1
SHAREHOLDER LETTER
Dear Shareholders,
2011 was a good year for Ultimate. Our all-
important recurring revenues increased 25%
compared with 2010 and passed the milestone
of $200 million, reaching a record $213.8
million, just one year after our total revenues
surpassed the $200-million milestone in 2010.
Our recurring revenues were 79% of total
revenues in 2011, up from 75% in 2010. Our
total revenues climbed to a record-high of
$269 million in 2011, an 18% increase over
the previous year. At the same time, our
annual customer retention rate was greater
than 96% once again for the year.
2011 marked the 10th year in a decade of
strong, consistent growth in our Software-as-
a-Service (SaaS), or cloud, recurring
revenues. Our compounded annual growth
rate for SaaS recurring revenues was 31% for
the decade ending with 2011.
Based upon our total number of SaaS
customers (2,300+ companies) and the
number of people records handled in our cloud
environment (7,000,000+) at the close of
2011, we believe that Ultimate has the largest
customer base in the United States using
cloud-based solutions for comprehensive
payroll, human resources, talent
management, and time management in the
market today. Our market share in our
Enterprise sector (those businesses with more
than 1,000 employees) is now approximately
10%, and our market share in our Workplace
sector (those businesses with 200-1,000
employees) is approximately 3%.*
Our new customers in 2011 continued to
attach multiple add-on product components
when they signed up for our core UltiPro
solution—reflecting our customers’ unabated
appetite for a single, all-inclusive people
management solution. In our Enterprise
market, our 2011 attach rates were 62% for
Recruitment, 70% for Onboarding, 60% for
Scott Scherr
Chairman, Chief Executive Officer, and Founder
Performance Management, and 50% for Time
Management. In our Workplace market, our
2011 attach rates were 77% for Recruitment,
54% for Onboarding, 69% for Performance
Management, and 79% for Time Management.
Our market indicators suggest that interest in
our solutions increased throughout the 2011
year. In the fourth quarter of 2011, we had an
all-time record for the highest number of
unique visitors to our Web site over any prior
quarter, and that number was a 20% increase
in traffic over Q4 2010. At our Interactive HR
Workshops that we held throughout the
United States, we identified a record number
of registrants who said they are looking for a
new human resources and/or payroll
solution—a 78% increase for 2011 over
2010—and in our print and online advertising,
we had a greater than 200% increase in
number of responders for the year compared
with 2010. That too was a record-high for
Ultimate.
*Data is from Hoover’s/D&B numbers of non-subsidiary U.S. companies and Ultimate’s customer numbers, both as of 1/4/2012.
1
SHAREHOLDER LETTER (continued)
We added Succession Management to our
suite of UltiPro cloud solutions for managing
employees from recruitment through
retirement in 2011. UltiPro Succession
Management was designed to involve
employees and managers in an ongoing,
collaborative process. Employees can manage
their own talent profiles—updating factors that
influence succession readiness such as
mobility preferences, languages, education,
accomplishments, and competencies—to
ensure that our customers’ leadership has a
rich understanding of their companies’ talent
landscapes while managers have the flexibility
to develop succession plans for jobs, talent
pools, or individuals.
Ultimate earned some third-party recognition
in 2011 that substantiates the excellence of
our people, products, and services. In
October, Forrester Research, a leading
technology, research, analysis, and advisory
firm, selected Ultimate as a Groundswell
Award winner for our collaborative customer
community called “Ideas” that is a forum for
our customers to share information with one
another and provide direct feedback to us
about UltiPro. In November, Ultimate won a
SuperNova Award from Constellation Research
in the advanced analytics category for a
predictive analytics tool that HR leaders can
use to assess employee retention risks
proactively.
In our first year of applying for FORTUNE’s
“100 Best Companies to Work For” list, we
were ranked #25, building on our two prior-
year #1 rankings on the mid-sized company
list from the Great Place to Work Institute. The
FORTUNE ranking is a very big honor for us.
We are the only human capital management
provider on the list, and we are the highest
ranked cloud vendor on the list. The list was
published in January 2012 and includes many
of the country’s largest and most respected
companies, such as Adobe, Google, Intel,
Microsoft, Mercedes Benz USA, Starbucks, and
Whole Foods Market.
We released our new company branding on
January 23, 2012. Our new tag line, “People
first,” embodies the essence of who we are at
Ultimate—a company that recognizes the
power of talented, motivated people to
produce momentous business results. People
are the center of everything we do. They are
the backbone of our own business—and the
purpose behind the solutions we develop to
help other organizations work smarter, create
more people-centric environments, and meet
their business goals.
We are well-positioned for the future and look
forward to executing on the many
opportunities ahead of us. Our goals for 2012
are to:
1. Increase total revenues
By investing in innovative product
development and customer services, we
are able to provide businesses with a high-
quality customer experience that drives
desire for our solutions and gives us the
opportunity to continue growing our total
revenues.
2. Increase our recurring revenues
Our recurring revenues were 79% of our
total revenues for the 2011 year versus
75% for 2010, and we expect to continue
increasing that percentage as we focus on
our cloud delivery model.
3. Maintain our customer retention rate
above 95%
By continuing to enhance our products and
services, our people develop strong and
enduring customer relationships that
provide us a consistent revenue stream
and many references for new business.
Our approach to business is much the same
now as it has been since the inception of
Ultimate. We find and retain the most talented
employees, and their goal is to keep our
products, services, and the overall experience
of our customers at the top of our industry.
2
SHAREHOLDER LETTER (continued)
Delivering on this objective has always been
the driver of our success and will continue to
influence our decisions as we move forward.
On behalf of Ultimate’s Board of Directors and
our management team, I thank you, our
shareholders, for your continuing support and
partnership with us.
Scott Scherr
Chairman of the Board of Directors, Chief
Executive Officer, and Founder
Ultimate
3
FINANCIAL HIGHLIGHTS
SELECTED FINANCIAL DATA
FOR THE YEARS ENDED DECEMBER 31
Operating Data (In Thousands,
Except Per-Share Data) (1)
2009
2010
2011
Revenues
Recurring
Services
License
$133,159
58,996
4,125
$170,905
55,368
1,538
$213,785
53,195
2,218
Total Revenues
$196,280
$227,811
$269,198
Gross Profit
As a % of Total Revenue
Operating Expenses and Other
As a % of Total Revenue
Provision for Income Taxes (2)
Loss from Discontinued Operations,
Net of Income Taxes (3)
$108,461
55%
$108,546
55%
721
$128,569
56%
$120,398
53%
5,161
$152,864
57%
$136,742
51%
11,840
(336)
(853)
—
Net Income (Loss)
$(1,142)
$2,157
$4,282
Diluted Net Income (Loss) Per
Share
$(0.05)
$0.08
$0.15
(1) Operating data, excluding Loss from Discontinued Operations, Net of Income Taxes
represents financial results from continuing operations.
(2) See Note 15 of the notes to consolidated financial statements included in the Annual
Report on Form 10-K for the fiscal year ended December 31, 2011, of The Ultimate Software
Group, Inc. and subsidiaries, filed with the Securities and Exchange Commission on February
29, 2012 (the 2011 Form 10-K) for information regarding the provision for income taxes.
(3) We discontinued and liquidated the operations of our wholly owned subsidiary in the
United Kingdom in 2010.
Balance Sheet Data (In Thousands)
Cash and Cash Equivalents
Investments in Marketable Securities
2009
$23,684
$9,523
2010
$40,889
$9,317
2011
$46,149
$9,130
Total Assets
$171,130
$249,557
$318,820
Deferred Revenue
Long-Term Debt,
Including Capital Lease Obligations,
Net of Current Portion
Stockholders’ Equity
$68,559
$1,710
$57,770
$78,095
$2,406
$72,985
$86,563
$2,175
$85,624
4
10-YEAR FINANCIAL PERFORMANCE
Dollars are represented in millions.
CAGR on both graphs represents Ultimate’s 10-year Compounded Annual Growth Rate from 2002-2011 for Recurring Revenues and Total
Revenues.
5
BUSINESS HIGHLIGHTS
Ultimate added Succession Management to its suite of UltiPro cloud solutions for managing
employees from recruitment through retirement. With UltiPro Succession Management,
companies can engage their employees and managers in an ongoing, collaborative process for
developing succession plans. Employees can update their own talent profiles with detail on
factors that influence succession readiness such as mobility preferences, languages, education,
accomplishments, and competencies. Managers can use the information to identify talent gaps
and prepare their reports for succession by developing succession plans for jobs, talent pools, or
individuals while company leadership has a bird’s-eye view of succession for strategic decision-
making.
In March 2011, we held our Ultimate Partner Forum, known as Connections and co-sponsored by
Dell and IBM, and had the largest attendance in our history—820 attendees. Our customers,
partners, and HR industry analysts came to share ideas, hear about Ultimate’s future direction,
and expand their peer networks. Ultimate’s 2012 Connections conference is scheduled for March
27-30, 2012 in Las Vegas.
A leading technology research, analysis, and advisory firm, Forrester Research, selected Ultimate
as a Groundswell Award winner in October 2011. The Forrester Groundswell Awards recognize
excellence in achieving business and organizational goals through innovation in social technology
applications. Ultimate was a winner in the business-to-business “Embracing” category for its
collaborative customer community called “Ideas.” Ultimate launched the Ideas community to help
its customers share information, interact, and provide direct feedback on UltiPro. Previous
winners of the Forrester Groundswell Awards include Microsoft, IBM, Starbucks, and
Salesforce.com.
Ultimate won a SuperNova Award from Constellation Research in the advanced analytics category
in November 2011. Ultimate’s Director of Business Intelligence and his team worked
collaboratively with an Ultimate customer to develop a predictive analytics tool that HR leaders
can use to monitor and address retention risks proactively.
Ultimate’s customer support center was awarded Service Capability & Performance (SCP)
certification for best practices for the 13th consecutive year. The SCP Standards represent the
global benchmark for service excellence and are recognized by leading technology companies
around the world.
In January 2012, Ultimate was ranked #25 on FORTUNE’s “100 Best Companies to Work For” list,
having applied for consideration for the first time. Ultimate is the only human capital
management provider on the 2012 list and the highest ranked cloud vendor on the list. Ultimate
was previously recognized twice as the #1 medium-sized company to work for in America by The
Great Place to Work Institute.
6
SHAREHOLDERS’ MEETING
DATE:
Friday, May 18, 2012
10 a.m. EDT
LOCATION:
Ultimate Software
2000 Ultimate Way
Weston, FL 33326
The annual meeting of shareholders will be held on May 18, 2012, at 10:00 a.m. EDT at Ultimate’s
headquarters, 2000 Ultimate Way, Weston, Florida 33326. Formal notice will be sent to shareholders
of record as of March 22, 2012.
COMPANY PROFILE
Ultimate is a leading cloud provider of people management solutions. Built on the belief that people
are the most important ingredient of any business, Ultimate’s award-winning UltiPro delivers HR,
payroll, and talent management solutions that seamlessly connect people with the information and
resources they need to work more effectively. Founded in 1990, the company is headquartered in
Weston, Florida, and has more than 1,400 professionals focused on developing the highest quality
solutions and services. In 2012, Ultimate was ranked #25 on FORTUNE’S “100 Best Companies to
Work For” list. Ultimate has more than 2,300 customers with employees in 115 countries, including
Adobe Systems Incorporated, The Container Store, Culligan International, Major League Baseball,
The New York Yankees Baseball Team, and Ruth’s Chris Steak House. More information on Ultimate’s
products and services for people management can be found at www.ultimatesoftware.com.
UltiPro is a registered trademark of The Ultimate Software Group, Inc. All other trademarks referenced are the property of their
respective owners.
7
DIRECTORS & OFFICERS
BOARD OF DIRECTORS
Scott Scherr
Chairman, Chief Executive Officer, and
Founder
Ultimate
Marc D. Scherr
Vice Chairman and Chief Operating Officer
Ultimate
James A. FitzPatrick, Jr.
Partner
Dewey & LeBoeuf LLP
LeRoy A. Vander Putten
Former Executive Chairman
The Insurance Center, Inc.
EXECUTIVE OFFICERS
Scott Scherr
Chairman, Chief Executive Officer, and
Founder
Marc D. Scherr
Vice Chairman and Chief Operating Officer
Robert A. Yanover
Former President
Computer Leasing Corporation
Rick A. Wilber
President
Lynn’s Hallmark Cards
Al Leiter
President
Leiter’s Landing
Mitchell K. Dauerman
Executive Vice President, Chief Financial
Officer, and Treasurer
INVESTOR RELATIONS INFORMATION
ANNUAL REPORT AND FORM 10-K
Ultimate’s 2011 Annual Report, including the 2011 Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 2011, is available electronically as a PDF on our
Web site at www.ultimatesoftware.com. Printed copies of the 2011 Form 10-K are available without
charge upon request to: Ultimate, Investor Relations Department, 2000 Ultimate Way, Weston,
Florida 33326.
Independent Registered Public Accounting Firm
KPMG LLP
Miami, Florida
Investor Relations
For additional information about Ultimate,
contact Mitchell K. Dauerman, 954.331.7369.
Legal Counsel
Dewey & LeBoeuf LLP
New York, New York
Stock Trading
Ultimate’s common stock is traded on the
Nasdaq National Market under the symbol ULTI.
Transfer Agent and Registrar
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, Rhode Island 02940-3078
877.282.1168
www.computershare.com
Company Address
Ultimate
2000 Ultimate Way
Weston, Florida 33326
800.432.1729 or 954.331.7000
www.ultimatesoftware.com
8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For 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
(State or other jurisdiction of
incorporation or organization)
2000 Ultimate Way,
Weston, FL
(Address of principal executive offices)
65-0694077
(I.R.S. Employer
Identification No.)
33326
(Zip Code)
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:
None
1
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No
Indicate by check mark whether the Registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the Registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of ―large accelerated filer‖,
―accelerated filer‖, and ―smaller reporting company‖ in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes No
The aggregate market value of Common Stock, par value $.01 per share, held by non-affiliates of
the Registrant, based upon the closing sale price of such shares on the NASDAQ Global Select Market on
June 30, 2011 was approximately $1.4 billion.
As of February 15, 2012, there were 26,381,763 shares of the Registrant’s Common Stock, par
value $.01, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the 2012 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Annual Report on Form 10-K.
THE ULTIMATE SOFTWARE GROUP, INC.
INDEX
Page(s)
PART I
Forward-Looking Statements
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for the Registrant’s Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Quantitative and Qualitative Disclosures about Market
Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
Controls and Procedures
Independent Registered Public Accounting Firm’s Report on
Internal Control over Financial Reporting
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director
Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
PART IV
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Signatures
1
1
14
23
24
25
25
25
28
29
44
45
76
76
78
80
80
84
84
84
85
86
91
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (this “Form 10-
K”) of The Ultimate Software Group, Inc. and subsidiaries (“Ultimate,” “we,” “us” or “our”) 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 our expectations or beliefs, including, but not limited to, our expectations concerning
our 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. Ultimate’s
actual results could differ materially from those contained in the forward-looking statements due to risks
and uncertainties associated with fluctuations in our quarterly operating results, concentration of our
product offerings, development risks involved with new products and technologies, competition, our
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 Ultimate’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 the risk factors set forth in Item 1A. Ultimate
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 its related design are registered trademarks of Ultimate 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.
PART I
Item 1. Business
Overview
The Ultimate Software Group, Inc. and subsidiaries (―Ultimate,‖ ―we,‖ ―us‖ or ―our‖) is a leading
provider of unified human capital management (―HCM‖) software-as-a-service (―SaaS‖) solutions, also
known as ―cloud‖ solutions, for global businesses.
Ultimate’s UltiPro software (―UltiPro‖) is a comprehensive SaaS-or cloud-based solution delivered
primarily to organizations based in the United States and Canada and designed to deliver the functionality
businesses need to manage the complete employment life cycle from recruitment to retirement. The
solution includes feature sets for talent acquisition and onboarding, human resources (―HR‖) management
and compliance, benefits management and online enrollment, payroll, performance management, salary
planning and budgeting for compensation management, succession management, reporting and analytical
decision-making tools, and time and attendance. UltiPro has role-based self-service capabilities for
executives, managers, administrators, and employees whether they are in or out of the office, including an
UltiPro application for use on mobile devices such as the iPhone and iPad.
We believe that UltiPro helps customers streamline HR and payroll processes to significantly
reduce administrative and operational costs, while also empowering them to manage the talent in their
workforce more strategically. UltiPro enables its customers to analyze workforce trends for better decision
making, find critical information quickly and perform routine business activities efficiently.
1
UltiPro is marketed as two solution suites based on company size. UltiPro Enterprise
(―Enterprise‖) is designed to address the needs of companies with 1,000 or more employees. UltiPro
Workplace (―Workplace‖) is designed for companies with fewer than 1,000 employees. UltiPro Workplace
provides medium-sized and smaller companies with nearly all the features that larger Enterprise companies
have with UltiPro, plus a bundled services package. Since many companies in this market do not have
information technology staff on their premises to help with system deployment or management issues, we
created UltiPro Workplace’s bundled services package to give these customers a high degree of
convenience by handling system setup, business rules, and other situations for customers ―behind the
scenes.‖
Our SaaS offering of UltiPro (the ―SaaS Offering‖) provides Web-based access to comprehensive
HCM functionality for organizations that want to simplify delivery and support of their business
applications. We have found that SaaS is attractive to companies that want to focus on their core business
competencies to increase sales and profits. Through SaaS, we supply and manage the hardware,
infrastructure, ongoing maintenance and backup services for our customers. Customer systems are
managed at three data centers; one located near Miami, Florida, one near Atlanta, Georgia, and another
near Toronto, Canada. All data centers are owned and operated by independent third parties.
As part of our UltiPro HCM solution, which includes HR, payroll and talent management feature
sets, we provide implementation and training services to our customers as well as support services, which
have been certified by Services Strategies using the Service Capability and Performance (―SCP‖)
Standards, certification program for thirteen consecutive annual evaluations. UltiPro leverages the
Microsoft Corporation (―Microsoft‖) technology platform, which is recognized in the industry as a cost-
effective, reliable and scalable platform.
UltiPro is marketed primarily through our Enterprise and Workplace direct sales teams. Ultimate
had more than 2,300 customers as of the end of 2011. Based on January 2012 market data from
Hoover’s/Dun & Bradstreet, we estimate our approximate market share to be 10 percent for companies
with more than 1,000 employees and 3 percent in the under 1,000 employee space.
Ultimate is a Delaware corporation formed in April 1996 to assume the business and operations of
The Ultimate Software Group, Ltd. (the ―Partnership‖), a limited partnership founded in 1990. During
August 2006, Ultimate formed a wholly-owned subsidiary, The Ultimate Software Group of Canada, Inc.
(―Ultimate Canada‖), to accommodate its operations in Canada. In October 2006, Ultimate acquired 100%
of the common stock of a United Kingdom (―UK‖) company and its wholly-owned U.S. subsidiary, known
as The Ultimate Software Group UK Limited. The Ultimate Software Group UK Limited was discontinued
and liquidated in 2010. See Note 4 in the Notes to the Consolidated Financial Statements. There were no
material assets or revenues in Canada as of or for the year ended December 31, 2011. Ultimate’s
headquarters is located at 2000 Ultimate Way, Weston, Florida 33326 and its telephone number is (954)
331-7000.
Features of UltiPro
UltiPro is a comprehensive SaaS-or cloud-based solution designed to deliver the functionality
businesses need to manage the complete employment life cycle from recruitment to retirement. The
solution includes feature sets for talent acquisition and onboarding, HR management and compliance,
benefits management and online enrollment, payroll, performance management, salary planning and
budgeting for compensation management, succession management, reporting and analytical decision-
making tools, time and attendance, and role-based self-service capabilities for executives, managers,
administrators, and employees whether they are in or out of the office. UltiPro offers the following features
to its customers:
2
Role-Based Internet Access to Functionality. UltiPro provides Web access to workforce-related
business functions, company communications, and reporting for everyone in our customer’s organization,
not just the HR department. The access and specific functionality are based upon our customer’s process
requirements and the individual user’s role. We believe that UltiPro’s employee-facing Web applications
can increase administrative efficiencies by providing immediate access to reporting, staff management
processes and business intelligence for executives, and can reduce operating costs by eliminating the need
for organizations to print and distribute paper communications, handbooks, forms, and paychecks.
Ultimate also provides an UltiPro application for use on an iPhone or iPad to allow rapid communication
among traveling executives and employees. Using their iPhones or iPads, managers can approve or deny
daily workflow transactions—such as salary changes and paid time off—and all employees can quickly
access their company’s employee directory to look up contact information or employee photos.
Feature-Rich, Highly Configurable, Built-in Functionality. Based upon UltiPro’s built-in and
unified functionality and its ability to be configured extensively to meet the customer’s specific business
needs, Ultimate has found that UltiPro minimizes the need for its customers to make extensive
customizations or changes to source code. UltiPro facilitates streamlined management of the total
employment cycle, enables organizations to minimize the time invested in burdensome HR/payroll
administrative activities, and provides strategic HR and talent management reports and tools.
Flexible, Rapid System Setup and Configuration. UltiPro has been designed to minimize the time
and effort required to set up and configure the system to address individual company needs. UltiPro
delivers an extensive amount of functionality ―out-of-the-box‖ that can be configured to align with our
customers’ various business models, so that few customizations are required by the typical customer.
Ultimate has a proven track record for activating UltiPro rapidly through SaaS.
Reduced Total Cost of Ownership. We believe that the UltiPro solution provides cost saving
opportunities for our customers and that UltiPro is competitively priced. In addition, we believe that our
current practices in activating the UltiPro solution result in cost savings for customers when compared with
implementations of other similar solutions in the industry. The UltiPro customer may also reduce the
administrative and information technology (―IT‖) support costs associated with the organization’s HR,
benefits and payroll functions over time. Administrative costs can be further reduced by providing an
organization with greater access to information and control over reporting.
Leveraging of Leading Technologies. Ultimate has consistently focused on identifying leading
technologies and integrating them into its products. The primary characteristics of Ultimate’s technology
are:
Leading-edge service-oriented-architecture technology platform built using the Microsoft.NET 4.0
framework.
Multi-tenancy (multiple companies can reside on one server). The multi-tenant model allows each
application component to run on a separate farm, or cluster, of load-balanced servers while still
providing customer data isolation that customers demand. Ultimate’s multi-tenant site registry
functions similar to ―yellow pages‖ to manage tenant location and isolation within the site.
Connecting UltiPro via Web services (a set of platform-neutral and vendor-independent protocols that
enable application interactions over the Internet using Extensible Markup Language, or XML, and
other Web-based technologies). Through Web services, UltiPro interfaces with other applications and
data services easily and securely.
3
Rich End-User Experience, Ease of Use and Navigation. Ultimate designs its products to be user-
friendly and to simplify the complexities of managing employees and complying with government
regulations in the HR, payroll, and talent management areas. UltiPro uses familiar Internet navigation
techniques, which we believe make its solution convenient and easy to use. While traveling or out of the
office, our customer’s executives, managers, administrators and employees can manage payroll and
employee functions and run reports by accessing UltiPro over the Internet or find answers to key routine
questions by using an UltiPro application on their iPhone or iPad.
Comprehensive Customer Services and Industry-Specific Expertise. Ultimate believes it provides
the highest quality customer services, SaaS services, professional setup and implementation services,
knowledge management (or training) services and ongoing product and customer support services.
Ultimate’s customer support center has received the SCP Certification for the thirteenth consecutive year.
The SCP program was created by the Service & Support Professionals Association (―SSPA‖) and a
consortium of information technology companies to create a recognized quality certification for support
centers. SCP Certification quantifies the effectiveness of customer support based upon relevant
performance standards and represents best practices within the technology support industry according to the
SSPA. Recognizing the importance of issuing timely updates that reflect changes in tax and other
regulatory laws, Ultimate employs a dedicated research team to track jurisdictional tax changes for more
than 13,000 tax codes included in UltiPro as well as changes in other employee-related regulations.
UltiPro—Core Functionality and Optional Features
UltiPro’s core functionality includes, but is not limited to, a set of Web-based features for HR
management, benefits administration, payroll administration, role-based Internet access to functions, and
business intelligence along with system administration tools and Enterprise Integration Tools that give
customers the ability to interface with third-party applications and providers.
In addition to UltiPro’s core HCM functionality, our customers have the option to purchase a
number of additional features on a per-employee-per-month (―PEPM‖) basis, which are available to
enhance the functionality of UltiPro’s core features and which are based on the particular business needs of
the customers. These optional UltiPro features currently include (i) the talent management suite of
products (recruitment, onboarding, performance management, salary planning and budgeting for
compensation management, and employee relations tools for managing disciplinary actions, grievances,
and succession management); (ii) benefits enrollment; (iii) time, attendance and scheduling; (iv) time
management; (v) payment services (formerly referred to as ―tax filing‖); (vi) wage attachments; and (vii)
other optional features (collectively, ―Optional Features‖) , which are described below.
Differences between features available to UltiPro Enterprise and UltiPro Workplace are specified
below. Unless otherwise specified, features are included in both the Enterprise and Workplace offerings.
UltiPro’s Core HR/Payroll Functionality
UltiPro’s core HR/payroll functionality includes, but is not limited to, the following:
UltiPro’s Web Center. UltiPro can act as the gateway to business activities for a company’s
executives, management team, HR/payroll staff, administrators, and employees. Employees of customers
can access UltiPro from multiple Web browsers, including Microsoft Internet Explorer and Mozilla
Firefox, view information and perform tasks in a language of their individual choice (most commonly
English, Spanish, or French), set their personal preferences for the order and placement of home-page
content, and set up access to any available page in one click. Ultimate believes that UltiPro allows its
customers to improve service to their employees through better communications and to save time because
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managers and administrators can complete hundreds of common employee-related tasks, including
administering benefits, managing staff and accessing reporting and business intelligence in real time, from
one central location. UltiPro also enables companies to provide on-demand access to company and personal
information for their employees over the Internet.
Human Resources Management. UltiPro tracks HR-related information including employment
history, performance, job and salary information, career development, and health and wellness programs. In
addition, UltiPro facilitates the recording and tracking of key information for government compliance and
reporting, including under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Health
Insurance Portability & Accountability Act (HIPAA), regulations implemented by the Occupational Safety
& Health Administration (OSHA), workers’ compensation regulations, the Family Medical Leave Act
(FMLA), and Equal Employment Opportunity (EEO) laws. UltiPro also enables compliance with HIPPAA
confidentiality requirements for protecting sensitive data such as employee social security numbers.
UltiPro also allows customers to track HR information of employees working outside the U.S. and Canada,
providing a global view of their workforces and enabling consolidation of global HR/employee information
into one central system for HR reporting and analytics by individual country or the entire company as a
whole.
Benefits Administration. UltiPro allows companies to automate the matching of the health, welfare,
dental, vision, and other benefits that their organizations offer employees, and to set up and administer
benefit plans and employee and employer contributions, and it enables employees to check benefit options
and coverage online over the Internet. UltiPro eliminates the need for duplicate rules, duplicate data entry,
and reconciliation reporting because it stores details for deductions and benefit plans in one common table.
This includes rules for coverage, premium and employer match computations, and eligibility and
participation determinations. UltiPro also allows companies to maintain and administer paid time off
benefits, such as vacation (including calculating benefit accrual amounts), track leave time taken, and
facilitate the response to employee leave requests.
Payroll Administration. UltiPro’s payroll engine handles hundreds of payroll-related computations
intended to minimize the customer’s need for side calculations or additional programming. For example,
UltiPro delivers complex wage calculations such as average pay rates for overtime calculations, shift
premiums, garnishments and levy calculations. With UltiPro, a company’s central payroll department,
remote offices or multiple divisions can process payroll with specific processing steps based on the exact
needs of the organization, and can manage this process through an easy-to-use dashboard of payroll tasks
and status, over the Internet.
Role-Based Self-Service. Authorized managers have self-service access to staff information such
as salary, compensation history, key dates and emergency contacts, with reporting and workforce analysis
tools to facilitate decision-making. A customer’s managers can view and update staff information, manage
department activities, post job openings, leverage recruiting and hiring tools, and perform queries on
workforce data. UltiPro’s document management features can be used to house and categorize employee-
related documents such as drivers’ licenses, consent forms, and completed Forms I-9 with required
identification. Administrators and managers have the ability to attach Microsoft Word documents, PDF
files, JPEG files, spreadsheets, or any other file types supported by Microsoft Internet Explorer to
employee files. The documents can be grouped and sorted to individual requirements, as necessary.
Employees also may be given immediate security-protected access to view their own paycheck
details and benefits summaries, frequently used forms and company information. They can also update
personal information such as address, phone number, emergency contacts and skills; change preferences
such as direct deposit accounts and benefits selections; make routine requests such as asking for vacation
time; and enroll in training.
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UltiPro Business Intelligence. UltiPro Business Intelligence uses a business intelligence platform
from IBM Cognos Corporation, a third-party provider, for HR, payroll, and talent management reporting
and analysis. Accessed via the Web, UltiPro Business Intelligence gives users the ability to access data
across the UltiPro solution – from HR, payroll to benefits administration and enrollment, compensation,
talent acquisition and onboarding, talent management, compensation, compliance, year-end data, and more
– and enables them to create, modify, and distribute workforce-related reports and notifications. UltiPro
includes a pre-configured data mapping library and pre-authored reports and analytics. Controlled by role-
based security, everyone in a customer’s organization– from line managers to executives – can have
immediate access to key workforce metrics, and they can personalize their own user experience to show the
reports they want to see and how they want to see them. We believe that UltiPro Business Intelligence
gives its customers significant strategic value for managing their workforce-related functions and saves
them labor time and money by eliminating or reducing the need for internal technology people to generate
hundreds of individual reports for disparate executive and management needs.
Other Key Features. UltiPro includes system administration tools such as configuration options,
role-based security, built-in conditional workflow, flexible business rules, and an easy-to-use content
management tool. Built-in conditional workflow enables users to authorize HR/payroll staff, managers, or
supervisors to make updates on the Web through more than 125 pre-defined, highly configurable workflow
processes to expedite business activities such as hiring an employee or inputting a salary increase. System
administration is designed for the non-technical user to administer UltiPro’s role-based security, built-in
conditional workflow, and system business rules, as well as to enable system administrators to post
company communications, link to external Web sites and tailor pages to reflect the customer’s own
company user experience requirements. Enterprise Integration Tools are also included to provide the ability
to interface with third-party applications and providers such as general ledger, payment services, time
clocks, banks, 401(k) and benefits providers, check printing services and unemployment management
services.
UltiPro’s Optional Features
UltiPro Talent Management is a suite of add-on products comprised of Recruitment, Onboarding,
Performance Management, Salary Planning and Budgeting, and Succession Management.
i) Recruitment. UltiPro Recruitment delivers a ―one-stop‖ solution for companies to recruit
and hire the most qualified candidates. By automating the entire recruiting and applicant tracking
process, UltiPro Recruitment enables hiring managers, recruiters, and HR staff to track and manage
all recruitment tasks such as posting open jobs, reviewing resumes, screening candidates, and
scheduling interviews through convenient Web access.
ii) Onboarding. UltiPro Onboarding is a comprehensive Web-based tool that provides
employers the ability to automate the process of bringing a new employee into an organization and
speed time to productivity. Employees can be given a ―welcome‖ package online as part of a step-
by-step process that is built into UltiPro Onboarding which is easily configurable. It includes such
activities as obtaining required government and procedural paperwork, including electronic
signatures and document storage; provisioning necessary equipment and job-specific tools such as
office location, computer equipment, and uniforms; ensuring enrollment in necessary training
programs; and instilling the employer’s core values and business objectives.
iii) Performance Management. UltiPro Performance Management helps companies
maximize talent development and improve employee satisfaction by automating and enhancing the
performance process and using competency-based employee development. UltiPro Performance
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Management streamlines the processes of evaluating performance and completing performance
reviews, making competency assessments, identifying top performers for succession planning, and
tracking and executing coaching, training and development plans.
iv) Salary Planning and Budgeting. UltiPro Salary Planning and Budgeting facilitates
salary increase administration by delivering the tools and information managers need to make
effective decisions regarding future compensation for individuals and/or an entire team. Highly
configurable, UltiPro Salary Planning and Budgeting makes it easy for companies to tie the salary-
increase process and business rules into the solution. Working online, managers can rapidly review
their salary budgets and guidelines, and determine the best way to allocate pay increases to their
employees within their approved budget. Once managers decide on the allocations, they can submit
pay increases for processing with no manual calculations or spreadsheets required.
v) Succession Management. With UltiPro Succession Management, organizations can
involve company leadership, managers, and individuals in an ongoing, collaborative process of
succession planning. Employees can manage their own talent profiles—updating factors that
influence succession readiness, such as mobility preferences, languages, education,
accomplishments, and competencies—to ensure that leadership has a deeper understanding of the
talent landscape at their organization. Visible to employees and managers, UltiPro’s employee
―talent card‖ provides a consolidated view of multiple succession-readiness factors, which then can
be used in both decision-making and career development processes.
Other Optional Features include, but are not limited to, the following products, which are
supplemental to UltiPro’s core HR/payroll functionality:
Benefits Enrollment. With UltiPro Benefits Enrollment, employees can review their benefit choices
and make selections on the Web during defined open enrollment periods. Benefits administrators can set up
enrollment sessions over the Web and use tools to monitor the enrollment progress. UltiPro Benefits
Enrollment also guides employees through all of the benefit and personal information changes necessary as
a result of a life event such as getting married, having a baby or moving. UltiPro also facilitates the
electronic feeds required for insurance carriers and plan administrators, reducing the need for manual
reporting of employee census information, participant coverage, and billing reconciliation.
Time, Attendance, and Scheduling (available to prospective customers in the Enterprise market).
Through a strategic partnership, Ultimate has the right to market and distribute an independent third party’s
time and labor management product as part of the UltiPro solution. Ultimate has branded this product as
UltiPro Time and Attendance, marketing the components as UltiPro Time and Attendance, UltiPro Leave
Management, and UltiPro Workforce Scheduling (collectively, ―UTA‖). Ultimate is the single-source
contact for customer implementations and ongoing solution support for UTA. UTA is Web-based and
integrated with UltiPro’s payroll, HR, and benefits functionality. UltiPro Time and Attendance tracks time
and attendance labor metrics and supports a variety of time-capture mechanisms. UltiPro Leave
Management includes all of the functionality required to effectively track and manage employee leave.
UltiPro Workforce Scheduling features industry-specific employee scheduling options to ensure that
organizations in different environments deploy employees in an efficient and legislatively compliant
manner.
Time Management (designed for the Workplace market). UltiPro Time Management delivers the
functionality and flexibility needed to manage employee time and attendance efficiently and provides Web
access to real-time employee time and labor information. UltiPro Time Management provides companies
with the tools to proactively prevent issues that negatively impact business performance, such as employee
coverage gaps, labor law violations, and excess labor spending. Fully integrated scheduling, time and
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attendance, and leave management capabilities reduce payroll expenditures and streamline payroll and
workforce management processes.
Payment Services. Ultimate has the right to market and distribute an independent third party’s tax
filing solution that Ultimate has branded UltiPro Payment Services (―UltiPro Payment Services‖). With
this solution, companies are able to meet all Federal, state, and local payroll tax filing obligations quickly
and easily. The UltiPro solution saves payroll staff time by eliminating the administrative burdens
associated with tax filing. UltiPro Payment Services enables businesses to deposit federal, state, and local
tax payments for more than 13,000 tax codes via electronic funds transfer or check and automates filing for
monthly, quarterly, and annual tax returns.
Wage Attachments. For organizations required to process third-party payments on behalf of their
employees for items such as child support, tax levies, and creditor garnishments, UltiPro Wage
Attachments provides the means to effectively streamline and manage the payment process. UltiPro Wage
Attachments eliminates the burden associated with payments to third parties by using information entered
and calculated in UltiPro, so there is no need to manage payment processing or analyze varying
disbursement schedules for multiple jurisdictions. Ultimate ensures that each third-party payment is made
according to the designated payment method and reaches its required destination within the assigned
timeframe.
Other Optional Features. Ultimate offers a number of additional HR and payroll-related services
to extend the value of UltiPro, including test environment services, W-2 print services, pre-employment
screening, paycheck modeling, pay cards, unemployment tax management, employment verification
services, employee assistance, health and wellness, and work/life balance programs. In addition, Ultimate
offers UltiPro Federated Single Sign-On for standards-based identity management by leveraging
Microsoft’s Active Directory Federated Services infrastructure. The solution helps improve and simplify
data security by enabling individuals to use a single login credential (such as a network login) to seamlessly
access UltiPro over the Internet.
Technology
Ultimate seeks to provide its clients with optimum performance, user experience, advanced
functionality, and ease of scalability and access to information through the use of leading Internet-standard
technologies. The UltiPro solution was designed to leverage cutting-edge technologies such as Web 2.0,
social software, XML standards, and Web services that use open standards to provide customers with a
cost-effective platform for performing critical business functions rapidly over the Web and allowing
different systems to communicate with one another.
The use of Microsoft technology helps Ultimate deliver what it believes to be a highly deployable
and manageable payroll and talent management solution that includes the following key technological
features:
Microsoft.NET framework, Web 2.0 Features, and Social Networking Integration. The newest
version of UltiPro, built on the .NET development platform, allows UltiPro to leverage a contemporary
Web framework that provides a common, reusable page foundation for a consistent user experience. The
.NET framework also enables Ultimate to develop and release enhanced features more rapidly. The latest
version of UltiPro also takes advantage of Web 2.0 technologies for increased user interactivity, such as
―sticky‖ personal user preferences, and social networking integration that provides value for human capital
management in areas such as recruitment and mentoring. For example, UltiPro on the .NET platform
includes social networking integration to sites such as ―LinkedIn,‖ where candidates for open positions can
8
provide a link to their professional profile and other details relevant to job applications, enabling HR and
hiring managers to more quickly identify qualified candidates.
Internet-Based Technologies and Integration. Ultimate supports cutting-edge Web technologies
and Internet/extranet connectivity to increase access to and usability of its applications. Ultimate uses Web
services architecture that allows business logic to be called and executed over standard network protocols,
such as HTTP or TCP/IP. UltiPro has an open architecture that supports open integration standards,
including real-time messaging through Web services. UltiPro’s Web services architecture is scalable to
adapt to the business needs of companies of any size. The solution includes enterprise integration tools that
enable customers to exchange data with third-party providers via imports, exports or Web services.
Application Framework. Ultimate has designed certain aspects of its system using a multi-tiered
architecture in order to enhance the system’s speed, flexibility, scalability and maintainability. When an
application’s logic resides only on a client workstation, a user’s ability to process high volume data
transactions is limited. When the logic resides only on a server, the user’s interactive capabilities are
reduced. To overcome such limitations, Ultimate built more separation into the application design. The
UltiPro application consists of several core components in a decoupled architecture that leverages
Microsoft technology. UltiPro’s multi-layered architecture, including an operating system layer, business
logic layer, presentation layer and user interface layer, makes it easier to update and maintain UltiPro, as
well as integrate UltiPro with other enterprise systems. Ultimate believes that UltiPro’s application
framework provides a highly extensible set of services that can scale depending on the customer’s business
size. In addition, UltiPro was built using a data-driven, object-oriented application framework that
enhances the development and usability of the solution. Object-oriented programming features code
reusability and visual form/object inheritance, which decrease the time and cost of developing and fully
implementing a new system. With object-oriented programming, system updates do not overwrite prior
customizations to the system because custom changes are sub-classed objects that reside ―outside‖ the core
program.
Business Intelligence Tools. In addition to providing an extensive library of standard reports that
offer flexibility and ease of use, Ultimate extends what users can do with employee data by embedding
business intelligence tools from IBM Cognos Corporation, a third-party provider. In addition to offering
sophisticated data query and report authoring, these tools enable users to apply on-line analytical
processing to multidimensional data cubes, allowing users to explore data on employees graphically and
statistically from diverse angles. Ultimate maintains a link between Cognos’ report catalog and UltiPro’s
data dictionary, eliminating the necessity for users to create and maintain ad hoc reporting catalogs. In
addition, for security purposes and ease of use, Ultimate has unified security for the data elements and
provided single sign-on for users. A Cognos Web Package is delivered to UltiPro customers to allow users
to access reports and conduct data queries from a Web browser.
SaaS Offering
Ultimate’s SaaS Offering provides on-line access to comprehensive HCM functionality for
organizations that need to simplify the IT support requirements of their business applications. Through the
SaaS Offering, Ultimate provides the hardware, infrastructure, ongoing maintenance and backup services
for its customers at three data centers. Data centers located near Miami, Florida and Atlanta, Georgia, are
owned and operated by Quality Technology Services (―QTS‖) and the data center located near Toronto,
Canada is owned and operated by Verizon Canada Ltd. (―Verizon‖).
Ultimate’s use of the data centers located near Miami, Florida and Atlanta, Georgia is governed by
a Master Space Agreement dated June 1, 2009 with Quality Technology Services Miami, LLC (―QTS
Miami‖) and a Master Space Agreement dated June 1, 2009 with Quality Technology Services Metro, LLC
9
(―QTS Metro‖), respectively (collectively, the ―QTS Agreements‖). Pursuant to the terms of the QTS
Agreements, Ultimate may from time to time submit orders for the use of certain physical space within the
data centers for hosting Ultimate’s hardware equipment, as well as Internet connectivity services, security,
power and generator back-up, environmental controls and access controls. Each of the QTS Agreements
provides that any service order will automatically renew for successive renewal terms, unless either party
notifies the other party in writing at least sixty days prior to the end of the then current term that there will
be no such renewal. Furthermore, each of the QTS Agreements may be terminated at any time by either
party thereto, if: (i) the non-terminating party breaches any material term of such QTS Agreement and fails
to cure such breach within 10 days after receipt of written notice; (ii) the non-terminating party becomes
the subject of a voluntary or involuntary proceeding relating to insolvency, bankruptcy, receivership,
liquidation, or reorganization; or (iii) a court or other government authority having jurisdiction over the
services prohibits the furnishing of services governed by such QTS Agreement.
Ultimate’s use of the data center located near Toronto, Canada is governed by a General Service
Agreement dated September 23, 2009 (the ―Verizon Agreement‖) between Ultimate’s wholly owned
subsidiary Ultimate Canada and Verizon. Pursuant to the terms of the Verizon Agreement, Ultimate
Canada has use of certain physical space within the data center for hosting Ultimate Canada’s hardware
equipment, as well as Internet connectivity services. The Verizon Agreement contains provisions relating
to data security and access to the data center. Upon placing a service order, Ultimate Canada is guaranteed
certain pricing terms and is committed to minimum usage levels for a period of at least 36 months from the
service effective date. The Verizon Agreement will renew on a month-to-month basis unless either party
gives at least sixty days written notice prior to the completion of the applicable term that there will be no
such renewal. The Verizon Agreement provides that its term will end upon the expiration of the term of the
last-executed service order. Ultimate has guaranteed the payment of all amounts due from Ultimate
Canada to Verizon under the Verizon Agreement.
The SaaS Offering is designed to provide an appealing pricing structure to customers who prefer to
minimize the initial cash outlay associated with typical capital expenditures. SaaS customers purchase the
right to use UltiPro on an ongoing basis for a specific term in a shared or dedicated hosted environment and
the arrangement can typically be renewed after its initial term has expired. In the shared environment,
Ultimate provides an infrastructure with servers shared among many customers who use a Web browser to
access the application software through the related data center. In the dedicated environment, the customer
does not share servers with other customers but rather has its own set of servers. The pricing for the SaaS
Offering, including both the hosting element as well as the right to use UltiPro, is on a PEPM basis.
Research and Development Activities
Ultimate incurs research and development expenses, consisting primarily of software development
personnel costs, in the normal course of its business. Such research and development expenses are for
enhancements to our existing products and for the development of new products. During 2011, 2010 and
2009, we spent $51.4 million, $42.2 million and $38.2 million, respectively, on research and development
activities including capitalized software. During 2011 and 2010, there were no research and development
expenses capitalized. During 2009, $0.1 million of research and development expenses were capitalized
for UltiPro Onboarding, which became available for general release to our customers during the spring of
2009. In addition, in 2009, $0.1 million of research and development expenses were capitalized for certain
third-party costs related to UltiPro Time Management.
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Customer Services
We believe that delivering quality customer services provides us with a significant opportunity to
differentiate Ultimate in the marketplace and is critical to the quality of Ultimate’s comprehensive service
solution. Ultimate provides its customers services in two broad categories: (i) professional services and (ii)
customer support services and product maintenance. Additionally, Ultimate provides hosting services as a
part of our SaaS Offering. These services include, but are not limited to, purchasing and supporting
hardware and system software; installing new versions of UltiPro; and backing up customer data.
Professional Services. Ultimate’s professional services include implementation, customer
relationship management and knowledge management (or training) services. Ultimate believes that its
implementation consulting services are differentiated from those of other vendors by speed, predictability
and completeness. Ultimate believes that its successful record with rapid system activation and
implementations is due to its standardized methodology, long-tenured consultants, the large amount of
delivered product functionality, and comprehensive conversion and integration tools.
Ultimate has an experienced team of functional and technical consultants that are dedicated to
assisting customers with rapid deployments. In addition, Ultimate provides its customers with the
opportunity to participate in formal training programs conducted by its knowledge management services
team, as well as online and on-demand training. Training programs are designed to increase customers’
ability to use the full functionality of the product, thereby maximizing the value of customers’ investments.
Courses are designed to align with the stages of implementation and to give attendees hands-on experience
with UltiPro. Trainees learn such basics as how to enter new employee information, set up benefit plans
and generate standard reports, as well as more complex processes such as defining company rules,
configuring the system and creating custom reports. Ultimate maintains training facilities in Atlanta,
Georgia; Schaumburg, Illinois; Dallas, Texas; and at its headquarters in Weston, Florida. In addition to
offering classes at these facilities, we conduct Web-based training and on-site training at remote locations.
After customers have processed their first live payroll using UltiPro (referred to as going ―Live‖) and have
been turned over to our customer support and maintenance program, we assign a customer relationship
manager (―CRM‖) to the account to assist customers obtaining maximum value of the UltiPro solution,
connect with other Ultimate users and advanced business analytics. The CRM team also focuses a large
portion of its time on customer retention, which is an important aspect of Ultimate’s long-term business
model.
Customer Support and Maintenance. Ultimate offers comprehensive and on-going maintenance
services and technical support. These services have historically been purchased by all of our customers,
and Ultimate had a recurring revenue customer retention rate of 96% in 2011. Ultimate’s customer support
center has received the SCP Certification sponsored by the Service Strategies Corporation (―SSC‖) for the
thirteenth consecutive year. This certification recognizes companies that ―deliver exceptional service and
support to their customers.‖ Ultimate’s customer support services include: software updates that reflect tax
and other legislative changes; a named customer service representative; telephone support 24 hours a day, 7
days a week; unlimited access to Ultimate’s employee tax center on the Web; seminars on year-end closing
procedures; and periodic newswire emails. In addition, our customer support services team maintains a
support Web site for our customers where customers can submit inquiries and service requests as well as
search a knowledge base of information for instant answers to questions, holds an annual national user
conference and arranges for Ultimate professionals to attend smaller, user-organized user group meetings
on a routine basis throughout the United States.
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Customers
As of December 31, 2011, Ultimate provided its UltiPro solutions to more than 2,300 customers.
Ultimate’s customers represent a wide variety of industries, including manufacturing, food services, sports,
technology, finance, insurance, retail, real estate, transportation, communications, healthcare and other
services. For each of the three years ended December 31, 2011, no customer accounted for more than 10%
of total revenues.
Sales and Marketing
Ultimate markets and sells its products and services primarily through its direct sales force.
Ultimate’s direct sales force includes business development vice presidents, directors and managers
who have defined territories, typically geographic. The sales cycle begins with a sales lead generated
through a national, corporate marketing campaign or a territory-based activity. In one or more on-site visits,
phone-based sales calls, or Web demonstrations, sales managers work with application and technical sales
consultants to analyze prospective client needs, demonstrate Ultimate’s UltiPro solutions and, when
required, respond to requests for proposals. The sale is finalized after customers complete their internal
sign-off procedures and the terms of the contract are negotiated and signed.
With a sale of the SaaS Offering for both the Enterprise and Workplace markets, the agreement
generally requires PEPM fees based on company size, to cover services which generally include
implementation and training. Typical payment terms include a deposit at the time the contract is signed
and ongoing PEPM payments on specific payment dates designated in the contract, usually tied to the Live
date.
With a perpetual license sale (which we stopped offering to new customers as of April 1, 2009), the
terms of our sales contract typically included a license agreement for the product, an annual maintenance
agreement (which is subject to annual renewal typically after a 12-month period), per-day training rates and
hourly charges for implementation services. Typical payment terms included a deposit at the time the
contract was signed and additional payments on specific payment dates designated in the contract. Payment
for implementation and training services under the contract was typically made as such services were
provided.
Ultimate supports its sales force with a comprehensive marketing program that includes public
relations, advertising, direct mail, trade shows, seminars and workshops, email marketing, and Web
marketing. Working closely with the direct sales force, customers and strategic partners, the marketing
team defines positioning strategies and develops a well-defined plan for implementing these strategies.
Marketing services include market surveys and research, overall campaign management, creative
development, demand generation, results analysis, and communications with field offices, customers and
marketing partners.
Intellectual Property Rights
Ultimate’s success is dependent, in part, on its ability to protect its proprietary technology. We rely
on a combination of copyright, trademark and trade secret laws, as well as confidentiality agreements and
licensing arrangements, to establish and protect our proprietary rights. We do not have any patents or patent
applications pending.
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Competition
The market for our products is highly competitive. Our products compete primarily on the basis of
technology, delivered functionality, price/performance and service.
Ultimate’s competitors in the Enterprise market include (i) large service bureaus, primarily
Automatic Data Processing Inc. (―ADP‖) and, to a lesser extent, Ceridian; and (ii) companies, such as
PeopleSoft/Oracle, Lawson, Kronos, and Workday that offer human resource management and payroll
software products for use on mainframes, client/server environments and/or Web servers. In the
Workplace market, Ultimate’s competitors include payroll service providers, such as ADP, Ceridian and
Paychex, that service companies on the smaller end of the mid-market.
Backlog
Backlog consists of our UltiPro SaaS solutions and sales of SaaS services on a stand-alone basis to
customers who already own a perpetual license (―Base Hosting‖) under signed contracts for which the
services have not yet been delivered. At December 31, 2011, Ultimate had backlog of $148.8 million
compared to $110.5 million as of December 31, 2010. Ultimate expects to fill approximately $136.3
million of the backlog during 2012. Ultimate does not believe that backlog is a meaningful indicator of
sales that can be expected for any future period. There can be no assurance that backlog at any point in
time will translate into revenue in any subsequent period.
Employees
As of December 31, 2011, Ultimate employed 1,328 persons. Ultimate believes that its
relationships with employees are good, and that belief is validated by Ultimate’s ranking of # 25 on
FORTUNE’s 2012 ―Best Companies to Work For‖ list. Ultimate’s history of good employee relationships
is further validated by The Great Place to Work Institute’s ranking of Ultimate as the #1 Best Place to
Work in America among medium-sized companies for both 2009 and 2008 and # 3 in both 2007 and 2006.
However, competition for qualified employees in Ultimate’s industry is generally intense and the
management of Ultimate believes that its future success will depend, in part, on its continued ability to
attract, hire and retain qualified personnel.
Available Information
Ultimate’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, proxy statements and amendments to those reports and any registration statements, including but
not limited to registration statements on Form S-3, are available free of charge on Ultimate’s website at
www.ultimatesoftware.com as soon as reasonably practicable after such reports are electronically filed with
the Securities and Exchange Commission (―SEC‖). Information contained on Ultimate’s website is not part
of this Form 10-K. You may record and copy any materials we file with the SEC at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains
an internet site that contains the reports, proxy and information statements and other information regarding
us that we file with the SEC. You can access the SEC’s website at www.sec.gov.
13
Item 1A. Risk Factors
Ultimate operates in a rapidly changing and dynamic business environment that involves risk and
uncertainty. The following discussion is a description of risks and uncertainties associated with our
business that could cause, or contribute to causing, actual results to differ materially from expectations.
These are not all of the risks we face. We may be adversely affected by risks not currently known or that
we currently consider immaterial.
We may be adversely affected by substantial quarterly fluctuations in our revenues and operating results.
Our quarterly revenues and operating results have varied significantly in the past and are likely to
vary substantially from quarter to quarter in the future. Our quarterly operating results may fluctuate as a
result of a number of factors, including:
•
Increased expenses from one quarter to another (especially as they relate to product development
and sales and marketing);
•
Spending patterns of our customers;
•
•
•
and
Timing of our product releases;
Increased competition;
A drop in the near-term demand for our products, particularly in relation to professional services;
•
Announcements of new products by Ultimate or by our competitors.
We establish our expenditure levels based upon our expectations as to future revenues, which are
comprised primarily of recurring revenues and services revenues. If revenue levels are below
expectations, particularly services revenues which are more subject to variations between periods than
recurring revenues, expenses can be disproportionately high in a particular period. For example, while sales
production could be at our level of expectations, depending on the spending patterns of our customers
including the timing in which they begin the implementation of UltiPro and the extent to which they use
Ultimate’s resources, the immediate reported total revenues could be lower than expected.
Our operating results for previous fiscal quarters are not necessarily indicative of our operating
results for the full fiscal years or for any future periods. We believe that, due to the underlying factors for
quarterly fluctuations, quarter-to-quarter comparisons of our operations are not necessarily meaningful and
that such comparisons should not be relied upon as indications of future performance.
Due to the method of accounting for SaaS sales, a change in the period of the time from contract date to
the Live date (“Time to Live”) could negatively impact the amount of recurring revenues recognized in a
reporting period.
Sales production, as it pertains to sales of SaaS units, is not reflected in recurring revenues and
related variable costs in our consolidated statements of operations until the related customer goes Live. In
our internal business model, we make certain assumptions, among other things, with respect to future sales
production, revenue growth, variable costs, personnel costs and other operating expenses.
14
Our expectations for recurring revenue growth are typically established based on combinations of
actual sales production (for those units that have been previously sold but have not yet gone Live) and
expected future sales production, together with expectations as to the Time to Live periods. Estimates for
Time to Live periods are usually based on (i) specific estimates (for certain backlog sales) provided by our
field personnel, which estimates include factors and assumptions that are not within the control of our field
personnel; and (ii) estimates for Time to Live periods for other SaaS sales (including backlog sales without
specific estimates at that point in time), as well as expected sales, which are typically based on assumptions
derived from our historical Time to Live periods. These estimates are adjusted periodically, and
prospectively, based on management’s assessment of Time to Live for backlog sales at that point in time.
Factors that could impact the estimates for Time to Live periods include, but are not limited to, customer
size (as larger customers may have longer implementations, tend to go Live on more UltiPro features and
have more interface and integration requirements), and the number of complementary products sold in
addition to UltiPro to a single customer, which in some cases involve customers’ desire to go Live on all
products at once, as compared to UltiPro first followed by complementary products.
To the extent there are changes in the underlying assumptions which drive Ultimate’s expected
revenue growth from SaaS sales, which include, but are not limited to, actual sales production achieved and
changes in Time to Live periods, our recurring revenues, as reported in our consolidated statements of
operations, could differ materially from levels we expected to achieve.
Our stock price has experienced high volatility, may continue to be volatile and may decline.
The trading price of our Common Stock has fluctuated widely in the past and may do so in the
future, as a result of a number of factors, many of which are outside our control, such as:
The volatility inherent in stock prices within the sector in which we conduct business;
The volume of trading in our Common Stock, including sales upon exercise of outstanding
stock options and upon the vesting of restricted stock and restricted stock units;
Failure to achieve earnings expectations;
Changes in our earnings estimates by analysts;
Variations in our actual and anticipated operating results, including, but not limited to,
prospective financial guidance provided by Ultimate to our investors and research analysts;
and
The announcement of a merger or acquisition.
Stock markets have experienced extreme price and volume fluctuations that have affected the
market prices of many technology and computer software companies, particularly Internet-related
companies. Such fluctuations have often been unrelated or disproportionate to the operating performance of
these companies. These broad market fluctuations could adversely affect the market price of our Common
Stock.
Further, securities class action litigation has often been brought against companies that experience
periods of volatility in the market prices of their securities. Securities class action litigation could result in
substantial costs and a diversion of our management’s attention and resources.
We have incurred operating losses in the past and may incur operating losses in the future.
We have incurred operating losses in the past and we may incur operating losses in the future. As
of December 31, 2011, our accumulated deficit was approximately $48.0 million. If our future total
revenues do not grow at a higher rate than that of our total expenses, our future operating results could be
negatively impacted. Recent revenue growth should not be considered as indicative of our future
15
performance, particularly with respect to the recent economic environment and the potential impact on our
revenue streams, as our subscription revenues from our SaaS Offering are largely impacted by the
employee growth or contraction of our existing customer base and customer spending patterns have a
significant impact on our services revenues with respect to both the timing and extent of our services they
purchase.
Adverse changes in general economic or political conditions could adversely affect our operating results.
As our business has grown, we have become increasingly subject to the risks arising from adverse
changes in domestic and global economic and political conditions. The state of the economy and the rate of
employment, which deteriorated in the recent broad recession, may deteriorate more in the future. If
weakness in the economies of the U.S. and other countries persists, many customers may delay or reduce
technology purchases. This could result in reductions in sales of our products, longer sales cycles, slower
adoption of new technologies, increased price competition, customers purchasing fewer services or
Optional Features than they have in the past, customers requesting longer payment terms, customers failing
to pay amounts due and slower collections of accounts receivable. In addition, increased unemployment
could result in significant decreases in our recurring revenues from our existing customer base as we price
our ongoing recurring revenues on a PEPM basis. Any of these events would likely harm our business,
results of operations, financial condition and cash flows from operations.
Our failure to maintain and increase acceptance of UltiPro, which accounts for substantially all of our
revenues, could cause a significant decline in our revenues.
Currently, the UltiPro solutions, including the UltiPro core product and Optional Features and
related services, account for substantially all of our revenues. Our future success depends on maintaining
and increasing acceptance of UltiPro, particularly the SaaS Offering and related services. Any decrease in
the demand for UltiPro would have a material adverse effect on our business, operating results and
financial condition.
A systems failure or other service interruption at either of the data centers owned and managed by QTS
or at the data center owned and managed by Verizon and used for our hosting services could result in
substantial expense to us, loss of customers and claims by our customers for damages caused by any
losses they incur.
We offer hosting services, which include hardware, infrastructure, ongoing maintenance and back-
up services, to our customers in the United States at two data centers owned and operated by QTS—one
near Atlanta, Georgia and another one near Miami, Florida. We also offer hosting services, which include
hardware, infrastructure, ongoing maintenance and back-up services, to our customers with employees
exclusively in Canada at a data center owned and operated by Verizon near Toronto, Canada.
These hosting services, which are provided as part of our SaaS Offering, must be able to be reliably
operated on a 24 hours per day, seven days per week basis without interruption or data loss. The success of
the SaaS Offering depends on our ability to protect the infrastructure, equipment and customer data files
against damage from:
Human error;
Natural disasters;
Power loss or telecommunication failures;
16
Sabotage or other intentional acts of vandalism; and
Unforeseen interruption or damages experienced in moving hardware to a new location.
We perform a daily backup of our customer data which is stored offsite of the data centers. In
addition, QTS has implemented various activities comprising QualityTech’s Business Continuity Planning
& Disaster Recovery Program which includes risk assessment and business impact analysis, redundancy
and crisis and emergency response procedures. Verizon also has a Business Continuity Program which
handles business continuity planning, incident management and site emergency action planning. However,
the occurrence of one of the above listed events or other unanticipated problems at any of the data centers
could:
Result in interruptions in the services we provide to our customers, during which time our
customers may be unable to retrieve their data;
Require us to spend substantial amounts of money replacing existing equipment and/or
purchasing services from an alternative data center;
Cause existing customers to cancel their contracts;
Cause our customers to seek damages for losses incurred; or
Make it more difficult for us to attract new customers.
If our direct sales force is not successful, we may be unable to achieve significant revenue growth in the
future.
We sell our products and services primarily through a direct sales force. Our ability to achieve
significant revenue growth in the future will depend upon the success of our direct sales force and our
ability to adapt our sales efforts to address the evolving markets for our products. If our direct sales force
does not perform as expected, our revenues could suffer.
Rapid technological changes and the introduction of new products and enhancements by new or existing
competitors could undermine our current market position.
The market for our products is characterized by rapid technological advancements, changes in
customer requirements, frequent new product introductions and enhancements and changing industry
standards. The life cycles of our products are difficult to estimate. Rapid technological changes and the
introduction of new products and enhancements by new or existing competitors could undermine our
current market position. Our growth and future success will depend, in part, upon our ability to:
Enhance our current products and introduce new products in order to keep pace with products
offered by our competitors;
Adapt to technological advancements and changing industry standards; and
Expand the functionality of our products to address the increasingly sophisticated requirements
of our customers.
17
We may not have sufficient resources to make the necessary investments and we may experience
difficulties that could delay or prevent the successful development, introduction or marketing of new
products or enhancements. In addition, our products or enhancements may not meet the increasingly
sophisticated customer requirements of the marketplace or achieve market acceptance at the rate we expect,
or at all. Any failure by us to anticipate or respond adequately to technological advancements, customer
requirements and changing industry standards, or any significant delays in the development, introduction or
availability of new products or enhancements, could undermine our current market position.
Our current and future competitors include companies with greater financial, technical and marketing
resources than we have and if we are unable to compete successfully with other businesses in our
industry or with in-house systems developed by potential customers, our profitability will be adversely
affected.
Our future success will depend significantly upon our ability to increase our share of our target
market, to maintain and increase our recurring revenues from new and existing customers and to sell
additional products, product enhancements, maintenance and support services and training and consulting
services to existing and new customers. The HCM market is intensely competitive. Our competitors
include:
Large service bureaus, primarily ADP and, to a lesser extent, Ceridian;
A number of companies, such as PeopleSoft/Oracle, Lawson, Kronos, and Workday that offer
HCM software products for use on mainframes, client/server environments and/or Web servers;
and, in the UltiPro Workplace market, payroll service providers such as ADP, Ceridian and
Paychex that service companies on the smaller end of the mid-market; and
The internal HR/payroll departments of potential customers which use custom-written software.
Our competitors may develop products that are superior to our products or achieve greater market
acceptance. Many of our competitors or potential competitors have significantly greater financial, technical
and marketing resources than we do. As a result, they may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products than we can. We believe that existing competitors and
new market entrants will attempt to develop in-house systems that will compete with our products. We may
be unable to compete successfully against current or future competitors. In addition, current and potential
competitors have established or may establish cooperative relationships among themselves or with third
parties to increase the ability of their products to address the needs of our prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share.
The loss of the services of one or more of our key employees could negatively affect our ability to
implement our business strategy.
Our success depends to a significant extent upon a limited number of members of senior executive
management and other key employees, including Scott Scherr, our Chairman of the Board of Directors,
President and Chief Executive Officer. We do not have employment contracts with any of our key
personnel. The loss of the services of one or more of our key employees could have a material adverse
effect upon us. In addition, uncertainty created by turnover of our key employees could cause further
turnover of our employees.
18
If we are not able to successfully recruit personnel, our revenues could be negatively affected.
Our ability to achieve significant revenue growth in the future will also depend on our success in
recruiting, training and retaining sufficient sales, marketing, professional services, product development
and other personnel.
The potential growth of our business and expansion of our customer base may place a significant strain
on our management and operations and we may be unable to manage that growth and expansion
successfully.
We expect to increase research and development, professional services, sales and marketing and
administrative operations as and when appropriate to accommodate our growth plans. Accordingly, our
future operating results will depend on the ability of our management and other key employees to continue
to implement and improve our systems for operations, financial control and information management and
to recruit, train, manage and retain our employee base. We cannot be certain that we will be able to manage
any future growth successfully.
Our business relies heavily on the products of Microsoft, which may not always be compatible with our
products, and we may be required to spend significant capital if businesses adopt alternative
technologies that are incompatible with our products.
Our software products are designed primarily to operate with Microsoft technologies and our
strategy requires that our products and technology be compatible with new developments in Microsoft
technology. Although we believe that Microsoft technologies are currently widely utilized by businesses of
all sizes, we cannot be certain that businesses will continue to adopt such technologies as anticipated, will
migrate from older Microsoft technologies to newer Microsoft technologies or will not adopt alternative
technologies that are incompatible with our products. As a result, we may be required to develop new
products or improve our existing products to be compatible with different technologies that may be used by
our customers. We cannot be certain we will be able to adapt our product to any technologies other than
Microsoft’s.
If our third-party software is not adequately maintained or updated, our sales could be materially
adversely affected.
Our products utilize certain software of third-party software developers from whom we have either
purchased a license or the underlying source code of such software. Although we believe that there are
alternatives for these products, any significant interruption in the availability of such third-party software
could have a material adverse impact on our sales unless and until we can replace the functionality
provided by these products. Additionally, we are, to a certain extent, dependent upon such third parties’
abilities to enhance their current products, to develop new products on a timely and cost-effective basis and
to respond to emerging industry standards and other technological changes. We may be unable to replace
the functionality provided by the third-party software currently offered in conjunction with our products in
the event that such software becomes obsolete or incompatible with future versions of our products or is
otherwise not adequately maintained or updated.
If we are unable to release annual or periodic updates on a timely basis to reflect changes in tax laws
and regulations or other regulatory provisions applicable to our products, the market acceptance of our
products may be adversely affected and our revenues could decline.
19
Our products are affected by changes in tax laws and regulations and generally must be updated
annually or periodically to maintain their accuracy and competitiveness. We cannot be certain that we will
be able to release these annual or periodic updates on a timely basis in the future. Failure to do so could
have a material adverse effect on market acceptance of our products. In addition, significant changes in tax
laws and regulations or other regulatory provisions applicable to our products could require us to make a
significant investment in product modifications, which could result in significant unexpected costs to us.
If we are unable to protect our proprietary rights against unauthorized third-party copying or use, our
revenues or our methods of doing business could be negatively impacted.
Our success is dependent, in part, on our ability to protect our proprietary rights. We rely on a
combination of copyright, trademark and trade secret laws, as well as confidentiality agreements and
licensing arrangements, to establish and protect our proprietary rights. We do not have any patents or patent
applications pending, and existing copyright, trademark and trade secret laws afford only limited
protection. As a result, we cannot be certain that we will be able to protect our proprietary rights against
unauthorized third-party copying or use. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or reverse engineer aspects of our products or to obtain and use information
that we regard as proprietary. In addition, others may develop products that perform comparably to our
proprietary products. Policing the unauthorized use of our products is difficult.
Litigation may be necessary in the future to enforce our intellectual property rights, to protect our
trademarks, copyrights or trade secrets or to determine the validity and scope of the proprietary rights of
others; such litigation may be expensive and divert the attention of management.
Litigation may be necessary in the future to enforce our intellectual property rights, to protect our
trademarks, copyrights or trade secrets or to determine the validity and scope of the proprietary rights of
others. Any litigation could result in substantial costs and diversion of resources and management attention.
As is common in the software industry, from time to time we may become aware of third-party
claims of infringement by our operations or products of third-party proprietary rights. While we are not
currently aware of any such material claim, our software products may increasingly be subject to such
claims as the number of products and competitors in our industry grows, as the functionality of products
overlaps and as the issuance of software patents becomes increasingly common. Any such claims, with or
without merit, can be time consuming and expensive to defend, cause product shipment delays or require us
to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to us, or at all.
Defects and errors in our software could affect market acceptance of our products.
Software products such as those offered by us may contain undetected errors or failures when first
introduced or as new versions are released. Testing of our products is particularly challenging because it is
difficult to simulate the wide variety of computing environments in which our customers may use these
products. Despite extensive testing, from time to time we have discovered defects or errors in our products.
Defects and errors may:
Cause delays in product introductions and shipments;
Result in increased costs and diversion of development resources;
Require design modifications; or
20
Decrease market acceptance of, or customer satisfaction with, our products.
Despite testing by us and by current and potential customers, errors may be found after
commencement of commercial shipments, which may result in loss of or delay in market acceptance which
could have a material adverse impact upon our business, operating results and financial condition.
Our software products may be vulnerable to break-ins and similar disruptive problems; addressing these
issues may be expensive and require a significant amount of our resources.
We have included security features in our products that are intended to protect the privacy and
integrity of customer data. Despite the existence of these security features, our software products may be
vulnerable to break-ins and similar disruptive problems. Addressing these evolving security issues may be
expensive and require a significant amount of our resources.
The sale and support of software products and the performance of related services by us entail the risk of
product or service liability claims, which could significantly affect our financial results.
Customers use our products in connection with the preparation and filing of tax returns and other
regulatory reports. If any of our products contain errors that produce inaccurate results upon which users
rely, or cause users to misfile or fail to file required information, we could be subject to liability claims
from users. Our SaaS and maintenance renewal agreements with our customers typically contain provisions
intended to limit our exposure to such claims, but such provisions may not be effective in limiting our
exposure. Contractual limitations we use may not be enforceable and may not provide us with adequate
protection against product liability claims in certain jurisdictions. A successful claim for product or service
liability brought against us could result in substantial cost to us and divert management’s attention from our
operations.
Anti-takeover provisions in our certificate of incorporation and by-laws and under our Amended and
Restated Rights Agreement and Delaware law and our Change in Control Bonus Plans could
substantially increase the cost to acquire us or prevent or delay a change in control and, as a result,
negatively impact our stockholders and the price of our Common Stock.
We have taken a number of actions that could have the effect of discouraging a takeover attempt.
For example, we have adopted an Amended and Restated Rights Agreement that would cause substantial
dilution to a stockholder, and substantially increase the cost paid by a stockholder, who attempts to acquire
us on terms not approved by our Board of Directors. This could prevent us from being acquired. Our Board
of Directors is divided into three classes, each of whose members serve for a staggered three-year term.
This may prevent a stockholder from gaining control of our Board of Directors quickly.
In addition, our certificate of incorporation grants our Board of Directors the authority to fix the
rights, preferences and privileges of and issue up to 2,500,000 shares of preferred stock without stockholder
approval. Although we have no present intention to issue shares of preferred stock, such an issuance could
have the effect of making it more difficult and less attractive for a third-party to acquire a majority of our
outstanding voting stock. Preferred stock may also have other rights, including economic rights senior to
our Common Stock, which could have a material adverse effect on our stock price.
We are also subject to the anti-takeover provisions of Section 203 of Delaware General
Corporation Law. This section provides that a corporation may not engage in any business combination
with any interested stockholder (as defined in that section) during the three-year period following the time
21
that a stockholder became an interested stockholder. This provision could have the effect of delaying or
preventing a change in control of our company.
We have adopted two Amended and Restated Change in Control Bonus Plans. One plan provides
for the payment of cash amounts to our three named executive officers, Scott Scherr, Marc D. Scherr and
Mitchell K. Dauerman, upon a ―change in control‖ of Ultimate. The other plan provides for the payment of
cash amounts in the event of a ―change in control‖ to our employees, other than named executive officers,
designated by the Compensation Committee of our Board of Directors. A ―change in control‖ would occur
if more than 50% of our Common Stock were acquired by a person or entity other than Ultimate or a
subsidiary or employee benefit plan of ours. There are other conditions that could result in a change in
control event such as a sale or transfer of all or substantially all of our assets or business. The aggregate
amount of payment that may be made to all participants under the two Amended and Restated Change in
Control Bonus Plans may be as much as 6% of the gross consideration received by us or our stockholders
in a change in control transaction. The Change in Control Bonus Plans could substantially increase the cost
to acquire us.
The growth of the international operations of our business subjects us to additional risks associated with
foreign operations.
International operations are subject to risks associated with operating outside of the United States.
During the fourth fiscal quarter of 2006, we began operating in Canada (through the formation of a wholly-
owned Canadian subsidiary). During 2011, we continued to grow our operations in Canada. The financial
impact of our international operations to our overall business has been insignificant to date. However, over
time, our international operations may grow and increase their significance to our business. Sales to
international customers subject us to a number of risks, including foreign currency fluctuations, unexpected
changes in regulatory requirements for software, international economic and political instability,
compliance with multiple, conflicting, and changing governmental laws and regulations, difficulty in
staffing and managing foreign operations, international tax laws, potentially weaker protection for our
intellectual property than in the United States, and difficulties in enforcing such rights abroad. If sales to
any of our customers outside of the United States are delayed or cancelled because of any of the above
factors, our revenue may be negatively impacted.
Our international operations also increase our exposure to international laws and regulations. If we
are unable to comply with foreign laws and regulations, which are often complex and subject to variation
and unexpected changes, we could incur unexpected costs and potential litigation.
If our goodwill or amortizable intangible assets become impaired we may be required to record a
significant charge to earnings.
Under U.S. generally accepted accounting principles, we review our amortizable intangible assets
for impairment when events or changes in circumstances indicate the carrying value may not be
recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be
considered in circumstances indicating that the carrying value of our goodwill or amortizable intangible
assets may not be recoverable include a reduction in our market capitalization (as a result of a decline in
our stock price) to a level below our consolidated stockholders’ equity as of the applicable balance sheet
date, declining future cash flows, and slower growth rates in our industry. We may be required to record a
significant charge to earnings in our consolidated financial statements during the period in which any
impairment of our goodwill or amortizable intangible assets is determined, resulting in a negative impact
on our results of operations.
22
Changes in, or interpretations of, accounting principles could result in unfavorable accounting changes.
We prepare our consolidated financial statements in conformity with U.S. generally accepted
accounting principles and accompanying accounting pronouncements, implementation guidelines, and
interpretations. Changes in these rules or their interpretation could significantly change our reported results
and may even retroactively affect previously reported transactions. Our accounting principles that recently
have been or may be affected by changes in accounting principles include, but are not limited to: software
revenue recognition; accounting for income taxes; and accounting for business combinations and related
goodwill.
Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax rates.
Unanticipated changes in our tax rates could affect our future results of operations. Our future
effective tax rates could be unfavorably affected by changes in tax laws or the interpretation of tax laws, or
by changes in the valuation of our deferred tax assets and liabilities. In addition, we are subject to the
examination of our income tax returns by the Internal Revenue Service and other domestic and foreign tax
authorities. We regularly assess the likelihood of outcomes resulting from these examinations to determine
the adequacy of our provision for income taxes. There can be no assurance that these potential
examinations will not have an adverse effect on our operating results and financial position.
Privacy concerns could result in regulatory changes that may harm our business.
Personal privacy is a significant issue in the United States and in many other countries where our
customers operate. The United States and many other countries have imposed restrictions and requirements
on the use of personal information by those collecting such information. Changes to law or regulations
affecting privacy, if applicable to our business or product, could impose additional costs and potential
liability on us and could limit our use and disclosure of such information. If we were required to change
our business activities or revise or eliminate services, our business could be harmed.
Item 1B. Unresolved Staff Comments
None.
23
Item 2. Properties
As of December 31, 2011, Ultimate’s corporate headquarters, and its principal administrative,
technology, customer support, finance, marketing and information technology operations were located in
Weston, Florida. Ultimate’s principal facilities are described below:
Location
Weston, FL – HQ
Weston, FL – HQ
Size
(sq. ft.)
39,872
21,392
Lease
Termination
1/31/2017
1/31/2018
Weston, FL – HQ
5,000
Owned
Weston, FL – HQ
30,000
5/31/2015
Weston, FL – HQ (1)
19,950
3/31/2018
Weston, FL – HQ (2)
Atlanta, GA (3)
8,000
49,172
2/29/2016
5/31/2019
Santa Ana, CA (4)
13,000
8/31/2016
Schaumburg, IL (5)
Toronto, Ontario (6)
7,861
2,115
6/30/2014
12/31/2015
_____________________
General Use
Technology
Executive Management and Customer
Support
Information Technology and Hosting
Services
Sales Administration, Marketing,
Professional Services and Finance
Corporate Support and Information
Technology
Technology
Professional Services, Customer Support
and Payment Services
Payment Services and Professional
Services
Administration and Training
Professional Services and Customer
Support
(1) In November 2010, Ultimate entered into an 84-month lease agreement for a fifth headquarters
building located in Weston, Florida within a short distance of the other headquarters locations.
Ultimate moved a portion of its operations into this building in January 2011.
(2) In November 2010, Ultimate entered into a 60-month lease agreement for a sixth headquarters
building located in Weston, Florida within a short distance of the other headquarters locations.
Ultimate moved a portion of its operations into this building in January 2011.
(3) During the first fiscal quarter of 2011, Ultimate entered into a 100-month lease agreement for office
space in a building in Atlanta, Georgia. This lease was entered into after the early termination of a
previous lease in the area to accommodate continued growth. This lease covers approximately
twice the square footage of the previous lease.
(4) During the first fiscal quarter of 2011, Ultimate entered into a 60-month lease agreement for office
space in a building in Santa Ana, California. Ultimate moved its payment services operations into
this building in August 2011.
(5) During the fourth quarter of 2008, Ultimate entered into a 65-month lease agreement for office
space in Schaumburg, Illinois to accommodate general office space and training facilities.
(6) During the third fiscal quarter of 2009, Ultimate entered into a 64-month lease agreement for new
office space in Toronto, Ontario with RT Twenty-Sixth Pension Properties Limited to accommodate
continued growth in Canada.
Currently, we also lease office space for our sales operations in Albany, New York; Atlanta,
Georgia; Dallas, Texas; Detroit, Michigan; Nashville, Tennessee; Lee’s Summit, Missouri; Troy,
Michigan; Ann Arbor, Michigan; Overland Park, Kansas; Jacksonville, Florida; Omaha, Nebraska;
24
Roseville, California; Ashburn, Virginia; and Cincinnati, Ohio. Sales operations in other locations are not
supported by leased office space. We believe that our existing facilities are suitable and adequate for our
current operations for the next 12 months. We further believe that suitable space will be available as needed
to accommodate any expansion of our operations on commercially reasonable terms.
Item 3. Legal Proceedings
From time to time, we are involved in litigation relating to claims arising out of our operations in
the normal course of business. We are not currently a party to any legal proceedings the adverse outcome of
which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on
our operating results or financial condition.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Market Information. The following table sets forth, for the periods indicated, the high and low sales prices
of Ultimate’s Common Stock, as quoted on the NASDAQ Global Select Market (―NASDAQ‖) under the
symbol ―ULTI‖.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2011
High
$60.43
59.86
58.89
71.97
Low
$47.20
48.87
43.28
44.96
2010
High
$34.94
37.25
39.23
50.28
Low
$26.81
30.90
31.38
37.50
As of February 17, 2012, we had approximately 106 holders of record, representing approximately
3,217 stockholder accounts.
We have never declared or paid any cash dividends on our capital stock and do not anticipate
paying any cash dividends in the foreseeable future. We currently intend to retain future earnings to fund
the development and growth of our business. The payment of dividends in the future, if any, will be at the
discretion of our Board of Directors.
Performance Graph. The following graph compares the cumulative total stockholder returns on Ultimate’s
Common Stock for the five year period covering December 31, 2006-December 31, 2011, on an annual
basis, with the cumulative total return of The Nasdaq Composite Index and the RDG Software Composite
Index for the same period.
25
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among The Ultimate Software Group, Inc., the NASDAQ Composite Index,
and the RDG Software Composite Index
$300
$250
$200
$150
$100
$50
$0
12/06
12/07
12/08
12/09
12/10
12/11
The Ultimate Software Group, Inc.
NASDAQ Composite
RDG Software Composite
*$100 invested on 12/31/06 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
26
Purchases of Equity Securities by the Issuer. On October 30, 2000, Ultimate announced that our Board of
Directors authorized the repurchase of up to 1,000,000 shares of our outstanding Common Stock (the
―Stock Repurchase Plan‖).
On February 6, 2007, Ultimate’s Board of Directors extended the Stock Repurchase Plan by
authorizing the repurchase of up to 1,000,000 additional shares of our issued and outstanding Common
Stock.
On February 5, 2008, Ultimate’s Board of Directors extended the Stock Repurchase Plan further by
authorizing the repurchase of up to 1,000,000 additional shares of our Common Stock.
On October 26, 2009, Ultimate’s Board of Directors extended the Stock Repurchase Plan further
by authorizing the repurchase of up to 1,000,000 additional shares of our Common Stock.
On October 24, 2011, Ultimate’s Board of Directors extended the Stock Repurchase Plan further
by authorizing the repurchase of up to 1,000,000 additional shares of our Common Stock.
As of December 31, 2011, Ultimate had purchased 3,941,813 shares of our Common Stock under
the Stock Repurchase Plan, with 1,058,187 shares available for repurchase in the future. No shares of
Common Stock were repurchased by us during the three months ended December 31, 2011 as indicated
below:
Total Number of
Shares
Purchased
Average Price
Paid Per
Share
Total Cumulative Number of
Shares Purchased as Part of
Publicly Announced Plans or
Programs
Maximum Number of Shares
That May Yet Be Purchased
Under the Plans or Programs
–
–
–
–
–
–
–
–
3,941,813
3,941,813
3,941,813
3,941,813
1,058,187
1,058,187
1,058,187
1,058,187
Period
October 1-31,
2011
November 1-
30, 2011
December 1-
31, 2011
Total
27
Item 6. Selected Financial Data
The following selected consolidated financial data is qualified by reference to and should be read in
conjunction with ―Management’s Discussion and Analysis of Financial Condition and Results of
Operations‖ and Ultimate’s Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-K. The statements of operations data presented below for each of the years in the three-year
period ended December 31, 2011 and the balance sheet data as of December 31, 2011 and 2010 have been
derived from our Consolidated Financial Statements included elsewhere in this Form 10-K.
2011
Years Ended December 31,
2009
2010
2008
2007
Statements of Operations Data:
Revenues:
Recurring
Services
License
Total revenues
Cost of revenues:
Recurring
Services
License
Total cost of revenues
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Operating income (loss)
Other (expense) income:
Interest expense and other
Other income, net
Total other (expense) income, net
Income (loss) from continuing operations before income taxes
(Provision) benefit for income taxes
Income (loss) from continuing operations
Loss from discontinued operations, net of income taxes
Net income (loss)
Basic earnings (loss) per share: (1)
Earnings (loss) from continuing operations
Loss from discontinued operations
Total
Diluted earnings (loss) per share: (1)
Earnings (loss) from continuing operations
Loss from discontinued operations
Total
Weighted average shares outstanding: (1)
Basic
Diluted
Balance Sheet Data:
Cash and cash equivalents
Investments in marketable securities
Total assets
Deferred revenue
Long-term borrowings, including capital lease obligations
Stockholders’ equity
$
$
213,785
53,195
2,218
269,198
170,905
55,368
1,538
227,811
$
$
133,159
58,996
4,125
196,280
106,198
60,535
11,264
177,997
$
86,191
49,492
14,372
150,055
63,505
52,341
488
116,334
152,864
63,145
51,356
21,931
136,432
16,432
(401)
91
(310)
16,122
(11,840)
4,282
–
4,282
0.17
–
0.17
0.15
–
0.15
25,814
27,806
2011
46,149
9,130
318,820
86,563
2,175
85,624
$
$
$
$
$
$
$
$
$
$
$
$
$
$
49,144
49,843
255
99,242
128,569
58,374
42,222
19,727
120,323
8,246
(263)
188
(75)
8,171
(5,161)
3,010
(853)
2,157
0.12
(0.03)
0.09
0.11
(0.03)
0.08
$
$
$
$
$
38,765
48,304
750
87,819
108,461
52,810
38,005
17,803
108,618
(157)
(90)
162
72
(85)
(721)
(806)
(336)
(1,142)
(0.04)
(0.01)
(0.05)
(0.04)
(0.01)
(0.05)
$
$
$
$
$
29,605
50,058
1,795
81,458
96,539
47,193
36,025
17,516
100,734
(4,195)
(243)
857
614
(3,581)
1,016
(2,565)
(332)
(2,897)
(0.10)
(0.02)
(0.12)
(0.10)
(0.02)
(0.12)
24,960
27,101
24,463
24,463
24,588
24,588
2010
40,889
9,317
249,557
78,095
2,406
72,985
$
$
As of December 31,
2009
23,684
9,523
171,130
68,559
1,710
57,770
$
$
2008
17,200
5,805
147,257
63,494
1,519
51,072
22,525
39,995
1,659
64,179
85,876
36,109
27,536
14,182
77,827
8,049
(170)
5,988
5,818
13,867
19,596
33,463
(334)
33,129
1.35
(0.01)
1.34
1.25
(0.01)
1.24
24,701
26,722
2007
17,462
18,418
135,156
51,708
2,311
60,978
$
$
$
$
$
$
$
(1)
See Note 11 of the Notes to the Consolidated Financial Statements for information regarding the computation of net earnings (loss) per share.
28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations
provides information we believe is relevant to an assessment and understanding of our results of operations
and financial condition. This discussion should be read in conjunction with our Consolidated Financial
Statements and Notes that are included in this Form 10-K. Also, the discussion of Critical Accounting
Estimates in this section is an integral part of the analysis of our results of operations and financial
condition.
Overview
Ultimate is a leading provider of unified human capital management (―HCM‖) software-as-a-
service (―SaaS‖) solutions for global businesses.
Ultimate’s UltiPro software (―UltiPro‖) is a comprehensive SaaS-or cloud-based solution delivered
primarily to organizations based in the United States and Canada and designed to deliver the functionality
businesses need to manage the complete employment life cycle from recruitment to retirement. The
solution includes feature sets for talent acquisition and onboarding, human resources (―HR‖) management
and compliance, benefits management and online enrollment, payroll, performance management, salary
planning and budgeting for compensation management, succession management, reporting and analytical
decision-making tools, and time and attendance. UltiPro has role-based self-service capabilities for
executives, managers, administrators, and employees whether they are in or out of the office, including an
UltiPro application for use on mobile devices such as the iPhone and iPad.
Our SaaS offering of UltiPro (the ―SaaS Offering‖) provides Web-based access to comprehensive
HCM functionality for organizations that want to simplify delivery and support of their business
applications. We have found that our SaaS Offering is attractive to companies that want to focus on their
core competencies to increase sales and profits. Through the SaaS Offering, we supply and manage the
hardware, infrastructure, ongoing maintenance and backup services for our customers. Customer systems
are managed at three data centers, one located in the Miami, Florida area, one in the Atlanta, Georgia area,
and another in Toronto, Canada. All data centers are owned and operated by independent third parties.
UltiPro is marketed as two solution suites, based on company size. UltiPro Enterprise
(―Enterprise‖) is designed to address the needs of companies with 1,000 or more employees. UltiPro
Workplace (―Workplace‖) is designed for companies with fewer than 1,000 employees. Both solution
suites are delivered exclusively through SaaS. UltiPro Workplace provides medium-sized and smaller
companies with nearly all the features that larger Enterprise companies have with UltiPro, plus a bundled
services package. Since many companies in this market do not have information technology staff on their
premises to help with system issues, UltiPro Workplace is designed to give these customers a high degree
of convenience by handling system setup, business rules, and other situations for customers ―behind the
scenes.‖ UltiPro is marketed primarily through Ultimate’s Enterprise and Workplace direct sales teams.
In addition to UltiPro’s core HCM functionality, our customers have the option to purchase a
number of additional features on a per-employee-per-month (―PEPM‖) basis, which are available to
enhance the functionality of UltiPro’s core features and which are based on the particular business needs of
the customers. These optional UltiPro features currently include (i) the talent management suite of
products (recruitment, onboarding, performance management, succession management, salary planning and
budgeting for compensation management, and employee relations tools for managing disciplinary actions,
grievances, and succession management); (ii) benefits enrollment; (iii) time, attendance and scheduling;
(iv) time management; (v) payment services (formerly referred to as ―tax filing‖); (vi) wage attachments;
and (vii) other optional features (collectively, ―Optional Features‖). All Optional Features are individually
29
priced solely on a subscription basis. Some of the Optional Features are available to both Enterprise and
Workplace customers while others are available exclusively to either Enterprise or Workplace customers,
and availability is based on the needs of the respective customer types, the number of their employees and
the complexity of their HCM environment.
During the second half of 2010, we introduced our Partners for Life program to our customers. Our
Partners for Life program is designed to make it easier for customers to leverage the full scope of UltiPro’s
features and reach more users in our customers’ organizations. As part of the Partners for Life program, we
changed the pricing method for our services from a time and materials offering to a fixed fee offering, with
the expected objective of lowering the total cost of services charged to each customer. The incremental
benefit for the Partners for Life program is that we enhance the quality of our customer relationships and
encourage increased customer loyalty, as well as a readiness for the customer to be a reference for us. For
more information about the Partners for Life program, see the discussion of services revenues under
―Results of Operations – Revenues‖ below.
The key drivers of our business are (i) growth in recurring revenues; (ii) retention of our customers
once our solutions are sold (―Customer Retention‖) and (iii) management’s control of operating expense
growth. For the year ended December 31, 2011, our (i) recurring revenues grew by 25%, compared with
2010, (ii) Customer Retention exceeded 96%, on a trailing twelve-month basis, and (iii) operating expenses
grew by 13% compared with 2010.
Our ability to achieve significant revenue growth in the future will depend upon the success of our
direct sales force and our ability to adapt our sales efforts to address the evolving markets for our products
and services. We provide our sales personnel with comprehensive and continuing training with respect to
technology and market place developments. Aside from sales commissions, we also provide various
incentives to encourage our sales representatives, including stock-based compensation awards based upon
performance.
The HCM market is intensely competitive. We address competitive pressures through
improvements and enhancements to our products and services, the development of additional features of
UltiPro and a comprehensive marketing team and process that distinguishes Ultimate and its products from
the competition. Our focus on customer service, which enables us to maintain a high Customer Retention
rate, also helps us address competitive pressures.
As our business has grown, we have become increasingly subject to the risks arising from adverse
changes in domestic and global economic conditions. If general economic conditions were to deteriorate
further, we may experience delays in our sales cycles, increased pressure from prospective customers to
offer discounts and increased pressure from existing customers to renew expiring recurring revenue
agreements for lower amounts. We address continuing economic pressures by, among other things, efforts
to control growth of our operating expenses through the monitoring of controllable costs and vendor
negotiations.
Ultimate has two primary revenue sources: recurring revenues and services revenues.
Subscription revenues from our SaaS Offering and customer support and maintenance revenues are the
primary components of recurring revenues. The majority of services revenues are derived from
implementation services.
We discontinued selling our on-site UltiPro solutions to new customers on a perpetual license basis
as of April 1, 2009. We sell licenses to existing license customers but only in relation to the customer’s
employee growth or for Optional Features if the customer already has a perpetual license for the on-site
UltiPro solutions. As perpetual license agreements were sold, annual maintenance contracts (priced as a
30
percentage of the related license fee) accompanied those agreements. Maintenance contracts typically have
a one-year term with annual renewal periods thereafter.
As SaaS units are sold, the recurring revenue backlog associated with the SaaS Offering grows,
enhancing the predictability of future revenue streams. SaaS revenues include ongoing monthly
subscription fees, priced on a PEPM basis. Revenue recognition for the SaaS Offering is triggered when
the customer processes its first payroll using UltiPro (or goes ―Live‖). Recognition of recurring
subscription revenues from our SaaS Offering begins when the related customer goes Live.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles (―GAAP‖) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue Recognition
Effective January 1, 2011, we adopted Accounting Standards Update No. 2009-13, ― Multiple-
Deliverable Revenue Arrangements‖ (―ASU 2009-13‖) on a prospective basis. ASU 2009-13 requires the
use of the relative selling price method of allocating the total consideration to units of accounting in a
multiple element arrangement and eliminates the residual method. This new accounting principle requires
an entity to allocate revenue in an arrangement using the estimated selling price (―ESP‖) of deliverables if
it does not have vendor-specific objective evidence (―VSOE‖) or third-party evidence (―TPE‖) of selling
price. The adoption of ASU 2009-13 did not have a material impact on our consolidated financial
statements.
VSOE is the price charged when the same or similar product or service is sold separately. We
define VSOE as a median price of recent stand-alone transactions that are priced within a narrow range.
TPE is determined based on the prices charged by our competitors for a similar deliverable when
sold separately. However, due to the difficulty in obtaining sufficient information on competitor pricing
and differences in our product offerings when compared with those of our peers, we generally are unable to
reliably determine TPE.
ESP is our best estimate of the selling price of an element in a transaction. If we are unable to
establish selling price using either VSOE or TPE, we will use ESP in our allocation of arrangement
consideration. The objective of ESP is to determine the price at which we would transact business if the
product or service were sold by us on a stand-alone basis. Our determination of ESP involves the use of a
customary discount from the list (or book) price for each element, with the discounted price applied within
a narrow range. The customary discount is derived from historical data that has been analyzed to determine
trends and patterns. We analyze the customary discount used for determining ESP on no less than an annual
basis.
We evaluate each deliverable in our arrangements to determine whether it represents a separate unit
of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value to our
customers. Our products and services to continue to qualify as separate units of accounting under ASU
2009-13.
31
There are two major elements in our multiple element arrangements for the delivery of our SaaS
Offering, which are recurring revenues (i.e., SaaS subscription revenues and customer support and
maintenance revenues) and services revenues (mostly implementation consulting services). Also included
in our total revenues, to a much lesser degree, are license revenues from the employee growth of our
previously licensed customers.
For multiple element arrangements, the consideration allocated to SaaS subscription revenues is
recognized as recurring revenues over the initial contract period, as those services are delivered,
commencing with the Live date of the related product. The consideration allocated to fixed fee
implementation services in multiple element arrangements is recognized as services revenues on a
percentage of completion basis, using reasonably dependable estimates with respect to milestones achieved
(in relation to progression through implementation phases), by product.
Single element arrangements typically consist of renewals for SaaS subscriptions and maintenance
agreements. In addition, subsequent to the introduction of the Partners for Life program (in the second half
of 2010), implementation services sold on a time and materials basis typically represent single element
arrangements. Under these single element arrangements, SaaS subscription and maintenance revenues are
recognized over the related renewal period, as the services are delivered, and implementation services are
recognized as the services are performed.
We recognize revenues when all of the following criteria are met:
persuasive evidence of an arrangement exists;
delivery has occurred;
the fees are fixed and determinable; and
collection is considered probable.
If collection is not considered probable, we recognize revenues when the fees are collected. If the
fees are not fixed and determinable, we recognize revenues when the fees become due from the customer.
If non-standard acceptance periods or non-standard performance criteria are required, we recognize revenue
when the acceptance period expires or upon the satisfaction of the acceptance/performance criteria, as
applicable.
The majority of services revenues are recognized over the implementation period, which is from
the contract execution date until the Live date. SaaS revenues are recognized over the contract term,
beginning in the month the customer goes Live. There was no material change to the pattern or timing of
revenue recognition for either services or SaaS elements as a result of adopting ASU 2009-13.
Recurring Revenues
Recurring revenues consist of subscription revenues recognized from our SaaS Offering, as well as
customer support and maintenance revenues.
i) SaaS subscription revenues are principally derived from PEPM fees earned from the SaaS
Offering and from sales of hosting services on a stand-alone basis to customers who already
own a perpetual license (―Base Hosting‖). Ongoing PEPM fees from the SaaS Offering and
Base Hosting are recognized as subscription revenues as the services are delivered,
commencing when the customer goes Live.
ii) Customer support and maintenance revenues are derived from maintaining, supporting, and
providing periodic updates of our software for our hosting services. Since we stopped selling
32
perpetual licenses to our new customers effective April 1, 2009, customer support and
maintenance revenues stem from annual renewals.
Under our SaaS Offering, our customers do not have the right to take possession of our software
and these arrangements are considered service contracts. Selling price of multiple deliverables in SaaS
arrangements is derived for each element based on the guidance provided by ASU 2009-13. The multiple
elements that typically exist in SaaS arrangements include hosting services, the right to use UltiPro,
maintenance of UltiPro (i.e., product enhancements, updates and customer support) and professional
services (i.e., primarily implementation consulting services).
The pricing for the three elements that pertain to recurring revenues (i.e., hosting services, the right
to use UltiPro and maintenance of UltiPro) is bundled. Since these three bundled elements are components
of recurring revenues in the consolidated statements of operations, allocation of selling price to each of the
three elements is not necessary and they are not reported separately. Selling price, which is established
through VSOE, for the bundled elements, as a whole, is determined on the basis of renewal pricing, without
taking into consideration potential price increases or potential changes in the number of employees of the
customer in the future due to the uncertainties surrounding these potential occurrences. These bundled
elements are provided on an ongoing basis, represent undelivered elements and are recognized on a
monthly basis as the related services are performed, commencing once the customer goes Live.
Services Revenues
Services revenues primarily include revenues from fees charged for implementation consulting
services in connection with the implementation of our product solutions and, to a much lesser extent,
training of customers in the use of our products and fees for other services, including the provision of
payroll-related forms, sales of time clocks and the printing of W-2 forms for certain customers, as well as
certain client reimbursable out-of-pocket expenses.
Prior to the introduction of the Partners for Life program in the second half of 2010, our multiple
element sales contracts included recurring SaaS revenues, priced on a PEPM basis, and implementation
consulting services, priced on a time and materials basis. As the Partners for Life program has evolved
(particularly over the course of 2011), we have found that the vast majority of multiple element contracts
contain recurring SaaS revenues and implementation consulting services priced on a fixed fee basis. Time
and materials implementation consulting services are still sold but, generally, as stand-alone sales not
directly related to the basic implementation of the SaaS product. The total arrangement consideration is
allocated to services elements in the arrangement based on relative selling prices, using the prices
established when the services are sold on a stand-alone basis. Selling price is established through ESP for
fixed fee implementation consulting services related to our Partners for Life program.
Revenues from implementation consulting services sold on a fixed-fee basis are recognized using
the percentage of completion accounting method, which involves the use of estimates. Percentage of
completion is measured at each reporting date based on progress made to date, using reasonably
dependable estimates with respect to milestones achieved or billable hours, as applicable.
Revenues from implementation consulting services, billed on a time and materials basis (at an
hourly rate), are recognized as these services are performed. Other services are recognized as the product is
shipped or as the services are rendered, depending on the specific terms of the related arrangement.
33
License Revenues
From our inception through March 31, 2009, we sold perpetual licenses of UltiPro, which resulted
in license revenues recognized for that period of time. Customer support and maintenance revenues, from
previously sold perpetual licenses, are derived from maintaining, supporting, and providing periodic
updates of our software. Customer support and maintenance revenues are recognized ratably over the
service period, generally one year, and are included in recurring revenues. Annual maintenance renewal
fees which occur subsequent to the initial contract period are also recognized ratably over the related
service period and are included in recurring revenues.
Since April 1, 2009, sales to new customers are only on a subscription basis (priced and billed to
our customers on a PEPM basis). We no longer sell our on-site UltiPro solutions to new customers on a
perpetual license basis. We do sell licenses to existing license customers but only in relation to the
customer’s employee growth. Any such licenses are recognized as license revenues in our consolidated
financial statements upon the delivery of the related software product when all significant contractual
obligations have been satisfied.
Income Taxes
We make certain estimates and judgments in determining income tax expense for financial
statement purposes. These estimates and judgments occur in the calculation of certain tax assets and
liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and
financial statement purposes.
Ultimate assesses the likelihood that it will be able to recover its deferred tax assets. Management
considers all available evidence, both positive and negative, including historical levels of pre-tax book
income, expiration of net operating loss carryforwards, expectations and risks associated with estimates of
future taxable income and ongoing prudent and feasible tax planning strategies as well as current tax laws
and interpretation of current tax laws in assessing the need for a valuation allowance. If recovery is not
likely, we record a valuation allowance against the deferred tax assets that we estimate will not ultimately
be recoverable. The available positive evidence at December 31, 2011 included, among other factors, three
years of cumulative historical pre-tax book income and a projection of future pre-tax book income and
taxable income. As a result of our analysis of all available evidence, both positive and negative, at
December 31, 2011, it was considered more likely than not that a valuation allowance for deferred tax
assets was not required.
As of December 31, 2011, we believed it more likely than not that the amount of the deferred tax
assets recorded on the consolidated balance sheet will ultimately be recovered. However, should there be a
change in our ability to recover the deferred tax assets, the tax provision would increase in the period in
which it is determined that recovery is not probable.
Allowance for Doubtful Accounts
We perform credit evaluations of our customers to assess their ability to make payments to us for
our products and services. We maintain an allowance for doubtful accounts at an amount estimated to be
sufficient to provide adequate protection against losses resulting from collecting less than full payment on
accounts receivable. A considerable amount of judgment is required in determining the amount of our
allowance for doubtful accounts, including assessing the probability of collection and current credit-
worthiness of each customer. If the financial condition of our customers were to deteriorate, resulting in
34
further impairment of their ability to make payments, an additional provision for doubtful accounts may be
required.
Results of Operations
The following table sets forth the consolidated statements of operations data of Ultimate, as a
percentage of total revenues, for the periods indicated.
For the Years Ended December 31,
2009
2011
2010
Revenues:
Recurring
Services
License
Total revenues
Cost of revenues:
Recurring
Services
License
Total cost of revenues
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Operating income (loss)
Other income (expense):
Interest expense and other
Other income, net
Total other income (expense), net
Income (loss) from continuing operations before income taxes
(Provision) for income taxes
Income (loss) from continuing operations
Loss from discontinued operations, net of taxes
Net income (loss)
79.4 %
19.8
0.8
100.0
75.0 %
24.3
0.7
100.0
67.8 %
30.1
2.1
100.0
23.6
19.4
0.2
43.2
56.8
23.5
19.1
8.1
50.7
6.1
(0.1)
–
(0.1)
6.0
(4.4)
1.6
–
21.6
21.9
0.1
43.6
56.4
25.6
18.5
8.7
52.8
3.6
(0.1)
0.1
–
3.6
(2.3)
1.3
(0.4)
1.6 %
0.9 %
19.7
24.6
0.4
44.7
55.3
26.9
19.3
9.1
55.3
–
–
–
–
–
(0.4)
(0.4)
(0.2)
(0.6) %
Comparison of Fiscal Years Ended December 31, 2011 and 2010
Revenues
Our revenues are derived from recurring revenues, services revenues and, to a much lesser extent,
license revenues. See ―Revenue Recognition‖ above for further discussion of Ultimate’s revenue sources
and its method of accounting for each of them.
Total revenues, consisting of recurring, services and license revenues, increased 18.2% to $269.2
million for 2011 from $227.8 million for 2010.
Recurring revenues increased 25.1% to $213.8 million for 2011 from $170.9 million for 2010. The
increase in recurring revenues for 2011 was primarily due to an increase in SaaS revenues, partially offset
by a decrease in maintenance revenues, as described below:
35
i) SaaS revenues increased 31.5% for 2011, primarily due to the continued growth of the SaaS
Offering, which comprised the majority of unit sales. The increase in SaaS revenues is based
on the revenue impact of incremental units that have gone Live since December 31, 2010,
including the UltiPro core product and, to a lesser extent, Optional Features of UltiPro.
Recognition of recurring revenues for SaaS sales commences upon the respective Live date.
ii) Maintenance revenues from previously sold licenses decreased 2.3% primarily due to the fact
that we stopped selling licenses on a perpetual basis to new customers effective April 1, 2009.
Maintenance revenues are recognized over the initial term of the related license contract, which
is typically 12 months, and then on a monthly recurring basis thereafter as the maintenance
contracts renew annually.
iii) Our annual revenue customer retention rate for total recurring revenues was 96% in 2011. This
rate is comprised of an annual retention rate exceeding 96% for existing SaaS customers and an
annual retention rate of approximately 95% for existing license customers from which renewal
maintenance revenues are derived.
iv) The impact on recurring revenues of units sold under the SaaS Offering has been a gradual
increase from one reporting period to the next, based on the incremental effect of revenue
recognition of the SaaS fees over the terms of the related contracts as sales in backlog go Live.
Services revenues decreased 3.9% to $53.2 million for 2011 from $55.4 million for 2010 primarily
as a result of a decrease in training revenues and, to a lesser extent, a decrease in implementation revenues.
Training revenues decreased mainly due to the transition to our Partners for Life program, which began in
late 2010 and was ramping up in 2011. The Partners for Life program changed the method by which we
charge customers for our services that are delivered primarily over the period leading up to the point the
customer goes Live (the ―Time to Live Period‖). As new sales are generated, we charge a fixed fee for
services based on the number of the customer’s employees, as opposed to our former billing method for
new sales, which included charging customers on a time and materials basis as these services were
provided. The Partners for Life program was designed to lower the total cost of services charged to each
customer primarily over the Time to Live Period for UltiPro and/or Optional Features, through a fixed fee.
Implementation consulting revenues decreased primarily due to less billable hours generated from time and
materials engagements, partially offset by higher revenues from fixed fee engagements. The decreases in
training revenues and implementation consulting revenues were partially offset by higher other services
revenues, including increased revenues from printing W-2 forms for our customers and increased sales of
time clocks.
License revenues increased 44.2% to $2.2 million for 2011 from $1.5 million for 2010. The
increase in 2011 was due to the increased employee growth of our license customers.
Cost of Revenues
Cost of revenues primarily consists of the costs of recurring and services revenues. Cost of
recurring revenues primarily consists of costs to provide maintenance and technical support to Ultimate’s
customers, the cost of providing periodic updates and the cost of recurring subscription revenues, including
hosting data center costs and amortization of capitalized software. Cost of services revenues primarily
consists of costs to provide implementation services and training to Ultimate’s customers and, to a lesser
extent, costs related to sales of payroll-related forms and costs associated with certain client reimbursable
out-of-pocket expenses.
36
Cost of recurring revenues increased 29.2% to $63.5 million for 2011 from $49.1 million for 2010.
The $14.4 million increase in the cost of recurring revenues for the year was primarily due to increases in
both SaaS costs and customer support and maintenance costs, as described below:
i) The increase in SaaS costs was principally a result of the growth in SaaS operations and
increased sales, including increased labor costs, costs related to our payment services (as we
continue to grow that business) and, to a lesser extent, increased hosting data center costs and
increased third-party consulting costs.
ii) The increase in customer support and maintenance costs was primarily due to higher labor
costs commensurate with the growth in the number of customers serviced and, to a lesser
extent, higher software amortization costs.
Cost of services revenues increased 5.0% to $52.3 million for 2011 from $49.8 million for 2010.
The $2.5 million increase in cost of services revenues was primarily due to increased costs for third-party
implementation partners (―IPs‖) and an increase in costs for other services, including increased costs of
time clocks and higher costs related to printing and shipping W-2 forms for our customers.
Cost of license revenues increased by $0.2 million, or 91.4%, to $0.5 million for 2011 from $0.3
million in 2010. This increase in cost was due to an increase in the employee growth of our license
customers.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries and benefits, sales commissions, travel
and promotional expenses, and facility and communication costs for direct sales offices, as well as
advertising and marketing costs. Sales and marketing expenses increased 8.2% to $63.1 million for 2011
from $58.4 million for 2010. The $4.7 million increase for the year was primarily due to increased labor
and related costs (including higher sales commissions related to increased SaaS sales), partially offset by
decreased advertising and marketing costs and lower third-party consulting costs. Commissions on SaaS
sales are amortized over the initial contract term (typically 24 months) commencing on the Live date,
which corresponds with the related SaaS revenue recognition.
Research and Development
Research and development expenses consist primarily of software development personnel costs.
Research and development expenses increased 21.6% to $51.4 million in 2011 from $42.2 million in 2010.
The $9.2 million increase in research and development expenses during 2011 was principally due to higher
labor and related costs attributable to the ongoing development of UltiPro and complementary products,
including the impact of increased personnel costs (predominantly from additional headcount) and, to a
lesser extent, increased third-party consulting costs.
General and Administrative
General and administrative expenses consist primarily of salaries and benefits of executive,
administrative and financial personnel, as well as external professional fees and the provision for doubtful
accounts. General and administrative expenses increased by 11.2% to $21.9 million for 2011 from $19.7
million for 2010. The increase in general and administrative expenses for 2011 was primarily due to
increased labor and related costs and, to a lesser extent, an increase in third-party consulting costs, partially
offset by decreased professional fees.
37
Interest Expense and Other
Interest expense and other increased $138 thousand, or 52.5%, to $401 thousand for 2011 from
$263 thousand for 2010.
Other Income, net
Other income, net, decreased by 51.6% to $91 thousand for 2011 from $188 thousand for 2010.
Provision for Income Taxes
In 2011, based on pre-tax income from continuing operations we had income tax expense of $11.8
million as compared to $5.2 million in 2010. The increase in income tax expense of $6.6 million was
primarily due to an increase in pre-tax book income and non-deductible expenses and a decrease in our
foreign valuation allowance. Net operating loss carryforwards available at December 31, 2011, expiring at
various times from 2012 through 2031 and which are available to offset future U.S. taxable income,
approximated $112.8 million. The timing and levels of future profitability may result in the expiration of
net operating loss carryforwards before utilization. Additionally, utilization of such net operating losses
may be limited as a result of cumulative ownership changes in our equity instruments.
We recognized $21.4 million of deferred tax assets, net of deferred tax liabilities, as of December
31, 2011. If estimates of taxable income are decreased, a valuation allowance may need to be provided for
some or all deferred tax assets, which will cause an increase in income tax expense.
Comparison of Fiscal Years Ended December 31, 2010 and 2009
Revenues
Total revenues, consisting of recurring, services and, to a much lesser extent, license revenues,
increased 16.1% to $227.8 million for 2010 from $196.3 million for 2009.
Recurring revenues increased 28.3% to $170.9 million for 2010 from $133.2 million for 2009. The
increase in recurring revenues for 2010 was primarily due to an increase in SaaS revenues, partially offset
by a decrease in maintenance revenues, as described below:
i) SaaS revenues increased 39.9% for 2010, primarily due to the continued growth of the SaaS
Offering, which comprised the majority of unit sales. The increase in SaaS revenues is based
on the revenue impact of incremental units that have gone Live since December 31, 2009,
including the UltiPro core product and, to a lesser extent, Optional Features of UltiPro.
ii) Maintenance revenues from previously sold licenses decreased 3.3% primarily due to the fact
we stopped selling licenses on a perpetual basis to new customers effective April 1, 2009.
iii) Our annual revenue customer retention rate for total recurring revenues was 96% in 2010. This
rate is comprised of an annual retention rate exceeding 96% for existing SaaS customers and an
annual retention rate of approximately 95% for existing license customers from which renewal
maintenance revenues are derived.
Services revenues decreased 6.1% to $55.4 million for 2010 from $59.0 million for 2009 primarily
as a result of a decrease in implementation revenues. Implementation revenues decreased due to lower
38
billable hours from a reduction in revenue-generating consultants and a lower net rate per hour, partially
offset by increased services revenues from our Workplace solution.
License revenues decreased 62.7% to $1.5 million for 2010 from $4.1 million for 2009. The
decrease in 2010 was principally due to Ultimate’s decision not to sell perpetual licenses to new customers
after April 1, 2009.
Cost of Revenues
Cost of recurring revenues increased 26.8% to $49.1 million for 2010 from $38.8 million for 2009.
The $10.3 million increase in the cost of recurring revenues for the year was primarily due to increases in
both SaaS costs and customer support and maintenance costs as described below:
i) The increase in SaaS costs was principally a result of the growth in SaaS operations and
increased sales, including increased labor costs, costs related to our payment services (as we
continue to grow that business) and, to a lesser extent, increased hosting data center costs.
ii) The increase in customer support and maintenance costs was primarily due to higher labor
costs commensurate with the growth in the number of customers serviced.
Cost of services revenues increased 3.2% to $49.8 million for 2010 from $48.3 million for 2009.
The $1.5 million increase in cost of services revenues was primarily due to an increase in labor costs to
support the increased sales from our Workplace solution.
Cost of license revenues decreased by $0.5 million, or 66.0%, to $0.3 million for 2010 from $0.8
million in 2009. This decrease in cost was principally due to our decision not to sell perpetual licenses to
new customers effective April 1, 2009.
Sales and Marketing
Sales and marketing expenses increased 10.5% to $58.4 million for 2010 from $52.8 million for
2009. The $5.6 million increase for the year was primarily due to increased labor and related costs
(including higher sales commissions related to increased SaaS sales), and increased advertising and
marketing costs. The overall increase in sales and marketing expenses was partially offset by lower
commissions on license sales which correlates with the decrease in license revenues.
Research and Development
Research and development expenses increased 11.1% to $42.2 million in 2010 from $38.0 million,
net of capitalized software costs (totaling $0.1 million), in 2009. The increase in research and development
expenses during 2010 was principally due to higher labor costs related to the ongoing development of
UltiPro and complementary products, including the impact of increased personnel costs (predominantly
from additional headcount) and, to a lesser extent, increased third-party consulting costs.
General and Administrative
General and administrative expenses increased by 10.8% to $19.7 million for 2010 from $17.8
million for 2009. The increase in general and administrative expenses for 2010 was primarily due to
increased labor and related costs, an increase in the provision for doubtful accounts and, to a lesser extent,
increased professional fees.
39
Interest Expense and Other
Interest expense and other increased $173 thousand, or 192.2%, to $263 thousand for 2010 from
$90 thousand for 2009.
Other Income, net
Other income, net, increased by 16.0% to $188 thousand for 2010 from $162 thousand for 2009.
Provision for Income Taxes
In 2010, based on pre-tax income from continuing operations, we had income tax expense of $5.2
million as compared to $0.7 million in 2009. The increase in income tax expense of $4.4 million was
primarily due to an increase in pre-tax book income and non-deductible expenses and a decrease in our
foreign valuation allowance. Net operating loss carryforwards available at December 31, 2010, expiring at
various times from 2011 through 2030 and which are available to offset future U.S. taxable income,
approximated $96.7 million. The timing and levels of future profitability may result in the expiration of net
operating loss carryforwards before utilization. Additionally, utilization of such net operating losses may be
limited as a result of cumulative ownership changes in our equity instruments.
We recognized $24.4 million of deferred tax assets, net of deferred tax liabilities, as of December
31, 2010. If estimates of taxable income are decreased, a valuation allowance may need to be provided for
some or all deferred tax assets, which will cause an increase in income tax expense.
Quarterly Results of Operations
The following table sets forth certain unaudited quarterly results of operations for each of the quarters
in the years ended December 31, 2011 and 2010. In management’s opinion, this unaudited information has
been prepared on the same basis as the audited consolidated financial statements and includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the
quarters presented. This information should be read in conjunction with Ultimate’s Consolidated Financial
Statements and Notes thereto included elsewhere in this Form 10-K.
Our quarterly revenues and operating results have varied significantly in the past and are likely to vary
substantially from quarter to quarter in the future. Our operating results may fluctuate as a result of a number of
factors, including, but not limited to, increased expenses (especially as they relate to product development, sales
and marketing and the use of third-party consultants), timing of product releases, increased competition,
variations in the mix of revenues, announcements of new products by us or our competitors and capital spending
patterns of our customers. We establish our expenditure levels based upon our expectations as to future
revenues, and, if revenue levels are below expectations, expenses can be disproportionately high. A drop in near
term demand for our products could significantly affect both revenues and profits in any quarter. Operating
results achieved in previous fiscal quarters are not necessarily indicative of operating results for the full fiscal
years or for any future periods. As a result of these factors, there can be no assurance that we will be able to
achieve or maintain profitability on a quarterly basis. We believe that, due to the underlying factors for quarterly
fluctuations, quarter-to-quarter comparisons of Ultimate’s operations are not necessarily meaningful and that
such comparisons should not be relied upon as indications of future performance.
40
Quarters Ended
(in thousands, except per share data)
Revenues:
Recurring
Services
License
Total revenues
Cost of revenues:
Recurring
Services
License
Total cost of revenues
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Operating income
Other (expense) income:
Interest and other expense
Other income, net
Total other (expense) income, net
Income
before income taxes
from continuing operations
Dec.
31,
2011
$57,146
14,911
681
72,738
16,748
13,235
154
30,137
42,601
15,496
13,763
5,561
34,820
7,781
(36)
14
(22)
Sep.
30,
2011
$54,689
12,794
267
67,750
16,521
13,073
61
29,655
38,095
15,002
13,256
4,995
33,253
4,842
(64)
17
(47)
Jun.
30,
2011
$52,002
11,761
442
64,205
15,543
12,104
100
27,747
36,458
15,524
12,370
5,762
33,656
2,802
(143)
26
(117)
Mar.
31,
2011
(Unaudited)
$49,948
13,729
828
64,505
Dec.
31,
2010
$46,038
13,959
409
60,406
14,693
13,929
173
28,795
35,710
17,123
11,967
5,613
34,703
1,007
(158)
34
(124)
13,101
12,932
105
26,138
34,268
14,038
10,790
4,708
29,536
4,732
(69)
53
(16)
Sep.
30,
2010
$44,054
12,796
181
57,031
12,591
11,853
–
24,444
32,587
14,640
10,679
4,849
30,168
2,419
(88)
68
(20)
7,759
4,795
2,685
883
4,716
2,399
Provision for income tax
(5,783)
(3,710)
(1,792)
(555)
(3,270)
(1,426)
Income from continuing operations
Income
operations, net of income taxes
Net income (loss)
(loss)
from discontinued
Basic earnings (loss) per share:
Earnings from continuing operations
Loss from discontinued operations
Total
Diluted earnings (loss) per share:
Earnings from continuing operations
Loss from discontinued operations
Total
Weighted average shares outstanding:
Basic
Diluted
1,976
1,085
–
$1,976
–
$1,085
$0.08
–
$0.08
$0.07
–
$0.07
$0.04
–
$0.04
$0.04
–
$0.04
893
–
$893
$0.03
–
$0.03
$0.03
–
$0.03
328
–
$328
$0.01
–
$0.01
$0.01
–
$0.01
1,446
–
$1,446
$0.06
–
$0.06
$0.05
–
$0.05
973
77
$1,050
$0.04
–
$0.04
$0.04
–
$0.04
Jun.
30,
2010
$41,365
13,032
320
54,717
12,048
11,877
50
23,975
30,742
14,580
10,520
5,169
30,269
473
(61)
45
(16)
457
(186)
271
(865)
$(594)
$0.01
(0.03)
$(0.02)
$0.01
(0.03)
$(0.02)
Mar.
31,
2010
$39,448
15,581
628
55,657
11,404
13,181
100
24,685
30,972
15,116
10,233
5,001
30,350
622
(45)
22
(23)
599
(279)
320
(65)
$255
$0.01
–
$0.01
$0.01
–
$0.01
26,055
27,838
25,767
27,747
25,837
27,863
25,594
27,724
25,302
27,412
24,937
27,011
24,839
26,972
24,755
26,823
41
Liquidity and Capital Resources
In recent years, we have funded operations from cash flows generated from operations and, to a
lesser extent, equipment financing and borrowing arrangements.
As of December 31, 2011, we had $55.3 million in cash, cash equivalents and total investments in
marketable securities, reflecting a net increase of $5.1 million since December 31, 2010. This $5.1 million
increase was primarily due to cash provided by operating activities of $28.4 million, partially offset by cash
purchases of property and equipment (including principal payments on financed equipment) of $16.7
million, the repurchase of Common Stock (net of proceeds from the issuance of Common Stock from
employee stock option exercises) of $4.0 million and cash used to settle employee tax withholding
liabilities for vesting of restricted stock awards and restricted stock units of $10.9 million.
Our operating cash inflows primarily consist of payments received from our customers related to
our SaaS Offering. Our operating cash outflows primarily consist of cash we invest in personnel and
infrastructure to support the anticipated growth of our business, payments to vendors directly related to our
services, payments under arrangements with third party vendors who provide hosting infrastructure services
in connection with our SaaS Offering, related sales and marketing costs, costs of operations and systems
development and programming costs. Net cash provided by operating activities increased $3.0 million
during 2011 as compared to 2010 primarily due to an increase in operating income and changes in working
capital accounts, after adjusting for the impacts of non-cash expenses such as depreciation, amortization
and expense associated with stock-based compensation awards.
Net cash used in investing activities was $59.3 million for 2011 as compared to $54.1 million for
2010. The $5.2 million increase from 2010 was primarily attributable to an increase in cash purchases of
property and equipment of $8.7 million, partially offset by a decrease of $3.5 million in funds received
from and held in our bank accounts on behalf of Ultimate’s customers using the UltiPro Payment Services
offering (―UltiPro Payment Services Customer Funds‖). These funds held in our bank accounts are fully
insured by the Federal Deposit Insurance Corporation.
Net cash provided by financing activities was $36.3 million for 2011 as compared to cash provided
by financing activities of $45.8 million for 2010. The $9.5 million decrease in net cash provided by
financing activities was primarily related to an increase in cash used to settle employee tax withholding
liabilities for the vesting of restricted stock awards and restricted stock units of $8.1 million, a decrease of
$3.5 million in UltiPro Payment Services Customer Funds received and higher payments on capital lease
obligations of $0.5 million, partially offset by lower repurchases of Common Stock (net of proceeds from
the issuance of Common Stock from employee and non-employee director stock option exercises) of $0.9
million and, to a lesser extent, increased excess tax benefits from our employee stock plan of $1.8 million.
Days sales outstanding (―DSO‖), calculated on a trailing three-month basis, as of December 31,
2011 and December 31, 2010, were 71 days and 72 days, respectively. The decrease in DSOs of 1 day was
primarily a function of increased revenues and stronger accounts receivable collections.
Deferred revenues were $86.6 million at December 31, 2011, as compared to $78.1 million at
December 31, 2010. The increase of $8.5 million in deferred revenues for 2011 was primarily due to
higher deferred services revenues and increased deferred SaaS revenues, partially offset by lower deferred
maintenance revenues. Substantially all of the total balance in deferred revenues is related to future
recurring revenues, including deferred revenues related to SaaS.
42
Ultimate believes that cash and cash equivalents, investments in marketable securities and cash
generated from operations will be sufficient to fund our operations for at least the next 12 months. This
belief is based upon, among other factors, management’s expectations for future revenue growth, controlled
expenses and collections of accounts receivable.
We did not have any material commitments for capital expenditures as of December 31, 2011.
Off-Balance Sheet Arrangements
We do not, and as of December 31, 2011 we did not, have any off-balance sheet arrangements (as
that term is defined in applicable SEC rules) that are reasonably likely to have a current or future material
effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
As of December 31, 2011, Ultimate’s outstanding contractual cash obligations were as follows (in
thousands):
Payments Due by Period
Total
Less Than
1 Year
1-3
Years
4-5
Years
More than 5
Years
$ 5,079
27,975
—
1,866
$ 34,920
$ 2,841
5,082
—
—
$ 7,923
$ 2,238
9,943
—
—
$ 12,181
$ —
8,407
—
—
$8,407
$ —
4,543
—
—
$ 4,543
Capital lease obligations (1)
Other long-term obligations (2)
Purchase obligations (3)
Other long-term liabilities (4)
Total contractual cash obligations
_________________________
(1) We lease certain computer equipment under non-cancelable agreements, which are accounted
for as capital leases and expire at various dates through 2014. See Note 14 of the Notes to
Consolidated Financial Statements included elsewhere in this Form 10-K for information
regarding capital lease obligations.
(2) Included in other long-term obligations were Ultimate’s leases for corporate office space and
certain equipment under non-cancelable operating lease agreements expiring at various dates.
See Note 17 of the Notes to Consolidated Financial Statements included elsewhere in this Form
10-K 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. Ultimate 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. Ultimate does not have significant agreements for the
purchase of goods or services specifying minimum quantities or set prices.
(4) Ultimate has an income tax payable related to the benefit of an unrecognized tax position. As
of the date of this report, it is not reasonable to estimate the timing of this payment. Ultimate
does not have any other long-term liabilities as of December 31, 2011.
43
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of Ultimate’s operations, we are exposed to certain market risks, primarily
interest rate risk and foreign currency risk. Risks that are either non-financial or non-quantifiable, such as
political, economic, tax, or regulatory risks, are not included in the following assessment of our market
risks.
Interest Rate Risk. Ultimate is subject to financial market risks, including changes in interest rates
which influence the valuations of its fixed income investment portfolio. Changes in interest rates could
also impact Ultimate’s anticipated interest income from interest-bearing cash accounts, or cash equivalents
and investments in marketable securities. We manage financial market risks, including interest rate risks,
in accordance with our investment guideline objectives, including:
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.
Ultimate targets its fixed income investment portfolio to have maturities of 24 months or less.
Investments are held to enhance the preservation of capital and not for trading purposes.
Cash equivalents consist of money market accounts with original maturities of less than three
months. Short-term investments include obligations of U.S. government agencies and corporate debt
securities. Corporate debt securities include commercial paper which, according to Ultimate’s investment
guidelines, must carry minimum short-term ratings of P-1 by Moody’s Investor Service, Inc. (―Moody’s‖)
and A-1 by Standard & Poor’s Ratings Service, a Division of The McGraw-Hill Companies, Inc. (―S&P‖).
Other corporate debt obligations must carry a minimum rating of A-2 by Moody’s or A by S&P. Asset-
backed securities must carry a minimum AAA rating by Moody’s and S&P with a maximum average life of
two years at the time of purchase.
As of December 31, 2011, total investments in available-for-sale marketable securities were $9.1
million.
As of December 31, 2011, virtually all of the investments in Ultimate’s portfolio were at fixed rates
(with a weighted average interest rate of 0.4% per annum).
To illustrate the potential impact of changes in interest rates, Ultimate has performed an analysis
based on its December 31, 2011 consolidated balance sheet and assuming no changes in its
investments. Under this analysis, an immediate and sustained 100 basis point increase in the various base
rates would result in a decrease in the fair value of Ultimate’s total portfolio of approximately $47 thousand
over the next 12 months. An immediate and sustained 100 basis point decrease in the various base rates
would result in an increase in the fair value of Ultimate’s total portfolio of approximately $47 thousand
over the next 12 months.
Foreign Currency Risk. Ultimate has foreign currency risks related to its revenue and operating
expenses denominated in currencies other than the U.S. dollar. Management does not believe movements
in the foreign currencies in which Ultimate transacts business will significantly affect future net income.
44
Item 8. Financial Statements and Supplementary Data
INDEX
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2011 and 2010
Consolidated Statements of Operations for the Years Ended
December 31, 2011, 2010 and 2009
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
(Loss) for the Years Ended December 31, 2011, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2011, 2010 and 2009
Notes to Consolidated Financial Statements
Page(s)
46
47
48
49
50
51
45
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
The Ultimate Software Group, Inc.:
We have audited the accompanying consolidated balance sheets of The Ultimate Software Group, Inc. and
subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of
operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in
the three-year period ended December 31, 2011. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2011 and 2010 and the results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over financial reporting as of December 31, 2011,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 29, 2012,
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
/s/ KPMG LLP
February 29, 2012
Miami, Florida
Certified Public Accountants
46
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
2011
2010
(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Investments in marketable securities
Accounts receivable, net of allowance for doubtful accounts of $475 and
$800 for 2011 and 2010, respectively
Prepaid expenses and other current assets
Deferred tax assets, net
Total current assets before funds held for customers
Funds held for customers
Total current assets
Property and equipment, net
Capitalized software, net
Goodwill
Investments in marketable securities
Other assets, net
Deferred tax assets, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Capital lease obligations
Total current liabilities before customer funds obligations
Customer funds obligations
Total current liabilities
Deferred revenue
Deferred rent
Capital lease obligations
Income taxes payable
Total liabilities
Commitments and contingencies (Note 17)
Stockholders’ equity:
Series A Junior Participating Preferred Stock, $0.01 par value, 500,000
shares authorized, no shares issued
Preferred Stock, $0.01 par value, 2,000,000 shares authorized, no shared
Issued
Common Stock, $0.01 par value, 50,000,000 shares authorized,
30,204,400 and 29,027,277 shares
respectively
Additional paid-in capital
Accumulated other comprehensive (loss) income
Accumulated deficit
in 2011 and 2010,
issued
$ 46,149
7,584
56,186
22,944
1,277
134,140
118,660
252,800
24,486
1,765
3,025
1,546
15,056
20,142
$ 318,820
$ 6,265
11,589
83,416
2,694
103,964
118,660
222,624
3,147
3,384
2,175
1,866
233,196
–
–
–
302
242,100
(57)
(47,971)
194,374
$ 40,889
8,884
47,570
18,613
1,434
117,390
72,875
190,265
18,075
3,115
3,025
433
11,656
22,988
$ 249,557
$ 4,683
11,074
71,808
2,551
90,116
72,875
162,991
6,287
3,022
2,406
1,866
176,572
–
–
–
290
216,262
126
(52,253)
164,425
Treasury stock, at cost, 3,941,813 and 3,594,825 shares in 2011 and 2010,
respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
(108,750)
85,624
$ 318,820
(91,440)
72,985
$ 249,557
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements
47
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues:
Recurring
Services
License
Total revenues
Cost of revenues:
Recurring
Services
License
Total cost of revenues
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Operating income (loss)
Other (expense) income:
Interest expense and other
Other income, net
Total other (expense) income, net
Income (loss) from continuing operations before income taxes
Provision for income taxes
Income (loss) from continuing operations
For the Years Ended December 31,
2011
2009
2010
(in thousands, except per share data)
$
213,785 $ 170,905 $ 133,159
58,996
55,368
4,125
1,538
196,280
227,811
53,195
2,218
269,198
63,505
52,341
488
116,334
152,864
49,144
49,843
255
99,242
128,569
38,765
48,304
750
87,819
108,461
63,145
51,356
21,931
136,432
16,432
(401)
91
(310)
16,122
(11,840)
4,282
58,374
42,222
19,727
120,323
52,810
38,005
17,803
108,618
8,246
(263)
188
(75)
8,171
(5,161)
3,010
(157)
(90)
162
72
(85)
(721)
(806)
(336)
Loss from discontinued operations, net of income taxes
–
(853)
Net income (loss)
Basic earnings (loss) per share:
Earnings (loss) from continuing operations
Loss from discontinued operations
Total
Diluted earnings (loss) per share:
Earnings (loss) from continuing operations
Loss from discontinued operations
Total
Weighted average shares outstanding:
Basic
Diluted
$
$
$
$
$
4,282 $
2,157 $
(1,142)
0.17 $
–
0.17 $
0.12 $
(0.03)
0.09 $
(0.04)
(0.01)
(0.05)
0.15 $
–
0.15 $
0.11 $
(0.03)
0.08 $
(0.04)
(0.01)
(0.05)
25,814
27,806
24,960
27,101
24,463
24,463
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
48
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands)
Common Stock
Shares
Amount
Additional
Paid -in
Capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Treasury Stock
Amount
Shares
Total
Stockholders’
Equity
Balance, December 31, 2008
26,796
$ 268
$ 164,574
$ (1,002)
$ (53,268)
2,534
$ (59,500)
$ 51,072
–
–
(1,142)
–
–
(1,142)
Balance, December 31, 2009
27,620
$ 276
$ 184,256
$
(696)
$ (54,410)
2,985
$ (71,656)
$ 57,770
824
8
6,270
_____–_
______–
13,236
–
–
–
–
13,236
–
1
305
–
–
(373)
–
549
–
–
–
2,157
–
–
912
(1)
(89)
–
–
(2,797)
–
6,671
–
–
–
–
–
–
–
–
–
1
305
–
–
–
–
(836)
–
–
(373)
549
451
(12,156)
(12,156)
–
–
6,278
–
–
–
–
–
–
–
–
–
–
–
–
–
2,157
–
912
–
(1)
(89)
–
2,979
–
(2,797)
–
–
6,671
610
(19,784)
(19,784)
–
–
14,894
3
Net loss
Unrealized gain on investments in
marketable securities available-for-sale, net of tax
–
–
Unrealized gain on foreign exchange, net of tax
Comprehensive loss
Shares acquired to settle employee tax withholding
liability
Excess tax benefits from employee stock plan
Repurchases of Common Stock
Issuances of Common Stock from exercises
of stock options
Non-cash stock-based compensation expense
for stock options and restricted stock
Net income
Realized foreign currency translation adjustment, net of
tax
Unrealized loss on investments in
marketable securities available-for-sale, net of tax
–
–
–
Unrealized loss on foreign exchange, net of tax
Comprehensive income
Shares acquired to settle employee tax withholding
liability
Excess tax benefits from employee stock plan
Repurchases of Common Stock
Issuances of Common Stock from exercises
of stock options
Issuances of Common Stock from restricted stock
releases
Non-cash stock-based compensation expense
for stock options, restricted stock and restricted stock
units
Unrealized loss on investments in
marketable securities available-for-sale, net of
tax
–
Unrealized loss on foreign exchange, net of tax
Comprehensive income
Shares acquired to settle employee tax withholding
liability
Excess tax benefits from employee stock plan
Repurchases of Common Stock
Issuances of Common Stock from exercises
of stock options
Issuances of Common Stock from restricted stock
releases
Non-cash stock-based compensation expense
for stock options, restricted stock and restricted stock
units
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
(179)
–
–
(10,941)
–
8,504
–
776
8
13,270
401
4
–
–
–
–
–
–
–
–
–
–
(4)
(179)
–
4,099
–
(10,941)
–
8,504
(17,310)
(17,310)
–
13,278
–
4
–
–
–
347
–
–
1,124
11
14,883
283
3
Balance, December 31, 2010
29,027
$ 290
$ 216,262
$
126
$ (52,253)
3,595
$ (91,440)
$ 72,985
Net income
–
–
–
–
4,282
–
–
4,282
_____–_
______–
13,249
–
–
–
–
13,249
_____–_
______–
15,005
–
–
–
–
15,005
Balance, December 31, 2011
30,204
$ 302
$ 242,100
$
(57)
$ (47,971)
3,942
$ (108,750)
$ 85,624
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
49
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2009
2011
2010
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by
$
4,282
$
2,157
$
(1,142)
operating activities:
Depreciation and amortization
Provision for doubtful accounts
Non-cash stock-based compensation expense
Realized loss on foreign currency translation adjustment
Income taxes
Excess tax benefits from employee stock plan
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued expenses and deferred rent
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of marketable securities
Maturities of marketable securities
Net purchases of securities with customer funds
Capitalized software
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Repurchases of Common Stock
Net proceeds from issuances of Common Stock
Excess tax benefits from employee stock plan
Shares acquired to settle employee tax withholding liabilities
Principal payments on capital lease obligations
Repayments of borrowings of long-term debt
Net increase in customer fund obligations
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for taxes
11,620
1,586
15,009
–
11,507
(8,504)
(10,202)
(4,331)
(3,483)
1,582
877
8,468
28,411
(14,610)
14,794
(45,785)
–
(13,671)
(59,272)
(17,310)
13,282
8,504
(10,941)
(3,016)
–
45,785
36,304
(183)
5,260
40,889
46,149
241
604
$
$
$
11,883
1,549
13,249
912
4,982
(6,671)
(10,669)
(3,019)
362
207
938
9,536
25,416
(9,223)
9,429
(49,315)
–
(4,980)
(54,089)
(19,784)
14,897
6,671
(2,797)
(2,503)
–
49,315
45,799
79
17,205
23,684
40,889
218
203
$
$
$
11,806
972
13,234
–
561
(549)
(1,120)
417
(851)
(2,724)
(2,372)
5,065
23,297
(10,040)
6,323
(17,697)
(630)
(4,011)
(26,055)
(12,156)
6,278
549
(373)
(2,445)
(320)
17,697
9,230
12
6,484
17,200
23,684
149
175
$
$
$
Supplemental disclosure of non-cash investing and financing activities (in thousands):
-
-
-
Ultimate entered into capital lease obligations to acquire new equipment totaling $2,928, $3,852 and $2,499 in 2011, 2010 and 2009,
respectively
Ultimate entered into an agreement to purchase source code from a third-party vendor for $2,000, of which $500 was paid during
2009. The amount owed under the agreement was fully paid in 2009.
Ultimate had adjustments of $173 and $701 between goodwill and other comprehensive income (loss) (related to foreign currency
translation adjustments) during 2010 and 2009, respectively. There was no adjustment between goodwill and other comprehensive
income (loss) (related to foreign currency translation adjustments) during 2011.
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
50
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations
The Ultimate Software Group, Inc. and subsidiaries (―Ultimate,‖ ―we,‖ ―us‖ or ―our‖) is a leading
provider of unified human capital management (―HCM‖) software-as-a-service (―SaaS‖) solutions for
global businesses. Ultimate’s UltiPro software (―UltiPro‖) is a comprehensive SaaS-or cloud-based
solution delivered primarily to organizations based in the United States and Canada and designed to deliver
the functionality businesses need to manage the complete employment life cycle from recruitment to
retirement. Ultimate’s solutions are marketed as two solution suites based on company size. UltiPro
Enterprise (―Enterprise‖) is designed to address the needs of companies with 1,000 or more employees.
UltiPro Workplace (―Workplace‖) is designed for companies with fewer than 1,000 employees. UltiPro is
marketed primarily through our Enterprise and Workplace direct sales teams.
2. Basis of Presentation, Consolidation and the Use of Estimates
The accompanying consolidated financial statements of Ultimate have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission (the ―SEC‖).
The consolidated financial statements included herein reflect all adjustments, which are, in the
opinion of Ultimate’s management, necessary for a fair presentation of the information for the periods
presented. The preparation of financial statements in conformity with U.S. generally accepted accounting
principles (―GAAP‖) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Such estimates
include revenue recognition, income taxes, the allowance for doubtful accounts, the valuation of deferred
tax assets and long-lived assets, among others discussed below. Actual results could differ from those
estimates.
The consolidated financial statements reflect the financial position and operating results of
Ultimate and include its wholly-owned subsidiaries. Intercompany accounts and transactions have been
eliminated in consolidation.
3. Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Cash and Cash Equivalents
All highly liquid instruments with an original maturity of three months or less when acquired are
considered cash equivalents and are comprised of interest-bearing accounts.
Accounts Receivable
Accounts receivable are principally from end-users of Ultimate’s products. We perform credit
evaluations of our customers and have recorded allowances for estimated losses. We maintain an allowance
for doubtful accounts at an amount estimated to be sufficient to provide adequate protection against losses
resulting from collecting less than full payment on accounts receivable. A considerable amount of judgment
is required when the realization of receivables is assessed, including assessing the probability of collection
and current credit-worthiness of each customer. If the financial condition of our customers were to
deteriorate, resulting in a further impairment of their ability to make payments, an additional provision for
51
doubtful accounts may be required. We charge off uncollectible amounts against the allowance for
doubtful accounts in the period in which we determine they are uncollectable.
Funds Held for Customers and Customers’ Funds Obligations
Ultimate has the right to market and distribute an independent third party’s tax filing solution that
Ultimate has branded UltiPro Payment Services. Ultimate’s UltiPro Payment Services product provides
payment services to our customers. These payment services are being sold directly by us to our customers
only on a per-employee-per-month (―PEPM‖) basis in conjunction with UltiPro, our core product. In
connection with our UltiPro Payment Services product, we receive funds from our customers and hold such
funds for purposes of paying the appropriate taxing authorities on behalf of such customers. We hold our
customers’ payment services deposits for the period between collection from our customers and remittance
to the applicable taxing authority. These funds held for customers and the corresponding customer funds
obligations are included in current assets and current liabilities, respectively, in our consolidated balance
sheets as of December 31, 2011 and 2010. We have reported the cash flows from funds received from
UltiPro Payment Services customers in the investing activities section of the consolidated statements of
cash flows for the years ended December 31, 2011, 2010 and 2009. We have reported the cash flows
related to the funds received and paid on behalf of such customers to the applicable taxing authorities in the
financing activities section of the consolidated statements of cash flows for the years ended December 31,
2011, 2010 and 2009. The associated PEPM fees for UltiPro Payment Services are included in recurring
revenues in the consolidated statements of operations for the years ended December 31, 2011, 2010 and
2009. The associated interest earned was not material for the years ended December 31, 2011, 2010 and
2009.
Fair Value of Financial Instruments
Ultimate’s consolidated financial instruments, consisting of cash and cash equivalents, investments
in marketable securities, funds held for customers and the related obligations, accounts receivable, accounts
payable, and capital lease obligations, approximated fair value as of December 31, 2011 and 2010.
Prepaid Expenses and Other Current Assets
Ultimate’s financial statements include prepaid expenses and other current assets which include
prepaid commissions on SaaS sales. Prepaid expenses are amortized over the life of the asset (typically
within one year) and commissions on SaaS sales are amortized over the initial contract term (typically 24
months) commencing on the day the customer processes its first live payroll using UltiPro (also referred to
as going ―Live‖), which corresponds with the related SaaS revenue recognition. The portion of prepaid
commissions that extends beyond one year is classified in other assets, net in the consolidated balance
sheets for the years ended December 31, 2011 and 2010.
Goodwill and Other Intangible Assets
Goodwill is not subject to amortization, but is subject to an impairment test at least annually or
more frequently if events or circumstances indicate that impairment might exist. Intangible assets with
definite lives must be amortized over their estimated useful lives and reviewed for impairment. We
completed our annual impairment analysis of goodwill as of December 31, 2011 and determined that
goodwill had not been impaired as of December 31, 2011. Our acquired intangible assets with finite lives
were fully amortized in 2011.
52
Long-Lived Assets
We evaluate the carrying value of long-lived assets when indicators of impairment exist. For the
year ended December 31, 2011, no such events or circumstances were identified. The carrying value of a
long-lived asset is considered impaired when the undiscounted expected future cash flows from such asset
(or asset group) are separately identifiable and less than the asset’s (or asset group’s) carrying value. In
that event, a loss is recognized to the extent that the carrying value exceeds the fair value of the long-lived
asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. For the years ended December 31, 2011, 2010 and 2009, we
recorded no impairment of our long-lived assets.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation and amortization. Property
and equipment is depreciated using the straight-line method over the estimated useful lives of the assets,
which range from two to fifteen years. Leasehold improvements and assets under capital leases are amortized
over the shorter of the life of the asset or the term of the lease over periods ranging from three to fifteen years.
Maintenance and repairs are charged to expense when incurred; betterments are capitalized. Upon the sale or
retirement of assets, the cost, accumulated depreciation and amortization are removed from the accounts and
any gain or loss is recognized.
Deferred Revenue
Deferred revenue is primarily comprised of deferrals for recurring revenues for SaaS services
which are recognized over the term of the related contract as the services are performed, typically two
years; maintenance services which have not yet been rendered; implementation consulting services for
which the services have not yet been rendered; and subscription revenues which are recognized ratably over
the minimum term of the related contract upon the delivery of the product and services.
Guarantees
The standard commercial terms in our sales contracts for UltiPro include an indemnification clause
that indemnifies the customer against certain liabilities and damages arising from any claims of patent,
copyright, or other proprietary rights of any third party. Due to the nature of the intellectual property
indemnification provided to our customers, we cannot estimate the fair value, or determine the total
nominal amount, of the indemnification until such time as a claim for such indemnification is made. In the
event of a claim made against us under such provision, we evaluate estimated losses for such
indemnification considering such factors as the degree of probability of an unfavorable outcome and the
ability to make a reasonable estimate of the amount of loss. To date, Ultimate has not had any claims made
against it under such provision and, accordingly, has not accrued any liabilities related to such
indemnifications in its consolidated financial statements.
Segment Information
Public companies are required to report selected information about operating segments in annual
and interim financial reports to shareholders, as well as related disclosures about an enterprise’s business
segments, products, services, geographic areas and major customers. Ultimate operates its business as a
single segment.
53
Revenue Recognition
Effective January 1, 2011, we adopted Accounting Standards Update No. 2009-13, ―Multiple-
Deliverable Revenue Arrangements‖ (―ASU 2009-13‖) on a prospective basis. ASU 2009-13 requires the
use of the relative selling price method of allocating the total consideration to units of accounting in a
multiple element arrangement and eliminates the residual method. This new accounting principle requires
an entity to allocate revenue in an arrangement using the estimated selling price (―ESP‖) of deliverables if
it does not have vendor-specific objective evidence (―VSOE‖) or third-party evidence (―TPE‖) of selling
price. The adoption of ASU 2009-13 did not have a material impact on our consolidated financial
statements.
VSOE is the price charged when the same or similar product or service is sold separately. We
define VSOE as a median price of recent stand-alone transactions that are priced within a narrow range.
TPE is determined based on the prices charged by our competitors for a similar deliverable when
sold separately. However, due to the difficulty in obtaining sufficient information on competitor pricing
and differences in our product offerings when compared with those of our peers, we generally are unable to
reliably determine TPE.
ESP is our best estimate of the selling price of an element in a transaction. If we are unable to
establish selling price using either VSOE or TPE, we use ESP in our allocation of arrangement
consideration. The objective of ESP is to determine the price at which we would transact business if the
product or service were sold by us on a stand-alone basis. Our determination of ESP involves the use of a
customary discount from the list (or book) price for each element, with the discounted price applied within
a narrow range. The customary discount is derived from historical data that has been analyzed to determine
trends and patterns. We analyze the customary discount used for determining ESP on no less than an annual
basis.
We evaluate each deliverable in our arrangements to determine whether it represents a separate unit
of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value to our
customers. Our products and services qualify as separate units of accounting under ASU 2009-13.
There are two major elements in our multiple element arrangements for the delivery of our SaaS
Offering, which are recurring revenues (i.e., SaaS subscription revenues and customer support and
maintenance revenues) and services revenues (mostly implementation consulting services). Also included
in our total revenues, to a much lesser degree, are license revenues from the employee growth of our
previously licensed customers.
For multiple element arrangements, the consideration allocated to SaaS subscription revenues is
recognized as recurring revenues over the initial contract period, as those services are delivered,
commencing with the Live date of the related product. The consideration allocated to fixed fee
implementation services in multiple element arrangements is recognized as services revenues on a
percentage of completion basis, using reasonably dependable estimates with respect to milestones achieved
(in relation to progression through implementation phases), by product.
Single element arrangements typically consist of renewals for SaaS subscriptions and maintenance
agreements. In addition, subsequent to the introduction of the Partners for Life program (in the second half
of 2010), implementation services sold on a time and materials basis typically represent single element
arrangements. Under these single element arrangements, SaaS subscription and maintenance revenues are
recognized over the related renewal period, as the services are delivered, and implementation services are
recognized as the services are performed.
54
We recognize revenues when all of the following criteria are met:
persuasive evidence of an arrangement exists;
delivery has occurred;
the fees are fixed and determinable; and
collection is considered probable.
If collection is not considered probable, we recognize revenues when the fees are collected. If the
fees are not fixed and determinable, we recognize revenues when the fees become due from the customer.
If non-standard acceptance periods or non-standard performance criteria are required, we recognize revenue
when the acceptance period expires or upon the satisfaction of the acceptance/performance criteria, as
applicable.
The majority of services revenues are recognized over the implementation period, which is from
the contract execution date until the Live date. SaaS revenues are recognized over the contract term,
beginning in the month the customer goes Live. There was no material change to the pattern or timing of
revenue recognition for either services or SaaS elements as a result of adopting ASU 2009-13.
Recurring Revenues
Recurring revenues consist of subscription revenues recognized from our SaaS Offering, as well as
customer support and maintenance revenues.
i) SaaS subscription revenues are principally derived from PEPM fees earned from the SaaS
Offering and from sales of hosting services on a stand-alone basis to customers who
already own a perpetual license (―Base Hosting‖). Ongoing PEPM fees from the SaaS
Offering and Base Hosting are recognized as subscription revenues as the services are
delivered, commencing when the customer goes Live.
ii) Customer support and maintenance revenues are derived from maintaining, supporting, and
providing periodic updates of our software for our hosting services. Since we stopped
selling perpetual licenses to our new customers effective April 1, 2009, customer support
and maintenance revenues stem from annual renewals.
Under our SaaS Offering, our customers do not have the right to take possession of our software
and these arrangements are considered service contracts. Selling price of multiple deliverables in SaaS
arrangements is derived for each element based on the guidance provided by ASU 2009-13. The multiple
elements that typically exist in SaaS arrangements include hosting services, the right to use UltiPro,
maintenance of UltiPro (i.e., product enhancements, updates and customer support) and professional
services (i.e., primarily implementation consulting services).
The pricing for the three elements that pertain to recurring revenues (i.e., hosting services, the right
to use UltiPro and maintenance of UltiPro) is bundled. Since these three bundled elements are components
of recurring revenues in the consolidated statements of operations, allocation of selling price to each of the
three elements is not necessary and they are not reported separately. Selling price, which is established
through VSOE, for the bundled elements, as a whole, is determined on the basis of renewal pricing, without
taking into consideration potential price increases or potential changes in the number of employees of the
customer in the future due to the uncertainties surrounding these potential occurrences. These bundled
elements are provided on an ongoing basis, represent undelivered elements and are recognized on a
monthly basis as the related services are performed, commencing once the customer goes Live.
55
Services Revenues
Services revenues primarily include revenues from fees charged for implementation consulting
services in connection with the implementation of our product solutions and, to a much lesser extent,
training of customers in the use of our products and fees for other services, including the provision of
payroll-related forms, sales of time clocks and the printing of W-2 forms for certain customers, as well as
certain client reimbursable out-of-pocket expenses.
Prior to the introduction of the Partners for Life program in the second half of 2010, our multiple
element sales contracts included recurring SaaS revenues, priced on a PEPM basis, and implementation
services, priced on a time and materials basis. As the Partners for Life program has evolved (particularly
over the course of 2011), we have found that the vast majority of multiple element contracts contain
recurring SaaS revenues and implementation consulting services priced on a fixed fee basis. Time and
materials implementation consulting services are still sold but, generally, as stand-alone sales not directly
related to the basic implementation of the SaaS product. The total arrangement consideration is allocated to
services elements in the arrangement based on relative selling prices, using the prices established when the
services are sold on a stand-alone basis. Selling price is established through ESP for fixed fee
implementation consulting services related to our Partners for Life program.
Revenues from implementation consulting services sold on a fixed-fee basis are recognized using
the percentage of completion accounting method, which involves the use of estimates. Percentage of
completion is measured at each reporting date based on progress made to date, using reasonably
dependable estimates with respect to milestones achieved or billable hours, as applicable.
Revenues from implementation consulting services, billed on a time and materials basis (at an
hourly rate), are recognized as these services are performed. Other services are recognized as the product is
shipped or as the services are rendered, depending on the specific terms of the related arrangement.
License Revenues
From our inception through March 31, 2009, we sold perpetual licenses of UltiPro, which resulted
in license revenues recognized for that period of time. Customer support and maintenance revenues, from
previously sold perpetual licenses, are derived from maintaining, supporting, and providing periodic
updates of our software. Customer support and maintenance revenues are recognized ratably over the
service period, generally one year, and are included in recurring revenues. Annual maintenance renewal
fees which occur subsequent to the initial contract period are also recognized ratably over the related
service period and are included in recurring revenues.
Since April 1, 2009, sales to new customers are only on a subscription basis (priced and billed to
our customers on a PEPM basis). We no longer sell our on-site UltiPro solutions to new customers on a
perpetual license basis. We do sell licenses to existing license customers but only in relation to the
customer’s employee growth. Any such licenses are recognized as license revenues in our consolidated
financial statements upon the delivery of the related software product when all significant contractual
obligations have been satisfied.
Cost of Revenues
Cost of revenues primarily consists of the costs of recurring and services revenues. Cost of
recurring revenues primarily consists of costs to provide maintenance and technical support to our
customers, the cost of providing periodic updates and the cost of recurring subscription revenues, including
56
amortization of capitalized software. Cost of services revenues primarily consists of costs to provide
implementation services and, to a lesser degree, training to our customers, costs related to sales of payroll-
related forms and costs associated with certain client reimbursable out-of-pocket expenses.
Stock-Based Compensation
Our Amended and Restated 2005 Equity and Incentive Plan (the ―Plan‖) authorizes the grant of
options to non-employee directors, officers and employees of Ultimate to purchase shares of Ultimate’s
Common Stock. The Plan also authorizes the grant to such persons of restricted and non-restricted shares
of Common Stock, stock appreciation rights, stock units and cash performance awards (collectively,
together with stock options, the ―Awards‖). Prior to the adoption of the Plan, options to purchase shares of
Common Stock were issued under our Nonqualified Stock Option Plan (the ―Prior Plan‖). Beginning in
2009, we began making grants to employees of restricted stock units in lieu of stock options.
As of December 31, 2011, the aggregate number of shares of Common Stock authorized under the
Plan and the Prior Plan was 12,500,000 and the aggregate number of shares of Common Stock that were
available to be issued under all Awards granted under the Plan was 700,228 shares.
The Plan provides broad discretion to the Compensation Committee of the Board of Directors to
create appropriate equity incentives for directors, officers and employees of Ultimate. The Plan is intended
to attract and retain talented employees and align employee and stockholder interests.
For purposes of calculating and accounting for stock-based compensation expense (―SBC‖) in
accordance with ASC 718, ―Compensation – Stock Compensation‖ (―ASC 718‖) for restricted stock
awards and restricted stock units, we measure compensation based on the closing market price of our
Common Stock at the date of grant and it is recognized on a straight-line basis over the vesting period. We
estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures
differ from those estimates. The weighted-average forfeiture rate is based on historical data.
Rental Costs Incurred in Relation to a Construction Period
We have incurred rental costs associated with operating leases during the construction period.
Rental costs incurred during a construction period are costs incurred for the right to control the use of a
leased asset during and after construction of a leased asset. Since there is no distinction between the right
to use a leased asset during the construction period and the right to use that asset after the construction
period, rental costs associated with ground or building operating leases that are incurred during a
construction period are recognized as rental expense on a straight-line basis.
Income Taxes
We are subject to Federal, foreign and state corporate income taxes. We account for income taxes
using an asset and liability approach under which deferred income taxes are provided based upon enacted
tax laws and rates applicable to the periods in which the taxes become payable.
We make certain estimates and judgments in determining income tax expense for financial
statement purposes. These estimates and judgments occur in the calculation of certain tax assets and
liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and
financial statement purposes.
We assess the likelihood that Ultimate will be able to recover its deferred tax assets. Management
considers all available evidence, both positive and negative, including historical levels of pre-tax book
57
income, expiration of net operating losses, expectations and risks associated with estimates of future
taxable income and ongoing prudent and feasible tax planning strategies, as well as current tax laws and
interpretation of current tax laws, in assessing the need for a valuation allowance. If recovery is not likely,
we record a valuation allowance against the deferred tax assets that we estimate will not ultimately be
recoverable. The available positive evidence at December 31, 2011 included, among other factors, three
years of cumulative historical pre-tax book income and a projection of future pre-tax book income and
taxable income sufficient to realize all of our remaining deferred tax assets. As a result of our analysis of
all available evidence, both positive and negative, at December 31, 2011, it was considered more likely
than not that a full valuation allowance for deferred tax assets was not required. See Note 15 for further
discussion.
ASC 740, ―Income Taxes‖ (―ASC 740‖), clarified the accounting for uncertainty in income taxes
recognized in a company’s financial statements. Specifically, ASC 740 prescribed a recognition threshold
and a measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. ASC 740 also provides guidance on the related de-
recognition, classification, interest and penalties, accounting for interim periods, disclosure and transition
of uncertain tax positions. We recognize interest and penalties accrued related to unrecognized tax benefits
as components of our income tax provision. We did not have any interest and penalties accrued upon the
adoption of ASC 740, and, as of December 31, 2011 and 2010, we did not have any interest and penalties
accrued related to unrecognized tax benefits.
Reimbursable Out-Of-Pocket Expenses
Reimbursable out-of-pocket expenses, which are included in services revenues and cost of services
revenues in our accompanying consolidated statements of operations, were $1.1 million, $1.0 million and
$1.3 million for 2011, 2010 and 2009, respectively.
Recently Issued Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (―FASB‖) issued Accounting
Standards Update (―ASU‖) 2011-08, “Intangibles – Goodwill and Other” (―ASU 2011-08‖). ASU 2011-
08 is an amendment to Accounting Standard Codification (―ASC‖) 350, ―Intangibles-Goodwill and Other‖
(―ASC 350‖). As a result of the issuance of ASU 2011-08, an entity is no longer required to calculate the
fair value of a reporting unit unless the entity determines, through a qualitative approach, that it is more
likely than not that its fair value is less than its carrying amount. An entity has the option to first assess
qualitative factors to determine whether the existence of events or circumstances leads to a determination
that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after
qualitatively assessing the totality of events or circumstances, an entity determines it is more likely than
not that the fair value of a reporting unit is less than its carrying amount, then it is required to perform the
two-step impairment test. ASU 2011-08 is effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. We have
evaluated the impact of adopting ASU 2011-08 and determined that the adoption of this ASU will not have
an impact on our consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income” (―ASU 2011-05‖). ASU
2011-05 was issued to increase the prominence of items reported in other comprehensive income and to
facilitate the convergence of GAAP and International Financial Reporting Standards (―IFRS‖). ASU 2011-
05 eliminates the option to present components of other comprehensive income as part of the statement of
changes in stockholders’ equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity
be presented either in a single continuous statement of comprehensive income or in two separate, but
consecutive, statements. ASU 2011-05 is effective retrospectively for fiscal years, and interim periods
58
within those years, beginning after December 15, 2011. Early adoption is permitted. We have evaluated
the impact of adopting ASU 2011-05 and determined that the adoption of this ASU will not have an impact
on our consolidated financial statements, as it only requires a change in the format of our current
presentation of comprehensive income.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement” (―ASU 2011-04‖).
ASU 2011-04 is an amendment to ASC 820, ―Fair Value Measurement‖ (―ASC 820‖) to achieve common
fair value measurement and disclosure requirements in GAAP and IFRS. ASU 2011-04 changes the
wording used to describe the requirements in GAAP for measuring fair value and for disclosing
information about fair value measurements. The amendments include (i) those that clarify the intent of the
application of existing fair value measurement and disclosure requirements and (ii) those that change a
particular principle or requirement for measuring fair value or for disclosing information about fair value
measurements. ASU 2011-04 is effective prospectively for interim and annual periods beginning after
December 15, 2011. We have evaluated the impact of adopting ASU 2011-04 and determined that the
adoption of this ASU will not have a material impact on our consolidated financial statements.
4. Discontinued Operations
During the year ended December 31, 2010, Ultimate discontinued and liquidated the operations of
The Ultimate Software Group UK Limited, our wholly-owned subsidiary in the United Kingdom (the ―UK
Subsidiary‖).
Discontinued operations, net of income taxes, for the years ended December 31, 2010 and 2009
resulted in a loss of $0.9 million and $0.3 million, respectively. There was no loss from discontinued
operations for the year ended December 31, 2011. The loss from discontinued operations, net of income
taxes, of $0.9 million for the year ended December 31, 2010, was principally from the realization of a non-
cash foreign currency translation adjustment. The discontinuation of the operations of the UK Subsidiary
was completed as of September 30, 2010.
The financial results of discontinued operations of the UK Subsidiary are as follows (in thousands):
For the Years Ended December 31,
2010
2009
2011
Total revenues
$ –
$ 51
$ 299
Pretax loss from UK Subsidiary operations
Loss from disposal of UK Subsidiary (primarily for foreign
currency translation adjustment)
Pretax loss from discontinued operations
Income tax benefit
Loss from discontinued operations, net of
income taxes
$ –
$ (85)
$ (472)
–
–
–
(912)
(997)
144
–
(472)
136
$ –
$ (853)
$ (336)
The assets and liabilities of the UK Subsidiary were immaterial, both individually and in the
aggregate, and, therefore, are not presented separately.
59
5.
Investments in Marketable Securities and Fair Value of Financial Instruments
We classify our investments in marketable securities with readily determinable fair values as
available-for-sale. Available-for-sale securities consist of debt and equity securities not classified as
trading securities or as securities to be held to maturity. Unrealized gains and losses, net of tax, on
available-for-sale securities are reported as a net amount in accumulated other comprehensive income in
stockholders’ equity until realized. Gains and losses on the sale of available-for-sale securities are
determined using the specific identification method. Included in accumulated other comprehensive income
was $3 thousand and $7 thousand of net unrealized gains, net of tax, on available-for-sale securities at
December 31, 2011 and December 31, 2010, respectively.
The amortized cost, net unrealized gain (loss) and fair value of our investments in marketable
available-for-sale securities as of December 31, 2011 and December 31, 2010 are shown below (in
thousands):
As of December 31, 2011
Net
Unrealized
Gain (Loss)
As of December 31, 2010
Net
Fair
Value
Amortized
Unrealized
Cost
Gain
Fair
Value
Amortized
Cost
Corporate debentures – bonds
Commercial paper
U.S. Agency bonds
U.S. Treasury bills
Non U.S. government bond
Certificates of deposit
Total investments
$ 2,569
1,799
2,763
1,206
–
790
$ 9,127
$ (3)
–
1
5
–
–
$ 3
$ 2,566
1,799
2,764
1,211
–
790
$ 9,130
$ 2,903
2,599
1,513
1,504
301
490
$ 9,310
$ 4
–
1
2
–
–
$ 7
$ 2,907
2,599
1,514
1,506
301
490
$ 9,317
The amortized cost and fair value of the marketable available-for-sale securities by contractual
maturity at December 31, 2011 is shown below (in thousands):
As of December 31, 2011
Amortized
Cost
Fair
Value
Due in one year or less
Due after one year
Total
$ 7,585
1,542
$ 9,127
$ 7,584
1,546
$ 9,130
We classify and disclose fair value measurements in one of the following three categories of fair
value hierarchy:
Level 1:
Level 2:
Unadjusted quoted prices in active markets that are accessible at the measurement date
for identical, unrestricted assets and liabilities.
Quoted prices in markets that are not active or financial instruments for which all
significant inputs are observable, either directly or indirectly.
60
Level 3:
Prices or valuations that require inputs that are both significant to the fair value
measurement and unobservable.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement.
Our assets that are measured by management at fair value on a recurring basis are generally
classified within Level 1 or Level 2 of the fair value hierarchy. The types of instruments valued based on
quoted market prices in active markets include most money market securities and certificates of deposit.
Such instruments are generally classified within Level 1 of the fair value hierarchy. We did not have any
transfers into and out of Level 1 and Level 2 during the years ended December 31, 2011, 2010 and 2009.
The types of instruments valued by management, based on quoted prices in less active markets,
broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency,
include corporate debentures and bonds, commercial paper, U.S. agency bonds, U.S. Treasury bills and a
non U.S. government bond. Such instruments are generally classified within Level 2 of the fair value
hierarchy. We use consensus pricing, which is based on multiple pricing sources, to value our fixed
income investments. The following table sets forth, by level within the fair value hierarchy, financial assets
accounted for at fair value as of December 31, 2011 and December 31, 2010 (in thousands):
The following table sets forth, by level within the fair value hierarchy, financial assets and
liabilities accounted for at fair value as of December 31, 2011 and December 31, 2010 (in thousands):
As of December 31, 2011
As of December 31, 2010
Quoted
Prices in
Active
Markets
(Level 1)
$ –
Other
Observable
Inputs
(Level 2)
Un-
Observable
Inputs
(Level 3)
$ 2,566
$ –
–
–
–
–
790
1,799
2,764
1,211
–
–
–
–
–
–
–
Total
$2,907
2,599
1,514
1,506
301
490
Total
$ 2,566
1,799
2,764
1,211
–
790
Quoted
Prices in
Active
Markets
(Level 1)
$ –
Other
Observable
Inputs
(Level 2)
$ 2,907
Un-
Observable
Inputs
(Level 3)
$ –
–
–
–
–
490
2,599
1,514
1,506
301
–
–
–
–
–
–
$9,130
$ 790
$8,340
$ –
$9,317
$ 490
$8,827
$ –
Corporate debentures
and bonds
Commercial paper
U.S. Agency bonds
U.S. Treasury bills
Non-U.S.
government bond
Certificates of
deposit
Total
Assets and liabilities measured at fair value on a recurring basis were presented in the consolidated
balance sheets as of December 31, 2011 and as of December 31, 2010 as short-term and long-term
investments in marketable securities. There were no financial liabilities accounted for at fair value as of
December 31, 2011 and December 31, 2010.
61
6.
Allowance for Doubtful Accounts
We have established an allowance for doubtful accounts based on a review of the current status of
existing accounts receivable by customer and historical experience.
The activity within allowance for doubtful accounts was as follows (in thousands):
Balance at beginning of year
Charged to expenses and other
Write-offs and other
Balance at end of year
For the Years Ended December 31,
2010
$ 600
1,549
(1,349)
$ 800
2011
$ 800
1,586
(1,911)
$ 475
2009
$ 700
972
(1,072)
$ 600
7.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
Prepaid commissions on SaaS sales
Other prepaid expenses
Other current assets
Total prepaid expenses and other current assets
As of December 31,
2010
2011
$ 12,623
$ 13,910
3,432
3,999
2,558
5,035
$ 18,613
$ 22,944
8.
Property and Equipment
Property and equipment consists of the following (in thousands):
Computer equipment
Leasehold improvements
Furniture and fixtures
Building
Land
Property and equipment
Less: accumulated depreciation and amortization
Property and equipment, net
As of December 31,
2011
$ 75,393
12,771
7,172
929
655
96,920
72,434
$ 24,486
2010
$66,735
9,134
3,960
929
655
81,413
63,338
$ 18,075
Depreciation and amortization expense on property and equipment, including depreciation and
amortization expense on property and equipment under capital leases, totaled $10.2 million, $10.3 million
and $10.3 million for the years ended December 31, 2011, 2010 and 2009, respectively.
62
Included in property and equipment is computer equipment acquired under capital leases as follows
(in thousands):
Computer equipment
Less: accumulated amortization
2010
As of December 31,
2011
$ 25,727
22,476
$ 3,251
$ 22,799
19,457
$ 3,342
Depreciation and amortization expense on property and equipment under capital leases totaled $3.0
million, $2.5 million and $2.4 million for the years ended December 31, 2011, 2010 and 2009, respectively.
9.
Foreign Currency
The financial statements of Ultimate’s foreign subsidiaries have been translated into U.S. dollars.
The functional currency of our wholly-owned subsidiary, The Ultimate Software Group of Canada, Inc., is
the Canadian dollar and the functional currency of the dissolved UK Subsidiary was the British pound.
Assets and liabilities are translated into U.S. dollars at period-end exchange rates. Income and expenses are
translated at the average exchange rate for the reporting period. The resulting non-cash foreign currency
translation adjustments, representing unrealized gains or losses, are included in consolidated stockholders’
equity as a component of accumulated other comprehensive income (loss). Realized gains and losses
resulting from foreign exchange transactions are included in total operating expenses in the consolidated
statements of operations.
Included in comprehensive income (loss) for the years ended December 31, 2011, 2010 and 2009
were realized foreign currency translation losses and unrealized foreign currency translation gains (losses),
as follows (in thousands):
Realized foreign currency translation (losses)
For the Years Ended December 31,
2011
$ –
2010
$ (912)
2009
$ –
Unrealized foreign currency translation gains (losses)
$ (179)
$ (89)
$ 305
10.
Software Development Costs
We capitalize certain software development costs incurred subsequent to the establishment of
technological feasibility. Based on Ultimate’s product development process, technological feasibility is
established upon the completion of a working model. There were no research and development expenses
capitalized in 2011 and 2010. During 2009, a total of $0.1 million of research and development expenses
were capitalized in relation to UltiPro Onboarding, which is a product that handles certain human resources
functionality for new hires of a company, and had its general release in the first quarter of 2009. Annual
amortization is based on the greater of the amount computed using (a) the ratio that current gross revenues
for the related product bears to the total of current and anticipated future gross revenues for that product or
(b) the straight-line method over the remaining estimated economic life of the product including the period
being reported on.
63
Capitalized software is amortized using the straight-line method over the estimated useful lives of
the assets, which are typically five years. Capitalized software and accumulated amortization of
capitalized software were as follows (in thousands):
For the Years Ended December 31,
2011
2010
2009
Capitalized software
Less: accumulated amortization
Capitalized software, net
$ 11,342
9,577
$ 1,765
$ 11,342
8,227
$ 3,115
$ 11,342
6,879
$ 4,463
Amortization of capitalized software was $1.3 million, $1.3 million and $1.3 million in 2011, 2010
and 2009, respectively, and is included within cost of recurring revenues in the consolidated statements of
operations.
Future amortization for capitalized software at December 31, 2011 is as follows (in thousands):
Year
Amount
2012 $ 1,257
508
2013
$ 1,765
Ultimate evaluates the recoverability of capitalized software based on estimated future gross
revenues reduced by the estimated costs of completing the products and of performing maintenance and
customer support. If Ultimate’s gross revenues were to be significantly less than its estimates, the net
realizable value of Ultimate’s capitalized software intended for sale would be impaired, which could result
in the write-off of all or a portion of the unamortized balance of such capitalized software.
11.
Earnings Per Share
Earnings per share calculations require a dual presentation — ―basic‖ and ―diluted.‖ Basic
earnings per share is computed by dividing income available to common stockholders (the numerator) by
the weighted average number of common shares (the denominator) for the period. The computation of
diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to
include the number of additional common shares that would have been outstanding if the potentially
dilutive common shares had been issued.
The following is a reconciliation of the shares used in the computation of basic and diluted net
income (loss) per share (in thousands):
Basic weighted average shares outstanding
Effect of dilutive equity instruments
Dilutive shares outstanding
For the Years Ended
December 31,
2010
24,960
2,141
27,101
2009
24,463
–
24,463
2011
25,814
1,992
27,806
Options to purchase shares of Common Stock and other stock-based
awards outstanding which are not included in the calculation of diluted
income (loss) per share because their impact is anti-dilutive
33
25
6,161
64
12.
Comprehensive Income (Loss)
Comprehensive income (loss) represents all changes in equity that result from transactions and
other economic events in a period other than transactions with owners. Accumulated other comprehensive
income (loss), as presented in the consolidated balance sheets, consists of unrealized gains and losses on
available-for-sale securities and foreign currency translation adjustments, net of any related income tax.
Comprehensive income (loss) for the years ended December 31, 2011, 2010 and 2009 was as
follows (in thousands):
Net income (loss) (1)
Other comprehensive income (loss):
Realized foreign currency translation
adjustment
Unrealized (loss) gain on investments in
marketable securities available-for-sale
Unrealized (loss) gain on foreign currency
translation adjustments
Comprehensive income (loss)
For the Years Ended
December 31,
2010
$ 2,157
2009
$ (1,142)
2011
$ 4,282
–
(4)
(179)
912
(1)
(89)
$ 4,099 $ 2,979
–
1
305
$ (836)
(1) The amount attributable to the UK Subsidiary and accumulated in the foreign currency translation
adjustment component of equity became realized in the consolidated statements of operations
during the year ended December 31, 2010, the period in which discontinuation of the operations for
the UK Subsidiary was completed.
13. Goodwill and Intangible Assets
Goodwill represents the excess of cost over the net tangible and identifiable intangible assets of
acquired businesses. Identifiable intangible assets acquired in business combinations are recorded based
upon fair value at the date of acquisition. Goodwill consists of the following (in thousands):
As of December 31,
2011
2010
Goodwill, beginning balance
Impact of foreign currency translation
Goodwill, ending balance
$ 3,025
–
$ 3,025
$ 3,198
(173)
$ 3,025
Ultimate acquired its UK Subsidiary on October 5, 2006 and discontinued the operations of the UK
Subsidiary during the year ended December 31, 2010. Upon acquisition, Ultimate acquired certain
intangibles for developed technology and customer relationships. The values assigned to each of the
intangible assets included in the UK Subsidiary valuation were based on an income approach valuation
methodology. The income approach presumes that the value of an asset can be estimated by the net
economic benefit (i.e., cash flows) to be received over the life of the asset, discounted to present value.
65
As of December 31, 2011, Ultimate’s intangible assets were fully amortized and therefore they
were no longer classified in other assets in our consolidated balance sheet as of December 31, 2011.
As of December 31, 2010, Ultimate’s intangible assets had estimated useful lives and were
classified in other assets, net, in our consolidated balance sheet as of December 31, 2010 as follows (in
thousands):
Estimated
Useful Lives
Balance as of
December 31, 2010
Acquired intangible assets:
Developed technology
1 year
$83
Due to discontinuing the operations of the UK Subsidiary, the amortization of intangible assets
related to customer relationships was accelerated during 2010. There were no changes made to the
amortization of the developed technology intangible asset as this technology has been and will continue to
be leveraged into the UltiPro suite of products.
Amortization expense for the acquired intangible assets reflected above was $83 thousand, $281
thousand and $221 thousand for the years ended December 31, 2011, 2010 and 2009, respectively. As of
December 31, 2011, there is no future amortization expense for acquired intangible assets.
14. Capital Lease Obligations
We lease certain equipment under non-cancelable agreements, which are accounted for as capital
leases and expire at various dates through 2014. Interest rates on these leases range from 4.25% to 4.62%.
The scheduled lease payments of the capital lease obligations are as follows as of December 31, 2011 (in
thousands):
Year
2012
2013
2014
Less amount representing interest
Lease obligations reflected as current ($2,694) and
non-current ($2,175)
15. Income Taxes
Amount
$ 2,841
1,718
520
5,079
(210)
$ 4,869
For the year ended December 31, 2011, the income tax provision of $11.8 million was based on
book income from continuing operations before income taxes of $16.1 million. For the year ended
December 31, 2010, the income tax provision of $5.2 million was based on book income from continuing
operations before income taxes of $8.2 million. For the year ended December 31, 2009, the income tax
provision of $0.7 million was based on a book loss from continuing operations before income taxes of $0.1
million. Deferred tax assets and liabilities are determined based on the difference between financial
statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
66
The income tax (provision) benefit consists of the following (in thousands):
For the Year Ended December 31,
2010
2011
2009
Current taxes:
Federal
State and local
Foreign
Deferred taxes, net
Federal
State and local
Foreign
Income tax provision
$ (7,339) $
(1,602)
(7,276) $
(1,408)
—
(24)
(139)
(102)
—
(2,541)
(237)
18
$
3,094
564
(33)
(5,161)
$
(369)
(29)
(299)
(721)
$ (11,840)
The income tax (provision) benefit is different from that which would be obtained by applying the
statutory federal income tax rate of 35% to income (loss) from continuing operations before income taxes
as a result of the following (in thousands):
Income tax (provision) benefit at statutory federal tax rate
State and local income taxes, net of the federal benefit
Non-deductible expenses
Change in tax rates
Change in foreign valuation allowance
Other, net
Income tax provision
For the Year Ended December 31,
2010
$ (2,860)
(548)
(1,782)
27
85
(83)
$ (5,161)
2011
$ (5,642)
(1,195)
(4,920)
28
–
(111)
$ (11,840)
2009
$ 30
(20)
(662)
34
(103)
–
$ (721)
Deferred tax assets and liabilities reflect the net effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of our deferred tax assets and liabilities at December 31, 2011, 2010
and 2009 were as follows (in thousands):
As of December 31,
2010
2009
2011
Deferred tax assets:
Net operating losses
Tax credit carryforwards
Deferred revenue
Accruals not currently deductible
Allowance for doubtful accounts
Charitable contributions
Stock-based compensation
Deferred rent adjustment
Gross deferred tax assets
Less valuation allowance
Deferred tax assets
Deferred tax liabilities:
Property and equipment
Acquired intangible assets
Software development costs
Other, net
Gross deferred tax liabilities
$
$
$
$
$
$
–
127
2,501
356
166
524
22,217
1,322
27,213
–
27,213
(5,890)
–
111
(15)
(5,794)
$
$
$
–
127
3,362
239
292
264
21,258
1,171
26,713
–
26,713
(1,836)
(32)
(415)
(8)
(2,291)
4,886
224
3,849
213
233
234
17,608
1,235
28,482
(4,972)
23,510
(1,391)
(141)
(1,099)
(15)
(2,646)
Net deferred tax assets
$
21,419
$
24,422
$
20,864
67
Ultimate considers all available evidence, both positive and negative, including historical levels of
pre-tax book income, expiration of net operating loss carryforwards, expectations and risks associated with
estimates of future taxable income, ongoing prudent and feasible tax planning strategies and reversal of
deferred tax liabilities in assessing the need for the valuation allowance. If it is not more likely than not that
we will recover our deferred tax assets, we will increase our provision for taxes by recording a valuation
allowance against the deferred tax assets that we estimate will not ultimately be recoverable.
The available positive evidence at December 31, 2011 included, among other factors, three years
of cumulative historical pre-tax book income and a projection of future pre-tax book income and taxable
income. As a result of our analysis of all available evidence, both positive and negative, we believe that it
is more likely than not that the results of future operations will generate sufficient taxable income to realize
all of the deferred tax assets as of December 31, 2011.
There was no valuation allowance for the years ended December 31, 2011 and 2010. The net
decrease in the valuation allowance for the year ended December 31, 2010 was $5.0 million, $4.7 million
relating primarily to the recognition of stock-based payment deductions in stockholders’ equity and a $0.3
million decrease relating to foreign operations. The write-off of the valuation allowance attributable to
discontinued operations for the UK Subsidiary accounted for $0.2 million of the $0.3 million decrease. The
net decrease in the valuation allowance for the year ended December 31, 2009 was $0.7 million, an $0.8
million decrease relating primarily to the recognition of stock-based payment deductions in stockholders’
equity and a $0.1 million increase relating to foreign operations.
The activity within the valuation allowance for deferred tax assets was as follows (in thousands):
Balance at beginning of year
Charged to expenses and other
Write-offs and other
Balance at end of year
For the Years Ended December 31,
2011
2010
$ 4,972
$ –
(4,663)
–
(309)
–
$ –
$ –
2009
$ 5,657
(789)
104
$ 4,972
Management continues to apply the Exception to the Comprehensive Recognition of Deferred
Income Taxes to the undistributed earnings of our foreign subsidiary, Ultimate Canada. The
Comprehensive Recognition of Deferred Income Taxes presumes that all undistributed earnings will be
transferred to the parent entity. This presumption may be overcome by the parent entity, and no income
taxes would be accrued, if sufficient evidence shows that the subsidiary has invested or will invest the
undistributed earnings indefinitely or that the earnings will be remitted in a tax-free liquidation. A parent
entity shall have evidence of specific plans for reinvestment of undistributed earnings of a subsidiary which
demonstrates that remittance of the earnings will be postponed indefinitely. These criteria required to
overcome the presumption are sometimes referred to as the indefinite reversal criteria. Accordingly,
deferred income taxes were not recognized on the undistributed earnings of Ultimate Canada. The
cumulative undistributed earnings are not deemed material.
At December 31, 2011, we had approximately $112.8 million of net operating loss carryforwards
for federal income tax reporting purposes available to offset future taxable income. The $112.8 million
was attributable to deductions from the exercise of non-qualified employee, and non-employee director,
stock options and the vesting of restricted stock units and restricted stock awards, the tax benefit of which
68
will primarily be credited to paid-in-capital and deferred tax asset when realized. As a result, the tax
benefits associated with stock based compensation are included in net operating loss carryforwards but not
reflected in deferred tax assets. During 2011, we realized a tax benefit of $8.8 million comprised of an $8.5
million and a $0.3 million credit to paid-in-capital and deferred tax asset, respectively. As of December 31
2011, we did not have any net operating loss carryforwards for foreign income tax reporting purposes
available to offset future taxable income. The carryforwards expire from 2012 through 2031. Utilization of
such net operating loss carryforwards may be limited as a result of cumulative ownership changes in
Ultimate’s equity instruments.
ASC 740, ―Income Taxes,‖ (―ASC 740‖) requires that a position taken or expected to be taken in a
tax return be recognized in the financial statements when it is more likely than not (i.e., a likelihood of
more than fifty percent) that the position would be sustained upon examination by tax authorities. A
recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent
likely of being realized upon ultimate settlement. As of December 31, 2011, we had gross unrecognized
tax benefits of approximately $1.9 million, all of which would impact the effective tax rate if recognized.
While it is often difficult to predict the final outcome of any particular uncertain tax position, management
does not believe that it is reasonably possible that the estimates of unrecognized tax benefits will change
significantly in the next twelve months.
Tax years 1997 to 2010 remain subject to future examination by the major tax jurisdictions in
which we are subject to tax.
We recognize interest and penalties accrued related to unrecognized tax benefits as components of
our income tax provision. We did not have any interest and penalties accrued upon the adoption of ASC
740, and, as of December 31, 2011 and 2010, we did not have any interest and penalties accrued related to
unrecognized tax benefits.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years
ended December 31, 2011, 2010 and 2009 is as follows (in thousands):
As of December 31,
2010
2011
2009
Balance at January 1,
Tax positions taken in prior period
Gross increases
Gross decreases
Tax positions taken in current period
Gross increases
Settlements
Statute expiration
Balance at December 31,
$ 1,866 $
– $
–
–
–
–
–
–
–
1,866
–
–
$ 1,866 $ 1,866 $
–
–
–
–
–
–
–
16. Stock-Based Compensation and Equity
Summary of Plans
Our Amended and Restated 2005 Equity and Incentive Plan (the ―Plan‖) authorizes the grant of
options to non-employee directors, officers and employees of Ultimate to purchase shares of Ultimate’s
Common Stock (―Options‖). The Plan also authorizes the grant to such persons of restricted and non-
restricted shares of Common Stock, stock appreciation rights, stock units and cash performance awards
69
(collectively, together with the Options, the ―Awards‖). Prior to the adoption of the Plan, options to
purchase shares of Common Stock were issued under Ultimate’s Nonqualified Stock Option Plan (the
―Prior Plan‖). Beginning in 2009, we commenced making grants to employees of restricted stock grants in
lieu of Options.
As of December 31, 2011, the aggregate number of shares of Common Stock authorized under the
Plan and the Prior Plan was 12,500,000 and the aggregate number of shares of Common Stock that were
available to be issued under all Awards granted under the Plan was 700,228 shares.
Stock-Based Compensation
The following table sets forth the stock-based compensation resulting from stock-based
arrangements that is recorded in our consolidated statements of operations for the periods indicated (in
thousands):
For the Years Ended December 31,
2009
2010
2011
Cost of recurring revenues
Cost of services revenues
Sales and marketing
Research and development
General and administrative
Total stock-based compensation
$ 1,402
$ 914
1,238
6,678
1,218
3,201
$ 15,009 $ 13,249 $ 13,234
$ 689
1,316
7,059
1,228
2,942
1,464
6,824
1,625
3,694
Net cash proceeds from the exercise of Options were $13.3 million, $14.9 million and $6.3 million
for the years ended December 31, 2011, 2010, and 2009, respectively. There was an $8.5 million, a $6.7
million and a $0.5 million income tax benefit recognized in additional paid in capital from the realization of
excess stock-based payment deductions during the years ended December 31, 2011, 2010 and 2009,
respectively.
Fair Value
There were no Options granted during the years ended December 31, 2011, 2010 and 2009. The
fair value of restricted stock awards and restricted stock units is equal to the closing price of our Common
Stock on NASDAQ on the date of grant.
We estimate forfeitures at the time of grant and revise those estimates in subsequent periods if
actual forfeitures differ from those estimates. The weighted-average forfeiture rate for the years ended
December 31, 2011, 2010 and 2009 was based on historical data.
Options
Options granted to officers and employees under the Plan and the Prior Plan generally have a 10-
year term, vesting 25% immediately and 25% on each of the first three anniversaries of the grant date.
Options granted to non-employee directors under the Plan and the Prior Plan generally have a 10-year term
and vest and become exercisable immediately on the grant date. However, certain Options granted to non-
employee directors for board services during the period January 3, 2005 through July 2, 2007 become
exercisable on the earliest of (i) the fifth anniversary of the date of grant, (ii) the 90th day after the date on
70
which the director ceases to be a member of the Board of Directors of Ultimate (the ―Board‖) or (iii) the
effective date of a change in control of Ultimate.
Restricted Stock Awards
Under the provisions of the Plan, Ultimate may, at the discretion of the Compensation Committee
or the Board, grant restricted stock awards (―Restricted Stock Awards‖) to officers, employees and non-
employee directors. The shares of Common Stock issued under Restricted Stock Awards are subject to
certain vesting requirements and restrictions on transfer. During the years ended December 31, 2011, 2010
and 2009, we granted Restricted Stock Awards for 193,625, 134,750 and 175,000 shares, respectively, of
Common Stock to officers and employees and we granted Restricted Stock Awards for 23,289, 30,816 and
37,235 shares, respectively, of Common Stock to non-employee directors. Compensation expense for
Restricted Stock Awards is measured based on the closing market price of our Common Stock at the date
of grant and is recognized on a straight-line basis over the vesting period. Holders of Restricted Stock
Awards have all rights of a stockholder including the right to vote the shares and receive all dividends and
other distributions paid or made with respect thereto. Each Restricted Stock Award becomes vested on the
fourth anniversary of the respective date of grant, subject to the grantee’s continued employment with
Ultimate or any of its subsidiaries on each such vesting date and subject further to accelerated vesting in the
event of a change in control of Ultimate, death or disability, the termination of employment by Ultimate
without cause or, in the case of a non-employee director, at cessation of his board services at the end of his
term. Included in our consolidated statements of operations for the years ended December 31, 2011, 2010,
and 2009 was $8.4 million, $8.0 million and $7.9 million, respectively, of compensation expense for
Restricted Stock Awards.
Restricted Stock Unit Awards
Ultimate may, at the discretion of the Compensation Committee, make Awards of stock units or
restricted stock units under the Plan (―Restricted Stock Unit Awards‖) to certain officers and employees. A
Restricted Stock Unit Award is a grant of a number of hypothetical share units with respect to shares of
Common Stock that are subject to vesting and transfer restrictions and conditions under a restricted stock
unit award agreement. The value of each unit is equal to the fair value of one share of Common Stock on
any applicable date of determination. The payment with respect to each unit under a Restricted Stock Unit
Award may be made, at the discretion of the Compensation Committee, (i) in a number of shares of our
Common Stock equal to the number of Restricted Stock Units becoming vested, (ii) in cash, in an amount
equal to the fair market value of a share of our Common Stock on the vesting date multiplied by the
number of restricted stock units becoming vested on such date or (iii) in a combination of both. The
grantee of a Restricted Stock Unit Award does not have any rights as a stockholder with respect to the
shares subject to a Restricted Stock Unit Award until such time as shares of Common Stock are delivered
to the grantee pursuant to the terms of the related stock unit award agreement.
Beginning in 2009, we commenced granting Restricted Stock Unit Awards to employees and
discontinued the grant of Options under the Plan. Such Restricted Stock Unit Awards vest in three equal
annual installments of 33-1/3% of the number of Restricted Stock Unit Awards on each of the first three
anniversaries of the date of grant thereof, subject to the participant’s continued employment with Ultimate
or any of its subsidiaries on each such vesting date, and shall be payable as described above, provided,
however, that if any such anniversary is not a date on which our Common Stock is traded on NASDAQ,
then the vesting date shall be the last such trading day immediately preceding such anniversary; and
provided further, however, that if the Chief Financial Officer (―CFO‖) of Ultimate should determine that
any such anniversary falls within a period during which the participant is prohibited from trading
Ultimate’s Common Stock under our stock trading policy, the CFO shall so advise the participant in writing
and the vesting date shall be the date as of which the CFO has determined that such period has ended.
71
There were 242,062, 199,525 and 211,635 Restricted Stock Unit Awards granted to employees
during the years ended December 31, 2011, 2010 and 2009, respectively. Non-cash stock-based
compensation expense for Restricted Stock Unit Awards is measured based on the fair market value of our
Common Stock on the date of grant and recognized on a straight-line basis over the vesting period.
Included in Ultimate’s consolidated statements of operations for the years ended December 31, 2011, 2010
and 2009 was $5.9 million, $2.4 million and $0.9 million, respectively, of non-cash compensation expense
for Restricted Stock Unit Awards.
Option, Restricted Stock and Restricted Stock Unit Activity
The following table summarizes Option activity for the years ended December 31, 2009, 2010 and
2011, as follows (in thousands, except per share amounts):
Options
Shares
Exercise Price
Term (in Years)
Weighted
Average
Weighted
Average
Remaining
Contractual
Aggregate
Intrinsic
Value
Outstanding at December 31, 2008
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2009
Exercisable at December 31, 2009
Outstanding at December 31, 2009
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2010
Exercisable at December 31, 2010
Outstanding at December 31, 2010
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2011
Exercisable at December 31, 2011
4,964
–
(668)
(131)
4,165
3,576
4,165
–
(1,124)
(26)
3,015
2,807
3,015
–
(776)
(16)
2,223
2,219
$ 16.86
–
9.40
24.94
$17.79
5.55
$ 49,687
$16.12
5.15
$ 48,360
$ 17.79
–
13.25
27.58
$19.40
5.07
$ 88,136
$18.71
4.90
$ 83,989
$ 19.40
–
17.11
19.58
$20.20
4.27
$ 99,850
$20.20
4.27
$ 99,850
The aggregate intrinsic value of Options in the table above represents total pretax intrinsic value
(i.e., the difference between the closing price of our Common Stock on the last trading day of the reporting
period and the exercise price, times the number of shares) that would have been received by the Option
holders had all Option holders exercised their Options on December 31, 2011. The amount of the
aggregate intrinsic value changes, based on the fair value of our Common Stock. Total intrinsic value of
Options exercised during the years ended December 31, 2011, 2010 and 2009 was $31.2 million, $25.1
72
million and $10.1 million, respectively. Total fair value of Options vested during the years ended
December 31, 2011, 2010 and 2009 was $2.3 million, $4.2 million, $5.7 million, respectively.
As of December 31, 2011, there was no total unrecognized compensation cost related to non-vested
Options expected to be recognized.
The following table summarizes Restricted Stock and Restricted Stock Unit Award activity for the
years ended December 31, 2009, 2010 and 2011, as follows (in thousands, except per share amounts):
Restricted Stock
Restricted
Stock Units
Outstanding at December 31, 2008
Granted
Vested
Released
Forfeited or expired
Outstanding at December 31, 2009
Granted
Vested
Released
Forfeited or expired
Outstanding at December 31, 2010
Granted
Vested
Released
Forfeited or expired
Outstanding at December 31, 2011
Shares
1,361
212
–
(169)
–
1,404
166
–
(263)
–
1,307
217
–
(479)
–
1,045
Weighted
Average
Grant Date
Fair Value
Shares
$ 23.09
26.55
–
16.86
–
$ 24.36
40.51
–
23.16
–
$ 26.64
62.62
–
32.89
–
$ 31.25
45
211
–
(9)
247
200
–
(95)
(16)
336
242
–
(126)
(23)
429
As of December 31, 2011, $21.4 million of total unrecognized compensation cost related to non-
vested Restricted Stock Awards is expected to be recognized over a weighted average period of 1.9 years.
As of December 31, 2011, $11.4 million of total unrecognized compensation costs related to non-vested
Restricted Stock Unit Awards is expected to be recognized over a weighted average period of 1.7 years.
73
The following table summarizes information with respect to Options outstanding and Options
exercisable under the Plan at December 31, 2011:
Options Outstanding
Options Exercisable
Range of
Exercise
Prices
$0.89—$4.23
$6.86—$13.05
$13.63—$16.68
$17.11—$21.60
$24.20—$24.20
$24.30—$24.30
$26.72—$27.02
$28.41—$28.41
$30.34—$32.39
$32.54—$34.89
$0.89—$34.89
Number
226,761
386,188
263,627
277,534
94,870
246,677
32,275
355,624
228,434
111,044
2,223,034
Weighted-
Average
Remaining
Contractual
Term
(Years)
1.06
2.38
4.01
4.19
4.81
5.08
5.03
6.05
6.06
6.17
4.27
Weighted-
Average
Exercise Price
$3.38
11.30
15.00
20.42
24.20
24.30
26.88
28.41
31.56
33.25
$ 20.20
Number
226,761
382,178
263,627
277,534
94,870
246,677
32,275
355,624
228,434
111,044
2,219,024
Weighted-
Average
Exercise Price
$3.38
11.30
15.00
20.42
24.20
24.30
26.88
28.41
31.56
33.25
$ 20.20
Board Compensation
On February 4, 2009, the Compensation Committee of the Board (the ―Compensation Committee‖)
amended the previously approved arrangement pursuant to which the non-employee directors and the
Chairmen of the Audit Committee of the Board (the ―Audit Committee‖) and the Compensation
Committee, respectively, were granted Options for each regular Board and Committee meeting attended.
Under the arrangement as amended, (i) each non-employee director was granted a restricted stock award of
1,000 shares of Common Stock for each regular meeting of the Board attended in 2009 and during the first
three quarters of 2010 and (ii) each of the Chairmen of the Audit Committee and Compensation Committee
was granted a restricted stock award of 625 shares of Common Stock for attendance at each regular
meeting of the respective Committee in 2009 and during the first three quarters of 2010 that he chaired. In
addition, in 2009 and in 2010, each non-employee director was granted, for each fiscal quarter during
which he served, a restricted stock award of that number of shares of Common Stock equal to the quotient
of $12,500 divided by the closing price of the Common Stock on NASDAQ on the date of grant, which is
the effective date of the grant determined by the Board for each such quarter, rounded down to the closest
full number of shares. Under the arrangement as amended, the date of grant shall not be a date prior to the
date of the Board’s determination of the same and such restricted stock awards shall vest on the fourth
anniversary of the date of grant, subject to accelerated vesting in the event of a director’s death, disability,
cessation of service or the end of his term or the occurrence of a change of control of Ultimate.
On October 25, 2010, the Board amended the previously approved arrangement pursuant to which
the non-employee directors and Chairmen of the Audit and Compensation Committees of the Board,
respectively, were granted Awards for each regular Board and Committee meeting attended. Under the
arrangement, as amended, (i) each non-employee director was granted a restricted stock award of 750
shares of Common Stock for each regular meeting of the Board attended in the fourth quarter of 2010 and
in 2011 and (ii) each of the Chairmen of the Audit Committee and Compensation Committee was granted a
restricted stock award of 468 shares of Common Stock for attendance at each regular meeting of the
Committee during the fourth quarter of 2010 and in 2011 that he chaired.
74
The following table summarizes information about Restricted Stock Awards granted by us to non-
employee directors in exchange for director related services rendered for 2011, 2010 and 2009:
Year
2009
2010
2011
Market Value of
Restricted Stock Awards
Granted
Number of
Restricted Stock Awards
Granted
$14.43
18.75
26.97
27.63
$30.29
31.84
33.33
42.03
$53.33
53.57
50.75
63.57
10,580
9,580
8,565
8,510
8,310
8,210
8,125
6,171
5,856
5,851
5,916
5,666
The non-cash compensation expense, recognized in the consolidated statements of operations
related to the Restricted Stock Awards granted to non-employee directors, including the chairmen of the
Audit and Compensation Committees, determined pursuant to the application of ASC 718 for the years
ended December 31, 2011, 2010 and 2009, was $706,000, $427,000 and $188,000, respectively, and is
included in general and administrative expenses.
Common Stock
The holders of Common Stock are entitled to one vote per share for each share held of record on all
matters submitted to a vote of the stockholders.
17. Commitments and Contingencies
Operating Leases
We lease corporate office space and certain equipment under non-cancelable operating lease
agreements expiring at various dates. Total rent expense under these agreements was $5.5 million, $4.0
million and $3.8 million for the years ended December 31, 2011, 2010 and 2009, respectively. Future
minimum annual rental commitments related to these leases are as follows at December 31, 2011 (in
thousands):
Year
2012
2013
2014
2015
2016
Thereafter
Amount
$ 5,082
4,785
5,158
4,557
3,850
4,543
$ 27,975
75
Litigation
From time-to-time, Ultimate is involved in litigation relating to claims arising out of its operations
in the normal course of business. We are not currently a party to any legal proceeding the adverse outcome
of which, individually or in the aggregate, could reasonably be expected to have a material adverse effect
on our operating results or financial condition.
18. Related Party Transactions
On October 23, 2006, Ultimate’s Board elected Al Leiter as a non-employee member of Ultimate’s
Board of Directors. During October 2002, Mr. Leiter entered into an agreement with Ultimate pursuant to
which he agreed to (i) attend and participate in certain internal meetings of Ultimate; (ii) assist our
salespeople with prospects; and (iii) act as an official spokesperson for Ultimate in exchange for which we
agreed to make contributions to Leiter’s Landing, Mr. Leiter’s non-profit charitable organization benefiting
children, in the amount of one tenth (1/10) of one percent, or 0.1%, of our total revenues as reported in our
consolidated statements of operations. Pursuant to this agreement, for the fiscal years ended December 31,
2011, 2010 and 2009, Ultimate contributed a total of approximately $200,000, $200,000, and $197,000,
respectively, to Leiter’s Landing. In February 2007, Mr. Leiter and Ultimate agreed that the maximum
amount payable by Ultimate in any one year under this agreement is $200,000.
19. Employee Benefit Plan
Ultimate provides retirement benefits for eligible employees, as defined, through a defined
contribution plan that is qualified under Section 401(k) of the Internal Revenue Code (the ―401(k) Plan‖).
Contributions to the 401(k) Plan, which are made at the sole discretion of Ultimate, were $2.5 million, $2.0
million and $1.8 million for the years ended December 31, 2011, 2010 and 2009, respectively.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Ultimate carried out an evaluation, under the supervision and with the participation of Ultimate’s
management, including the Chief Executive Officer (the ―CEO‖) and the Chief Financial Officer (the
―CFO‖), of the effectiveness of the design and operation of Ultimate’s disclosure controls and procedures
as of the end of the period covered by this Form 10-K pursuant to Rules 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the ―Exchange Act‖). Based on that evaluation, Ultimate’s
management, including the CEO and CFO, concluded that, as of December 31, 2011, Ultimate’s disclosure
controls and procedures were effective to provide reasonable assurance that information required to be
disclosed in Ultimate’s Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified by the SEC’s rules and forms and is accumulated and communicated to
management, including the CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure. Ultimate’s disclosure controls and procedures were designed to provide reasonable assurance
as to the achievement of these objectives. It should be noted that the design of any system of controls is
based in part upon certain assumptions about the likelihood of future events and thus has inherent
limitations. Therefore, even those systems determined to be effective can only provide reasonable
assurance as to the achievement of their objectives.
76
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act). Internal
control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external reporting purposes
in accordance with GAAP. Our management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2011. In making this assessment, our management used the criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on the results of this assessment, our
management has concluded that, as of December 31, 2011, our internal control over financial reporting was
effective. However, because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements and, even when determined to be effective, can only provide reasonable
assurance with respect to financial statement preparation and presentation.
KPMG LLP, the independent registered public accounting firm that audited our consolidated
financial statements included in this Form 10-K, has issued an attestation report on Ultimate’s internal
control over financial reporting as of December 31, 2011, which is included on page 78 of this Form 10-K.
Changes in Internal Control Over Financial Reporting
There have been no changes during the fourth quarter of 2011 in Ultimate’s internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect, Ultimate’s
internal control over financial reporting.
77
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
The Ultimate Software Group, Inc.:
We have audited The Ultimate Software Group, Inc.’s (the Company’s) internal control over financial
reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of The Ultimate Software Group, Inc. and
subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations,
stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-
78
year period ended December 31, 2011, and our report dated February 29, 2012 expressed an unqualified
opinion on those consolidated financial statements.
/s/ KPMG LLP
February 29, 2012
Miami, Florida
Certified Public Accountants
79
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The directors, executive officers (Messrs. Scott Scherr, Marc D. Scherr and Mitchell K. Dauerman)
and other key employees of Ultimate, and their ages as of February 18, 2012, are as follows:
Name
Scott Scherr
Marc D. Scherr
Mitchell K. Dauerman
Jon Harris
Robert Manne
Vivian Maza
Adam Rogers
Greg Swick
Chris Phenicie
Bill Hicks
Julie Dodd
Jody Kaminsky
James A. FitzPatrick, Jr. .
LeRoy A. Vander Putten
Rick A. Wilber
Robert A. Yanover
Alois T. Leiter
Age
59
54
54
47
58
50
37
48
40
46
42
37
62
77
65
75
46
Position(s)
Chairman of the Board, President and Chief Executive Officer
Vice Chairman of the Board and Chief Operating Officer
Executive Vice President, Chief Financial Officer and Treasurer
Senior Vice President and General Manager, Enterprise Services
Senior Vice President, General Counsel
Senior Vice President, Chief People Officer and Secretary
Senior Vice President, Chief Technology Officer
Senior Vice President, Chief Enterprise Sales Officer
Senior Vice President, Chief Workplace Sales Officer
Senior Vice President, Shared Services Chief Information Officer
Senior Vice President and General Manager, Workplace Services
Senior Vice President, Marketing
Director
Director
Director
Director
Director
Scott Scherr has served as President and a director of Ultimate since its inception in April 1996 and
has been Chairman of the Board and Chief Executive Officer of Ultimate since September 1996. Mr.
Scherr is also a member of the Executive Committee of the Board of Directors (the ―Board‖). In 1990, Mr.
Scherr founded The Ultimate Software Group, Ltd. (the ―Partnership‖), the business and operations of
which were assumed by Ultimate in 1998. Mr. Scherr served as President of the Partnership’s general
partner from the inception of the Partnership until its dissolution in March 1998. From 1979 until 1990, he
held various positions at ADP, a payroll services company, where his titles included Vice President of
Operations and Sales Executive. Prior to joining ADP, Mr. Scherr operated Management Statistics, Inc., a
data processing service bureau founded by his father, Reuben Scherr, in 1959. He is the brother of Marc
Scherr, the Vice Chairman of the Board of Ultimate and the father-in-law of Adam Rogers, Senior Vice
President, Chief Technology Officer.
Marc D. Scherr has been a director of Ultimate since its inception in April 1996 and has served as
Vice Chairman since July 1998 and as Chief Operating Officer since October 2003. Mr. Scherr is also a
member of the Executive Committee of the Board. Mr. Scherr became an executive officer of Ultimate
effective March 1, 2000. Mr. Scherr served as a director of Gerschel & Co., Inc., a private investment firm
from January 1992 until March 2000. In December 1995, Mr. Scherr co-founded Residential Company of
America, Ltd. (―RCA‖), a real estate firm, and served as President of its general partner until March 2000.
Mr. Scherr also served as Vice President of RCA’s general partner from its inception in August 1993 until
December 1995. From 1990 to 1992, Mr. Scherr was a real estate pension fund advisor at Aldrich, Eastman
& Waltch. Previously, he was a partner in the Boston law firm of Fine & Ambrogne. Mr. Scherr is the
brother of Scott Scherr, Chairman of the Board, President and Chief Executive Officer of Ultimate.
80
Mitchell K. Dauerman has served as Executive Vice President of Ultimate since April 1998 and as
Chief Financial Officer and Treasurer of Ultimate since September 1996. From 1979 to 1996, Mr.
Dauerman held various positions with KPMG LLP, an accounting firm, serving as a Partner in the firm
from 1988 to 1996. Mr. Dauerman is a Certified Public Accountant.
Jon Harris has served as Senior Vice President since January 1, 2002 and General Manager,
Enterprise Services since February 6, 2007. Mr. Harris served as Vice President, Professional Services
from July 1998 through December 31, 2001. From 1992 to 1997, Mr. Harris held various management
positions within ADP’s National Accounts Division. From 1989 to 1992, Mr. Harris held the position of
Consulting Services Director for Sykes Enterprises, Inc., a diverse information technology company.
Robert Manne has served as Senior Vice President, General Counsel since February 2004 and
served as Vice President, General Counsel from May 1999 through January 2004. Prior to joining Ultimate,
Mr. Manne was an attorney and partner of Becker & Poliakoff, P.A., an international law firm, since 1978.
In addition to administering the Litigation Department of the law firm, Mr. Manne was a permanent
member of the firm’s executive committee which was responsible for law firm operations. Mr. Manne has
performed legal services for Ultimate since its inception.
Vivian Maza has served as Senior Vice President, Chief People Officer and Secretary of Ultimate
since February 2004 and served as Vice President, People from January 1998 through January 2004. Ms.
Maza has served as Secretary of Ultimate since September 1996. Prior to that, Ms. Maza served as the
Office Manager of Ultimate from its organization in April 1996 and of the Partnership from its inception in
1990 until April 1996. Ms. Maza is an HR Generalist and holds a Professional in Human Resources (PHR)
certification from the Society for Human Resource Management (SHRM) association. From 1985 to 1990,
Ms. Maza was a systems analyst for the Wholesale Division of ADP.
Adam Rogers has served as Senior Vice President, Chief Technology Officer since February 6,
2007. Mr. Rogers served as Senior Vice President, Development from December 2002 to February 6,
2007. From July 2001 to December 2002, Mr. Rogers served as Vice President of Engineering. From May
1997 to July 2001, Mr. Rogers held various positions in Ultimate’s research and development organization,
including Director of Technical Support from October 1998 to November 1999 and Director of Web
Development from November 1999 to July 2001. Mr. Rogers is the son-in-law of Scott Scherr, Chairman
of the Board, President and Chief Executive Officer of Ultimate.
Greg Swick has served as Senior Vice President since January 2001 and as Chief Enterprise Sales
Officer since February 6, 2007. Mr. Swick served as Vice President and General Manager of the PEO
Division of Ultimate’s sales organization from November 1999 to January 2001. From February 1998 to
November 1999, Mr. Swick was Director of Sales, Northeast Division. Prior to joining Ultimate, Mr. Swick
was President of The Ultimate Software Group of New York and New England, G.P., a reseller of Ultimate
Software which was acquired by Ultimate in March 1998. From 1987 to 1994, Mr. Swick held various
positions with ADP, where the most recent position was Area Vice President — ADP Dealer Services
Division.
Chris Phenicie has served as Senior Vice President, Chief Workplace Sales Officer since January
2009 and served as Vice President of Workplace Sales from April 2007 until January 2009. From January
2000 to April 2007, Mr. Phenicie served as Strategic Account Manager for Ultimate. From July 1997 to
January 2000, Mr. Phenicie held various sales positions with ADP, the most recent of which position was
Sales Manager.
81
Bill Hicks has served as Senior Vice President, Shared Services Chief Information Officer since
April 2005. Mr. Hicks served as Vice President, Chief Information Officer from February 2004 through
March 2005. From 1993 until February 2004, Mr. Hicks held various positions in the management of
technologies for Precision Response Corporation, a wholly-owned subsidiary of Interactive Corporation
and a provider of call centers and on-line commerce customer care services, including Chief Information
Officer and Senior Vice President of Technology from August 2000 until February 2004.
Julie Dodd has served as Senior Vice President and General Manager, Workplace Services, since
April 2010. Ms. Dodd served as Vice President and General Manager of Workplace Operations from
January 2009 until April 2010. From October 2007 to December 2008, Ms. Dodd served as the Director of
Product Strategy, with primary focus on the UltiPro Workplace product offering. Prior to joining Ultimate,
Ms. Dodd provided consulting services for large scale implementations, operations efficiencies projects and
new SaaS product launches for various service providers. From 2002 to 2005, Ms. Dodd held various
executive positions with Ceridian Corporation, an information technology company, supporting their small
and mid-market solutions.
Jody Kaminsky has served as Senior Vice President, Marketing since April 2010. Ms. Kaminsky
served as Vice President, Marketing from July 2008 until April 2010. Ms. Kaminsky served as Vice
President, Marketing Operations from July 2005 to June 2008, as Director of Strategic Marketing from
December 2002 through June 2005, and in various other Marketing and Communications positions from
November 1999 through November 2002. Prior to that, Ms. Kaminsky held various positions with General
Electric's GE Information Services division from April 1997 through August 1999 including Manager of
Communications and Community Relations.
James A. FitzPatrick, Jr. has served as a director of Ultimate since July 2000. Mr. FitzPatrick is a
partner in the law firm Dewey & LeBoeuf LLP, which provides legal services to Ultimate. Mr. FitzPatrick
has been a partner in Dewey & LeBoeuf LLP or its predecessor firms since January 1983 and was an
associate from September 1974 until January 1983.
LeRoy A. Vander Putten has served as a director of Ultimate since October 1997, is Chairman of
the Compensation Committee of the Board and is a member of the Audit Committee of the Board. Mr.
Vander Putten served as the Executive Chairman of The Insurance Center, Inc., a holding company for 14
insurance agencies, from October 2001 until January 2006 at which time the company was sold.
Previously, he served as the Chairman of CORE Insurance Holdings, Inc., a member of the GE Global
Insurance Group, engaged in the underwriting of casualty reinsurance, from August 2000 to August 2001.
From April 1998 to August 2000, he served as Chairman of Trade Resources International Holdings, Ltd., a
corporation engaged in trade finance for exporters from developing countries. From January 1988 until
May 1997, Mr. Vander Putten was Chairman and Chief Executive Officer of Executive Risk Inc., a
specialty insurance holding company. From August 1982 to January 1988, Mr. Vander Putten served as
Vice President and Deputy Treasurer of The Aetna Life and Casualty Company, an insurance company.
Rick A. Wilber has served as a director of Ultimate since October 2002 and is a member of the
Audit Committee and a member of the Compensation Committee of the Board. Mr. Wilber formerly served
on Ultimate’s Board of Directors from October 1997 through May 2000. Since 1995, Mr. Wilber has
served as the President of Lynn’s Hallmark Cards, which owns and operates a number of Hallmark Card
stores. Mr. Wilber has served as a director of Vanguard Energy Corporation, an oil and gas company since
June 2010. Mr. Wilber has served as a director of Synergy Resource Corporation, an oil and gas
exploration company, since October 2008. Mr. Wilber was a co-founder of Champs Sports Shops and
served as its President from 1974 to 1984. He served on the Board of Royce Laboratories, a pharmaceutical
concern, from 1990 until April 1997, when Royce Laboratories was sold to Watson Pharmaceuticals, Inc., a
pharmaceutical concern.
82
Robert A. Yanover has served as a director of Ultimate since January 1997 and is Chairman of the
Audit Committee and a member of the Compensation Committee of the Board. Mr. Yanover founded
Computer Leasing Corporation of Michigan, a private leasing company, in 1975 and served as its President
from its founding until 2007, at which time Mr. Yanover retired. Mr. Yanover also founded Lason, Inc., a
corporation specializing in the imaging business, and served as Chairman of the Board from its inception in
1987 until 1998 and as a director through February 2001.
Al Leiter has served as director of Ultimate since October 2006 and is a member of the
Compensation Committee. Mr. Leiter was a three-time Major League Baseball World Champion and two-
time All-Star pitcher formerly with the New York Yankees, New York Mets, Toronto Blue Jays, and
Florida Marlins, and has been an official spokesperson for Ultimate since 2002. Mr. Leiter has served as a
television commentator for the Yankees Entertainment and Sports Network since 2006 and as an analyst
with MLB Network since January 2009. Mr. Leiter is president and founder of Leiter’s Landing, a
charitable organization formed in 1996. Mr. Leiter has served on the Executive Committee of New York
City’s official tourism marketing organization, NYC & Company, since 2000 and is on the Board of
Directors of America’s Camp, a legacy organization of the Twin Towers Fund, on which he also served as
a board member.
Each officer serves at the discretion of the Board and holds office until his or her successor is
elected and qualified or until his or her earliest resignation or removal. Messrs. LeRoy A. Vander Putten
and Robert A. Yanover serve on the Board in the class whose term expires at the Annual Meeting of
stockholders (the ―Annual Meeting‖) in 2014. Messrs. Marc D. Scherr, James A. FitzPatrick, Jr. and Rick
A. Wilber serve on the Board in the class whose term expires at the Annual Meeting in 2012. Messrs. Scott
Scherr and Al Leiter serve on the Board in the class whose term expires at the Annual Meeting in 2013.
Code of Ethics
Ultimate has adopted a Code of Ethics within the meaning of Item 406 of Regulation S-K of the
Exchange Act. Ultimate’s Code of Ethics applies to its principal executive officer, principal financial
officer and principal accounting officer. A copy of Ultimate’s Code of Ethics is posted on Ultimate’s
website at www.ultimatesoftware.com. In the event that Ultimate makes any amendments to, or grants any
waiver from, a provision of the Code of Ethics that requires disclosure under Item 5.05 of Form 8-K,
Ultimate will post such information on its website.
Corporate Governance
The Board does not have a standing nominating committee or committee performing similar
functions. The Board has determined that it is appropriate not to have a nominating committee because of
the relatively small size of the Board and because the entire Board functions in the capacity of a nominating
committee.
When considering potential director candidates, the Board considers the candidate’s
independence (as mandated by the NASDAQ rules), character, judgment, age, skills, financial literacy, and
experience in the context of the needs of Ultimate and the Board. Other information required by this item
is incorporated herein by reference to the information set forth in Ultimate’s Proxy Statement for the
Annual Meeting in 2012 under the heading ―Corporate Governance, Board Meetings and Committees of
the Board.‖ In 2011, Ultimate did not pay any fees to a third party to assist in identifying or evaluating
potential nominees.
83
The Board will consider director candidates recommended by Ultimate’s stockholders in a
similar manner as those recommended by members of management or other directors.
Other Information
The information required by this item is incorporated herein by reference to the information set
forth in Ultimate’s Proxy Statement for the Annual Meeting in 2012 under the headings ―Section 16(a)
Beneficial Ownership Reporting Compliance‖ and ―Corporate Governance, Board Meetings and
Committees of the Board-Audit Committee.‖
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to the information in
Ultimate’s Proxy Statement for the 2012 Annual Meeting under the headings ―Executive Compensation
Policy,‖ ―Director Compensation‖ and ―Compensation Committee Report.‖
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information set forth in this item is incorporated herein by reference to the information in
Ultimate’s Proxy Statement for the 2012 Annual Meeting under the heading ―Security Ownership of
Certain Beneficial Owners and Management.‖
Equity Compensation Plan Information.
The following table summarizes information related to Ultimate’s equity compensation plans as of
December 31, 2011:
Equity Compensation Plan Information
( a )
Number of
Securities to be
Issued upon
Exercise of
Outstanding
Plan Category
Options, Warrants
and Rights
( b )
Weighted – Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
( c )
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column ( a ))
Equity compensation plans approved
by security holders
Equity compensation plans not approved
by security holders
Total
2,223,034
–
2,223,034
$ 20.20
–
$ 20.20
700,228
–
700,228
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to the information in
Ultimate’s Proxy Statement for the 2012 Annual Meeting under the headings ―Certain Relationships and
Related Transactions,‖ ―Compensation Committee Interlocks and Insider Participation‖ and ―Corporate
Governance, Board Meetings and Committees of the Board.‖
84
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference to the information in
Ultimate’s Proxy Statement for the 2012 Annual Meeting under the heading ―KPMG LLP Fees.‖
85
PART IV
Item 15. Exhibits and Financial Statement Schedule
(a) Documents filed as part of this Form 10-K:
1. The following consolidated financial statements of Ultimate, together with the report
thereon, of KPMG LLP, our Independent Registered Public Accounting
Firm, are included in Part II, Item 8, of this Form 10-K:
Consolidated Balance Sheets as of December 31, 2011 and 2010
Consolidated Statements of Operations for the Years Ended
December 31, 2011, 2010 and 2009
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income (Loss) for the Years Ended December 31,
2011, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2011, 2010 and 2009
Notes to Consolidated Financial Statements
86
3. Exhibits
Number
Description
3.1
3.2
3.3
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
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‖))
Certificate of Designations of Series A Junior Preferred Stock (incorporated by reference to Exhibit
2 to Ultimate’s Current Report on Form 8-K dated October 23, 1998)
Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.5 to the Registration
Statement)
Form of Certificate for the Common Stock, par value $0.01 per share **
Form of Warrant for Common Stock (incorporated by reference to
Exhibit 4.4 to Ultimate’s Registration Statement on Form S-3 (File No. 333-107527), initially filed
July 31, 2003)
Shareholders Rights Agreement, dated June 6, 1997 among Ultimate and certain
stockholders named therein **
Asset Purchase Agreement, dated February 2, 1998, among The Ultimate Software Group of
Virginia, Inc., Ultimate and certain principals named therein **
Asset Purchase Agreement, dated February 2, 1998, among Ultimate,
The Ultimate Software Group of the Carolinas, Inc. and certain principals name therein **
Asset Acquisition Agreement, dated February 20, 1998, among Ultimate,
The Ultimate Software Group of Northern California, Inc. and certain principals named therein **
Asset Purchase Agreement dated March 4, 1998, among Ultimate, Ultimate Investors Group, Inc.
and certain principals name therein **
Agreement and Plan of Merger dated February 24, 1998, among Ultimate, ULD Holding Corp.,
Ultimate Software Group of New York and New England, G.P. and certain principals named
therein **
Nonqualified Stock Option Plan, as amended and restated as of December 20, 2002
(incorporated by reference to the corresponding exhibit in Ultimate’s Annual Report on Form 10-K
dated March 31, 2003)
Commercial Office Lease agreement by and between UltiLand, Ltd., a Florida limited partnership,
and Ultimate, dated December 31, 1998 (incorporated by reference herein to
corresponding exhibit in Ultimate’s Annual Report on Form 10-K dated March 31, 1999)
Rights Agreement, dated as of October 22, 1998, between Ultimate 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 Ultimate’s Current Report on
Form 8-K dated October 23, 1998)
Commercial Office Lease by and between UltiLand, Ltd., a Florida limited partnership
and Ultimate, dated December 22, 1998 (incorporated by reference to Exhibit 10.1
to Ultimate’s Quarterly Report on Form 10-Q dated August 15, 1999)
Letter Agreement between Aberdeen Strategic Capital LP and Ultimate, dated October 21, 1999
(incorporated herein by reference to Exhibit 10.1 to Ultimate’s Quarterly Report
on Form 10-Q dated November 15, 1999)
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)
Software License Agreement between Ultimate and Ceridian
Corporation dated as of March 9, 2001 (incorporated by reference to Exhibit 10.17 to Ultimate’s
Annual Report on Form 10-K dated March 27, 2001)
Letter amendment between Ultimate and Ceridian Corporation dated as of August 9, 2001
(incorporated by reference to Exhibit 10.14 to Ultimate’s Annual Report on Form 10-K
dated March 29, 2002)
Letter amendment between Ultimate and Ceridian Corporation dated as of February 5, 2002
87
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
(incorporated by reference to Exhibit 10.15 to Ultimate’s Annual Report on Form 10-K
dated March 29, 2002)
Loan and Security Agreement by and between Ultimate and Silicon Valley Bank
dated as of November 29, 2001 (incorporated by reference to Exhibit 10.16 to Ultimate’s
Annual Report on Form 10-K dated March 29, 2002)
Revolving Promissory Note by and between Ultimate and Silicon Valley Bank dated as of November
29, 2001 (incorporated by reference to Exhibit 10.17 to Ultimate’s
Annual Report on Form 10-K dated March 29, 2002)
Equipment Term Note by and between Ultimate and Silicon Valley Bank dated as of
November 29, 2001 (incorporated herein by reference to Exhibit 10.18 to Ultimate’s Annual Report
on Form 10-K dated March 29, 2002)
Services Agreement between Ultimate and Ceridian Corporation dated as of February 10, 2003
(incorporated by reference to the corresponding exhibit in Ultimate’s Annual Report on Form 10-K
dated March 31, 2003)
Third Loan Modification Agreement by and between Ultimate
and Silicon Valley Bank dated March 27, 2003 (incorporated by reference to the corresponding
exhibit in Ultimate’s Annual Report on Form 10-K dated March 31, 2003)
Fourth Loan Modification Agreement by and between Ultimate
and Silicon Valley Bank dated as of April 29, 2003 (incorporated by reference to Exhibit 10.10 to
Ultimate’s Quarterly Report on Form 10-Q dated May 14, 2003)
Change in Control Bonus Plan for Executive Officers, effective
March 5, 2004 (incorporated by reference to Exhibit 10.1 to Ultimate’s Quarterly Report on Form
10-Q dated May 13, 2004)
Fifth Loan Modification Agreement by and between Ultimate
and Silicon Valley Bank dated as of May 28, 2004 (incorporated by reference to Exhibit 10.1 to
Ultimate’s Quarterly Report on Form 10-Q dated August 12, 2004)
Silicon Valley Bank Second Amended and Restated Revolving Promissory Note by and between
Ultimate and Silicon Valley Bank dated May 28, 2004 (incorporated by reference to Exhibit 10.2 to
Ultimate’s Quarterly Report on Form 10-Q dated August 12, 2004)
Amended Nonqualified stock option agreement (incorporated by reference to Exhibit 10.1 to
Ultimate’s Form 8-K dated January 3, 2006)
Amended Director Fee Option Award Agreement (incorporated by reference to Exhibit 10.2 to
Ultimate’s Form 8-K dated January 3, 2006)
Amended Director Fee Option Agreement for Non-Employee Directors (as incorporated by reference
to Exhibit 10.27 to Ultimate’s Annual Report on Form 10-K dated March 15, 2006)
Entry into a Material Definitive Agreement with executives (incorporated by reference to Ultimate’s
Form 8-K, Item 1.01 dated February 10, 2006)
Seventh Loan Modification Agreement between Ultimate and Silicon Valley Bank
(incorporated by reference to Exhibit 10.1 to Ultimate’s Form 8-K dated June 17, 2005)
Term Note between Ultimate and Silicon Valley Bank (incorporated by reference to Exhibit 10.2
to Ultimate’s Form 8-K dated June 17, 2005)
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)
Commercial Office Lease by and between ROHO Ultimate, LTD. II, a Florida limited partnership
(―Landlord‖) and Ultimate 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)
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)
Assignment of Agreement of Purchase and Sale by and between Robert J. Manne a/k/a Robert
Manne and Ultimate dated October 26, 2004 (incorporated by reference to Exhibit 10.34 to
Ultimate’s Annual Report on Form 10-K, dated March 15, 2006)
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
Ultimate and Weston Common Area LTD., dated August 18, 2005 (incorporated by reference to
Exhibit 10.35 to Ultimate’s Annual Report on Form 10-K, dated March 15, 2006)
88
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
Galleria Atlanta office lease agreement between Galleria 600, LLC, a Delaware limited liability
company, and Ultimate, dated April 27, 2006 (incorporated by reference to Exhibit 10.36 to
Ultimate’s Quarterly Report on Form 10-Q, dated August 8, 2006
Lease of Office Space by and between OMERS Realty Corporation CPP Investment Board Real
Estate Holdings Inc., and The Ultimate Group of Canada, Inc., dated August 22, 2006 (incorporated
by reference to Exhibit 10.37 to Ultimate’s Quarterly Report on Form 10-Q, dated November 8,
2006)
Indemnity Agreement between OMERS Realty Corporation, CPP Investment Board Real Estate
Holdings, Inc., and Ultimate dated August 22, 2006 (incorporated by reference to Exhibit 10.38 to
Ultimate’s Quarterly Report on Form 10-Q, dated November 8, 2006)
Amendment to Lease by and between ROHO Ultimate, Ltd. I (―Landlord‖) and Ultimate 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 Ultimate’s Annual Report on Form
10-K, dated March 16, 2007)
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 Ultimate’s Annual Report on Form 10-K, dated March
16, 2007)
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
to (―The Tenant‖) dated May 25, 2005 (incorporated by reference to Exhibit 10.41 to Ultimate’s
Annual Report on Form 10-K, dated March 16, 2007)
First Amendment to Lease between Galleria 600, LLC (―Landlord‖) and Ultimate, dated August 18,
2006 (incorporated by reference to Exhibit 10.42 to Ultimate’s Annual Report on Form 10-K,
dated March 16, 2007)
Amended and Restated Change in Control Bonus Plan for Executive Officers, effective July 24,
2007 (incorporated by reference to Exhibit 10.1 to Ultimate’s Quarterly Report on Form 10-Q, dated
August 8, 2007)
Amended and Restated 2005 Equity and Incentive Plan (incorporated by reference to Exhibit 10.1 to
Ultimate’s Form 8-K, dated May 18, 2009)
Commercial lease between Weston Office, LLC (―Landlord‖) and Ultimate, dated January 18, 2008
(incorporated by reference to Exhibit 10.45 to Ultimate’s Annual Report on Form 10-K, dated March
13, 2008)
Amended and Restated Rights Agreement, dated as of August 26, 2008, between Ultimate and
Computershare Trust Company, N.A., as Rights Agent. The Rights Agreement includes the Form of
Certificate 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 4.1 to Ultimate’s Current Report on Form 8-K dated September 2, 2008).
Commercial lease between AGF Woodfield Owner, L.L.C., (―Landlord‖) and Ultimate, dated
October 31, 2008 (incorporated by reference to Exhibit 10.47 to Ultimate’s Annual Report on Form
10-K, dated March 2, 2009)
Commercial lease between 300 Galleria Parkway Associates, L.P., (―Landlord‖) and Ultimate, dated
September 8, 2009 (incorporated by reference to Exhibit 10.33 to Ultimate’s Quarterly Report on
Form 10-Q, dated November 9, 2009)
Commercial lease between RT Twenty-Sixth Pension Properties Limited (―Landlord‖) and Ultimate,
dated September 4, 2009 (incorporated by reference to Exhibit 10.34 to Ultimate’s Quarterly Report
on Form 10-Q, dated November 9, 2009)
Master Space Agreement between Quality Technology Services Miami LLC and Ultimate, dated
June 1, 2009 (incorporated by reference to Exhibit 10.1 to Ultimate’s Quarterly Report on Form 10-
Q, dated August 9, 2010)
Master Space Agreement between Quality Technology Services Metro LLC and Ultimate, dated June
1, 2009 (incorporated by reference to Exhibit 10.2 to Ultimate’s Quarterly Report on Form 10-Q,
dated August 9, 2010)
Service Order Form between Verizon Canada Ltd. And Ultimate, dated September 23, 2009
(incorporated by reference to Exhibit 10.3 to Ultimate’s Quarterly Report on Form 10-Q, dated
August 9, 2010)
Amended and Restated Change in Control Bonus Plan for Executive Officers dated April 26, 2010
(incorporated by reference to Exhibit 10.4 to Ultimate’s Quarterly Report on Form 10-Q, dated
August 9, 2010)
Commercial lease between 2000 Main Street Associates, LLC (―Landlord‖) and Ultimate, dated
89
10.55
10.56
10.57
21.1
23.1
31.1
31.2
32.1
32.2
101.1
November 3, 2010 (incorporated by reference to Exhibit 10.54 to Ultimate’s Annual Report on Form
10-K, dated March 1, 2011)
Commercial lease between Micari Holdings, LLC (―Landlord‖) and Ultimate, dated November 5,
2010 (incorporated by reference to Exhibit 10.55 to Ultimate’s Annual Report on Form 10-K, dated
March 1, 2011)
Commercial lease between Galleria 400, LLC (―Landlord‖) and Ultimate, dated December 29, 2010
(incorporated by reference to Exhibit 10.56 to Ultimate’s Annual Report on Form 10-K, dated March
1, 2011)
Commercial lease between AG/LPC Griffin Towers, L.P., (―Landlord‖) and Ultimate, dated
February 23, 2011 (incorporated by reference to Exhibit 10.1 to Ultimate’s Quarterly Report on Form
10-Q, dated May 10, 2011)
Subsidiary of the Registrant *
Consent of Independent Registered Public Accounting Firm *
Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934,
as amended*
Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934,
as amended *
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended *
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended *
Interactive Data Files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of
December 31, 2011 and 2010, (ii) Consolidated Statements of Operations for the Years Ended
December 31, 2011, 2010 and 2009, (iii) Consolidated Statements of Stockholders’ Equity and
Comprehensive Income (Loss) for the Years Ended December 31, 2011, 2010 and 2009, (iv)
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009 and
(v) Notes to Consolidated Financial Statements.
* Filed herewith.
** Incorporated by reference to the corresponding exhibit in Ultimate’s Registration Statement.
90
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
Mitchell K. Dauerman
Executive Vice President, Chief Financial
Officer and Treasurer
Date: February 29, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Scott Scherr
Scott Scherr
/s/ Mitchell K. Dauerman
Mitchell K. Dauerman
/s/ Marc D. Scherr
Marc D. Scherr
/s/ James A. FitzPatrick, Jr.
James A. FitzPatrick, Jr.
/s/ LeRoy A. Vander Putten
LeRoy A. Vander Putten
/s/ Rick Wilber
Rick Wilber
/s/ Robert A. Yanover
Robert A. Yanover
/s/ Alois T. Leiter
Alois T. Leiter
President, Chief Executive
Officer and Chairman of the
Board
Executive Vice President,
Chief Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
February 29, 2012
February 29, 2012
Vice Chairman of the Board
and Chief Operating Officer
February 29, 2012
Director
Director
Director
Director
Director
February 29, 2012
February 29, 2012
February 29, 2012
February 29, 2012
February 29, 2012
91
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors and Stockholders
The Ultimate Software Group, Inc.:
We consent to the incorporation by reference (i) in the registration statements (No. 333-107527 and
No. 333-115894) on Forms S-3 of The Ultimate Software Group, Inc. (the Company) and (ii) the
registration statements (No. 333-55985, No. 333-91332, No. 333-125076, No. 333-142972, and
No. 333-161201) on Forms S-8 of the Company of our reports dated February 29, 2012, with respect to the
consolidated balance sheets of The Ultimate Software Group, Inc. and subsidiaries as of December 31,
2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and
comprehensive income (loss), and cash flows for each of the years in the three-year period ended
December 31, 2011, and the effectiveness of internal control over financial reporting as of December 31,
2011, which reports appear in the December 31, 2011 Annual Report on Form 10-K of the Company.
/s/ KPMG LLP
February 29, 2012
Miami, Florida
Certified Public Accountants
92
Exhibit 31.1
I, Scott Scherr, certify that:
CERTIFICATIONS
1. I have reviewed this annual report on Form 10-K of The Ultimate Software Group, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant
as of, and for, the periods presented in this annual report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Registrant and have:
a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred
during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control
over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the Registrant’s internal control over financial reporting.
/s/ Scott Scherr
Scott Scherr
Chief Executive Officer
Date: February 29, 2012
93
Exhibit 31.2
I, Mitchell K. Dauerman, certify that:
CERTIFICATIONS
1. I have reviewed this annual report on Form 10-K of The Ultimate Software Group, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant
as of, and for, the periods presented in this annual report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Registrant and have:
a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred
during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control
over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize
and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the Registrant’s internal control over financial reporting.
/s/ Mitchell K. Dauerman
Mitchell K. Dauerman
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 29, 2012
94
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Scott Scherr, Chief Executive Officer of The Ultimate Software Group, Inc., hereby certify to the
best of my knowledge and belief that this Annual Report on Form 10-K fully complies with the
requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)) and that the information contained in this Annual Report on Form 10-K fairly represents, in all
material respects, the financial condition and results of operations of The Ultimate Software Group, Inc.
/s/ Scott Scherr
Scott Scherr
Chief Executive Officer
Date: February 29, 2012
95
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Mitchell K. Dauerman, Chief Financial Officer of The Ultimate Software Group, Inc., hereby
certify to the best of my knowledge and belief that this Annual Report on Form 10-K fully complies with
the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 (15 U.S.C. 78m(a)
or 78o(d)) and that the information contained in this Annual Report on Form 10-K fairly represents, in all
material respects, the financial condition and results of operations of The Ultimate Software Group, Inc.
/s/ Mitchell K. Dauerman
Mitchell K. Dauerman
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 29, 2012
96