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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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 65-0694077
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
2000 Ultimate Way, Weston, FL 33326
(Address of principal executive (Zip Code)
offices)
(954) 331-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
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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 [ X ] 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. [ ]
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 National Market on March 15, 2002 was approximately $65.4
million.
As of March 15, 2002, there were 15,869,043 shares of the Registrant's
Common Stock, par value $.01, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Annual Report
on Form 10-K.
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1
THE ULTIMATE SOFTWARE GROUP, INC.
INDEX
PART I
Page(s)
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Item 1. Business............................................................................... 3
Item 2. Properties............................................................................. 12
Item 3. Legal Proceedings...................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders.................................... 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 13
Item 6. Selected Financial Data................................................................ 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 16
Item 8. Financial Statements and Supplementary Data............................................ 28
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure... 45
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 45
Item 11. Executive Compensation................................................................. 49
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 49
Item 13. Certain Relationships and Related Transactions......................................... 49
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................... 50
Signatures............................................................................. 54
2
PART I
This Annual Report on Form 10-K (the "Form 10-K") of The Ultimate Software
Group, Inc. ("Ultimate Software" or the "Company") may include forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from such statements. These risks and uncertainties include, but
are not limited to, those discussed in this Form 10-K, including Exhibit 99.1
hereto. The words "believe," "expect," "anticipate," "project," and similar
expressions identify forward-looking statements. These forward-looking
statements speak only as of their dates. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
UltiPro(R) and Intersourcing(R) and their related designs are registered
trademarks of Ultimate Software in the United States. This Form 10-K also
includes names, trademarks, service marks and registered trademarks and
service marks of companies other than Ultimate Software.
Item 1. Business
Overview
Ultimate Software designs, markets, implements and supports technologically
advanced cross-industry human resources management and payroll
("HRMS/payroll") software solutions. The Company's mission is to become the
premier infrastructure provider of Internet payroll and workforce management
solutions.
Ultimate Software's Web-based workforce management solution is UltiPro.
UltiPro Web includes Manager Self-Service, Employee Self-Service, and Benefits
Enrollment and is integrated with and supported by a back-office client/server
solution known as UltiPro HRMS/Payroll, that can be purchased stand-alone
(collectively, "UltiPro"). UltiPro is marketed primarily to mid-sized and
small organizations, those with less than 15,000 employees, but scales to meet
the needs of larger organizations. UltiPro Web allows customers to empower
their entire workforce--employees, managers and executives--to improve
communications and efficiencies. UltiPro Web offers business intelligence
reporting, access to benefits and paycheck history, direct deposit maintenance
and human resources management including Internet employee administration,
benefits enrollment, recruitment and training features. Along with the back-
office solution UltiPro HRMS/Payroll, UltiPro Web enables businesses to manage
the employee life cycle strategically and cost effectively, from inception of
employment through retirement.
Ultimate Software believes that its solutions provide significant
advantages over other HRMS/payroll products, including (i) more comprehensive
payroll, benefits and employee management functionality, (ii) better customer
services, (iii) lower initial investment, (iv) easier, more cost-effective
implementation, (v) reduced ongoing costs, and (vi) advanced technology
architecture. UltiPro leverages the Microsoft technologies, including
Microsoft's DNA architecture. As part of its comprehensive HRMS/payroll
solutions, Ultimate Software provides high quality implementation and training
services to its customers as well as support services, which are certified by
the Support Center Practices Certification program. Ultimate Software was
ranked No. 1 in customer satisfaction for integrated HR/payroll in an
Institute of Management and Administration (IOMA) July 2000 customer survey
and continued throughout 2001 to earn high marks in customer satisfaction in
the Company's routine customer surveys. Gartner's Decision Engine gave UltiPro
high rankings in product functionality, implementation services, ongoing
customer support and low cost of ownership in 2001.
Ultimate Software reaches its customer base through its direct sales force
and a network of business service providers ("BSPs") that market to their
customers. The Company's direct sales force markets UltiPro as an in-house
HRMS/payroll solution and alternatively as an application hosting offering.
The Company has branded its hosted model as "Intersourcing" to underscore the
idea that part of the business value of this model is the
3
convenience of outsourcing, coupled with in-house control over the client's
own data. Intersourcing provides organizations real-time access to their
employee information and reporting, roles-based Web-access for all employees,
business intelligence tools for executive decision-making, and comprehensive
HRMS/payroll functionality without a requirement for significant support from
in-house information technology resources. Ultimate Software works together
with Intersourcing customers to procure leasing agreements that provide a
reduced requirement for up-front cash and convenient monthly payments.
Pursuant to an arrangement with International Business Machines Global
Services, Inc. ("IBM"), IBM provides hosting services for Ultimate Software
customers, which includes the installation, ongoing maintenance and backup
services at an IBM Data Hosting Center. In addition, the Company is developing
a hosting program through which Ultimate Software will provide the
installation, ongoing maintenance and backup services at an alternative data
center.
In April 2000, the Company announced a co-branding alliance program to
target primarily those businesses with under 500 employees and to provide the
opportunity for Ultimate Software to generate recurring revenues to supplement
the license and services revenues, including recurring maintenance revenues,
received primarily from its mid-sized customers, those with 500 to 15,000
employees. The program offers BSPs the opportunity to co-brand UltiPro and to
price their offerings on a per employee per month basis.
During 2001, Ultimate Software and Ceridian Corporation reached an
agreement which granted Ceridian a non-exclusive license to use UltiPro
software as part of an on-line offering which Ceridian intends to market
primarily to businesses with under 500 employees. The aggregate minimum
payments that Ceridian is obligated to pay Ultimate Software over the minimum
term of the agreement is $42.1 million. To date, Ceridian has paid to Ultimate
Software a total of $16.0 million under the agreement. The parties expect the
minimum term of the agreement to be 7 years. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for the more
detailed discussion of this agreement.
The Company 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. Ultimate Software's
headquarters is located at 2000 Ultimate Way, Weston, Florida 33326 and its
telephone number is (954) 331-7000. To date, the Company has derived no
revenue from customers outside of the United States and has no assets located
outside of the United States.
Benefits of UltiPro
Ultimate Software's UltiPro is a workforce management solution designed to
offer the following benefits to its customers:
Web Convenience. UltiPro Web integrates with UltiPro HRMS/Payroll to
improve workflow, increase efficiencies and facilitate communication across
organizations by providing instant access to a wide range of human resource,
benefits and payroll information and the ability to perform a wide variety of
tasks online. Ultimate Software offers additional Web convenience through
Intersourcing, its hosted model, which enables businesses to have in-house-
type access to their entire UltiPro suite of products through a Web browser
and/or Citrix Metaframe. For business value that is complementary to all its
products, Ultimate Software maintains a Web portal that offers UltiPro users
easy access to services such as advanced recruitment, job posting and resume
scoring services provided by Webhire Inc.; pre-employment screening and
background checking services provided by Sterling Testing Systems, Inc.; and a
collection of current regulatory law, tax and legislative compliance
information compiled by Ultimate Software's tax team.
Feature-Rich, Built-in Functionality. UltiPro is a feature-rich, integrated
human resources, benefits administration and payroll software solution that
enables organizations to minimize the time invested in burdensome HRMS/payroll
administrative activities and facilitates strategic decision-making
capabilities. UltiPro facilitates management of the total employee cycle, from
inception of employment through retirement, including complex payroll
processing and benefits administration, and ships with business intelligence
tools from Cognos Incorporated ("Cognos") for "slice and dice" data analysis
and generation of custom reports. UltiPro's robust
4
built-in functionality provides users with many features that would otherwise
require extensive customization or changes to source code including:
sophisticated security controls, federal and state human resource regulatory
compliance capability, safety tracking, benefit program management, and
payroll tax tables for federal, state and thousands of local jurisdictions.
Rapid Implementation and System Update Efficiency. The Company has designed
UltiPro to minimize the time and effort required for implementation,
customization and updating by incorporating into its product hundreds of
built-in rules, options and complex calculation methods. Ultimate Software
offers an implementation methodology with experienced implementation staff and
customer training to facilitate rapid implementation. In addition, UltiPro
HRMS/Payroll's object-oriented technology improves efficiencies by enabling
faster system updates. When users load system updates, they do not overwrite
their customizations because the system stores custom changes as sub-classed
objects or data that reside "outside" the core program, thus avoiding the
time-consuming process of rewriting custom changes.
Reduced Total Cost of Ownership. The Company believes its software
solutions provide significant cost saving opportunities for its customers. The
Company believes that its software is competitively priced. In addition, the
Company believes that its current practices in implementing the UltiPro
HRMS/Payroll solution result in a significant cost savings for customers when
compared with implementations of other similar solutions in the industry. By
using a complete UltiPro suite of solutions, including UltiPro HRMS/Payroll
and UltiPro Web, a customer may also reduce the administrative and information
technology support costs associated with an organization's HRMS/payroll
functions over time. Tight integration helps to reduce administrative costs by
facilitating accurate information processing and reporting, and reducing
discrepancies, errors and the need for time-consuming adjustments. In
addition, administrative costs can be reduced by providing an organization
with greater access to information and control over reporting through the
UltiPro Web solution.
Integration and Leveraging of Leading Technologies. Ultimate Software has
consistently focused on identifying leading technologies and integrating them
into its products. UltiPro Web is a three-tier solution that leverages
Microsoft's DNA architecture and XML to increase design efficiencies within
the system and particularly for workflow capabilities. UltiPro HRMS/Payroll
incorporates and leverages leading technologies, such as Microsoft SQL Server,
Microsoft NT Server, Microsoft COM+, Microsoft Terminal Server, and Inprise's
Delphi ("Delphi"), to enhance speed, convenience, dependability, ease of use
and extensibility. UltiPro HRMS/Payroll and UltiPro Web include a suite of
enterprise integration tools, business components, and business-to-business
links. These tools are designed to take advantage of emerging Internet-based
technology standards such as XML, HTTP and Java scripting.
Ease of Use and Navigation. Ultimate Software designs its products to be
user-friendly and to simplify the complexities of managing employees and
complying with government regulations in the HRMS/payroll area. UltiPro Web
uses familiar Internet interface techniques and functions through a Web
browser, making it convenient and easy to use. The graphical user interface of
UltiPro HRMS/Payroll is designed to enable back-office users to find
information quickly and easily. The Company refers to this easy navigation as
"Two clicks to anywhereTM."
Comprehensive Professional Services and Industry-Specific
Expertise. Ultimate Software provides high quality implementation, training
and ongoing product and customer support services. Ultimate Software employs
184 people in customer services, which includes the implementation, product
support, technical support and training departments. In November 2001,
Ultimate Software's customer support center received the Support Center
Practices (SCP) Certification for the third 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 SSPA. Recognizing the importance of issuing timely updates that reflect
changes in tax and other regulatory laws, the Company employs a dedicated tax
research team to track changes in the tax rules of approximately 6,000
separate taxing jurisdictions and changes in other employee-related
regulations.
5
Technology
Ultimate Software seeks to provide its clients with optimum performance,
rich functionality, scalability and easy access to information through the use
of leading Internet standard technologies. UltiPro Web leverages Microsoft's
DNA architecture, and UltiPro HRMS/Payroll uses Microsoft SQL Server as the
database and the enterprise-ready Microsoft Windows 2000 operating system.
Ultimate Software has developed UltiPro HRMS/Payroll and UltiPro Web to
include the following key technological features:
Web-Based Technologies and Internet Integration. Ultimate Software supports
emerging Web technologies and Internet/extranet connectivity to increase
access to and usability of its applications. Ultimate Software's Web-based
solution, UltiPro Web, is integrated with UltiPro HRMS/Payroll's database and
uses several technologies including Active Server Pages, Java script, XML,
HTML, and COM+. UltiPro Web leverages Microsoft's DNA architecture.
Object-Oriented Programming. 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.
32-bit Compiled Code and Distributed Architecture. Payroll and HRMS involve
demanding processing. UltiPro HRMS/Payroll is built using 32-bit compiled code
to manage demand requirements efficiently. 32-bit compiled code results in
more stable applications that are significantly faster than interpreted
applications and provides greater memory access than compilers built on a 16-
bit compiler. Ultimate Software 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. Ultimate Software's use of
distributed architecture is intended to overcome such limitations.
Application Framework. Ultimate Software has developed a data-driven,
object-oriented application framework that enhances the development,
usability, maintainability and extensibility of its applications. The major
areas of the system such as company setup, code setup, employee setup, pay
data entry and reporting have been developed using the Company's application
framework to enhance usability. The extension of the system's functionality is
enhanced due to the use of the framework with its driver tables and object-
class library.
Business Intelligence Tools. In addition to an extensive library of
standard reports that offer flexibility and ease of use, the Company extends
what users can do with employee data by embedding leading business
intelligence tools from Cognos. In addition to offering sophisticated data
query and report authoring, these tools enable users to apply online
analytical processing ("OLAP") to multidimensional data cubes, allowing users
to explore data on employees graphically and statistically from diverse
angles. Ultimate Software maintains a link between Cognos' report catalog and
UltiPro HRMS/Payroll's data dictionary, eliminating the necessity for users to
create and maintain ad hoc reporting catalogs.
Ultimate Software Solutions
Ultimate Software's core software products are UltiPro Web and UltiPro
HRMS/Payroll. UltiPro Web is a roles-based payroll and employee management
solution built using Microsoft's DNA architecture and includes employee
administration, employee self-service, manager self-service, and benefits
enrollment. UltiPro Web is integrated with and supported by UltiPro
HRMS/Payroll, a back-office client/server product, built with Microsoft SQL
Server as the database and the enterprise-ready Microsoft Windows 2000
operating system.
Ultimate Software has re-packaged UltiPro to meet the unique requirements
of diverse markets by leveraging select functionality in UltiPro Web and
UltiPro HRMS/Payroll and adding specific market
6
functionality as required. UltiPro is currently delivered as four solutions:
UltiPro Web and UltiPro HRMS/Payroll, "Powered by UltiPro" BSP Solution,
UltiPro PEO, and UltiPro Healthcare. The Company also continues to support its
customers using UltiPro for Lan, a DOS-based product; however, the Company no
longer markets this product and expects to discontinue support for UltiPro for
Lan within the next 12 months.
UltiPro Web and UltiPro HRMS/Payroll (UltiPro)
UltiPro Web, first released in 1998, and UltiPro HRMS/Payroll, first
released in June 1997, together offer comprehensive HRMS/payroll functionality
to mid-sized organizations, those with 500 to 15,000 employees. The solution
can scale to accommodate larger numbers of employees. UltiPro Web is
integrated with and requires UltiPro HRMS/Payroll for back-office
functionality. With UltiPro Web, mid-sized businesses can purchase employee
self-service, manager self-service, and benefits enrollment individually or as
a package.
UltiPro Web and UltiPro HRMS/Payroll includes, but is not limited to, the
following functionality:
Manager Self-Service. UltiPro Web's roles-based security model supports
staff management for flexible work groups such as self-directed work
teams and employee sharing and enables managers to perform routine
tasks concerning their staff without photocopies, express mail or
faxing. With UltiPro, managers and/or administrative staff can manage
on-line the new hire process, job and salary changes, organization
changes, terminations, staff requisitions, performance review
schedules, and training. Using an Internet connection, managers have
remote access to reporting and business intelligence tools that enable
them to make informed decisions.
Employee Self-Service. UltiPro Web enables employees to make informed
benefits choices without making inquiries to their human resource
department because UltiPro Web provides personalized benefits
information and company-defined links to benefit providers. UltiPro Web
further reduces administrative burdens by providing employees access to
their personal paycheck detail, enabling them to take control of their
direct deposit and tax-withholding preferences as authorized. In
addition, UltiPro Web stores company handbooks, calendars and forms for
convenient Web access.
Benefits Enrollment. UltiPro Web Benefits Enrollment enables employees
to use the Web to review, select and submit their benefits information
and allows HR practitioners or managers to set up and monitor the
process. Employees have the ability to view and compare costs and
coverages of current and proposed benefit plans, sign up for new
benefit plans on-line, and modify existing benefits for dependent and
beneficiary records. Benefit administrators can define and set up
multiple benefit enrollment sessions, set controls for employees to
view only the benefit choices they are eligible for, monitor enrollment
activity, and post customized messages or send e-mail as reminders to
employees.
Human Resources. UltiPro is designed to streamline and manage human
resource functions within an organization. In addition to facilitating
compliance with regulatory requirements, UltiPro generates, manages and
stores information that satisfies a broad range of internal and
external reporting requirements. Examples of information and processes
handled by the system are employee performance, job and salary history;
COBRA and HIPAA administration; OSHA incident and safety; career
development; wellness programs; company-issued property; dependent,
beneficiary and emergency contact details; and history of previous
employment. The system includes "wizards" to guide human resource
administrators through multi-step processes such as recording new hire
information, employee job changes and employee terminations. Wizards
provide "To Do" lists, sequentially presented data-entry windows,
validation of data and summaries of changed information. The system
also includes effective-dated record handling and detailed audit
trails.
Benefits Administration. UltiPro provides a comprehensive, automated
means of administering health and welfare plans, employee loans,
qualified and non-qualified deferred compensation, and fund
allocations. In UltiPro HRMS/Payroll, Ultimate Software has developed a
one-table design that maintains deductions and benefit plans in one
common set of tables. One table stores together rules for coverage;
premium and employer match computations; eligibility and participation
determination; and
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taxation, wage accumulation and withholding requirements for payroll.
UltiPro HRMS/Payroll also delivers rules-based benefits administration
functionality, combining the benefit and payroll deduction tables, to
help improve accuracy and scheduling convenience. Tracking of dependent
and beneficiary information is comprehensive and can be associated with
benefit plans as necessary. In addition, complete historical
information is available in summary and detail views for a quick
response to benefit inquiries and ease in benefit plan research.
Payroll. UltiPro HRMS/Payroll incorporates a comprehensive tax
management system to handle federal, state and local tax computations,
including multi-state taxing rules and reciprocity. In addition, the
system is delivered with complex wage calculations such as shift
premiums, piecework and make-up pay, average pay rates for overtime
calculations and garnishments/disposable pay. It also includes
convenience features enabling users to generate off-cycle checks,
create direct deposit files, perform automatic check reconciliation,
and track the progress of payroll processing steps online.
Recruitment and Staffing. The Recruitment and Staffing functionality is
designed to assist organizations in coordinating the management of open
positions and applicants, tracking and evaluating costs associated with
recruiting, and handling government compliance issues.
Enterprise Integration Tools. UltiPro HRMS/Payroll incorporates built-
in tools that facilitate importing and exporting data with a number of
third-party software systems, including time clocks, point-of-sale
systems and job costing systems. Organizations can link to their banks,
401(k) provider, tax filing service and unemployment cost management
services. In addition, UltiPro Web enables users to link to service
providers of their choice including healthcare providers, 401(k)
providers and recruitment sources.
Reporting. UltiPro provides a library of over 400 reports including
analytical reports, many signature-ready government forms, basic
company and employee listings, employee forms, reconciliation and audit
reports. In addition to the many standard reports, UltiPro includes
analytical business intelligence "cubes" specifically designed to
address workforce issues on such topics as overtime and turnover
trends.
"Powered by UltiPro" BSP Solution (the "BSP Solution")
"Powered by UltiPro" BSP Solution is designed for and primarily marketed to
business service providers (previously referred to as "aggregators" and
"strategic partners") that have relationships with smaller organizations,
those with under 500 employees. The BSP Solution, released in December 2000,
enables business service providers to deliver Web-based payroll services to
their customers and Web-access for their customers' employees to view their
paycheck and basic benefits information. Business service providers have the
opportunity to co-brand UltiPro and to price their offerings on a per employee
per month basis.
The BSP Solution has been packaged to be easy to use and convenient for
smaller companies. The BSP Solution leverages select functionality from
UltiPro Web and UltiPro HRMS/Payroll, and has a specially designed Web browser
interface for payroll administrators to sign up their businesses for the
service, enter employee hours worked and submit payroll. If there are no
changes to employees' standard paycheck information, submitting a payroll can
be done in less than a minute by clicking an icon. With changes, the process
can take several minutes. The initial process of registering for Web payroll
services takes less than an hour if the administrator has all the appropriate
data available for entry. To ensure the process is rapid and easy for
registrants, there is a checklist online with what they need before beginning
the signup process. Through a secure, password-protected login, employees can
view their current paycheck and direct deposit details, paycheck history, and
benefits details such as medical, dental and 401(k) deductions.
UltiPro PEO
UltiPro PEO is a solution designed for professional employer organizations
(PEOs). UltiPro PEO includes UltiPro Web, UltiPro HRMS/Payroll, billing
functionality and additional features required by PEOs.
8
UltiPro Healthcare
UltiPro Healthcare is a solution designed for healthcare organizations.
UltiPro Healthcare includes UltiPro Web, UltiPro HRMS/Payroll, position
management functionality and additional features required by healthcare
organizations.
UltiPro for Lan
Ultimate Software introduced UltiPro for Lan in July 1993 as its first
proprietary software product. UltiPro for Lan is a DOS-based product that is a
fully integrated human resource management, benefits administration and
payroll processing system with a number of the same features as UltiPro
HRMS/Payroll. The Company no longer markets this DOS-based product and expects
to discontinue support for UltiPro for Lan within the next 12 months.
Professional Services
Ultimate Software believes that delivering quality professional services
provides the Company with a significant opportunity to differentiate itself in
the marketplace and is critical to the comprehensive solution. Ultimate
Software provides its customers professional services in three areas:
implementation, training, and customer support and maintenance.
Implementation. Ultimate Software's implementation services provide its
customers with a standardized methodology and assistance in implementing the
Company's HRMS/payroll solutions. Ultimate Software believes that its
implementation services ensure its customers' early success with its products
and assist customers in their ongoing efforts to enhance their existing
systems and manage upgrades. In addition, these services strengthen the
relationship with customers and add to the Company's industry-specific
knowledge base for use in future implementation and product development
efforts. Ultimate Software's implementation process is handled either by the
Company's implementation team or in partnership with third-party consultants.
Ultimate Software has established a training program that provides the
Company's associates and its implementation partners with standardized
instruction on the UltiPro products, including techniques for systems planning
and design, customer-specific configuring of application modules, conversion
from existing systems and interfacing with other software applications.
Implementation services are typically billed on a time and materials basis.
Training. Ultimate Software provides its customers with the opportunity to
participate in formal training programs through its education services
division. Ultimate Software believes that its training program increases
customers' ability to use the full functionality of the product, thereby
maximizing the value of customers' investments. Courses are designed to give
attendees practical, hands-on experience with the Company's products. 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, customizing the system and creating custom reports.
The Company maintains training facilities in Atlanta, Georgia; Schaumburg,
Illinois; and Dallas, Texas. In certain instances, the Company conducts on-
site training at customer facilities. As more fully described in Item 2,
"Properties," the Company plans to occupy a second building in Weston,
Florida, as an extension of its corporate headquarters during the second half
of 2002. The Company plans to maintain a new training facility in that
building.
Customer Support and Maintenance. Ultimate Software offers comprehensive
technical support and maintenance services, which have historically been
purchased by all of its customers. Ultimate Software's customer support center
was awarded the Support Center Practices Certification sponsored by the
Service Strategies Corporation (SSC) in 2000 and 2001. This certification
recognizes companies that "deliver exceptional service and support to their
customers." Ultimate Software's customer support services include: software
updates that reflect tax and other legislative changes; telephone support 24
hours a day, 7 days a week; unlimited access to the Company's employee tax
center on the World Wide Web; seminars on year-end closing procedures; and
periodic newswires.
9
Customers
As of December 31, 2001, the Company had licensed its software to
approximately 1,100 customers, representing approximately 3,500 companies and
servicing approximately 1.3 million employees. Ultimate Software's customers
operate in a wide variety of industries, including manufacturing, food
services, sports, professional employer organizations (PEOs), technology,
finance, insurance, real estate, transportation, communications, healthcare
and services. No customer accounted for more than 10% of total revenues in
fiscal year 2001 or 2000. The following is a representative list of the
Company's customers as of December 31, 2001 and is not intended to portray a
complete list of the Company's customers.
Manufacturing: Food Services & Hospitality: Sports:
- ------------- --------------------------- ------
Elizabeth Arden, Inc. Benihana, Inc. Arizona Diamondbacks
Hatteras Yachts, Inc. Consolidated Restaurants, Inc. Chicago White Sox
Intermatic, Inc. Chiquita Brands International, Inc. Colorado Rockies Baseball Club
Lifetime Products, Inc. Hooters of America, Inc. Florida Marlins Baseball Club
Spang & Company Mark Hopkins Intercontinental Florida Panthers
Tredegar Corporation Omni Hotels Montreal Expos
USFilter Paramount Citrus Association New York Giants
Volvo Trucks North America Premiere Foods, Inc. New York Jets Football Club
Williams International Ruth's Chris Steak House New York Yankees
Woodgrain Millwork, Inc.Souper Salad The Portillo Restaurant Group Pro Player Stadium
Wright Industries, Inc. Texas Rangers Baseball
Technology: The Philadelphia Phillies
Professional Employer Organizations (PEOs): ---------- The Phoenix Suns
- ------------------------------------------ Affiliated Computer Services, Inc.
Alcott Staff Leasing Global Technical Services, Inc. Finance/Insurance/Real Estate:
Amerisure Business Solutions Ingram Entertainment, Inc. -----------------------------
Co-Advantage Resources The National Research Group, Inc. American National Bank
EmPro Professional Employer Toshiba America Medical Systems, Inc. Goldbelt, Incorporated
EPIX, Inc. Nintendo of America Stephens Inc.
Get Integrated, Inc. Trammell Crow Residential
HRAmerica Healthcare: Whitney National Bank
----------
Transportation & Communications: Baptist Health Systems Services and Other:
- ------------------------------- Community Hospital of Monterey Peninsula ------------------
Acadian Ambulance and AirMed Services Inc. Home Nursing Agency Sylvan Learning Systems, Inc.
Airport Group International, Inc. LifePath Hospital & Palliative Care The Container Store
Benton Express Co. Magellan Health Services, Inc. Johnson & Wales University
Armellini Industries, Inc. Scottsdale Healthcare La Petite Academy, Inc.
Bill Heard Enterprises, Inc. United Cerebral Palsy of Utica Mount St. Mary's College
The Christian Broadcasting Network, Inc. United Cerebral Palsy of Western NY Regal Cinemas
Drug Transport, Inc. University of Louisville Hospital
Metropolitan Nashville Airport Authority VCU Health System
</table>
10
Sales and Marketing
Ultimate Software markets and sells its products and services through its
direct sales force, marketing group, and a network of business service
provider alliances.
Direct Sales. Ultimate Software's direct sales force includes business
development vice presidents, directors and managers who have defined
territories and conduct lead-generation activities within given parameters.
The sales cycle begins with a sales lead generated through a national,
corporate marketing campaign or a territory-based activity. Whether the lead
is a telephone request, fax, email or request for proposal ("RFP"), the lead
is qualified and entered into a lead-tracking system. When the lead is
received on the local level, prospect information is entered via the Internet
into an electronic system located at headquarters. When headquarters receives
the lead, the information is recorded and forwarded to the business
development manager in the prospect's region of the country. Business
development managers rely on face-to-face meetings with prospects to build
relationships. In one or more on-site visits, business development managers
work with application and technical consultants to analyze prospective client
needs, demonstrate the Company's product and, when required, respond to an
RFP. The sale is finalized after clients complete their internal sign-off
procedures and terms of the contract are negotiated and signed.
The terms of the Company's sales contract typically include a license
agreement for the product, an annual maintenance agreement, per-day training
rates and hourly charges for implementation services. The contract does not
typically provide for cancellation of software licenses. Typical payment terms
include a deposit at the time the contract is signed and additional payments
upon the occurrence of other specified events such as the implementation of
the software and/or specific payment dates designated in the contract. Payment
for implementation and training services under the contract are typically made
as such services are provided.
Business Service Provider (BSP) Network. In April 2000, the Company
announced a new co-branding alliance strategy that enables BSPs to co-brand
and market UltiPro and/or the BSP Solution primarily to businesses with under
500 employees. The goal of the program is to extend the Company's market
penetration to include smaller businesses and build a recurring revenue stream
to supplement its standard license revenue by participating in per employee
per month pricing. BSPs that are active in this program include Advantius,
Inc., Ceridian Corporation, Crowe, Chizek and Company LLP, Dovetail Group,
EESIS, Inc., and Epicor Software Corporation.
Marketing. Ultimate Software supports its sales force with a comprehensive
marketing program that includes public relations, advertising, direct mail,
trade shows, seminars and Web site maintenance. 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, production
control, demand generation, results analysis, and communications with field
offices, customers and marketing partners.
Intellectual Property Rights
The Company's success is dependent in part on its ability to protect its
proprietary technology. The Company relies on a combination of copyright,
trademark and trade secret laws, as well as confidentiality agreements and
licensing arrangements, to establish and protect its proprietary rights. The
Company does not have any patents or patent applications pending, and existing
copyright, trademark and trade secret laws afford only limited protection.
Accordingly, there can be no assurance that the Company will be able to
protect its proprietary rights against unauthorized third-party copying or
use, which could materially adversely affect the Company's business, operating
results and financial condition.
Despite the Company's efforts to protect its proprietary rights, attempts
may be made to copy or reverse engineer aspects of the Company's products or
to obtain and use information that the Company regards as proprietary.
Moreover, there can be no assurance that others will not develop products that
perform comparably
11
to the Company's proprietary products. Policing the unauthorized use of the
Company's products is difficult. Litigation may be necessary in the future to
enforce the Company's intellectual property rights, to protect the Company's
trademarks, copyrights or trade secrets or to determine the validity and scope
of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, operating results and financial condition.
As is common in the software industry, the Company from time to time may
become aware of third party claims of infringement by the Company's products
of third-party proprietary rights. While the Company is not currently subject
to any such claim, the Company's software products may increasingly be subject
to such claims as the number of products and competitors in the Company's
industry segments grows and the functionality of products overlaps and as the
issuance of software patents becomes increasingly common. Any such claim, with
or without merit, could result in significant litigation costs and require the
Company to enter into royalty and licensing agreements, which could have a
material adverse effect on the Company's business, operating results and
financial condition. Such royalty and licensing agreements, if required, may
not be available on terms acceptable by the Company or at all.
Competition
The market for the Company's products is highly competitive. The Company's
products compete primarily on the basis of technology, delivered functionality
and price/performance.
Ultimate Software's competitors include (i) a number of companies, such as
Cyborg Systems, Inc., Genesys Software Systems, Inc., Lawson Software, Inc.,
Oracle Corporation, and PeopleSoft, Inc. which offer HRMS/payroll software
products for use on mainframes and/or client/server systems; (ii) large
service bureaus, such as ADP and Ceridian Corporation; and (iii) the internal
payroll/human resources departments of potential customers which use custom-
written software. Many of the Company's competitors or potential competitors
have significantly greater financial, technical and marketing resources than
the Company. 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 can the Company. 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 the Company's prospective customers.
Employees
As of December 31, 2001, the Company employed 443 persons, including 80 in
sales and marketing, 123 in professional services, 136 in research and
development, 61 in customer support and 42 in finance and administration. The
Company believes that its relations with employees are good. However,
competition for qualified personnel in the Company's industry is generally
intense and the management of the Company believes that its future success
will depend in part on its continued ability to attract, hire and retain
qualified personnel.
Item 2. Properties
Ultimate Software's corporate headquarters, including its principal
administrative, marketing, engineering and support operations, are located in
Weston, Florida. Commencing in July 1999, the Company leased all the available
square footage in this facility, or approximately 40,000 square feet, under a
lease expiring in 2017. In May 2001, the Company entered into a lease
agreement with a third party to lease a new, adjacent building with
approximately 21,000 square feet. This second building, which is currently
under construction, is expected to serve as an extension of the Company's
corporate headquarters. The commencement date of this new lease is expected to
occur in the second half of 2002, with the lease expiring 15 years thereafter.
In addition, the Company presently leases office space for its sales
operations in Albany, New York; Atlanta, Georgia; Columbia, Maryland; Dallas,
Texas; Millburn, New Jersey; Nashville, Tennessee; Ridgeland, Mississippi;
Seal Beach, California; and Schaumburg, Illinois. Sales operations in other
locations are not supported by leased office space.
12
The Company believes that its existing facilities are suitable and adequate
for its current operations for the next 12 months. The Company further
believes that suitable space will be available as needed to accommodate any
expansion of its operations on commercially reasonable terms.
Item 3. Legal Proceedings
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
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 the Company's business, operating results and
financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 2001.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The following table sets forth, for the periods indicated, the high closing
and low closing sales prices of the Company's Common Stock, as quoted on the
Nasdaq National Market.
2001 2000
------------- --------------
High Low High Low
------ ------ ------- ------
First Quarter...................................... $5.438 $3.000 $13.063 $8.000
Second Quarter..................................... 6.030 3.525 10.000 7.250
Third Quarter...................................... 5.040 3.150 10.000 8.250
Fourth Quarter..................................... 4.000 2.370 8.063 2.000
- --------
As of March 15, 2002, the Company had approximately 165 holders of record,
representing approximately 2,300 stockholder accounts.
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain future earnings to fund the
development and growth of its business. The payment of dividends in the
future, if any, will be at the discretion of the Board of Directors. However,
under the terms of the Company's revolving line of credit with Silicon Valley
Bank, the Company may not pay dividends without the prior written consent of
Silicon Valley Bank. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
13
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 Conditions and Results of Operations" and the
Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Form 10-K. The Statement of Operations Data presented below
for each of the years in the three year period ended December 31, 2001 and the
Balance Sheet Data as of December 31, 2001 and 2000 have been derived from the
Company's Consolidated Financial Statements included elsewhere in this Form
10-K which have been audited by Arthur Andersen LLP whose report appears
elsewhere in this Form 10-K. The Balance Sheet Data as of December 31, 1999,
1998 and 1997 and the statements of operations data for the years ended
December 31, 1998 and 1997 have been derived from audited financial statements
not included herein. The financial data reflects the results of the Company
and five former third-party resellers of the Company's products, the
businesses of which were acquired in February and March 1998 (the "Acquired
Resellers"), as if the Company and the Acquired Resellers had operated as one
entity during the periods presented. These acquisitions were accounted for
under the poolings-of-interests method of accounting.
Years Ended December 31,(1)
--------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- --------
(In thousands, except per share data)
Statement of Operations Data:
Revenues:
License......................... $16,826 $24,103 $23,454 $18,811 $ 7,232
Recurring....................... 14,364 10,520 8,315 6,059 3,868
Services........................ 26,293 25,407 23,988 18,460 6,492
------- ------- ------- ------- --------
Total revenues................. 57,483 60,030 55,757 43,330 17,592
------- ------- ------- ------- --------
Cost of revenues:
License......................... 1,287 1,286 751 834 195
Recurring....................... 5,789 4,957 3,930 2,219 1,635
Services........................ 18,223 19,054 16,289 15,799 7,740
------- ------- ------- ------- --------
Total cost of revenues......... 25,299 25,297 20,970 18,852 9,570
------- ------- ------- ------- --------
Operating expenses:
Sales and marketing............. 18,261 20,121 17,536 16,024 13,656
Research and development........ 12,775 15,687 10,281 6,953 4,837
General and administrative...... 10,065 7,338 5,433 4,651 4,148
Amortization of acquired
intangibles.................... -- -- -- 638 1,442
------- ------- ------- ------- --------
Total operating expenses....... 41,101 43,146 33,250 28,266 24,083
------- ------- ------- ------- --------
Operating income (loss).......... (8,917) (8,413) 1,537 (3,788) (16,061)
Compensation related to
modification of escrow
agreement(2) .................. -- -- -- (4,183) --
Interest expense................. (208) (311) (267) (207) (206)
Interest and other income........ 375 320 507 589 250
------- ------- ------- ------- --------
Income (loss) before taxes...... (8,750) (8,404) 1,777 (7,589) (16,017)
Provision for income taxes....... -- -- 22 -- --
------- ------- ------- ------- --------
Net income (loss).................$(8,750).$(8,404) $1,755 $(7,589) $(16,017)
======= ======= ======= ======= ========
Net Income (loss)
per share--basic and
diluted(3)...................... $ (0.55) $ (0.52) $ 0.11 $ (0.52) $ (1.37)
======= ======= ======= ======= ========
Weighted average number of shares
outstanding:
Basic........................... 15,944 16,075 15,908 14,494 11,710
======= ======= ======= ======= ========
Diluted(2)...................... 15,944 16,075 16,125 14,494 11,710
======= ======= ======= ======= ========
14
2001 2000 1999 1998 1997
------ ------ ------ ------- ------
Balance Sheet Data:
Cash and cash equivalents................ $8,464 $7,572 $8,946 $17,128 $3,270
Total assets............................. 34,251 34,440 38,430 37,214 12,439
Deferred revenue......................... 20,215 9,894 8,573 9,134 11,480
Long-term borrowings, including capital
lease obligations....................... 408 943 1,120 1,010 54
Stockholders' equity (deficit)........... 4,590 13,904 21,960 19,110 (5,508)
- --------
(1) In February and March 1998, the Company acquired the businesses of five
third-party resellers of the Company's products (the "Acquired Resellers")
in exchange for an aggregate of 121,856 shares of the Company's Class B
Common Stock (converted into 1,233,061 shares of the Company's common
stock, par value $0.01 per share (the "Common Stock"), in connection with
an initial public offering, completed in June 1998). The Company accounted
for these transactions using the poolings-of-interest method of
accounting. Therefore, the accounts of the Acquired Resellers have been
included retroactively in the consolidated financial statements as if the
companies had operated as one entity since inception for purposes of the
statements of operations data and at the end of such periods for purposes
of the balance sheet data.
(2) In March 1998, an escrow agreement was modified to provide that all of the
shares of Class B Common Stock held in escrow were to be released upon the
execution of a firm commitment underwriting agreement for the initial
public offering of the Company's capital stock on or before July 1, 1998.
Approximately $4.2 million of compensation expense was recorded as of the
date of modification, representing 60,429 shares of Class B Common Stock
of the Company (converted into 611,477 shares of Common Stock) released to
directors, officers and employees of the Company, multiplied by the
difference between the fair market value of the Class B Common Stock on
the date of the modification and the price paid by the holders of the
shares.
(3) See Note 2 of the Notes to Consolidated Financial Statements for
information regarding the computation of net income (loss) per share.
15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Form 10-K.
This Form 10-K contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
contained in the forward-looking statements. Factors that may cause such
differences include, but are not limited to, those discussed in this Form 10-
K, including Exhibit 99.1 hereto.
Significant Accounting Policies
Revenue Recognition
The Company licenses software under noncancellable license agreements and
provides services including maintenance, implementation, training and
consulting services. In accordance with the provisions of Statement of
Position ("SOP") 97-2, "Software Revenue Recognition," license revenues are
generally recognized when a noncancellable license agreement has been signed,
the product has been shipped, no significant vendor obligations remain and
collection of the related receivable is considered probable.
Recurring revenues include maintenance revenues and subscription revenues.
Revenues from maintenance agreements for maintaining, supporting and providing
periodic updates are recognized ratably over the maintenance period, which in
most instances is one year. Revenues from subscription agreements are
recognized ratably over the term of the related contract upon the delivery of
the product and services.
Service revenues include implementation revenues, training revenues and
other revenues (defined below). Revenues for training and implementation
consulting services are recognized as services are performed. The Company also
generates revenues relating to the sale of payroll-related forms and the
printing of Form W-2's for certain customers ("other revenues"). Other
revenues are recognized as the product is shipped or as the services are
rendered.
Software Development Costs
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires capitalization of certain software
development costs subsequent to the establishment of technological
feasibility. Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Software costs
capitalized during 2001 and 2000 totaled $4,621,000 and $160,000,
respectively. Capitalized software is amortized using the straight-line method
over the estimated useful lives of the assets which are typically three years.
Amortization of capitalized software was $706,000, $351,000 and $68,000 in
2001, 2000 and 1999, respectively. Accumulated amortization of capitalized
software was $1.1 million and $0.4 million as of December 31, 2001 and 2000,
respectively.
Overview
Ultimate Software designs, markets, implements and supports technologically
advanced cross-industry human resources management and payroll
("HRMS/payroll") software solutions. The Company's mission is to become the
premier infrastructure provider of Internet payroll and workforce management
solutions.
Ultimate Software's Web-based workforce management solution is UltiPro.
UltiPro Web includes Manager Self-Service, Employee Self-Service, and Benefits
Enrollment and is integrated with and supported by a back-office client/server
solution known as UltiPro HRMS/Payroll, that can be purchased stand-alone
(collectively, "UltiPro"). UltiPro is marketed primarily to mid-sized and
small organizations, those with less than 15,000 employees, but scales to meet
the needs of larger organizations. UltiPro Web allows customers to empower
their entire workforce--employees, managers and executives--to improve
communications and efficiencies. UltiPro Web offers business intelligence
reporting, access to benefits and paycheck history, direct deposit
maintenance, and human resources management including Internet employee
administration, benefits enrollment, recruitment
16
and training features. Along with the back-office solution UltiPro
HRMS/Payroll, UltiPro Web enables businesses to manage the employee life cycle
strategically and cost effectively, from inception of employment through
retirement.
Ultimate Software reaches its customer base through its direct sales force
and a network of business service providers ("BSPs") that market to their
customers. The Company's direct sales force markets UltiPro as an in-house
HRMS/payroll solution and alternatively as an application hosting offering.
The Company has branded its hosted model as "Intersourcing" to underscore the
idea that part of the business value of this model is the convenience of
outsourcing, coupled with in-house control over the client's own data.
Intersourcing provides organizations real-time access to their employee
information and reporting, roles-based Web-access for all employees, business
intelligence tools for executive decision-making, and comprehensive
HRMS/payroll functionality without a requirement for significant support from
in-house information technology resources. Ultimate Software works together
with Intersourcing customers to procure leasing agreements that provide a
reduced requirement for up-front cash and convenient monthly payments.
Pursuant to an arrangement with International Business Machines Global
Services, Inc. ("IBM"), IBM provides hosting services for Ultimate Software
customers, which includes the installation, ongoing maintenance and backup
services at an IBM Data Hosting Center. In addition, the Company is developing
a hosting program through which Ultimate Software will provide the
installation, ongoing maintenance and backup services at an alternative data
center.
In April 2000, the Company announced a co-branding alliance program to
target primarily those businesses with under 500 employees and to provide the
opportunity for Ultimate Software to generate recurring revenues to supplement
the license and services revenues, including recurring maintenance revenues,
received primarily from its mid-sized customers, those with 500 to 15,000
employees. The program offers BSPs the opportunity to co-brand UltiPro and to
price their offerings on a per employee per month basis.
On March 9, 2001, Ultimate Software signed a co-branding agreement (the
"March 9 Agreement") with Ceridian Corporation ("Ceridian") and on August 9,
2001 and February 5, 2002, Ultimate Software and Ceridian amended the March 9
Agreement (the "Amendments," together with the March 9 Agreement, the
"Ceridian Agreement"). Pursuant to the Ceridian Agreement, Ultimate Software
granted Ceridian a non-exclusive license to use UltiPro software as part of an
on-line offering which Ceridian intends to market primarily to businesses with
under 500 employees. On March 13, 2001, Ceridian completed an up-front payment
to Ultimate Software of $10.0 million (the "Initial Payment"). On February 12,
2002, Ceridian completed a prepayment of royalties payable to Ultimate
Software of $6.0 million in accordance with the terms of the Amendments (the
"Prepayment"). Under the terms of the March 9 Agreement, $5.0 million of the
Initial Payment would have been refundable to Ceridian if the Company was
unable to complete a successful transfer of technology to Ceridian (the
"Technical Transfer"). Under the terms of the Amendments, Ceridian agreed that
Technical Transfer occurred on February 5, 2002. The total amount paid to
Ultimate Software of $16.0 million from both the Initial Payment and the
Prepayment (the "Total Payment") is not subject to refund. In addition, under
the terms of the Ceridian Agreement, as a result of the achievement of
Technical Transfer, Ceridian is obligated to pay a monthly license fee based
on the number of employees paid using the Ultimate Software product. These
payments are subject to a minimum monthly payment of $500,000 per month
beginning in January 2003 with 5% annual increases beginning in 2006. Under
the Amendments, the minimum payments of $250,000 per month, which would have
been payable in 2002 by Ceridian pursuant to the March 9 Agreement, were
waived. The Prepayment represents the prepayment of the minimum monthly
payments due in 2003. The maximum monthly payment is $1.0 million, subject to
5% annual increases beginning in 2003. After five years, either party can
terminate the agreement with two years' notice, with Ceridian retaining
certain rights to use the licensed software upon termination. The parties
expect the minimum term of the agreement to be 7 years (the "Minimum Term").
The aggregate of the Total Payment and the minimum monthly amounts which
Ceridian is obligated to pay to Ultimate Software during the Minimum Term is
approximately $42.1 million.
The Ceridian Agreement includes the provision of future updates to UltiPro
which is a standard contract provision for the Company's software products. On
February 5, 2002, Ultimate Software signed an agreement with Ceridian for the
delivery of a release generally known by the parties as Evolution (the
"Evolution Release
17
Agreement"). Under the terms of the Evolution Release Agreement, Ceridian will
pay Ultimate Software $500,000 in the event the Evolution release is delivered
by August 30, 2002. To the extent Ultimate Software delivers Evolution to
Ceridian beyond September 30, 2002, Ultimate Software is obligated to pay
Ceridian $500,000 per month up to a maximum of $1.5 million (the "Evolution
Obligation"), with a daily pro-ration of the obligation to be applied to the
extent the delivery occurs during one of the three months of October, November
and December 2002. The Company believes that it will deliver Evolution to
Ceridian before September 30, 2002.
For accounting purposes, the Initial Payment is included in deferred
revenue as of December 31, 2001. The Prepayment received in February 2002 is
included in deferred revenue for 2002 financial reporting purposes. Because
Technical Transfer has occurred, the minimum payments guaranteed to the
Company, less the portion attributable to maintenance revenue for the period
prior to Technical Transfer and less the Evolution Obligation, will be
recognized ratably as subscription revenue (totaling approximately $550,000
per month) from the date of Technical Transfer, February 5, 2002, through the
end of the Minimum Term. The portion of the Initial Payment attributable to
maintenance services prior to Technical Transfer is recognized ratably over
the period commencing on April 1, 2001 and ending as of the date of Technical
Transfer, February 5, 2002.
The following table sets forth the Company's current estimates of the
financial impact of the Ceridian Agreement (in thousands):
Deferred at
Fiscal Cash Revenue Revenue at
Year Received Recognized December 31st
------ -------- ---------- -------------
2001 $10,000 $ 500 $9,500
2002(1) 4,500 6,038 7,962
2003 -- 6,587 1,375
2004 6,000 6,587 788
2005 6,000 6,587 201
2006 6,300 6,587 --
2007 6,615 6,587 --
2008 1,157 1,099 --
------- -------
$40,572 $40,572
======= =======
- --------
(1) In accordance with generally accepted accounting principles, the maximum
amount potentially due from the Company to Ceridian under the Evolution
Release Agreement totaling $1.5 million is deducted from the Prepayment
received in February 2002. When the uncertainty regarding the timing of
delivery of Evolution is resolved, the amount of minimum payments will be
revised accordingly and recognized as a change in accounting estimate, if
required, over the remaining term of the Ceridian Agreement. The Company
believes that it will deliver Evolution to Ceridian before September 30,
2002 and, accordingly, that no part of such $1.5 million will be payable
to Ceridian.
18
Results of Operations
The following table sets forth the Statements of Operations data of the
Company, as a percentage of total revenues, for the periods indicated.
For the Years
Ended December
31,
---------------------
2001 2000 1999
----- ----- -----
Revenues:
License................................................. 29.3% 40.2% 42.1%
Recurring............................................... 25.0 17.5 14.9
Services................................................ 45.7 42.3 43.0
----- ----- -----
Total revenues......................................... 100.0 100.0 100.0
----- ----- -----
Cost of revenues:
License................................................. 2.2 2.1 1.3
Recurring............................................... 10.1 8.3 7.1
Services................................................ 31.7 31.7 29.2
----- ----- -----
Total cost of revenues................................. 44.0 42.1 37.6
----- ----- -----
Operating expenses:
Sales and marketing..................................... 31.8 33.5 31.5
Research and development................................ 22.2 26.2 18.4
General and administrative.............................. 17.5 12.2 9.7
----- ----- -----
Total operating expenses............................... 71.5 71.9 59.6
----- ----- -----
Operating income (loss)................................ (15.5) (14.0) 2.8
Interest expense......................................... (0.4) (0.5) (0.5)
Interest and other income................................ 0.7 0.5 0.9
Provision for income taxes............................... 0.0 0.0 0.0
----- ----- -----
Net income (loss)....................................... (15.2)% (14.0)% 3.2%
===== ===== =====
Comparison of Fiscal Years Ended December 31, 2001 and 2000
Revenues
The Company's revenues are derived from three principal sources: software
licenses ("license revenues"), recurring revenues and services revenues.
License revenues include revenues from software license agreements for the
Company's products, entered into between the Company and its customers in
which the license fees are noncancellable. License revenues are generally
recognized upon the delivery of the related software product when all
significant contractual obligations have been satisfied. Until such delivery,
the Company records amounts received when contracts are signed as customer
deposits which are included with deferred revenues in the consolidated balance
sheets.
Recurring revenues include maintenance revenues derived from maintaining,
supporting and providing periodic updates for the Company's software and
subscription revenues principally derived from per employee per month ("PEPM")
fees earned through the BSP sales channel. Maintenance revenues are recognized
ratably over the service period, generally one year. Subscription revenues are
recognized ratably over the term of the related contract upon the delivery of
the product and services. All of the Company's customers that purchased
software during 2001 and 2000 also purchased maintenance and support service
contracts. Maintenance and support fees are generally priced as a percentage
of the initial license fee for the underlying products.
19
Service revenues include revenues from fees charged for the implementation
of the Company's software products and training of customers in the use of
such products, fees for other services, including the provision of payroll-
related forms and the printing of Form W-2's for certain customers, as well as
fees from the IBM hosted model. Service revenues are recognized as services
are performed and delivered.
Total revenues, consisting of license, recurring and service revenues,
decreased to $57.5 million for 2001 from $60.0 million for 2000.
License revenues decreased 30.2% to $16.8 million for 2001 from $24.1
million for 2000 primarily due to lower volume of sales generated by the
Company's direct sales channel which management believes is partly due to
current economic conditions. In addition, the Company changed its business
strategy for its sales channel which focuses on co-branding relationships with
BSPs (the "BSP Channel"). The Company's objective with the BSP Channel is to
achieve a more predictable recurring revenue model. Based on market
conditions, during the three months ended September 30, 2000, the Company made
adjustments to its strategy for attaining its BSP Channel objective. The
Company revised its former requirement for strategic partners to pay an
upfront license fee along with ongoing per employee per month ("PEPM") fees by
de-emphasizing the upfront license fee and emphasizing the recurring revenue
from PEPM fees. The planned result is to provide a higher percentage of
recurring revenue in the BSP Channel with correspondingly lower upfront
commitments.
Recurring revenues increased 36.5% to $14.4 million for 2001 from $10.5
million for 2000 primarily due to the increase in maintenance revenue
generated from incremental licenses sold in 2001, combined with a high
customer retention rate. Beginning in February 2002 and continuing through
March 2008, recurring revenues will include the amortization of the minimum
guaranteed payments under the Ceridian Agreement, as amended, which is
approximately $550,000 per month.
Service revenues increased 3.5% to $26.3 million for 2001 from $25.4
million for 2000 primarily as a result of an increase in implementation
revenue, partially offset by a decrease in revenue generated from the IBM
hosted model. Implementation revenues increased due to an increase in the
number of hours billed to clients, primarily resulting from higher utilization
of service consultants.
Cost of Revenues
Cost of revenues consists of the cost of license, recurring and service
revenues. Cost of license revenues primarily consists of fees payable to a
third party for software products distributed by the Company and, to a lesser
degree, amortization of capitalized software costs. Cost of recurring revenues
consists of costs to provide maintenance and technical support to the
Company's customers, the cost of periodic updates and the costs of
subscription revenues, including amortization of capitalized software. Cost of
service revenues primarily consists of costs to provide implementation
services and training to the Company's customers and, to a lesser degree,
costs associated with revenues generated from the IBM hosted model and costs
related to sales of payroll-related forms.
Cost of license revenues totaling $1.3 million for 2001 was consistent with
2000. As a percentage of license revenues, cost of license revenues increased
to 7.6% for 2001 from 5.3% for 2000. The increase in the cost of license
revenues rate was primarily attributable to an increase in the amortization of
capitalized software for UltiPro Web during 2001 combined with lower license
revenues.
Cost of recurring revenues increased by 16.8% to $5.8 million for 2001 from
$5.0 million for 2000. This increase was attributable to increased costs of
maintenance principally due to higher labor costs to support the Company's
customer base and an increase in costs of subscriptions, principally from
labor costs and amortization of capitalized software, which began in 2001. As
a percentage of recurring revenues, cost of recurring revenues decreased to
40.3% for 2001 from 47.1% for 2000. This decrease was primarily attributable
to higher costs absorbed by an increased recurring revenue base.
20
Cost of service revenues decreased by 4.4% to $18.2 million for 2001 from
$19.1 million for 2000. Cost of service revenues, as a percentage of service
revenues, decreased to 69.3% for 2001 from 75.0% for 2000. The decrease in the
cost of service revenues was primarily attributable to the reduction in costs
associated with lower revenues recognized from the IBM hosted model.
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 decreased by 9.2% to $18.3
million for 2001 from $20.1 million for 2000. Sales and marketing expenses, as
a percentage of total revenues, decreased to 31.8% for 2001 from 33.5% for
2000. The decrease in sales and marketing expenses was primarily due to lower
advertising and marketing costs, a reduction in travel expenses and, to a
lesser degree, less sales commissions resulting from lower license revenues.
Research and Development
Research and development expenses consist primarily of software development
personnel costs. Research and development expenses decreased by 18.6% to $12.8
million for 2001 from $15.7 million for 2000. The decrease in research and
development expenses was primarily attributable to the capitalization during
2001 of $4.2 million in software development personnel costs associated with
the development of certain major products which were available for general
release in the third and fourth fiscal quarters of 2001. Such capitalized
software costs are amortized ratably to cost of license revenues and cost of
recurring revenues, on a product-by-product basis over the estimated life
(which is typically three years) following the general release of the
underlying software products. As of December 31, 2001, the amount of
capitalized software remaining for future amortization to cost of license and
cost of recurring revenues was $1.4 million and $3.1 million, respectively.
Research and development expenses, as a percentage of total revenues,
decreased to 22.2% for 2001 from 26.2% for 2000. The decrease in research and
development expenses, as a percentage of total revenues, was primarily due to
the capitalization of software. Excluding the impact of research and
development expenses capitalized in the period, research and development
expenses, as a percentage of total revenues, were 29.6% for 2001 and 26.1% for
2000. The increase in research and development costs, excluding the impact of
capitalized software, was primarily attributable to additional software
development personnel 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 37.2% to $10.1 million for 2001 from
$7.3 million for 2000. General and administrative expenses, as a percentage of
total revenues, increased to 17.5% for 2001 from 12.2% for 2000. The increase
in general and administrative expenses was principally due to the settlement
of a litigation matter and an increase in the provision for doubtful accounts.
Interest Expense
Interest expense decreased by 33.1% to $208,000 for 2001 from $311,000 for
2000 primarily due to lower interest rates on new capital lease obligations.
Interest and Other Income
Interest and other income increased by 17.2% to $375,000 for 2001 from
$320,000 for 2000 primarily due to interest earned on additional funds
available for investment in 2001.
21
Provision for Income Taxes
No provision for Federal, state or foreign income taxes was made for 2001
due to the operating losses and operating loss carryforwards from prior
periods incurred in the respective periods. Net operating loss carryforwards
available at December 31, 2001, which expire at various times through the year
2021 and are available to offset future taxable income, are $34.3 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 the Company's equity instruments. The Company's net deferred tax
assets at December 31, 2001 were $15.8 million, consisting primarily of net
operating loss carryforwards. The Company's benefit of deferred tax assets was
fully reserved as of December 31, 2001 as the realization of deferred taxes is
dependent on future events and earnings, if any, the timing and extent of
which are uncertain.
Comparison of Fiscal Years Ended December 31, 2000 and 1999
Revenues
Total revenues, consisting of license, recurring and service revenues,
increased 7.7% to $60.0 million for 2000 from $55.8 million for 1999.
License revenues increased 2.8% to $24.1 million for 2000 from $23.5
million for 1999 due to increased sales of UltiPro HRMS/Payroll and UltiPro
Web and, to a lesser degree, sales generated from the Company's BSP Channel.
Recurring revenues increased 26.5% to $10.5 million for 2000 from $8.3
million for 1999 primarily as a result of an increase in maintenance generated
from a larger installed customer base.
Service revenues increased 5.9% to $25.4 million for 2000 from $24.0
million for 1999 primarily as a result of an increase in training revenues
generated from a larger installed customer base and revenues generated from
the IBM hosted model, partially offset by a decrease in implementation
revenues resulting primarily from the Company's planned reduction of
implementation consulting services subcontracted to third party providers.
Fees for services performed by such third party providers on behalf of
Ultimate Software, and typically under the supervision of Ultimate Software's
service consultants, are recognized as service revenues in the period
performed.
Cost of Revenues
Cost of license revenues increased 71.2% to $1.3 million for 2000 from $0.8
million for 1999. As a percentage of license revenues, cost of license
revenues increased to 5.3% for 2000 from 3.2% for 1999. The increase in cost
of license revenues was primarily attributable to the amortization of
capitalized software for UltiPro Web.
Cost of recurring revenues increased by 26.1% to $5.0 million for 2000 from
$3.9 million for 1999. This increase was principally due to an increase in
labor costs to support a larger customer base. Cost of recurring revenues, as
a percentage of recurring revenues, decreased to 47.1% for 2000 from 47.3% for
1999. This decrease was primarily attributable to higher costs absorbed by an
increased recurring revenue base.
Cost of service revenues increased by 17.0% to $19.1 million for 2000 from
$16.3 million for 1999. Cost of service revenues, as a percentage of service
revenues, increased to 75.0% for 2000 from 67.9% for 1999. The increase in
cost of service revenues was primarily attributable to the increased labor
costs to support the implementation of UltiPro HRMS/Payroll and costs
associated with revenues generated from the IBM hosted model, partially offset
by lower third-party implementation consulting fees.
22
Sales and Marketing
Sales and marketing expenses increased by 14.7% to $20.1 million for 2000
from $17.5 million for 1999. Sales and marketing expenses, as a percentage of
total revenues, increased to 33.5% for 2000 from 31.5% for 1999. The increase
in sales and marketing costs was primarily due to a combination of increased
travel expenses and higher advertising and marketing costs focusing on
branding, particularly the branding of the IBM hosted model.
Research and Development
Research and development expenses increased by 52.6% to $15.7 million for
2000 from $10.3 million for 1999. Research and development expenses, as a
percentage of total revenues, increased to 26.2% for 2000 from 18.4% for 1999.
The increase in research and development expenses was primarily attributable
to an increase in the number of software programmers, engineers and other
development-related positions for the development and enhancement of UltiPro
HRMS/Payroll, the continued development of UltiPro Web products, the expansion
of application hosting capabilities and for the development of new
HRMS/payroll-related enhancement modules.
General and Administrative
General and administrative expenses increased by 35.1% to $7.3 million for
2000 from $5.4 million for 1999. General and administrative expenses, as a
percentage of total revenues, increased to 12.2% for 2000 from 9.7% for 1999.
The increase in general and administrative expenses was principally due to an
increase in the provision for doubtful accounts.
Interest Expense
Interest expense increased by 16.4% to $311,000 for 2000 from $267,000 for
1999 primarily due to an increase in capital lease obligations.
Interest and Other Income
Interest and other income decreased by 36.9% to $320,000 for 2000 from
$507,000 for 1999 primarily due to a decrease in cash and cash equivalents
available for investment in money market and other short-term marketable
securities.
Provision for Income Taxes
No provision for Federal, state or foreign income taxes was made for 2000
due to the Company's cumulative net operating losses incurred through December
31, 2000. The provision for income taxes was $22,000 in 1999 as a result of
income taxes calculated under the alternative minimum tax method. The
Company's net deferred tax assets at December 31, 2000 were $12.9 million,
consisting primarily of net operating loss carryforwards. The Company's
benefit of deferred tax assets was fully reserved as of December 31, 2000 as
the realization of deferred taxes is dependent on future events and earnings,
if any, the timing and extent of which are uncertain.
23
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, 2001 and
2000. 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 the Company's Consolidated
Financial Statements and Notes thereto, included elsewhere in this Form 10-K.
The Company believes that quarter-to-quarter comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.
Quarters Ended
---------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
2001 2001 2001 2001 2000 2000 2000 2000
-------- --------- -------- -------- -------- --------- -------- --------
(In thousands, except per share amounts)
Revenues:
License................ $ 4,015 $ 3,034 $4,450 $5,327 $ 4,048 $ 4,020 $9,549 $6,486
Recurring.............. 3,861 3,736 3,626 3,141 2,854 2,667 2,578 2,421
Services............... 6,751 5,851 6,354 7,337 7,487 6,310 5,689 5,921
-------- ------- ------ ------ ------- ------- ------ ------
Total revenues........ 14,627 12,621 14,430 15,805 14,389 12,997 17,816 14,828
-------- ------- ------ ------ ------- ------- ------ ------
Cost of reveunues:
License................ 391 258 326 312 239 286 415 346
Recurring.............. 1,656 1,364 1,380 1,389 1,330 1,213 1,159 1,255
Services............... 5,057 4,462 4,268 4,436 5,829 4,749 4,184 4,292
-------- ------- ------ ------ ------- ------- ------ ------
Total cost of
revenues............. 7,104 6,084 5,974 6,137 7,398 6,248 5,758 5,893
-------- ------- ------ ------ ------- ------- ------ ------
Operating expenses:
Sales and marketing.... 4,333 4,422 4,879 4,627 4,701 5,177 5,532 4,711
Research and
development........... 3,845 2,333 2,331 4,266 4,243 4,024 3,796 3,624
General and
administrative........ 2,837 3,995 1,848 1,385 2,114 2,305 1,627 1,292
-------- ------- ------ ------ ------- ------- ------ ------
Total operating
expenses............. 11,015 10,750 9,058 10,278 11,058 11,506 10,955 9,627
-------- ------- ------ ------ ------- ------- ------ ------
Operating income
(loss)............... (3,492) (4,213) (602) (610) (4,067) (4,757) 1,103 (692)
Interest expense........ (60) (56) (42) (50) (67) (64) (75) (105)
Interest and other
income................. 37 82 136 120 75 88 74 83
-------- ------- ------ ------ ------- ------- ------ ------
Income (loss) before
income taxes (3,515) (4,187) (508) (540) (4,059) (4,733) 1,102 (714)
-------- ------- ------ ------ ------- ------- ------ ------
Net income (loss)...... $ (3,515) $(4,187) $ (508) $ (540) $(4,059) $(4,733) $1,102 $ (714)
======== ======= ====== ====== ======= ======= ====== ======
Weighted average shares
outstanding:
-------- ------- ------ ------ ------- ------- ------ ------
Basic.................. 15,894 15,905 15,938 16,043 16,072 16,094 16,078 16,054
======== ======= ====== ====== ======= ======= ====== ======
Diluted 15,894 15,905 15,938 16,043 16,072 16,094 16,491 16,054
======== ======= ====== ====== ======= ======= ====== ======
Net income (loss) per
share--basic and
diluted................ $ (0.22) $ (0.26) $(0.03) $(0.03) $ (0.25) $ (0.29) $ 0.07 $(0.04)
======== ======= ====== ====== ======= ======= ====== ======
24
The following table sets for the unaudited quarterly results of operations, as
a percentage of total revenues, as applicable, for each of the quarters in the
years ended December 31, 2001 and 2000.
Quarters Ended
------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
2001 2001 2001 2001 2000 2000 2000 2000
-------- --------- -------- -------- -------- --------- -------- --------
(In thousands, except per share amounts)
Revenues:
License................ 27.4% 24.0% 30.8% 33.7% 28.1% 30.9% 53.6% 43.7%
Recurring.............. 26.4% 29.6% 25.1% 19.9% 19.8% 20.5% 14.5% 16.4%
Services............... 46.2% 46.4% 44.1% 46.4% 52.1% 48.6% 31.9% 39.9%
----- ----- ----- ----- ----- ----- ----- -----
Total revenues........ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- ----- ----- ----- -----
Cost of reveunues:
License................ 2.7% 2.0% 2.3% 2.0% 1.7% 2.2% 2.3% 2.3%
Recurring.............. 11.3% 10.8% 9.6% 8.8% 9.2% 9.3% 6.5% 8.5%
Services............... 34.6% 35.4% 29.4% 28.1% 40.5% 36.6% 23.5% 28.9%
----- ----- ----- ----- ----- ----- ----- -----
Total cost of
revenues............. 48.6% 48.2% 41.3% 38.9% 51.4% 48.1% 32.3% 39.7%
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing.... 29.6% 35.0% 33.8% 29.3% 32.7% 39.8% 31.1% 31.8%
Research and
development........... 26.3% 18.5% 16.2% 27.0% 29.5% 31.0% 21.3% 24.4%
General and
administrative........ 19.4% 31.7% 12.8% 8.8% 14.7% 17.7% 9.1% 8.7%
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............. 75.3% 85.2% 62.8% 65.1% 76.9% 88.5% 61.5% 64.9%
----- ----- ----- ----- ----- ----- ----- -----
Operating income
(loss)............... (23.9%) (33.4%) (4.1%) (4.0%) (28.3%) (36.6%) 6.2% (4.7%)
Interest expense........ (0.4%) (0.4%) (0.3%) (0.2%) (0.5%) (0.5%) (0.4%) (0.7%)
Interest and other
income................. 0.3% 0.6% 0.9% 0.8% 0.6% 0.7% 0.4% 0.6%
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes.......... (24.0%) (33.2%) (3.5%) (3.4%) (28.2%) (36.4%) 6.2% (4.8%)
Provision for income
taxes................... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)...... (24.0%) (33.2%) (3.5%) (3.4%) (28.2%) (36.4%) 6.2% (4.8%)
===== ===== ===== ===== ===== ===== ===== =====
Liquidity and Capital Resources
The Company has historically funded operations primarily through the sale
of private and public equity securities and, to a lesser extent, equipment
financing and borrowing arrangements.
As of December 31, 2001, the Company had $8.5 million in cash and cash
equivalents, reflecting a net increase of $0.9 million since December 31,
2000. Working capital as of December 31, 2001 was a working capital deficit of
$5.0 million as compared to working capital of $8.2 million as of December 31,
2000. The decline in working capital resulted primarily from the impact of the
net loss on operations for the year 2001, a reduction in accounts receivable
and an increase in deferred revenue of $9.5 million resulting from the
Ceridian Agreement which will be recognized ratably as subscription revenue,
together with the balance of minimum guaranteed payments under the Ceridian
Agreement, from the date of Technical Transfer through the end of the Minimum
Term. Excluding deferred revenue of $19.7 million and $9.5 million, the
Company would have had a working capital balance of $14.7 million and $17.7
million at December 31, 2001 and 2000, respectively.
Net cash provided by operating activities was $10.4 million for 2001 as
compared to $1.9 million for 2000. The improvement in net cash provided by
operating activities was primarily attributable to the Initial Payment under
the Ceridian Agreement, the capitalization of internally developed software
costs totaling $4.6 million and improved collections of accounts receivable,
partially offset by the funding of operations.
Net cash used in investing activities was $6.5 million for 2001 as compared
to $1.5 million for 2000. The increase in net cash used in investing
activities was primarily attributable to an increase in capitalized software
and an increase in capital expenditures which were not financed.
25
Net cash used in financing activities was $3.0 million for 2001 as compared
to net cash used in financing activities of $1.7 million for 2000. The
increase in net cash used in financing activities was primarily due to
additional principal payments on capital lease obligations and the Company's
purchase of its Common Stock under the Stock Repurchase Plan discussed below.
The Company has a revolving line of credit (the "Credit Facility") with
Silicon Valley Bank which is secured by all of the Company's corporate assets,
including a negative pledge on intellectual property, and bears interest at a
rate equal to Prime Rate plus 1.0% per annum (reduced to Prime Rate plus 0.5%
per annum upon two consecutive quarters of net profitability). The Credit
Facility provides working capital financing for up to 75% of the Company's
eligible accounts receivable, as defined, financing for eligible equipment
purchases for up to $2.5 million with additional limits for software
purchases, and stand-by letters of credit for up to $0.5 million. The maximum
amount available under the Credit Facility is $5.0 million. The Credit
Facility expires on November 28, 2003. No amounts were outstanding for
borrowings under the Credit Facility as of December 31, 2001. Under the terms
of the Credit Facility, no dividends may be paid on the Company's Common Stock
without the consent of the Silicon Valley Bank.
On October 30, 2000, the Company announced that its board of directors
authorized the repurchase of up to 1,000,000 shares of the Company's Common
Stock (the "Stock Repurchase Plan"). Stock repurchases may be made
periodically in the open market, in privately negotiated transactions or a
combination of both. The extent and timing of these transactions will depend
on market conditions and other business considerations. As of December 31,
2001, the Company had purchased 211,497 shares of the Company's Common Stock
under the Stock Repurchase Plan.
In accordance with the Ceridian Agreement, as previously discussed, on
March 13, 2001, Ceridian completed an up-front payment to Ultimate Software of
$10.0 million (the "Initial Payment"). On February 12, 2002, Ceridian
completed a prepayment of royalties payable to Ultimate Software of $6.0
million in accordance with the terms of the Amendments (the "Prepayment").
Under the terms of the March 9 Agreement, $5.0 million of the Initial Payment
would have been refundable to Ceridian if the Company was unable to complete a
successful transfer of technology to Ceridian (the "Technical Transfer").
Under the terms of the Amendments, Ceridian agreed that Technical Transfer
occurred on February 5, 2002. The total amount paid to Ultimate Software of
$16.0 million from both the Initial Payment and the Prepayment (the "Total
Payment") is not subject to refund. In addition, under the terms of the
Ceridian Agreement, as a result of the achievement of Technical Transfer,
Ceridian is obligated to pay a monthly license fee based on the number of
employees paid using the Ultimate Software product. These payments are subject
to a minimum monthly payment of $500,000 per month beginning in January 2003
with 5% annual increases beginning in 2006. Under the Amendments, the minimum
payments of $250,000 per month, which would have been payable in 2002 by
Ceridian pursuant to the March 9 Agreement, were waived. The Prepayment
represents the prepayment of the minimum monthly payments due in 2003. The
maximum monthly payment is $1.0 million, subject to 5% annual increases
beginning in 2003. After five years, either party can terminate the agreement
with two years' notice, with Ceridian retaining certain rights to use the
licensed software upon termination. The parties expect the minimum term of the
agreement to be 7 years (the "Minimum Term"). The aggregate of the Total
Payment and the minimum monthly amounts which Ceridian is obligated to pay to
Ultimate Software during the Minimum Term is approximately $42.1 million.
The Ceridian Agreement includes the provision of future updates to UltiPro
which is a standard contract provision for the Company's software products. On
February 5, 2002, Ultimate Software signed an agreement with Ceridian for the
delivery of a release generally known by the parties as Evolution (the
"Evolution Release Agreement"). Under the terms of the Evolution Release
Agreement, Ceridian will pay Ultimate Software $500,000 in the event the
Evolution release is delivered by August 30, 2002. To the extent Ultimate
Software delivers Evolution to Ceridian beyond September 30, 2002, Ultimate
Software is obligated to pay Ceridian $500,000 per month up to a maximum of
$1.5 million (the "Evolution Obligation"), with a daily pro-ration of the
obligation to be applied to the extent the delivery occurs during one of those
the months of October, November and December 2002. The Company believes that
it will deliver Evolution to Ceridian before September 30, 2002.
26
Ceridian may acquire an equity interest in Ultimate through purchases in
the open market or from third parties, subject to a contractual limitation of
14.99% of the Company's Common Stock.
The Company believes that cash and cash equivalents, cash generated from
operations and available borrowings under the Credit Facility will be
sufficient to fund its operations for at least the next 12 months.
Quarterly Fluctuations
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. The Company's 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 and sales and
marketing), timing of product releases, increased competition, variations in
the mix of revenues, announcements of new products by the Company or its
competitors and capital spending patterns of the Company's customers. The
Company establishes its expenditure levels based upon its expectations as to
future revenues, and, if revenue levels are below expectations, expenses can
be disproportionately high. A drop in near term demand for the Company's
products could significantly affect both revenues and profits in any quarter.
Profitability achieved in previous fiscal quarters is 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 the
Company will be able to establish or maintain profitability on a quarterly
basis. The Company believes that, due to the underlying factors for quarterly
fluctuations, period-to-period comparisons of its operations are not
necessarily meaningful and that such comparisons should not be relied upon as
indications of future performance.
Recent Accounting Literature
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
"Intangible Assets." SFAS No. 142 addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired
in a business combination) should be accounted for in financial statements
upon their acquisition. It also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in
the financial statements. With the adoption of SFAS No. 142, goodwill is no
longer subject to amortization. Rather, goodwill will be subject to at least
an annual assessment for impairment by applying a fair value-based test. The
impairment loss is the amount, if any, by which the implied fair value of
goodwill is less than the carrying or book value. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001. The adoption of SFAS No.
142 is not expected to have a material impact on the financial statements of
the Company.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets
and supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," and the accounting and
reporting provisions of APB No. 30, "Reporting the Results of Operations--
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
for the disposal of a segment. SFAS No. 144 was issued to establish a single
accounting model, based upon the framework established in SFAS No. 121, for
long lived assets to be disposed of by sale. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001 and the interim periods within.
The adoption of SFAS No. 144 is not expected to have a material impact on the
financial statements of the Company.
Forward-Looking Statements
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains 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
27
statements represent the Company's expectations or beliefs, including, but not
limited to, statements concerning the Company's operations and financial
performance and condition. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates," and similar expressions are
intended to identify such forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to certain
risks and uncertainties that are difficult to predict. The Company's actual
results could differ materially from those contained in the forward-looking
statements. Factors that may cause such differences include, but are not
limited to, those discussed in this Form 10-K, including Exhibit 99.1 hereto.
The Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of its operations, the Company is exposed to certain
market risks, primarily interest rates. Uncertainties that are either non-
financial or non-quantifiable, such as political, economic, tax, other
regulatory or credit risks are not included in the following assessment of the
Company's market risks.
Interest rates. Cash equivalents consist of money market accounts with
original maturities of less than three months. Interest on the Credit
Facility, which expires on November 28, 2003, is based on Prime Rate plus 1.0%
per annum. As of December 31, 2001, no amounts were outstanding for borrowings
under the Credit Facility. Changes in interest rates could impact the
Company's anticipated interest income from interest-bearing cash accounts, or
cash equivalents, as well as interest expense on borrowings under the Credit
Facility.
Item 8. Financial Statements and Supplementary Data
Page(s)
INDEX -------
Report of Independent Certified Public Accountants.................... 29
Consolidated Balance Sheets as of December 31, 2001 and 2000.......... 30
Consolidated Statements of Operations for the Years Ended December 31,
2001, 2000 and 1999.................................................. 31
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2001, 2000 and 1999................................ 32
Consolidated Statements of Cash Flows for the Years Ended December 31,
2001, 2000 and 1999.................................................. 33
Notes to Consolidated Financial Statements............................ 34
28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Ultimate Software Group, Inc.:
We have audited the accompanying consolidated balance sheets of The
Ultimate Software Group, Inc. (a Delaware corporation) and subsidiary as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial statements referred to above present fairly,
in all material respects, the financial position of The Ultimate Software
Group, Inc. and subsidiary as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Miami, Florida,
February 1, 2002.
29
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
As of
December 31,
----------------
2001 2000
------- -------
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 8,464 $ 7,572
Accounts receivable, net of allowance for doubtful accounts
of $2,465 and $2,461 for 2001 and 2000, respectively....... 14,006 18,825
Prepaid expenses and other current assets.................. 1,266 1,025
------- -------
Total current assets..................................... 23,736 27,422
Property and equipment, net.................................. 5,786 6,211
Capitalized software, net.................................... 4,545 630
Other assets, net............................................ 184 177
------- -------
Total assets............................................. $34,251 $34,440
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 1,901 $ 2,059
Accrued expenses........................................... 5,548 5,623
Deferred revenue........................................... 19,741 9,540
Current portion of capital lease obligations............... 1,589 2,017
------- -------
Total current liabilities................................ 28,779 19,239
Capital lease obligations, net of current portion............ 408 943
Deferred revenue............................................. 474 354
------- -------
Total liabilities........................................ $29,661 $20,536
------- -------
Commitments and contingencies (Note 12)
Stockholders' equity:
Series A Junior Participating Preferred Stock, $.01 par
value, 500,000 shares
authorized, no shares issued and outstanding in 2001 and
2000...................................................... - -
Preferred Stock, $.01 par value, 2,000,000 shares autho-
rized in 2001 and 2000,
no shares issued or outstanding........................... - -
Common Stock, $.01 par value, 50,000,000 shares authorized,
16,105,665 and 16,100,090 shares issued and outstanding in
2001 and 2000, respectively............................... 161 161
Additional paid-in capital................................. 65,808 65,693
Accumulated deficit........................................ (60,516) (51,766)
------- -------
5,453 14,088
Treasury stock, at cost, 211,497 and 54,000 shares in 2001
and 2000, respectively.................................... (863) (184)
------- -------
Total stockholders' equity............................... 4,590 13,904
------- -------
Total liabilities and stockholders' equity............... $34,251 $34,440
======= =======
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
30
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
For the Years
Ended December 31,
-------------------------
2001 2000 1999
------- ------- -------
Revenues:
License............................................. $16,826 $24,103 $23,454
Recurring........................................... 14,364 10,520 8,315
Services............................................ 26,293 25,407 23,988
------- ------- -------
Total revenues..................................... 57,483 60,030 55,757
------- ------- -------
Cost of revenues:
License............................................. 1,287 1,286 751
Recurring........................................... 5,789 4,957 3,930
Services............................................ 18,223 19,054 16,289
------- ------- -------
Total cost of revenues............................ 25,299 25,297 20,970
------- ------- -------
Operating expenses:
Sales and marketing................................. 18,261 20,121 17,536
Research and development............................ 12,775 15,687 10,281
General and administrative.......................... 10,065 7,338 5,433
------- ------- -------
Total operating expenses.......................... 41,101 43,146 33,250
------- ------- -------
Operating income (loss)............................ (8,917) (8,413) 1,537
Interest expense..................................... (208) (311) (267)
Interest and other income............................ 375 320 507
------- ------- -------
Income (loss) before income taxes................... (8,750) (8,404) 1,777
Provision for income taxes - - 22
------- ------- -------
Net income (loss)................................... $(8,750) $(8,404) $ 1,755
======= ======= =======
Net income (loss) per share--basic and diluted....... $ (0.55) $(0.52) $ 0.11
======= ======= =======
Weighted average shares outstanding:
Basic............................................... 15,944 16,075 15,908
======= ======= =======
Diluted............................................. 15,944 16,075 16,125
======= ======= =======
31
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock Additional Treasury Stock Total
------------- Paid-in Accumulated ----------------- Stockholders'
Shares Amount Capital Deficit Shares Amount Equity
------ ------ ---------- ----------- ------- -------- -------------
Balance, December 31,
1998................... 15,879 $159 $64,068 $(45,117) - $ - $19,110
Issuances of Common
Stock from exercise of
stock options.......... 168 1 947 - - - 948
Non-cash issuances of
options to Board to
purchase Common Stock
for board fees......... - - 80 - - - 80
Non-cash issuances of
options to purchase
Common Stock for serv-
ices................... - - 67 - - - 67
Net income.............. - - - 1,755 - - 1,755
------ ---- ------- -------- ------ -------- -------
Balance, December 31,
1999................... 16,047 160 65,162 (43,362) - - 21,960
Issuances of Common
Stock from exercise of
stock options.......... 54 1 331 - - - 332
Non-cash issuances of
options to Board to
purchase Common Stock
for board fees - - 83 - - - 83
Non-cash issuances of
options to purchase
Common Stock for serv-
ices................... - - 117 - - - 117
Purchase of Treasury
Stock.................. - - - - 54 (184) (184)
Net loss................ - - - (8,404) - - (8,404)
------ ---- ------- -------- ------ -------- -------
Balance, December 31,
2000 16,101 161 65,693 (51,766) 54 (184) 13,904
Issuances of Common
Stock from exercise of
stock options.......... 5 - 13 - - - 13
Non-cash issuances of
options to Board to
purchase Common Stock
for board fees......... - - 102 - - - 102
Purchase of Treasury
Stock.................. - - - - 157 (679) (679)
Net loss................ - - - (8,750) - - (8,750)
------ ---- ------- -------- ------ -------- -------
Balance, December 31,
2001................... 16,106 $161 $65,808 $(60,516) 211 $(863) $4,590
====== ==== ======= ======== ====== ======== =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements
32
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years
Ended December 31,
------------------------
2001 2000 1999
------- ------- ------
Cash flow from operating activities:
Net income (loss).................................. $(8,750) $(8,404) $1,755
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization..................... 4,368 3,385 2,068
Provision for doubtful accounts................... 4,151 3,572 1,771
Non-cash issuances of equity instruments.......... 102 200 147
Changes in operating assets and liabilities:
Accounts receivable.............................. 668 (2,599) (7,216)
Prepaid expenses and other current assets........ (98) 1,413 (705)
Other assets..................................... (138) 36 122
Accounts payable................................. (158) 64 (734)
Accrued expenses................................. (75) 2,038 (1,542)
Deferred revenue................................. 10,321 2,162 (561)
------- ------- ------
Net cash provided by (used in) operating
activities................................... 10,391 1,867 (4,895)
------- ------- ------
Cash flows from investing activities:
Purchases of property and equipment................ (1,849) (1,428) (3,138)
Additions to capitalized software.................. (4,621) (160) -
Net proceeds from (issuances of) notes receivable.. (12) 43 (53)
------- ------- ------
Net cash used in investing activities........ (6,482) (1,545) (3,191)
------- ------- ------
Cash flows from financing activities:
Principal payments on capital lease obligations.... (2,351) (1,844) (1,044)
Net proceeds from issuances of Common Stock........ 13 332 948
Purchases of treasury stock........................ (679) (184) -
------- ------- ------
Net cash used in financing activities........ (3,017) (1,696) (96)
------- ------- ------
Net increase (decrease) in cash and cash
equivalents........................................ 892 (1,374) (8,182)
Cash and cash equivalents, beginning of year........ 7,572 8,946 17,128
------- ------- ------
Cash and cash equivalents, end of year.............. $ 8,464 $ 7,572 $8,946
======= ======= ======
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $ 180 $ 238 $ 168
======= ======= ======
Supplemental disclosure of non-cash investing and
financing activities:
The Company entered into capital lease obligations to acquire new equipment
totaling $1,388, $2,581 and $1,412 in 2001, 2000 and 1999, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
33
THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Ultimate Software Group, Inc. (the "Company") designs, markets,
implements and supports technologically advanced, cross-industry human
resource management and payroll software solutions, marketed primarily to
middle-market organizations with 500 to 15,000 employees. The Company reaches
its customer base and target market through its direct sales force and a
network of national, regional and local strategic partners.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiary. Intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
All highly liquid instruments with an original maturity of three months or
less when acquired are considered cash equivalents. The accompanying
consolidated balance sheets include $8.5 million and $6.3 million in interest-
bearing accounts as of December 31, 2001 and 2000, respectively.
Accounts Receivable
Accounts receivable are principally from end-users of the Company's
products. The Company performs periodic credit evaluations of its customers
and has recorded allowances for estimated losses.
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 five 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 two 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.
Revenue Recognition
The Company licenses software under noncancellable license agreements and
provides services including maintenance, implementation, training and
consulting services. In accordance with the provisions of Statement of
Position ("SOP") 97-2, "Software Revenue Recognition," license revenues are
generally recognized when a noncancellable license agreement has been signed,
the product has been shipped, no significant vendor obligations remain and
collection of the related receivable is considered probable.
Recurring revenues include maintenance revenues and subscription revenues.
Revenues from maintenance agreements for maintaining, supporting and providing
periodic updates are recognized ratably over the maintenance period, which in
most instances is one year. Revenues from subscription agreements are
recognized ratably over the term of the related contract upon the delivery of
the product and services.
34
Service revenues include implementation revenues, training revenues and
other revenues (defined below). Revenues for training and implementation
consulting services are recognized as services are performed. The Company also
generates revenues relating to the sale of payroll-related forms and the
printing of Form W-2's for certain customers ("other revenues"). Other
revenues are recognized as the product is shipped or as the services are
rendered.
Deferred Revenue
Deferred revenue is primarily comprised of deferrals for recurring revenues
for which maintenance services have not yet been rendered and subscription
revenues which are recognized ratably over the term of the related contract
upon the delivery of the product and services. See Note 3.
Associated deferred costs, representing commissions, were $803,000 and
$897,000 at December 31, 2001 and 2000, respectively. Commission expense is
recognized in the period the related revenue is recognized.
Cost of Revenues
Cost of revenues consists of cost of license, recurring and service
revenues. Cost of license revenues primarily consists of fees payable to a
third party for software products distributed by the Company and, to a lesser
degree, amortization of capitalized software. Cost of recurring revenues
consists of costs to provide maintenance and technical support to the
Company's customers, the cost of providing periodic updates and the costs of
subscription revenues, including amortization of capitalized software. Cost of
service revenues primarily consists of costs to provide implementation
services and training to the Company's customers, and, to a lesser degree,
costs associated with revenues generated from the Company's hosted model and
costs related to sales of payroll-related forms.
Income Taxes
The Company is subject to corporate Federal and state income taxes and
accounts for income taxes under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No.
109 provides for a 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.
Software Development Costs
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires capitalization of certain software
development costs subsequent to the establishment of technological
feasibility. Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Software costs
capitalized during 2001 and 2000 totaled $4,621,000 and $160,000,
respectively. Capitalized software is amortized using the straight-line method
over the estimated useful lives of the assets which are typically three years.
Amortization of capitalized software was $706,000, $351,000 and $68,000 in
2001, 2000 and 1999, respectively. Accumulated amortization of capitalized
software was $1.1 million and $0.4 million as of December 31, 2001 and 2000,
respectively.
Nonmonetary Transaction
During 2000, the Company entered into a nonmonetary transaction with a
third party for the exchange of the Company's HRMS/Payroll product for
dissimilar computer software used in the Company's operations (the
"Exchange"). The fair value of the computer software acquired was equivalent
to the fair value of the Company's HRMS/Payroll product exchanged; therefore,
there was no gain or loss recognized on the Exchange. Pricing associated with
the Exchange was reasonable based on cash sales of similar products. In
accordance with Accounting Principles Board Opinion No. 29, "Accounting for
Nonmonetary Transactions," the Company recorded the resulting asset at its
fair value of $393,000 and a corresponding amount as license revenues in 2000.
35
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States 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.
Fair Value of Financial Instruments
The Company's financial instruments, consisting of cash and cash
equivalents, accounts receivable, accounts payable and capital lease
obligations approximate fair value due to their short-term nature.
Accounting for Stock-Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company continues to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and has made the pro forma
disclosures required by SFAS No. 123 for each of the three years in the period
ended December 31, 2001. See Note 10.
Earnings Per Share
SFAS No. 128, "Earnings Per Share," requires dual presentation of earnings
per share--"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):
For the Years Ended
December 31,
--------------------
2001 2000 1999
------ ------ ------
Weighted average shares outstanding........................ 15,944 16,075 15,908
Effect of dilutive stock options........................... -- -- 217
------ ------ ------
Dilutive shares outstanding................................ 15,944 16,075 16,125
====== ====== ======
Other common stock equivalents (i.e., stock options) not included in the
computation of diluted net income (loss) per share, as their impact is
antidilutive, totaled 4,596,000, 3,954,000 and 1,380,000 for 2001, 2000 and
1999, respectively.
Comprehensive Income
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income and its components in a full set of financial statements.
The objective of SFAS No. 130 is to report a measure (comprehensive income) of
all changes in equity of an enterprise that result from transactions and other
economic events in a period other than transactions with owners. There are no
differences between comprehensive income, as defined in SFAS No. 130, and the
Company's net income (loss) for all periods presented.
36
Segment Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective December 31, 1998. SFAS No. 131
establishes standards for the way that public companies report selected
information about operating segments in annual and interim financial reports
to shareholders. It also establishes standards for related disclosures about
an enterprise's business segments, products, services, geographic areas and
major customers. The Company operates its business as a single segment.
Derivative Financial Instruments
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" on January 1, 2001. At December 31, 2001, the Company
held no derivative financial instruments, as defined by SFAS No. 133, as
amended. Therefore, there was no effect to the Company's financial statements
upon adoption.
Business Combinations
On July 1, 2001, the Company adopted SFAS No. 141, "Business Combinations,"
which addresses financial accounting and reporting for business combinations
and supersedes Accounting Principles Board ("APB") No. 16, "Business
Combinations" and SFAS No. 38, "Accounting for Preacquisition Contingencies of
Purchased Enterprises." All business combinations in the scope of SFAS No. 141
are to be accounted for under the purchase method. The adoption of SFAS No.
141 did not have an impact on the Company's financial position, results of
operations or cash flows as of the date of adoption.
Recent Accounting Literature
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
"Intangible Assets." SFAS No. 142 addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired
in a business combination) should be accounted for in financial statements
upon their acquisition. It also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in
the financial statements. With the adoption of SFAS No. 142, goodwill is no
longer subject to amortization. Rather, goodwill will be subject to at least
an annual assessment for impairment by applying a fair value-based test. The
impairment loss is the amount, if any, by which the implied fair value of
goodwill is less than the carrying or book value. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001. The adoption of SFAS No.
142 is not expected to have a material impact on the financial statements of
the Company.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets
and supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," and the accounting and
reporting provisions of APB No. 30, "Reporting the Results of Operations--
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
for the disposal of a segment. SFAS No. 144 was issued to establish a single
accounting model, based upon the framework established in SFAS No. 121, for
long lived assets to be disposed of by sale. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001 and the interim periods within.
The adoption of SFAS No. 144 is not expected to have a material impact on the
financial statements of the Company.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2001
presentation.
37
3. SIGNIFICANT TRANSACTIONS
On March 9, 2001, Ultimate Software signed a co-branding agreement (the
"March 9 Agreement") with Ceridian Corporation ("Ceridian") and on August 9,
2001 and February 5, 2002, Ultimate Software and Ceridian amended the March 9
Agreement (the "Amendments," together with the March 9 Agreement, the
"Ceridian Agreement"). Pursuant to the Ceridian Agreement, Ultimate Software
granted Ceridian a non-exclusive license to use UltiPro software as part of an
on-line offering which Ceridian intends to market primarily to businesses with
under 500 employees. On March 13, 2001, Ceridian completed an up-front payment
to Ultimate Software of $10.0 million (the "Initial Payment"). On February 12,
2002, Ceridian completed a prepayment of royalties payable to Ultimate
Software of $6.0 million in accordance with the terms of the Amendments (the
"Prepayment"). Under the terms of the March 9 Agreement, $5.0 million of the
Initial Payment would have been refundable to Ceridian if the Company was
unable to complete a successful transfer of technology to Ceridian (the
"Technical Transfer"). Under the terms of the Amendments, Ceridian agreed that
Technical Transfer occurred on February 5, 2002. The total amount paid to
Ultimate Software of $16.0 million from both the Initial Payment and the
Prepayment (the "Total Payment") is not subject to refund. In addition, under
the terms of the Ceridian Agreement, as a result of the achievement of
Technical Transfer, Ceridian is obligated to pay a monthly license fee based
on the number of employees paid using the Ultimate Software product. These
payments are subject to a minimum monthly payment of $500,000 per month
beginning in January 2003 with 5% annual increases beginning in 2006. Under
the Amendments, the minimum payments of $250,000 per month, which would have
been payable in 2002 by Ceridian pursuant to the March 9 Agreement, were
waived. The Prepayment represents the prepayment of the minimum monthly
payments due in 2003. The maximum monthly payment is $1.0 million, subject to
5% annual increases beginning in 2003. After five years, either party can
terminate the agreement with two years' notice, with Ceridian retaining
certain rights to use the licensed software upon termination. The parties
expect the minimum term of the agreement to be 7 years (the "Minimum Term").
The aggregate of the Total Payment and the minimum monthly amounts which
Ceridian is obligated to pay to Ultimate Software during the Minimum Term is
approximately $42.1 million.
The Ceridian Agreement includes the provision of future updates to UltiPro
which is a standard contract provision for the Company's software products. On
February 5, 2002, Ultimate Software signed an agreement with Ceridian for the
delivery of a release generally known by the parties as Evolution (the
"Evolution Release Agreement"). Under the terms of the Evolution Release
Agreement, Ceridian will pay Ultimate Software $500,000 in the event the
Evolution release is delivered by August 30, 2002. To the extent Ultimate
Software delivers Evolution to Ceridian beyond September 30, 2002, Ultimate
Software is obligated to pay Ceridian $500,000 per month up to a maximum of
$1.5 million (the "Evolution Obligation"), with a daily pro-ration of the
obligation to be applied to the extent the delivery occurs during one of the
three months of October, November and December 2002. The Company believes that
it will deliver Evolution to Ceridian before September 30, 2002.
For accounting purposes, the Initial Payment is included in deferred
revenue as of December 31, 2001. The Prepayment received in February 2002 is
included in deferred revenue for 2002 financial reporting purposes. Because
Technical Transfer has occurred, the minimum payments guaranteed to the
Company, less the portion attributable to maintenance revenue for the period
prior to Technical Transfer and less the Evolution Obligation, will be
recognized ratably as subscription revenue (totaling approximately $550,000
per month) from the date of Technical Transfer, February 5, 2002, through the
end of the Minimum Term. The portion of the Initial Payment attributable to
maintenance services prior to Technical Transfer is recognized ratably over
the period commencing on April 1, 2001 and ending as of the date of Technical
Transfer, February 5, 2002.
38
The following table sets forth the Company's current estimates of the
financial impact of the Ceridian Agreement (in thousands):
Deferred
Fiscal Cash Revenue Revenue at
Year Received Recognized December 31st
------ -------- ---------- -------------
2001 $10,000 $ 500 $9,500
2002(1) 4,500 6,038 7,962
2003 - 6,587 1,375
2004 6,000 6,587 788
2005 6,000 6,587 201
2006 6,300 6,587 -
2007 6,615 6,587 -
2008 1,157 1,099 -
------- -------
$40,572 $40,572
======= =======
- --------
(1) In accordance with generally accepted accounting principles, the maximum
amount potentially due from the Company to Ceridian under the Evolution
Release Agreement totaling $1.5 million is deducted from the Prepayment
received in February 2002. When the uncertainty regarding the timing of
delivery of Evolution is resolved, the amount of minimum payments will be
revised accordingly and recognized as a change in accounting estimate, if
required, over the remaining term of the Ceridian Agreement. The Company
believes that it will deliver Evolution to Ceridian before September 30,
2002 and, accordingly, that no part of such $1.5 million will be payable
to Ceridian.
Ceridian may acquire an equity interest in Ultimate through purchases in
the open market or from third parties, subject to a contractual limitation of
14.99% of the Company's Common Stock.
4. STOCK REPURCHASE PLAN
On October 30, 2000, the Company announced that its board of directors
authorized the repurchase of up to 1,000,000 shares of the Company's
outstanding Common Stock (the "Stock Repurchase Plan"). Stock repurchases may
be made periodically in the open market, in privately negotiated transactions
or a combination of both. The extent and timing of these transactions will
depend on market conditions and other business considerations. As of December
31, 2001, the Company had purchased 211,497 shares of the Company's Common
Stock under the Stock Repurchase Plan at an average cost of $4.31 per share in
2001 and $3.41 per share in 2000.
5. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
As of
December 31,
-------------
2001 2000
------ ------
Sales commissions............................................... $1,225 $1,071
Third-party fees for IBM hosted model........................... 922 1,162
Other items individually less than 5% of total current
liabilities.................................................... 3,401 3,390
------ ------
$5,548 $5,623
====== ======
39
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
As of
December 31,
----------------
2001 2000
------- -------
Equipment..................................................... $13,802 $10,621
Furniture, fixtures and improvements.......................... 3,354 3,298
------- -------
17,156 13,919
Less accumulated depreciation and amortization................ (11,370) (7,708)
------- -------
$ 5,786 $ 6,211
======= =======
Included in property and equipment is equipment acquired under capital
leases as follows (in thousands):
As of
December 31,
--------------
2001 2000
------ ------
Equipment....................................................... $7,308 $6,467
Less accumulated amortization................................... (5,724) (3,936)
------ ------
$1,584 $2,531
====== ======
Depreciation and amortization expense on property and equipment totaled
$3,662,000, $3,033,000, and $2,001,000 for the years ended December 31, 2001,
2000 and 1999 respectively.
7. CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under noncancellable agreements which
are accounted for as capital leases and expire at various dates through 2004.
Interest rates on these leases range from 2.0% to 9.4%. The annual maturities
of the capital lease obligations are as follows as of December 31, 2001 (in
thousands):
Year Amount
- ---- ------
2002.................................................................. $1,662
2003.................................................................. 378
2004.................................................................. 45
------
2,085
Less amount representing interest..................................... (88)
------
Lease obligations reflected as current ($1,589) and non-current
($408)............................................................... $1,997
======
8. LINE OF CREDIT AGREEMENTS
The Company has a revolving line of credit (the "Credit Facility") with a
bank which is secured by all of the Company's corporate assets, including a
negative pledge on intellectual property, and bears interest at a rate equal
to Prime Rate plus 1.0% per annum (reduced to Prime Rate plus 0.5% per annum
upon two consecutive quarters of net profitability, as defined). The Credit
Facility provides working capital financing for up to 75% of the Company's
eligible accounts receivable, as defined, financing for eligible equipment
purchases for up to $2.5 million with additional limits for software
purchases, and stand-by letters of credit for up to $0.5 million. The maximum
amount available under the Credit Facility is $5.0 million. At December 31,
2001, $5.0 million was available for borrowing under the Credit Facility and
no amounts were outstanding. The Credit Facility expires on November 28, 2003.
40
9. INCOME TAXES
No provision or benefit for Federal or state income taxes was made for 2001
and 2000 due to the operating losses incurred in the respective periods. The
provision for income taxes for 1999 represents current Federal taxes
calculated under the alternative minimum tax method.
The provision for income taxes is different from that which would be
obtained by applying the statutory Federal income tax rate to income (loss)
before income taxes. A reconciliation from the Federal income tax provision at
the statutory rate to the effective rate is as follows (in thousands):
For the Year Ended
December 31,
----------------------
2001 2000 1999
------- ------- ----
Income tax provision (benefit) at statutory Federal
tax rate............................................. $(3,063) $(2,941) $614
Alternative minimum tax............................... - - 22
Goodwill amortization................................. (57) (57) (57)
Non-deductible expenses............................... 175 105 89
Change in valuation allowance......................... 2,885 2,981 (698)
Other, net............................................ 60 (88) 52
------- ------- ----
Provision for income taxes............................ $ - $ - $ 22
------- ------- ----
Effective tax rate.................................... 0.00% 0.00% 1.25%
======= ======= ====
The components of the net deferred tax assets included in the accompanying
consolidated balance sheets are as follows (in thousands):
As of
December 31,
----------------
2001 2000
------- -------
Net operating losses.......................................... $12,017 $11,560
Deferred revenue.............................................. 3,491 51
Depreciation and amortization................................. 859 528
Accruals not currently deductible............................. 169 132
Allowance for doubtful accounts............................... 863 861
Software development costs.................................... (1,598) (220)
Other, net.................................................... 34 34
Valuation allowance........................................... (15,835) (12,946)
------- -------
Net deferred income tax assets................................ $ - $ -
======= =======
The Company has provided a full valuation allowance on the deferred tax
assets as realization of such amounts is not considered more likely than not.
The Company reviews the valuation allowance requirement periodically and makes
adjustments as warranted.
At December 31, 2001, the Company had approximately $34,333,000 of net
operating loss carryforwards for federal income tax reporting purposes
available to offset future taxable income. The carryforwards expire through
2021. Utilization of such net operating losses may be limited as a result of
cumulative ownership changes in the Company's equity instruments.
10. STOCK OPTIONS
The Company has adopted The Ultimate Software Group, Inc. Nonqualified
Stock Option Plan (the "Plan") under which the Company is authorized to issue
options to purchase a total of 5,059,500 shares of the Company's Common Stock
to directors, officers and employees of the Company. Under the Plan, options
to purchase shares
41
of Common Stock may be granted at prices equal to the market value of shares
of the Company's Common Stock as of the date of grant, or at such other amount
as may be determined by the Compensation Committee of the Board of Directors
appointed to administer the Plan (the "Committee"). The Committee has
discretion under the Plan to prescribe vesting periods for options which are
granted under the Plan. In addition, options granted under the Plan become
immediately exercisable in the event of a change in control of the Company and
in certain other circumstances. The maximum term of the options granted under
the Plan is 10 years. As of December 31, 2001, options to purchase 228,305
shares of the Company's Common Stock were available for grant under the Plan.
The Plan provides that non-employee members of the Company's Board of
Directors shall receive options in lieu of any retainer or meeting fees for
serving on the Board or committees thereof. Such options vest upon the date of
grant and have an exercise price equal to 30% of fair market value of the
Company's Common Stock on the date of grant. See Note 11.
A summary of stock options under the Company's Plan as of December 31,
2001, 2000 and 1999, and changes during the years then ended, is presented
below:
Weighted
Average
Shares Exercise Price
--------- --------------
Outstanding at December 31, 1998...................... 2,104,562 $6.89
Granted.............................................. 1,402,903 7.39
Exercised............................................ (167,754) 5.65
Canceled............................................. (102,739) 7.86
--------- -----
Outstanding at December 31, 1999...................... 3,236,972 $8.22
Granted.............................................. 1,031,208 5.61
Exercised............................................ (53,096) 6.24
Canceled............................................. (261,505) 8.43
--------- -----
Outstanding at December 31, 2000...................... 3,953,579 $6.67
Granted.............................................. 929,737 3.63
Exercised............................................ (5,575) 2.62
Canceled............................................. (281,500) 5.72
--------- -----
Outstanding at December 31, 2001...................... 4,596,241 $6.06
========= =====
The following table summarizes information about stock options outstanding
under the Plan at December 31, 2001:
Options Outstanding Options Exercisable
----------------------------------------- -------------------------
Weighted-
Average
Remaining Weighted- Weighted-
Range of Contractual Average Average
Exercise Life Exercise Exercise
Prices Number (Years) Price Number Price
- ------------ --------- ----------- --------- --------- ---------
$1.01-$3.37 1,129,200 8.97 $2.89 444,264 $2.62
$3.38-$5.16 951,851 6.71 $4.92 734,878 $5.00
$6.63-$7.21 920,875 5.96 $7.15 897,814 $7.17
$7.63-$8.03 1,091,231 7.77 $7.75 763,464 $7.73
$8.38-$10.00 503,084 7.33 $9.61 387,524 $9.70
- ------------ --------- ---- ----- --------- -----
$1.01-$10.00 4,596,241 7.43 $6.06 3,227,944 $6.48
============ ========= ==== ===== ========= =====
42
Pro forma information is required by SFAS No. 123 for options issued to
employees and has been determined as if the Company had accounted for its
stock-based compensation plan under the fair value method. The fair value of
each option granted was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
grants: risk-free interest rates of 5.26% for 2001, 5.0%-5.5% for 2000,
dividend yield of 0% for all three years presented, expected volatility of 65%
for each of the three years presented and an expected life of three years for
each of the three years presented. The Company's pro forma information is as
follows (in thousands, except per share amounts):
For the Years Ended
December 31,
------------------------
2001 2000 1999
------- ------- ------
Net income (loss):
As reported........................................... $(8,750) $(8,404) $1,755
Pro forma............................................. (10,053) (10,323) 116
As reported........................................... $ (0.55) $ (0.52) $ 0.11
Pro forma............................................. (0.63) (0.64) 0.01
The Company has also issued options to purchase shares of its Common Stock
to non-employees for consulting services. See Note 11.
11.STOCKHOLDERS' EQUITY
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.
Other Equity Transactions
On October 21, 1999, the Company entered into a definitive consulting
agreement (the "Consulting Agreement") with Aberdeen Strategic Capital LP
("Aberdeen") under which Aberdeen was engaged to provide marketing, strategic
and other advisory services to the Company. John R. Walter, a former member of
the Company's Board of Directors, had minority ownership interests in Aberdeen
and its general partner. As sole compensation for the services of Aberdeen and
its affiliates under the Consulting Agreement, on October 21, 1999 the Company
issued to Aberdeen a warrant (the "Warrant") to purchase 100,000 shares of the
Company's common stock, par value $0.01 per share, for $10 per share. The
terms of the Warrant provided for vesting in eight quarterly increments of
12,500 shares, commencing on October 22, 1999, with no increment vesting if
the Consulting Agreement were to be terminated before the vesting date for
such increment. The Consulting Agreement was terminated by the Company on
October 12, 2000, as of which date 50,000 shares were vested and the remaining
50,000 shares were canceled. The expiration date of the Warrant is July 22,
2003. The Company has accounted for such Warrant in accordance with the
requirements prescribed in SFAS No. 123 and Emerging Issues Task Force
("EITF") No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." Accordingly, the related compensation expense was zero, $117,000
and $67,000 for 2001, 2000 and 1999, respectively, and is included in general
and administrative expenses in the accompanying consolidated statements of
operations for the respective years.
In 2001, the Company granted options to non-employee directors to purchase
(i) 9,806 shares of the Company's Common Stock for $1.01; (ii) 11,429 shares
of the Company's Common Stock for $1.05; (iii) 13,335 shares of the Company's
Common Stock for $1.13; and (iv) 5,667 shares of the Company's Common Stock
for $1.51 in exchange for services rendered. In 2000, the Company granted
options to non-employee directors to purchase (i) 2,320 shares of the
Company's Common Stock for $3.69; (ii) 2,856 shares of the Company's Common
Stock for $3.00; (iii) 2,540 shares of the Company's Common Stock for $2.70;
and (iv) 4,710 shares of the Company's Common Stock for $2.42 in exchange for
services rendered. Such options are currently
43
exercisable and were valued on the date of grant in accordance with the
requirements prescribed in APB 25. The related compensation expense was
$102,000, $83,000 and $80,000 in 2001, 2000 and 1999, respectively, and is
included in general and administrative expenses in the accompanying
consolidated statements of operations.
12.COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases corporate office space and certain equipment under
noncancellable operating lease agreements expiring at various dates. The
Company executed a lease for its corporate headquarters which expires in 2017
with lease payments commencing in July 1999. Total rent expense under these
agreements was $2,052,000, $1,868,000 and $2,029,000 for the years ended
December 31, 2001, 2000 and 1999, respectively. Future minimum annual rental
commitments related to these leases are as follows at December 31, 2001 (in
thousands):
Year Amount
---- -------
2002................................. $ 1,346
2003................................. 1,771
2004................................. 1,618
2005................................. 1,628
2006................................. 1,581
Thereafter........................... 20,055
-------
$27,999
=======
Product Liability
Software products such as those offered by the Company frequently contain
undetected errors or failures when first introduced or as new versions are
released. Testing of the Company's products is particularly challenging
because it is difficult to simulate the wide variety of computing environments
in which the Company's customers may deploy these products. Despite extensive
testing, the Company from time to time has discovered defects or errors in
products. There can be no assurance that such defects, errors or difficulties
will not cause delays in product introductions and shipments, result in
increased costs and diversion of development resources, require design
modifications or decrease market acceptance or customer satisfaction with the
Company's products. In addition, there can be no assurance that, despite
testing by the Company and by current and potential customers, errors will not
be found after commencement of commercial shipments, resulting in loss of or
delay in market acceptance, which could have a material adverse effect upon
the Company's business, operating results and financial condition.
Litigation
From time-to-time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
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 the Company's business, operating results and
financial condition.
13.RELATED PARTY TRANSACTIONS
During the fourth quarter of fiscal 2001, the Company began leasing
equipment with a computer leasing company of which the majority shareholder is
a director of the Company's Board (the "Leasing Company"). During 2001,
equipment financed by the Leasing Company totaled $258,000, with related
amortization totaling $12,000 and total cash paid totaling $14,000. The
Company believes that the terms of the leases were no less favorable to the
Company than could have been obtained from an unaffiliated party.
14.EMPLOYEE BENEFIT PLAN
The Company provides retirement benefits for eligible employees, as
defined, through a defined contribution benefit plan that is qualified under
Section 401(k) of the Internal Revenue Code (the "Plan"). Contributions to the
Plan, which are made at the sole discretion of the Company, were $587,000,
$421,000 and $401,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.
44
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors, executive officers (Messrs. Scott Scherr, Marc D. Scherr,
Dr. Alan Goldstein, Mitchell K. Dauerman and James M. Alu) and other key
employees of the Company, and their ages as of March 10, 2002, are as follows:
Name Age Position(s)
- ---- --- ----------
Scott Scherr 50 Chairman of the Board, President and Chief Executive Officer
Marc D. Scherr 44 Vice Chairman of the Board
Alan Goldstein, M.D. 51 Executive Vice President--Development and Director
Mitchell K. Dauerman 45 Executive Vice President, Chief Financial Officer and Treasurer
James M. Alu 57 Executive Vice President and Chief Operating Officer
Donald M. Causey, Jr. 42 Vice President--Controller
Sharyle Doherty 42 Vice President--Product Management
Roy L. Gerber, Ph.D. 45 Vice President--Chief Technology Officer
J.C. Gonzalez 38 Vice President--Product Support
Gene Guhne 37 Vice President--Sales, East Division
Jon Harris 37 Senior Vice President--Professional Services
James A. Jensen III 38 Vice President--Technical Sales
Robert Manne 49 Vice President--General Counsel
Vivian Loynaz 40 Vice President--People and Secretary
Linda Miller 57 Vice President--Communications and Public Relations
Laura Perkins 37 Vice President--BSP Services Engineering
Adam Rogers 27 Vice President--Engineering
Felicia A. Smitha 41 Vice President--Finance
Greg Swick 38 Senior Vice President--Sales
James C. Thie 42 Vice President--Chief Information Officer
John Van Wyckhouse 46 Vice President--Sales, West Division
Carol Wiese 44 Vice President--Education Services
LeRoy A. Vander Putten 67 Director
James A. FitzPatrick,
Jr. 52 Director
Robert A. Yanover 65 Director
Scott Scherr has served as President and a director of the Company since
its inception in April 1996 and has been Chairman of the Board and Chief
Executive Officer of the Company 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 the
Company 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 Automatic Data
Processing, Inc. ("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 the Company.
Marc D. Scherr has been a director of the Company since its inception in
April 1996 and was elected as Vice Chairman in July 1998. Mr. Scherr is also a
member of the Executive Committee of the Board. Mr. Scherr became an executive
officer of the Company effective March 1, 2000. Mr. Scherr served as a
director of Gerschel
45
& 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 the Company.
Alan Goldstein, M.D., FACS has served as a director of the Company since
its inception in April 1996 and as Executive Vice President of Development
since January 1, 2002. Dr. Goldstein served as Executive Vice President and
Chief Technology Officer from September 1996 through December 31, 2001. Dr.
Goldstein is also a member of the Executive Committee of the Board. From April
1996 through September 1996, he served as Vice President and Treasurer of the
Company. From January 1994 until February 1998, Dr. Goldstein served as Vice
President of the general partner of the Partnership. In 1989, Dr. Goldstein
founded Strategic Image Systems, Inc., which produced and developed software
applications and tools. From 1985 to 1986, Dr. Goldstein served as Vice
President of Information Systems for Loren Industries, Inc., a jewelry-casting
manufacturer. From 1985 to 1987, Dr. Goldstein served as Director of Surgical
Services at Kings County Hospital in New York. In 1985, as a trauma surgeon
engaged in research and medical education, Dr. Goldstein developed a software
application for use in hospitals to aid in patient management, quality
assurance and physician education.
Mitchell K. Dauerman has served as Executive Vice President of the Company
since April 1998 and as Chief Financial Officer and Treasurer of the Company
since September 1996. From 1979 to 1996, Mr. Dauerman held various positions
with KPMG LLP, a global accounting and consulting firm, serving as a Partner
in the firm from 1988 to 1996. Mr. Dauerman is a Certified Public Accountant.
James M. Alu has served as Executive Vice President of the Company since
February 1999 and as Chief Operating Officer since January 1998. Prior to
that, Mr. Alu served as Vice President of the Company from September 1996 and
Vice President of the general partner of the Partnership from July 1993 until
April 1996. From 1990 until 1993, Mr. Alu served as Area Sales Vice President
for the northeastern United States for ADP's Dealer Services Group. From 1986
through 1989, Mr. Alu served as Vice President of Sales for ADP's Employer
Services Group, National Accounts Division, and was responsible for the sales
and implementation of payroll and human resource services to companies with
more than 500 employees nationwide.
Donald M. Causey, Jr. has served as Vice President--Controller since
February 2000 and as Controller since September 1996. From 1992 until
September 1996, Mr. Causey served as Regional Controller for the Latin
American division of the New Zealand Dairy Board, the largest dairy exporter
worldwide. Mr. Causey worked in the tax practice of KPMG LLP from 1988 to
1992. Mr. Causey is a Certified Public Accountant.
Sharyle Doherty has served as Vice President--Product Management since July
2001. From November 1998 to July 2001, Ms. Doherty served in various positions
in the Company's research and development organization, including Director of
Web Product Management. Prior to joining the Company, from 1997 to 1998, Ms.
Doherty was the Vice President of Product Management for HBO & Company, one of
the largest providers of healthcare information systems in the U.S. ("HBOC").
From 1983 to 1997, Ms. Doherty held various positions at Enterprise Systems,
Inc., a provider of hospital resource management systems which was acquired by
HBOC in 1997, where her most recent position was Senior Vice President of
Staff Scheduling Systems.
Roy L. Gerber, Ph.D. has served as Vice President--Chief Technology Officer
since January 1, 2002. Mr. Gerber served as Vice President--Engineering from
October 1999 through December 31, 2001. From 1995 to October 1999, Mr. Gerber
served in various positions in the research and development organization,
including Director of Engineering. Prior to joining the Company, from 1986 to
1995, Mr. Gerber was Executive Vice President of Development for Cascade
Interactive Designs, Inc. and dBSi which developed and marketed medical
software products. From 1984 to 1988, Mr. Gerber was Executive Vice President
and Chief Operating Officer of Pacific Retirement Plans, Inc.
46
J.C. Gonzalez has served as Vice President--Product Support since January
1999. Prior to that, Mr. Gonzalez served as Manager and Director of Product
Support from January 1994 until December 1998. Mr. Gonzalez is a Payroll
Professional and holds a Certified Payroll Professional (CPP) certification
from the American Payroll Association (APA). From May 1983 until December
1993, Mr. Gonzalez held various positions at ADP, including Customer Support
Manager for the Major and National Accounts of ADP.
Gene Guhne has served as Vice President--Sales, East Division, since
November 1999. From February 1998 to November 1999, Mr. Guhne served as
Director of Sales, Mid-Atlantic Division. Prior to joining the Company, from
1992 to 1998, Mr. Guhne was the President of The Ultimate Software Group of
the Carolinas, Inc. and the Vice President of The Ultimate Group of Virginia,
Inc., a reseller of the Company which was acquired by the Company in March
1998. From 1987 to 1992, Mr. Guhne served in various positions at ADP, where
his most recent position was Sales Director.
Jon Harris has served as Senior Vice President--Professional Services since
January 1, 2002. 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.
James A. Jensen III has served as Vice President--Technical Sales since
March 2000. Mr. Jensen served as Vice President--Chief Information Officer and
Technical Sales from March 2000 through February 2001. From April 1998 to
March 2000, Mr. Jensen served as Director of Technical Sales. He served as
Director of Internal Systems from March 1996 to April 1998 and Director of
Development for HRMS/Payroll from March 1995 to March 1996. From 1994 to 1995,
Mr. Jensen was Vice President of U.S. Operations of Prosoft Systems
International, a software consulting services and custom programming company.
From 1992 to 1994, Mr. Jensen was Senior Cost Estimator/Financial Analyst for
GTE Government Systems Corporation, Federal Systems Division, a
telecommunications and software development company for government
contracting.
Robert Manne has served as Vice President--General Counsel since May 1999.
Prior to joining the Company, 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 the Company
since its inception.
Vivian Loynaz has served as Vice President--People for the Company since
January 1998 and as Secretary of the Company since September 1996. Prior to
that, Ms. Loynaz served as the Office Manager of the Company from its
organization in April 1996 and of the Partnership from its inception in 1990
until April 1996. Ms. Loynaz is a 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. Loynaz was a systems
analyst for the Wholesale Division of ADP.
Linda Miller has served as Vice President--Communications and Public
Relations since January 1999. Ms. Miller served as Vice President, Public
Relations, for the Company from July 1998 to January 1999. Prior to that, Ms.
Miller served as the Company's Director of Marketing from January 1997. From
1992 to 1996, Ms. Miller held various positions at Best Software, Inc., a
developer of corporate resource management applications, Abra Products
Division, including Public Relations Manager.
Laura Perkins has served as Vice President--Product Strategy since July
1998. From May 1996 to July 1998, Ms. Perkins served as the Director of
Applications Consulting for the Company. From 1991 to 1996, Ms. Perkins held
various positions with Best Software, Inc., Abra Products Division. Ms.
Perkins holds a Certified Payroll Professional (CPP) certification from the
American Payroll Association (APA).
Adam Rogers has served as Vice President of Development since July 2001.
From May 1997 to July 2001, Mr. Rogers held various positions in the Company'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.
47
Felicia A. Smitha has served as Vice President--Finance since February
2000. Ms. Smitha served as the Company's Director of Finance from June 1998 to
February 2000. From 1990 to June 1998, Ms. Smitha held various financial
management positions in private industry, including Director of Finance, from
1990 to 1996, for Pueblo Xtra International, Inc., the largest food retailer
in Puerto Rico and the U.S. Virgin Islands. Ms. Smitha worked in the audit
practice of KPMG LLP from 1987 to 1990. Ms. Smitha is a Certified Public
Accountant.
Greg Swick has served as Senior Vice President--Sales since January 2001.
Mr. Swick served as Vice President and General Manager--PEO Division of the
Company'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 the Company, Mr. Swick was President of The Ultimate Software
Group of New York and New England, G.P., a reseller of the Company which was
acquired by the Company 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.
James C. Thie has served as Chief Information Officer since October 2001.
Mr. Thie served as Vice President--Information Technology Group from February
2001 through September 2001. Mr. Thie has worked in the technology field for
the past 20 years, principally in the financial services industry, including
General Manager and Business Development Director of Encore Development, Inc.,
an e-business and systems integration company specializing in application
development, data warehousing and electronic commerce, from 1999 until joining
the Company. From 1996 to 1999, Mr. Thie held various positions with Computer
Associates International, an international advanced technology consulting and
systems integration company, where his most recent position was Senior Sales
Executive.
John Van Wyckhouse has served as Vice President--Sales, West Division since
November 1999. From 1997 to 1999, Mr. Van Wyckhouse served as Director of
Sales--West Division. Prior to joining the Company, Mr. Van Wyckhouse was
employed for 19 years at ADP, holding various positions in sales and
operations, including his most recent position as National Account Sales
Executive for the Chesapeake Region.
Carol Wiese has served as Vice President--Education Services since October
1999. From March 1999 to October 1999, Ms. Wiese served as Director of
Education Services. Prior to joining the Company, Ms. Wiese was employed for
19 years at ADP, where her most recent position was Director of
Marketing/Payroll Outsourcing Services.
LeRoy A. Vander Putten has served as a director of the Company 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 is the Executive
Chairman of the Insurance Center, Inc., a holding company for 17 insurance
companies, since October 2001. Previously, he has 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.
James A. FitzPatrick, Jr. has served as a director of the Company since
July 2000 and is a member of the Compensation Committee of the Board and the
Audit Committee of the Board. Mr. FitzPatrick is a partner in the law firm
Dewey Ballantine LLP, which provides legal services to the Company. Before
joining Dewey Ballantine LLP as a partner in February 1989, Mr. FitzPatrick
was a partner in the law firm LeBoeuf, Lamb, Leiby & MacRae.
Robert A. Yanover has served as a director of the Company 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 has served as its President
since that
48
time. 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.
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. Mr. LeRoy A. Vander Putten and Mr. Robert A. Yanover
serve on the Board in the class whose term expires at the annual meeting of
stockholders (the "Annual Meeting") in 2002. Mr. Marc D. Scherr and Mr. James
A. FitzPatrick, Jr. serve on the Board in the class whose term expires at the
Annual Meeting in 2003. Mr. Scott Scherr and Dr. Alan Goldstein serve on the
Board in the class whose term expires at the Annual Meeting in 2004.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 2002 Annual Meeting of Stockholders under
the heading "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 2002 Annual Meeting of Stockholders under
the heading "Security Ownership of Certain Beneficial Owners and Management."
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the
Company's Proxy Statement for the 2002 Annual Meeting of Stockholders under
the heading "Certain Related Transactions."
49
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report:
(1) Financial Statements. The following financial statements of the
Company are included in Part II, Item 8, of this Annual Report
on Form 10-K:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 2001 and
2000
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedules:
Report of Independent Certified Public Accountants
Schedule II--Valuation and Qualifying Accounts
(3) Exhibits
Number Description
------ -----------
3.1 Amended and Restated Certificate of Incorporation (incorporated herein by reference to
Exhibit 3.4 to the Registration Statement on Form S-1 (File No. 333-47881), initially filed
March 13, 1998 (the "Registration Statement")
3.2 Certificate of Designations of Series A Junior Preferred Stock (incorporated by reference
herein to Exhibit 2 to the Company's Current Report on Form 8-K dated October 23, 1998)
3.3 Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.5 to the
Registration Statement)
4.1 Form of Certificate for the Common Stock, par value $0.01 per share*
10.1 Shareholders Rights Agreement, dated June 6, 1997 among the Company and certain
stockholders named therein*
10.2 Asset Purchase Agreement, dated February 2, 1998, among The Ultimate Software Group
of Virginia, Inc., the Company and certain principals named therein*
10.3 Asset Purchase Agreement, dated February 2, 1998, among the Company, The Ultimate
Software Group of the Carolinas, Inc. and certain principals name therein*
10.4 Asset Acquisition Agreement, dated February 20, 1998, among the Company, The Ultimate
Software Group of Northern California, Inc. and certain principals named therein*
10.5 Asset Purchase Agreement dated March 4, 1998, among the Company, Ultimate Investors
Group, Inc. and certain principals name therein*
10.6 Agreement and Plan of Merger dated February 24, 1998, among the Company, ULD
Holding Corp., Ultimate Software Group of New York and New England, G.P. and certain
principals named therein*
10.7 Nonqualified Stock Option Plan, as amended as of October 26, 2000 (incorporated by
reference herein to Exhibit 10.7 to the Company's Annual Report on Form 10-K dated
March 27, 2001)
10.8 Commercial Office Lease agreement by and between UltiLand, Ltd., a Florida limited
partnership, and the Company, dated December 31, 1998 (incorporated by reference herein
to corresponding exhibit in the Company's Annual Report on Form 10-K dated
March 31, 1999)
50
(3) Exhibits (continued)
Number Description
------ -----------
10.9 Rights Agreement, dated as of October 22, 1998, between the Company and BankBoston,
N.A., as Rights Agent. The Rights Agreement includes the Form of Certificate of
Designations of Series A Junior Preferred Stock as Exhibit A, the Form of Rights
Certificate as Exhibit B, and the Summary of Rights as Exhibit C (incorporated by
reference herein to Exhibit 2 to the Company's Current Report on Form 8-K dated
October 23, 1998)
10.10 Commercial Office Lease by and between UltiLand, Ltd., a Florida limited partnership and
the Company, dated December 22, 1998 (incorporated herein by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q dated August 15, 1999)
10.11 Letter Agreement between Aberdeen Strategic Capital LP and the Company, dated
October 21, 1999 (incorporated herein by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q dated November 15, 1999)
10.12 Warrant issued to Aberdeen Strategic Capital LP (incorporated herein by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q dated November 15, 1999)
10.13 Software License Agreement between the Company and Ceridian Corporation dated as of
March 9, 2001 (incorporated by reference to Exhibit 10.17 to the Company's Annual
Report on Form 10-K dated March 27, 2001)
10.14 Letter amendment between the Company and Ceridian Corporation dated as of
August 9, 2001**
10.15 Letter amendment between the Company and Ceridian Corporation dated as of
February 5, 2002**
10.16 Loan and Security Agreement by and between the Company and Silicon Valley Bank dated
as of November 29, 2001**
10.17 Revolving Promissory Note by and between the Company and Silicon Valley Bank dated
as of November 29, 2001**
10.18 Equipment Term Note by and between the Company and Silicon Valley Bank dated as of
November 29, 2001**
21.1 Subsidiary of the Registrant*
23.1 Consent of Independent Auditors**
99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995**
99.2 Confirmation of Receipt of Assurances from Arthur Andersen LLP**
--------
* Incorporated herein by reference to the corresponding exhibit
in the Company's Registration Statement.
** Filed herewith.
*** Filed herewith. Confidential treatment of various portions
of this exhibit has been granted by the Securities and
Exchange Commission (the "SEC"). Such portions have been
confidentially filed with the SEC.
(b) Reports on Form 8-K
None.
51
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To The Ultimate Software Group, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements included in this Form
10-K and have issued our report thereon dated February 1, 2002. Our audits
were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Miami, Florida,
February 1, 2002.
52
Schedule II
The Ultimate Software Group, Inc. and Subsidiary
Valuation and Qualifying Accounts
Balance at Additions
Beginning of Charged to Balance at
Classification Year Operations Deductions(/1/) End of Year
- -------------------------- ------------ ---------- --------------- -----------
Allowance for Doubtful
Accounts
December 31, 2001........ $2,461 $4,151 $(4,147) $2,465
December 31, 2000........ 1,673 3,572 (2,784) 2,461
December 31, 1999........ 1,119 1,771 (1,217) 1,673
- --------
(1) Accounts receivable are principally from end-users of the Company's
products. The Company performs periodic credit evaluations of its
customers and has recorded allowances for estimated losses.
53
SIGNATURES
Pursuant to the requirements of the 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.
Date: March 29, 2002 By /s/ Mitchell K. Dauerman
------------------------------------
Executive Vice President, Chief
Financial Officer and Treasurer
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 President, Chief March 29, 2002
- ------------------------------------- Executive Officer
Scott Scherr and Chairman of the
Board
/s/ Mitchell K. Dauerman Executive Vice March 29, 2002
- ------------------------------------- President, Chief
Mitchell K. Dauerman Financial Officer
and Treasurer
(Principal Financial
and Accounting
Officer)
/s/ Alan Goldstein Executive Vice March 29, 2002
- ------------------------------------- President of
Alan Goldstein, M.D. Development and
Director
/s/ Marc D. Scherr Vice Chairman of the March 29, 2002
- ------------------------------------- Board
Marc D. Scherr
/s/ LeRoy A. Vander Putten Director March 29, 2002
- -------------------------------------
LeRoy A. Vander Putten
/s/ James A. FitzPatrick, Jr. Director March 29, 2002
- -------------------------------------
James A. FitzPatrick, Jr.
/s/ Robert A. Yanover Director March 29, 2002
- -------------------------------------
Robert A. Yanover
54