##### 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, 2008
 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
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    58-2395199
(I.R.S. Employer
Identification No.)705 Westech Drive 
Norcross, Georgia (Address of principal executive offices)
    
    30092
(Zip Code)
 Registrants telephone number, including area code: (404) 923-3500
 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
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   Documents Incorporated by Reference




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##### 



S1 CORPORATION
 FOR THE YEAR ENDED DECEMBER 31, 2008
 TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    12Item 1B. Unresolved Staff Comments
    
    
    17Item 2. Properties
    
    
    17Item 3. Legal Proceedings
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    18Item 6. Selected Financial Data
    
    
    20Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 7A. Qualitative and Quantitative Disclosures about Market Risk
    
    
    40Item 8. Financial Statements and Supplementary Data
    
    
    42Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    75Item 9A. Controls and Procedures
    
    
    75Item 9B. Other Information
    
    
    75PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    76Item 11. Executive Compensation
    
    
    76Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    76Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    76Item 14. Principal Accounting Fees and Services
    
    
    76PART IVItem 15.
Exhibits, Financial Statement Schedules
    
    
    77Signatures
    
    
    80Exhibit 10.14Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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PART I
 
 Item 1. Business.
  Executive Overview
       1




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S1 Vision and Strategy
  
    
    Create satisfied customers by providing the highest level of customer service
thereby increasing the opportunity to sell additional solutions and services;
    
    Cross-sell the multiple applications that run on the S1 Enterprise and Postilion
platforms;
    
    Continue to improve operations to be the most efficient software company
possible;
    
    Develop and 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 by selectively
making acquisitions and/or pursuing new markets for our solutions.
 Sources of Revenue
  Enterprise
    
    
    PostilionS1 Enterprise
    
    
    Postilion
    
    
    FSBSelf Service BankingOnline BankingPersonal Banking
    
    Global
    
    
    US
    
    
    
    Business Banking
    
    Global
    
    
    US
    
    
    
    Bill pay services
    
    US
    
    
    US
    
    
    
    Corporate Banking
    
    Global
    
    
    
    
    
    
    
    Trade Finance
    
    Global
    
    
    
    
    
    
    
    Mobile Banking
    
    Global
    
    
    Global
    
    
    
    Voice Banking
    
    Global
    
    
    US
    
    
    
    Full Service BankingTeller
    
    Global
    
    
    
    
    
    
    USSales and Service
    
    Global
    
    
    
    
    
    
    USCall Center
    
    Global
    
    
    
    
    
    
    USLending
    
    
    
    
    
    
    
    
    
    USPayments
    
    
    
    
    
    Global
    
    
    
    Insurance
    
    US
    
    
    
    
    
    
    
    
  2




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##### Table of Contents



Enterprise Segment
    S1 Enterprise Retail Online Solutions
 
    
    S1 Personal Bankingallows our customers to offer online banking capabilities, including
personal finance management, electronic bill payment and presentment, external account
transfers, alerts and reminders, and online self-service tools.
 
    
    S1 Business Bankingprovides online financial solutions suited for small to mid-market
business banking customers. Our software allows these businesses to manage their money
quickly and effectively. This 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 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 AccelAccountgives financial institutions a customized new account opening solution
that provides their prospects and customers with an improved way to open and fund new
accounts at a much lower cost than traditional account opening.
 
    
    S1 Electronic Vaultprovides easy and secure storage of a financial institutions
customers important files within their own personal vault on the financial institutions
portal.
 
    
    S1 Enhanced Reportingprovides financial institutions customers the ability to
generate, manage and securely receive business critical reports using standard Banking
Administration Institute data.
 
    
    S1 Out-of-Band Authenticationprovides security against phishing and keystroke-logging
attacks to mobile phones.
  3




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S1 Enterprise Treasury Online Solutions
 
    
    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 on the S1 Enterprise Platform and
delivers diverse payment methods, multi-factor authentication capabilities, electronic file
delivery, check services, and robust information reporting. S1 Corporate Banking delivers
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 Trade Finance capabilities include: Import Letters of Credit, Open
Account, Standbys, Guarantees, Purchase Order Processing, Document Presentation, and
Documentary Collections.
 
    
    S1 Foreign Exchangesimplifies payment workflow by allowing customers to obtain foreign
exchange rates through a single, online solution.
 S1 Enterprise Branch Banking and Call Center Solutions
  
    
    S1 Enterprise Tellerutilizes thin and rich client technologies rather than PC based
technologies. This provides scalability, real-time connectivity, and low total cost of
ownership with deep off-line capabilities. S1 Enterprise Teller features a unique and
advanced home screen that allows users to perform dozens of transactions that used to
require navigation from screen to screen. The application is highly flexible and
customizable, and its centralized administration capabilities enable the quick and
efficient rollout of new products, features, and upgrades.
 
    
    S1 Enterprise 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 Enterprise 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.
 
    
    S1 Enterprise 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 Enterprise 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 Enterprise Insurance
   4




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Postilion Segment
 Postilion Payments Processing and Card Management
  
    
    Postilion for ATM Owners and Deployersdrives a wide array of ATM terminals, whether
dial-up, leased line, or advanced-functionality devices. The Postilion 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 Postilion solution supports magnetic stripe and EMV cards as well as a comprehensive
set of value added transactions and services.
 
    
    Postilion for Retailersdrives fast, cost-effective, and secure payment card processing
for retailers, merchants and e-commerce operators, enabling all aspects of a payment
transaction, from the POS through to the authorizer.
 
    
    Postilion for Card Issuerssupports secure issuance and life cycle management for
credit, debit and prepaid cards. This card issuing software provides extensive
authorization and validation services, personal identification number (PIN) management
and management information. The Postilion solution for Card Issuers supports magnetic
stripe, EMV, contactless and instant issuance options.
 
    
    Postilion for Merchant Acquirersprovides 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.
 Postilion Banking
 Postilion Self-Service Banking
  
    
    Postilion Retail Internet Bankingprovides a convenient, secure Internet banking service
for consumers, including account balance inquiries, funds transfers, bill payments, ATM
personalization, account activity, personal financial management tools, and user alerts.
 
    
    Postilion Business Internet Bankingis designed to help community banks and credit
unions deliver services to small-to-medium businesses. Functions include integrated front
and back office systems, multiple payment vehicles such as domestic and SWIFT wires and
ACH, targeted reporting, and entitlements.
 
    
    Postilion Mobileprovides consumers a range of mobile services, such as balance
inquiries, inter-account transfers, bill payments, and prepaid airtime purchases using
mobile devices via short messaging service or browser-based banking.
 
    
    Postilion Voice Bankingdelivers the full range of voice banking functionality, such as
online and offline transaction processing, call-flow management, and voice driver
management.
 
    
    Postilion ATM Drivingpowers ATM driving needs, including ATM network management,
related business management, and advanced functions.
 
    
    Postilion Merchant Acquiringallows financial institutions to offer POS transaction
processing on behalf of their retail merchant customers, with full transaction processing
and complete management of the entire merchant transaction processing cycle.
 
    
    Postilion Card Managementprovides a full range of card management services required by
card issuers, such as card production, PIN management, and authorization services.
  5




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Postilion Full-Service Banking
  
    
    FSB Branch Automationincludes FSB Teller and FSB Sales and Services Platform. FSB
Teller is a functionally rich, client-server based application that provides the complete
set of transactions and core services necessary for the teller function, including host
communications, sharing and storing of information, cumulative totals, electronic journal,
transaction security and approval and balancing aids. The FSB Sales and Services Platform
combines extensive transaction processing functionality with sales tools and core services
that facilitate selling new products, as well as servicing existing accounts.
 
    
    FSB Banking Call Centerprovides the customer information, sales and service
capabilities, process flows, reporting, and fulfillment management specific to call center
operations. The FSB Banking Call Center application integrates with other call center
technologies, including interactive voice response systems, computer telephony integration
servers, and automatic call distributor systems.
 
    
    FSB Marketing Centerprovides the ability to develop and execute marketing campaigns
based on multiple segmentations of customers and prospects. It includes robust capabilities
to drive alerts, awards, and promotions directly to the banks various delivery channels.
 
    
    FSB Lendingprovides a highly configurable and complete 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.
 Additional Solutions
 
    
    Pay Anyone. We provide bill-pay services through third-party partnerships for all of our
retail / personal Internet banking applications.
 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 assist customers with the installation
and configuration of our software;
 
    
    Custom Software Development our software developers customize software solutions to
meet the specific business requirements of our customers;
 
    
    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.
  6




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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.
 Hosting Services
  Other Revenue
  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;
 
    
    pressures 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.
     7




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Discontinued Operations
  Customers and Markets
  Strategic Alliances and Partners
   8




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Sales and Marketing
      Product Development
     9




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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.
 Core Processing Vendors
  Enterprise Solution Vendors
   10




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Government Regulation
   Employees
  Patents, Trademarks, Copyrights, Licenses and Proprietary Rights
  Available Information
   11




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Item 1A. Risk Factors.
 You should consider carefully the following risks. If any of the following risks actually
occur, our business, financial condition 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 may be materially adversely impacted by 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 three years as our work efforts for them conclude by the end of 2011 which may cause our
financial performance to suffer
  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
   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;
  12




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
    
    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.
 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
  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
  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;
  13




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##### Table of Contents




    
    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.
 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 impacted by fluctuations in foreign currency exchange
rates
   14




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Acquisitions may be costly and difficult to integrate, divert management resources or dilute
stockholder value
  
    
    potential incompatibility of business cultures;
 
    
    potential delays in integrating diverse technology platforms;
 
    
    potential difficulties in coordinating geographically separated organizations;
 
    
    potential difficulties in re-training sales forces to market all of our products
across all of our intended markets;
 
    
    potential difficulties implementing common internal business systems and
processes;
 
    
    potential conflicts in third-party relationships; and
 
    
    potential loss of customers and key employees and the diversion of the attention
of management from other ongoing business concerns.
  We are subject to government regulation
  Market volatility may affect the price of our common stock
  
    
    actual or anticipated variations in our quarterly operating results;
 
    
    approximately 36% of our common stock is owned by five institutions as of
December 31, 2008, 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;
 
    
    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.
  15




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Future sales of our common stock in the public market could negatively affect our stock price
  Our market is highly competitive and if we are unable to keep pace with evolving technology, our
revenue and future prospects may decline
  International operations may adversely affect us
  
    
    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.
   We depend upon key employees and may be unable to hire or retain a sufficient number of qualified
personnel
   16




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##### Table of Contents



The adoption or modification of laws or regulations relating to the Internet, or interpretations of
existing law, could adversely affect our business
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
   Enterprise
    
    PostilionNorcross, GA, USA
    
    Norcross, GA, USACharlotte, NC, USA
    
    Austin, TX, USAColorado Springs, CO, USA
    
    West Hills, CA, USALittleton, MA, USA
    
    Fairport, NY, USAChertsey, England
    
    Chertsey, EnglandDublin, Ireland
    
    Cape Town, South AfricaBrussels, Belgium
    
    Johannesburg, South AfricaMunich, Germany
    
    Melbourne, AustraliaSingapore
    
    Dubai, United Arab EmiratesPune, India
    
    Pune, India
 
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders .
   17




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PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchase of
Securities.
  2008
    
    
    2007High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    8.16
    
    
    $
    5.25
    
    
    $
    6.18
    
    
    $
    4.95Second Quarter
    
    
    8.26
    
    
    
    5.91
    
    
    
    8.48
    
    
    
    5.92Third Quarter
    
    
    8.28
    
    
    
    5.64
    
    
    
    9.34
    
    
    
    5.60Fourth Quarter
    
    
    8.00
    
    
    
    4.00
    
    
    
    9.79
    
    
    
    6.50
  Number of securities to be
    
    
    
    
    
    
    Number of securities remainingissued upon exercise of
    
    
    
    
    
    
    available for future issuanceoutstanding options and
    
    
    
    
    
    
    under equity compensationunvested restricted
    
    
    Weighted-average
    
    
    plans (excluding securitiesshares
    
    
    exercise price of
    
    
    reflected in column (a))(in 000s)
    
    
    outstanding options
    
    
    (in 000s)Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved by stockholders
    
    
    5,629
    
    
    $
    5.70
    
    
    
    3,061Equity compensation plans not approved by
stockholders (1)
    
    
    1,364
    
    
    
    13.87
    
    
    
    Total
    
    
    6,993
    
    
    $
    7.34
    
    
    
    3,061
 (1)
    
    As of December 31, 2008, we had outstanding stock option awards previously granted
under the following equity incentive plans not approved by our stockholders: S1 Corporation
Amended and Restated 1995 Stock Option Plan, Edify Corporation 1996 Equity Incentive Plan,
S1 Corporation 1997 Employee Stock Option Plan, Security First Technologies Corporation
1998 Directors Stock Option Plan, Software Dynamics, Incorporated 1998 Stock Incentive
Plan, FICS Group Holding Co., Inc. 1998 Stock Plan, and the Q-Up Systems, Inc. 1999 Stock
Option Plan. These plans are closed to new grants.  18




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Comparison of Cumulative Total Return Among S1 Corporation,
Interactive Week Internet Index and Nasdaq Composite Index
from December 31, 2003 to December 31, 2008
 12/31/2003
    
    
    12/31/2004
    
    
    12/31/2005
    
    
    12/31/2006
    
    
    12/31/2007
    
    
    12/31/2008S1 Corporation
    
    $
    100
    
    
    $
    112
    
    
    $
    54
    
    
    $
    68
    
    
    $
    90
    
    
    $
    98Interactive Week
Internet Index
    
    $
    100
    
    
    $
    121
    
    
    $
    122
    
    
    $
    139
    
    
    $
    160
    
    
    $
    93NASDAQ Composite
    
    $
    100
    
    
    $
    109
    
    
    $
    110
    
    
    $
    121
    
    
    $
    132
    
    
    $
    79
 
 Issuer Purchases of Equity Securities
  Maximum number (orapproximate dollarTotal number of
    
    
    value) of shares thatshares purchased
    
    
    may yet be purchasedTotal number
    
    
    Average
    
    
    as part of a publicly
    
    
    under the plan orof shares
    
    
    price paid
    
    
    announced plan or
    
    
    program (1)Period
    
    purchased
    
    
    per share
    
    
    program
    
    
    Amounts
    
    
    SharesOctober 1,
2008  October 31, 2008
    
    
    2,208,140
    
    
    $
    5.23
    
    
    
    2,208,140
    
    
    
    n/a
    
    
    
    475,003November 1,
2008  November 30, 2008
    
    
    548,540
    
    
    $
    6.05
    
    
    
    548,540
    
    
    $
    9,573,219
    
    
    
    n/aDecember 1,
2008  December 31, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    9,573,219
    
    
    
    n/aTotal for fourth quarter of 2008
    
    
    2,756,680
    
    
    $
    5.39
    
    
    
    2,756,680
 (1)
    
    Includes purchases under the September 2008 share repurchase program which was
completed in November 2008. The repurchase program was authorized for additional an
additional $10.0 million of stock purchases in November 2008.   19




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##### Table of Contents



Item 6. Selected Financial Data.
  Year Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(1)
    
    
    (1)
    
    
    (1) (2) (3)
    
    
    (1) (2) (3)
    
    
    (2) (3)Statement of Operations Data:Total revenue
    
    $
    228,435
    
    
    $
    204,925
    
    
    $
    192,310
    
    
    $
    179,140
    
    
    $
    185,156Income (loss) from continuing operations
    
    
    21,850
    
    
    
    19,495
    
    
    
    (12,239
    )
    
    
    (28,382
    )
    
    
    5,396Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    30,141
    
    
    
    27,325
    
    
    
    10,174Net income (loss)
    
    
    21,850
    
    
    
    19,495
    
    
    
    17,902
    
    
    
    (1,057
    )
    
    
    15,570Revenue from significant customers
    
    
    42,084
    
    
    
    43,425
    
    
    
    47,898
    
    
    
    45,374
    
    
    
    48,361Stock-based compensation expense
    
    
    8,092
    
    
    
    8,522
    
    
    
    5,663
    
    
    
    570
    
    
    
    Merger related and restructuring costs
    
    
    
    
    
    
    
    
    
    
    12,485
    
    
    
    15,030
    
    
    
    Basic earnings (loss) per share:Continuing operations
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    (0.17
    )
    
    $
    (0.40
    )
    
    $
    0.08Discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.42
    
    
    
    0.38
    
    
    
    0.14Net income (loss) per share
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    0.25
    
    
    $
    (0.02
    )
    
    $
    0.22Diluted earnings (loss) per share:Continuing operations
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    (0.17
    )
    
    $
    (0.40
    )
    
    $
    0.07Discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.42
    
    
    
    0.38
    
    
    
    0.14Net income (loss) per share
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    0.25
    
    
    $
    (0.02
    )
    
    $
    0.21Balance Sheet Data:Cash and cash equivalents
    
    $
    63,840
    
    
    $
    45,011
    
    
    $
    69,612
    
    
    $
    85,108
    
    
    $
    43,223Short-term investments
    
    
    1,493
    
    
    
    23,855
    
    
    
    21,392
    
    
    
    44,170
    
    
    
    65,248Working capital
    
    
    55,804
    
    
    
    64,318
    
    
    
    83,227
    
    
    
    106,250
    
    
    
    105,715Goodwill
    
    
    124,362
    
    
    
    125,281
    
    
    
    125,300
    
    
    
    125,808
    
    
    
    117,699Total assets
    
    
    278,686
    
    
    
    281,844
    
    
    
    307,805
    
    
    
    344,523
    
    
    
    341,364Debt obligation, excluding current portion
    
    
    6,196
    
    
    
    8,805
    
    
    
    4,119
    
    
    
    1,391
    
    
    
    2,609Stockholders Equity
    
    
    208,740
    
    
    
    209,905
    
    
    
    224,229
    
    
    
    252,386
    
    
    
    254,996Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Selected Data:Cash provided by (used in) operating activities
    
    $
    34,147
    
    
    $
    31,332
    
    
    $
    3,460
    
    
    $
    219
    
    
    $
    (15,051
    )Cash provided by (used in) investing activities
    
    
    15,765
    
    
    
    (13,893
    )
    
    
    31,626
    
    
    
    46,597
    
    
    
    (12,354
    )Cash used in financing activities
    
    
    (27,488
    )
    
    
    (42,940
    )
    
    
    (50,671
    )
    
    
    (4,332
    )
    
    
    (6,432
    )Weighted average common shares outstanding  basic
    
    
    55,734
    
    
    
    59,664
    
    
    
    70,780
    
    
    
    70,359
    
    
    
    70,613Weighted average common shares outstanding  diluted
    
    
    56,542
    
    
    
    60,598
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    73,130
 (1)
    
    Stock based compensation expense was included in our income (loss) for years 2005 through
2008 as noted in the table. In 2006, this included $200 thousand for discontinued operations
related to our Risk and Compliance business sold in 2006.(2)
    
    In November 2004, we acquired Mosaic Software Holdings Limited which affected our revenue,
net income (loss) per share and cash flow comparisons for the years ended 2004 and 2005. In
2006, we paid an additional acquisition cost of $14.0 million as earn-out consideration for
Mosaic.(3)
    
    Discontinued operations included sales of our Risk and Compliance business in 2006, our
Edify business in 2005 and our Davidge Data Systems business in 2004.  20




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and results of Operations.
   Executive Overview
      21




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##### Table of Contents



Enterprise
    
    
    PostilionS1 Enterprise
    
    
    Postilion
    
    
    FSBSelf Service BankingOnline BankingPersonal Banking
    
    Global
    
    
    US
    
    
    
    Business Banking
    
    Global
    
    
    US
    
    
    
    Bill pay services
    
    US
    
    
    US
    
    
    
    Corporate Banking
    
    Global
    
    
    
    
    
    
    
    Trade Finance
    
    Global
    
    
    
    
    
    
    
    Mobile Banking
    
    Global
    
    
    Global
    
    
    
    Voice Banking
    
    Global
    
    
    US
    
    
    
    Full Service BankingTeller
    
    Global
    
    
    
    
    
    
    USSales and Service
    
    Global
    
    
    
    
    
    
    USCall Center
    
    Global
    
    
    
    
    
    
    USLending
    
    
    
    
    
    
    
    
    
    USPayments
    
    
    
    
    
    Global
    
    
    
    Insurance
    
    US
    
    
    
    
    
    
    
    
 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 technological feasibility and capitalization of software
development costs;
 
    
    determination of the fair value of employee stock options and stock appreciation
rights awards;
 
    
    recognition of costs in connection with restructuring plans;
 
    
    reserves for contingencies; and
 
    
    income taxes.
  22




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##### Table of Contents



Revenue
recognition.
 Software licenses revenue
   Support and maintenance revenue
 Professional services revenue
 Data center 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 vendor specific objective evidence of fair value for our products
and services.
  
    
    percentage of labor hours incurred to date to the estimated total labor hours for
each contract;
 
    
    provisions for estimated losses on uncompleted contracts; and
 
    
    the need for an allowance for doubtful accounts or billing adjustments.
  23




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##### Table of Contents



Estimation of allowance for doubtful accounts and billing adjustments.
 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 technological feasibility and capitalization of software development costs.
 Determination of the fair value of equity based compensation.
  24




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##### Table of Contents



Recognition of costs in connection with restructuring plans.
  Reserve for contingencies.
 Income taxes.
 Recent Accounting Pronouncements
  Effects of Foreign Currencies
   25




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##### Table of Contents



Year Ended December 31 , 2008
    
    
    Year Ended December 31 , 2007At Prior Year
    
    
    
    
    
    
    
    
    
    
    At Prior YearExchange
    
    
    Exchange
    
    
    
    
    
    
    Exchange
    
    
    ExchangeRates (1)
    
    
    Rate Effect
    
    
    As reported
    
    
    Rates (1)
    
    
    Rate Effect
    
    
    As reportedRevenue
    
    $
    229,775
    
    
    $
    (1,340
    )
    
    $
    228,435
    
    
    $
    203,005
    
    
    $
    1,920
    
    
    $
    204,925Operating Expenses
    
    
    207,554
    
    
    
    (2,470
    )
    
    
    205,084
    
    
    
    183,706
    
    
    
    2,760
    
    
    
    186,466Operating Income
    
    
    22,221
    
    
    
    1,130
    
    
    
    23,351
    
    
    
    19,299
    
    
    
    (840
    )
    
    
    18,459Net Income
    
    
    20,470
    
    
    
    1,380
    
    
    
    21,850
    
    
    
    20,345
    
    
    
    (850
    )
    
    
    19,495Diluted earnings per share
    
    $
    0.36
    
    
    $
    0.02
    
    
    $
    0.38
    
    
    $
    0.33
    
    
    $
    (0.01
    )
    
    $
    0.32
 (1)
    
    Current year results translated into U.S. Dollars using prior years average rate.  26




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##### Table of Contents



Results of Operations
  2008
    
    
    2007
    
    
    2006Revenue:Software licenses
    
    $
    37,859
    
    
    
    17
    %
    
    $
    30,709
    
    
    
    15
    %
    
    $
    29,788
    
    
    
    15
    %Support and maintenance
    
    
    49,163
    
    
    
    22
    %
    
    
    45,591
    
    
    
    22
    %
    
    
    44,094
    
    
    
    23
    %Professional services
    
    
    92,245
    
    
    
    40
    %
    
    
    79,754
    
    
    
    39
    %
    
    
    70,297
    
    
    
    37
    %Data center
    
    
    47,836
    
    
    
    21
    %
    
    
    47,796
    
    
    
    23
    %
    
    
    46,856
    
    
    
    24
    %Other
    
    
    1,332
    
    
    
    1
    %
    
    
    1,075
    
    
    
    1
    %
    
    
    1,275
    
    
    
    1
    %Total revenue
    
    
    228,435
    
    
    
    100
    %
    
    
    204,925
    
    
    
    100
    %
    
    
    192,310
    
    
    
    100
    %Direct costs:Software licenses
    
    
    3,881
    
    
    
    2
    %
    
    
    3,796
    
    
    
    2
    %
    
    
    4,588
    
    
    
    2
    %Professional services, support and
maintenance
    
    
    74,035
    
    
    
    32
    %
    
    
    67,808
    
    
    
    33
    %
    
    
    65,231
    
    
    
    34
    %Data center
    
    
    26,304
    
    
    
    12
    %
    
    
    24,988
    
    
    
    12
    %
    
    
    22,354
    
    
    
    12
    %Other
    
    
    269
    
    
    
    
    
    
    
    375
    
    
    
    
    
    
    
    1,103
    
    
    
    1
    %Total direct costs (1)(2)
    
    
    104,489
    
    
    
    46
    %
    
    
    96,967
    
    
    
    47
    %
    
    
    93,276
    
    
    
    49
    %Operating expenses:Selling and marketing
    
    
    36,432
    
    
    
    16
    %
    
    
    31,304
    
    
    
    15
    %
    
    
    27,658
    
    
    
    14
    %Product development
    
    
    29,271
    
    
    
    13
    %
    
    
    23,738
    
    
    
    12
    %
    
    
    38,937
    
    
    
    20
    %General and administrative
    
    
    25,826
    
    
    
    11
    %
    
    
    26,259
    
    
    
    13
    %
    
    
    26,694
    
    
    
    14
    %Merger related and restructuring costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,485
    
    
    
    6
    %Depreciation
    
    
    7,936
    
    
    
    3
    %
    
    
    7,023
    
    
    
    3
    %
    
    
    7,840
    
    
    
    4
    %Amortization of other intangible assets
    
    
    1,130
    
    
    
    1
    %
    
    
    1,175
    
    
    
    1
    %
    
    
    1,310
    
    
    
    1
    %Total operating expenses(2)
    
    
    100,595
    
    
    
    44
    %
    
    
    89,499
    
    
    
    44
    %
    
    
    114,924
    
    
    
    59
    %Operating income (loss)
    
    
    23,351
    
    
    
    10
    %
    
    
    18,459
    
    
    
    9
    %
    
    
    (15,890
    )
    
    
    -8
    %Interest, investment and other income, net
    
    
    753
    
    
    
    1
    %
    
    
    2,500
    
    
    
    1
    %
    
    
    4,929
    
    
    
    3
    %Income (loss) from continuing operations
before income taxes
    
    
    24,104
    
    
    
    11
    %
    
    
    20,959
    
    
    
    10
    %
    
    
    (10,961
    )
    
    
    -5
    %Income tax expense
    
    
    (2,254
    )
    
    
    -1
    %
    
    
    (1,464
    )
    
    
    -1
    %
    
    
    (1,278
    )
    
    
    -1
    %Income (loss) from continuing operations
    
    
    21,850
    
    
    
    10
    %
    
    
    19,495
    
    
    
    9
    %
    
    
    (12,239
    )
    
    
    -6
    %Discontinued operations:Income from discontinued operations,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,141
    
    
    
    15
    %Net income
    
    $
    21,850
    
    
    
    10
    %
    
    $
    19,495
    
    
    
    9
    %
    
    $
    17,902
    
    
    
    9
    %
 (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 purchased technology.(2)
    
    Includes stock-based compensation expenses in continuing operations of $8.1
million, $8.5 million, and $5.5 million in 2008, 2007, and 2006, respectively. For
further discussion, please refer to Notes 2 and 15 of the consolidated financial
statements.  27




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##### Table of Contents



Comparison of 2008 to 2007 Results
 Revenue.
 Year Ended December 31,Enterprise
    
    
    Postilion
    
    
    Total2008
    
    
    2007
    
    
    Chg
    
    
    2008
    
    
    2007
    
    
    Chg
    
    
    2008
    
    
    2007
    
    
    ChgRevenue:Software licenses
    
    $
    8,685
    
    
    $
    6,405
    
    
    
    36
    %
    
    $
    29,174
    
    
    $
    24,304
    
    
    
    20
    %
    
    $
    37,859
    
    
    $
    30,709
    
    
    
    23
    %Support and maintenance
    
    
    16,897
    
    
    
    16,071
    
    
    
    5
    %
    
    
    32,266
    
    
    
    29,520
    
    
    
    9
    %
    
    
    49,163
    
    
    
    45,591
    
    
    
    8
    %Professional services
    
    
    71,522
    
    
    
    63,740
    
    
    
    12
    %
    
    
    20,723
    
    
    
    16,014
    
    
    
    29
    %
    
    
    92,245
    
    
    
    79,754
    
    
    
    16
    %Data center
    
    
    28,253
    
    
    
    25,478
    
    
    
    11
    %
    
    
    19,583
    
    
    
    22,318
    
    
    
    -12
    %
    
    
    47,836
    
    
    
    47,796
    
    
    
    0
    %Other
    
    
    992
    
    
    
    557
    
    
    
    n/m
    
    
    
    340
    
    
    
    518
    
    
    
    n/m
    
    
    
    1,332
    
    
    
    1,075
    
    
    
    n/mTotal revenue
    
    $
    126,349
    
    
    $
    112,251
    
    
    
    13
    %
    
    $
    102,086
    
    
    $
    92,674
    
    
    
    10
    %
    
    $
    228,435
    
    
    $
    204,925
    
    
    
    11
    %
   Year Ended December 31,2008
    
    
    2007Subscription revenue:Enterprise
    
    $
    2,719
    
    
    $
    2,733Postilion
    
    
    9,221
    
    
    
    6,355Total Company
    
    $
    11,940
    
    
    $
    9,088
   28




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##### Table of Contents



Stock-based
compensation expense.
 2008
    
    
    2007Operating expenses:Professional services, support and maintenance
    
    $
    344
    
    
    $
    514Data center
    
    
    100
    
    
    
    70Selling and marketing
    
    
    2,949
    
    
    
    3,984Product development
    
    
    1,034
    
    
    
    1,669General and administrative
    
    
    3,665
    
    
    
    2,285Total stock-based compensation expense
    
    $
    8,092
    
    
    $
    8,522
 Direct
costs.
 Year Ended December 31,Enterprise
    
    
    Postilion
    
    
    Total2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %Direct costs:Cost of software licenses
    
    $
    1,327
    
    
    
    15
    %
    
    $
    1,269
    
    
    
    20
    %
    
    $
    2,554
    
    
    
    9
    %
    
    $
    2,527
    
    
    
    10
    %
    
    $
    3,881
    
    
    
    10
    %
    
    $
    3,796
    
    
    
    12
    %Cost of professional
services,
support and
maintenance
    
    
    44,831
    
    
    
    51
    %
    
    
    41,743
    
    
    
    52
    %
    
    
    29,204
    
    
    
    55
    %
    
    
    26,065
    
    
    
    57
    %
    
    
    74,035
    
    
    
    52
    %
    
    
    67,808
    
    
    
    54
    %Cost of data center
    
    
    15,502
    
    
    
    55
    %
    
    
    14,514
    
    
    
    57
    %
    
    
    10,802
    
    
    
    55
    %
    
    
    10,474
    
    
    
    47
    %
    
    
    26,304
    
    
    
    55
    %
    
    
    24,988
    
    
    
    52
    %Cost of other revenue
    
    
    175
    
    
    
    n/m
    
    
    
    84
    
    
    
    n/m
    
    
    
    94
    
    
    
    n/m
    
    
    
    291
    
    
    
    n/m
    
    
    
    269
    
    
    
    n/m
    
    
    
    375
    
    
    
    n/mTotal direct costs
    
    $
    61,835
    
    
    
    49
    %
    
    $
    57,610
    
    
    
    51
    %
    
    $
    42,654
    
    
    
    42
    %
    
    $
    39,357
    
    
    
    42
    %
    
    $
    104,489
    
    
    
    46
    %
    
    $
    96,967
    
    
    
    47
    %
  29




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##### Table of Contents



Cost of Software License.
 Cost of professional services, support and maintenance.
 Cost of data center.
 Operating expenses.
 Year Ended December 31,Enterprise
    
    
    Postilion
    
    
    Total2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %Operating expenses:Selling and marketing
    
    $
    15,852
    
    
    
    13
    %
    
    $
    13,122
    
    
    
    12
    %
    
    $
    20,580
    
    
    
    20
    %
    
    $
    18,182
    
    
    
    20
    %
    
    $
    36,432
    
    
    
    16
    %
    
    $
    31,304
    
    
    
    15
    %Product development
    
    
    18,229
    
    
    
    14
    %
    
    
    11,649
    
    
    
    10
    %
    
    
    11,042
    
    
    
    11
    %
    
    
    12,089
    
    
    
    13
    %
    
    
    29,271
    
    
    
    13
    %
    
    
    23,738
    
    
    
    12
    %General and
administrative
    
    
    13,990
    
    
    
    11
    %
    
    
    14,524
    
    
    
    13
    %
    
    
    11,836
    
    
    
    12
    %
    
    
    11,735
    
    
    
    13
    %
    
    
    25,826
    
    
    
    11
    %
    
    
    26,259
    
    
    
    13
    %Depreciation
    
    
    4,614
    
    
    
    4
    %
    
    
    4,503
    
    
    
    4
    %
    
    
    3,322
    
    
    
    3
    %
    
    
    2,520
    
    
    
    3
    %
    
    
    7,936
    
    
    
    3
    %
    
    
    7,023
    
    
    
    3
    %Amortization of other
intangible assets
    
    
    
    
    
    
    n/m
    
    
    
    45
    
    
    
    n/m
    
    
    
    1,130
    
    
    
    1
    %
    
    
    1,130
    
    
    
    1
    %
    
    
    1,130
    
    
    
    0
    %
    
    
    1,175
    
    
    
    1
    %Total operating expenses
    
    $
    52,685
    
    
    
    42
    %
    
    $
    43,843
    
    
    
    39
    %
    
    $
    47,910
    
    
    
    47
    %
    
    $
    45,656
    
    
    
    49
    %
    
    $
    100,595
    
    
    
    44
    %
    
    $
    89,499
    
    
    
    44
    %Operating income
    
    $
    11,829
    
    
    
    9
    %
    
    $
    10,798
    
    
    
    10
    %
    
    $
    11,522
    
    
    
    11
    %
    
    $
    7,661
    
    
    
    8
    %
    
    $
    23,351
    
    
    
    10
    %
    
    $
    18,459
    
    
    
    9
    %
 Selling and marketing expenses.
  30




---



##### Table of Contents



Product development expenses.
  General and administrative expenses.
 Depreciation.
 Amortization of other intangible assets.
 Interest and other income, net.
 Income tax expense.
     31




---



##### Table of Contents




    
    for tax expense in certain subsidiaries or jurisdictions for which we do not have
NOLs to utilize;
 
    
    in the United States due to limitations on the use of our federal NOLs for
alternative minimum tax purposes which will be paid in cash;
 
    
    if there are no NOLs that were acquired as part of a business combination, upon
which we placed a valuation allowance at acquisition date (this results in non-cash
income tax expense as goodwill is reduced and the valuation allowance is released);
and,
 
    
    for tax expense in certain subsidiaries or jurisdictions for which we have not
fully reserved the deferred tax assets.
 Comparison of 2007 to 2006 Results
 Revenue.
 Year Ended December 31,Enterprise
    
    
    Postilion
    
    
    Total2007
    
    
    2006
    
    
    Chg
    
    
    2007
    
    
    2006
    
    
    Chg
    
    
    2007
    
    
    2006
    
    
    ChgRevenue:Software licenses
    
    $
    6,405
    
    
    $
    9,408
    
    
    
    -32
    %
    
    $
    24,304
    
    
    $
    20,380
    
    
    
    19
    %
    
    $
    30,709
    
    
    $
    29,788
    
    
    
    3
    %Support and maintenance
    
    
    16,071
    
    
    
    14,333
    
    
    
    12
    %
    
    
    29,520
    
    
    
    29,761
    
    
    
    -1
    %
    
    
    45,591
    
    
    
    44,094
    
    
    
    3
    %Professional services
    
    
    63,740
    
    
    
    54,865
    
    
    
    16
    %
    
    
    16,014
    
    
    
    15,432
    
    
    
    4
    %
    
    
    79,754
    
    
    
    70,297
    
    
    
    13
    %Data center
    
    
    25,478
    
    
    
    21,131
    
    
    
    21
    %
    
    
    22,318
    
    
    
    25,725
    
    
    
    -13
    %
    
    
    47,796
    
    
    
    46,856
    
    
    
    2
    %Other
    
    
    557
    
    
    
    517
    
    
    
    n/m
    
    
    
    518
    
    
    
    758
    
    
    
    n/m
    
    
    
    1,075
    
    
    
    1,275
    
    
    
    n/mTotal revenue
    
    $
    112,251
    
    
    $
    100,254
    
    
    
    12
    %
    
    $
    92,674
    
    
    $
    92,056
    
    
    
    1
    %
    
    $
    204,925
    
    
    $
    192,310
    
    
    
    7
    %
   32




---



##### Table of Contents



Year Ended December 31,2007
    
    
    2006Subscription revenue:Enterprise
    
    $
    2,733
    
    
    $
    1,491Postilion
    
    
    6,355
    
    
    
    2,308Total Company
    
    $
    9,088
    
    
    $
    3,799
     33




---



##### Table of Contents



Stock-based
compensation costs.
 2007
    
    
    2006Operating expenses:Professional services, support and maintenance
    
    $
    514
    
    
    $
    481Data center
    
    
    70
    
    
    
    76Selling and marketing
    
    
    3,984
    
    
    
    1,575Product development
    
    
    1,669
    
    
    
    978General and administrative
    
    
    2,285
    
    
    
    1,874Merger related and restructuring costs
    
    
    
    
    
    
    525Discontinued operations
    
    
    
    
    
    
    154Total stock-based compensation expense
    
    $
    8,522
    
    
    $
    5,663
 Direct costs.
 Year Ended December 31,Enterprise
    
    
    Postilion
    
    
    Total2007
    
    
    %
    
    
    2006
    
    
    %
    
    
    2007
    
    
    %
    
    
    2006
    
    
    %
    
    
    2007
    
    
    %
    
    
    2006
    
    
    %Direct costs:Cost of software licenses
    
    $
    1,269
    
    
    
    20
    %
    
    $
    1,491
    
    
    
    16
    %
    
    $
    2,527
    
    
    
    10
    %
    
    $
    3,097
    
    
    
    15
    %
    
    $
    3,796
    
    
    
    12
    %
    
    $
    4,588
    
    
    
    15
    %Cost of professional
services, support and
maintenance
    
    
    41,743
    
    
    
    52
    %
    
    
    42,876
    
    
    
    62
    %
    
    
    26,065
    
    
    
    57
    %
    
    
    22,355
    
    
    
    49
    %
    
    
    67,808
    
    
    
    54
    %
    
    
    65,231
    
    
    
    57
    %Cost of data center
    
    
    14,514
    
    
    
    57
    %
    
    
    11,806
    
    
    
    56
    %
    
    
    10,474
    
    
    
    47
    %
    
    
    10,548
    
    
    
    41
    %
    
    
    24,988
    
    
    
    52
    %
    
    
    22,354
    
    
    
    48
    %Cost of other revenue
    
    
    84
    
    
    
    n/m
    
    
    
    105
    
    
    
    n/m
    
    
    
    291
    
    
    
    n/m
    
    
    
    998
    
    
    
    n/m
    
    
    
    375
    
    
    
    n/m
    
    
    
    1,103
    
    
    
    n/mTotal direct costs
    
    $
    57,610
    
    
    
    51
    %
    
    $
    56,278
    
    
    
    56
    %
    
    $
    39,357
    
    
    
    42
    %
    
    $
    36,998
    
    
    
    40
    %
    
    $
    96,967
    
    
    
    47
    %
    
    $
    93,276
    
    
    
    49
    %
  Cost of software licenses.
 Cost of professional services, support and maintenance.
  34




---



##### Table of Contents



Cost of data center.
 Operating expenses.
 Year Ended December 31,Enterprise
    
    

    Postilion
    
    
    Total2007
    
    
    %
    
    
    2006
    
    
    %
    
    
    2007
    
    
    %
    
    
    2006
    
    
    %
    
    
    2007
    
    
    %
    
    
    2006
    
    
    %Operating expenses:Selling and marketing
    
    $
    13,122
    
    
    
    12
    %
    
    $
    12,626
    
    
    
    13
    %
    
    $
    18,182
    
    
    
    20
    %
    
    $
    15,032
    
    
    
    16
    %
    
    $
    31,304
    
    
    
    15
    %
    
    $
    27,658
    
    
    
    14
    %Product development
    
    
    11,649
    
    
    
    10
    %
    
    
    23,968
    
    
    
    24
    %
    
    
    12,089
    
    
    
    13
    %
    
    
    14,969
    
    
    
    16
    %
    
    
    23,738
    
    
    
    12
    %
    
    
    38,937
    
    
    
    20
    %General and administrative
    
    
    14,524
    
    
    
    13
    %
    
    
    13,901
    
    
    
    14
    %
    
    
    11,735
    
    
    
    13
    %
    
    
    12,793
    
    
    
    14
    %
    
    
    26,259
    
    
    
    13
    %
    
    
    26,694
    
    
    
    14
    %Merger related and
restructuring costs
    
    
    
    
    
    
    n/m
    
    
    
    9,018
    
    
    
    9
    %
    
    
    
    
    
    
    n/m
    
    
    
    3,467
    
    
    
    4
    %
    
    
    
    
    
    
    0
    %
    
    
    12,485
    
    
    
    6
    %Depreciation
    
    
    4,503
    
    
    
    4
    %
    
    
    5,107
    
    
    
    5
    %
    
    
    2,520
    
    
    
    3
    %
    
    
    2,733
    
    
    
    3
    %
    
    
    7,023
    
    
    
    3
    %
    
    
    7,840
    
    
    
    4
    %Amortization of other
intangible assets
    
    
    45
    
    
    
    n/m
    
    
    
    180
    
    
    
    n/m
    
    
    
    1,130
    
    
    
    1
    %
    
    
    1,130
    
    
    
    1
    %
    
    
    1,175
    
    
    
    1
    %
    
    
    1,310
    
    
    
    1
    %Total operating expenses
    
    $
    43,843
    
    
    
    39
    %
    
    $
    64,800
    
    
    
    65
    %
    
    $
    45,656
    
    
    
    49
    %
    
    $
    50,124
    
    
    
    54
    %
    
    $
    89,499
    
    
    
    44
    %
    
    $
    114,924
    
    
    
    60
    %Operating income
    
    $
    10,798
    
    
    
    10
    %
    
    $
    (20,824
    )
    
    
    -21
    %
    
    $
    7,661
    
    
    
    8
    %
    
    $
    4,934
    
    
    
    5
    %
    
    $
    18,459
    
    
    
    9
    %
    
    $
    (15,890
    )
    
    
    -8
    %
 Selling and marketing expenses.
 Product development expenses.
   35




---



##### Table of Contents



General and administrative expenses.
 Merger related and restructuring costs.
 Depreciation.
 Amortization of other intangible assets.
 Interest and other income, net.
 Income tax expense.
 Income from discontinued operations.
 Liquidity and Capital Resources
  Year Ended December 31,2008
    
    
    2007
    
    
    2006Net cash provided by operating activities before
changes in operating
assets and liabilities
    
    $
    40,142
    
    
    $
    41,198
    
    
    $
    6,680Change in operating assets and liabilities
    
    
    (5,995
    )
    
    
    (9,866
    )
    
    
    (3,220
    )Net cash provided by operating activities
    
    
    34,147
    
    
    
    31,332
    
    
    
    3,460Net cash provided by (used in) investing activities
    
    
    15,765
    
    
    
    (13,893
    )
    
    
    31,626Net cash used in financing activities
    
    
    (27,488
    )
    
    
    (42,940
    )
    
    
    (50,671
    )Effect of exchange rates on cash and cash equivalents
    
    
    (3,595
    )
    
    
    900
    
    
    
    89Net increase (decrease) in cash and cash equivalents
    
    $
    18,829
    
    
    $
    (24,601
    )
    
    $
    (15,496
    )
  36




---



##### Table of Contents



As of December 312008
    
    
    2007Cash and cash equivalents
    
    $
    63,840
    
    
    $
    45,011Short term investments
    
    
    1,493
    
    
    
    23,855Working capital (1)
    
    
    55,804
    
    
    
    64,318Total assets
    
    
    278,686
    
    
    
    281,844Total stockholders equity
    
    
    208,740
    
    
    
    209,905
 (1)
    
    Working capital includes deferred revenue of $25.3 million and $26.3 million as
of December 31, 2008 and 2007, respectively. Operating activities.
 Cash provided by operations for the year ended December 31, 2008 included the effects of:
 
    
    our net income of $22.0 million;
 
    
    depreciation and amortization of $11.6 million;
 
    
    stock based compensation expense of $8.1 million;
 
    
    deferred income taxes of $1.9 million;
 
    
    other than temporary impairment charges for short-term investments of
approximately $660 thousand;
 
    
    an increase of $2.8 million in accounts receivable primarily due to sales growth
partially offset by our days sales outstanding improving to 67 days from 65 days;
 
    
    $3.5 million paid in restructuring charges; and
 
    
    an increase in income taxes payable mainly in foreign jurisdictions of $2.3
million.
 Cash provided by operations for the year ended December 31, 2007 included the effects of:
 
    
    our net income of $19.5 million;
 
    
    depreciation and amortization of $11.1 million;
 
    
    stock based compensation expense of $8.5 million;
 
    
    a decrease of $11.5 million in accounts receivable due to the improvement of days
sales outstanding to 67 days from 95 days;
 
    
    a decrease in liabilities of $15.5 million for payments from the restructuring
reserve of $10.3 million, payments for exercised SARs of $1.1 million, a reduction
in contract loss reserves of $2.1 million (primarily for two customers), and the
extinguishment of merger related costs of $1.1 million; and
 
    
    a decrease in accounts payable of $1.4 million.
 Cash provided by operations for the year ended December 31, 2006 included the effects of:
 
    
    our net income of $ 17.9 million;
 
    
    depreciation and amortization of $13.1 million;
 
    
    income from discontinued operations for Edify of $550 thousand and a gain on the
disposal of the Risk and Compliance business of $31.6 million;
 
    
    a provision for doubtful accounts receivable and billing adjustments of $1.3
million;
 
    
    stock based compensation expense of $5.7 million;
 
    
    a $900 thousand loss on the disposal of property and equipment:
 
    
    an increase of $9.4 million in accounts receivable due to the timing of revenue
recognized and billing terms on fixed price implementation projects;
 
    
    a decrease in accrued expenses and other liabilities of $1.3 million mainly due
to payments related to our restructuring reserve; and
 
    
    a $7.9 million increase in deferred revenue resulting from increases of deferred
services and support fees.
  37




---



##### Table of Contents



Investing activities.
 During the year ended 2008, we:
 
    
    converted $20.8 million, net, from short-term investments to cash and cash
equivalents;
 
    
    received $3.7 million from the release of escrow related to the sale of our Risk
and Compliance business held since August 2006; and
 
    
    purchased $8.7 million of hardware, software and building improvements and
financed $1.3 million of additional hardware expenditures through capital leases.
 During the year ended 2007, we:
 
    
    converted $2.6 million, net from short-term investments to cash and cash
equivalents;
 
    
    paid an escrow deposit of $1.0 million and a security deposit of $600 thousand
related to the purchase of our corporate headquarters; and
 
    
    purchased $9.7 million of property, equipment, and technology comprising of $2.8
million for our corporate headquarters, $2.4 million for a source code license and
the remainder for leasehold improvements and hardware expenditure and financed $3.3
million of additional hardware expenditures through capital leases.
 During the year ended 2006, we:
 
    
    paid $14.0 million to the shareholders of Mosaic in settlement of an earn-out of
which $12.9 million was accrued in 2005;
 
    
    converted $22.8 million, net, from short-term investments to cash and cash
equivalents;
 
    
    received net proceeds from the sale of the Risk and Compliance business of $32.0
million;
 
    
    received a $550 thousand working capital adjustment from the sale of Edify; and
 
    
    acquired $6.3 million of property and equipment and financed $7.0 million of
additional hardware equipment through capital leases.
 Financing activities.
 During the year ended 2008, we:
 
    
    paid $25.1 million for the repurchase of our common stock pursuant to an
authorized stock repurchase program;
 
    
    received $1.3 million from the exercise of options to purchase common stock under
our employee stock option plans; and
 
    
    paid $3.7 million for capital lease and debt obligations.
 During the year ended 2007, we:
 
    
    paid $51.0 million for the repurchase of our common stock pursuant to a tender
offer and authorized stock repurchase program;
 
    
    received $11.5 million from the exercise of options to purchase common stock
under our employee stock option plans; and
 
    
    paid $3.5 million for capital lease and debt obligations.
 During the year ended 2006, we:
 
    
    paid $55.8 million for the repurchase of our common stock pursuant to a tender
offer;
 
    
    received $5.4 million from the exercise of options to purchase common stock under
our employee stock option plans;
 
    
    received $2.5 million from a sale lease back transaction; and
 
    
    paid $2.8 million for capital lease and debt obligations.
  38




---



##### Table of Contents



Investments.
 Stock Repurchase Program.
 Restructuring.
 Stock Appreciation Rights Awards.
 Contractual Obligations.
    Less than
    
    
    1 - 3
    
    
    3 - 5
    
    
    Greater than1 year
    
    
    years
    
    
    years
    
    
    5 years
    
    
    TotalLong-term debt
    
    $
    560
    
    
    $
    5,654
    
    
    $
    
    
    
    $
    
    
    
    $
    6,214Operating leases
    
    
    11,607
    
    
    
    17,546
    
    
    
    5,935
    
    
    
    9,299
    
    
    
    44,387Capital leases
    
    
    3,912
    
    
    
    1,040
    
    
    
    
    
    
    
    
    
    
    
    4,952Purchase obligations
    
    
    1,826
    
    
    
    960
    
    
    
    
    
    
    
    
    
    
    
    2,786Total
    
    $
    17,905
    
    
    $
    25,200
    
    
    $
    5,935
    
    
    $
    9,299
    
    
    $
    58,339Operating sublease income
    
    
    (4,092
    )
    
    
    (6,794
    )
    
    
    (38
    )
    
    
    
    
    
    
    (10,924
    )Total obligations, net of sublease income
    
    $
    13,813
    
    
    $
    18,406
    
    
    $
    5,897
    
    
    $
    9,299
    
    
    $
    47,415
  39




---



##### Table of Contents



Off-Balance Sheet Arrangements.
 Subsidiary Funding Policies.
 Capital Requirements.
 
 Item 7A. Qualitative and Quantitative Disclosures about Market Risk.
  Foreign currency risk.
    40




---



##### Table of Contents



Interest rate risk.
  Investment risk.
  41




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data.
 INDEX TO FINANCIAL STATEMENTS
 PageFINANCIAL STATEMENTS:Report of Independent Registered Public Accounting Firm
    
    
    43Consolidated Balance Sheets as of December 31, 2008 and 2007
    
    
    44Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006
    
    
    45Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006
    
    
    46Consolidated Statements of Stockholders Equity and Comprehensive Income for the Years Ended
December 31, 2008, 2007 and 2006
    
    
    47Notes to Consolidated Financial Statements
    
    
    48FINANCIAL STATEMENT SCHEDULE:For each of the three years ended December 31, 2008, 2007 and 2006


Schedule IIValuation and Qualifying Accounts
    
    
    74
   42




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
    
  43




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##### Table of Contents



S1 CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,2008
    
    
    2007(in thousands, except shareand per share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    63,840
    
    
    $
    45,011Short-term investments
    
    
    1,493
    
    
    
    23,855Accounts receivable, net of allowance for doubtful accounts and billing adjustments
of $1,388 and $3,858 at December 31, 2008 and 2007, respectively
    
    
    42,561
    
    
    
    39,969Prepaid expenses
    
    
    5,123
    
    
    
    3,354Other current assets
    
    
    2,082
    
    
    
    6,389Total current assets
    
    
    115,099
    
    
    
    118,578Property and equipment, net
    
    
    23,015
    
    
    
    20,906Intangible assets, net
    
    
    7,585
    
    
    
    11,240Goodwill
    
    
    124,362
    
    
    
    125,281Other assets
    
    
    8,625
    
    
    
    5,839Total assets
    
    $
    278,686
    
    
    $
    281,844LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,366
    
    
    $
    2,300Accrued compensation and benefits
    
    
    16,147
    
    
    
    10,649Current portion of debt obligation
    
    
    3,917
    
    
    
    3,725Accrued restructuring
    
    
    2,323
    
    
    
    3,043Deferred revenues
    
    
    25,271
    
    
    
    26,345Accrued other expenses
    
    
    10,271
    
    
    
    8,198Total current liabilities
    
    
    59,295
    
    
    
    54,260Debt obligation, excluding current portion
    
    
    6,196
    
    
    
    8,805Accrued restructuring, excluding current portion
    
    
    3,443
    
    
    
    6,181Other liabilities
    
    
    1,012
    
    
    
    2,693Total liabilities
    
    $
    69,946
    
    
    $
    71,939Commitments and contingencies (Note 13)Stockholders equity:Preferred stock, $0.01 par value. Authorized 25,000,000 shares. Issued and outstanding
749,064 shares at December 31, 2008 and 2007, respectively
    
    
    10,000
    
    
    
    10,000Common stock, $0.01 par value. Authorized 350,000,000 shares. Issued and outstanding
52,799,310 and 56,748,906 shares at December 31, 2008 and 2007, respectively
    
    
    528
    
    
    
    567Additional paid in capital
    
    
    1,791,924
    
    
    
    1,810,783Accumulated deficit
    
    
    (1,587,957
    )
    
    
    (1,609,807
    )Accumulated other comprehensive loss:Net gain (loss) on derivative financial instruments, net of tax
    
    
    69
    
    
    
    (97
    )Cumulative foreign currency translation adjustment, net of tax
    
    
    (5,824
    )
    
    
    (1,541
    )Total stockholders equity
    
    
    208,740
    
    
    
    209,905Total liabilities and stockholders equity
    
    $
    278,686
    
    
    $
    281,844
   44




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##### Table of Contents



S1 CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2008
    
    
    2007
    
    
    2006(in thousands, except share and per share data)Revenue:Software licenses
    
    $
    37,859
    
    
    $
    30,709
    
    
    $
    29,788Support and maintenance
    
    
    49,163
    
    
    
    45,591
    
    
    
    44,094Professional services
    
    
    92,245
    
    
    
    79,754
    
    
    
    70,297Data center
    
    
    47,836
    
    
    
    47,796
    
    
    
    46,856Other
    
    
    1,332
    
    
    
    1,075
    
    
    
    1,275Total revenue
    
    
    228,435
    
    
    
    204,925
    
    
    
    192,310Operating expenses:Cost of software licenses (1)
    
    
    3,881
    
    
    
    3,796
    
    
    
    4,588Cost of professional services, support and maintenance
(1)
    
    
    74,035
    
    
    
    67,808
    
    
    
    65,231Cost of data center (1)
    
    
    26,304
    
    
    
    24,988
    
    
    
    22,354Cost of other revenue
    
    
    269
    
    
    
    375
    
    
    
    1,103Selling and marketing
    
    
    36,432
    
    
    
    31,304
    
    
    
    27,658Product development
    
    
    29,271
    
    
    
    23,738
    
    
    
    38,937General and administrative
    
    
    25,826
    
    
    
    26,259
    
    
    
    26,694Merger related and restructuring costs
    
    
    
    
    
    
    
    
    
    
    12,485Depreciation
    
    
    7,936
    
    
    
    7,023
    
    
    
    7,840Amortization of other intangible assets
    
    
    1,130
    
    
    
    1,175
    
    
    
    1,310Total operating expenses(2)
    
    
    205,084
    
    
    
    186,466
    
    
    
    208,200Operating income (loss)
    
    
    23,351
    
    
    
    18,459
    
    
    
    (15,890
    )Interest and other income, net
    
    
    753
    
    
    
    2,500
    
    
    
    4,929Income (loss) before income tax expense
    
    
    24,104
    
    
    
    20,959
    
    
    
    (10,961
    )Income tax expense
    
    
    (2,254
    )
    
    
    (1,464
    )
    
    
    (1,278
    )Income (loss) from continuing operations
    
    
    21,850
    
    
    
    19,495
    
    
    
    (12,239
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    30,141Net income
    
    $
    21,850
    
    
    $
    19,495
    
    
    $
    17,902Basic earnings per shareContinuing operations
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    (0.17
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.42Net income per share
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    0.25Diluted earnings per shareContinuing operations
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    (0.17
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.42Net income per share
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    0.25Weighted average common shares outstanding  basic
    
    
    55,734,103
    
    
    
    59,746,146
    
    
    
    70,779,502Weighted average common shares outstanding  fully diluted
    
    
    56,541,534
    
    
    
    60,680,130
    
    
    
    n/a
 (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 purchased technology.(2)
    
    Includes stock-based compensation expenses in continuing operations of $8.1
million, $8.5 million and $5.5 million in 2008, 2007, and 2006, respectively. For
further discussion, please refer to Note 2 and 15 of the consolidated financial
statements.   45




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##### Table of Contents



S1 CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2008
    
    
    2007
    
    
    2006(in thousands)Cash flows from operating activities:Net income
    
    $
    21,850
    
    
    $
    19,495
    
    
    $
    17,902Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    11,591
    
    
    
    11,135
    
    
    
    13,061Gain on disposal of discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    (32,153
    )Provision for doubtful accounts receivable and billing adjustments
    
    
    (159
    )
    
    
    1,894
    
    
    
    1,301Stock based compensation expense
    
    
    8,092
    
    
    
    8,522
    
    
    
    5,663Loss on disposal of property and equipment
    
    
    
    
    
    
    
    
    
    
    906Deferred income taxes
    
    
    (1,895
    )
    
    
    
    
    
    
    Other than temporary impairments of investments
    
    
    663
    
    
    
    152
    
    
    
    Changes in assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (2,777
    )
    
    
    11,509
    
    
    
    (9,435
    )(Increase) decrease in prepaid expenses and other assets
    
    
    (231
    )
    
    
    (828
    )
    
    
    710Decrease in accounts payable
    
    
    (1,278
    )
    
    
    (1,449
    )
    
    
    (1,121
    )Decrease in accrued expenses and other liabilities
    
    
    (432
    )
    
    
    (15,498
    )
    
    
    (1,298
    )(Decrease) increase in deferred revenues
    
    
    (1,277
    )
    
    
    (3,600
    )
    
    
    7,924Net cash provided by operating activities
    
    
    34,147
    
    
    
    31,332
    
    
    
    3,460Cash flows from investing activities:Cash paid in connection with acquisition
    
    
    
    
    
    
    
    
    
    
    (14,000
    )Proceeds from sale of subsidiaries
    
    
    
    
    
    
    
    
    
    
    32,639Maturities of short-term investment securities
    
    
    24,182
    
    
    
    31,223
    
    
    
    56,700Purchases of short-term investment securities
    
    
    (3,385
    )
    
    
    (33,838
    )
    
    
    (33,922
    )Amounts released (held) in escrow related to sale of business
    
    
    3,712
    
    
    
    
    
    
    
    (3,500
    )Amounts held in escrow related to property
    
    
    
    
    
    
    (1,593
    )
    
    
    Purchases of property, equipment and technology
    
    
    (8,744
    )
    
    
    (9,685
    )
    
    
    (6,291
    )Net cash provided by (used in) investing activities
    
    
    15,765
    
    
    
    (13,893
    )
    
    
    31,626Cash flows from financing activities:Proceeds from exercise of employee stock options
    
    
    1,305
    
    
    
    11,500
    
    
    
    5,351Payments on capital leases and debt obligations
    
    
    (3,718
    )
    
    
    (3,473
    )
    
    
    (2,770
    )Repurchase and retirement of common stock
    
    
    (25,075
    )
    
    
    (50,967
    )
    
    
    (55,754
    )Proceeds from sale-lease back transaction
    
    
    
    
    
    
    
    
    
    
    2,502Net cash used in financing activities
    
    
    (27,488
    )
    
    
    (42,940
    )
    
    
    (50,671
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (3,595
    )
    
    
    900
    
    
    
    89Net increase (decrease) in cash and cash equivalents
    
    
    18,829
    
    
    
    (24,601
    )
    
    
    (15,496
    )Cash and cash equivalents at beginning of period
    
    
    45,011
    
    
    
    69,612
    
    
    
    85,108Cash and cash equivalents at end of period
    
    $
    63,840
    
    
    $
    45,011
    
    
    $
    69,612Noncash investing and financing activities:Equipment financed through capital leases
    
    $
    1,301
    
    
    $
    3,323
    
    
    $
    7,048Property financed through notes payable
    
    
    
    
    
    
    5,233
    
    
    
    Accrual of working capital adjustment related to sale of subsidiary
    
    
    
    
    
    
    
    
    
    
    664Retirement of treasury stock
    
    
    
    
    
    
    
    
    
    
    25,000Supplemental schedule of cash flow data:Cash paid for income taxes
    
    $
    2,279
    
    
    $
    1,188
    
    
    $
    1,659Cash paid for interest
    
    
    875
    
    
    
    622
    
    
    
    360
   46




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##### Table of Contents



S1 CORPORATION
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(in thousands except for share data)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Treasury Stock
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Stockholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Shares
    
    
    Amount
    
    
    Deficit
    
    
    Loss
    
    
    Equity
    
    
    IncomeBalance at December 31, 2005
    
    
    749,064
    
    
    $
    10,000
    
    
    
    74,410,099
    
    
    $
    744
    
    
    $
    1,915,617
    
    
    
    (4,053,886
    )
    
    $
    (25,000
    )
    
    $
    (1,647,204
    )
    
    $
    (1,771
    )
    
    $
    252,386Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,902
    
    
    
    
    
    
    
    17,902
    
    
    
    17,902Net unrealized losses on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (314
    )
    
    
    (314
    )
    
    
    (314
    )Change in cumulative foreign currency translation
adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (525
    )
    
    
    (525
    )
    
    
    (525
    )Realized loss on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    42
    
    
    
    42Realized cumulative foreign currency translation
related to sale of business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43
    )
    
    
    (43
    )
    
    
    Common stock issued upon the exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    1,410,949
    
    
    
    14
    
    
    
    5,337
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,351
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,184
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,184
    
    
    
    Repurchase and retirement of common stock
    
    
    
    
    
    
    
    
    
    
    (10,476,189
    )
    
    
    (105
    )
    
    
    (55,649
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,754
    )
    
    
    Retirement of treasury stock
    
    
    
    
    
    
    
    
    
    
    (4,053,886
    )
    
    
    (40
    )
    
    
    (24,960
    )
    
    
    4,053,886
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    17,105Balance 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 losses 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
options
    
    
    
    
    
    
    
    
    
    
    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 gains 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
options
    
    
    
    
    
    
    
    
    
    
    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
    )
    
    $
    208,740
   47




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##### Table of Contents



S1 CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2008, 2007 and 2006
 1. Business Overview
  2. Summary of Significant Accounting Policies
 Basis of presentation
  Use of estimates
  Financial instruments
     48




---



##### Table of Contents



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 (1)
    
    2 to 3 yearsSoftware
    
    3 years
 
 (1)
    
    Computer equipment includes capital leases.  49




---



##### Table of Contents



Goodwill
  Other long-lived assets
    Cost-basis and equity method investments
    50




---



##### Table of Contents



Concentration of credit risk and uncertainties
  Revenue recognition, deferred revenue and cost of revenue
 Software license revenue.
    Support and maintenance revenue.
 Professional services revenue.
   51




---



##### Table of Contents



Data center revenue.
    Other revenue.
 Deferred revenue.
 Cost of revenue.
 Product development costs
  Restructuring and merger related costs
   52




---



##### Table of Contents



Interest and other income, net
  For the year ended December 31,2008
    
    
    2007
    
    
    2006Interest income
    
    $
    2,052
    
    
    $
    4,151
    
    
    $
    5,930Interest expense
    
    
    (855
    )
    
    
    (714
    )
    
    
    (543
    )Foreign exchange-realized
gain (loss)
    
    
    604
    
    
    
    (306
    )
    
    
    (201
    )Other expenses
    
    
    (1,048
    )
    
    
    (631
    )
    
    
    (257
    )Total
    
    $
    753
    
    
    $
    2,500
    
    
    $
    4,929
 Income taxes
  Stock-based compensation
     53




---



##### Table of Contents



Net income (loss) per share
  Foreign currency translation
  Derivative financial instruments
  Comprehensive income (loss)
  Recent accounting pronouncements
   54




---



##### Table of Contents



3. Discontinued Operations
     55




---



##### Table of Contents



Year endedDecember 31, 2006Revenues:Risk and Compliance
    
    
    12,434Pretax (loss) income from discontinued operationsRisk and Compliance
    
    
    (1,947
    )Gain on disposal of Edify
    
    
    457Gain on disposal of Risk and Compliance
    
    
    31,597Income tax benefit
    
    
    34Income from discontinued operations
    
    $
    30,141
 4. Related Party Transactions
  5. Fair Value Measurements
   December 31, 2008
    
    
    December 31, 2007Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair ValueCash and cash equivalents
    
    $
    63,840
    
    
    $
    63,840
    
    
    $
    45,011
    
    
    $
    45,011Short-term investmentsMutual fund trust
    
    
    1,493
    
    
    
    1,493
    
    
    
    10,894
    
    
    
    10,894Fixed term deposits
    
    
    
    
    
    
    
    
    
    
    12,961
    
    
    
    12,961Long-term investmentsMutual fund trust
    
    
    902
    
    
    
    902
    
    
    
    
    
    
    
    Fixed term deposits
    
    
    289
    
    
    
    289
    
    
    
    399
    
    
    
    399Derivative assets
    
    
    69
    
    
    
    69
    
    
    
    20
    
    
    
    20Long-term borrowings
    
    
    6,196
    
    
    
    6,103
    
    
    
    8,805
    
    
    
    8,478
   56




---



##### Table of Contents



Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    

    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableCarrying
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsValue
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Mutual fund trust
    
    $
    2,395
    
    
    $
    
    
    
    $
    
    
    
    $
    2,395Derivative assets
    
    
    69
    
    
    
    
    
    
    
    69
    
    
    
    Total
    
    $
    2,464
    
    
    $
    
    
    
    $
    69
    
    
    $
    2,395
  Fair Value Measurements at 
Reporting DateUsing Significant 
Unobservable Inputs 
(Level 3)Mutual fund trust:Beginning balance
    
    $
    10,894Total losses (realized/unrealized)
included in earnings
    
    
    (663
    )Settlements
    
    
    (7,836
    )Ending balance
    
    $
    2,395
   57




---



##### Table of Contents



6. Accounts Receivable
  7. Other Current Assets
  December 31,2008
    
    
    2007Deferred tax assets
    
    $
    237
    
    
    $
    208Escrow, security deposits and restricted cash
    
    
    1,140
    
    
    
    4,943Other non-customer receivables
    
    
    705
    
    
    
    1,238$
    2,082
    
    
    $
    6,389
 8. Property and Equipment
  December 31,2008
    
    
    2007Property and building improvements
    
    $
    9,551
    
    
    $
    9,191Leasehold improvements
    
    
    773
    
    
    
    1,685Furniture and fixtures
    
    
    1,786
    
    
    
    3,216Computer equipment
    
    
    29,413
    
    
    
    25,204Software
    
    
    8,890
    
    
    
    8,268Property and equipment, before depreciation
    
    
    50,413
    
    
    
    47,564Accumulated depreciation and amortization
    
    
    (27,398
    )
    
    
    (26,658
    )Property and equipment, net
    
    $
    23,015
    
    
    $
    20,906
  58




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##### Table of Contents



9. Goodwill and Other Intangible Assets
   Gross
    
    
    Accumulated
    
    
    NetCarrying Value
    
    
    Amortization
    
    
    Carrying ValuePurchased and acquired technology
    
    $
    21,938
    
    
    $
    (19,015
    )
    
    $
    2,923Customer relationships
    
    
    12,000
    
    
    
    (7,338
    )
    
    
    4,662Total
    
    $
    33,938
    
    
    $
    (26,353
    )
    
    $
    7,585
  2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013Enterprise
    
    $
    245
    
    
    $
    245
    
    
    $
    245
    
    
    $
    184
    
    
    $
    Postilion
    
    $
    2,445
    
    
    $
    1,335
    
    
    $
    1,282
    
    
    $
    706
    
    
    $
    490Total
    
    $
    2,690
    
    
    $
    1,580
    
    
    $
    1,527
    
    
    $
    890
    
    
    $
    490
  Enterprise
    
    
    Postilion
    
    
    TotalBalance, January 1, 2008
    
    $
    49,616
    
    
    $
    75,665
    
    
    $
    125,281Utilization of acquisition related
income tax benefits
    
    
    (153
    )
    
    
    
    
    
    
    (153
    )Release of acquisition related
deferred tax assets
    
    
    (766
    )
    
    
    
    
    
    
    (766
    )Balance, December 31, 2008
    
    $
    48,697
    
    
    $
    75,665
    
    
    $
    124,362
 10. Restructuring and Merger Related Costs
 Restructuring.
   59




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##### Table of Contents



Restructuring in 2003 and prior years.
 Lease CostsBalance, December 31, 2005
    
    $
    5,800Amounts utilized
    
    
    (1,248
    )Adjustments
    
    
    609Balance, December 31, 2006
    
    
    5,161Amounts utilized
    
    
    (2,871
    )Balance, December 31, 2007
    
    
    2,290Amounts utilized
    
    
    (796
    )Adjustments
    
    
    (131
    )Balance, December 31, 2008
    
    $
    1,363
 Restructuring in 2005.
  Personnel Costs
    
    
    Lease Costs
    
    
    TotalBalance, December 31, 2005
    
    $
    4,635
    
    
    $
    5,050
    
    
    $
    9,685Amounts utilized
    
    
    (4,308
    )
    
    
    (2,860
    )
    
    
    (7,168
    )Adjustments
    
    
    333
    
    
    
    1,455
    
    
    
    1,788Balance, December 31, 2006
    
    
    660
    
    
    
    3,645
    
    
    
    4,305Amounts utilized
    
    
    (627
    )
    
    
    (1,289
    )
    
    
    (1,916
    )Balance, December 31, 2007
    
    
    33
    
    
    
    2,356
    
    
    
    2,389Amounts utilized
    
    
    
    
    
    
    (1,207
    )
    
    
    (1,207
    )Adjustments
    
    
    (33
    )
    
    
    544
    
    
    
    511Balance, December 31, 2008
    
    $
    
    
    
    $
    1,693
    
    
    
    1,693
 Restructuring in 2006.
  60




---



##### Table of Contents



Personnel Costs
    
    
    Lease Costs
    
    
    Other
    
    
    Total2006 restructuring charge
    
    $
    5,504
    
    
    $
    5,805
    
    
    $
    779
    
    
    $
    12,088Amounts utilized
    
    
    (1,486
    )
    
    
    189
    
    
    
    (779
    )
    
    
    (2,076
    )Balance, December 31, 2006
    
    
    4,018
    
    
    
    5,994
    
    
    
    
    
    
    
    10,012Amounts utilized
    
    
    (3,185
    )
    
    
    (2,282
    )
    
    
    
    
    
    
    (5,467
    )Balance, December 31, 2007
    
    
    833
    
    
    
    3,712
    
    
    
    
    
    
    
    4,545Amounts utilized
    
    
    (323
    )
    
    
    (1,210
    )
    
    
    
    
    
    
    (1,533
    )Adjustments
    
    
    (510
    )
    
    
    208
    
    
    
    
    
    
    
    (302
    )Balance, December 31, 2008
    
    $
    
    
    
    $
    2,710
    
    
    $
    
    
    
    $
    2,710
 Merger Related Costs.
 11. Accrued Other Expenses
  December 31,2008
    
    
    2007Accrued service fees payable
    
    $
    3,148
    
    
    $
    3,190Accrued third party products sold
    
    
    1,530
    
    
    
    1,359Sales and income taxes payable
    
    
    3,588
    
    
    
    1,035Accrued contract losses
    
    
    117
    
    
    
    720Other
    
    
    1,888
    
    
    
    1,894$
    10,271
    
    
    $
    8,198
 12. Retirement Savings Plan
  13. Commitments, Contingencies and Debt Obligations
 Lease commitments.
   61




---



##### Table of Contents



Operating Lease
    
    
    Sublease
    
    
    Net Operating LeaseCommitments
    
    
    Income
    
    
    Commitments2009
    
    $
    11,607
    
    
    $
    4,092
    
    
    $
    7,5152010
    
    
    10,353
    
    
    
    4,057
    
    
    
    6,2962011
    
    
    7,193
    
    
    
    2,737
    
    
    
    4,4562012
    
    
    3,104
    
    
    
    38
    
    
    
    3,0662013
    
    
    2,831
    
    
    
    
    
    
    
    2,831Thereafter
    
    
    9,299
    
    
    
    
    
    
    
    9,299$
    44,387
    
    
    $
    10,924
    
    
    $
    33,463
 Notes payable and capital leases.
 December 31,2008
    
    
    2007Note payable due Feb. 2011 in monthly installments of $40 thousand which include interest at 7.61%
    
    $
    5,141
    
    
    $
    5,214Note payable due Aug. 2011 in monthly installments of $7 thousand
which include interest at 12.0%
    
    
    194
    
    
    
    253Note payable due Dec. 2008 in monthly installments of $3 thousand
which include interest at 6.0%
    
    
    
    
    
    
    33Capital lease obligations with maturity dates ranging from Apr. 2009
through Dec. 2010 with interest rates of 1.45% - 7.9 %
    
    
    4,778
    
    
    
    7,030$
    10,113
    
    
    $
    12,530Less: Current maturities included in current liabilities
    
    
    (3,917
    )
    
    
    (3,725
    )$
    6,196
    
    
    $
    8,805
    Notes Payable
    
    
    Capital Leases
    
    
    Total2009
    
    $
    560
    
    
    $
    3,912
    
    
    $
    4,4722010
    
    
    560
    
    
    
    1,040
    
    
    
    1,6002011 (1)
    
    
    5,094
    
    
    
    
    
    
    
    5,094$
    6,214
    
    
    $
    4,952
    
    
    $
    11,166Less amount representing interest
    
    
    (879
    )
    
    
    (174
    )
    
    
    (1,053
    )$
    5,335
    
    
    $
    4,778
    
    
    $
    10,113
 (1)
    
    We do not have any long-term debt obligations that are due beyond 2011.  62




---



##### Table of Contents



Contractual commitments.
 Guarantees.
 Litigation.
 14. Income Taxes
  2008
    
    
    2007
    
    
    2006U.S. operations
    
    $
    7,223
    
    
    $
    10,834
    
    
    $
    (5,417
    )Foreign operations
    
    
    16,881
    
    
    
    10,125
    
    
    
    (5,544
    )$
    24,104
    
    
    $
    20,959
    
    
    $
    (10,961
    )
  2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    27
    
    
    $
    408
    
    
    $
    158Foreign
    
    
    3,412
    
    
    
    513
    
    
    
    386State
    
    
    710
    
    
    
    543
    
    
    
    734Total current
    
    $
    4,149
    
    
    $
    1,464
    
    
    $
    1,278Deferred:Federal
    
    $
    
    
    
    $
    
    
    
    $
    Foreign
    
    
    (1,895
    )
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Total deferred
    
    $
    (1,895
    )
    
    $
    
    
    
    $
    Total income tax expense
    
    $
    2,254
    
    
    $
    1,464
    
    
    $
    1,278
  2008
    
    
    2007
    
    
    2006Income tax expense (benefit) at federal statutory rate of 35%
    
    $
    8,436
    
    
    $
    7,335
    
    
    $
    (3,836
    )State income tax expense, net of federal benefit
    
    
    457
    
    
    
    353
    
    
    
    477Tax assessments and FIN 48 release
    
    
    317
    
    
    
    
    
    
    
    Deferred tax valuation allowance release
    
    
    (2,048
    )
    
    
    
    
    
    
    (Decrease) increase in valuation allowance related to
current year operations
    
    
    (3,150
    )
    
    
    (6,664
    )
    
    
    3,932Foreign operations tax rate differences
    
    
    (2,447
    )
    
    
    (1,911
    )
    
    
    4Other foreign taxes
    
    
    
    
    
    
    289
    
    
    
    315Other permanent items
    
    
    689
    
    
    
    2,062
    
    
    
    386Income tax expense
    
    $
    2,254
    
    
    $
    1,464
    
    
    $
    1,278
  63




---



##### Table of Contents



2008
    
    
    2007Deferred income tax assets:Net operating loss carryforwards
    
    $
    100,205
    
    
    $
    104,618Equity in net loss of affiliate
    
    
    18,438
    
    
    
    18,438Accrued expenses
    
    
    9,189
    
    
    
    5,878Deferred revenue
    
    
    8,123
    
    
    
    8,087Tax credit carryforwards
    
    
    3,027
    
    
    
    2,310Restructuring
    
    
    2,175
    
    
    
    3,379Property and equipment depreciation
    
    
    3,283
    
    
    
    4,590Other
    
    
    393
    
    
    
    351Total gross deferred income tax assets
    
    
    144,833
    
    
    
    147,651Valuation allowance for deferred income tax assets
    
    
    (140,110
    )
    
    
    (145,346
    )Total deferred income tax assets
    
    
    4,723
    
    
    
    2,305Deferred income tax liabilities:Identifiable intangibles
    
    
    1,210
    
    
    
    2,305Net deferred income taxes
    
    $
    3,513
    
    
    $
    Included in:Other current assets
    
    $
    237
    
    
    $
    208Other noncurrent assets
    
    
    3,708
    
    
    
    Other liabilities
    
    
    (222
    )
    
    
    (208
    )Other noncurrent liabilities
    
    
    (210
    )
    
    
    Net deferred income taxes
    
    $
    3,513
    
    
    $
    
     64




---



##### Table of Contents



2008
    
    
    2007Beginning Balance
    
    $
    11,385
    
    
    $
    13,209Reductions for tax positions of prior years
    
    
    (3,290
    )
    
    
    (1,725
    )Settlements
    
    
    
    
    
    
    (99
    )Ending Balance
    
    $
    8,095
    
    
    $
    11,385
    15. Stock Option Plans
   65




---



##### Table of Contents



For the year ended December 31,2008
    
    
    2007
    
    
    2006Operating expenses:Professional services, support and maintenance
    
    $
    344
    
    
    $
    514
    
    
    $
    481Data center
    
    
    100
    
    
    
    70
    
    
    
    76Selling and marketing
    
    
    2,949
    
    
    
    3,984
    
    
    
    1,575Product development
    
    
    1,034
    
    
    
    1,669
    
    
    
    978General and administrative
    
    
    3,665
    
    
    
    2,285
    
    
    
    1,874Merger related and restructuring costs
    
    
    
    
    
    
    
    
    
    
    525Discontinued operations
    
    
    
    
    
    
    
    
    
    
    154Total stock-based compensation expense
    
    $
    8,092
    
    
    $
    8,522
    
    
    $
    5,663
 Stock Options.
 As of December 31,2008
    
    
    2007
    
    
    2006Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    44.4
    %
    
    
    45.0
    %
    
    
    51.9
    %Risk-free interest rate
    
    
    3.1
    %
    
    
    4.8
    %
    
    
    4.7
    %Expected life
    
    4.4 years
    
    4.0 years
    
    4.0 years
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise
    
    
    Contractual
    
    
    Value(000)
    
    
    Price
    
    
    Life (Yrs)
    
    
    ($000)Outstanding at December 31, 2007
    
    
    6,135
    
    
    $
    7.58Granted
    
    
    1,487
    
    
    
    6.42Exercised
    
    
    (335
    )
    
    
    4.33
    
    
    
    
    
    
    $
    1,077Forfeited
    
    
    (495
    )
    
    
    9.51Outstanding at December 31, 2008
    
    
    6,792
    
    
    $
    7.34
    
    
    
    6.6
    
    
    $
    12,802Exercisable at December 31, 2008
    
    
    4,444
    
    
    $
    8.04
    
    
    
    5.4
    
    
    $
    8,394
  66




---



##### Table of Contents



Non-Vested
    
    
    Weighted-Number of
    
    
    AverageShares
    
    
    Grant-Date(000)
    
    
    Fair ValueNon-vested balance at December 31, 2007
    
    
    2,658
    
    
    $
    2.51Granted
    
    
    1,487
    
    
    
    2.58Vested
    
    
    (1,557
    )
    
    
    2.57Forfeited
    
    
    (240
    )
    
    
    2.34Non-vested balance at December 31, 2008
    
    
    2,348
    
    
    $
    2.53
  Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Number
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    AverageOutstanding
    
    
    Contractual
    
    
    Exercise
    
    
    Exercisable
    
    
    ExerciseRange of Exercise Price
    
    (000)
    
    
    Life (Yrs)
    
    
    Price
    
    
    (000)
    
    
    Price$1.21    4.00
    
    
    196
    
    
    
    4.5
    
    
    $
    3.59
    
    
    
    190
    
    
    $
    3.584.01    5.00
    
    
    2,174
    
    
    
    7.3
    
    
    
    4.54
    
    
    
    1,864
    
    
    
    4.605.01    6.00
    
    
    878
    
    
    
    7.1
    
    
    
    5.29
    
    
    
    395
    
    
    
    5.236.01    7.00
    
    
    1,519
    
    
    
    8.8
    
    
    
    6.43
    
    
    
    221
    
    
    
    6.587.01    8.50
    
    
    1,027
    
    
    
    5.8
    
    
    
    7.92
    
    
    
    775
    
    
    
    7.988.51    11.00
    
    
    403
    
    
    
    3.1
    
    
    
    9.31
    
    
    
    403
    
    
    
    9.3111.01    15.00
    
    
    84
    
    
    
    1.5
    
    
    
    12.52
    
    
    
    85
    
    
    
    12.5215.01    20.00
    
    
    379
    
    
    
    2.2
    
    
    
    16.47
    
    
    
    379
    
    
    
    16.4720.01    97.44
    
    
    132
    
    
    
    1.0
    
    
    
    43.31
    
    
    
    132
    
    
    
    43.311.21    97.44
    
    
    6,792
    
    
    
    6.6
    
    
    $
    7.34
    
    
    
    4,444
    
    
    $
    8.04
   67




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##### Table of Contents



Restricted Stock Activity.
 Weighted-Average
    
    
    AggregateRemaining
    
    
    IntrinsicShares
    
    
    Contractual
    
    
    Value(000)
    
    
    Life (Yrs)
    
    
    ($000)Unvested at December 31, 2007
    
    
    138Granted
    
    
    202Vested
    
    
    (128
    )
    
    
    
    
    
    $
    801Forfeited
    
    
    (11
    )Unvested at December 31, 2008
    
    
    201
    
    
    
    2.0
    
    
    $
    1,584Expected to Vest
    
    
    201
    
    
    
    2.0
    
    
    $
    1,584
  Stock Appreciation Rights Activity.
 As of December 31,2008
    
    
    2007
    
    
    2006Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    51.5
    %
    
    
    44.8
    %
    
    
    59.1
    %Risk-free interest rate
    
    
    0.9
    %
    
    
    3.3
    %
    
    
    4.6
    %Expected life
    
    2.6 years
    
    3.6 years
    
    4.6 years
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise
    
    
    Contractual
    
    
    Value(000)
    
    
    Price
    
    
    Life (Yrs)
    
    
    ($000)Outstanding at December 31, 2007
    
    
    1,650
    
    
    $
    4.87Granted
    
    
    
    
    
    
    Exercised
    
    
    (53
    )
    
    
    4.86
    
    
    
    
    
    
    $
    168Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    1,597
    
    
    $
    4.87
    
    
    
    7.9
    
    
    $
    4,823Exercisable at December 31, 2008
    
    
    1,597
    
    
    $
    4.87
    
    
    
    7.9
    
    
    $
    4,823
  68




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##### Table of Contents



Non-VestedNumber of
    
    
    Weighted-Shares
    
    
    Average(000)
    
    
    Fair ValueNon-vested balance at December 31, 2007
    
    
    985
    
    
    $
    3.72Granted
    
    
    
    
    
    
    Vested
    
    
    (985
    )
    
    
    2.42Forfeited
    
    
    
    
    
    
    Non-vested balance at December 31, 2008
    
    
    
    
    
    $
    
  16. Convertible Preferred Stock
    17. Equity Transactions
   69




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##### Table of Contents



18. Segment Reporting, Geographic Disclosures and Major Customers
   Year Ended December 31, 2008Enterprise
    
    
    Postilion
    
    
    TotalRevenue:Software license
    
    $
    8,685
    
    
    $
    29,174
    
    
    
    37,859Support and maintenance
    
    
    16,897
    
    
    
    32,266
    
    
    
    49,163Professional services
    
    
    71,522
    
    
    
    20,723
    
    
    
    92,245Data center
    
    
    28,253
    
    
    
    19,583
    
    
    
    47,836Other revenue
    
    
    992
    
    
    
    340
    
    
    
    1,332Total revenue
    
    $
    126,349
    
    
    $
    102,086
    
    
    $
    228,435Operating expenses:Direct costs
    
    
    61,835
    
    
    
    42,654
    
    
    
    104,489Selling and marketing
    
    
    15,852
    
    
    
    20,580
    
    
    
    36,432Product development
    
    
    18,229
    
    
    
    11,042
    
    
    
    29,271General and administrative
    
    
    13,990
    
    
    
    11,836
    
    
    
    25,826Depreciation
    
    
    4,614
    
    
    
    3,322
    
    
    
    7,936Amortization of
other intangible assets
    
    
    
    
    
    
    1,130
    
    
    
    1,130Total operating expenses
    
    
    114,520
    
    
    
    90,564
    
    
    
    205,084Operating income
    
    $
    11,829
    
    
    $
    11,522
    
    
    $
    23,351
  70




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##### Table of Contents



Year Ended December 31, 2007Enterprise
    
    
    Postilion
    
    
    TotalRevenue:Software license
    
    $
    6,405
    
    
    $
    24,304
    
    
    
    30,709Support and maintenance
    
    
    16,071
    
    
    
    29,520
    
    
    
    45,591Professional services
    
    
    63,740
    
    
    
    16,014
    
    
    
    79,754Data center
    
    
    25,478
    
    
    
    22,318
    
    
    
    47,796Other revenue
    
    
    557
    
    
    
    518
    
    
    
    1,075Total revenue
    
    $
    112,251
    
    
    $
    92,674
    
    
    $
    204,925Operating expenses:Direct costs
    
    
    57,610
    
    
    
    39,357
    
    
    
    96,967Selling and marketing
    
    
    13,122
    
    
    
    18,182
    
    
    
    31,304Product development
    
    
    11,649
    
    
    
    12,089
    
    
    
    23,738General and administrative
    
    
    14,524
    
    
    
    11,735
    
    
    
    26,259Depreciation
    
    
    4,503
    
    
    
    2,520
    
    
    
    7,023Amortization of
other intangible assets
    
    
    45
    
    
    
    1,130
    
    
    
    1,175Total operating expenses
    
    
    101,453
    
    
    
    85,013
    
    
    
    186,466Operating income
    
    $
    10,798
    
    
    $
    7,661
    
    
    $
    18,459
 Year Ended December 31, 2006Enterprise
    
    
    Postilion
    
    
    TotalRevenue:Software license
    
    $
    9,408
    
    
    $
    20,380
    
    
    
    29,788Support and maintenance
    
    
    14,333
    
    
    
    29,761
    
    
    
    44,094Professional services
    
    
    54,865
    
    
    
    15,432
    
    
    
    70,297Data center
    
    
    21,131
    
    
    
    25,725
    
    
    
    46,856Other revenue
    
    
    517
    
    
    
    758
    
    
    
    1,275Total revenue
    
    $
    100,254
    
    
    $
    92,056
    
    
    $
    192,310Operating expenses:Direct costs
    
    
    56,278
    
    
    
    36,998
    
    
    
    93,276Selling and marketing
    
    
    12,626
    
    
    
    15,032
    
    
    
    27,658Product development
    
    
    23,968
    
    
    
    14,969
    
    
    
    38,937General and administrative
    
    
    13,901
    
    
    
    12,793
    
    
    
    26,694Merger related and restructuring costs
    
    
    9,018
    
    
    
    3,467
    
    
    
    12,485Depreciation
    
    
    5,107
    
    
    
    2,733
    
    
    
    7,840Amortization of
other intangible assets
    
    
    180
    
    
    
    1,130
    
    
    
    1,310Total operating expenses
    
    
    121,078
    
    
    
    87,122
    
    
    
    208,200Operating (loss) income
    
    $
    (20,824
    )
    
    $
    4,934
    
    
    $
    (15,890
    )
 Geography.
 Revenue
    
    
    Property and Equipment2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007Americas
    
    $
    164,642
    
    
    $
    154,233
    
    
    $
    157,056
    
    
    $
    21,669
    
    
    $
    19,599InternationalEMEI
    
    
    40,503
    
    
    
    36,255
    
    
    
    24,218
    
    
    
    893
    
    
    
    853Africa
    
    
    9,215
    
    
    
    7,357
    
    
    
    6,897
    
    
    
    374
    
    
    
    381APAC
    
    
    14,075
    
    
    
    7,080
    
    
    
    4,139
    
    
    
    79
    
    
    
    73Total
    
    $
    228,435
    
    
    $
    204,925
    
    
    $
    192,310
    
    
    $
    23,015
    
    
    $
    20,906
  71




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##### Table of Contents



Major customer.
 19. Net Income (Loss) Per Share
   2008
    
    
    2007
    
    
    2006(in thousands, except per share data)Basic earnings per share:Income (loss) from continuing operations
    
    $
    21,850
    
    
    $
    19,495
    
    
    $
    (12,239
    )Amount allocated to participating preferred stockholders
    
    
    (412
    )
    
    
    (343
    )
    
    
    Income (loss) from continuing operations
available to common stockholders  basic
    
    $
    21,438
    
    
    $
    19,152
    
    
    $
    (12,239
    )Weighted average common shares outstanding
    
    
    55,734
    
    
    
    59,746
    
    
    
    70,780Basic income (loss) from continuing operations
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    (0.17
    )Diluted earnings per share:Income (loss) from continuing operations
    
    $
    21,850
    
    
    $
    19,495
    
    
    $
    (12,239
    )Amount allocated to participating preferred stockholders
    
    
    (412
    )
    
    
    (343
    )
    
    
    Income (loss) from continuing operations
available to common stockholders  diluted
    
    $
    21,438
    
    
    $
    19,152
    
    
    $
    (12,239
    )Weighted average common shares outstanding
    
    
    55,734
    
    
    
    59,746
    
    
    
    70,780Weighted average effect of common stock equivalent
stock options and restricted stock
    
    
    807
    
    
    
    934
    
    
    
    Weighted average diluted shares outstanding
    
    
    56,541
    
    
    
    60,680
    
    
    
    70,780Diluted income (loss) from continuing operations
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    (0.17
    )
  72




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##### Table of Contents



20. Quarterly Financial Information (Unaudited)
  Three Months EndedDec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,
    
    
    Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007(in thousands, except per share data)Software license
    
    $
    11,336
    
    
    $
    9,129
    
    
    $
    8,055
    
    
    $
    9,339
    
    
    $
    8,901
    
    
    $
    8,291
    
    
    $
    7,755
    
    
    $
    5,762Support and maintenance
    
    
    12,631
    
    
    
    12,244
    
    
    
    12,584
    
    
    
    11,704
    
    
    
    12,194
    
    
    
    11,695
    
    
    
    11,227
    
    
    
    10,475Professional services
    
    
    22,613
    
    
    
    24,905
    
    
    
    23,657
    
    
    
    21,070
    
    
    
    19,215
    
    
    
    19,426
    
    
    
    21,681
    
    
    
    19,432Data center
    
    
    11,568
    
    
    
    12,080
    
    
    
    11,921
    
    
    
    12,267
    
    
    
    12,719
    
    
    
    11,647
    
    
    
    11,730
    
    
    
    11,700Other revenue
    
    
    477
    
    
    
    291
    
    
    
    271
    
    
    
    293
    
    
    
    418
    
    
    
    255
    
    
    
    205
    
    
    
    197Total Revenue
    
    
    58,625
    
    
    
    58,649
    
    
    
    56,488
    
    
    
    54,673
    
    
    
    53,447
    
    
    
    51,314
    
    
    
    52,598
    
    
    
    47,566Direct costs (1) (2)
    
    
    26,766
    
    
    
    27,103
    
    
    
    25,579
    
    
    
    25,041
    
    
    
    25,609
    
    
    
    24,341
    
    
    
    24,182
    
    
    
    22,835Operating expenses excluding
direct costs (1) (3)
    
    
    27,639
    
    
    
    24,369
    
    
    
    24,956
    
    
    
    23,631
    
    
    
    21,267
    
    
    
    22,567
    
    
    
    23,403
    
    
    
    22,262Operating income
    
    
    4,220
    
    
    
    7,177
    
    
    
    5,953
    
    
    
    6,001
    
    
    
    6,571
    
    
    
    4,406
    
    
    
    5,013
    
    
    
    2,469Net income
    
    $
    5,333
    
    
    $
    6,191
    
    
    $
    5,136
    
    
    $
    5,190
    
    
    $
    6,431
    
    
    $
    5,148
    
    
    $
    4,949
    
    
    $
    2,967Earnings per share:Net income per common share  basic
    
    $
    0.10
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.05Net income per common share  diluted
    
    $
    0.10
    
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.11
    
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.05(1)   Includes stock based
compensation expense
    
    $
    3,487
    
    
    $
    412
    
    
    $
    2,305
    
    
    $
    1,888
    
    
    $
    620
    
    
    $
    2,889
    
    
    $
    3,108
    
    
    $
    1,905
 (2)
    
    Includes Cost of software licenses, Cost of professional services, support and maintenance, Cost of data center and Cost of other revenue.(3)
    
    Includes Selling and marketing, Product development, General and administrative, Merger related and restructuring costs,
Depreciation and Amortization of other intangible assets.  73




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##### Table of Contents



Schedule II
 VALUATION AND QUALIFYING ACCOUNTS
 FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 Balance
    
    
    Additionsat
    
    
    Charged to
    
    
    Charged to
    
    
    
    
    
    
    Balance atbeginning
    
    
    costs and
    
    
    other
    
    
    
    
    
    
    end ofDescription
    
    of period
    
    
    expenses
    
    
    accounts
    
    
    Deductions
    
    
    period(in thousands)Year 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
    )
    
    
    
    
    
    $
    145,346Year ended December 31, 2006:Allowance for doubtful accounts
    
    $
    5,810
    
    
    
    1,301
    
    
    
    
    
    
    
    (2,862
    )
    
    $
    4,249Valuation allowance for deferred taxes
    
    $
    199,173
    
    
    
    3,932
    
    
    
    (37,529
    )
    
    
    
    
    
    $
    165,576
  74




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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.
   75




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
  
 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 and Directors Independence .
  
 Item 14. Principal Accounting Fees and Services.
   76




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, 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 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 for the fiscal year
ended December 31, 1999 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 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 for S1s 1999 annual meeting of shareholders 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).*
  77




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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
    
    
    Settlement Agreement By and between S1 Corporation, and Ramius Group, dated as of May 3,
2006 (filed as Exhibit 10.1 to S1s Current Report on Form 8-K filed with the SEC on May 9,
2006 and incorporated herein by reference).10.10
    
    
    S1 Corporation 2008 Management Incentive Plan (filed as Exhibit 10.22 to S1s Annual Report
on Form 10-K for the fiscal year ended December 31, 2007 and incorporated herein by
reference).*10.11
    
    
    S1 Corporation 2009 Management Incentive Plan (filed as Exhibit 10.1 to S1s Current Report
on Form 8-K with SEC on January 29, 2009 and incorporated herein by reference).*10.12
    
    
    Form of Indemnification Agreement, executed by Johann Dreyer, Thomas P. Johnson, Jr., Ram
Gupta, M. Douglas Ivester, Gregory J. Owens and John W. Spiegel on November 13, 2006, and
Gregory D. Orenstein and John A. Stone on June 14, 2007 (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).10.13
    
    
    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).10.14
    
    
    Description of Arrangement for Directors Fees10.15
    
    
    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).*10.16
    
    
    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).*10.17
    
    
    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).*10.18
    
    
    Agreement with Meigan Putnam dated December 24, 2008 (filed as Exhibit 10.3 to S1s Current
Report on Form 8-K filed with the SEC on December 24, 2008 and incorporated herein by
reference).*10.19
    
    
    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).*10.18
    
    
    Separation and Consulting Agreement with John A. Stone dated August 5, 2008 (filed as
Exhibit 10.1 to S1s Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2008 and incorporated herein by reference).*
  78




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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.  79




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##### Table of Contents



SIGNATURES
  S1 CORPORATIONBy:
    /s/ STEPHEN M. DEXTERStephen M. DexterVice President and Corporate Controller
(Principal Accounting Officer)  Name
    
    Title
    
    Date/s/ JOHN W. SPIEGEL

John W. Spiegel
    
    Chairman of the Board
    
    March 5, 2009/s/ JOHANN DREYER

Johann Dreyer
    
    Chief Executive Officer and
Director(Principal Executive Officer)
    
    March 5, 2009/s/ PAUL M. PARRISH

Paul M. Parrish
    
    Chief Financial Officer (Principal
Financial Officer)
    
    March 5, 2009/s/ STEPHEN M. DEXTER

Stephen M. Dexter
    
    Vice President and Corporate
Controller
(Principal Accounting Officer)
    
    March 5, 2009/s/ M. DOUGLAS IVESTER

M. Douglas Ivester
    
    Director
    
    March 5, 2009/s/ THOMAS P. JOHNSON, JR.

Thomas P. Johnson, Jr.
    
    Director
    
    March 5, 2009/s/ GREGORY J. OWENS

Gregory J. Owens
    
    Director
    
    March 5, 2009/s/ EDWARD TERINO

Edward Terino
    
    Director
    
    March 5, 2009
  80




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo
    
    Exhibit Description10.14
    
    
    Description of Arrangement for Directors Fees21.1
    
    
    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
  81