The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in this report and those in our 2011 Annual Report on Form 10-K filed with the SEC on November 30, 2011. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to those described under "Risk Factors" in our Form 10-K and included in Part II, Item 1A of this report.

2012 Overview

Operations

Our average undergraduate full-time student enrollment declined 10.8% to approximately 15,300 students for the three months ended June 30, 2012, and declined 10.9% to approximately 16,800 students for the nine months ended June 30, 2012, as compared to the same periods in the prior year. The decline in our average undergraduate full-time student enrollment resulted in a decline in revenues, operating income and net income for the three months and nine months ended June 30, 2012. Our revenues for the three months and nine months ended June 30, 2012 were $99.6 million and $312.3 million, respectively, decreases of $9.3 million, or 8.6%, and $28.3 million, or 8.3%, respectively, from the prior year. Additionally, our revenues for the three months and nine months ended June 30, 2012 excluded $3.8 million and $10.1 million, respectively, of tuition related to students participating in our proprietary loan program. Our net income for the three months and nine months ended June 30, 2012 was $1.0 million and $7.4 million, respectively, decreases of $3.0 million and $13.9 million, respectively, from the prior year.

Our results of operations were also impacted by an increase in advertising expenses and a decrease in compensation and benefits. We increased advertising expense by $2.0 million and $7.4 million for the three months and nine months ended June 30, 2012, respectively, as compared to the same periods in the prior year, in order to meet the quantity and quality inquiry needs to develop student starts during 2012 and early 2013. Advertising expense as a percentage of revenues for the three months and nine months ended June 30, 2012 was approximately 10%. We anticipate our advertising expense will continue to increase in the fourth quarter of 2012, as compared to the same period in 2011, and be in the range of 10%-11% of revenue for the year ending September 30, 2012.

Additionally, our compensation and benefits decreased for the three months and nine months ended June 30, 2012 as a result of the reduction in workforce in June 2011 and the modifications made to our compensation plans in response to the new regulations that became effective July 1, 2011.

Compensation and related costs and bad debt expense for the nine months ended June 30, 2012 include a revision for immaterial errors that relate to prior years. See footnote 2 to our condensed consolidated financial statements included in this quarterly report for further discussion.

We intend to integrate our Automotive Technology and Diesel Technology II curricula at our Avondale, Arizona campus during the current calendar year. As we integrate this curricula at our automotive campuses, we expect to make additional capital investments and incur higher than usual operating expenses. During the year ending September 30, 2012, we anticipate capitalizing within the range of $3.0 million to $3.3 million and incurring approximately $2.0 million in operating expenses during the year ending September 30, 2012.

We started approximately 2,700 students and 9,400 students during the three months and nine months ended June 30, 2012, respectively, as compared to approximately 2,700 and 9,600 for the three months and nine months ended June 30, 2011, respectively. We expect student starts for the remainder of 2012 to be relatively consistent with the number of starts during the same period in the prior year. Additionally, we expect to continue to be impacted by the macro-economic headwinds, ongoing student financing challenges and our lower student populations as we entered the year. We continue to expect average student populations for the full year to decline as compared to the prior year, resulting in a mid to high single digit decline in revenues in 2012 and an overall decline in operating margins compared to 2011. Given these trends and the higher fixed component in our admissions cost structure as a result of regulatory changes, we are focused on efficiencies, managing costs and other opportunities to improve operating margins during the remainder of the year.

Dividend

On March 30 and June 29, 2012, we paid cash dividends of $0.10 per share to common stockholders of record as of March 15 and June 18, 2012, respectively. The aggregate payment was approximately $4.9 million. At the discretion of our Board of Directors, we intend to pay a dividend quarterly in future periods.

Share Repurchase Program

On December 20, 2011, our Board of Directors authorized the repurchase of up to $25.0 million of our common stock in the open market or through privately negotiated transactions. The timing and actual number of shares purchased will depend on a variety of factors such as price, corporate and regulatory requirements, and prevailing market conditions. We may terminate or limit the share repurchase program at any time without prior notice. During the nine months ended June 30, 2012, we purchased 125,800 shares at an average price per share of $12.99 and a total cost of approximately $1.6 million. We did not make any purchases during the three months ended June 30, 2012.

Graduate Employment

During 2011, we graduated approximately 22% more students than we did during 2010 and invested in our graduate placement teams and processes in order to more effectively assist our graduates in finding employment. Through June 30, 2012, our consolidated graduate employment rate for our 2011 graduates is slightly below the rate at the same time in the prior year. The rate has improved for our Motorcycle and Collision Repair programs while the rate has declined for our Automotive and Diesel Technology and Marine programs. We anticipate our overall consolidated graduate employment rate will remain consistent with or slightly below prior year levels during the remainder of the year.

Regulatory Environment

Congressional Action and Financial Aid Funding

In December 2011, Congress passed the federal fiscal year 2012 budget, which included the nine remaining appropriations bills needed to fund the federal government for the remainder of the 2012 federal fiscal year. The Consolidated Appropriations Act of 2012 (Appropriations Act), which the President signed on December 23, 2011, included award year 2012-2013 funding levels for Title IV Programs and maintained a $5,550 maximum Federal Pell Grant for the 2012-2013 award year by cutting spending on the other student aid programs and placing new restrictions on eligibility. Additionally, the Appropriations Act reduced the maximum income that makes an applicant for Title IV Program funds eligible for an automatic zero Expected Family Contribution from $32,000 to $23,000. This will reduce the number of students eligible for the maximum Federal Pell Grant. Furthermore, the Appropriations Act eliminated the automatic 10% Pell Grant award for students whose calculated award is at least 5% of the maximum Pell Grant but less than 10%. As a result of these changes, we anticipate that certain of our students may be eligible for less Title IV funding. This may increase demand for our proprietary loan program or other private alternative loans and our student population may decline if students are not able to obtain sufficient funding or are unwilling to take on additional debt.

The Appropriations Act also made several non-Pell Grant related changes to Title IV Program requirements. Ability-to-benefit options for establishing general student eligibility for Title IV Program funds were eliminated for students who first enroll in a program of study on or after July 1, 2012. This change will require students to have a high school diploma or its recognized equivalent, or to have been home schooled in order to be eligible to receive Title IV Program funds. Additionally, the Department of Education (ED) has issued interpretive guidance in the form of multiple Dear Colleague Letters to institutions. As a result of these changes, beginning July 1, 2012, we will not admit first-time students without a high school diploma, or its recognized equivalent, or who have not been home schooled.

In February 2012, President Obama submitted his fiscal year 2013 federal budget request. If enacted, the President's budget request would, among other things:

• fund a maximum Pell Grant of $5,635 for the 2013-2014 award year, an $85 increase over the prior year; and

• make the American Opportunity Tax Credit (AOTC) permanent, which is a refundable tax credit for undergraduate education expenses; the AOTC is currently scheduled to expire at the end of calendar year 2012.

On July 6, 2012, the Moving Ahead for Progress in the 21st Century Act was signed into law and included provisions to temporarily freeze the interest rate on Subsidized Stafford loans at 3.4% through June 30, 2013 and changes eligibility rules for subsidized student loans. New borrowers on or after July 1, 2013 will not be eligible for new subsidized student loans if the period during which the borrower has received such loans exceeds 150% of the published length of the borrower's educational program.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the Consumer Financial Protection Bureau (CFPB), which became active during 2012. The CFPB is tasked with supervising large banks and certain other types of nonbank financial companies, including alternative loan providers, for compliance with federal consumer financial protection laws. It is possible that our proprietary loan program will be subject to such supervision. We will continue to monitor the activities of the CFPB for any impact on our business.

The new program integrity regulations which became effective July 1, 2011 established standard definitions for financial aid credit hours applicable to all institutions approved by ED and expanded the definition of programs that must be measured in terms of clock hours for Title IV Program purposes. ED's regulatory structure relies heavily on the accreditors to assess compliance with the regulations. On April 13, 2012, the Accrediting Commission of Career Schools and Colleges (ACCSC), an accrediting commission recognized by ED by which all of our institutions are accredited, released its definition of a credit hour. The ACCSC credit hour definition is intended to reasonably approximate ED's definition and to provide flexibility in program design and delivery. The definition applies to both degree and non-degree programs. Member schools must complete any necessary program changes no later than December 31, 2012. We are in the process of making the necessary program changes.

In April 2012, an Executive Order was signed asking for the development of "Principles of Excellence" (Principles), which would strengthen enforcement and compliance mechanisms required by educational institutions that serve service members, veterans and family members. The Departments of Defense, Veteran Affairs (VA) and Education, in consultation with the CFPB and the Attorney General, must present a plan to President Obama within 90 days. On May 31, 2012, the VA distributed a letter requesting that institutions confirm in writing their intent to comply or not comply with respect to the Principles. On June 29, 2012, we provided written confirmation of our intent to comply pending further guidance from the VA on specific requirements. We will continue to monitor the progress of this activity for any impact on our business.

The Senate Committee on Health, Education, Labor, and Pensions (HELP) has held a series of oversight hearings on for-profit institutions' administration of Title IV programs during the 111th and 112th Congresses. On July 29, 2012, the HELP Committee released a report critical of for-profit colleges and universities. This report is the culmination of a two year review. We continue to be diligent in our efforts to provide value to our students and our industry customers and to remain in compliance with state, federal and accrediting agency rules and regulations.

Rulemaking Initiative

In May 2011, ED announced its intention to establish additional negotiated rulemaking committees to prepare proposed regulations under the Higher Education Act of 1965, as amended (HEA). Negotiations to address teacher preparation and post-disbursement student loan issues began in January 2012 and concluded in March 2012 with negotiators reaching consensus on draft regulations on 25 issues. Certain issues may impact our gainful employment metrics. ED announced that it would publish regulations for three of the issues by November 1, 2012 with an effective date of July 1, 2013; the regulations for the remaining 22 issues will be published after the November 1, 2012 master calendar deadline and will therefore not be effective prior to July 1, 2014. A Notice of Proposed Rulemaking (NPRM) related to the first three issues was published on July 17, 2012. We continue to monitor the remaining negotiated rulemaking process and development of the NPRM and will take actions we believe appropriate to respond to the draft and final rules.

Gainful Employment

On June 13, 2011, ED published regulations, which were to become effective on July 1, 2012, imposing additional Title IV Program eligibility requirements on certain educational programs. The gainful employment regulations published on June 13, 2011 established metrics for determining whether a program will qualify as such an educational program.

On June 30, 2012, the U.S. District Court for the District of Columbia found that ED failed to adequately justify the 35% minimum student loan repayment rate measure and struck down all three metrics. In addition, the Court invalidated two other provisions of the gainful employment regulations, one that requires institutions seeking to offer a new vocational program to obtain prior approval from ED, and one that requires institutions to provide data to ED to calculate two of the gainful employment measures. With enforcement of much of the regulatory framework of the gainful employment rules now blocked, ED has not yet announced whether it will appeal the Court's decision, seek to revise the gainful employment regulations through another negotiated rulemaking session, or to take other steps. All of our programs met ED's gainful employment requirements as defined prior to the Court's ruling.

90/10 Rule

One requirement of the HEA, as amended, commonly referred to as the "90/10 Rule", provides that a proprietary institution will be ineligible to participate in Title IV programs if for any two consecutive fiscal years it derives more than 90% of its cash basis revenue, as defined in the rule, from Title IV programs. Multiple legislative proposals have been introduced in Congress that would increase the requirements of the 90/10 Rule. For example, in January 2012, the Protecting Our Students and Taxpayers Act was introduced in the U.S. Senate and, if adopted, would reduce the 90% maximum under the rule to 85%. The proposal would also include tuition derived from Title IV programs for military personnel in the 85% portion of the rule. Additionally, it would impose Title IV ineligibility after one year of noncompliance rather than two. We will monitor activity related to the 90/10 Rule for any impact on our business.

Regulatory Approvals

In June 2012, we received renewed approval from ED for the Program Participation Agreement covering our Universal Technical Institute of Texas institution. The renewal is effective through March 31, 2018 and covers our Houston, Texas; Dallas/Ft. Worth, Texas and Exton, Pennsylvania campuses.

Results of Operations

The following table sets forth selected statements of operations data as a
percentage of net revenues for each of the periods indicated.



                                          Three Months Ended           Nine Months Ended
                                               June 30,                     June 30,
                                          2012           2011          2012          2011
  Revenues                                  100.0 %       100.0 %        100.0 %      100.0 %

  Operating expenses:
  Educational services and facilities        52.9 %        53.2 %         50.5 %       49.7 %
  Selling, general and administrative        45.6 %        40.6 %         45.7 %       40.0 %

  Total operating expenses                   98.5 %        93.8 %         96.2 %       89.7 %

  Income from operations                      1.5 %         6.2 %          3.8 %       10.3 %

  Interest income, net                        0.1 %         0.0 %          0.1 %        0.0 %
  Other income                                0.0 %         0.1 %          0.1 %        0.1 %

  Total other income                          0.1 %         0.1 %          0.2 %        0.1 %

  Income before income taxes                  1.6 %         6.3 %          4.0 %       10.4 %
  Income tax expense                          0.6 %         2.6 %          1.6 %        4.1 %

  Net income                                  1.0 %         3.7 %          2.4 %        6.3 %

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the three months and nine months ended June 30, 2012 were $7.6 million and $31.0 million, respectively, as compared to $13.2 million and $54.4 million for the three months and nine months ended June 30, 2011, respectively.

EBITDA is a non-GAAP financial measure which is provided to supplement, but not substitute for, the most directly comparable GAAP measure. We choose to disclose to investors this non-GAAP financial measure because it provides an additional analytical tool to clarify our results from operations and helps to identify underlying trends. Additionally, this measure helps compare our performance on a consistent basis across time periods. To obtain a complete understanding of our performance, this measure should be examined in connection with net income determined in accordance with GAAP. Since the items excluded from this measure should be examined in connection with net income determined in financial performance under GAAP, this measure should not be considered to be an alternative to net income as a measure of our operating performance or profitability. Exclusion of items in our non-GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring. Other companies, including other companies in the education industry, may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure across companies. Investors are encouraged to use GAAP measures when evaluating our financial performance.

EBITDA reconciles to net income as follows:

                                       Three Months Ended           Nine Months Ended
                                            June 30,                     June 30,
                                       2012           2011          2012          2011
                                                       (In thousands)
     Net income                      $   1,013      $  4,036      $  7,424      $ 21,287
     Interest income, net                  (63 )         (56 )        (213 )        (199 )
     Income tax expense                    574         2,816         5,021        14,206
     Depreciation and amortization       6,043         6,425        18,810        19,070

     EBITDA                          $   7,567      $ 13,221      $ 31,042      $ 54,364

Return on equity for the trailing four quarters ended June 30, 2012 was 9.1% compared to 21.2% for the trailing four quarters ended September 30, 2011. Return on equity is calculated as the sum of net income for the last four quarters divided by the average of our total shareholders' equity balances at the end of each of the last five quarters.

Capacity utilization is the ratio of our average undergraduate full-time student enrollment to total seats available. Total seats available represents our maximum capacity; however, due to certain dynamics, our operating capacity tends to be lower. The following table sets forth our average capacity utilization during each of the periods indicated and the total seats available at the end of each of the periods indicated:

                                                 Three Months Ended             Nine Months Ended
                                                      June 30,                      June 30,
                                                2012            2011           2012           2011
Average undergraduate full-time student
enrollment                                       15,300         17,200         16,800         18,800
Total seats available                            27,900         29,600         27,900         29,600
Average capacity utilization                       54.8 %         58.1 %         60.2 %         63.5 %

We continue to seek alternate uses for our underutilized space at existing campuses. Alternate uses may include subleasing space to third parties, allocating space for use by our manufacturer specific advanced training programs, adding new industry relationships or consolidating administrative functions into campus facilities.

The lease for our Glendale Heights, Illinois campus expires in 2013. We are currently negotiating a lease to relocate the campus within the region. Any relocation under the current negotiations is contingent upon approval of a proposed tax increment financing.

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011 and Nine Months Ended June 30, 2012 Compared to Nine Months Ended June 30, 2011

Revenues. Our revenues for the three months ended June 30, 2012 were $99.6 million, representing a decrease of $9.3 million, or 8.6%, as compared to revenues of $108.9 million for the three months ended June 30, 2011 as a result of a decrease in our average undergraduate full-time student enrollment of 10.8%. The decrease was offset by tuition rate increases between 3% and 5%, depending on the program. Our revenues for the three months ended June 30, 2012 and 2011 excluded $3.8 million and $1.7 million, respectively, of tuition related to students participating in our proprietary loan program. In accordance with our accounting policy, we recognize the related revenues as payments are received from the students participating in this program. We recognized $0.4 million and $0.2 million of revenues and interest under the program during the three months ended June 30, 2012 and 2011, respectively.

Our revenues for the nine months ended June 30, 2012 were $312.3 million, representing a decrease of $28.3 million, or 8.3%, as compared to revenues of $340.5 million for the nine months ended June 30, 2011 as a result of a decrease in our average undergraduate full-time student enrollment of 10.9%. The decrease was offset by tuition rate increases between 3% and 5%, depending on the program. Our revenues for the nine months ended June 30, 2012 and 2011 excluded $10.1 million and $5.0 million, respectively, of tuition related to students participating in our proprietary loan program. We recognized $1.1 million and $0.5 million of revenues and interest under the program during the nine months ended June 30, 2012 and 2011, respectively.

Educational services and facilities expenses. Our educational services and facilities expenses for the three months and nine months ended June 30, 2012 were $52.6 million and $157.8 million, respectively, a decrease of $5.4 million and $11.7 million, respectively, as compared to $58.0 million and $169.5 million for the same periods in the prior year.

The following table sets forth the significant components of our educational services and facilities expenses:

                                                      Three Months Ended           Nine Months Ended
                                                           June 30,                    June 30,
                                                       2012          2011         2012          2011
                                                                      (In thousands)
Salaries expense                                    $   23,402     $ 26,371     $  68,851     $  74,375
Employee benefits and tax                                4,492        5,692        13,791        15,150
Bonus expense                                              484          389         2,159         2,915
Stock-based compensation                                   263          213           815           692

Compensation and related costs                          28,641       32,665        85,616        93,132

Occupancy costs                                          9,111        9,168        27,387        27,294
Other educational services and facilities expense        5,291        6,026        15,563        17,476
Depreciation and amortization expense                    4,689        4,774        14,346        14,040
Supplies and maintenance                                 2,509        2,675         7,415         8,611
Tools and training aids expense                          2,380        2,682         7,448         8,965

                                                    $   52,621     $ 57,990     $ 157,775     $ 169,518

Compensation and related costs decreased $4.0 million and $7.5 million during the three months and nine months ended June 30, 2012, respectively, compared to the same periods in the prior year. The decrease is primarily attributable to approximately $2.3 million of compensation related costs incurred in the prior year in connection with our reduction in workforce as well as the resulting decrease in employee headcount. Additionally, bonus expense decreased during the nine months ended June 30, 2012, compared to the same period in the prior year primarily due to modifications made to our compensation plans in response to the new regulations that became effective July 1, 2011. We anticipate our compensation and related costs will decrease for the year ending September 30, 2012 as compared to the year ended September 30, 2011.

Tools and training aids expense, supplies and maintenance and student-related expenses decreased a combined $0.6 million and $3.0 million during the three months and nine months ended June 30, 2012, respectively, compared to the same periods in the prior year. The decrease was primarily due to our lower average undergraduate full-time student enrollments during the current period as well as our cost savings efforts in anticipation of lower average student populations for 2012. Additionally, travel expense and contract services decreased $0.5 million and $1.1 million during the three months and nine months ended June 30, . . .