AVONDALE, ARIZONA
RANCHO CUCAMONGA, CALIFORNIA
SACRAMENTO, CALIFORNIA
ORLANDO, FLORIDA
LISLE, ILLINOIS
NORWOOD, MASSACHUSETTS
MOORESVILLE, NORTH CAROLINA
EXTON, PENNSYLVANIA
DALLAS/FT. WORTH, TEXAS
HOUSTON, TEXAS
PHOENIX, ARIZONA
ORLANDO, FLORIDA
ORLANDO, FLORIDA
MOORESVILLE, NORTH CAROLINA
UTI.edu
Ready.
2013 Annual Report
About Universal Technical Institute, Inc.
Headquartered in Scottsdale, Arizona, Universal Technical Institute, Inc. (NYSE: UTI)
is the leading provider of post-secondary education for students seeking careers as
professional automotive, diesel, collision repair, motorcycle and marine technicians.
With more than 170,000 graduates in its 48-year history, UTI offers undergraduate
degree and diploma programs at 11 campuses across the United States, as well as
manufacturer-specific training programs at dedicated training centers. Through its
campus-based school system, UTI provides specialized post-secondary education
programs under the banner of several well-known brands, including Universal Technical
Institute (UTI), Motorcycle Mechanics Institute and Marine Mechanics Institute (MMI)
and NASCAR Technical Institute (NASCAR Tech). For more information visit www.uti.edu.
Shareholder Information
Board of Directors
Corporate Officers
John C. White
Director
Kimberly J. McWaters
Chairman of the Board
Former Chairman of the Board,
and Chief Executive Officer
Institute, Inc.
Universal Technical Institute, Inc.
Requests for
Investor Information
Universal Technical
Investor Relations
Eugene S. Putnam, Jr.
16220 North Scottsdale Road
Suite 100
Scottsdale, Arizona 85254
(623) 445-9500
The Company will furnish a
copy of the 2013 Annual
Report on Form 10-K without
charge upon a written
request to the address
above. In addition, the
electronic version of the
Annual Report can be found
at www.uti.edu, under the
captions Investors—Financial
Information—Annual Reports.
UTI has submitted the requisite
certification regarding its
corporate governance listing
standards to the New York
Stock Exchange.
Common Stock
Traded on the New York
Stock Exchange under
the symbol UTI
Transfer Agent
Computershare
P.O. Box 30170
College Station, TX 77845-3170
Independent Accountants
PricewaterhouseCoopers LLP
1850 North Central Avenue
Suite 700
Phoenix, Arizona 85004
Kimberly J. McWaters
Director
Chairman of the Board
and Chief Executive Officer,
President and Chief
Financial Officer
Kenneth J. Cranston
Universal Technical Institute, Inc.
Senior Vice President
Conrad A. Conrad
Lead Director
Former Executive Vice President
of Admissions
Chad A. Freed
General Counsel,
and Chief Financial Officer,
Senior Vice President
The Dial Corporation
of Business Development
David A. Blaszkiewicz
Director
President,
Invest Detroit and
Chief Executive Officer,
Downtown Detroit Partnership
Alan E. Cabito
Director
and Secretary
Bryce H. Peterson
Senior Vice President of
Information Technology
Sherrell E. Smith
Senior Vice President
of Operations
Former Group Vice President,
Sales Administration,
Rhonda R. Turner
Senior Vice President
Toyota Motor Sales, U.S.A., Inc.
of People Services
Dr. Roderick R. Paige
Director
Former United States
Secretary of Education
Roger S. Penske
Director
Chairman of the Board and
Chief Executive Officer,
Penske Auto Group, Inc.
Linda J. Srere
Director
Former President,
Young and Rubicam Advertising
Kenneth R. Trammell
Director
Chief Financial Officer,
Tenneco Inc.
INSIDE FRONT COVER
To our shareholders:
2013 was a pivotal year for Universal Technical Institute.
In the face of lingering economic and regulatory challenges,
we controlled costs, drove efficiency and boosted the quality
and reach of our educational programs. We strengthened our
industry relationships. We built our business to recruit and
train more students and we put more graduates to work.
UTI has gained important ground in 2013. We are ready for
the real challenges our industry continues to face and we
are ready to capitalize on the opportunities in front of us.
Growing demand
With more cars and trucks on
the road, impending retirement
for an aging workforce and
continued advancements in the
technology that keeps America
moving, demand for skilled
technicians is growing.
According to the U.S. Bureau of
Labor Statistics, the nation will
need 1.3 million trained workers
in the automotive, diesel, collision
repair and motorcycle and marine
industries by 2018, and, on average,
we’ll see more than 48,000 job
openings a year in the fields we
serve. Already, our manufacturer
partners and employers are
telling us there are not enough
skilled technicians for the jobs
they have.
Secure, good-paying technical jobs
play a crucial role in rebuilding the
middle class. They allow families
and communities to prosper,
and they provide fuel for the
American dream. But they also
require specific instruction in
complex and changing technologies
and options for students who
may not need, want or have
access to an associate or
bachelor’s degree.
At UTI, we are ready to provide
the kind of training skilled
technicians need, and we are
pursuing a clear strategy to meet
the transportation industry’s
growing demand and to help our
students achieve their goals.
Average total
students:
15,000
New students:
15,000
Revenues:
$380.3million
Net income:
$3.8million
Earnings per
diluted share:
$0.15
“ThiswasPorsche’smostsuccessfulyearever,andweexpectthosenumbers
toincreaseincomingyears.Withmoretechnicianpositionsthanwecanfill
andaretiringworkforce,UTI’sPorscheTechnologyApprenticeshipProgram
graduatesareinstrongandincreasingdemand.”
— Christopher D. Gilman, Porsche Cars North America
Strengthening our unmatched
industry relationships
In 2013, we continued to solidify our broad
and deep relationships with original equipment
manufacturers. We expanded our relationships
with existing partners, adding new,
manufacturer-funded courses to train students
in the specific, high-tech skills dealers
require. And, we forged new relationships
with strong brands such as General Motors
and Peterbilt.
These valuable relationships are an important
source of our competitive strength. They let
us match our training with employers’ specific
needs and requirements, and they provide
outstanding opportunities for our students.
Getting more students ready to work
As employers’ needs continue to grow,
we are relentlessly focused on recruiting,
training and identifying good job opportunities
for more students.
We transformed the front end of our business
during 2013, using media optimization and
predictive modeling to drive cost-effective
inquiries from potential students most likely
to start school. These changes are producing
results. The quality of inquiries improved
throughout the year, applications grew
3.8 percent and advertising expense was
down more than 12 percent.
UTI’s admissions team gives us a strong
presence with high school students and
the military, while our active participation
in STEM initiatives places us squarely in
front of thousands of educators across the
country. We have trained more than 1,000
teachers in STEM, which promotes science,
technology, engineering and math to high
school students, and are partnering with
NASCAR to provide workshops that use
actual race footage to build student interest
in STEM courses.
In 2014, we’ll roll out new processes and
tools to make our admissions representatives
more efficient and help them better engage
students from the first inquiry to the first
day of class.
Improving value and affordability
As pleased as we are by the positive changes
in our business, we believe affordability
continues to be a real obstacle for today’s
students, who have less money to invest in
education, a heightened aversion to debt
and fewer financing options.
Our challenge—and our goal—is to put a UTI
education within reach for more students.
That starts with giving students an excellent
return on their investment, with training
that increases their opportunities and their
earning potential.
“Thedemandformediumandheavy
trucktechniciansisnowashighas
ithaseverbeen.Withtheconstant
changeinemissionstechnologyand
complexityofelectroniccontrols,
dealershavebeenforcedtolook
formoretechnicianswithadvanced
skillsets.TheprogramsatUTI
preparestudentstomeetthese
growingchallenges.”
—JohnH.Koenig,Navistar
*
In 2013, we completed the roll out of our
state-of-the-industry automotive and diesel
curriculum, which combines instructor-led,
hands-on training with interactive, web-based
learning, at our Avondale, Arizona campus.
We plan to offer the curriculum at additional
UTI campuses, beginning with our Sacramento,
California campus in 2014.
To make this valuable training more accessible,
we now grant more than $12 million a year
in scholarships, with the goal of supporting
students who otherwise could not come
to school.
Finally, we continue to align our cost structure
with our current student population, which
makes us more efficient and gives us flexibility
to improve value and affordability.
While we feel good about the work we did
in 2013, there is much more to do. As we
look to the future, we will continue to focus
on making our education more valuable,
affordable and accessible.
Developing our people
No matter what their role in the organization,
each of our 2,200 employees is focused on
delivering strong outcomes for students who
meet the needs of our industry customers.
From the day they enroll to the day they
graduate, we support students with tuition
financing options, educational and career
counseling, opportunities for part-time work,
housing assistance and, ultimately, graduation
and employment.
As industry increasingly turns to UTI for
technicians who are ready to work, our graduate
employment rate grew to 85 percent.*
“AsapartnerwithUTIforover25years,
welooktoUTItoprovidequality
personneltoSuzukidealerships.
TheirMotorcycleTechnologyProgram
andelectiveprograms,suchas
FactoryAuthorizedSuzukiTraining,
giveSuzukidealersqualifiedservice
technicians,andtheirdepthof
technicalknowledgeandstudent
placementservicesaresecondtonone.”
—DougMcIntyre,SuzukiMotorofAmerica,Inc.
Ready
We are encouraged by the progress UTI
made in 2013 and by the attractive demand
dynamics in our industry. But we are also
clear-eyed about the future, the challenges
we will face and the work we must do to
deliver results.
When it comes to navigating the tough road
ahead, UTI is ready.
Our model is sound and the need for trained
technicians is growing. Our strategy is
beginning to take hold. Our people remain
deeply committed to our purpose, and we are
leveraging their commitment and creativity
to change students’ lives, to supply our
industry’s growing demand, and to support
the kinds of jobs that let middle-income
families, and America, thrive.
John C. White
Former Chairman of the Board
Kim McWaters
Chairman of the Board
and Chief Executive Officer
*Approximately11,400ofthe12,200UTIgraduatesin2012wereavailableforemployment.Atthetimeofreporting,approximately9,600
ofthoseavailablewereemployedwithinoneyearoftheirgraduationdates,foratotalof85%.
Form 10-K
__________________________________________________________________________________________
__________________________________________________________________________________________
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2013
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
_____________________________________________
Commission File Number 1-31923
_____________________________________________
UNIVERSAL TECHNICAL INSTITUTE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
86-0226984
(IRS Employer Identification
No.)
16220 North Scottsdale Road, Suite 100
Scottsdale, Arizona 85254
(Address of principal executive offices)
(623) 445-9500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock, $0.0001 par value
Name of each exchange on which registered:
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate
Website, 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
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405
of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,”
and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
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
At November 22, 2013, 24,643,520 shares of common stock were outstanding. The aggregate market
value of the shares of common stock held by non-affiliates of the registrant on the last business day of the Company's
most recently completed second fiscal quarter (March 31, 2013) was approximately $327,361,000 (based upon
the closing price of the common stock on such date as reported by the New York Stock Exchange). For purposes
of this calculation, the Company has excluded the market value of all common stock beneficially owned by all
executive officers and directors of the Company.
Documents Incorporated by Reference
Portions of the registrant's definitive proxy statement for the 2014 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
PART I
Page
ITEM 1.
Special Note Regarding Forward-Looking Statements .......................................................................................................
BUSINESS ........................................................................................................................................................
Overview ............................................................................................................................................................
Business Model ..................................................................................................................................................
Business Strategy ...............................................................................................................................................
.......................................................................................................................................
Industry Background
Schools and Programs ........................................................................................................................................
Industry Relationships .......................................................................................................................................
Student Recruitment Model ...............................................................................................................................
Student Admissions and Retention .....................................................................................................................
.........................................................................................................................................................
Enrollment
.......................................................................................................................................
Graduate Employment
Faculty and Employees ......................................................................................................................................
Competition .......................................................................................................................................................
Environmental Matters .......................................................................................................................................
Available Information ........................................................................................................................................
Regulatory Environment ....................................................................................................................................
ITEM 1A. RISK FACTORS ..............................................................................................................................................
ITEM 1B. UNRESOLVED STAFF COMMENTS ..........................................................................................................
PROPERTIES ..................................................................................................................................................
LEGAL PROCEEDINGS ...............................................................................................................................
MINE SAFETY DISCLOSURES ...................................................................................................................
EXECUTIVE OFFICERS OF UNIVERSAL TECHNICAL INSTITUTE, INC........................................
ITEM 2.
ITEM 4.
ITEM 3.
PART II
ITEM 5.
ITEM 7.
ITEM 6.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES ...........................................................................
SELECTED FINANCIAL DATA ...................................................................................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ...........................................................................................................................................
General Overview ..............................................................................................................................................
2013 Overview ...................................................................................................................................................
Results of Operations .........................................................................................................................................
Liquidity and Capital Resources ........................................................................................................................
Contractual Obligations .....................................................................................................................................
Off-Balance Sheet Arrangements .......................................................................................................................
Related Party Transactions .................................................................................................................................
Seasonality .........................................................................................................................................................
Critical Accounting Estimates ............................................................................................................................
Recent Accounting Pronouncements ..................................................................................................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................................
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ..........................................................................................................................
ITEM 9.
ITEM 9A. CONTROLS AND PROCEDURES ...............................................................................................................
ITEM 9B. OTHER INFORMATION ...............................................................................................................................
ITEM 8.
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5
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ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
PART III
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ....................................
EXECUTIVE COMPENSATION ..................................................................................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS ....................................................................................................
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE...
PRINCIPAL ACCOUNTANT FEES AND SERVICES................................................................................
PART IV
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES .....................................................................
Page
75
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ii
Special Note Regarding Forward-Looking Statements
This 2013 Form 10-K and the documents incorporated by reference herein contain forward-
looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section
27A of the Securities Act of 1933, as amended, which include information relating to future events, future
financial performance, strategies, expectations, competitive environment, regulation and availability of
resources. From time to time, we also provide forward-looking statements in other materials we release
to the public as well as verbal forward-looking statements. These forward-looking statements include,
without limitation, statements regarding: proposed new programs; scheduled openings of new campuses
and campus expansions; expectations that regulatory developments, or agency interpretations of such
regulatory developments or other matters will not have a material adverse effect on our consolidated
financial position, results of operations or liquidity; 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. Such statements give our current expectations or forecasts of future events; they do not
relate strictly to historical or current facts. Words such as “may,” “will,” “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.
We cannot guarantee that any forward-looking statement will be realized, although we believe
we have been prudent in our plans and assumptions. Achievement of future results is subject to risks,
uncertainties and potentially inaccurate assumptions. Many events beyond our control may determine
whether results we anticipate will be achieved. Should known or unknown risks or uncertainties
materialize, or should underlying assumptions prove inaccurate, actual results could differ materially
from past results and those anticipated, estimated or projected. You should bear this in mind as you
consider forward-looking statements.
Except as required by law, we undertake no obligation to publicly update or revise forward-
looking statements, whether as a result of new information, future events or otherwise. You are advised,
however, to consult any further disclosures we make on related subjects in our Form 10-Q and 8-K
reports to the Securities and Exchange Commission (SEC).
1
ITEM 1. BUSINESS
Overview
PART I
We are the leading provider of postsecondary education for students seeking careers as professional
automotive, diesel, collision repair, motorcycle and marine technicians as measured by total average undergraduate
full-time enrollment and graduates. We offer undergraduate degree and diploma programs at 11 campuses across
the United States under the banner of several well-known brands, including Universal Technical Institute (UTI),
Motorcycle Mechanics Institute and Marine Mechanics Institute (collectively, MMI) and NASCAR Technical
Institute (UTI/NASCAR Tech). We also offer manufacturer specific advanced training programs, including student
paid electives, at our campuses and manufacturer or dealer sponsored training at certain campuses and dedicated
training centers. We have provided technical education for 48 years.
For the year ended September 30, 2013, our average undergraduate full-time student enrollment was
approximately 15,000.
Business Model
We work closely with leading original equipment manufacturers (OEMs) in the automotive, diesel,
motorcycle and marine industries to understand their needs for qualified service professionals. Through our
relationships with OEMs, we are able to continuously refine and expand our programs and curricula. We believe
our industry-oriented educational philosophy and national presence have enabled us to develop valuable industry
relationships which provide us with significant competitive strength and support our market leadership.
We are a primary, and often the sole, provider of manufacturer specific advanced training (MSAT)
programs, and we have relationships with over 25 OEMs, including the following OEMs and their associated
brands:
American Honda Motor Co., Inc.
Mercury Marine, a division of Brunswick
BMW of North America, LLC
Corp.
BMW Motorrad of North America, LLC
Navistar International Corp.
Bombardier Produits Recreatifs (BRP) Inc.
Nissan North America, Inc.
Cummins Rocky Mountain, a subsidiary of
Peterbilt Motors Company
Cummins, Inc.
Daimler Trucks N.A.
Ford Motor Co.
General Motors Co.
Harley-Davidson Motor Co.
Porsche Cars of North America, Inc.
Suzuki Motor of America, Inc.
Toyota Motor Sales, U.S.A., Inc.
Volvo Cars of North America, LLC
Volvo Penta of the Americas, Inc.
Kawasaki Motors Corp., U.S.A.
Yamaha Motor Corp., USA
Mercedes-Benz USA, LLC
Participating manufacturers typically assist us in the development of course content and curricula, while
providing us with vehicles, equipment, specialty tools and parts at reduced prices or at no charge. In some instances
they pay for students’ tuition. Our collaboration with OEMs enables us to provide highly specialized education to
our students, resulting in enhanced employment opportunities and the potential for higher wages for our graduates.
Our industry partners and their dealers benefit from a supply of technicians who are certified or credentialed
by the manufacturer as graduates of the MSAT programs. The MSAT programs offer a cost-effective alternative
2
for sourcing and developing technicians for both OEMs and their dealers. These relationships also support the
development of incremental revenue opportunities from training the OEMs’ existing employees.
In addition to the OEMs, our industry relationships also extend to after-market retailers, fleet service
providers and enthusiast organizations. Other target groups for relationship-building, for example parts and tools
suppliers and enthusiast organizations, provide us with a variety of strategic and financial benefits that include
equipment sponsorship, new product support, licensing and branding opportunities and financial sponsorship for
our campuses and students.
Business Strategy
Our goal is to continue to be the leading provider of post-secondary education for students seeking careers
as professional automotive, diesel, collision repair, motorcycle and marine technicians and the leading supplier of
entry-level skilled technicians for the industries we serve. We intend to pursue the following business strategies
to attain this goal:
Strengthen industry relationships
Our relationships with leading OEMs are important to our business. We strive to understand the workforce
needs of our existing OEM partners to provide the quantity and quality of technicians when and where they are
needed. We have a dedicated account management team at our corporate level focused on managing those
relationships and developing new ones. We deliver value to these OEMs by functioning as an efficient hiring
source and low cost training option. These relationships give us direct input on the latest needs and requirements
of employers, which not only guides our prospective student recruitment, but also strengthens our curricula and
our students’ opportunities for employment and earnings potential after graduation.
Recruit, train and identify employment opportunities for more students
Our student recruitment efforts are focused on three primary markets for prospective students and are
conducted through three admissions channels:
High School: Field-based representatives develop and maintain relationships with high school guidance
counselors and vocational instructors as well as students and parents.
Adult: Campus-based representatives serve adult career-seeking or career changing students.
Military: Our military representatives are strategically located throughout the country and focus on
building relationships within military installations.
Our marketing strategies are designed to align student inquiry generation with specific student segments
and their corresponding recruiting channels. These inquiries are generated and our brand strengthened with a
national multi-media marketing strategy to reach prospective students.
We continue to optimize our national and local marketing initiatives with the goals of cost-effectively
generating more inquiries from adult students with a high propensity to attend UTI and targeting certain
demographics we have not fully penetrated.
Additionally, we are developing and improving processes and tools to support our national network of
admissions representatives in responding to adult inquiries, building relationships with more high schools and
military representatives, effectively demonstrating the value of a UTI education to potential students and keeping
students engaged as they apply for, enroll and start school.
3
We regularly evaluate, update and expand our core and MSAT courses to align our training programs with
current industry requirements. We constantly evaluate program offerings, schedules and locations that are most
appealing to students and aligned with employer expectations. We provide relevant services to assist students with
tuition financing options, educational and career counseling, opportunities for part-time work and housing
assistance and, ultimately, graduate employment. Our national employment services team develops job
opportunities and outreach, while our local employment services teams instruct active students on employment
search and interviewing skills, facilitate employer visits to campuses, provide access to reference materials and
assist with the composition of resumes.
Improve educational value proposition and affordability
Educational value
Our strategy is to provide students with an excellent return on their educational investment by offering
training that is not available through other providers, is tailored to industry standards and requirements, improves
students’ opportunities to find employment and maximize their earnings potential in a secure, growing industry.
Our Automotive and Diesel Technology II curricula is designed around manufacturers’ needs and fulfills
student demand for hands-on, instructor led training combined with flexible, web-based learning. We intend to
continue integrating the new curricula and methodologies at existing campuses that offer Automotive and Diesel
Technology programs.
We actively engage transportation industry partners in defining our core curriculum and improving and
expanding manufacturer specific advanced training courses. These unique course offerings make our students more
employable by giving them training that is consistent with industry needs and rapidly changing technology, and
allows us to better meet the industry’s demand for trained technicians.
Affordability
Increased price sensitivity and aversion to debt continue to negatively impact prospective students’
willingness and ability to fund an education. We are focused on making our training more affordable and accessible
through financing options, proprietary loans, scholarships based on need and merit as well as financing tools and
guidance for students.
Additionally, we regularly review and revise key business processes, with the goals of eliminating costs
and waste, driving efficiency and allowing us to continue to improve value and affordability for our students. Our
goal is to align costs with student populations, without compromising the quality of our education.
Industry Background
The market for qualified service technicians is large and stable. In the most recent data available, the
United States (U.S.) Department of Labor (DOL) estimated that in 2010 there were approximately 723,400
employed automotive technicians in the United States, and this number was expected to increase by 17.3% from
2010 to 2020. Other 2010 estimates provided by the U.S. DOL indicate that the number of technicians in the other
industries we serve, including diesel repair, collision repair, motorcycle repair and marine repair, are expected to
increase by 14.5%, 18.4%, 23.3% and 20.2%, respectively. The need for technicians is due to a variety of factors,
including technological advancement in the industries into which our graduates enter, a continued increase in the
number of automobiles, trucks, motorcycles and boats in service and an aging and retiring workforce that generally
requires training to keep up with technological advancements and maintain its technical competency. As a result
of these factors, the U.S. DOL estimates that an average of approximately 48,300 new job openings will exist
annually for new entrants from 2010 to 2020 in the fields that we serve, according to data collected. In addition
to the increase in demand for newly qualified technicians, manufacturers, dealer networks, transportation companies
4
and governmental entities with large fleets are outsourcing their training functions, seeking preferred education
providers who can offer high quality curricula and have a national presence to meet the employment and advanced
training needs of their national dealer networks.
Schools and Programs
Through our campus-based school system, we offer specialized technical education programs under the
banner of several well-known brands, including Universal Technical Institute (UTI), Motorcycle Mechanics
Institute and Marine Mechanics Institute (collectively, MMI) and NASCAR Technical Institute (UTI/NASCAR
Tech). The majority of our undergraduate programs are designed to be completed in 45 to 102 weeks and culminate
in an associate of occupational studies degree or diploma, depending on the program and campus. Tuition ranges
from approximately $21,100 to $54,200 per program, depending on the nature and length of the program. Our
campuses are accredited and our undergraduate programs are eligible for federal student financial assistance funds
under the Higher Education Act of 1965, as amended (HEA), commonly referred to as Title IV Programs, which
are administered by the U.S. Department of Education (ED).
Our undergraduate schools and programs are summarized in the following table:
Location
Arizona (Avondale)
Arizona (Phoenix)
California (Rancho
Cucamonga)
California (Sacramento)
Florida (Orlando)
Illinois (Lisle)1
Massachusetts (Norwood)
Brand
UTI
MMI
UTI
UTI
UTI/MMI
UTI
UTI
North Carolina (Mooresville)
UTI/NASCAR Tech
Pennsylvania (Exton)
Texas (Dallas/Ft. Worth)
Texas (Houston)
UTI
UTI
UTI
Date
Training
Commenced
1965
Principal Programs
Automotive; Diesel & Industrial
1973
1998
2005
1986
1988
2005
2002
2004
2010
1983
Motorcycle
Automotive; Diesel & Industrial
Automotive; Diesel & Industrial;
Collision Repair and Refinishing
Automotive; Motorcycle; Marine
Automotive; Diesel & Industrial
Automotive; Diesel & Industrial
Automotive; Automotive with
NASCAR
Automotive; Diesel & Industrial
Automotive; Diesel & Industrial
Automotive; Diesel & Industrial;
Collision Repair and Refinishing
1We relocated from our Glendale Heights, Illinois campus and began teaching programs at our Lisle,
Illinois campus effective November 11, 2013.
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Universal Technical Institute (UTI)
UTI offers automotive, diesel and industrial, and collision repair and refinishing programs that are
accredited by the National Automotive Technicians Education Foundation (NATEF), a division of the Institute for
Automotive Service Excellence (ASE). In order to apply for NATEF accreditation, a school must meet the NATEF
curriculum requirements and also must have graduated its first class. We offer the following programs under the
UTI brand:
• Automotive Technology. Established in 1965, the Automotive Technology program is designed to
teach students how to diagnose, service and repair automobiles. The program ranges from 51 to 75
weeks in duration, and tuition ranges from approximately $30,200 to $45,650. Graduates of this
program are qualified to work as entry-level service technicians in automotive dealer service
departments or automotive repair facilities.
• Diesel & Industrial Technology. Established in 1968, the Diesel & Industrial Technology program
is designed to teach students how to diagnose, service and repair diesel systems and industrial
equipment. The program is 45 to 60 weeks in duration and tuition ranges from approximately $28,100
to $35,500. Graduates of this program are qualified to work as entry-level service technicians in
medium and heavy truck facilities, truck dealerships, or in service and repair facilities for equipment
utilized in various industrial applications, including materials handling, construction, transport
refrigeration or farming.
• Automotive/Diesel Technology. Established in 1970, the Automotive/Diesel Technology program
is designed to teach students how to diagnose, service and repair automobiles and diesel systems.
The program ranges from 75 to 90 weeks in duration and tuition ranges from approximately $40,900
to $49,350. Graduates of this program typically can work as entry-level service technicians in
automotive repair facilities, automotive dealer service departments, diesel engine repair facilities,
medium and heavy truck facilities or truck dealerships. Beginning in April 2012, we discontinued
enrollment in our legacy Automotive/Diesel Technology program, which was only available at our
Avondale, Arizona; Houston, Texas and Glendale Heights, Illinois campuses. New students may
enroll in our existing Automotive Technology or Automotive/Diesel & Industrial Technology
programs at those campuses. Additionally, students who wish to complete a combined automotive
and diesel program may enroll in our Automotive Technology and Diesel Technology II program,
which is currently offered at our Avondale, Arizona and Dallas/Ft. Worth, Texas campuses. In calendar
year 2014, we intend to integrate the Automotive Technology and Diesel Technology II curricula at
our Sacramento, California campus and will continue to integrate the curricula at our other automotive
campuses in future years.
• Automotive/Diesel & Industrial Technology. Established in 1970, the Automotive/Diesel &
Industrial Technology program is designed to teach students how to diagnose, service and repair
automobiles, diesel systems and industrial equipment. The program ranges from 75 to 99 weeks in
duration and tuition ranges from approximately $38,400 to $54,200. Graduates of this program are
qualified to work as entry-level service technicians in automotive repair facilities, automotive dealer
service departments, diesel engine repair facilities, medium and heavy truck facilities, truck
dealerships, or in service and repair facilities for marine diesel engines and equipment utilized in
various industrial applications, including materials handling, construction, transport refrigeration or
farming.
• Collision Repair and Refinishing Technology (CRRT). Established in 1999, the CRRT program is
designed to teach students how to repair non-structural and structural automobile damage as well as
how to prepare cost estimates on all phases of repair and refinishing. The program is 51 weeks in
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duration and tuition ranges from approximately $30,350 to $32,900. Graduates of this program are
qualified to work as entry-level technicians at OEM dealerships and independent repair facilities.
Motorcycle Mechanics Institute and Marine Mechanics Institute (collectively, MMI)
• Motorcycle. Established in 1973, the MMI motorcycle program is designed to teach students how
to diagnose, service and repair motorcycles and all-terrain vehicles. The program ranges from 48 to
102 weeks in duration and tuition ranges from approximately $21,100 to $44,500. Graduates of this
program are qualified to work as entry-level service technicians in motorcycle dealerships and
independent repair facilities. MMI is supported by six major motorcycle manufacturers. We have
agreements relating to motorcycle elective programs with American Honda Motor Co., Inc.; BMW
Motorrad of North America, LLC; Harley-Davidson Motor Co.; Kawasaki Motors Corp., U.S.A.;
Suzuki Motor of America, Inc. and Yamaha Motor Corp., USA. We have agreements for dealer
training with American Honda Motor Co., Inc. and Harley-Davidson Motor Co. These motorcycle
manufacturers support us through their endorsement of our curricula content, assisting with our course
development, providing equipment and product donations, and instructor training. Certain of these
agreements are verbal and may be terminated without cause by either party at any time.
• Marine. Established in 1991, the MMI marine program is designed to teach students how to diagnose,
service and repair boats. The program is 51 weeks in duration and tuition is approximately $26,650.
Graduates of this program are qualified to work as entry-level service technicians for marine
dealerships and independent repair shops, as well as for marinas, boat yards and yacht clubs. MMI
is supported by several marine manufacturers and we have agreements relating to marine elective
programs with American Honda Motor Co., Inc.; Mercury Marine, a division of Brunswick Corp.;
Suzuki Motor of America, Inc.; Volvo Penta of the Americas, Inc. and Yamaha Motor Corp., USA.
We have agreements for dealer training with American Honda Motor Co. Inc. and Mercury Marine,
a division of Brunswick Corp. These marine manufacturers support us through their endorsement
of our curricula content, assisting with course development, equipment and product donations, and
instructor training. Certain of these agreements are verbal and may be terminated without cause by
either party at any time.
NASCAR Technical Institute (UTI/NASCAR Tech)
Established in 2002, UTI/NASCAR Tech offers the same type of automotive training as other UTI
locations, along with additional NASCAR-specific elective courses. In the NASCAR-specific elective courses,
students have the opportunity to learn first-hand with NASCAR engines and equipment and to acquire specific
skills required for entry-level positions in automotive and racing-related career opportunities. The programs range
from 48 to 78 weeks in duration and tuition ranges from $31,350 to $44,900. Graduates of the Automotive
Technology program and the Automotive Technology with NASCAR (the NASCAR program) at UTI/NASCAR
Tech are qualified to work as entry-level service technicians in automotive repair facilities or automotive dealer
service departments. Graduates from the NASCAR program have additional opportunities to work in racing-
related industries. In 2012 and 2011, approximately 15% and 21%, respectively, of the graduates from the NASCAR
program have found employment opportunities to work in racing-related industries. Additionally, approximately
68% and 66%, respectively, of the 2012 and 2011 graduates from all programs at UTI/NASCAR Tech are working
in the automotive service sector. See "Business - Graduate Employment" included elsewhere in this Report on
Form 10-K for further information on our employment rates.
Manufacturer Specific Advanced Training (MSAT) Programs
We offer advanced training programs in the form of student-paid MSAT courses which may be added to
a student’s core Automotive, Diesel or Motorcycle undergraduate program, and in the form of manufacturer-paid
post-graduate MSAT programs.
7
The student-paid MSATs are offered at our campus locations and are supported by Title IV funding.
Additionally, qualifying student graduates have the opportunity to apply for enrollment in one of our manufacturer-
paid MSAT programs. The manufacturer-paid MSATs are paid for by the manufacturer and/or its dealers in return
for a commitment by the student to work for a dealer of that manufacturer for a certain period of time upon
completion of the program. For both types of programs, the manufacturer typically assists us in the development
of course content and curricula, while providing us with vehicles, equipment, specialty tools and parts at reduced
prices or at no charge. This specialized training enhances the student’s skills with a particular manufacturer’s
technology resulting in enhanced employment opportunities and potential for higher wages for our graduates.
Student-Paid MSATs
Pursuant to written agreements, we offer the following student-paid MSAT programs for the following
OEMs using vehicles, equipment, specialty tools and curricula provided by the OEMs:
• American Honda Motor Company, Inc. We provide the Honda PACT Program at our Lisle, Illinois campus.
• BMW of North America, LLC. We provide BMW’s FastTrack Program at the BMW training center in
Ontario, California, and at our Avondale, Arizona and Orlando, Florida campuses.
• Cummins Rocky Mountain, a subsidiary of Cummins, Inc. We provide the Cummins Qualified Technician
Program at our Avondale, Arizona; Exton, Pennsylvania and Houston, Texas campuses.
• Daimler Trucks N.A. We provide the Daimler Trucks Finish First Program at our Avondale, Arizona
campus.
• Ford Motor Co. We provide the Ford Accelerated Credential Training Program at all UTI campuses
except our Dallas/Ft. Worth, Texas campus.
• Mercedes-Benz USA, LLC. We provide the Mercedes-Benz ELITE START Program at our Houston, Texas;
Norwood, Massachusetts and Rancho Cucamonga, California campuses.
• Navistar International Corp. We provide the International Technician Education Program at our Lisle,
Illinois campus.
• Nissan North America, Inc. We provide the Nissan Automotive Technician Training Program at our
Houston, Texas; Mooresville, North Carolina; Sacramento, California; Orlando, Florida and Norwood,
Massachusetts campuses.
•
Toyota Motor Sales, U.S.A., Inc. We provide the Toyota Professional Automotive Technician Program at
our Lisle, Illinois; Exton, Pennsylvania and Sacramento, California campuses.
8
Manufacturer-Paid MSATs
Our manufacturer-paid MSATs are intended to offer in-depth instruction on specific manufacturers’
products, qualifying a graduate for employment with a dealer seeking highly specialized, entry-level technicians
with brand-specific skills. Students who are highly ranked graduates of an automotive or diesel program may
apply to be selected for these programs. The programs range from 11 to 24 weeks in duration. Pursuant to written
agreements, we offer the following manufacturer-paid MSAT programs using vehicles, equipment, specialty tools
and curricula provided by the OEMs:
• BMW of North America, LLC. We provide BMW’s Service Technician Education Program (STEP)
and Mini Service Technical Education Program (MINI STEP). Both programs are provided at our
Orlando, Florida campus and at the BMW training centers in Ontario, California, and Woodcliff Lake,
New Jersey. STEP is also provided at our Avondale, Arizona campus. This agreement expires on
December 31, 2014 and may be terminated for cause by either party.
• Mercedes-Benz USA, LLC. We provide the Mercedes-Benz ELITE ADVANCED Program at the
MBUSA training center in Jacksonville, Florida. This agreement expires on December 31, 2014 and
may be terminated without cause by either party.
• Navistar International Corp. We provide the International Truck Education Program at our Lisle,
Illinois, Exton, Pennsylvania, and Sacramento, California campuses. This agreement expires on
December 31, 2014 and may be terminated without cause by either party.
• Peterbilt Motors Company. We provide the Peterbilt Technician Institute program at our Dallas/Ft.
Worth, Texas campus. This agreement expires on April 30, 2014 and may be terminated without
cause by either party.
• Porsche Cars of North America, Inc. We provide the Porsche Technician Apprenticeship Program
at the Porsche training centers in Atlanta, Georgia and Easton, Pennsylvania. This agreement expires
September 30, 2014 and may be renewed by mutual agreement.
• Volvo Cars of North America, LLC. We provide Volvo’s Service Automotive Factory Education
program training at our Avondale, Arizona campus. This agreement expires on December 31, 2013.
Dealer/Industry Training
Technicians in all of the industries we serve are in regular need of training or certification on new
technologies. Manufacturers outsource a portion of this training to education providers such as UTI. We currently
provide dealer technician training to manufacturers such as: American Honda Motor Co., Inc.; BMW of North
America, LLC; Ford Motor Co.; Harley-Davidson Motor Co. and Mercury Marine, a division of Brunswick
Corporation.
Industry Relationships
We have a network of industry relationships that provide a wide range of strategic and financial benefits,
including product/financial support, licensing and manufacturer training.
• Product/Financial Support. Product/financial support is an integral component of our business
strategy and is present throughout our schools. In these relationships, sponsors provide their products,
including equipment and supplies, at reduced or no cost to us, in return for our use of those products
in the classroom. Additionally, they may provide financial sponsorship either to us or to our students.
Product/financial support is an attractive marketing opportunity for sponsors because our classrooms
provide them with early access to the future end-users of their products. As students become familiar
with a manufacturer’s products during training, they may be more likely to continue to use the same
9
products upon graduation. Our product support relationships allow us to minimize the equipment
and supply costs in each of our classrooms and significantly reduce the capital outlay necessary for
operating and equipping our campuses.
An example of a product/financial support relationship is:
Snap-on Tools. We have a strategic agreement with Snap-on Tools, a premier tool provider
to the industries we serve. Upon graduation from our undergraduate programs, students
receive a Snap-on Tools entry-level tool set having an approximate retail value of $1,000,
which can become valuable as a student establishes their career. We purchase these tool
sets from Snap-on Tools at a discount from their list price pursuant to a written agreement
which expires in April 2017. In the context of this relationship, we have granted Snap-on
Tools exclusive access to our campuses to display tool related advertising, and we have
agreed to use Snap-on Tools equipment to train our students. We receive credits from Snap-
on Tools for student tool kits that we purchase and any additional purchases made by our
students. We can then redeem those credits in multiple ways, which historically has been
to purchase Snap-on Tools equipment and tools for our campuses at the full retail list price.
•
Licensing. Licensing agreements enable us to establish meaningful relationships with key industry
brands. We pay a licensing fee and, in return, receive the right to use a particular industry participant’s
name, logo or trademark in our promotional materials and on our campuses. We believe that our
current and potential students generally identify favorably with the recognized brand names licensed
to us, enhancing our reputation and the effectiveness of our marketing efforts.
An example of a licensing arrangement is:
NASCAR. We have a licensing arrangement with NASCAR and are its exclusive education
provider for automotive technicians. The agreement expires on December 31, 2017 and
may be terminated for cause by either party at any time prior to its expiration. This
relationship provides us with access to the network of NASCAR sponsors, presenting us
with the opportunity to enhance our product support relationships. In July 2002, NASCAR
Technical Institute opened in Mooresville, North Carolina where students have the
opportunity to take NASCAR-specific elective courses that were developed through a
collaboration of NASCAR crew chiefs and motorsports industry leaders. The popular
NASCAR brand name combined with the opportunity to learn on high-performance cars is
a powerful recruiting and retention tool. It also provides students with the opportunity to
learn first-hand with NASCAR engines and equipment and to acquire specific skills required
for entry-level positions in automotive and racing-related career opportunities.
See Note 11 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Report
on Form 10-K for further discussion of licensing agreements.
• Manufacturer Training. Manufacturer training relationships provide benefits to us that impact each
of our education programs. These relationships support entry-level training tailored to the needs of
a specific manufacturer, as well as continuing education and training of experienced technicians. In
both the entry-level and continuing education programs, students receive training on a given
manufacturer’s products. In return, the manufacturer supplies vehicles, equipment, specialty tools
and parts at reduced prices or at no charge and assistance in developing curricula. Students who
receive the entry-level training may earn manufacturer certification to work on that manufacturer’s
products when they complete the program. The manufacturer certification typically leads to both
improved employment opportunities and the potential for higher wages. The continuing education
programs for experienced technicians are paid for by the manufacturer and often take place in our
10
facilities, allowing the manufacturer to avoid the costs associated with establishing its own dedicated
facility. Manufacturer training relationships lower the capital investment necessary to equip our
classrooms and provide us with a significant marketing advantage. In addition, through these
relationships, manufacturers are able to increase the pool of skilled technicians available to service
and repair their products.
Examples of manufacturer training relationships include:
Mercedes-Benz USA, LLC. This is an example of a student-paid MSAT program. We offer
the Mercedes-Benz ELITE START elective program at our Houston, Texas, Norwood,
Massachusetts and Rancho Cucamonga, California campuses. The Mercedes-Benz Program
uses training and course materials as well as training vehicles and equipment provided by
Mercedes-Benz.
American Honda Motor Co., Inc. This is an example of a dealer technician training program
paid for by the manufacturer or dealer. We provide marine and motorcycle training for
experienced American Honda technicians utilizing training materials and curricula provided
by American Honda. Our instructors provide marine and motorcycle dealer training at
American Honda-authorized training centers across the United States. We oversee the
administration of the motorcycle training program, including technician enrollment.
Additionally, American Honda supports our campus Hon Tech training program by donating
equipment and providing curricula.
Porsche Cars of North America, Inc. This is an example of a manufacturer-paid MSAT
program. We have a written agreement with Porsche Cars of North America, Inc. whereby
we provide the Porsche Technician Apprenticeship Program at the Porsche training centers
in Atlanta, Georgia and Easton, Pennsylvania using vehicles, equipment, specialty tools and
curricula provided by Porsche. The written agreement expires September 30, 2014 and may
be renewed by mutual agreement.
Student Recruitment Model
Our student recruitment efforts begin with our commitment to positive outcomes, both for our students
and our industry relationships. Our responsibility to present job-ready graduates to employers requires that we
recruit, enroll and train prospective students who have the drive and potential to successfully pursue a career in
their field of training. We use a national multi-touch media approach, including digital fulfillment and engagement
platforms, to generate the quality and quantity of prospective students necessary for our three primary admissions
channels to enroll and start students.
Marketing and Advertising. Our marketing strategies are designed to identify potential students who
would benefit from our programs and pursue successful careers upon graduation. We leverage a web-centric
inquiry generation platform that focuses on nationally efficient advertising coupled with the internet, where our
website acts as the primary hub of our campaigns, to inform and educate potential students on the nature and cost
of our educational programs and the employment opportunities that could be available to them. Currently, we
advertise on television, radio, multiple internet sites and in magazines, and we use events, social media, direct mail
and telemarketing to reach prospective students.
We utilize a student-centered recruiting policy to maximize efficiency of our admissions representatives
with a focus on the prospective student. Our admissions representatives are provided with training and tools to
assist any prospective student.
11
• High Schools. Our field-based representatives recruit prospective students primarily from high
schools across the country with assigned territories covering the United States and U.S. territories.
Our field-based admissions representatives generate the majority of their inquiries by making career
presentations at high schools. Typically, the field-based admissions representatives enroll high school
students during an application interview conducted at the homes of prospective students.
Our reputation in local, regional and national business communities, endorsements from high school
guidance counselors and the recommendations of satisfied graduates and employers are some of our
most effective recruiting tools. Accordingly, we strive to build relationships with the people who
influence the career decisions of prospective students, such as vocational instructors and high school
guidance counselors. We conduct seminars for high school career counselors and instructors at our
training facilities and campuses as a means of further educating these individuals on the merits of
our technical training programs. Our representatives focus on expanding high school relationships
beyond the traditional vocational programs and into academic classes.
• Military Personnel. Our military representatives are strategically located throughout the country
and focus on building relationships with military installations. Additionally, we have one
representative located in Europe. We develop relationships with military personnel and provide
information about our training programs by delivering career presentations to soldiers who are
approaching their date of separation or have recently separated from the military as a means of further
educating these individuals on the merits of our technical training programs.
• Adult Students. Our campus-based representatives recruit adult career-seeker or career-changer
students. These representatives respond to student inquiries generated from national, regional and
local advertising and promotional activities. Since adults tend to start our programs throughout the
year instead of in the fall as is most typical of traditional school calendars or for recent high school
graduates, these students help balance our enrollment throughout the year.
Student Admissions and Retention
We currently employ field, military and campus-based admissions representatives who work directly with
prospective students to facilitate the enrollment process. At each campus, student admissions are overseen by an
admissions department that reviews each application. Different programs have varying admissions standards.
Applicants must provide proof of: high school graduation or its equivalent; certification of high school equivalency
(G.E.D.); successful completion of a degree program at the postsecondary level or successful completion of
officially recognized home schooling. Students who present a diploma or certificate evidencing completion of
home schooling or an online high school program are required to take and pass an entrance exam.
To maximize the likelihood of student retention and graduation, our admissions process is intended to
identify students who have the desire and ability to succeed in their chosen program. We have student services
professionals and other resources that provide various student services including orientation, tutoring, student
housing assistance, and academic, financial, personal and employment advisement. We have established processes
to identify students who may be in need of assistance to succeed in and complete their chosen program.
Enrollment
We enroll students throughout the year. For the year ended September 30, 2013, our average undergraduate
full-time student enrollment was approximately 15,000, representing a decrease of approximately 9.1% as compared
to 16,500 for the year ended September 30, 2012. Currently, our student body is geographically diverse, with
approximately 50% of our students having relocated to attend our programs. Due to the seasonality of our business
and normal fluctuations in student populations, we would expect volatility in our quarterly results. See Seasonality
12
within Part II, Item 7 of this Report on Form 10-K for further discussion of seasonal fluctuations in revenues and
operating results.
Graduate Employment
As described in “Business - Schools and Programs” included elsewhere in this report on Form 10-K, our
programs prepare graduates for careers as automotive, diesel, collision repair, motorcycle and marine technicians
in industries requiring the training we provide. Identifying employment opportunities and preparing our graduates
for these careers is critical to our ability to help our graduates benefit from their education. Accordingly, we
dedicate significant resources to maintaining an effective employment team. Our campus-based staff facilitates
several career development processes, including instruction and coaching for interview skills and professionalism,
provides reference materials and assistance with the composition of resumes and assists in part-time and graduate
job searches.
We also have a centralized department whose focus is to build relationships with potential national
employers and develop graduate job opportunities and, where possible, relocation assistance, tool packages and
tuition reimbursement plans with our OEMs and other industry employers. Together, the campuses and centralized
department coordinate and host career fairs, interview days and employer visits to our campus locations. We
believe that our graduate employment services provide our students with a compelling value proposition and
enhance the employment opportunities for our graduates.
Our employment rates for 2012 and 2011 graduates were 85% and 82%, respectively. The employment
calculation is based on all graduates, including those that completed manufacturer specific advanced training
programs, from October 1, 2011 to September 30, 2012 and October 1, 2010 to September 30, 2011, respectively,
excluding graduates not available for employment because of continuing education, military service, health,
incarceration, death or international student status. We count a graduate as employed based on a verified
understanding of the graduate’s job duties to assess and confirm that the graduate’s primary job responsibilities
are in his or her field of study. We verify employment by sending written verification requests to both the graduate
and the employer. The verifications must include employer name, job duties, job title, hire date and supervisor’s
name. Once we receive written verification from either source, the graduate is counted as employed. If we are
unable to obtain written verification, we also count graduates as employed if we are able to obtain verbal verification
from both the graduate and the employer. We periodically review a sample of employment verifications to ensure
accuracy.
For 2012, we had approximately 12,200 total graduates, of which approximately 11,400 were available
for employment. Of those graduates available for employment, approximately 9,600 were employed within one
year of their graduation date, for a total of 85%. For 2011, we had approximately 13,600 total graduates, of which
approximately 12,800 were available for employment. Of those graduates available for employment, approximately
10,500 were employed within one year of their graduation date, for a total of 82%.
Faculty and Employees
Faculty members are hired nationally in accordance with established criteria, applicable accreditation
standards and applicable state regulations. Members of our faculty are primarily industry professionals and are
hired based on their prior work and educational experience. We require a specific level of industry experience in
order to enhance the quality of the programs we offer and to address current and industry-specific issues in the
course content. We provide intensive instructional training and continuing education to our faculty members to
maintain the quality of instruction in all fields of study. A majority of our existing instructors have a minimum of
five years experience in the industry and an average of seven years of experience teaching at UTI, ranging from
less than 1 year to 34 years. Our average undergraduate student-to-teacher ratio is approximately 22-to-1.
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Each school’s support team typically includes a campus president, an education director, an admissions
director, a financial aid director, a student services director, an employment services director, a campus controller
and a facilities director. As of September 30, 2013, we had approximately 2,150 full-time employees, including
approximately 680 student support employees and approximately 740 full-time instructors.
Our employees are not represented by labor unions and are not subject to collective bargaining agreements.
We have never experienced a work stoppage, and we believe that we have good relationships with our employees.
However, we may encounter employees who desire or maintain union representation at new or existing campuses.
Competition
The for-profit, post-secondary education industry is highly competitive and highly fragmented, with no
one provider controlling significant market share. We compete with other institutions that are eligible to receive
Title IV funding, including not-for-profit public and private schools, community colleges and all for-profit
institutions which offer automotive, diesel, collision repair, motorcycle and marine technician as well as other
skilled trades training programs. Our competition differs in each market depending on the curriculum that we offer.
Our main competitors for the programs we provide are other for-profit career-oriented and technical schools,
including Lincoln Technical Institute, a wholly-owned subsidiary of Lincoln Educational Services Corporation;
WyoTech, which is owned by Corinthian Colleges, Inc., and traditional two-year junior and community colleges.
Competition is generally based on location, the type of programs offered, the quality of instruction, graduate
employment rates, reputation, recruiting and tuition rates. Public institutions are generally able to charge lower
tuition than our schools, due in part to government subsidies and other financial sources not available to for-profit
schools.
According to data available through the National Center for Education Statistics (NCES), for the twelve
months ended June 30, 2012, we had 12,787 graduates; Lincoln Technical Institute had 5,714 graduates and
WyoTech had 4,129 graduates in programs similar to ours. This data also shows that no individual community
college had a number of graduates commensurate with ours in similar programs. Further, we partner with over 25
original equipment manufacturers (OEMs) to provide manufacturer specific advanced training. We believe that
we have the largest number of OEM branded training programs. These OEMs provide vehicles, equipment,
specialty tools and curricula that lead to increased training and employment opportunities for our students, including
the potential for brand specific certifications. For additional information regarding the benefits of the relationships
with OEMs, see “Business - Business Model” and “Business - Business Strategy” included elsewhere in this report
on Form 10-K. We believe that our industry relationships, brand recognition and national presence provide
significant benefits to our students and their employers while differentiating us from other technical training schools.
Environmental Matters
We use hazardous materials at our training facilities and campuses, and generate small quantities of
regulated waste, including, but not limited to, used oil, antifreeze, transmission fluid, paint, solvents and car
batteries. As a result, our facilities and operations are subject to a variety of environmental laws and regulations
governing, among other things, the use, storage and disposal of solid and hazardous substances and waste, and the
clean-up of contamination at our facilities or off-site locations to which we send or have sent waste for disposal.
Certain of our campuses are required to obtain permits for our air emissions. In the event we do not maintain
compliance with any of these laws and regulations, or if we are responsible for a spill or release of hazardous
materials, we could incur significant costs for clean-up, damages, and fines or penalties.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended are available on our website, www.uti.edu under the “Investors - Financial Information - SEC
Filings” captions, as soon as reasonably practicable after we electronically file such material with, or furnish it to,
14
the Securities and Exchange Commission (SEC). Reports of our executive officers, directors and any other persons
required to file securities ownership reports under Section 16(a) of the Securities Exchange Act of 1934 are also
available through our website. Information contained on our website is not a part of this Report and is not
incorporated herein by reference.
In Part III of this Form 10-K, we “incorporate by reference” certain information from parts of other
documents filed with the SEC, specifically our proxy statement for the 2014 Annual Meeting of Stockholders. The
SEC allows us to disclose important information by referring to it in that manner. Please refer to such information.
We anticipate that on or about January 7, 2014, our proxy statement for the 2014 Annual Meeting of Stockholders
will be filed with the SEC and available on our website at www.uti.edu under the “Investors - Financial Information
- SEC Filings” captions.
Information relating to corporate governance at UTI, including our Code of Conduct for all of our
employees and our Supplemental Code of Ethics for our Chief Executive Officer and senior financial officers, and
information concerning Board Committees, including Committee charters, is available on our website at
www.uti.edu under the “Investors - Corporate Governance” captions. We will provide copies of any of the foregoing
information without charge upon written request to Universal Technical Institute, Inc., 16220 North Scottsdale
Road, Suite 100, Scottsdale, Arizona 85254, Attention: Investor Relations.
See Note 15 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Report
on Form 10-K for for summary segment financial information.
Regulatory Environment
Our institutions participate in a variety of government-sponsored financial aid programs that assist students
in paying their cost of education. The largest source of such support is the federal programs of student financial
assistance under Title IV of the HEA. This support, commonly referred to as Title IV Programs, is administered
by ED. In 2013, we derived approximately 68% of our revenues, on a cash basis as defined by ED, from Title IV
Programs.
To participate in Title IV Programs, an institution must be authorized to offer its programs of instruction
by relevant state education agencies, be accredited by an accrediting commission recognized by ED and be certified
as an eligible institution by ED. For these reasons, our institutions are subject to extensive regulatory requirements
imposed by all of these entities.
State Authorization
Each of our institutions must be authorized by the applicable state education agency where the institution
is located to operate and grant degrees or diplomas to its students. Our institutions are subject to extensive, ongoing
regulation by each of these states. Additionally, our institutions are required to be authorized by the applicable
state education agencies of certain other states in which our institutions recruit students. Currently, each of our
institutions is authorized by the applicable state education agency or agencies.
The level of regulatory oversight varies substantially from state to state and is extensive in some states.
State laws typically establish standards for instruction, qualifications of faculty, location and nature of facilities
and equipment, administrative procedures, marketing, recruiting, financial operations and other operational matters.
State laws and regulations may limit our ability to offer educational programs and to award degrees or diplomas.
Some states prescribe standards of financial responsibility that are not consistent with those required by ED and
some mandate that institutions post surety bonds. Currently, we have posted surety bonds on behalf of our
institutions and admissions representatives with multiple states of approximately $19.2 million. We believe that
each of our institutions is in substantial compliance with state education agency requirements. States often change
their requirements in response to ED regulations or to implement requirements that may impact institutional and
15
student success, and our institutions must respond quickly to remain in compliance. Also, from time to time, states
may transition authority between state agencies and we must comply with the new state agency’s rules, procedures
and other documentation requirements. If any one of our campuses were to lose its authorization from the education
agency of the state in which the campus is located, that campus would be unable to offer its programs and we could
be forced to close that campus. If one of our campuses were to lose its authorization from a state other than the
state in which the campus is located, that campus would not be able to recruit students in that state.
Accreditation
Accreditation is a non-governmental process through which an institution voluntarily submits to ongoing
qualitative reviews by an organization of peer institutions. Accrediting commissions examine the academic quality
of the institution’s instructional programs, and a grant of accreditation is generally viewed as confirmation that the
institution’s programs meet generally accepted academic standards and practices. Accrediting commissions also
review the administrative and financial operations of the institutions they accredit to ensure that each institution
has the resources necessary to perform its educational mission, implement continuous improvement processes and
support student success.
Accreditation by an ED recognized commission is required for an institution to be certified to participate
in Title IV Programs. In order to be recognized by ED, accrediting commissions must adopt specific standards
for their review of educational institutions. All of our institutions are accredited by the Accrediting Commission
of Career Schools and Colleges (ACCSC), a national accrediting commission recognized by ED. Our campuses'
five-year grants of accreditation expire as follows:
Campus
Mooresville, North Carolina; NASCAR Technical Institute
(UTI/NASCAR Tech)1
Avondale, Arizona
Orlando, Florida
Rancho Cucamonga, California
Houston, Texas
Lisle, Illinois2
Phoenix, Arizona; Motorcycle Mechanics Institute (MMI)
Exton, Pennsylvania
Dallas/Ft. Worth, Texas
Norwood, Massachusetts
Sacramento, California
December 2013
February 2014
February 2014
February 2014
February 2014
February 2014
May 2014
October 2016
March 2017
July 2017
December 2017
1Our Mooresville, North Carolina campus’ accreditation expired on December 1, 2013. We completed
the renewal site visit for accreditation in May 2013. The visiting accreditation team reported that there were no
findings of non-compliance and that our application would be considered at the February 2014 meeting. Until that
time, the Mooresville, North Carolina campus remains fully accredited.
2We relocated from our Glendale Heights, Illinois campus and began teaching programs at our Lisle,
Illinois campus effective November 11, 2013.
We believe that each of our institutions is in substantial compliance with ACCSC accreditation standards.
If any one of our institutions lost its accreditation, students attending that institution would no longer be eligible
to receive Title IV Program funding and we could be forced to close that institution.
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Our 2013 annual report has been completed and submitted to ACCSC. Six of our approximately 185
approved programs did not meet either the graduation rate or the employment rate requirements. ACCSC may
require additional reporting regarding these programs or institutions. An institution placed on reporting status is
required to report periodically to the accrediting commission on that institution’s performance in the area or areas
specified by the commission. We are taking steps to improve the outcomes of these programs. None of our
institutions are currently on reporting status.
Nature of Federal and State Support for Postsecondary Education
The federal government provides a substantial part of its support for postsecondary education through
Title IV Programs in the form of grants and loans to students who can use those funds at any institution that has
been certified as eligible by ED. Most aid under Title IV Programs is awarded on the basis of financial need,
generally defined as the difference between the cost of attending the institution and the amount a student can
reasonably contribute to that cost. All recipients of Title IV Program funds must maintain a satisfactory grade
point average and make academic progress, as defined by ED, towards the completion of their program of study.
In addition, each institution must ensure that Title IV Program funds are properly accounted for and disbursed in
the correct amounts to eligible students, as well as provide a variety of disclosures and reports on recipient data
and program expenditures.
During 2013, based on their individual eligibility under the following Title IV Programs, our students
received grants and loans from the William D. Ford Federal Direct Loan (DL) program, the Federal Pell Grant
(Pell) program, the Federal Supplemental Educational Opportunity Grant (FSEOG) program and the Federal
Perkins Loan (Perkins) program.
Federal Title IV Programs
DL. Under the DL program, ED makes loans to students or their parents. Borrowers repay these loans
to ED according to the terms and conditions of the program. Students with financial need continue to qualify for
interest subsidies while in school. Non-need-based unsubsidized loans are also available to students or their parents.
In 2013, we derived approximately 51% of our revenues, on a cash basis, from the DL program.
Pell. Under the Pell program, ED makes grants to students who demonstrate financial need based on the
Free Federal Application for Federal Student Aid (FAFSA). In 2013, we derived approximately 16% of our
revenues, on a cash basis, from the Pell program.
FSEOG. FSEOG grants are designed to supplement Pell grants for students with the greatest financial
need. Institutions must provide matching funding equal to 25% of all awards made under this program. In 2013,
we derived less than 1% of our revenues, on a cash basis, from the FSEOG program.
Perkins. Perkins loans are made from a revolving institutional account in which 75% of new funding is
capitalized by ED and the remainder by the institution. Each institution is responsible for collecting payments on
Perkins loans from its former students and lending those funds to currently enrolled students. Defaults by students
on their Perkins loans reduce the amount of funds available in the institution’s revolving account to make loans to
additional students. Since the federal award year beginning July 1, 2004, ED has made no new Perkins allocations
to schools due to federal appropriations limitations. In 2013, we derived less than 1% of our revenues, on a cash
basis, from the Perkins program.
Other Federal and State Programs
Some of our students receive financial aid from federal sources other than Title IV Programs, such as the
programs administered by the U.S. Department of Veterans Affairs (VA) and under the Workforce Investment Act.
17
Additionally, some states provide financial aid to our students in the form of grants, loans or scholarships. The
eligibility requirements for state financial aid vary by funding agency and program.
Our largest source of state financial aid is the Cal Grant program funded by the State of California. Due
to institutional eligibility changes as a result of the 2012 California Budget Act, which was enacted on June 27,
2012, institutions are required to maintain a three-year cohort default rate of less than 15.5% to remain eligible
for the Cal Grant program, as well as maintain a graduation rate above 30%. Our Universal Technical Institute of
Phoenix institution, which includes our Sacramento, California campus, became ineligible for the Cal Grant
program beginning with the 2013-2014 award year, as its 2009 three-year cohort default rate released by ED in
October 2012 exceeded 15.5%. Additionally, our Universal Technical Institute of Arizona institution, which
includes our Rancho Cucamonga, California campus, will become ineligible to participate beginning with the
2014-2015 award year, as its 2010 three-year cohort default rate released by ED in September 2013 exceeded
15.5%. An ineligible institution cannot receive Cal Grant funds for any student who enrolls after the institution
becomes ineligible. Additional information on our cohort default rates is included under "Federal Student Loan
Defaults" below. In 2013, we derived less than 1% of our revenues, on a cash basis, from the Cal Grant program.
Veterans' Benefits. Since October 1, 2011, the Post-9/11 GI Bill has been effective for both degree and
non-degree granting institutions of higher learning, allowing eligible veterans to use their Post-9/11 GI Bill benefits
at all of our campuses. Additionally, veterans use benefits such as the Montgomery GI Bill, the Reserve Education
Assistance Program (REAP) and VA Vocational Rehabilitation at our campuses. In 2013, we derived approximately
18% of our revenues, on a cash basis, from veterans' benefits programs, as compared to approximately 9% in 2012.
The VA imposes a limit of 85% on the percentage of students per program receiving benefits under certain
veterans' benefits programs, unless the program qualifies for certain exemptions or waivers. If waivers are granted,
the VA instead imposes a limit of 35% on the percentage of students per campus receiving benefits under certain
veterans' benefits programs. We received a waiver for all of our programs on January 25, 2013 which allows us
to comply with the 35% limit. If the VA determines that an institution is out of compliance with the applicable
limit, the VA will continue to provide benefits to current students but will not provide benefits to newly enrolled
students until the institution demonstrates compliance. One of our 11 campuses is operating near the 35% limit as
of November 1, 2013; our remaining 10 campuses are below 30%.
During 2012, President Obama signed an Executive Order directing the Departments of Defense, Veteran
Affairs and Education to establish “Principles of Excellence” (Principles), based on certain guidelines set forth in
the Executive Order, to apply to educational institutions receiving federal funding for service members, veterans
and family members. As requested, we provided written confirmation of our intent to comply with the Principles
to the VA in June 2012. We are required to comply with the Principles to continue recruitment activities on military
installations. Additionally, there is a requirement to possess a memorandum of understanding (MOU) with the
U.S. Department of Defense as well as with certain individual installations. Our access to bases for student
recruitment has become more limited due to recent changes in the Transition Assistance Program (Transition Goals,
Plans, Success) and increased enforcement of the MOU requirement. Each of our institutions has an MOU with
the U.S. Department of Defense. We have MOUs with certain key individual installations and are pursuing MOUs
at additional locations; however, some installations will not provide MOUs to institutions that do not teach at the
installation. We continue to strengthen and develop relationships with our existing contacts and with new contacts
in order to maintain and rebuild our access to military installations.
Regulation of Federal Student Financial Aid Programs
To participate in Title IV Programs, an institution must be authorized to offer its programs by the relevant
state education agencies, be accredited by an accrediting commission recognized by ED and be certified as eligible
by ED. ED will certify an institution to participate in Title IV Programs only after the institution has demonstrated
compliance with the HEA and ED’s extensive regulations regarding institutional eligibility. An institution must
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also demonstrate its compliance to ED on an ongoing basis. All of our institutions are certified to participate in
Title IV Programs.
ED’s Title IV program standards are applied primarily on an institutional basis, with an institution defined
by ED as a main location and its additional locations, if any. Each institution is assigned a unique Office of Post-
Secondary Education Identification Number (OPEID). Under this definition for ED purposes we have the following
three institutions:
Institution
Main campus
Additional campuses
Institution
Main campus
Additional campuses
Universal Technical Institute of Arizona
Universal Technical Institute, Avondale, Arizona
Universal Technical Institute, Lisle, Illinois1
Universal Technical Institute, Rancho Cucamonga, California
Universal Technical Institute – NASCAR Technical Institute,
Mooresville, North Carolina
Universal Technical Institute, Norwood, Massachusetts
Universal Technical Institute of Phoenix
Universal Technical Institute DBA Motorcycle Mechanics Institute,
Motorcycle & Marine Mechanics Institute, Phoenix, Arizona
Universal Technical Institute, Sacramento, California
Universal Technical Institute, Orlando, Florida
Divisions
Motorcycle Mechanics Institute, Orlando, Florida
Marine Mechanics Institute, Orlando, Florida
Automotive, Orlando, Florida
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Institution
Main campus
Additional campuses
Universal Technical Institute of Texas
Universal Technical Institute, Houston, Texas
Universal Technical Institute, Exton, Pennsylvania
Universal Technical Institute, Dallas/Ft. Worth, Texas
1We relocated from our Glendale Heights, Illinois campus and began teaching programs at our Lisle,
Illinois campus effective November 11, 2013.
The substantial amount of federal funds disbursed through Title IV Programs, the large number of students
and institutions participating in those programs and instances of fraud and abuse have prompted ED to exercise
significant regulatory oversight over institutions participating in Title IV Programs. Accrediting commissions and
state agencies also oversee compliance with both their respective standards and Title IV Program requirements.
As a result, each of our institutions is subject to detailed oversight and review and must comply with a complex
framework of laws and regulations. Because ED periodically revises its regulations and changes its interpretation
of existing laws and regulations, we cannot predict with certainty how the Title IV Program requirements will be
applied in all circumstances.
Significant factors relating to Title IV Programs that could adversely affect us include the following:
Congressional Action.
Political and budgetary concerns significantly affect Title IV Programs. Congress has historically
reauthorized the HEA approximately every five to six years. The HEA was reauthorized, amended and signed into
law most recently on August 14, 2008 and continued the availability of Title IV Program funds, authorized additional
aid and benefits for students, required new federal reporting items and disclosures and codified additional
compliance requirements related to student loans. Additionally, reauthorization implemented changes that impact
how institutions comply with requirements that they receive no more than 90% of their revenue from Title IV
Programs and maintain acceptable cohort default rates. Congress reviews and determines federal appropriations
for Title IV Programs at least annually.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the Consumer
Financial Protection Bureau (CFPB), which became active during 2012. The CFPB is tasked with supervising large
banks and certain other types of nonbank financial companies, including alternative loan providers, for compliance
with federal consumer financial protection laws. It is possible that our proprietary loan program will be subject
to such supervision.
On December 23, 2011 the President signed the Consolidated Appropriations Act of 2012 (Appropriations
Act), which included award year 2012-2013 funding levels for Title IV Programs and maintained a $5,550 maximum
Federal Pell Grant for the 2012-2013 award year by cutting spending on the other student aid programs and placing
new restrictions on eligibility. Additionally, the Appropriations Act reduced the maximum income that makes an
applicant for Title IV Program funds eligible for an automatic zero Expected Family Contribution from $32,000
to $23,000. This has reduced the number of students eligible for the maximum Federal Pell Grant. Furthermore,
the Appropriations Act eliminated the automatic 10% Pell Grant award for students whose calculated award is at
least 5% of the maximum Pell Grant but less than 10%.
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The Appropriations Act also made several non-Pell Grant related changes to Title IV Program
requirements. Ability-to-benefit (ATB) options for establishing general student eligibility for Title IV Program
funds were eliminated for students who first enroll in a program of study on or after July 1, 2012. This change
requires students to have a high school diploma or its recognized equivalent, or to have been home schooled in
order to be eligible to receive Title IV Program funds. Additionally, ED has issued interpretive guidance in the
form of multiple Dear Colleague Letters to institutions. As a result of these changes, beginning July 1, 2012, we
no longer admitted first-time students without a high school diploma, or its recognized equivalent, or who have
not been home schooled.
The Senate Committee on Health, Education, Labor, and Pensions (HELP) held a series of oversight
hearings on for-profit institutions’ administration of Title IV programs during the 111th and 112th Congresses. The
hearings focused on for-profit schools’ student recruitment and marketing practices, their percentage of revenue
from Title IV Program funds, and the quality, cost and completion rates of programs at for-profit institutions. To
date, the applicable congressional committees of the 113th Congress have had a more balanced agenda made up
of the reauthorization of the Elementary and Secondary Education Act, the Workforce Investment Act and the
HEA, with less direct focus on for-profit education. We continue to be diligent in our efforts to provide value to
our students and our industry customers and to remain in compliance with state, federal and accrediting agency
rules and regulations.
Program Integrity.
On October 29, 2010, ED issued regulations pertaining to certain aspects of the administration of Title
IV Programs, regulations which, with minor exceptions, became effective July 1, 2011. Since the publication of
the regulations, ED has issued interpretive guidance in the form of multiple Dear Colleague Letters to institutions.
The letters provide sub-regulatory guidance on certain aspects of the regulations which assists institutions with
understanding the regulations in these areas. However, there remains uncertainty in how various aspects of the
regulations will be interpreted and applied, which could increase the risk that ED could seek to impose monetary
or other sanctions on us if it believed we were not in full compliance with all aspects of the regulations. The
resulting program integrity rules promulgated in October 2010 and June 2011 address fourteen topics.
The regulations that have the most significant potential impact on our business are the following:
• Determining when a program of study is required to measure student progress in clock hours
and the assignment of credit hours;
• The elimination of the 12 safe harbors regarding the incentive compensation prohibition; and
• The revised definition of “substantial misrepresentation” that could impose enhanced liability
on institutions of higher education.
Assignment of Credit Hours and Clock Hours. The regulations establish standard definitions for financial
aid credit hours applicable to all institutions approved by ED and expand the definition of programs that must be
measured in terms of clock hours for Title IV Program purposes. These definitions are applied on a program-by-
program basis. Based on available publications and agency guidance, we do not believe any of our programs, as
currently constituted, must be treated as clock hour programs for Title IV Program purposes under the requirements.
If ED were to determine that our credit hour assignments were incorrect or that our programs must be treated as
clock hour programs, the Title IV Program funds available for students enrolled in such programs could be
significantly less than currently available.
ED’s regulatory structure relies heavily on the accreditors to assess compliance with the regulations. On
April 13, 2012, ACCSC released its definition of a credit hour. The ACCSC credit hour definition is intended to
reasonably approximate ED’s definition and to provide flexibility in program design and delivery. The definition
applies to both degree and non-degree programs. We completed the program changes necessary to comply with
the definition prior to the December 31, 2012 deadline.
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Incentive Compensation. An institution participating in Title IV Programs may not provide any
commission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or
the award of financial aid to any person or entity engaged in any student recruiting or admission activities or in
making decisions regarding the awarding of Title IV Program funds.
The current regulations prohibit schools from making salary adjustments to covered employees based, in
any part, directly or indirectly, on the employee’s success in securing enrollments or financial aid, or the number
of students recruited, enrolled or awarded financial aid. Similarly, the regulations prohibit any payments or
incentives to covered employees based on students’ graduation or completion of any part of their program.
Additionally, the commentary to the regulations states that the payment of incentives to covered employees based
on how many students receive jobs in their field of study after graduation is also prohibited. The regulations also
provide that the compensation restrictions will apply to any employee who undertakes recruiting or admitting of
students, or who makes decisions about and awards Title IV Program funds, as well as any higher level employee
with responsibility for recruitment or admission of students, or making decisions about awarding Title IV Program
funds.
Furthermore, the regulations state that the same restrictions on a school’s payments to its own individual
employees will also be applied to a school’s payments to an outside company. The regulations provide an exception
to this principle, which permits payments to an outside company for providing student contact information for
prospective students, provided that such payments are not based on the number of students who apply or enroll,
or on any additional conduct by the outside company such as participation in pre-admission activities. The
commentary accompanying the regulations also provides that payments made to third parties based on the number
of clicks on a website are permissible, as long as those payments are not based in any part, directly or indirectly,
on the number of individuals who enroll or are awarded financial aid.
When it issued the regulations, ED also stated that it does not intend to provide private guidance to
individual schools on their specific compensation practices, but that it may issue additional broadly applicable
guidance to all schools from time to time. In March 2011, ED issued the first such guidance on the incentive
compensation regulations in the form of a Dear Colleague Letter to all schools participating in the Title IV Programs.
In that guidance, ED addressed several issues, including: (i) activities ED considers covered or exempt from the
incentive compensation restrictions; (ii) examples of types of payments ED considers to be permissible under the
regulations; (iii) application of the compensation restrictions to senior managers, executives and other employees;
(iv) standard evaluative factors that schools may use in determining the compensation of covered employees; and
(v) limited situations in which tuition-based payments can be made to outside companies.
Because the regulations differ significantly from the prior regulations, and because of the imprecise nature
of many aspects of these regulations, it is not clear how ED will apply these regulations in all circumstances.
Although we cannot guarantee that ED will not take a position that some aspect of our compensation practices is
not in compliance with these regulations, we believe that our compensation plans are in substantial compliance
with the regulations. As discussed in Part II, Item 7, we have experienced an increase in compensation cost for
our admissions representatives as a result of the changing regulatory environment. The regulations required
operating changes that have increased competition which has impacted our marketing and admissions operations.
Our operating costs have changed and will continue to change materially based on any adjustments to compensation
that we have made or may make in the future. As a result, the revisions to the governing regulations have adversely
affected our ability to compensate our employees and our compensation practices for third parties.
Misrepresentation Regulations. Misrepresentation for purposes of Title IV Program compliance includes
any false, erroneous or misleading statement that has the likelihood or tendency to deceive or confuse without
regard to materiality or intent. The areas of particular sensitivity to ED include: (i) potential misrepresentation of
the nature of an educational program; (ii) the nature of any financial charges; (iii) the employability of graduates
and (iv) the manner in which the institution’s relationship with ED is depicted. The regulations governing
misrepresentation also establish institutional liability for statements made by institutions and/or their agents and
22
broaden the administrative remedies available to ED for violations. Further, the regulations create potential exposure
in qui tam actions under the False Claims Act. We believe we are in substantial compliance with the regulations
governing misrepresentation.
Gainful Employment. The HEA requires an eligible for-profit institution to provide “an eligible program
of training to prepare students for gainful employment in a recognized occupation” in order for the institution’s
students to qualify for Title IV Program assistance. ED is relying on this statutory provision to support promulgation
and implementation of the “gainful employment” rule. On June 13, 2011, ED published regulations imposing
additional Title IV Program eligibility requirements on certain educational programs. These regulations established
metrics for determining whether a program will qualify as such an educational program but were vacated by the
U.S. District Court on June 30, 2012 prior to the effective date.
On June 12, 2013, ED published a notice announcing its intent to establish a negotiated rulemaking
committee to prepare proposed regulations to establish standards for programs that prepare students for gainful
employment in a recognized occupation. A negotiator panel representing various constituencies was established
and the negotiation sessions took place in Washington, D.C. in September and November of 2013. On November
8, 2013, ED published proposed new standards related to gainful employment which are stricter and more complex
than an earlier version which was published on August 29, 2013. At this time, we cannot anticipate the impact that
the standards, when finalized, will have on us. We continue to monitor this activity for any impact to our business.
The rules still require proprietary postsecondary institutions to provide prospective students with each
eligible program’s recognized occupations, costs, completion rate, graduate employment rate and median loan debt
of individuals who complete our programs. We have established a webpage located at www.uti.edu/disclosure for
this purpose.
The “90/10 Rule.” A for-profit institution loses its eligibility to participate in Title IV Programs if it
derives more than 90% of its revenue from Title IV Programs for two consecutive fiscal years as calculated under
a cash basis formula mandated by ED. The HEA and ED regulations set forth specific requirements for the
calculation of the Title IV Program revenue percentage, mandate expanded disclosure requirements in how an
institution presents the calculation, and impose negative consequences if an institution exceeds the 90% limit.
The HEA provides that an institution will lose its Title IV Program eligibility for a period of at least two
institutional fiscal years if it exceeds the 90% threshold for two consecutive institutional fiscal years. The loss of
such eligibility would begin on the first day following the conclusion of the second consecutive year in which the
institution exceeded the 90% limit and, as such, any Title IV Program funds already received by the institution and
its students during a period of ineligibility would have to be returned to ED or a lender, if applicable. Additionally,
if an institution exceeds the 90% level for a single year, ED will place the institution on provisional certification
for a period of at least two years.
The HEA sets specific standards for certain elements in the calculation of an institution’s percentage under
the 90/10 Rule, including the treatment of certain portions of Stafford loans, institutional loans and revenue received
from students who are enrolled in educational programs that are not eligible for Title IV Program funding.
As of September 30, 2013, our institutions’ annual Title IV percentages as calculated under the 90/10 rule
ranged from approximately 66% to 69%. We regularly monitor compliance with this requirement to minimize the
risk that any of our institutions would derive more than the allowable maximum percentage of its revenue from
Title IV Programs for any fiscal year.
Federal Student Loan Defaults. To remain eligible to participate in Title IV Programs, institutions must
maintain federal student loan cohort default rates below specified levels. The cohort default rate includes borrowers
under the Federal Family Education Loan (FFEL) program, which was discontinued June 30, 2010, as well as the
DL program. ED calculates an institution’s cohort default rate on an annual basis. Under the current calculation,
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the FFEL/DL cohort default rate is derived from student FFEL/DL borrowers who first enter loan repayment during
a federal fiscal year (FFY) ending September 30 and subsequently default on those loans by the end of the following
year; parent borrowers are excluded from the calculation. This represents a two-year measuring period. An
institution whose cohort default rate is 25% or more for three consecutive FFYs or 40% or more for any given
FFY loses eligibility to participate in some or all Title IV Programs. This sanction is effective for the remainder
of the FFY in which the institution lost its eligibility and for the two subsequent FFYs.
The HEA expanded the measurement period for defaults from two years to three; a change that is expected
to increase our FFEL/DL cohort default rates. The regulations also increased the threshold for an institution to
lose eligibility to participate in Title IV Programs from 25% to 30%. The one year threshold of 40% has not been
increased. ED began calculating both the two and three-year cohort default rates beginning with the 2009 cohort.
Sanctions will be applicable after three consecutive years of the three-year cohort default rates are available, which
we anticipate will occur in September of 2014. During the transition period, sanctions will be based on the two-
year cohort default rate. None of our institutions had a two-year FFEL/DL cohort default rate of 25% or greater
for 2011, 2010 or 2009, the three most recent FFYs with published rates.
The following tables set forth the FFEL/DL cohort default rates for our institutions:
Institution
Two-Year Cohort Default Rates for
Cohort Years Ended September 30, (1)
2010
2011
Universal Technical Institute of Arizona
Universal Technical Institute of Phoenix
Universal Technical Institute of Texas
12.8%
13.7%
15.1%
All proprietary postsecondary institutions
13.6%
10.7%
11.4%
11.7%
12.9%
2009
7.7%
9.0%
8.8%
15.0%
Institution
Three-Year Cohort Default Rates for
Cohort Years Ended September 30, (1)
Universal Technical Institute of Arizona
Universal Technical Institute of Phoenix
Universal Technical Institute of Texas
All proprietary postsecondary institutions
2010
18.9%
20.2%
21.6%
21.8%
2009
14.3%
16.0%
16.4%
22.7%
(1) Based on information published by the U.S. Department of Education.
An institution whose three-year cohort default rate under the FFEL/DL program exceeds 15% for any
one of the three preceding years is subject to a 30-day delay in receiving the first disbursement on federal student
loans. As of September 30, 2013, our Universal Technical Institute of Phoenix and Universal Technical Institute
of Texas institutions were subject to delayed disbursements. Effective October 21, 2013, our Universal Technical
Institute of Arizona institution also became subject to delayed disbursements as its three-year cohort default rate
for FFY 2010 exceeded the 15% threshold. An institution whose cohort default rate under the FFEL/DL program
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is 25% or greater, but less than 40%, for any one of the three most recent federal fiscal years may be placed on
provisional certification status by ED for up to three years. None of our institutions are on provisional status with
ED.
Perkins Loan Defaults. An institution with a Perkins program cohort default rate that is greater than
15.0% for any federal award year, which is the twelve month period from July 1 through June 30, may be placed
on provisional certification. All of our institutions have Perkins cohort default rates less than 15% for students
who were scheduled to begin repayment in the federal award year ended June 30, 2013, the most recent federal
award year reported by our institutions. An institution with a Perkins cohort default rate of 50% or greater for three
consecutive federal award years loses eligibility to participate in the Perkins program and must liquidate its loan
portfolio. None of our institutions had a Perkins cohort default rate of 50% or greater for any of the last three
federal award years. ED also will not provide any additional federal funds to an institution for Perkins loans in
any federal award year in which the institution’s Perkins cohort default rate is 25% or greater. None of our
institutions has had its federal Perkins funding eliminated for the past three federal award years. For the federal
award year ended June 30, 2014, as with the five preceding federal award years, ED will not disburse any new
federal funds to any institutions for Perkins loans due to federal appropriations limitations. In our 2013 fiscal year,
we derived less than 1% of our revenues from the Perkins program.
Financial Responsibility Standards. All institutions participating in Title IV Programs must satisfy
specific ED standards of financial responsibility. ED evaluates institutions for compliance with these standards
each year, based on the institution’s annual audited financial statements, as well as following a change of control
of the institution.
The institution’s financial responsibility is measured by its composite score which is calculated by ED
based on three ratios:
•
•
•
the equity ratio which measures the institution’s capital resources, ability to borrow and financial
viability;
the primary reserve ratio which measures the institution’s ability to support current operations from
expendable resources; and
the net income ratio which measures the institution’s ability to operate at a profit.
ED assigns a strength factor to the results of each of these ratios on a scale from negative 1.0 to positive
3.0, with negative 1.0 reflecting financial weakness and positive 3.0 reflecting financial strength. ED then assigns
a weighting percentage to each ratio and adds the weighted scores for the three ratios together to produce a composite
score for the institution. The composite score must be at least 1.5 for the institution to be deemed financially
responsible without the need for further oversight. In addition to having an acceptable composite score, an institution
must, among other things, meet all of its financial obligations including required refunds to students and any Title
IV Program liabilities and debts, be current in its debt payments, and not receive an adverse, qualified, or disclaimed
opinion by its accountants in its audited financial statements. If ED determines that an institution does not satisfy
its financial responsibility standards, depending on the resulting composite score and other factors, that institution
may establish its financial responsibility on an alternative basis by one or a combination of the following, as
determined by ED:
•
•
•
•
posting a letter of credit in an amount equal to at least 50% of the total Title IV Program funds received
by the institution during its most recently completed fiscal year;
posting a letter of credit in an amount equal to at least 10% of such prior year’s Title IV Program
funds;
accepting provisional certification; or
complying with additional ED monitoring requirements and agreeing to receive Title IV Program
funds under an arrangement other than ED’s standard advance funding arrangement.
25
ED has historically evaluated the financial condition of our institutions on a consolidated basis based on
the financial statements of Universal Technical Institute, Inc. as the parent company. ED’s regulations permit ED
to examine the financial statements of Universal Technical Institute, Inc., the financial statements of each institution
and the financial statements of any related party. Our composite score has exceeded the required minimum
composite score of 1.5 for each of our fiscal years since 2004.
Return of Title IV Funds. An institution participating in Title IV Programs must calculate the amount
of unearned Title IV Program funds that have been disbursed to students who withdraw from their educational
programs before completing them. The institution must return those unearned funds to ED or the appropriate
lending institution in a timely manner, which is generally within 45 days from the date the institution determines
that the student has withdrawn.
If an institution is cited in an audit or program review for returning Title IV Program funds late for 5%
or more of the students in the audit or program review sample, the institution must post a letter of credit in favor
of ED in an amount equal to 25% of the total Title IV Program funds that should have been returned in the previous
fiscal year. Our 2013 Title IV compliance audits did not cite any of our institutions for exceeding the 5% late
payment threshold.
Institution Acquisitions. When a company acquires an institution that is eligible to participate in Title
IV Programs, that institution undergoes a change of ownership resulting in a change of control as defined by ED.
Upon such a change of control, an institution’s eligibility to participate in Title IV Programs is generally suspended
until it has applied for recertification by ED as an eligible institution under its new ownership which requires that
the institution also re-establish its state authorization and accreditation. ED may temporarily and provisionally
certify an institution seeking approval of a change of control under certain circumstances while ED reviews the
institution’s application. The time required for ED to act on such an application may vary substantially. ED’s
recertification of an institution following a change of control is typically on a provisional basis. Our expansion
plans are based, in part, on our ability to acquire additional institutions and have them certified by ED to participate
in Title IV Programs following affirmation of state licensure and accreditation. Although we believe we will be
able to obtain all necessary approvals from ED, our accrediting commission and the applicable state agencies for
our expansion plans, we cannot ensure that such approvals will be obtained at all or in a timely manner that will
not delay or reduce the availability of Title IV Program funds for our students.
Change of Control. In addition to institution acquisitions, other types of transactions can also cause a
change of control. ED and most state education agencies and our accrediting commission have standards pertaining
to the change of control of institutions, but these standards are not uniform. ED’s regulations describe some
transactions that constitute a change of control, including the transfer of a controlling interest in the voting stock
of an institution or the institution’s parent corporation. With respect to a publicly-traded corporation, ED regulations
provide that a change of control occurs in one of two ways: (i) if there is an event that would obligate the corporation
to file a Current Report on Form 8-K with the SEC disclosing a change of control or (ii) if the corporation has a
“Controlling Stockholder”, as defined in ED regulations, that owns or controls through agreement at least 25% of
the total outstanding voting stock of the corporation and is the largest stockholder of the corporation, and that
stockholder ceases to own at least 25% of such stock or ceases to be the largest stockholder. These change of
control standards are subject to interpretation by ED. Most of the states and our accrediting commission include
the sale of a controlling interest of common stock in the definition of a change of control. A change of control
under the definition of these agencies would require any affected institution to have its state authorization and
accreditation reaffirmed by that agency. The requirements to obtain such reaffirmation from the states and our
accrediting commission vary widely.
A change of control could occur as a result of future transactions in which our company or institutions
are involved. Some corporate re-organizations and some changes in the board of directors are examples of such
transactions. Additionally, the potential adverse effects of a change of control could influence future decisions by
us and our stockholders regarding the sale, purchase, transfer, issuance or redemption of our stock. If a future
26
transaction results in a change of control of our company or our institutions, we believe that we will be able to
obtain all necessary approvals from ED, our accrediting commission and the applicable state education agencies.
However, we cannot ensure that all such approvals can be obtained at all or in a timely manner that will not delay
or reduce the availability of Title IV Program funds for our students.
Opening Additional Institutions and Adding Educational Programs. For-profit educational institutions
must be authorized by their state education agencies, accredited by an accrediting commission recognized by ED,
and be fully operational for two years before applying to ED to participate in Title IV Programs. However, an
institution that is certified to participate in Title IV Programs may establish an additional location and apply to
participate in Title IV Programs at that location without regard to the two-year requirement, if such additional
location satisfies all other applicable ED eligibility requirements. Our expansion plans are based, in part, on our
ability to open new campuses as additional locations of our existing institutions and take into account ED’s approval
requirements. Currently, all of our institutions are eligible to offer Title IV Program funding.
A student may use Title IV Program funds only to pay the costs associated with enrollment in an eligible
educational program offered by an institution participating in Title IV Programs. Our expansion plans are based,
in part, on our ability to add new educational programs at our existing institutions. Generally, an institution that
is eligible to participate in Title IV Programs, and is not provisionally certified, may add a new educational program
without ED approval if:
•
•
the new program is licensed by the applicable state agency, accredited by an agency recognized
by ED and leads to an associate level or higher degree and the institution already offered programs
at that level; or
the new program meets minimum length requirements and prepares students for gainful
employment in the same or a related occupation as an educational program that has previously
been designated as an eligible program at that institution.
Some of the state education agencies and our accrediting commission also have requirements that may
affect our institutions’ ability to open a new location, establish an additional location of an existing institution or
begin offering a new or revised educational program. We do not believe that these standards will create significant
obstacles to our expansion plans.
Administrative Capability. ED assesses the administrative capability of each institution that participates
in Title IV Programs under a series of separate standards. Failure to satisfy any of the standards may lead ED to
find the institution ineligible to participate in Title IV Programs, require the institution to repay Title IV Program
funds, change the method of payment of Title IV Program funds or place the institution on provisional certification
as a condition of its continued participation.
Eligibility and Certification Procedures. The HEA specifies the manner in which ED reviews institutions
for eligibility and certification to participate in Title IV Programs. Every educational institution seeking Title IV
Program funding for its students must be certified to participate and is required to periodically renew this
certification. Each institution must apply to ED for continued certification to participate in Title IV Programs at
least every six years, or if it undergoes a change of control. Furthermore, an institution may come under ED review
if it expands its activities in certain ways such as opening an additional location or raising the highest academic
credential it offers. The Program Participation Agreement (PPA) document serves as ED’s formal authorization
of an institution and its associated additional locations to participate in Title IV Programs for a specified period of
time. Universal Technical Institute of Arizona and Universal Technical Institute of Phoenix were recertified in
October 2010 and entered into new PPAs with ED which will expire on June 30, 2016. Universal Technical Institute
of Texas was recertified in February 2012 and entered into a new PPA with ED which will expire March 31, 2018.
Compliance with Regulatory Standards and Effect of Regulatory Violations. Our institutions are subject
to audits and program compliance reviews by various external agencies, including ED, ED’s Office of Inspector
27
General, state education agencies, student loan guaranty agencies, the U.S. Department of Veterans Affairs and
our accrediting commission. Each of our institutions’ administration of Title IV Program funds must also be audited
annually by independent accountants and the resulting audit report submitted to ED for review. If ED or another
regulatory agency determined that one of our institutions improperly disbursed Title IV Program funds or violated
a provision of the HEA or ED’s regulations, that institution could be required to repay such funds and could be
assessed an administrative fine. ED could also transfer the institution from the advance method of receiving Title
IV Program funds to a cash monitoring or reimbursement system, which could negatively impact cash flow at an
institution. Significant violations of Title IV Program requirements by us or any of our institutions could be the
basis for a proceeding by ED to fine the affected institution or to limit, suspend or terminate the participation of
the affected institution in Title IV Programs. Generally, such a termination extends for 18 months before the
institution may apply for reinstatement of its participation. There is no ED proceeding pending to fine any of our
institutions or to limit, suspend or terminate any of our institutions’ participation in Title IV Programs, and we
have no written notice that any such proceeding is currently contemplated. Violations of Title IV Program
requirements could also subject us or our institutions to other civil and criminal penalties.
ITEM 1A. RISK FACTORS
We provide the following cautionary discussion of risks, uncertainties and possibly inaccurate assumptions
relevant to our business. These are factors that, individually or in the aggregate, could cause our actual results
to differ materially from expected and historical results. We note these factors for investors within the meaning
of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933, as amended.
You should understand that it is not possible to predict or identify all such factors. Consequently, you should not
consider the following to be a complete discussion of all potential risks or uncertainties.
Risks Related to Our Industry
Failure of our schools to comply with the extensive regulatory requirements for school operations could result
in financial penalties, restrictions on our operations and loss of external financial aid funding.
In 2013, we derived approximately 68% of our revenues, on a cash basis, from federal student financial
aid programs, referred to in this Report on Form 10-K as Title IV Programs, administered by ED. To participate
in Title IV Programs, an institution must receive and maintain authorization by the appropriate state education
agencies, be accredited by an accrediting commission recognized by ED and be certified as an eligible institution
by ED. As a result, our institutions are subject to extensive regulation by the state education agencies, our accrediting
commission and ED. These regulatory requirements cover the vast majority of our operations, including our
educational programs, facilities, instructional and administrative staff, administrative procedures, marketing,
recruiting, financial operations and financial condition. These regulatory requirements also affect our ability to
acquire, expand or open additional institutions or campuses, add new, or expand our existing educational programs
and change our corporate structure and ownership. Most ED requirements are applied on an institutional basis,
with an “institution” defined by ED as a main campus and its additional locations, if any. Under ED’s definition,
we have three such institutions. The state education agencies, our accrediting commission and ED periodically
revise their requirements and modify their interpretations of existing requirements.
If our institutions failed to comply with any of these regulatory requirements, our regulatory agencies
could impose monetary penalties, place limitations on our schools’ operations, terminate our schools’ ability to
grant degrees and diplomas, revoke our schools’ accreditation or terminate their eligibility to receive Title IV
Program funds, each of which could adversely affect our cash flows, results of operations and financial condition,
and impose significant operating restrictions upon us. We cannot predict with certainty how all of these regulatory
requirements will be applied or whether each of our schools will be able to comply with all of the requirements in
the future. We believe that we have described the most significant regulatory risks that apply to our schools in the
following paragraphs.
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Failure to maintain eligibility to participate in Title IV Programs could materially and adversely affect our
business.
To participate in Title IV Programs, an institution must be authorized to offer its programs by the relevant
state education agencies, be accredited by an accrediting commission recognized by ED and be certified as eligible
by ED. The substantial amount of federal funds disbursed through Title IV Programs, the large number of students
and institutions participating in those programs and instances of fraud and abuse have prompted ED to exercise
significant regulatory oversight over institutions participating in Title IV Programs. Accrediting commissions and
state agencies also oversee compliance with both their respective standards and with Title IV Program requirements.
As a result, each of our institutions is subject to detailed oversight and review and must comply with a complex
framework of frequently changing laws and regulations and subjective regulatory interpretation of these obligations
by various regulating entities. Because ED periodically revises its regulations and changes its interpretation of
existing laws and regulations, we cannot predict with certainty how Title IV Program requirements will be applied
in all circumstances. Additionally, given the complex nature of the regulations, the fact that they are subject to
multiple interpretations, a stated department policy of providing limited or no interpretive guidance and the large
volume of Title IV transactions in which we are involved, it is reasonable to conclude that, from time to time, in
the conduct of our business, we may inadvertently violate such regulations. In such an event, remedial action may
be necessary, regulatory proceedings could occur and regulatory penalties could be assessed.
Significant factors relating to Title IV Program eligibility that could adversely affect us include the
following:
State Authorization
A campus that grants degrees or diplomas must be authorized by the relevant education agency of the
state in which it is located. Requirements for authorization vary substantially among states. State authorization
is also required for students to be eligible for funding under Title IV Programs. Loss of state authorization by any
of our campuses from the education agency of the state in which the campus is located would end that campus’
eligibility to participate in Title IV Programs and could cause us to close the campus, which could have a material
impact on our cash flows, results of operations and financial condition.
Accreditation
A school must be accredited by an accrediting commission recognized by ED in order to participate in
Title IV Programs. Loss of accreditation by any of our campuses would end that campus’ participation in Title IV
Programs and could cause us to close the campus, which could have a material impact on our cash flows, results
of operations and financial condition. A change in accreditation to a more restrictive or monitored status could
restrict our ability to add new programs, open new campuses or increase recruitment activity.
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The “90/10 Rule”
Under the “90/10 Rule,” a for-profit institution loses its eligibility to participate in Title IV Programs if
it derives more than 90% of its revenue from those programs for two consecutive institutional fiscal years, under
a cash-basis calculation mandated by ED. The period of ineligibility covers at least the next two succeeding fiscal
years, and any Title IV Program funds already received by the institution and its students during the period of
ineligibility would have to be returned to ED, if DL loans were included in the calculation. If an institution exceeds
the 90% level for a single year, ED will place the institution on provisional certification for a period of at least two
years. If we are placed on provisional certification status for any reason, ED may more closely view any application
we file for recertification, new locations, new educational programs, revisions to existing educational programs,
acquisitions of other schools, increase in degree level or other significant changes. Furthermore, for an institution
that is provisionally certified, ED may revoke the institution’s certification without advance notice or advance
opportunity to challenge the action. In our 2013 fiscal year, under the regulatory formula prescribed by ED, each
of our institutions derived approximately 66% - 69% of its revenues from Title IV Programs.
Multiple legislative proposals have been introduced in Congress that would increase the requirements of
the 90/10 Rule, such as reducing the 90% maximum under the rule to 85% and/or including military and veteran
funding in the 90% portion of the calculation. If any of our institutions loses eligibility to participate in Title IV
Programs, such a loss would adversely affect our students’ access to Title IV Program funds they need to pay their
educational expenses, which could reduce our student population and would have a material impact on our cash
flows, results of operations and financial condition.
Federal Student Loan Defaults
An institution may lose its eligibility to participate in some or all Title IV Programs if its former students
default on the repayment of their federal student loans in excess of specified levels. Based upon the most recent
student loan default rates published by ED, none of our institutions have federal student loan default rates that
exceed the specified levels. If any of our institutions loses eligibility to participate in Title IV Programs because
of high student loan default rates, such a loss would adversely affect our students’ access to various Title IV Program
funds which could reduce our student population and would have a material impact on our cash flows, results of
operations and financial condition. See “Business-Regulatory Environment-Regulation of Federal Student
Financial Aid Programs-Federal Student Loan Defaults” included elsewhere in this Report on Form 10-K for
additional information.
Financial Responsibility Standards
To participate in Title IV Programs, an institution must satisfy specific measures of financial responsibility
prescribed by ED or post a letter of credit in favor of ED and possibly accept other conditions on its participation
in Title IV Programs. The operating conditions that may be placed on a school that does not meet the standards
of financial responsibility include being transferred from the advance payment method of receiving Title IV Program
funds to either the reimbursement or the heightened cash monitoring system, which could result in a significant
delay in the institution’s receipt of those funds or increased administrative costs related to those funds. We are not
currently required to post a letter of credit on behalf of any of our schools and are not subject to additional operating
conditions. We may be required to post letters of credit in the future, which could increase our costs of regulatory
compliance, or change the timing of receipt of Title IV Program funds. Our inability to obtain a required letter of
credit or the imposition of other limitations on our participation in Title IV Programs could limit our students’
access to Title IV Program funds, which could reduce our student population and could have a material impact on
our cash flows, results of operations and financial condition.
30
Return of Title IV Funds
A school participating in Title IV Programs must correctly calculate and return funds received for students
who withdraw before completing their educational programs whose aid exceeds the amount earned under Title IV
Program guidelines. Returns must be completed in a timely manner, generally within 45 days of the date the school
determines that the student has withdrawn. If the unearned funds are not properly calculated or timely returned,
we may be required to post a letter of credit in favor of ED, pay interest on the late repayment of funds, or be
otherwise sanctioned by ED, which could increase our cost of regulatory compliance and adversely affect our
results of operations. Additionally, the failure to timely return Title IV Program funds also could result in the
termination of eligibility to receive such funds going forward or the imposition of other sanctions. Any of these
results could have a material impact on our cash flows, results of operations and financial condition. Given the
complex nature of the regulations applicable to Title IV refunds and the fact they are subject to multiple
interpretations, and the large volume of such transactions in which we are involved, it is reasonable to conclude
that, from time to time, in the conduct of our business, we may inadvertently violate such regulations. In such an
event, remedial actions may be necessary, regulatory proceedings could occur and regulatory penalties could be
assessed.
Administrative Capability
ED regulations specify extensive criteria an institution must satisfy to establish that it has the requisite
“administrative capability” to participate in Title IV Programs. These criteria require, among other things, that the
institution:
•
•
•
•
•
•
•
•
•
•
•
•
comply with all Title IV Program regulations;
have capable and sufficient personnel to administer Title IV Programs;
have acceptable methods of defining and measuring the satisfactory academic progress of its students;
administer the Title IV Programs with adequate checks and balances in its system of internal controls
over financial reporting;
divide the function of authorizing and disbursing or delivering Title IV Program funds so that no
office has the responsibility for both functions;
establish and maintain records required under the Title IV Program regulations;
develop and apply an adequate system to identify and resolve discrepancies in information from
sources regarding a student’s application for financial aid under Title IV Programs;
do not have a student loan cohort default rate above specified levels;
refer to the Office of the Inspector General any credible information indicating that any applicant,
student, employee or agent of the institution has been engaged in any fraud or other illegal conduct
involving Title IV Programs;
not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting
or engaging in activity that is the cause of debarment or suspension;
provide adequate financial aid counseling to its students;
timely submit all reports and financial statements required by the regulations; and
31
•
not otherwise appear to lack administrative capability.
If an institution fails to satisfy any of these criteria, ED may:
•
•
•
•
require the repayment of Title IV Program funds;
impose a less favorable payment system for the institution’s receipt of Title IV Program funds;
place the institution on provisional certification status; or
commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the
institution in Title IV Programs.
If we fail to maintain administrative capability as defined by ED, we could lose our eligibility to participate
in Title IV Programs or have that eligibility adversely conditioned, which could have a material impact on our cash
flows, results of operations and financial condition.
The loss of funds from Veterans' Benefits programs could materially and adversely affect our business.
To participate in veterans' benefits programs, including the Post-9/11 GI Bill, the Montgomery GI Bill,
the REAP, and VA Vocational Rehabilitation, an institution must comply with certain requirements established by
the VA. These criteria require, among other things, that the institution:
•
report on the enrollment status of eligible students;
• maintain student records and make such records available for inspection;
•
•
follow current VA rules; and
comply with applicable limits on the percentage of students receiving certain veterans benefits on a
program or campus basis.
If we fail to comply with these requirements, we could lose our eligibility to participate in veterans'
benefits programs, which could reduce our student population.
Other considerations which could impact the funding we receive from veterans' benefits programs include
the following:
• Access to military installations. Recently, our access to military installations for student recruitment has
become more limited due to the changes described in “Business-Regulatory Environment-Other Federal
and State Programs” included elsewhere in this Report on Form 10-K. Restrictions on access necessary
to continue to develop awareness of our programs with this population could reduce our enrollments.
•
90/10 rule changes. Multiple legislative proposals have been introduced in Congress that would increase
the requirements of the 90/10 Rule, such as reducing the 90% maximum under the rule to 85% and/or
including military and veteran funding in the 90% portion of the calculation. Implementation of these
proposals could have a negative impact on our 90/10 ratio which could have a negative impact on our
eligibility to participate in Title IV Programs. If any of our institutions loses eligibility to participate in
Title IV Programs, such a loss could adversely affect our students’ access to Title IV Program funds they
need to pay their educational expenses which could reduce our enrollments and have a material impact
on our cash flows, results of operations and financial condition.
32
• Funding for veterans benefits programs. Funding for veterans' benefits programs is dependent upon
Congressional appropriations. If appropriations are not maintained at the current level, or if an extended
government shutdown were to occur, the VA might not be able to continue funding veterans' benefits.
Any loss of funds from veterans' benefits programs could reduce our student population and have a material
impact on our cash flows, results of operations and financial condition.
A substantial decrease in student financing options, or a significant increase in financing costs for our
students, could have a negative effect on our student population and consequently, on our cash flows, results
of operations and financial condition.
The student loan market has undergone significant changes in the past few years including increased
regulations from the HEA reauthorization in 2008, elimination of the FFEL program in 2010, implementation of
more stringent PLUS loan credit requirements and contraction in credit markets that has reduced availability of
federal and private student loans for certain institutions and/or students. Many banks and lending institutions have
discontinued their private student loan programs. Those that have stayed in the market have increased financing
costs, both rates and fees, to offset the risks associated with offering unsecured debt. Additionally, the broader
economic environment has put pressure on students’ ability to repay their loans, resulting in higher default rates.
These factors may result in lending institutions continuing to exit the student loan market and for other providers
to determine not to enter the market, which could decrease the availability of alternative loans to postsecondary
students, including students with low credit scores who would not otherwise be eligible for credit-based alternative
loans that seek to enroll. Prospective students may find that increased financing costs make borrowing to fund
their education unattractive and motivate them to abandon or delay enrollment in postsecondary education programs
such as ours. Tight credit markets may also move private lenders to impose on us and on our prospective and
continuing students new or increased fees in order to provide alternative loans. If any of these scenarios were to
occur, in whole or in part, our students’ ability to finance their education could be adversely affected and could
result in a decrease in our student population and result in decreased profitability.
Congress may change the law or reduce funding for or place restrictions on the use of funds received through
Title IV Programs which could reduce our student population, revenues and/or profit margin.
Congress periodically revises the HEA and other laws, and enacts new laws, governing Title IV Programs
and annually determines the funding level for each Title IV Program. Congress most recently reauthorized the
HEA in 2008. Any action by Congress that significantly reduces funding for Title IV Programs or the ability of
our schools or students to receive funding through these programs or places restrictions on the use of funds received
by an organization through these programs could reduce our student population and revenues.
Congressional action may also require us to modify our practices in ways that could increase administrative
costs, reduce the ability of students to finance their education at our schools, and materially decrease student
enrollment and result in decreased profitability.
Continued Congressional examination of the for-profit education sector could result in legislation or further
ED rulemaking restricting Title IV Program participation by for-profit schools in a manner that materially and
adversely affects our business.
Congress continues to be focused on for-profit education institutions, specifically regarding participation
in Title IV Programs and U.S. Department of Defense oversight of tuition assistance for military service members
attending for-profit colleges. For a description of additional information regarding this activity, see “Business-
Regulatory Environment-Regulation of Federal Student Financial Aid Programs-Congressional Action” included
elsewhere in this Report on Form 10-K.
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This Congressional activity could result in the enactment of more stringent legislation by Congress, further
rulemakings affecting participation in Title IV Programs and other governmental actions, increasing regulation of
the for-profit sector. Action by Congress may also increase our administrative costs and require us to modify our
practices in order for our institutions to comply with Title IV Program requirements. In addition, concerns generated
by this Congressional activity may adversely affect enrollment in for-profit educational institutions such as ours.
Any laws that are adopted that limit our or our students’ participation in Title IV Programs or in programs to provide
funds for active duty service members and veterans or the amount of student financial aid for which our students
are eligible, or any decreases in enrollment related to the Congressional activity concerning this sector, could have
a material impact on our cash flows, results of operations and financial condition.
Compliance with the Title IV Program Integrity regulations and ongoing negotiated rulemaking could materially
and adversely affect our business.
Since publication of the program integrity regulations in 2010, ED has issued interpretive guidance on
the regulations in the form of multiple Dear Colleague Letters to institutions. The letters provide sub-regulatory
guidance on certain aspects of the regulations which assists institutions with understanding the regulations in these
areas. The laws and regulations governing certain of the requirements do not establish clear criteria for compliance,
and ED has indicated that they do not intend to provide additional guidance on certain topics.
The regulations that most significantly impact our business are:
•
•
•
determining when a program of study is required to measure student progress in clock hours and the
assignment of credit hours;
the elimination of the 12 safe harbors regarding the incentive compensation prohibition; and
the revised definition of "substantial misrepresentation" that could impose enhanced liability on
institutions of higher education.
Additionally, ED has established a negotiated rulemaking committee to prepare proposed regulations to
establish standards for programs that prepare students for gainful employment in a recognized occupation. The
proposed new standards published on November 8, 2013 related to gainful employment are stricter and more
complex than an earlier version which was published on August 29, 2013. At this time, we cannot anticipate the
impact that the standards, when finalized, will have on us.
For a description of additional information regarding these regulatory changes, see “Business-Regulatory
Environment-Regulation of Federal Student Financial Aid Programs-Program Integrity” included elsewhere in
this Report on Form 10-K.
We have devoted significant effort to understanding the effects of these regulations on our business and
to developing compliant solutions that are also congruent with our business, culture and mission to serve our
students and industry relationships. However, these solutions related to implementation and compliance with these
final rules, including but not limited to compensation, the definition of a credit hour, the broadened definition of
misrepresentation and gainful employment, to the extent revised or reinstated in the future, may have a material
impact on the manner in which we conduct our business, our student populations and the nature of our programs.
Interpretation of the regulations is subject to change if ED provides further guidance and clarification. The solutions
may require further analysis based on the uncertainty noted above and any additional interpretive guidance that is
provided. Existing or future understandings could be different from ED’s interpretations and thus lead to
repayments, restrictions, fines or litigation.
34
Our business could be harmed if we experience a disruption in our ability to process student loans under the
Federal Direct Loan Program.
Because all Title IV Program student loans other than the Perkins loans are now processed under the DL
program, any processing disruptions by ED may impact our students’ ability to obtain student loans on a timely
basis. If we experience a disruption in our ability to process student loans through the DL program, either because
of administrative challenges on our part or the inability of ED to process the increased volume of loans through
the DL program on a timely basis, our cash flows, results of operations and financial condition could be adversely
and materially affected.
Limited opportunities for private alternative student loans for our students could increase the need for
institutional funding, which could have a material impact on our business, results of operations and financial
condition.
The current state of the national economy and generalized lending crisis has led to a contracted lending
environment, resulting in limited lender choices for students who need a private alternative loan to meet gaps
between Title IV Program funding and cost of education. Furthermore, lender underwriting criteria has been much
more stringent, resulting in fewer prospective borrowers being approved for their loans. As lenders seek to reduce
their risk on portfolios of new alternative loans, we have seen many lenders move to shift their target markets
exclusively to four-year baccalaureate degree schools. We currently have a list of seven private unaffiliated
alternative loan providers to assist new borrowers in selecting a lender, with two of these lenders providing the
vast majority of our private alternative student loans. If these lenders decided to decline to lend to students attending
our schools, and we were not able to find alternative lenders, the demand for our proprietary loan program could
increase, requiring us to devote greater than planned resources which could have a material impact on our cash
flows, results of operations and financial condition.
Government and regulatory agencies and third parties may conduct compliance reviews, bring claims or initiate
litigation against us.
Because we operate in a highly regulated industry, we are subject to compliance reviews and claims of
noncompliance by government agencies, regulatory agencies and third parties alleging noncompliance with
applicable standards. We are also subject to various lawsuits, investigations and claims, covering a wide range of
matters, including, but not limited to alleged violations of federal and state laws, false claims made to the federal
government and routine employment matters. While we are committed to strict compliance with all applicable
laws, regulations and accrediting standards, if the results of government, regulatory or third party reviews or
proceedings are unfavorable to us, or if we are unable to defend successfully against lawsuits or claims, we may
be required to pay monetary damages or be subject to fines, limitations, loss of regulatory approvals or Title IV
Program funding, injunctions or other penalties. We could also incur substantial legal costs in excess of our
insurance coverage. Even if we adequately address issues raised by an agency review or successfully defend a
lawsuit or claim, we may have to divert significant financial and management resources from our ongoing business
operations to address issues raised by those reviews or defend those lawsuits or claims. Additionally, given the
significant public scrutiny being placed on the sector, numerous state attorneys general have initiated investigations
either of the operation of the for-profit schools in their state or of particular institutions operating in that state.
As previously disclosed, in November 2011, one of our former employees filed a lawsuit under the Federal
False Claims Act (31 U.S.C. § 3729, et seq.) (FCA Suit) in the United States District Court for the District of
Arizona Court, alleging that our compensation of our admissions representatives violated the “incentive
compensation ban” of Title IV of the Higher Education Act of 1965, as amended, amongst other potential violations
allegedly occurring over a number of years. We also disclosed that the same former employee had filed a complaint
with the Occupational Safety and Health Administration of the U.S. Department of Labor (DOL) alleging retaliatory
employment practices in violation of the whistleblower provisions of the Sarbanes-Oxley Act of 2002, as amended
(DOL Complaint).
35
As also previously disclosed, the U.S. Department of Justice informed us that it had declined to intervene
in the FCA Suit and closed its investigation and the DOL closed its investigation. Further, we separately entered
into a settlement agreement with the former employee, Linda Rawles, a former Vice President of Compliance,
pursuant to which these matters were dismissed and all of her claims against us were resolved. The settlement
agreement provided that, in return for the dismissal of her claims, the former employee received a payment only
with respect to her claims in the DOL Complaint. Our expense under the settlement agreement, following
contribution by our insurer, was approximately $0.4 million and was recorded during the three months ended
September 30, 2013. The settlement agreement provides that we and all other defendants named in the FCA Suit
and the DOL Complaint (Universal Technical Institute of Arizona, Inc., Universal Technical Institute of Delaware,
Inc., Universal Technical Institute of Massachusetts, Inc., Universal Technical Institute of Pennsylvania, Inc.,
Universal Technical Institute of Phoenix, Inc., Universal Technical Institute of Texas, Inc, Kimberly and Chris
McWaters and Eugene and Jane Doe Putnam) expressly deny any liability, wrongdoing, noncompliance or violation
of applicable law or regulation.
In September 2012, we received a Civil Investigative Demand (CID) from the Attorney General of the
Commonwealth of Massachusetts related to a pending investigation in connection with allegations that we caused
false claims to be submitted to the Commonwealth relating to student loans, guarantees and grants provided to
students at our Norwood, Massachusetts campus. The CID required us to produce documents and provide written
testimony regarding a broad range of the Company’s business from September 2006 to the present. We responded
timely to the request, as well as a follow-up requests for additional information. At this time, we cannot predict
the eventual scope, duration, outcome or associated costs of this request and accordingly we have not recorded
any liability in the accompanying financial statements.
In October 2012 and January 2013, the ACCSC requested certain documentation related to the preliminary
investigation by the United States Department of Justice. Pursuant to applicable law and the United States’ request,
we were not able to provide the information requested and notified ACCSC as such. In October 2013, we informed
the ACCSC of the declination of intervention and closing of investigations as well as the settlement of the former
employee’s claims. In addition, at ACCSC’s request, we have provided ACCSC with documentation relating to
the actions taken by the Court and the Government. At this time, we cannot predict the eventual scope, duration,
outcome or associated costs, if any, of this request and accordingly we have not recorded any liability in the
accompanying financial statements.
We cannot predict the ultimate outcome of unsettled matters and we may incur significant defense costs
and other expenses in connection with them in excess of our insurance coverage related to these matters. We may
be required to pay substantial damages or settlement costs, or may be required to pay substantial fines or penalties.
Such costs and expenses could have a material adverse effect on our business, cash flows, results of operations
and financial condition. An adverse outcome in any of these matters could also materially and adversely affect
our licenses, accreditation and eligibility to participate in Title IV programs.
36
Our business and stock price could be adversely affected as a result of regulatory investigations of, or actions
commenced against, us or other companies in our industry.
The operations of companies in the education and training services industry, including UTI, are subject
to intense regulatory scrutiny. In some cases, allegations of wrongdoing on the part of such companies have resulted
in formal or informal investigations by the U.S. Department of Justice, the SEC, state governmental agencies and
ED. These allegations have attracted adverse media coverage and have been the subject of legislative hearings
and regulatory actions at both the federal and state levels, focusing not only on the individual schools but in some
cases on the for-profit postsecondary education sector as a whole. These investigations of specific companies in
the education and training services industry could have a negative impact on our industry as a whole and on our
stock price. Furthermore, the outcome of such investigations and any accompanying adverse publicity could
negatively affect student enrollment, which could have a material impact on our cash flows, results of operations
and financial condition.
Changes in the state regulatory environment, including budget constraints, may affect our ability to obtain
necessary authorizations or approvals from those states to conduct or change our operations.
Due to state budget constraints and changes in the regulatory environment in some of the states in which
we operate, it is possible that some states may reduce the number of employees in, or curtail the operations of, the
state education agencies that authorize our schools. A delay or refusal by any state education agency in approving
any changes in our operations that require state approval, such as the opening of a new campus, the introduction
of new programs or the revision of existing programs, a change of control or the hiring or placement of new
admissions representatives, could prevent us from making such changes or could delay our ability to make such
changes.
The regulations may lengthen the time to obtain necessary state approvals and may increase the nature
and type of state regulation such that it would require us to modify our operations in order to comply with the
requirements. This could impose substantial additional costs on our institutions, which could have a material
impact on our cash flows, results of operations and financial condition.
Budget constraints in states that provide state financial aid to our students could reduce the amount of such
financial aid that is available to our students, which could reduce our student population and negatively affect
our 90/10 Rule calculation.
A significant number of states are facing budget constraints that are causing them to reduce state
appropriations in a number of areas. Many of those states provide financial aid to our students. These and other
states may decide to reduce or redirect the amount of state financial aid that they provide to students, but we cannot
predict how significant any of these reductions will be or how long they will last. If the level of state funding
available to our students decreases and our students are not able to secure alternative sources of funding, our student
population could be reduced, which could have a material impact on our profitability. Additionally, loss of state
funding would negatively impact our 90/10 Rule calculation, as this funding is counted in the non-Title IV Program
funds portion of the ratio, and, such loss would drive up the percentage of revenue attributable to Title IV Programs.
Furthermore, the reduction or elimination of these non-Title IV sources of student funding may adversely
affect our 90/10 Rule calculation and the cost of our compliance with the 90/10 Rule by increasing the proportion
of the affected students’ funding needs satisfied by Title IV Programs.
37
If regulators do not approve our acquisition of a school that participates in Title IV Program funding or the
opening of an additional location, the acquired school and/or the additional location would not be permitted to
participate in Title IV Programs, which could impair our ability to operate the acquired school and/or the
additional location as planned or to realize the anticipated benefits from the acquisition of that school and/or
opening of the additional location.
If we acquire a school that participates in Title IV Program funding and/or open an additional location,
we must obtain approval from ED and applicable state education agencies and accrediting commissions in order
for the school and/or additional location to be able to operate and participate in Title IV Programs. While we would
attempt to ensure we will be able to receive such approval prior to acquiring a school and/or opening an additional
location, approval may be withheld. An acquisition can result in the temporary suspension of the acquired school’s
participation in Title IV Programs and opening an additional location can result in a delay of the campus’
participation in Title IV Programs unless we submit a timely and materially complete application for approval of
the acquisition or the opening of the new location. Upon an acquisition, ED will only grant a temporary certification
while it reviews the application. If we were unable to timely re-establish or establish the state authorization,
accreditation or ED certification of the acquired school or obtain approval for the new location, our ability to
operate the acquired school and/or open the additional location as planned or to realize the anticipated benefits
from the acquisition of that school and/or the opening of the additional location could be impaired.
If regulators do not approve or delay their approval of transactions involving a change of control of our company
or any of our schools, our ability to participate in Title IV Programs may be impaired.
If we or any of our schools experience a change of control under the standards of applicable state education
agencies, our accrediting commission or ED, we or the affected schools must seek the approval of the relevant
regulatory agencies. These agencies do not have uniform criteria for what constitutes a change of ownership or
control. Transactions or events that constitute a change of control include significant acquisitions or dispositions
of our common stock or significant changes in the composition of our board of directors. Some of these transactions
or events may be beyond our control. Our failure to obtain, or a delay in receiving, approval of any change of
control from ED, our accrediting commission or any state in which our schools are located would impair our ability
to participate in Title IV Programs, which would have a material impact on our cash flows, results of operations
and financial condition. Our failure to obtain, or a delay in obtaining, approval of any change of control from any
state in which we do not have a school but in which we recruit students could require us to suspend our recruitment
of students in that state until we receive the required approval. The potential adverse effects of a change of control
with respect to participation in Title IV Programs could influence future decisions by us and our stockholders
regarding the sale, purchase, transfer, issuance or redemption of our stock.
Risks Related to Our Business
If we fail to effectively fill our existing capacity, we may experience a deterioration of our profitability and
operating margins.
We have underutilized seating capacity at several of our campuses. Our ongoing efforts to fill existing
seating capacity may strain our management, operations, employees or other resources. We may not be able to
maintain our current seating capacity utilization rates, effectively manage our operation or achieve planned capacity
utilization on a timely or profitable basis. If we are unable to fill our underutilized seating capacity, we may
experience operating inefficiencies that likely will increase our costs more than we had planned resulting in a
deterioration of our profitability and operating margins.
38
Our proprietary loan program could have a negative effect on our results of operations.
Our proprietary loan program enables students who have exhausted all available government-sponsored
or other financial aid and are unable to obtain private loans from other financial institutions to borrow a portion
of their tuition if they meet certain criteria.
The bank which previously originated loans for our proprietary loan program (original bank) exercised
its right to terminate the agreement effective April 30, 2013. The original bank subsequently agreed to an extension
through June 29, 2013. During June 2013, we entered into an agreement with a new bank (the bank), which began
accepting student loan applications on June 29, 2013. The terms under the agreement with the new bank are
substantially the same as the agreement with the original bank. Under the terms of the proprietary loan program,
the bank originates loans for our students who meet our specific credit criteria with the related proceeds to be used
exclusively to fund a portion of their tuition. We then purchase all such loans from the bank at least monthly and
assume all the related credit and collection risk. See Note 2 of the notes to our Consolidated Financial Statements
within Part II, Item 8 of this Report on Form 10-K for further discussion of activity under our proprietary loan
program.
Factors that may impact our ability to collect these loans include: current economic conditions; compliance
with laws applicable to the origination, servicing and collection of loans; the quality of our loan servicers’
performance; a decline in graduate employment opportunities and the priority that the borrowers under this loan
program, particularly students who did not complete or were dissatisfied with their programs of study, attach to
repaying these loans as compared to other obligations. Because we record revenues upon the receipt of cash
payments, if we are unable to collect on these loans, our revenues and profitability may continue to be adversely
impacted.
Federal, state and local laws and public policy and general principles of equity relating to the protection
of consumers apply to the origination, servicing and collection of the loans under our proprietary loan program.
Any violation of the various federal, state and local laws, including, in some instances, violations of these laws by
parties not under our control, may result in losses on the loans or may limit our ability to collect all or part of the
principal or interest on the loans. This may be the case even if we are not directly responsible for the violations
by such parties. Changes in laws or public policy could negatively impact the viability of this student loan program
and cause us to delay or suspend the program. Additionally, depending on the terms of the loans, state consumer
credit regulators may assert that our activities in connection with the student loan program require us to obtain one
or more licenses, registrations or other forms of regulatory approvals, any of which may not be able to be obtained
in a timely manner, if at all. All of these factors could result in the proprietary loan program having a material
adverse effect on our cash flows, results of operations and financial condition.
We rely on third parties to originate, process and service loans under our proprietary loan program. If these
companies fail or discontinue providing such services, our business could be harmed.
A state chartered bank with a small market capitalization originates loans under our proprietary loan
program. If the bank no longer provides service under the contract, we do not currently have an alternative bank
to fulfill the demand. There are a limited number of banks that are willing to participate in a program such as our
proprietary loan program. The time it could take us to replace the bank could result in an interruption in the loan
origination process which could result in a decrease in our student populations. Furthermore, a single company
processes loan applications and services the loans under our proprietary loan program. There is a 90-day termination
clause in the contract under which they provide these services. If this company were to terminate the contract, we
could experience an interruption in loan application processing or loan servicing, which could result in a decrease
in our student populations.
39
Failure on our part to maintain and expand existing industry relationships and develop new industry
relationships with our industry customers could impair our ability to attract and retain students.
We have extensive industry relationships that we believe afford us significant competitive strength and
support our market leadership. These relationships enable us to support undergraduate enrollment by attracting
students through brand name recognition and the associated prospect of high-quality employment opportunities.
Additionally, these relationships allow us to diversify funding sources, expand the scope and increase the number
of programs we offer and reduce our costs and capital expenditures due to the fact that, pursuant to the terms of
the underlying contracts with OEMs, we provide a variety of specialized training programs and typically do so
using tools, equipment and vehicles provided by the OEMs. These relationships also provide additional incremental
revenue opportunities from training the employees of our industry customers. Our success depends in part on our
ability to maintain and expand our existing industry relationships and to enter into new industry relationships.
Certain of our existing industry relationships, including those with American Honda Motor Co. Inc.; Mercury
Marine, a division of Brunswick Corp.; Suzuki Motor of America, Inc.; Volvo Penta of the Americas, Inc. and
Yamaha Motor Corp., USA, are not memorialized in writing and are based on verbal understandings. As a result,
the rights of the parties under these arrangements are less clearly defined than they would be had they been in
writing. Additionally, certain of our written agreements may be terminated without cause by the OEM. Finally,
certain of our existing industry relationship agreements expire within the next six months. We are currently
negotiating to renew these agreements and intend to renew them to the extent we can do so on satisfactory terms.
The reduction or elimination of, or failure to renew any of our existing industry relationships, or our failure to
enter into new industry relationships, could impair our ability to attract and retain students, require additional
capital expenditures or increase expenses and have a material adverse effect on our cash flows.
Competition could decrease our market share and create tuition pricing concerns.
The postsecondary education market is highly competitive. The elimination of ability-to-benefit options
for establishing general student eligibility for Title IV Program funds beginning July 1, 2012 has increased
competition for higher quality students. Some traditional public and private colleges and universities and community
colleges, as well as other private career-oriented schools, offer programs that may be perceived by students to be
similar to ours. Most public institutions are able to charge lower tuition than our schools, due in part to government
subsidies and other financial sources not available to for-profit schools. Some other for-profit education providers
have greater financial and other resources which may, among other things, allow them to secure industry
relationships with some or all of the OEMs with which we have relationships, develop other high profile industry
relationships or devote more resources to expanding their programs and their school network, all of which could
affect the success of our marketing programs. Additionally, some other for-profit education providers already have
a more extended or dense network of schools and campuses than we do, thus enabling them to recruit students
more effectively from a wider geographic area.
We may limit tuition increases or increase spending in response to competition in order to retain or attract
students or pursue new market opportunities; however, if we cannot effectively respond to competitor changes, it
could reduce our enrollments and our student populations. We cannot be sure that we will be able to compete
successfully against current or future competitors or that competitive pressures faced by us will not adversely affect
our market share, revenues and operating margin.
40
Our success depends in part on our ability to update and expand the content of existing programs and develop
new programs in a cost-effective manner and on a timely basis.
Prospective employers of our graduates demand that their entry-level employees possess appropriate
technological skills. These skills are becoming more sophisticated in line with technological advancements in the
automotive, diesel, collision repair, motorcycle and marine industries. Accordingly, educational programs at our
schools must keep pace with those technological advancements. Additionally, the method used to deliver curriculum
has been evolving to include on-line delivery. The expansion of our existing programs and the development of
new programs, including our Automotive Technology and Diesel Technology II curricula, and changes in the
method in which we deliver them, may not be accepted by our students, prospective employers or the technical
education market. Even if we are able to develop acceptable new programs, we may not be able to introduce these
new programs as quickly as the industries we serve require or as quickly as our competitors. If we are unable to
adequately respond to changes in market requirements due to unusually rapid technological changes or other factors,
our ability to attract and retain students could be impaired and our graduate employment rates could suffer.
Our Automotive Technology and Diesel Technology II curricula are a blend of daily instructor-led theory
and hands-on lab training complimented by interactive web-based learning, which is reflective of current industry
training methods and standards. The blended learning model combines several methodologies for communicating
training information and incorporates on-site classes, real-time web-based learning sessions and independent
learning and is the standard used by our OEMs to provide continuous technical education. If we are unable to
address and respond to requirements such as training instructors to teach the curricula, develop an IT infrastructure
that would effectively support this program, or obtain the appropriate equipment to teach this program to our
students, we may not be able to successfully roll out the curricula to our existing campuses in a timely, and cost-
effective manner. If we are not able to effectively and efficiently integrate the curricula or experience delays in
development, this could have a material adverse effect on our cash flows, results of operations and financial
condition.
Macroeconomic conditions, particularly unemployment, could adversely affect our business.
The U.S. economy and the economies of other key industrialized countries are experiencing difficult and
uncertain economic characteristics. We believe that our enrollment is affected by changes in economic conditions,
although the nature and magnitude of this effect are uncertain and may change over time. While these conditions
may have contributed to a portion of the past growth in our average full-time undergraduate student population as
individuals sought to advance their education and improve their employment opportunities, during periods when
the unemployment rate declines or remains stable as it has in 2012 and 2013, prospective students have more
employment options and recruiting new students has traditionally been more challenging. Affordability concerns
associated with increased living expenses and the availability of full- and part-time jobs for students attending
classes have made it more challenging for us to attract and retain students. The state of the general macroeconomic
environment has had a negative impact on price sensitivity and on the ability and willingness of students and their
families to incur debt. Furthermore, these circumstances may continue to reduce the willingness of employers to
sponsor educational opportunities for their employees, and affect the ability of our students to find employment
in the auto, diesel, collision repair, motorcycle or marine industries, any of which could materially and adversely
affect our business, cash flows, results of operations and financial condition.
Adverse market conditions for consumer and federally guaranteed student loans, such as the elimination
of Pell, could adversely impact the ability of borrowers with little or poor credit history, such as many of our
students, to borrow the necessary funds at an acceptable interest rate. These events could adversely affect the
ability or willingness of our former students to repay student loans, which could increase our student loan cohort
default rate and require increased time, attention and resources to manage these defaults.
41
We rely heavily on the reliability and performance of an internally developed student management and reporting
system, and any difficulties in maintaining this system may result in service interruptions, decreased customer
service, or increased expenditures.
The software that underlies our student management and reporting has been developed primarily by our
own employees. The reliability and continuous availability of this internal system and related integrations are
critical to our business. Any interruptions that hinder our ability to timely deliver our services, or that materially
impact the efficiency or cost with which we provide these services, or our ability to attract and retain computer
programmers with knowledge of the appropriate computer programming language, would adversely affect our
reputation and profitability and our ability to conduct business and prepare financial reports. Additionally, many
of the software systems we currently use will need to be enhanced over time or replaced with equivalent commercial
products, either of which could entail considerable effort and expense.
System disruptions and security threats to our computer networks could have a material adverse effect on our
business.
Our computer systems as well as those of our service providers are vulnerable to interruption, malfunction
or damage due to events beyond our control, including malicious human acts committed by foreign or domestic
persons, natural disasters, and network and communications failures. Furthermore, despite network security
measures, our servers and the servers at our service providers are potentially vulnerable to physical or electronic
unauthorized access, computer hackers, computer viruses, malicious code, organized cyber attacks and other
security problems and system disruptions. Despite the precautions we and our service providers have taken, our
systems may still be vulnerable to these threats. A user who circumvents security measures could misappropriate
proprietary or personally identifiable information or cause interruptions or malfunctions in operations. Sustained
or repeated system failures or security breaches that interrupt our ability to process information in a timely manner
could have a material adverse effect on our operations.
We may not be able to retain our key personnel or hire and retain the personnel we need to sustain and grow
our business.
Our success to date has depended, and will continue to depend, largely on the skills, efforts and motivation
of our executive officers who generally have significant experience with our company and within the technical
education industry. Our success also depends in large part upon our ability to attract and retain highly qualified
faculty, campus presidents, administrators and corporate management. Due to the nature of our business we face
significant competition in the attraction and retention of personnel who possess the skill sets that we seek. The
for-profit education sector is under significant regulatory and government scrutiny, which may make it more difficult
to attract and retain talent. Additionally, key personnel may leave us and subsequently compete against us. Because
we do not currently carry “key man” life insurance, the loss of the services of any of our key personnel, or our
failure to attract and retain other qualified and experienced personnel on acceptable terms, could impair our ability
to successfully manage our business.
42
If we are unable to hire, retain and continue to develop and train our admissions representatives, the effectiveness
of our student recruiting efforts would be adversely affected.
In order to support revenue growth, we need to hire and train new admissions representatives, as well as
retain and continue to develop our existing admissions representatives, who are our employees dedicated to student
recruitment. Our ability to develop a strong admissions representative team may be affected by a number of factors,
including: our ability to integrate and motivate our admissions representatives; our ability to effectively train our
admissions representatives; the length of time it takes new admissions representatives to become productive; the
competition we face from other companies in hiring and retaining admissions representatives and our ability to
effectively manage a multi-location educational organization. Effective July 1, 2011, we made modifications to
our employee compensation structure in order to comply with the elimination of the safe harbors in the regulations
in place prior to this date. These modifications affected the compensation structure for our admissions
representatives, including the elimination of the majority of their incentive compensation. As a result of this change
and the macroeconomic conditions impacting our business, we have experienced and may continue to experience
a decrease in our enrollment rates. If we are unable to hire, develop or retain quality admissions representatives,
the effectiveness of our student recruiting efforts would be adversely affected.
Our financial performance depends in part on our ability to continue to develop awareness and acceptance of
our programs among high school graduates, military personnel and adults seeking advanced training.
The awareness of our programs among high school graduates, military personnel and working adults
seeking advanced training is critical to the continued acceptance and growth of our programs. Our inability to
continue to develop awareness of our programs could reduce our enrollments, which could have a material impact
on our cash flows, results of operations and financial condition. The following are some of the factors that could
prevent us from successfully marketing our programs:
•
•
•
•
•
•
student dissatisfaction with our programs and services;
diminished access to high school student populations;
reduced access to military bases and installations;
our failure to maintain or expand our brand or other factors related to our marketing or advertising
practices;
our inability to maintain relationships with automotive, diesel, collision repair, motorcycle and marine
manufacturers and suppliers; and
availability of funding sources acceptable to our students.
Seasonal and other fluctuations in our results of operations could adversely affect the trading price of our
common stock.
In reviewing our results of operations, you should not focus on quarter-to-quarter comparisons. Our
results in any quarter may not indicate the results we may achieve in any subsequent quarter or for the full year.
Our revenues normally fluctuate as a result of seasonal variations in our business, principally due to changes in
total student population. Student population varies as a result of new student enrollments, graduations and student
attrition. Historically, our schools have had lower student populations in our third fiscal quarter than in the remainder
of our fiscal year because fewer students are enrolled during the summer months. Our expenses, however, do not
generally vary at the same rate as changes in our student population and revenues and, as a result, such expenses
do not fluctuate significantly on a quarterly basis. We expect quarterly fluctuations in results of operations to
continue as a result of seasonal enrollment patterns. Such patterns may change, however, as a result of acquisitions,
new school openings, new program introductions and increased enrollments of adult students. Additionally, our
revenues for our first fiscal quarter are adversely affected by the fact that we do not recognize revenue during the
calendar year-end holiday break which falls primarily in that quarter. These fluctuations may result in volatility
or have an adverse effect on the market price of our common stock.
43
If we fail to maintain effective internal control over financial reporting, we may not be able to accurately report
our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in
our financial reporting which would harm our business and the trading price of our stock.
Internal control over financial reporting is a process designed by or under the supervision of our principal
executive and principal financial officer, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America. Our internal control structure is also designed to provide
reasonable assurance that fraud would be detected or prevented before our financial statements could be materially
affected.
Because of inherent limitations, our internal controls over financial reporting may not prevent or detect
all misstatements. Additionally, projections of any evaluation of effectiveness to future periods are subject to the
risks that our controls may become inadequate as a result of changes in conditions or the degree of compliance
with our policies and procedures may deteriorate.
If our internal control over financial reporting was not effective, our historical financial statements could
require restatement which could negatively impact our reputation and lead to a decline in our stock price.
Failure on our part to effectively identify, establish and operate additional schools or campuses could reduce
our ability to implement our growth strategy.
As part of our business strategy we anticipate opening and operating new schools or campuses.
Establishing new schools or campuses poses unique challenges and requires us to make investments in management
and capital expenditures, incur marketing expenses and devote other resources that are different, and in some cases
greater, than those required with respect to the operation of acquired schools. Accordingly, when we open new
schools, initial investments could reduce our profitability. To open a new school or campus, we would be required
to obtain appropriate state and accrediting commission approvals, which may be conditioned or delayed in a manner
that could significantly affect our growth plans. Additionally, to be eligible for Title IV Program funding, a new
school or campus would have to be certified by ED. We cannot be sure that we will be able to identify suitable
expansion opportunities to maintain or accelerate our current growth rate or that we will be able to successfully
integrate or profitably operate any new schools or campuses. Our failure to effectively identify, establish and
manage the operations of newly established schools or campuses could slow our growth and make any newly
established schools or campuses more costly to operate than we have historically experienced.
We may be unable to successfully complete or integrate future acquisitions.
We may consider selective acquisitions in the future. We may not be able to complete any acquisitions
on favorable terms or, even if we do, we may not be able to successfully integrate the acquired businesses into our
business. Integration challenges include, among others, regulatory approvals, significant capital expenditures,
assumption of known and unknown liabilities, our ability to control costs, and our ability to integrate new personnel.
The successful integration of future acquisitions may also require substantial attention from our senior management
and the senior management of the acquired schools, which could decrease the time that they devote to the day-to-
day management of our business. If we do not successfully address risks and challenges associated with acquisitions,
including integration, future acquisitions could harm, rather than enhance, our operating performance. Additionally,
if we consummate an acquisition, our capitalization and results of operations may change significantly. A future
acquisition could result in the incurrence of debt and contingent liabilities, an increase in interest expense,
amortization expenses, goodwill and other intangible assets, charges relating to integration costs or an increase in
the number of shares outstanding. In addition, our acquisition of a school is a change of ownership of that school,
which may result in the temporary suspension of that school’s participation in federal student financial aid programs
until it obtains ED’s approval. These results could have a negative effect on our cash flows, results of operations
and financial condition or result in dilution to current stockholders.
44
We have recorded a significant amount of goodwill, which may become impaired and subject to a write-down.
Goodwill represents the excess of the cost of an acquired business over the estimated fair values of the
assets acquired and liabilities assumed. Goodwill is reviewed at least annually for impairment, which might result
from the deterioration in the operating performance of the acquired business, adverse market conditions, adverse
changes in the applicable laws or regulations and a variety of other circumstances. Any resulting impairment
charge would be recognized as an expense in the period in which impairment is identified.
Our goodwill resulted from the acquisition of our motorcycle and marine education business in 1998. We
allocated such goodwill, which totaled $20.6 million, to two of our reporting units that provide the related
educational programs. We assess our goodwill for impairment during the fourth quarter of each fiscal year. While
actual experience will differ from the amounts included in our analysis, we do not believe that a related impairment
of our goodwill is reasonably possible in the foreseeable future.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Campuses and Other Properties
The following sets forth certain information relating to our campuses and corporate headquarters:
Campuses:
Arizona (Avondale)
Location
Arizona (Phoenix)
California (Rancho Cucamonga)
California (Sacramento)
Florida (Orlando)
Illinois (Lisle) 1
Massachusetts (Norwood)
Brand
UTI
MMI
UTI
UTI
UTI/MMI
UTI
UTI
North Carolina (Mooresville)
UTI/NASCAR Tech
Pennsylvania (Exton)
Texas (Dallas/Ft. Worth)
Texas (Houston)
UTI
UTI
UTI
Home Office: Arizona (Scottsdale)
Headquarters
Approximate
Square
Footage
Leased or
Owned
268,700
127,400
187,300
239,100
227,100
180,200
228,700
146,000
188,800
95,000
219,400
84,300
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
1We relocated from our Glendale Heights, Illinois campus and began teaching programs at our Lisle,
Illinois campus effective November 11, 2013. The lease for the Lisle, Illinois campus has an initial lease term of
18 years with four five-year renewal options.
All leased properties listed above are leased with remaining terms that range from approximately three
to 18 years. Many of the leases are renewable for additional terms at our option.
45
ITEM 3. LEGAL PROCEEDINGS
In the ordinary conduct of our business, we are periodically subject to lawsuits, demands in arbitrations,
investigations, regulatory proceedings or other claims, including, but not limited to, claims involving current and
former students, routine employment matters, business disputes and regulatory demands. When we are aware of
a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result
and the amount of the loss can be reasonably estimated, we would accrue a liability for the loss. When a loss is
not both probable and estimable, we do not accrue a liability. Where a loss is not probable but is reasonably possible,
including if a loss in excess of an accrued liability is reasonably possible, we determine whether it is possible to
provide an estimate of the amount of the loss or range of possible losses for the claim. Because we cannot predict
with certainty the ultimate resolution of the legal proceedings (including lawsuits, investigations, regulatory
proceedings or claims) asserted against us, such currently pending legal proceedings to which we are a party may
have a material adverse effect on our business, cash flows, results of operations or financial condition.
As previously disclosed, in November 2011, one of our former employees filed a lawsuit under the Federal
False Claims Act (31 U.S.C. § 3729, et seq.) (FCA Suit) in the United States District Court for the District of
Arizona Court, alleging that our compensation of our admissions representatives violated the “incentive
compensation ban” of Title IV of the Higher Education Act of 1965, as amended, amongst other potential violations
allegedly occurring over a number of years. We also disclosed that the same former employee had filed a complaint
with the Occupational Safety and Health Administration of the U.S. Department of Labor (DOL) alleging retaliatory
employment practices in violation of the whistleblower provisions of the Sarbanes-Oxley Act of 2002, as amended
(DOL Complaint).
As also previously disclosed, the U.S. Department of Justice informed us that it had declined to intervene
in the FCA Suit and closed its investigation and the DOL closed its investigation. Further, we separately entered
into a settlement agreement with the former employee, Linda Rawles, a former Vice President of Compliance,
pursuant to which these matters were dismissed and all of her claims against us were resolved. The settlement
agreement provided that, in return for the dismissal of her claims, the former employee received a payment only
with respect to her claims in the DOL Complaint. Our expense under the settlement agreement, following
contribution by our insurer, was approximately $0.4 million and was recorded during the three months ended
September 30, 2013. The settlement agreement provides that we and all other defendants named in the FCA Suit
and the DOL Complaint (Universal Technical Institute of Arizona, Inc., Universal Technical Institute of Delaware,
Inc., Universal Technical Institute of Massachusetts, Inc., Universal Technical Institute of Pennsylvania, Inc.,
Universal Technical Institute of Phoenix, Inc., Universal Technical Institute of Texas, Inc, Kimberly and Chris
McWaters and Eugene and Jane Doe Putnam) expressly deny any liability, wrongdoing, noncompliance or violation
of applicable law or regulation.
In September 2012, we received a Civil Investigative Demand (CID) from the Attorney General of the
Commonwealth of Massachusetts related to a pending investigation in connection with allegations that we caused
false claims to be submitted to the Commonwealth relating to student loans, guarantees and grants provided to
students at our Norwood, Massachusetts campus. The CID required us to produce documents and provide written
testimony regarding a broad range of the Company’s business from September 2006 to the present. We responded
timely to the request, as well as a follow-up requests for additional information. At this time, we cannot predict
the eventual scope, duration, outcome or associated costs of this request and accordingly we have not recorded
any liability in the accompanying financial statements.
In October 2012 and January 2013, the ACCSC requested certain documentation related to the preliminary
investigation by the United States Department of Justice. Pursuant to applicable law and the United States’ request,
we were not able to provide the information requested and notified ACCSC as such. In October 2013, we informed
the ACCSC of the declination of intervention and closing of investigations as well as the settlement of the former
employee’s claims. In addition, at ACCSC’s request, we have provided ACCSC with documentation relating to
the actions taken by the Court and the Government. At this time, we cannot predict the eventual scope, duration,
46
outcome or associated costs, if any, of this request and accordingly we have not recorded any liability in the
accompanying financial statements.
ITEM 4. MINE SAFETY DISCLOSURES
None.
EXECUTIVE OFFICERS OF UNIVERSAL TECHNICAL INSTITUTE, INC.
The executive officers of UTI are set forth in this table. All executive officers serve at the direction of
the Board of Directors. Mr. White and Ms. McWaters also serve as directors of UTI.
Name
John C. White
Age Position
65 Chairman of the Board
Kimberly J. McWaters
49 Chief Executive Officer and Director
Eugene S. Putnam, Jr.
53 President and Chief Financial Officer
Kenneth J. Cranston
50 Senior Vice President, Admissions
Chad A. Freed
Bryce H. Peterson
Sherrell E. Smith
Rhonda R. Turner
40 General Counsel, Senior Vice President of Business Development
35 Senior Vice President, Information Technology
50 Senior Vice President, Operations
40 Senior Vice President, People Services
John C. White has served as a director on our board since 1997 and as Chairman of the Board since
October 2005. Effective December 9, 2013, Mr. White is retiring from his duties as an executive officer in his
role as the Chairman of the Board. After that date, he will continue as a non-employee, non-management member
of the Board of Directors. Mr. White served as our Chief Strategic Planning Officer and Vice Chairman from
October 2003 to September 2005. From April 2002 to September 2003, Mr. White served as our Chief Strategic
Planning Officer and Co-Chairman of the Board. From 1997 to March 2002, Mr. White served as our Chief Strategic
Planning Officer and Chairman of the Board. Mr. White served as the President of Clinton Harley Corporation
(which operated under the name Motorcycle Mechanics Institute and Marine Mechanics Institute) from 1977 until
it was acquired by UTI in 1998. Prior to 1977, Mr. White was a marketing representative with International Business
Machines Corporation. Mr. White was appointed by the Arizona Senate to serve as a member of the Joint Legislative
Committee on Private Regionally Accredited Degree Granting Colleges and Universities and Private Nationally
Accredited Degree Granting and Vocational Institutions in 1990. He was appointed by the Governor of Arizona
to the Arizona State Board for Private Post-secondary Education, where he was a member and Complaint Committee
Chairman from 1993-2001. Mr. White received a BS in Engineering from the University of Illinois.
Kimberly J. McWaters has served as our Chief Executive Officer since October 2003 and as a director
on our Board since February 2005. Ms. McWaters served as UTI’s President from 2000 to March 2011 and
previously served on our Board from 2002 to 2003. From 1984 to 2000, Ms. McWaters held several positions with
UTI, including Vice President of Marketing and Vice President of Sales and Marketing. Ms. McWaters also serves
as a director of Penske Automotive Group, Inc. (formerly United Auto Group, Inc.). Ms. McWaters received a BS
in Business Administration from the University of Phoenix.
Eugene S. Putnam, Jr. has served as our President and Chief Financial Officer since March 2011. Mr.
Putnam served as our Executive Vice President and Chief Financial Officer from July 2008 to March 2011 and he
served as our interim Chief Financial Officer from January 2008 to July 2008. From June 2005 to May 2007, Mr.
Putnam served as Executive Vice President and Chief Financial Officer of Aegis Mortgage Corporation which
declared bankruptcy in August 2007. From July 2003 to June 2005, Mr. Putnam served as President of Coastal
Securities L.P. and from March 2001 to March 2003, Mr. Putnam served as Executive Vice President and Chief
47
Financial Officer of Sterling Bancshares, Inc. Mr. Putnam also spent 14 years as Director of Investor Relations
and in various corporate finance positions with SunTrust Banks, Inc. Mr. Putnam also serves as a director of
Community Bankers Trust Corporation. Mr. Putnam received his MBA from the University of North Carolina at
Chapel Hill and holds a BS in Economics from the University of California, Los Angeles.
Kenneth J. Cranston has served as our Senior Vice President, Admissions since July 2010. From December
2009 to June 2010, he served as Regional Vice President of Operations. Prior to joining UTI, Mr. Cranston was
President and CEO of Terion, Inc., a leading provider of wireless tracking technology for the transportation industry.
Before joining Terion, Inc., he spent much of his career in sales and marketing for industry leaders such as NBC,
Western Union and Telespectrum Worldwide, where he served as National Vice President of Sales and Marketing.
Mr. Cranston received his BA in Economics from Iona College.
Chad A. Freed has served as our General Counsel, Senior Vice President of Business Development since
March 2009 and is also our Corporate Secretary. Mr. Freed served as Senior Vice President, General Counsel from
February 2005 to March 2009 and as inside legal counsel since March 2004. Prior to joining UTI, Mr. Freed was
a Senior Associate in the Corporate Finance and Securities department at Bryan Cave LLP. Mr. Freed received his
Juris Doctor from Tulane University and holds a BS in International Business and French from Pennsylvania State
University.
Bryce H. Peterson has served as our Senior Vice President, Information Technology since June 2012. Mr.
Peterson served as Vice President of Information Technology from March 2011 to June 2012, as Vice President of
Internal Audit Services from March 2010 to March 2011 and as Information Technology Audit Manager from
October 2008 to February 2010. Prior to joining UTI, Mr. Peterson served in a variety of positions at KPMG,
LLP; Brigham Young University and Fenton Enterprises. Mr. Peterson received his MS in Information Systems
Management and holds a BS in Business Management from Brigham Young University.
Sherrell E. Smith has served as our Senior Vice President, Operations since August 2012. During his
previous tenure with UTI from 1986 to 2009, Mr. Smith held several positions with UTI including Campus President,
Regional Vice President of Operations, Senior Vice President of Operations and Education and Executive Vice
President of Operations. Prior to his return to UTI, Mr. Smith advised a private equity firm on acquisition
opportunities in the education field and served as the Chief Executive Officer of the American Institute of
Technology. Mr. Smith received a BS in Management from Arizona State University.
Rhonda R. Turner has served as our Senior Vice President of People Services (Human Resources) since
June 2010. Ms. Turner served as Vice President of People Services from August 2009 to May 2010, as Vice
President of People Services Partnerships & Training from January 2008 to July 2009 and as Director, People
Services Partnerships, from January 2006 to December 2007. Prior to joining UTI, Ms. Turner served in human
resources leadership positions at ConocoPhillips, Circle K and Main Street Restaurant Group, Inc., a TGI Friday’s
franchisee. Ms. Turner received her BS in Human Resources Management from Arizona State University.
48
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
PART II
Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol “UTI”.
The following table sets forth the range of high and low sales prices per share for our common stock, as
reported by the NYSE, for the periods indicated.
Fiscal Year Ended September 30, 2013:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ended September 30, 2012:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Price Range of
Common Stock
High
Low
13.97
12.83
12.67
12.58
$
$
$
$
8.00
9.82
9.96
10.02
Price Range of
Common Stock
High
Low
15.14
14.78
13.73
14.08
$
$
$
$
11.78
12.58
11.66
10.92
$
$
$
$
$
$
$
$
The closing price of our common stock as reported by the NYSE on November 22, 2013, was $14.03 per
share. As of November 22, 2013 there were 33 holders of record of our common stock.
On December 21, 2012; March 29, 2013; June 30, 2013 and September 30, 2013, we paid cash dividends
of $0.10 per share to common stockholders of record as of December 7, 2012; March 15, 2013, June 21, 2013 and
September 20, 2013. The aggregate payment was approximately $9.8 million.
We continuously evaluate our cash position in light of growth opportunities, operating results and general
market conditions. Periodically, we may return shareholder earnings through cash dividends or stock repurchases,
or a combination thereof.
49
Sales of Unregistered Securities; Repurchase of Securities
The following table summarizes the purchase of equity securities for the three months ended September
30, 2013:
ISSUER PURCHASES OF EQUITY SECURITIES
(a) Total
Number of
Shares
Purchased
(b) Average
Price Paid per
Share
(c) Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
(d) Approximate
Dollar Value of
Shares that May Yet
Be Purchased Under
the Plans Or
Programs
(In thousands) (1)
— $
4,500
$
— $
4,500
—
10.99
—
— $
4,500
$
— $
4,500
$
17,806
17,757
17,757
17,757
Period
July 2013
August 2013
September 2013
Total
(1)
On December 20, 2011, our Board of Directors authorized the repurchase of up to $25.0 million of our
common stock in the open market or through privately negotiated transactions.
50
Stock Performance Graph
The following Stock Performance Graph and related information shall not be deemed “soliciting material”
or “filed” with the Securities and Exchange Commission, nor should such information be incorporated by reference
into any future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended,
except to the extent that we specifically incorporate it by reference in such filing.
This graph compares total cumulative stockholder return on our common stock during the period from
September 30, 2008 through September 30, 2013 with the cumulative return on the NYSE Stock Market Index
(U.S. Companies) and a Peer Issuer Group Index. The peer issuer group consists of the companies identified below,
which were selected on the basis of the similar nature of their business. The graph assumes that $100 was invested
on September 30, 2008, and any dividends were reinvested on the date on which they were paid.
180.0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
161.4
100.0
81.0
37.0
9/30/2008
9/30/2009
9/30/2010
9/30/2011
9/30/2012
9/30/2013
Symbol
CRSP Total Returns Index for:
09/2008
09/2009
09/2010
09/2011
09/2012
09/2013
Universal Technical Institute, Inc.
NYSE Stock Market (US Companies)
Self-Determined Peer Group
100.0
100.0
100.0
115.6
92.5
124.5
123.1
103.5
90.1
85.6
102.8
62.7
88.2
132.7
41.7
81.0
161.4
37.0
Companies in the Self-Determined Peer Group
Apollo Group, Inc.
Corinthian Colleges, Inc.
I T T Educational Services, Inc.
Lincoln Educational Services Corporation
Notes:
Career Education Corporation
DeVry Education Group Inc.
Strayer Education, Inc.
A. The lines represent quarterly index levels derived from compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the quarterly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
D. The index level for all series was set to $100 on 09/30/2008.
Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved.
51
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected consolidated financial and operating data as of and for the
periods indicated. You should read the selected financial data set forth below together with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial
statements included elsewhere in this Report on Form 10-K. The selected consolidated statement of operations
data and the selected consolidated balance sheet data as of and for the years ended September 30, 2013 and 2012
have been derived from our audited consolidated financial statements. We revised the financial results of prior
periods in our Annual Report on Form 10-K for 2012. The selected consolidated statement of operations data and
selected consolidated balance sheet data as of and for the years ended September 30, 2011, 2010 and 2009 set forth
below have been derived from the revised financial information included in our Annual Report on Form 10-K for
2012.
52
Statement of Operations Data: (1)
Revenues
Operating expenses:
Educational services and facilities
Selling, general and administrative
Total operating expenses
Income from operations
Interest income, net (2)
Other income, net
Income before taxes
Income tax expense
Net income
Net income per share:
Basic
Diluted
Weighted average shares (in thousands):
Basic
Diluted
Cash dividends declared per common
share
Other Data: (1)
Depreciation and amortization (3)
Number of campuses (1)
Average undergraduate enrollments
Balance Sheet Data: (1)
Cash and cash equivalents (2), (4)
Current assets (2), (4)
Working capital (deficit) (2), (4)
Total assets (2), (4), (5)
Total shareholders' equity (2)
Year Ended September 30,
2013
2012
2011
2010
2009
($'s in thousands, except per share amounts)
$ 380,268
$ 413,552
$ 451,900
$ 435,921
$ 366,635
199,540
174,799
374,339
5,929
234
655
6,818
3,008
3,810
0.16
0.15
24,515
24,704
0.40
22,156
11
$
$
$
$
$
$
$
$
$
$
211,979
187,458
399,437
14,115
302
545
14,962
5,930
9,032
0.37
0.36
223,628
183,726
407,354
44,546
252
291
45,089
18,192
26,897
1.10
1.09
212,608
177,194
389,802
46,119
250
480
46,849
18,283
28,566
1.19
1.17
$
$
$
$
$
$
193,490
154,649
348,139
18,496
198
466
19,160
7,516
11,644
0.48
0.47
$
$
$
24,711
24,937
24,427
24,740
24,041
24,511
24,246
24,627
0.30
— $
1.50
—
23,819
$
24,842
$
19,888
$
17,568
11
11
11
10
15,000
16,500
18,500
18,600
15,900
$
35,657
$
45,665
$
53,670
$
48,974
$
56,199
$ 133,347
40,986
$
$ 134,984
35,544
$
$ 133,915
28,231
$
$ 115,656
$
(7,090) $
$ 114,222
12,675
$ 279,463
$ 268,158
$ 266,029
$ 242,724
$ 223,407
$ 138,770
$ 146,085
$ 141,423
$ 108,041
$ 106,609
(1) In 2010, we opened a campus in Dallas/Ft. Worth, Texas, which contributed to the fluctuation in our results
of operations and financial position during 2011 and 2010.
53
(2) In 2013, we paid quarterly cash dividends of $0.10 per share on December 21, 2012; March 29, 2013; June
30, 2013 and September 30, 2013 totaling $9.8 million. In 2012, we paid quarterly cash dividends of $0.10
per share on March 30, June 29, and September 28 totaling $7.4 million. In 2010, we paid a special cash
dividend on common stock of $1.50 per share totaling $36.3 million. In 2013, 2012 and 2009 , we used cash
and cash equivalents to repurchase approximately $5.4 million, $1.8 million and $16.9 million, respectively,
of our common shares, which decreased cash and cash equivalents, current assets and working capital (deficit),
and contributed to lower interest income.
(3) In 2012 and 2011, depreciation and amortization expense increased primarily due to the opening of our Dallas/
Ft. Worth, Texas campus and the implementation of our Automotive Technology and Diesel Technology II
curricula.
(4) In 2009, we purchased a building in the Dallas/Ft. Worth, Texas area for $9.1 million.
(5) In 2012, we entered into various agreements to relocate our Glendale Heights, Illinois campus to and design
and build a campus in Lisle, Illinois. Pursuant to these agreements, we invested approximately $4.0 million
to acquire an equity interest of approximately 28% in a related joint venture. We recorded approximately
$25.2 million and $2.4 million in property and equipment with a corresponding amount as a construction
liability as of September 30, 2013 and 2012, respectively.
54
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion together with the Selected Financial Data and the consolidated
financial statements and the related notes included elsewhere in this Report on Form 10-K. This discussion contains
forward-looking statements that are based on management’s current expectations, estimates and projections about
our business and operations. Our actual results may differ materially from those currently anticipated and expressed
in such forward-looking statements as a result of a number of factors, including those we discuss under “Risk
Factors” and elsewhere in this Report on Form 10-K.
General Overview
We are the leading provider of postsecondary education for students seeking careers as professional
automotive, diesel, collision repair, motorcycle and marine technicians as measured by total average undergraduate
enrollment and graduates. We offer undergraduate degree or diploma programs at 11 campuses across the United
States. We also offer advanced training programs including both student paid electives at our campuses and
manufacturer or dealer sponsored training at dedicated training centers. We have provided technical education for
48 years.
Our revenues consist principally of student tuition and fees derived from the programs we provide and
are presented after reductions related to discounts and scholarships we sponsor, refunds for students who withdraw
from our programs prior to specified dates and the portion of tuition students have funded through our proprietary
loan program. We generally recognize tuition revenue and fees ratably over the terms of the various programs we
offer. We supplement our tuition revenues with additional revenues from sales of textbooks and program supplies
and other revenues, all of which are recognized as sales occur or services are performed. In aggregate, these
additional revenues represented approximately 2% of our total revenues in each year for the three-year period
ended September 30, 2013. Tuition revenue and fees generally vary based on the average number of students
enrolled and average tuition charged per program.
Average undergraduate full-time student enrollments vary depending on, among other factors, the number
of continuing students at the beginning of a period, new student enrollments during the period, students who have
previously withdrawn but decide to re-enroll during the period, graduations and withdrawals during the period.
Our average undergraduate full-time student enrollments are influenced by: the attractiveness of our program
offerings to high school graduates and potential adult students; the effectiveness of our marketing efforts; the depth
of our industry relationships; the strength of employment markets and long term career prospects; the quality of
our instructors and student services professionals; the persistence of our students; the length of our education
programs; the availability of federal and alternative funding for our programs; the number of graduates of our
programs who elect to attend the advanced training programs we offer and general economic conditions. Our
introduction of additional program offerings at existing campuses and opening additional campuses is expected to
influence our average undergraduate full-time student enrollment. We currently offer start dates at our campuses
that range from every three to six weeks throughout the year in our undergraduate programs. The number of start
dates of advanced training programs varies by the duration of those programs and the needs of the manufacturers
who sponsor them.
Our tuition charges vary by type and length of our programs and the program level, such as undergraduate
or advanced training. Tuition rates have increased by approximately 2% to 4% for the year ended September 30,
2013, 3% to 5% for the year ended September 30, 2012 and 4% to 7% for the year ended September 30, 2011. We
continually evaluate our tuition pricing based on individual campus markets, the competitive environment and ED
regulations.
55
Most students at our campuses rely on funds received under various government-sponsored student
financial aid programs, predominantly Title IV Programs, to pay a substantial portion of their tuition and other
education-related expenses. In 2013, approximately 68% of our revenues, on a cash basis as defined by ED, were
derived from federal student financial aid programs.
We extend credit for tuition and fees, for a limited period of time, to the majority of our students. Our
credit risk is mitigated through the students’ participation in federally funded financial aid programs unless students
withdraw prior to the receipt by us of Title IV funds for those students. The financial aid and assistance programs
are subject to political and budgetary considerations. There is no assurance that such funding will be maintained
at current levels. Extensive and complex regulations govern the financial assistance programs in which our students
participate. Our administration of these programs is periodically reviewed by various regulatory agencies. Any
regulatory violation could be the basis for the initiation of potential adverse actions including a suspension,
limitation, placement on reimbursement status or termination proceeding which could have a material adverse
effect on our business.
If any of our institutions were to lose its eligibility to participate in federal student financial aid programs,
the students at that institution, and other locations of that institution, would lose access to funds derived from those
programs and would have to seek alternative sources of funds to pay their tuition and fees. The receipt of financial
aid funds reduces the students’ amounts due to us and has no impact on revenue recognition, as the transfer relates
to the source of funding for the costs of education which may occur through Title IV or other funds and resources
available to the student. Additionally, we bear all credit and collection risk for the portion of our student tuition
that is funded through our proprietary loan program.
We categorize our operating expenses as (i) educational services and facilities and (ii) selling, general
and administrative.
Major components of educational services and facilities expenses include faculty and other campus
administration employees compensation and benefits, facility rent, maintenance, utilities, depreciation and
amortization of property and equipment used in the provision of educational services, tools, training aids, royalties
under our licensing arrangements and other costs directly associated with teaching our programs and providing
educational services to our students.
Selling, general and administrative expenses include compensation and benefits of employees who are
not directly associated with the provision of educational services, such as: executive management; finance and
central accounting; legal; human resources; marketing and student enrollment expenses, including compensation
and benefits of personnel employed in marketing and student admissions; costs of professional services; bad debt
expense; costs associated with the implementation and operation of our student management and reporting system;
rent for our corporate office headquarters; depreciation and amortization of property and equipment that is not
used in the provision of educational services and other costs that are incidental to our operations. All marketing
and student enrollment expenses are recognized in the period incurred. Costs related to the opening of new facilities,
excluding related capital expenditures, are expensed in the period incurred or when services are provided.
2013 Overview
Operations
Lower student population levels as we began 2013, combined with lower new student starts throughout
the year, resulted in a 9.1% decline in our average undergraduate full-time student enrollment to approximately
15,000 students for the year ended September 30, 2013. We started approximately 15,000 students during the year
ended September 30, 2013, which represents a decrease of 4.5% as compared to a decrease of 3.1% for the year
ended September 30, 2012. The decrease in starts was partially due to a decrease in student applications in the
prior year, as well as the result of certain macro-economic headwinds and regulatory challenges.
56
Several factors continue to challenge our ability to start new students including the following:
• The amount of Title IV financial aid available decreased during 2012 which increased the
difference between the amount of Title IV financial aid our students are eligible for and the cost
of education; this difference requires students and their families to obtain additional financing;
Incentive compensation changes which became effective July 1, 2011 limited the means by which
we may compensate our admissions representatives and required significant changes to our
compensation and performance management processes. We are continuing to adapt to those
changes within the organization;
•
• Competition for prospective students continues to increase from within our sector as well as with
traditional post-secondary educational institutions;
• The state of the general macro-economic environment and its impact on price sensitivity and the
ability and willingness of students and their families to incur debt; and
• Unemployment; during periods when the unemployment rate declines or remains stable as it has
in 2012 and 2013, prospective students have more employment options.
For further discussion on regulatory changes, see “Business - Regulatory Environment - Regulation of
Federal Student Financial Aid Programs - Congressional Action” included elsewhere in this Report on Form 10-
K.
The decline in our average undergraduate full-time student enrollment resulted in a decline in revenues
and net income for the year ended September 30, 2013. Our revenues for the year ended September 30, 2013 were
$380.3 million, a decrease of $33.3 million, or 8.0%, from the prior year. Our net income for the year ended
September 30, 2013 was $3.8 million, a decrease of $5.2 million from the prior year. Additionally, our revenues
for the year ended September 30, 2013 excluded $19.5 million of tuition related to students participating in our
proprietary loan program.
Balancing the impact of our lower student populations and our highly fixed cost structure with our
commitment to invest in our future resulted in lower operating margins for the year ended September 30, 2013.
In response to these challenges, we continue to manage discretionary operating costs, to develop our
strong industry relationships and to provide alternative financial solutions to help students achieve their educational
goals. During 2013, we increased our need-based scholarships offerings. Additionally, we have taken steps to
optimize marketing to generate higher quality inquiries from potential students and we have implemented programs
to improve the effectiveness of our admissions processes.
Veterans' Benefits
The percentage of our revenues, on a cash basis, which were collected from funds distributed under various
veterans' benefits programs has increased to approximately 18% for the year ended September 30, 2013 from
approximately 9% and 4% for the years ended September 30, 2012 and 2011, respectively. Beginning October 1,
2011, the Post-9/11 GI Bill became effective for non-degree granting institutions of higher learning, allowing
eligible veterans to use their Post-9/11 GI Bill benefits at all of our campuses, in addition to using existing veterans
benefits such as the Montgomery GI Bill, REAP and VA Vocational Rehabilitation. The increase in the percentage
of our revenues is attributable to a combination of the change in benefits and the overall decline in our average
undergraduate full-time student enrollment as compared to prior years.
There continues to be Congressional activity around the requirements of the 90/10 Rule, such as reducing
the 90% maximum under the rule to 85% or including military and veteran funding in the 90% portion of the
calculation. Potential changes to the 90/10 Rule could negatively impact our eligibility to participate in Title IV
57
Programs. A loss of eligibility would adversely affect our students’ access to Title IV Program funds they need to
pay their educational expenses.
As described in “Business-Regulatory Environment-Other Federal and State Programs” included
elsewhere in this Report on Form 10-K, we are subject to a limit of 35% on the percentage of students per campus
receiving benefits under certain veterans' benefits programs. One of our 11 campuses is operating near the 35%
limit as of November 1, 2013; our remaining 10 campuses are all below 30%. If the VA determines that an institution
is out of compliance with the applicable limit, the VA will continue to provide benefits to current students but will
not provide benefits to newly enrolled students until the institution demonstrates compliance.
Our access to military installations for student recruitment has become more limited due to recent changes
in the Transition Assistance Program (Transition Goals, Plans, Success) and increased enforcement of the
requirement to possess an MOU with certain individual military installations. Each of our institutions has an MOU
with the U.S. Department of Defense. We have MOUs with certain key individual installations and are pursuing
MOUs at additional locations. We continue to strengthen and develop relationships with our existing contacts and
with new contacts in order to maintain and rebuild our access to military installations.
Automotive Technology and Diesel Technology II Integration
We began offering our Automotive Technology and Diesel Technology II curricula at our Avondale,
Arizona campus in 2012. As we evaluate the lessons and potential efficiencies of the curricula, we intend to integrate
the Automotive Technology and Diesel Technology II curricula at our Sacramento, California campus in calendar
year 2014 and will continue to integrate the curricula at our other automotive campuses in future years. We expect
to make additional capital investments and incur higher than usual operating expenses as we integrate the curricula
at our remaining automotive campuses. For the year ending September 30, 2014, we anticipate capitalizing within
the range of $5.9 million to $6.3 million and incurring approximately $3.6 million in operating expenses related
to these integration activities.
Graduate Employment
Identifying employment opportunities and preparing our graduates for these careers is critical to our ability
to help our graduates benefit from their education. Accordingly, we dedicate significant resources to maintaining
an effective employment team, as described in "Business - Graduate Employment" included in Part I, Item 1 of
this Report of Form 10-K. We believe that our graduate employment services provide our students with a compelling
value proposition and enhance the employment opportunities for our graduates. We saw improvement for our
automotive, diesel, collision repair, motorcycle and marine programs in 2012, as compared to 2011.
Our employment rates for 2012 and 2011 graduates were 85% and 82%, respectively. The employment
calculation is based on all graduates, including those that completed manufacturer specific advanced training
programs, from October 1, 2011 to September 30, 2012 and October 1, 2010 to September 30, 2011, respectively,
excluding graduates not available for employment because of continuing education, military service, health,
incarceration, death or international student status. Graduates are counted as employed based on a verified
understanding of the graduate's job duties to assess and confirm that the graduates primary job responsibilities are
in his or her field of study. See "Graduate Employment" in this Form 10-K for further discussion of our graduate
employment activities. For 2012, we had approximately 12,200 total graduates, of which approximately 11,400
were available for employment. Of those graduates available for employment, approximately 9,600 were employed
within one year of their graduation date, for a total of 85%. For 2011, we had approximately 13,600 total graduates,
of which approximately 12,800 were available for employment. Of those graduates available for employment,
approximately 10,500 were employed within one year of their graduation date, for a total of 82%.
58
Proprietary Loan Program
The bank which previously originated loans for our proprietary loan program (original bank) exercised
its right to terminate the agreement effective April 30, 2013. The original bank subsequently agreed to an extension
through June 29, 2013. During June 2013, we entered into an agreement with a new bank, which began accepting
student loan applications on June 29, 2013. The terms under the agreement with the new bank are substantially
the same as the agreement with the original bank.
Regulatory Environment
For a detailed discussion of the regulatory environment and related risks, see “Business — Regulatory
Environment”, and Item 1A, “Risk Factors”, included elsewhere in this Report on Form 10-K.
On March 19, 2013, the U.S. District Court for the District of Columbia denied a motion from ED for the
court to amend its earlier judgment to vacate certain rules related to gainful employment. The court upheld the
decision to vacate those requirements. In April 2013, ED announced three public hearings to solicit comment on
proposals to amend the regulation governing the Federal Student Aid programs authorized under Title IV of the
Higher Education Act of 1965. A fourth hearing took place in June. Topics considered for action included cash
management of funds provided under the Title IV programs, clock-to-credit hour conversion, gainful employment
and the definition of “adverse credit” for borrowers in the Federal Direct PLUS Loan Program.
In May 2013, ED announced its intention to initiate new gainful employment regulations through the
formal negotiated rulemaking process. A negotiator panel representing various constituencies was established and
the negotiation sessions took place in Washington, D.C. in September and November of 2013. ED also noted its
expectation to establish a negotiated rulemaking committee or committees to consider some or all of the additional
rulemaking issues discussed during the earlier hearings in the coming months. We will continue to monitor the
progress of this rulemaking for any impact on our business.
2014 Outlook
In line with our previous guidance, we expect new student start growth over the six month period ending
December 31, 2013. The growth we experienced in new student starts during the fourth quarter of 2013 should
offset the decline we now anticipate for the first quarter of 2014, due primarily to one less start date. For the year
ending September 30, 2014, we expect high single digit growth in applications and yet with the time lag for
conversions, we expect relatively flat new student starts. With a focus on persistence and helping students overcome
macro-economic headwinds with increased use of scholarships and smaller tuition increases, we expect a low
single digit level of revenue growth. Despite these challenges, with a continuation of our focus on efficiencies and
student outcomes, we believe we will be able to achieve meaningful growth in operating results. Due to the
seasonality of our business and normal fluctuations in student populations, we would expect volatility in our
quarterly results.
59
Results of Operations
The following table sets forth selected statements of operations data as a percentage of revenues for
each of the periods indicated.
Revenues
Operating expenses:
Educational services and facilities
Selling, general and administrative
Total operating expenses
Income from operations
Interest income, net
Other income
Total other income
Income before income taxes
Income tax expense
Net income
Year Ended September 30,
2012
2013
2011
100.0%
100.0%
100%
52.4%
46.0%
98.4%
1.6%
0.1%
0.1%
0.2%
1.8%
0.8%
1.0%
51.3%
45.3%
96.6%
3.4%
0.1%
0.1%
0.2%
3.6%
1.4%
2.2%
49.4%
40.7%
90.1%
9.9%
—%
0.1%
0.1%
10.0%
4.0%
6.0%
Our earnings before interest, tax, depreciation and amortization (EBITDA) for the years ended September
30, 2013, 2012 and 2011 were $29.8 million, $39.5 million and $70.6 million, respectively. EBITDA is a non-
GAAP financial measure which is provided to supplement, but not substitute for, the most directly comparable
GAAP measure. We choose to disclose this non-GAAP financial measure because it provides an additional
analytical tool to clarify our results from operations and helps to identify underlying trends. Additionally, this
measure helps compare our performance on a consistent basis across time periods. To obtain a complete
understanding of our performance, this measure should be examined in connection with net income determined
in accordance with GAAP. Since the items excluded from this measure should be examined in connection with
net income in determining financial performance under GAAP, this measure should not be considered to be an
alternative to net income as a measure of our operating performance or profitability. Exclusion of items in our non-
GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring.
Other companies, including other companies in the education industry, may calculate EBITDA differently than
we do, limiting its usefulness as a comparative measure across companies. Investors are encouraged to use GAAP
measures when evaluating our financial performance.
EBITDA reconciles to net income as follows:
Net income
Interest income, net
Income tax expense
Depreciation and amortization
EBITDA
Year Ended September 30,
2012
2011
2013
$
$
3,810
(234)
3,008
23,251
29,835
$
$
9,032
(302)
5,930
24,831
39,491
$
$
26,897
(252)
18,192
25,731
70,568
60
Return on equity for the trailing four quarters ended September 30, 2013 was 2.7% compared to 6.2%
for the trailing four quarters ended September 30, 2012. Return on equity is calculated as the sum of net income
for the last four quarters divided by the average of our total shareholders’ equity balances at the end of each of the
last five quarters.
Student retention/completion rate
Our consolidated student retention/completion rate is based on new students that began one of our programs
during a fiscal year and completed or are still attending as of September 30 of the following fiscal year. The
following table sets forth our consolidated student retention/completion rate during each of the periods indicated:
Year Ended September 30,
2013
2012
2011
Consolidated student retention/completion
66%
65%
65%
Year Ended September 30, 2013 Compared to Year Ended September 30, 2012
Revenues. Our revenues for the year ended September 30, 2013 were $380.3 million, a decrease of
$33.3 million, or 8.0%, as compared to revenues of $413.6 million for the year ended September 30, 2012. The
9.1% decrease in our average undergraduate full-time student enrollment resulted in a decrease in revenues of
approximately $39.8 million. The decrease was partially offset by tuition rate increases between 2% and 4%,
depending on the program. Our revenues for the years ended September 30, 2013 and 2012 excluded $19.5 million
and $14.1 million, respectively, of tuition related to students participating in our proprietary loan program. We
recognized $2.3 million and $1.5 million of revenues and interest under the proprietary loan program for the years
ended September 30, 2013 and 2012, respectively.
Over the past year, we have increased the amount of scholarships granted to our students to assist those
who have a financial need in funding a portion of their education. Because scholarships are recognized ratably
over the term of the student’s course or program in accordance with our revenue recognition policy, the increase
in scholarships granted has not had a significant impact to our revenues for the year ended September 30, 2013.
61
Educational services and facilities expenses. Our educational services and facilities expenses for the
year ended September 30, 2013 were $199.5 million, representing a decrease of $12.5 million, or 5.9%, as compared
to $212.0 million for the year ended September 30, 2012.
The following table sets forth the significant components of our educational services and facilities
expenses:
Salaries expense
Employee benefits and tax
Bonus expense
Stock-based compensation
Compensation and related costs
Occupancy costs
Other educational services and facilities expense
Depreciation and amortization expense
Supplies and maintenance
Tools and training aids expense
Year Ended September 30,
2013
2012
$
(In thousands)
86,963
$
16,746
928
617
105,254
37,151
20,956
18,600
9,351
8,228
$
199,540
$
92,157
18,228
2,386
1,080
113,851
36,851
21,370
19,035
10,239
10,633
211,979
Compensation and related costs decreased $8.6 million for the year ended September 30, 2013, as
compared to the prior year. The decrease was primarily attributable to the reduction in workforce undertaken in
September 2012, which was completed to continue to align our cost structure with our lower average student
population. Additionally, bonus expense decreased primarily due to operating results lower than bonus payout
thresholds during the current year as well as a reduction in the bonus plan payout levels for 2013.
Tools and training aids expense and supplies and maintenance decreased a combined $3.3 million for the
year ended September 30, 2013, as compared to the prior year. The decrease was primarily due to our lower average
undergraduate full-time student enrollments during the year as well as our cost savings efforts in anticipation of
lower average student populations for 2013.
62
Selling, general and administrative expenses. Our selling, general and administrative expenses for the
year ended September 30, 2013 were $174.8 million, representing a decrease of $12.7 million, or 6.8%, as compared
to $187.5 million for the year ended September 30, 2012.
The following table sets forth the significant components of our selling, general and administrative
expenses:
Salaries expense
Employee benefits and tax
Bonus expense
Stock-based compensation
Compensation and related costs
Advertising expense
Other selling, general and administrative expenses
Bad debt expense
Depreciation and amortization expense
Contract services expense
Legal expense
Year Ended September 30,
2013
2012
(In thousands)
$
73,309
$
15,406
2,797
5,607
97,119
36,986
24,014
4,762
4,651
4,836
2,431
73,870
16,186
5,453
5,412
100,921
42,127
25,422
5,175
5,796
5,378
2,639
$
174,799
$
187,458
Compensation and related costs decreased $3.8 million for the year ended September 30, 2013, as
compared to the prior year. The decrease was primarily attributable to lower bonus expense, as a result of operating
results lower than bonus payout thresholds during the current year and a reduction in the bonus plan payout levels
for 2013. Salaries expense decreased primarily as a result of the reduction in workforce undertaken in September
2012. The decrease was partially offset by an increase in severance charges. We recorded severance charges of
approximately $1.6 million during the year ended September 30, 2013, including $0.3 million in stock-based
compensation expense, related to the upcoming retirement of the Chairman of our Board of Directors. During the
year ended September 30, 2012, we recorded approximately $0.9 million in severance charges related to the
reduction in workforce.
Advertising expense decreased $5.1 million for the year ended September 30, 2013, as compared to the
prior year. The decrease was primarily due to accelerated spending in the same periods in the prior year. We continue
to execute on our plan to optimize marketing to generate higher quality inquiries from potential students while
controlling our costs.
As discussed in Part I, Item 3 of this Report on Form 10-K, we settled the legal matters related to the
FCA suit and the DOL Complaint. During the year ended September 30, 2013, we incurred an increase in related
legal services and settlement expenses, which were partially offset by insurance recoveries. This resulted in
relatively flat legal expenses as compared to the prior year.
Income taxes. Our provision for income taxes for the year ended September 30, 2013 was $3.0 million,
or 44.1% of pre-tax income, compared to $5.9 million, or 39.6% of pre-tax income, for the year ended September
30, 2012. The effective income tax rate in each period differed from the federal statutory tax rate of 35% primarily
as a result of state income taxes, net of related federal income tax benefits.
Net income. As a result of the foregoing, we reported net income for the year ended September 30, 2013
63
of $3.8 million, as compared to net income of $9.0 million for the year ended September 30, 2012.
Year Ended September 30, 2012 Compared to Year Ended September 30, 2011
Revenues. Our revenues for the year ended September 30, 2012 were $413.6 million, representing a
decrease of $38.3 million, or 8.5%, as compared to revenues of $451.9 million for the year ended September 30,
2011. The decrease in revenues is attributable to a decrease in average undergraduate full-time student enrollment
during the year. Offsetting this decrease was an increase in tuition rates of 3% to 5%, depending on the program.
Our revenues excluded $14.1 million and $7.0 million of tuition related to students participating in our proprietary
loan program for the years ended September 30, 2012 and September 30, 2011, respectively. In accordance with
our accounting policy, we will recognize the related revenue as payments are received from the students participating
in this program. As a result of collections under our proprietary loan program, our revenues included $1.5 million
and $0.8 million for the years ended September 30, 2012 and September 30, 2011, respectively.
Educational services and facilities expenses. Our educational services and facilities expenses for the
year ended September 30, 2012 were $212.0 million, representing a decrease of $11.6 million, or 5.2%, as compared
to $223.6 million for the year ended September 30, 2011.
The following table sets forth the significant components of our educational services and facilities
expenses:
Salaries expense
Employee benefits and tax
Bonus expense
Stock-based compensation
Compensation and related costs
Occupancy costs
Other educational services and facilities expense
Depreciation and amortization expense
Supplies and maintenance
Tools and training aids expense
Year Ended September 30,
2012
2011
$
(In thousands)
92,157
$
18,228
2,386
1,080
113,851
36,851
21,370
19,035
10,239
10,633
$
211,979
$
97,896
19,571
3,220
939
121,626
36,824
23,085
18,929
11,455
11,709
223,628
Compensation and related costs decreased approximately $7.8 million for the year ended September 30,
2012 compared to the prior year. The decrease was primarily due to a decrease in our staffing levels as a result of
the reduction in workforce in June 2011, which was completed to align our cost structure with our projected future
student population. We completed another reduction in workforce in September 2012 which resulted in severance
and benefit charges of $1.0 million as compared to $2.3 million during the June 2011 event. This action was
completed to continue to align our cost structure with our lower average student population.
Tools and training aids expense and supplies and maintenance decreased a combined $2.3 million for the
year ended September 30, 2012, compared to the prior year. The decrease was primarily due to our lower average
undergraduate full-time student enrollments during the year as well as our cost savings efforts in anticipation of
lower average student populations for 2012.
64
Selling, general and administrative expenses. Our selling, general and administrative expenses for the
year ended September 30, 2012 were $187.5 million, an increase of $3.7 million, or 2.0%, as compared to $183.7
million for the year ended September 30, 2011.
The following table sets forth the significant components of our selling, general and administrative
expenses:
Salaries expense
Employee benefits and tax
Bonus expense
Stock-based compensation
Compensation and related costs
Advertising expense
Other selling, general and administrative expenses
Bad debt expense
Depreciation and amortization expense
Contract services expense
Legal expense
Year Ended September 30,
2012
2011
$
(In thousands)
73,870
$
16,186
5,453
5,412
100,921
42,127
25,422
5,175
5,796
5,378
2,639
70,132
15,864
7,808
5,340
99,144
34,605
27,862
8,679
6,802
5,392
1,242
$
187,458
$
183,726
Advertising expense increased $7.5 million for the year ended September 30, 2012 primarily due to the
shift in our marketing strategy to improve the quality and quantity of inquiries and applications for the year. This
resulted in increased spending on various media including television, internet, magazine, and inquiry generation
programs. For the year ended September 30, 2012, the number of inquiries increased as compared to the prior
year and our investment in advertising expense yielded higher quality inquiries in the current year. Advertising
expenses as a percentage of revenues for the year ended September 30, 2012 were 10.2%.
Compensation and related costs increased $1.8 million for the year ended September 30, 2012. The
increase was primarily due to modifications made to our compensation plans in response to the regulations that
became effective July 1, 2011. The modifications increased salary expense and also contributed to the decrease
in bonus expense for the year ended September 30, 2012. The increase in compensation and related costs was
partially offset by a decrease in our staffing levels primarily attributable to the reduction in workforce completed
in June 2011. Additionally, we completed another reduction in workforce during the year ended September 30,
2012 which resulted in severance expense of $0.9 million, as compared to $1.4 million during the June 2011 event.
Our legal services expense increased $1.4 million for the year ended September 30, 2012 as a result of
various legal claims. We have insurance policies that mitigate our exposure and enable us to recover a portion of
amounts incurred.
Bad debt expense decreased $3.5 million for the year ended September 30, 2012. Bad debt expense for
the year ended September 30, 2011 included approximately $1.5 million related to the non-Title IV federal funding
agency clarification discussed in our 2012 Annual Report on Form 10-K. During the year ended September 30,
2012, our focused efforts on financial aid processes and collection activities led to lower out of school student
balances and lower bad debt expense. Additionally, we collected approximately $0.6 million on a note receivable,
65
related to the previous sale of a business unit, which had been written off in 2004. As a result of this collection,
bad debt expense represents 1.3% of revenue for the year ended September 30, 2012.
Income taxes. Our provision for income taxes for the year ended September 30, 2012 was $5.9 million,
or 39.6% of pre-tax income compared to $18.2 million or 40.3% of pre-tax income for the year ended September
30, 2011. The effective income tax rate in each year differed from the federal statutory tax rate of 35% primarily
as a result of state income taxes, net of related federal income tax benefits.
Net income. As a result of the foregoing, we reported net income for the year ended September 30, 2012
of $9.0 million, as compared to net income of $26.9 million for the year ended September 30, 2011.
Liquidity and Capital Resources
Based on past performance and current expectations, we believe that our cash flow from operations, cash
on hand and investments will satisfy our working capital needs, capital expenditures, commitments and other
liquidity requirements associated with our existing operations as well as the integration of our Automotive
Technology and Diesel Technology II curricula to existing campuses through the next 12 months.
We believe that the strategic use of our cash resources includes supporting the integration of our
Automotive Technology and Diesel Technology II curricula to existing campuses, as well as subsidizing funding
alternatives for our students and expansion of programs at existing campuses. Additionally, we evaluate the
repurchase of our common stock, payment of dividends, consideration of strategic acquisitions and other potential
uses of cash. On December 21, 2012; March 29, 2013; June 30, 2013 and September 30, 2013, we paid cash
dividends of $0.10 per share on the common stock of the Company. Additionally, as discussed previously, we
repurchased approximately $5.4 million of our outstanding common stock during the year ended September 30,
2013. To the extent that potential acquisitions are large enough to require financing beyond cash from operations,
we may issue debt resulting in increased interest expense. Our aggregate cash and cash equivalents and current
investments were $93.2 million and $97.1 million as of September 30, 2013 and 2012, respectively.
Our principal source of liquidity is operating cash flows. A majority of our revenues are derived from
Title IV Programs. Federal regulations dictate the timing of disbursements of funds under Title IV Programs.
Students must apply for new funding for each academic year consisting of thirty-week periods. Loan funds are
generally provided by lenders in two disbursements for each academic year. The first disbursement is usually
received 30 days after the start of a student’s academic year and the second disbursement is typically received at
the beginning of the sixteenth week from the start of the student’s academic year. Under our proprietary loan
program, we bear all credit and collection risk and students are not required to begin repayment until six months
after the student completes or withdraws from his or her program. These factors, together with the timing of when
our students begin their programs, affect our operating cash flow.
Operating Activities
Our net cash provided by operating activities was $26.7 million, $18.5 million, and $58.1 million for the
years ended September 30, 2013, 2012 and 2011, respectively. The cash provided by operating activities in 2013
was primarily attributable to net income of $3.8 million and adjustments of $29.6 million for non-cash and other
items, partially offset by $6.7 million related to the change in our operating assets and liabilities. The increase from
2012 to 2013 was primarily attributable to changes in our operating assets and liabilities.
Changes in operating assets and liabilities
For the year ended September 30, 2013, the changes in our operating assets and liabilities resulted in cash
outflows of $6.7 million. The outflows were primarily attributable to changes in deferred revenue. The decrease
in deferred revenue resulted in a cash outflow of $5.7 million and was primarily attributable to the timing of student
66
starts, the lower number of students in school and where they were at period end in relation to the completion of
their program at September 30, 2013 compared to September 30, 2012.
Partially offsetting the cash outflows was a cash inflow of $1.5 million related to a decrease in prepaid
expense and other current assets. The decrease in prepaid expenses and other current assets was primarily related
to the reimbursement of certain construction expenses related to the relocation of our Glendale Heights, Illinois
campus to, and the design and construction of, a new campus in Lisle, Illinois.
For the year ended September 30, 2012, the changes in our operating assets and liabilities resulted in cash
outflows of $18.8 million. The net outflow was primarily attributable to changes in receivables, prepaid expenses
and other current assets, accounts payable and accrued expenses, deferred revenue, income tax payable, and other
liabilities. The increase in receivables resulted in a cash outflow of $10.1 million and was related to the timing of
Title IV disbursements and other cash receipts on behalf of our students. The decrease in deferred revenue resulted
in a cash outflow of $8.8 million and was primarily attributable to the timing of student starts, the lower number
of students in school and where they were at period end in relation to the completion of their program as of
September 30, 2012 compared to September 30, 2011. The increase in prepaid expenses and other current assets
resulted in a cash outflow of $3.5 million and was primarily related to a $2.0 million prepaid to fund project plan
modifications related to the relocation of our Glendale Heights, Illinois campus to, and the design and construction
of a new campus in, Lisle, Illinois. We experienced a cash outflow of $1.3 million due to a decrease in the income
taxes payable as of September 30, 2012, as compared to September 30, 2011, which was attributable to the decrease
in income before taxes.
Partially offsetting the cash outflows for the year ended September 30, 2012 was a cash inflow of $3.0 million
resulting from an increase in accounts payable and accrued expenses. This increase was primarily due to the timing
of payments of 2012 bonuses and the accrued severance costs recorded related to the September 2012 reduction
in workforce. During the year ended September 30, 2012, we returned approximately $3.1 million of the total $4.3
million obligation recorded related to the clarification from the non Title IV funding agency discussed in our 2012
Annual Report on Form 10-K. Additionally, the increase in other liabilities results in a cash inflow of $2.1 million
resulting primarily from a $1.0 million increase in deferred costs associated with the relocation of our Glendale
Heights, Illinois campus to, and the design and construction of a new campus in, Lisle, Illinois.
For the year ended September 30, 2011, the changes in our operating assets and liabilities resulted in cash
outflows of $10.5 million. The outflows were primarily attributable to changes in accounts payable and accrued
expenses, deferred rent liability and income tax payable. The cash outflow of $15.0 million attributable to accounts
payable and accrued expenses was primarily due to the payments of 2010 bonuses, accelerated bonus payments
in June 2011 due to modifications in our compensation plans and timing of our payroll cycle. The cash outflow
was offset by the elimination of current bonus plans in order to comply with the new regulations effective July 1,
2011. In September 2010, we entered into a leasing arrangement to relocate our corporate office headquarters
during the second quarter of 2011. The lease included incentives such as a leasehold improvement allowance,
moving allowance, and free rent periods which will be recognized on a straight-line basis over the initial lease
term resulting in a $6.2 million increase in deferred rent. We experienced a cash inflow of $3.3 million as a result
of being in a payable position as of September 30, 2011 rather than a receivable position for income taxes in the
prior year.
Investing Activities
For the year ended September 30, 2013, cash used in investing activities was $20.8 million and was primarily
related to $9.4 million in purchases of property and equipment and approximately $111.8 million for the purchase
of investments. The increase in restricted cash resulted in a cash outflow of $3.7 million and was primarily due to
the transfer of funds for loan purchases to a deposit account in connection with our proprietary loan program. The
cash outflows were partially offset by approximately $104.1 million of proceeds received upon the maturity of our
investments.
67
For the year ending September 30, 2014, we anticipate our investment in capital expenditures will be lower
than the amounts invested for the year ended September 30, 2013 by approximately $13.9 million. We anticipate
investing in the range of $5.9 million to $6.3 million in computer equipment and training aids during 2014 as part
of the expansion of programs at existing campuses and the integration of our Automotive Technology and Diesel
Technology II curricula at our Sacramento, California campus and other future campus locations.
For the year ended September 30, 2012, cash used in investing activities was $16.6 million and was primarily
related to $11.3 million in purchases of property and equipment and approximately $92.5 million for the purchase
of investments. Approximately $1.9 million of the purchases of property and equipment was invested in the
transformation of our Automotive Technology and Diesel Technology II program curricula. Additionally, we
invested approximately $4.0 million in a joint venture as discussed previously. The cash outflows were partially
offset by approximately $90.6 million of proceeds received upon the maturity of our investments.
For the year ended September 30, 2011, cash used in investing activities was $54.0 million and was primarily
related to the purchase of property and equipment and investments in combination with investing in new and
replacement training equipment for ongoing operations. The following is a summary of our significant investments
in capital expenditure activities.
• We invested approximately $5.5 million in office leasehold improvements primarily related to our new
corporate office headquarters.
• We invested approximately $4.1 million in the transformation of our Automotive Technology and Diesel
Technology II program curricula.
• We invested approximately $3.4 million in equipment necessary to offer our Diesel and Industrial program
at our Rancho Cucamonga, California campus.
Financing Activities
For the year ended September 30, 2013, cash used in financing activities was $16.0 million and was
primarily attributable to the payment of cash dividends on December 21, 2012, March 29, 2013, June 28, 2013,
and September 30, 2013 of $0.10 per share totaling $9.8 million and the repurchase of $5.4 million of treasury
stock.
For the year ended September 30, 2012, cash used in financing activities was $9.9 million and was primarily
attributable to the payment of cash dividends on March 30, June 29, and September 28, 2012 of $0.10 per share
totaling $7.4 million and the repurchase of $1.8 million of treasury stock.
For the year ended September 30, 2011, cash provided by financing activities was $0.6 million and was
attributable to activity in our stock-based compensation plans.
Share Repurchase Program
On December 20, 2011, our Board of Directors authorized the repurchase of up to $25.0 million of our
common stock in the open market or through privately negotiated transactions. The timing and actual number of
shares purchased will depend on a variety of factors such as price, corporate and regulatory requirements, and
prevailing market conditions. We may terminate or limit the share repurchase program at any time without prior
notice. During the year ended September 30, 2013, we purchased 561,400 shares at an average price per share of
$9.62 and a total cost of approximately $5.4 million. As of September 30, 2013, we have purchased 705,000 shares
at an average price per share of $10.27 and a total cost of approximately $7.3 million under this program.
Contractual Obligations
68
The following table sets forth, as of September 30, 2013, the aggregate amounts of our significant
contractual obligations and commitments with definitive payment terms that will require cash outlays in the future.
Payments Due by Period
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
(In thousands)
Operating leases (1)
Purchase obligations (2)
Other long-term obligations (3)
Total contractual commitments
$
209,067
$
29,066
$
56,051
$
46,964
$
76,986
49,145
65,847
26,807
2,443
14,865
7,035
6,985
6,401
488
49,968
$
324,059
$
58,316
$
77,951
$
60,350
$
127,442
(1) Minimum rental commitments. These amounts do not include property taxes, insurance or normal
recurring repairs and maintenance.
(2) Includes all agreements to purchase goods or services of either a fixed or minimum quantity that are enforceable
and legally binding. Additionally, purchase orders outstanding as of September 30, 2013, employment
contracts and minimum payments under licensing and royalty agreements are included.
(3) Includes lease payments for our Lisle, Illinois campus which will be accounted for as a financing obligation.
See Note 8 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Report on Form
10-K for further discussion.
Off-Balance Sheet Arrangements
Each of our campuses must be authorized by the applicable state education agency in which the campus
is located to operate and to grant degrees or diplomas to its students. Our campuses are subject to extensive,
ongoing regulation by each of these states. Additionally, our campuses are required to be authorized by the
applicable state education agencies of certain other states in which our campuses recruit students. Our insurers
issue surety bonds for us on behalf of our campuses and admissions representatives with multiple states to maintain
authorization to conduct our business. We are obligated to reimburse our insurers for any surety bonds that are
paid by the insurers. As of September 30, 2013, the total face amount of these surety bonds was approximately
$19.2 million.
Additionally, our consolidated balance sheets do not reflect our operating lease obligations described
above in "Contractual Obligations" or our proprietary loan program described below in "Critical Accounting
Estimates".
Related Party Transactions
Information concerning certain related party transactions is included in Note 11 of the notes to our
Consolidated Financial Statements within Part II, Item 8 of this Report on Form 10-K.
For a description of additional information regarding related party transactions, see the information
included in our proxy statement for the 2014 Annual Meeting of Stockholders under the heading “Certain
Relationships and Related Transactions”.
Seasonality
Our revenues and operating results normally fluctuate as a result of seasonal variations in our business,
69
principally due to changes in total student population and costs associated with opening or expanding our campuses.
Student population varies as a result of new student enrollments, graduations and student attrition. Historically,
our schools have had lower student populations in our third quarter than in the remainder of our year because fewer
students are enrolled during the summer months. Additionally, our schools have had higher student populations
in our fourth quarter than in the remainder of the year because more students enroll during this period. Our expenses,
however, do not vary significantly with changes in student population and revenues and, as a result, such expenses
do not fluctuate significantly on a quarterly basis. We expect quarterly fluctuations in operating results to continue
as a result of seasonal enrollment patterns. Such patterns may change, however, as a result of new school openings,
new program introductions, increased enrollments of adult students or acquisitions. Furthermore, our revenues
for the first quarter ending December 31 are impacted by the closure of our campuses for a week in December for
a holiday break and during which we do not earn revenue.
Operating income is negatively impacted during the initial start up of new campus openings. We incur
marketing and admissions costs as well as campus personnel costs in advance of the campus opening. Typically
we begin to incur such costs approximately 12 to 15 months in advance of the campus opening with the majority
of the costs being incurred in the nine month period prior to a campus opening.
Revenues
Year Ended September 30,
2013
2012
2011
Three Month Period Ending:
Amount
Percent
Amount
Percent
Amount
Percent
December 31
March 31
June 30
September 30
($'s in thousands)
$
98,441
25.9% $ 106,427
25.7% $ 117,447
95,075
90,954
95,798
25.0%
23.9%
25.2%
106,240
99,601
101,284
25.7%
24.1%
24.5%
114,161
108,934
111,358
$ 380,268
100% $ 413,552
100% $ 451,900
26.0%
25.3%
24.1%
24.6%
100%
Income (Loss) from Operations
Year Ended September 30,
2013
2012
2011
Three Month Period Ending: Amount
Percent
Amount
Percent
Amount
Percent
December 31
March 31
June 30
September 30
$
6,006
101.3 % $
(1,939)
(32.7)%
458
1,404
5,929
$
7.7 %
23.7 %
($'s in thousands)
7,327
3,015
1,518
2,255
51.9% $ 16,853
21.4%
10.8%
15.9%
11,390
6,706
9,597
100 % $ 14,115
100% $ 44,546
37.8%
25.6%
15.1%
21.5%
100%
The decline in revenues and income from operations for each of the three month periods ended March
31, June 30, and September 30, 2013 and 2012 and for the three months ended December 31, 2012, as compared
to the same periods in the prior year, was primarily due to a decrease in our student population in 2013 and 2012,
respectively.
The decline in income from operations during the three months ended June 30, 2011 was primarily due
to a reduction in workforce of 195 employees nationwide, which resulted in severance costs of $4.3 million.
70
Critical Accounting Estimates
Our discussion of our financial condition and results of operations is based upon our financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States, or
GAAP. During the preparation of these financial statements, we are required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent
assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to
revenue recognition, our proprietary loan program, allowance for uncollectible accounts, investments, goodwill
recoverability, bonus plans, self-insurance claim liabilities, income taxes, contingencies and stock-based
compensation. We base our estimates on historical experience and on various other assumptions that we believe
are reasonable under the circumstances. The results of our analysis form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions, and the impact of such differences may be
material to our consolidated financial statements.
Our significant accounting policies are discussed in Note 2 of the notes to our Consolidated Financial
Statements within Part II, Item 8 of this Report on Form 10-K. We believe that the following accounting estimates
are the most critical to aid in fully understanding and evaluating our reported financial results, and they require
management’s most subjective and complex judgments in estimating the effect of inherent uncertainties.
Revenue recognition. Revenues consist primarily of student tuition and fees derived from the programs
we provide after reductions are made for discounts and scholarships we sponsor, refunds for students who withdraw
from our programs prior to specified dates and the portion of tuition students have funded through our proprietary
loan program for which payment has not been received. Tuition and fee revenue is recognized ratably over the
term of the course or program offered. Approximately 98% of our revenues for each of the years ended September
30, 2013, 2012 and 2011 consisted of tuition. Our undergraduate programs are typically designed to be completed
in 45 to 102 weeks and our advanced training programs range from 11 to 24 weeks in duration. We supplement
our revenues with sales of textbooks and program supplies, student housing and other revenues. Sales of textbooks
and program supplies, revenue related to student housing and other revenue are each recognized as sales occur or
services are performed. Deferred revenue represents the excess of tuition and fee payments received, as compared
to tuition and fees earned, and is reflected as a current liability in our consolidated balance sheets because it is
expected to be earned within the next twelve months.
Proprietary Loan Program. In order to provide funding for students who are not able to fully finance
the cost of their education under traditional governmental financial aid programs, commercial loan programs or
other alternative sources, we established a private loan program with a bank (original bank). During the year ended
September 30, 2013, the original bank exercised its right to terminate the agreement effective April 30, 2013. The
original bank subsequently agreed to an extension through June 29, 2013. During June 2013, we entered into an
agreement with a new bank (the bank), which began accepting student loan applications on June 29, 2013. The
terms under the agreement are substantially the same as the agreement with the original bank. Under terms of the
related agreement, the bank originates loans for our students who meet our specific credit criteria with the related
proceeds used exclusively to fund a portion of their tuition. We then purchase all such loans from the bank at least
monthly and assume all of the related credit risk. The loans bear interest at market rates; however, principal and
interest payments are not required until six months after the student completes or withdraws from his or her program.
After the deferral period, monthly principal and interest payments are required over the related term of the loan.
In substance, we provide the students who participate in this program with extended payment terms for
a portion of their tuition and as a result, we account for the underlying transactions in accordance with our tuition
revenue recognition policy. However, due to the nature of the program coupled with the extended payment terms
required under the student loan agreements, collectability is not reasonably assured. Accordingly, we recognize
tuition and loan origination fees financed by the loan and any related interest income required under the loan when
such amounts are collected. All related expenses incurred with the bank or other service providers are expensed
71
as incurred. Since loan collectability is not reasonably assured, the loans and related deferred tuition revenue are
not recognized in our consolidated balance sheets.
Allowance for uncollectible accounts. We maintain an allowance for uncollectible accounts for estimated
losses resulting from the inability, failure or refusal of our students to make required payments. We offer a variety
of payment plans to help students pay that portion of their education expenses not covered by financial aid programs
or alternate fund sources, which are unsecured and not guaranteed.
We use estimates that are subjective and require judgment in determining the allowance for doubtful
accounts, which are principally based on accounts receivable, historical percentages of uncollectible accounts,
customer credit worthiness and changes in payment history when evaluating the adequacy of the allowance for
uncollectible accounts. We also monitor and consider external factors such as changes in the economic and
regulatory environment. We use an internal group of collectors, augmented by third party collectors as deemed
appropriate, in our collection efforts. When a student with Title IV loans withdraws, Title IV rules determine if we
are required to return a portion of Title IV funds to the lender. We are then entitled to collect these funds from the
students, but collection rates for these types of receivables is significantly lower than our collection rates for
receivables for students who remain in our programs.
Although we believe that our allowance is adequate, if we underestimate the allowances required,
additional allowances may be necessary, which would result in increased selling, general and administrative
expenses in the period such determination is made.
Goodwill. Goodwill represents the excess of the cost of an acquired business over the estimated fair
values of the assets acquired and liabilities assumed. Goodwill is reviewed at least annually for impairment, which
might result from the deterioration in the operating performance of the acquired business, adverse market conditions,
adverse changes in the applicable laws or regulations and a variety of other circumstances. Any resulting impairment
charge would be recognized as an expense in the period in which impairment is identified.
Our goodwill resulted from the acquisition of our motorcycle and marine education business in 1998. We
allocated such goodwill, which totaled $20.6 million, to two of our reporting units that provide the related
educational programs. We assess our goodwill for impairment during the fourth quarter of each fiscal year. In
performing our impairment tests, we first consider the option to assess qualitative factors to determine whether it
is more likely than not that the fair value of a reporting unit or intangible, as applicable, is less than its carrying
amount. If we conclude that it is more likely than not that the fair value is less than the carrying amount based on
our qualitative assessment, or that a qualitative assessment should not be performed, we proceed with the
quantitative impairment tests to compare the estimated fair value of the reporting unit to the carrying value of its
net assets.
The process of evaluating goodwill and indefinite-lived intangibles for impairment is subjective and
requires significant judgment at many points during the analysis. If we elect to perform an optional qualitative
analysis, we consider many factors including, but not limited to, general economic conditions, industry and market
conditions, our market capitalization, financial performance and key business drivers, long-term operating plans
and potential changes to significant assumptions used in the most recent fair value analysis for the reporting unit.
When performing a quantitative goodwill impairment test, we generally determine the fair value of
reporting units using an income-based approach consisting of a discounted cash flow valuation method. The fair
value determination consists primarily of using unobservable inputs under the fair value measurement standards,
and we believe our related assumptions are consistent with a reasonable market participant view while employing
the concept of highest and best use of the asset.
We believe the most critical assumptions and estimates in determining the estimated fair value of our
reporting units include, but are not limited to, future tuition revenues, operating costs, working capital changes,
72
capital expenditures and a discount rate that approximated our weighted average cost of capital. The assumptions
used in determining our expected future cash flows consider various factors such as historical operating trends
particularly in student enrollment and pricing and long-term operating strategies and initiatives.
2013 Impairment Testing
We completed our 2013 annual goodwill impairment tests and determined there was no impairment. We
performed quantitative goodwill impairment tests using the fair value method described above. The fair values of
the reporting units exceeded book values by over 50%. While actual experience will differ from the amounts
included in our assessment, we do not believe that a related impairment of our goodwill is reasonably possible in
the foreseeable future.
Self-Insurance. We are self-insured for a number of risks including claims related to employee health
care and dental care and workers’ compensation. The accounting for our self-insured plans involves estimates and
judgments to determine our ultimate liability related to reported claims and claims incurred but not reported. We
consider our historical experience, severity factors, actuarial analysis and existing stop loss insurance in estimating
our ultimate insurance liability. If our insurance claim trends were to differ significantly from our historic claim
experience, we would make a corresponding adjustment to our insurance reserves.
Income taxes. We are subject to the income tax laws of the U.S., which are complex and subject to
different interpretations by the taxpayer and the relevant governmental taxing authorities. As a result, significant
judgments and interpretations are required in determining our provision for income taxes. We assess the likelihood
that our deferred tax assets will be realized from future taxable income and establish a valuation allowance if we
determine that it is more likely than not that some portion or all of the net deferred tax assets will not be realized.
Changes in the valuation allowance are included in our statement of operations as a charge or credit to income tax
expense. We make assumptions, judgments and estimates in determining our provisions for income taxes, assessing
our ability to utilize any future tax benefit from our deferred tax assets. Although we believe that our estimates
are reasonable, changes in tax laws or our interpretation of tax laws, and the outcome of future tax audits could
significantly impact the amounts provided for income taxes in our consolidated financial statements. Additionally,
actual operating results and the underlying amount and category of income in future years could render our current
assessment of recoverable deferred tax assets inaccurate.
Contingencies. In the ordinary conduct of the business, we are subject to occasional lawsuits,
investigations and claims, including, but not limited to, claims involving students and graduates and routine
employment matters. When we are aware of a claim or potential claim, we assess the likelihood of any loss or
exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we record
a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, we
disclose the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount
involved is material. For matters where no loss contingency is recorded, we expense legal fees as incurred. There
can be no assurance that the ultimate outcome of any of the lawsuits, investigations or claims pending against us
will not have a material adverse effect on our financial condition or results of operations.
Recent Accounting Pronouncements
There are no recently issued accounting pronouncements which are not yet effective that are expected to
have a material effect on our financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our principal exposure to market risk relates to changes in interest rates. We invest our cash and cash
equivalents in mutual funds that invest in U.S. treasury notes, U.S. treasury bills and repurchase agreements
collateralized by U.S. treasury notes, U.S. treasury bills and pre-funded municipal bonds collateralized by escrowed-
73
to-maturity U.S. treasury notes. As of September 30, 2013, we held $35.7 million in cash and cash equivalents
and $61.7 million in investments. For the year ended September 30, 2013, we earned interest income of $0.2
million. We do not believe that reasonably possible changes in interest rates will have a material effect on our
financial position, results of operations or cash flows.
As of September 30, 2013, we did not have short-term or long-term borrowings.
Effect of Inflation
To date, inflation has not had a significant effect on our operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Company and its subsidiaries are included below on pages F-2 to
F-33 of this report:
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2013 and 2012
Consolidated Statements of Income for the years ended September 30, 2013, 2012 and 2011
Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2013, 2012
and 2011
Consolidated Statements of Cash Flows for the years ended September 30, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
Page
Number
F-2
F-3
F-4
F-5
F-6
F-7
F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
September 30, 2013, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that our disclosure controls and procedures as of September 30,
2013 were effective in ensuring that (i) information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms and (ii) information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management,
including its principal executive and principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
74
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the
evaluation required by Exchange Act Rule 13a-15(d) or 15d-15(d) that occurred during the quarter ended September
30, 2013 that have materially affected, or are reasonably likely to materially affect our internal control over financial
reporting.
Management’s Report on Internal Control Over Financial Reporting and our Independent Registered
Public Accounting Firm’s report with respect to the effectiveness of internal control over financial reporting are
included on pages F-2 and F-3, respectively, of this Report on Form 10-K.
Management’s Certifications
The Company has filed as exhibits to its annual report on Form 10-K for the year ended September 30,
2013, filed with the Securities and Exchange Commission, the certifications of the Chief Executive Officer and
the Chief Financial Officer of the Company required by Section 302 of the Sarbanes-Oxley Act of 2002.
The Company has submitted to the New York Stock Exchange the most recent Annual Chief Executive
Officer Certification as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.
ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information set forth in our proxy statement for the 2014 Annual Meeting of Stockholders under the
headings “Election of Directors”; “Corporate Governance and Related Matters”; “Code of Conduct”; “Corporate
Governance Guidelines” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein
by reference. Information regarding executive officers of the Company is set forth under the caption “Executive
Officers of Universal Technical Institute, Inc.” in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in our proxy statement for the 2014 Annual Meeting of Stockholders under the
heading “Executive Compensation”, “Compensation Committee Interlocks” and “Compensation Committee
Report” is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information set forth in our proxy statement for the 2014 Annual Meeting of Stockholders under the
headings “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and
Management” is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information set forth in our proxy statement for the 2014 Annual Meeting of Stockholders under the
heading “Certain Relationships and Related Transactions” and “Corporate Governance and Related Matters” is
incorporated herein by reference.
75
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth in our proxy statement for the 2014 Annual Meeting of Stockholders under the
heading “Fees Paid to PricewaterhouseCoopers LLP” and “Audit Committee Pre-Approval Procedures for Services
Provided by the Independent Registered Public Accounting Firm” is incorporated herein by reference.
76
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
Documents filed as part of this Annual Report on Form 10-K:
(1)
(2)
The financial statements required to be included in this Annual Report on Form 10-K
are included in Item 8 of this Report.
All other schedules have been omitted because they are not required, are not
applicable, or the required information is shown on the financial statements or the
notes thereto.
(3)
Exhibits:
77
Exhibit
Number
3.1
4.1
4.2
3.2
10.1*
Description
Restated Certificate of Incorporation of Registrant. (Incorporated by reference to Exhibit
3.1 to the Registrant’s Annual Report on Form 10-K dated December 23, 2004.)
Amended and Restated Bylaws of Registrant. (Incorporated by reference to Exhibit 3.1 to
the Form 8-K filed by the Registrant on December 14, 2011.)
Specimen Certificate evidencing shares of common stock. (Incorporated by reference to
Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 dated October 3, 2003,
or an amendment thereto (No. 333-109430).)
Registration Rights Agreement, dated December 16, 2003, between Registrant and certain
stockholders signatory thereto. (Incorporated by reference to Exhibit 4.2 to the Registrant’s
Registration Statement on Form S-1 dated October 3, 2003, or an amendment thereto (No.
333-109430).)
Universal Technical Institute Executive Benefit Plan, effective March 1, 1997.
(Incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on
Form S-1 dated October 3, 2003, or an amendment thereto (No. 333-109430).)
10.2* Management 2002 Option Program. (Incorporated by reference to Exhibit 10.5 to the
Registrant’s Registration Statement on Form S-1 dated October 3, 2003, or an amendment
thereto (No. 333-109430).)
Universal Technical Institute, Inc. 2003 Incentive Compensation Plan (as amended January
6, 2012). (Formerly known as the 2003 Stock Incentive Plan). (Incorporated by reference
to Exhibit 10.1 to the Form 8-K filed by the Registrant on February 23, 2012.)
Form of Restricted Stock Award Agreement. (Incorporated by reference to Exhibit 10.1 to
the Form 8-K filed by the Registrant on June 21, 2006.)
Form of Stock Option Grant Agreement. (Incorporated by reference to Exhibit 10.2 to the
Form 8-K filed by the Registrant on June 21, 2006.)
Form of Performance Shares Award Agreement. (Incorporated by reference to Exhibit
10.5.4 to the Registrant’s Annual Report on Form 10-K filed December 1, 2009.)
Form of Restricted Stock Unit Agreement. (Incorporated by reference to Exhibit 10.1 to
the Form 8-K filed by the Registrant on September 11, 2013.)
Lease Agreement, dated April 1, 1994, as amended, between City Park LLC, as successor
in interest to 2844 West Deer Valley L.L.C., as landlord, and Universal Technical Institute
of Phoenix, Inc., formerly known as The Clinton Harley Corporation, as tenant. (Filed
herewith.)
10.3*
10.5
10.4.3*
10.4.4*
10.4.1*
10.4.2*
78
Exhibit
Number
10.6
10.7
10.8
10.9*
Description
Lease Agreement, dated July 2, 2001, as amended, between John C. and Cynthia L. White,
as trustees of the John C. and Cynthia L. White 1989 Family Trust, as landlord, and The
Clinton Harley Corporation, as tenant. (Incorporated by reference to Exhibit 10.13 to the
Registrant’s Registration Statement on Form S-1 dated October 3, 2003, or an amendment
thereto (No. 333-109430).)
Lease Agreement, dated July 2, 2001, between Delegates LLC, as landlord, and The Clinton
Harley Corporation, as tenant. (Incorporated by reference to Exhibit 10.14 to the
Registrant’s Registration Statement on Form S-1 dated October 3, 2003, or an amendment
thereto (No. 333-109430).)
Form of Indemnification Agreement by and between Registrant and its directors and
officers. (Incorporated by reference to Exhibit 10.16 to the Registrant’s Registration
Statement on Form S-1 dated April 5, 2004, or an amendment thereto (No. 333-114185).)
Deferred Compensation Plan. (Incorporated by reference to Exhibit 10.1 to the Form 8-K
filed by the Registrant on April 6, 2010.)
10.10.1* Employment Agreement, dated March 7, 2011, between the Company and Kimberly J.
McWaters. (Incorporated by reference to Exhibit 10.1 to a Form 8-K filed by the Registrant
on March 8, 2011.)
10.10.2* First Amendment to Employment Agreement, effective as of October 1, 2012, between the
Company and Kimberly J. McWaters. (Incorporated by reference to Exhibit 10.1 to the
Form 8-K filed by the Registrant on October 3, 2012.)
10.11.1* Employment Agreement, dated March 7, 2011, between the Company and Eugene S.
Putnam, Jr. (Incorporated by reference to Exhibit 10.2 to the Form 8-K filed by the Registrant
on March 8, 2011.)
10.11.2* First Amendment to Employment Agreement, effective as of October 1, 2012, between the
Company and Eugene S. Putnam, Jr. (Incorporated by reference to Exhibit 10.2 to the Form
8-K filed by the Registrant on October 3, 2012.)
10.12.1* Employment Agreement, dated March 7, 2011, between the Company and John C. White.
(Incorporated by reference to Exhibit 10.3 to the Form 8-K filed by the Registrant on March
8, 2011.)
10.12.2* First Amendment to Employment Agreement, effective as of October 1, 2012, between the
Company and John C. White. (Incorporated by reference to Exhibit 10.3 to the Form 8-K
filed by the Registrant on October 3, 2012.)
10.12.3* Severance & Transition Agreement, dated as of September 30, 2013, between Universal
Technical Institute, Inc. and John C. White. (Incorporated by reference to Exhibit 10.1 to
the Form 8-K filed by the Registrant on October 4, 2013.)
10.13.1* Offer Letter, dated as of August 2, 2012, between Universal Technical Institute, Inc. and
Sherrell E. Smith. (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed by
the Registrant on August 21, 2012.)
10.13.2* Addendum Letter, dated as of August 7, 2012, between Universal Technical Institute,
Inc. and Sherrell E. Smith. (Incorporated by reference to Exhibit 10.2 to the Form 8-K
filed by the Registrant on August 21, 2012.)
10.14* Amended and Restated Employment Agreement, effective as of October 1, 2012, between
the Company and Kenneth J. Cranston. (Incorporated by reference to Exhibit 10.1 to the
Form 8-K filed by the Registrant on November 1, 2012.)
79
Exhibit
Number
10.15
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101
Description
Form of Retention/Recognition Bonus Agreement. (Incorporated by reference to Exhibit
10.1 to the Form 8-K filed by the Registrant on June 13, 2011.)
Subsidiaries of Registrant. (Filed herewith.)
Consent of PricewaterhouseCoopers LLP. (Filed herewith.)
Power of Attorney. (Included on signature page.)
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
The following financial information from our Annual Report on Form 10-K for the year
ended September 30, 2013, formatted in Extensible Business Reporting Language
(XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii)
Consolidated Statements of Shareholders’ Equity; (iv) Consolidated Statements of Cash
Flows; and (v) Notes to Condensed Consolidated Financial Statements.
*Indicates a contract with management or compensatory plan or arrangement.
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: December 4, 2013
UNIVERSAL TECHNICAL INSTITUTE, INC.
By: /s/ John C. White
John C. White
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints John C. White and Eugene S. Putnam, Jr., or either of them, as his true and
lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report
on Form 10-K and any documents related to this report and filed pursuant to the Securities Exchange
Act of 1934, and to file the same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full
power and authority to do and perform each and every act and thing requisite and necessary to be done
in connection therewith as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
81
SIGNATURE
/s/ John C. White
John C. White
TITLE
Chairman of the Board
DATE
December 4, 2013
/s/ Kimberly J. McWaters
Kimberly J. McWaters
Chief Executive Officer (Principal Executive
Officer) and Director
December 4, 2013
/s/ Eugene S. Putnam, Jr.
Eugene S. Putnam, Jr.
/s/ David A. Blaszkiewicz
David A. Blaszkiewicz
/s/ Alan E. Cabito
Alan E. Cabito
/s/ Conrad A. Conrad
Conrad A. Conrad
/s/ Dr. Roderick Paige
Dr. Roderick Paige
/s/ Roger S. Penske
Roger S. Penske
/s/ Linda J. Srere
Linda J. Srere
/s/ Kenneth R. Trammell
Kenneth R. Trammell
President, Chief Financial Officer (Principal
Financial Officer and Principal Accounting
Officer)
December 4, 2013
December 4, 2013
December 4, 2013
December 4, 2013
December 4, 2013
December 4, 2013
December 4, 2013
December 4, 2013
Director
Director
Director
Director
Director
Director
Director
82
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2013 and 2012
Consolidated Statements of Income for the years ended September 30, 2013, 2012 and 2011
Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2013, 2012 and
2011
Consolidated Statements of Cash Flows for the years ended September 30, 2013, 2012 and 2011
Notes to Consolidated Financial Statements
Page
Number
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F- 1
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting for the company and for assessing the effectiveness of internal control over financial reporting as such
term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Internal control over financial reporting
is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation
of financial statements for external purposes in accordance with accounting principles generally accepted in the
United States.
Internal control over financial reporting includes policies and procedures that pertain to maintaining records
that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of the company’s assets;
providing reasonable assurance that transactions are recorded as necessary to permit preparation of our financial
statements in accordance with accounting principles generally accepted in the United States; providing reasonable
assurance that receipts and expenditures of company assets are made in accordance with management and director
authorization; and providing reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of company assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risks that controls
may become inadequate because of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting
based on the framework established in “Internal Control — Integrated Framework (1992)” issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that
the Company’s internal control over financial reporting was effective as of September 30, 2013. There were no
changes in our internal control over financial reporting during the quarter ended September 30, 2013 that have
materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
The effectiveness of the Company’s internal control over financial reporting as of September 30, 2013 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their
report which appears herein.
F- 2
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Universal Technical Institute, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
income, of shareholders’ equity, and of cash flows present fairly, in all material respects, the financial position of
Universal Technical Institute, Inc. and its subsidiaries (“the Company”) at September 30, 2013 and 2012, and the
results of their operations and their cash flows for each of the three years in the period ended September 30, 2013
in conformity with accounting principles generally accepted in the United States of America. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of
September 30, 2013, based on criteria established in “Internal Control — Integrated Framework (1992)” issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s
management is responsible for these financial statements, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express
opinions on these financial statements and on the Company’s internal control over financial reporting based on
our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
December 4, 2013
F- 3
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Investments, current portion
Receivables, net
Deferred tax assets, net
Prepaid expenses and other current assets
Total current assets
Investments, less current portion
Property and equipment, net
Goodwill
Deferred tax assets, net
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued expenses
Deferred revenue
Accrued tool sets
Income tax payable
Other current liabilities
Total current liabilities
Deferred rent liability
Construction liability
Other liabilities
Total liabilities
Commitments and contingencies (Note 11)
Shareholders’ equity:
Common stock, $0.0001 par value, 100,000,000 shares authorized,
30,535,847 shares issued and 24,643,520 shares outstanding as of
September 30, 2013 and 30,222,132 shares issued and 24,891,205
shares outstanding as of September 30, 2012
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; 0
shares issued and outstanding
Paid-in capital
Treasury stock, at cost, 5,892,327 shares as of September 30, 2013 and
5,330,927 as of September 30, 2012
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
September 30, 2013
September 30, 2012
(In thousands)
$
35,657
$
5,748
57,531
11,406
7,452
15,553
133,347
4,188
103,070
20,579
8,835
9,444
45,665
104
51,455
14,910
7,977
14,873
134,984
4,533
91,939
20,579
5,576
10,547
$
$
279,463
$
268,158
39,229
$
46,890
3,971
79
2,192
92,361
11,932
27,632
8,768
40,865
52,564
4,264
744
1,003
99,440
12,946
2,421
7,266
140,693
122,073
3
—
171,087
(89,346)
57,026
138,770
$
279,463
$
3
—
166,970
(83,924)
63,036
146,085
268,158
The accompanying notes are an integral part of these consolidated financial statements.
F- 4
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
Revenues
Operating expenses:
Educational services and facilities
Selling, general and administrative
Total operating expenses
Income from operations
Other income:
Interest income
Interest expense
Other income
Total other income, net
Income before income taxes
Income tax expense
Net income
Earnings per share:
Net income per share - basic
Net income per share - diluted
Weighted average number of shares outstanding:
Basic
Diluted
Cash dividends declared per common share
Year Ended September 30,
2013
2011
2012
(In thousands, except per share amounts)
$
380,268
$
413,552
$
451,900
199,540
174,799
374,339
5,929
235
(1)
655
889
6,818
3,008
3,810
0.16
0.15
24,515
24,704
$
$
$
211,979
187,458
399,437
14,115
306
(4)
545
847
14,962
5,930
9,032
0.37
0.36
24,711
24,937
$
$
$
0.40
$
0.30
$
223,628
183,726
407,354
44,546
258
(6)
291
543
45,089
18,192
26,897
1.10
1.09
24,427
24,740
—
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F- 5
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Common Stock
Shares
Amount
Paid-in
Capital
Treasury Stock
Shares
Amount
Retained
Earnings
Total
Shareholders’
Equity
Balance as of September 30, 2010
29,149
$
Net income
Issuance of common stock under
employee plans
Shares withheld for payroll taxes
Tax benefit from employee stock plans
Stock-based compensation
—
517
(106)
—
—
Balance as of September 30, 2011
29,560
$
Net income
Issuance of common stock under
employee plans
Shares withheld for payroll taxes
Tax benefit from employee stock plans
Stock-based compensation
Shares repurchased
Cash dividends declared
—
452
210
—
—
—
—
Balance as of September 30, 2012
30,222
$
Net income
Issuance of common stock under
employee plans
Shares withheld for payroll taxes
Tax benefit from employee stock plans
Stock-based compensation
Shares repurchased
Cash dividends declared
—
421
(107)
—
—
—
—
Balance as of September 30, 2013
30,536
$
3
—
—
—
—
—
3
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
3
(In thousands)
$150,012
4,870
$ (76,506) $ 34,532
$
108,041
—
1,269
(1,739)
638
6,317
—
—
—
—
—
—
—
—
—
—
26,897
26,897
—
—
—
—
1,269
(1,739)
638
6,317
$156,497
4,870
$ (76,506) $ 61,429
$
141,423
9,032
9,032
—
(7,425)
$166,970
5,331
$ (83,924) $ 63,036
$
146,085
3,810
3,810
—
550
4,204
(773)
6,492
—
—
—
—
317
—
—
144
—
—
525
(1,263)
(1,059)
5,914
—
—
—
—
—
—
—
561
—
—
—
(5,569)
—
—
(1,849)
—
—
—
—
—
(5,422)
—
—
—
—
—
—
—
—
—
—
550
(1,365)
(773)
6,492
(1,849)
(7,425)
525
(1,263)
(1,059)
5,914
(5,422)
(9,820)
$171,087
5,892
$ (89,346) $ 57,026
$
138,770
—
(9,820)
The accompanying notes are an integral part of these consolidated financial statements.
F- 6
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Year Ended September 30,
2013
2012
2011
(In thousands)
$
3,810
$
9,032
$
26,897
Depreciation and amortization
Amortization of held-to-maturity investments
Bad debt expense
Stock-based compensation
Excess tax benefit from stock-based compensation
Deferred income taxes
Training equipment credits earned, net
Loss on disposal of property and equipment
Changes in assets and liabilities:
Receivables
Prepaid expenses and other current assets
Other assets
Accounts payable and accrued expenses
Deferred revenue
Income tax payable/receivable
Accrued tool sets and other current liabilities
Deferred rent liability
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment
Proceeds from disposal of property and equipment
Purchase of investments
Proceeds received upon maturity of investments
Proceeds from note receivable
Investment in joint venture
Restricted cash
Net cash used in investing activities
Cash flows from financing activities:
Payment of cash dividends
Payment of payroll taxes on stock-based compensation through shares withheld
Proceeds from issuance of common stock under employee plans
Excess tax benefit from stock-based compensation
Purchase of treasury stock
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:
Taxes paid
Training equipment obtained in exchange for services
Change in accrued capital expenditures during the period
Construction in progress financed by construction liability during the period
Stock based compensation classified as liability instruments
$
$
$
$
$
$
22,156
2,023
4,762
6,224
—
(3,793)
(1,926)
184
(1,258)
1,486
(1,223)
(700)
(5,674)
(665)
896
(1,014)
1,445
26,733
(9,352)
54
(111,848)
104,094
—
—
(3,709)
(20,761)
(9,820)
(1,263)
525
—
(5,422)
(15,980)
(10,008)
45,665
35,657
7,467
1,164
(1,088)
25,211
310
$
$
$
$
$
$
23,819
1,757
5,790
6,492
(159)
(8,490)
(1,127)
203
(10,109)
(3,520)
(1,227)
3,037
(8,830)
(1,288)
(96)
1,147
2,078
18,509
(11,342)
6
(92,503)
90,640
615
(4,000)
—
(16,584)
(7,425)
(1,365)
550
159
(1,849)
(9,930)
(8,005)
53,670
45,665
15,708
1,921
933
2,421
$
$
$
$
$
— $
24,842
1,195
8,679
6,279
(1,081)
2,296
(1,501)
957
(1,240)
391
(1,486)
(15,009)
(1,882)
3,279
231
6,178
(953)
58,072
(29,098)
64
(89,538)
64,585
—
—
—
(53,987)
—
(1,739)
1,269
1,081
—
611
4,696
48,974
53,670
12,615
1,399
(2,434)
—
—
The accompanying notes are an integral part of these consolidated financial statements.
F- 7
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
1. Business Description
Universal Technical Institute, Inc. (“UTI” or, collectively, “we” and “our”) provides postsecondary education
for students seeking careers as professional automotive, diesel, collision repair, motorcycle and marine technicians.
We offer undergraduate degree and diploma programs at 11 campuses and advanced training programs that are
sponsored by the manufacturer or dealer at dedicated training centers. We work closely with leading original
equipment manufacturers (OEMs) in the automotive, diesel, motorcycle and marine industries to understand their
needs for qualified service professionals. Revenues generated from our schools consist primarily of tuition and
fees paid by students. To pay for a substantial portion of their tuition, the majority of students rely on funds received
from federal financial aid programs under Title IV Programs of the Higher Education Act of 1965, as amended
(HEA). For further discussion, see Concentration of Risk and Note 16 “Governmental Regulation and Financial
Aid”.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of UTI and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the
United States requires management to make certain estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue
recognition, our proprietary loan program, allowance for uncollectible accounts, investments, property and
equipment, goodwill recoverability, bonus plans, self-insurance claim liabilities, income taxes, contingencies and
stock-based compensation. We base our estimates on historical experience and on various other assumptions that
we believe are reasonable under the circumstances. The results of our analysis form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions, and the impact of such differences may
be material to our consolidated financial statements.
Revenue Recognition
Revenues consist primarily of student tuition and fees derived from the programs we provide after reductions
are made for discounts and scholarships we sponsor, refunds for students who withdraw from our programs prior
to specified dates and the portion of tuition students have funded through our proprietary loan program for which
payment has not been received. Tuition and fee revenue is recognized ratably over the term of the course or program
offered. Approximately 98% of our revenues for each of the years ended September 30, 2013, 2012 and 2011
consisted of tuition. The majority of our undergraduate programs are designed to be completed in 45 to 102 weeks
and our advanced training programs range from 11 to 24 weeks in duration. We supplement our revenues with
sales of textbooks and program supplies, student housing and other revenues. Sales of textbooks and program
supplies, revenue related to student housing and other revenue are each recognized as sales occur or services are
performed. Deferred revenue represents the excess of tuition and fee payments received as compared to tuition
and fees earned and is reflected as a current liability in our consolidated balance sheets because it is expected to
be earned within the next twelve months.
F- 8
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
Proprietary Loan Program
In order to provide funding for students who are not able to fully finance the cost of their education under
traditional governmental financial aid programs, commercial loan programs or other alternative sources, we
established a private loan program with a bank (original bank). During the year ended September 30, 2013, the
original bank exercised its right to terminate the agreement effective April 30, 2013. The original bank subsequently
agreed to an extension through June 29, 2013. During June 2013, we entered into an agreement with a new bank
(the bank), which began accepting student loan applications on June 29, 2013. The terms under the agreement are
substantially the same as the agreement with the original bank.
Under terms of the proprietary loan program, the bank originates loans for our students who meet our
specific credit criteria with the related proceeds used exclusively to fund a portion of their tuition. We then purchase
all such loans from the bank at least monthly and assume all of the related credit risk. The loans bear interest at
market rates; however, principal and interest payments are not required until six months after the student completes
or withdraws from his or her program. After the deferral period, monthly principal and interest payments are
required over the related term of the loan.
The bank provides these services in exchange for a fee at a percentage of the principal balance of each
loan and related fees. Under the terms of the related agreement, we transfer funds for loan purchases to a deposit
account with the bank in advance of the bank funding the loan which secures our related loan purchase obligation.
We have a $1.0 million deposit with the original bank to secure our remaining loan purchase obligation. Such
funds deposited with both banks are classified as restricted cash in our condensed consolidated balance sheet as
of September 30, 2013.
In substance, we provide the students who participate in this program with extended payment terms for a
portion of their tuition and as a result, we account for the underlying transactions in accordance with our tuition
revenue recognition policy. However, due to the nature of the program coupled with the extended payment terms
required under the student loan agreements, collectability is not reasonably assured. Accordingly, we recognize
tuition and loan origination fees financed by the loan and any related interest income required under the loan when
such amounts are collected. All related expenses incurred with the bank or other service providers are expensed
as incurred within educational services and facilities expense and were approximately $2.0 million, $1.5 million
and $0.9 million for the years ended September 30, 2013, 2012 and 2011 respectively. Since loan collectability is
not reasonably assured, the loans and related deferred tuition revenue are not recognized in our consolidated balance
sheets.
The following table summarizes the impact of the proprietary loan program on our tuition revenue and interest
income during the period as well as on a cumulative basis at the end of each period in our consolidated statements
of income. Tuition revenue and interest income excluded represents amounts which would have been recognized
during the period had collectability of the related amounts been assured. Amounts collected and recognized represent
actual cash receipts during the period and amounts written off represent amounts which have been turned over to
third party collectors.
Tuition and interest income excluded
Amounts collected and recognized
Amounts written off
Net amount excluded during the period
$
$
Year Ended September 30,
2012
2011
2013
Inception
to date
17,097
(1,574)
(6,352)
9,171
$
$
9,158
(857)
(5,926)
2,375
$
$
69,859
(5,022)
(20,995)
43,842
22,977
(2,277)
(6,295)
14,405
$
$
F- 9
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
As of September 30, 2013, we had committed to provide loans to our students for approximately $85.9
million since inception.
The following table summarizes the activity related to the balances outstanding under our proprietary loan
program, including loans outstanding, interest and origination fees, which are not recognized in our consolidated
balance sheets:
Balance at beginning of period
Loans extended
Interest accrued
Amounts collected and recognized
Amounts written off
Balance at end of period
Allowance for Uncollectible Accounts
Year Ended September 30,
2013
2012
$
$
42,880
22,004
3,455
(2,277)
(6,295)
59,767
$
$
26,863
20,968
2,975
(1,574)
(6,352)
42,880
We maintain an allowance for uncollectible accounts for estimated losses resulting from the inability, failure
or refusal of our students to make required payments. We offer a variety of payment plans to help students pay
that portion of their education expenses not covered by financial aid programs or alternate fund sources, which
are unsecured and not guaranteed. Management analyzes accounts receivable, historical percentages of
uncollectible accounts, customer credit worthiness and changes in payment history when evaluating the adequacy
of the allowance for uncollectible accounts. We use an internal group of collectors, augmented by third party
collectors as deemed appropriate, in our collection efforts. Although we believe that our allowance is adequate, if
the financial condition of our students deteriorates, resulting in an impairment of their ability to make payments,
or if we underestimate the allowances required, additional allowances may be necessary, which would result in
increased selling, general and administrative expenses in the period such determination is made.
Investments
We invest in pre-funded municipal bonds which are generally secured by escrowed-to-maturity U.S. Treasury
notes. Municipal bonds represent debt obligations issued by states, cities, counties and other governmental entities,
which earn interest that is exempt from federal income taxes. Additionally, we invest in certificates of deposit
issued by financial institutions and corporate bonds from large cap industrial and selected financial companies
with a minimum credit rating of A. We have the ability and intention to hold our investments until maturity and
therefore classify these investments as held-to-maturity and report them at amortized cost. Investments with an
original maturity date of 90 days or less at the time of purchase are classified as cash equivalents and investments
with a maturity date greater than one year at the end of the period are classified as non-current.
We review our held-to-maturity investments for impairment quarterly to determine if other-than-temporary
declines in the carrying value have occurred for any individual investment. Other-than-temporary declines in the
value of our held-to-maturity investments are recorded as expense in the period in which the determination is made.
We determined that no other-than-temporary declines occurred in our held-to-maturity investments during the
years ended September 30, 2013 and 2012.
F- 10
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
Property and Equipment
Property, equipment and leasehold improvements are recorded at cost less accumulated depreciation and
amortization. Depreciation and amortization expense are calculated using the straight-line method over the
estimated useful lives of the related assets. Amortization of leasehold improvements is calculated using the straight-
line method over the remaining useful life of the asset or term of lease, whichever is shorter. Costs relating to
software developed for internal use and curriculum development are capitalized and amortized using the straight-
line method over the related estimated useful lives. Such costs include direct costs of materials and services as
well as payroll and related costs for employees who are directly associated with the projects. Maintenance and
repairs are expensed as incurred.
We review the carrying value of our property and equipment for possible impairment whenever events or
changes in circumstances indicate that the carrying amounts may not be recoverable. We evaluate our long-lived
assets for impairment by examining estimated future cash flows. These cash flows are evaluated by using probability
weighting techniques as well as comparisons of past performance against projections. Assets may also be evaluated
by identifying independent market values. If we determine that an asset’s carrying value is impaired, we will write-
down the carrying value of the asset to its estimated fair value and charge the impairment as an operating expense
in the period in which the determination is made.
Goodwill
Goodwill represents the excess of the cost of an acquired business over the estimated fair values of the assets
acquired and liabilities assumed. Goodwill is reviewed at least annually for impairment, which might result from
the deterioration in the operating performance of the acquired business, adverse market conditions, adverse changes
in the applicable laws or regulations and a variety of other circumstances. Any resulting impairment charge would
be recognized as an expense in the period in which impairment is identified.
Our goodwill resulted from the acquisition of our motorcycle and marine education business in 1998. We
allocated such goodwill, which totaled $20.6 million, to two of our reporting units that provide the related
educational programs. We assess our goodwill for impairment during the fourth quarter of each fiscal year. During
the year ended September 30, 2013, we utilized a discounted cash flow model that incorporated estimated future
cash flows for the next five years and an associated terminal value. Key management assumptions included in the
cash flow model included future tuition revenues, operating costs, working capital changes, capital expenditures
and a discount rate that approximated our weighted average cost of capital. Based upon our annual assessments,
we determined that our goodwill was not impaired as of September 30, 2013 and 2012, and that impairment charges
were not required. While actual experience will differ from the amounts included in our assessment, we do not
believe that a related impairment of our goodwill is reasonably possible in the foreseeable future.
Self-Insurance Plans
We are self-insured for claims related to employee health and dental care and claims related to workers’
compensation. Liabilities associated with these plans are estimated by management with consideration of our
historical loss experience, severity factors and independent actuarial analysis. Our claim liabilities are based on
estimates, and while we believe the amounts accrued are adequate, the ultimate losses may differ from the amounts
provided.
Deferred Rent Liability
We lease substantially all of our administrative and educational facilities under operating lease agreements.
Some lease agreements contain tenant improvement allowances, free rent periods or rent escalation clauses. In
instances where one or more of these items are included in a lease agreement, we record a deferred rent liability
on the consolidated balance sheet and record rent expense evenly over the term of the lease.
F- 11
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
Advertising Costs
Costs related to advertising are expensed as incurred and totaled approximately $37.0 million, $42.1 million
and $34.6 million for the years ended September 30, 2013, 2012 and 2011, respectively.
Stock-Based Compensation
Historically, we have issued stock units with vesting subject to a market condition (market shares), stock
options and restricted stock. During the year ended September 30, 2013, we issued restricted stock units solely
subject to service conditions. We measure all share-based payments to employees at estimated fair value. We
recognize the compensation expense for restricted stock awards and restricted stock units with only service
conditions on a straight-line basis over the requisite service period. We recognize compensation expense for market
shares over the requisite period. All compensation expense for market share grants is recognized for participants
who fulfill the requisite service period, regardless of whether the market condition for issuing shares is satisfied.
We did not grant stock options during the years ended September 30, 2013, 2012 and 2011.
Compensation expense associated with restricted stock awards and restricted stock units is measured based
on the grant date fair value of our common stock, discounted for non-participation in anticipated dividends during
the vesting period. The requisite service period for restricted stock awards and restricted stock units is generally
the vesting period. Compensation expense is recognized only for those awards that are expected to vest, which we
estimate based upon historical forfeitures.
The fair value of market shares is estimated using a Monte Carlo simulation which requires assumptions for
expected volatilities, correlation coefficients, risk-free rates of return, and dividend yields. The vesting condition
for market shares is based on total shareholder return which is the comparison of the change in our stock price and
dividends to the change in stock price and dividends of the companies included in a nationally recognized stock
index for the measurement periods included in the grant. Expected volatilities are derived using a method that
calculates historical volatility over a period equal to the length of the measurement period for us and the companies
included in the related index. Correlation coefficients are based on the same data used to calculate historical
volatilities and are used to model how our stock price moves in relation to the companies included in the related
index. We use a risk-free rate of return that is equal to the yield of a zero-coupon U.S. Treasury bill that is
commensurate with each measurement period, and we assume that any dividends paid were reinvested.
Stock-based compensation expense of $6.2 million, $6.5 million and $6.3 million (pre-tax) was recorded for
the years ended September 30, 2013, 2012 and 2011, respectively. The tax benefit related to stock-based
compensation recognized was $2.4 million, $2.5 million and $2.4 million for the years ended September 30, 2013,
2012 and 2011, respectively.
Income Taxes
We recognize deferred tax assets and liabilities for the estimated future tax consequences of events attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. We also recognize deferred tax assets for net operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected
to be recovered or settled. Deferred tax assets are reduced through a valuation allowance if it is more likely than
not that the deferred tax assets will not be realized.
Concentration of Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash
and cash equivalents, restricted cash, investments and receivables. As of September 30, 2013, we held cash and
cash equivalents of $35.7 million and investments of $61.7 million invested in pre-funded municipal bonds,
collateralized by escrowed-to-maturity U.S. treasury notes, certificates of deposit issued by financial institutions
and corporate bonds.
F- 12
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
We place our cash and cash equivalents with high quality financial institutions and limit the amount of credit
exposure with any one financial institution. We mitigate the concentration risk of our investments by limiting the
amount invested in any one issuer. We mitigate the risk associated with our investment in corporate bonds by
requiring a minimum credit rating of A.
We extend credit for tuition and fees, for a limited period of time, to a majority of our students. A substantial
portion is repaid through the student’s participation in federally funded financial aid programs. Transfers of funds
from the financial aid programs to us are made in accordance with the U.S. Department of Education (ED)
requirements. Approximately 68%, 75%, and 75% of our revenues, on a cash basis, were collected from funds
distributed under Title IV Programs for the years ended September 30, 2013, 2012 and 2011, respectively.
Additionally, approximately 18%, 9% and 4% of our revenues, on a cash basis, were collected from funds distributed
under various veterans benefits programs for the years ended September 30, 2013, 2012 and 2011, respectively.
The financial aid and assistance programs are subject to political and budgetary considerations. There is no assurance
that such funding will be maintained at current levels. Extensive and complex regulations govern the financial
assistance programs in which our students participate. Our administration of these programs is periodically reviewed
by various regulatory agencies. Any regulatory violation could be the basis for the initiation of potential adverse
actions including a suspension, limitation, placement on reimbursement status, or termination proceeding which
could have a material adverse effect on our business.
If any of our institutions were to lose its eligibility to participate in federal student financial aid programs,
the students at that institution would lose access to funds derived from those programs and would have to seek
alternative sources of funds to pay their tuition and fees. Students obtain access to federal student financial aid
through an ED prescribed application and eligibility certification process. Student financial aid funds are generally
made available to students at prescribed intervals throughout their predetermined expected length of study. Students
typically apply the funds received from the federal financial aid programs to pay their tuition and fees. The transfer
of funds is from the financial aid program to the student, who then uses those funds to pay for a portion of the cost
of their education. The receipt of financial aid funds reduces the student’s amounts due to us and has no impact
on revenue recognition, as the transfer relates to the source of funding for the costs of education which may occur
either through Title IV or other funds and resources available to the student.
Fair Value of Financial Instruments
The carrying value of cash equivalents, restricted cash, accounts receivable, accounts payable, accrued
liabilities and deferred tuition approximates their respective fair value as of September 30, 2013 and 2012 due to
the short-term nature of these instruments.
Comprehensive Income
We have no items which affect comprehensive income other than net income.
Start-up Costs
Costs related to the start-up of new campuses are expensed as incurred.
3. Postemployment Benefits
In September 2013, we entered into a severance and transition agreement with the Chairman of our
Board of Directors. Under the terms of the agreement we recorded approximately $1.6 million in postemployment
benefits. In September 2012, we implemented a nationwide reduction in workforce and provided postemployment
benefits to approximately 50 impacted employees. Additionally, we periodically enter into agreements which
provide postemployment benefits to personnel whose employment is terminated. The postemployment benefit
liability, which is included in accounts payable and accrued expenses on the accompanying consolidated balance
sheets, is generally paid out ratably over the terms of the agreements, which range from 1 month to 24 months,
with the final agreement expiring in December 2015.
F- 13
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
The postemployment activity for the year ended September 30, 2013 was as follows:
Liability Balance
at
September 30,
2012
Postemployment
Benefit Charges
Cash Paid
Other
Non-cash (1)
Liability Balance
at
September 30,
2013
Severance
Other
Total
$
$
2,002
149
2,151
$
$
2,089
68
2,157
$
$
(2,268) $
(145)
(2,413) $
(267) $
(70)
(337) $
1,556
2
1,558
(1) Primarily relates to the expiration of benefits not used within the time offered under the separation
agreement and non-cash severance.
4. Receivables, net
Receivables, net consist of the following:
Tuition receivables
Other receivables
Receivables
Less allowance for uncollectible accounts
September 30,
2013
2012
$
$
12,545
3,010
15,555
(4,149)
11,406
$
$
16,254
2,764
19,018
(4,108)
14,910
The allowance for uncollectible accounts is estimated using our historical write-off experience applied to
the receivable balances for students who are no longer attending school due to graduation or withdrawal or who
are in school and have receivable balances in excess of financial aid available to them. We write off receivable
balances against the allowance for uncollectible accounts at the time we transfer the balance to a third party
collection agency.
The following table summarizes the activity for our allowance for uncollectible accounts for the year ended
September 30:
2013
2012
2011
Balance at
Beginning of
Period
Additions to
Bad Debt
Expense
Write-offs of
Uncollectible
Accounts
Balance at
End of
Period
$
$
$
4,108
5,269
4,064
$
$
$
4,762
5,790
8,679
$
$
$
(4,721) $
(6,951) $
(7,474) $
4,149
4,108
5,269
During the year ended September 30, 2012, we collected, and recorded as a reduction to bad debt expense,
approximately $0.6 million on a note receivable which had been written off in 2004.
F- 14
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
5. Investments
We invest in pre-funded municipal bonds which are generally secured by escrowed-to-maturity U.S.
Treasury notes. Municipal bonds represent debt obligations issued by states, cities, counties and other governmental
entities, which earn interest that is exempt from federal income taxes. Additionally, we invest in certificates of
deposit issued by financial institutions and corporate bonds from large cap industrial and selected financial
companies with a minimum credit rating of A. We have the ability and intention to hold our investments until
maturity and therefore classify these investments as held-to-maturity and report them at amortized cost.
Amortized cost and fair value for investments classified as held-to-maturity at September 30, 2013
were as follows:
Due in less than 1 year:
Municipal bonds
Corporate bonds
Certificates of deposit
Due in 1 - 2 years:
Municipal bonds
Certificates of deposit
Amortized
Cost
Gross Unrealized
Gains
Losses
$
$
40,942
11,684
4,905
3,943
245
61,719
$
$
22
2
—
4
—
28
$
$
Estimated
Fair Market
Value
— $
(7)
—
—
—
(7) $
40,964
11,679
4,905
3,947
245
61,740
Amortized cost and fair value for investments classified as held-to-maturity at September 30, 2012 were
as follows:
Due in less than 1 year:
Municipal bonds
Corporate bonds
Certificates of deposit
Due in 1 - 2 years:
Municipal bonds
Certificates of deposit
Amortized
Cost
Gross Unrealized
Gains
Losses
$
$
23,402
18,210
9,843
170
4,363
55,988
$
$
2
8
3
—
—
13
$
$
Estimated
Fair Market
Value
(8) $
(3)
—
—
—
(11) $
23,396
18,215
9,846
170
4,363
55,990
Investments are exposed to various risks, including interest rate, market and credit risk and as a result,
it is possible that changes in the values of these investments may occur and that such changes could affect the
amounts reported in the consolidated balance sheets and consolidated statements of income.
F- 15
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
6. Fair Value Measurements
The accounting framework for determining fair value includes a hierarchy for ranking the quality and
reliability of the information used to measure fair value, which enables the reader of the financial statements to
assess the inputs used to develop those measurements. The fair value hierarchy consists of three tiers: Level 1,
defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs other
than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities,
quoted prices in markets that are not active, model-based valuation techniques for which all significant assumptions
are observable in the market or other inputs that are observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities and Level 3, defined as unobservable inputs that are not
corroborated by market data. Any transfers of investments between levels occurs at the end of the reporting period.
Assets measured at fair value on a recurring basis consisted of the following:
Fair Value Measurements Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
September
30, 2013
Money market funds
Corporate bonds
Municipal bonds
Certificates of deposit
Total assets at fair value on a recurring basis $
$
23,135
11,679
44,911
5,150
84,875
$
$
23,135
11,679
—
—
34,814
$
$
— $
—
44,911
5,150
50,061
$
—
—
—
—
—
Fair Value Measurements Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
September
30, 2012
$
Money market funds
Corporate bonds
Municipal bonds
Certificates of deposit
Commercial paper
Total assets at fair value on a recurring basis $
32,506
18,215
23,566
14,209
4,506
93,002
$
$
32,506
18,215
—
—
—
50,721
$
$
— $
—
23,566
14,209
4,506
42,281
$
—
—
—
—
—
—
F- 16
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
7. Property and Equipment, net
Property and equipment, net consisted of the following:
Land
Building and building improvements
Leasehold improvements
Training equipment
Office and computer equipment
Software developed for internal use
Curriculum development
Vehicles
Construction in progress
Less accumulated depreciation and amortization
Depreciable
Lives (in years)
—
35
1-28
3-10
3-10
3-5
5
5
—
$
$
September 30,
2013
September 30,
2012
1,456
13,741
48,062
82,270
37,206
10,895
18,716
1,005
33,158
246,509
(143,439)
103,070
$
$
1,456
13,675
47,185
79,952
39,656
11,048
18,716
949
7,225
219,862
(127,923)
91,939
At September 30, 2013, construction in progress included $27.6 million related to the design and
construction of our Lisle, Illinois campus.
Depreciation expense related to our property and equipment was $18.4 million, $19.3 million and $19.9
million for the years ended September 30, 2013, 2012 and 2011, respectively. Amortization expense related to
curriculum development and software developed for internal use was $4.8 million, $5.6 million and $5.9 million
for the years ended September 30, 2013, 2012 and 2011, respectively.
8. Build-to-Suit Lease
During the year ended September 30, 2012, we entered into a build-to-suit facility lease agreement and a
construction management agreement related to the relocation of our Glendale Heights, Illinois campus to, and the
design and construction of a new campus in, Lisle, Illinois. Under build-to-suit lease arrangements, we establish
assets and liabilities for the estimated construction costs incurred to the extent we are involved in the construction
of structural improvements or take construction risk prior to the lease commencement.
Under these agreements, we retained all construction risk and therefore, for accounting purposes, were
considered the owner during the construction period. We have recorded approximately $27.6 million in construction
in progress and $27.6 million in the related construction liability on our consolidated balance sheet as of
September 30, 2013. The construction management agreement required us to fund any budget overruns related to
this construction project. Furthermore, although we were owners during the construction period, we do not own
the underlying land. Therefore, we have an imputed operating lease expense related to our use of the land that is
recognized from the time we entered into the agreement through the initial lease term and was approximately $0.3
million for the year ended September 30, 2013.
F- 17
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
Construction was completed during November 2013 and the facility was placed into service effective
December 1, 2013. We have determined that we have continued involvement in the facility after the construction
period was completed, which precludes us from achieving sale-leaseback accounting. As such, we did not
derecognize the facility or related construction liability upon occupancy and will continue to account for the
arrangement as a financing obligation. Accordingly,the asset and a corresponding financing obligation are included
in our consolidated balance sheet on December 1, 2013. The asset will be depreciated over the initial lease term
of 18 years. The financing obligation will be amortized through the effective interest method in which a portion
of the lease payments will be recognized as interest expense, a portion will be allocated to the imputed land lease
and the remaining portion will decrease the financing obligation. Future minimum financing payments under this
lease as of September 30, 2013 are as follows:
Years ending September 30,
2014
2015
2016
2017
2018
Thereafter
$
$
2,286
2,852
2,914
2,978
3,044
46,808
60,882
Concurrent with the lease agreement, we invested $4.0 million to acquire an equity interest of approximately
28% in a joint venture (JV). In connection with this investment, we do not possess a controlling financial interest
as we do not hold a majority of the equity interest, nor do we have the power to make major decisions without
approval from the other equity member. Therefore, we do not qualify as the primary beneficiary. Accordingly, this
investment is accounted for under the equity method of accounting and is included in other assets in the consolidated
balance sheet as of September 30, 2013. We will recognize our proportionate share of the JV’s net income or loss,
during each accounting period, as a change in our investment. We will evaluate the investment for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. To the
extent the book value of the investment exceeds its assessed fair value, we will record an appropriate impairment
charge. No impairment charge was required during the year ended September 30, 2013.
We have also entered into a related tax increment financing arrangement which provides us with a tax rebate
up to $6.2 million with respect to property taxes paid for the Lisle, Illinois campus. The agreement requires specific
actions performed by us throughout the term in order for us to continue receiving the tax rebate.
9. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
Accounts payable
Accrued compensation and benefits
Other accrued expenses
September 30,
2013
September 30,
2012
$
$
13,758
16,858
8,613
39,229
$
$
8,246
24,372
8,247
40,865
F- 18
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
10. Income Taxes
The components of income tax expense are as follows:
Current expense
Deferred (benefit) expense
Total provision for income taxes
Year Ended September 30,
2012
2011
2013
$
$
6,801
(3,793)
3,008
$
$
14,420
(8,490)
5,930
$
$
15,896
2,296
18,192
The income tax provision differs from the tax that would result from application of the statutory federal tax
rate of 35.0% to pre-tax income for the year. The reasons for the differences are as follows:
Income tax expense at statutory rate
State income taxes, net of federal tax benefit
Other, net
Total income tax expense
Year Ended September 30,
2012
2011
2013
2,386
503
119
3,008
$
$
5,237
476
217
5,930
$
$
15,781
2,086
325
18,192
$
$
The components of the deferred tax assets (liabilities) recorded in the accompanying consolidated balance
sheets were as follows:
Gross deferred tax assets:
Compensation not yet deductible for tax
Allowance for uncollectible accounts
Expenses and accruals not yet deductible
Deferred revenue
Net operating loss carryovers
State tax credit carryforwards
Valuation allowance
Total deferred tax assets, net
Gross deferred tax liabilities:
Amortization of goodwill and intangibles
Depreciation and amortization of property and equipment
Prepaid expenses deductible for tax
Total deferred tax liabilities, net
Net deferred tax assets
September 30,
2013
2012
$
$
$
7,997
1,618
7,224
12,110
226
308
(224)
29,259
(8,027)
(4,052)
(893)
(12,972)
16,287
$
8,652
1,602
7,192
12,271
129
296
(80)
30,062
(8,026)
(7,500)
(983)
(16,509)
13,553
The deferred tax assets are reflected in the accompanying consolidated balance sheets as follows:
Current deferred tax assets, net
Noncurrent deferred tax assets, net
Net deferred tax assets
F- 19
September 30,
2013
2012
$
$
7,452
8,835
16,287
$
$
7,977
5,576
13,553
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
The following table summarizes the activity for the valuation allowance for the year ended September 30:
Balance at
Beginning of
Period
Additions
(Reductions)
to Income
Tax
Expense
$
$
$
80
110
$
$
— $
144
$
(30) $
$
110
Write-offs
Balance at
End of
Period
— $
— $
— $
224
80
110
2013
2012
2011
As of September 30, 2013, we had approximately $0.5 million in deferred tax assets related to state net
operating loss and credit carryforwards. These tax attributes will expire in the years 2014 through 2024. During
the year ended September 30, 2013, we established a valuation allowance in the amount of $0.1 million related to
the state net operating loss carry-forwards, as it is more likely than not that the net operating losses will expire
unutilized.
We file income tax returns for federal purposes and in many states. Our tax filings remain subject to
examination by applicable tax authorities for a certain length of time following the tax year to which these filings
relate. Our tax returns for the years ended September 30, 2010 through September 30, 2012 remain subject to
examination by the Internal Revenue Service and our tax returns for the years ended September 30, 2009 through
September 30, 2012 remain subject to examinations by various state taxing authorities.
11. Commitments and Contingencies
Operating Leases
We lease our facilities and certain equipment under non-cancelable operating leases, some of which contain
renewal options, escalation clauses and requirements to pay other fees associated with the leases. We recognize
rent expense on a straight-line basis. Two of our campus properties are leased from a related party. Future minimum
rental commitments as of September 30, 2013 for all non-cancelable operating leases are as follows:
Years ending September 30,
2014
2015
2016
2017
2018
Thereafter
$
29,066
28,791
27,260
23,507
23,457
76,986
$
209,067
Rent expense for operating leases was approximately $28.9 million, $28.2 million and $28.6 million for the
years ended September 30, 2013, 2012 and 2011, respectively.
Rent expense includes rent paid to related parties which was approximately $2.5 million, $2.5 million and
$2.4 million for the years ended September 30, 2013, 2012 and 2011, respectively. Since 1991, certain of our
properties have been leased from entities controlled by John C. White, the Chairman of our Board of Directors.
F- 20
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
A portion of the property comprising our Orlando location is occupied pursuant to a lease with the John C.
and Cynthia L. White 1989 Family Trust, with the lease term expiring on August 19, 2022. The annual base lease
payments for the first year under this lease totaled approximately $0.3 million, with annual adjustments based on
the higher of (i) an amount equal to 4% of the total annual rent for the immediately preceding year or (ii) the
percentage of increase in the Consumer Price Index.
Another portion of the property comprising our Orlando location is occupied pursuant to a lease with Delegates
LLC, an entity controlled by the White Family Trust, with the lease term expiring on August 19, 2022. The
beneficiaries of this trust are Mr. White’s children, and the trustee of the trust is not related to Mr. White. Annual
base lease payments for the first year under this lease totaled approximately $0.7 million, with annual adjustments
based on the higher of (i) an amount equal to 4% of the total annual rent for the immediately preceding year or
(ii) the percentage of increase in the Consumer Price Index.
Additionally, since April 1994, we have leased two of our Phoenix properties under one lease from City Park
LLC, a successor in interest of 2844 West Deer Valley LLC and in which the John C. and Cynthia L. White 1989
Family Trust holds a 25% interest. The lease expires on December 31, 2022, and the annual base lease payments
for the first year under this lease, as amended, totaled approximately $0.5 million, with annual adjustments of 2%
of the total annual rent for the immediately preceding year. We believe that the rental rates under these leases
approximated fair market rental value of the properties at the time the lease agreements were negotiated.
Licensing Agreements
In 1997, we entered into a licensing agreement that gives us the right to use certain materials and trademarks
in the development of our courses and delivery of services on our campuses. The agreement was amended in
January 2013. Under the terms of the amended license agreement, we are committed to pay royalties based upon
a flat fee per student for students who attend the licensed program. Minimum payments are $0.6 million for calendar
years 2013 and 2014. A license fee is also payable based upon a percentage of net sales related to the sale of any
product which bears the licensed trademark. The royalty and license expenses related to this agreement were $0.6
million, $0.7 million and $0.6 million for the years ended September 30, 2013, 2012 and 2011, respectively, and
were recorded in educational services and facilities expenses. In addition, we are required to pay a minimum
marketing and advertising fee for which in return we receive the right to utilize certain advertising space in the
licensor’s published periodicals. The required marketing and advertising fee is $0.8 million and $0.9 million for
calendar years 2013 and 2014, respectively. The marketing and advertising fees related to this agreement were
$0.9 million for each of the years ended September 30, 2013, 2012 and 2011, and were recorded in selling, general
and administrative expenses. The agreement expires December 31, 2014.
In 1999, we entered into a licensing agreement that gives us the right to use certain materials and trademarks
in the development of our courses. The agreement was amended in November 2009. Under the terms of the amended
agreement, we are required to pay a flat fee per student for each program a student completes. There are no minimum
license fees required to be paid. The agreement terminates upon the written notice of either party providing not
less than ninety days notification of intent to terminate. License fees related to this agreement were $1.1 million,
$1.2 million and $1.5 million for the years ended September 30, 2013, 2012 and 2011, respectively, and were
recorded in educational services and facilities expenses.
In May 2007, we entered into a licensing agreement that gives us the right to use certain trademarks, trade
names, trade dress and other intellectual property in connection with the operation of our campuses and courses.
We are committed to pay royalties based upon revenue and sponsorship revenue, as defined in the agreement, from
July 1, 2007 through December 31, 2017, the expiration of the agreement. The agreement required a minimum
royalty payment of $1.8 million in calendar year 2013. The minimum royalty payments increase by $0.05 million
in each calendar year subsequent to 2010. The expense related to these agreements was $1.7 million, $1.7 million
and $2.0 million for the years ended September 30, 2013, 2012 and 2011, respectively, and was recorded in
educational services and facilities expenses.
F- 21
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
In July 2013, we entered into a training and materials agreement that gives us the right to use certain
materials and trademarks in development of our courses. Under the terms of the agreement, we are required to pay
a flat fee per student for each related program a student completes. There is an immaterial minimum annual fee
required to be paid upon commencement of the program and annually thereafter. The agreement terminates upon
the written notice of either party providing not less than 90 days notification of intent to terminate. There was no
expense related to this agreement for the year ended September 30, 2013.
Vendor Relationships
We have an agreement with a vendor that allows us to purchase promotional tool kits for our students at a
discount from the vendor’s list price. In addition, we earn credits that are redeemable for equipment from the
vendor that we use in our business. Credits are earned on our purchases as well as purchases made by students
enrolled in our programs. We have agreed to grant the vendor exclusive access to our campuses, to display
advertising and to use their tools to train our students. Under the related agreement, which expires in April 2017,
we are required to maintain a minimum balance of $1.0 million in credits earned on student purchases. The credits
under this agreement may be redeemed in multiple ways, which historically has been for additional equipment at
the full retail list price, which is more than we would be required to pay using cash. Upon termination of the
agreement, we continue to earn credits relative to promotional tool kits we purchase or additional tools our active
students purchase. We continue to earn these credits until a tool kit is provided to the last student eligible under
the agreement. A net prepaid expense with the vendor resulted from an excess of credits earned over credits used
of $5.7 million and $4.0 million as of September 30, 2013 and 2012, respectively.
Students are provided a voucher which can be redeemed for a tool kit near graduation. The cost of the tool
kits, net of the credit, is accrued during the time period in which the students begin attending school until they
have progressed to the point that the promotional tool kit vouchers are provided. Our consolidated balance sheets
include an accrued tool set liability of $4.0 million and $4.3 million as of September 30, 2013 and 2012, respectively.
Additionally, our liability to the vendor for vouchers redeemed by students was $1.1 million and $1.9 million as
of September 30, 2013 and 2012, respectively, and is included in accounts payable and accrued expenses in our
consolidated balance sheets.
Executive Employment Agreements
We have employment agreements with key executives that provide for continued salary payments and benefits
if the executives are terminated for reasons other than cause or in the event of a change in control, as defined in
the agreements. The aggregate amount of our commitments under these agreements, including immaterial medical
benefit and salary changes effective subsequent to September 30, 2013, is approximately $3.8 million.
Change in Control Agreements
We have severance agreements with other executives that provide for continued salary payments if the
employees are terminated for any reason within twelve months subsequent to a change in control. Under the terms
of the agreements, these employees are entitled to between six and twelve months salary at their highest rate during
the previous twelve months. In addition, the employees are eligible to receive the unearned portion of their target
bonus in effect in the year termination occurs and would be eligible to receive medical benefits under the plans
maintained by us at no cost. The aggregate amount of our commitments under these agreements, including
immaterial medical benefit and salary changes effective subsequent to September 30, 2013, is approximately $7.9
million.
F- 22
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
Deferred Compensation Plans
We have established a deferred compensation plan (the Plan) effective April 1, 2010, into which certain
members of management are eligible to defer a maximum of 75% of their regular compensation and a maximum
of 100% of their incentive compensation. Non-employee members of our Board of Directors are eligible to defer
up to 100% of their cash compensation. The amounts deferred by the participant under this Plan are credited with
earnings or losses based upon changes in values of participant elected notional investments. Each participant is
fully vested in the amounts deferred.
We may make contributions at the discretion of our Board of Directors that will generally vest according to
a five year vesting schedule. Distribution elections under the Plan may be for separation from service distribution
or in-service distribution. We are not obligated to fund the Plan; however, we have purchased life insurance policies
on the participants in order to fund the related benefits and such policies have been placed into a rabbi trust.
Our obligations under the Plan totaled $3.7 million and $2.5 million as of September 30, 2013 and 2012,
respectively, and are included in other liabilities while the cash surrender value of the life insurance policies totaled
$4.0 million and $2.5 million as of September 30, 2013 and 2012 respectively, and are included in other assets in
our consolidated balance sheets.
Surety Bonds
Each of our campuses must be authorized by the applicable state education agency in which the campus is
located to operate and to grant degrees, diplomas or certificates to its students. Our campuses are subject to extensive,
ongoing regulation by each of these states. Additionally, our campuses are required to be authorized by the applicable
state education agencies of certain other states in which our campuses recruit students. Our insurers issue surety
bonds for us on behalf of our campuses and admissions representatives with multiple states to maintain authorization
to conduct our business. We are obligated to reimburse our insurers for any surety bonds that are paid by the
insurers. As of September 30, 2013, the total face amount of these surety bonds was approximately $19.2 million.
Legal
In the ordinary conduct of our business, we are periodically subject to lawsuits, demands in arbitration,
investigations, regulatory proceedings or other claims, including, but not limited to, claims involving current or
former students, routine employment matters, business disputes and regulatory demands. When we are aware of
a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result
and the amount of the loss can be reasonably estimated, we would accrue a liability for the loss. When a loss is
not both probable and estimable, we do not accrue a liability. Where a loss is not probable but is reasonably possible,
including if a loss in excess of an accrued liability is reasonably possible, we determine whether it is possible to
provide an estimate of the amount of the loss or range of possible losses for the claim. Because we cannot predict
with certainty the ultimate resolution of the legal proceedings (including lawsuits, investigations, regulatory
proceedings or claims) asserted against us, such current pending legal proceedings to which we are a party may
have a material adverse effect on our business, cash flows, results of operations or financial condition.
As previously disclosed, in November 2011, one of our former employees filed a lawsuit under the Federal
False Claims Act (31 U.S.C. § 3729, et seq.) (FCA Suit) in the United States District Court for the District of
Arizona Court, alleging that our compensation of our admissions representatives violated the “incentive
compensation ban” of Title IV of the Higher Education Act of 1965, as amended, amongst other potential violations
allegedly occurring over a number of years. We also disclosed that the same former employee had filed a complaint
with the Occupational Safety and Health Administration of the U.S. Department of Labor (DOL) alleging retaliatory
employment practices in violation of the whistleblower provisions of the Sarbanes-Oxley Act of 2002, as amended
(DOL Complaint).
F- 23
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
As also previously disclosed, the U.S. Department of Justice informed us that it had declined to intervene
in the FCA Suit and closed its investigation and the DOL closed its investigation. Further, we separately entered
into a settlement agreement with the former employee, pursuant to which these matters were dismissed and all of
her claims against us were resolved. The settlement agreement provided that, in return for the dismissal of her
claims, the former employee received a payment only with respect to her claims in the DOL Complaint. Our expense
under the settlement agreement, following contribution by our insurer, was approximately $0.4 million and was
recorded during the three months ended September 30, 2013. The settlement agreement provides that we and all
other defendants named in the FCA Suit and the DOL Complaint (Universal Technical Institute of Arizona, Inc.,
Universal Technical Institute of Delaware, Inc., Universal Technical Institute of Massachusetts, Inc., Universal
Technical Institute of Pennsylvania, Inc., Universal Technical Institute of Phoenix, Inc., Universal Technical
Institute of Texas, Inc, Kimberly and Chris McWaters and Eugene and Jane Doe Putnam) expressly deny any
liability, wrongdoing, noncompliance or violation of applicable law or regulation.
In September 2012, we received a Civil Investigative Demand (CID) from the Attorney General of the
Commonwealth of Massachusetts related to a pending investigation in connection with allegations that we caused
false claims to be submitted to the Commonwealth relating to student loans, guarantees and grants provided to
students at our Norwood, Massachusetts campus. The CID required us to produce documents and provide written
testimony regarding a broad range of the Company’s business from September 2006 to the present. We responded
timely to the request, as well as a follow-up requests for additional information. At this time, we cannot predict
the eventual scope, duration, outcome or associated costs of this request and accordingly we have not recorded
any liability in the accompanying financial statements.
In October 2012 and January 2013, the ACCSC requested certain documentation related to the preliminary
investigation by the United States Department of Justice. Pursuant to applicable law and the United States’ request,
we were not able to provide the information requested and notified ACCSC as such. In October 2013, we informed
the ACCSC of the declination of intervention and closing of investigations as well as the settlement of the former
employee’s claims. In addition, at ACCSC’s request, we have provided ACCSC with documentation relating to
the actions taken by the Court and the Government. At this time, we cannot predict the eventual scope, duration,
outcome or associated costs, if any, of this request and accordingly we have not recorded any liability in the
accompanying financial statements.
12. Common Shareholders’ Equity
Common Stock
Holders of our common stock are entitled to receive dividends when and as declared by our Board of
Directors and have the right to one vote per share on all matters requiring shareholder approval. On December 21,
2012; March 29, 2013; June 28, 2013 and September 30, 2013, we paid cash dividends of $0.10 per share to
common stockholders of record as of December 7, 2012; March 15, 2013; June 21, 2013 and September 20, 2013,
respectively. The aggregate payment was approximately $9.8 million.
Share Repurchase Program
On December 20, 2011, our Board of Directors authorized the repurchase of up to $25.0 million of our
common stock in the open market or through privately negotiated transactions. The timing and actual number of
shares purchased will depend on a variety of factors such as price, corporate and regulatory requirements and
prevailing market conditions. We may terminate or limit the share repurchase program at any time without prior
notice. During the year ended September 30, 2013, we purchased 561,400 shares at an average price per share of
$9.62 and a total cost of approximately $5.4 million. As of September 30, 2013, we have purchased 705,000 shares
at an average price per share of $10.27 and a total cost of approximately $7.3 million under this program.
F- 24
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
Stock Option and Incentive Compensation Plans
We have two stock-based compensation plans; the Management 2002 Stock Option Program (2002 Plan)
and the 2003 Incentive Compensation Plan (2003 Plan).
The 2002 Plan was approved by our Board of Directors on April 1, 2002 and provided for the issuance of
options to purchase 0.7 million shares of our common stock. On February 25, 2003, our Board of Directors
authorized an additional 0.1 million options to purchase our common stock under the 2002 Plan.
Options issued under the 2002 Plan vest ratably each year over a four-year period. The expiration date of
options granted under the 2002 Plan is the earlier of the ten-year anniversary of the grant date; the one-year
anniversary of the termination of the participant’s employment by reason of death or disability; 30 days after the
date of the participant’s termination of employment if caused by reasons other than death, disability, cause, material
breach or unsatisfactory performance or on the termination date if termination occurs for reasons of cause, material
breach or unsatisfactory performance. We do not intend to grant any additional options under the 2002 Plan.
The 2003 Plan was approved by our Board of Directors and adopted effective December 22, 2003 upon
consummation of our initial public offering and amended on February 28, 2007 and February 22, 2012 by our
stockholders. The 2003 Plan, as amended, authorizes the issuance of various common stock awards, including
stock options, restricted stock and stock units, for approximately 5.3 million shares of our common stock.
As of September 30, 2013, 4.2 million shares of common stock were reserved for issuance under the 2003
Plan, of which 1.1 million shares are available for future grant.
We use historical data to estimate forfeitures. Our estimated forfeitures are adjusted as actual forfeitures
differ from our estimates, resulting in stock-based compensation expense only for those awards that actually vest.
If factors change and different assumptions are employed in future periods, previously recognized stock-based
compensation expense may require adjustment.
The following table summarizes the operating expense line and the impact on net income in the consolidated
statements of income in which stock-based compensation expense has been recorded:
Educational services and facilities
Selling, general and administrative
Total stock-based compensation expense
Income tax benefit
Stock Options
Year Ended September 30,
2012
2011
2013
$
$
$
617
5,607
6,224
2,427
$
$
$
1,080
5,412
6,492
2,532
$
$
$
939
5,340
6,279
2,449
Stock options were issued with exercise prices equal to the closing price of our stock on the grant date and
which generally vest ratably over a four-year period. The expiration date of stock options granted under the 2003
Plan is the earlier of the seven or ten-year anniversary of the grant date, based on the terms of the individual grant;
the one-year anniversary of the termination of the participant’s employment by reason of death or disability; ninety-
days after the date of the participant’s termination of employment if caused by reasons other than death, disability,
cause, material breach or unsatisfactory performance; or on the termination date if termination occurs for reasons
of cause, material breach or unsatisfactory performance.
The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-
pricing model. The estimated fair value is affected by our stock price as well as assumptions regarding a number
of complex and subjective variables, including, but not limited to, our expected stock price volatility, the expected
term of the awards and actual and projected employee stock exercise behaviors.
We did not grant stock options during the years ended September 30, 2013, 2012 and 2011.
F- 25
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
The following table summarizes stock option activity under the 2002 and 2003 Plans:
Outstanding as of September 30, 2012
Stock options exercised
Stock options forfeited
Outstanding as of September 30, 2013
Stock options exercisable as of September 30, 2013
Number of
Shares
(In
thousands)
Weighted
Average E
xercise
Price
per Share
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
999
$
(21) $
(95) $
$
883
883
$
24.21
12.67
25.68
24.33
24.33
2.18
$
107
1.20
1.20
$
$
—
—
As of September 30, 2013, there were no non-vested stock options and there was no unrecognized stock
compensation expense related to non-vested stock options.
The total fair value of options which vested during the years ended September 30, 2012 and 2011 was $0.2
million and $0.3 million, respectively. The total fair value of options which vested during the year ended September
30, 2013 was immaterial. The aggregate intrinsic value in the preceding table is based on our closing stock price
of $12.13 as of September 30, 2013. The aggregate intrinsic value represents the total intrinsic value that would
have been received by the stock option holders had all option holders exercised their options as of that date. The
total intrinsic value of stock options exercised during the year ended September 30, 2013 was less than $0.1 million.
The total intrinsic value of stock options exercised during the year ended September 30, 2012 and 2011 was $0.5
million and $2.5 million, respectively.
The amount of cash received and associated tax benefits for stock options exercised are summarized as
follows:
Cash received
Tax benefits
Restricted Stock Awards
Year Ended September 30,
2012
2011
2013
$
$
262
6
$
$
224
178
$
$
950
961
Our restricted stock awards are issued at fair market value which is based on the closing prices of our stock
on the grant date, discounted for non-participation in anticipated dividends during the vesting period. The
restrictions on these awards generally lapse ratably over a four or five year period based on the terms of the
individual grant. The restrictions associated with our restricted stock awarded under the 2003 Plan will lapse upon
the death, disability, or if, within one year following a change of control, employment is terminated without cause
or for good reason. If employment is terminated for any other reason, all shares of restricted stock shall be forfeited
upon termination.
F- 26
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
The following table summarizes restricted stock activity under the 2003 Plan:
Nonvested restricted stock outstanding as of September 30, 2012
Restricted stock awarded
Restricted stock vested
Restricted stock forfeited
Nonvested restricted stock outstanding as of September 30, 2013
Number of Shares
(In thousands)
Weighted Average
Grant Date
Fair Value
per Share
$
1,114
21
$
(344) $
(88) $
$
703
14.72
10.78
16.10
14.70
13.93
As of September 30, 2013, unrecognized stock compensation expense related to restricted stock awards was
$9.2 million which is expected to be recognized over a weighted average period of 3.1 years.
Restricted Stock Units
Our restricted stock units are issued at fair market value which is based on our closing prices of our stock
on the grant date. The restrictions on these units generally lapse ratably over a four or five year period based on
the terms of the individual grant. The restrictions associated with our restricted stock units awarded under the 2003
Plan will lapse upon the death, disability, or if, within one year following a change of control, employment is
terminated without cause or for good reason. If employment is terminated for any other reason, all shares of
restricted stock shall be forfeited upon termination.
The following table summarizes restricted stock unit activity under the 2003 Plan:
Nonvested restricted stock units outstanding as of September 30, 2012
Restricted stock awarded
Restricted stock vested
Restricted stock forfeited
Nonvested restricted stock units outstanding as of September 30, 2013
Number of Shares
(In thousands)
Weighted
Average
Grant Date
Fair Value
per Share
— $
$
589
— $
— $
$
589
—
9.60
—
—
9.60
As of September 30, 2013, unrecognized stock compensation expense related to restricted stock awards was
$5.6 million which is expected to be recognized over a weighted average period of 4.0 years.
Market Shares
The market condition for market shares is based on total shareholder return which is the comparison of the
change in our stock price and dividends to the change in stock price and dividends of the companies included in
a nationally recognized stock index for the measurement periods included in the grant. On the settlement date for
each measurement period, participants will receive shares of our common stock equal to 0% to 200% of the market
shares originally granted depending on where our total shareholder return ranks among the companies included in
the related index for that measurement period. The market shares vest subject to a market condition and on the
settlement date which is expected to be no later than 2 1/2 months after the end of each measurement period.
We estimate the fair value of market shares using a Monte Carlo simulation which requires assumptions for
expected volatilities, correlation coefficients, risk-free rates of return, and dividend yields. Expected volatilities
are derived using a method that calculates historical volatility over a period equal to the length of the measurement
F- 27
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
period for UTI and the companies included in the related index. Correlation coefficients are based on the same
data used to calculate historical volatilities and are used to model how our stock price moves in relation to the
companies in the related index. We use a risk-free rate of return that is equal to the yield of a zero-coupon U.S.
Treasury bill that is commensurate with each measurement period, and we assume that any dividends paid were
reinvested.
To receive the market shares awarded for a measurement period, participants are required to be employed
by the company on the settlement date unless one of the following conditions is met. Upon death or disability of
a participant, determination of whether, and to what extent the market condition has been achieved will be made
based on actual performance against the stated criteria through the death or disability date. If an employee is
terminated or leaves for good cause within one year following a change in control, a determination of whether,
and to what extent the market condition has been achieved will be based on actual performance against the stated
criteria through the change in control date. If employment is terminated for any other reason, all unvested market
shares shall be forfeited upon termination.
The September 2010 grant included a measurement period of 36 months. We did not grant market shares
during the years ended September 30, 2013, 2012 and 2011. The market shares do not have voting rights or rights
to dividends.
Compensation expense for the market shares is recognized over the requisite periods. All compensation
expense for the grant will be recognized for participants who fulfill the requisite service period, regardless of
whether the market condition for issuing shares is satisfied.
The following table summarizes market share activity under the 2003 Plan:
Nonvested market shares outstanding as of September 30, 2012
Market shares cancelled(1)
Market shares vested
Market shares forfeited(2)
Nonvested market shares outstanding as of September 30, 2013
Number of Shares
(In thousands)
Weighted Average
Grant Date
Fair Value
per Share
$
56
(11) $
— $
(3) $
$
42
26.88
26.01
—
27.00
27.10
(1) Relates to market shares assumed vested at the end of the prior year measurement period which did not
actually vest on the subsequent settlement date.
(2) Relates to employee terminations.
As of September 30, 2013, unrecognized stock compensation expense related to market shares was less than
$0.1 million which is expected to be recognized over a weighted average period of 0.2 years.
13. Earnings per Share
Basic net income per share is calculated by dividing net income by the weighted average number of
shares outstanding for the period. Diluted net income per share reflects the assumed conversion of all dilutive
securities, if any. For the years ended September 30, 2013, 2012 and 2011, approximately 1.6 million shares, 1.5
million shares and 1.1 million shares, respectively, which could be issued under outstanding stock-based grants,
were not included in the determination of our diluted shares outstanding as they were anti-dilutive.
F- 28
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
The calculation of the weighted average number of shares outstanding used in computing basic and
diluted net income per share was as follows:
Weighted average number of shares
Basic shares outstanding
Dilutive effect related to employee stock plans
Diluted shares outstanding
14. Defined Contribution Employee Benefit Plan
2013
Year Ended September 30,
2012
(In thousands)
24,711
226
24,937
24,515
189
24,704
2011
24,427
313
24,740
We sponsor a defined contribution 401(k) plan, under which our employees elect to withhold specified
amounts from their wages to contribute to the plan and we have a fiduciary responsibility with respect to the plan.
The plan provides for matching a portion of employees’ contributions at management’s discretion. All contributions
and matches by us are invested at the direction of the employee in one or more mutual funds or cash. We made
matching contributions of approximately $1.2 million, $2.0 million and $1.8 million for the years ended
September 30, 2013, 2012 and 2011, respectively.
F- 29
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
15. Segment Information
Our principal business is providing postsecondary education. We also provide manufacturer-specific
training and these operations are managed separately from our campus operations. These operations do not currently
meet the quantitative criteria for segments and therefore are reflected in the Other category. Corporate expenses
are allocated to Postsecondary Education and the Other category based on compensation expense.
Summary information by reportable segment is as follows:
Revenues
Postsecondary education
Other
Consolidated
Income (loss) from operations
Postsecondary education
Other
Consolidated
Depreciation and amortization
Postsecondary education
Other
Consolidated
Net income (loss)
Postsecondary education
Other
Consolidated
Goodwill
Postsecondary education
Other
Consolidated
Total assets
Postsecondary education
Other
Consolidated
Year Ended September 30,
2012
2011
2013
$
$
$
$
$
$
$
$
$
$
$
$
371,663
8,605
380,268
8,359
(2,430)
5,929
21,796
360
22,156
5,202
(1,392)
3,810
$
$
$
$
$
$
$
$
403,793
9,759
413,552
16,284
(2,169)
14,115
23,400
419
23,819
10,256
(1,224)
9,032
2013
As of September 30,
2012
20,579
—
20,579
272,178
7,285
279,463
$
$
$
$
20,579
—
20,579
260,497
7,661
268,158
$
$
$
$
$
$
$
$
$
$
$
$
443,510
8,390
451,900
48,424
(3,878)
44,546
24,265
577
24,842
29,162
(2,265)
26,897
2011
20,579
—
20,579
263,833
2,196
266,029
16. Government Regulation and Financial Aid
Our institutions are subject to extensive regulation by federal and state governmental agencies and
accrediting bodies. In particular, HEA, and the regulations promulgated thereunder by ED, subject the institutions
to significant regulatory scrutiny on the basis of numerous standards that schools must satisfy in order to participate
in the various federal student financial assistance programs under Title IV of the HEA.
F- 30
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
To participate in the Title IV Programs, an institution must be authorized to offer its programs of instruction
by relevant state education agencies, be accredited by an accrediting commission recognized by ED and be certified
as an eligible institution by ED. ED will certify an institution to participate in the Title IV Programs only after the
institution has demonstrated compliance with the HEA and ED’s extensive regulations regarding institutional
eligibility. An institution must also demonstrate its compliance to ED on an ongoing basis.
State Authorization
Each of our institutions must be authorized by the applicable state education agency for the state in which
the institution is located in order to operate and grant degrees or diplomas to its students. Our institutions are subject
to extensive, ongoing regulation by each of these states. Additionally, our institutions are required to be authorized
by the applicable state education agencies of certain other states in which our institutions recruit students. If any
one of our campuses were to lose its authorization from the education agency of the state in which the campus is
located, that campus would be unable to offer its programs and we could be forced to close that campus. If one of
our campuses were to lose its authorization from a state other than the state in which the campus is located, that
campus would not be able to recruit students in that state.
Accreditation
Accreditation is a non-governmental process through which an institution voluntarily submits to ongoing
qualitative reviews by an organization of peer institutions. Accrediting commissions primarily examine the
academic quality of the institution’s instructional programs. A grant of accreditation is generally viewed as
confirmation that the institution’s programs meet generally accepted academic standards. Accrediting commissions
also review the administrative and financial operations of the institutions they accredit to ensure that each institution
has the resources necessary to perform its educational mission.
Accreditation by an ED recognized commission is required for an institution to be certified to participate
in Title IV Programs. In order to be recognized by ED, accrediting commissions must adopt specific standards for
their review of educational institutions. All of our institutions are accredited by the Accrediting Commission of
Career Schools and Colleges (ACCSC), an accrediting commission recognized by ED.
An accrediting commission may place an institution on reporting status to monitor one or more specified
areas of performance in relation to the accreditation standards. An institution placed on reporting status is required
to report periodically to the accrediting commission on that institution’s performance in the area or areas specified
by the commission.
Regulation of Federal Student Financial Aid Programs
Political and budgetary concerns significantly affect Title IV Programs. Congress has historically
reauthorized the HEA approximately every five to six years with the last reauthorization in 2008. Significant factors
relating to Title IV Programs that could adversely affect us include the following:
F- 31
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
90/10 Rule
A for-profit institution loses its eligibility to participate in Title IV Programs if it derives more than 90%
of its revenue from Title IV Programs for two consecutive fiscal years as calculated under a cash basis formula
mandated by ED. The loss of such eligibility would begin on the first day following the conclusion of the second
consecutive year in which the institution exceeded the 90% limit and, as such, any Title IV Program funds already
received by the institution and its students during a period of ineligibility would have to be returned to ED or a
lender. Additionally, if an institution exceeds the 90% level for a single year, ED will place the institution on
provisional certification for a period of at least two years. For the years ended September 30, 2013, 2012 and 2011,
approximately 68%, 75% and 75% respectively, of our revenues, on a cash basis, were derived from funds distributed
under Title IV Programs.
Federal Student Loan Defaults
To remain eligible to participate in Title IV Programs, institutions must maintain federal student loan
cohort default rates below specified levels. An institution whose cohort default rate is 25% or more for three
consecutive federal fiscal years (FFYs) or 40% or more for any given FFY loses eligibility to participate in some
or all Title IV Programs. This sanction is effective for the remainder of the FFY in which the institution lost its
eligibility and for the two subsequent FFYs. The HEA expanded the measurement period for defaults from two
years to three; a change that is expected to increase our FFEL/DL cohort default rates. The regulations also increased
the threshold for an institution to lose eligibility to participate in Title IV Programs from 25% to 30%. The one
year threshold of 40% has not been increased. ED began calculating both the two and three-year cohort default
rates beginning with the 2009 cohort. Sanctions will be applicable after three consecutive years of the three-year
cohort default rates are available, which we anticipate will occur in September of 2014. During the transition
period, sanctions will be based on the two-year cohort default rate.
Financial Responsibility Standards
All institutions participating in Title IV Programs must satisfy specific ED standards of financial
responsibility. ED evaluates institutions for compliance with these standards each year, based on the institution’s
annual audited financial statements, as well as following a change of control of the institution.
The institution’s financial responsibility is measured by its composite score which is calculated by ED
based on (i) the equity ratio which measures the institution’s capital resources, ability to borrow and financial
viability; (ii) the primary reserve ratio which measures the institution’s ability to support current operations from
expendable resources; and (iii) the net income ratio which measures the institution’s ability to operate at a profit.
An institution that does not meet ED’s minimum composite score may demonstrate its financial responsibility by
posting a letter of credit in favor of the ED in an amount equal to at least 50% of the Title IV Program funds
received by the institution during its most recently completed fiscal year and possibly accepting other conditions
on its participation in the Title IV Programs.
ED has historically evaluated the financial condition of our institutions on a consolidated basis based on
the financial statements of Universal Technical Institute, Inc. as the parent company. ED’s regulations permit ED
to examine the financial statements of Universal Technical Institute, Inc., the financial statements of each institution
and the financial statements of any related party. Our composite score has exceeded the required minimum
composite score of 1.5 for each of our fiscal years since 2004.
Return of Title IV Funds
F- 32
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)
An institution participating in Title IV Programs must calculate the amount of unearned Title IV Program
funds that have been disbursed to students who withdraw from their educational programs before completing them.
The institution must return those unearned funds to ED or the appropriate lending institution in a timely manner,
which is generally within 45 days from the date the institution determines that the student has withdrawn. If an
institution is cited in an audit or program review for returning Title IV Program funds late for 5% or more of the
students in the audit or program review sample, the institution must post a letter of credit in favor of ED in an
amount equal to 25% of the total Title IV Program funds that should have been returned in the previous fiscal year.
Because we operate in a highly regulated industry, we, like other industry participants, may be subject
from time to time to investigations, claims of non-compliance, or lawsuits by governmental agencies or third
parties, which allege statutory violations, regulatory infractions, or common law causes of action.
There can be no assurance that other regulatory agencies or third parties will not undertake investigations
or make claims against us, or that such claims, if made, will not have a material adverse effect on our business,
cash flows, results of operations or financial condition.
17. Quarterly Financial Summary (Unaudited)
Year ended September 30, 2013
Revenues
Income (loss) from operations
Net income (loss)
Income (loss) per share:
Basic
Diluted
Year ended September 30, 2012
Revenues
Income from operations
Net income
Income per share:
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
90,954
458
296
0.01
0.01
$
95,075
(1,939) $
(920) $
(0.04) $
(0.04) $
Second
Quarter
Third
Quarter
106,240
3,015
1,932
0.08
0.08
$
$
$
$
$
99,601
1,518
1,013
0.04
0.04
$
$
$
$
$
$
$
$
$
$
98,441
6,006
3,562
0.14
0.14
First
Quarter
106,427
7,327
4,479
0.18
0.18
$
$
$
$
$
$
$
$
$
$
Fourth
Quarter
Fiscal
Year
$
$
$
$
$
$
$
$
$
$
95,798
1,404
872
0.04
0.04
Fourth
Quarter
101,284
2,255
1,608
0.06
0.06
$
$
$
$
$
$
$
$
$
$
380,268
5,929
3,810
0.16
0.15
Fiscal
Year
413,552
14,115
9,032
0.37
0.36
The summation of quarterly per share information does not equal amounts for the full year as quarterly
calculations are performed on a discrete basis. Additionally, securities may have had an anti-dilutive effect during
individual quarters but not for the full year.
F- 33
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About Universal Technical Institute, Inc.
Headquartered in Scottsdale, Arizona, Universal Technical Institute, Inc. (NYSE: UTI)
is the leading provider of post-secondary education for students seeking careers as
professional automotive, diesel, collision repair, motorcycle and marine technicians.
With more than 170,000 graduates in its 48-year history, UTI offers undergraduate
degree and diploma programs at 11 campuses across the United States, as well as
manufacturer-specific training programs at dedicated training centers. Through its
campus-based school system, UTI provides specialized post-secondary education
programs under the banner of several well-known brands, including Universal Technical
Institute (UTI), Motorcycle Mechanics Institute and Marine Mechanics Institute (MMI)
and NASCAR Technical Institute (NASCAR Tech). For more information visit www.uti.edu.
Shareholder Information
Board of Directors
Corporate Officers
Kimberly J. McWaters
Chairman of the Board
and Chief Executive Officer
Eugene S. Putnam, Jr.
President and Chief
Financial Officer
Kenneth J. Cranston
Senior Vice President
of Admissions
Chad A. Freed
General Counsel,
Senior Vice President
of Business Development
and Secretary
Bryce H. Peterson
Senior Vice President of
Information Technology
Sherrell E. Smith
Senior Vice President
of Operations
Rhonda R. Turner
Senior Vice President
of People Services
John C. White
Director
Former Chairman of the Board,
Universal Technical Institute, Inc.
Kimberly J. McWaters
Director
Chairman of the Board
and Chief Executive Officer,
Universal Technical Institute, Inc.
Conrad A. Conrad
Lead Director
Former Executive Vice President
and Chief Financial Officer,
The Dial Corporation
David A. Blaszkiewicz
Director
President,
Invest Detroit and
Chief Executive Officer,
Downtown Detroit Partnership
Alan E. Cabito
Director
Former Group Vice President,
Sales Administration,
Toyota Motor Sales, U.S.A., Inc.
Dr. Roderick R. Paige
Director
Former United States
Secretary of Education
Roger S. Penske
Director
Chairman of the Board and
Chief Executive Officer,
Penske Auto Group, Inc.
Linda J. Srere
Director
Former President,
Young and Rubicam Advertising
Kenneth R. Trammell
Director
Chief Financial Officer,
Tenneco Inc.
Requests for
Investor Information
Universal Technical
Institute, Inc.
Investor Relations
16220 North Scottsdale Road
Suite 100
Scottsdale, Arizona 85254
(623) 445-9500
The Company will furnish a
copy of the 2013 Annual
Report on Form 10-K without
charge upon a written
request to the address
above. In addition, the
electronic version of the
Annual Report can be found
at www.uti.edu, under the
captions Investors—Financial
Information—Annual Reports.
UTI has submitted the requisite
certification regarding its
corporate governance listing
standards to the New York
Stock Exchange.
Common Stock
Traded on the New York
Stock Exchange under
the symbol UTI
Transfer Agent
Computershare
P. O. Box 30170
College Station, TX 77845-3170
Independent Accountants
PricewaterhouseCoopers LLP
1850 North Central Avenue
Suite 700
Phoenix, Arizona 85004
AVONDALE, ARIZONA
RANCHO CUCAMONGA, CALIFORNIA
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UTI.edu
Ready.
2013 Annual Report