##### 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, 2007
 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
    
    58-2395199(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 705 Westech DriveNorcross, Georgia
    
    30092(Address of principal executive offices)
    
    (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:
 o þ
 o þ
 þ o
 o
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
   Documents Incorporated by Reference




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##### 



S1 CORPORATION
 FOR THE YEAR ENDED DECEMBER 31, 2007
 TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    12Item 1B. Unresolved Staff Comments
    
    
    18Item 2. Properties
    
    
    19Item 3. Legal Proceedings
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    20Item 6. Selected Financial Data
    
    
    23Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 7A. Qualitative and Quantitative Disclosures about Market Risk
    
    
    46Item 8. Financial Statements and Supplementary Data
    
    
    48Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    86Item 9A. Controls and Procedures
    
    
    86Item 9B. Other Information
    
    
    86PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    87Item 11. Executive Compensation
    
    
    87Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    87Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    87Item 14. Principal Accountant Fees and Services
    
    
    87PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    88Signatures
    
    
    92EX-10.19 EMPLOYMENT AGREEMENT & CONFIDENTIALITY AGREEMENT/ NEIL UNDERWROODEX-10.20 EMPLOYMENT AGREEMENT & CONFIDENTIALITY AGREEMENT/ MEIGAN PUTNAMEX-10.22 MANAGEMENT INCENTIVE PLANEX-10.25 DESCRIPTION OF ARRANGEMENT FOR DIRECTOR FEESEX-21 SUBSIDIARIES OF S1.EX-23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO




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##### Table of Contents



PART I
 
 Item 1. Business
  Executive Overview
  Financial Reporting Segments
    
    Enterprise
    
    PostilionMarketing Brands
    
    S1 Enterprise
    
    Postilion
    
    FSB
    1




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General Background
   S1 Vision and Strategy
  
    
    Create satisfied customers by developing the most innovative solutions and providing the
highest level of customer service. With a satisfied customer comes the opportunity to sell
additional solutions and services.
    
    Cross-sell the multiple applications that run on the S1 Enterprise and Postilion
platforms.
    
    Continue improving operations to be the most efficient software company possible.
    
    Create and deliver innovative, quality products and services to meet current market
demands and future customer needs.
    
    Broaden our product offerings and increase our market penetration by selectively making
acquisitions and/or pursuing new markets for our solutions.
 2




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Sources of Revenue
  Enterprise
    
    PostilionBrands
    
    S1 Enterprise
    
    Postilion
    
    FSBRetail OnlinePersonal Banking
    
    Global
    
    US
    
    
    Business Banking
    
    Global
    
    US
    
    
    Mobile Banking and Payments
    
    Global
    
    Global
    
    
    Treasury OnlineCorporate Banking
    
    Global
    
    
    
    
    
    
    Trade Finance
    
    Global
    
    
    
    
    
    
    Insurance
    
    US
    
    
    
    
    
    
    Payments
    
    
    
    
    
    Global
    
    
    Branch BankingTeller
    
    Global
    
    
    
    
    
    USSales and Service
    
    Global
    
    
    
    
    
    USCall Center
    
    Global
    
    
    
    
    
    USVoice Banking
    
    Global
    
    US
    
    USLending
    
    
    
    
    
    
    
    
    
    USBill pay services
    
    US
    
    US
    
    
    
 Enterprise Segment
   3




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##### Table of Contents



S1 Enterprise Retail Online Solutions
 
    
    S1 Enterprise Personal Bankingallows our customers to offer online banking
capabilities, including personal finance management, electronic bill payment and
presentment, account aggregation, external account transfers, alerts and reminders, and
online self-service tools.
    
    S1 Enterprise 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 Enterprise Mobile Banking and Payments provides the ability to access and
manage bank account information and perform financial transactions via the
convenience of a mobile device.
 S1 Enterprise Treasury Online Solutions
 
    
    S1 Enterprise Corporate Bankingdelivers a sophisticated multilingual, multi-currency,
and multi-delivery channel offering giving our banking clients the ability to offer cash
management functions on a global basis for high-volume users. S1 Corporate Banking
provides users real-time data on account balances and transactions as well as straight-thru
processing on payments from ACH to Fedwire to SWIFT.
    
    S1 Enterprise Trade Financestreamlines the trade finance process for the online
marketplace. The S1 Trade Finance product is designed to increase the efficiency of
processing trade transactions and delivers one integrated system to create and report on
trade documents from purchase orders, to letters of credit, to direct collections.
 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. 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. With real-time information from all channels and advanced
features that support selling, branches can increase their visibility of potential
cross-sell and up-sell opportunities, and have the tools to act on those opportunities.
    
    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.
 4




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
    
    S1 Enterprise Voice Bankingprovides voice banking capabilities that can be rapidly
deployed using technology from a third-party solution partner. The voice application is
integrated with the S1 Enterprise Platform. As a result, customer information generated
with Voice Banking can be integrated and accessed with bank customer information from all
other channels using S1 Enterprise applications.
 S1 Enterprise Insurance
    Postilion Segment
  Postilion
  
    
    IBS Retail Internet Bankingis designed specifically with the unique needs of the
community banking and credit union market in mind. This turn-key application includes
functions such as the ability to view statements, account activity, and cleared and pending
transactions online, to transfer funds between accounts and to pay bills electronically.
    
    IBS Cash Managementis designed to help community banks and credit unions deliver
services to small businesses. Functions include integrated front and back office systems,
multiple payment vehicles such as domestic and SWIFT wires, ACH, and EFTPS, integration
with the IBS Retail Internet Banking application and Electronic Data Interchange (EDI)
data display.
    
    Voice Bankingdelivers integrated voice response (IVR) functionality in a stable,
flexible, Windows-based application. With the push of a button, users can check on a
deposit or account balance, find a CD rate, pay bills or transfer funds.
    
    Mobile banking and payments provides the ability to access and manage bank account information and perform financial transactions via the convenience of a mobile device.
 5




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
    
    Postilionis a self-service banking and payments platform used by financial
institutions, retailers, telecom operators and processors to drive self-service financial
transactions and payments through ATMs, POS terminals, phones and Internet access points.
It is a modular and scalable software product that can be implemented in large financial
institutions as well as smaller community and regional banks and credit unions.
 FSB Solutions
  
    
    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. It also includes options for fully
integrated Teller image capture. 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 IVR systems, computer telephony integration (CTI) servers and
automatic call distributor systems.
    
    FSB Marketing Centerprovides our customers 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. The system 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 tremendous
operational and administrative consistency and control.
 Additional Solutions
 
    
    Pay Anyone.We provide bill-pay services through third-party partnerships for all of our
online retail banking applications.
 Services
  Professional Services
  
    
    Project Management Our project managers are responsible for the oversight of services
projects throughout the implementation cycle;
    
    Custom Software Development Our software developers customize certain software
solutions to meet the specific
 6




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business requirements of our customers  from analysis and
design to building and testing;
    
    Educational Services Our training professionals help financial institutions train
their employees to use our solutions to better serve their customers; and
    
    Web Design Services Our web design group assists with the delivery of a complete web
presence for financial institutions.
 Customer Support
  
    
    Technical Support 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
  Financial Industry Background
 
    
    pressure to grow their businesses;
    
    pressure to reduce costs through mergers and acquisitions;
    
    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
  8




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Strategic Alliances and Partners
   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;
    
    attracting and retaining the necessary technical personnel can be difficult and costly;
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
 10




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Enterprise Solution Vendors
  Government Regulation
   Employees
  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 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 revenues;
    
    if we fail to or are delayed in the introduction of new or enhanced products, or if our
competitors introduce new or enhanced products, sales of our products and services may not
achieve expected levels and/or may decline;
    
    our ability to expand the mix of distribution channels through which our products are
sold may be limited;
    
    our products may not achieve widespread market acceptance, which could cause our
revenues 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 revenues decrease; 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.
 We have experienced substantial losses in the past and may not achieve or maintain profitable
operations in the future
  12




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We depend on one customer, State Farm Mutual Automobile Insurance Company (State Farm), for a
significant portion of our revenue and if that customer terminates its relationship with us, or
reduces the amount of software or services they buy from us, our revenues and financial performance
would decline
  Security breaches or computer viruses could harm our business by disrupting our delivery of
services and damaging our reputation and business
   Most of our customers are in the financial services industry, which is subject to economic changes
that could reduce the demand for our products and services
  System failures or performance problems with our products could cause demand for these products to
decrease, require us to make significant capital expenditures or impair customer relations
  
    
    delays in completing and/or testing new products, resulting in significant delays in
delivering new products;
    
    extraordinary end-user volumes or other events could cause systems to fail;
 13




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
    
    our products could contain errors, or bugs, which could impair the services we
provide;
    
    during the initial implementation of some products, we have experienced significant
delays in implementing and integrating software, and we may experience similar difficulties
or delays in connection with future implementations
and upgrades to new versions; and
    
    many of our products require integration with third-party products and systems and we
may not be able to efficiently and effectively integrate these products with new or
existing products.
 We are subject to government regulation
  We are engaged in offshore software development activities which may not be successful and which
may put our intellectual property at risk
  
    
    Communications and information flow may be less efficient and accurate as a consequence
of time zone differences, distance and language differences between our primary development
organization and the foreign based activities, resulting in delays in development or errors
in the software developed;
    
    potential disruption from the involvement of the United States in political and military
conflicts around the world;
    
    the quality of the development efforts undertaken offshore may not meet our requirements
because of language, cultural and experience differences, resulting in potential product
errors and/or delays;
    
    we have experienced a greater level of voluntary turnover of personnel in India than in
other development centers which could have an adverse impact on efficiency and timeliness
of development as well as the opportunity for misappropriation of our intellectual
property;
    
    in addition to the risk of misappropriation of intellectual property from departing
personnel, there is a general risk of the potential for misappropriation of our
intellectual property that 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
  14




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
    
    be time-consuming to investigate and defend;
    
    result in costly litigation;
    
    cause product shipment delays;
    
    require us to enter into royalty or licensing agreements; or
    
    result in an injunction being issued against the use of our products.
  
    
    pay substantial damages;
    
    discontinue the use and sale of infringing products;
    
    expend significant resources to develop non-infringing technology; or
    
    obtain licenses to the infringing technology.
  Our operating results would suffer if we were subject to a protracted infringement claim or a
significant damage award
    
    
    costly litigation and damage awards;
    
    diversion of management attention and resources;
    
    product shipment delays or suspensions;
    
    injunction prohibiting us from selling our products; and
    
    the need to enter into royalty or licensing agreements, which may not be available on
terms acceptable to us, if at all.
 15




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Infringement of our proprietary technology could hurt our competitive position and income potential
  Acquisitions and divestitures may be costly and difficult to integrate / divest, divert management
resources or dilute stockholder value
  
    
    potential incompatibility of business cultures;
    
    potential delays in rationalizing 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
    
    the loss of key employees and diversion of the attention of management from other
ongoing business concerns.
 Market volatility may affect the price of our common stock
  
    
    actual or anticipated variations in our quarterly operating results;
    
    approximately 34% of our common stock is owned by four institutions as of December 31,
2007, 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;
 16




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
    
    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.
 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;
 17




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
    
    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.
   If we are unable to attract and retain highly skilled technical employees, we may not be able to
compete
  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
  18




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Item 2. Properties
  
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
     19




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities.
  High
    
    Low2007First Quarter
    
    $
    6.08
    
    
    $
    5.11Second Quarter
    
    
    8.36
    
    
    
    6.00Third Quarter
    
    
    9.23
    
    
    
    5.65Fourth Quarter
    
    
    9.45
    
    
    
    6.522006First Quarter
    
    $
    5.04
    
    
    $
    3.80Second Quarter
    
    
    5.96
    
    
    
    4.35Third Quarter
    
    
    5.15
    
    
    
    4.02Fourth Quarter
    
    
    5.66
    
    
    
    4.38
   Number of securities to be
    
    
    
    
    
    Number of securities remainingissued upon exercise of
    
    
    Weighted-average
    
    
    available for future issuance underoutstanding options,warrants
    
    
    exercise price of
    
    
    equity compensation plans (excluding securitiesand rights
    
    
    outstanding options,
    
    
    reflected in column (a))(in 000s)
    
    
    warrants and rights
    
    
    (in 000s)Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans
approved by shareholders
    
    
    4,671
    
    
    $
    5.41
    
    
    
    384Equity compensation plans not
approved by shareholders
    
    
    1,602
    
    
    
    13.82
    
    
    
    Total
    
    
    6,273
    
    
    $
    7.56
    
    
    
    384
 20




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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, 2007
 
 Comparison of Cumulative Total Return Among
S1, Interactive Week Internet Index and Nasdaq Composite Index
from December 31, 2003 to December 31, 2007
 12/31/2003
    
    
    12/31/2004
    
    
    12/31/2005
    
    
    12/31/2006
    
    
    12/31/2007S1 Corporation
    
    
    $
    100
    
    
    
    $
    112
    
    
    
    $
    54
    
    
    
    $
    68
    
    
    
    $
    90Interactive Week Internet Index
    
    
    $
    100
    
    
    
    $
    121
    
    
    
    $
    122
    
    
    
    $
    139
    
    
    
    $
    160NASDAQ Composite
    
    
    $
    100
    
    
    
    $
    109
    
    
    
    $
    110
    
    
    
    $
    121
    
    
    
    $
    132
  21




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Issuer Purchases of Equity Securities
 Maximum number (orTotal number of
    
    
    approximate dollarshares purchased
    
    
    value) of shares thatTotal number
    
    
    
    
    
    
    as part of a publicly
    
    
    may yet be purchasedof shares
    
    
    Average price
    
    
    announced plan or
    
    
    under the plan orPeriod
    
    purchased
    
    
    paid per share (1)
    
    
    program
    
    
    programOctober 1, 2007 - October 31, 2007
    
    
    164,500
    
    
    $
    8.34
    
    
    
    164,500
    
    
    $
    14,030,690November 1, 2007 - November 30, 2007
    
    
    1,870,100
    
    
    $
    7.64
    
    
    
    1,870,100
    
    
    $
    December 1, 2007 - December 31, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    9,741,473Total for fourth quarter of 2007
    
    
    2,034,600
    
    
    $
    7.70
    
    
    
    2,034,600
 
 (1)
    
    Average price per share does not include related transaction
costs to repurchase the stock.    22




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Item 6. Selected Financial Data.
  Year Ended December 31,2007
    
    2006 (1)(2)(3)
    
    2005 (2)(3)
    
    2004 (4)
    
    2003(3)(5)(in thousands, except per share data)Statement of Operations Data:Total revenues
    
    $
    204,925
    
    
    $
    192,310
    
    
    $
    179,140
    
    
    $
    185,156
    
    
    $
    209,740Income (loss) from continuing operations
    
    
    19,495
    
    
    
    (12,239
    )
    
    
    (28,382
    )
    
    
    5,396
    
    
    
    (12,516
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    30,141
    
    
    
    27,325
    
    
    
    10,174
    
    
    
    (25,656
    )Net income (loss)
    
    
    19,495
    
    
    
    17,902
    
    
    
    (1,057
    )
    
    
    15,570
    
    
    
    (38,172
    )Revenue from significant customers
    
    
    43,425
    
    
    
    47,898
    
    
    
    45,374
    
    
    
    48,361
    
    
    
    88,453Earnings (loss) per share:Basic:Continuing operations
    
    $
    0.32
    
    
    $
    (0.17
    )
    
    $
    (0.40
    )
    
    $
    0.08
    
    
    $
    (0.18
    )Discontinued operations
    
    
    
    
    
    
    0.42
    
    
    
    0.38
    
    
    
    0.14
    
    
    
    (0.37
    )Net income (loss) per share
    
    $
    0.32
    
    
    $
    0.25
    
    
    $
    (0.02
    )
    
    $
    0.22
    
    
    $
    (0.55
    )Diluted:Continuing operations
    
    $
    0.32
    
    
    $
    (0.17
    )
    
    $
    (0.40
    )
    
    $
    0.07
    
    
    $
    (0.18
    )Discontinued operations
    
    
    
    
    
    
    0.42
    
    
    
    0.38
    
    
    
    0.14
    
    
    
    (0.37
    )Net income (loss) per share
    
    $
    0.32
    
    
    $
    0.25
    
    
    $
    (0.02
    )
    
    $
    0.21
    
    
    $
    (0.55
    )
 Year Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(in thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    45,011
    
    
    $
    69,612
    
    
    $
    85,108
    
    
    $
    43,223
    
    
    $
    76,713Short-term investments
    
    
    23,855
    
    
    
    21,392
    
    
    
    44,170
    
    
    
    65,248
    
    
    
    87,477Working capital
    
    
    64,318
    
    
    
    83,227
    
    
    
    106,250
    
    
    
    105,715
    
    
    
    125,940Goodwill
    
    
    125,281
    
    
    
    125,300
    
    
    
    125,808
    
    
    
    117,699
    
    
    
    93,462Total assets
    
    
    281,844
    
    
    
    307,805
    
    
    
    344,523
    
    
    
    341,364
    
    
    
    337,088Debt obligation, excluding current portion
    
    
    8,805
    
    
    
    4,119
    
    
    
    1,391
    
    
    
    2,609
    
    
    
    952Stockholders Equity
    
    
    209,905
    
    
    
    224,229
    
    
    
    252,386
    
    
    
    254,996
    
    
    
    243,814Dividends (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Year Ended December 31,2007
    
    2006 (1)(2)
    
    2005 (2)
    
    2004
    
    2003(in thousands)Other Selected Data:Cash provided by (used in) operating activities
    
    $
    32,308
    
    
    $
    3,460
    
    
    $
    219
    
    
    $
    (15,051
    )
    
    $
    22,407Cash (used in) provided by investing activities
    
    
    (13,741
    )
    
    
    31,626
    
    
    
    46,597
    
    
    
    (12,354
    )
    
    
    (38,212
    )Cash (used in) provided by financing activities
    
    
    (44,068
    )
    
    
    (50,671
    )
    
    
    (4,332
    )
    
    
    (6,432
    )
    
    
    4Depreciation
    
    
    7,023
    
    
    
    7,840
    
    
    
    8,862
    
    
    
    9,013
    
    
    
    15,929Amortization and impairment of acquisition
and intangible assets
    
    
    4,112
    
    
    
    4,935
    
    
    
    4,932
    
    
    
    3,409
    
    
    
    3,729Weighted average common shares outstanding  basic
    
    
    59,664
    
    
    
    70,780
    
    
    
    70,359
    
    
    
    70,613
    
    
    
    69,872Weighted average common shares outstanding  diluted
    
    
    60,598
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    73,130
    
    
    
    n/a
 
 (1)
    
    Our net income for the year ended December 31, 2006 includes the gain on disposal of
discontinued operations of $32.1 million.(2)
    
    Our net loss for the year ended December 31, 2005 includes the gain on disposal of
discontinued operations of $25.0 million. In November 2004 we acquired Mosaic Software
Holdings Limited, which affected our revenues, net 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. 23




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##### Table of Contents



(3)
    
    Our net income (loss) for the years ended December 31, 2006, 2005 and 2003 include
restructuring costs of $12.5 million, $15.0 million and $15.6 million, respectively.(4)
    
    Our net income for the year ended December 31, 2004 includes the gain on disposal of
discontinued operations of $9.3 million.(5)
    
    Our net loss for the year ended December 31, 2003 includes $11.7 million for the
impairment of goodwill and is included in income (loss) from discontinued operations.(6)
    
    We have never declared or paid any dividends on our capital stock. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
   Executive Overview
  24




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##### Table of Contents



Enterprise
    
    PostilionBrands
    
    S1 Enterprise
    
    Postilion
    
    FSBRetail OnlinePersonal Banking
    
    Global
    
    US
    
    
    Business Banking
    
    Global
    
    US
    
    
    Mobile
Banking and Payments
    
    Global
    
    Global
    
    
    Treasury OnlineCorporate Banking
    
    Global
    
    
    
    
    
    
    Trade Finance
    
    Global
    
    
    
    
    
    
    Insurance
    
    US
    
    
    
    
    
    
    Payments
    
    
    
    
    
    Global
    
    
    Branch BankingTeller
    
    Global
    
    
    
    
    
    USSales and Service
    
    Global
    
    
    
    
    
    USCall Center
    
    Global
    
    
    
    
    
    USVoice Banking
    
    Global
    
    US
    
    USLending
    
    
    
    
    
    
    
    
    
    USBill pay services
    
    US
    
    US
    
    
    
     25




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##### Table of Contents



Revenue from Significant Customers
  Restructuring Charges and Merger Related Costs
     Discontinued Operations
  Critical Accounting Policies and Estimates
   26




---



##### Table of Contents




    
    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;
    
    reserve for contingencies; and
    
    income taxes.
 Revenue recognition .
 Software license revenue.
   Support and maintenance revenue.
 Professional services revenue.
 Data center revenue.
 27




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##### Table of Contents




    
    whether the fees associated with our products and services are fixed or determinable;
    
    whether or not 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.Additionally, we may be required to make the following estimates:
    
    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.
   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;
 28




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##### Table of Contents




    
    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.
 Recognition of costs in connection with restructuring plans.
  29




---



##### Table of Contents



Reserve for contingencies.
 Income taxes.
 Recent Accounting Pronouncements
  a b
  30




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##### Table of Contents



31




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##### Table of Contents



Results of Operations
  2007
    
    
    2006
    
    
    2005Revenues:Software licenses
    
    $
    30,709
    
    
    
    15
    %
    
    $
    29,788
    
    
    
    15
    %
    
    $
    27,336
    
    
    
    15
    %Support and maintenance
    
    
    45,591
    
    
    
    22
    %
    
    
    44,094
    
    
    
    23
    %
    
    
    44,289
    
    
    
    25
    %Professional services
    
    
    79,754
    
    
    
    39
    %
    
    
    70,297
    
    
    
    37
    %
    
    
    65,345
    
    
    
    37
    %Data center
    
    
    47,796
    
    
    
    23
    %
    
    
    46,856
    
    
    
    24
    %
    
    
    40,000
    
    
    
    22
    %Other
    
    
    1,075
    
    
    
    1
    %
    
    
    1,275
    
    
    
    1
    %
    
    
    2,170
    
    
    
    1
    %Total revenues
    
    
    204,925
    
    
    
    100
    %
    
    
    192,310
    
    
    
    100
    %
    
    
    179,140
    
    
    
    100
    %Direct costs:Software licenses
    
    
    3,796
    
    
    
    2
    %
    
    
    4,588
    
    
    
    2
    %
    
    
    4,915
    
    
    
    3
    %Professional services, support and maintenance
    
    
    67,808
    
    
    
    33
    %
    
    
    65,231
    
    
    
    34
    %
    
    
    63,592
    
    
    
    35
    %Data center
    
    
    24,988
    
    
    
    12
    %
    
    
    22,354
    
    
    
    12
    %
    
    
    19,227
    
    
    
    11
    %Other
    
    
    375
    
    
    
    
    
    
    
    1,103
    
    
    
    1
    %
    
    
    1,998
    
    
    
    1
    %Total direct costs (1)(2)
    
    
    96,967
    
    
    
    47
    %
    
    
    93,276
    
    
    
    49
    %
    
    
    89,732
    
    
    
    50
    %Operating expenses:Selling and marketing
    
    
    31,304
    
    
    
    15
    %
    
    
    27,658
    
    
    
    14
    %
    
    
    28,141
    
    
    
    15
    %Product development
    
    
    23,738
    
    
    
    12
    %
    
    
    38,937
    
    
    
    20
    %
    
    
    40,395
    
    
    
    23
    %General and administrative
    
    
    26,259
    
    
    
    13
    %
    
    
    26,694
    
    
    
    14
    %
    
    
    25,998
    
    
    
    15
    %Merger related and restructuring costs
    
    
    
    
    
    
    
    
    
    
    12,485
    
    
    
    6
    %
    
    
    15,030
    
    
    
    8
    %Depreciation
    
    
    7,023
    
    
    
    3
    %
    
    
    7,840
    
    
    
    4
    %
    
    
    8,862
    
    
    
    5
    %Amortization of other intangible assets
    
    
    1,175
    
    
    
    1
    %
    
    
    1,310
    
    
    
    1
    %
    
    
    1,311
    
    
    
    1
    %Total operating expenses(2)
    
    
    89,499
    
    
    
    44
    %
    
    
    114,924
    
    
    
    59
    %
    
    
    119,737
    
    
    
    67
    %Operating income (loss)
    
    
    18,459
    
    
    
    9
    %
    
    
    (15,890
    )
    
    
    -8
    %
    
    
    (30,329
    )
    
    
    -17
    %Interest, investment and other income, net
    
    
    2,500
    
    
    
    1
    %
    
    
    4,929
    
    
    
    3
    %
    
    
    2,063
    
    
    
    1
    %Income (loss) from continuing operations
before income taxes
    
    
    20,959
    
    
    
    10
    %
    
    
    (10,961
    )
    
    
    -5
    %
    
    
    (28,266
    )
    
    
    -16
    %Income tax expense
    
    
    (1,464
    )
    
    
    -1
    %
    
    
    (1,278
    )
    
    
    -1
    %
    
    
    (116
    )
    
    
    Income (loss) from continuing operations
    
    
    19,495
    
    
    
    9
    %
    
    
    (12,239
    )
    
    
    -6
    %
    
    
    (28,382
    )
    
    
    -16
    %Discontinued operations:Income from discontinued operations,
net of tax (2)
    
    
    
    
    
    
    
    
    
    
    30,141
    
    
    
    15
    %
    
    
    27,325
    
    
    
    15
    %Net (loss) income
    
    $
    19,495
    
    
    
    9
    %
    
    $
    17,902
    
    
    
    9
    %
    
    $
    (1,057
    )
    
    
    -1
    %
 
 (1)
    
    Cost of software license, professional services, support and maintenance and cost of
data center excludes charges for depreciation but Costs of software license includes
amortization of purchased technology.(2)
    
    Includes stock-based compensation expenses of $8.5 million, $5.7 million, and $0.6
million in 2007, 2006, and 2005, respectively. For further discussion, please refer to
Notes 2 and 15 of the consolidated financial statements. 32




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##### Table of Contents



Comparison of 2007 to 2006 Results
 Revenues.
 Year Ended December 31, 2007
    
    
    Year Ended December 31, 2006Enterprise
    
    
    Postilion
    
    
    Total
    
    
    Enterprise
    
    
    Postilion
    
    
    TotalRevenues:Software license
    
    $
    6,405
    
    
    $
    24,304
    
    
    $
    30,709
    
    
    $
    9,408
    
    
    $
    20,380
    
    
    $
    29,788Support and maintenance
    
    
    16,071
    
    
    
    29,520
    
    
    
    45,591
    
    
    
    14,333
    
    
    
    29,761
    
    
    
    44,094Professional
services
    
    
    63,740
    
    
    
    16,014
    
    
    
    79,754
    
    
    
    54,865
    
    
    
    15,432
    
    
    
    70,297Data center
    
    
    25,478
    
    
    
    22,318
    
    
    
    47,796
    
    
    
    21,131
    
    
    
    25,725
    
    
    
    46,856Other revenue
    
    
    557
    
    
    
    518
    
    
    
    1,075
    
    
    
    517
    
    
    
    758
    
    
    
    1,275Total revenue
    
    $
    112,251
    
    
    $
    92,674
    
    
    $
    204,925
    
    
    $
    100,254
    
    
    $
    92,056
    
    
    $
    192,310
     33




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##### Table of Contents



Stock-based compensation costs.
 For the year ended December 31,2007
    
    
    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.
  34




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##### Table of Contents



Selling and marketing expenses.
 Product development expenses .
  General and administrative expenses.
 Merger related and restructuring costs.
 35




---



##### Table of Contents



Depreciation.
 Amortization of other intangible assets.
 Interest and other income, net.
 Income tax expense.
    
    
    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; or
    
    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.
 36




---



##### Table of Contents



Income from discontinued operations .
 37




---



##### Table of Contents



Comparison of 2006 to 2005 Results
 Revenues.
 Year Ended December 31, 2006
    
    
    Year Ended December 31, 2005Enterprise
    
    
    Postilion
    
    
    Total
    
    
    Enterprise
    
    
    Postilion
    
    
    TotalRevenues:Software license
    
    $
    9,408
    
    
    $
    20,380
    
    
    $
    29,788
    
    
    $
    7,798
    
    
    $
    19,538
    
    
    $
    27,336Support and maintenance
    
    
    14,333
    
    
    
    29,761
    
    
    
    44,094
    
    
    
    16,663
    
    
    
    27,626
    
    
    
    44,289Professional
services
    
    
    54,865
    
    
    
    15,432
    
    
    
    70,297
    
    
    
    49,520
    
    
    
    15,825
    
    
    
    65,345Data center
    
    
    21,131
    
    
    
    25,725
    
    
    
    46,856
    
    
    
    16,538
    
    
    
    23,462
    
    
    
    40,000Other revenue
    
    
    517
    
    
    
    758
    
    
    
    1,275
    
    
    
    1,594
    
    
    
    576
    
    
    
    2,170Total revenue
    
    $
    100,254
    
    
    $
    92,056
    
    
    $
    192,310
    
    
    $
    92,113
    
    
    $
    87,027
    
    
    $
    179,140
     38




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##### Table of Contents



Stock-based compensation costs.
 For the year ended December 31,2006
    
    
    2005Operating expenses:Professional services, support and maintenance
    
    $
    481
    
    
    $
    Data center
    
    
    76
    
    
    
    Selling and marketing
    
    
    1,575
    
    
    
    Product development
    
    
    978
    
    
    
    General and administrative
    
    
    1,874
    
    
    
    Merger related and restructuring costs
    
    
    525
    
    
    
    570Discontinued operations
    
    
    154
    
    
    
    Total stock-based compensation expense
    
    $
    5,663
    
    
    $
    570
 Direct costs.
   39




---



##### Table of Contents



Selling and marketing expenses.
 Product development expenses.
  General and administrative expenses.
 Merger related and restructuring costs.
  40




---



##### Table of Contents



Depreciation.
 Amortization of other intangible assets.
 Interest and other income, net.
 Income tax expense.
 Income from discontinued operations.
 Year Ended December 31,2006(1)
    
    
    2005Pretax (loss) income from discontinued operationsDavidge
    
    $
    
    
    
    $
    (31
    )Edify
    
    
    
    
    
    
    1,658Risk and Compliance
    
    
    (1,947
    )
    
    
    2,366Gain on disposal of Edify
    
    
    457
    
    
    
    24,985Gain on disposal of Risk and Compliance
    
    
    31,597
    
    
    
    Income tax benefit (expense)
    
    
    34
    
    
    
    (1,653
    )Income from discontinued operations
    
    $
    30,141
    
    
    $
    27,325
 
 (1)
    
    For Risk and Compliance, includes approximately seven and a half months ended
August 2006 prior to sale. 41




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##### Table of Contents



Liquidity and Capital Resources
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Net cash provided by (used in) operating activities before
changes in operating assets and
liabilities
    
    $
    41,046
    
    
    $
    6,680
    
    
    $
    (4,503
    )Change in operating assets and liabilities
    
    
    (8,738
    )
    
    
    (3,220
    )
    
    
    4,722Net cash provided by operating activities
    
    
    32,308
    
    
    
    3,460
    
    
    
    219Net cash (used in) provided by investing activities
    
    
    (13,741
    )
    
    
    31,626
    
    
    
    46,597Net cash used in financing activities
    
    
    (44,068
    )
    
    
    (50,671
    )
    
    
    (4,332
    )Effect of exchange rates on cash and cash equivalents
    
    
    900
    
    
    
    89
    
    
    
    (599
    )Net (decrease) increase in cash and cash equivalents
    
    $
    (24,601
    )
    
    $
    (15,496
    )
    
    $
    41,885
 As of December 312007
    
    2006Cash and cash equivalents
    
    $
    45,011
    
    
    $
    69,612Short term investments
    
    
    23,855
    
    
    
    21,392Working capital (1)
    
    
    64,318
    
    
    
    83,227Total assets
    
    
    281,844
    
    
    
    307,805Total stockholders equity
    
    
    209,905
    
    
    
    224,229
 
 (1)
    
    Working capital includes deferred revenues of $26.3 million and $29.3 million
as of December 31, 2007 and 2006, respectively. Operating activities.
 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;
    
    decrease in accounts receivable due to the improvement of days sales outstanding to
67 days from 95 days;
    
    decrease in liabilities of $14.4 million for payments from the restructuring reserve
of $10.3 million, reduction of contract loss reserves of $2.1 million primarily for two
customers and the extinguishment of merger related costs of $1.1 million; and
    
    decrease in accounts payable of $1.5 million and an increase of prepaid expenses and
other assets of $0.8 million.
 42




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##### Table of Contents



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 $0.6 million and gain on disposal
of the Risk and Compliance business of $32.1 million less expenses of $0.5 million
related to the sale;
    
    provision of doubtful accounts receivable and billing adjustments of $1.3 million;
    
    stock based compensation expense of $5.7 million;
    
    a $0.9 million loss on 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;
    
    decrease in accrued expenses and other liabilities mainly due to payments related to
our restructuring reserve; and
    
    $7.9 million increase in deferred revenues resulting from increases of deferred
services and support fees.
 Cash provided by operations for the year ended December 31, 2005 included the effects of:
 
    
    our net loss of $1.1 million;
    
    gain on the disposal of Edify of $24.9 million;
    
    depreciation and amortization of $14.7 million;
    
    provision of doubtful accounts receivable and billing adjustments of $5.2 million;
    
    a $1.0 million loss on disposal of property and equipment;
    
    a decrease of $4.9 million in prepaid expenses and other assets; and
    
    changes in other operating assets and liabilities of $0.6 million.
 Investing activities.
 During the year ended 2007, we:
 
    
    made net purchases of $2.5 million from cash and cash equivalents increasing our
short-term investments to $23.9 million;
    
    paid an escrow deposit of $1.0 million and a security deposit of $0.6 million
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
 43




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##### Table of Contents



hardware expenditures. We financed $3.3
million of 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 lowering our short-term investments to $21.4 million;
    
    received net proceeds from the sale of the Risk and Compliance segment of $32.0
million;
    
    received $0.6 million working capital adjustment from the sale of Edify; and
    
    acquired $6.3 million of property and equipment and financed $7.0 million of
equipment through capital leases.
 During the year ended 2005, we:
 
    
    converted $21.1 million, net, from short-term investments to cash and cash
equivalents lowering our short-term investments to $44.2 million;
    
    received net proceeds from the sale of the Edify segment of $33.2 million;
    
    purchased $6.9 million of property and equipment as we financed $0.5 million of
equipment as capital leases; and
    
    paid approximately $0.9 million in connection with an acquisition.
 Financing activities.
 During the year ended 2007, we:
 
    
    repurchased $51.0 of our common stock primarily pursuant to an authorized stock
repurchase program;
    
    received $11.5 million from the exercise of common stock under our employee stock
option plans;
    
    paid $1.1 million on stock appreciation rights awards; and
    
    paid $3.1 million for capital lease obligations and $0.4 million for debt
obligations.
 During the year ended 2006, we:
 
    
    repurchased $55.8 million of our common stock;
    
    received $5.4 million from the exercise of common stock under our employee stock
option plans;
    
    received $2.5 million from a sale lease back transaction; and
 44




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##### Table of Contents




    
    paid $2.3 million for capital lease obligations and $0.5 million for debt
obligations.
 During the year ended 2005, we:
 
    
    received $1.1 million from the exercise of common stock under our employee stock
option plans;
    
    repurchased $3.4 million of our common stock; and
    
    paid $1.6 million for capital lease obligations and $0.5 million for debt
obligations.
 Investments.
 Restricted Cash.
 Stock Repurchase Program.
   Restructuring
 Contractual Obligations.
  45




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##### Table of Contents



Less than
    
    
    1 - 3
    
    
    3 - 5
    
    
    Greater than1 year
    
    
    years
    
    
    years
    
    
    5 years
    
    
    TotalLong-term debt
    
    $
    595
    
    
    $
    1,120
    
    
    $
    5,071
    
    
    $
    
    
    
    $
    6,786Operating leases
    
    
    12,419
    
    
    
    19,074
    
    
    
    7,685
    
    
    
    9,111
    
    
    
    48,289Capital leases
    
    
    3,885
    
    
    
    3,641
    
    
    
    
    
    
    
    
    
    
    
    7,526Purchase obligations
    
    
    5,137
    
    
    
    4,704
    
    
    
    
    
    
    
    
    
    
    
    9,841Total
    
    $
    22,036
    
    
    $
    28,539
    
    
    $
    12,756
    
    
    $
    9,111
    
    
    $
    72,442Operating sublease income
    
    
    (4,571
    )
    
    
    (7,724
    )
    
    
    (2,506
    )
    
    
    
    
    
    
    (14,801
    )Total obligations, net of sublease income
    
    $
    17,465
    
    
    $
    20,815
    
    
    $
    10,250
    
    
    $
    9,111
    
    
    $
    57,641
 Stock Appreciation Rights Awards.
 Capital Requirements.
 
 Item 7A. Qualitative and Quantitative Disclosures about Market Risk.
    46




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47




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 INDEX TO FINANCIAL STATEMENTS
 PageFINANCIAL STATEMENTS:Report of Independent Registered Public Accounting Firm
    
    
    49Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    50Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005
    
    
    51Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005
    
    
    52Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) for the Years Ended
December 31, 2007, 2006 and 2005
    
    
    53Notes to Consolidated Financial Statements
    
    
    54FINANCIAL STATEMENT SCHEDULE:For each of the three years ended December 31, 2007
Schedule IIValuation and Qualifying Accounts
    
    
    85
  48




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Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
    
 49




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##### Table of Contents



S1 CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,2007
    
    
    2006(in thousands, except shareand per share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    45,011
    
    
    $
    69,612Short-term investments
    
    
    23,855
    
    
    
    21,392Accounts receivable, net of allowance for doubtful accounts and billing adjustments
of $3,858 and $4,249 at December 31, 2007 and 2006, respectively
    
    
    39,969
    
    
    
    53,371Prepaid expenses
    
    
    3,354
    
    
    
    4,036Other current assets
    
    
    6,389
    
    
    
    2,308Total current assets
    
    
    118,578
    
    
    
    150,719Property and equipment, net
    
    
    20,906
    
    
    
    12,137Intangible assets, net
    
    
    11,240
    
    
    
    12,903Goodwill
    
    
    125,281
    
    
    
    125,300Other assets
    
    
    5,839
    
    
    
    6,746Total assets
    
    $
    281,844
    
    
    $
    307,805LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,300
    
    
    $
    3,750Accrued compensation and benefits
    
    
    10,649
    
    
    
    9,642Current portion of debt obligation
    
    
    3,725
    
    
    
    3,328Accrued restructuring
    
    
    3,043
    
    
    
    9,092Deferred revenues
    
    
    26,345
    
    
    
    29,265Accrued other expenses
    
    
    8,198
    
    
    
    12,415Total current liabilities
    
    
    54,260
    
    
    
    67,492Debt obligation, excluding current portion
    
    
    8,805
    
    
    
    4,119Accrued restructuring, excluding current portion
    
    
    6,181
    
    
    
    10,386Other liabilities
    
    
    2,693
    
    
    
    1,579Total liabilities
    
    $
    71,939
    
    
    $
    83,576Commitments 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, 2007 and 2006, respectively
    
    
    10,000
    
    
    
    10,000Common
stock, $0.01 par value. Authorized 350,000,000 shares Issued and outstanding
56,748,906 and 61,290,973 shares at December 31, 2007 and 2006, respectively
    
    
    567
    
    
    
    613Additional paid in capital
    
    
    1,810,783
    
    
    
    1,845,529Accumulated deficit
    
    
    (1,609,807
    )
    
    
    (1,629,302
    )Accumulated other comprehensive loss:Net loss on derivative financial instruments, net of tax
    
    
    (97
    )
    
    
    (168
    )Cumulative foreign currency translation adjustment, net of tax
    
    
    (1,541
    )
    
    
    (2,443
    )Total stockholders equity
    
    
    209,905
    
    
    
    224,229Total liabilities and stockholders equity
    
    $
    281,844
    
    
    $
    307,805
  50




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S1 CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2007
    
    
    2006
    
    
    2005(in thousands, except share and per share data)Revenues:Software licenses
    
    $
    30,709
    
    
    $
    29,788
    
    
    $
    27,336Support and maintenance
    
    
    45,591
    
    
    
    44,094
    
    
    
    44,289Professional services
    
    
    79,754
    
    
    
    70,297
    
    
    
    65,345Data center
    
    
    47,796
    
    
    
    46,856
    
    
    
    40,000Other
    
    
    1,075
    
    
    
    1,275
    
    
    
    2,170Total revenues
    
    
    204,925
    
    
    
    192,310
    
    
    
    179,140Operating expenses:Cost of software licenses (1)
    
    
    3,796
    
    
    
    4,588
    
    
    
    4,915Cost of professional services, support and maintenance (1)
    
    
    67,808
    
    
    
    65,231
    
    
    
    63,592Cost of data center (1)
    
    
    24,988
    
    
    
    22,354
    
    
    
    19,227Cost of other revenue
    
    
    375
    
    
    
    1,103
    
    
    
    1,998Selling and marketing
    
    
    31,304
    
    
    
    27,658
    
    
    
    28,141Product development
    
    
    23,738
    
    
    
    38,937
    
    
    
    40,395General and administrative
    
    
    26,259
    
    
    
    26,694
    
    
    
    25,998Merger related and restructuring costs
    
    
    
    
    
    
    12,485
    
    
    
    15,030Depreciation
    
    
    7,023
    
    
    
    7,840
    
    
    
    8,862Amortization of other intangible assets
    
    
    1,175
    
    
    
    1,310
    
    
    
    1,311Total operating expenses(2)
    
    
    186,466
    
    
    
    208,200
    
    
    
    209,469Operating income (loss)
    
    
    18,459
    
    
    
    (15,890
    )
    
    
    (30,329
    )Interest and other income, net
    
    
    2,500
    
    
    
    4,929
    
    
    
    2,063Income (loss) before income tax expense
    
    
    20,959
    
    
    
    (10,961
    )
    
    
    (28,266
    )Income tax expense
    
    
    (1,464
    )
    
    
    (1,278
    )
    
    
    (116
    )Income (loss) from continuing operations
    
    
    19,495
    
    
    
    (12,239
    )
    
    
    (28,382
    )Income from discontinued operations, net of tax (2)
    
    
    
    
    
    
    30,141
    
    
    
    27,325Net income (loss)
    
    $
    19,495
    
    
    $
    17,902
    
    
    $
    (1,057
    )Basic earnings (loss) per shareContinuing operations
    
    $
    0.32
    
    
    $
    (0.17
    )
    
    $
    (0.40
    )Discontinued operations
    
    
    
    
    
    
    0.42
    
    
    
    0.38Net income (loss) per share
    
    $
    0.32
    
    
    $
    0.25
    
    
    $
    (0.02
    )Diluted earnings (loss) per shareContinuing operations
    
    $
    0.32
    
    
    $
    (0.17
    )
    
    $
    (0.40
    )Discontinued operations
    
    
    
    
    
    
    0.42
    
    
    
    0.38Net income (loss) per share
    
    $
    0.32
    
    
    $
    0.25
    
    
    $
    (0.02
    )Weighted average common shares outstanding  basic
    
    
    59,663,833
    
    
    
    70,779,502
    
    
    
    70,359,200Weighted average common shares outstanding  fully diluted
    
    
    60,597,817
    
    
    
    n/a
    
    
    
    n/a
 
 (1)
    
    Excludes charges for depreciation but Costs of software license includes amortization of
purchased technology(2)
    
    Includes stock-based compensation expenses of
$8.5 million, $5.7 million and $0.6 million in
2007, 2006, and 2005, respectively. For further discussion, please refer to Note 2 and 15 of the
consolidated financial statements.  51




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S1 CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2007
    
    
    2006
    
    
    2005( in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    19,495
    
    
    $
    17,902
    
    
    $
    (1,057
    )Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    11,135
    
    
    
    13,061
    
    
    
    14,711Gain on disposal of discontinued operations, net of tax
    
    
    
    
    
    
    (32,153
    )
    
    
    (24,850
    )Provision for doubtful accounts receivable and billing adjustments
    
    
    1,894
    
    
    
    1,301
    
    
    
    5,152Stock based compensation expense
    
    
    8,522
    
    
    
    5,663
    
    
    
    570Loss on disposal of property and equipment
    
    
    
    
    
    
    906
    
    
    
    971Changes in assets and liabilities:Decrease (increase) in accounts receivable
    
    
    11,509
    
    
    
    (9,435
    )
    
    
    (660
    )(Increase) decrease in prepaid expenses and other assets
    
    
    (828
    )
    
    
    710
    
    
    
    4,881Decrease in accounts payable
    
    
    (1,449
    )
    
    
    (1,121
    )
    
    
    (362
    )Decrease in accrued expenses and other liabilities
    
    
    (14,370
    )
    
    
    (1,298
    )
    
    
    (81
    )(Decrease) increase in deferred revenues
    
    
    (3,600
    )
    
    
    7,924
    
    
    
    944Net cash provided by operating activities
    
    
    32,308
    
    
    
    3,460
    
    
    
    219Cash flows from investing activities:Cash paid in connection with acquisition
    
    
    
    
    
    
    (14,000
    )
    
    
    (857
    )Proceeds from sale of subsidiaries
    
    
    
    
    
    
    32,639
    
    
    
    33,232Maturities of short-term investment securities
    
    
    31,375
    
    
    
    56,700
    
    
    
    73,500Purchases of short-term investment securities
    
    
    (33,838
    )
    
    
    (33,922
    )
    
    
    (52,422
    )Amounts held in escrow related to sale of business
    
    
    
    
    
    
    (3,500
    )
    
    
    Amounts held in escrow related to property
    
    
    (1,593
    )
    
    
    
    
    
    
    Purchases of property, equipment and technology
    
    
    (9,685
    )
    
    
    (6,291
    )
    
    
    (6,856
    )Net cash (used in) provided by investing activities
    
    
    (13,741
    )
    
    
    31,626
    
    
    
    46,597Cash flows from financing activities:Proceeds from exercise of employee stock options
    
    
    11,500
    
    
    
    5,351
    
    
    
    1,139Payments on stock appreciation rights awards
    
    
    (1,128
    )
    
    
    
    
    
    
    Payments on capital leases and debt obligations
    
    
    (3,473
    )
    
    
    (2,770
    )
    
    
    (2,064
    )Repurchase of common stock held in treasury
    
    
    
    
    
    
    
    
    
    
    (3,407
    )Repurchase and retirement of common stock
    
    
    (50,967
    )
    
    
    (55,754
    )
    
    
    Proceeds from sale-lease back transaction
    
    
    
    
    
    
    2,502
    
    
    
    Net cash used in financing activities
    
    
    (44,068
    )
    
    
    (50,671
    )
    
    
    (4,332
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    900
    
    
    
    89
    
    
    
    (599
    )Net (decrease) increase in cash and cash equivalents
    
    
    (24,601
    )
    
    
    (15,496
    )
    
    
    41,885Cash and cash equivalents at beginning of period
    
    
    69,612
    
    
    
    85,108
    
    
    
    43,223Cash and cash equivalents at end of period
    
    $
    45,011
    
    
    $
    69,612
    
    
    $
    85,108Noncash investing and financing activities:Equipment financed through capital leases
    
    $
    3,323
    
    
    $
    7,048
    
    
    $
    527Property financed through notes payable
    
    
    5,233
    
    
    
    
    
    
    
    Accrual for additional purchase price consideration for business acquisitions
    
    
    
    
    
    
    
    
    
    
    12,900Accrual of working capital adjustment related to sale of subsidiary
    
    
    
    
    
    
    664
    
    
    
    Retirement of treasury stock
    
    
    
    
    
    
    25,000
    
    
    
    
  52




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S1 CORPORATION
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
 (in thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    Total
    
    
    ComprehensivePreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Treasury Stock
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Stockholders
    
    
    IncomeShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Shares
    
    
    Amount
    
    
    Deficit
    
    
    Loss
    
    
    Equity
    
    
    (Loss)Balance at December 31, 2004
    
    
    749,064
    
    
    $
    10,000
    
    
    
    74,152,529
    
    
    $
    742
    
    
    $
    1,913,913
    
    
    
    (3,544,111
    )
    
    $
    (21,593
    )
    
    $
    (1,646,147
    )
    
    $
    (1,919
    )
    
    $
    254,996Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,057
    )
    
    
    
    
    
    
    (1,057
    )
    
    
    (1,057
    )Change in net unrealized gain on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118
    
    
    
    118
    
    
    
    118Change in cumulative foreign currency translation
adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (575
    )
    
    
    (575
    )
    
    
    (575
    )Realized loss on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    (14
    )
    
    
    Realized cumulative foreign currency translation
related to sale of business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    619
    
    
    
    619
    
    
    
    Common stock issued upon the exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    257,570
    
    
    
    2
    
    
    
    1,134
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,136
    
    
    
    Deferred stock option compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    570
    
    
    
    Repurchase of common stock, held in treasury
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (509,775
    )
    
    
    (3,407
    )
    
    
    
    
    
    
    
    
    
    
    (3,407
    )
    
    
    Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,514
    )Balance 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
    
    
    
    17,902Change in net unrealized loss on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (314
    )
    
    
    (314
    )
    
    
    (314
    )Change in cumulative foreign currency translation
adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (525
    )
    
    
    (525
    )
    
    
    (525
    )Realized gain on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    42
    
    
    
    Realized 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    17,063Balance 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
    
    
    
    19,495Change in net unrealized loss on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )
    
    
    (7
    )Change in cumulative foreign currency translation
adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    902
    
    
    
    902
    
    
    
    902Realized gain on cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78
    
    
    
    78
    
    
    
    Common stock issued upon the exercise of stock
options
    
    
    
    
    
    
    
    
    
    
    2,086,040
    
    
    
    19
    
    
    
    11,481
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,500
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,675
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,675
    
    
    
    Repurchase and retirement of common stock
    
    
    
    
    
    
    
    
    
    
    (6,628,107
    )
    
    
    (65
    )
    
    
    (50,902
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,967
    )
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    20,390Balance at December 31, 2007
    
    
    749,064
    
    
    $
    10,000
    
    
    
    56,748,906
    
    
    $
    567
    
    
    $
    1,810,783
    
    
    
    
    
    
    $
    
    
    
    $
    (1,609,807
    )
    
    $
    (1,638
    )
    
    $
    209,905
  53




---



##### Table of Contents



S1 CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2007, 2006 and 2005
 1. Business Overview
  2. Summary of Accounting Policies
 Basis of presentation
  Use of estimates
  Financial instruments
    54




---



##### Table of Contents



Accounts receivable and allowance for doubtful accounts and billing adjustments
  Property and equipment
  55




---



##### Table of Contents



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 under capital lease is depreciated over the
term of the lease agreement which approximates the equipments economic useful
life. Goodwill
  Other long-lived assets
   Cost-basis and equity method investments
  56




---



##### Table of Contents



Concentration of credit risk and uncertainties
    Revenue recognition, deferred revenues and cost of revenues
 Software
license revenue.
    57




---



##### Table of Contents



Support
and maintenance revenue.
 Professional
services revenue.
  Data
center revenue.
    Other
revenue.
 Deferred
revenues.
 58




---



##### Table of Contents



Cost of revenues .
 Product development costs
  Restructuring and merger related costs
    Interest and other income, net
  For the year ended December 31,2007
    
    
    2006
    
    
    2005Interest income
    
    $
    4,151
    
    
    $
    5,930
    
    
    $
    3,209Interest
expense
    
    
    (714
    )
    
    
    (543
    )
    
    
    (498
    )Foreign
exchange-realized loss and withholding tax
    
    
    (703
    )
    
    
    (295
    )
    
    
    (392
    )Other
    
    
    (234
    )
    
    
    (163
    )
    
    
    (256
    )Total
    
    $
    2,500
    
    
    $
    4,929
    
    
    $
    2,063
 Income taxes
  59




---



##### Table of Contents



Stock-based compensation
    60




---



##### Table of Contents



2007
    
    2006
    
    2005Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    45.0
    %
    
    
    51.9
    %
    
    
    66.9
    %Risk-free interest rate
    
    
    4.8
    %
    
    
    4.7
    %
    
    
    4.3
    %Expected term
    
    4.0years
    
    4.0years
    
    4.0years
  2007
    
    2006Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    44.8
    %
    
    
    59.1
    %Risk-free interest rate
    
    
    3.3
    %
    
    
    4.6
    %Expected term
    
    3.6years
    
    4.6years
  61




---



##### Table of Contents



For the year ended December 31,2007
    
    
    2006Net income, as reported
    
    
    19,495
    
    
    
    17,902Effect of adopting SFAS 123R on continuing
operations
    
    $
    4,040
    
    
    $
    4,420Effect of adopting SFAS 123R on discontinued
operations
    
    
    
    
    
    
    154Pro forma net income
    
    $
    23,535
    
    
    $
    22,476Basic and diluted net income per share:As reported  basic
    
    $
    0.32
    
    
    $
    0.25As reported  diluted
    
    
    0.32
    
    
    
    0.25Pro forma  basic
    
    
    0.39
    
    
    
    0.32Pro forma  diluted
    
    
    0.38
    
    
    
    0.32
  2005Net loss, as reported
    
    $
    (1,057
    )Add: Stock-based employee compensation expense
included in reported net income (loss), net of
related tax effects
    
    
    570Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    (13,070
    )Pro forma net loss
    
    $
    (13,557
    )Basic and diluted net loss per share:As reported  basic and diluted
    
    $
    (0.02
    )Pro forma  basic and diluted
    
    
    (0.19
    )
  62




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005Operating expenses:Professional services, support and maintenance
    
    $
    514
    
    
    $
    481
    
    
    $
    Data center
    
    
    70
    
    
    
    76
    
    
    
    Selling and marketing
    
    
    3,984
    
    
    
    1,575
    
    
    
    Product development
    
    
    1,669
    
    
    
    978
    
    
    
    General and administrative
    
    
    2,285
    
    
    
    1,874
    
    
    
    Merger related and restructuring costs
    
    
    
    
    
    
    525
    
    
    
    570Discontinued operations
    
    
    
    
    
    
    154
    
    
    
    Total stock-based compensation expense (1)
    
    $
    8,522
    
    
    $
    5,663
    
    
    $
    570
 
 (1)
    
    There were no capitalized stock based compensation costs as of December 31, 2007 or 2006.
Stock-based compensation expense includes expense for Stock Appreciation Rights awards of $3.8
million and $0.5 million for 2007 and 2006, respectively. Net income (loss) per share
    Foreign currency translation
  Derivative financial instruments
  63




---



##### Table of Contents



Comprehensive income (loss)
  Recent accounting pronouncements
  a b
   64




---



##### Table of Contents



3. Discontinued Operations
    65




---



##### Table of Contents



Year Ended December 31,2006(1)
    
    
    2005(2)Revenues:Edify
    
    $
    
    
    
    $
    34,085Risk and Compliance
    
    
    12,434
    
    
    
    24,927Pretax (loss) income from discontinued operationsDavidge
    
    $
    
    
    
    $
    (31
    )Edify
    
    
    
    
    
    
    1,658Risk and Compliance
    
    
    (1,947
    )
    
    
    2,366Gain on disposal of Edify
    
    
    457
    
    
    
    24,985Gain on disposal of Risk and Compliance
    
    
    31,597
    
    
    
    Income tax benefit (expense)
    
    
    34
    
    
    
    (1,653
    )Income from discontinued operations
    
    $
    30,141
    
    
    $
    27,325
 
 (1)
    
    For Risk and Compliance, includes approximately seven and a half months ended
August 10, 2006 prior to sale.(2)
    
    Edify was sold in 2005 and Davidge was sold in 2004.  August 10,2006Current assets
    
    $
    8,373Property and equipment, net
    
    
    1,075Other non-current assets
    
    
    142Intangible assets
    
    
    480Goodwill
    
    
    1,558Current liabilities
    
    
    (7,557
    )Long term tax liabilities
    
    
    (560
    )Net assets of discontinued
operations
    
    $
    3,511
  4. Related Party Transactions
 Yodlee, Inc.
  66




---



##### Table of Contents



5. Investments
  December 31,2007
    
    
    2006Certificates of
deposit
    
    $
    12,961
    
    
    $
    Auction rate securities
    
    
    
    
    
    
    11,474Commercial paper
    
    
    
    
    
    
    9,918Mutual fund trust
    
    
    10,894
    
    
    
    $
    23,855
    
    
    $
    21,392
 6. Accounts Receivable
  7. Other Current Assets
  December 31,2007
    
    
    2006Deferred tax assets
    
    $
    208
    
    
    $
    423Escrow deposits and restricted cash
    
    
    4,943
    
    
    
    817Other receivables (non-customer)
    
    
    1,194
    
    
    
    875Other
    
    
    44
    
    
    
    193$
    6,389
    
    
    $
    2,308
 8. Property and Equipment
  67




---



##### Table of Contents



December 31,2007
    
    
    2006Property and building
improvements
    
    $
    9,191
    
    
    $
    Leasehold improvements
    
    
    1,685
    
    
    
    3,162Furniture and fixtures
    
    
    3,216
    
    
    
    3,112Computer equipment
    
    
    25,204
    
    
    
    23,626Software
    
    
    8,268
    
    
    
    7,668Property and equipment, before
depreciation

    
    
    47,564
    
    
    
    37,568Accumulated depreciation and
amortization
    
    
    (26,658
    )
    
    
    (25,431
    )Property and equipment,
net
    
    $
    20,906
    
    
    $
    12,137
 9. Goodwill and Other Intangible Assets
   Gross
    
    
    Accumulated
    
    
    NetCarrying Value
    
    
    Amortization
    
    
    Carrying ValuePurchased and acquired technology
    
    $
    21,938
    
    
    $
    (16,490
    )
    
    $
    5,448Customer relationships
    
    
    12,000
    
    
    
    (6,208
    )
    
    
    5,792Total
    
    $
    33,938
    
    
    $
    (22,698
    )
    
    $
    11,240
  2008
    
    2009
    
    2010
    
    2011
    
    2012Enterprise
    
    $
    329
    
    
    $
    245
    
    
    $
    245
    
    
    $
    245
    
    
    $
    184Postilion

    
    $
    3,326
    
    
    $
    2,445
    
    
    $
    1,335
    
    
    $
    1,282
    
    
    $
    706
 68




---



##### Table of Contents



Enterprise
    
    
    Postilion
    
    
    TotalBalance, January 1, 2007
    
    $
    49,643
    
    
    $
    75,657
    
    
    $
    125,300Utilization of acquisition related
income tax benefits
    
    
    (27
    )
    
    
    8
    
    
    
    (19
    )Balance, December 31, 2007
    
    $
    49,616
    
    
    $
    75,665
    
    
    $
    125,281
 10. Restructuring and Merger Related Costs
  2006
    
    
    2005Merger related costs
    
    $
    (2,000
    )
    
    $
    Restructuring costs
    
    
    14,485
    
    
    
    15,030Total
    
    $
    12,485
    
    
    $
    15,030
 Pre-2003 Restructuring Plans
   Lease CostsBalance, December 31, 2004
    
    $
    8,126Amounts utilized through December 31, 2005
    
    
    (3,245
    )Change in estimate
    
    
    1,113Sale of Edify
    
    
    (194
    )Balance, December 31, 2005
    
    
    5,800Amounts utilized through December 31, 2006
    
    
    (1,248
    )Change in estimate
    
    
    609Balance, December 31, 2006
    
    
    5,161Amounts utilized through December 31, 2007
    
    
    (2,871
    )Balance, December 31, 2007
    
    $
    2,290
 69




---



##### Table of Contents



2005 Restructuring Plan
   Personnel Costs
    
    
    Lease Costs
    
    
    Other
    
    
    Total2005 Restructuring Charge
    
    $
    8,037
    
    
    $
    5,104
    
    
    $
    776
    
    
    $
    13,917Amounts utilized through December 31, 2005
    
    
    (3,402
    )
    
    
    (54
    )
    
    
    (776
    )
    
    
    (4,232
    )Balance, December 31, 2005
    
    
    4,635
    
    
    
    5,050
    
    
    
    
    
    
    
    9,6852006 Restructuring Charge
    
    
    333
    
    
    
    
    
    
    
    
    
    
    
    333Amounts utilized through December 31, 2006
    
    
    (4,308
    )
    
    
    (2,860
    )
    
    
    
    
    
    
    (7,168
    )Change in estimate
    
    
    
    
    
    
    1,455
    
    
    
    
    
    
    
    1,455Balance, December 31, 2006
    
    
    660
    
    
    
    3,645
    
    
    
    
    
    
    
    4,305Amounts utilized through December 31, 2007
    
    
    (627
    )
    
    
    (1,289
    )
    
    
    
    
    
    
    (1,916
    )Balance, December 31, 2007
    
    $
    33
    
    
    $
    2,356
    
    
    $
    
    
    
    $
    2,389
 2006 Restructuring Plan
   Personnel Costs
    
    
    Lease Costs
    
    
    Other
    
    
    Total2006 restructuring charge
    
    $
    5,504
    
    
    $
    5,805
    
    
    $
    779
    
    
    $
    12,088Amounts utilized through December 31, 2006
    
    
    (1,486
    )
    
    
    189
    
    
    
    (779
    )
    
    
    (2,076
    )Balance, December 31, 2006
    
    
    4,018
    
    
    
    5,994
    
    
    
    
    
    
    
    10,012Amounts utilized through December 31, 2007
    
    
    (3,185
    )
    
    
    (2,282
    )
    
    
    
    
    
    
    (5,467
    )Balance, December 31, 2007
    
    $
    833
    
    
    $
    3,712
    
    
    $
    
    
    
    $
    4,545
 70




---



##### Table of Contents



Merger Related Costs
  11. Accrued Other Expenses
  December2007
    
    
    2006Accrued service fees payable
    
    $
    3,190
    
    
    $
    2,303Accrued third party products sold
    
    
    1,359
    
    
    
    891Accrued costs for disposal of business
    
    
    
    
    
    
    1,135Sales and income taxes payable
    
    
    1,035
    
    
    
    1,572Accrued contract losses
    
    
    720
    
    
    
    2,830Other
    
    
    1,894
    
    
    
    3,684$
    8,198
    
    
    $
    12,415
 12. Retirement Savings Plan
  13.
    
    Commitments, Contingencies and Debt Obligations
 Lease commitments
   71




---



##### Table of Contents



Operating Lease
    
    
    Sublease
    
    
    Net Operating LeaseCommitments
    
    
    Income
    
    
    Commitments2008
    
    $
    12,419
    
    
    $
    4,571
    
    
    $
    7,8482009
    
    
    10,395
    
    
    
    3,989
    
    
    
    6,4062010
    
    
    8,679
    
    
    
    3,735
    
    
    
    4,9442011
    
    
    5,921
    
    
    
    2,475
    
    
    
    3,4462012
    
    
    1,764
    
    
    
    31
    
    
    
    1,733Thereafter
    
    
    9,111
    
    
    
    
    
    
    
    9,111$
    48,289
    
    
    $
    14,801
    
    
    $
    33,488
 Notes payable and capital leases
  December 31,2007
    
    
    2006Notes payable on buildings and properties
    
    $
    5,214
    
    
    $
    Other notes payable
    
    
    286
    
    
    
    640Capital lease obligations
    
    
    7,030
    
    
    
    6,807$
    12,530
    
    
    $
    7,447Less current portion
    
    
    (3,725
    )
    
    
    (3,328
    )Total long-term notes payable and capital lease obligations
    
    $
    8,805
    
    
    $
    4,119
    72




---



##### Table of Contents



Notes Payable
    
    
    Capital Leases
    
    
    Total2008
    
    $
    595
    
    
    $
    3,885
    
    
    $
    4,4802009
    
    
    560
    
    
    
    2,601
    
    
    
    3,1612010
    
    
    560
    
    
    
    1,040
    
    
    
    1,6002011
    
    
    5,071
    
    
    
    
    
    
    
    5,0712012 and thereafter
    
    
    
    
    
    
    
    
    
    
    $
    6,786
    
    
    $
    7,526
    
    
    $
    14,312Less amount representing interest
    
    
    (1,286
    )
    
    
    (496
    )
    
    
    (1,782
    )$
    5,500
    
    
    $
    7,030
    
    
    $
    12,530
 Contractual commitments
  Guarantees
  Litigation
  73




---



##### Table of Contents



14. Income Taxes
  2007
    
    
    2006
    
    
    2005U.S. operations
    
    $
    10,834
    
    
    $
    (5,417
    )
    
    $
    (15,937
    )Foreign operations
    
    
    10,125
    
    
    
    (5,544
    )
    
    
    (12,329
    )$
    20,959
    
    
    $
    (10,961
    )
    
    $
    (28,266
    )
  2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    408
    
    
    $
    158
    
    
    $
    (21
    )Foreign
    
    
    513
    
    
    
    386
    
    
    
    (361
    )State
    
    
    543
    
    
    
    734
    
    
    
    127Total current
    
    $
    1,464
    
    
    $
    1,278
    
    
    $
    (255
    )Deferred:Federal
    
    $
    
    
    
    $
    
    
    
    $
    Foreign
    
    
    
    
    
    
    
    
    
    
    371State
    
    
    
    
    
    
    
    
    
    
    Total deferred
    
    $
    
    
    
    $
    
    
    
    $
    371Total income tax expense
    
    $
    1,464
    
    
    $
    1,278
    
    
    $
    116
  2007
    
    
    2006
    
    
    2005Income tax expense (benefit) at federal statutory rate of 35%
    
    $
    7,335
    
    
    $
    (3,836
    )
    
    $
    (9,893
    )State income tax expense (benefit), net of federal benefit
    
    
    353
    
    
    
    477
    
    
    
    (140
    )(Decrease) increase in valuation allowance related to
current year operations
    
    
    (6,664
    )
    
    
    3,932
    
    
    
    6,427Foreign operations tax rate differences
    
    
    (1,911
    )
    
    
    4
    
    
    
    73Other foreign taxes
    
    
    289
    
    
    
    315
    
    
    
    Other permanent items
    
    
    2,062
    
    
    
    386
    
    
    
    3,649Income tax expense
    
    $
    1,464
    
    
    $
    1,278
    
    
    $
    116
 74




---



##### Table of Contents



2007
    
    
    2006Deferred income tax assets:Net operating loss carryforwards
    
    $
    108,190
    
    
    $
    119,754Equity in net loss of affiliate
    
    
    18,438
    
    
    
    20,299Accrued expenses
    
    
    5,878
    
    
    
    4,129Deferred revenue
    
    
    8,087
    
    
    
    10,295Tax credit carryforwards
    
    
    6,953
    
    
    
    6,663Restructuring
    
    
    3,379
    
    
    
    6,797Property and equipment depreciation
    
    
    4,590
    
    
    
    702Other
    
    
    351
    
    
    
    645Total gross deferred income tax assets
    
    
    155,866
    
    
    
    169,284Valuation allowance for deferred income tax assets
    
    
    (153,561
    )
    
    
    (165,576
    )Total deferred income tax assets
    
    
    2,305
    
    
    
    3,708Deferred income tax liabilities:Identifiable intangibles
    
    
    2,305
    
    
    
    3,643Other
    
    
    
    
    
    
    65Total gross deferred income tax liabilities
    
    
    2,305
    
    
    
    3,708Net deferred income taxes
    
    $
    
    
    
    $
    Included in:Other current assets
    
    $
    208
    
    
    $
    423Other liabilities
    
    
    (208
    )
    
    
    (423
    )Net deferred income taxes
    
    $
    
    
    
    $
    
    75




---



##### Table of Contents



2007Beginning Balance
    
    $
    13,209Additions based on tax positions related to the current year
    
    
    Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years
    
    
    (1,725
    )Settlements
    
    
    (99
    )Ending Balance
    
    $
    11,385
    15. Stock Option Plans
  76




---



##### Table of Contents



Stock Option Activity
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise
    
    
    Contractual
    
    
    Value(000)
    
    
    Price
    
    
    Life (Yrs)
    
    
    ($000)Outstanding at December 31, 2006
    
    
    9,777
    
    
    $
    9.54Granted
    
    
    1,047
    
    
    
    6.27Exercised
    
    
    (2,015
    )
    
    
    5.80
    
    
    
    
    
    
    $
    4,315Forfeited
    
    
    (2,674
    )
    
    
    15.58Outstanding at December 31, 2007
    
    
    6,135
    
    
    $
    7.58
    
    
    
    6.8
    
    
    $
    10,082Exercisable at December 31, 2007
    
    
    3,478
    
    
    $
    9.25
    
    
    
    5.3
    
    
    $
    4,655
  Non-Vested
    
    
    Weighted-Number of
    
    
    AverageShares
    
    
    Grant-Date(000)
    
    
    Fair ValueNon-vested balance at December 31, 2006
    
    
    3,211
    
    
    $
    2.98Granted
    
    
    1,047
    
    
    
    2.55Vested
    
    
    (1,420
    )
    
    
    2.77Forfeited
    
    
    (180
    )
    
    
    2.85Non-vested balance at December 31, 2007
    
    
    2,658
    
    
    $
    2.51
  77




---



##### Table of Contents



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
    
    
    238
    
    
    
    5.4
    
    
    $
    3.58
    
    
    
    218
    
    
    $
    3.564.01    5.00
    
    
    2,502
    
    
    
    8.3
    
    
    
    4.50
    
    
    
    1,160
    
    
    
    4.515.01    6.00
    
    
    1,007
    
    
    
    8.1
    
    
    
    5.28
    
    
    
    236
    
    
    
    5.216.01    7.50
    
    
    338
    
    
    
    5.6
    
    
    
    6.86
    
    
    
    230
    
    
    
    6.817.51    9.00
    
    
    1,114
    
    
    
    6.1
    
    
    
    8.28
    
    
    
    717
    
    
    
    8.419.01    12.00
    
    
    262
    
    
    
    3.8
    
    
    
    9.83
    
    
    
    243
    
    
    
    9.8612.01    18.00
    
    
    330
    
    
    
    2.5
    
    
    
    14.71
    
    
    
    330
    
    
    
    14.7118.01    30.00
    
    
    231
    
    
    
    3.1
    
    
    
    18.89
    
    
    
    231
    
    
    
    18.8930.01    97.44
    
    
    113
    
    
    
    1.7
    
    
    
    50.92
    
    
    
    113
    
    
    
    50.921.21    97.44
    
    
    6,135
    
    
    
    6.8
    
    
    $
    7.58
    
    
    
    3,478
    
    
    $
    9.25
 Restricted Stock Activity
  Weighted-Average
    
    
    AggregateRemaining
    
    
    IntrinsicShares
    
    
    Contractual
    
    
    Value(000)
    
    
    Life (Yrs)
    
    
    ($000)Outstanding at December 31, 2006
    
    
    167Granted
    
    
    71Exercised
    
    
    (100
    )
    
    
    
    
    
    $
    803Forfeited
    
    
    Outstanding at December 31, 2007
    
    
    138
    
    
    
    1.1
    
    
    $
    1,007Expected to Vest
    
    
    138
    
    
    
    1.1
    
    
    $
    1,007
  78




---



##### Table of Contents



Stock Appreciation Rights Activity
  Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Exercise
    
    
    Contractual
    
    
    Value(000)
    
    
    Price
    
    
    Life (Yrs)
    
    
    ($000)Outstanding at December 31, 2006
    
    
    1,970
    
    
    $
    4.87Granted
    
    
    
    
    
    
    Exercised
    
    
    (320
    )
    
    
    4.86
    
    
    
    
    
    
    $
    1,128Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2007
    
    
    1,650
    
    
    $
    4.87
    
    
    
    8.9
    
    
    $
    4,011Exercisable at December 31, 2007
    
    
    665
    
    
    $
    4.87
    
    
    
    8.9
    
    
    $
    1,616
  Non-VestedNumber of
    
    
    Weighted-Shares
    
    
    Average(000)
    
    
    Fair ValueNon-vested balance at December 31, 2006
    
    
    1,970
    
    
    $
    2.97Granted
    
    
    Vested
    
    
    (985
    )
    
    
    4.67Forfeited
    
    
    Non-vested balance at December 31, 2007
    
    
    985
    
    
    $
    3.72
   SARs Outstanding
    
    
    SARs ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Number
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    AverageOutstanding
    
    
    Contractual
    
    
    Exercise
    
    
    Exercisable
    
    
    ExerciseRange of Exercise Price
    
    (000)
    
    
    Life (Yrs)
    
    
    Price
    
    
    (000)
    
    
    Price$4.86
    
    
    1,544
    
    
    
    8.8
    
    
    $
    4.86
    
    
    
    612
    
    
    $
    4.865.01
    
    
    106
    
    
    
    9.0
    
    
    
    5.01
    
    
    
    53
    
    
    
    5.014.86 - 5.01
    
    
    1,650
    
    
    
    8.9
    
    
    $
    4.87
    
    
    
    665
    
    
    $
    4.87
 79




---



##### Table of Contents



16. Convertible Preferred Stock
   
    
    any amendment to any charter provision that would change the specific terms of that
series which would adversely affect the rights of the holders of that series, and
    
    the merger or consolidation of S1 with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of the properties or business of S1 in
exchange for securities of another corporation if series B is to be exchanged for
securities of such other corporation and if the terms of such securities are less favorable
in any respect.
  17. Equity Transactions
     80




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##### Table of Contents



18. Segment Reporting, Geographic Disclosures and Major Customers
    Year Ended December 31, 2007Enterprise
    
    
    Postilion
    
    
    TotalRevenues: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
    
    
    $
    204,925
 Year Ended December 31, 2006Enterprise
    
    
    Postilion
    
    
    TotalRevenues: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
    
    
    $
    192,310
 Year Ended December 31, 2005Enterprise
    
    
    Postilion
    
    
    TotalRevenues:Software license
    
    $
    7,798
    
    
    $
    19,538
    
    
    $
    27,336Support and maintenance
    
    
    16,663
    
    
    
    27,626
    
    
    
    44,289Professional services
    
    
    49,520
    
    
    
    15,825
    
    
    
    65,345Data center
    
    
    16,538
    
    
    
    23,462
    
    
    
    40,000Other revenue
    
    
    1,594
    
    
    
    576
    
    
    
    2,170Total revenue
    
    $
    92,113
    
    
    $
    87,027
    
    
    $
    179,140
 81




---



##### Table of Contents



Year Ended December 31, 2007Enterprise
    
    
    Postilion
    
    
    TotalRevenues
    
    $
    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
    
    
    
    26,259Restructuring costs
    
    
    
    
    
    
    
    
    
    
    Depreciation
    
    
    4,503
    
    
    
    2,520
    
    
    
    7,023Amortization of other intangible assets
    
    
    45
    
    
    
    1,130
    
    
    
    1,175Total operating expenses
    
    
    101,453
    
    
    
    85,013
    
    
    
    186,466Segment operating income
    
    $
    10,798
    
    
    $
    7,661
    
    
    $
    18,459
 Year Ended December 31, 2006Enterprise
    
    
    Postilion
    
    
    TotalRevenues
    
    $
    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
    
    
    
    26,694Restructuring 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
    
    
    
    208,200Segment operating (loss) income
    
    $
    (20,824
    )
    
    $
    4,934
    
    
    $
    (15,890
    )
 Year Ended December 31, 2005Enterprise
    
    
    Postilion
    
    
    TotalRevenues
    
    $
    92,113
    
    
    $
    87,027
    
    
    $
    179,140Operating expenses:Direct costs
    
    
    58,124
    
    
    
    31,608
    
    
    
    89,732Selling and marketing
    
    
    14,684
    
    
    
    13,457
    
    
    
    28,141Product development
    
    
    27,312
    
    
    
    13,083
    
    
    
    40,395General and administrative
    
    
    15,569
    
    
    
    10,429
    
    
    
    25,998Restructuring costs
    
    
    8,250
    
    
    
    6,780
    
    
    
    15,030Depreciation
    
    
    5,794
    
    
    
    3,068
    
    
    
    8,862Amortization of other intangible assets
    
    
    164
    
    
    
    1,147
    
    
    
    1,311Total operating expenses
    
    
    129,897
    
    
    
    79,572
    
    
    
    209,469Segment operating (loss) income
    
    $
    (37,784
    )
    
    $
    7,455
    
    
    $
    (30,329
    )
 Geography.
 82




---



##### Table of Contents



Major customer.
 Years Ended December 31,Total Revenues
    
    2007
    
    2006
    
    2005Enterprise Segment
    
    
    39
    %
    
    
    48
    %
    
    
    49
    %Total Company
    
    
    21
    %
    
    
    25
    %
    
    
    25
    %
 19. Net Income (Loss) Per Share
   2007
    
    
    2006
    
    
    2005(in thousands, except per share data)Basic earnings per share:Income (loss) from continuing operations
    
    $
    19,495
    
    
    $
    (12,239
    )
    
    $
    (28,382
    )Amount allocated to participating preferred stockholders
    
    
    (343
    )
    
    
    
    
    
    
    Income
(loss) from continuing operations available to common stockholders  basic
    
    $
    19,152
    
    
    $
    (12,239
    )
    
    $
    (28,382
    )Weighted average common shares outstanding
    
    
    59,664
    
    
    
    70,780
    
    
    
    70,359Basic income (loss) from continuing operations
    
    $
    0.32
    
    
    $
    (0.17
    )
    
    $
    (0.40
    )Diluted earnings per share:Income (loss) from continuing operations
    
    $
    19,495
    
    
    $
    (12,239
    )
    
    $
    (28,382
    )Amount allocated to participating preferred stockholders
    
    
    (343
    )
    
    
    
    
    
    
    Income
(loss) from continuing operations available to common stockholders  diluted
    
    $
    19,152
    
    
    $
    (12,239
    )
    
    $
    (28,382
    )Weighted average common shares outstanding
    
    
    59,664
    
    
    
    70,780
    
    
    
    70,359Weighted
average effect of common stock equivalent Stock options and restricted stock (1)
    
    
    934
    
    
    
    
    
    
    
    Weighted average diluted shares outstanding
    
    
    60,598
    
    
    
    70,780
    
    
    
    70,359Diluted income (loss) from continuing operations
    
    $
    0.32
    
    
    $
    (0.17
    )
    
    $
    (0.40
    )
 
 (1)
    
    Stock option equivalents of 0.3 million shares and 0.9 million shares for 2006
and 2005, respectively were excluded from dilutive earnings per share because the effect is
anti-dilutive. 83




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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. 31,2007
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2006(in thousands, except per share data)Revenues
    
    $
    53,447
    
    
    $
    51,314
    
    
    $
    52,598
    
    
    $
    47,566
    
    
    $
    50,235
    
    
    $
    51,896
    
    
    $
    46,739
    
    
    $
    43,440Cost of revenues (1)
    
    
    25,609
    
    
    
    24,341
    
    
    
    24,182
    
    
    
    22,835
    
    
    
    24,639
    
    
    
    24,470
    
    
    
    22,715
    
    
    
    21,452Restructuring costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,203
    
    
    
    400
    
    
    
    549
    
    
    
    333Operating income (loss)
    
    
    6,571
    
    
    
    4,406
    
    
    
    5,013
    
    
    
    2,469
    
    
    
    (13,276
    )
    
    
    869
    
    
    
    (1,861
    )
    
    
    (1,622
    )Income (loss) from continuing
operations
    
    
    6,431
    
    
    
    5,148
    
    
    
    4,949
    
    
    
    2,967
    
    
    
    (12,244
    )
    
    
    1,893
    
    
    
    (1,084
    )
    
    
    (804
    )Income (loss) from
discontinued
operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (644
    )
    
    
    31,452
    
    
    
    (1,027
    )
    
    
    360Net income (loss)
    
    
    6,431
    
    
    
    5,148
    
    
    
    4,949
    
    
    
    2,967
    
    
    
    (12,888
    )
    
    
    33,345
    
    
    
    (2,111
    )
    
    
    (444
    )Earnings (loss) per share:Basic:Continuing operations
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.05
    
    
    $
    (0.17
    )
    
    $
    0.03
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    0.44
    
    
    
    (0.01
    )
    
    
    Net income
(loss) per common share-basic
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.05
    
    
    $
    (0.18
    )
    
    $
    0.47
    
    
    $
    (0.03
    )
    
    $
    (0.01
    )Diluted:Continuing operations
    
    $
    0.11
    
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.05
    
    
    $
    (0.17
    )
    
    $
    0.03
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    0.44
    
    
    
    (0.01
    )
    
    
    Net income
(loss) per common share-diluted
    
    $
    0.11
    
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.05
    
    
    $
    (0.18
    )
    
    $
    0.47
    
    
    $
    (0.03
    )
    
    $
    (0.01
    )
 
 (1)
    
    Cost of revenues is derived from our statements of operations as the sum of cost of software
licenses, cost of professional services, support and maintenance, cost of data center and cost
of other revenue. Cost of revenues excludes charges for depreciation of property and
equipment, but includes amortization of purchased technology. 84




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Schedule II
 VALUATION AND QUALIFYING ACCOUNTS
 
 FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 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, 2007:Allowance for doubtful accounts
    
    $
    4,249
    
    
    
    1,894
    
    
    
    
    
    
    
    (2,285
    )
    
    $
    3,858Valuation allowance for deferred taxes
    
    $
    165,576
    
    
    
    (7,132
    )
    
    
    (4,883
    )
    
    
    
    
    
    $
    153,561Year 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
    )
    
    
    
    
    
    $
    165,576Year ended December 31, 2005:Allowance for doubtful accounts
    
    $
    4,705
    
    
    
    5,152
    
    
    
    
    
    
    
    (4,047
    )
    
    $
    5,810Valuation allowance for deferred taxes
    
    $
    206,241
    
    
    
    5,863
    
    
    
    (12,931
    )
    
    
    
    
    
    $
    199,173
 85




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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.
  86




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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 Accountant Fees and Services.
  87




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##### Table of Contents



PART IV
 
 Item 15.
    
    Exhibits and Financial Statement Schedules.
    ExhibitNo.
    
    Exhibit Description3.1
    
    Amended and Restated Certificate of Incorporation of S1 Corporation (S1) (filed as
Exhibit 1 to S1s Registration Statement on Form 8-A 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 Bto S1s definitive proxy statement for S1s 1999 annual meeting of shareholders and
incorporated herein by reference).*
 88




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##### Table of Contents



ExhibitNo.
    
    Exhibit Description10.3
    
    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).*10.5
    
    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 (filed as Attachment A to S1s Definitive Proxy
Statement on Schedule 14A filed with the SEC on April 18, 2003 and incorporated herein by
reference).*10.09
    
    Agreement and Plan of Merger By and Among S1 Corporation, Edify Corporation, Edify Holding
Company, Inc., Intervoice, Inc., and Arrowhead I, Inc., dated as of November 18, 2005 (filed
as Exhibit 2.1 to S1s Current Report on Form 8-K filed with the SEC on January 4, 2006 and
incorporated herein by reference).10.10
    
    Purchase Agreement by and between Financial Information Consulting Services Group NV, S1
Corporation, and CETP FRS S.a.r.l., dated as of August 9, 2006 (filed as Exhibit 2.1 to S1s
Current Report on Form 8-K filed with the SEC on August 14, 2006 and incorporated herein by
reference).10.11
    
    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).10.12
    
    Change in Control  Severance Plan, dated as of May 3, 2006 (filed as Exhibit 10.1 to S1s
Quarterly Report on Form 10-Q filed with the SEC on August 8, 2006 and incorporated herein by
reference).*10.13
    
    Employment Agreement, entered into as of October 5, 2001, by and between S1 and Matthew Hale
(filed as Exhibit 10.36 to S1s Annual Report on Form 10-K for the fiscal year ended December
31, 2001 and incorporated herein by reference).*10.14
    
    Separation Agreement, entered into as of November 29, 2006, by and between S1 and Matt Hale
(filed as Exhibit 10.1 to S1s Current Report on Form 8-K filed with the SEC on November 30,
2006 and incorporated herein by reference).*10.15
    
    Employment Agreement, entered into as of April 30, 2001, by and between S1 and James Mahan
(filed as Exhibit 10.2 to S1s Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2002 and incorporated herein by reference).*
 89




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##### Table of Contents



ExhibitNo.
    
    Exhibit Description10.16
    
    Separation Agreement, entered into as of November 9, 2006, by and between S1 and James S.
Mahan, III (filed as Exhibit 10.1 to S1s Current Report on Form 8-K filed with the SEC on
November 13, 2006 and incorporated herein by reference).*10.17
    
    Agreement, entered into as of November 30, 2006, by and between S1 and John A. Stone (filed
as Exhibit 10.2 to S1s Current Report on Form 8-K filed with the SEC on November 30, 2006 and
incorporated herein by reference).*10.18
    
    Employment Agreement and
Confidentiality, Non-Disclosure and Non-Solicitation Agreement, both entered into as of December 18, 2006, by and between S1 and Johann
Dreyer (filed as Exhibit 10.1 to S1s Current Report on Form 8-K filed with the SEC on
December 21, 2006 and incorporated herein by reference).*10.19
    
    Employment Agreement and
Confidentiality, Non-Disclosure and Non-Solicitation Agreement, both entered into as of December 1, 2006, by and between S1 and Neil
Underwood.*10.20
    
    Employment Agreement and
Confidentiality, Non-Disclosure and Non-Solicitation Agreement, both entered into as of December 8, 2006, by and between S1 and Meigan
Putnam.*10.21
    
    Employment Agreement and
Confidentiality, Non-Disclosure and Non-Solicitation Agreement, both entered into as of September 14, 2007, by and between S1 and Jan
Kruger (filed as Exhibit 10.1 to S1s Current Report on Form 8-K filed with the SEC on
December 14, 2007 and incorporated herein by reference).*10.22
    
    S1 Corporation 2008 Management Incentive Plan*10.23
    
    Form of Indemnification Agreement, executed by Johann Dreyer, Thomas P. Johnson, Jr., Ram
Gupta, M. Douglas Ivester, Jeffrey Smith, Gregory J. Owens, John W. Spiegel and Richard P.
Dobb 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).10.24
    
    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).10.25
    
    Description of Arrangement for Directors Fees21
    
    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. 90




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91




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##### Table of Contents



SIGNATURES
  S1 CORPORATIONBy:
    /s/      Johann DreyerJohann DreyerChief Executive Officer  Name
    
    Title/s/ JOHN W. SPIEGEL
    
    Chairman of the BoardJohn W. Spiegel/s/ Johann dreyer
    
    Chief Executive Officer and DirectorJohann Dreyer
    
    (Principal Executive Officer)/s/ John A. Stone
    
    Chief Financial Officer (Principal FinancialJohn A. Stone
    
    Officer and Principal Accounting Officer)/s/ Ram gupta
    
    DirectorRam Gupta/s/ M. Douglas Ivester
    
    DirectorM. Douglas Ivester/s/ Thomas P. Johnson, Jr.
    
    DirectorThomas P. Johnson, Jr./s/ Gregory J. Owens
    
    DirectorGregory J. Owens/s/ Jeffrey C. Smith
    
    DirectorJeffrey C. Smith/s/ Edward Terino
    
    DirectorEdward Terino
 92