##### 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 September 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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ




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##### 



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 September 30, 2007 and December 31, 2006
    
    
    3Unaudited Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2007 and 2006
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006
    
    
    5Unaudited Condensed Consolidated Statement of Stockholders Equity and Comprehensive Income for the Nine Months Ended September 30, 2007
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7-16Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17-27Item 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    27-28Item 4  Controls and Procedures
    
    
    28Part II  Other Information:Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 6  Exhibits
    
    
    30Signatures
    
    
    31CertificationsEX-21.1 Subsidiaries of the RegistrantEX-31.1 Section 302 CEO CertificationEX-31.2 Section 302 CFO CertificationEX-32.1 Section 906 CEO CertificationEX-32.2 Section 906 CFO Certification
  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 ofSeptember 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    15,934
    
    
    $
    16,734Accounts receivable, net of allowance for doubtful accounts of
$600 and $500 for 2007 and 2006, respectively
    
    
    29,055
    
    
    
    26,575Short-term investments in marketable securities
    
    
    15,658
    
    
    
    14,247Prepaid expenses and other current assets
    
    
    9,899
    
    
    
    8,279Total current assets
    
    
    70,546
    
    
    
    65,835Property and equipment, net
    
    
    16,616
    
    
    
    13,480Capitalized software, net
    
    
    3,465
    
    
    
    2,055Goodwill
    
    
    2,758
    
    
    
    2,734Long-term investments in marketable securities
    
    
    643
    
    
    
    2,039Other assets, net
    
    
    8,705
    
    
    
    7,387Total assets
    
    $
    102,733
    
    
    $
    93,530LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,373
    
    
    $
    3,894Accrued expenses
    
    
    7,987
    
    
    
    9,230Current portion of deferred revenue
    
    
    38,852
    
    
    
    36,524Current portion of capital lease obligations
    
    
    1,894
    
    
    
    1,512Current portion of long-term debt
    
    
    614
    
    
    
    505Total current liabilities
    
    
    54,720
    
    
    
    51,665Deferred revenue, net of current portion
    
    
    7,527
    
    
    
    6,445Deferred rent
    
    
    2,708
    
    
    
    2,788Capital lease obligations, net of current portion
    
    
    1,871
    
    
    
    1,416Long-term debt, net of current portion
    
    
    362
    
    
    
    194Total liabilities
    
    
    67,188
    
    
    
    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,
26,043,094 and 25,102,824 shares issued in 2007 and 2006, respectively
    
    
    260
    
    
    
    251Additional paid-in capital
    
    
    138,568
    
    
    
    125,121Accumulated other comprehensive income
    
    
    7
    
    
    
    1Accumulated deficit
    
    
    (73,477
    )
    
    
    (83,500
    )65,358
    
    
    
    41,873Treasury stock, 1,364,375 and 709,437 shares, at cost, for 2007
and 2006, respectively
    
    
    (29,813
    )
    
    
    (10,851
    )Total stockholders equity
    
    
    35,545
    
    
    
    31,022Total liabilities and stockholders equity
    
    $
    102,733
    
    
    $
    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 Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Recurring
    
    $
    22,174
    
    
    $
    16,487
    
    
    $
    62,720
    
    
    $
    46,456Services
    
    
    12,312
    
    
    
    9,410
    
    
    
    35,773
    
    
    
    25,972License
    
    
    3,337
    
    
    
    2,882
    
    
    
    10,829
    
    
    
    9,340Total revenues
    
    
    37,823
    
    
    
    28,779
    
    
    
    109,322
    
    
    
    81,768Cost of revenues:Recurring
    
    
    5,630
    
    
    
    4,602
    
    
    
    16,609
    
    
    
    13,040Services
    
    
    10,066
    
    
    
    7,287
    
    
    
    29,439
    
    
    
    20,655License
    
    
    352
    
    
    
    319
    
    
    
    1,026
    
    
    
    966Total cost of revenues
    
    
    16,048
    
    
    
    12,208
    
    
    
    47,074
    
    
    
    34,661Gross profit
    
    
    21,775
    
    
    
    16,571
    
    
    
    62,248
    
    
    
    47,107Operating expenses:Sales and marketing
    
    
    9,040
    
    
    
    7,222
    
    
    
    26,265
    
    
    
    21,711Research and development
    
    
    7,107
    
    
    
    5,887
    
    
    
    20,941
    
    
    
    16,533General and administrative
    
    
    3,645
    
    
    
    2,526
    
    
    
    10,345
    
    
    
    7,524Total operating expenses
    
    
    19,792
    
    
    
    15,635
    
    
    
    57,551
    
    
    
    45,768Operating income
    
    
    1,983
    
    
    
    936
    
    
    
    4,697
    
    
    
    1,339Other income (expense):Interest expense
    
    
    (61
    )
    
    
    (52
    )
    
    
    (161
    )
    
    
    (152
    )Other income, net
    
    
    433
    
    
    
    419
    
    
    
    5,602
    
    
    
    1,148Total other income, net
    
    
    372
    
    
    
    367
    
    
    
    5,441
    
    
    
    996Income before provision for income taxes
    
    
    2,355
    
    
    
    1,303
    
    
    
    10,138
    
    
    
    2,335Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    (115
    )
    
    
    Net income
    
    $
    2,355
    
    
    $
    1,303
    
    
    $
    10,023
    
    
    $
    2,335Net income per share:Basic
    
    $
    0.10
    
    
    $
    0.05
    
    
    $
    0.41
    
    
    $
    0.10Diluted
    
    $
    0.09
    
    
    $
    0.05
    
    
    $
    0.36
    
    
    $
    0.09Weighted average shares outstanding:Basic
    
    
    24,764
    
    
    
    24,130
    
    
    
    24,688
    
    
    
    23,713Diluted
    
    
    27,692
    
    
    
    27,030
    
    
    
    27,577
    
    
    
    26,891
  4




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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine MonthsEnded September 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    10,023
    
    
    $
    2,335Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    5,071
    
    
    
    3,727Provision for doubtful accounts
    
    
    1,075
    
    
    
    873Non-cash stock-based compensation expense
    
    
    7,294
    
    
    
    4,264Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,555
    )
    
    
    (3,336
    )Prepaid expenses and other current assets
    
    
    (1,620
    )
    
    
    (1,737
    )Other assets
    
    
    (1,478
    )
    
    
    (2,244
    )Accounts payable
    
    
    1,479
    
    
    
    1,190Accrued expenses and deferred rent
    
    
    (1,323
    )
    
    
    1,068Deferred revenue
    
    
    3,410
    
    
    
    4,141Net cash provided by operating activities
    
    
    20,376
    
    
    
    10,281Cash flows from investing activities:Purchases of marketable securities
    
    
    (13,629
    )
    
    
    (17,903
    )Maturities of marketable securities
    
    
    13,614
    
    
    
    15,383Capitalized software
    
    
    (1,391
    )
    
    
    (1,273
    )Acquisition-related expenses
    
    
    (24
    )
    
    
    Purchases of property and equipment
    
    
    (4,777
    )
    
    
    (4,725
    )Net cash used in investing activities
    
    
    (6,207
    )
    
    
    (8,518
    )Cash flows from financing activities:Repurchases of Common Stock
    
    
    (18,962
    )
    
    
    (9,797
    )Principal payments on capital lease obligations
    
    
    (1,452
    )
    
    
    (1,247
    )Repayments of borrowings of long-term debt
    
    
    (684
    )
    
    
    (376
    )Net proceeds from issuances of Common Stock
    
    
    6,123
    
    
    
    6,236Net cash used in financing activities
    
    
    (14,975
    )
    
    
    (5,184
    )Effect of foreign currency exchange rate changes on cash
    
    
    6
    
    
    
    Net decrease in cash and cash equivalents
    
    
    (800
    )
    
    
    (3,421
    )Cash and cash equivalents, beginning of period
    
    
    16,734
    
    
    
    17,731Cash and cash equivalents, end of period
    
    $
    15,934
    
    
    $
    14,310Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    73
    
    
    $
    79Supplemental disclosure of non-cash financing activities:  The Company entered into capital lease obligations to acquire new equipment totaling $2,289 and $1,433 during the nine months ended
       September 30, 2007 and 2006, respectively.  The Company
entered into a long-term installment loan agreement with a vendor to acquire computer software totaling $961 during the nine
       months ended September 30, 2007.
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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME
(In thousands)
 AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Accumulated
    
    
    Treasury Stock
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Deficit
    
    
    Shares
    
    
    Amount
    
    
    EquityBalance, December 31, 2006
    
    
    25,103
    
    
    $
    251
    
    
    $
    125,121
    
    
    $
    1
    
    
    $
    (83,500
    )
    
    
    709
    
    
    $
    (10,851
    )
    
    $
    31,022Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,023
    
    
    
    
    
    
    
    
    
    
    
    10,023Unrealized gain on foreign currency
translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,029Repurchases of Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    655
    
    
    
    (18,962
    )
    
    
    (18,962
    )Issuances of Common Stock from exercises
of stock options and warrants
    
    
    940
    
    
    
    9
    
    
    
    6,114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,123Non-cash stock-based compensation
    
    
    
    
    
    
    
    
    
    
    7,333
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,333Balance, September 30, 2007
    
    
    26,043
    
    
    $
    260
    
    
    $
    138,568
    
    
    $
    7
    
    
    $
    (73,477
    )
    
    
    1,364
    
    
    $
    (29,813
    )
    
    $
    35,545
  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 and Recent Accounting Pronouncements
 Summary of Significant Accounting Policies
  Recently Adopted Accounting Pronouncements
  7




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Recently Issued Accounting Pronouncements
   8




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##### Table of Contents



3. Investments in Marketable Securities
   Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gain
    
    
    Loss
    
    
    ValueInvestments in marketable securities:Corporate debentures  bonds
    
    $
    11,471
    
    
    $
    4
    
    
    $
    7
    
    
    $
    11,468Commercial paper
    
    
    647
    
    
    
    
    
    
    
    
    
    
    
    647Certificates of deposit
    
    
    1,200
    
    
    
    
    
    
    
    
    
    
    
    1,200Asset-backed  fixed
    
    
    2,983
    
    
    
    3
    
    
    
    
    
    
    
    2,986Total investments, available-for-sale
    
    $
    16,301
    
    
    $
    7
    
    
    $
    7
    
    
    $
    16,301
  Amortized
    
    
    MarketCost
    
    
    ValueDue in one year or less
    
    $
    15,660
    
    
    $
    15,658Due after one year
    
    
    641
    
    
    
    643$
    16,301
    
    
    $
    16,301
 4. Property and Equipment
  9




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##### Table of Contents



As of
    
    
    As ofSeptember 30, 2007
    
    
    December 31, 2006Property and equipment
    
    $
    49,008
    
    
    $
    41,173Less: accumulated depreciation
and amortization
    
    
    32,392
    
    
    
    27,693$
    16,616
    
    
    $
    13,480
 5. Goodwill and Other Intangible Assets
  6. Other Income, net
  For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest income
    
    $
    375
    
    
    $
    356
    
    
    $
    1,087
    
    
    $
    970Other income
    
    
    58
    
    
    
    63
    
    
    
    140
    
    
    
    178Non-recurring settlement fee, net
    
    
    
    
    
    
    
    
    
    
    4,375
    
    
    
    Total other income, net
    
    $
    433
    
    
    $
    419
    
    
    $
    5,602
    
    
    $
    1,148
  7. Earnings Per Share
  10




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For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic weighted average shares outstanding
    
    
    24,764
    
    
    
    24,130
    
    
    
    24,688
    
    
    
    23,713Effect of dilutive equity instruments
    
    
    2,928
    
    
    
    2,900
    
    
    
    2,889
    
    
    
    3,178Dilutive weighted average shares outstanding
    
    
    27,692
    
    
    
    27,030
    
    
    
    27,577
    
    
    
    26,891Other 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
    
    
    179
    
    
    
    523
    
    
    
    634
    
    
    
    383
 8. Comprehensive Income
   For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    2,355
    
    
    $
    1,303
    
    
    $
    10,023
    
    
    $
    2,335Other comprehensive incomeUnrealized gain on investments in
marketable securities available-for-sale
    
    
    14
    
    
    
    42
    
    
    
    
    
    
    
    33Unrealized gain on foreign currency
translation adjustments
    
    
    1
    
    
    
    
    
    
    
    6
    
    
    
    Comprehensive income
    
    $
    2,370
    
    
    $
    1,345
    
    
    $
    10,029
    
    
    $
    2,368
 9. Foreign Currency
  11




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10. Guarantees
  11. Stock-Based Compensation
 Summary of Plans
    12




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13




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Stock-Based Compensation
  For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Non-cash stock-based compensation:Cost of recurring revenues
    
    $
    161
    
    
    $
    89
    
    
    $
    489
    
    
    $
    289Cost of service revenues
    
    
    330
    
    
    
    157
    
    
    
    1,242
    
    
    
    605Cost of license revenues
    
    
    1
    
    
    
    1
    
    
    
    4
    
    
    
    5Sales and marketing
    
    
    1,151
    
    
    
    797
    
    
    
    3,274
    
    
    
    2,134Research and development
    
    
    213
    
    
    
    117
    
    
    
    753
    
    
    
    413General and administrative
    
    
    701
    
    
    
    266
    
    
    
    1,532
    
    
    
    818Total non-cash stock-based compensation expense
    
    $
    2,557
    
    
    $
    1,427
    
    
    $
    7,294
    
    
    $
    4,264
    For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Expected term (in years)
    
    
    5.0
    
    
    
    4.7
    
    
    
    5.0
    
    
    
    4.6Volatility
    
    
    39
    %
    
    
    41
    %
    
    
    39
    %
    
    
    40
    %Interest rate
    
    
    4.63
    %
    
    
    4.88
    %
    
    
    4.64
    %
    
    
    4.79
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average fair
value at grant date
    
    $
    12.67
    
    
    $
    7.85
    
    
    $
    10.80
    
    
    $
    8.61
 14




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Restricted Stock Awards
  Stock Unit Awards
   15




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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
    
    
    696
    
    
    
    25.72
    
    
    
    
    
    
    
    Exercised
    
    
    (870
    )
    
    
    6.90
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (30
    )
    
    
    22.11
    
    
    
    
    
    
    
    Outstanding at September 30, 2007
    
    
    4,689
    
    
    $
    12.90
    
    
    
    6.02
    
    
    $
    103,151Exercisable at September 30, 2007
    
    
    3,587
    
    
    $
    10.14
    
    
    
    5.21
    
    
    $
    88,839
    WeightedAverageGrant DateRestricted Stock
    
    Shares
    
    
    Fair ValueOutstanding at December 31, 2006
    
    
    432
    
    
    $
    20.70Granted
    
    
    107
    
    
    
    25.94Vested
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    Outstanding at September 30, 2007
    
    
    539
    
    
    $
    21.74
  16




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##### Table of Contents



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




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Intersourcing Offering
   Original Ceridian Agreement
  18




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Significant Accounting Policies and Estimates
   19




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Results of Operations
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Recurring
    
    
    58.6
    %
    
    
    57.3
    %
    
    
    57.4
    %
    
    
    56.8
    %Services
    
    
    32.6
    
    
    
    32.7
    
    
    
    32.7
    
    
    
    31.8License
    
    
    8.8
    
    
    
    10.0
    
    
    
    9.9
    
    
    
    11.4Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of revenues:Recurring
    
    
    14.9
    
    
    
    16.0
    
    
    
    15.2
    
    
    
    15.9Services
    
    
    26.6
    
    
    
    25.3
    
    
    
    26.9
    
    
    
    25.2License
    
    
    0.9
    
    
    
    1.1
    
    
    
    0.9
    
    
    
    1.2Total cost of revenues
    
    
    42.4
    
    
    
    42.4
    
    
    
    43.0
    
    
    
    42.3Operating expenses:Sales and marketing
    
    
    23.9
    
    
    
    25.1
    
    
    
    24.0
    
    
    
    26.6Research and development
    
    
    18.8
    
    
    
    20.4
    
    
    
    19.2
    
    
    
    20.2General and administrative
    
    
    9.6
    
    
    
    8.8
    
    
    
    9.5
    
    
    
    9.2Total operating expenses
    
    
    52.3
    
    
    
    54.3
    
    
    
    52.7
    
    
    
    56.0Operating income
    
    
    5.3
    
    
    
    3.3
    
    
    
    4.3
    
    
    
    1.7Other income (expense):Interest expense
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.2
    )Other income, net
    
    
    1.1
    
    
    
    1.4
    
    
    
    5.1
    
    
    
    1.4Total other income, net
    
    
    0.9
    
    
    
    1.2
    
    
    
    5.0
    
    
    
    1.2Income before income taxes
    
    
    6.2
    
    
    
    4.5
    
    
    
    9.3
    
    
    
    2.9Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    Net income
    
    
    6.2
    %
    
    
    4.5
    %
    
    
    9.2
    %
    
    
    2.9
    %
 Revenues
    20




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a)
    
    Intersourcing revenues increased primarily due to the continued
growth of the Intersourcing offering, which comprises the majority of unit sales.
The increase is based on the revenue impact of incremental units that have gone
live (i.e., when the underlying customer processes its first live payroll for
its employees) since September 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 September
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 nine
months ended September 30, 2007 from the Original Ceridian Agreement, totaling
$1.9 million and $5.8 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 expiring in March 2008.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.
 21




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Cost of Revenues
    22




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ales and Marketing
  Research and Development
  23




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General and Administrative
  Interest Expense
  Other Income, Net
  24




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Income Taxes
   Liquidity and Capital Resources
       25




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Off-Balance Sheet Arrangements
  Quarterly Fluctuations
  26




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Forward-Looking Statements
  
 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
  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
 27




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##### Table of Contents



Interest rate risk.
  
 ITEM 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
 Changes in internal control over financial reporting.
 28




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PART II  OTHER INFORMATION
 
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Purchases of Equity Securities by the Issuer.
   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
    
    
    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
    
    
    
    1,006,263August 1
 31, 2007
    
    
    276,238
    
    
    
    29.90
    
    
    
    1,269,975
    
    
    
    730,025September 1
 30, 2007
    
    
    94,400
    
    
    
    31.66
    
    
    
    1,364,375
    
    
    
    635,625Total
    
    
    654,938
    
    
    $
    28.39
    
    
    
    1,364,375
    
    
    
    635,625
 
 (1)
    
    All shares were purchased through the publicly announced Stock Repurchase Plan in open-market transactions. 29




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ITEM 6. Exhibits
 Number
    
    Description21.1
    
    
    Subsidiaries of the Registrant *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 AdoptedPursuant 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. 30




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Signatures
  The Ultimate Software Group, Inc.Date: November 8, 2007
    By:
    /s/ Mitchell K. DauermanMitchell K. DauermanExecutive Vice President, Chief
Financial Officer and Treasurer
(Authorized Signatory and Principal
Financial and Accounting Officer) 31