##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
  THE ULTIMATE SOFTWARE GROUP, INC.
  Delaware
    
    65-0694077(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 2000 Ultimate Way, Weston, FL
    
    33326(Address of principal executive offices)
    
    (Zip Code)
 (954) 331
 7000
 None
 þ o
  o þ o
 o þ




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##### Table of Contents



THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
 TABLE OF CONTENTS
 Page(s)Part I 
    
    Financial Information:Item 1 
    
    Financial Statements:Unaudited Condensed Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2007 and 2006
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006
    
    
    5Unaudited Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income for the Six Months Ended June 30, 2007
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7-16Item 2 
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17-32Item 3 
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    32-34Item 4 
    
    Controls and Procedures
    
    
    34Part II 
    
    Other Information:Item 2 
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34-35Item 4 
    
    Submission of Matters to a Vote of Security Holders
    
    
    35-36Item 6 
    
    Exhibits
    
    
    36Signatures
    
    
    37CertificationsEX-10.1 Amended & Restated Change in ControlEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO
 2




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##### Table of Contents



PART 1  FINANCIAL INFORMATION
 
 Item 1  Financial Statements
 
 THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
 As of
    
    
    As ofJune 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,024
    
    
    $
    16,734Accounts receivable, net of allowance for doubtful accounts of
$600 and $500 for 2007 and 2006, respectively
    
    
    25,360
    
    
    
    26,575Short-term investments in marketable securities
    
    
    15,593
    
    
    
    14,247Prepaid expenses and other current assets
    
    
    8,706
    
    
    
    8,279Total current assets
    
    
    69,683
    
    
    
    65,835Property and equipment, net
    
    
    15,511
    
    
    
    13,480Capitalized software, net
    
    
    2,999
    
    
    
    2,055Goodwill
    
    
    2,758
    
    
    
    2,734Long-term investments in marketable securities
    
    
    2,472
    
    
    
    2,039Other assets, net
    
    
    8,539
    
    
    
    7,387Total assets
    
    $
    101,962
    
    
    $
    93,530LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,451
    
    
    $
    3,894Accrued expenses
    
    
    8,010
    
    
    
    9,230Current portion of deferred revenue
    
    
    36,781
    
    
    
    36,524Current portion of capital lease obligations
    
    
    1,857
    
    
    
    1,512Current portion of long-term debt
    
    
    364
    
    
    
    505Total current liabilities
    
    
    50,463
    
    
    
    51,665Deferred revenue, net of current portion
    
    
    7,011
    
    
    
    6,445Deferred rent
    
    
    2,754
    
    
    
    2,788Capital lease obligations, net of current portion
    
    
    1,868
    
    
    
    1,416Long-term debt, net of current portion
    
    
    84
    
    
    
    194Total liabilities
    
    
    62,180
    
    
    
    62,508Stockholders equity:Preferred Stock, $.01 par value, 2,000,000 shares authorized,
no shares issued or outstanding
    
    
    
    
    
    
    Series A Junior Participating Preferred Stock, $.01 par value,
500,000 shares authorized, no shares issued or outstanding
    
    
    
    
    
    
    Common Stock, $.01 par value, 50,000,000 shares authorized,
25,774,416 and 25,102,824 shares issued in 2007 and 2006, respectively
    
    
    258
    
    
    
    251Additional paid-in capital
    
    
    133,921
    
    
    
    125,121Accumulated other comprehensive (loss) income
    
    
    (8
    )
    
    
    1Accumulated deficit
    
    
    (75,832
    )
    
    
    (83,500
    )58,339
    
    
    
    41,873Treasury stock, 993,737 and 709,437 shares, at cost, for 2007 and
2006, respectively
    
    
    (18,557
    )
    
    
    (10,851
    )Total stockholders equity
    
    
    39,782
    
    
    
    31,022Total liabilities and stockholders equity
    
    $
    101,962
    
    
    $
    93,530
  3




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##### Table of Contents



THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Recurring
    
    $
    21,075
    
    
    $
    15,531
    
    
    $
    40,546
    
    
    $
    29,969Services
    
    
    11,274
    
    
    
    8,335
    
    
    
    23,461
    
    
    
    16,562License
    
    
    2,608
    
    
    
    4,472
    
    
    
    7,492
    
    
    
    6,458Total revenues
    
    
    34,957
    
    
    
    28,338
    
    
    
    71,499
    
    
    
    52,989Cost of revenues:Recurring
    
    
    5,480
    
    
    
    4,325
    
    
    
    10,979
    
    
    
    8,437Services
    
    
    9,081
    
    
    
    6,404
    
    
    
    19,373
    
    
    
    13,369License
    
    
    265
    
    
    
    391
    
    
    
    674
    
    
    
    647Total cost of revenues
    
    
    14,826
    
    
    
    11,120
    
    
    
    31,026
    
    
    
    22,453Gross profit
    
    
    20,131
    
    
    
    17,218
    
    
    
    40,473
    
    
    
    30,536Operating expenses:Sales and marketing
    
    
    8,442
    
    
    
    7,548
    
    
    
    17,225
    
    
    
    14,490Research and development
    
    
    6,663
    
    
    
    5,273
    
    
    
    13,834
    
    
    
    10,646General and administrative
    
    
    3,253
    
    
    
    2,556
    
    
    
    6,700
    
    
    
    4,998Total operating expenses
    
    
    18,358
    
    
    
    15,377
    
    
    
    37,759
    
    
    
    30,134Operating income
    
    
    1,773
    
    
    
    1,841
    
    
    
    2,714
    
    
    
    402Other income (expense):Interest expense
    
    
    (53
    )
    
    
    (60
    )
    
    
    (100
    )
    
    
    (100
    )Other income, net
    
    
    4,774
    
    
    
    390
    
    
    
    5,169
    
    
    
    730Total other income, net
    
    
    4,721
    
    
    
    330
    
    
    
    5,069
    
    
    
    630Income before provision for income taxes
    
    
    6,494
    
    
    
    2,171
    
    
    
    7,783
    
    
    
    1,032Provision for income taxes
    
    
    (85
    )
    
    
    
    
    
    
    (115
    )
    
    
    Net income
    
    $
    6,409
    
    
    $
    2,171
    
    
    $
    7,668
    
    
    $
    1,032Net income per share:Basic
    
    $
    0.26
    
    
    $
    0.09
    
    
    $
    0.31
    
    
    $
    0.04Diluted
    
    $
    0.23
    
    
    $
    0.08
    
    
    $
    0.28
    
    
    $
    0.04Weighted average shares outstanding:Basic
    
    
    24,713
    
    
    
    24,078
    
    
    
    24,621
    
    
    
    23,894Diluted
    
    
    27,571
    
    
    
    27,311
    
    
    
    27,479
    
    
    
    27,211
  4




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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Six MonthsEnded June 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    7,668
    
    
    $
    1,032Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    3,302
    
    
    
    2,403Provision for doubtful accounts
    
    
    723
    
    
    
    440Non-cash stock-based compensation expense
    
    
    4,737
    
    
    
    2,837Changes in operating assets and liabilities:Accounts receivable
    
    
    492
    
    
    
    (1,357
    )Prepaid expenses and other current assets
    
    
    (427
    )
    
    
    (830
    )Other assets
    
    
    (1,260
    )
    
    
    (1,384
    )Accounts payable
    
    
    (443
    )
    
    
    (174
    )Accrued expenses and other long term liabilities
    
    
    (1,254
    )
    
    
    990Deferred revenue
    
    
    823
    
    
    
    3,225Net cash provided by operating activities
    
    
    14,361
    
    
    
    7,182Cash flows from investing activities:Purchases of marketable securities
    
    
    (10,636
    )
    
    
    (11,308
    )Maturities of marketable securities
    
    
    8,845
    
    
    
    9,509Capitalized software
    
    
    (925
    )
    
    
    (782
    )Acquisition-related expenses
    
    
    (24
    )
    
    
    Purchases of property and equipment
    
    
    (3,493
    )
    
    
    (3,002
    )Net cash used in investing activities
    
    
    (6,233
    )
    
    
    (5,583
    )Cash flows from financing activities:Repurchases of Common Stock
    
    
    (7,706
    )
    
    
    (3,765
    )Principal payments on capital lease obligations
    
    
    (922
    )
    
    
    (847
    )Principal payments under Credit Facility
    
    
    (251
    )
    
    
    (249
    )Net proceeds from issuances of Common Stock
    
    
    4,038
    
    
    
    5,365Net cash (used in) provided by financing activities
    
    
    (4,841
    )
    
    
    504Effect of foreign currency exchange rate changes on cash
    
    
    3
    
    
    
    Net increase in cash and cash equivalents
    
    
    3,290
    
    
    
    2,103Cash and cash equivalents, beginning of period
    
    
    16,734
    
    
    
    17,731Cash and cash equivalents, end of period
    
    $
    20,024
    
    
    $
    19,834Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    49
    
    
    $
    56Supplemental disclosure of non-cash financing activities:- The Company entered into capital lease obligations to acquire new equipment totaling $1,719 and $725
for the six months   ended June 30, 2007 and 2006, respectively.
  5




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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
 UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(In thousands)
 AdditionalCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalAdditional
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Treasury Stock
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Income (Loss)
    
    
    Deficit
    
    
    Share
    
    
    Amount
    
    
    EquityBalance, December 31, 2006
    
    
    25,103
    
    
    $
    251
    
    
    $
    125,121
    
    
    $
    1
    
    
    $
    (83,500
    )
    
    
    709
    
    
    $
    (10,851
    )
    
    $
    31,022Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,668
    
    
    
    
    
    
    
    
    
    
    
    7,668Unrealized loss on investments in
marketable securities available-for-sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )Unrealized gain on foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,659Repurchases of Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    285
    
    
    
    (7,706
    )
    
    
    (7,706
    )Issuances of Common Stock from exercises
of stock options and warrants
    
    
    671
    
    
    
    7
    
    
    
    4,031
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,038Non-cash stock-based compensation
    
    
    
    
    
    
    
    
    
    
    4,769
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,769Balance, June 30, 2007
    
    
    25,774
    
    
    $
    258
    
    
    $
    133,921
    
    
    $
    (8
    )
    
    $
    (75,832
    )
    
    
    994
    
    
    $
    (18,557
    )
    
    $
    39,782
 6




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##### Table of Contents



THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
   2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Consolidation
  Recently Adopted Accounting Pronouncements
  7




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##### Table of Contents



Investments in Marketable Securities
   Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gain
    
    
    Loss
    
    
    ValueInvestments in marketable securities:Corporate debentures  bonds
    
    $
    12,148
    
    
    $
    
    
    
    $
    12
    
    
    $
    12,136Certificates of deposit
    
    
    3,600
    
    
    
    
    
    
    
    1
    
    
    
    3,599Asset-backed  fixed
    
    
    2,331
    
    
    
    
    
    
    
    1
    
    
    
    2,330Total investments, available-for-sale
    
    $
    18,079
    
    
    $
    
    
    
    $
    14
    
    
    $
    18,065
 8




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##### Table of Contents



Amortized
    
    
    MarketCost
    
    
    ValueDue in one year or less
    
    $
    15,603
    
    
    $
    15,593Due after one year
    
    
    2,476
    
    
    
    2,472$
    18,079
    
    
    $
    18,065
 Property and Equipment
   As of
    
    
    As ofJune 30, 2007
    
    
    December 31, 2006Property and equipment
    
    $
    46,206
    
    
    $
    41,173Less: accumulated depreciation and
amortization
    
    
    30,695
    
    
    
    27,693$
    15,511
    
    
    $
    13,480
 Goodwill and Other Intangible Assets
  Other Income, net
  For the three months
    
    
    For the six monthsended June 30,
    
    
    ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest income
    
    $
    364
    
    
    $
    337
    
    
    $
    713
    
    
    $
    614Other income
    
    
    35
    
    
    
    53
    
    
    
    81
    
    
    
    116Non-recurring settlement fee, net
    
    
    4,375
    
    
    
    
    
    
    
    4,375
    
    
    
    Total other income, net
    
    $
    4,774
    
    
    $
    390
    
    
    $
    5,169
    
    
    $
    730
 9




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##### Table of Contents



Earnings Per Share
   For the three months
    
    
    For the six monthsended June 30,
    
    
    ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic weighted average shares outstanding
    
    
    24,713
    
    
    
    24,078
    
    
    
    24,621
    
    
    
    23,894Effect of dilutive equity instruments
    
    
    2,858
    
    
    
    3,233
    
    
    
    2,858
    
    
    
    3,317Dilutive weighted average shares outstanding
    
    
    27,571
    
    
    
    27,311
    
    
    
    27,479
    
    
    
    27,211Other common stock equivalents (i.e., stock
options,
restricted stock awards, stock units and warrants)
outstanding which are not included in the
calculation
of diluted income per share because their impact
is
anti-dilutive
    
    
    664
    
    
    
    402
    
    
    
    554
    
    
    
    311
 Comprehensive Income
  10




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##### Table of Contents



For the three months
    
    
    For the six monthsended June 30,
    
    
    ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    6,409
    
    
    $
    2,171
    
    
    $
    7,668
    
    
    $
    1,032Other comprehensive incomeUnrealized (loss) on investments in
marketable securities available-for-sale
    
    
    (13
    )
    
    
    (5
    )
    
    
    (14
    )
    
    
    (9
    )Unrealized gain on foreign currency
translation adjustments
    
    
    6
    
    
    
    
    
    
    
    5
    
    
    
    Comprehensive income
    
    $
    6,402
    
    
    $
    2,166
    
    
    $
    7,659
    
    
    $
    1,023
 Foreign Currency
  Guarantees
  11




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##### Table of Contents



3. STOCK-BASED COMPENSATION
 Summary of Plans
   Fair Value
   12




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##### Table of Contents



For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Non-cash stock-based compensation:Cost of recurring revenues
    
    $
    114
    
    
    $
    80
    
    
    $
    328
    
    
    $
    200Cost of service revenues
    
    
    312
    
    
    
    149
    
    
    
    912
    
    
    
    448Cost of license revenues
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    4Sales and marketing
    
    
    922
    
    
    
    607
    
    
    
    2,123
    
    
    
    1,336Research and development
    
    
    175
    
    
    
    102
    
    
    
    540
    
    
    
    296General and administrative
    
    
    394
    
    
    
    282
    
    
    
    831
    
    
    
    553Total non-cash stock-based compensation expense
    
    $
    1,918
    
    
    $
    1,221
    
    
    $
    4,737
    
    
    $
    2,837
    For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Expected term (in years)
    
    
    5.0
    
    
    
    4.5
    
    
    
    4.9
    
    
    
    4.5Volatility
    
    
    39
    %
    
    
    40
    %
    
    
    39
    %
    
    
    40
    %Interest rate
    
    
    4.50
    %
    
    
    4.75
    %
    
    
    4.65
    %
    
    
    4.75
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average fair
value at grant date
    
    $
    11.41
    
    
    $
    11.17
    
    
    $
    10.24
    
    
    $
    8.89
  13




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##### Table of Contents



Restricted Stock Awards
   Stock Unit Awards
   14




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##### 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, 2006
    
    
    4,893
    
    
    $
    10.07
    
    
    
    
    
    
    
    Granted
    
    
    537
    
    
    
    24.42
    
    
    
    
    
    
    
    Exercised
    
    
    (629
    )
    
    
    6.22
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (22
    )
    
    
    21.41
    
    
    
    
    
    
    
    Outstanding at June 30, 2007
    
    
    4,779
    
    
    $
    12.14
    
    
    
    5.98
    
    
    $
    80,257Exercisable at June 30, 2007
    
    
    3,687
    
    
    $
    9.59
    
    
    
    5.13
    
    
    $
    71,321
   15




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##### Table of Contents



WeightedAverageGrant DateRestricted Stock
    
    Shares
    
    
    Fair ValueOutstanding at December 31, 2006
    
    
    432
    
    
    $
    20.70Granted
    
    
    105
    
    
    
    25.85Vested
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    Outstanding at June 30, 2007
    
    
    537
    
    
    $
    21.71
  4. RECENT ACCOUNTING PRONOUNCEMENTS
   16




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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
  Executive Summary
       17




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##### Table of Contents



Critical Accounting Policies and Estimates
  Revenue Recognition
  
    
    Sales of the right to use UltiPro through Intersourcing (the Intersourcing
Offering), which includes Hosting Services (defined below);
    
    Sales of perpetual licenses for UltiPro in conjunction with services to host the
UltiPro application (Hosting Services);
    
    Sales of Hosting Services on a stand-alone basis to customers who already own a
perpetual license or are simultaneously acquiring a perpetual license for UltiPro
(Base Hosting);
    
    Recurring revenues derived from (1) maintenance revenues generated from maintaining,
supporting and providing periodic updates for the Companys software and (2)
subscription revenues generated from 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 BSP sales channel;
    
    Sales of perpetual licenses for UltiPro; and
 18




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
    
    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
     Sales of Base Hosting Services
  19




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Recurring Revenues
      20




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##### Table of Contents



Perpetual Licenses for UltiPro Sold With or Without Hosting Services
       21




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Services, including Implementation and Training Services
    Allowance for Doubtful Accounts
  22




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Deferred Taxes
  Overview
     23




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Intersourcing Offering
   Original Ceridian Agreement
     24




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##### Table of Contents



Results of Operations
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Recurring
    
    
    60.3
    %
    
    
    54.8
    %
    
    
    56.7
    %
    
    
    56.5
    %Services
    
    
    32.2
    
    
    
    29.4
    
    
    
    32.8
    
    
    
    31.3License
    
    
    7.5
    
    
    
    15.8
    
    
    
    10.5
    
    
    
    12.2Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of revenues:Recurring
    
    
    15.7
    
    
    
    15.3
    
    
    
    15.4
    
    
    
    15.9Services
    
    
    26.0
    
    
    
    22.5
    
    
    
    27.1
    
    
    
    25.2License
    
    
    0.8
    
    
    
    1.4
    
    
    
    0.9
    
    
    
    1.2Total cost of revenues
    
    
    42.5
    
    
    
    39.2
    
    
    
    43.4
    
    
    
    42.3Operating expenses:Sales and marketing
    
    
    24.1
    
    
    
    26.7
    
    
    
    24.1
    
    
    
    27.4Research and development
    
    
    19.1
    
    
    
    18.6
    
    
    
    19.3
    
    
    
    20.1General and administrative
    
    
    9.3
    
    
    
    9.0
    
    
    
    9.4
    
    
    
    9.4Total operating expenses
    
    
    52.5
    
    
    
    54.3
    
    
    
    52.8
    
    
    
    56.9Operating income
    
    
    5.0
    
    
    
    6.5
    
    
    
    3.8
    
    
    
    0.8Other income (expense):Interest expense
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.2
    )Other income, net
    
    
    13.7
    
    
    
    1.4
    
    
    
    7.2
    
    
    
    1.3Total other income, net
    
    
    13.5
    
    
    
    1.2
    
    
    
    7.1
    
    
    
    1.1Income before income taxes
    
    
    18.5
    
    
    
    7.7
    
    
    
    10.9
    
    
    
    1.9Provision for income taxes
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )
    
    
    Net income
    
    
    18.3
    %
    
    
    7.7
    %
    
    
    10.7
    %
    
    
    1.9
    %
 Revenues
    25




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##### Table of Contents



a)
    
    Intersourcing revenues increased primarily due to incremental
recurring revenues generated from Intersourcing units which went live (i.e.,
when the underlying customer processes its first live payroll for its employees)
since June 30, 2006. Recognition of recurring revenues for Intersourcing unit
sales commences upon live date.b)
    
    Maintenance revenues increased due to additional maintenance fees
resulting from cumulative increases in the customer base subsequent to June 30,
2006 due to incremental license sales since such date. 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).c)
    
    Recurring subscription revenues recognized for the three and six
months ended June 30, 2007 from the Original Ceridian Agreement, totaling $1.9
million and $3.9 million, respectively, were the same as those recognized during
the same periods of the prior year. Beginning on August 28, 2002, subscription
revenues generated from the Original Ceridian Agreement of $642,000 per month have
been recognized, and are expected to be recognized, over the minimum term of the
contract. Future recurring revenues to be
recognized from the Original Ceridian Agreement are expected to be comparable to
2006, or $7.7 million per year, through March 9, 2008.
 26




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##### Table of Contents



d)
    
    The impact on recurring revenues of units sold under the
Intersourcing Offering (as compared to the impact on license revenues of licensed
units sold) is expected to be a gradual increase from one period to the next,
based on the revenue recognition of the Intersourcing fees over the terms of the
related contracts. The Company continues to believe that a combination of units
sold under the Intersourcing Offering and regular licensed units sold will provide
a more predictable business model in the future.
   Cost of Revenues
   27




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ales and Marketing
  28




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##### Table of Contents



Research and Development
   General and Administrative
  29




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##### Table of Contents



Interest Expense
  Other Income, Net
  Income Taxes
   Liquidity and Capital Resources
   30




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##### Table of Contents



31




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##### Table of Contents



Off-Balance Sheet Arrangements
  Quarterly Fluctuations
  Forward-Looking Statements
  
 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
  32




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##### Table of Contents



Market risks.
 
    
    Maximum safety of principal;
    
    Maintenance of appropriate liquidity for regular cash needs;
    
    Maximum yields in relationship to guidelines and market conditions;
    
    Diversification of risks; and
    
    Fiduciary control of all investments.
  Interest rates
   Interest rate risk.
  33




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##### Table of Contents



ITEM 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
 Changes in internal control over financial reporting.
 
 PART II  OTHER INFORMATION
 
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Purchases of Equity Securities by the Issuer.
  34




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##### Table of Contents



Total Number of Shares
    
    
    Maximum Number ofPurchased 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 (2)
    
    
    Plans or ProgramsJanuary 1  31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,290,563February 1  28, 2007
    
    
    62,000
    
    
    
    26.79
    
    
    
    771,437
    
    
    
    1,228,563March 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
    
    
    
    1,006,263Total
    
    
    284,300
    
    
    $
    27.21
    
    
    
    993,737
    
    
    
    1,006,263
 
 (1)
    
    All shares were purchased through the publicly announced Stock Repurchase Plan in open-market transactions.(2)
    
    On October 30, 2000, the Company announced that its Board authorized the repurchase of up to 1,000,000 shares of the Companys Common
Stock pursuant to the Stock Repurchase Plan. On February 6, 2007, the Board extended the Stock Repurchase Plan, authorizing the repurchase
of up to 1,000,000 additional shares of the Companys Common Stock. The Companys stock repurchase transactions will be conducted over an
indefinite period of time. 
 ITEM 4. Submission of Matters to a Vote of Security Holders
   Nominee
    
    For
    
    Withheld VoteScott Scherr 
Alois T. Leiter
    
    17,073,509
20,524,763
    
    6,692,126
3,240,872
  
 
 35




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##### Table of Contents



For
    
    Against
    
    Abstain
    
    Broker Non Votes12,120,464
    
    7,875,625
    
    14,203
    
    3,755,343
  For
    
    Against
    
    Abstain
    
    Broker Non Votes23,577,924
    
    33,763
    
    153,948
    
    0
 
 ITEM 6. Exhibits
 Number
    
    Description10.1
    
    
    Amended and Restated Change in Control Bonus Plan for Executive
Officers, effective July 24, 2007 *10.2
    
    
    Amended and Restated 2005 Equity and Incentive Plan (incorporated
by reference to Appendix A to the Companys Proxy Statement for the
2007 Annual Meeting of Stockholders dated April 13, 2007)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, as
amended *32.2
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as
amended *
 
 *
    
    Filed herewith. 36




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Signatures
  The Ultimate Software Group, Inc.Date: August 8, 2007
    By:
    /s/ Mitchell K. DauermanMitchell K. DauermanExecutive Vice President, Chief
Financial Officer and Treasurer
(Authorized Signatory and Principal
Financial and Accounting Officer) 37