U. S. SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

(Mark One)

Commission File Number 1-31923

UNIVERSAL TECHNICAL INSTITUTE, INC.

20410 North 19^th 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 þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     At May 3, 2005, there were outstanding 27,925,170 shares of the registrant’s common stock.

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)

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)

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)

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)

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)

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 eight 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 and six months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2005. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 23, 2004.

     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 December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123(R), “Share-Based Payment.” This statement replaces SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS No. 123(R); eliminates the alternative to use APB Opinion 25’s intrinsic value method of accounting that was provided in Statement No. 123 as originally issued. After a phase-in period for Statement No. 123(R), pro forma disclosure will no longer be allowed. In the first quarter of 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107 which provided further clarification on the implementation of SFAS No. 123(R).

     SFAS No. 123(R) requires the measurement and recording of the cost of employee services received in exchange for awards of equity instruments to be based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. SFAS No. 123(R) was to be effective for the first interim reporting period beginning on or after June 15, 2005;

6

UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)

however, the Securities and Exchange Commission announced in April 2005 that it was extending the date for compliance with SFAS 123(R), such that SFAS No. 123(R) is effective starting with the first interim reporting period of our first fiscal year beginning on or after June 15, 2005. The first interim period of our first fiscal year beginning on or after June 15, 2005 will be the quarter ending December 31, 2005. We estimate the effect of adopting SFAS No. 123(R), based upon outstanding equity awards as of March 31, 2005, will be approximately $4.6 million for our 2006 fiscal year (which begins October 1, 2005.) This estimate does not include the impact of additional equity awards which may be granted or forfeitures which may occur subsequent to March 31, 2005 and prior to our adoption of SFAS No. 123(R).

     In April 2005, FASB issued Financial Interpretation No. 47 (FIN 47), “Accounting for Conditional Asset Retirement Obligations.” FIN 47 provides clarification of the manner in which uncertainties concerning the timing and method of settlement of an asset retirement obligation should be accounted for and when the fair value of an asset retirement obligation is deemed to be estimable on a reasonable basis. FIN 47 is effective for fiscal years ending no later than December 15, 2005. We believe our adoption of FIN 47 will not have a material impact on our consolidated financial statements or disclosures.

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 awarded to employees as well as those awarded to non-employees in exchange for products and services. SFAS No. 123 and its amendments and APB Opinion No. 25 have been superseded by SFAS No. 123(R), which is discussed in footnote 3 and which is currently scheduled to be effective beginning with our fiscal quarter ending December 31, 2005. 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:

7

UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)

     The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The following table illustrates the assumptions used for grants made during each of the three months and six months ended March 31, 2004 and 2005:

5. Earnings per Common Share

     SFAS No. 128, “Earnings Per Share,” requires the dual presentation of basic and diluted earnings per share on the face of the income statement and the disclosure of the reconciliation between the numerators and denominators of basic and diluted earnings per share calculations. The following schedule presents the calculation of basic and fully diluted earnings per share:

8

UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)

6. Restricted Investments

     We have restricted investments that represent collateral provided to the issuer of our letter of credit in favor of the U.S. Department of Education (ED). At March 31, 2005, we had an outstanding letter of credit to ED in the amount of $14.4 million which is collateralized by a United States government agency discount note with a scheduled maturity in May 2005. At March 31, 2005, this investment was in compliance with the corporate investment policy. The investment is carried at amortized cost because we intend to hold, and we have the ability to hold, this security until maturity. Interest income is recorded using an effective interest rate, with the associated premium or discount amortized to interest income.

9

UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)

7. Property and Equipment

     Property and equipment, net consist of the following:

8. Accounts Payable and Accrued Expenses

     Accounts payable and accrued expenses consist of the following:

9. Income Taxes

     Our deferred taxes are reflected in the accompanying Condensed Consolidated Balance Sheet as follows:

10

UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)

10. Commitments and Contingencies

Legal

     In the ordinary conduct of our business, we are periodically subject to contingent liabilities that arise from 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, our legal department estimates the costs to settle pending litigation, based on experience involving similar cases, specific facts known, and, if applicable, based on judgments of outside counsel. Based upon information currently available, 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.

     In April 2004, we received a letter on behalf of nine former employees of National Technology Transfer, Inc. (NTT), an entity that we purchased in 1998 and subsequently sold, making a demand for an aggregate payment of approximately $284,900 and 19,756 shares of our common stock. The claim is based on the assertion that the former owner of NTT promised them such payments upon completion of a public offering of our common stock. We believe the demand for payment is without merit. On May 14, 2004, plaintiffs filed suit in Boulder County, Colorado District Court seeking payment in accordance with their demand. We filed a motion to dismiss due to lack of personal jurisdiction and improper venue. On November 10, 2004, the Colorado District Court dismissed the suit on the basis that the forum selection clause in the agreement, under which plaintiffs claimed they were owed payment, specified that any action arising under the agreement must be brought in state or federal court in Phoenix, Arizona. On February 23, 2005, the former employees filed suit in Maricopa County, Arizona Superior Court.

     We received written notice from a third party that certain of our former employees had allegedly used the intellectual property assets of the third party in the development of our e-learning training products. We have participated in a mediation and are currently engaged in settlement negotiations. We believe that this matter will not have a material impact on our financial condition or results of operations.

11. Segment Reporting

     We follow SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” SFAS No. 131 establishes standards for the way that public business enterprises report certain information about operating segments in their financial reports. 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. SFAS No. 131 also established standards for related disclosures about products and services, geographic areas and major customers.

     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.

11

UNIVERSAL TECHNICAL INSTITUTE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share amounts)

12

Item 2. MANAGEMENT’S 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 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 23, 2004. 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 under “Cautionary Factors That May Affect Future Results.”

Critical Accounting Policies and Estimates

     Our discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, bad debts, fixed assets, long-lived assets, including goodwill, income taxes and contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements.

     We believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

     Revenue recognition. Net revenues consist primarily of student tuition and fees derived from the programs we provide after reductions made for scholarships we sponsor. Tuition and fee revenue is recognized on a pro-rata (straight-line) basis over the term of the course or program offered. If a student withdraws from a program prior to a specified date, any paid but unearned tuition is refunded. Approximately 97% of our net revenues for the six months ended March 31, 2004 and March 31, 2005 consisted of tuition. Our net revenues vary from period to period in conjunction with our average student population. A majority of our undergraduate programs are typically designed to be completed in 12 to 18 months and our advanced training programs range from 12 to 27 weeks in duration. We supplement our core revenues with sales of textbooks and program supplies, student housing provided by us and other revenues. Sales of textbooks and program supplies, revenue related to student housing and other revenue are each recognized as sales occur or services are performed. Deferred tuition represents the excess of tuition and fee payments received as compared to tuition and fees earned and is reflected as a current liability in our consolidated financial statements because it is expected to be earned within the following twelve-month period.

     Allowance for uncollectible accounts. We maintain an allowance for uncollectible accounts for estimated losses resulting from the inability, failure or refusal of our students to make required payments. We offer a variety of payment plans, which are unsecured and not guaranteed, to help students pay that portion of their education expenses not covered by financial aid programs. Management analyzes accounts receivable, historical percentages of uncollectible accounts, customer credit worthiness, when applicable, and changes in payment history when evaluating the adequacy of the allowance for uncollectible accounts. We use an internal group of collectors, augmented by third party collectors as deemed appropriate, in our collection efforts. Although we believe that our reserves are adequate, if the financial condition of our students deteriorates,

13

resulting in an impairment of their ability to make payments, or if we underestimate the allowances required, additional allowances may be necessary, which will result in increased selling, general and administrative expenses in the period such determination is made.

     Healthcare and workers’ compensation costs. Claims and insurance costs which primarily relate to health insurance and workers’ compensation are accrued using current information and, in the case of healthcare costs, future estimates provided by consultants to reasonably measure current costs incurred for services provided but not invoiced. Although we believe our estimated liability recorded for healthcare and workers’ compensation costs are reasonable, actual results could differ and require adjustment of the recorded balance.

     Bonus costs. We accrue the estimated cost of our bonus programs using current financial and statistical information as compared to targeted financial achievements and actual student graduation outcomes. Although we believe our estimated liability recorded for bonuses is reasonable, actual results could differ and require adjustment of the recorded balance.

     Tool Sets. We accrue the estimated cost of promotional tool sets offered to students at the time of enrollment and provided at a future date based upon satisfaction of certain criteria, including completion of certain course work. We accrue these costs based upon current student information and an estimate of students that will complete the requisite coursework. Although we believe our estimated liability for tool sets is reasonable, actual results could differ and require adjustment of the recorded balance.

     Long-lived assets. We record our long-lived assets, such as property and equipment, at cost. We review the carrying value of our long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable in accordance with the provisions of Statement of Financial Accounting Standards, or SFAS, No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” We evaluate these assets to determine if their current recorded value is impaired by examining estimated future cash flows. These cash flows are evaluated by using weighted probability techniques as well as comparisons of past performance against projections. Assets may also be evaluated by identifying independent market values. If we determine that an asset’s carrying value is impaired, we will record a write-down of the carrying value of the identified asset and charge the impairment as an operating expense in the period in which the determination is made. Although we believe that the carrying value of our long-lived assets are appropriately stated, changes in strategy or market conditions or significant technological developments could significantly impact these judgments and require adjustments to recorded asset balances.

     Goodwill. We assess the impairment of goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” Accordingly, we test our goodwill for impairment annually during the fourth quarter, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing its fair value to its carrying value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of the acquired business, and a variety of other circumstances. If we determine that an impairment has occurred, we are required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. Goodwill represents a significant portion of our total assets. At March 31, 2005, goodwill represented approximately 12.5% of our total assets, or $20.6 million, and was a result of our acquisition of the parent company of our MMI operation in January of 1998. Although we believe goodwill is appropriately stated in our consolidated financial statements, changes in strategy or market conditions could significantly impact these judgments and require an adjustment to the recorded balance.

     Stock-based compensation. We currently account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock

14

Issued to Employees,” and related Interpretations, and comply with the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” We currently are not required to record stock-based compensation charges if the employee stock option exercise price or restricted stock purchase price equals or exceeds the deemed fair value of our common stock at the grant date. If we had applied the fair value recognition provisions of SFAS No. 123 and estimated the fair value of the options on the date of grant using the Black-Scholes pricing model and then amortized this estimated fair value over the vesting period of the options, our net income would have been adversely affected, as shown in the table below.

     Accounting for income taxes. In preparing our consolidated financial statements, we assess the likelihood that our deferred tax assets will be realized from future taxable income. We establish a valuation allowance if we determine that it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Changes in the valuation allowance are included in our statement of operations as provision for or benefit from income taxes. We exercise significant judgment in determining our provision for income taxes, our deferred tax assets and liabilities and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred tax assets. Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgments that could become subject to audit by tax authorities in the ordinary course of business.

     As of March 31, 2005, we had a valuation allowance of $16.1 million to reduce our deferred tax assets to an amount that management believes is more likely than not realizable. The valuation allowance primarily relates to a deferred tax asset arising from a capital loss carryforward from the sale of a discontinued business and expires in 2006. Should we incur capital gains in the future, we would be able to realize all or part of the capital loss carryforward against which we have applied the valuation allowance. In that event, our current income tax expense would be reduced or our income tax benefits would be increased, resulting in an increase in net income or a reduction in net loss.

15

New Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123(R), “Share-Based Payment.” This statement replaces SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS No. 123(R) eliminates the alternative to use APB Opinion 25’s intrinsic value method of accounting that was provided in Statement No. 123 as originally issued. After a phase-in period for Statement No. 123(R), pro forma disclosure will no longer be allowed. In the first quarter of 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107 which provided further clarification on the implementation of SFAS No. 123(R).

     SFAS No. 123(R) requires the measurement and recording of the cost of employee services received in exchange for awards of equity instruments to be based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. SFAS No. 123(R) was to be effective for the first interim reporting period beginning on or after June 15, 2005; however, the Securities and Exchange Commission announced in April 2005 that it was extending the date for compliance with SFAS 123(R), such that SFAS No. 123(R) is effective starting with the first interim reporting period of our first fiscal year beginning on or after June 15, 2005. The first interim period of our first fiscal year beginning on or after June 15, 2005 will be the quarter ending December 31, 2005. We estimate the effect of adopting SFAS No. 123(R), based upon outstanding equity awards as of March 31, 2005, will be approximately $4.6 million for our 2006 fiscal year (which begins October 1, 2005.) This estimate does not include the impact of additional equity awards which may be granted or forfeitures which may occur subsequent to March 31, 2005 and prior to our adoption of SFAS No. 123(R).

     In April 2005, FASB issued Financial Interpretation No. 47 (FIN 47), “Accounting for Conditional Asset Retirement Obligations.” FIN 47 provides clarification of the manner in which uncertainties concerning the timing and method of settlement of an asset retirement obligation should be accounted for and when the fair value of an asset retirement obligation is deemed to be estimable on a reasonable basis. FIN 47 is effective for fiscal years ending no later than December 15, 2005. We believe our adoption of FIN 47 will not have a material impact on our consolidated financial statements or disclosures.

16

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 March 31, 2005 Compared to Three Months Ended March 31, 2004 and Six Months Ended March 31, 2005 Compared to Six Months Ended March 31, 2004

     Net revenues. Our revenues for the three months ended March 31, 2005 were $77.5 million, representing an increase of $13.8 million, or 21.7%, as compared to net revenues of $63.7 million for the three months ended March 31, 2004. This increase was due to a 19.3% increase in the average undergraduate full-time student enrollment and tuition increases. Average undergraduate full time student enrollment increased to 15,517 for the three months ended March 31, 2005 as compared to 13,006 for the three months ended March 31, 2004.

     Our revenues for the six months ended March 31, 2005 were $150.8 million, representing an increase of $28.1 million, or 22.9%, as compared to net revenues of $122.7 million for the six months ended March 31, 2004. This increase was due to a 20.0% increase in the average undergraduate full-time student enrollment and tuition increases. Average undergraduate full time student enrollment increased to 15,521 for the six months ended March 31, 2005 as compared to 12,931 for the six months ended March 31, 2004.

     Educational services and facilities expenses. Our educational services and facilities expenses for the three months ended March 31, 2005 were $35.0 million, representing an increase of $6.7 million, or 23.8%, as compared to educational services and facilities expenses of $28.2 million for the three months ended March 31, 2004. Our educational services and facilities expenses for the six months ended March 31, 2005 were $68.3 million, representing an increase of $14.5 million, or 26.9%, as compared to educational services and facilities expenses of $53.8 million for the six months ended March 31, 2004. Educational services and facilities expenses as a percentage of net revenues increased to 45.1% for the three months ended March 31, 2005 as compared to 44.3% for the three months ended March 31, 2004, and increased to 45.3% for the six months ended March 31, 2005 as compared to 43.9% for the six months ended March 31, 2004.

17

     These increases were primarily due to incremental educational expenses related to higher average student enrollments and occupancy costs associated with our new Exton, Pennsylvania campus and other campus expansions. In addition, educational services and facilities expenses included an additional charge to depreciation expense of $0.3 million in the three months ended March 31, 2004, and $0.6 million in the six months ended March 31, 2004 related to a change in the estimated useful life of leasehold improvements at a campus we relocated in September 2004. The increase in depreciation expense for the six months ended March 31, 2004 was offset by an $0.8 million reduction in estimated tool set expense.

     Selling, general and administrative expenses. Our selling, general and administrative expenses for the three months ended March 31, 2005 were $28.1 million, an increase of $6.1 million, or 27.9%, as compared to selling, general and administrative expenses of $22.0 million for the three months ended March 31, 2004. Our selling, general and administrative expenses for the six months ended March 31, 2005 were $52.6 million, representing an increase of $11.2 million, or 27.1%, as compared to selling, general and administrative expenses of $41.4 million for the six months ended March 31, 2004. Selling, general and administrative expenses as a percentage of net revenues increased to 36.3% for the three months ended March 31, 2005 as compared to 34.5% for the three months ended March 31, 2004, and increased to 34.9% for the six months ended March 31, 2005 compared to 33.7% for the six months ended March 31, 2004.

     These increases were primarily due to incremental compensation expenses related to additional sales representatives and administrative personnel, advertising expenses associated with student leads and enrollment, contract services to support Sarbanes-Oxley compliance, bad debt expense and depreciation. Selling, general and administrative expenses includes approximately $0.7 million for the three months ended March 31, 2005, attributable to pre-opening sales and marketing costs for the Norwood, Massachusetts and Sacramento, California campuses planned to open in the next 6 to 12 months, respectively, as compared to pre-opening costs of approximately $0.9 million attributable to the Exton, Pennsylvania campus which was opened in July 2004. Pre-opening costs for the Norwood, Massachusetts and Sacramento, California campuses were $1.0 million for the six months ended March 31, 2005 as compared to $1.7 million for the Pennsylvania campus for the six months ended March 31, 2004.

     Interest expense, net. Our interest expense for the three months ended March 31, 2005 was approximately $16,000, representing a decrease of approximately $0.2 million, or 91.8%, compared to interest expense of $0.2 million for the three months ended March 31, 2004. Our interest expense for the six months ended March 31, 2005 was approximately $57,000, representing a decrease of $1.0 million, or 94.4%, compared to interest expense of $1.0 million for the six months ended March 31, 2004. The decreases were primarily due to the payment in full of our then outstanding term debt with proceeds received from our initial public offering in December 2003.

     Our interest income for the three months ended March 31, 2005 was approximately $0.3 million, representing an increase of approximately $0.3 million, compared to interest income of $50,000 for the three months ended March 31, 2004. Our interest income for the six months ended March 31, 2005 was approximately $0.6 million, representing an increase of approximately $0.5 million compared to interest income of $0.1 million for the six months ending March 31, 2004. These increases were primarily due to the investment of our excess cash in a prime money market fund and United States government agency discount notes.

     Other expenses. Our other expense decreased approximately $0.8 million for six months ended March 31, 2005 as compared to the six months ended March 31, 2004, which represented the write-off of unamortized deferred financing costs related to the early retirement of our term debt.

18

     Income taxes. Our provision for income taxes for the three months ended March 31, 2005 was $5.6 million, or 37.9% of pretax income, compared to $5.3 million, or 39.7% of pretax income, for the three months ended March 31, 2004. Our provision for income taxes for the six months ended March 31, 2005 was $11.5 million, or 37.6% of pretax income, compared to $10.3 million, or 39.9% for the six months ended March 31, 2004. The lower effective rate for the three months and six months ended March 31, 2005 as compared to the three months and six months ended March 31, 2004 is primarily attributable to state tax credits and overall lower state tax rates.

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. Student population varies as a result of new student enrollments, graduations and student attrition. Historically, our schools have had lower student populations in our third fiscal quarter, which ends on June 30, than in the remainder of our fiscal year because fewer students are enrolled during the summer months. In addition, school is not in session during the one-week holiday break which occurs in December. As a result, first quarter revenue does not correlate to the peak in student population. Our normal operating 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 fluctuation in operating results to continue as a result of seasonal enrollment patterns. Such patterns may change however, as a result of new school openings, new program introductions, increased enrollments of adult students or acquisitions.

     Operating income is negatively impacted during the initial start up of new campus openings. We incur sales and marketing costs as well as campus personnel costs in advance of the campus opening. Typically we begin to incur such costs approximately 12 to15 months in advance of the campus opening with the majority of such costs being incurred in the 9-month period prior to a campus opening. We incurred pre-opening costs of approximately $0.9 million during the three months ended March 31, 2005 and $1.3 million for the six months ended March 31, 2005 related to the planned opening of our Norwood, Massachusetts and Sacramento, California campuses. We incurred pre-opening costs of approximately $0.9 million during the three months ended March 31, 2004 and $1.7 million for the six months ended March 31, 2004 related to the opening of our Exton, Pennsylvania campus. The Exton campus opened in July 2004.

Liquidity and Capital Resources

     We finance our operating activities and our internal growth through cash generated from operations.

     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 (thirty-week periods) and loan funds are generally provided by lenders in two disbursements for each academic year. The first disbursement is usually received 30 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth week from the start of the student’s academic year. Certain types of grants and other funding are not subject to a 30-day delay. Our undergraduate programs are typically designed to be completed in twelve to eighteen months. These timing factors together with the timing of when our students begin their programs affect our operating cash flow.

     Net cash from operations increased $3.6 million, or 11.5%, from $31.2 million to $34.8 million for the six months ended March 31, 2004 and 2005, respectively. This increase was primarily attributable to increased net income, release of restricted cash, and an increase in cash provided from accounts payable and accrued expenses, partially offset by an increase in net cash used as a result of increases in accounts receivable and deferred revenue and other current liabilities. The increase in net cash used for accounts receivable and deferred revenue is

19

attributable to the timing of receipt of student funding. The increase in cash provided from other current liabilities is primarily attributable to the payment of income taxes.

     Net cash used in investing activities increased $30.1 million from $8.0 million to $38.1 million for the six months ended March 31, 2004 and 2005, respectively. This increase is primarily attributable to the purchase of U.S. Government bonds in the amount of $16.0 million and additional investment in property and equipment. Our U.S. Government bond investment is intended to be held to maturity and is used to collateralize our letter of credit issued to the Department of Education. Cash used for the purchase of property and equipment increased $14.1 million as compared to the six months ended March 31, 2004 and is primarily attributable to the purchase of land and building for our campus planned to open in Norwood, Massachusetts in the fourth quarter of fiscal 2005, totaling $12.6 million.

     Capital expenditures are expected to increase as we upgrade current equipment and expand facilities and open new facilities to meet increased student enrollments. In addition to the approximately $12.6 million real estate purchase in Norwood, Massachusetts, we expect to spend an additional $12.0 million to retrofit the existing building prior to the planned opening in the fourth quarter of our 2005 fiscal year. We expect to be able to fund these capital expenditures with cash on hand and cash generated from operations.

     Our strategy includes considering strategic acquisitions in the future. 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 or additional equity securities.

     Net cash provided by financing activities increased $5.6 million from $1.9 million to $7.5 million for the six months ended March 31, 2004 and 2005, respectively. This increase is primarily attributable to the bank overdrafts resulting from our treasury management through controlled disbursement accounts allowing us to maximize our excess cash investments, and proceeds received from the exercise of stock options. Cash provided for the six months ended March 31, 2004 is primarily attributable to the net impact of receiving approximately $59.0 million of net cash from our initial public offering in December 2003 and the repayment of our then outstanding long term debt of approximately $31.5 million and the redemption of our remaining preferred stock and payment of accrued and unpaid dividends, together totaling approximately $25.5 million.

     On October 26, 2004, we entered into a new credit agreement with a bank for a revolving line of credit in the amount of $30.0 million and a standby letter of credit facility for up to $20.0 million. We have the option to issue letters of credit under the revolving line of credit, which reduces our borrowing ability, or under the standby letter of credit facility. The standby letter of credit facility is collateralized by an investment collateral account equal to the advance rate, as defined and dependent upon the underlying collateral investment. Effective November 1, 2004, we issued a letter of credit in favor of the Department of Education in the amount of $14.4 million which is collateralized by a $16.0 million investment held in U.S. Government guaranteed bonds. The $14.4 million letter of credit replaces our previously issued $9.9 million letter of credit. The increase in the letter of credit is attributable to the increase in Title IV funds that we received during our 2003 fiscal year as a result of the growth in our average student enrollment. There were no outstanding borrowings under our revolving line of credit.

     Our new credit agreement contains various financial and non-financial covenants. The facility, among other things, requires us to comply with specified financial ratios and tests, restricts our ability to incur additional indebtedness, grant liens or other security interests, make certain investments, become liable for contingent obligations, dispose of assets or stock of our subsidiaries and requires us to maintain any accreditation necessary for Title IV Program eligibility. At March 31, 2005, we were in compliance with these covenants.

20

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our principal exposure to market risk relates to interest rate changes. However, as a result of completing our initial public offering, we have been able to repay in full our term debt leaving only miscellaneous capital equipment leases which are not material.

Cautionary Factors That May Affect Future Results

     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:

	•	possible failure or inability to obtain regulatory consents and certifications for new campuses and campus expansions;
	•	changes in laws and regulations affecting post-secondary education, including Title IV funding;
	•	governmental inquiries or investigations and increased litigation;
	•	our ability to manage our planned growth, both internally and at new or existing campuses;
	•	competitive developments affecting our industry, including pricing pressures in newer markets;
	•	changes in demand for our programs;
	•	increased investment in management and capital resources;
	•	increase in interest rates adversely affecting a student’s ability to secure additional loans;
	•	the timing and number of new campuses that we open or acquire;
	•	growth in costs and expenses;
	•	construction delays with respect to new or expanding campuses;
	•	economic slowdown that affects any significant portion of our customer base, including economic slowdown in areas of limited geographic scope if markets in which we have significant operations are impacted by such slowdown;
	•	the effectiveness of our advertising and promotional efforts;
	•	changes in generally accepted accounting principles;
	•	increased expenses related to compliance and our ability to comply with Section 404 of Sarbanes-Oxley effective with our fiscal year ending September 30, 2005;
	•	any changes in business, political and economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas; and
	•	potential increased competition.

     We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and 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.

21

     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 23, 2004 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 “Cautionary Factors That May Affect Future Results” 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 SEC’s website at www.sec.gov.

Item 4. 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 pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting during the quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Sarbanes-Oxley Section 404 Compliance

     We are currently evaluating the design and operating effectiveness of our internal controls over financial reporting as part of our effort to comply with Section 404 of the Sarbanes-Oxley Act of 2002 as of our fiscal year ending September 30, 2005. Section 404 requires us to evaluate the effectiveness of our internal controls over financial reporting and include a management report on our assessment of the effectiveness of our internal controls over financial reporting in all annual reports beginning with our report on Form 10-K for the fiscal year ending September 30, 2005. As a result of this effort, we have identified certain deficiencies in general controls over our information systems, including segregation of duties and access to data and applications by program developers. We are currently designing and implementing improvements that we believe will adequately mitigate these deficiencies, and we expect that such improvements will be implemented in sufficient time to ensure their operating effectiveness as of September 30, 2005. We are also continuing to test our significant financial reporting systems to ensure that the key application controls that are dependent on these systems are operating effectively. We do not believe that the aforementioned deficiencies in information system general controls have had or will have a material impact on our financial statements. In addition, as a result of our remediation initiatives and the testing of our key financial reporting systems, we do not believe that the identified deficiencies will result in a material weakness in our internal control over financial reporting. However, we cannot provide any assurance that our remediation efforts will be successful or that additional testing of our internal controls will not identify additional deficiencies that, when aggregated with the existing deficiencies, would result in a material weakness.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

     In the ordinary conduct of our business, we are periodically subject to contingent liabilities that arise from 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,

22

investigations and claims asserted against us, our legal department estimates the costs to settle pending litigation, based on experience involving similar cases, specific facts known, and, if applicable, based on judgments of outside counsel. Based upon information currently available, 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.

     As reported in our Form 10-Q for the quarter ended March 31, 2004 and in our subsequent periodic reports, in April 2004, we received a letter on behalf of nine former employees of National Technology Transfer, Inc. (NTT), an entity that we purchased in 1998 and subsequently sold, making a demand for an aggregate payment of approximately $284,900 and 19,756 shares of our common stock. The claim is based on the assertion that the former owner of NTT promised them such payments upon completion of a public offering of our common stock. We believe the demand for payment is without merit. On May 14, 2004, plaintiffs filed suit in Boulder County, Colorado District Court seeking payment in accordance with their demand. We filed a motion to dismiss due to lack of personal jurisdiction and improper venue. On November 10, 2004, the Colorado District Court dismissed the suit on the basis that the forum selection clause in the agreement, under which plaintiffs claimed they were owed payment, specified that any action arising under the agreement must be brought in state or federal court in Phoenix, Arizona. On February 23, 2005, the former employees filed suit in Maricopa County, Arizona Superior Court.

     We received written notice from a third party that certain of our former employees had allegedly used the intellectual property assets of the third party in the development of our e-learning training products. We have participated in a mediation and are currently engaged in settlement negotiations. We believe that this matter will not have a material impact on our financial condition or results of operations.

Item 2. UNREGISTERED SALES OF EQUITY SECURITITES AND USE OF PROCEEDS

     On February 16, 2005, we issued 1,000 shares of our common stock to Charlesbank Equity Fund V, Limited Partnership in consideration for Michael Eisenson’s services as a director. Mr. Eisenson is a managing director and Chief Executive Officer of Charlesbank Capital Partners, LLC, which is the general partner of Charlesbank Equity Fund V GP, Limited Partnership. Charlesbank Equity Fund V GP, Limited Partnership is the general Partner of Charlesbank Equity Fund V, Limited Partnership. The shares were issued to Charlesbank Equity Fund V, Limited Partnership pursuant to a contractual arrangement between Mr. Eisenson and the various Charlesbank entities. All such securities are restricted securities and were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. On March 1, 2004, we effected a similar grant of 1,000 shares to Charlesbank Equity V, Limited Partnership for the same purpose and relied on the same exemption from the Securities Act.

23

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     (a) Our annual meeting of stockholders was held on February 16, 2005.

     (b) Our stockholders voted as follows to elect three Class I directors to our board of directors:

Our stockholders voted as follows to elect one Class II director to our board of directors:

     Directors whose term of office continued after the annual meeting include: Robert D. Hartman, John C. White, Michael R. Eisenson, A. Richard Caputo, Jr. and Roger S. Penske.

     (c) 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, 2005:

For: 23,384,723            Against: 30,144            Votes Withheld: 131,260

Item 6. EXHIBITS

     (a) Exhibits (filed herewith):

24

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.

	UNIVERSAL TECHNICAL INSTITUTE, INC.
Dated: May 5, 2005	By:	/s/ Jennifer L. Haslip
		Jennifer L. Haslip
		Senior Vice President , Chief Financial Officer, Treasurer and Assistant Secretary (Principal Financial Officer and Duly Authorized Officer)

25