##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 OR
 o
    
    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: 000-24931
 S1 CORPORATION
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    58-2395199
(I.R.S. Employer
Identification No.)
    
    (404) 923-3500
(Registrants telephone number
including area code)705 Westech Drive 
Norcross, Georgia
(Address of principal executive offices)
    
    30092
(Zip Code)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $0.01 per share
    
    The Nasdaq Stock Market
 Securities registered pursuant to Section 12(g) of the Act:
 Yes o No þ
 Yes o No þ
 Yes þ No o
 Yes o No o
 10-K. þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ
   Documents Incorporated by Reference




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##### 



S1 CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 2009
TABLE OF CONTENTS
 PART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    8Item 1B. Unresolved Staff Comments
    
    
    14Item 2. Properties
    
    
    14Item 3. Legal Proceedings
    
    
    15Item 4. [Reserved]
    
    
    15PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    16Item 6. Selected Financial Data
    
    
    18Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 7A. Qualitative and Quantitative Disclosures about Market Risk
    
    
    34Item 8. Financial Statements and Supplementary Data
    
    
    36Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    67Item 9A. Controls and Procedures
    
    
    67Item 9B. Other Information
    
    
    67PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    68Item 11. Executive Compensation
    
    
    68Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    68Item 13. Certain Relationships and Related Transactions
    
    
    68Item 14. Principal Accounting Fees and Services
    
    
    68PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    69Signatures
    
    
    72Exhibit 10.11Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I
  
 Item 1. Business.
 General Information
    
    
    Maintain the highest possible level of customer satisfaction to create
opportunities to sell additional solutions and services;
 
    
    Cross-sell applications from our payments and financial services solution sets;
 
    
    Become the most efficient software company possible through continuous
operational improvements;
 
    
    Deliver innovative, quality products and services to meet current market demands
and future customer needs; and
 
    
    Broaden our product offerings and increase our market penetration through
selective acquisitions and the development of new markets.
 Subsequent Event  Acquisition
   1




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Descriptions of Software Solutions
 S1 Payments Processing and Card Management
 
    
    ATM Drivingdrives a wide array of ATM terminals, whether dial-up, leased line, or
advanced-functionality devices. Our solution for ATM owners manages online connections to
networks, card schemes, and host systems, and
provides sophisticated performance monitoring, back office functionality and management
information. The solution supports magnetic stripe and EMV cards as well as a comprehensive
set of value-added transactions and services.
 
    
    Retail Paymentsdrives fast, cost-effective, and secure payment card processing for
retailers, gift card management, merchants and e-commerce operators, enabling all aspects
of a payment transaction, from the POS through to the authorizer.
 
    
    Card Managementsupports secure issuance and life cycle management for credit, debit and
prepaid cards and provides extensive authorization and validation services, personal
identification number management and management information. Our solution supports magnetic
stripe, EMV, contactless and instant issuance options.
 
    
    Merchant Acquiringprovides a comprehensive processing platform for handling card
payment transactions generated at multiple sales channels including the POS, Internet, call
center and mobile phone. A wide variety of card and transaction types are supported
including EMV, prepaid and contactless.
 S1 Online Banking
 
    
    S1 Consumer Online Bankingallows our customers to offer online banking capabilities,
including personal finance management, electronic bill payment and presentment, account
transfers, alerts and reminders, and online self-service tools. We provide bill-pay
services through third-party partnerships.
 
    
    S1 Business Online Bankingprovides online financial solutions suited for small to
mid-market business banking customers. Our software allows our financial institution
customers to offer product packages that can satisfy an array of business customer segments
with such features as account management and enhanced reporting, payments, foreign exchange
and self-service features, including the ability to open new accounts online, report lost
cards, reset passwords, stop payments, reorder checks, request check copies, and create
electronic alerts.
 
    
    S1 Corporate Bankingprovides online cash management solutions to some of the worlds
largest banks. S1 Corporate Banking is built in a multilingual and multi-currency
framework and delivers diverse payment methods, multi-factor authentication capabilities,
electronic file delivery, check services, robust information reporting, real-time data on
account balances and transactions as well as straight-thru processing on payments from the
Automated Clearing House (ACH) to Fedwire to the Society for Worldwide Interbank Finance
Telecommunication (SWIFT).
 
    
    S1 Trade Financeprovides online trade finance solutions to some of the worlds largest
banks. S1 Trade Finance allows a banks customers to quickly and easily manage their
international buying and selling activities with one integrated system to create, process
and report on trade instruments such as letters of credit, collections, and open account
transactions.
 
    
    S1 Mobile Banking and Paymentsprovides the ability for consumers and businesses to
access and manage bank account information and perform financial transactions via the
convenience of a mobile device. S1 Out-of-Band Authentication provides security against
phishing and keystroke-logging attacks to mobile phones.
 
    
    S1 Voice Bankingdelivers a full range of voice banking functionality, including online
and offline transaction processing, call-flow management, and voice driver management.
 S1 Branch Banking
 
    
    S1 Tellerenables front-line teller employees to perform tasks from a single screen
using workflow processes that simplify and enforce adherence to a financial institutions
business rules. Efficient workflows also create opportunities for tellers to promote new
products and make referrals.
 
    
    S1 Sales and Service Platformprovides transaction functionality and embedded
relationship management tools along with a universal desktop for instant, real-time access
to complete customer and account data. S1 Sales and Service provides tools such as case
and lead management, portfolio management and pipeline management and can fill the need for
a branch automation, sales force automation and customer relationship management system at
the same time in one seamless desktop.
  2




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
    
    S1 Call Centeris a fully integrated call center solution that offers workflows,
transactions and core services that meet the specialized needs of the call center
environment. In addition to the core services found in the teller and sales and service
platform, S1 Call Center provides the customer information, sales and service capabilities,
process flows, reporting, and fulfillment management functionality that is typically found
in call center operations.
 
    
    S1 Lendingprovides a highly configurable and robust consumer, business and credit
origination software solution that delivers straight-through processing control from
application through loan booking, with support for multiple data entry channels. The
software is differentiated in part through its ability to deliver broad application-level
strength in each area of lending through a universal platform, which provides operational
and administrative consistency and control.
 Reporting Segments
    Industry Background
  
    
    economic conditions and particularly the impact of the lack of liquidity in credit
markets;
 
    
    pressure to grow their businesses;
 
    
    pressure to reduce costs;
 
    
    impact of mergers and acquisitions;
 
    
    pressure on customer retention and better use of customer data;
 
    
    increasing electronic payment transaction volumes;
 
    
    increased security concerns and regulatory requirements; and
 
    
    the need to minimize information technology and infrastructure costs while meeting
the ever-rising consumer expectations for customer service and convenience.
     3




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Customers and Revenue
    4




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Sales and Marketing
      Services
  Professional Services.
 
    
    Project Management our project managers are responsible for the oversight of
services projects throughout the implementation cycle;
 
    
    Implementation our professional services teams install and configure our software;
 
    
    Custom Software Development our software developers customize our software
solutions to meet the specific business requirements of our customers;
  5




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
    
    Integration we assist our customers in integrating and testing our software with
core banking systems and other applications within their environment;
 
    
    Educational Services our training professionals help our customers train their
employees to use our solutions to better serve their customers; and
 
    
    Web Design Services our web design group assists with the delivery of a complete
web presence for financial institutions.
 Customer Support.
 
    
    Technical Support our customer support engineers provide technical support for our
products;
 
    
    Software Release Management we provide software upgrades that include enhancements
to our software as well as operational and performance improvements; and
 
    
    Online Support our support website is designed to provide one-stop access to
technical information for our products including FAQs, download patches, updated
documentation, and support bulletins.
 Data
Center Services.
 Competition
  In-house Development Organizations.
 
    
    building, maintaining and upgrading an in-house solution can be very costly and may
lack an industry-wide best practices approach;
 
    
    attracting and retaining the necessary technical personnel can be difficult and
costly;
 
    
    the cost of and skills required to maintain regulatory compliance can prove
onerous;
 
    
    the development of third party partnerships necessary to support the primary
software product is time consuming, costly, and requires a partner management
infrastructure; and
 
    
    technological development may be too far outside the financial organizations core
competencies to be effective or successful.
 Single-Point Solution Vendors.
 
    
    integrating applications and channels from multiple vendors may greatly lengthen a
financial organizations time-to-market and implementation costs;
 
    
    operating and upgrading solutions from multiple vendors is typically very costly;
and
 
    
    combining solutions across different channels does not provide a single view of the
customer.
  6




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Core Processing Vendors.
 Product Development
   Government Regulation
   Employees
   7




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Patents, Trademarks, Copyrights, Licenses and Proprietary Rights
  Available Information
   
 Item 1A. Risk Factors.
 You should consider carefully the following risks. If any of the following risks actually
occur, our business, financial position or results of operations would likely suffer. In that case,
the trading price of our common stock could decline, and you may lose all or a part of the money
you paid to buy our common stock.
 Our business, which depends heavily on revenue from customers in the banking and insurance
industries and other financial services firms, may be materially adversely impacted by volatile
U.S. and global market and economic conditions
  We expect that the revenue we generate from our largest customer, State Farm, will decrease over
the next two years as our work efforts for them conclude by the end of 2011 which may cause our
financial performance and our stock price to suffer
   8




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Security breaches or computer viruses could harm our business by disrupting our delivery of
services, damaging our reputation and business, or resulting in material liability to us
   The delay or cancellation of a customer project, or inaccurate project completion estimates, may
adversely affect our operating results and cause our financial performance to suffer
  Our quarterly operating results may fluctuate and any fluctuations could adversely affect the price
of our common stock
  
    
    we cannot accurately predict the value, number and timing of license or services
agreements we will sign in a period, in part because the budget constraints and
internal review processes of existing and potential customers are not within our
control;
 
    
    as we sell our products on both a perpetual license and a term or subscription
license, we cannot accurately predict the mix of perpetual licenses to term licenses
sold in any one quarter. Term licenses significantly reduce the amount of revenue
recognized in the first year of the contract, but is intended to increase the overall
revenue earned from the customer during the typical customer life cycle; perpetual
license revenue can vary significantly on a quarterly basis;
 
    
    the length of our sales cycle to large financial organizations generally lasts from
six to 18 months, which adds an element of uncertainty to our ability to forecast
revenue;
 
    
    if we fail to or are delayed in the introduction of new or enhanced products, or if
our competitors introduce new or enhanced products, sales of our products and services
may not achieve expected levels and/or may decline;
 
    
    our ability to expand the mix of distribution channels through which our products
are sold may be limited;
 
    
    our products may not achieve widespread market acceptance, which could cause our
revenue to be lower than expected;
 
    
    we have had significant contracts with legacy customers that have decreased or
terminated their services and we may not be able to replace this revenue and/or the
gross margins associated with this revenue;
 
    
    our sales may be constrained by the timing of releases of third-party software that
works with our products;
 
    
    a significant percentage of our expenses is relatively fixed and we may be unable to
reduce expenses in the short term if revenue decreases; and
 
    
    the migration of our license sales model to be more focused on recurring revenue
contracts may result in less predictable revenue due to an inability to predict the
rate at which it is adopted by our customers, or the rate at which it may be deferred.
  9




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System failures, errors, defects or other performance problems with our products or data center
operations could cause demand for our products to decrease, impair customer relations, or result in
material liability to us
  We have engaged third-parties to assist us with certain implementation activities which may not be
successful and which may result in harm to our business, reputation and financial results
  We are engaged in offshore software development activities which may not be successful and which
may put our intellectual property at risk
  
    
    communications and information flow may be less efficient and accurate as a
consequence of time zone differences, distance and language differences between our
primary development organization and the foreign based activities, resulting in delays
in development or errors in the software developed;
 
    
    potential disruption from the involvement of the United States in political and
military conflicts around the world;
 
    
    the quality of the development efforts undertaken offshore may not meet our
requirements because of language, cultural and experience differences, resulting in
potential product errors and/or delays;
 
    
    we have experienced a greater level of voluntary turnover of personnel in India than
in other development centers which could have an adverse impact on efficiency and
timeliness of development as well as the opportunity for misappropriation of our
intellectual property;
 
    
    in addition to the risk of misappropriation of intellectual property from departing
personnel, there is a general risk that the misappropriation of our intellectual
property might not be readily discoverable; and
 
    
    currency exchange rates could fluctuate and adversely impact the cost advantages
intended from maintaining these facilities.
  10




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We are from time to time involved in litigation over intellectual property or other proprietary
rights which may be costly and time consuming to defend and our operating results would suffer if
we were subject to a protracted infringement claim or a significant damage award
  
    
    be time-consuming to investigate and defend;
 
    
    result in costly litigation and damage awards;
 
    
    divert management attention and resources;
 
    
    cause product shipment delays or suspensions;
 
    
    cause us to spend significant resources to develop non-infringing technology, which
we may not be able to do;
 
    
    result in an injunction being issued against the use and sale of our products; and
 
    
    require us to enter into royalty or licensing agreements, which may not be available
on terms acceptable to us, if at all.
 Infringement of our proprietary technology could hurt our competitive position and income potential
  Our business and financial results may be negatively impacted by fluctuations in foreign currency
exchange rates
  Acquisitions may be costly and difficult to integrate, divert management resources or dilute
stockholder value
  
    
    incompatibility of business cultures;
 
    
    delays in integrating diverse technology platforms;
 
    
    difficulties in coordinating geographically separated organizations;
 
    
    difficulties in re-training sales forces to market all of our products across all of
our intended markets;
 
    
    difficulties implementing common internal business systems and processes;
 
    
    conflicts in third-party relationships; and
 
    
    loss of customers and key employees and the diversion of the attention of management
from other ongoing business concerns.
   11




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Our market is highly competitive and if we are unable to keep pace with evolving technology,
successfully introduce new or enhanced products, or successfully migrate customers to new versions
of our software, our financial performance maybe adversely impacted and our future prospects may
decline
  We are subject to government regulation which may interfere with our ability to conduct our
business, including our ability to attract and maintain customers, and could negatively impact our
business and financial results
  Market volatility may affect the price of our common stock
  
    
    actual or anticipated variations in our quarterly operating results;
 
    
    approximately 28% of our common stock is owned by five institutions as of December
31, 2009, and a change in position of any one of these holders could cause a
significant drop in our stock price if market demand is insufficient to meet sales
demand;
 
    
    announcements of new products, product enhancements, technological innovations or
new services by us or our competitors;
 
    
    delays or failures in introducing new or enhanced products or in migrating customers
to new versions of our software:
 
    
    changes in financial estimates by securities analysts;
 
    
    conditions or trends in the computer software, electronic commerce and Internet
industries;
 
    
    changes in the market valuations of other technology companies;
 
    
    developments in Internet regulations;
 
    
    announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
 
    
    unscheduled system downtime of our products in either a hosted or in-house
environment;
 
    
    security breaches in our software or facilities may cause harm to our business and
reputation, result in a loss of customers or result in material liability to us;
 
    
    additions or departures of key personnel; and
 
    
    sales of our common stock or other securities in the open market.
  12




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Future sales of our common stock in the public market could negatively affect our stock price
  We face added business, political, regulatory, operational, financial and economic risks as a
result of our international operations, any of which could increase our costs and hinder our growth
  
    
    fluctuations in currency exchange rates;
 
    
    governmental currency controls;
 
    
    changes in various regulatory requirements;
 
    
    political, economic and military changes and disruptions;
 
    
    difficulties in enforcing our contracts in foreign jurisdictions;
 
    
    export/import controls;
 
    
    tariff regulations;
 
    
    difficulties in staffing and managing foreign sales, professional services, product
development and support operations;
 
    
    greater difficulties in trade accounts receivable collection; and
 
    
    possible adverse tax consequences.
   Our balance sheet includes significant amounts of goodwill and intangible assets. The impairment of
a significant portion of these assets would negatively affect our financial results
  We depend upon key employees and may be unable to hire or retain a sufficient number of qualified
personnel
   13




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The adoption or modification of laws or regulations relating to the Internet, or interpretations of
existing law, could adversely affect our business
  Some anti-takeover provisions contained in our charter and under Delaware law could hinder a
takeover attempt
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
   14




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Principal Business
    
    Approximate Size
    
    
    LeasePrincipal Locations
    
    Segment
    
    (square feet)
    
    
    ExpirationAustin, TX, USA
    
    Postilion
    
    
    26,400
    
    
    2015Cape Town, South Africa
    
    Postilion
    
    
    35,700
    
    
    2013Charlotte, NC, USA
    
    Enterprise
    
    
    26,300
    
    
    2015Chertsey, England
    
    Enterprise and Postilion
    
    
    9,800
    
    
    2014Johannesburg, South Africa
    
    Postilion
    
    
    8,100
    
    
    2013Littleton, MA, USA
    
    Enterprise
    
    
    12,700
    
    
    2013Norcross, GA, USA
    
    Enterprise and Postilion
    
    
    71,000
    
    
    OwnedPune, India
    
    Enterprise and Postilion
    
    
    75,800
    
    
    2013West Hills, CA, USA
    
    Postilion
    
    
    24,900
    
    
    2018
 
 Item 3. Legal Proceedings.
  
 Item 4. [Reserved].
  15




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PART II
 
 Item 5.
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchase of Securities.
  2009
    
    
    2008High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    8.00
    
    
    $
    4.75
    
    
    $
    8.16
    
    
    $
    5.25Second Quarter
    
    
    7.42
    
    
    
    5.04
    
    
    
    8.26
    
    
    
    5.91Third Quarter
    
    
    7.43
    
    
    
    5.87
    
    
    
    8.28
    
    
    
    5.64Fourth Quarter
    
    
    6.60
    
    
    
    5.65
    
    
    
    8.00
    
    
    
    4.00
 Securities Authorized for Issuance under Equity Compensation Plans
  Number of securities to be
    
    
    
    
    
    
    Number of securities remainingissued upon exercise of
    
    
    Weighted-average
    
    
    available for future issuance underoutstanding options and
    
    
    exercise price of
    
    
    equity compensation plans (excludingvesting of restricted stock
    
    
    outstanding options
    
    
    securities reflected in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved by stockholders
    
    
    6,164,228
    
    
    $
    5.80
    
    
    
    2,080,526Equity compensation plans not approved by stockholders (1)
    
    
    1,129,619
    
    
    
    12.25
    
    
    
    Total
    
    
    7,293,847
    
    
    $
    6.96
    
    
    
    2,080,526
 (1)
    
    As of December 31, 2009, we had outstanding stock option awards previously
granted under the following equity incentive plans not approved by our stockholders: S1
Corporation 1997 Employee Stock Option Plan, Security First Technologies Corporation
1998 Directors Stock Option Plan, Software Dynamics, Incorporated 1998 Stock Incentive
Plan and the Q-Up Systems, Inc. 1999 Stock Option Plan. These plans are closed to new
grants. Comparison of Cumulative Total Return from December 31, 2004 to December 31, 2009
  12/31/2004
    
    
    12/31/2005
    
    
    12/31/2006
    
    
    12/31/2007
    
    
    12/31/2008
    
    
    12/31/2009S1 Corporation
    
    $
    100
    
    
    $
    48
    
    
    $
    61
    
    
    $
    81
    
    
    $
    87
    
    
    $
    72Interactive Week Internet Index
    
    $
    100
    
    
    $
    101
    
    
    $
    115
    
    
    $
    132
    
    
    $
    77
    
    
    $
    135NASDAQ Composite
    
    $
    100
    
    
    $
    101
    
    
    $
    111
    
    
    $
    122
    
    
    $
    72
    
    
    $
    104
  16




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Issuer Purchases of Equity Securities
  Total number of
    
    
    Approximate dollarshares purchased
    
    
    value of shares thatTotal number
    
    
    
    
    
    
    as part of a publicly
    
    
    may yet be purchasedof shares
    
    
    Average price
    
    
    announced plan or
    
    
    under the plan orPeriod
    
    purchased
    
    
    paid per share
    
    
    program
    
    
    programThird QuarterJuly 1, 2009 - July 31, 2009
    
    
    1,704
    
    
    $
    6.50
    
    
    
    1,704
    
    
    $
    9,562,143August 1, 2009 - August 31, 2009
    
    
    530,529
    
    
    
    6.75
    
    
    
    530,529
    
    
    
    5,978,596September 1, 2009 - September 30, 2009
    
    
    222,646
    
    
    
    6.13
    
    
    
    222,646
    
    
    
    4,613,863Total for third quarter of 2009
    
    
    754,879
    
    
    $
    6.57
    
    
    
    754,879
    
    
    $
    4,613,863Fourth QuarterOctober 1, 2009 - October 31, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    4,613,863November 1, 2009 - November 30, 2009
    
    
    264,612
    
    
    
    6.11
    
    
    
    264,612
    
    
    
    2,998,251December 1, 2009 - December 31, 2009
    
    
    487,860
    
    
    
    6.14
    
    
    
    487,860
    
    
    
    Total for fourth quarter of 2009
    
    
    752,472
    
    
    $
    6.13
    
    
    
    752,472
    
    
    $
    Total for fiscal year 2009
    
    
    1,507,351
    
    
    $
    6.35
    
    
    
    1,507,351
  17




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Item 6. Selected Financial Data.
  Year Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(4) (5)
    
    
    (5)Statement of Operations Data:Total revenue
    
    $
    238,927
    
    
    $
    228,435
    
    
    $
    204,925
    
    
    $
    192,310
    
    
    $
    179,140Income (loss) from continuing operations
    
    
    30,423
    
    
    
    21,850
    
    
    
    19,495
    
    
    
    (12,239
    )
    
    
    (28,382
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,141
    
    
    
    27,325Net income (loss)
    
    
    30,423
    
    
    
    21,850
    
    
    
    19,495
    
    
    
    17,902
    
    
    
    (1,057
    )Revenue from significant customers (1)
    
    
    38,402
    
    
    
    42,084
    
    
    
    43,425
    
    
    
    47,898
    
    
    
    45,374Stock-based compensation expense
    
    
    1,602
    
    
    
    8,092
    
    
    
    8,522
    
    
    
    5,663
    
    
    
    570Merger related and restructuring costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,485
    
    
    
    15,030Basic earnings (loss) per share:Continuing operations
    
    $
    0.56
    
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    (0.17
    )
    
    $
    (0.40
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.42
    
    
    
    0.38Net income (loss)
    
    $
    0.56
    
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    0.25
    
    
    $
    (0.02
    )Diluted earnings (loss) per share:Continuing operations
    
    $
    0.55
    
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    (0.17
    )
    
    $
    (0.40
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.42
    
    
    
    0.38Net income (loss)
    
    $
    0.55
    
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    0.25
    
    
    $
    (0.02
    )Balance Sheet Data:Cash and cash equivalents
    
    $
    61,784
    
    
    $
    63,840
    
    
    $
    45,011
    
    
    $
    69,612
    
    
    $
    85,108Investments included in current assets (2)
    
    
    2,318
    
    
    
    1,493
    
    
    
    23,855
    
    
    
    21,392
    
    
    
    44,170Working capital
    
    
    82,942
    
    
    
    55,804
    
    
    
    64,318
    
    
    
    83,227
    
    
    
    106,250Goodwill
    
    
    126,605
    
    
    
    124,362
    
    
    
    125,281
    
    
    
    125,300
    
    
    
    125,808Total assets
    
    
    300,066
    
    
    
    278,686
    
    
    
    281,844
    
    
    
    307,805
    
    
    
    344,523Debt obligation, excluding current portion
    
    
    5,026
    
    
    
    6,196
    
    
    
    8,805
    
    
    
    4,119
    
    
    
    1,391Total liabilities
    
    
    61,425
    
    
    
    69,946
    
    
    
    71,939
    
    
    
    83,576
    
    
    
    92,137Stockholders equity
    
    
    238,641
    
    
    
    208,740
    
    
    
    209,905
    
    
    
    224,229
    
    
    
    252,386Other Selected Data:Cash provided by operating activities
    
    $
    16,035
    
    
    $
    34,147
    
    
    $
    31,332
    
    
    $
    3,460
    
    
    $
    219Cash (used in) provided by investing activities
    
    
    (7,688
    )
    
    
    15,765
    
    
    
    (13,893
    )
    
    
    31,626
    
    
    
    46,597Cash used in financing activities (3)
    
    
    (12,172
    )
    
    
    (27,488
    )
    
    
    (42,940
    )
    
    
    (50,671
    )
    
    
    (4,332
    )Weighted average common shares outstanding  basic
    
    
    52,584
    
    
    
    55,734
    
    
    
    59,746
    
    
    
    70,780
    
    
    
    70,359Weighted average common shares outstanding  diluted
    
    
    53,291
    
    
    
    56,449
    
    
    
    60,596
    
    
    
    n/a
    
    
    
    n/a
 
 (1)
    
    Revenue from State Farm.(2)
    
    Investments include a $2.0 million restricted investment that collateralized a letter
of credit in 2009.(3)
    
    Cash used in financing activities included the repurchase of common stock of $9.6
million in 2009, $25.1 million in 2008, $51.0 million in 2007 and $55.8 million in 2006
pursuant to authorized stock repurchase programs.(4)
    
    In 2006, stock-based compensation included $200 thousand for discontinued operations
related to our Risk and Compliance business sold in 2006.(5)
    
    In 2004, we acquired Mosaic Software Holdings Limited and we paid an additional
acquisition cost of $14.0 million as earn-out consideration for Mosaic in 2006.
Discontinued operations included our Risk and Compliance business sold in 2006 which we
received approximately $32.6 million and our Edify business sold in 2005 which we received
approximately $33.2 million.  18




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and results of Operations.
  Executive Overview
 Background.
    Summary financial results.
 Subsequent Event  Acquisition
   19




---



##### Table of Contents



Revenue from Significant Customers
  Critical Accounting Policies and Estimates
  
    
    revenue recognition;
 
    
    estimation of our allowance for doubtful accounts and billing adjustments;
 
    
    valuation and recoverability of long-lived assets, including goodwill;
 
    
    determination of the fair value of stock-based compensation;
 
    
    recognition of costs in connection with restructuring plans; and
 
    
    income taxes.
 Revenue
recognition.
 Software licenses revenue
    20




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##### Table of Contents



Support and maintenance revenue
 Professional services revenue
 
    
    whether the fees associated with our products and services are fixed or
determinable;
 
    
    whether the collection of our fees is reasonably assured;
 
    
    whether professional services are essential to the functionality of the related
software product;
 
    
    whether we have the ability to make reasonably dependable estimates in the
application of the percentage of completion and proportional performance methods; and
 
    
    whether we have VSOE of fair value for our products and services.
  
    
    percentage of labor hours incurred to date to the estimated total labor hours for
each contract;
 
    
    accrual of unbilled professional services revenue until the milestone billing
occurs;
 
    
    provisions for estimated losses on uncompleted contracts; and
 
    
    the need for an allowance for doubtful accounts or billing adjustments.
 Data center revenue
 Estimation of allowance for doubtful accounts and billing adjustments.
  21




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##### Table of Contents



Valuation and recoverability of long-lived assets, including goodwill.
 
    
    significant under-performance relative to expected historical or projected future
operating results;
 
    
    significant changes in the manner of our use of the acquired assets or the strategy
of our overall business;
 
    
    significant negative industry or economic trends;
 
    
    significant decline in our stock price for a sustained period; and
 
    
    our market capitalization relative to net book value.
  Determination of the fair value of stock-based compensation.
 Recognition of costs in connection with restructuring plans.
  Income taxes.
  22




---



##### Table of Contents



Recent Accounting Pronouncements
   Effects of Foreign Currencies
   Year Ended December 31, 2009
    
    
    Year Ended December 31, 2008At Prior Year
    
    
    
    
    
    
    
    
    
    
    At Prior YearExchange
    
    
    Exchange Rate
    
    
    
    
    
    
    Exchange
    
    
    Exchange RateRates (1)
    
    
    Effect
    
    
    As reported
    
    
    Rates (1)
    
    
    Effect
    
    
    As reportedRevenue
    
    $
    243,127
    
    
    $
    (4,200
    )
    
    $
    238,927
    
    
    $
    229,775
    
    
    $
    (1,340
    )
    
    $
    228,435Operating Expenses
    
    
    210,042
    
    
    
    (4,720
    )
    
    
    205,322
    
    
    
    207,554
    
    
    
    (2,470
    )
    
    
    205,084Operating Income
    
    
    33,085
    
    
    
    520
    
    
    
    33,605
    
    
    
    22,221
    
    
    
    1,130
    
    
    
    23,351Net Income
    
    
    29,523
    
    
    
    900
    
    
    
    30,423
    
    
    
    20,470
    
    
    
    1,380
    
    
    
    21,850Basic earnings per share
    
    $
    0.54
    
    
    $
    0.02
    
    
    $
    0.56
    
    
    $
    0.36
    
    
    $
    0.02
    
    
    $
    0.38Diluted earnings per share
    
    $
    0.54
    
    
    $
    0.01
    
    
    $
    0.55
    
    
    $
    0.35
    
    
    $
    0.03
    
    
    $
    0.38
 (1)
    
    Current year results translated into U.S. Dollars using prior years average rate.  23




---



##### Table of Contents



Stock-based compensation
  For the year ended December 31,2009
    
    
    2008
    
    
    2007Operating expenses:Cost of professional services, support and maintenance
    
    $
    161
    
    
    $
    344
    
    
    $
    514Cost of data center
    
    
    115
    
    
    
    100
    
    
    
    70Selling and marketing
    
    
    (246
    )
    
    
    2,949
    
    
    
    3,984Product development
    
    
    254
    
    
    
    1,034
    
    
    
    1,669General and administrative
    
    
    1,318
    
    
    
    3,665
    
    
    
    2,285Total stock-based compensation expense
    
    $
    1,602
    
    
    $
    8,092
    
    
    $
    8,522Grant type:Stock options
    
    $
    2,342
    
    
    $
    3,955
    
    
    $
    4,040Restricted stock
    
    
    1,750
    
    
    
    917
    
    
    
    635Stock appreciation rights
    
    
    (2,490
    )
    
    
    3,220
    
    
    
    3,847Total stock-based compensation expense
    
    $
    1,602
    
    
    $
    8,092
    
    
    $
    8,522
  24




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##### Table of Contents



Consolidated Results of Operations
  Change2009 vs.
    
    
    2008 vs.2009
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Software licenses
    
    $
    35,196
    
    
    $
    30,230
    
    
    $
    25,042
    
    
    
    16
    %
    
    
    21
    %Support and maintenance
    
    
    59,602
    
    
    
    53,779
    
    
    
    49,006
    
    
    
    11
    %
    
    
    10
    %Professional services
    
    
    94,965
    
    
    
    92,470
    
    
    
    80,242
    
    
    
    3
    %
    
    
    15
    %Data center
    
    
    49,164
    
    
    
    51,956
    
    
    
    50,635
    
    
    
    -5
    %
    
    
    3
    %Total revenue
    
    
    238,927
    
    
    
    228,435
    
    
    
    204,925
    
    
    
    5
    %
    
    
    11
    %Operating Expenses:Cost of software licenses (1)
    
    
    3,188
    
    
    
    3,986
    
    
    
    3,940
    
    
    
    -20
    %
    
    
    1
    %Cost of professional services, support and maintenance (1)
    
    
    74,186
    
    
    
    74,095
    
    
    
    67,965
    
    
    
    0
    %
    
    
    9
    %Cost of data center (1)
    
    
    28,147
    
    
    
    26,408
    
    
    
    25,062
    
    
    
    7
    %
    
    
    5
    %Total direct costs
    
    
    105,521
    
    
    
    104,489
    
    
    
    96,967
    
    
    
    1
    %
    
    
    8
    %Selling and marketing
    
    
    30,725
    
    
    
    36,432
    
    
    
    31,304
    
    
    
    -16
    %
    
    
    16
    %Product development
    
    
    34,619
    
    
    
    29,271
    
    
    
    23,738
    
    
    
    18
    %
    
    
    23
    %General and administrative
    
    
    24,864
    
    
    
    25,826
    
    
    
    26,259
    
    
    
    -4
    %
    
    
    -2
    %Depreciation
and amortization of other intangible assets
    
    
    9,593
    
    
    
    9,066
    
    
    
    8,198
    
    
    
    6
    %
    
    
    11
    %Total operating expenses
    
    
    205,322
    
    
    
    205,084
    
    
    
    186,466
    
    
    
    0
    %
    
    
    10
    %Operating income
    
    
    33,605
    
    
    
    23,351
    
    
    
    18,459
    
    
    
    44
    %
    
    
    27
    %Interest and other (expense) income, net
    
    
    (1,218
    )
    
    
    753
    
    
    
    2,500
    
    
    
    -262
    %
    
    
    -70
    %Income before income tax expense
    
    
    32,387
    
    
    
    24,104
    
    
    
    20,959
    
    
    
    34
    %
    
    
    15
    %Income tax expense
    
    
    (1,964
    )
    
    
    (2,254
    )
    
    
    (1,464
    )
    
    
    -13
    %
    
    
    54
    %Net income
    
    $
    30,423
    
    
    $
    21,850
    
    
    $
    19,495
    
    
    
    39
    %
    
    
    12
    %Earnings per shareBasic
    
    $
    0.56
    
    
    $
    0.38
    
    
    $
    0.32Diluted
    
    $
    0.55
    
    
    $
    0.38
    
    
    $
    0.32Effective tax rate
    
    
    6
    %
    
    
    9
    %
    
    
    7
    %Operating expenses as a percent of revenueCost of software licenses (2)
    
    
    9
    %
    
    
    13
    %
    
    
    16
    %Cost of professional services, support and maintenance (2)
    
    
    48
    %
    
    
    51
    %
    
    
    53
    %Cost of data center (2)
    
    
    57
    %
    
    
    51
    %
    
    
    49
    %Total direct costs
    
    
    44
    %
    
    
    46
    %
    
    
    47
    %Selling and marketing
    
    
    13
    %
    
    
    16
    %
    
    
    15
    %Product development
    
    
    14
    %
    
    
    13
    %
    
    
    12
    %General and administrative
    
    
    10
    %
    
    
    11
    %
    
    
    13
    %Depreciation
and amortization of other intangible assets
    
    
    4
    %
    
    
    4
    %
    
    
    4
    %Operating income
    
    
    14
    %
    
    
    10
    %
    
    
    9
    %Net income
    
    
    13
    %
    
    
    10
    %
    
    
    10
    %
 (1)
    
    The Cost of software licenses, professional services, support and maintenance and
data center excludes charges for depreciation. The Cost of software licenses includes
amortization of acquired technology.(2)
    
    Each direct cost is a percentage of the applicable revenue type for the periods
presented.  25




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##### Table of Contents



Consolidated Results  Comparison of 2009 to 2008
 Revenue.
 Operating income.
   Interest and other (expense) income, net.
 Income
tax expense.
  26




---



##### Table of Contents



Consolidated Results  Comparison of 2008 to 2007
 Revenue.
 Operating income.
   27




---



##### Table of Contents



Interest and other (expense) income, net.
 Income
tax expense.
  Postilion Segment Results of Operations
 Change2009 vs.
    
    
    2008 vs.2009
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Software licenses
    
    $
    26,193
    
    
    $
    22,382
    
    
    $
    19,489
    
    
    
    17
    %
    
    
    15
    %Support and maintenance
    
    
    38,303
    
    
    
    35,583
    
    
    
    32,041
    
    
    
    8
    %
    
    
    11
    %Professional services
    
    
    24,195
    
    
    
    20,945
    
    
    
    16,443
    
    
    
    16
    %
    
    
    27
    %Data center
    
    
    20,875
    
    
    
    23,176
    
    
    
    24,701
    
    
    
    -10
    %
    
    
    -6
    %Total revenue
    
    
    109,566
    
    
    
    102,086
    
    
    
    92,674
    
    
    
    7
    %
    
    
    10
    %Operating Expenses:Cost of software licenses
    
    
    2,390
    
    
    
    2,647
    
    
    
    2,671
    
    
    
    -10
    %
    
    
    -1
    %Cost of professional services, support and maintenance
    
    
    31,886
    
    
    
    29,205
    
    
    
    26,212
    
    
    
    9
    %
    
    
    11
    %Cost of data center
    
    
    12,333
    
    
    
    10,802
    
    
    
    10,474
    
    
    
    14
    %
    
    
    3
    %Total direct costs (1)
    
    
    46,609
    
    
    
    42,654
    
    
    
    39,357
    
    
    
    9
    %
    
    
    8
    %Selling and marketing
    
    
    18,453
    
    
    
    20,580
    
    
    
    18,182
    
    
    
    -10
    %
    
    
    13
    %Product development
    
    
    13,548
    
    
    
    11,042
    
    
    
    12,089
    
    
    
    23
    %
    
    
    -9
    %General and administrative
    
    
    12,285
    
    
    
    11,836
    
    
    
    11,735
    
    
    
    4
    %
    
    
    1
    %Depreciation and amortization
of other intangible assets
    
    
    4,760
    
    
    
    4,452
    
    
    
    3,650
    
    
    
    7
    %
    
    
    22
    %Total operating expenses
    
    
    95,655
    
    
    
    90,564
    
    
    
    85,013
    
    
    
    6
    %
    
    
    7
    %Operating income
    
    
    13,911
    
    
    
    11,522
    
    
    
    7,661
    
    
    
    21
    %
    
    
    50
    %
  28




---



##### Table of Contents



Postilion Results  Comparison of 2009 to 2008
 Revenue.
 Operating income.
 Postilion Results  Comparison of 2008 to 2007
 Revenue.
 Operating income.
  29




---



##### Table of Contents



Enterprise Segment Results of Operations
 Change2009 vs.
    
    
    2008 vs.2009
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue:Software licenses
    
    $
    9,003
    
    
    $
    7,848
    
    
    $
    5,553
    
    
    
    15
    %
    
    
    41
    %Support and maintenance
    
    
    21,299
    
    
    
    18,196
    
    
    
    16,965
    
    
    
    17
    %
    
    
    7
    %Professional services
    
    
    70,770
    
    
    
    71,525
    
    
    
    63,799
    
    
    
    -1
    %
    
    
    12
    %Data center
    
    
    28,289
    
    
    
    28,780
    
    
    
    25,934
    
    
    
    -2
    %
    
    
    11
    %Total revenue
    
    
    129,361
    
    
    
    126,349
    
    
    
    112,251
    
    
    
    2
    %
    
    
    13
    %Operating Expenses:Cost of software licenses
    
    
    798
    
    
    
    1,339
    
    
    
    1,269
    
    
    
    -40
    %
    
    
    6
    %Cost of professional services, support and maintenance
    
    
    42,300
    
    
    
    44,890
    
    
    
    41,753
    
    
    
    -6
    %
    
    
    8
    %Cost of data center
    
    
    15,814
    
    
    
    15,606
    
    
    
    14,588
    
    
    
    1
    %
    
    
    7
    %Total direct costs (1)
    
    
    58,912
    
    
    
    61,835
    
    
    
    57,610
    
    
    
    -5
    %
    
    
    7
    %Selling and marketing
    
    
    12,272
    
    
    
    15,852
    
    
    
    13,122
    
    
    
    -23
    %
    
    
    21
    %Product development
    
    
    21,071
    
    
    
    18,229
    
    
    
    11,649
    
    
    
    16
    %
    
    
    56
    %General and administrative
    
    
    12,579
    
    
    
    13,990
    
    
    
    14,524
    
    
    
    -10
    %
    
    
    -4
    %Depreciation and amortization
of other intangible assets
    
    
    4,833
    
    
    
    4,614
    
    
    
    4,548
    
    
    
    5
    %
    
    
    1
    %Total operating expenses
    
    
    109,667
    
    
    
    114,520
    
    
    
    101,453
    
    
    
    -4
    %
    
    
    13
    %Operating income
    
    
    19,694
    
    
    
    11,829
    
    
    
    10,798
    
    
    
    66
    %
    
    
    10
    %
 Enterprise Results  Comparison of 2009 to 2008
 Revenue.
 Operating income.
  30




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##### Table of Contents



Enterprise Results  Comparison of 2008 to 2007
 Revenue.
 Operating income.
 Liquidity and Capital Resources
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Net cash provided by operating activities before
changes in operating assets and liabilities
    
    $
    41,378
    
    
    $
    40,460
    
    
    $
    41,198Change in operating assets and liabilities
    
    
    (25,343
    )
    
    
    (6,313
    )
    
    
    (9,866
    )Net cash provided by operating activities
    
    
    16,035
    
    
    
    34,147
    
    
    
    31,332Net cash (used in) provided by investing activities
    
    
    (7,688
    )
    
    
    15,765
    
    
    
    (13,893
    )Net cash used in financing activities
    
    
    (12,172
    )
    
    
    (27,488
    )
    
    
    (42,940
    )Effect of exchange rates on cash and cash equivalents
    
    
    1,769
    
    
    
    (3,595
    )
    
    
    900Net (decrease) increase in cash and cash equivalents
    
    $
    (2,056
    )
    
    $
    18,829
    
    
    $
    (24,601
    )
 As of December 31,2009
    
    
    2008Cash and cash equivalents
    
    $
    61,784
    
    
    $
    63,840Working capital (1)
    
    
    82,942
    
    
    
    55,804Total assets
    
    
    300,066
    
    
    
    278,686Total stockholders equity
    
    
    238,641
    
    
    
    208,740
 (1)
    
    Working capital includes deferred revenue of $26.8 million and $25.3 million as
of December 31, 2009 and 2008, respectively. Operating activities.
  31




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##### Table of Contents



Investing activities.
    Financing activities.
   32




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##### Table of Contents



Subsequent Event  Acquisition.
 Restructuring.
 Stock appreciation rights awards.
 Subsidiary funding policies.
 Capital requirements.
 Contractual Obligations and Off-Balance Sheet Arrangements
    33




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##### Table of Contents



Less than
    
    
    1 - 3
    
    
    3 - 5
    
    
    Greater than1 year
    
    
    years
    
    
    years
    
    
    5 years
    
    
    TotalLong-term debt
    
    $
    560
    
    
    $
    5,094
    
    
    $
    
    
    
    $
    
    
    
    $
    5,654Operating leases
    
    
    11,066
    
    
    
    13,706
    
    
    
    7,086
    
    
    
    8,149
    
    
    
    40,007Capital leases
    
    
    1,040
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,040Purchase obligations
    
    
    851
    
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    998Uncertain tax postitions (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    459Subtotal
    
    $
    13,517
    
    
    $
    18,947
    
    
    $
    7,086
    
    
    $
    8,149
    
    
    $
    48,158Operating sublease income
    
    
    (4,177
    )
    
    
    (2,891
    )
    
    
    (14
    )
    
    
    
    
    
    
    (7,082
    )Total obligations, net of sublease income
    
    $
    9,340
    
    
    $
    16,056
    
    
    $
    7,072
    
    
    $
    8,149
    
    
    $
    41,076
 (1)
    
    For unrecognized tax benefits or liabilities related to uncertain tax positions, we are not
able to reasonably estimate the timing of the payments. Therefore, the table does not reflect
the expected payment in any specific date column but the amount is included in the Total
column. 
 Item 7A. Qualitative and Quantitative Disclosures about Market Risk.
  Foreign currency risk.
   34




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##### Table of Contents



Interest rate risk.
  Investment risk.
  35




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data.
 INDEX TO FINANCIAL STATEMENTS
 PageFINANCIAL STATEMENTS:Report of Independent Registered Public Accounting Firm
    
    
    37Consolidated Balance Sheets as of December 31, 2009 and 2008
    
    
    38Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007
    
    
    39Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007
    
    
    40Consolidated Statements of Stockholders Equity and Comprehensive Income for the Years Ended
December 31, 2009, 2008 and 2007
    
    
    41Notes to Consolidated Financial Statements
    
    
    42FINANCIAL STATEMENT SCHEDULE:For each of the three years ended December 31, 2009, 2008 and 2007
Schedule IIValuation and Qualifying Accounts
    
    
    66
   36




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
   
  37




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##### Table of Contents



S1 CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,2009
    
    
    2008(in thousands, except shareand per share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    61,784
    
    
    $
    63,840Accounts receivable, net of allowance for doubtful accounts and billing adjustments
of $2,299 and $1,388 at December 31, 2009 and 2008, respectively
    
    
    64,470
    
    
    
    42,561Prepaid expenses
    
    
    4,729
    
    
    
    5,123Other current assets
    
    
    4,931
    
    
    
    3,575Total current assets
    
    
    135,914
    
    
    
    115,099Property and equipment, net
    
    
    23,018
    
    
    
    23,015Intangible assets, net
    
    
    4,895
    
    
    
    7,585Goodwill
    
    
    126,605
    
    
    
    124,362Other assets
    
    
    9,634
    
    
    
    8,625Total assets
    
    $
    300,066
    
    
    $
    278,686LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    7,707
    
    
    $
    7,902Accrued compensation and benefits
    
    
    11,569
    
    
    
    16,147Current portion of debt obligation
    
    
    1,170
    
    
    
    3,917Accrued restructuring
    
    
    2,096
    
    
    
    2,323Income taxes payable
    
    
    1,586
    
    
    
    2,617Deferred revenue
    
    
    26,837
    
    
    
    25,271Other current liabilities
    
    
    2,007
    
    
    
    1,118Total current liabilities
    
    
    52,972
    
    
    
    59,295Debt obligation, excluding current portion
    
    
    5,026
    
    
    
    6,196Accrued restructuring, excluding current portion
    
    
    1,381
    
    
    
    3,443Other liabilities
    
    
    2,046
    
    
    
    1,012Total liabilities
    
    $
    61,425
    
    
    $
    69,946Commitments and contingencies (Note 9)Stockholders equity:Preferred stock, $0.01 par value. Authorized 25,000,000 shares. Issued and outstanding
749,064 shares at December 31, 2009 and 2008, respectively
    
    
    10,000
    
    
    
    10,000Common stock, $0.01 par value. Authorized 350,000,000 shares. Issued and outstanding
51,712,710 and 52,799,310 shares at December 31, 2009 and 2008, respectively
    
    
    517
    
    
    
    528Additional paid in capital
    
    
    1,787,772
    
    
    
    1,791,924Accumulated deficit
    
    
    (1,557,534
    )
    
    
    (1,587,957
    )Accumulated other comprehensive loss
    
    
    (2,114
    )
    
    
    (5,755
    )Total stockholders equity
    
    
    238,641
    
    
    
    208,740Total liabilities and stockholders equity
    
    $
    300,066
    
    
    $
    278,686
   38




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##### Table of Contents



S1 CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2009
    
    
    2008
    
    
    2007(in thousands, except share and per share data)Revenue:Software licenses
    
    $
    35,196
    
    
    $
    30,230
    
    
    $
    25,042Support and maintenance
    
    
    59,602
    
    
    
    53,779
    
    
    
    49,006Professional services
    
    
    94,965
    
    
    
    92,470
    
    
    
    80,242Data center
    
    
    49,164
    
    
    
    51,956
    
    
    
    50,635Total revenue
    
    
    238,927
    
    
    
    228,435
    
    
    
    204,925Operating expenses:Cost of software licenses (1)
    
    
    3,188
    
    
    
    3,986
    
    
    
    3,940Cost of professional services, support and maintenance (1)
    
    
    74,186
    
    
    
    74,095
    
    
    
    67,965Cost of data center (1)
    
    
    28,147
    
    
    
    26,408
    
    
    
    25,062Selling and marketing
    
    
    30,725
    
    
    
    36,432
    
    
    
    31,304Product development
    
    
    34,619
    
    
    
    29,271
    
    
    
    23,738General and administrative
    
    
    24,864
    
    
    
    25,826
    
    
    
    26,259Depreciation and amortization of other intangible assets
    
    
    9,593
    
    
    
    9,066
    
    
    
    8,198Total operating expenses
    
    
    205,322
    
    
    
    205,084
    
    
    
    186,466Operating income
    
    
    33,605
    
    
    
    23,351
    
    
    
    18,459Interest income
    
    
    433
    
    
    
    2,052
    
    
    
    4,151Interest expense
    
    
    (721
    )
    
    
    (855
    )
    
    
    (714
    )Other non-operating expenses
    
    
    (930
    )
    
    
    (444
    )
    
    
    (937
    )Interest and other (expense) income, net
    
    
    (1,218
    )
    
    
    753
    
    
    
    2,500Income before income tax expense
    
    
    32,387
    
    
    
    24,104
    
    
    
    20,959Income tax expense
    
    
    (1,964
    )
    
    
    (2,254
    )
    
    
    (1,464
    )Net income
    
    $
    30,423
    
    
    $
    21,850
    
    
    $
    19,495Earnings per shareBasic
    
    $
    0.56
    
    
    $
    0.38
    
    
    $
    0.32Diluted
    
    $
    0.55
    
    
    $
    0.38
    
    
    $
    0.32Weighted average common shares outstanding  basic
    
    
    52,583,832
    
    
    
    55,734,103
    
    
    
    59,746,146Weighted average common shares outstanding  fully diluted
    
    
    53,290,836
    
    
    
    56,449,371
    
    
    
    60,595,765
 (1)
    
    The Cost of software licenses, professional services, support and maintenance and data
center excludes charges for depreciation but the Cost of software licenses includes
amortization of acquired technology.   39




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##### Table of Contents



S1 CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2009
    
    
    2008
    
    
    2007(in thousands)Cash flows from operating activities:Net income
    
    $
    30,423
    
    
    $
    21,850
    
    
    $
    19,495Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    11,170
    
    
    
    11,591
    
    
    
    11,135Provision for doubtful accounts receivable and billing adjustments
    
    
    995
    
    
    
    159
    
    
    
    1,894Deferred income taxes
    
    
    (2,812
    )
    
    
    (1,895
    )
    
    
    Other than temporary impairments of investments
    
    
    
    
    
    
    663
    
    
    
    152Stock based compensation expense
    
    
    1,602
    
    
    
    8,092
    
    
    
    8,522Changes in assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (22,396
    )
    
    
    (3,095
    )
    
    
    11,509Decrease (increase) in prepaid expenses and other assets
    
    
    792
    
    
    
    (231
    )
    
    
    (828
    )Decrease in accounts payable and other liabilities
    
    
    (920
    )
    
    
    (6,250
    )
    
    
    (14,213
    )(Decrease) increase in accrued compensation and benefits
    
    
    (2,711
    )
    
    
    2,106
    
    
    
    (2,840
    )(Decrease) increase in income taxes payable
    
    
    (1,437
    )
    
    
    2,434
    
    
    
    106Increase (decrease) in deferred revenues
    
    
    1,329
    
    
    
    (1,277
    )
    
    
    (3,600
    )Net cash provided by operating activities
    
    
    16,035
    
    
    
    34,147
    
    
    
    31,332Cash flows from investing activities:Maturities of investment securities
    
    
    5,728
    
    
    
    24,244
    
    
    
    31,223Purchases of investment securities
    
    
    (3,224
    )
    
    
    (3,447
    )
    
    
    (33,838
    )Purchases of restricted investment securities
    
    
    (2,000
    )
    
    
    
    
    
    
    Amounts released from escrow related to sale of business
    
    
    
    
    
    
    3,712
    
    
    
    Amounts held in escrow related to property
    
    
    
    
    
    
    
    
    
    
    (1,593
    )Purchases of property, equipment and technology
    
    
    (8,192
    )
    
    
    (8,744
    )
    
    
    (9,685
    )Net cash (used in) provided by investing activities
    
    
    (7,688
    )
    
    
    15,765
    
    
    
    (13,893
    )Cash flows from financing activities:Proceeds from exercise of employee stock awards
    
    
    1,341
    
    
    
    1,305
    
    
    
    11,500Payments on capital leases and debt obligations
    
    
    (3,917
    )
    
    
    (3,718
    )
    
    
    (3,473
    )Repurchase and retirement of common stock
    
    
    (9,596
    )
    
    
    (25,075
    )
    
    
    (50,967
    )Net cash used in financing activities
    
    
    (12,172
    )
    
    
    (27,488
    )
    
    
    (42,940
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    1,769
    
    
    
    (3,595
    )
    
    
    900Net (decrease) increase in cash and cash equivalents
    
    
    (2,056
    )
    
    
    18,829
    
    
    
    (24,601
    )Cash and cash equivalents at beginning of period
    
    
    63,840
    
    
    
    45,011
    
    
    
    69,612Cash and cash equivalents at end of period
    
    $
    61,784
    
    
    $
    63,840
    
    
    $
    45,011Noncash investing and financing activities:Equipment financed through capital leases
    
    $
    
    
    
    $
    1,301
    
    
    $
    3,323Property financed through notes payable
    
    
    
    
    
    
    
    
    
    
    5,233Supplemental schedule of cash flow data:Cash paid for income taxes
    
    $
    7,057
    
    
    $
    2,279
    
    
    $
    1,188Cash paid for interest
    
    
    730
    
    
    
    875
    
    
    
    622
   40




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##### Table of Contents



S1 CORPORATION
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(in thousands except for share data)
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Stockholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    Equity
    
    
    IncomeBalance at December 31, 2006
    
    
    749,064
    
    
    $
    10,000
    
    
    
    61,290,973
    
    
    $
    613
    
    
    $
    1,845,529
    
    
    $
    (1,629,302
    )
    
    $
    (2,611
    )
    
    $
    224,229Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,495
    
    
    
    
    
    
    
    19,495
    
    
    
    19,495Net unrealized gain on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )
    
    
    (7
    )Change in cumulative foreign currency translation
adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    902
    
    
    
    902
    
    
    
    902Realized loss on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78
    
    
    
    78
    
    
    
    78Common stock issued upon the exercise of stock
awards
    
    
    
    
    
    
    
    
    
    
    2,086,040
    
    
    
    19
    
    
    
    11,481
    
    
    
    
    
    
    
    
    
    
    
    11,500
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,675
    
    
    
    
    
    
    
    
    
    
    
    4,675Repurchase and retirement of common stock
    
    
    
    
    
    
    
    
    
    
    (6,628,107
    )
    
    
    (65
    )
    
    
    (50,902
    )
    
    
    
    
    
    
    
    
    
    
    (50,967
    )
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    20,468Balance at December 31, 2007
    
    
    749,064
    
    
    $
    10,000
    
    
    
    56,748,906
    
    
    $
    567
    
    
    $
    1,810,783
    
    
    $
    (1,609,807
    )
    
    $
    (1,638
    )
    
    $
    209,905Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,850
    
    
    
    
    
    
    
    21,850
    
    
    
    21,850Net unrealized loss on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    49
    
    
    
    49Change in cumulative foreign currency translation
adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,283
    )
    
    
    (4,283
    )
    
    
    (4,283
    )Realized loss on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117
    
    
    
    117
    
    
    
    117Common stock issued upon the exercise of stock
awards
    
    
    
    
    
    
    
    
    
    
    442,141
    
    
    
    4
    
    
    
    1,301
    
    
    
    
    
    
    
    
    
    
    
    1,305
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,872
    
    
    
    
    
    
    
    
    
    
    
    4,872
    
    
    
    Repurchase and retirement of common stock
    
    
    
    
    
    
    
    
    
    
    (4,391,737
    )
    
    
    (43
    )
    
    
    (25,032
    )
    
    
    
    
    
    
    
    
    
    
    (25,075
    )
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    17,733Balance at December 31, 2008
    
    
    749,064
    
    
    $
    10,000
    
    
    
    52,799,310
    
    
    $
    528
    
    
    $
    1,791,924
    
    
    $
    (1,587,957
    )
    
    $
    (5,755
    )
    
    $
    208,740Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,423
    
    
    
    
    
    
    
    30,423
    
    
    
    30,423Net unrealized gain on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69
    )
    
    
    (69
    )
    
    
    (69
    )Change in cumulative foreign currency translation
adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,710
    
    
    
    3,710
    
    
    
    3,710Common stock issued upon the exercise of stock
awards
    
    
    
    
    
    
    
    
    
    
    420,751
    
    
    
    4
    
    
    
    1,337
    
    
    
    
    
    
    
    
    
    
    
    1,341
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,092
    
    
    
    
    
    
    
    
    
    
    
    4,092
    
    
    
    Repurchase and retirement of common stock
    
    
    
    
    
    
    
    
    
    
    (1,507,351
    )
    
    
    (15
    )
    
    
    (9,581
    )
    
    
    
    
    
    
    
    
    
    
    (9,596
    )
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    34,064Balance at December 31, 2009
    
    
    749,064
    
    
    $
    10,000
    
    
    
    51,712,710
    
    
    $
    517
    
    
    $
    1,787,772
    
    
    $
    (1,557,534
    )
    
    $
    (2,114
    )
    
    $
    238,641
   41




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##### Table of Contents



S1 CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009, 2008 and 2007
 1. Summary of Significant Accounting Policies
 Business Overview
  Basis of presentation
   Previously
    
    
    Reclassified
    
    
    Reclassified
    
    
    
    
    
    
    Previously
    
    
    Reclassified
    
    
    ReclassifiedReported
    
    
    Subscription
    
    
    Other
    
    
    Reclassified
    
    
    Reported
    
    
    Subscription
    
    
    Other
    
    
    Reclassified2008
    
    
    Revenue
    
    
    Revenue
    
    
    2008
    
    
    2007
    
    
    Revenue
    
    
    Revenue
    
    
    2007Revenue:Software license
    
    $
    37,859
    
    
    $
    (8,168
    )
    
    $
    539
    
    
    $
    30,230
    
    
    $
    30,709
    
    
    $
    (5,759
    )
    
    $
    92
    
    
    $
    25,042Support and maintenance
    
    
    49,163
    
    
    
    4,576
    
    
    
    40
    
    
    
    53,779
    
    
    
    45,591
    
    
    
    3,376
    
    
    
    39
    
    
    
    49,006Professional services
    
    
    92,245
    
    
    
    
    
    
    
    225
    
    
    
    92,470
    
    
    
    79,754
    
    
    
    
    
    
    
    488
    
    
    
    80,242Data center
    
    
    47,836
    
    
    
    3,592
    
    
    
    528
    
    
    
    51,956
    
    
    
    47,796
    
    
    
    2,383
    
    
    
    456
    
    
    
    50,635Other
    
    
    1,332
    
    
    
    
    
    
    
    (1,332
    )
    
    
    
    
    
    
    1,075
    
    
    
    
    
    
    
    (1,075
    )
    
    
    Total revenue
    
    $
    228,435
    
    
    $
    
    
    
    $
    
    
    
    $
    228,435
    
    
    $
    204,925
    
    
    $
    
    
    
    $
    
    
    
    $
    204,925
 Use of estimates
  Fair value of financial instruments
    42




---



##### Table of Contents



Derivative financial instruments
  Accounts receivable and allowance for doubtful accounts and billing adjustments
  Property and equipment
   Building
    
    27 yearsBuilding improvements
    
    5 to 15 yearsLeasehold improvements
    
    shorter of lease term or 5 yearsFurniture and fixtures
    
    5 yearsComputer equipment
    
    2 to 3 years including leasesSoftware
    
    3 years
  43




---



##### Table of Contents



Leases
  Goodwill
  Other long-lived assets
   Cost-basis investments
    44




---



##### Table of Contents



Concentration of credit risk and uncertainties
   Revenue recognition, deferred revenue and cost of revenue
  Software license revenue.
  Support and maintenance revenue.
  45




---



##### Table of Contents



Professional services revenue.
 Data center revenue.
 Deferred revenue.
 Cost of revenue.
 Product development costs
  Other non-operating expenses
  For the year ended December 31,2009
    
    
    2008
    
    
    2007Foreign exchange transaction (loss) gain
    
    
    (734
    )
    
    
    604
    
    
    
    (306
    )Foreign withholding tax
    
    
    (308
    )
    
    
    (350
    )
    
    
    (397
    )Gain (loss) on investments and other expenses
    
    
    112
    
    
    
    (698
    )
    
    
    (234
    )Other non-operating expenses
    
    $
    (930
    )
    
    $
    (444
    )
    
    $
    (937
    )
 Income taxes
   46




---



##### Table of Contents



Stock-based compensation
     Net income per share
   47




---



##### Table of Contents



Foreign currency translation
  Comprehensive income
  December 31,2009
    
    
    2008Net gain on derivative financial instruments, net of taxes
    
    $
    
    
    
    $
    69Cumulative foreign currency translation adjustments, net of taxes
    
    
    (2,114
    )
    
    
    (5,824
    )Accumulated other comprehensive loss
    
    $
    (2,114
    )
    
    $
    (5,755
    )
 Recent accounting pronouncements
      48




---



##### Table of Contents



2. Fair Value Measurements
       49




---



##### Table of Contents



December 31, 2009
    
    
    December 31, 2008Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair ValueCash and cash equivalents
    
    $
    61,784
    
    
    $
    61,784
    
    
    $
    63,840
    
    
    $
    63,840Included in other current assets:Mutual fund trust
    
    
    
    
    
    
    
    
    
    
    1,493
    
    
    
    1,493Fixed term deposits
    
    
    318
    
    
    
    318
    
    
    
    
    
    
    
    Restricted fixed term deposit
    
    
    2,000
    
    
    
    2,000
    
    
    
    
    
    
    
    Derivative assets
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    69Included in non-current other assets:Mutual fund trust
    
    
    
    
    
    
    
    
    
    
    902
    
    
    
    902Fixed term deposits
    
    
    
    
    
    
    
    
    
    
    289
    
    
    
    289Long-term borrowings
    
    
    5,026
    
    
    
    4,911
    
    
    
    6,196
    
    
    
    6,103
  Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableCarrying
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    InputsValue
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)December 31, 2008:Mutual fund trust (1)
    
    $
    2,395
    
    
    $
    
    
    
    $
    
    
    
    $
    2,395Derivative assets
    
    
    69
    
    
    
    
    
    
    
    69
    
    
    
    Total
    
    $
    2,464
    
    
    $
    
    
    
    $
    69
    
    
    $
    2,395
 (1)
    
    Represents the combined short-term and long-term portion of the mutual fund
trust.  Fair Value Measurements at Reporting DateUsing Significant Unobservable Inputs (Level 3)2009
    
    
    2008Beginning balance
    
    $
    2,395
    
    
    $
    10,894Realized gain in earnings
    
    
    109
    
    
    
    Impairments
    
    
    
    
    
    
    (663
    )Cash settlements
    
    
    (2,504
    )
    
    
    (7,836
    )Ending balance
    
    $
    
    
    
    $
    2,395
  50




---



##### Table of Contents



3. Accounts Receivable
  December 31,2009
    
    
    2008Billed receivables
    
    $
    42,862
    
    
    $
    30,771Unbilled receivables
    
    
    23,907
    
    
    
    13,178Allowance for doubtful accounts and billing adjustments
    
    
    (2,299
    )
    
    
    (1,388
    )Total
    
    $
    64,470
    
    
    $
    42,561
  4. Property and Equipment
  December 31,2009
    
    
    2008Property and building improvements
    
    $
    12,115
    
    
    $
    9,551Leasehold improvements
    
    
    1,977
    
    
    
    773Furniture and fixtures
    
    
    2,327
    
    
    
    1,786Computer equipment
    
    
    31,891
    
    
    
    29,413Software
    
    
    10,811
    
    
    
    8,890Property and equipment, before depreciation
    
    
    59,121
    
    
    
    50,413Accumulated depreciation and amortization
    
    
    (36,103
    )
    
    
    (27,398
    )Property and equipment, net
    
    $
    23,018
    
    
    $
    23,015
 5. Goodwill and Other Intangible Assets
  Enterprise
    
    
    Postilion
    
    
    TotalGoodwill, net as of December 31, 2007 (1)
    
    $
    49,616
    
    
    $
    75,665
    
    
    $
    125,281Utilization of acquisition related income tax benefits
    
    
    (153
    )
    
    
    
    
    
    
    (153
    )Release of acquisition related deferred tax assets
    
    
    (766
    )
    
    
    
    
    
    
    (766
    )Goodwill, net as of December 31, 2008 (1)
    
    
    48,697
    
    
    
    75,665
    
    
    
    124,362Effect of foreign currency translations
    
    
    3,350
    
    
    
    (1,107
    )
    
    
    2,243Goodwill, net as of December 31, 2009 (1)
    
    $
    52,047
    
    
    $
    74,558
    
    
    $
    126,605
 (1)
    
    The goodwill balances include accumulated impairment losses
recorded in December 2000 of $212.8 million for
the Enterprise segment and $258.1 million for the Postilion
segment.  51




---



##### Table of Contents



As of December 31, 2009Gross
    
    
    Accumulated
    
    
    NetCarrying Value
    
    
    Amortization
    
    
    Carrying ValueAcquired technology
    
    $
    21,938
    
    
    $
    (20,592
    )
    
    $
    1,346Customer relationships
    
    
    12,000
    
    
    
    (8,451
    )
    
    
    3,549Total
    
    $
    33,938
    
    
    $
    (29,043
    )
    
    $
    4,895
 As of December 31, 2008Gross
    
    
    Accumulated
    
    
    NetCarrying Value
    
    
    Amortization
    
    
    Carrying ValueAcquired technology
    
    $
    21,938
    
    
    $
    (19,015
    )
    
    $
    2,923Customer relationships
    
    
    12,000
    
    
    
    (7,338
    )
    
    
    4,662Total
    
    $
    33,938
    
    
    $
    (26,353
    )
    
    $
    7,585
  For the year ended December 31,2009
    
    
    2008
    
    
    2007Acquired technology
    
    $
    1,577
    
    
    $
    2,525
    
    
    $
    2,937Customer relationships
    
    
    1,113
    
    
    
    1,130
    
    
    
    1,175Total
    
    $
    2,690
    
    
    $
    3,655
    
    
    $
    4,112
  2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014Enterprise
    
    $
    245
    
    
    $
    245
    
    
    $
    184
    
    
    $
    
    
    
    $
    Postilion
    
    
    1,335
    
    
    
    1,282
    
    
    
    706
    
    
    
    490
    
    
    
    408Total
    
    $
    1,580
    
    
    $
    1,527
    
    
    $
    890
    
    
    $
    490
    
    
    $
    408
  52




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##### Table of Contents



6. Restructuring Costs
  2006 Plan
    
    
    2005 Plan
    
    
    2003 andPersonnel
    
    
    
    
    
    
    Personnel
    
    
    
    
    
    
    Prior PlansCosts
    
    
    Lease Costs
    
    
    Costs
    
    
    Lease Costs
    
    
    Lease Costs
    
    
    TotalBalance, December 31, 2006
    
    $
    4,018
    
    
    $
    5,994
    
    
    $
    660
    
    
    $
    3,645
    
    
    $
    5,161
    
    
    $
    19,478Amounts utilized
    
    
    (3,185
    )
    
    
    (2,282
    )
    
    
    (627
    )
    
    
    (1,289
    )
    
    
    (2,871
    )
    
    
    (10,254
    )Balance, December 31, 2007
    
    
    833
    
    
    
    3,712
    
    
    
    33
    
    
    
    2,356
    
    
    
    2,290
    
    
    
    9,224Amounts utilized
    
    
    (323
    )
    
    
    (1,210
    )
    
    
    
    
    
    
    (1,207
    )
    
    
    (796
    )
    
    
    (3,536
    )Adjustments
    
    
    (510
    )
    
    
    208
    
    
    
    (33
    )
    
    
    544
    
    
    
    (131
    )
    
    
    78Balance, December 31, 2008
    
    
    
    
    
    
    2,710
    
    
    
    
    
    
    
    1,693
    
    
    
    1,363
    
    
    
    5,766Amounts utilized
    
    
    
    
    
    
    (1,163
    )
    
    
    
    
    
    
    (968
    )
    
    
    (835
    )
    
    
    (2,966
    )Adjustments
    
    
    
    
    
    
    324
    
    
    
    
    
    
    
    167
    
    
    
    186
    
    
    
    677Balance, December 31, 2009
    
    $
    
    
    
    $
    1,871
    
    
    $
    
    
    
    $
    892
    
    
    $
    714
    
    
    $
    3,477
 Restructuring in 2003 and prior.
 Restructuring in 2005.
 Restructuring in 2006.
  53




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##### Table of Contents



7. Deferred Revenue
  December 31,2009
    
    
    2008Software licenses
    
    $
    2,861
    
    
    $
    4,008Professional services
    
    
    7,317
    
    
    
    7,056Support and maintenance
    
    
    16,659
    
    
    
    14,207Deferred revenue, current
    
    
    26,837
    
    
    
    25,271Deferred revenue, non-current (1)
    
    
    41
    
    
    
    160Total deferred revenue
    
    $
    26,878
    
    
    $
    25,431
 (1)
    
    Non-current deferred revenue is included in long-term Other liabilities. 8. Retirement Savings Plan
 4 01(k) retirement savings plan.
 Deferred compensation plan
 9. Commitments, Contingencies and Debt Obligations
 Operating lease commitments.
   Operating Lease
    
    
    Sublease
    
    
    Net Operating LeaseCommitments (1)
    
    
    Income (1)
    
    
    Commitments2010
    
    $
    11,066
    
    
    $
    4,177
    
    
    $
    6,8892011
    
    
    8,864
    
    
    
    2,810
    
    
    
    6,0542012
    
    
    4,842
    
    
    
    81
    
    
    
    4,7612013
    
    
    4,582
    
    
    
    14
    
    
    
    4,5682014
    
    
    2,504
    
    
    
    
    
    
    
    2,504Thereafter
    
    
    8,149
    
    
    
    
    
    
    
    8,149$
    40,007
    
    
    $
    7,082
    
    
    $
    32,925
 (1)
    
    Includes amounts for vacated facilities recorded in our restructuring reserves of $10.4
million for operating lease commitments and $6.8 million of related sublease income.  54




---



##### Table of Contents



Notes payable and capital leases.
 December 31,2009
    
    
    2008Note payable due Feb. 2011 in monthly installments of $40 thousand
which include interest at 7.6%
    
    $
    5,060
    
    
    $
    5,141Note payable due Aug. 2011 in monthly installments of $7 thousand
which include interest at 12.0%
    
    
    128
    
    
    
    194Capital lease obligations with maturity dates ranging from Sep. 2010
through Dec. 2010 with interest rates of 6.3% - 7.0%
    
    
    1,008
    
    
    
    4,778$
    6,196
    
    
    $
    10,113Less: Current maturities included in current liabilities
    
    
    (1,170
    )
    
    
    (3,917
    )$
    5,026
    
    
    $
    6,196
  Notes Payable
    
    
    Capital Leases
    
    
    Total2010
    
    $
    560
    
    
    $
    1,040
    
    
    $
    1,6002011 (1)
    
    
    5,094
    
    
    
    
    
    
    
    5,094$
    5,654
    
    
    $
    1,040
    
    
    $
    6,694Less amount representing interest
    
    
    (466
    )
    
    
    (32
    )
    
    
    (498
    )$
    5,188
    
    
    $
    1,008
    
    
    $
    6,196
 (1)
    
    We do not have any long-term debt obligations that are due beyond 2011. Contractual commitments.
 Guarantees and indemnifications.
 Litigation.
 10. Income Taxes
  2009
    
    
    2008
    
    
    2007U.S. operations
    
    $
    11,537
    
    
    $
    7,223
    
    
    $
    10,834Foreign operations
    
    
    20,850
    
    
    
    16,881
    
    
    
    10,125$
    32,387
    
    
    $
    24,104
    
    
    $
    20,959
  55




---



##### Table of Contents



2009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    (79
    )
    
    $
    27
    
    
    $
    408Foreign
    
    
    4,551
    
    
    
    3,412
    
    
    
    513State
    
    
    304
    
    
    
    710
    
    
    
    543Total current
    
    $
    4,776
    
    
    $
    4,149
    
    
    $
    1,464Deferred:Federal
    
    $
    
    
    
    $
    
    
    
    $
    Foreign
    
    
    (2,812
    )
    
    
    (1,895
    )
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Total deferred
    
    $
    (2,812
    )
    
    $
    (1,895
    )
    
    $
    Total income tax expense
    
    $
    1,964
    
    
    $
    2,254
    
    
    $
    1,464
  2009
    
    
    2008
    
    
    2007Income tax expense at federal statutory rate of 35%
    
    $
    11,336
    
    
    $
    8,436
    
    
    $
    7,335State income tax expense, net of federal benefit
    
    
    198
    
    
    
    457
    
    
    
    353Changes related to tax assessments
    
    
    286
    
    
    
    317
    
    
    
    Deferred tax valuation allowance release
    
    
    (3,114
    )
    
    
    (2,048
    )
    
    
    Decrease in
valuation allowance related to current year operations
    
    
    (4,913
    )
    
    
    (3,150
    )
    
    
    (6,664
    )Foreign operations tax rate differences
    
    
    (2,426
    )
    
    
    (2,447
    )
    
    
    (1,911
    )Other foreign taxes
    
    
    309
    
    
    
    
    
    
    
    289Other permanent items
    
    
    288
    
    
    
    689
    
    
    
    2,062Income tax expense
    
    $
    1,964
    
    
    $
    2,254
    
    
    $
    1,464
  2009
    
    
    2008Deferred income tax assets:Net operating loss carryforwards
    
    $
    98,633
    
    
    $
    100,205Equity in net loss of affiliate
    
    
    18,438
    
    
    
    18,438Accrued expenses
    
    
    7,721
    
    
    
    9,189Deferred revenue
    
    
    353
    
    
    
    8,123Tax credit carryforwards
    
    
    2,948
    
    
    
    3,027Restructuring
    
    
    1,356
    
    
    
    2,175Property and equipment depreciation
    
    
    3,317
    
    
    
    3,283Unrealized translation adjustments
    
    
    1,066
    
    
    
    Identifiable intangibles
    
    
    613
    
    
    
    Other
    
    
    276
    
    
    
    393Total gross deferred income tax assets
    
    
    134,721
    
    
    
    144,833Valuation allowance for deferred income tax assets
    
    
    (127,260
    )
    
    
    (140,110
    )Total deferred income tax assets
    
    
    7,461
    
    
    
    4,723
 2009
    
    
    2008Deferred income tax liabilities:Identifiable intangibles
    
    
    
    
    
    
    1,210Future reversals of branch deferred tax assets
    
    
    631
    
    
    
    Other
    
    
    180
    
    
    
    Total deferred income tax liabilities
    
    
    811
    
    
    
    1,210Net deferred income taxes
    
    $
    6,650
    
    
    $
    3,513
  56




---



##### Table of Contents



2009
    
    
    2008Included in:Other current assets
    
    $
    1,079
    
    
    $
    237Other noncurrent assets
    
    
    5,620
    
    
    
    3,708Other current liabilities
    
    
    
    
    
    
    (222
    )Other noncurrent liabilities
    
    
    (49
    )
    
    
    (210
    )Net deferred income taxes
    
    $
    6,650
    
    
    $
    3,513
      2009
    
    
    2008
    
    
    2007Beginning balance
    
    $
    8,095
    
    
    $
    11,385
    
    
    $
    13,209Reductions for tax positions of prior years
    
    
    (42
    )
    
    
    (3,290
    )
    
    
    (1,725
    )Settlements
    
    
    
    
    
    
    
    
    
    
    (99
    )Ending balance
    
    $
    8,053
    
    
    $
    8,095
    
    
    $
    11,385
   57




---



##### Table of Contents



11. Stock Option Plans
   For the year ended December 31,2009
    
    
    2008
    
    
    2007Operating expenses:Cost of professional services, support and maintenance
    
    $
    161
    
    
    $
    344
    
    
    $
    514Cost of data center
    
    
    115
    
    
    
    100
    
    
    
    70Selling and marketing
    
    
    (246
    )
    
    
    2,949
    
    
    
    3,984Product development
    
    
    254
    
    
    
    1,034
    
    
    
    1,669General and administrative
    
    
    1,318
    
    
    
    3,665
    
    
    
    2,285Total stock-based compensation expense
    
    $
    1,602
    
    
    $
    8,092
    
    
    $
    8,522Grant type:Stock options
    
    $
    2,342
    
    
    $
    3,955
    
    
    $
    4,040Restricted stock
    
    
    1,750
    
    
    
    917
    
    
    
    635Stock appreciation rights
    
    
    (2,490
    )
    
    
    3,220
    
    
    
    3,847Total stock-based compensation expense
    
    $
    1,602
    
    
    $
    8,092
    
    
    $
    8,522
  58




---



##### Table of Contents



Stock Options.
 For the year ended December 31,2009
    
    
    2008
    
    
    2007Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    49.1
    %
    
    
    44.4
    %
    
    
    45.0
    %Risk-free interest rate
    
    
    2.5
    %
    
    
    3.1
    %
    
    
    4.8
    %Expected life
    
    4.4 years
    
    4.4 years
    
    4.0 yearsWeighted average fair
value for grant during
year
    
    $
    3.01
    
    
    $
    2.58
    
    
    $
    2.55
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise
    
    
    Contractual
    
    
    Value(000s)
    
    
    Price
    
    
    Life (Yrs)
    
    
    ($000s)Outstanding at
December 31, 2008
    
    
    6,792
    
    
    $
    7.34Granted
    
    
    314
    
    
    
    7.06Exercised
    
    
    (337
    )
    
    
    4.61
    
    
    
    
    
    
    $
    609Forfeited
    
    
    (482
    )
    
    
    14.13Outstanding at
December 31, 2009
    
    
    6,287
    
    
    $
    6.96
    
    
    
    5.8
    
    
    $
    5,433Exercisable at
December 31, 2009
    
    
    4,777
    
    
    $
    7.11
    
    
    
    5.0
    
    
    $
    4,985
  Non-Vested
    
    
    Weighted-Number of
    
    
    AverageShares
    
    
    Grant-Date(000s)
    
    
    Fair ValueNon-vested balance at December 31,
2008
    
    
    2,348
    
    
    $
    2.53Granted
    
    
    314
    
    
    
    3.01Vested
    
    
    (1,010
    )
    
    
    2.48Forfeited
    
    
    (142
    )
    
    
    2.42Non-vested balance at December 31,
2009
    
    
    1,510
    
    
    $
    2.65
  59




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Number
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    AverageOutstanding
    
    
    Contractual
    
    
    Exercise
    
    
    Exercisable
    
    
    ExerciseRange of Exercise Price
    
    (000s)
    
    
    Life (Yrs)
    
    
    Price
    
    
    (000s)
    
    
    Price$1.21 - 4.00
    
    
    188
    
    
    
    3.4
    
    
    $
    3.58
    
    
    
    188
    
    
    $
    3.584.01 - 5.00
    
    
    1,868
    
    
    
    6.1
    
    
    
    4.55
    
    
    
    1,864
    
    
    
    4.555.01 - 6.00
    
    
    828
    
    
    
    5.8
    
    
    
    5.27
    
    
    
    548
    
    
    
    5.276.01 - 7.00
    
    
    1,394
    
    
    
    7.8
    
    
    
    6.48
    
    
    
    582
    
    
    
    6.487.01 - 8.50
    
    
    1,260
    
    
    
    5.9
    
    
    
    7.93
    
    
    
    845
    
    
    
    7.938.51 - 11.00
    
    
    327
    
    
    
    2.5
    
    
    
    9.28
    
    
    
    328
    
    
    
    9.2811.01 - 97.44
    
    
    422
    
    
    
    1.4
    
    
    
    20.00
    
    
    
    422
    
    
    
    20.001.21 - 97.44
    
    
    6,287
    
    
    
    5.8
    
    
    $
    7.11
    
    
    
    4,777
    
    
    $
    7.11
  Restricted Stock Activity.
 Weighted-Average
    
    
    AggregateRemaining
    
    
    IntrinsicShares
    
    
    Contractual
    
    
    Value(000s)
    
    
    Life (Yrs)
    
    
    ($000s)Unvested at December 31,
2008
    
    
    201Granted
    
    
    950Vested
    
    
    (115
    )
    
    
    
    
    
    $
    774Forfeited
    
    
    (29
    )Unvested at December 31,
2009
    
    
    1,007
    
    
    
    2.9
    
    
    $
    6,567Expected to Vest
    
    
    1,007
    
    
    
    2.9
    
    
    $
    6,567
  Stock Appreciation Rights Activity.
 As of December 31,2009
    
    
    2008
    
    
    2007Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    54.9
    %
    
    
    51.5
    %
    
    
    44.8
    %Risk-free interest rate
    
    
    0.8
    %
    
    
    0.9
    %
    
    
    3.3
    %Expected life
    
    1.5 years
    
    2.6 years
    
    3.6 years
  60




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##### Table of Contents



Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise
    
    
    Contractual
    
    
    Value(000s)
    
    
    Price
    
    
    Life (Yrs)
    
    
    ($000s)Outstanding at
December 31, 2008
    
    
    1,597
    
    
    $
    4.87Granted
    
    
    
    
    
    
    Exercised
    
    
    (432
    )
    
    
    4.86
    
    
    
    
    
    
    $
    (865
    )Forfeited
    
    
    
    
    
    
    Outstanding at
December 31, 2009
    
    
    1,165
    
    
    $
    4.87
    
    
    
    5.8
    
    
    $
    1,918Exercisable at
December 31, 2009
    
    
    1,165
    
    
    $
    4.87
    
    
    
    5.8
    
    
    $
    1,918
  12. Related Party Transactions
  13. Convertible Preferred Stock
    61




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##### Table of Contents



14. Equity Transactions
  15. Segment Reporting, Geographic Disclosures and Major Customers
   Year Ended December 31, 2009Postilion
    
    
    Enterprise
    
    
    TotalRevenue:Software
licenses
    
    $
    26,193
    
    
    $
    9,003
    
    
    $
    35,196Support and maintenance
    
    
    38,303
    
    
    
    21,299
    
    
    
    59,602Professional services
    
    
    24,195
    
    
    
    70,770
    
    
    
    94,965Data center
    
    
    20,875
    
    
    
    28,289
    
    
    
    49,164Total revenue
    
    $
    109,566
    
    
    $
    129,361
    
    
    $
    238,927Operating expenses:Direct costs
    
    
    46,609
    
    
    
    58,912
    
    
    
    105,521Selling and marketing
    
    
    18,453
    
    
    
    12,272
    
    
    
    30,725Product development
    
    
    13,548
    
    
    
    21,071
    
    
    
    34,619General and administrative
    
    
    12,285
    
    
    
    12,579
    
    
    
    24,864Depreciation and
amortization of other
intangible assets
    
    
    4,760
    
    
    
    4,833
    
    
    
    9,593Total operating expenses
    
    
    95,655
    
    
    
    109,667
    
    
    
    205,322Operating income
    
    $
    13,911
    
    
    $
    19,694
    
    
    $
    33,605
  62




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##### Table of Contents



Year Ended December 31, 2008Postilion
    
    
    Enterprise
    
    
    TotalRevenue:Software
licenses
    
    $
    22,382
    
    
    $
    7,848
    
    
    $
    30,230Support and maintenance
    
    
    35,583
    
    
    
    18,196
    
    
    
    53,779Professional services
    
    
    20,945
    
    
    
    71,525
    
    
    
    92,470Data center
    
    
    23,176
    
    
    
    28,780
    
    
    
    51,956Total revenue
    
    $
    102,086
    
    
    $
    126,349
    
    
    $
    228,435Operating expenses:Direct costs
    
    
    42,654
    
    
    
    61,835
    
    
    
    104,489Selling and marketing
    
    
    20,580
    
    
    
    15,852
    
    
    
    36,432Product development
    
    
    11,042
    
    
    
    18,229
    
    
    
    29,271General and administrative
    
    
    11,836
    
    
    
    13,990
    
    
    
    25,826Depreciation and
amortization of other
intangible assets
    
    
    4,452
    
    
    
    4,614
    
    
    
    9,066Total operating expenses
    
    
    90,564
    
    
    
    114,520
    
    
    
    205,084Operating income
    
    $
    11,522
    
    
    $
    11,829
    
    
    $
    23,351
 Year Ended December 31, 2007Postilion
    
    
    Enterprise
    
    
    TotalRevenue:Software
licenses
    
    $
    19,489
    
    
    $
    5,553
    
    
    $
    25,042Support and maintenance
    
    
    32,041
    
    
    
    16,965
    
    
    
    49,006Professional services
    
    
    16,443
    
    
    
    63,799
    
    
    
    80,242Data center
    
    
    24,701
    
    
    
    25,934
    
    
    
    50,635Total revenue
    
    $
    92,674
    
    
    $
    112,251
    
    
    $
    204,925Operating expenses:Direct costs
    
    
    39,357
    
    
    
    57,610
    
    
    
    96,967Selling and marketing
    
    
    18,182
    
    
    
    13,122
    
    
    
    31,304Product development
    
    
    12,089
    
    
    
    11,649
    
    
    
    23,738General and administrative
    
    
    11,735
    
    
    
    14,524
    
    
    
    26,259Depreciation and
amortization of other
intangible assets
    
    
    3,650
    
    
    
    4,548
    
    
    
    8,198Total operating expenses
    
    
    85,013
    
    
    
    101,453
    
    
    
    186,466Operating income
    
    $
    7,661
    
    
    $
    10,798
    
    
    $
    18,459
 Geography.
 Revenue
    
    
    Property and Equipment2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008Americas
    
    $
    170,874
    
    
    $
    164,642
    
    
    $
    154,233
    
    
    $
    20,451
    
    
    $
    21,669InternationalEMEI
    
    
    36,639
    
    
    
    40,503
    
    
    
    36,255
    
    
    
    985
    
    
    
    893Africa
    
    
    10,925
    
    
    
    9,215
    
    
    
    7,357
    
    
    
    1,494
    
    
    
    374APAC
    
    
    20,489
    
    
    
    14,075
    
    
    
    7,080
    
    
    
    88
    
    
    
    79Total
    
    $
    238,927
    
    
    $
    228,435
    
    
    $
    204,925
    
    
    $
    23,018
    
    
    $
    23,015
 Major customer.
  63




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##### Table of Contents



16. Net Income Per Share
  2009
    
    
    2008
    
    
    2007(in thousands, except per share data)Basic earnings per share:Net income
    
    $
    30,423
    
    
    $
    21,850
    
    
    $
    19,495Amount allocated to participating preferred
stockholders
    
    
    (598
    )
    
    
    (410
    )
    
    
    (342
    )Amount allocated to participating restricted
stockholders
    
    
    (406
    )
    
    
    (83
    )
    
    
    (56
    )Net income available to common stockholders
    
    $
    29,419
    
    
    $
    21,357
    
    
    $
    19,097Basic weighted average common shares outstanding
    
    
    52,584
    
    
    
    55,734
    
    
    
    59,746Basic earnings per share
    
    $
    0.56
    
    
    $
    0.38
    
    
    $
    0.32Diluted earnings per share:Net income
    
    $
    30,423
    
    
    $
    21,850
    
    
    $
    19,495Amount allocated to participating preferred
stockholders
    
    
    (591
    )
    
    
    (405
    )
    
    
    (337
    )Amount allocated to participating restricted
stockholders
    
    
    (401
    )
    
    
    (82
    )
    
    
    (55
    )Net income available to common stockholders
    
    $
    29,431
    
    
    $
    21,363
    
    
    $
    19,103Basic weighted average common shares outstanding
    
    
    52,584
    
    
    
    55,734
    
    
    
    59,746Dilutive effect of employee stock options
    
    
    707
    
    
    
    715
    
    
    
    850Diluted weighted average common shares outstanding
    
    
    53,291
    
    
    
    56,449
    
    
    
    60,596Diluted earnings per share
    
    $
    0.55
    
    
    $
    0.38
    
    
    $
    0.32
 17. Subsequent Event
    64




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##### Table of Contents



18. Quarterly Financial Information (Unaudited)
  Three Months EndedDec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,
    
    
    Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,2009
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008(in thousands, except per share data)Software licenses
    
    $
    8,978
    
    
    $
    7,444
    
    
    $
    9,718
    
    
    $
    9,056
    
    
    $
    9,211
    
    
    $
    7,085
    
    
    $
    6,189
    
    
    $
    7,745Support and maintenance
    
    
    15,905
    
    
    
    14,919
    
    
    
    14,951
    
    
    
    13,827
    
    
    
    13,906
    
    
    
    13,500
    
    
    
    13,684
    
    
    
    12,689Professional services
    
    
    22,013
    
    
    
    25,787
    
    
    
    24,090
    
    
    
    23,075
    
    
    
    22,673
    
    
    
    24,939
    
    
    
    23,736
    
    
    
    21,122Data center
    
    
    12,564
    
    
    
    12,187
    
    
    
    12,083
    
    
    
    12,330
    
    
    
    12,835
    
    
    
    13,125
    
    
    
    12,879
    
    
    
    13,117Total revenue
    
    
    59,460
    
    
    
    60,337
    
    
    
    60,842
    
    
    
    58,288
    
    
    
    58,625
    
    
    
    58,649
    
    
    
    56,488
    
    
    
    54,673Operating direct costs (1) (2)
    
    
    25,620
    
    
    
    26,902
    
    
    
    26,927
    
    
    
    26,072
    
    
    
    26,766
    
    
    
    27,103
    
    
    
    25,579
    
    
    
    25,041Operating expenses excluding
direct costs (1) (3)
    
    
    25,030
    
    
    
    24,372
    
    
    
    28,316
    
    
    
    22,083
    
    
    
    27,639
    
    
    
    24,369
    
    
    
    24,956
    
    
    
    23,631Operating income
    
    
    8,810
    
    
    
    9,063
    
    
    
    5,599
    
    
    
    10,133
    
    
    
    4,220
    
    
    
    7,177
    
    
    
    5,953
    
    
    
    6,001Net income
    
    $
    9,938
    
    
    $
    6,910
    
    
    $
    4,631
    
    
    $
    8,944
    
    
    $
    5,333
    
    
    $
    6,191
    
    
    $
    5,136
    
    
    $
    5,190Earnings per share:Net income per common share
 basic
    
    $
    0.18
    
    
    $
    0.13
    
    
    $
    0.09
    
    
    $
    0.16
    
    
    $
    0.10
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.09Net income per common share
 diluted
    
    $
    0.18
    
    
    $
    0.12
    
    
    $
    0.08
    
    
    $
    0.16
    
    
    $
    0.10
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.09(1)     Includes stock based
compensation
expense (benefit)
    
    $
    1,181
    
    
    $
    (139
    )
    
    $
    3,091
    
    
    $
    (2,531
    )
    
    $
    3,487
    
    
    $
    412
    
    
    $
    2,305
    
    
    $
    1,888
 (2)
    
    Includes Cost of software licenses, Cost of professional services, support and maintenance,
and Cost of data center.(3)
    
    Includes expenses for Selling and marketing, Product development, General and administrative,
and Depreciation and amortization of other intangible assets.  65




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##### Table of Contents



Schedule II
 VALUATION AND QUALIFYING ACCOUNTS
 FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
 AdditionsBalance at
    
    
    Charged to
    
    
    Charged to
    
    
    
    
    
    
    Balance atbeginning of
    
    
    costs and
    
    
    other
    
    
    
    
    
    
    end ofDescription
    
    period
    
    
    expenses
    
    
    accounts
    
    
    Deductions
    
    
    period(in thousands)Year ended December 31, 2009:Allowance for doubtful accounts
    
    $
    1,388
    
    
    
    995
    
    
    
    
    
    
    
    (84
    )
    
    $
    2,299Valuation allowance for
deferred taxes
    
    $
    140,110
    
    
    
    (8,027
    )
    
    
    (4,823
    )
    
    
    
    
    
    $
    127,260Year ended December 31, 2008:Allowance for doubtful accounts
    
    $
    3,858
    
    
    
    159
    
    
    
    
    
    
    
    (2,629
    )
    
    $
    1,388Valuation allowance for
deferred taxes
    
    $
    145,346
    
    
    
    (5,198
    )
    
    
    (38
    )
    
    
    
    
    
    $
    140,110Year ended December 31, 2007:Allowance for doubtful accounts
    
    $
    4,249
    
    
    
    1,894
    
    
    
    
    
    
    
    (2,285
    )
    
    $
    3,858Valuation allowance for
deferred taxes
    
    $
    165,576
    
    
    
    (6,664
    )
    
    
    (13,566
    )
    
    
    
    
    
    $
    145,346
  66




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures.
  Managements Report on Internal Control Over Financial Reporting.
    
 Item 9B. Other Information.
   67




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##### Table of Contents



PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  
 Item 13. Certain Relationships and Related Transactions .
  
 Item 14. Principal Accounting Fees and Services.
   68




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules .
    ExhibitNo.
    
    Exhibit Description3.1
    
    
    Amended and Restated Certificate of Incorporation of S1 Corporation (S1) (filed as Exhibit
1 to S1s Registration Statement on Form 8-A (File No. 000-24931) filed with the Securities
and Exchange Commission (the SEC) on September 30, 1998 and incorporated herein by
reference).3.2
    
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation of S1 dated
June 3, 1999 (filed as Exhibit 4.2 to S1s Registration Statement on Form S-8 (File No.
333-82369) filed with the SEC on July 7, 1999 and incorporated herein by reference).3.3
    
    
    Certificate of Amendment of Amended and Restated Certificate of Incorporation of S1 dated
November 10, 1999 (filed as Exhibit 3.3 to S1s Annual Report on Form 10-K filed with the SEC
on March 30, 2000 and incorporated herein by reference).3.4
    
    
    Certificate of Designation for S1s Series B Redeemable Convertible Preferred Stock (filed as
Exhibit 2 to S1s Registration Statement on Form 8-A (File No. 000-24931) filed with the SEC
on September 30, 1998 and incorporated herein by reference).3.5
    
    
    Amended and Restated Bylaws of S1, as amended (filed as Exhibit 3.6 to S1s Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2006 and incorporated herein by
reference).4.1
    
    
    Specimen certificate for S1s common stock (filed as Exhibit 4 to S1s Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2000 and incorporated herein by reference).4.2
    
    
    Specimen certificate for S1s Series B Redeemable Convertible Preferred Stock (filed as
Exhibit 4.3 to S1s Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and
incorporated herein by reference).10.1
    
    
    Stock Purchase Agreement, dated as of June 29, 1998, by and among SFNB, S1 and State Farm
Mutual Automobile Insurance Company (filed as Exhibit 10.4 to Pre-Effective Amendment No. 2 to
the S1s Registration Statement on Form S-4 (File No. 333-56181) filed with the SEC on August
21, 1998 and incorporated herein by reference).10.2
    
    
    Security First Technologies Corporation Amended and Restated 1995 Stock Option Plan (filed as
Appendix B to S1s Definitive Proxy Statement on Schedule 14A filed with the SEC on May 7,
1999 and incorporated herein by reference).*10.3
    
    
    Amendment to Security First Technologies Corporation Amended and Restated 1995 Stock Option
Plan (filed as Exhibit 10.3 to S1s Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2000 and incorporated herein by reference).*10.4
    
    
    Security First Network Bank Amended and Restated Directors Stock Option Plan (filed as
Exhibit 10.2 to Pre-Effective Amendment No. 2 to S1s Registration Statement on Form S-4 (File
No. 333-56181) filed with the SEC on August 21, 1998 and incorporated herein by reference).*
  69




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##### Table of Contents



ExhibitNo.
    
    Exhibit Description10.5
    
    
    Amendment to Security First Network Bank Amended and Restated Directors Stock Option Plan
(filed as Exhibit 10.1 to S1s Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2000 and incorporated herein by reference).*10.6
    
    
    Security First Technologies Corporation 1998 Directors Stock Option Plan (filed as Exhibit
10.3 to Pre-Effective Amendment No. 1 to S1s Registration Statement on Form S-4 (File No.
333-56181) filed with the SEC on July 30, 1998 and incorporated herein by reference).*10.7
    
    
    Amendment to Security First Technologies Corporation 1998 Directors Stock Option Plan (filed
as Exhibit 10.2 to S1s Quarterly Report on Form 10-Q for the quarterly period ended September
30, 2000 and incorporated herein by reference).*10.8
    
    
    S1 Corporation 2003 Stock Option Plan, As Amended and Restated Effective February 26, 2008
(filed as Attachment B to S1s Definitive Proxy Statement on Schedule 14A filed with the SEC
on April 13, 2008 and incorporated herein by reference).*10.9
    
    
    Form of Indemnification Agreement by and between S1 and each of its directors and certain
executive officers (filed as Exhibit 10 to S1s Current Report on Form 8-K filed with the SEC
on November 14, 2006 and incorporated herein by reference).10.10
    
    
    Master Software Development and Consulting Services Agreement between S1 Corporation and
State Farm, dated as of March 31, 2000 (filed as Exhibit 10.18 to S1s Amended Annual Report
on Form 10-K/A filed with the SEC on July 26, 2006 and incorporated herein by reference).10.11
    
    
    Description of Arrangement for Directors Fees.10.12
    
    
    Agreement with Paul Parrish (filed as Exhibit 10.1 to S1s Current Report on Form 8-K filed
with the SEC on December 17, 2008 and incorporated herein by reference).*10.13
    
    
    Agreement with Johann Dreyer dated December 24, 2008 (filed as Exhibit 10.1 to S1s Current
Report on Form 8-K filed with the SEC on December 24, 2008 and incorporated herein by
reference).*10.14
    
    
    Agreement with Jan Kruger dated December 24, 2008 (filed as Exhibit 10.2 to S1s Current
Report on Form 8-K filed with the SEC on December 24, 2008 and incorporated herein by
reference).*10.15
    
    
    Agreement with Neil Underwood dated December 24, 2008 (filed as Exhibit 10.4 to S1s Current
Report on Form 8-K filed with the SEC on December 24, 2008 and incorporated herein by
reference).*10.16
    
    
    Amendment to Agreement between S1 and Paul Parrish dated August 18, 2009 (filed as Exhibit
10.1 to S1s Current Report on Form 8-K filed with the SEC on August 18, 2009 and incorporated
herein by reference).*10.17
    
    
    Separation and Consulting Agreement between S1 and Stephen M. Dexter dated August 27, 2009
(filed as Exhibit 10.1 to S1s Amendment No. 1 to Current Report on Form 8-K filed with the SEC
on August 31, 2009 and incorporated herein by reference).*10.18
    
    
    Directors Deferred Compensation Plan, effective as of January 1, 2010 (filed as Exhibit
10.1 to S1s Current Report on Form 8-K filed with the SEC on December 19, 2009 and
incorporated herein by reference).*10.19
    
    
    Separation and Consulting Agreement between S1 and Meigan Putnam dated January 12, 2010
(filed as Exhibit 10.1 to S1s Amendment No. 1 to Current Report on Form 8-K filed with the SEC
on January 15, 2010 and incorporated herein by reference).*10.20
    
    
    S1 Corporation 2010 Management Incentive Plan (filed as Exhibit 10.1 to S1s Current Report
on Form 8-K filed with the SEC on February 4, 2010 and incorporated herein by reference).*
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##### Table of Contents



ExhibitNo.
    
    Exhibit Description21.1
    
    
    Subsidiaries of S1.23.1
    
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    
    Certificate of Chief Executive Officer31.2
    
    
    Certificate of Chief Financial Officer32.1
    
    
    Certificate of Chief Executive Officer pursuant to §906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certificate of Chief Financial Officer pursuant to §906 of the Sarbanes-Oxley Act of 2002
 *
    
    Management contract or compensatory plan, contract or arrangement.  71




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##### Table of Contents



SIGNATURES
  S1 CORPORATIONBy:
    /s/ PAUL M. PARRISHPaul M. ParrishChief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)  Name
    
    Title
    
    Date/s/ JOHN W. SPIEGEL

John W. Spiegel
    
    Chairman of the Board
    
    March 5, 2010/s/ JOHANN DREYER

Johann Dreyer
    
    Chief Executive Officer and Director
(Principal Executive Officer)
    
    March 5, 2010/s/ PAUL M. PARRISH

Paul M. Parrish
    
    Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
    
    March 5, 2010/s/ RAM GUPTA
    
    Director
    
    March 5, 2010Ram Gupta/s/ M. DOUGLAS IVESTER
    
    Director
    
    March 5, 2010M. Douglas Ivester/s/ THOMAS P. JOHNSON, JR.
    
    Director
    
    March 5, 2010Thomas P. Johnson, Jr./s/ GREGORY J. OWENS
    
    Director
    
    March 5, 2010Gregory J. Owens/s/ EDWARD TERINO
    
    Director
    
    March 5, 2010Edward Terino
  72