivables outstanding.
    
Third Quarter 2013 Highlights
•
Total revenue increased 20.4% to $367.1 million, compared to third quarter 2012.
•
Unit sales increased 16.7% to 17,313 vehicles sold (excluding Carvana), compared to third quarter 2012.
•
Originations increased 21.2% to $277.5 million, compared to third quarter 2012.
•
GO Financial increased its active dealer base by 27% and funded $24.2 million in dealer advances.
•
We opened three new dealerships and one new inspection center, entering two new geographic regions, Louisville, KY and West Palm Beach, FL.
•
On September 5, 2013, we completed an exchange offer to exchange $50.0 million of our Senior Secured Notes issued in May 2013 for registered, publicly tradable notes that have substantially identical terms.


32

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 28, 2013, 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, 2012. These policies relate to revenue recognition, revenue recognition for dealer finance receivables, allowance for credit losses, recovery receivables, valuation of inventory, secured financings, and our limited warranty accrual.

Factors Affecting Comparability
We have set forth below selected factors that we believe have had, or can be expected to have, a significant effect on the comparability of recent or future results of operations:
Revenue Recognition
We have historically included our DriveCare® limited warranty as part of the bundled retail price of each vehicle we sell, recognizing revenue and costs related to the warranty at the time of the sale. Beginning in the fourth quarter of 2012, however, we began offering our DriveCare® limited warranty as a separately priced optional service contract in certain regions in which we operate. The revenue and costs related to these service contracts is deferred and recognized over the life of the service contract instead of at the time of the sale of the vehicle. Expansion of the regions in which we offer unbundled service contracts will negatively impact our gross revenue, gross margin, and net income in future periods when compared to historical results due to the income deferral associated with unbundling. However, we do not expect unbundling to have a negative economic or cash flow impact on the Company. For the three and nine months ended September 30, 2013, net income was negatively impacted by $4.7 million and $14.3 million, respectively, as compared to the same periods in 2012.

33

GO Financial
In December 2011, we launched GO Financial. GO provides indirect subprime auto financing to non-DriveTime dealers. For the three and nine months ended September 30, 2013, GO originated $24.2 million and $89.3 million in dealer finance receivables, respectively. GO originated $13.4 million and $25.6 million for the same periods in 2012. At September 30, 2013 and December 31, 2012 GO had total assets of $109.8 million and $42.4 million. For the three and nine months ended September 30, 2013, GO generated $4.8 million and $12.5 million in total revenue. GO generated $0.8 million and $1.4 million in total revenue for the same periods in 2012. For the three and nine months ended September 30, 2013, GO generated losses of $1.7 million and 1.2 million, respectively, compared to income of $0.1 million and a loss of $2.0 million for the three and nine months ended September 30, 2012. We expect GO’s originations of dealer finance receivables will continue to grow during 2013, thereby increasing our total revenue, portfolio size, and operating expenses as GO hires personnel, organizes and registers in various states with various regulatory authorities, and incurs other costs of doing business.
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 portfolio of finance receivables also has historically followed a seasonal pattern, with delinquencies and charge-offs being the highest in the second half of the year.


34

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
 
As of and for the
 
Three Months Ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(Unaudited)
 
($ In thousands except per vehicle data)
Consolidated Statement of Operations Data:
 
 
 
 
 
 
 
Total Revenue
$
367,072

 
$
304,957

 
$
1,119,115

 
$
974,997

Total Costs and Expenses
$
362,901

 
$
300,190

 
$
1,075,438

 
$
907,450

Income Before Income Taxes
$
4,171

 
$
4,767

 
$
43,677

 
$
67,547

Net Income
$
4,240

 
$
4,396

 
$
43,134

 
$
66,517

Other Financial Data:
 
 
 
 
 
 
 
EBITDA (1)
$
30,811

 
$
28,666

 
$
119,271

 
$
137,681

Adjusted EBITDA (1)
$
35,611

 
$
28,140

 
$
133,927

 
$
136,524

Dealerships:*
 
 
 
 
 
 
 
Dealerships in operation at end of period
107

 
93

 
107

 
93

Average number of vehicles sold per dealership per month
55

 
55

 
59

 
61

Retail Sales:*
 
 
 
 
 
 
 
Number of used vehicles sold
17,313

 
14,839

 
54,206

 
48,651

Average age of vehicles sold (in years)
5.7

 
6.0

 
5.7

 
6.0

Average mileage of vehicles sold
83,997

 
91,132

 
82,228

 
85,865

Per vehicle sold data:
 
 
 
 
 
 
 
Average net revenue per vehicle sold
$
16,068

 
$
15,288

 
$
16,063

 
$
15,418

Average cost of vehicle sold
$
(10,511
)
 
$
(10,194
)
 
$
(10,700
)
 
$
(10,209
)
Average gross margin
$
5,557

 
$
5,094

 
$
5,363

 
$
5,209

Gross margin percentage
34.6
%
 
33.3
%
 
33.4
%
 
33.8
%
Loan Portfolio:*
 
 
 
 
 
 
 
Principal balances originated
$
276,893

 
$
228,890

 
$
867,165

 
$
749,268

Average amount financed per origination
$
15,993

 
$
15,412

 
$
15,998

 
$
15,494

Number of loans outstanding—end of period
151,431

 
145,014

 
151,431

 
145,014

Principal outstanding—end of period
$
1,851,055

 
$
1,643,281

 
$
1,851,055

 
$
1,643,281

Average principal outstanding
$
1,824,027

 
$
1,636,811

 
$
1,730,255

 
$
1,569,973

Average effective yield on portfolio (2)
18.8
%
 
19.0
%
 
19.1
%
 
19.5
%
Allowance for credit losses as a percentage of portfolio principal
16.2
%
 
15.2
%
 
16.2
%
 
15.2
%
Portfolio performance data:*
 
 
 
 
 
 
 
Portfolio delinquencies 31-90 days
13.0
%
 
12.2
%
 
13.0
%
 
12.2
%
Principal charged-off as a percentage of average outstanding principal(3)
6.4
%
 
6.2
%
 
17.5
%
 
16.4
%
Recoveries as a percentage of principal charged-off (3)
34.9
%
 
37.8
%
 
36.3
%
 
41.1
%
Net charge-offs as a percentage of average principal (3)
4.2
%
 
3.9
%
 
11.1
%
 
9.6
%
Financing and Liquidity:*
 
 
 
 
 
 
 
Unrestricted cash and availability (4)
$
219,507

 
$
257,862

 
$
219,507

 
$
257,862

Ratio of net debt to shareholders’ equity (5)
3.0x

 
2.5x

 
3.0x

 
2.5x

Total average debt
$
1,602,627

 
$
1,291,631

 
$
1,512,861

 
$
1,232,897

Weighted average effective borrowing rate on total debt (6)
5.0
%
 
5.8
%
 
5.1
%
 
5.9
%

35

 
September 30, 2013
 
December 31, 2012
 
(In thousands)
Consolidated Balance Sheet Data:
 
 
 
Cash and Cash Equivalents
$
29,046

 
$
26,480

Finance Receivables - DriveTime
$
1,886,753

 
$
1,634,622

Allowance for Credit Losses - DriveTime
$
(300,624
)
 
$
(252,590
)
Inventory
$
244,744

 
$
270,733

Total Assets
$
2,269,186

 
$
1,989,117

Total Debt
$
1,634,326

 
$
1,422,279

Long Term Debt
$
1,094,584

 
$
928,917

Shareholders’ Equity
$
503,934

 
$
467,553

*     Except where indicated, selected financial data excludes GO Financial, Carvana and Inilex. For GO Financial selected financial data see —Results of operations - GO Financial.  
(1) 
See definition of EBITDA and Adjusted EBITDA in Management’s Discussion and Analysis – Non-GAAP discussion 
(2) 
Average effective yield represents the interest income earned at the contractual rate (stated APR) less the write-off of accrued interest on charged-off loans and amortization of loan origination costs (which includes the write-off of unamortized loan origination costs on charged-off loans), plus interest earned on investments held in trust and late fees earned. 
(3) 
Information is not annualized due to the seasonality of charge-offs and receivables. 
(4) 
Unrestricted cash and availability consists of cash and cash equivalents plus available borrowings under the portfolio warehouse, residual, and inventory facilities, based on assets pledged or available to be pledged to the facilities. 
(5) 
Net debt is calculated as total debt less restricted cash and investments held in trust securing various debt facilities. Ratio of net debt to shareholders’ equity is calculated as net debt divided by total shareholders’ equity. 
(6) 
Weighted average effective borrowing rate includes the effect of amortization of discounts, debt issuance costs, and unused line fees. 

Results of Operations - DriveTime
The following table sets forth our results of operations for the periods indicated:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
% Change
 
2013
 
2012
 
% Change
 
($ in thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Sales of Used Vehicles
$
276,826

 
$
226,866

 
22.0%
 
$
863,686

 
$
750,125

 
15.1%
Interest Income
84,319

 
77,334

 
9.0%
 
241,652

 
223,492

 
8.1%
Dealer Finance and Other Income
5,927

 
757

 
*
 
13,777

 
1,380

 
*
Total Revenue
367,072

 
304,957

 
20.4%
 
1,119,115

 
974,997

 
14.8%
Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of Used Vehicles Sold
185,095

 
151,264

 
22.4%
 
584,503

 
496,680

 
17.7%
Provision for Credit Losses - Finance Receivables
92,335

 
70,110

 
31.7%
 
240,489

 
181,840

 
32.3%
Provision for Credit Losses - Dealer Finance Receivables
1,115

 
—

 
100.0%
 
2,003

 
—

 
100.0%
Portfolio Debt Interest Expense
10,596

 
11,080

 
(4.4)%
 
31,319

 
31,998

 
(2.1)%
Non-Portfolio Debt Interest Expense
1,480

 
1,106

 
33.8%
 
4,251

 
3,237

 
31.3%
Senior Secured Debt Interest Expense
8,135

 
6,622

 
22.8%
 
22,290

 
19,838

 
12.4%
Selling and Marketing
7,900

 
7,336

 
7.7%
 
25,027

 
23,116

 
8.3%
General and Administrative
49,816

 
47,581

 
4.7%
 
147,822

 
135,680

 
8.9%
Depreciation Expense
6,429

 
5,091

 
26.3%
 
17,734

 
15,061

 
17.7%
Total Costs and Expenses
362,901

 
300,190

 
20.9%
 
1,075,438

 
907,450

 
18.5%
Income Before Income Taxes
4,171

 
4,767

 
(12.5)%
 
43,677

 
67,547

 
(35.3)%
Income Tax Expense / (Benefit)
(69
)
 
371

 
(118.6)%
 
543

 
1,030

 
(47.3)%
Net Income
$
4,240

 
$
4,396

 
(3.5)%
 
$
43,134

 
$
66,517

 
(35.2)%
* Greater than 100%

36

Sales of used vehicles
Revenue from sales of used vehicles increased during the three and nine months ended September 30, 2013 compared to 2012. The increase in revenue was primarily due to an increase in sales volume as a result of opening new dealerships, coupled with an increase in the average sales price per vehicle sold. Since September 30, 2012, we have opened a net of fourteen additional dealerships. The increase in average sales price per vehicle sold is attributable to an overall increase in the average cost of vehicles acquired at auction. Total vehicles sold for the three and nine months ended September 30, 2013 have increased compared to the same periods in 2012, due to a greater number of average dealerships in operation in 2013 as compared to 2012. Our sales revenue was negatively affected by approximately $4.7 million and $14.3 million of deferred revenue for the three and nine months ended September 30, 2013, respectively, as a result of offering our DriveCare® limited warranty as a separately priced product. We have historically included the DriveCare® limited warranty as part of the bundled retail price of each vehicle sold, recognizing revenue and costs related to the warranty at the time of the sale. Beginning in the fourth quarter of 2012, however, we began offering the DriveCare® limited warranty as a separately priced optional service contract in certain regions in which we operate. See also “—Cost of used vehicles sold” and "—Gross Margin" for further discussion on vehicle cost and deferred revenue.
Interest income
Interest income increased during the three and nine months ended September 30, 2013, compared to the same periods in 2012. This increase is primarily due to an increase in our average portfolio principal outstanding of $187.2 million and $160.3 million for the three and nine months ended September 30, 2013, respectively, compared to 2012. The increase in portfolio size was driven by the increase in sales volume and an increase in the average amount financed per loan origination. Partially offsetting the increase in average portfolio size was a decrease in average effective yield on our receivables period over period, as a result of a decrease in average APR of contracts originated. See also "—Originations" for further discussion.
Cost of used vehicles sold
Total cost of used vehicles sold increased for the three and nine months ended September 30, 2013, compared to 2012. The increase was due to an increase in the number of vehicles sold and an increase in the average acquisition cost per vehicle sold. Our cost of vehicles sold per unit increased primarily as a result of selling a lower mileage and newer model year vehicle in during these periods.
Gross margin
Gross margin as a percentage of sales revenue increased to 34.6% from 33.3% for the three months ended September 30, 2013 compared to 2012. Gross margin as a percentage of sales revenue decreased to 33.4% from 33.8% for the nine months ended September 30, 2013 compared to 2012. Overall gross margin was adversely impacted in 2013 as a result of the accounting effects related to offering our DriveCare® limited warranty as a separately priced product in certain regions in which we operate. Excluding the effects of unbundling the warranty, gross margin percentage would have been 36.9% and 33.3% for three months ended September 30, 2013 and 2012, and would have been 35.0% and 33.8% for nine months ended September 30, 2013. Gross margin was also affected by higher vehicle acquisition cost. As we experience wholesale pricing pressure, our ability to pass on costs to our customers is limited, because our customers are generally sensitive to down payment and monthly payment amounts and financing terms.
Provision for credit losses
Provision for credit losses increased for the three and nine months ended September 30, 2013, compared to 2012. The increase is primarily the result of an increase in the principal balance of loans outstanding as a result of increased sales volume, coupled with an increase in the allowance as a percent of principal.
Net charge-offs as a percent of average outstanding principal increased to 4.2% from 3.9% for the three months ended September 30, 2013 as compared to 2012, and increased to 11.1% from 9.6% for the nine months ended September 30, 2013 as compared to 2012. The increase in net charge-offs percentage is the result of an increase in gross charge-offs, coupled with a decrease in our recovery rate. Gross principal charged-off increased to 6.4% compared to 6.2% for the three months ended September 30, 2013 and 2012, and increased to 17.5% compared to 16.4% for the nine months ended September 30, 2013 and 2012 . Influencing gross loss rates were higher average principal charge-offs due in part to higher vehicle acquisition cost, which resulted in a higher amount financed and longer financing terms to maintain customer payment affordability, plus general economic conditions including unemployment and underemployment rates, and the latent impact of the disruption of our collection operations resulting from the terminated transaction for the sale of the Company in 2012. Recoveries as a percentage of principal charged-off decreased to 34.9% from 37.8% for the three months ended September 30, 2013 and 2012 and decreased to 36.3% from 41.1% for the nine months ended September 30, 2013 and 2012.

37

Beginning in the second quarter of 2012 and continuing throughout 2013, the wholesale market softened partially as a result of rising new vehicle sales, increasing the inventory of used vehicles from trade-ins, and an increase in supply of fleet vehicles as rental companies are retiring more vehicles.
Our allowance as a percent of principal outstanding increased from 15.7% at December 31, 2012 to 16.2% at September 30, 2013. The increase in the allowance rate is due to an increase in gross charge-off expectations as a result of an increase in average term and an expectation that recovery values will decline in 2013 and 2014.
Portfolio debt interest expense
Total portfolio debt interest expense decreased slightly for the three and nine months ended September 30, 2013, compared to the same periods in 2012. These decreases in expense are the result of the decrease in the overall cost of funds of our portfolio debt, partially offset by an increase in the average outstanding balance of portfolio debt period over period. Our portfolio debt cost of funds decreased to 3.6% for the nine months ended September 30, 2013 compared to 4.5% in 2012. The decrease in our costs of funds is attributable to lower borrowing costs of our recent securitizations, bank term financing, and warehouse facilities.
Non-portfolio debt interest expense
Total non-portfolio debt interest expense increased for the three and nine months ended September 30, 2013, compared to the same periods in 2012. These increases were primarily attributed to increased borrowings on our inventory facility as a result of an increase in our vehicle inventory. As a result, the average balance outstanding of non-portfolio debt increased to $135.0 million from $99.2 million for the three months ended September 30, 2013 and 2012 and increased to $128.9 million from $96.5 million for the nine months ended September 30, 2013 and 2012.
Senior Secured Debt Interest Expense
Senior Secured debt interest expense increased for the three and nine months ended September 30, 2013, compared to the same periods in 2012. These increases are due to the the additional $50.0 million of Senior Secured Notes issued in May 2013.
Selling and marketing expense
Selling and marketing expenses increased for the three and nine months ended September 30, 2013, compared to the same periods in 2012. These increases are due primarily to our geographic expansion into new markets.
General and administrative expense
General and administrative expenses increased for the three and nine months ended September 30, 2013 compared to 2012, primarily as a result of an increase in operating lease expense related to the increased number of dealerships in operation year over year, a corresponding increase in salaries and wages as we increased the number of employees in conjunction with our overall expansion and an increase in the operation expenses related to our online initiative through Carvana.
Depreciation expense
Depreciation expense increased for the three and nine months ended September 30, 2013 compared to 2012. This increase was primarily the result of an increase in capital expenditures associated with the expansion of our dealership base and information technology infrastructure.

38

Net income
The following table sets forth net income adjusted for factors affecting comparability:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
 
($ In thousands)
 Net Income
$
4,240

 
$
4,396

 
$
43,134

 
$
66,517

 Change in Deferred Income (1)
4,683

 
—

 
14,306

 
—

Adjusted Net Income
$
8,923

 
$
4,396

 
$
57,440

 
$
66,517

(1)    Deferred income is the net economic benefit of estimated deferred revenue and expense related to our accrued service contracts.  
Net income remained consistent for the three months ended September 30, 2013, and decreased $23.4 million for the nine months ended September 30, 2013 as compared to 2012. We attribute the decrease in net income for the nine months ending 2013 primarily to (i) higher net charge-offs related to loan performance and lower recovery rates on repossessed vehicles, (ii) higher retail operating expenses from new dealership openings since the second half of 2012; and (iii) the effects of deferred service contract income in regions where we recently began offering our limited warranty as a separately priced service contract.
Excluding the effects of deferred service contract income, adjusted net income for the three months ended September 30, 2013 was $8.9 million, a $4.5 million increase compared to the same period in 2012. Adjusted net income for the nine months ended September 30, 2013 was $57.4 million, a $9.1 million decrease from 2012.
Originations
The following table sets forth information regarding our originations for the periods indicated:
 
Three Months Ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
Change
 
2013
 
2012
 
Change
 
($ In thousands except per loan data)
 
 
Amount originated*
$
276,893

 
$
228,890

 
$
48,003

 
$
867,165

 
$
749,268

 
$
117,897

Number of loans originated
17,313

 
14,838

 
2,475

 
54,206

 
48,650

 
5,556

Average amount financed per origination
$
15,993

 
$
15,412

 
$
581

 
$
15,998

 
$
15,494

 
$
504

Average APR originated
19.4
%
 
20.3
%
 
(0.9
)%
 
19.7
%
 
20.3
%
 
(0.6
)%
Average term (in months)
64.5

 
56.7

 
7.8

 
64.2

 
57.3

 
6.9

Average down payment per origination
$
835

 
$
826

 
$
9

 
$
1,009

 
$
1,032

 
$
(23
)
Average down payment as a percent of amount financed
5.2
%
 
5.4
%
 
(0.2
)%
 
6.3
%
 
6.7
%
 
(0.4
)%
Percentage of sales revenue financed (1)
99.5
%
 
100.5
%
 
(1.0
)%
 
99.6
%
 
99.1
%
 
0.5
 %
* Excludes Carvana originations. 
(1) Sales revenue is calculated as gross revenue net of reserve for returns and sales discounts. 
We originate loans in conjunction with each vehicle we sell, unless the sale is a cash transaction. The balance on these loans, together with accrued interest and unamortized loan origination costs, comprises our portfolio of finance receivables. Our receivables are then financed through securitizations, bank term financings and warehouse facilities in order to generate liquidity for our business. See “—Liquidity and Capital Resources.”
The principal amount of loans we originated increased for both the three and nine months ended September 30, 2013 compared to 2012. These increases are due to an increase in the number of used vehicles sold and an increase in the average amount financed per loan originated as a direct result of an increase in the average sales price per vehicle sold. Average APR of loans originated decreased and average term increased as a result of our overall interest rate and financing/underwriting strategy, which is designed to optimize affordability for our customers, while considering the effects of retail costs, vehicle pricing and loan performance. The change in the percentage of sales revenue financed is primarily a result of a lower average down payment combined with a higher average sales price, coupled with the effects of customers financing the cost of the DriveCare® warranty in regions where we offer the warranty as a separately priced service contract.

39

Receivables portfolio
The following table shows the characteristics of our finance receivables portfolio for the periods indicated:
 
Three and nine months ended September 30,
 
2013
 
2012
 
Change
 
($ In thousands except per loan data)
Average remaining principal per loan, end of period
$
12,224

 
$
11,111

 
$
1,113

Weighted Average APR of contracts outstanding
20.0
%
 
20.5
%
 
(0.5
)%
Average age per loan (in months)
13.4

 
14.1

 
(0.7
)
 
 
 
 
 
 
Delinquencies:
 
 
 
 
 
Delinquencies 1-30 days
30.6
%
 
31.1
%
 
(0.5
)%
Delinquencies 31-60 days
8.7
%
 
8.0
%
 
0.7
 %
Delinquencies 61-90 days
4.3
%
 
4.2
%
 
0.1
 %
Delinquencies 91-120 days
1.5
%
 
0.4
%
 
1.1
 %
Total Past Due
45.1
%
 
43.7
%
 
1.4
 %
Delinquencies
As a percentage of total outstanding loan principal balances, delinquencies over 30 days increased year over year, however, delinquencies 1-30 days decreased compared to the prior year. The increase in delinquencies greater than 30 days is the result of our change in collection strategy for early delinquencies aimed to improve customer experience while reducing cost of servicing and centralization of collection efforts for early delinquencies, which includes the use of off-shore services. As a result of the terminated transaction for the sale of the Company in 2012, turnover of collections personnel increased, we enacted a collections hiring freeze, and we experienced a general disruption of our collections operations, all which adversely impacted delinquencies. We also closed our regional collection centers in Orlando, Florida, and Richmond, Virginia, which temporarily impacted delinquencies. Since the termination of the transaction and closure of our regional facilities, we have taken steps to increase collections personnel and supplement our closed regional centers, returning to our normal staffing levels. The increase in delinquencies greater than 90 days compared to prior years is primarily due to changes we have made to expand our charge off policy to 120 days for certain qualifying accounts.
Results of Operations - GO Financial
GO Financial began operations in December 2011. The first quarter of 2012 was GO's first quarter of operations, which was the primary driver of the variances period over period. The following table sets forth our results of operations for the periods indicated:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
Change
 
2013
 
2012
 
Change
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
 
 
Dealer Finance Income
$
4,496

 
$
663

 
$
3,833

 
$
10,899

 
$
1,197

 
$
9,702

Other Income
287

 
94

 
193

 
1,606

 
183

 
1,423

Total Revenue
$
4,783

 
$
757

 
$
4,026

 
$
12,505

 
$
1,380

 
$
11,125

Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
 
Interest Expense
$
1,137

 
$
—

 
$
1,137

 
$
2,721

 
$
—

 
$
2,721

Provision for Credit Losses
1,115

 
—

 
1,115

 
2,003

 
—

 
2,003

Selling and Marketing
15

 
21

 
(6
)
 
59

 
114

 
(55
)
General and Administrative
4,052

 
544

 
3,508

 
8,529

 
2,958

 
5,571

Depreciation Expense
157

 
117

 
40

 
433

 
294

 
139

Total Costs and Expenses
$
6,476

 
$
682

 
$
5,794

 
$
13,745

 
$
3,366

 
$
10,379

Income (Loss) before Income Taxes
$
(1,693
)
 
$
75

 
$
(1,768
)
 
$
(1,240
)
 
$
(1,986
)
 
$
746


40

Dealer finance and other income
Dealer finance and other income represents the finance income recognized on our dealer finance receivable portfolio and income recognized on other ancillary products offered by GO. Our average portfolio of dealer finance receivables for the three and nine months ended September 30, 2013 was $99.0 million and $73.4 million, respectively. We had 481 active dealers participating in our indirect lending program at September 30, 2013. Other income consists of income from GPS devices and service contracts offered by GO dealer participants to their customers at time of originating an installment sale contract.
Operating Expenses
GO's total operating expenses for the three and nine months ended September 30, 2013 increased compared to the same periods in 2012. The primary components leading to the increase in operating expenses are an increase in interest expense and an increase in salaries, wages, and other employee expenses combined with an increase in servicing fees. Interest expense increased related to intercompany financing from GO's parent, DTAC, in 2013. Salaries and wages increased due to the increase in headcount related to GO's growth. Servicing fees increased as a result of an increase in the volume of loans being serviced by DTCC.
The following table summarizes information related to the GO portfolio of dealer finance receivables, originations, collections, portfolio performance, and other key operating metrics:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
 
($ In thousands, except per contract information)
Originations:
 
 
 
 
 
 
 
Total dealer advance funded
$
24,203

 
$
13,352

 
$
89,273

 
$
25,602

Number of contracts funded
2,847

 
1,617

 
11,152

 
3,048

Average amount advanced per contract
$
8,501

 
$
8,257

 
$
8,005

 
$
8,400

Average Advance Rate
73.0
%
 
75.0
%
 
73.0
%
 
75.0
%
Dealers:
 
 
 
 
 
 
 
Total Number of Dealers
481

 
169

 
481

 
169


Liquidity and Capital Resources
General
We require capital to provide financing to our customers, finance dealer advances through GO, purchase vehicle inventory, fund capital improvements to open new dealerships and reconditioning facilities, and fund general corporate purposes, including the purchase of property and equipment and to fund operations.
We historically have funded our capital requirements through operating cash flow, portfolio warehouse facilities, securitizations, bank term financings, residual financing, inventory and other revolving debt facilities, real estate mortgage financing, operating leases, and other notes payable (including senior secured notes, junior secured notes, senior unsecured notes, and subordinated notes).
Recent financing and cash flow transactions
In September 2013 we completed the 2013-2 securitization transaction by issuing $231.9 million of asset-backed securities.

41

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:
 
September 30, 2013
 
December 31, 2012
 
September 30, 2012
 
(In thousands)
Liquidity
 
 
 
 
 
Unrestricted Cash
$
29,046

 
$
26,480

 
$
24,802

Portfolio Warehouse Facilities
181,782

 
54,185

 
218,957

Term Residual Facility
—

 
9,058

 
—

Inventory Facility
8,679

 
48,679

 
14,103

Total Liquidity
$
219,507

 
$
138,402

 
$
257,862

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 September 30, 2013:
Components of Liquidity
Facility
Amount
 
Amount
Drawn
 
Unused
Facility
Amount
 
Borrowing
Base
 
Amount
Drawn
 
Total
Availability
 
 
(In thousands)
 
Deutsche Bank Warehouse Facility
$
150,000

 
$
23,000

 
$
127,000

 
$
43,229

 
$
23,000

 
$
20,229

(1) 
Wells Fargo Warehouse Facility
150,000

 
19,000

 
131,000

 
32,275

 
19,000

 
13,275

(2) 
RBS Warehouse Facility
125,000

 
12,000

 
113,000

 
32,607

 
12,000

 
20,607

(3) 
DTAC Receivables
 N/A

 
 N/A

 
 N/A

 
97,671

 
 N/A

 
97,671

(4) 
GO Receivables
 N/A

 
 N/A

 
 N/A

 
30,000

 
 N/A

 
30,000

(5) 
Total Portfolio Warehouse Facilities
$
425,000

 
$
54,000

 
$
371,000

 
$
235,782

 
$
54,000

 
$
181,782

 
Term Residual Facility
100,000

 
100,000

 
—

 
100,000

 
100,000

 
—

 
Inventory Facility
130,000

 
121,321

 
8,679

 
130,000

 
121,321

 
8,679

 
 
$
655,000

 
$
275,321

 
$
379,679

 
$
465,782

 
$
275,321

 
190,461

 
Unrestricted Cash
 
 
 
 
 
 
 
 
 
 
29,046

 
Total Cash and Availability
 
 
 
 
 
 
 
 
 
 
$
219,507

 
 
(1) 
Excludes $4.0 million of warehouse cash collections per borrowing base definition.
(2) 
Excludes $3.7 million of warehouse cash collections per borrowing base definition.  
(3) 
Assumes collection and reserve amounts on deposit of $3.7 million are used to paydown amount drawn.  
(4) 
Includes $158.0 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.  
(5) 
Includes $128.7 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.  

42

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 facilities, capacity of our portfolio warehouse and inventory facilities, portfolio term financings, issuance of senior notes and changes in other notes payable. The following is a summary of changes in liquidity for each period presented:
 
Nine months ended September 30, 2013
 
2013
 
2012
 
(In thousands)
Liquidity, Beginning of Period
$
138,402

 
$
230,267

Net Increase/(Decrease) in Cash and Cash Equivalents
2,566

 
(1,128
)
Increase in Portfolio Warehouse Availability
127,597

 
70,120

(Decrease) in Term Residual Facility Availability
(9,058
)
 
—

(Decrease) in Inventory Facility Availability
(40,000
)
 
(41,397
)
Net Increase/(Decrease) in Liquidity
$
81,105

 
$
27,595

 
 
 
 
Liquidity, End of Period
$
219,507

 
$
257,862

     Liquidity for the nine months ended September 30, 2013 increased $81.1 million as a result of an increase in the advance rate on the RBS facility, completion of the 2013-1 and 2013-2 securitizations, issuance of $50.0 million in additional Senior Secured Notes, obtaining eligibility on GO receivables as collateral under certain facilities and drawing $75 million from the term residual facility. These increases were partially offset by a seasonal size decrease in our inventory facility. Liquidity for the nine months ended September 30, 2012 increased $27.6 million as a result of an increase in the operating cash flow used to pay down our warehouse facilities, which was partially offset by a decrease in the inventory facility availability due to inventory levels exceeding the current inventory facility size.
Cash flows
Operating activities
For the nine months ended September 30, 2013, net cash used in operating activities was $72.3 million, compared to cash provided of $28.1 million for the same period in 2012. The decrease in cash from operating activities was a result of lower net income, an increase in originations and a smaller increase in operational liabilities in 2013 compared to 2012. These decreases were partially offset by a higher provision for credit losses and an increase in deferred revenue compared to the same period in 2012.
Investing activities
For the nine months ended September 30, 2013, net cash used in investing activities was $106.6 million compared to $37.9 million for the same period in 2012. This increase was primarily the result of an increase in dealer finance receivable originations over portfolio run-off for GO, combined with an increase in funds used to acquire and improve facilities as compared to 2012.
Financing activities
For the nine months ended September 30, 2013, net cash provided by financing activities was $181.4 million, compared to a use of $8.7 million in the nine months ended September 30, 2012. This change in cash flows was primarily the result of $75.0 million draw on our term residual facility and a $30.0 million draw on our revolving inventory facility and the issuance of $50.0 million in additional Senior Secured Notes. These transactions were partially offset by an increase in the repayment of portfolio term facilities, smaller securitization issuances and a reduction in dividends compared to 2012 and an increase in restricted cash as compared to 2012.
Senior Secured Notes Collateral
Our Senior Secured Notes require us to maintain a minimum collateral coverage ratio of 1.5x the aggregate principal amount of outstanding Senior Secured Notes. The following is the calculation of the collateral coverage ratio as of September 30, 2013. This calculation 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 of the Senior Secured Notes.
 

43

 
As of September 30, 2013
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Co-Issuers
 
Total
 
(In thousands)
Collateral Amounts:
 
 
 
 
 
 
 
Net Receivables Value (1)
$
—

 
$
132,940

 
$
263,429

 
$
396,369

Net Inventory Value (2)
78,103

 
—

 
—

 
78,103

Cash Equivalents (3)
—

 
—

 
—

 
—

Total Collateral Amount
$
78,103

 
$
132,940

 
$
263,429

 
$
474,472

12.625% Senior Secured Notes
 
 
 
 
 
 
250,000

Collateral Coverage Ratio
 
 
 
 
 
 
1.9x

(1) 
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 (see below) 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 dealership 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.
The used vehicle market has experienced appreciation in used vehicle wholesale prices over the past couple of years. 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. In addition, we increased the age and mileage of vehicles we sell in order to maintain affordability for the customer. These increased costs led to an increase in our average selling price for used vehicles; however, we chose to pass only a portion of these costs to our customers in order to maintain affordability for our customers. Higher wholesale values also improved our recovery values as a percentage of principal charged-off.

Non-GAAP Discussion
EBITDA and Adjusted EBITDA, which we refer to as the non-GAAP financial measures, are supplemental measures of our 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.

44

We present non-GAAP financial measures because we consider them to be important supplemental measures of our operating performance. All of the adjustments made in our calculation of the non-GAAP financial measures are adjustments to items that management does not consider to be reflective of our core operating performance. Management considers our core operating performance to be that which can be affected by our managers in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period.
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.
Because of these limitations, EBITDA and 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 supplementally.
EBITDA represents net income (loss) before income tax expense, total interest expense (secured and unsecured) and depreciation expense. Adjusted EBITDA represents EBITDA plus store closing costs, sales tax refund adjustments, restricted stock compensation expense and the effect of deferred revenue related to service contract unbundling.
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 them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that it does reflect:
•
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 is derived.
The following table presents data relating to EBITDA and Adjusted EBITDA, which are non-GAAP measures, for the periods indicated:
 
Three Months Ended September 30,
 
Nine months ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
Net income:
$
4,240

 
$
4,396

 
$
43,134

 
$
66,517

Plus EBITDA adjustments:
 
 
 
 
 
 
 
Income tax expense / (benefit)
(69
)
 
371

 
543

 
1,030

Total interest expense
20,211

 
18,808

 
57,860

 
55,073

Depreciation expense
6,429

 
5,091

 
17,734

 
15,061

EBITDA
$
30,811

 
$
28,666

 
$
119,271

 
$
137,681

Sales tax refund adjustments (2)
(193
)
 
(836
)
 
(580
)
 
(2,396
)
Restricted stock compensation expense (3)
310

 
310

 
930

 
1,239

Deferred revenue adjustments (4)
4,683

 
—

 
14,306

 
—

Adjusted EBITDA
$
35,611

 
$
28,140

 
$
133,927

 
$
136,524

 
(1) 
Store closing costs represent ongoing costs to close stores in 2008 and 2009 related to downsizing (and do not include stores closed in the normal course of business). 
(2) 
Represents non-cash adjustments to sales tax refunds related to loans charged-off in prior periods. 
(3) 
Represents compensation expense related to a restricted stock agreement between the Company and Mr. Fidel. 
(4) 
Represents the accounting effect of deferring income related to the sale of separately priced service contracts. 


45

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to our market risk since December 31, 2012. 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 28, 2013.
 
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 September 30, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

46

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 28, 2013, 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

47

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)
 
 
 
3.1.9.1
 
Articles of Organization of Go Financial Company LLC (former name of GFC Lending LLC) (incorporated by reference to Exhibit 3.1.9.1 to our Registration Statement on Form S-4 filed on May 31, 2013)
 
 
 
3.1.9.2
 
Articles of Amendment to the Articles of Organization of Go Financial Company LLC (former name of GFC Lending LLC) (incorporated by reference to Exhibit 3.1.9.2 to our Registration Statement on Form S-4 filed on May 31, 2013)
 
 
 
3.1.10
 
Certificate of Formation of Driver’s Seat, LLC*
 
 
 
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 Go Financial Company LLC (former name of GFC Lending LLC) (incorporated by reference to Exhibit 3.2.9 to our Registration Statement on Form S-4 filed on May 31, 2013)
'
 
 
3.2.10
 
Operating Agreement of Driver’s Seat, LLC*

48

Exhibit #
  
Description of Document
 
 
 
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 4.1.1 to our Registration Statement on Form S-4/A filed on October 19, 2010)
 
 
 
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)
 
 
 
4.2.1
  
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
  
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)
 
 

49

Exhibit #
  
Description of Document
4.6
  
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)
 
 
4.7
  
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 Form 8-K filed on June 10, 2011)
 
 
 
4.8
 
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 Form 8-K filed on May 8, 2013)
 
 
 
4.9
 
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 N-Q filed on August 9, 2013)
 
 
 
10.1
 
Joinder Agreement, dated September 27, 2013, among Driver’s Seat, LLC, DriveTime Automotive Group, Inc., DriveTime Sales and Finance Company, LLC, DriveTime Car Sales Company, LLC, DriveTime Ohio Company, LLC and Wells Fargo Bank, N.A., a national banking association, as the lead lender, and as the agent for the lenders (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 3, 2013)
 
 
 
10.2
 
Amendment No. 8, dated September 30, 2013, to the Loan and Servicing Agreement, dated July 23, 2010, by and among DT Warehouse IV, LLC, DT Credit Company, LLC, Wells Fargo Bank, National Association, as Backup Servicer, Paying Agent and Securities Intermediary, the commercial paper conduits from time to time party thereto, the financial institutions from time to time party thereto, and The Royal Bank of Scotland plc, as Program Agent for the Conduit Lenders and Committed Lenders (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on October 3, 2013)
 
 
 
10.3
 
Amendment No. 3, dated October 2, 2013, to the Loan and Servicing Agreement, dated as of December 28, 2011, by and among DT Warehouse, DTCC, Wells Fargo Bank, National Association, as Backup Servicer, Paying Agent and Securities Intermediary, the commercial paper conduits from time to time party thereto, the financial institutions from time to time party thereto, and Deutsche Bank AG, New York Branch, as Program Agent for the Conduit Lenders and Committed Lenders (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on October 3, 2013)
 
 
 
31.1
  
Certification of Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
 
 
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.

50

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: November 13, 2013
 
By:
 
/s/ Mark G. Sauder
 
 
 
 
Name: Mark G. Sauder
 
 
 
 
Title: Chief Financial Officer & Executive VP

51