e10vq
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2007
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o |
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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)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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86-0226984
(IRS Employer Identification No.) |
20410 North 19th Avenue, Suite 200
Phoenix, Arizona 85027
(Address of principal executive offices)
(623) 445-9500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer (in Rule 12b-2 of the Exchange Act).
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
At May 7, 2007, there were 28,209,396 shares outstanding of the registrants common stock.
UNIVERSAL TECHNICAL INSTITUTE, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2007
ii
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except per share amounts)
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September 30, |
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March 31, |
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2006 |
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2007 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
41,431 |
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$ |
40,406 |
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Receivables, net |
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16,702 |
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11,382 |
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Deferred tax assets |
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4,719 |
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5,060 |
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Prepaid expenses and other current assets |
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7,417 |
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7,669 |
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Total current assets |
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70,269 |
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64,517 |
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Property and equipment, net |
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117,298 |
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129,627 |
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Goodwill |
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20,579 |
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20,579 |
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Other assets |
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4,015 |
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3,865 |
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Total assets |
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$ |
212,161 |
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$ |
218,588 |
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Liabilities and Shareholders Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
42,033 |
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$ |
38,626 |
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Deferred revenue |
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49,479 |
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45,034 |
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Accrued tool sets |
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4,019 |
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4,025 |
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Other current liabilities |
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747 |
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612 |
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Total current liabilities |
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96,278 |
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88,297 |
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Deferred tax liabilities |
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2,900 |
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1,584 |
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Other liabilities |
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10,081 |
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10,299 |
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Total liabilities |
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109,259 |
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100,180 |
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Commitments and contingencies (Note 7) |
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Shareholders equity: |
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Common stock, $.0001 par value, 100,000,000 shares authorized, 28,174,995 shares
issued and 26,744,050 shares outstanding at September 30, 2006 and
28,200,030 shares issued and 26,769,085 shares outstanding at
March 31, 2007 |
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3 |
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3 |
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Preferred stock, $.0001 par value, 10,000,000 shares authorized, 0 shares issued
and outstanding |
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Paid-in capital |
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124,804 |
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128,569 |
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Treasury stock, at cost, 1,430,945 shares at September 30, 2006 and
March 31, 2007 |
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(30,029 |
) |
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(30,029 |
) |
Retained earnings |
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8,124 |
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19,865 |
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Total shareholders equity |
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102,902 |
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118,408 |
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Total liabilities and shareholders equity |
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$ |
212,161 |
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$ |
218,588 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
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Three Months Ended |
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Six Months Ended |
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March 31, |
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March 31, |
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2006 |
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2007 |
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2006 |
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2007 |
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Net revenues |
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$ |
88,686 |
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$ |
91,651 |
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$ |
174,198 |
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$ |
181,185 |
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Operating expenses: |
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Educational services and facilities |
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42,971 |
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45,854 |
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83,073 |
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90,049 |
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Selling, general and administrative |
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33,193 |
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36,347 |
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62,351 |
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71,161 |
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Total operating expenses |
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76,164 |
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82,201 |
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145,424 |
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161,210 |
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Income from operations |
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12,522 |
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9,450 |
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28,774 |
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19,975 |
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Other expense (income): |
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Interest income |
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(860 |
) |
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(606 |
) |
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(1,621 |
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(1,278 |
) |
Interest expense |
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11 |
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11 |
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27 |
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22 |
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Total other income |
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(849 |
) |
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(595 |
) |
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(1,594 |
) |
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(1,256 |
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Income before income taxes |
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13,371 |
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10,045 |
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30,368 |
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21,231 |
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Income tax expense |
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5,054 |
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3,926 |
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11,786 |
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8,202 |
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Net income |
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$ |
8,317 |
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$ |
6,119 |
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$ |
18,582 |
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$13,029 |
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Earnings per share: |
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Net income per share basic |
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$ |
0.30 |
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$ |
0.23 |
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$ |
0.66 |
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$ |
0.49 |
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Net income per share diluted |
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$ |
0.29 |
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$ |
0.22 |
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$ |
0.65 |
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$ |
0.48 |
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Weighted average number of common shares
outstanding: |
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Basic |
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28,074 |
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26,763 |
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28,029 |
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26,754 |
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Diluted |
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28,561 |
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27,257 |
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28,516 |
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27,186 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (UNAUDITED)
(In thousands, except per share amounts)
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Total |
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Common Stock |
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Paid-in |
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Treasury Stock |
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Retained |
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Shareholders |
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Shares |
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Amount |
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Capital |
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Share |
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Amount |
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Earnings |
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Equity |
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Balance at September 30, 2006 |
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28,175 |
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$ |
3 |
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$ |
124,804 |
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(1,431 |
) |
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$ |
(30,029 |
) |
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$ |
8,124 |
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$ |
102,902 |
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Cumulative effect of the adoption of SAB 108, net
of $830 for taxes |
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(1,288 |
) |
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(1,288 |
) |
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Balance at October 1, 2006 |
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28,175 |
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3 |
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124,804 |
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(1,431 |
) |
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(30,029 |
) |
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6,836 |
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101,614 |
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Net income |
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13,029 |
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13,029 |
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Issuance of common stock under employee plans |
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25 |
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400 |
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400 |
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Tax charge from employee stock plans |
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(11 |
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(11 |
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Stock compensation |
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3,376 |
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3,376 |
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Balance at March 31, 2007 |
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28,200 |
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$ |
3 |
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$ |
128,569 |
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(1,431 |
) |
|
$ |
(30,029 |
) |
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$ |
19,865 |
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$ |
118,408 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
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For the Six Months Ended |
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March 31, |
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2006 |
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2007 |
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Cash flows from operating activities: |
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Net income |
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$ |
18,582 |
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$ |
13,029 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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6,587 |
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8,552 |
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Bad debt expense |
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2,349 |
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|
1,311 |
|
Stock-based compensation |
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2,259 |
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3,376 |
|
Deferred income taxes |
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(2,183 |
) |
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(838 |
) |
Loss on sale of property and equipment |
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46 |
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|
97 |
|
Changes in assets and liabilities: |
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Receivables |
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2,947 |
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|
2,273 |
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Prepaid expenses and other current assets |
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(167 |
) |
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(252 |
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Other assets |
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|
189 |
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|
82 |
|
Accounts payable and accrued expenses |
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(5,528 |
) |
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(8,240 |
) |
Deferred revenue |
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(1,640 |
) |
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|
(4,445 |
) |
Income tax payable (receivable) |
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(4,455 |
) |
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|
1,823 |
|
Accrued tool sets and other current liabilities |
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|
195 |
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(146 |
) |
Other liabilities |
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|
108 |
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32 |
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Net cash provided by operating activities |
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|
19,289 |
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|
16,654 |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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(16,403 |
) |
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(18,088 |
) |
Proceeds from sale of property and equipment |
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|
9 |
|
Proceeds received upon maturity of investments |
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|
16,260 |
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Net cash used in investing activities |
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|
(143 |
) |
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|
(18,079 |
) |
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Cash flows from financing activities: |
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Repayment of long-term debt borrowings |
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(5 |
) |
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Bank overdrafts |
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|
1,532 |
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|
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|
Proceeds from issuance of common stock under employee plans |
|
|
2,581 |
|
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|
400 |
|
Excess tax benefit from stock-based compensation |
|
|
1,031 |
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Net cash provided by financing activities |
|
|
5,139 |
|
|
|
400 |
|
|
|
|
|
|
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|
Net increase in cash and cash equivalents |
|
|
24,285 |
|
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|
(1,025 |
) |
Cash and cash equivalents, beginning of period |
|
|
52,045 |
|
|
|
41,431 |
|
|
|
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|
Cash and cash equivalents, end of period |
|
$ |
76,330 |
|
|
$ |
40,406 |
|
|
|
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|
|
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|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED), continued
(In thousands)
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For the Six Months Ended |
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|
March 31, |
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|
2006 |
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|
2007 |
|
Supplemental disclosure of cash flow information: |
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|
Taxes paid |
|
$ |
17,181 |
|
|
$ |
8,716 |
|
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|
|
|
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Interest paid |
|
$ |
24 |
|
|
$ |
12 |
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|
Training equipment obtained in exchange for services |
|
$ |
895 |
|
|
$ |
889 |
|
|
|
|
|
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|
|
Accrued capital expenditures |
|
$ |
2,504 |
|
|
$ |
2,258 |
|
|
|
|
|
|
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|
Construction in progress financed by construction
liability |
|
$ |
1,121 |
|
|
$ |
|
|
|
|
|
|
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|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
1. Nature of the Business
We are a provider of post-secondary education for students seeking careers as professional
automotive, diesel, collision repair, motorcycle and marine technicians. We offer undergraduate
degree, diploma and certificate programs at 10 campuses and manufacturer specific advanced training
(MSAT) 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.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America (GAAP) for
interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, our condensed consolidated financial statements do not include all the information and
footnotes required by GAAP for complete financial statements. In the opinion of management, all
normal and recurring adjustments considered necessary for a fair statement of the results for the
interim periods have been included. Operating results for the three and six months ended March 31,
2007 are not necessarily indicative of the results that may be expected for the year ending
September 30, 2007. The accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto included in our 2006
Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 13, 2006.
The unaudited condensed consolidated financial statements include the accounts of Universal
Technical Institute, Inc. (UTI) and our wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ from these
estimates.
Certain reclassifications have been made to the prior period condensed consolidated financial
statements to conform to the current period presentation. These reclassifications have no impact
on previously reported net income.
3. Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48 (FIN 48), Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the manner in which
uncertainties in income taxes that are recognized in accordance with SFAS No. 109, Accounting for
Income Taxes should be accounted for by providing recognition and measurement guidance and
disclosure provisions. FIN 48 is effective for fiscal years beginning after December 15, 2006. We
expect to adopt FIN 48 effective October 1, 2007 and believe our adoption will not have a material
impact on our consolidated financial statements or disclosures.
In February 2007, the FASB issued FASB Staff Position (FSP) FAS 158-1, Conforming Amendments
to the Illustrations in FASB Statements No. 87, No. 88, and No 106 and to the Related Staff
Implementation Guides. This FSP makes conforming amendments to other FASB statements and staff
implementation guides
6
UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
and provides technical corrections to SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans. The conforming amendments in this FSP shall be applied
upon adoption of SFAS No. 158. For a publicly traded company, SFAS No. 158 is effective as of the
end of the fiscal year ending after December 15, 2006. We believe our adoption of FSP FAS 158-1
will not have a material impact on our consolidated financial statements or disclosures.
In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159 (SFAS No.
159), The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 allows
entities to voluntarily choose, at specified election dates, to measure many financial assets and
financial liabilities, as well as certain nonfinancial instruments, at fair value. The election is
made on an instrument-by-instrument basis and is irrevocable. If the fair value option is elected
for an instrument, SFAS No. 159 specifies that all subsequent changes in fair value for that
instrument shall be reported in earnings. We do not currently hold any financial instruments which
are subject to SFAS No. 159 and will adopt the provisions of this statement at the time we first
recognize an eligible item.
In September 2006, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 108 (SAB 108), Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements. SAB 108 provides guidance on the
consideration of the effects of prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. The SEC staff believes registrants must quantify
errors using both a balance sheet and income statement approach and evaluate whether either
approach results in quantifying a misstatement that, when all relevant quantitative and qualitative
factors are considered, is material. SAB 108 is effective for fiscal years ending after November
15, 2006 with early application encouraged. We have adopted the provisions of SAB 108 effective
October 1, 2006 with a net charge to retained earnings of $1.3 million for the matter described
below. Prior to adopting SAB 108, we used the balance sheet approach for quantifying
misstatements.
During the three months ended December 31, 2006, we evaluated the calculation of the accrual
for our field sales representative bonus plan and subsequently determined there was an error in the
calculation. More specifically, we determined that not all tuition revenue for graduates with
multiple enrollment sequences was being included in the related calculations resulting in an
understatement of compensation expense during the period from June 2002 through September 30, 2006.
We determined, as of September 30, 2006, that the cumulative effect of this error totaled $2.1
million on a pretax basis and $1.3 million after tax. We have also determined that this amount
accumulated over time and that the financial statements of all prior annual and interim periods
were not materially misstated as a result of this error. Not all of our field sales representatives
were impacted by this error; however, we plan to make retroactive payments to the impacted sales
representatives during our third quarter. The following is a summary of the adjustments made to
our consolidated balance sheet as of October 1, 2006 to reflect our adoption of SAB 108:
7
UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAB 108 |
|
|
|
|
September 30, 2006 |
|
Adoption |
|
October 1, 2006 |
|
|
as Reported |
|
Adjustment |
|
as Adjusted |
|
|
(In thousands) |
Deferred tax assets |
|
$ |
4,719 |
|
|
$ |
830 |
|
|
$ |
5,549 |
|
Total current assets |
|
$ |
70,269 |
|
|
$ |
830 |
|
|
$ |
71,099 |
|
Total assets |
|
$ |
212,161 |
|
|
$ |
830 |
|
|
$ |
212,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
42,033 |
|
|
$ |
2,118 |
|
|
$ |
44,151 |
|
Total current liabilities |
|
$ |
96,278 |
|
|
$ |
2,118 |
|
|
$ |
98,396 |
|
Total liabilities |
|
$ |
109,259 |
|
|
$ |
2,118 |
|
|
$ |
111,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
$ |
8,124 |
|
|
$ |
(1,288 |
) |
|
$ |
6,836 |
|
Total shareholders equity |
|
$ |
102,902 |
|
|
$ |
(1,288 |
) |
|
$ |
101,614 |
|
The cumulative effect of this error on our consolidated retained earnings totaled $0.5
million, $0.9 million and $1.3 million as of September 30, 2004, 2005 and 2006, respectively.
4. Weighted Average Number of Common Shares Outstanding
Basic net income per share is calculated by dividing net income by the weighted average number
of common shares outstanding for the period. Diluted net income per share reflects the assumed
conversion of all dilutive securities. For the three months and six months ended March 31, 2007,
1,177,340 shares and 1,123,878 shares, respectively, and for the three months and six months ended
March 31, 2006, 568,899 shares and 580,646 shares, respectively, which could be issued under
outstanding options, were not included in the determination of our diluted shares outstanding as
they were anti-dilutive.
The table below reflects the calculation of the weighted average number of common shares
outstanding used in computing basic and diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
Basic common shares outstanding |
|
|
28,074 |
|
|
|
26,763 |
|
|
|
28,029 |
|
|
|
26,754 |
|
Dilutive effect of options and restricted
shares related to employee stock plans |
|
|
487 |
|
|
|
494 |
|
|
|
487 |
|
|
|
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted common shares outstanding |
|
|
28,561 |
|
|
|
27,257 |
|
|
|
28,516 |
|
|
|
27,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
5. Property and Equipment
Property and equipment, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
|
|
2006 |
|
|
2007 |
|
Land |
|
$ |
3,832 |
|
|
$ |
3,832 |
|
Buildings and building improvements |
|
|
42,349 |
|
|
|
43,672 |
|
Leasehold improvements |
|
|
24,405 |
|
|
|
28,687 |
|
Training equipment |
|
|
46,539 |
|
|
|
52,821 |
|
Office and computer equipment |
|
|
25,879 |
|
|
|
26,648 |
|
Curriculum development |
|
|
508 |
|
|
|
522 |
|
Internally developed software |
|
|
4,720 |
|
|
|
5,239 |
|
Vehicles |
|
|
739 |
|
|
|
788 |
|
Construction in progress |
|
|
12,187 |
|
|
|
17,951 |
|
|
|
|
|
|
|
|
|
|
|
161,158 |
|
|
|
180,160 |
|
Less accumulated depreciation and amortization |
|
|
(43,860 |
) |
|
|
(50,533 |
) |
|
|
|
|
|
|
|
|
|
$ |
117,298 |
|
|
$ |
129,627 |
|
|
|
|
|
|
|
|
At September 30, 2006, construction in progress includes $6.8 million related to construction
of our new Sacramento, California campus building and $2.7 million related to construction at our
Orlando, Florida campus.
At March 31, 2007, construction in progress includes $15.5 million related to construction of
our new Sacramento, California campus building. We anticipate completing the construction during
the third quarter of 2007.
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
|
|
2006 |
|
|
2007 |
|
Accounts payable |
|
$ |
6,257 |
|
|
$ |
4,921 |
|
Accrued compensation and benefits |
|
|
22,582 |
|
|
|
23,952 |
|
Other accrued expenses |
|
|
13,194 |
|
|
|
9,753 |
|
|
|
|
|
|
|
|
|
|
$ |
42,033 |
|
|
$ |
38,626 |
|
|
|
|
|
|
|
|
7. Commitments and Contingencies
Legal
In the ordinary conduct of our business, we are periodically subject to lawsuits,
investigations and claims, including, but not limited to, claims involving students or graduates
and routine employment matters. Although
9
UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
we cannot predict with certainty the ultimate resolution
of lawsuits, investigations and claims asserted against us, we do not believe that any currently
pending legal proceeding to which we are a party will have a material adverse effect on our
business, results of operations, cash flows or financial condition.
8. Common Shareholders Equity
Management Incentive Compensation Plans
We have two stock option plans, which we refer to as the Management 2002 Stock Option Program
(2002 Plan) and the 2003 Incentive Compensation Plan (2003 Plan), formerly known as the 2003 Stock
Incentive Plan.
The 2002 Plan and the 2003 Plan are described, and informational disclosures are provided, on
pages F-26 through F-28 in the Notes to the Consolidated Financial Statements included in our
Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 13, 2006.
On February 28, 2007, the 2003 Plan was amended to, among other things: permit the grant of
stock units and performance units; revise the business criteria used for awards qualifying as
performance-based compensation under Section 162(m) of the Internal Revenue Code; and permit the
grant of cash bonuses under the 2003 Plan that would qualify as performance-based compensation
under Section 162(m). The 2003 Plan was also amended to require that all options and stock
appreciation rights have an exercise price per share equal to the fair market value of the common
stock on the date of grant.
On February 28, 2007, we awarded 298,030 shares of restricted stock at a fair value of $23.63
per share and granted 43,300 options to purchase shares of our common stock, with an exercise price
of $23.63 per share and an estimated weighted-average fair value of $10.91 per share.
On January 12, 2007, we issued 15,427 shares at $21.10 per share under our Employee Stock
Purchase Plan.
Our determination of fair value of each stock option grant, estimated on the date of grant
using the Black-Scholes option pricing model, is affected by our stock price as well as assumptions
regarding a number of complex and subjective variables. These variables include, but are not
limited to, our expected stock price volatility, the expected lives of the awards and actual and
projected employee stock exercise behaviors. We determine our assumptions at the date of each
grant.
The following table illustrates the assumptions used for grants made during the three and six
months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2006 |
|
2007 |
|
2006 |
|
2007 |
Expected lives (in years) |
|
|
6.25 |
|
|
|
6.25 |
|
|
|
6.25 |
|
|
|
6.25 |
|
Risk-free interest rate |
|
|
4.43 |
% |
|
|
4.53 |
% |
|
|
4.43 |
% |
|
|
4.54 |
% |
Dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility |
|
|
42.66 |
% |
|
|
38.69 |
% |
|
|
42.66 |
% |
|
|
39.39 |
% |
10
UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
The following table summarizes stock option activity for the six months ended March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
Average |
|
|
|
|
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
|
|
Number of |
|
Exercise Price |
|
Contractual |
|
Intrinsic |
|
|
Shares |
|
per Share |
|
Life (Years) |
|
Value |
Outstanding at September 30, 2006 |
|
|
2,694 |
|
|
$ |
21.44 |
|
|
|
7.62 |
|
|
$ |
20,915 |
|
Granted |
|
|
63 |
|
|
$ |
22.91 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(4 |
) |
|
$ |
20.50 |
|
|
|
|
|
|
|
|
|
Expired or forfeited |
|
|
(59 |
) |
|
$ |
24.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007
|
|
|
2,694 |
|
|
$ |
21.40 |
|
|
|
7.16 |
|
|
$ |
10,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable at March
31, 2007
|
|
|
1,585 |
|
|
$ |
18.19 |
|
|
|
6.36 |
|
|
$ |
9,728 |
|
The following table summarizes restricted stock activity for the six months ended March 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Number |
|
|
Fair Value |
|
|
|
of Shares |
|
|
per Share |
|
Nonvested restricted stock at September 30, 2006 |
|
|
119 |
|
|
$ |
23.17 |
|
Awarded |
|
|
303 |
|
|
$ |
23.60 |
|
Expired |
|
|
(7 |
) |
|
$ |
23.25 |
|
|
|
|
|
|
|
|
|
Nonvested restricted stock at March 31, 2007 |
|
|
415 |
|
|
$ |
23.48 |
|
|
|
|
|
|
|
|
|
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 has been recorded for the three
and six months ended March 31, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
Education services and facilities |
|
$ |
114 |
|
|
$ |
171 |
|
|
$ |
226 |
|
|
$ |
330 |
|
Selling, general and administrative |
|
|
1,103 |
|
|
|
1,645 |
|
|
|
2,033 |
|
|
|
3,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
1,217 |
|
|
$ |
1,816 |
|
|
$ |
2,259 |
|
|
$ |
3,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marginal tax rate |
|
|
39.3 |
% |
|
|
38.7 |
% |
|
|
39.3 |
% |
|
|
38.7 |
% |
Income tax benefit |
|
$ |
478 |
|
|
$ |
703 |
|
|
$ |
888 |
|
|
$ |
1,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)
9. Segment Reporting
Operating segments are defined as components of an enterprise about which separate financial
information is available that is evaluated on a regular basis by the chief operating decision
maker, or decision-making group, in assessing performance of the segment and in deciding how to
allocate resources to an individual segment.
Our principal business is providing post-secondary 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 not deemed reportable under SFAS No. 131 and are reflected in the Other category.
Corporate expenses are allocated to Post-Secondary Education and the Other category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
March 31, 2006 |
|
March 31, 2007 |
|
|
Post- |
|
|
|
|
|
|
|
|
|
Post- |
|
|
|
|
|
|
Secondary |
|
|
|
|
|
|
|
|
|
Secondary |
|
|
|
|
|
|
Education |
|
Other |
|
Total |
|
Education |
|
Other |
|
Total |
Net revenues |
|
$ |
85,068 |
|
|
$ |
3,618 |
|
|
$ |
88,686 |
|
|
$ |
87,019 |
|
|
$ |
4,632 |
|
|
$ |
91,651 |
|
Operating income (loss) |
|
$ |
12,840 |
|
|
$ |
(318 |
) |
|
$ |
12,522 |
|
|
$ |
9,408 |
|
|
$ |
42 |
|
|
$ |
9,450 |
|
Depreciation and
amortization |
|
$ |
3,242 |
|
|
$ |
106 |
|
|
$ |
3,348 |
|
|
$ |
4,306 |
|
|
$ |
122 |
|
|
$ |
4,428 |
|
Goodwill |
|
$ |
20,579 |
|
|
$ |
|
|
|
$ |
20,579 |
|
|
$ |
20,579 |
|
|
$ |
|
|
|
$ |
20,579 |
|
Assets |
|
$ |
217,857 |
|
|
$ |
3,812 |
|
|
$ |
221,669 |
|
|
$ |
214,539 |
|
|
$ |
4,049 |
|
|
$ |
218,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Six Months Ended |
|
|
March 31, 2006 |
|
March 31, 2007 |
|
|
Post- |
|
|
|
|
|
|
|
|
|
Post- |
|
|
|
|
|
|
Secondary |
|
|
|
|
|
|
|
|
|
Secondary |
|
|
|
|
|
|
Education |
|
Other |
|
Total |
|
Education |
|
Other |
|
Total |
Net revenues |
|
$ |
166,714 |
|
|
$ |
7,484 |
|
|
$ |
174,198 |
|
|
$ |
172,546 |
|
|
$ |
8,639 |
|
|
$ |
181,185 |
|
Operating income (loss) |
|
$ |
28,908 |
|
|
$ |
(134 |
) |
|
$ |
28,774 |
|
|
$ |
20,293 |
|
|
$ |
(318 |
) |
|
$ |
19,975 |
|
Depreciation and
amortization |
|
$ |
6,378 |
|
|
$ |
209 |
|
|
$ |
6,587 |
|
|
$ |
8,331 |
|
|
$ |
221 |
|
|
$ |
8,552 |
|
Goodwill |
|
$ |
20,579 |
|
|
$ |
|
|
|
$ |
20,579 |
|
|
$ |
20,579 |
|
|
$ |
|
|
|
$ |
20,579 |
|
Assets |
|
$ |
217,857 |
|
|
$ |
3,812 |
|
|
$ |
221,669 |
|
|
$ |
214,539 |
|
|
$ |
4,049 |
|
|
$ |
218,588 |
|
12
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated financial
statements and related notes included in this report and those in our 2006 Annual Report on Form
10-K filed with the Securities and Exchange Commission on December 13, 2006. This discussion
contains forward-looking statements that involve risks and uncertainties. Our actual results may
differ materially from those anticipated in such forward-looking statements as a result of certain
factors, including but not limited to, those described in the section entitled Risk Factors
(refer to Part II, Item 1A of this Report).
Overview
Our net revenues for the second quarter were $91.7 million, an increase of 3.3% from the prior
year and our net income for the second quarter was $6.1 million, a decrease of 26.4% from the prior
year. Our decrease in net income is due to lower capacity utilization in conjunction with higher
compensation and related costs, sales and marketing costs, depreciation and occupancy costs and
tuition discounts, partially offset by lower bad debt expense.
We increased available seating capacity by approximately 15% since the beginning of our 2006
fiscal year. We opened the first building of our permanent location in Sacramento, California in
June 2006 with seating capacity of 1,800 students, which includes 400 seats in our temporary
facility, and expanded our capacity at our Orlando, Florida location by 790 seats.
Recruitment efforts and student starts lag the prior year due to a variety of factors.
Average undergraduate full-time student enrollment decreased 1.5% to 16,389 for the three months
ended March 31, 2007, as compared to 16,642 for the three months ended March 31, 2006. Average
undergraduate full-time student enrollment decreased 1.2% to 16,827 for the six months ended March
31, 2007, as compared to 17,036 for the six months ended March 31, 2006. The decline in student
starts has improved from a decrease of 4.6% for the three months ended December 31, 2006 to a
decrease of 1.5% for the three months ended March 31, 2007 when compared to the same periods in the
prior year. A strong labor market across the country coupled with affordability concerns
associated with climbing interest rates and increased gas and housing prices have made it more
challenging and expensive to recruit and start students. Since the third quarter of 2006, our lead
flow has improved and we believe the improvement is associated with additional spending in
advertising and the development of new creative advertisements and promotional materials. However,
we have not fully realized the conversion of our leads into student applicants. As a result, we
are focused on evaluating our lead and conversion trends to re-deploy our spending to areas that
have proven successful and eliminate spending in areas that have not been productive.
Historically, we have been able to overcome such external forces by modifying educational
programs, utilizing different pricing strategies and investing in sales and marketing. In response
to both the external environment and internal operational issues, we have implemented a plan that
focuses on stabilizing and improving key operating efforts. We are uncertain when we will fully
realize the benefits of these efforts.
As described in Note 3 to the interim condensed consolidated financial statements, we adopted
Staff Accounting Bulletin No. 108 (SAB 108), Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year financial Statements effective October 1, 2006.
During the three months ended December 31, 2006, we evaluated the calculation of the accrual for
our field sales representative bonus plan and subsequently determined there was an error in the
calculation. More specifically, we determined that not all tuition revenue for graduates with
multiple enrollment sequences was being included in the related calculations resulting in an
understatement of compensation expense during the period from June 2002 through September 30, 2006.
We determined, as of September 30, 2006, that the cumulative effect of this error totaled $2.1
million on a
13
pretax basis and $1.3 million after tax. We have also determined that this amount accumulated over
time and that the financial statements of all prior annual and interim periods were not materially
misstated as a result of this error. Not all of our field sales representatives were impacted by
this error; however, we plan to make retroactive payments to the impacted sales representatives
during our third quarter. The following is a summary of the adjustments made to our consolidated
balance sheet as of October 1, 2006 to reflect our adoption of SAB 108:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAB 108 |
|
|
|
|
September 30, 2006 |
|
Adoption |
|
October 1, 2006 |
|
|
as Reported |
|
Adjustment |
|
as Adjusted |
|
|
(In thousands) |
Deferred tax assets |
|
$ |
4,719 |
|
|
$ |
830 |
|
|
$ |
5,549 |
|
Total current assets |
|
$ |
70,269 |
|
|
$ |
830 |
|
|
$ |
71,099 |
|
Total assets |
|
$ |
212,161 |
|
|
$ |
830 |
|
|
$ |
212,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
42,033 |
|
|
$ |
2,118 |
|
|
$ |
44,151 |
|
Total current liabilities |
|
$ |
96,278 |
|
|
$ |
2,118 |
|
|
$ |
98,396 |
|
Total liabilities |
|
$ |
109,259 |
|
|
$ |
2,118 |
|
|
$ |
111,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
$ |
8,124 |
|
|
$ |
(1,288 |
) |
|
$ |
6,836 |
|
Total shareholders equity |
|
$ |
102,902 |
|
|
$ |
(1,288 |
) |
|
$ |
101,614 |
|
The cumulative effect of this error on our consolidated retained earnings totaled $0.5
million, $0.9 million and $1.3 million as of September 30, 2004, 2005 and 2005, respectively.
14
Results of Operations
The following table sets forth selected statements of operations data as a percentage of net
revenues for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2006 |
|
2007 |
|
2006 |
|
2007 |
Net Revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Educational services and facilities |
|
|
48.5 |
% |
|
|
50.0 |
% |
|
|
47.7 |
% |
|
|
49.7 |
% |
Selling, general and administrative |
|
|
37.4 |
% |
|
|
39.7 |
% |
|
|
35.8 |
% |
|
|
39.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
85.9 |
% |
|
|
89.7 |
% |
|
|
83.5 |
% |
|
|
89.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
14.1 |
% |
|
|
10.3 |
% |
|
|
16.5 |
% |
|
|
11.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
-1.0 |
% |
|
|
-0.7 |
% |
|
|
-0.9 |
% |
|
|
-0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income |
|
|
-1.0 |
% |
|
|
-0.7 |
% |
|
|
-0.9 |
% |
|
|
-0.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
15.1 |
% |
|
|
11.0 |
% |
|
|
17.4 |
% |
|
|
11.7 |
% |
Income tax expense |
|
|
5.7 |
% |
|
|
4.3 |
% |
|
|
6.7 |
% |
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
9.4 |
% |
|
|
6.7 |
% |
|
|
10.7 |
% |
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our capacity utilization during each of the periods indicated
and the number of seats available at the end of each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2006 |
|
2007 |
|
2006 |
|
2007 |
Capacity utilization |
|
|
72.6 |
% |
|
|
64.5 |
% |
|
|
74.3 |
% |
|
|
66.2 |
% |
Seating available |
|
|
22,925 |
|
|
|
25,410 |
|
|
|
22,925 |
|
|
|
25,410 |
|
15
In addition to using GAAP results in evaluating our business, management evaluates the impact
to operating income with and without the impact from new campus revenues and expenses. The
following table sets forth data for our new campuses in each of the periods indicated. We begin to
incur a majority of new campus costs in the nine month period prior to the new campus opening. Our
new campuses typically become profitable within the first 12 months of operations and are no longer
considered to be a new campus after one full fiscal year of operation. We believe that including
this additional information provides additional transparency and improves the ability to evaluate
our financial operating results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2006(1) |
|
|
2007(2) |
|
|
2006(1) |
|
|
2007(2) |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Net revenues |
|
$ |
4,151 |
|
|
$ |
4,162 |
|
|
$ |
7,185 |
|
|
$ |
7,423 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Educational services and facilities |
|
|
3,348 |
|
|
|
3,166 |
|
|
|
6,292 |
|
|
|
5,803 |
|
Selling general and administrative |
|
|
2,683 |
|
|
|
1,557 |
|
|
|
5,038 |
|
|
|
3,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
6,031 |
|
|
|
4,723 |
|
|
|
11,330 |
|
|
|
9,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(1,880 |
) |
|
$ |
(561 |
) |
|
$ |
(4,145 |
) |
|
$ |
(2,031 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New campus activity as a percentage of total net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
4.7 |
% |
|
|
4.5 |
% |
|
|
4.1 |
% |
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Educational services and facilities |
|
|
3.8 |
% |
|
|
3.5 |
% |
|
|
3.6 |
% |
|
|
3.2 |
% |
Selling general and administrative |
|
|
3.0 |
% |
|
|
1.6 |
% |
|
|
2.9 |
% |
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
6.8 |
% |
|
|
5.1 |
% |
|
|
6.5 |
% |
|
|
5.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
-2.1 |
% |
|
|
-0.6 |
% |
|
|
-2.4 |
% |
|
|
-1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity utilization |
|
|
30.9 |
% |
|
|
39.6 |
% |
|
|
27.8 |
% |
|
|
37.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seating available |
|
|
2,320 |
|
|
|
1,800 |
|
|
|
2,320 |
|
|
|
1,800 |
|
|
|
|
(1) |
|
Includes net revenue and operating expenses for our Norwood, Massachusetts campus
which opened in June 2005 and our Sacramento, California campus which opened in October 2005. |
|
(2) |
|
Includes net revenue and operating expenses for our Sacramento, California campus. |
16
Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006 and Six Months
Ended March 31, 2007 Compared to Six Months Ended March 31, 2006
Net revenues. Our net revenues for the three months ended March 31, 2007 were $91.7 million,
representing an increase of $3.0 million, or 3.3%, as compared to net revenues of $88.7 million for
the three months ended March 31, 2006. Net revenues, excluding revenues associated with new
campuses, for the three months ended March 31, 2007 were $87.5 million, representing an increase of
$3.0 million, or 3.5%, as compared to $84.5 million for the three months ended March 31, 2006. We
consider a campus to be a new campus until it has had one full fiscal year of operation. Effective
October 1, 2006, our Norwood, Massachusetts campus was no longer considered to be a new campus.
The increase in net revenues, excluding revenues associated with new campuses, of $3.0 million
is attributable, in part, to the Norwood, Massachusetts campus, which had revenues of $5.3 million
and was no longer considered to be a new campus beginning in fiscal 2007. The resulting $2.3
million decrease in net revenues was primarily due to a 7.3% decrease in the average undergraduate
full-time student enrollment, excluding average undergraduate full-time student enrollment
associated with new campuses, during the three months ended March 31, 2007 and an increase in
tuition discounts of approximately $0.7 million for the three months ended March 31, 2007. The
decrease was partially offset by tuition increases of between 3% and 5%, depending on the program,
our change in policy reducing the number of free course retakes from two to one and an increase in
the number of students taking two courses at a time. The change in our policy and the increase in
the number of students taking two courses concurrently resulted in additional revenue of $0.9
million and $0.5 million, respectively, during the three months ended March 31, 2007.
Our net revenues for the six months ended March 31, 2007 were $181.2 million, representing an
increase of $7.0 million, or 4.0%, as compared to net revenues of $174.2 million for the six months
ended March 31, 2006. Net revenues, excluding revenues associated with new campuses, for the six
months ended March 31, 2007 were $173.8 million, representing an increase of $6.7 million, or 4.0%,
as compared to $167.0 million for the six months ended March 31, 2006.
The increase in net revenues, excluding revenues associated with new campuses, of $6.7 million
is attributable, in part, to the Norwood, Massachusetts campus, which had revenues of $10.5 million
and was no longer considered to be a new campus beginning in fiscal 2007. The resulting $3.8
million decrease in net revenues was primarily due to a 7.2% decrease in the average undergraduate
full-time student enrollment, excluding average undergraduate full-time student enrollment
associated with new campuses, during the six months ended March 31, 2007 and an increase in tuition
discounts of approximately $0.8 million for the six months ending March 31, 2007. The decrease was
partially offset by tuition increases of between 3% and 5%, depending on the program, our change in
policy reducing the number of free course retakes from two to one and an increase in the number of
students taking two courses at a time. The change in our policy and the increase in the number of
students taking two courses concurrently resulted in additional revenue of $1.5 million and $1.7
million, respectively, during the six months ended March 31, 2007.
Educational services and facilities expenses. Our educational services and facilities
expenses for the three months ended March 31, 2007 were $45.9 million, an increase of $2.9 million,
as compared to educational services and facilities expenses of $43.0 million for the three months
ended March 31, 2006. Educational services and facilities expenses, excluding costs associated
with new campuses, for the three months ended March 31, 2007 were $42.7 million, representing an
increase of $3.1 million, or 7.7%, as compared to $39.6 million for the three months ended March
31, 2006.
The increase in costs, excluding expenses related to new campuses, of $3.1 million is
primarily associated with increased compensation and related costs of $1.7 million, depreciation
expense of $1.0 million and occupancy costs of $0.4 million. The $3.1 million increase in costs is
primarily attributable to educational
17
services and facilities expenses of $2.9 million related to our Norwood, Massachusetts campus,
which was no longer considered to be a new campus beginning in fiscal 2007. The $2.9 million in
costs included $1.7 million in compensation and related costs, $0.4 million in depreciation expense
and $0.2 million in occupancy costs. The remaining increases in depreciation expense and occupancy
costs are primarily associated with program expansions at other campuses.
Educational services and facilities expenses as a percentage of net revenues increased to
50.0% for the three months ended March 31, 2007, as compared to 48.5% for the three months ended
March 31, 2006. Educational services and facilities expenses as a percentage of net revenues,
excluding activity for new campuses, was 48.8% for the three months ended March 31, 2007, as
compared to 46.9% for the three months ended March 31, 2006. In addition to increased costs
associated with new campuses, educational services and facilities expenses as a percentage of net
revenues, excluding new campus activity, was negatively impacted by 1.0% associated with increased
compensation and related costs and 1.1% related to depreciation expense. The increase in
educational services and facilities expense as a percentage of revenue is primarily attributable to
decreased capacity utilization at mature campuses.
Our educational services and facilities expenses for the six months ended March 31, 2007 were
$90.0 million, an increase of $7.0 million, as compared to educational services and facilities
expenses of $83.1 million for the six months ended March 31, 2006. Educational services and
facilities expenses, excluding costs associated with new campuses, for the six months ended March
31, 2007 were $84.3 million, representing an increase of $7.5 million, or 9.7%, as compared to
$76.8 million for the six months ended March 31, 2006.
The increase in costs, excluding expenses related to new campuses, of $7.5 million is
primarily associated with increased compensation and related costs of $3.5 million, depreciation
expense of $1.9 million, occupancy costs of $1.2 million and training supplies of $0.4 million.
The $7.5 million increase in costs is partially attributable to educational services and facilities
expenses of $5.8 million related to our Norwood, Massachusetts campus, which was no longer
considered to be a new campus beginning in fiscal 2007. The $5.8 million in costs included $3.4
million in compensation and related costs, $0.7 million in depreciation expense, $0.4 million in
occupancy costs and $0.3 million in training supplies. The remaining increases in depreciation
expense and occupancy costs are primarily associated with program expansions at other campuses.
Educational services and facilities expenses as a percentage of net revenues increased to
49.7% for the six months ended March 31, 2007, as compared to 47.7% for the six months ended March
31, 2006. Educational services and facilities expenses as a percentage of net revenues, excluding
activity for new campuses, was 48.5% for the six months ended March 31, 2007, as compared to 46.0%
for the six months ended March 31, 2006. In addition to increased costs associated with new
campuses, educational services and facilities expenses as a percentage of net revenues, excluding
new campus activity, was negatively impacted by 1.0% associated with increased compensation and
related costs, 1.0% related to depreciation expense and 0.4% related to increased occupancy costs.
The increase in educational services and facilities expense as a percentage of revenue is primarily
attributable to decreased capacity utilization at mature campuses.
Selling, general and administrative expenses. Our selling, general and administrative
expenses for the three months ended March 31, 2007 were $36.3 million, an increase of $3.2 million,
or 9.5%, as compared to selling, general and administrative expenses of $33.2 million for the three
months ended March 31, 2006. Selling, general and administrative expenses, excluding costs
associated with new campuses, for the three months ended March 31, 2007 were $34.8 million,
representing an increase of $4.3 million, or 14.1%, as compared to $30.5 million for the three
months ended March 31, 2006.
The increase in selling, general and administrative costs, excluding costs associated with new
campuses, of $4.3 million is primarily associated with increased compensation and related costs of
$2.8 million, of which $0.5 million was related to increased stock-based compensation, and
advertising costs of $2.2 million partially
18
offset by a decrease in bad debt expense of $0.4 million. The $4.3 million increase in costs
is partially attributable to selling, general and administrative expenses of $1.9 million,
including $1.1 million in compensation and related costs and $0.4 million in advertising costs,
related to our Norwood, Massachusetts campus, which was no longer considered to be a new campus
beginning in fiscal 2007. The remaining increase in compensation and related costs of $1.7 million
is primarily due to annual merit salary increases, increased personnel associated with sales and
marketing activities and increased expenses under our self-insured medical plan.
Selling, general and administrative expenses as a percentage of net revenues increased to
39.7% for the three months ended March 31, 2007, as compared to 37.4% for the three months ended
March 31, 2006. Selling, general and administrative costs as a percentage of net revenues,
excluding activity for new campuses, was 39.8% for the three months ended March 31, 2007, as
compared to 36.1% for the three months ended March 31, 2006. The increase in costs as a percentage
of revenue, excluding new campus expenses, was impacted by an increase in compensation and related
expenses of 2.5% of which 0.6% was attributable to increased stock based compensation expense and
2.3% attributable to additional spending on advertising partially offset by 0.3% associated with
contract services and 0.5% related to improved bad debt expense.
Our selling, general and administrative expenses for the six months ended March 31, 2007 were
$71.2 million, an increase of $8.8 million, or 14.1%, as compared to selling, general and
administrative expenses of $62.4 million for the six months ended March 31, 2006. Selling, general
and administrative expenses, excluding costs associated with new campuses, for the six months ended
March 31, 2007 were $67.5 million, representing an increase of $10.2 million, or 17.8%, as compared
to $57.3 million for the six months ended March 31, 2006.
The increase in selling, general and administrative costs, excluding costs associated with new
campuses, of $10.2 million is primarily associated with increased advertising costs of $5.0
million, compensation and related costs of $4.9 million, of which $1.0 million was related to
increased stock-based compensation, partially offset by a decrease in bad debt expense of $0.8
million. The $10.2 million increase in costs is partially attributable to selling, general and
administrative expenses of $3.6 million, including $2.3 million in compensation and related costs
and $0.8 million in advertising costs, related to our Norwood, Massachusetts campus, which was no
longer considered to be a new campus beginning in fiscal 2007. The remaining increase in
compensation and related costs of $2.6 million is primarily due to annual merit salary increases,
increased personnel associated with sales and marketing activities and increased expenses under our
self-insured medical plan.
Selling, general and administrative expenses as a percentage of net revenues increased to
39.3% for the six months ended March 31, 2007, as compared to 35.8% for the six months ended March
31, 2006. Selling, general and administrative costs as a percentage of net revenues, excluding
activity for new campuses, was 38.9% for the six months ended March 31, 2007, as compared to 34.3%
for the six months ended March 31, 2006. The increase in costs as a percentage of revenue,
excluding new campus expenses, was impacted by an increase of 2.7% attributable to additional
spending on advertising and 2.0% associated with increased compensation and related costs of which
0.5% was attributable to increased stock based compensation expense, partially offset by 0.5%
related to improved bad debt expense.
Interest income. Our interest income for the three months ended March 31, 2007 was $0.6
million, representing a decrease of $0.3 million compared to interest income of $0.9 million for
the three months ended March 31, 2006. Our interest income for the six months ended March 31, 2007
was $1.3 million representing a decrease of $0.3 million compared to interest income of $1.6
million for the six months ended March 31, 2006. The decrease in interest income is primarily
attributable to our investment in our campus properties and our repurchase of shares of our common
stock during the year ended September 30, 2006 which resulted in reduced cash available for
investment.
19
Income taxes. Our provision for income taxes for the three months ended March 31, 2007 was
$3.9 million, or 39.1% of pretax income, as compared to $5.1 million, or 37.8% of pretax income for
the three months ended March 31, 2006. The increase in the tax provision as a percentage of pretax
income is primarily attributable to the release of a tax reserve in the prior year. Our provision
for income taxes for the six months ended March 31, 2007 was $8.2 million, or 38.6% of pretax
income, as compared to $11.8 million, or 38.8% of pretax income for the six months ended March 31,
2006. The decrease in the tax provision as a percentage of pretax income is primarily attributable
to a larger state tax credit in the current year.
Liquidity and Capital Resources
We finance our operating activities and our internal growth through cash generated from
operations. Our net cash from operations was $16.7 million for the six months ended March 31,
2007, as compared to $19.3 million for the six months ended March 31, 2006.
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 a new loan
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 students academic year and the second disbursement is typically received
at the beginning of the sixteenth week from the start of the students academic year. Five of our
campuses and certain types of grants and other funding are not subject to a 30 day delay in
receiving the first disbursement. These factors, together with the timing of when our students
begin their programs, affect our operating cash flow.
Operating Activities
For the six months ended March 31, 2007, our cash flows provided by operating activities were
$16.7 million resulting from net income of $13.0 million with adjustments of $12.5 million for
non-cash and other items which were partially offset by $8.9 million related to the change in our
operating assets and liabilities.
For the six months ended March 31, 2007, the primary adjustments to our net income for
non-cash and other items were depreciation and amortization of $8.6 million, substantially all of
which was depreciation, stock-based compensation of $3.4 million and bad debt expense of $1.3
million partially offset by a reduction in deferred income taxes of $0.8 million.
For the six months ended March 31, 2006, our cash flows provided by operating activities were
$19.3 million resulting from net income of $18.6 million with adjustments of $9.1 million for
non-cash and other items which were partially offset by $8.4 million related to the change in our
operating assets and liabilities.
For the six months ended March 31, 2006, the primary adjustments to our net income for
non-cash and other items were depreciation and amortization of $6.6 million, substantially all of
which was depreciation, bad debt expense of $2.3 million and stock-based compensation of $2.3
million partially offset by a reduction in deferred income taxes of $2.2 million.
Changes in operating assets and liabilities
For the six months ended March 31, 2007, changes in our operating assets and liabilities
resulted in cash outflows of $8.9 million. A combination of operating efficiencies, a lower number
of student starts during the six months ended March 31, 2007, as compared to the six months ended
March 31, 2006, and our ability to request the first disbursement of Title IV funding without a 30
day delay at five campuses resulted in a decrease in receivables of $2.3 million and a decrease in
deferred revenue of $4.4 million resulting in net cash outflows of $2.2 million. The timing of our
accounts payable cycle resulted in a decrease in accounts payable and accrued
20
expenses of approximately $6.8 million, primarily attributable to $6.5 million in capital
expenditures offset by payroll related tax accruals of $0.7 million. The nature of our employee
benefit and bonus plans and the timing of payments under those plans resulted in a decrease in
accounts payable and other accrued expenses of approximately $1.4 million, primarily due to a $4.2
million bonus payment related to the year ended September 30, 2006 and $0.6 million in severance
payments related to our reduction in force in September 2006 partially offset by an increase of
$2.6 million for the bonus plans related to the year ended September 31, 2007 and $0.7 million
related to other employee benefit plans. The change in income taxes from a receivable to a payable
position was primarily related to our accrual of our estimated taxes of $8.7 million and receipt of
a federal tax refund of $1.6 million. These changes in our operating assets and liabilities
resulted in a decrease in our working capital deficit to $23.8 million at March 31, 2007, as
compared to $26.0 million at September 30, 2006.
For the six months ended March 31, 2006, cash outflows of $8.4 million related to the change
in our operating assets and liabilities and were primarily due to changes in receivables and
deferred revenue, accounts payable and accrued expenses and income tax receivable. The timing of
tuition funding resulted in a decrease in accounts receivable of $2.9 million and a decrease in
deferred revenue of $1.6 million resulting in combined positive cash flow of $1.3 million. The
timing of the payment of the performance bonus for the year ended September 30, 2005 resulted in a
decrease in accounts payable and accrued expenses. The increase in income tax receivable of $4.5
million was primarily attributable to the timing of estimated tax payments and $1.0 million related
to the excess tax benefit from stock-based compensation.
Our days sales outstanding (DSO) in accounts receivable was approximately 14 days at March 31,
2007 compared to approximately 21 days at March 31, 2006. The improvement was primarily
attributable to operating efficiencies, the lower number of student starts during the six months
ended March 31, 2007, as compared to the six months ended March 31, 2006 and the ability to request
the first disbursement of Title IV funding without a 30 day delay at five of our campuses.
Investing Activities
For the six months ended March 31, 2007, cash flows used in investing activities were $18.1
million and were primarily related to capital expenditures associated with new campus construction
and existing campus expansions.
For the six months ended March 31, 2006, cash flows used in investing activities were $0.1
million and were primarily related to the purchase of $16.4 million in capital expenditures
primarily associated with new campus construction and existing campus expansions offset by proceeds
of $16.3 million for the release of our restricted investments that provided cash collateral for
our letter of credit issued in favor of ED.
Financing Activities
For the six months ended March 31, 2007, cash flows provided by financing activities were $0.4
million and were attributable to proceeds received from issuance of common stock under employee
stock option plans.
For the six months ended March 31, 2006, cash flows provided by financing activities were $5.1
million and were attributable to proceeds of $2.6 million received from issuance of common stock
under the employee incentive compensation plan and a bank overdraft of $1.5 million resulting from
the timing of payments issued through controlled disbursement accounts and $1.0 million related to
the tax benefit from stock-based compensation.
21
Future Liquidity Sources
Based on past performance and current expectations, we believe that our cash flows from
operations and other sources of liquidity, including borrowings available under our revolving
credit facility, will satisfy our working capital needs, capital expenditures, commitments, and
other liquidity requirements associated with our operations through the next 12 months.
We have executed nonbinding term sheets related to two sale-leaseback transactions involving
buildings we own at our Norwood, Massachusetts and Sacramento, California campuses. We expect to
receive net proceeds of $70.0 million to $75.0 million which will be used for general corporate
purposes. We anticipate completing the transactions during mid-summer 2007 and do not expect to
recognize a significant gain or loss as a result of these transactions.
We believe that the most strategic uses of our cash resources include filling existing
capacity, completing the expansion of our existing campuses, expanding our program offerings, and
the repurchase of our common stock. In addition, our long term strategy includes the consideration
of strategic acquisitions. To the extent that potential acquisitions are large enough to require
financing beyond cash from operations and available borrowings under our credit facility, we may
incur additional debt or issue debt resulting in increased interest expense.
Debt Service
At March 31, 2007, we had no borrowings under our credit facility and we were in compliance
with all covenants.
Seasonality and Trends
Our net revenues and operating results normally fluctuate as a result of seasonal variations
in our business, 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, which ends on June 30, than in the remainder of the year because
fewer students are enrolled during the summer months. Our expenses, however, do not vary
significantly with changes in our student population and net 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, increased investment in sales and marketing or acquisitions. In addition, our net
revenues for the first quarter ending December 31 are adversely affected by the fact that we have
fewer earning days when our campuses are closed during the calendar year end holiday break and
accordingly do not recognize revenue during that period.
Critical Accounting Policies and Estimates
Our critical accounting policies are disclosed in our 2006 Annual Report on Form 10-K. During
the six months ended March 31, 2007, there have been no significant changes in our critical
accounting policies.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 3 to our unaudited
condensed consolidated financial statements within Part I, Item 1 of this report.
22
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Historically, our principal exposure to market risk relates to interest rate changes. As of
March 31, 2007, we do not have any term debt. Consequently, we believe that we have minimal
financial exposure to market risk.
Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the 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), pursuant to Exchange Act Rule 13a-15 as of the end of the
period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are 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 SECs 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 Companys management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
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) that occurred during the
quarter ended March 31, 2007 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
23
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On
May 7, 2007, we received letters from the Offices of the
Attorney General of the State of Arizona and the State of Illinois requesting information related to relationships between us
and student loan lenders. We are currently in the process of replying to the letter. We do not
currently believe the results of complying with the civil investigative demand letter will have a
material adverse effect on our business, results of operations, cash flows or financial condition.
In the ordinary conduct of our business, we are periodically subject to lawsuits,
investigations and claims including, but not limited to, claims involving students or graduates and
routine employment matters. Although we cannot predict with certainty the ultimate resolution of
lawsuits, investigations and claims asserted against us, we do not believe that any currently
pending legal proceeding to which we are a party will have a material adverse effect on our
business, results of operations, cash flows or financial condition.
Item 1A. RISK FACTORS
This report contains forward-looking information about our financial results, estimates and
our business prospects that involve substantial risks and uncertainties. From time to time, we
also may provide oral or written forward-looking statements in other materials we release to the
public. Forward-looking statements are expressions of our current expectations or forecasts of
future events. You can identify these statements by the fact that they do not relate strictly to
historic or current facts. They often include words such as anticipate, estimate, expect,
project, intend, plan, believe, will, and other words and terms of similar meaning in
connection with any discussion of future operating or financial performance. In particular, these
include statements relating to future actions, future performance or results, expenses, the outcome
of contingencies, such as legal proceedings, and financial results. Among the factors that could
cause actual results to differ materially are the following:
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our ability to maintain or renew any required regulatory approvals, standards,
accreditation or state authorization; |
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the effectiveness of our advertising and promotional efforts; |
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changes in laws and regulations affecting post-secondary education, including Title IV funding; |
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governmental inquiries, compliance reviews or investigations and the potential for
increased litigation; |
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regulatory investigations of, or actions commenced against, other companies in our
industry or our significant service providers; |
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our ability to fill our existing capacity; |
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competitive developments affecting our industry, including pricing pressures in newer markets; |
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our ability to maintain and expand existing industry relationships; |
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our ability to recruit and retain key personnel; |
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changes in demand for our programs; |
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increased investment in management and capital resources; |
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increases in interest rates or state budget constraints adversely affecting a
students ability to secure additional loans; |
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lower rates of unemployment; |
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the timing and number of new campuses that we open or acquire; |
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possible failure or inability to obtain regulatory consents and certifications for
new campuses and campus expansions; |
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growth in costs and expenses; |
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construction delays with respect to new or expanding campuses; |
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economic slowdown that affects any significant portion of the industry for which we
provide training, including economic slowdown in areas of limited geographic scope if
markets in which we have significant operations are impacted by such slowdown; |
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our ability to maintain compliance with Section 404 of Sarbanes-Oxley; |
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any changes in business, political and economic conditions due to the possibility of
wider armed conflicts; and |
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increased competition from both for-profit and non-profit educators. |
We cannot guarantee 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 inaccurate assumptions. Should known or unknown risks or uncertainties
materialize, or should underlying assumptions prove inaccurate, actual results could vary
materially from past results and those anticipated, estimated or projected. Investors should bear
this in mind as they consider forward-looking statements.
We undertake no obligation to publicly update 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, 8-K and 10-K reports to the Securities
and Exchange Commission. The Form 10-K that we filed with the SEC on December 13, 2006 listed
various important factors that could cause actual results to differ materially from expected and
historic results. We note these factors for investors as permitted by the Private Securities
Litigation Reform Act of 1995. Readers can find them under the heading Risk Factors in the Form
10-K. We incorporate that section of the Form 10-K in this filing and investors should refer to
it. You should understand that it is not possible to predict or identify all such factors.
Consequently, you should not consider any such list to be a complete set of all potential risks or
uncertainties. Our filings with the SEC may be accessed at the SECs website at www.sec.gov.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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(a) |
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Our annual meeting of stockholders was held on February 28, 2007. |
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(b) |
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Our stockholders voted as follows to elect three Class III directors to our
board of directors: |
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Directors: |
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Votes For: |
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Votes Withheld: |
A. Richard Caputo |
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24,204,472 |
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56,209 |
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Allan D. Glilmour |
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24,203,441 |
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57,240 |
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Robert D. Hartman |
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24,131,847 |
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128,834 |
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Directors whose term of office continued after the annual meeting include: Conrad A. Conrad, Kevin
P. Knight, Kimberly J. McWaters, Linda J. Srere and John C. White
(c) Our stockholders voted as follows to approve the 2003 Incentive Compensation Plan as
amended, for purpose of Section 162(m) of the Internal Revenue Code:
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For: 17,480,732
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Against: 875,508
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Abstain: 17,850
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Broker Non-Vote: 5,886,591 |
(d) Our stockholders voted as follows to ratify the appointment of PricewaterhouseCoopers LLP
as the independent auditors for our financial statements for the year ending September 30, 2007:
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For: 24,184,649
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Against: 53,958
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Abstain: 22,074 |
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Item 6. EXHIBITS
(a) Exhibits (filed herewith):
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Number |
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Description |
10.1
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Universal Technical Institute, Inc. 2003 Incentive Compensation
Plan, as amended February 28, 2007, (formerly known as the 2003
Stock Incentive Plan). |
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
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31.2
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Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
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32.1
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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. |
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32.2
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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. |
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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UNIVERSAL TECHNICAL INSTITUTE, INC.
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Dated: May 10, 2007
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By:
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/s/ Jennifer L. Haslip |
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Jennifer L. Haslip |
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Senior Vice President, Chief Financial Officer, |
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Treasurer and Assistant Secretary |
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(Principal Financial Officer and Duly
Authorized Officer) |
27