U. S. SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended December 31, 2003 |
| o | 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.
| Delaware | 86-0226984 | |
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| (State or other jurisdiction of | (IRS Employer Identification No.) | |
| incorporation or organization) |
20410 North 19th Avenue, Suite 200
Phoenix, Arizona 85027
(Address of principal executive offices)
(623) 445-9500
(Registrant’s 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 [ ] No [X*]
*The registrant became subject to the Securities Exchange Act of 1934 on December 16, 2003.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
At February 12, 2004, there were outstanding 27,705,576 shares of the registrant’s common stock.
UNIVERSAL TECHNICAL INSTITUTE, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDING DECEMBER 31, 2003
| Page | ||||
| Number | ||||
| PART I. | FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements | |||
Condensed Consolidated Balance Sheets at December 31, 2003 and September 30,
2003 (unaudited)
|
1 | |||
Condensed Consolidated Statements of Operations for the three months ended
December 31, 2002 and 2003 (unaudited)
|
2 | |||
Condensed Consolidated Statement of Shareholders’ Equity for the three months
ended December 31, 2003 (unaudited)
|
3 | |||
Condensed Consolidated Statements of Cash Flows for the three months ended
December 31, 2002 and 2003 (unaudited)
|
4 | |||
| Notes to Condensed Consolidated Interim Financial Statements | 6 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 18 | ||
| Item 4. | Controls and Procedures | 19 | ||
| PART II. | OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 20 | ||
| Item 2. | Changes in Securities and Use of Proceeds | 20 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 21 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 22 |
ii
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share amounts)
| September 30, | December 31, | |||||||||
| 2003 | 2003 | |||||||||
Assets |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 8,925 | $ | 28,799 | ||||||
Receivables, net |
19,856 | 13,489 | ||||||||
Prepaid expenses and other assets |
3,038 | 4,887 | ||||||||
Total current assets |
31,819 | 47,175 | ||||||||
Property and equipment, net |
27,446 | 29,099 | ||||||||
Goodwill |
20,579 | 20,579 | ||||||||
Deferred financing fees, net |
1,300 | 451 | ||||||||
Other assets |
2,955 | 1,750 | ||||||||
Total assets |
$ | 84,099 | $ | 99,054 | ||||||
Liabilities, Redeemable Preferred Stock and Shareholders’ Equity (Deficit) |
||||||||||
Current liabilities: |
||||||||||
Accounts payable and accrued expenses |
$ | 25,005 | $ | 23,581 | ||||||
Current portion of long-term debt and capital leases |
3,860 | 233 | ||||||||
Deferred revenue |
25,692 | 30,066 | ||||||||
Accrued tool sets |
3,523 | 2,952 | ||||||||
Other current liabilities |
2,979 | 3,381 | ||||||||
Total current liabilities |
61,059 | 60,213 | ||||||||
Long-term debt and capital leases |
28,014 | 11 | ||||||||
Mandatory redeemable preferred stock
(redemption value of $25,941 at September 30, 2003) |
25,462 | — | ||||||||
Distributions payable to shareholders |
71 | 71 | ||||||||
Other liabilities |
5,484 | 7,282 | ||||||||
Total liabilities |
120,090 | 67,577 | ||||||||
Commitments and contingencies
|
||||||||||
Preferred stock, $.0001 par value, 10,000,000 shares authorized: |
||||||||||
Redeemable convertible preferred stock - 2,357 shares issued and outstanding at
September 30, 2003 and 0 shares issued and outstanding at December 31,
2003 (redemption value of $50,618 at September 30, 2003) |
47,161 | — | ||||||||
Shareholders’ equity (deficit): |
||||||||||
Common stock, $.0001 par value, 100,000,000 shares authorized, 13,872,785 shares
issued and outstanding at September 30, 2003 and 27,705,576 shares
issued and outstanding at December 31, 2003 |
1 | 1 | ||||||||
Paid-in capital |
— | 107,924 | ||||||||
Accumulated deficit |
(83,125 | ) | (76,448 | ) | ||||||
Subscriptions receivable |
(28 | ) | — | |||||||
Total shareholders’ equity (deficit) |
(83,152 | ) | 31,477 | |||||||
Total liabilities, redeemable preferred stock and shareholders’ equity (deficit) |
$ | 84,099 | $ | 99,054 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
| Three Months Ended | ||||||||||
| December 31, | ||||||||||
| 2002 | 2003 | |||||||||
Net Revenues |
$ | 45,374 | $ | 59,043 | ||||||
Operating expenses: |
||||||||||
Educational services and facilities |
20,880 | 25,602 | ||||||||
Selling, general and administrative |
16,254 | 19,426 | ||||||||
Total operating expenses |
37,134 | 45,028 | ||||||||
Income from operations |
8,240 | 14,015 | ||||||||
Other expense (income): |
||||||||||
Interest income |
(119 | ) | (25 | ) | ||||||
Interest expense |
1,211 | 815 | ||||||||
Other expense |
— | 752 | ||||||||
Total other expense |
1,092 | 1,542 | ||||||||
Income before income taxes |
7,148 | 12,473 | ||||||||
Income tax expense |
2,502 | 5,020 | ||||||||
Net income |
4,646 | 7,453 | ||||||||
Preferred stock dividends |
1,145 | 776 | ||||||||
Net income available to common shareholders |
$ | 3,501 | $ | 6,677 | ||||||
Earnings per share: |
||||||||||
Net income per share - basic |
$ | 0.26 | $ | 0.43 | ||||||
Net income per share - diluted |
$ | 0.18 | $ | 0.30 | ||||||
Weighted average number of common shares outstanding: |
||||||||||
Basic |
13,402 | 15,439 | ||||||||
Diluted |
24,915 | 25,042 | ||||||||
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)
| Common Stock | Total | |||||||||||||||||||||||
| Paid-in | Accumulated | Subscriptions | Shareholders’ | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Receivable | Equity | |||||||||||||||||||
Balance at September 30, 2003 |
13,873 | $ | 1 | $ | — | $ | (83,125 | ) | $ | (28 | ) | $ | (83,152 | ) | ||||||||||
Net income |
7,453 | 7,453 | ||||||||||||||||||||||
Issuance of common stock, net |
3,250 | 59,184 | 59,184 | |||||||||||||||||||||
Conversion of preferred stock |
10,571 | 48,540 | 48,540 | |||||||||||||||||||||
Proceeds received on subscription receivable |
28 | 28 | ||||||||||||||||||||||
Exercise of stock options |
12 | 53 | 53 | |||||||||||||||||||||
Tax benefit from employee stock option plan |
120 | 120 | ||||||||||||||||||||||
Stock option compensation recorded |
27 | 27 | ||||||||||||||||||||||
Dividends on preferred stock |
(776 | ) | (776 | ) | ||||||||||||||||||||
Balance at December 31, 2003 |
27,706 | $ | 1 | $ | 107,924 | $ | (76,448 | ) | $ | — | $ | 31,477 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(In thousands)
| For the Three Months Ended | ||||||||||
| December 31, | ||||||||||
| 2002 | 2003 | |||||||||
Cash flows from operating activities: |
||||||||||
Net income |
$ | 4,646 | $ | 7,453 | ||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||||
Depreciation and amortization |
1,506 | 2,095 | ||||||||
Bad debt expense |
854 | 610 | ||||||||
Tax benefit from option exercise |
— | 120 | ||||||||
Stock option compensation |
— | 27 | ||||||||
Deferred income taxes |
(258 | ) | 1,184 | |||||||
Write-off of deferred financing fees |
— | 752 | ||||||||
Loss on disposal of property and equipment |
— | 19 | ||||||||
Preferred stock interest expense |
— | 265 | ||||||||
Changes in assets and liabilities: |
||||||||||
Receivables |
682 | 5,757 | ||||||||
Prepaid expenses and other assets |
(142 | ) | (2,325 | ) | ||||||
Other assets |
(54 | ) | 1,277 | |||||||
Accounts payable and accrued expenses |
779 | (1,433 | ) | |||||||
Deferred revenue |
2,269 | 4,374 | ||||||||
Other current liabilities |
2,759 | 932 | ||||||||
Other liabilities |
158 | 144 | ||||||||
Net cash provided by operating activities |
13,199 | 21,251 | ||||||||
Cash flows from investing activities: |
||||||||||
Purchase of property and equipment |
(1,334 | ) | (3,508 | ) | ||||||
Net cash used in investing activities |
(1,334 | ) | (3,508 | ) | ||||||
Cash flows from financing activities: |
||||||||||
Proceeds from issuance of common stock, net of issuance costs of $7,441 |
— | 59,184 | ||||||||
Repayment of long-term debt borrowings |
(629 | ) | (31,630 | ) | ||||||
Redemption of mandatory redeemable preferred stock |
— | (12,946 | ) | |||||||
Dividends paid |
— | (12,558 | ) | |||||||
Proceeds from exercise of stock options |
— | 53 | ||||||||
Proceeds from subscriptions receivable |
— | 28 | ||||||||
Net cash provided by (used in) financing activities |
(629 | ) | 2,131 | |||||||
Net increase in cash and cash equivalents |
11,236 | 19,874 | ||||||||
Cash and cash equivalents, beginning of period |
13,554 | 8,925 | ||||||||
Cash and cash equivalents, end of period |
$ | 24,790 | $ | 28,799 | ||||||
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)
| For the Three Months Ended | ||||||||
| December 31, | ||||||||
| 2002 | 2003 | |||||||
Supplemental Disclosure of Cash Flow Information: |
||||||||
Interest Paid |
$ | 744 | $ | 743 | ||||
Preferred dividends accrued but unpaid |
$ | 1,145 | $ | — | ||||
Taxes paid |
$ | 100 | $ | 1,885 | ||||
Training equipment obtained in exchange for services |
$ | 28 | $ | 9 | ||||
Exchange of preferred stock for common stock |
$ | — | $ | 48,540 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, expect 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 seven campuses and manufacturer-sponsored advanced programs at 22 dedicated training centers. We work closely with leading original equipment manufacturers (OEMs) in the automotive, diesel, collision repair, 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 months ended December 31, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2004. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our prospectus filed with the Securities and Exchange Commission on December 17, 2003 under Rule 424(b)(1).
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.
3. New Accounting Pronouncements
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 changes the accounting and disclosure requirements for certain financial instruments that, under previous guidance, could be classified as equity. The guidance in SFAS No. 150 is generally effective for all financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Upon adoption of SFAS 150, effective July 1, 2003, we classified as a liability the redeemable preferred stock series A, series B and series C with a combined carrying value of approximately $25.5 million. Additionally, effective July 1, 2003 the dividends on these securities were included as a component of interest expense instead of preferred stock dividends in the consolidated statement of operations. SFAS No. 150 prohibits restatements of financial statements for periods prior to adoption, accordingly these changes were made prospectively.
6
UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS –
(Continued)
(In thousands, expect per share amounts)
The following table presents a comparison of net income as if SFAS 150 had been adopted at the beginning of the earliest period presented:
| Three Months Ended | |||||||||
| December 31, | |||||||||
| 2002 | 2003 | ||||||||
Reported net income |
$ | 4,646 | $ | 7,453 | |||||
Less preferred stock dividend for series A, series B and
series C preferred stock |
292 | — | |||||||
Adjusted net income |
4,354 | 7,453 | |||||||
Less preferred stock dividend for series D |
853 | 776 | |||||||
Net income available for common shareholders |
$ | 3,501 | $ | 6,677 | |||||
4. Stock-Based Compensation
We account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and comply with the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation- Transition and Disclosure-An Amendment of SFAS No. 123,” which defines a fair value based method and addresses common stock and options given to employees as well as those given to non-employees in exchange for products and services. The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123:
| Three Months Ending | ||||||||
| December 31, | ||||||||
| 2002 | 2003 | |||||||
Net income available to
common shareholders - as reported |
$ | 3,501 | $ | 6,677 | ||||
Add stock-based compensation
expense included in reported net income,
net of taxes |
— | & | ||||||