##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
    Washington, D.C. 20549
    FORM 10-K
  þ

ANNUAL REPORT
    PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF
    1934For the fiscal year ended December 31, 2007oro

TRANSITION REPORT
    PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF
    1934For the transition period
    from          to   Commission file number:
    0-24347
    The Ultimate Software Group,
    Inc.
 (Exact name of Registrant as
    specified in its charter)
  Delaware

65-0694077(State or other jurisdiction
    of

(I.R.S. Employerincorporation or
    organization)

Identification No.)2000 Ultimate Way,

33326Weston, FL

(Zip Code)(Address of principal executive
    offices)   Registrants telephone number, including area code:
 (954) 331-7000
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class:

Name of Each Exchange on which
    Registered:Common Stock, par value $.01 per share

The Nasdaq Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
    o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
    Large accelerated filer
    o

Accelerated filer
    þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### 





THE
    ULTIMATE SOFTWARE GROUP, INC.
  INDEX
   
 Page(s)Forward-Looking Statements

1PART IItem 1.


Business

1Item 1A.


Risk Factors

13Item 1B.


Unresolved Staff Comments

13Item 2.


Properties

14Item 3.


Legal Proceedings

15Item 4.


Submission of Matters to a Vote of Security
    Holders

15PART IIItem 5.


Market for the Registrants Common Equity,
    Related Stockholder Matters, and Issuer Purchases of Equity
    Securities

15Item 6.


Selected Financial Data

20Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations

21Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk

37Item 8.


Financial Statements and Supplementary Data

39Item 9.


Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure

74Item 9A.


Controls and Procedures

74Item 9B.


Other Information

76PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance

76Item 11.


Executive Compensation

79Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters

79Item 13.


Certain Relationships and Related Transactions,
    and Director Independence

79Item 14.


Principal Accountant Fees and Services

79PART IVItem 15.


Exhibits and Financial Statement Schedules

80Signatures

86Ex-10.45 Commercial LeaseEx-23.1 Consent of KPMG LLPEx-31.1 Section 302 Certification of CEOEx-31.2 Section 302 Certification of CFOEx-32.1 Section 906 Certificaiton of CEOEx-32.2 Section 906 Certification of CFOCautionary Statement for Purposes of the "Safe Harbor" Provisions   i




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FORWARD-LOOKING
    STATEMENTS  This Annual Report on
    Form 10-K
    (the
    Form 10-K)
    of The Ultimate Software Group, Inc. and subsidiaries
    (Ultimate Software or the Company) may
    contain certain forward-looking statements within the meaning of
    Section 27A of the Securities Act of 1933, as amended, and
    Section 21E of the Securities Exchange Act of 1934, as
    amended. These forward-looking statements represent the
    Companys expectations or beliefs, including, but not
    limited to, statements concerning the Companys operations
    and financial performance and condition. Words such as
    anticipates, expects,
    intends, plans, believes,
    seeks, estimates, and similar
    expressions are intended to identify such forward-looking
    statements. These forward-looking statements are not guarantees
    of future performance and are subject to certain risks and
    uncertainties that are difficult to predict. The Companys
    actual results could differ materially from those contained in
    the forward-looking statements due to risks and uncertainties
    associated with fluctuations in the Companys quarterly
    operating results, concentration of the Companys product
    offerings, development risks involved with new products and
    technologies, competition, the Companys contractual
    relationships with third parties, contract renewals with
    business partners, compliance by our customers with the terms of
    their contracts with us, and other factors disclosed in the
    Companys filings with the Securities and Exchange
    Commission. Other factors that may cause such differences
    include, but are not limited to, those discussed in this
    Form 10-K,
    including Exhibit 99.1 hereto. The Company undertakes no
    obligation to publicly update or revise any forward-looking
    statements, whether as a result of new information, future
    events or otherwise.
  UltiPro®
    and
    Intersourcing®
    and their related designs are registered trademarks of Ultimate
    Software in the United States. This
    Form 10-K
    also includes names, trademarks, service marks and registered
    trademarks and service marks of companies other than Ultimate
    Software.
 PART I  Item 1.
    Business  Overview




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(954) 331-7000.
 2




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Revenue
    Sources
      Form W-2s
        For the Years Ended December 31,2007


2006


2005Revenues:Recurring


57.5%



55.7%



56.7%Services


32.9



33.6



31.5License


9.6



10.7



11.8Total revenues


100.0%



100.0%



100.0%  3




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Features
    of UltiPro
    Web Workforce Portal.
  Feature-Rich, Built-in Functionality.
  Implementation and System Update Efficiency.
  Reduced Total Cost of Ownership.
  Leveraging of Leading Technologies.
  n
    Leading-edge service-oriented-architecture (SOA)
    technology platform built using Microsoft .NET 3.0
    framework; andn
    Multi-tenancy (multiple companies can reside on one server):    n
    Connecting UltiPro via Web Services:   4




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Ease of Use and Navigation.
  Comprehensive Customer Services and Industry-Specific
    Expertise.
  Technology
    Web-Based Technologies and Internet
    Integration.
  Application Framework.
 5




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Business Intelligence Tools.
  UltiPro
        UltiPro
    Core
  UltiPro Core
  UltiPros Business/Employee
    Portal.
  Human Resources.
 6




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Benefits Administration.
  UltiPro Business Intelligence. point-in-time
  Payroll Processing.
  Manager Self-Service.
  Employee Self-Service.
  Administration. point-in-time
 7




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Other Key Features.
  UltiPro
    Add-On Products
  UltiPro Add-On Products
  UltiPro Talent Management
  Recruitment.
  Onboarding. step-by-step
  Performance Management.
  Learning Management.
  Compensation Management. roll-up
 8




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Benefits Enrollment.
  Time, Attendance, and Scheduling.
  Intersourcing Offering
  back-up
       9




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Research
    and Development Activities
    Customer
    Services
    Professional Services.
  on-site
  Customer Support and Maintenance.
 10




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Customers
    Sales and
    Marketing
    Direct Sales. on-site
  per-day
    Intellectual
    Property Rights
     11




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Competition
    and/or
  Product
    Liability
    Backlog
   12




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Employees
  ®
  Available
    Information
  Form 10-K, Form 10-Q, Form 8-K, Form S-3, 1-800-SEC-0330.
  Item 1A.
    Risk
    Factors  Form 10-K.
  Item 1B.
    Unresolved
    Staff Comments   13




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Item 2.
    Properties    Size

LeaseLocation

(sq. ft.)

Termination

General UseWeston, FL  HQ

39,872

1/31/2017

Research and Development and Customer SupportWeston, FL  HQ

21,392

1/31/2018

Sales Administration, Marketing, Executive Management and FinanceAtlanta, GA (1)

24,609

7/31/2013

Professional Services and Customer SupportWeston, FL  HQ (2)

5,000

Owned

Information Technology and Hosting servicesWeston, FL  HQ (3)

9,000

8/7/2008

Professional Services and Research and DevelopmentWeston, FL  HQ (4)

30,000

5/31/2015

When property is ready for use and all personnel moves have been
    made, it is expect to be used for: Sales Administration,
    Marketing, Professional Services and FinanceToronto, Ontario (5)

2,251

9/30/2009

Professional Services and Customer SupportHarrogate, North Yorkshire, England (6)

5,063

2/20/2010

UK Operations, including Research and Development, Professional
    Services, Customer Support and Finance     (1)
    During the second calendar quarter of 2006, the Company entered
    into a
    79-month
    lease agreement with Galleria 600 LLC, in Atlanta, Georgia. The
    Company moved a portion of its service and support operations
    into this building in August 2006. In August 2006, the Company
    amended the lease to expand the premises by 10,300 square
    feet, extend the lease term to 2013 and increase the monthly
    rental amount.(2)
    In December 2004, the Company purchased, with available cash,
    all the available square footage of a building adjacent to its
    main headquarters buildings that serves as an extension of the
    Companys corporate headquarters.(3)
    In August 2005, the Company entered into a five-year lease
    agreement for a fourth headquarters building located in Weston,
    Florida near the other three locations. The Company moved a
    portion of its operations into this building in April 2006.(4)
    In January 2008, the Company entered into an
    84-month
    lease agreement for a fifth headquarters building located in
    Weston, Florida within a short distance of the other four
    headquarters locations. The Company plans to move a portion of
    its operations into this building in approximately May or June
    2008. The expected general use of this location will accommodate
    the Companys current and expected growth in operations. At
    the time of expected occupancy of this location, the Company
    will modify the general use of the remaining four headquarter
    locations.(5)
    During the third fiscal quarter of 2006, the Company entered
    into a three-year lease agreement for office space in Toronto,
    Ontario, to accommodate future growth into Canada.(6)
    As part of the RTIX Acquisition, the Company assumed a five-year
    lease for office space used for the United Kingdom operations.   14




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Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for the Registrants Common Equity, Related Stockholder
    Matters and Issuer Purchases of Equity Securities  Market Information.
  2007


2006High


Low


High


LowFirst Quarter

$
28.30


$
21.79


$
26.00


$
19.17Second Quarter


30.27



25.68



27.06



18.90Third Quarter


36.50



26.56



24.45



17.08Fourth Quarter


36.63



30.50



26.37



22.18      15




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Securities Authorized for Issuance Under Equity Compensation
    Plans
    Equity
    Compensation Plan Information
  (a)





(c)Number of





Number of SecuritiesSecurities to be


(b)


Remaining Available forIssued upon


Weighted  Average


Future Issuance underExercise of


Exercise Price of


Equity CompensationOutstanding


Outstanding


Plans (ExcludingOptions, Warrants


Options, Warrants


Securities Reflected inPlan Category

and Rights


and Rights


Column (a))Equity compensation plans approved by security holders


4,591,870


$
13.31



2,379,642Equity compensation plans not approved by security holders










Total


4,591,870


$
13.31



2,379,642  16




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Performance Graph. 2002-December 31,
  COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    
  
 17




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Issuance of Equity Securities.
      Purchases of Equity Securities by the
    Issuer.
   18




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##### Table of Contents



Total Cumulative Numberof

Maximum Number ofShares Purchased as Part

Shares That May YetTotal Number of

Average Price

Of Publicly Announced

Be Purchased Under thePeriod

Shares Purchased (1)

Paid per Share

Plans or Programs

Plans or ProgramsJanuary 1  31, 2007







290,563February 1  28, 2007

62,000

26.79

771,437

1,228,563 (2)March 1  31, 2007

103,600

26.37

875,037

1,124,963April 1  30, 2007





875,037

1,124,963May 1  31, 2007

95,200

27.76

970,237

1,029,763June 1  30, 2007

23,500

28.09

993,737

1,006,263July 1  31, 2007





993,737

1,006,263August 1  31, 2007

276,238

29.90

1,269,975

730,025September 1  30, 2007

94,400

31.66

1,364,375

635,625October 1  31, 2007





1,364,375

635,625November 1  30, 2007

88,000

34.20

1,452,375

547,625December 1  31, 2007





1,452,375

547,625Total

742,938

$29.25

1,452,375

547,625        19




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##### Table of Contents



Item 6.
    Selected
    Financial Data  Form 10-K. Form 10-K, Form 10-K.
  Years Ended December 31,2007


2006


2005


2004


2003(In thousands, except per share data)Statements of Income Data:Revenues:Recurring

$
87,017


$
63,935


$
50,259


$
39,049


$
29,344Services


49,857



38,617



27,894



24,924



23,478License


14,590



12,259



10,450



8,055



7,594Total revenues


151,464



114,811



88,603



72,028



60,416Cost of revenues:Recurring


22,798



17,875



13,740



11,961



9,495Services


40,327



30,256



21,410



18,448



17,277License


1,659



1,389



709



993



807Total cost of revenue


64,784



49,520



35,859



31,402



27,579Gross profit


86,680



65,291



52,744



40,626



32,837Operating expenses:Sales and marketing


36,479



29,382



21,783



20,630



17,788Research and development


28,162



22,471



19,999



18,317



18,229General and administrative


14,434



10,648



8,131



6,806



5,871Total operating expenses


79,075



62,501



49,913



45,753



41,888Operating income (loss)


7,605



2,790



2,831



(5,127
)


(9,051
)Other income (expense):Interest expense


(214
)


(195
)


(225
)


(182
)


(221
)Other income, net


6,002



1,538



819



285



103Total other income (expense), net


5,788



1,343



594



103



(118
)Income (loss) before income taxes


13,393



4,133



3,425



(5,024
)


(9,169
)Income tax benefit, net


19,736















Net income (loss)

$
33,129


$
4,133


$
3,425


$
(5,024
)

$
(9,169
)Net income (loss) per share  Basic (1)

$
1.34


$
0.17


$
0.15


$
(0.23
)

$
(0.49
)Net income (loss) per share  Diluted (1)

$
1.24


$
0.15


$
0.13


$
(0.23
)

$
(0.49
)Weighted average number of shares outstanding:Basic (1)


24,701



23,853



23,040



21,743



18,738Diluted (1)


26,722



26,978



26,288



21,743



18,738   20




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##### Table of Contents



As of December 31,2007


2006


2005


2004


2003Balance Sheet Data:Cash and cash equivalents

$
17,462


$
16,734


$
17,731


$
14,766


$
13,783Investments in marketable securities


18,418



16,286



15,035



10,544



Total assets


135,156



93,530



69,581



52,546



35,812Deferred revenue


51,708



42,969



33,031



28,476



24,610Long-term borrowings, including capital lease obligations


2,311



1,610



1,828



1,231



796Stockholders equity


60,978



31,022



23,546



13,524



1,661     (1)
    
    See Note 8 of the Notes to Consolidated Financial
    Statements for information regarding the computation of net
    income (loss) per share.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K.
  Executive
    Summary
           21




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##### Table of Contents



back-up
      Original
    Ceridian Agreement
     22




---



##### Table of Contents



Critical
    Accounting Estimates
    Revenue
    Recognition
    
    Sales of the right to use UltiPro through Intersourcing (the
    Intersourcing Offering), which includes Hosting
    Services (defined below);
    Sales of services to host the UltiPro application (Hosting
    Services) in conjunction with sales of perpetual licenses
    of UltiPro;
    Sales of Hosting Services on a stand-alone basis to customers
    who already own a perpetual license (Base Hosting);
    Recurring revenues derived from (1) maintenance revenues
    generated from maintaining, supporting and providing periodic
    updates for the Companys products under software license
    agreements and (2) subscription revenues generated from per
    employee per month (PEPM) fees earned through the
    Intersourcing Offering and Base Hosting, amortization of
    Intersourcing or Hosting Services one-time fees, revenues
    generated from the Original Ceridian Agreement and, to a lesser
    extent, PEPM fees from sales of BSPs;
    Sales of perpetual licenses for UltiPro; and
    Sales of services including implementation, training (also known
    as knowledge management) and other services, including the
    provision of payroll-related forms and the printing of
    Form W-2s
    for certain customers, as well as services provided to BSPs.  Sales
    Generated from the Intersourcing Offering
  No. 00-21, No. 00-21) No. 00-21.
   23




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##### Table of Contents



No. 00-21;
  EITF 00-21,
  EITF 00-21 SOP 97-2
  Sales of
    Base Hosting Services
  No. 00-3, 97-2 SOP 97-2 SOP 97-2.
  Recurring
    Revenues
       24




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##### Table of Contents



Sales of
    Perpetual Licenses for UltiPro Sold With or Without Hosting
    Services
  97-2,
  SOP 97-2,
     25




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Sales of
    Services, including Implementation and Training
    Services
  Form W-2s
    SOP 97-2, SOP 98-9, EITF 00-21, EITF 00-3,
  Income
    Taxes
     26




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Stock-Based
    Compensation
       27




---



##### Table of Contents



For the Years Ended December 31,2007


2006


2005Cost of recurring revenues

$
635


$
394


$
6Cost of services revenues


1,542



874



13Cost of license revenues


5



6



Sales and marketing


4,617



2,967



395Research and development


985



620



7General and administrative


2,388



1,385



346Total SBC

$
10,172


$
6,246


$
767    28




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##### Table of Contents



Results
    of Operations
    For the Years Ended December 31,2007


2006


2005Revenues:Recurring


57.5
%


55.7
%


56.7
%Services


32.9



33.6



31.5License


9.6



10.7



11.8Total revenues


100.0



100.0



100.0Cost of revenues:Recurring


15.1



15.6



15.5Services


26.6



26.4



24.2License


1.1



1.2



0.8Total cost of revenues


42.8



43.2



40.5Gross profit


57.2



56.8



59.5Operating expenses:Sales and marketing


24.1



25.5



24.5Research and development


18.6



19.6



22.6General and administrative


9.5



9.3



9.2Total operating expenses


52.2



54.4



56.3Operating income


5.0



2.4



3.2Other income (expense), netInterest expense


(0.1
)


(0.1
)


(0.2
)Other income, net


4.0



1.3



0.9Total other income (expense), net


3.9



1.2



0.7Income before income tax benefit


8.9



3.6



3.9Income tax benefit, net


13.0







Net income


21.9
%


3.6
%


3.9
%   Comparison
    of Fiscal Years Ended December 31, 2007 and 2006
  Revenues
       29




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a)
    Intersourcing revenues increased primarily due to the continued
    growth of the recurring revenues generated from previously sold
    Intersourcing units which went Live after December 31,
    2006. Recognition of recurring revenues for Intersourcing unit
    sales commences upon Live date.b)
    Maintenance revenues increased due to additional maintenance
    generated from incremental license sales since December 31,
    2006. Maintenance revenues are recognized over the initial term
    of the related license contract, which is typically
    12 months, and then on a recurring basis thereafter (on a
    monthly basis ratably over the term of the respective renewal
    period). The Companys high retention rate of approximately
    96% for existing customers annual maintenance renewals in
    2007 combined with the annual price increases that typically
    accompany renewals also contributed to the increase in
    maintenance revenues.      Cost of
    Revenues
      a)
    The increase in the Intersourcing costs was principally due to
    the growth in Intersourcing operations and increased sales
    (including increased labor costs and higher operating costs such
    as depreciation and amortization of related computer equipment
    supporting the operations and costs associated with the
    operations of the Companys two data centers), an increase
    in the amortization of the purchased source code of the
    integrated online recruitment/talent acquisition solution that
    Ultimate has offered its customers since April 2005
    (Recruitment) (which began amortizing in 2007), and
    an increase in royalty fees and annual maintenance fees paid to
    the third-party provider of UTA (tied to increased sales).b)
    The increase in maintenance costs was primarily related to
    increased labor costs commensurate with the growth in the number
    of customers served.   30




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Sales and
    Marketing
    Research
    and Development
      General
    and Administrative
   31




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##### Table of Contents



Interest
    Expense
    Interest
    and Other Income, net
    Income
    Tax Benefit, net
    Comparison
    of Fiscal Years Ended December 31, 2006 and
    2005
  Revenues
      a)
    Intersourcing revenues increased primarily due to incremental
    recurring revenues generated from additional (previously sold)
    Intersourcing units which went Live since December 31, 2005.b)
    Maintenance revenues increased due to additional maintenance
    fees resulting from cumulative increases in the customer base
    subsequent to December 31, 2005 due to incremental license
    sales since such date. The Companys high retention rate of
    approximately 97% for existing customers annual
    maintenance renewals in 2006 combined with the annual price
    increases that typically accompany renewals also contributed to
    the increase in maintenance revenues.c)
    Recurring subscription revenues recognized in 2006 from the
    Original Ceridian Agreement, totaling $7.7 million, were
    the same as in 2005.   32




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Cost of
    Revenues
        Sales and
    Marketing
    Research
    and Development
   33




---



##### Table of Contents



General
    and Administrative
    Interest
    Expense
    Interest
    and Other Income
    Provision
    for Income Taxes
    Quarterly
    Results of Operations
  Form 10-K.
   34




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Quarters EndedDec. 31,


Sep. 30,


Jun. 30,


Mar. 31,


Dec. 31,


Sep. 30,


Jun. 30,


Mar. 31,2007


2007


2007


2007


2006


2006


2006


2006(Unaudited)(In thousand, except per share amounts)Revenues:Recurring

$
24,297


$
22,174


$
21,075


$
19,471


$
17,478


$
16,487


$
15,531


$
14,439Services


14,084



12,312



11,274



12,187



12,645



9,410



8,335



8,227License


3,761



3,337



2,608



4,884



2,919



2,882



4,472



1,986Total revenues


42,142



37,823



34,957



36,542



33,042



28,779



28,338



24,652Cost of revenues:Recurring


6,189



5,630



5,480



5,499



4,836



4,602



4,325



4,112Services


10,888



10,066



9,081



10,292



9,601



7,287



6,404



6,964License


633



352



265



409



423



319



391



256Total cost of revenues


17,710



16,048



14,826



16,200



14,860



12,208



11,120



11,332Gross profit


24,432



21,775



20,131



20,342



18,182



16,571



17,218



13,320Operating expenses:Sales and marketing


10,214



9,040



8,442



8,783



7,670



7,222



7,548



6,942Research and development


7,221



7,107



6,663



7,171



5,937



5,887



5,273



5,374General and administrative


4,089



3,645



3,253



3,447



3,124



2,526



2,556



2,442Total operating expenses


21,524



19,792



18,358



19,401



16,731



15,635



15,377



14,758Operating income (loss)


2,908



1,983



1,773



941



1,451



936



1,841



(1,438
)Interest expense


(53
)


(61
)


(53
)


(47
)


(43
)


(52
)


(60
)


(40
)Interest and other income


400



433



4,774



395



390



419



390



339Total other income, net


347



372



4,721



348



347



367



330



299Income (loss) before provision for income taxes


3,255



2,355



6,494



1,289



1,798



1,303



2,171



(1,139
)Income tax benefit (expense), net (1)


19,851







(85
)


(30
)














Net income (loss)

$
23,106


$
2,355


$
6,409


$
1,259


$
1,798


$
1,303


$
2,171


$
(1,139
)Weighted average shares outstanding:Basic


24,742



24,764



24,713



24,527



24,270



24,130



24,078



23,709Diluted


26,803



27,692



27,571



27,383



27,229



27,030



27,311



23,709Net earnings (loss) per share Basic

$
0.93


$
0.10


$
0.26


$
0.05


$
0.07


$
0.05


$
0.09


$
(0.05
)Diluted

$
0.86


$
0.09


$
0.23


$
0.05


$
0.07


$
0.05


$
0.08


$
(0.05
)   (1)
    
    During the fourth quarter of 2007, the Company released its
    valuation allowance for certain deferred tax assets resulting in
    a $19.9 million non-cash tax benefit recorded in the
    consolidated statements of income. See Note 17 of the Notes
    to Consolidated Financial Statements for further discussion.  Liquidity
    and Capital Resources
   35




---



##### Table of Contents



36




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    Contractual
    Obligations
    Payments Due by PeriodLess Than


1-3


4-5


After 5Total


1 Year


Years


Years


YearsCapital lease obligations (1)

$
4,073


$
2,056


$
2,017


$



$
Other long-term obligations (2)


24,654



3,197



6,003



5,958



9,496Purchase obligations (3)


















Other long-term liabilities (4)


892



572



320







Total contractual cash obligations

$
29,619


$
5,825


$
8,340


$
5,958


$
9,496     (1)
    
    The Company leases certain equipment under non-cancelable
    agreements, which are accounted for as capital leases and expire
    at various dates through 2010. See Note 15 of the Notes to
    Consolidated Financial Statements for information regarding
    capital lease obligations.(2)
    
    The Company leases corporate office space and certain equipment
    under non-cancelable operating lease agreements expiring at
    various dates. See Note 19 of the Notes to Consolidated
    Financial Statements for information regarding operating lease
    obligations.(3)
    
    Purchase orders or contracts for the purchase of goods and
    services are not included in the table above. The Company is not
    able to determine the aggregate amount of such purchase orders
    that represent contractual obligations, as purchase orders may
    represent authorizations to purchase rather than binding
    agreements. The Company does not have significant agreements for
    the purchase of goods or services specifying minimum quantities
    or set prices.(4)
    
    As of December 31, 2007, the Company had an outstanding
    balance of $0.3 million under the Equipment Loan of the
    Credit Facility, which is payable on or before December 31,
    2008 under the payment terms of such agreement (see Liquidity
    and Capital Resources for further discussion). The remaining
    balance of $0.3 million in other long-term liabilities is
    related to the long-term installment loan agreement that was
    entered into during 2007 with a third-party vendor to acquire
    computer software, of which, $0.3 million is payable on or
    before September 1, 2008 and $0.3 million is payable
    on or before September 1, 2009.  Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk    Market risks.
  
    Maximum safety of principal;
    Maintenance of appropriate liquidity for regular cash needs; 37




---



##### Table of Contents




    Maximum yields in relationship to guidelines and market
    conditions;
    Diversification of risks; and
    Fiduciary control of all investments.    Interest rates. P-1 A-1 A-2
      Interest rate risk.
    Foreign currency risk.
 38




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##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  INDEX
  Page(s)Report of Independent Registered Public
    Accounting Firm


40Consolidated Balance Sheets as of
    December 31, 2007 and 2006


41Consolidated Statements of Income for the Years
    Ended December 31, 2007, 2006 and 2005


42Consolidated Statements of Stockholders
    Equity and Comprehensive Income for the Years Ended
    December 31, 2007, 2006 and 2005


43Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2007, 2006 and 2005


44Notes to Consolidated Financial Statements


45  39




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm           Share-Based
    Payment.
  Internal Control  Integrated Framework
  KPMG
    LLP
       40




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##### Table of Contents



THE
    ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
  CONSOLIDATED BALANCE SHEETS
  As of December 31,2007


2006(In thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents

$
17,462


$
16,734Short-term investments in marketable securities


17,120



14,247Accounts receivable, net of allowance for doubtful accounts of
    $700 and $500 for 2007 and 2006, respectively


34,658



26,575Prepaid expenses and other current assets


9,801



8,611Deferred tax assets, net


3,516



Total current assets


82,557



66,167Property and equipment, net


18,238



13,480Capitalized software, net


3,631



2,055Goodwill


4,063



2,734Long-term investments in marketable securities


1,298



2,039Other assets, net


9,365



7,055Long-term deferred tax assets, net


16,004



Total assets

$
135,156


$
93,530LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
3,528


$
3,894Accrued expenses


11,405



9,230Current portion of deferred revenue


43,262



36,524Current portion of capital lease obligations


2,002



1,512Current portion of long-term debt


572



505Total current liabilities


60,769



51,665Deferred revenue, net of current portion


8,446



6,445Deferred rent


2,652



2,788Capital lease obligations, net of current portion


1,991



1,416Long-term debt, net of current portion


320



194Total liabilities


74,178



62,508Commitments and contingencies (Note 19)






Stockholders equity:Series A Junior Participating Preferred Stock,
    $.01 par value, 500,000 shares authorized, no shares
    issued






Preferred Stock, $.01 par value, 2,000,000 shares
    authorized, no shares issued






Common Stock, $.01 par value, 50,000,000 shares
    authorized, 26,219,789 and 25,102,824 shares issued in 2007
    and 2006, respectively


262



251Additional paid-in capital


143,913



125,121Accumulated other comprehensive (loss) income


(18
)


1Accumulated deficit


(50,371
)


(83,500
)93,786



41,873Treasury stock, at cost, 1,452,375 and 709,437 shares in
    2007 and 2006, respectively


(32,808
)


(10,851
)Total stockholders equity


60,978



31,022Total liabilities and stockholders equity

$
135,156


$
93,530     41




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##### Table of Contents



THE
    ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF INCOME  For the Years Ended December 31,2007


2006


2005(In thousands, except per share amounts)Revenues:Recurring

$
87,017


$
63,935


$
50,259Services


49,857



38,617



27,894License


14,590



12,259



10,450Total revenues


151,464



114,811



88,603Cost of revenues:Recurring


22,798



17,875



13,740Services


40,327



30,256



21,410License


1,659



1,389



709Total cost of revenues


64,784



49,520



35,859Gross profit


86,680



65,291



52,744Sales and marketing


36,479



29,382



21,783Research and development


28,162



22,471



19,999General and administrative


14,434



10,648



8,131Total operating expenses


79,075



62,501



49,913Operating income


7,605



2,790



2,831Other income (expense):Interest expense


(214
)


(195
)


(225
)Other income, net


6,002



1,538



819Total other income, net


5,788



1,343



594Income before income tax benefit


13,393



4,133



3,425Income tax benefit, net


19,736







Net income

$
33,129


$
4,133


$
3,425Net income per share:Basic

$
1.34


$
0.17


$
0.15Diluted

$
1.24


$
0.15


$
0.13Weighted average shares outstanding:Basic


24,701



23,853



23,040Diluted


26,722



26,978



26,288     42




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##### Table of Contents



THE
    ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE
    INCOME

(In thousands) AccumulatedAdditional


Other











TotalCommon Stock


Paid-in


Comprehensive


Accumulated


Treasury Stock


StockholdersShares


Amount


Capital


(Loss) Income


Deficit


Shares


Amount


EquityBalance, December 31, 2004


22,749


$
227


$
103,643


$
(15
)

$
(89,277
)


258


$
(1,054
)

$
13,524Net income


















3,425











3,425Unrealized loss on investments in marketable securities
    available-for-sale














(16
)














(16
)Comprehensive income






























3,409Issuances of Common Stock from exercises of stock options and
    warrant


1,037



11



5,835



















5,846Non-cash issuances of options to Board to purchase Common Stock
    for board fees










125



















125Non-cash stock-based compensation expense for restricted stock










642



















642Balance, December 31, 2005


23,786



238



110,245



(31
)


(85,852
)


258



(1,054
)


23,546SAB 108 cumulative adjustment (Note 22)


















(1,781
)










(1,781
)Adjusted balance, January 1, 2006


















(87,633
)










21,765Net income


















4,133











4,133Unrealized gain on investments in marketable securities
    available-for-sale














33















33Unrealized loss on foreign exchange














(1
)














(1
)Comprehensive income






























4,165Repurchase of Common Stock






















451



(9,797
)


(9,797
)Issuances of Common Stock from exercises of stock options and
    warrants


1,317



13



8,589



















8,602Non-cash stock-based compensation expense for stock options and
    restricted stock










6,287



















6,287Balance, December 31, 2006


25,103



251



125,121



1



(83,500
)


709



(10,851
)


31,022Net income


















33,129











33,129Unrealized loss on investments in marketable securities
    available-for-sale














(13
)














(13
)Unrealized loss on foreign exchange














(6
)














(6
)Comprehensive income






























33,110Repurchase of Common Stock






















743



(21,957
)


(21,957
)Issuances of Common Stock from exercises of stock options and
    warrants


1,117



11



8,578



















8,589Non-cash stock-based compensation expense for stock options and
    restricted stock










10,214



















10,214Balance, December 31, 2007


26,220


$
262


$
143,913


$
(18
)

$
(50,371
)


1,452


$
(32,808
)

$
60,978     43




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##### Table of Contents



THE
    ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS  For the Years Ended December 31,2007


2006


2005(In thousands)Cash flows from operating activities:Net income

$
33,129


$
4,133


$
3,425Adjustments to reconcile net income to net cash provided by
    operating activities, net of effects from business combination:Depreciation and amortization


7,068



5,371



4,426Provision for doubtful accounts


1,505



813



869Non-cash expense for stock based compensation


10,172



6,246



767Deferred income taxes


(19,851
)






Changes in operating assets and liabilities:Accounts receivable


(9,588
)


(8,940
)


(6,395
)Prepaid expenses and other current assets


(1,190
)


(2,712
)


(2,412
)Other assets, net


(2,517
)


(3,484
)


(1,066
)Accounts payable


(366
)


1,021



411Accrued expenses


2,039



3,365



817Deferred revenue


8,739



9,617



4,555Net cash provided by operating activities


29,140



15,430



5,397Cash flows from investing activities:Purchases of marketable securities


(20,036
)


(22,208
)


(21,421
)Maturities of marketable securities


17,890



20,990



16,914Purchases of property and equipment


(7,429
)


(6,367
)


(3,022
)Capitalized software


(1,653
)


(1,801
)


(182
)Payments for acquisition


(24
)


(3,627
)


Net cash used in investing activities


(11,252
)


(13,013
)


(7,711
)Cash flows from financing activities:Repurchases of Common Stock


(21,957
)


(9,797
)


Principal payments on capital lease obligations


(2,045
)


(1,717
)


(1,318
)Net proceeds from issuances of Common Stock


7,617



8,602



5,846Borrowings under Credit Facility










1,000Repayments of borrowings of long term debt


(768
)


(501
)


(249
)Net cash (used in) provided by financing activities


(17,153
)


(3,413
)


5,279Effect of exchange rate changes on cash


(7
)


(1
)


Net increase (decrease) in cash and cash equivalents


728



(997
)


2,965Cash and cash equivalents, beginning of year


16,734



17,731



14,766Cash and cash equivalents, end of year

$
17,462


$
16,734


$
17,731Supplemental disclosure of cash flow information:Cash paid for interest

$
96


$
102


$
110Cash paid for income taxes

$
75


$



$
  Supplemental disclosure of non-cash investing and financing
    activities:
  -
    The Company entered into capital lease obligations to acquire
    new equipment totaling $3,109, $2,285 and $1,797 in 2007, 2006
    and 2005, respectively.-
    The Company included in capitalized software on the
    Companys consolidated balance sheet a total of $42 and $41
    in stock-based compensation incurred in the development of
    UltiPro Canada at December 31, 2007 and 2006, respectively.
    There was no stock-based compensation capitalized in 2005.-
    The Company entered into a long-term installment loan agreement
    with a third-party vendor to acquire computer software totaling
    $961 during the year ended December 31, 2007.-
    The Company satisfied its agreement for the 2006 purchase of
    RTIX during the year ended December 31, 2007 with a stock
    consideration payment valued at $972.    44




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##### Table of Contents



THE
    ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS
  1.
    Nature of
    Operations    2.
    Basis of
    Presentation, Consolidation and the Use of Estimates          3.
    Summary
    of Significant Accounting Policies and Recent Accounting
    Pronouncements  Cash and
    Cash Equivalents
    Accounts
    Receivable
    Fair
    Value of Financial Instruments
    Fair
    Value of a Conditional Asset Retirement Obligation
   45




---



##### Table of Contents



Goodwill
    and Other Intangible Assets
    Long-Lived
    Assets
    Property
    and Equipment
      As of


As ofDecember 31,
    2007


December 31,
    2006Property and equipment

$
52,611


$
41,173Less: accumulated depreciation and amortization


34,373



27,693$
18,238


$
13,480   Deferred
    Revenue
   46




---



##### Table of Contents



Guarantees
    Accounting
    Changes and Error Corrections
    Segment
    Information
    Revenue
    Recognition
    
    Sales of the right to use UltiPro software (UltiPro)
    through Intersourcing (the Intersourcing Offering),
    which includes Hosting Services (defined below);
    Sales of services to host the UltiPro application (Hosting
    Services) in conjunction with sales of perpetual licenses
    of UltiPro;
    Sales of Hosting Services on a stand-alone basis to customers
    who already own a perpetual license (Base Hosting); 47




---



##### Table of Contents




    Recurring revenues derived from (1) maintenance revenues
    generated from maintaining, supporting and providing periodic
    updates for the Companys products under software license
    agreements and (2) subscription revenues generated from per
    employee per month (PEPM) fees earned through the
    Intersourcing Offering and Base Hosting, amortization of
    Intersourcing or Hosting Services one-time fees, revenues
    generated from the Original Ceridian Agreement and, to a lesser
    extent, PEPM fees from the business service provider
    (BSP) sales channel;
    Sales of perpetual licenses for UltiPro; and
    Sales of services including implementation, training (also known
    as knowledge management) and other services, including the
    provision of payroll-related forms and the printing of
    Form W-2s
    for certain customers, as well as services provided to BSPs.  Sales
    Generated from the Intersourcing Offering
  No. 00-21, No. 00-21), No. 00-21.
  No. 00-21;
  No. 00-21,
  No. 00-21 97-2, No. 97-2)
  Sales of
    Base Hosting Services
  No. 00-3, 97-2 No. 97-2
 48




---



##### Table of Contents



No. 97-2.
  Recurring
    Revenues
            Perpetual
    Licenses for UltiPro Sold With or Without Hosting
    Services
  No. 97-2,
  No. 97-2,
 49




---



##### Table of Contents



50




---



##### Table of Contents



Services,
    including Implementation and Training Services
  Form W-2s
    SOP No. 97-2, SOP No. 98-9, EITF No. 00-21, EITF No. 00-3,
  Cost of
    Revenues
    Stock-Based
    Compensation
     51




---



##### Table of Contents



For the Years EndedDecember 31,2007


2006


2005SBC  Statements of income

$
10,172


$
6,246


$
767SBC  Capitalized software (UltiPro Canada)


42



41



SBC  Statements of stockholders equity

$
10,214


$
6,287


$
767   FAS 123R-2,
    FAS 123R-4,
  Rental
    Costs Incurred during a Construction Period
  FAS 13-1,
 52




---



##### Table of Contents



No. FAS 13-1
  Income
    Taxes
          Reimbursable
    Out-Of-Pocket Expenses
  No. 01-14, (EITF No. 01-14). EITF No. 01-14
  Recently
    Adopted Accounting Pronouncements
   53




---



##### Table of Contents



No. FIN 48-1, (FSP No. FIN 48-1),
  No. 06-3, No. 06-3). No. 06-3 No. 06-3 No. 06-3
  Recently
    Issued Accounting Pronouncements
       54




---



##### Table of Contents



4.
    Investments
    in Marketable Securities  FSP No. FAS 115-1,
    Gross


Gross


EstimatedAmortized


Unrealized


Unrealized


FairCost


Gain


Loss


ValueInvestments in marketable securities:Commercial paper

$
3,875


$



$
(3
)

$
3,872Corporate debentures  bonds


12,055



1



(5
)


12,051Asset-backed  fixed


2,499



1



(5
)


2,495Total investments, available-for-sale

$
18,429


$
2


$
(13
)

$
18,418     Amortized


EstimatedCost


Fair ValueDue in one year or less

$
17,132


$
17,120Due after one year


1,297



1,298Total

$
18,429


$
18,418   5.
    Property
    and Equipment    As of December 31,2007


2006Computer equipment

$
43,611


$
32,844Leasehold improvements


5,094



4,853Furniture and fixtures


2,381



1,951Building


870



870Land


655



65552,611



41,173Less: accumulated depreciation and amortization


34,373



27,693$
18,238


$
13,480  55




---



##### Table of Contents



As of December 31,2007


2006Computer equipment

$
14,734


$
11,625Less: accumulated amortization


13,114



10,247$
1,620


$
1,378     6.
    Foreign
    Currency    7.
    Software
    Development Costs       56




---



##### Table of Contents



8.
    Earnings
    Per Share      For the Years Ended December 31,2007


2006


2005Basic weighted average shares outstanding


24,701



23,853



23,040Effect of dilutive equity instruments


2,021



3,125



3,248Dilutive shares outstanding


26,722



26,978



26,288Other common stock equivalents (i.e., stock options, restricted
    stock awards and warrants) outstanding which are not included in
    the calculation of diluted income per share because their impact
    is antidilutive


615



485



343   9.
    Comprehensive
    Income      For the Years EndedDecember 31,2007


2006


2005Net income

$
33,129


$
4,133


$
3,425Other comprehensive income (loss):Unrealized gain (loss) on investments in marketable securities
    available-for-sale


(13
)


33



(16
)Unrealized loss on foreign currency translation adjustments


(6
)


(1
)


Comprehensive income

$
33,110


$
4,165


$
3,409  57




---



##### Table of Contents



10.
    Goodwill
    and Intangible Assets    For the Year EndedDecember 31,
    2007Goodwill, December 31, 2006

$
2,734Stock Consideration (see Note 18)


972Income tax liability


333Other changes


24Goodwill, December 31, 2007

$
4,063         EstimatedUseful LivesAcquired intangible assets:Developed technology


5 yearsCustomer relationships


6 years     Year

Amount2008

$
1852009


1852010


1852011


1582012


56Total

$
769   11.
    Significant
    Transactions   58




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##### Table of Contents



12. Other
    Income, net
    For the Years Ended December 31,2007


2006


2005Interest income

$
1,413


$
1,295


$
437Other income


214



243



382Non-recurring settlement fee, net


4,375







Total other income, net

$
6,002


$
1,538


$
819     13.
    Stock
    Repurchase Plan     59




---



##### Table of Contents



Total Cumulative Numberof

Maximum Number ofShares Purchased as Part

Shares That May YetTotal Number of

Average Price

Of Publicly Announced

Be Purchased Under thePeriod

Shares Purchased (1)

Paid per Share

Plans or Programs

Plans or ProgramsJanuary 1  31, 2007







290,563February 1  28, 2007

62,000

26.79

771,437

1,228,563(2)March 1  31, 2007

103,600

26.37

875,037

1,124,963April 1  30, 2007





875,037

1,124,963May 1  31, 2007

95,200

27.76

970,237

1,029,763June 1  30, 2007

23,500

28.09

993,737

1,006,263July 1  31, 2007





993,737

1,006,263August 1  31, 2007

276,238

29.90

1,269,975

730,025September 1  30, 2007

94,400

31.66

1,364,375

635,625October 1  31, 2007





1,364,375

635,625November 1  30, 2007

88,000

34.20

1,452,375

547,625December 1  31, 2007





1,452,375

547,625Total

742,938

$  29.25

1,452,375

547,625        14.
    Accrued
    Expenses    As of December 31,2007


2006Sales commissions

$
3,811


$
4,005Other items individually less than 5% of total current
    liabilities


7,594



5,225$
11,405


$
9,230   15.
    Capital
    Lease Obligations   60




---



##### Table of Contents



Year

Amount2008

$
2,0562009


1,5112010


5064,073Less amount representing interest


(80
)Lease obligations reflected as current ($2,002) and
    non-current ($1,991)

$
3,993   16.
    Long-Term
    Debt    17.
    Income
    Taxes      For the Year Ended December 31,2007


2006


2005Current taxes:Federal

$
95


$



$
State and Local


20







Foreign










Deferred taxes, net










Federal


(16,523
)






State and Local


(2,768
)






Foreign


(560
)






Income tax benefit, net

$
(19,736
)

$



$
  61




---



##### Table of Contents



For the Year Ended December 31,2007


2006


2005Income tax provision at statutory Federal tax rate

$
4,687


$
1,446


$
1,199State and local income taxes


353



238



197Non deductible expenses


312



282



216Change in tax rates


1,979







Change in valuation allowance


(26,863
)


(1,899
)


(1,597
)Other, net


(204
)


(67
)


(15
)Income tax benefit, net

$
(19,736
)

$



$
     As of December 31,2007


2006


2005Deferred tax assets:Net operating losses

$
10,251


$
21,780


$
27,079Tax credit carryforwards


222







Deferred revenue


6,603



5,686



4,459Property and equipment


1,206



1,217



1,132Accruals not currently deductible


141



85



111Allowance for doubtful accounts


272



204



204Charitable contributions


195



312



248Stock-based compensation


7,166



3,362



817Deferred rent adjustment


1,029



1,135



174Gross deferred tax assets


27,085



33,781



34,224Less valuation allowance


(5,592
)


(32,455
)


(33,955
)Net deferred tax assets


21,493



1,326



269Deferred tax liabilities:Acquired intangible assets


(299
)


(398
)


Software development costs


(1,412
)


(837
)


(97
)Other, net


(262
)


(91
)


(172
)Gross deferred tax liabilities


(1,973
)


(1,326
)


(269
)Net deferred tax assets

$
19,520


$



$
    62




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##### Table of Contents



18.
    Stock-Based
    Compensation and Equity  Summary
    of Plans
    10-year
 63




---



##### Table of Contents



10-year
      Fair
    Value
     64




---



##### Table of Contents



For the Years Ended December 31,2007


2006


2005Cost of recurring revenues

$
635


$
394


$
6Cost of service revenues


1,542



874



13Cost of license revenues


5



6



Sales and marketing


4,617



2,967



395Research and development


985



620



7General and administrative


2,388



1,385



346Total SBC

$
10,172


$
6,246


$
767        65




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##### Table of Contents



For the Year EndedDecember 31,
    2005Net income:As reported

$
3,425Compensation expense, pro forma


(2,975)Pro forma

$
450Income per share, basic:As reported

$
0.15Compensation expense, pro forma


(0.13)Pro forma

$
0.02Income per share, diluted:As reported

$
0.13Compensation expense, pro forma


(0.11)Pro forma

$
0.02     For the Years Ended December 31,2007


2006


2005Expected term (in years)


5.0



4.6



4.5Volatility


39%



40%



41%Interest rate


4.45%



4.74%



4.25%Dividend yield










Weighted average fair value at grant date

$
11.06


$
8.55


$
5.95     Restricted
    Stock Awards
   66




---



##### Table of Contents



Stock
    Unit Awards
     67




---



##### Table of Contents



Stock
    Option and Restricted Stock Activity
    WeightedAverageWeighted

Remaining

AggregateAverage

Contractual

IntrinsicStock Options

Shares

Exercise Price

Term (in Years)

ValueOutstanding at December 31, 2004


5,800

$
6.70





Granted


652


15.00





Exercised


(924)


6.00





Forfeited or expired


(38)


11.18





Outstanding at December 31, 2005


5,490

$
7.77


5.38

$
62,012Exercisable at December 31, 2005


4,486

$
6.77


4.65

$
55,175Outstanding at December 31, 2005


5,490

$
7.77





Granted


727


21.62





Exercised


(1,290)


6.60





Forfeited or expired


(34)


18.34





Outstanding at December 31, 2006


4,893

$
10.07


5.68

$
64,789Exercisable at December 31, 2006


3,931

$
8.09


4.93

$
59,712Outstanding at December 31, 2006


4,893

$
10.07





Granted


759


26.48





Exercised


(1,047)


7.16





Forfeited or expired


(58)


22.92





Outstanding at December 31, 2007


4,547

$
13.31


5.90

$
82,771Exercisable at December 31, 2007


3,582

$
10.69


5.16

$
74,550      68




---



##### Table of Contents



RestrictedRestricted Stock Awards

Stock UnitsWeightedAverageGrant DateRestricted Stock

Shares

Fair Value

SharesOutstanding at December 31, 2004




$



Granted


169


16.86


Vested








Forfeited or expired








Outstanding at December 31, 2005


169

$
16.86


Granted


263


23.16


29Vested








Forfeited or expired








Outstanding at December 31, 2006


432

$
20.70


29Granted


479


32.89


16Vested








Forfeited or expired








Outstanding at December 31, 2007


911

$
27.11


45       Options Outstanding


Options ExercisableWeighted-AverageRemainingRange of




Contractual


Weighted-





Weighted-Exercise




Life


Average





AveragePrices

Number


(Years)


Exercise Price


Number


Exercise Price$0.89$3.38


539,880



3.61


$
2.79



539,880


$
2.79$3.38$4.25


466,875



4.49



3.85



466,875



3.85$4.66$8.03


623,111



2.29



7.25



623,111



7.25$8.38$10.00


480,414



4.15



9.39



480,414



9.39$10.54$13.05


515,100



6.58



12.41



515,100



12.41$13.63$16.68


496,406



7.29



15.05



363,899



15.07$17.11$21.60


534,025



8.14



20.49



271,557



20.36$24.20$24.20


143,950



8.04



24.20



90,826



24.20$24.30$24.30


459,938



9.06



24.30



115,176



24.30$26.72$34.89


287,050



9.40



30.43



114,703



30.91$0.89$34.89


4,546,749



5.90


$
13.31



3,581,541


$
10.69  69




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##### Table of Contents



Board Compensation.
  Exercise Price ofStock Options Granted

Number of Options(1) (2) (3) (4) (5)

Granted2005:

$
4.71



2,8574.88



2,7615.42



2,4885.86



2,3002006:

$
7.80



1,7285.74



2,3506.94



2,0126.86



2,3512007:

$
7.82



2,1208.76



1,89030.34



23,75034.89



23,750     (1)
    
    Stock option grants to non-employee directors during 2005, 2006,
    and the first half of 2007 were granted at an exercise price
    equal to 30% of the fair value of the Companys Common
    Stock on the date of grant. In October 2006, 25,000 stock
    options were issued at grant date fair value to Al Leiter upon
    his election to the Companys Board of Directors.(2)
    
    Stock option grants to non-employee directors beginning in the
    second half of 2007 were granted at fair value based on the
    closing price of the Companys Common Stock on the date of
    grant.(3)
    
    Stock options granted during 2005, 2006, and the first half of
    2007 become exercisable on the earliest of (i) the fifth
    anniversary of the date of grant, (ii) the date on which
    the director ceases to be a member of the Board of Directors and
    (iii) the effective date of a change in control of the
    Company. All such stock options granted during 2005 were valued
    on the date of grant in accordance with the requirements
    prescribed in APB No. 25. All stock options granted
    during 2006 and 2007 were valued on the date of grant in
    accordance with SFAS No. 123R. See Note 3. These
    options were granted in lieu of cash retainers and board meeting
    fees.(4)
    
    Stock options granted during the second half of 2007 become
    exercisable immediately. All such stock options were valued on
    the date of grant in accordance with the requirements prescribed
    in SFAS No. 123R. See Note 3. These options were
    granted in lieu of cash retainers and board meeting fees.(5)
    
    The compensation expense related to the Board Options granted in
    2007, 2006 and 2005, determined pursuant to the application of
    SFAS No. 123R for 2007 and 2006 and
    APB No. 25 for 2005, was $757,000, $343,000 and
    $125,000, respectively, and is included in general and
    administrative expenses in the accompanying consolidated
    statements of income. 70




---



##### Table of Contents



Warrants
    WeightedAverageShares


Exercise
    PriceOutstanding at December 31, 2004


197,050


$
4.00Granted






4.00Exercised


(125,000
)


4.00Canceled






4.00Outstanding at December 31, 2005


72,050


$
4.00Granted






4.00Exercised


(27,500
)


4.00Canceled






4.00Outstanding at December 31, 2006


44,550


$
4.00Granted






4.00Exercised


(44,550
)


4.00Canceled






Outstanding at December 31, 2007





$
   Common
    Stock
    Other
    Equity Transactions
  Issuance of Equity Securities.
     71




---



##### Table of Contents



19.
    Commitments
    and Contingencies  Operating
    Leases
    Year

Amount2008

$
3,1972009


3,0702010


2,9332011


2,9382012


3,020Thereafter


9,496$
24,654   Product
    Liability
    Litigation
    20.
    Related
    Party Transactions   72




---



##### Table of Contents



21.
    Employee
    Benefit Plan    22. Staff
    Accounting Bulletin No. 108
     73




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15.
  Managements
    Annual Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f)
 74




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
     Internal Control 
    Integrated Framework
        Internal Control  Integrated Framework
    /s/ KPMG LLP
      75




---



##### Table of Contents



Changes
    in Internal Control Over Financial Reporting
    Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Name

Age

Position(s)Scott Scherr


55


Chairman of the Board, President and Chief Executive OfficerMarc D. Scherr


50


Vice Chairman of the Board and Chief Operating OfficerMitchell K. Dauerman


50


Executive Vice President, Chief Financial Officer and TreasurerJon Harris


43


Senior Vice President, Chief Services OfficerRobert Manne


54


Senior Vice President, General CounselVivian Maza


46


Senior Vice President, People and SecretaryLinda Miller


63


Senior Vice President, MarketingLaura Johnson


43


Senior Vice President, Product StrategyAdam Rogers


33


Senior Vice President, Chief Technology OfficerGreg Swick


44


Senior Vice President, Chief Sales OfficerBill Hicks


42


Senior Vice President, Chief Information OfficerJames A. FitzPatrick, Jr.


58


DirectorLeRoy A. Vander Putten


73


DirectorRick A. Wilber


61


DirectorRobert A. Yanover


71


DirectorAlois T. Leiter


42


Director   father-in-law
 76




---



##### Table of Contents



77




---



##### Table of Contents



son-in-law
               78




---



##### Table of Contents



Code of
    Ethics
  Regulation S-K www.ultimatesoftware.com Form 8-K,
  Corporate
    Governance
        Other
    Information
    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independance    Item 14.
    Principal
    Accountant Fees and Services   79




---



##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedule    (1)
    Financial Statements. The following financial statements of the
    Company are included in Part II, Item 8, of this
    Annual Report on
    Form 10-K:              (2)
    Consolidated Financial Statement Schedule:        Number



Description3
.1



Amended and Restated Certificate of Incorporation (incorporated
    by reference to Exhibit 3.4 to the Registration Statement
    on
    Form S-1
    (File
    No. 333-47881),
    initially filed March 13, 1998 (the Registration
    Statement)3
.2



Certificate of Designations of Series A Junior Preferred
    Stock (incorporated by reference to Exhibit 2 to the
    Companys Current Report on
    Form 8-K
    dated October 23, 1998)3
.3



Amended and Restated Bylaws (incorporated herein by reference to
    Exhibit 3.5 to the Registration Statement)4
.1



Form of Certificate for the Common Stock, par value $0.01 per
    share**4
.2



Form of Warrant for Common Stock (incorporated by reference to
    Exhibit 4.4 to the Companys Registration Statement on
    Form S-3
    (File
    No. 333-107527),
    initially filed July 31, 200310
.1



Shareholders Rights Agreement, dated June 6, 1997 among the
    Company and certain stockholders named therein**10
.2



Asset Purchase Agreement, dated February 2, 1998, among The
    Ultimate Software Group of Virginia, Inc., the Company and
    certain principals named therein**10
.3



Asset Purchase Agreement, dated February 2, 1998, among the
    Company, The Ultimate Software Group of the Carolinas, Inc. and
    certain principals name therein**10
.4



Asset Acquisition Agreement, dated February 20, 1998, among
    the Company, The Ultimate Software Group of Northern California,
    Inc. and certain principals named therein**10
.5



Asset Purchase Agreement dated March 4, 1998, among the
    Company, Ultimate Investors Group, Inc. and certain principals
    name therein**10
.6



Agreement and Plan of Merger dated February 24, 1998, among
    the Company, ULD Holding Corp., Ultimate Software Group of New
    York and New England, G.P. and certain principals named
    therein** 80




---



##### Table of Contents



Number



Description10
.7



Nonqualified Stock Option Plan, as amended and restated as of
    December 20, 2002 (incorporated by reference to the
    corresponding exhibit in the Companys Annual Report on
    Form 10-K
    dated March 31, 2003)10
.8



Commercial Office Lease agreement by and between UltiLand, Ltd.,
    a Florida limited partnership, and the Company, dated
    December 31, 1998 (incorporated by reference herein to
    corresponding exhibit in the Companys Annual Report on
    Form 10-K
    dated March 31, 1999)10
.9



Rights Agreement, dated as of October 22, 1998, between the
    Company and BankBoston, N.A., as Rights Agent. The Rights
    Agreement includes the Form of Certificate of Designations of
    Series A Junior Preferred Stock as Exhibit A, the Form
    of Rights Certificate as Exhibit B, and the Summary of
    Rights as Exhibit C (incorporated by reference herein to
    Exhibit 2 to the Companys Current Report on
    Form 8-K
    dated October 23, 1998)10
.10



Commercial Office Lease by and between UltiLand, Ltd., a Florida
    limited partnership and the Company, dated December 22,
    1998 (incorporated by reference to Exhibit 10.1 to the
    Companys Quarterly Report on
    Form 10-Q
    dated August 15, 1999)10
.11



Letter Agreement between Aberdeen Strategic Capital LP and the
    Company, dated October 21, 1999 (incorporated herein by
    reference to Exhibit 10.1 to the Companys Quarterly
    Report on
    Form 10-Q
    dated November 15, 1999)10
.12



Warrant issued to Aberdeen Strategic Capital LP (incorporated by
    reference to Exhibit 10.2 to the Companys Quarterly
    Report on
    Form 10-Q
    dated November 15, 1999)10
.13



Software License Agreement between the Company and Ceridian
    Corporation dated as of March 9, 2001 (incorporated by
    reference to Exhibit 10.17 to the Companys Annual
    Report on
    Form 10-K
    dated March 27, 2001)10
.14



Letter amendment between the Company and Ceridian Corporation
    dated as of August 9, 2001 (incorporated by reference to
    Exhibit 10.14 to the Companys Annual Report on
    Form 10-K
    dated March 29, 2002)10
.15



Letter amendment between the Company and Ceridian Corporation
    dated as of February 5, 2002 (incorporated by reference to
    Exhibit 10.15 to the Companys Annual Report on
    Form 10-K
    dated March 29, 2002)10
.16



Loan and Security Agreement by and between the Company and
    Silicon Valley Bank dated as of November 29, 2001
    (incorporated by reference to Exhibit 10.16 to the
    Companys Annual Report on
    Form 10-K
    dated March 29, 2002)10
.17



Revolving Promissory Note by and between the Company and Silicon
    Valley Bank dated as of November 29, 2001 (incorporated by
    reference to Exhibit 10.17 to the Companys Annual
    Report on
    Form 10-K
    dated March 29, 2002)10
.18



Equipment Term Note by and between the Company and Silicon
    Valley Bank dated as of November 29, 2001 (incorporated
    herein by reference to Exhibit 10.18 to the Companys
    Annual Report on
    Form 10-K
    dated March 29, 2002)10
.19



Services Agreement between the Company and Ceridian Corporation
    dated as of February 10, 2003 (incorporated by reference to
    the corresponding exhibit in the Companys Annual Report on
    Form 10-K
    dated March 31, 2003)10
.20



Third Loan Modification Agreement by and between the Company and
    Silicon Valley Bank dated March 27, 2003 (incorporated by
    reference to the corresponding exhibit in the Companys
    Annual Report on
    Form 10-K
    dated March 31, 2003)10
.21



Fourth Loan Modification Agreement by and between the Company
    and Silicon Valley Bank dated as of April 29, 2003
    (incorporated by reference to Exhibit 10.10 to the
    Companys Quarterly Report on
    Form 10-Q
    dated May 14, 2003)10
.22



Change in Control Bonus Plan for Executive Officers, effective
    March 5, 2004 (incorporated by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q
    dated May 13, 2004) 81




---



##### Table of Contents



Number



Description10
.23



Fifth Loan Modification Agreement by and between the Company and
    Silicon Valley Bank dated as of May 28, 2004 (incorporated
    by reference to Exhibit 10.1 to the Companys
    Quarterly Report on
    Form 10-Q
    dated August 12, 2004)10
.24



Silicon Valley Bank Second Amended and Restated Revolving
    Promissory Note by and between the Company and Silicon Valley
    Bank dated May 28, 2004 (incorporated by reference to
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q
    dated August 12, 2004)10
.25



Amended Nonqualified stock option agreement (incorporated by
    reference to Exhibit 10.1 to the Companys
    Form 8-K
    dated January 3, 2006).10
.26



Amended Director Fee Option Award Agreement (incorporated by
    reference to Exhibit 10.2 to the Companys
    Form 8-K
    dated January 3, 2006).10
.27



Amended Director Fee Option Agreement for Non-Employee Directors
    (incorporated by reference to Exhibit 10.27 to the
    Companys Annual Report on Form 10-K, dated
    March 15, 2006).10
.28



Entry into a Material Definitive Agreement with executives
    (incorporated by reference to the Companys
    Form 8-K,
    Item 1.01 dated February 10, 2006).10
.29



Seventh Loan Modification Agreement between the Company and
    Silicon Valley Bank (incorporated by reference to
    Exhibit 10.1 to the Companys
    Form 8-K
    dated June 17, 2005).10
.30



Term Note between the Company and Silicon Valley Bank
    (incorporated by reference to Exhibit 10.2 to the
    Companys
    Form 8-K
    dated June 17, 2005).10
.31



Notice of Termination of License Agreement and Acknowledgement
    of Receipt by Ceridian Corporation dated, March 9, 2006
    (incorporated by reference to Exhibit 10.31 to the
    Companys Annual Report on
    Form 10-K,
    dated March 15, 2006)10
.32



Commercial Office Lease by and between ROHO Ultimate, LTD. II, a
    Florida limited partnership (Landlord) and the
    Company dated May 23, 2001 (incorporated by reference to
    Exhibit 10.32 to the Companys Annual Report on
    Form 10-K,
    dated March 15, 2006)10
.33



Agreement of Purchase and Sale by and between Parry F. Goodman
    and Ivy Goodman and Robert J. Manne and/or assigns dated
    September 22, 2004 (incorporated by reference to
    Exhibit 10.33 to the Companys Annual Report on
    Form 10-K,
    dated March 15, 2006)10
.34



Assignment of Agreement of Purchase and Sale by and between
    Robert J. Manne a/k/a Robert Manne and the Company dated
    October 26, 2004 (incorporated by reference to
    Exhibit 10.34 to the Companys Annual Report on
    Form 10-K,
    dated March 15, 2006)10
.35



Weston Town Center South Office Building Lease between South
    Office Building-DLB, LLC, a Florida Limited Liability Company,
    South Office Building Bagtrust, LLC, a Florida Limited Liability
    Company, and South Office Building-BJB, LLC, a Florida Limited
    Liability Company, and the Company and Weston Common Area LTD.,
    dated August 18, 2005 (incorporated by reference to
    Exhibit 10.35 to the Companys Annual Report on
    Form 10-K,
    dated March 15, 2006)10
.36



Galleria Atlanta office lease agreement between Galleria 600,
    LLC, a Delaware limited liability company, and the Company,
    dated April 27, 2006 (incorporated by reference to
    Exhibit 10.36 to the Companys Quarterly Report on
    Form 10-Q,
    dated August 8, 2006.10
.37



Lease of Office Space by and between OMERS Realty Corporation
    CPP Investment Board Real Estate Holdings Inc., and The Ultimate
    Software Group of Canada, Inc., dated August 22, 2006
    (incorporated by reference to Exhibit 10.37 to the
    Companys Quarterly Report on
    Form 10-Q,
    dated November 8, 2006)10
.38



Indemnity Agreement between OMERS Realty Corporation, CPP
    Investment Board Real Estate Holdings, Inc., and the Company
    dated August 22, 2006 (incorporated by reference to
    Exhibit 10.38 to the Companys Quarterly Report on
    Form 10-Q,
    dated November 8, 2006) 82




---



##### Table of Contents



Number



Description10
.39



Amendment to Lease by and between ROHO Ultimate, Ltd. I
    (Landlord) and Ultimate Software Group. Inc.
    (Tenant) for Demised premises at 2000 Ultimate Way,
    Weston, FL 33326 (the Premises) dated
    February 15, 2000 (incorporated by reference to
    Exhibit 10.39 to the Companys Annual Report on
    Form 10-K,
    dated March 16, 2007)10
.40



Lease Relating to Unit 2 Sceptre House, Hornbeam Park, Harrogate
    between St. James Property Management Limited (The
    Landlord) And RTIX Limited (The Tenant) dated
    May 25, 2005 (incorporated by reference to
    Exhibit 10.40 to the Companys Annual Report on
    Form 10-K,
    dated March 16, 2007)10
.41



Counterpart/Underlease relating to Unit 2 Second Floor Sceptre
    House Hornbeam Square North Hornbeam Business Park, Harrogate
    between RTIX Limited (The Landlord) and First 4 IT
    Limited (The Tenant) dated May 25, 2005
    (incorporated by reference to Exhibit 10.41 to the
    Companys Annual Report on
    Form 10-K,
    dated March 16, 2007)10
.42



First Amendment to Lease between Galleria 600, LLC
    (Landlord) and the Company, dated August 18,
    2006 (incorporated by reference to Exhibit 10.42 to the
    Companys Annual Report on
    Form 10-K,
    dated March 16, 2007)10
.43



Amended and Restated Change in Control Bonus Plan for Executive
    Officers, effective July 24, 2007 (incorporated by
    reference to Exhibit 10.1 to the Companys Quarterly
    Report on
    Form 10-Q,
    dated August 8, 2007)10
.44



Amended and Restated 2005 Equity and Incentive Plan
    (incorporated by reference to Exhibit 10.2 to the
    Companys Quarterly Report on
    Form 10-Q,
    dated August 8, 2007)10
.45



Commercial lease between Weston Office, LLC
    (Landlord) and the Company, dated January 18,
    2008*21
.1



Subsidiary of the Registrant (incorporated by reference to
    Exhibit 21.1 to the Companys Quarterly Report on
    Form 10-Q,
    dated November 8, 2007)23
.1



Consent of Independent Registered Public Accounting Firm*31
.1



Certification Pursuant to
    Rule 13a-14(a)
    and
    Rule 15d-14(a)
    of the Securities Exchange Act of 1934, as amended*31
.2



Certification Pursuant to
    Rule 13a-14(a)
    and
    Rule 15d-14(a)
    of the Securities Exchange Act of 1934, as amended*32
.1



Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002*32
.2



Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002*99
.1



Cautionary Statement for Purposes of the Safe Harbor
    Provisions of the Private Securities Litigation Reform Act of
    1995*     *
    
    Filed herewith.**
    
    Incorporated by reference to the corresponding exhibit in the
    Companys Registration Statement. 83




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
     Form 10-K Form 10-K.
    Share-Based
    Payment.
  /s/ KPMG LLP
      84




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##### Table of Contents



SCHEDULE II
  THE
    ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
    VALUATION AND QUALIFYING ACCOUNTS
  Balance atBeginning of


Charged to Expenses


Write-offs and


Balance atClassification

Year


and Other


Other


End of YearAllowance for doubtful accounts:December 31, 2007

$
500


$
1,505


$
(1,305
)

$
700December 31, 2006


500



813



(813
)


500December 31, 2005


500



869



(869
)


500   Balance at


Charged toBeginning of


Expenses


Write-offs and


Balance atYear


and Other


Other


End of YearValuation allowance for deferred tax asset:December 31, 2007

$
32,455


$



$
(26,863
)(1)

$
5,592December 31, 2006


33,955







(1,500
)


32,455December 31, 2005


31,876



2,079






$
33,955    (1)
    Represents the decrease in the valuation allowance for the
    release of the reserves against deferred tax assets. 85




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##### Table of Contents



SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the
    Securities Exchange Act of 1934, as amended, the Registrant has
    duly caused this report to be signed on its behalf by the
    undersigned thereunto duly authorized.



THE ULTIMATE SOFTWARE GROUP, INC. By:
    /s/  Mitchell
    K. Dauerman          Signature

Title

Date/s/ Scott ScherrScott Scherr

President, Chief Executive
     Officer and Chairman of the  Board

March 13, 2008/s/ Mitchell K. DauermanMitchell K. Dauerman

Executive Vice President,
     Chief Financial Officer and Treasurer (Principal
    Financial
     and Accounting Officer)

March 13, 2008/s/ Marc D. ScherrMarc D. Scherr

Vice Chairman of the Board
     and Chief Operating Officer

March 13, 2008/s/ James A. FitzPatrick Jr.James A. FitzPatrick,, Jr.

Director

March 13, 2008/s/ LeRoy A. Vander PuttenLeRoy A. Vander Putten

Director

March 13, 2008/s/ Rick WilberRick Wilber

Director

March 13, 2008/s/ Robert A. YanoverRobert A. Yanover

Director

March 13, 2008/s/ Alois T. LeiterAlois T. Leiter

Director

March 13, 2008  86