UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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UNIVERSAL TECHNICAL INSTITUTE, INC.
20410 North 19th Avenue
Suite 200
Phoenix, Arizona 85027
(623) 445-9500

Dear Fellow Stockholder:

 

You are cordially invited to attend the 2011 Annual Meeting of Stockholders of Universal Technical Institute, Inc. (the “Company,” “UTI,” “we,” “us” or “our”), to be held at 8:00 a.m. local time on Wednesday, February 23, 2011, at our offices located at 20430 North 19th Avenue, Suite B160, Phoenix, Arizona 85027.

 

We have attached a notice of meeting and a proxy statement that contain details of the business to be conducted at the Annual Meeting.

 

Whether or not you attend the Annual Meeting, it is important that your shares be represented and voted at the meeting. Therefore, I urge you to promptly vote and submit your proxy before the meeting so that your shares will be represented and voted at the meeting even if you cannot attend in person.

 

On behalf of the Board of Directors, I would like to express our appreciation for your continued interest in the affairs of UTI. We look forward to seeing you at the Annual Meeting.

 

Sincerely,

 

John C. White

Chairman of the Board of Directors

 

January 18, 2011

 

TABLE OF CONTENTS

 

 

 

UNIVERSAL TECHNICAL INSTITUTE, INC.
20410 North 19th Avenue
Suite 200
Phoenix, Arizona 85027
(623) 445-9500

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
and
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS

 

To the holders of common stock of Universal Technical Institute, Inc.:

 

The 2011 Annual Meeting of Stockholders of Universal Technical Institute, Inc. (the “Company”) will be held at our offices located at 20430 North 19th Avenue, Suite B160, Phoenix, Arizona 85027 on Wednesday, February 23, 2011 at 8:00 a.m. local time for the following purposes:

 

1. To elect three directors to the Board of Directors to serve for a term of three years or until their respective successors are elected and qualified.

 

2. To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ended September 30, 2011.

 

3. To hold an advisory vote approving the compensation of the Company’s Named Executive Officers.

 

4. To hold an advisory vote on the frequency of the vote on the compensation of the Company’s Named Executive Officers.

 

5. To consider and act upon such other business as may properly come before the meeting.

 

Only stockholders of record at the close of business on January 7, 2011 are entitled to receive notice of and to vote at the meeting. A list of stockholders entitled to vote will be available for examination at the meeting by any stockholder for any purpose germane to the meeting. The list will also be available for the same purpose for ten days prior to the meeting at our principal executive offices at 20410 North 19th Avenue, Suite 200, Phoenix, Arizona 85027.

 

To obtain directions to attend the Annual Meeting and vote in person, please call Investor Relations at (623) 445-9500.

 

The Company has enclosed its 2010 annual report, including financial statements, and the proxy statement with this notice of annual meeting.

 

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED STAMPED ENVELOPE. YOUR PROXY IS BEING SOLICITED BY THE COMPANY’S BOARD OF DIRECTORS.

 

By Order of the Board of Directors,

 

Chad A. Freed

Senior Vice President, General Counsel and Secretary

 

Phoenix, Arizona

January 18, 2011

 

UNIVERSAL TECHNICAL INSTITUTE, INC.
20410 North 19th Avenue
Suite 200

 

Phoenix, Arizona 85027
(623) 445-9500

 

PROXY STATEMENT

 

Annual Meeting of Stockholders

February 23, 2011

 

General Information

 

This Proxy Statement and the enclosed form of proxy are furnished on or about January 18, 2011 to holders of the common stock of Universal Technical Institute, Inc. (the “Company,” “UTI,” “we,” “us” or “our”), in connection with the solicitation on behalf of the Company’s Board of Directors of proxies to be voted at the 2011 Annual Meeting of Stockholders (the “Annual Meeting”) and at any adjournment or postponement thereof. The Annual Meeting will be held at 8:00 a.m. local time on February 23, 2011 at our offices located at 20430 North 19th Avenue, Suite B160, Phoenix, Arizona 85027.

 

We will bear the cost of soliciting proxies. Copies of solicitation material may be furnished to brokers, custodians, nominees and other fiduciaries for forwarding to beneficial owners of shares of common stock, and normal handling charges may be paid for such forwarding service. We may solicit proxies by mail or by personal interview, telephone and other electronic communication by our officers and other management employees, who will receive no additional compensation for their services.

 

Any stockholder giving a proxy pursuant to this solicitation may revoke it at any time prior to exercise of the proxy by giving written notice of such revocation to our Secretary at our executive offices at 20410 North 19th Avenue, Suite 200, Phoenix, Arizona 85027, or by attending the Annual Meeting and voting in person.

 

At the close of business on January 7, 2011, there were 25,217,495 shares of our common stock outstanding and entitled to vote at the Annual Meeting. Only common stockholders of record on January 7, 2011 will be entitled to vote at the Annual Meeting. Each share is entitled to one vote on each matter voted upon. Votes may not be cumulated.

 

The presence, in person or by a proxy relating to any matter to be acted upon at the Annual Meeting, of the holders of a majority of the outstanding shares of common stock will constitute a quorum for purposes of the Annual Meeting. For purposes of the quorum requirement and the discussion below regarding the vote necessary to take stockholder action, stockholders of record who are present at the Annual Meeting in person or by proxy and who abstain are considered stockholders who are present and entitled to vote and they count toward the quorum.

 

Brokers, banks or other nominees that hold shares of common stock in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion if permitted by the stock exchange or other organization of which they are members. Brokers, banks and other nominees are permitted to vote the beneficial owner’s proxy in their own discretion as to certain “routine” proposals when they have not received

instructions from the beneficial owners, such as the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2011. If a broker, bank or other nominee votes such “uninstructed” shares for or against a “routine” proposal, those shares will be counted towards determining whether or not a quorum is present and are considered entitled to vote on the “routine” proposals. However, where a proposal is not “routine,” a broker, bank or other nominee is not permitted to exercise its voting discretion on that proposal without specific instructions from the beneficial owner. These non-voted shares are referred to as “broker non-votes” when the nominee has voted on other non-routine matters with authorization or voted on routine matters. These shares will be counted towards determining whether or not a quorum is present, but will not be considered entitled to vote on the “non-routine” proposals.

 

Broker non-votes will not affect the outcome of any matter being voted on at the meeting, assuming that a quorum is obtained. Abstentions, on the other hand, have the same effect as votes against the matter, although abstentions will have no effect on the election of directors because approval of a percentage of shares present or outstanding is not required for that proposal.

 

Election of Directors.  Our Bylaws provide that in a non-contested election, each director nominee must be elected by the affirmative vote of the majority of the votes cast with respect to that director’s election. A “majority of the votes cast” means that the number of votes “FOR” a director nominee must exceed the number of votes “AGAINST” that director nominee. Accordingly, abstentions will have no effect on the election of a director. Pursuant to our Corporate Governance Guidelines, the Board of Directors expects any director nominee who is an incumbent director and is not re-elected to promptly tender his or her resignation, and the Board of Directors, excluding the director who tenders his or her resignation, must promptly decide whether to accept or reject the resignation. Uninstructed shares are not entitled to vote on the election of directors.

 

Ratification of the Appointment of the Independent Registered Public Accounting Firm.  The affirmative vote of a majority of the shares of common stock present or represented at the Annual Meeting and entitled to vote is required to approve the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending September 30, 2011. Uninstructed shares are entitled to vote on this matter. Abstentions will have the same effect as a vote against ratification of the appointment of our independent registered public accounting firm.

 

Advisory Vote on Named Executive Officer Compensation.  Approval of the advisory vote on the compensation of our Named Executive Officers requires the affirmative vote of a majority of the shares of common stock present or represented at the Annual Meeting and entitled to vote. Abstentions will have the same effect as a vote against approving the advisory proposal. Uninstructed shares are not entitled to vote on this matter. Because the vote is advisory, it will not be binding upon the Board of Directors. However, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements.

 

Advisory Vote on Frequency of Vote on Named Executive Officer Compensation.  Approval of the advisory vote on the frequency of the vote on the compensation of our Named Executive Officers requires the affirmative vote of a majority of the shares of common stock present or represented at the Annual Meeting and entitled to vote. Abstentions will have the same effect as a vote against approving the advisory proposal. Uninstructed shares are not entitled to vote on this matter. Because the vote is advisory, it will not be binding upon the Board of Directors. However, the Compensation Committee will take into account the outcome of the vote when considering the frequency of the advisory vote on named executive officer compensation.

 

Any stockholder entitled to vote on any matter may vote part of such stockholder’s shares in favor of the proposal and refrain from voting the remaining shares or, except with respect to the election of Directors, may vote the remaining shares against the proposal; but if the stockholder fails to specify the number of shares which the stockholder is voting affirmatively or otherwise indicates how the number of shares to be voted affirmatively is to be determined, it will be conclusively presumed that the stockholder’s approving vote is with respect to all shares which the stockholder is entitled to vote.

If any other matters are properly presented at the Annual Meeting for consideration, including, among other things, consideration of a motion to adjourn the meeting to another time or place, the individuals named as proxies and acting thereunder will have discretion to vote on those matters according to their best judgment to the same extent as the person delivering the proxy would be entitled to vote. If the Annual Meeting is postponed or adjourned, a stockholder’s proxy will remain valid and may be voted at the postponed or adjourned meeting. A stockholder still will be able to revoke the stockholder’s proxy until it is voted. At the date this Proxy Statement went to press, the Board of Directors did not know of any matters other than those described in this Proxy Statement to be presented at the Annual Meeting.

 

Proxies properly executed and received by the Company prior to the Annual Meeting and not revoked will be voted as directed therein on all matters presented at the Annual Meeting. In the absence of specific direction from a stockholder, proxies will be voted for the election of all named Director nominees, for the proposal to ratify the appointment of the independent registered public accounting firm, for approval of the advisory vote on the compensation of our Named Executive Officers and three years for the frequency of the vote on the compensation of our Named Executive Officers.

 

Board of Directors Structure.  Our Board of Directors currently has eight members, the majority of whom are independent directors. The Board of Directors is divided into three classes. Directors in each class serve for three-year terms. At each annual meeting, the term of one class expires. Currently, Messrs. Conrad and Cabito and Ms. McWaters serve as Class I Directors, Messrs. Penske and White and Ms. Srere serve as Class II Directors and Messrs. Caputo and Paige serve as Class III Directors.

 

Nominees for Election at this Annual Meeting.  The Board of Directors, acting on the recommendation of the Nominating and Corporate Governance Committee, has nominated Conrad A. Conrad, Alan E. Cabito and Kimberly J. McWaters for re-election as Class I Directors, each to serve a three-year term ending in 2014, or until the Director’s successor is duly elected. It is intended that the votes represented by the proxies at the Annual Meeting will be cast for the election of Messrs. Conrad and Cabito and Ms. McWaters as Directors.

 

The following table and text presents information as of the date of this Proxy Statement concerning the nominees for election as Directors, including in each case their current membership on committees of the Board of Directors, year first elected a Director and principal occupations or affiliations during the last five years, other directorships currently held or held during the past five years and the experiences, qualifications, attributes or skills that each nominee and Director brings to our Board of Directors.

 

Director Nominees

 

 

 

The Board of Directors recommends that you vote “FOR” each of these nominees.

Continuing Directors.  The terms of Messrs. Penske and White and Ms. Srere are scheduled to end in February 2012 and the terms of Messrs. Caputo and Paige are scheduled to end in February 2013.

 

Roger S. Penske, age 73, has served as a Director on our Board of Directors since 2002. Mr. Penske has served as Chairman of the Board of Directors and Chief Executive Officer of Penske Automotive Group, Inc., a publicly-traded automotive retailer, since 1999. Mr. Penske has also been Chairman of the Board of Directors and Chief Executive Officer of Penske Corporation since 1969. Mr. Penske also serves as a director of General Electric Company, a director of Business Leaders for Michigan, vice chairman of Downtown Detroit Partnership and a trustee of the Detroit Medical Center. Mr. Penske also served as a director of Internet Brands, Inc. during the last five years. Mr. Penske has executive management experience in the automotive industry and experience as a public company director.

 

John C. White, age 62, has served as a Director on our Board of Directors since 1997 and as Chairman of our Board of Directors since October 1, 2005. From October 1, 2003 to September 30, 2005, Mr. White served as our Chief Strategic Planning Officer and Vice Chairman. From April 2002 to September 30, 2003, Mr. White served as our Chief Strategic Planning Officer and Co-Chairman of our Board of Directors. From 1997 to March 2002, Mr. White served as our Chief Strategic Planning Officer and Chairman of our Board of Directors. Mr. White served as the President of Clinton Harley Corporation (which operated under the name Motorcycle Mechanics Institute and Marine Mechanics Institute) from 1977 until it was acquired by UTI in 1998. Prior to 1977, Mr. White was a marketing representative with International Business Machines Corporation. Mr. White was appointed by the Arizona Senate to serve as a member of the Joint Legislative Committee on Private Regionally Accredited Degree Granting Colleges and Universities and Private Nationally Accredited Degree Granting and Vocational Institutions in 1990. He was appointed by the Governor of Arizona to the Arizona State Board for Private Post-secondary Education, where he was a member and Complaint Committee Chairman from 1993-2001. Mr. White received a BS in Engineering from the University of Illinois. Mr. White has experience in the post-secondary technical education services industry and has experience involving accreditation issues. Mr. White has assisted with our strategic planning, both as a director and as an employee.

 

Linda J. Srere, age 55, has served as a Director on our Board of Directors since 2005. Ms. Srere is a marketing and advertising consultant. From January 2000 to November 2001, she served as President of Young & Rubicam Advertising, a worldwide advertising network. From September 1998 to January 2000, Ms. Srere served as Vice Chairman and Chief Client Officer of Young & Rubicam Inc. (“Y&R”). From January 1997 to September 1998, she served as President and CEO of Y&R’s New York office. Ms. Srere joined Y&R in September 1994 as Executive Vice President and Director of Business Development. Ms. Srere served as the Chairman of advertising agency Earle Palmer Brown New York from 1992 to 1994, and served as President of advertising agency Rosenfeld, Sirowitz, Humphrey & Strauss from 1990 to 1992. Ms. Srere is also a director of Electronic Arts Inc. Ms. Srere also served as a director of a Quantive, Inc., which was sold to Microsoft in 2007, during the last five years. She received a BA in Psychology from State University of New York at Oswego. Ms. Srere brings marketing and business leadership skills from her career in marketing and advertising. She is also a director at a public company, where she serves on its compensation committee and its nominating and governance committee.

 

A. Richard Caputo, Jr., age 44, has served as a Director on our Board of Directors since 1997. Mr. Caputo is the Managing Principal of The Jordan Company, LP and The Jordan Company II, LP, and has been an employee of The Jordan Company, LP and its predecessors and affiliated entities since 1990. The Jordan Company II, LP manages, and is an affiliate of, The Resolute Fund II, LP. Since 2007, Mr. Caputo has been a member of Resolute Fund Partners II, LLC, the general partner of The Resolute Fund II, LP. Mr. Caputo is also a director of Safety Insurance Group, Inc., TAL International Group, Inc. and a number of privately-held companies. Mr. Caputo received a BA in Mathematical and Business Economics from Brown University. Mr. Caputo brings to the Board of Directors historical knowledge of and experience with UTI. Mr. Caputo has experience at helping companies build value in partnership with management. Mr. Caputo also serves as a board member of numerous companies, including two public companies, as set forth above.

Dr. Roderick R. Paige, age 77, was appointed as a Director on our Board of Directors in September 2010. Dr. Paige was a founder of the Chartwell Education Group, LLC, an education consulting firm, and served as its Chairman from 2005 to 2009. Dr. Paige has also served as Senior Advisor to Higher Ed Holdings, LLC since 2005. Dr. Paige served as the United States Secretary of Education from 2001 to 2005 and was a Public Policy Scholar at the Woodrow Wilson International Center for Scholars in 2005. Dr. Paige also served as a director of News Corporation during the last five years. Dr. Paige received his doctorate and masters in health and physical education from Indiana University and his BS from Jackson State University. Dr. Paige brings to the Board of Directors governmental regulatory experience in the education industry.

 

Corporate governance is typically defined as the system that allocates duties and authority among a company’s stockholders, board of directors and management. The stockholders elect the board and vote on extraordinary matters; the board is the company’s governing body, responsible for hiring, overseeing and evaluating management; and management runs the company’s day-to-day operations. Our Board of Directors currently consists of eight directors, as described above.

 

Board Leadership Structure.  Our corporate governance documents provide that our Board of Directors is free to choose the Chair of the Board in any manner that is in the best interests of UTI. Pursuant to the current Corporate Governance Guidelines adopted by the Board of Directors, the roles of the Chief Executive Officer and Chair of the Board should be separate. In making leadership structure determinations, our Board of Directors considers many factors. When a vacancy occurs in the office of either the Chairman or the Chief Executive Officer, the Board will consider the specific characteristics and circumstances existing at that time and will determine whether the role of Chairman should be separate from that of the Chief Executive Officer and, if the roles are separate, whether the Chairman should be selected from the independent directors or from management. At this time, each of the positions of Chairman of the Board and Chief Executive Officer of the Company are held by different persons. Our Board of Directors has decided at this time to have different persons hold such positions largely due to the availability to the Company of multiple persons with many years of experience in our industry and extensive executive management experience with the Company.

 

Our Corporate Governance Guidelines call for regular executive sessions of the non-management Directors (those not employed by us). The Board of Directors believes that these regular executive sessions outside of the presence and influence of management ensure that non-management directors have sufficient opportunity to fully and candidly discuss ideas and issues regarding the Company, management’s performance and whether Board operations are satisfactory. The role of presiding director at regular executive sessions of the non-management directors rotates on an annual basis. During fiscal 2009, the chairperson of the Compensation Committee presided over executive sessions of the non-management Directors. During fiscal 2010, the chairperson of the Nominating and Corporate Governance Committee served in that role. For fiscal 2011, the chairperson of the Audit Committee will serve in that role. The Board of Directors believes that rotating the presiding director at the non-management executive sessions annually is the preferable governing approach as it maximizes participation by all non-management directors and fosters an environment in which each non-management director has an equal opportunity to provide direction and influence, while not placing undue burden on any one non-management director.

 

The Nominating and Governance Committee and the non-management directors have considered the need for, and desirability of, appointment of a permanent lead director. Both the Nominating and Governance Committee and the non-management directors concluded that a permanent lead director is not necessary at this time to ensure strong independent Board leadership. In addition, the non-management directors have concluded that effective oversight of the executive officers of the Company and establishment of an agenda that appropriately considers the stockholder perspective can be attained without formal designation of a lead director. This determination will be periodically reviewed by the non-management directors.

 

“Independent” Directors.  Our Board of Directors has determined that Messrs. Caputo, Conrad, Cabito, Paige and Penske and Ms. Srere qualify as “independent” in accordance with the published listing requirements of the New York Stock Exchange (the “NYSE”). The NYSE’s independence definition includes a

series of objective tests, such as that the director is not an employee of the Company, has no material relationships with the Company and has not engaged in various types of business dealings with the Company. An explanation of the independence standard used by our Board of Directors, which standard incorporates the NYSE independence definition, is set forth in the Corporate Governance Guidelines adopted by the Board of Directors and discussed elsewhere in this Proxy Statement. The Board of Directors considers all relevant facts and circumstances in evaluating the independence of its members from management. Immaterial business transactions conducted in the ordinary course of business are not determinative of the issue of independence. As required by the NYSE rules, the Board of Directors has made an affirmative determination as to each independent director that no relationships exist which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a Director and has affirmatively determined that each independent director meets the independence standard used by the Board of Directors. In making these determinations, the Board of Directors reviewed and discussed information provided by the Directors and our management with regard to each Director’s business and personal activities as they may relate to us and our management. The Board of Directors also considered each Director’s other relationships that do not involve us or our management such as the employment of UTI graduates in the service departments of automotive dealerships owned by an entity of which one of our Directors is an affiliate.

 

“Independence” for Audit Committee Members and Audit Committee Financial Expert.  In addition, as required by the NYSE rules, the members of our Audit Committee each qualify as “independent” under special standards established by the U.S. Securities and Exchange Commission (the “SEC”) for members of audit committees. Our Audit Committee also includes at least one independent member who is determined by the Board of Directors to meet the qualifications of an “audit committee financial expert” in accordance with SEC rules, including that the person meets the relevant definition of an “independent director.” Mr. Conrad has been determined to be an audit committee financial expert. Stockholders should understand that this designation is a disclosure requirement of the SEC related to Mr. Conrad’s experience and understanding with respect to certain accounting and auditing matters. The designation does not impose upon Mr. Conrad any duties, obligations or liabilities that are greater than are generally imposed on him as a member of the Audit Committee and the Board of Directors, and his designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liabilities of any other member of our Audit Committee or the Board of Directors.

 

Board’s Role in Risk Oversight.  The Board of Directors as a whole is responsible for risk management oversight of the Company and in ensuring that management develops sound business strategies. The involvement of the full Board of Directors in setting the Company’s business strategy and objectives is integral to the Board’s assessment of our risk and also a determination of what constitutes an appropriate level of risk and how best to manage any such risk. This involves receiving reports and/or presentations from applicable members of management and the committees of the Board. The full Board of Directors conducts on-going risk assessment of the Company’s financial risk, legal/compliance risk and operational/strategic risk and addresses individual risk issues with management throughout the year as necessary.

 

While the Board of Directors has the ultimate oversight responsibility for the risk management process, the Board delegates responsibility for certain aspects of risk management to its committees. In particular, the Audit Committee focuses on financial reporting risks and related controls and procedures. The Compensation Committee strives to create compensation practices that do not encourage excessive levels of risk taking that would be inconsistent with the Company’s strategy and objectives. The Nominating and Corporate Governance Committee is responsible for overseeing the Company’s corporate governance and corporate governance principles.

 

Our Board of Directors and its committees meet throughout the year on a set schedule, and also hold special meetings and act by written consent from time to time as appropriate. The Board of Directors has delegated various responsibilities and authority to different Board committees as described elsewhere in this Proxy Statement. Committees regularly report on their activities and actions to the full Board of Directors. In addition, the Corporate Governance Guidelines that have been adopted by the Board of Directors and which

are discussed elsewhere in this Proxy Statement call for regular executive sessions of the non-management Directors.

 

In fiscal 2010, the Board of Directors held six meetings. Each Director attended at least 75% of the Board of Director meetings and meetings of committees on which such Director served during the Director’s tenure as a Director and committee member.

 

In accordance with the NYSE Corporate Governance Rules, we currently have three standing Board committees: Audit, Compensation and Nominating and Corporate Governance. Each member of the Audit, Compensation and Nominating and Corporate Governance Committees is an independent director in accordance with NYSE standards. Each of the Board committees has a written charter approved by the Board of Directors. Copies of each charter are posted on our website at www.uti.edu under the “Investors — Corporate Governance” captions. We will provide copies of our Board committee charters upon request made by writing to us at our principal executive offices at 20410 North 19th Avenue, Suite 200, Phoenix, Arizona 85027.

 

The current committee membership is as follows:

 

 

Audit Committee.  Messrs. Cabito and Conrad served as members of our Audit Committee during fiscal 2010. Allan D. Gilmour served as a member of our Audit Committee until his resignation from the Board of Directors on September 3, 2010. Mr. Caputo was appointed to the Audit Committee on September 14, 2010. The Board of Directors has determined that each member of the Audit Committee is financially literate and satisfies the independence requirements of the NYSE and the SEC. The Audit Committee has the responsibility for overseeing, among other things, our accounting and financial reporting processes, the reliability of our financial statements, the effective evaluation and management of our financial risks, our compliance with laws and regulations, and the effective and efficient audit of our financial statements by a qualified independent registered public accounting firm. The Audit Committee met eight times during fiscal 2010. The Audit Committee is required by SEC rules to publish a report to stockholders concerning the Audit Committee’s activities during the prior fiscal year. The Audit Committee’s report is set forth elsewhere in this Proxy Statement.

 

Compensation Committee.  Mr. Conrad and Ms. Srere served as members of our Compensation Committee during fiscal 2010. Mr. Gilmour served as a member of our Compensation Committee until his resignation from the Board of Directors on September 3, 2010. The Board of Directors has determined that each member of the Compensation Committee satisfies the independence requirements of the NYSE. The primary responsibility of the Compensation Committee is to develop and oversee the implementation of the Company’s philosophy with respect to the compensation of our officers. In that regard, the Compensation Committee has the responsibility for, among other things, developing and maintaining a compensation policy and strategy that creates a direct relationship between pay levels and corporate performance and returns to stockholders; recommending compensation and benefit plans to the Board of Directors for approval; reviewing and approving annual corporate and personal goals and objectives to serve as the basis for the Chief Executive Officer’s compensation, evaluating the Chief Executive Officer’s performance in light of the goals and, based on such evaluation, determining the Chief Executive Officer’s compensation; determining the annual total compensation for our Named Executive Officers; approving the grants of stock options and other equity-based

incentives as permitted under our equity-based compensation plans; reviewing and recommending to the Board of Directors compensation for our non-management Directors; and reviewing and recommending employment agreements, severance arrangements and change-in-control plans that provide for benefits upon a change-in-control, or other provisions for our executive officers and directors, to the Board of Directors. The Compensation Committee met 11 times during fiscal 2010.

 

Our Board of Directors has adopted a charter for the Compensation Committee that provides, among other things, that the Compensation Committee may, at its discretion, utilize independent consultants or counsel to assist the Compensation Committee in fulfilling its duties. Pursuant to its written charter, the Compensation Committee has the sole authority to retain or terminate any such consultant or counsel, including sole authority to approve the fees and other retention terms. The Compensation Committee retained Compensia, Inc. (“Compensia”) to assist as independent compensation consultants. For additional information on the role of compensation consultants, please see “Compensation Discussion and Analysis — Role of Compensation Consultants,” which is included elsewhere in the Proxy Statement. Other than as discussed in this Proxy Statement, Compensia did not provide any additional services to us during the 2010 fiscal year.

 

Nominating and Corporate Governance Committee.  Messrs. Cabito and Penske and Ms. Srere served as members of our Nominating and Corporate Governance Committee during fiscal 2010. Mr. Caputo served on our Nominating and Corporate Governance Committee until September 14, 2010, at which time Dr. Paige was appointed to the committee. The Board of Directors has determined that each member of the Nominating and Corporate Governance Committee satisfies the independence requirements of the NYSE. The Nominating and Corporate Governance Committee has the responsibility for, among other things, identifying individuals qualified to serve as directors of UTI, recommending qualified individuals for election to the Board of Directors at the annual meeting of stockholders; recommending to the Board of Directors those Directors to serve on each of the Board committees, recommending a set of corporate governance guidelines to the Board of Directors, reviewing periodically our Corporate Governance Guidelines and recommending governance issues that should be considered by the Board of Directors, reviewing periodically the Board of Director’s committee structure and operations and the working relationship between each committee and the Board of Directors, and considering, discussing and recommending ways to improve the Board of Director’s effectiveness. The Nominating and Corporate Governance Committee also reviews and makes recommendations to the Board of Directors regarding the size and the composition of the Board of Directors. In addition, the Nominating and Corporate Governance Committee will review and consider properly submitted stockholder recommendations on candidates for membership on the Board of Directors as described below. In evaluating such recommendations, the Nominating and Corporate Governance Committee will use the same review criteria discussed below under “Director Qualifications and Review of Director Nominees.” Any stockholder recommendations proposed for consideration by the Nominating and Corporate Governance Committee must include the candidate’s name, accompanied by relevant biographical information, and must be submitted in accordance with our Bylaws to the attention of our Corporate Secretary at Universal Technical Institute, Inc., 20410 North 19th Avenue, Suite 200, Phoenix, Arizona 85027. The Nominating and Corporate Governance Committee met four times during fiscal 2010.

 

The Nominating and Corporate Governance Committee makes recommendations to the Board of Directors regarding the size and composition of the Board of Directors. The Committee reviews annually with the Board of Directors the composition of the Board of Directors as a whole and recommends, if necessary, measures to be taken so that the Board of Directors reflects the appropriate balance of knowledge, experience, skills, expertise and diversity required for the Board of Directors as a whole and contains at least the minimum number of independent directors required by the NYSE and other applicable laws and regulations. The Committee is responsible for ensuring that the composition of the Board of Directors accurately reflects the needs of our business and, in accordance with the foregoing, proposing the addition of members and the necessary resignation of members for purposes of obtaining the appropriate members and skills.

 

To fulfill its responsibility to recruit and recommend to the full Board of Directors nominees for election as Directors, the Committee reviews the composition of the Board of Directors to determine the qualifications

and areas of expertise needed to further enhance the composition of the Board of Directors and works to attract candidates with those qualifications. In evaluating a director candidate, the Committee considers factors that are in the best interests of the Company and its stockholders, including the knowledge, experience and integrity of each candidate; the potential contribution of each candidate to the diversity of backgrounds, experience and competencies which the Board of Directors desires to have represented; each candidate’s ability to devote sufficient time and effort to his or her duties as a director; and any other criteria established by the Board of Directors and any core competencies or technical expertise necessary to staff committees of the Board of Directors. Directors should have a background and experience in areas important to the operations of the Company, such as business, education, marketing, finance, government or law, and should be individuals of high integrity and independence with substantial accomplishments. The Committee does not assign specific weights to any particular criteria. Rather, the Board of Directors believes that the backgrounds and qualifications of the directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow the Board of Directors to fulfill its responsibilities. In connection with each director nomination recommendation, the Committee considers the issue of continuing director tenure and whether the Board of Directors will be exposed to new ideas and viewpoints, and will maintain willingness to critically examine the status quo.

 

In connection with director nominations, the Committee also considers the nominees’ roles in (i) assisting with our business strategy, (ii) overseeing our efforts in complying with the disclosure requirements of the SEC and the NYSE, (iii) assisting in improving our internal controls and disclosure controls and (iv) overseeing our corporate governance and leadership structure.

 

While all Directors are encouraged to attend our annual stockholder meetings, the Board of Directors does not have a formal policy with respect to such attendance. All Directors who, at the time, were serving as members of the Board of Directors attended last year’s annual meeting of stockholders.

 

Stockholders and other interested parties may communicate with the Chairman of the Board of Directors, the Directors as a group, the non-management Directors as a group or an individual Director directly by submitting a letter in a sealed envelope labeled accordingly. This letter should be placed in a larger envelope and mailed to Universal Technical Institute, Inc., 20410 North 19th Avenue, Suite 200, Phoenix, Arizona 85027.

 

We have a Code of Conduct (including a Supplemental Code of Ethics for the Chief Executive Officer and Senior Financial Officers) (the “Code of Conduct”) that applies to all of our employees, including our principal executive officer, principal financial officer and principal accounting officer. This Code of Conduct is posted on our website at www.uti.edu under the “Investors — Corporate Governance” captions.

 

We will provide a copy of the Code of Conduct upon request made by writing to us at our principal executive offices at 20410 North 19th Avenue, Suite 200, Phoenix, Arizona 85027. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Conduct by posting such information on our website, at the address and location specified above, and, to the extent required, by filing a Current Report on Form 8-K with the SEC disclosing such information.

 

As indicated elsewhere in this Proxy Statement, the Board of Directors has adopted Corporate Governance Guidelines. These Corporate Governance Guidelines are posted on our website at www.uti.edu under the “Investors — Corporate Governance — Board of Directors” captions. We will provide a copy of the Corporate Governance Guidelines upon request made by writing to us at our principal executive offices at the address indicated above and on the first page of this Proxy Statement.

 

In fiscal 2010, our non-management Directors received a $35,000 annual retainer. Each non-management Director also received an annual award under our 2003 Incentive Compensation Plan of shares of the Company’s common stock equal to $50,000 on the date of grant. In addition, each non-management Director received reimbursement for out-of-pocket expenses, including travel expense on commercial flights or the equivalent cost of advance purchase first class commercial travel for non-management Directors utilizing private aircraft. Upon election or appointment to the Board of Directors, our new non-management Directors receive a one-time grant of restricted stock awards with a value of $75,000, which are subject to a three-year vesting period.

 

The chairperson of the Nominating and Corporate Governance Committee will receive an additional annual retainer of $12,000. The chairperson of the Compensation Committee will receive an additional annual retainer of $15,000 and the chairperson of the Audit Committee will receive an additional annual retainer of $20,000. The non-chairperson Directors serving on the Compensation Committee and the Nominating and Corporate Governance Committee will each receive an additional annual retainer of $6,000. The non-chairperson Directors serving on the Audit Committee will each receive an additional annual retainer of $8,000. No Director will receive additional compensation for meeting attendance. Directors who are also officers do not receive any separate compensation for serving as directors.

 

Our non-management Directors are also eligible to participate in a non-qualified deferred compensation plan, which was implemented in April 2010. The Company offers this non-qualified deferred compensation plan to allow the Directors to set aside a portion of their income for retirement on a pre-tax basis. A non-management Director may defer up to 100% of cash Board compensation earned in the calendar year. The non-qualified deferred compensation plan is more fully discussed in the Compensation Discussion and Analysis section included elsewhere in this Proxy Statement.

 

The following table sets forth a summary of the compensation we paid to our non-management Directors in 2010.

 

Director Compensation

 

 

 

 

We indemnify our Directors and officers to the fullest extent permitted by law so that they will be free from undue concern about personal liability in connection with their service to the Company. We have also entered into agreements with our Directors, contractually obligating us to provide this indemnification to them.

 

The Audit Committee has selected PricewaterhouseCoopers LLP as our independent registered public accounting firm to perform an integrated audit of our financial statements for the year ending September 30, 2011 and of our internal control over financial reporting as of September 30, 2011. In taking this action, the Audit Committee considered PricewaterhouseCoopers LLP’s independence with respect to the services to be performed and other factors that the Audit Committee and the Board of Directors believe are advisable and in the best interest of the stockholders. As a matter of good corporate governance, the Audit Committee has decided to submit its selection to stockholders for ratification. In the event that this selection of independent registered public accounting firm is not ratified by a majority vote of the shares of common stock present or represented at the Annual Meeting, it will be considered as a direction to the Audit Committee to consider the selection of a different firm.

 

The Board of Directors recommends that you vote “FOR” ratification
of the appointment of PricewaterhouseCoopers LLP.

 

As more fully described below, all services to be provided by PricewaterhouseCoopers LLP are pre-approved by the Audit Committee, including audit services, audit-related services, tax services and certain other services.

 

The following table shows the fees that we accrued for the audit and other services provided by PricewaterhouseCoopers LLP for fiscal years 2010 and 2009.

 

 

Audit Fees.  Audit fees for the years ended September 30, 2010 and 2009 relate primarily to services rendered for the integrated audit of the consolidated financial statements and internal control over financial reporting included in our annual report on Form 10-K and for the limited reviews of the financial information included in our quarterly reports on Form 10-Q. Audit fees for 2010 also include approximately $9,000 relating to agreed-upon procedures related to certain state licensing requirements.

 

Tax Fees.  Tax fees for the years ended September 30, 2010 and 2009 related primarily to income tax compliance services, including technical and tax advice related to the review of tax returns.

 

All Other Fees.  This category represents an annual fee paid to PricewaterhouseCoopers LLP for information related to human capital metrics and benchmarking data used by our people services department. Additionally, this amount includes an annual subscription for access to PricewaterhouseCoopers LLP’s online database of accounting guidance issued by various standard-setting bodies.

 

It is expected that representatives of PricewaterhouseCoopers LLP will be present at the Annual Meeting, will have the opportunity to make a statement if they desire and will be available to respond to any appropriate questions from stockholders.

 

Pre-Approval of Audit Services.  The Audit Committee meets with the independent registered public accounting firm prior to the audit to review the planning and staffing of the audit and approve the services to be provided by the independent registered public accounting firm in connection with the audit.

 

Pre-Approval of Non-Audit Services.  The Audit Committee reviews and approves in advance the retention of the independent registered public accounting firm for any non-audit service that is not prohibited by the Sarbanes-Oxley Act of 2002 (the “Act”), provided, however, that:

 

(a) permitted non-audit services that account for less than $10,000 shall be deemed to be pre-approved, and

 

(b) as permitted by Section 302 of the Act, such pre-approval is waived and shall not be required with respect to non-audit services:

 

(i) that account, in the aggregate, for less than 5% of the total fees paid by us to our independent registered public accounting firm during the fiscal year in which such non-audit services are provided;

 

(ii) that we did not recognize as “non-audit” services at the time of the engagement; and

 

(iii) that are promptly brought to the attention of, and approved by, the Committee before the completion of the audit (and such approval may be given by the Audit Committee or any member of the Audit Committee).

 

The Audit Committee may delegate to any one of its members the authority to grant pre-approval of any permitted non-audit services that account for between $10,000 and $20,000 (and except as otherwise provided in a resolution of the Audit Committee adopted hereafter, the Audit Committee shall be deemed to have delegated such authority, such that any one member of the Audit Committee shall have the authority to grant pre-approval of any permitted non-audit services within such dollar limits). The pre-approval of any non-audit services pursuant to delegated authority or deemed approval shall be reported to the full Audit Committee at its next scheduled meeting. Approval of non-audit services to be performed by the independent registered public accounting firm pursuant to clause (b) above will be disclosed by us as required pursuant to Section 202 of the Act in the applicable reports filed with the SEC.

 

The Audit Committee reviews the Company’s financial reporting process on behalf of the Board of Directors. The Audit Committee is currently composed of three independent directors. The Audit Committee operates under a written charter adopted by the Board of Directors that is available on the Company’s website at www.uti.edu under the “Investors — Corporate Governance” captions. The Audit Committee met eight times during 2010. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal control over financial reporting.

 

In fulfilling its responsibilities, the Audit Committee meets with management and the independent registered public accounting firm to review and discuss the Company’s annual and quarterly financial statements, including the disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s annual report on Form 10-K, any material changes in accounting policies used in preparing the financial statements prior to the filing of a report on Form 10-K or Form 10-Q with the SEC, and the items required to be discussed by AU Section 380, Communication with Audit Committees (“AU 380”), with respect to annual financial statements, and AU Section 722, Interim Financial Information, with respect to quarterly financial statements.

 

The Audit Committee met and held discussions with management and the independent registered public accounting firm regarding the fair and complete presentation of the Company’s financial statements, management’s assessment of the Company’s internal control over financial reporting and the significant accounting policies applied by management in the preparation of the Company’s financial statements, as well as any alternative accounting policies. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. The Audit Committee discussed with the independent registered public accounting firm matters required to be discussed by AU 380.

 

In addition, the Audit Committee received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accounting firm’s communications with the Audit Committee concerning independence, and discussed with the independent registered public accounting firm such firm’s independence from the Company and its management. The Audit Committee also has considered whether the independent registered public accounting firm’s provision of permitted non-audit services to the Company is compatible with its independence. The Audit Committee has concluded that the independent registered public accounting firm is independent from the Company and its management.

 

The Audit Committee discussed with the independent registered public accounting firm the overall scope and plans for its audit. The Audit Committee met with the independent registered public accounting firm, with and without management present, to discuss the results of its audit, the evaluation of the Company’s internal controls, the overall quality of the Company’s financial reporting and other matters required to be discussed by AU 380.

 

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, the inclusion of the audited financial statements in the Company’s Annual Report on Form 10-K for the year ended September 30, 2010, for filing with the SEC. The Audit Committee has also selected PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2011.

 

The Audit Committee:

 

Conrad A. Conrad (Chair)

Alan E. Cabito

A. Richard Caputo, Jr.

 

We maintain the Management 2002 Stock Option Program (the “2002 Plan”) and the 2003 Incentive Compensation Plan (the “2003 Plan”) pursuant to which we may grant equity awards to eligible persons.

 

Management 2002 Stock Option Program.  The 2002 Plan was adopted by our Board of Directors and became effective in April 2002. A maximum of 783,000 shares of common stock may be issued under the 2002 Plan, which is administered by our Compensation Committee.

 

The 2002 Plan provides for the grant of incentive and non-qualified stock options to our employees and employees of related companies, including officers and management directors, and non-statutory options to other persons providing material services to us or related companies. A non-management director is not eligible to receive an award.

 

As of September 30, 2010, we had issued 484,310 shares of common stock upon the exercise of options granted under the 2002 Plan. In addition, 205,842 shares of common stock are issuable pursuant to options granted under the 2002 Plan, at a weighted average exercise price of $4.40 per share. We do not currently intend to grant any additional options under the 2002 Plan.

 

2003 Incentive Compensation Plan.  The 2003 Plan was adopted by our Board of Directors and approved by holders of the majority voting power of our voting stock and became effective in December 2003. The 2003 Plan provides for the issuance of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, stock units, performance shares, performance units, performance-based awards and cash bonuses. The 2003 Plan authorizes the issuance of up to 4,430,972 shares of our common stock, subject to proportional adjustment to reflect stock splits, stock dividends and other similar events.

 

Awards under the 2003 Plan may be granted to employees, directors, consultants and advisors to the Company or any of our subsidiaries. However, only employees (including officers and directors who are also employees) of the Company or any of our subsidiaries may receive incentive stock options under the 2003 Plan. The 2003 Plan is administered by our Compensation Committee.

 

As of September 30, 2010, we had issued 372,632 shares of common stock upon the exercise of options granted under the 2003 Plan, at a weighted average exercise price of $19.77 per share. In addition, 1,064,654 shares of common stock are issuable pursuant to currently exercisable options granted under the 2003 Plan, at a weighted average exercise price of $25.08 per share.

 

As of September 30, 2010, we had granted 1,459,815 shares of restricted stock, net of 403,509 shares forfeited, under the 2003 Plan, of which 914,207 shares are still subject to restrictions. During the year ended September 30, 2010, restrictions lapsed with respect to 246,750 shares, of which 94,024 shares were withheld to settle individual participant tax obligations.

 

As of September 30, 2010, we had awarded 99,054 performance units, net of 11,537 units forfeited, with a maximum payout of 200%, under the 2003 Plan. As of September 30, 2010, all of such performance units were subject to vesting upon the achievement of specific performance criteria.

The following table summarizes our equity compensation plan information as of September 30, 2010. Information is included for both equity compensation plans approved by the stockholders and equity plans not approved by the stockholders.

 

 

 

 

2003 Employee Stock Purchase Plan.  We sponsor an employee stock purchase plan that permits eligible employees, as defined in the plan, to purchase up to 10% of an employee’s annual base and overtime pay at a price equal to 95% of the fair market value of a share of stock on the last day of the offering period. Our Compensation Committee administers the employee stock purchase plan. The Board of Directors may amend or terminate the plan at its discretion. The employee stock purchase plan complies with the requirements of Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”).

 

Our compensation and benefits programs are designed to attract, reward, motivate and retain top tier executive talent possessing the key skills and abilities necessary to achieve success for our students, customers, stockholders, employees and strategic partners. We believe that in this highly competitive market for top executive talent, it is critical that we provide our executives with incentives to excel, be internally and externally equitable and promote a culture of innovation and results-oriented service for our students and customers while, at the same time, not encouraging undue risk-taking.

 

We believe an effective compensation program rewards the achievement of short-term, long-term and strategic goals that are closely aligned with the soundness of the Company and the interests of our stockholders and encourages appropriate decision making regarding the long-term value of the Company. Therefore, we believe that a meaningful portion of each executive’s total compensation opportunity should be at risk and payable only if the executive’s performance benefits the interests of our stockholders. We expect that this emphasis on performance-based compensation will contribute to our long-term success and increase the value of our stockholders’ investment.

 

Consistent with our compensation philosophy, the objectives of our compensation and benefits programs are to:

 

 

 

Our compensation and benefits programs are driven by our business environment, objectives and outcomes. Consequently, we evaluate the performance of our Named Executive Officers, as defined herein, based on their management of UTI in the context of current business and economic conditions and our performance relative to our industry peers. We also evaluate each executive’s performance relative to his or her individual attainment of key goals and the success of the Named Executive Officers, as a team, in achieving our operating objectives. Because our Named Executive Officers have broad policy-making authority, the Compensation Committee holds them responsible for our financial performance and for upholding our values in a competitive marketplace.

 

By including a combination of cash and at-risk equity incentives, the Compensation Committee believes that the compensation policies as generally applicable to the Company’s employees do not encourage excessive and unnecessary risk-taking, and that the level of risk that the policies do encourage is not reasonably likely to have a material adverse effect on the Company. In making this assessment, the Compensation Committee analyzed the following aspects of the Company’s incentive plans:

 

 

Our executive compensation program is designed around the concept of total direct compensation. Total direct compensation refers to the combined elements of base salary, annual incentive and long-term incentive pay. In setting the appropriate level of total direct compensation, we review industry and peer group compensation data in order to set executive pay at a level that is competitive and that will attract and motivate top talent, while keeping the overall pay levels aligned with stockholder financial interests and job responsibilities.

 

The table below sets forth each element of our compensation program, the rationale for our selection of each element and what each element is designed to reward.

 

 

Compensation Committee Purpose, Composition, Schedule and Responsibilities

 

The Compensation Committee carries out the Board of Directors’ responsibilities relating to compensation of our executive officers. The Compensation Committee also oversees and advises the Board of Directors on adoption of, or changes to, policies that govern employee compensation and benefits, including incentive compensation and equity-based compensation.

 

The Compensation Committee is comprised of two or more directors (currently, there are two) who qualify as all of the following: (i) independent directors under applicable NYSE rules; (ii) “outside directors” for purposes of Section 162(m) of the Code; and (iii) “non-employee directors” for purposes of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Members of the Compensation

Committee are nominated by the Nominating and Corporate Governance Committee and elected by a majority vote of the Board of Directors to serve a one-year term.

 

The Compensation Committee is required by its charter to meet at least two times annually or more frequently as the Committee deems appropriate. In fiscal 2010, the Compensation Committee met 11 times.

 

The Compensation Committee is responsible for implementing our overall executive compensation philosophy and structure and establishing the goals and objectives relating to executive compensation paid to the Chief Executive Officer, Chairman and other executive officers.

 

In determining the appropriate level of compensation, the Compensation Committee reviews the results of the Committee’s annual performance review of the Chief Executive Officer and Chairman. Based on this evaluation and a review of these executives’ total compensation, the Compensation Committee makes recommendations to the Board of Directors for approval. The Compensation Committee also reviews the Chief Executive Officer’s annual performance review of each of the executive officers taking into consideration our executive compensation goals and objectives and, based on this review, is responsible for the approval of each component of each executive officer’s compensation. The Committee also reviews and approves compensation adjustments for executive officer promotions or hires and contingent obligations such as severance, change-in-control or similar arrangements.

 

For fiscal 2010, the Compensation Committee conducted this review in the Fall of 2009 for base, long- and short-term incentive components of the executive officers’ compensation. The Compensation Committee benchmarked long-term incentive values again in September 2010 as part of their review and approval of the annual grant.

 

In determining the appropriate level of compensation for our executive officers, the Compensation Committee received the assistance of Compensia. Compensia is an independent, third party consulting firm. For a more complete discussion on the role of Compensia, please refer to “Role of Compensation Consultants” below.

 

In assessing the competitiveness of our compensation programs, the Compensation Committee reviews the total direct compensation opportunities, both short- and long-term, while at the same time analyzing the competitiveness of each component of compensation. The complete mix of pay components is monitored and compared to peer company practices to ensure appropriate pay leverage is maintained in the overall compensation package and in equity-based incentives that emphasize long-term stockholder value creation.

 

Role of Executive Officers in Determining Compensation

 

Our Chief Executive Officer makes recommendations to the Compensation Committee as to the base salaries, target bonus and long-term incentive grant levels of the executive officers, including the Named Executive Officers (other than the CEO). The CEO’s recommendations are based on available market and proxy peer data and analyses provided by Compensia, which are provided at the direction of the Committee, as well as the CEO’s evaluation of each officer’s performance.

 

Role of Compensation Consultants

 

The Compensation Committee received and continues to receive assistance from Compensia in fulfilling its duties. Compensia assists in monitoring and updating the appropriate peer comparison group used in benchmarking competitive compensation levels. Compensia provided advice and analysis to the Compensation Committee with respect to the propriety and competitive value of long-term incentive grants, and employment and change-in-control agreements. Compensia also assisted the Compensation Committee in the design of the Company’s performance unit program. Compensia works at the direction of, and reports directly to, the Compensation Committee. Compensia does not perform any services for our management unless directed to do so by the Compensation Committee. The Compensation Committee’s engagement with Compensia is for an indefinite period and encompasses advisory services such as periodic review of executive compensation philosophy, competitive assessment of executive compensation levels and pay-for-performance linkage, executive cash and broad-based equity incentive program design, review of executive contracts and other ad hoc

support. Other than the work described above, there are no other material relationships between Compensia and UTI, its officers or directors.

 

Equity Grant Timing and Practices

 

Pursuant to our equity granting policy and procedures, equity awards are made upon the recommendation of the Compensation Committee with approval from the independent members of the Board of Directors during an open trading window. Stock options, if granted, are awarded with an exercise price equal to the closing price of our stock on the NYSE on the date of approval and may never be less than fair market value. Grants to newly hired or promoted executive officers who are eligible to receive options or stock awards are proposed for approval at the Board of Directors’ next regularly scheduled meeting that occurs during an open trading window following the officer’s hire or promotion. Grant timing is applied consistently and shall, under no circumstances, occur outside of an open trading window. Our annual grant is typically awarded in September. Equity grant award levels are based on market data and vary among participants based on their positions within our company and, for fiscal 2010, were granted at the Board of Directors’ regularly scheduled September meeting. Documentation of the award is distributed to the recipients promptly following approval by the Board of Directors.

 

To evaluate the competitiveness of our executive compensation program, we compare the elements of our compensation program with a peer comparison group comprised of companies in the for-profit education industry with similar market capitalization and net revenues. Our comparison group for fiscal 2010 included the following companies: Capella Education Corp.; Career Education Corp.; Corinthian Colleges, Inc.; DeVry, Inc.; GP Strategies Corporation; ITT Educational Services, Inc.; Learning Tree International, Inc.; Lincoln Educational Services Corporation; Nobel Learning Communities, Inc.; Plato Learning, Inc.; Strayer Education, Inc.; and The Princeton Review, Inc. We also collect job-specific compensation survey data from general industry organizations with target revenue of approximately $375 million. Compensation surveys used in 2010 were Mercer’s Benchmark Database and the Salary.com Survey Database. Data from these surveys are averaged with the data from our peer comparison group to create a composite comparison group.

 

We use data from the composite comparison group referenced above as a guideline when making decisions about overall compensation including the elements of compensation and the amount of each element. Using the 50th and 75th percentiles of total direct compensation as reference points, the individual elements of compensation are determined. Due to a number of variables including changes in market and peer data, total compensation delivered to our executive officers may be higher or lower than the 50th and 75th percentiles.

 

Welfare benefits are benchmarked annually using the Towers Watson Health Care Cost Survey, which covers approximately 10.3 million U.S. employees, retirees and dependents. We target the median of this data to maintain competitive benefit levels. Retirement benefits are benchmarked annually against general industry standards, utilizing data from our plan administrators (T. Rowe Price and The Newport Group) and targeting median levels for these benefits.

 

We review existing survey data regarding employment and severance agreements and change-in-control benefits to ensure our benefits are consistent with current practice for companies of our size and revenue. In reviewing external competitive data with regard to these arrangements, we also consider best practices for specific components of these agreements. Our philosophy is to limit the number of perquisites and benefits. Through available survey and proxy data, we believe that our perquisites are less than provided by comparable organizations.

 

Base Salaries

 

The Compensation Committee annually reviews and approves the base salaries of the Named Executive Officers utilizing the benchmarking procedures described above. Apart from benchmarking, base salaries are

influenced by a variety of objective and subjective factors such as experience, individual performance and relative levels of responsibility and job scope.

 

In December 2009, the Compensation Committee approved increases to the base salaries of the Named Executive Officers as follows: 5% for Kimberly J. McWaters; 5% for Eugene S. Putnam, Jr.; 4% for John C. White; 3.5% for Richard P. Crain; and 5% for Thomas E. Riggs. These increased amounts were based on market survey data for average executive-level increases nationally and adjusted for individual performance. In January 2010, Mr. Crain received an additional 5% increase to base salary to reflect the additional strategic requirements of his position.

 

Annual Incentive Plan

 

The annual incentive plan, called the “Leadership Incentive Plan,” provides the Named Executive Officers with the opportunity to earn performance-based awards based on the achievement of specific performance goals for the fiscal year. The performance goals are based on specific business criteria for the Company. All of our Named Executive Officers, with the exception of Ms. McWaters, Mr. Putnam (effective fiscal year 2011), and Mr. White, participate in the Leadership Incentive Plan. For fiscal year 2010, both Ms. McWaters’ and Mr. White’s incentive compensation award was granted under the Universal Technical Institute, Inc. 2003 Incentive Compensation Plan.

 

For our fiscal year 2010, the Compensation Committee established performance goals for all Named Executive Officers under the Leadership Incentive Plan and the 2003 Incentive Compensation Plan, as applicable. For fiscal 2010, performance-based awards for all Named Executive Officers were based on consolidated Earnings Before Interest and Taxes (“EBIT”) results, as well as specific performance criteria for Messrs. Putnam, Crain and Riggs. For Messrs. Putnam, Crain and Riggs the portion of the bonus based on achieving EBIT targets accounted for 80% of their bonus opportunity and each had specific performance goals that accounted for the remainder of their bonus opportunity. For bonus purposes, EBIT is adjusted to exclude bonus expense and adjusting entries posted during fiscal year 2010 related to fiscal year 2009 that were included in prior year bonus calculations. The EBIT goals were measured on a Company-consolidated basis for the Named Executive Officer group. This metric was chosen because it captured our need to increase revenue and contain costs during fiscal year 2010. The payment calculation for both the Leadership Incentive and 2003 Incentive Compensation Plans is based on the greater of the annual result or the total of the quarterly results so that it is possible to recover from a poor performing quarter and retain an incentive for the subsequent quarters, thereby enhancing the motivating aspects of the awards.

 

The Compensation Committee approved the following bonus targets and payout levels for fiscal year 2010:

 

2010 Named Executive Officer Target Bonus as a % of Base Salary

 

 

 

 

Fiscal Year 2010 EBIT Achievement and Payout Levels

 

For fiscal year 2010, in order for a participant to receive the threshold payment of the EBIT component of the bonus (a 60% payout), the consolidated EBIT result would have had to have been $29,000,000. To achieve a 100% payout, consolidated EBIT would have had to have been $49,000,000, and to achieve the maximum payout of 125%, consolidated EBIT would have to have been $59,000,000.

Consolidated EBIT for fiscal year 2010 for the bonus calculation was $57,321,000, which resulted in a bonus payout of 120% of the EBIT portion of their bonuses for the Named Executive Officers.

 

In addition to the EBIT bonus, Messrs. Putnam, Crain and Riggs had a portion (20%) of their total bonus opportunity based on specific performance criteria. Mr. Putnam’s performance criteria were (i) no material weaknesses or significant deficiencies in internal controls over financial reporting, which target was partially achieved; (ii) succession plan and evaluation of internal candidate readiness, which target was achieved; and (iii) department budget management, which target was exceeded. Mr. Putnam’s total bonus related to these specific performance criteria was $29,800.

 

Mr. Crain’s specific performance criteria were (i) student inquiry, which target was exceeded; (ii) successful completion of UTI’s Growth Strategy Project, which target was exceeded; and (iii) department budget management, which target was achieved. Mr. Crain’s total bonus related to these specific performance criteria was $30,100.

 

Mr. Riggs’ specific performance criteria were (i) successful completion of key elements of UTI’s new curriculum, which target was partially achieved; (ii) timely and successful opening of our Dallas/Fort Worth campus, which target was exceeded; and (iii) department budget management, which target was exceeded. Mr. Riggs’ total bonus related to these specific performance criteria was $29,100.

 

2011 Incentive Plan

 

In the fall of 2010, the Compensation Committee approved the 2011 Leadership Incentive Plan and the 2011 incentive plan for Ms. McWaters and Messrs. Putnam and White under our 2003 Incentive Compensation Plan. The Compensation Committee has determined that for fiscal 2011, performance-based awards for all Named Executive Officers will be based on established targets for consolidated EBIT and margin as well as specific performance criteria for Messrs. Crain and Riggs. For each Named Executive Officer, the bonus opportunity is as follows:

 

2011 Named Executive Officer Target Bonus as a % of Base

 

 

For the EBIT portion of the target bonus to be achieved, we must realize a specific increase in EBIT over fiscal year 2010. The increase necessary to achieve the target bonus has not been achieved four out of the last five fiscal years. The maximum payout under the plan is 125%.

 

For Messrs. Crain and Riggs, the EBIT portion accounts for 80% of their bonus opportunity, and each has specific performance goals which account for the remainder of their bonus opportunity. For Messrs. Crain and Riggs, 6.66% of their bonus opportunity requires the achievement of a departmental operating budget target for 2011. In order to achieve any payout under this target, the actual departmental operating expenses must not exceed 2% of the targeted budget. Otherwise, no award on this component will be paid. Mr. Crain has two additional performance goals, each of which comprise 6.67% of his total bonus opportunity. The first performance goal requires achievement of the Company’s quantitative student inquiry target. The second performance goal requires development of the 2012 strategic plan and the facilitation of the Company’s strategic planning process. Mr. Riggs also has two additional performance goals, each of which comprise 6.67% of his total bonus opportunity. The first performance goal requires the development of a Company-wide multi-year implementation plan for the UTI’s new curriculum. The second performance goal requires achievement of specific scores on the Company’s Great Place to Work Survey for specific departments and for all campuses.

In determining whether the specific performance goals noted above have been satisfied, the Compensation Committee will rely upon the evaluations of Ms. McWaters, as well as their own observations obtained from the reports given by management at the meetings of our Board of Directors.

 

Long-Term Incentive Compensation

 

2010 Grant

 

In September 2010, the Compensation Committee approved grants of performance units and restricted stock to the Named Executive Officers using the benchmarking process described above. When determining the grant, the Compensation Committee considered our current business environment, competitive market data and each officer’s level of responsibility. The grants were designed with a view to increase employee retention, encourage ownership of our stock and link rewards to stockholder value creation. In 2010, each of our Named Executive Officers received 75% of his or her “target” grant value in restricted stock and 25% in performance units. Restrictions on the shares of restricted stock lapse at a rate of 25% each year for four years. The performance units vest after a three-year performance period, beginning October 1, 2010 and ending September 30, 2013.

 

The actual number of performance units vesting, if any, will be determined by comparing our Total Shareholder Return (“TSR”) against a stacked ranking of the TSR of those companies comprising The Russell 2000 Index at the end of the measurement period. The number of performance units that actually vest will depend on the relative percentile of UTI’s TSR compared to the stacked ranking of the Russell 2000 Index of companies as follows:

 

 

The Compensation Committee believes a blend of performance units and restricted stock provides the best retention and reward mechanism. Providing a significant percentage of the total award in the form of performance units is also important to further align the incentive value with the interest of stockholders, since the vesting of performance units is contingent on the relative performance of UTI’s TSR over three years. Offering restricted stock, which retains some value for the executive during difficult business climates, ensures that the long-term incentive maintains some retention value to our Named Executive Officers while also rewarding improvements in our long-term performance without rewarding undue risk-taking.

 

General Benefits and Executive Perquisites

 

We offer a health and welfare benefits package to all eligible employees, which includes coverage for medical, dental, disability, life, accidental death and dismemberment, vision, flexible spending, education assistance, employee assistance and business travel accident. See the table above under the heading “Elements of the Compensation Program and Key Goals” for detailed information on the Named Executive Officers’ benefits and perquisites.

 

The costs of the perquisites and personal benefits for the Named Executive Officers for fiscal year 2010 are included in the “All Other Compensation” column of the “Summary Compensation Table” below.

 

Post-Employment Compensation Programs

 

Retirement Benefits

 

We maintain a plan qualified under Section 401(k) of the Code that is generally available to all employees to assist them in saving for retirement. Under the 401(k) plan, a participant may contribute a maximum of 50% of his or her pre-tax salary up to the statutorily prescribed annual limit ($16,500 in calendar year 2010). The percentage elected by more highly compensated participants may be required to be lower. In addition, at the discretion of our Board of Directors, we may make discretionary matching and/or profit-

sharing contributions into the 401(k) plan for eligible employees. Currently, we match 50 cents on each dollar saved up to the first 5% of eligible pay contributed to the plan after the first year of employment. A five-year vesting schedule applies to all of our matching contributions. A participant is considered 100% vested in all company matching contributions after they have completed five years of service with the Company.

 

UTI’s executives are also eligible to participate in a non-qualified deferred compensation plan, which was implemented in April 2010. The Company offers this non-qualified deferred compensation plan to allow participants to set aside a portion of their income for retirement on a pre-tax basis, in addition to the amounts allowed under the Company’s 401(k) plan. A participant may defer up to 75% of salary earned in the calendar year and up to 100% of any amount earned under any of the annual cash incentive plans. Participants employed for at least one year are eligible for an incentive matching contribution equal to 50% of amounts contributed to the plan, up to the maximum “matchable” compensation equivalent to 5% of salary. A five-year vesting schedule applies to all of the Company’s matching contributions. A participant is considered 100% vested in all company matching contributions after they have completed five years of service with the Company. Participants can choose from a menu of notional investment options representing a broad range of asset classes, including pre-constructed model portfolios. Deferred compensation plan accounts are credited with a rate of return (positive or negative) based on the performance of the notional investment options selected. Participants may change the way their accounts are invested at any time. Upon enrollment into the deferred compensation plan, participants designate when their deferrals are to be distributed — at a specific date while employed or at separation of service, as well as the form of the distribution (i.e., lump sum or annual installments). Of the Named Executive Officers, Ms. McWaters and Messrs. Putnam and Riggs were participants in this compensation plan.

 

Employment Agreements

 

We have employment agreements with three of our Named Executive Officers — Ms. McWaters, Mr. White and Mr. Putnam — that provide certain post-employment severance and benefits if we terminate the officer’s employment other than for cause. Generally speaking, “cause” includes conviction of a felony or other crime involving embezzlement or misuse of funds, a knowing breach of the fiduciary duties owed by the executive to the Company or a failure to perform the executive’s material duties or a neglect of same. While the details of these agreements vary, each generally provides for salary payments to continue following termination. No agreement provides for salary payments beyond 24 months following termination.

 

For more information, see the tables below under the heading “Potential Payments Upon Termination or Change-in-Control” and the information set forth under the heading “Employment-Related Arrangements.”

 

Change-in-Control Agreements

 

We have entered into change-in-control agreements with those Named Executive Officers who do not have employment agreements with us. These agreements provide that if the executive is terminated without cause or terminates employment for good reason within one year of a change-in-control, the executive will continue to receive salary payments for 12 months after the date of termination and will receive a prorated bonus calculated by multiplying the executive’s target bonus percentage by the executive’s fiscal year salary earned through the date of termination. The executive is also entitled to receive 12 months of paid health benefits continuation and outplacement services.

 

For more information, see the tables below under the heading “Potential Payments Upon Termination or Change-in-Control.”

 

Code Section 162(m) limits our ability to deduct non-performance based compensation in excess of $1.0 million that we pay to certain of our executive officers. The Compensation Committee intends for all incentive compensation paid to the Named Executive Officers to be deductible for federal income tax purposes to the greatest extent possible; however, in certain cases, the Compensation Committee may determine that the

amount of tax deduction lost is less important than appropriate design and delivery of compensation to our executive officers.

 

Our 2003 Incentive Compensation Plan, which was approved by our stockholders, permits the award of stock options, performance shares, performance units, stock appreciation rights, performance-based awards and cash bonuses that qualify as performance-based compensation and are therefore fully deductible under section 162(m) of the Code.

 

In determining equity compensation awards for 2010, we generally considered the potential expense of those awards under GAAP and their impact on earnings per share. We concluded that the award levels were in the best interests of stockholders given competitive compensation practices among our peer companies, the awards’ potential expense, our performance and the impact of the awards on employee motivation and retention.

 

The American Jobs Act of 2004 added Section 409A to the Internal Revenue Code. Section 409A revises the tax rules governing non-qualified deferred compensation strategies. We have reviewed Section 409A and its rules and regulations and have adapted some of our compensation arrangements to comply with such rules and regulations.

 

Ms. Srere and Messrs. Conrad and Gilmour served as members of our Compensation Committee during fiscal 2010. Mr. Gilmour resigned from the Board of Directors effective September 3, 2010. None of these Directors was an executive officer or otherwise an employee of UTI before or during such service, and no executive officer of UTI served on any other company’s compensation committee.

 

The following table summarizes the compensation we paid during the last fiscal year to our Chief Executive Officer, our Chairman of the Board, our Chief Financial Officer and our two most highly compensated executive officers, who we refer to collectively as the “Named Executive Officers.”

 

 

 

 

The following table sets forth information regarding grants of plan-based awards in 2010 to each of our Named Executive Officers.

 

 

 

 

In fiscal 2010, each of our Named Executive Officers received 75% of his or her regular grant value in restricted stock and 25% in performance units.

 

Performance units awarded in fiscal 2010 vest after a three-year performance period ending on September 30, 2013. Performance units awarded in fiscal 2009 vest according to a three-year performance period, with equal-value tranches potentially vesting according to the following measurement periods:

 

 

For the performance period ending September 30, 2010, the performance of UTI’s relative TSR resulted in a 50% vesting of that tranche’s performance units. See “Elements of Compensation Program and Key Goals” section for more details on how performance is measured. If the participant dies or is disabled, the vesting of performance units, including those granted to the Named Executive Officers, will be calculated based on a measurement period through the date of death or disability and the associated vesting of shares, if earned, will occur on the settlement date following the measurement period. If there is a change-in-control of the Company, the measurement period will be truncated to the date of the change-in-control and number of shares of common stock to be issued will equal the number of performance units that would have become earned as of the change-in-control date according to the actual performance against the stated criteria for that period. The shares of common stock will convert to time-based and vest either in accordance with the original schedule or immediately in the event of termination without cause or for good reason within one year of the change-in-control. “Good reason” means a material reduction in the recipient’s authority, perquisites, position

or responsibilities (other than such a reduction which affects all of our senior executives on a substantially equal or proportionate basis), or a requirement that the recipient relocate greater than 50 miles from the recipient’s current primary work location. “Cause” includes, but is not limited to, the following: (i) conviction of, or plea of guilty or nolo contendere to, a felony or a crime involving embezzlement, conversion of property or moral turpitude; (ii) a finding by a majority of the Board of Directors of fraud, embezzlement or conversion of the Company’s property; (iii) conviction of, or plea of guilty or nolo contendere to, a crime involving the acquisition, use or expenditure of federal, state or local government funds or the unlawful use, possession or sale of illegal substances; (iv) an administrative or judicial determination of fraud or any other violation of law involving federal, state or local government funds; and (v) a finding by a majority of the Board of Directors of a knowing breach of any of fiduciary duties to the Company or the Company’s stockholders or making of a misrepresentation or omission which breach, misrepresentation or omission would reasonably be expected to materially adversely affect the business, properties, assets, condition (financial or other) or prospects of the Company.

 

Restrictions on the shares of restricted stock granted in fiscal 2010 lapse at a rate of 25% each year for four years. Recipients of restricted stock, including Named Executive Officers, are considered stockholders with respect to all such shares of restricted stock and have all of the rights of a stockholder in the Company with respect to the restricted shares (e.g., they may vote the shares at any meeting of our stockholders). However, recipients have no rights to any dividends declared with respect to the restricted shares until the restrictions on such shares lapse and may not sell or transfer the shares until they vest. All restrictions on the restricted shares lapse upon death, disability, termination without cause within one year following a change-in-control of the Company or termination by the recipient for good reason (which is described in the paragraph above).

 

The following table sets forth certain information regarding all outstanding equity awards for each of our Named Executive Officers, as of September 30, 2010. The values contained in the table below have not been, and may never be, realized. The options might never be exercised and the value, if any, will depend on the share price on the exercise date. In addition, the awards of restricted stock are subject to forfeiture and the value, if any, will depend on the share price on the date an executive sells those shares once the restrictions have lapsed. The performance units will only vest upon achievement of certain performance criteria and the value, if any, will depend on the share price on the date the executive sells the shares once vested.

 

 

 

 

 

The following table sets forth certain information regarding options exercised by our Named Executive Officers and restricted stock awards that vested during fiscal 2010.

 

 

 

 

The following table shows the non-qualified deferred compensation plan vested account balances of our Named Executive Officers for the period ending September 30, 2010. The plan was implemented in April 2010. Details of the plan are included under the heading of “— Components of the Executive Compensation Program — Post-Employment Compensation Programs — Retirement Benefits.”

 

 

 

 

Potential Payments Upon Termination or Change-in-Control

 

The tables below show the estimated incremental value transfer to each Named Executive Officer under various scenarios related to a termination of employment. The tables below assume that such termination occurred on September 30, 2010. The actual amounts that would be paid to any Named Executive Officer can only be determined at the time of an actual termination of employment and would vary from those listed below. The estimated amounts listed below are in addition to any retirement, welfare and other benefits that are available to associates generally.