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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2008



| ̈ | 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
000-26477

CYBERSOURCE CORPORATION

(Exact Name of Registrant as Specified in its Charter)



|                                                                        |  |                                                   
|----------------------------------------------------------------------- |  | --------------------------------------------------
|Delaware (State or Other Jurisdiction of Incorporation or Organization) |  | 77-0472961 (I.R.S. Employer Identification Number)

1295 Charleston Road

Mountain View, California 94043

(650) 965-6000

(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)





Securities Registered Pursuant to Section 12(b) of the Act:



|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of Each Class                     |  | Name of Each Exchange on Which Registered
|Common Stock, $.001 Par Value per Share |  | The NASDAQ Global Select Market          

Securities Registered Pursuant to Section 12(g) of the Act:

None





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933, as amended.    x  Yes     ̈  No

Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Securities Act of 1934, as amended.     ̈  Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes     ̈  No

Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and
smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                           |  |                      |  |                                               |  |                             
|-------------------------- |  | -------------------- |  | --------------------------------------------- |  | ----------------------------
|Large accelerated filer  x |  | Accelerated filer   ̈ |  | Non-accelerated filer   ̈                      |  | Smaller reporting company   ̈
|                           |  |                      |  | (Do not check if a smaller reporting company) |  |                             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act)     ̈  Yes    x  No

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2008 was approximately $1.0 billion (based on a closing sale price of $16.73 per share as
reported for the NASDAQ Global Select Market on June 30, 2008). For purposes of this calculation, shares of common stock held by officers and directors and shares of common stock held by persons who hold more than 5% of the outstanding common
stock of the registrant have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of executive officer or affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of the registrants Common Stock, $.001 par value per share, outstanding as of February 13, 2009 was
68,987,670.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive Proxy Statement relating to its 2009 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.









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CAUTIONARY STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act) adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking, including
statements regarding our expectations, objectives, anticipations, estimations, intentions, plans, hopes, beliefs, or strategies regarding the future. Such forward-looking statements include, but are not limited to our expectations:



| |  |  | that analysis and design early in the project lifecycle reduces the number and costs of defects that may be found in later stages;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | regarding the effectiveness of our systems and procedures to detect and prevent consumer and merchant fraud;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | regarding our ability to prevent security breaches and maintain confidential data;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | that we will be able to prevent system disruptions and accommodate increases in volume demand;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | regarding the continuity of our bank sponsor relationship;
| | - |  | ----------------------------------------------------------



| |  |  | that we will incur approximately $26.2 million of incremental annual amortization expense relating to the Authorize.Net merger during the fiscal year ended
December 31, 2009;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | about the impact of our lawsuit with ReD and other litigation matters;
| | - |  | ----------------------------------------------------------------------



| |  |  | regarding the level of expenses and revenue growth in 2009; and
| | - |  | ---------------------------------------------------------------



| |  |  | that our cash and cash equivalents balance as of December 31, 2008 will be sufficient to meet our working capital and capital requirements for at least the
next twelve months.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We cannot guarantee that any forward-looking statement will be realized, although we believe we have
been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties, and potentially inaccurate assumptions. These risks and uncertainties include, among others, those discussed in Part I Item 1A.
Risk Factors, of this Annual Report on Form 10-K as well as our consolidated financial statements, related Notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange
Commission. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this
in mind as you consider forward-looking statements. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.



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PART I

ITEM 1.    BUSINESS

Company Overview

CyberSource Corporation (CyberSource or the Company) is a leading provider of electronic payment and risk management solutions.
Our solutions enable electronic payment processing for Web, call center, and point-of-sale environments. We partner with and connect to a large network of payment processors and other payment service providers to offer merchants a single source
solution that simplifies electronic payment management. Our payment solutions allow eCommerce merchants to accept a wide range of online payment options, from credit cards and electronic checks, to global payment options and emerging payment types.
We also offer industry leading risk management solutions to help online merchants address complexities such as credit card fraud, online tax requirements, and export controls. CyberSource Professional Services help to design, integrate, and optimize
commerce transaction processing systems for merchants. Approximately 253,000 businesses use our solutions, including half the companies comprising the Dow Jones Industrial Average.

In 2008, we processed approximately 1.9 billion transactions, a 54% increase over 2007. The dollar value of all credit card authorization requests
we processed in 2008 exceeded $109 billion, a 102% increase over 2007.

CyberSource Corporation was founded in 1994 and initially launched
as software.net, an online software store that built payment processing solutions to support its sales. In 1997, the payment processing solutions business was spun-off from software.net to form a separate corporation initially named, Internet
Commerce Services Corporation. Internet Commerce Services Corporation later changed its name to CyberSource Corporation and continues to operate today under that name.

Our headquarters is located at 1295 Charleston Road, Mountain View, California 94043, and we have sales, service, and development offices in Japan, the
United Kingdom, and other locations in the United States including Bellevue, Washington, American Fork, Utah and Austin, Texas. We maintain a website at www.cybersource.com. The reference to this website address does not constitute incorporation by
reference of the information contained therein.

We are subject to the informational requirements of the Securities Exchange Act of 1934
(the Exchange Act). Accordingly, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission (the SEC). Such reports, proxy statements and other information may be obtained by
visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other
information about issuers filed electronically. We also maintain a website at www.cybersource .com. Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy
Statement for our Annual Meeting of Stockholders are made available, free of charge, on our website, www.cybersource.com, as soon as reasonably practicable after the reports have been filed with or furnished to the SEC.

Market Characteristics

In 2008, JPMorgan estimated
the US online eCommerce market related to retail sales and travel to be $317.4 billion, with a three year compounded annual growth rate (CAGR) of 8% from 2008 to 2011. eCommerce in Europe has grown to $284.9 billion in 2008, with a CAGR
over three years of 11% from 2008 to 2011. For the fourth quarter of 2008, the U.S. Census Bureau estimated that online sales of U.S. retailers comprised 3.8% of total U.S. retail sales, up from 3.6% in the fourth quarter of 2007. For 2008, the U.S.
Census Bureau data shows the annual growth rate of online sales of U.S. retailers was 4.6%, versus an overall retail sales decrease of 0.6% for the same time period.

As the online eCommerce market continues to grow, selling online has become a strategic business
strategy for many organizations. Although credit cards have long been the dominant payment method available to online purchasers, alternative consumer payment options and cultural preferences have impacted the global payment environment. A wide
spectrum of payment options, such as debit cards, electronic checks, and alternative online payment options such as Bill Me Later ® and PayPal ® are emerging worldwide. Since 2005, we have experienced a noticeable trend among some of our large U.S. customers that are seeking greater access into international markets, especially Europe and China. Conducting
online commerce internationally involves supporting more payment types, currency conversions, new payment processors, and mitigating higher fraud risk.

Online fraud has evolved into an organized and systemic threat to online merchants. The latest CyberSource Fraud Survey, sponsored by CyberSource and conducted by Mindwave Research in October 2008,
concluded that dollar losses from eCommerce fraud continue to grow, diverting approximately $4.0 billion from eCommerce in 2008, an 8% increase over 2007.



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According to the survey, the percent of revenue that merchants say they lost to fraud remained stable at 1.4% in 2007 and 2008, but because eCommerce sales
continued to grow, dollar losses to eCommerce grew proportionately. Merchants are increasing the number of fraud detection tools they use to manage payment fraud risk. Merchants showed a sharp increase in interest for more sophisticated automation
tools which can provide an assessment of the fraud potential of a transaction and can reduce reliance on human involvement.

In June 2005 in
the U.S., Visa and MasterCard began requiring compliance with a comprehensive security requirement called the Payment Card Industry Data Security Standard (PCI) to limit the threat of cardholder information theft. With the challenge of
becoming PCI compliant, some merchants engage us to manage sensitive customer information such as credit card numbers and related transaction data. For merchants that subscribe to Secure Storage or Hosted Payment Acceptance services, we handle and
store all payment data on behalf of the merchants in PCI certified processing centers that connect directly with the banking network. We are evaluated annually for PCI compliance, and both the enterprise and small business divisions have been
separately verified as compliant for 2008-2009. Furthermore, security and card association standards require quarterly security scans, which have been conducted. Additionally, we conduct quarterly threat assessment tests and employ rigorous
security measures to prevent unauthorized access or security breaches. Online merchants are also focusing on meeting regulatory requirements in areas such as collection of sales taxes. European Union directives require that all online sellers of
digital goods collect the applicable value-added tax for sales in the European Union.

The impact of these trends is that electronic
payment management is becoming more complex. Online merchants must maintain technical and financial connections with a number of different payment processors and service providers, integrate these disparate connections with a number of internal
business systems, allocate manual resources to keep pace with the growth of online sales, and comply with statutory and card association requirements. We enable our customers to meet these requirements simply and cost effectively with our electronic
payment and risk management solutions.

CyberSource Customers

Our customers range in size from small sole proprietorships to some of the worlds largest corporations and institutions. Our customer base includes leading companies such as Air France, Borders Group, British
Airways, Christian Dior, Eastman Kodak, Home Depot, Louis Vuitton, Massachusetts Institute of Technology, Microsoft, Nike, Starbucks, and Yahoo!, among thousands of others. To properly serve this diverse set of needs, we divide our potential market
into two customer profiles, enterprise and small business merchants, which require different solutions. Enterprise merchants have high sales volumes and generally demand the greatest range of payment options and the most sophisticated risk and
management tools. These customers often sell in multiple countries and require support for local currencies and local payment options. Enterprise merchants also frequently need to integrate payment processing with one or more internal business
systems. We serve enterprise customers by providing solutions that address and simplify the breadth of these requirements. Smaller business merchants generally seek simplicity and ease of use. We serve small merchants by providing bundled services
and integrations into popular online shopping cart software, while bringing to the small business market some of the advantages of our enterprise-level services, including important new payment options such as electronic checks, as well as
high-reliability and quality customer support. In 2008, we did not have any single customer that was responsible for ten percent or more of our revenues.

CyberSource Products and Services

CyberSource Payment Solutions

CyberSource Advanced

For the enterprise customer, we offer a comprehensive set of payment, fraud
management and payment security products and services called CyberSource Advanced. Requirements of these larger merchants typically include acceptance of all major credit and debit cards, the ability to bill customers at regular monthly intervals,
support for international payment options, sophisticated fraud management tools and systems, and tools to automate payment reconciliation and other internal processes to reduce the administrative costs and burdens of accepting online orders.

CyberSource Advanced enables merchants to accept payments made by all major credit
and debit cards including American Express®, Discover®, Diners Club International®, JCB, MasterCard®, and Visa® cards. Our customers can also accept payment by corporate
procurement cards, electronic checks, PayPal® Express Checkout, and the Bill Me Later® service. Merchants that have business
models based on subscriptions can utilize the CyberSource recurring billing service. For merchants selling internationally, we support direct debit, and bank transfers, as well as regional card brands such as Carte Bleue, Carta Si, Dankort, Laser,
Solo, and Visa Electron.



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Authorize.Net

Targeted towards small and medium-sized merchants with under $3 million in annual sales,
Authorize.Net enables merchants to authorize, settle, and manage credit card and electronic check payments via Web sites, retail stores, mail order/telephone order (MOTO) call centers and mobile devices. Merchants can accept a variety of
payments including all major credit cards as well as electronic checks. Electronic checks are processed using Authorize.Nets eCheck.Net® service, which allows merchants to process
electronic check transactions directly from a website or through the Virtual Terminal. Authorize.Net also certifies numerous third-party point-of-sale solutions or devices that are integrated to the Authorize.Net payment gateway.

Standard services include credit card processing, card code verification, which includes CVV,
CVV2, and CID, Address Verification Service (AVS), Virtual Terminal, Verified Merchant Seal, Virtual Point of Sale (VPOS) as well as extensive reporting, and QuickBooks® compatibility. Premium value-adding services include eCheck.Net® electronic check processing service, Automated Recurring Billing service for subscription payments, Fraud
Detection Suite service, and secure storage of customers transaction data through the Customer Information Manager service.

These services are integrated into the Authorize.Net platform, providing merchants with the ability to adapt their payment solution to the merchants payment needs. The Authorize.Net Merchant Toolbox features partners that provide
discounts on marketing, security, business productivity and accounting solutions for merchants. The Authorize.Net Verified Merchant Seal confirms to consumers that websites displaying the seal are verified Authorize.Net merchants.

CyberSource Global Acquiring (Merchant Account Services)

We underwrite merchants to enable them to accept card payments within the United States, as well as accept and process major and regional payment types worldwide. We interface with payment systems on behalf of the merchant to authorize the
payment presented by a merchants customer, collect funds from their customers bank, and deposit the funds into the merchants designated checking account. These services are available as a bundled offering with all of our payment
solution packages and software.

Tax Calculation

Online organizations often require tools to facilitate tax payment and export regulatory compliance. The CyberSource Tax Service calculates sales and use taxes for over 13,000 U.S. tax jurisdictions, 44,000 sales,
sellers use, consumers use, and rental rates, and supports value added tax calculation, as applicable, in the U.S., Canada, Latin America, Europe and the Asia Pacific.

CyberSource Risk & Security Management Solutions

The CyberSource suite of modular and
scalable services is designed to help merchants address the growing challenge of online fraud and management of PCI compliance. Our solutions can be implemented as a single component or as fully-integrated systems, and can be managed in-house,
outsourced, or constructed as a blend of both. In most cases, our risk and payment security solutions can be implemented with payment services provided by us or other providers.

CyberSource Decision Manager

CyberSource Decision Manager is a hosted rules and case management
system that allows business managers to create screening rules to automatically route orders for acceptance, rejection, or review). Built-in case management systems include a portal to over 150 global validation services and tests. The system
includes an interface to our risk scoring service as well as other external services such as device fingerprinting and the merchants own data, and reports to help businesses manage operations.

Fraud Detection/Verification Tools

CyberSource
Decision Manager includes access to CyberSource Advanced Fraud Screen Service enhanced by Visa (CAFSSEV), the only risk scoring service endorsed and enhanced by Visa U.S.A, Inc. This service provides fraud risk prediction scores by
assessing over 150 order variables such as domestic and international address validation, domestic and international IP address verification, device fingerprinting, and order velocity. The results from CAFSSEV include a numerical risk score as well
as risk profile codes indicating the types of risk detected by the system.

Through a single connection to CyberSource, our customers can
also use card association authentication systems such as Verified by Visa and MasterCard SecureCode. These card programs verify the cardholders identity directly with the card issuer in real-time to increase security of payment acceptance. In
some markets merchants are required to use these services if they accept Visa and MasterCard payments.



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Managed Risk Service & Chargeback Recovery Services

This service provides analysis, design, modeling and monitoring services to optimize transaction conversion, while minimizing manual review and fraud
risk associated with card-not-present transactions. We collaborate with customers to set business metrics, review performance, and provide business tools. Two service plans are available, Performance Monitoring (analysis, design, modeling and
monitoring) and Screening Management (all services available in Performance Monitoring plus outsourced management of manual order review on behalf of the merchant).

We also offer a Chargeback Recovery Service. Using this service, merchants outsource chargeback re-presentment to us. We review chargebacks received, investigate, and re-present them to the banking system to recover
revenue. We share in a percentage of the revenue recovered.

Payment Data Management

Customers can choose to have us hold sensitive payment data and therefore reduce security risk as well as the cost and complexity of payment security
compliance, which we manage using our PCI-certified data centers and Payment Application Data Security Standard certified applications. Secure Storage and Hosted Payment Acceptance allow customers to enhance their payment security by moving
sensitive payment data off customers systems.

Delivery Address Verification and Export Compliance

We offer Delivery Address Verification (DAV) services to verify the validity of addresses worldwide and comply with the U.S. Postal
Services requirements, such as bar code and carrier route identification. If an address is incorrect and is found to be correctable, DAV will return a corrected address and identify address elements in error. The CyberSource Export Compliance
service helps online merchants comply with U.S. Government export regulations by comparing orders against a changing list of denied countries or persons.

Professional Services

Building upon our experience in eCommerce, we employ a team of experts that can help merchants
operate online businesses. CyberSource Global Services provides business and technical consulting services including technology selection, analysis of impacts of the online business on internal processes, devising merchant-specific risk management
strategies, systems installation, integration of our products and services with a merchants existing internal systems, building custom reporting tools, disaster recovery planning, system centralization and security consulting. As of
December 31, 2008, we employed 16 persons in our Professional Services group.

Technology

Transaction Services

We operate two transaction
processing platforms, one for enterprise merchants and one for small business customers. They are a modular architecture designed for scalability, reliability, extensibility and performance. These systems are composed of multiple groups of servers
and routers that appear as a single point of contact to our customers systems. Our transaction processing systems manage workflow functions and the required communications between our servers, our database, and our processors, including
American Express, Barclays Bank, Chase Paymentech Solutions, First Data Corporation, Global Payment Systems, Streamline International (a division of the Royal Bank of Scotland Group), TSYS Acquiring Solutions and others. In addition, we have
implemented a global network of telecommunications access points that are designed to optimize transaction processing response times and to mitigate the effects of system failures. The primary software components of our two systems are the
respective client software, Order Processing Application Programming Interfaces (APIs), commerce services applications, transaction databases and data warehouses.

Client Software

Our commerce services are invoked by a standardized programming interface residing
on our customers commerce servers. For our enterprise platform, client software is offered in two protocols, Simple Order Processing API and Simple Commerce Messaging Protocol (SCMP), and can be installed by customers using
pre-built developer kits and application plug-ins. These developer kits are available for most popular programming environments, including ASP/COM, .NET, Java and others, and for most operating systems, including Windows NT/2000, Linux, and UNIX
(Solaris, HP/UX, IBM/AIX and others). Developer kits also come with samples that customers can use to deploy CyberSource services within their enterprises.



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Simple Order Processing API

For our enterprise platform, we offer the CyberSource Simple Order Processing API to enable the secure and reliable communication of order data from our customers systems to CyberSource systems. The Simple Order
Processing API provides our customers with a way to send invoice data to CyberSource for processing by any of the CyberSource commerce services applications. Using industry standard Web services technologies, including SOAP, XML, and WS Security,
the Simple Order Processing API provides customers with an industry recognized implementation path allowing the API to be built into customer order management applications. The API uses the Data Encryption Standard, RSA/public key cryptography and
digital certificates to provide secure signed communication of transaction data.

We also developed SCMP to enable efficient and secure
connections between our systems and our customers systems. In order to provide secure messaging, SCMP utilizes industry standards for secure communications including the Data Encryption Standard, RSA/public key cryptography and digital
certificates. SCMP has been designed to be integrated into virtually any commerce server platform.

For our small business platform, the
methods to process transactions through the payment gateway range from Simple Checkout Buy Now and Donate buttons to fully integrated, highly customizable APIs. Web merchants have the ability to choose which connection method
best fits their payment acceptance infrastructure. Connection methods are Advanced Integration Method (AIM) and Server Implementation Method (SIM).

AIM is a merchant-initiated server-to-server connection for submitting transactions to the payment gateway. AIM employs industry standard secure data
encryption technology  128-bit SSL protocol. Additional features include: transaction key authentication, merchant control over all phases of the customers online transaction experience, and configurable transaction response that
integrate with merchant applications. SIM is a solution for Web merchants with basic customization needs. The Authorize.Net payment gateway handles all the steps in the secure transaction process  payment data collection, data submission
and the response to the customer. Additional features of SIM include: a payment gateway hosted payment form employing 128-bit SSL data encryption, transaction digital fingerprints to enhance security, and a customizable payment gateway hosted
payment form and/or receipt page.

MOTO merchants can submit transactions manually via a secure Web browser using the Virtual Terminal or
Batch Upload tool. Retail merchants can process transactions using the Authorize.Net VPOS. Additionally, there are approximately 122 third-party certified products, including shopping carts, kiosks, and mobile and software services that have
integrated their eCommerce solution with the small business payment gateway. These integrated services provide merchants with checkout page solutions or hardware and software that are already integrated with the payment processing gateway.

Commerce Services Applications

We
have developed and licensed a set of software applications that perform our hosted services. In many cases, execution of the applications is distributed among the processing systems and database systems, enabling us to minimize interruptions during
scheduled maintenance, code pushes, and system modifications.

For our enterprise platform, these services include credit card processing,
electronic check processing, order decision management, gift and promotional certificates, Bill Me Later payment service, payer authentication, PayPal, CyberSource Advanced Fraud Screen enhanced by Visa, tax services, delivery address verification,
and export compliance. For our small business platform, these services include eCheck.Net, Automated Recurring Billing, Fraud Detection Suite, Customer Information Manager, and Virtual Point of Sale.

Transaction Database Architecture

Two primary sets
of databases form the core of our transaction processing system: the transaction processing databases, which maintain information necessary to process each individual transaction, and the post-transaction database, which generates and provides
detailed information about customers transactions, with advanced reporting capabilities available in XML and other formats.

Data Centers and
Network Access

Our data centers are located at facilities in: San Jose, California; Seattle, Washington; Denver, Colorado; Phoenix,
Arizona; London, England; and Tokyo, Japan. These secure data center facilities contain our servers, network firewalls, routers and other



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technology necessary to provide high availability transaction services and connectivity to the Internet, our customers and processing partners. The data
centers provide high-speed and redundant network connectivity, uninterruptible power systems, fire detection and suppression systems, physical security and surveillance on a 24 hours a day, 7 days a week, 365 days a year basis. In addition, we have
access to numerous network points of presence located on five continents from third party providers, enhancing our ability to serve customers globally. These points of presence, through controlled route announcements to providers such as AboveNet,
AT&T, Cable & Wireless, GLBX, Level 3 Communications, Sprint, Telia, UU-NET and Verio enable us to provide what we believe are direct, rapid and reliable access to our suite of services.

Industry Standards

The implementation of our
architecture for hosted services is based on and complies with widely accepted industry standards. For example, our transaction processing systems utilize components from industry leaders such as Cisco, Hewlett Packard, IBM, Microsoft, Oracle, Red
Hat, RSA Data Security, Sun Microsystems and Sybase. Adherence to industry standards provides compatibility with existing applications, ease of modification, and reduces the need for software modules to be rewritten over time, thus protecting our
customers investments.

Product Development

Our product development team is responsible for the design, development, and maintenance of our core infrastructure for services. We emphasize quality assurance throughout our development lifecycle. We believe that a
strong emphasis placed on analysis and design early in the project lifecycle reduces the number and costs of defects that may be found in later stages.

When appropriate, we utilize third parties to expand the capacity and technical expertise of our internal product development organization. On occasion, we have licensed third-party technology that we feel provides
the strongest technical alternative. We believe this approach shortens time-to-market without compromising our competitive position or product quality. As of December 31, 2008, we employed 143 persons in our product development department.

Intellectual Property

Our success
depends upon our proprietary technology and licensed technology. We rely on a combination of patent, copyright, trademark, trade secret laws, confidentiality procedures, and licensing arrangements to establish and protect our proprietary rights. We
have been issued twenty-seven patents and have forty-three patent applications pending. The issued patents cover much of the technology we employ, including fraud detection, cryptography, digital certificates, stored value services, and digital
software distribution. Sixteen of the issued patents were acquired as a result of the Authorize.Net Holdings, Inc. acquisition in November 2007 and cover technology related to telecommunications. We have pending patent applications covering
cryptography, order management, digital delivery, stored value services, fraud detection, and digital delivery. We investigate, define, and prepare applications for new patents as a part of the standard product development cycle. We cannot assure
that any patent application that we file will issue as a patent, and we cannot assure that any patent issued to us will not be held invalid or unenforceable based on prior art or for any other reason. Some of our technology is designed to include
intellectual property obtained from third-parties. While it may be necessary in the future to seek or renew licenses relating to various aspects of our products and business methods, we believe, based upon past experience and industry practice, that
such licenses generally could be obtained on commercially reasonable terms; however, there is no guarantee that such licenses could be obtained at all.

We believe that numerous patent applications relating to the Internet commerce field have been filed or have been issued as patents. From time to time, in the ordinary course of business, we may become aware of one or
more patents of third parties that we choose to evaluate for a variety of purposes. These purposes may include determining the general contents of patents, reviewing the technological developments of their assignees, and determining whether our
technology may overlap. We have not conducted searches to determine whether any of our services or technology could be alleged to infringe upon any patent rights of any third party. We cannot assure that none of our products, services, and
technology infringes any patent of any third party.

As part of our confidentiality procedures, we generally enter into non-disclosure
agreements with our employees, contractors, vendors, potential customers and alliances: and, our license agreements with our customers, with respect to our software, services, documentation and other proprietary information, contain confidentiality
obligations. Despite these precautions, third parties could reverse engineer, copy or otherwise obtain our technology without authorization, or develop similar technology independently. We are unable to determine the extent to which piracy of our
intellectual property or software exists. Software piracy is a prevalent problem in our industry. Effective protection of intellectual property rights may be



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unavailable or limited in foreign countries. We cannot assure that the protection of our proprietary rights will be adequate or that our competitors will not
independently develop similar technology, duplicate our services, or design around any intellectual property rights we hold. See the discussion under Item 3 Legal Proceedings for further information regarding infringement of our 154
Patent.

From time to time we may receive notice of claims of infringement of other parties intellectual property rights. As the
number of services in our market increases and functionalities overlap, companies such as ours may become increasingly subject to infringement claims. Any infringement claims, with or without merit, could be time-consuming, result in costly
litigation, diversion of technical and management personnel, or require us to develop non-infringing technology or enter into licensing agreements. Such licensing agreements, if required, may not be available on acceptable terms, if at all. In the
event of a successful claim of infringement and our failure or inability to develop non-infringing technology or license the proprietary rights on a timely basis, our business, operating results and financial condition could be materially adversely
affected.

Service Delivery

Our
service delivery department is responsible for the management and support of our global data centers and technology infrastructure 24 hours a day, 7 days a week, 365 days a year. We support and manage the transaction services business with
enterprise-class technologies and tools. These technologies and tools are deployed and managed by strict adherence to proven operational principles, processes, and procedures. We believe this technology, the processes, and our employees enable us to
deliver the highest level of services and performance to our customers. As of December 31, 2008, we employed 83 persons in our service delivery department.

Customer Support

We provide a range of customer implementation and sustaining support services to ensure a high level of
performance, reliability, and customer satisfaction for our customers. We believe these services ensure our customers get solutions implemented quickly, as well as provide the support necessary to identify and effectively resolve operational issues.
Our offerings include phone support, online ticketing, e-mail, chat, and self-help. Premium support is also offered to our enterprise customers, and includes support from dedicated technical account managers.

Our performance during 2008 was measured by CustomerSat, Inc. through surveys to customers using our services. We received CustomerSats Achievement
in Customer Excellence award in November of 2008 for both Customer Support Satisfaction and Authorize.Net Product and Service Satisfaction. As of December 31, 2008 we employed 156 persons in our customer support department.

Sales and Marketing

We maintain distinct sales and
marketing organizations for our enterprise and small businesses groups. We currently have active partnership relationships with approximately 4,000 e-Commerce Technology Resellers, Processors, Financial Institutions, and Independent Sales
Organizations (ISOs). Our enterprise sales and marketing department targets prospective customers worldwide through a direct sales force as well as through partners that have established reseller or referral relationships. Our small
business sales and marketing department targets prospective small business customers domestically through reseller and referral (Affiliate Reseller) relationships, as well as inside sales.

Enterprise Resellers: We have contractual relationships with our resellers that allow them to offer and bundle the CyberSource suite of services in
conjunction with their solution offering and facilitate the sale and billing of our services. Resellers are authorized to sell our hosted payment services and support services. Our resellers include both banks and payment service providers, such as
Bank of America, Wells Fargo, Chase Paymentech, First Data Merchant Services, ISOs, as well as eCommerce technology and infrastructure partners such as PFS Web, The Acuity Group LLC, and TravelClick Inc.

Enterprise Referral Partners: These are companies with which we have referral agreements, structured with or without monetary incentives. These allies
include companies from the payment industry, independent software vendors, integrators and consulting firms, such as Art Technology Group, Demandware, MarketLive, and Netsuite.

Small Business Resellers: We have contractual relationships with our small business resellers that allow them to offer and bundle our small business
offering (Authorize.Net) suite of services with an internet or retail-based merchant account. Our small business resellers include both large banks like Wells Fargo, Chase Paymentech, etc. and smaller ISOs and merchant service



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providers (MSPs). Buy rates are provided to each reseller for each of the small business products and services. Resellers access a reseller
interface to setup new merchants on the small business platform, set sell rates for each merchant and access reporting information for individual merchants or their entire portfolio. Resellers receive a monthly residual based on the difference
between their buy rates and the sell rates they set for each merchant.

Small Business Affiliate Resellers: Affiliate resellers are
individuals and businesses that have merchant customers, but are not able to provide those merchant customers with payment services. The affiliate refers the merchant to Authorize.Net and we then handle the setup, billing and ongoing support for
their payment gateway. Affiliates receive a commission for each referral sale that we close, as well as a portion of the monthly fees and transaction fees generated by each of the merchants.

In addition to channel and referral relationships, we pursue both solutions alliances and strategic alliances. These result in cooperative product
development efforts, streamlining of integration capabilities and leveraged marketing efforts. These solution alliances integrate our technology into some of their products, making it easier for their customers to access our products and services
and include companies such as Oracle (includes PeopleSoft and Siebel).

Strategic Alliances: Our strategic alliances include our
relationships with PayPal, Trustwave, and Visa U.S.A. We work with strategic alliances to enhance our existing solutions portfolio, develop new services and drive the adoption of industry standards.

As of December 31, 2008, we employed a total of 114 employees in sales and marketing and an additional 16 professional service consultants.

Competition

The market for our
products and services is intensely competitive and subject to rapid technological change. We expect competition to intensify in the future.

We face competition from merchant acquirers, independent sales organizations, and payment
processors such as Chase Paymentech, First Data Corporation, and Royal Bank of Scotland. We also face competition from transaction service providers such as PayPal and Retail Decisions as well as eCommerce providers such as Digital River and GSI
Commerce Inc. Furthermore, other companies, including financial services and credit companies may enter the market and provide competing services. Another source of competition comes from businesses that develop their own internal, custom-made
systems. Such businesses typically make large initial investments to develop custom-made systems and therefore, may be less likely to adopt outside services or vendor-developed online commerce transaction processing software.

We compete on the basis of certain factors, including:



| |  |  | system and product reliability;
| | - |  | -------------------------------

| |  |  | product performance;
| | - |  | --------------------

| |  |  | features and functionality;
| | - |  | ---------------------------

| |  |  | outsourced management;
| | - |  | ----------------------

| |  |  | domain expertise;
| | - |  | -----------------

| |  |  | sales channels, operating environments and applications supported;
| | - |  | ------------------------------------------------------------------

| |  |  | ease of implementation and integration;
| | - |  | ---------------------------------------

| |  |  | time to market;
| | - |  | ---------------

| |  |  | customer support; and,
| | - |  | ----------------------

| |  |  | price.
| | - |  | ------

Presently, we believe that
we compete favorably with respect to each of these factors. However, the market for our solutions is rapidly evolving and we may not be able to compete successfully against current and future competitors. We expect that competitive pressures may
result in the reduction of our prices or our market share or both, which could materially and adversely affect our business, results of operations, or financial condition.

Employees

As of December 31, 2008, we had a total of 614 full-time employees, including 130
employees in professional services, sales and marketing, 143 employees in product development, 239 employees in operations and customer support, and 102 employees in general and administrative services. None of our employees are represented by a
labor union and we consider employee relations to be good.



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International Sales

Products and services provided to merchants outside the United States accounted for 6.8%, 8.7%, and 10.0% of our revenues in 2008, 2007, and 2006, respectively.

Regulations

The following regulations may adversely
affect our business now or in the future:



| |  |  | Fair Credit Reporting Act.Because our fraud screening system assesses the probability of fraud in an online credit card transaction,
partly based on analyses of data compiled from our base of customers that use the fraud screening services, we may be deemed a consumer reporting agency under the Fair Credit Reporting Act (the FCRA). As a precaution, we have implemented
processes that we believe will enable us to comply with the FCRA if we were deemed a consumer reporting agency. Complying with the FCRA requires us to provide information about personal data stored by us. Failure to comply with the FCRA could result
in claims being made against us by individual consumers and the Federal Trade Commission.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Export Control Regulations.    Current export control regulations prohibit the export of strong encryption technology without a license
unless exempt from license requirements, thereby preventing us from using stronger encryption technology to protect the security of data being transmitted to and from Internet merchants outside of the United States. We have obtained a license to use
2048-bit encryption technology with our international merchants. Furthermore, we believe that our products and services fall under certain licensing exemptions as financial products.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Privacy Laws.    Because we receive, transmit, and store certain financial information to facilitate the provision of payment services,
which information includes credit card numbers and bank account numbers, we may be subject to various federal and State regulations regarding the protection of personally identifying information. Applicable laws may include, without limitation, the
Gramm-Leach-Bliley Act, the Fair and Accurate Credit Transactions Act, and various State laws. In the event our systems are compromised by an unauthorized party, many of these privacy laws require that we provide notices to all card and account
holders in our databases whose personally identifiable data we reasonably believe may have been compromised. To mitigate the risk of compromised information, we use strong encryption to encrypt card numbers that are stored in our post transaction
databases.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 1A.    RISK FACTORS

Set forth below and elsewhere in this Annual Report on Form 10-K, including in Item 7, Managements Discussion and Analysis, and in other
documents we file with the Securities and Exchange Commission are risks and uncertainties that could cause actual results to differ materially from those described herein:

Risks Related to Our Business

Potential system failures and lack of capacity issues could
negatively affect demand for our services.

Our ability to deliver services to our merchants depends on the uninterrupted operation
of our commerce transaction processing systems. Our systems and operations are vulnerable to damage or interruption from:



| |  |  | denial of service attacks;
| | - |  | ----------------------------



| |  |  | computer viruses;
| | - |  | -----------------



| |  |  | war, earthquake, fire, flood and other manmade or natural disasters; and
| | - |  | ------------------------------------------------------------------------



| |  |  | power loss, telecommunications or data network failure, operator negligence, improper operation by employees, physical and electronic break-ins and similar events.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

Despite the fact that we have implemented redundant servers in third-party hosting centers located in San Jose,
California; Seattle, Washington; Denver, Colorado; Phoenix, Arizona; London, England; and Tokyo, Japan, we may still experience service interruptions for the reasons listed above and a variety of other reasons. If our redundant servers are not
available, we may not have sufficient business interruption insurance to compensate us for resulting losses. We have experienced periodic interruptions and performance issues, affecting all or a portion of our systems, which we believe will continue
to occur from time to time. Any interruption in our systems that impairs our ability to efficiently and timely provide services could damage our reputation and reduce demand for our services.



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In addition, our success also depends on our ability to grow, or scale, our commerce transaction systems
to accommodate increases in the volume of traffic on our systems, especially during peak periods of demand. We may not be able to anticipate increases in the use of our systems or successfully expand the capacity of our network infrastructure. Our
inability to expand our systems to handle increased traffic could result in system disruptions, slower response times and other difficulties in providing services to our merchant customers, which could materially harm our business.

A breach of our eCommerce security measures could reduce demand for our services.

A requirement of the continued growth of eCommerce is the secure transmission of confidential information over public networks. We rely on public key
cryptography, an encryption method that utilizes two keys, a public and a private key, for encoding and decoding data, and digital certificate technology, or identity verification, to provide the security and authentication necessary for secure
transmission of confidential information. A party who is able to circumvent security measures could misappropriate proprietary information or interrupt our operations. Any compromise or elimination of security could reduce demand for our services.

We may be required to expend significant capital and other resources to protect against security breaches and to address any problems they
may cause. Concerns over the security of the Internet and other online transactions and the privacy of users may also inhibit the growth of the Internet and other online services generally, and the Web in particular, especially as a means of
conducting commercial transactions. Because our activities involve the storage and transmission of proprietary information, such as credit card numbers, security breaches could damage our reputation and expose us to a risk of loss, fines, or
litigation and other liabilities. Our security measures may not prevent security breaches, and failure to prevent security breaches may disrupt our operations.

We could incur chargeback or merchant fraud losses that would adversely affect our earnings.

We have potential liability for certain transactions processed through our global acquiring services if the payments associated with such transactions are rejected, refused, or returned for reasons such as consumer fraud or billing
disputes. For instance, if a billing dispute between a merchant and payer is not ultimately resolved in favor of the merchant, the disputed transaction may be charged back to the merchants bank and credited to the payers account. If the
charged back amount cannot be recovered from the merchants account, or if the merchant refuses or is financially unable to reimburse its bank for the charged back amount, we may bear the loss for the amount of the refund paid to the
payers bank. We could also incur fraud losses as a result of merchant fraud. Merchant fraud occurs when a merchant, rather than a customer, intentionally uses a stolen or counterfeit card, card number, or other bank account number to process a
false sales transaction, or knowingly fails to deliver merchandise or services in an otherwise valid transaction. We may be responsible for any losses for certain transactions if we are unable to collect from the merchant.

We have established systems and procedures designed to detect and reduce the impact of consumer fraud and merchant fraud, but we cannot assure you that
these measures are or will be effective. To date, we have not incurred any significant losses relating to chargebacks resulting from consumer fraud or merchant fraud. During the twelve months ended December 31, 2008, our global acquiring
revenue represented approximately 34.3% of our total revenue. Our global acquiring revenue may also include fees generated for gateway services as it is becoming more common to charge the customer a bundled price for transaction services provided.
To the extent our global acquiring revenue grows, our potential liability for such chargebacks or merchant fraud increases.

Our
revenue and customer relationships could be impacted if we were to lose bank sponsorship.

The credit card associations require a
bank sponsor that ultimately assumes chargeback or merchant fraud losses if we were financially unable to assume such losses. Harris Bank, N.A. is our bank sponsor. Our current agreement with Harris Bank renews automatically in March of each year
and requires at least 180 days written notice prior to the expiration of any annual term if either party wishes to exercise its right not to renew the agreement. As of the date of this report, we have not received any notice of non-renewal from
Harris Bank, N.A. Accordingly, this agreement will renew automatically again in March 2009 and remain in effect through March 2010, unless the parties mutually agree to terminate the agreement prior to any such expiration or either party exercises
its right to terminate the agreement prior to any such expiration based on a material breach by the other party as set forth in the agreement. If our current bank sponsor were to terminate our agreement, and we are not able to obtain another bank
sponsor in a timely manner, we would be unable to provide global acquiring services, either whole or in part, which could impact our future revenue and customer relationships.



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We may not be able to adequately protect our proprietary technology and may be infringing upon
third-party intellectual property rights.

Our success depends upon our proprietary technology. We rely on a combination of patent,
copyright, trademark and trade secret rights, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights.

As part of our confidentiality procedures, we enter into non-disclosure agreements with our employees, contractors, vendors and potential customers and alliances. Despite these precautions, third parties could copy or
otherwise obtain and use our technology without authorization, or develop similar technology independently. Effective protection of intellectual property rights may be unavailable or limited in foreign countries. We cannot assure you that the
protection of our proprietary rights will be adequate or that our competitors will not independently develop similar technology, duplicate our products and services or design around any patents or other intellectual property rights we hold.

We also cannot assure you that third parties will not claim that the technology employed in providing our current or future products and
services infringe upon their rights. We have not conducted any search to determine whether any of our products and services or technologies may be infringing upon patent rights of third parties. As the number of products and services in our market
increases and functionalities increasingly overlap, companies such as ours may become increasingly subject to infringement claims. In addition, these claims also might require us to enter into royalty or license agreements. Any infringement claims,
with or without merit, could absorb significant management time and lead to costly litigation. If required to do so, we may not be able to obtain royalty or license agreements, or obtain them on terms acceptable to us.

If we are not able to fully utilize relationships with our sales alliances, we may experience lower revenue growth and higher operating costs.

Our future growth will depend in part on the success of our relationships with existing and future sales alliances that market our
products and services to their merchant accounts. If these relationships are not successful or do not develop as quickly as we anticipate, our revenue growth may be adversely affected. For example, most of the new customer signups for our
Authorize.Net platform come from resellers. To some degree, we compete with these resellers and conflicts may arise between the reseller and our direct sales force. While we believe we have been able to minimize any such conflict, we cannot assure
you that conflicts will not increase. Accordingly, we may have to increase our sales and marketing expenses in an attempt to secure additional merchant accounts.

Our fraud detection services and marketing agreement with Visa U.S.A. can be terminated.

In
July 2001, we entered into an agreement with Visa U.S.A. to jointly develop and promote the CyberSource Advanced Fraud Screen Service Enhanced by Visa (CAFSSEV) for use in the United States. Under the terms of the agreement, Visa agreed
to promote and market the product to its member financial institutions and Internet merchants. The agreement expires in July 2009, but can be terminated by either party with ninety days prior written notice. Thereafter, the agreement renews
automatically for additional periods of one year, unless terminated by either party. In September 2005, we entered into an agreement with Visa Canada for Visa Canada to promote CAFSSEV in Canada . The agreement with Visa Canada expires in September
2009, but can be terminated by either party with ninety days prior written notice. Thereafter, the agreement renews automatically for additional periods of one year, unless terminated by either party. As of the date of this filing, we have not
received any notices of non-renewal from either Visa, U.S.A. or Visa Canada. Termination of either agreement will not impact our ability to sell our fraud screening services to our customers. Furthermore, based on the amount of royalties we pay to
Visa, U.S.A., we do not believe that termination of the agreement will have a material, adverse impact on our financial condition, results of operations, or cash flows. However, we cannot quantify the marketing value of the relationships with Visa,
U.S.A. and Visa Canada, and therefore termination of either agreement or both agreements may adversely impact the marketability of our fraud screening technology.

If we lose key management personnel, we may not be able to successfully manage our business and achieve our objectives.

Our success will depend in part upon our ability to retain key management personnel, including William S. McKiernan, our Chief Executive Officer, and other key members of management because of their experience and
knowledge regarding the development, opportunities, and challenges of our business. We do not maintain any key-man insurance covering the death or disability of any of our executive officers. While we have employment contract with Scott Cruickshank,
our President and Chief Operating Officer, none of our current key employees are subject to legal obligations that enable us to retain them for a specific period of time. Competition for qualified personnel can be intense. We may not be successful
in attracting and retaining key



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employees in the future. For example, in November 2008, Roy Banks, then President of our Authorize.Net subsidiary, resigned. Loss of key personnel could
have a material adverse effect on our business and results of operations.

Failure to manage future growth effectively may have a
material adverse effect on our financial condition and results of operations.

In the event that we experience rapid growth in our
operations, a significant strain may be placed upon management, administrative, operational and financial infrastructure. Our success will depend in part upon the ability of our executive officers to manage growth effectively. Our ability to grow
also depends upon our ability to successfully hire, train, supervise, and manage new employees, obtain financing for our capital needs, expand our systems effectively, allocate our human resources optimally, maintain clear lines of communication
between our transactional and management functions and our finance and accounting functions, and manage the pressures on our management and administrative, operational and financial infrastructure. There can be no assurance that we will be able to
accurately anticipate and respond to the changing demands we will face as we continue to expand our operations, and we may not be able to manage growth effectively or to achieve growth at all. Any failure to manage the future growth effectively
could have a material adverse effect on our business, financial condition and results of operations.

Charges to earnings resulting
from the application of the purchase method of accounting might adversely affect the market value of our common stock.

In
accordance with United States generally accepted accounting principles (GAAP), the Authorize.Net merger which closed on November 1, 2007 was accounted for using the purchase method of accounting, which will result in charges to
earnings that could have an adverse impact on the market value of our common stock. Under the purchase method of accounting, the total estimated purchase price was allocated to Authorize.Nets net tangible assets, identifiable intangible assets
or expense for research and development based on their fair values as of November 1, 2007. The excess of the purchase price over those fair values was recorded as goodwill. We will incur additional amortization expense based on the identifiable
amortizable intangible assets acquired and their relative useful lives. Additionally, to the extent the value of goodwill or identifiable intangible assets or other long-lived assets may become impaired, we will be required to incur material charges
relating to the impairment. These amortization and potential impairment charges could have a material impact on our results of operations. We currently estimate that we will incur approximately $26.2 million of incremental annual amortization
expense relating to the Authorize.Net merger during the year ended December 31, 2009. Changes in earnings per share, including as a result of this incremental expense, could adversely affect the trading price of our common stock.

We may pursue strategic acquisitions and our business could be materially and adversely affected if we fail to adequately integrate acquired
businesses.

As part of our future business strategy, we may pursue strategic acquisitions of complementary businesses or
technologies that would provide additional product or service offerings, additional industry expertise, a broader client base or an expanded geographic presence. For example, on November 1, 2007, we completed the acquisition of Authorize.Net.
If we do not successfully integrate a strategic acquisition, or if the benefits of the transaction do not meet the expectations of financial or industry analysts, the market price of our common stock may decline. Any future acquisition could result
in the use of significant amounts of cash, dilutive issuances of equity securities, or the incurrence of debt or amortization expenses related to goodwill and other intangible assets, any of which could materially adversely affect our business,
operating results and financial condition. In addition, acquisitions involve numerous risks, including:



| |  |  | difficulties in assimilating the operations, technologies, products and personnel of an acquired company;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | risks of entering markets in which we have either no or limited prior experiences;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | the diversion of managements attention from other business concerns; and
| | - |  | -------------------------------------------------------------------------



| |  |  | the potential loss of key employees of an acquired company.
| | - |  | -----------------------------------------------------------

Our international business is subject to additional foreign risks that could harm our business, results, and financial condition.

Products and services provided to merchants outside the United States accounted for 6.8% and 8.7% of our revenues in the years ended December 31,
2008 and 2007, respectively. In March 2000, we entered into a joint venture agreement with Japanese partners Marubeni Corporation and Trans-Cosmos, Inc. and established CyberSource K.K. to provide commerce transaction services to the Japanese
market. Conducting business outside of the United States is subject to additional risks that may affect our ability to sell our products and services and result in reduced revenues, including:



| |  |  | changes in regulatory requirements;
| | - |  | -----------------------------------



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| |  |  | reduced protection of intellectual property rights;
| | - |  | ---------------------------------------------------



| |  |  | the burden of complying with a variety of foreign laws; and
| | - |  | -----------------------------------------------------------



| |  |  | war, political or economic instability or constraints on international trade.
| | - |  | -----------------------------------------------------------------------------

In addition, some software contains encryption technology that renders it subject to export restrictions and we may become liable to the extent we
violate these restrictions. We might not successfully market, sell or distribute our products and services in local markets and we cannot be certain that one or more of these factors will not materially adversely affect our future international
operations, and consequently, our business, financial condition and operating results.

Also, sales of our products and services conducted
through our subsidiary in the United Kingdom are primarily denominated in Pounds Sterling. We may experience fluctuations in revenues or operating expenses due to fluctuations in the value of the Pounds Sterling relative to the U.S. Dollar. We do
not currently enter into transactions with the specific purpose to hedge against currency exchange fluctuations.

Risks Related To Our Industry

The intense competition in our industry could reduce or eliminate the demand for our products and services.

The market for our products and services is intensely competitive and subject to rapid
technological change. We expect competition to intensify in the future. We face competition from merchant acquirers, independent sales organizations, and payment processors such as Chase Paymentech Solutions, First Data Corporation, and Royal Bank
of Scotland. We also face competition from transaction service providers such as PayPal and Retail Decisions as well as eCommerce providers such as Bertelsmann Financial Services, Digital River, and GSI Commerce Inc. Further, other companies,
including financial services and credit companies may enter the market and provide competing services.

Many of our competitors have longer
operating histories, substantially greater financial, technical, marketing or other resources, or greater name recognition than we do. Our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in
customer requirements. Competition could seriously impede our ability to sell additional products and services on terms favorable to us. Our current and potential competitors may develop and market new technologies that render our existing or future
products and services obsolete, unmarketable or less competitive. Our current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with other solution providers, thereby increasing
their ability to address the needs of our existing or prospective customers. Our current and potential competitors may establish or strengthen cooperative relationships with our current or future channel partners, thereby limiting our ability to
sell products and services through these channels. We expect that competitive pressures may result in the reduction of our prices or our market share or both, which could materially and adversely affect our business, results of operations or
financial condition.

Our market is subject to rapid technological change and to compete we must continually enhance our systems to
comply with evolving standards.

To remain competitive, we must continue to enhance and improve the responsiveness, functionality
and features of our products and services and the underlying network infrastructure. The Internet and the eCommerce industries are characterized by rapid technological change, changes in user requirements and preferences, frequent new product and
service introductions embodying new technologies, and the emergence of new industry standards and practices that could render our technology and systems obsolete. Our success will depend, in part, on our ability to both internally develop and
license leading technologies to enhance our existing products and services and develop new products and services. We must continue to address the increasingly sophisticated and varied needs of our merchants, and respond to technological advances and
emerging industry standards and practices on a cost-effective and timely basis. The development of proprietary technology involves significant technical and business risks. We may fail to develop new technologies effectively or to adapt our
proprietary technology and systems to merchant requirements or emerging industry standards. If we are unable to adapt to changing market conditions, merchant requirements or emerging industry standards, we may be forced to compete in different ways
or expend significant resources in order to remain competitive.

The demand for our products and services could be negatively
affected by a reduced growth of eCommerce or delays in the development of the internet infrastructure.

We depend on the growing
use and acceptance of the Internet as an effective medium of commerce by merchants and customers in the United States and internationally. The sale of goods and services over the Internet has gained acceptance more



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slowly outside of the United States. We cannot be certain that acceptance and use of the Internet will continue to develop or that a sufficiently broad base
of merchants and consumers will adopt, and continue to use, the Internet as a medium of commerce.

The increase in the significance of the
Internet as a commercial marketplace may occur more slowly than anticipated for a number of reasons, including potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies and performance
improvements. If the number of Internet users, or the use of Internet resources by existing users, continues to grow, it may overwhelm the existing Internet infrastructure. Delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity could also have a detrimental effect. These factors could result in slower response times or adversely affect usage of the Internet, resulting in lower numbers of commerce transactions and
lower demand for our products and services.

Global economics, political and other conditions may adversely affect trends in consumer
spending, which may adversely impact our revenue and profitability

The global electronic payments industry depends heavily upon
the overall level of consumer, business and government spending. The industry also relies in part on the number and size of consumer transactions. A sustained deterioration in the general economic conditions in the United States or globally may
adversely affect our financial performance by reducing the number of average purchase amount of transactions involving payment cards. A reduction in the amount of consumer spending could result in a decrease of our revenue and profits.

We may become subject to government regulation and legal uncertainties that would adversely affect our operations and financial results.

We are not currently subject to direct regulation by any domestic or foreign governmental agency, other than regulations
applicable to businesses generally, export control laws and laws or regulations directly applicable to eCommerce. However, due to the increasing usage of the Internet, it is possible that a number of laws and regulations may be applicable or may be
adopted in the future with respect to conducting business over the Internet covering issues such as:



| |  |  | taxes;
| | - |  | ------



| |  |  | user privacy;
| | - |  | -------------



| |  |  | pricing;
| | - |  | --------



| |  |  | content;
| | - |  | --------



| |  |  | right to access personal data;
| | - |  | ------------------------------



| |  |  | copyrights;
| | - |  | -----------



| |  |  | distribution; and
| | - |  | -----------------



| |  |  | characteristics and quality of products and services.
| | - |  | -----------------------------------------------------

For example, we believe that our fraud screen service may require us to comply with the Fair Credit Reporting Act (the Act). As a precaution, we have implemented processes that we believe will enable us to
comply with the Act if we were deemed a consumer reporting agency. Complying with the Act requires us to provide information about personal data stored by us. Failure to comply with the Act could result in claims being made against us by individual
consumers and the Federal Trade Commission.

Furthermore, the growth and development of the market for eCommerce may prompt more stringent
consumer protection laws that may impose additional burdens on those companies conducting business online. The adoption of additional laws or regulations may decrease the growth of the Internet or other online services, which could, in turn,
decrease the demand for our products and services and increase our cost of doing business.

The applicability of existing laws governing
issues such as property ownership, copyrights, encryption and other intellectual property issues, taxation, libel, export or import matters and personal privacy to the Internet is uncertain. The vast majority of laws were adopted prior to the broad
commercial use of the Internet and related technologies. As a result, they do not contemplate or address the unique issues of the Internet and related technologies. Changes to these laws intended to address these issues, including some recently
proposed changes in the United States regarding taxation and encryption and in the European Union regarding contract formation and privacy, could create uncertainty in the Internet marketplace and impose additional costs and other burdens. These
uncertainties, costs and burdens could reduce demand for our products and services or increase the cost of doing business due to increased litigation costs or increased service delivery costs.



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Risks Related to Ownership of Our Common Stock

Potential fluctuations of our quarterly results could cause our stock price to fluctuate or decline.

We expect that our quarterly operating results will fluctuate significantly in the future based upon a number of factors, many of which are not within
our control. We base our operating expenses on anticipated market growth and our operating expenses are relatively fixed in the short term. As a result, if our revenues are lower than we expect, our quarterly operating results may not meet the
expectations of public market analysts or investors, which could cause the market price of our common stock to decline. Our quarterly results may fluctuate in the future as a result of many factors, including the following:



| |  |  | changes in the size and number of transactions processed on behalf of customers as a result of seasonality, success of each customers business, general
economic conditions or regulatory requirements restricting our customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to attract new customers and to retain our existing customers;
| | - |  | --------------------------------------------------------------------------



| |  |  | customer acceptance of new products and services we may offer, including our global acquiring business;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | customer acceptance of our pricing model;
| | - |  | -----------------------------------------



| |  |  | customer acceptance of our software and our professional services offerings;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the success of our sales and marketing programs;
| | - |  | ------------------------------------------------



| |  |  | an interruption with one or more of our processors, other financial institutions and technology service providers;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | seasonality of the retail sector;
| | - |  | ---------------------------------



| |  |  | changes in accounting rules and regulations;
| | - |  | --------------------------------------------



| |  |  | changes in federal, state, and local income tax laws;
| | - |  | -----------------------------------------------------



| |  |  | war or other international conflicts;
| | - |  | -------------------------------------



| |  |  | weakness in the general United States and global economies and financial markets; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the lack of available capital for our customers and potential future customers.
| | - |  | -------------------------------------------------------------------------------

Other factors that may affect our quarterly results are set forth elsewhere in this section. As a result of these factors, our revenues are not
predictable with any significant degree of certainty. Due to the uncertainty surrounding our revenues and expenses, we believe that quarter-to-quarter comparisons of our historical operating results may not be indicative of our future performance.

The trading price of our common stock has fluctuated and may continue to fluctuate due to factors outside our control.

The market price for our common stock has been volatile and likely will continue to be volatile in response to various factors,
some of which are outside our control, including the following:



| |  |  | the announcement of new products, services or enhancements by our competitors;
| | - |  | ------------------------------------------------------------------------------



| |  |  | quarterly variations in our competitors results of operations;
| | - |  | ---------------------------------------------------------------



| |  |  | changes in earnings estimates or recommendations by securities analysts;
| | - |  | ------------------------------------------------------------------------



| |  |  | developments in our industry; and
| | - |  | ---------------------------------



| |  |  | short sales, hedging, and other derivative transactions on shares of common stock.
| | - |  | ----------------------------------------------------------------------------------

In addition, the stock market in general, and market for technology companies in particular, have experienced substantial price and volume fluctuations
potentially unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors, as well as general economic, political and financial market conditions may materially and adversely affect the market
price of our common stock.

The anti-takeover provisions in our certificate of incorporation, including the issuance of authorized
preferred stock, could adversely affect the rights of the holders of our common stock.

Anti-takeover provisions of Delaware law
and our Certificate of Incorporation may make a change in control more difficult to finalize, even if a change in control would be beneficial to the stockholders. These provisions may allow our Board of



17



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Directors to prevent changes in our management and controlling interests. Under Delaware law, our Board of Directors may adopt additional anti-takeover
measures in the future. One anti-takeover provision that we have is the ability of our Board of Directors to determine the terms of preferred stock and issue preferred stock without the approval of the holders of the common stock. Our Certificate of
Incorporation allows the issuance of up to 5,610,969 shares of preferred stock. As of December 31, 2008, there are no shares of preferred stock outstanding. However, because the rights and preferences of any series of preferred stock may be set
by our Board of Directors in its sole discretion without approval of the holders of the common stock, the rights and preferences of this preferred stock may be superior to those of the common stock. Accordingly, the rights of the holders of common
stock may be adversely affected.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued
180 days or more preceding the end of our 2008 fiscal year and that remained unresolved.

ITEM 2.    PROPERTIES

Facilities

Our primary offices are located in
approximately 72,000 square feet of space in Mountain View, California, under a lease expiring in December 2011. We also maintain offices in leased space in Reading, United Kingdom and Belfast, Northern Ireland.

In November 2007, we acquired Authorize.Net Holdings, Inc. (Authorize.Net) and, as a result, occupy approximately 23,400 and 39,800 square
feet of space in Bellevue, Washington and American Fork, Utah, respectively, with lease expiration dates in 2013. Also as a result of the acquisition of Authorize.Net, we currently lease approximately 10,000 square feet of office space in
Marlborough, Massachusetts and approximately 14,000 square feet of office space in American Fork, Utah, both of which are sublet. The lease for the office space in Marlborough, Massachusetts and American Fork, Utah expires in 2012 and 2013,
respectively. In addition, we currently lease approximately 80,000 square feet of office space in Burlington, Massachusetts which expires in 2011.

ITEM 3.    LEGAL PROCEEDINGS

The information required by this item is incorporated by reference
to Note 13Litigation and Contingencies to the Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

No matters were submitted to a vote of our security holders during the fourth quarter of 2008.



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##### Table of Contents

PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------

Since our initial public offering on June 23, 1999, our common stock has traded on the NASDAQ Global Market under the symbol CYBS. Since
January 1, 2008, our stock has traded on the NASDAQ Global Select market under the symbol CYBS. The following table sets forth the range of high and low closing sales prices of our common stock for the periods indicated:



|                             |  |      |       |     |   |      
|---------------------------- |  | ---- | ----- | --- | - | -----
|Year ended December 31, 2007 |  | High |       | Low
|First Quarter                |  | $    | 13.45 |     | $ | 11.12
|Second Quarter               |  | $    | 13.68 |     | $ | 12.06
|Third Quarter                |  | $    | 13.82 |     | $ | 11.03
|Fourth Quarter               |  | $    | 18.93 |     | $ | 11.65
|                             |  |     
|Year ended December 31, 2008 |  | High |       | Low
|First Quarter                |  | $    | 18.50 |     | $ | 12.70
|Second Quarter               |  | $    | 19.53 |     | $ | 14.07
|Third Quarter                |  | $    | 19.15 |     | $ | 13.35
|Fourth Quarter               |  | $    | 15.96 |     | $ | 6.65 

We had approximately 300 shareholders of record as of February 13, 2009. We have not declared
or paid any cash dividends on our common stock and presently intend to retain our future earnings to fund the development and growth of our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future.

Issuer Purchases of Equity Securities



|                                          |  |                                           |  |                                      |       |                                                                               |         |                                                                                                  |   |       
|----------------------------------------- |  | ----------------------------------------- |  | ------------------------------------ | ----- | ----------------------------------------------------------------------------- | ------- | ------------------------------------------------------------------------------------------------ | - | ------
|Period                                    |  | Total Number ofShares (or Units)Purchased |  | Average PricePaid per Share(or Unit) |       | Total Number ofShares (or Units)Purchased as Part ofPublicly
AnnouncedProgram |         | Maximum DollarValue of Shares Yet toBe Purchased Underthe Program at theEnd of the
Period(000s)
|October 1, 2008 to October 31, 2008 (1)   |  | 507,300                                   |  | $                                    | 14.06 |                                                                               | 507,300 |                                                                                                  | $ | 3     
|November 1, 2008 to November 30, 2008 (2) |  | 35,800                                    |  |                                      | 7.83  |                                                                               | 35,800  |                                                                                                  |   | 14,720
|December 1, 2008 to December 31, 2008 (2) |  | 52,981                                    |  |                                      | 8.04  |                                                                               | 52,981  |                                                                                                  |   | 14,294
|                                          |  |                                           |  |                                      |       |                                                                               |         |                                                                                                  |   |       
|Total                                     |  | 596,081                                   |  | $                                    | 13.15 |                                                                               | 596,081 |                                                                                                  | $ | 14,294
|                                          |  |                                           |  |                                      |       |                                                                               |         |                                                                                                  |   |       



|(1) | On April 22, 2008, the Board of Directors adopted a common stock repurchase program that authorized management to repurchase up to $10.0 million over a twelve-month period
beginning on May 5, 2008 to repurchase additional shares of our common stock. All of the repurchased shares were cancelled and returned to the status of authorized, unissued shares.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | On November 21, 2008, the Board of Directors approved a stock repurchase program that authorizes management to repurchase up to $15.0 million of additional shares of our common
stock through March 31, 2009. All of the repurchased shares were cancelled and returned to the status of authorized, unissued shares.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

STOCK PERFORMANCE GRAPH

The following line graph compares the yearly percentage change in (i) the cumulative total stockholder return on the Companys Common Stock
since December 31, 2003 with (ii) cumulative total stockholder return on (a) the Nasdaq Stock MarketU.S. Index, and (b) the RDG Internet Composite Index. The comparison assumes an investment of $100 on December 31,
2003 and reinvestment of dividends, if any. The stock price performance shown on the graph is not necessarily indicative of future price performance.

LOGO

The stock performance graph shall not be deemed incorporated by reference into any filing by us under the Securities Act of
1933 or the Securities Exchange Act of 1934 except to the extent that we specifically incorporate such information by reference, and shall not otherwise be deemed filed under such Acts.



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##### Table of Contents

ITEM 6.    SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and
Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K. The historical results are not necessarily indicative of future results.

SELECTED CONSOLIDATED FINANCIAL DATA



|                                                                                 |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|-------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ------- | - | ------- | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------
|                                                                                 |  | Year Ended December 31,              
|                                                                                 |  | 2008(1)                               |         |   | 2007(1) |   |         | 2006 |  |   | 2005   |   |  | 2004
|                                                                                 |  | (In thousands, except per share data)
|Consolidated Statements of Operations Data:                                      |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|Revenues                                                                         |  | $                                     | 229,026 |   |         | $ | 116,999 |      |  | $ | 70,250 |   |  | $    | 50,511 |   |  | $ | 36,709
|Cost of revenues                                                                 |  |                                       | 111,768 |   |         |   | 62,113  |      |  |   | 34,627 |   |  |      | 20,492 |   |  |   | 12,023
|                                                                                 |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|Gross profit                                                                     |  |                                       | 117,258 |   |         |   | 54,886  |      |  |   | 35,623 |   |  |      | 30,019 |   |  |   | 24,686
|Operating expenses:                                                              |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|Product development                                                              |  |                                       | 22,903  |   |         |   | 13,397  |      |  |   | 9,283  |   |  |      | 8,000  |   |  |   | 6,772 
|Sales and marketing                                                              |  |                                       | 68,424  |   |         |   | 25,685  |      |  |   | 14,443 |   |  |      | 11,140 |   |  |   | 10,065
|General and administrative                                                       |  |                                       | 25,133  |   |         |   | 16,734  |      |  |   | 9,861  |   |  |      | 6,031  |   |  |   | 4,058 
|                                                                                 |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|Total operating expenses                                                         |  |                                       | 116,460 |   |         |   | 55,816  |      |  |   | 33,587 |   |  |      | 25,171 |   |  |   | 20,895
|                                                                                 |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|Income (loss) from operations                                                    |  |                                       | 798     |   |         |   | (930    | )    |  |   | 2,036  |   |  |      | 4,848  |   |  |   | 3,791 
|Interest income                                                                  |  |                                       | 1,444   |   |         |   | 2,726   |      |  |   | 2,344  |   |  |      | 1,324  |   |  |   | 695   
|Other income, net                                                                |  |                                       | 1,134   |   |         |   | 314     |      |  |   | 341    |   |  |      |       |   |  |   |      
|Income tax provision (benefit)                                                   |  |                                       | (7,353  | ) |         |   | (319    | )    |  |   | (9,690 | ) |  |      | (3,074 | ) |  |   | 25    
|                                                                                 |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|Net income                                                                       |  | $                                     | 10,729  |   |         | $ | 2,429   |      |  | $ | 14,411 |   |  | $    | 9,246  |   |  | $ | 4,461 
|                                                                                 |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|Basic net income per share                                                       |  | $                                     | 0.16    |   |         | $ | 0.06    |      |  | $ | 0.42   |   |  | $    | 0.28   |   |  | $ | 0.13  
|                                                                                 |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|Diluted net income per share                                                     |  | $                                     | 0.15    |   |         | $ | 0.06    |      |  | $ | 0.39   |   |  | $    | 0.26   |   |  | $ | 0.12  
|                                                                                 |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|Weighted average number of shares used in computing basic net income per share   |  |                                       | 69,132  |   |         |   | 40,736  |      |  |   | 34,623 |   |  |      | 33,464 |   |  |   | 33,448
|                                                                                 |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|Weighted average number of shares used in computing diluted net income per share |  |                                       | 71,789  |   |         |   | 43,225  |      |  |   | 36,593 |   |  |      | 35,811 |   |  |   | 35,884
|                                                                                 |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|                                                                                 | 
|                                                                                 |  | December 31,                         
|                                                                                 |  | 2008                                  |         |   | 2007(1) |   |         | 2006 |  |   | 2005   |   |  | 2004
|                                                                                 |  | (In thousands)                       
|Consolidated Balance Sheet Data:                                                 |  |                                       |         |   |         |   |         |      |  |   |        |   |  |      |        |   |  |   |       
|Cash and cash equivalents and short-term investments                             |  | $                                     | 73,292  |   |         | $ | 40,393  |      |  | $ | 54,944 |   |  | $    | 47,001 |   |  | $ | 44,703
|Working capital                                                                  |  |                                       | 63,100  |   |         |   | 32,696  |      |  |   | 60,286 |   |  |      | 53,234 |   |  |   | 45,468
|Total assets                                                                     |  |                                       | 559,196 |   |         |   | 537,747 |      |  |   | 87,043 |   |  |      | 65,327 |   |  |   | 55,280
|Total stockholders equity                                                       |  |                                       | 517,953 |   |         |   | 503,214 |      |  |   | 78,628 |   |  |      | 56,933 |   |  |   | 47,499



|(1) | The 2007 Selected Consolidated Financial Data includes the balance sheet of Authorize.Net as of December 31, 2007 and the operating results of Authorize.Net for the period from
November 1, 2007, the date of acquisition, to December 31, 2007. The 2007 and 2008 Selected Consolidated Financial Data also includes restructuring and other non-recurring charges of approximately $1.8 million and $1.0 million,
respectively, which are included in general and administrative expenses.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be
read in conjunction with our consolidated financial statements and the related notes included elsewhere in this document.

Overview

CyberSource Corporation provides electronic payment and risk management solutions. CyberSource solutions enable electronic payment processing for Web,
call center, and point-of-sale environments. We partner with and connect to a large network of payment processors and other payment service providers to offer merchants a single source solution that simplifies electronic payment management. Our
payment solutions allow eCommerce merchants to accept a wide range of online payment options, from credit cards and electronic checks, to global payment options and emerging payment types. We also offer industry leading risk management solutions to
help online merchants address complexities such as credit card fraud, online tax requirements, and export controls. Our professional services help to design, integrate, and optimize commerce transaction processing systems for merchants.

We primarily derive our revenues from monthly commerce transaction processing fees and global acquiring fees, and support service fees. Transaction
and global acquiring revenues are recognized in the period in which the transactions occur and support service fees are recognized as the related services are provided and costs are incurred.

On November 1, 2007, the Company acquired Authorize.Net Holdings, Inc. (Authorize.Net), a provider of products and services primarily
for business that sell products and services online. The consolidated statement of income for the year ended December, 31, 2007 includes revenues and expenses of Authorize.Net for the period from November 1, 2007, the date of acquisition, to
December 31, 2007.

Critical Accounting Policies

Our financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. We believe that the following are the
more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.

Revenue Recognition

We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB 104). SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered;
(3) the fee is fixed or determinable; and (4) collectibility is reasonably assured. Determination of criteria (4) is based on managements judgments regarding the collectibility of fees. Should changes in conditions cause
management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

We derive a significant portion of our transaction processing revenues from global acquiring fees charged to merchants for payment processing services. Our fees, which are primarily a percentage of the dollar amount
of each transaction processed, are based upon the merchants monthly charge volume and risk profile. In addition, we record revenues for miscellaneous services related to global acquiring, such as fees for processing credit card chargebacks. In
accordance with Emerging Issues Task Force 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent (EITF 99-19), we recognize these fees on a gross basis as we are the primary agent in the transaction in the
period the merchants transactions are processed. Related interchange fees paid to card issuing banks and assessments paid to credit card associations are recognized in cost of revenues at that time.

Accounts Receivable

We maintain
allowances for doubtful accounts for estimated losses resulting from the potential inability of our customers to make required payments as well as for potential sales returns. If the financial condition of our customers was to deteriorate, resulting
in their inability to make payments, additional allowances may be required. These estimates are based on historical bad debt experience and other known factors. If the historical data we used to determine these estimates does not properly reflect
future losses, additional allowances may be required.



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Reserve for Merchant Losses

We have potential liability for certain transactions processed through our global acquiring services if the payments associated with such transactions
are rejected, refused, or returned for reasons such as consumer fraud or billing disputes. For instance, if a billing dispute between a merchant and payer is not ultimately resolved in favor of the merchant, the disputed transaction may be charged
back to the merchants bank and credited to the payers account. If the charged back amount cannot be recovered from the merchants account, or if the merchant refuses or is financially unable to reimburse its bank for the charged
back amount, we may bear the loss for the amount of the refund paid to the payers bank. We could also incur fraud losses as a result of merchant fraud. Merchant fraud occurs when a merchant, rather than a customer, intentionally uses a stolen
or counterfeit card, card number, or other bank account number to process a false sales transaction, or knowingly fails to deliver merchandise or services in an otherwise valid transaction. We may be responsible for any losses for certain
transactions if we are unable to collect from the merchant. We evaluate the merchants risk for potential losses based on historical experience and other relevant factors and record a loss reserve accordingly. If the data we use to determine
potential losses does not properly reflect future losses, additional reserves may be required.

Legal Contingencies

We are currently involved in certain legal proceedings and are required to assess the likelihood of any adverse judgments or outcomes of these
proceedings as well as potential ranges of probable losses. A determination of the amount of accruals required, if any, for these contingencies is made after careful analysis. As discussed in Note 13 of our consolidated financial statements, as of
December 31, 2008, we do not believe our current proceedings will have a material impact on our consolidated financial condition, results of operations or cash flows. It is possible, however, that future results of operations for any particular
quarter or annual period could be materially affected by changes in our assumptions or as a result of the effectiveness of our strategies related to these proceedings.

Accounting for Income Taxes

We account for income taxes using the liability method, which requires
the recognition of deferred tax assets or liabilities for the tax-effected temporary differences between the financial reporting and tax bases of our assets and liabilities, and for net operating loss and tax credit carryforwards.

In evaluating our ability to realize our deferred tax assets we consider all available positive and negative evidence including our past operating
results and our forecast of future taxable income. In determining future taxable income, we make assumptions to forecast federal, state, and international operating income, the reversal of temporary differences, and the implementation of any
feasible and prudent tax planning strategies. These assumptions require significant judgment regarding the forecasts of future taxable income, and are consistent with the forecasts used to manage our business. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be realized on a more likely than not basis. During 2008, we recorded an income tax benefit of approximately $7.4 million. This benefit included a $10.3 million reduction of our
remaining valuation allowance related to our deferred tax assets as we have determined that these assets will more likely than not be realized.

Stock-based Compensation

The Company accounts for stock-based compensation in accordance with Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment (SFAS 123R). Total stock-based compensation expense recognized in the consolidated statement of operations for the years ended December 31, 2008, 2007 and 2006
was $9.5, $7.0 million and $4.7 million, respectively, before income taxes. As of December 31, 2008, total unrecognized stock-based compensation expense related to non-vested stock options was approximately $17.6 million, which is expected
to be recognized over a weighted average period of approximately 2.6 years.

Under the fair value recognition provisions of SFAS 123R, we
used the Black-Scholes option valuation model to estimate stock-based compensation expense at the grant date based on the fair value of the award and we will recognize the expense ratably over the requisite service period of the award. Determining
the appropriate fair value model and assumptions used in calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility, forfeiture rates and expected life.



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Long-Lived Assets

Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142) requires that we perform tests for impairment of our goodwill annually and between
annual tests in certain circumstances. As of December 31, 2008, we had recorded goodwill in connection with our acquisition of Authorize.Net with a carrying value of approximately $289.3 million. Significant judgments could be required to
evaluate goodwill for impairment in the future including the determination of reporting units, estimating future cash flows, determining appropriate discount rates and other assumptions. We evaluate the goodwill related to the Authorize.Net
acquisition on an annual basis as of July 31.

Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144) requires that we perform tests for impairment of our intangible assets subject to amortization annually and more frequently whenever events or circumstances suggest that our
intangible assets may be impaired. We evaluate the intangible assets related to the Authorize.Net acquisition on an annual basis as of July 31. As of December 31, 2008, we had recorded intangible assets in connection with our acquisition
of Authorize.Net, with a carrying value of approximately $129.6 million, consisting of partner contracts and related relationships, merchant contracts and related relationships, existing technology, trade name and processor relationships. The value
of the partner contracts and related relationships as well as the merchant contracts and related relationships were derived by considering, among other factors, the expected income and discounted cash flows to be generated from such contracts and
relationships. The value of the existing technology was derived by considering, among other factors, the expected income and discounted cash flows to be generated, taking into account risks related to the characteristics and applications of the
technology and assessments of the life cycle state of the technology. The value of the trade name was derived by considering, among other factors, expected income and discounted cash flows to be generated, also taking into account the expected
period in which the company intends to utilize the trade name. The value of the processor relationships was derived by considering the expected cost that would be incurred to establish and build connections with the processors.

To evaluate potential impairment, SFAS 142 and SFAS 144 require us to assess whether the estimated fair value of our goodwill and intangible assets are
greater than their carrying value at the time of the test. Accordingly, there could be significant judgment in determining the fair values attributable to our goodwill and intangible assets, including the determination of reporting units, estimating
future cash flows, determining appropriate discount rates and other assumptions.

As we are required to periodically evaluate our goodwill
and intangible asset balances for impairment, if we incur impairments to our intangible assets, it would have an adverse impact on our future earnings.

Results of Operations

The following table sets forth certain items in our consolidated statements of operations expressed
as a percentage of revenues for the periods indicated:



|                              |  |                         |   |  |       |   |  |       |  
|----------------------------- |  | ----------------------- | - |  | ----- | - |  | ----- | -
|                              |  | Year Ended December 31, |  
|                              |  | 2008                    |   |  | 2007  |   |  | 2006  |  
|Revenues                      |  | 100.0                   | % |  | 100.0 | % |  | 100.0 | %
|Cost of revenues              |  | 48.8                    |   |  | 53.1  |   |  | 49.3  |  
|                              |  |                         |   |  |       |   |  |       |  
|Gross profit                  |  | 51.2                    |   |  | 46.9  |   |  | 50.7  |  
|Operating expenses:           |  |                         |   |  |       |   |  |       |  
|Product development           |  | 10.0                    |   |  | 11.5  |   |  | 13.2  |  
|Sales and marketing           |  | 29.9                    |   |  | 22.0  |   |  | 20.6  |  
|General and administrative    |  | 11.0                    |   |  | 14.2  |   |  | 14.0  |  
|                              |  |                         |   |  |       |   |  |       |  
|Total operating expenses      |  | 50.9                    |   |  | 47.7  |   |  | 47.8  |  
|                              |  |                         |   |  |       |   |  |       |  
|Income (loss) from operations |  | 0.3                     |   |  | (0.8  | ) |  | 2.9   |  
|Other income, net             |  | 0.5                     |   |  | 0.3   |   |  | 0.5   |  
|Interest income               |  | 0.7                     |   |  | 2.3   |   |  | 3.3   |  
|                              |  |                         |   |  |       |   |  |       |  
|Income before income taxes    |  | 1.5                     |   |  | 1.8   |   |  | 6.7   |  
|Income tax benefit            |  | (3.2                    | ) |  | (0.3  | ) |  | (13.8 | )
|                              |  |                         |   |  |       |   |  |       |  
|Net income                    |  | 4.7                     | % |  | 2.1   | % |  | 20.5  | %
|                              |  |                         |   |  |       |   |  |       |  



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Years Ended December 31, 2008 and 2007

Revenues.    Revenues increased to $229.0 million in 2008, an increase of approximately $112.0 million or 95.8% as compared to
$117.0 million in 2007. Approximately 79% of the increase in revenues was attributable to Authorize.Net. Approximately 16% of the increase in revenues was from existing customers, primarily resulting from an increase in global acquiring services
revenue as well as an increase in transaction volumes processed. The remaining increase in revenues was from new customers that entered into contracts during the twelve months ended December 31, 2008. We processed approximately 1.9 billion
transactions in 2008 as compared to approximately 1.2 billion transactions in 2007, an increase of approximately 54%. Approximately 66% of the increase in transaction volumes was attributable to Authorize.Net. Global acquiring revenues represented
approximately 34.3% of our revenues for the year ended December 31, 2008, as compared to 39.2% for the year ended December 31, 2007.

Cost of Revenues.    Cost of revenues consist primarily of costs incurred in the delivery of eCommerce transaction services, including personnel costs in our operations and customer support functions, processing
and interchange fees paid relating to our global acquiring services, other third-party fees, depreciation of capital equipment used in our network infrastructure and costs related to the hosting of our servers at third-party hosting centers in the
United States and the United Kingdom. Cost of revenues increased to $111.8 million or 48.8% of revenues in 2008 from $62.1 million or 53.1% of revenues in 2007. The increase in absolute dollars is primarily due to higher processing fees paid to
third parties such as the credit card issuing banks, payment processors and card associations related to our global acquiring services. These costs are variable and increase in absolute dollars as the related revenue increases and decrease as the
related revenue decreases. In addition, cost of revenues in 2008 includes Authorize.Net cost of revenues for the entire year as well as approximately $5.8 million of intangible asset amortization expense related to existing technology and processor
relationships resulting from our acquisition of Authorize.Net. The decrease in cost of revenues as a percentage of revenues is due primarily to efficiencies resulting from the increase in transactions processed as well as the increase in revenues
from operating Authorize.Net for the entire year and from other existing and new customers.

Product
Development.    Product development expenses consist primarily of compensation and related costs of employees engaged in the research, design and development of new services, and to a lesser extent, facility costs and related
overhead. Product development expenses increased to $22.9 million in 2008 from $13.4 million in 2007, an increase of 71.0%. The increase in absolute dollars is primarily due to an increase in headcount and related compensation expense of
approximately $8.1 million. As a percentage of revenues, product development expenses decreased to 10.0% in 2008 as compared to 11.5% in 2007. The decrease is primarily due to the increase in revenues from operating Authorize.Net for the entire year
as well as from other existing and new customers, offset to a certain extent by the increase in compensation expense due to the increase in headcount during 2008. We expect product development expenses will increase in absolute dollars during 2009
as we anticipate that we will increase headcount to support existing and additional development projects. As a percentage of revenues, we expect product development expenses in 2009 to be relatively consistent as compared to 2008 due primarily to
expected revenue growth.

Sales and Marketing.    Sales and marketing expenses consist primarily of compensation
of sales and marketing personnel, commissions paid to outside sales agents, market research and advertising costs, and, to a lesser extent, facility costs and related overhead. Sales and marketing expenses increased to $68.4 million in 2008 from
$25.7 million in 2007, an increase of 166.4%. The increase in absolute dollars is primarily due to an increase in commissions paid to outside sales agents of approximately $16.6 million, related to sales of our Authorize.Net services for the entire
year and an increase in headcount and related compensation expense of approximately $4.5 million. Also as a result of our acquisition of Authorize.Net, sales and marketing expenses in 2008 include an increase of approximately $19.9 million of
intangible asset amortization expense related to the Authorize.Net trade name, partner contracts and related relationships as well as merchant contracts and related relationships. As a percentage of revenues, sales and marketing expenses increased
to 29.9% in 2008 as compared to 22.0% in 2007. The increase is primarily due to the increase in commissions paid to outside sales agents, the increase in compensation expense due to the increase in headcount, and the increase in amortization
expense, offset to a certain extent, by the increase in revenues resulting from operating Authorize.Net for the entire year and from other existing and new customers. We expect that sales and marketing expenses will increase in absolute dollars
during 2009 due primarily to anticipated increased commissions paid to outside sales agents and increased headcount to support our expected revenue growth. As a percentage of revenues, we expect sales and marketing expenses in 2009 to moderately
decrease as compared to 2008 due primarily to expected revenue growth.

General and Administrative.    General
and administrative expenses consist primarily of compensation for executive and administrative personnel, fees for outside professional services and, to a lesser extent, facility costs and related overhead. General and administrative expenses
increased to $25.1 million in 2008 from $16.7 million in 2007, an increase of 50.2%. The increase is primarily due to an increase in headcount and related compensation expense of approximately $5.4 million in connection with our acquisition of
Authorize.Net as well as increases of approximately $1.1 million, $0.7 million and $0.7 million in outside



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professional fees, bad debt expense and depreciation expense, respectively. In December of 2007, we recorded a restructuring charge of approximately $1.8
million in the fourth quarter of 2007 as a result of the closure of BidPay. This charge included $1.6 million for the write-off of intangible assets, net of deferred tax liabilities, $0.1 million of severance related to terminated employees and $0.1
million for the impairment of property and equipment. In 2008, we recorded restructuring charges of approximately $1.0 million as a result of consolidating certain office space in American Fork, Utah as well as updating our assumptions associated
with the excess office space in Burlington, Massachusetts. As a percentage of revenues, general and administrative expenses, excluding restructuring charges, decreased to 10.6% in 2008 as compared to 12.7% in 2007. The percentage decrease is
primarily due to the increase in revenues during 2008 from operating Authorize.Net for the entire year as well as from other existing and new customers, offset to a certain extent, by the increases in compensation expense and outside professional
fees. We expect general and administrative expenses to be relatively consistent in absolute dollars in 2009. As a percentage of revenues, we expect general and administrative expenses in 2009 to moderately decrease as compared to 2008 due primarily
to expected revenue growth.

Other Income, Net.Other income, net for 2008 consists primarily of joint
venture income from CyberSource K.K. of approximately $0.3 million and exchange rate gains of approximately $0.8 million. Other income, net for 2007 consists primarily of joint venture income from CyberSource K.K. of approximately $0.2 million and
exchange rate gains of approximately $0.1 million.

Interest Income.    Interest income which consists of
interest earnings on cash and cash equivalents decreased to $1.4 million in 2008 from $2.7 million in 2007, a decrease of 47.0%. The decrease is primarily due to lower investment yields. We expect interest income to moderately increase in 2009 due
to anticipated higher average cash and cash equivalents balances with a comparable investment yield.

Income Tax
Benefit.    We recorded an income tax benefit of $7.4 million in 2008 as compared to $0.3 million in 2007. Included in the $7.4 million income tax benefit was a $10.3 million reversal of the remaining valuation allowance
related to our deferred tax assets, which was recorded in the fourth quarter of 2008, offset by amounts accrued for our estimated 2008 federal, state and foreign income tax liabilities. Included in the $0.3 million income tax benefit recorded in
2007 was a $1.0 million reversal of the valuation allowance related to a portion of our deferred tax assets, which was recorded in the fourth quarter of 2007, offset by amounts accrued for our estimated 2007 federal, state and foreign income tax
liabilities. Also in 2007, as a result of our acquisition of Authorize.Net, we recorded as an adjustment to goodwill a $34.5 million reduction in the valuation allowance related to a portion of our deferred tax assets. The reversals of the valuation
allowance were based on our analysis of our deferred tax assets that we expect to realize on a more likely than not basis.

As of
December 31, 2008, we had federal and state net operating loss carryforwards of approximately $183.9 million and $45.1 million, respectively. Of these amounts, $37.4 million and $15.6 million, respectively, represent tax deductions from stock
option compensation which will be recorded as an adjustment to additional paid-in capital when they reduce taxes payable. If we are not able to use them, the federal and state net operating loss carryforwards will expire in 2013 through 2024.
Internal Revenue Code Section 382 imposes substantial restrictions on the utilization of net operating losses and tax credits in the event of a corporations ownership change, as defined in the Internal Revenue Code. Our ability to utilize
net operating loss carryforwards may be limited if such an ownership change occurs.

Years Ended December 31, 2007 and 2006

Revenues.    Revenues increased to $117.0 million in 2007, an increase of approximately $46.7 million or 66.5%
as compared to $70.3 million in 2006. Approximately 28% of the increase in revenues was attributable to Authorize.Net for the period of November 1, 2007 to December 31, 2007. Approximately 40% of the increase in revenues was from existing
customers, primarily resulting from an increase in global acquiring services revenue as well as an increase in transaction volumes processed. The remaining increase in revenues was from new customers that entered into contracts during the twelve
months ended December 31, 2007. We processed approximately 1.2 billion transactions in 2007 as compared to approximately 854.2 million transactions in 2006, an increase of approximately 45%. Approximately 8% of the increase in transaction
volumes was attributable to Authorize.Net for the period of November 1, 2007 to December 31, 2007. Global acquiring revenues represented approximately 39.2% of our revenues for the year ended December 31, 2007, as compared to 33.3%
for the year ended December 31, 2006.

Cost of Revenues.    Cost of revenues increased to $62.1 million or
53.1% of revenues in 2007 from $34.6 million or 49.3% of revenues in 2006. The increase in absolute dollars is primarily due to higher processing fees paid to third parties such as the credit card issuing banks, payment processors and card
associations related to our global acquiring services, which are variable



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costs that will increase in absolute dollars as the related revenues increase and will decrease as the related revenues decrease. In addition, cost of
revenues in 2007 includes Authorize.Net cost of revenues for the period of November 1, 2007 to December 31, 2007. Also as a result of our acquisition of Authorize.Net, cost of revenues in 2007 includes approximately $1.1 million of
intangible amortization expense related to existing technology and processor relationships.

Product
Development.    Product development expenses increased to $13.4 million in 2007 from $9.3 million in 2006, an increase of 44.3%. The increase in absolute dollars is primarily due to an increase in headcount and related
compensation expense of approximately $3.1 million, and an increase in expenses related to BidPay of approximately $0.4 million. As a percentage of revenues, product development expenses decreased to 11.5% in 2007 as compared to 13.2% in 2006. The
decrease is primarily due to the increase in revenues from existing and new customers as well as from the Authorize.Net acquisition, offset to a certain extent by the increase in product development expenses during 2007.

Sales and Marketing.    Sales and marketing expenses increased to $25.7 million in 2007 from $14.4 million in 2006, an
increase of 77.8%. The increase in absolute dollars is primarily due to an increase in headcount and related compensation expense of approximately $3.9 million and an increase in commissions paid to outside sales agents of approximately $3.1
million, related to sales of our Authorize.Net services. Also as a result of our acquisition of Authorize.Net, sales and marketing expenses in 2007 include approximately $3.0 million of intangible asset amortization expense related to the
Authorize.Net trade name, partner contracts and related relationships as well as merchant contracts and related relationships. As a percentage of revenues, sales and marketing expenses increased to 22.0% in 2007 as compared to 20.6% in 2006. The
increase is primarily due to the increase in sales and marketing expenses during 2007, offset to a certain extent by the increase in revenues during 2007 from existing and new customers as well as from the Authorize.Net acquisition.

General and Administrative.    General and administrative expenses increased to $15.0 million in 2007 from $9.9 million in
2006, an increase of 51.9%. The increase is primarily due to an increase in headcount and related compensation expense of approximately $2.5 million and, to a lesser extent, an increase in third party professional fees of approximately $1.6 million
which includes integration fees related to the acquisition of Authorize.Net of approximately $0.9 million. In addition, as a result of BidPay closure, we recorded a restructuring charge of approximately $1.8 million in the fourth quarter of 2007.
This charge included $1.6 million for the write-off of intangible assets, net of deferred tax liabilities, $0.1 million of severance related to terminated employees and $0.1 million for the impairment of property and equipment. As a percentage of
revenues, general and administrative expenses, excluding restructuring charges, decreased to 12.7% in 2007 as compared to 14.0% in 2006. The decrease is primarily due to the increase in revenues during 2007 from existing and new customers as well as
from the Authorize.Net acquisition, offset to a certain extent, by the increases in compensation expense and third party professional fees.

Other Income, Net.Other income, net for 2007 consists primarily of joint venture income from CyberSource K.K. of approximately $0.2 million and exchange rate gains of approximately $0.1 million. Other income,
net for 2006 consists primarily of settlement proceeds of $0.4 million we received for dismissing a lawsuit that we filed against CardSystems Solutions, Inc. in October 2005. Also included in other income, net for 2006 are exchange rate losses of
approximately $0.1 million and joint venture income of approximately $41,000.

Interest Income.    Interest
income which consists of interest earnings on cash and cash equivalents and short-term investments increased to $2.7 million in 2007 from $2.3 million in 2006, an increase of 16.3%. The increase is primarily due to higher investment yields and
higher average cash and cash equivalent and short-term investment balances during 2007 as compared to 2006.

Income Tax
Benefit.    We recorded an income tax benefit of $0.3 million in 2007 as compared to $9.7 million in 2006. Included in the $9.7 million income tax benefit was a $9.9 million reversal of the valuation allowance related to a
portion of our deferred tax assets, which was recorded in the fourth quarter of 2006, offset by amounts accrued for our estimated 2006 federal, state and foreign income tax liabilities.

Related Party

For the years ended December 31, 2008, 2007 and 2006, legal fees of
approximately $0.6 million, $1.2 million and $0.4 million were paid to Morrison & Foerster LLP, a law firm in which one of our directors was a partner. In addition, during the year ended December 31, 2008, legal fees of approximately
$0.1 million were paid to Reed Smith, LLP, a law firm in which one of our directors is a partner. As of December 31, 2008 and 2007, we had immaterial amounts of accounts payable due to Reed Smith, LLP and Morrison & Foerster, LLP,
respectively.



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For the years ended December 31, 2008, 2007 and 2006, we paid fees of approximately $1.0 million,
$0.6 million and $0.4 million, respectively, to CyberSource K.K. for services provided to certain customers. As of December 31, 2008 and 2007, we had immaterial amounts of accounts payable due to CyberSource K.K.

The terms of our contracts with the above related parties are consistent with our contracts with other independent parties.

Liquidity and Capital Resources

Our cash and cash
equivalents were $73.3 million as of December 31, 2008 compared to $40.4 million as of December 31, 2007, an increase of $32.9 million. This increase is primarily due to the following (in thousands):



|                                              |  |                         |         |   |      |   |         |  
|--------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                              |  | Year Ended December 31, |        
|                                              |  | 2008                    |         |   | 2007 |  
|Cash provided by operating activities         |  | $                       | 50,236  |   |      | $ | 13,528  |  
|Proceeds from issuance of common stock        |  |                         | 7,161   |   |      |   | 6,928   |  
|Cash used in the acquisition of Authorize.Net |  |                         |        |   |      |   | (25,734 | )
|Purchases of equipment                        |  |                         | (11,847 | ) |      |   | (4,574  | )
|Repurchases of common stock                   |  |                         | (10,703 | ) |      |   | (5,032  | )

We believe that our cash and cash equivalents balance as of December 31, 2008 will be
sufficient to meet our working capital and capital requirements for at least the next twelve months. Our future capital requirements will depend on many factors including the level of investment we make in new businesses, new products or new
technologies. We currently have no agreements or understandings with respect to any future investments or acquisitions. To the extent that our existing cash resources and future earnings are insufficient to fund our future activities, we may need to
obtain additional equity or debt financing. Additional funds may not be available or, if available, we may not be able to obtain them on favorable terms.

At December 31, 2008, we had no indebtedness for borrowed money. At December 31, 2008, we had an unsecured letter of credit in the amount of $1.0 million per the terms of the operating lease related to the
Burlington, Massachusetts office facility we acquired through the acquisition of Authorize.Net.

The following is a table summarizing our
significant contractual obligations as of December 31, 2008, consisting of future minimum lease payments under all non-cancelable and operating leases (in thousands):



|                        |  |       |        |                 |   |             |  |             |        |  |   |    
|----------------------- |  | ----- | ------ | --------------- | - | ----------- |  | ----------- | ------ |  | - | ---
|Contractual obligations |  | Total |        | Less than 1year |   | 1  3 years |  | 3  5 years
|Operating leases        |  | $     | 17,357 |                 | $ | 4,848       |  | $           | 12,186 |  | $ | 323
|                        |  |       |        |                 |   |             |  |             |        |  |   |    
|Total commitments       |  | $     | 17,357 |                 | $ | 4,848       |  | $           | 12,186 |  | $ | 323
|                        |  |       |        |                 |   |             |  |             |        |  |   |    

We have excluded tax contingencies totaling approximately $1.9 million from the table above as
there is a high degree of uncertainty regarding the timing of future cash outflows and, as a result, we are not able to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.

Recent Pronouncements

In December 2007, the FASB
issued SFAS 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, including goodwill, the liabilities assumed and any non-controlling interest in the acquiree. SFAS 141R also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact of
adopting SFAS 141R will be dependent on the future business combinations that we may pursue.

ITEM 7A.    QUALITATIVE AND
QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We provide our services to customers primarily in the United States and, to a lesser
extent, in Europe and elsewhere throughout the world. As a result, we are exposed to foreign currency risk. The majority of sales are currently made in U.S. dollars or pounds sterling. A strengthening of the dollar or the pound sterling could
make our products less competitive in foreign



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markets. Our interest income is sensitive to changes in the general level of U.S. interest rates. We also have non-functional currency cash balances that are
exposed to foreign currency risk. For example, a hypothetical 20% adverse change in exchange rates at December 31, 2008 would result in an approximate $1.2 million decrease in our cash balances. Currently, we do not have any arrangements
to hedge against the effects of currency fluctuations.

All of our cash equivalents are presented at fair value on our consolidated balance
sheets. We generally invest our excess cash in money market funds. Due to the nature of our cash equivalents, which are money market funds, we have concluded that there is no material market risk exposure.



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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CYBERSOURCE CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS



|                                                        |  |   
|------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm |  | 31
|                                                        | 
|Consolidated Balance Sheets                             |  | 32
|                                                        | 
|Consolidated Statements of Income                       |  | 33
|                                                        | 
|Consolidated Statements of Stockholders Equity         |  | 34
|                                                        | 
|Consolidated Statements of Cash Flows                   |  | 35
|                                                        | 
|Notes to Consolidated Financial Statements              |  | 36



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

CyberSource Corporation

We have audited the accompanying consolidated balance sheets of CyberSource Corporation as of December 31, 2008 and 2007, and the
related consolidated statements of income, stockholders equity and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in the Index at
Item 15(a)(2). These financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of CyberSource Corporation at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set
forth therein.

As discussed in Note 14 to the financial statements, CyberSource Corporation changed its method of accounting for uncertain
tax positions as of January 1, 2007.

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), CyberSource Corporations internal control over financial reporting as of December 31, 2008, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 26, 2009 expressed an unqualified opinion thereon.

/s/    ERNST & YOUNG LLP

San Jose, California

February 26, 2009



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CYBERSOURCE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In
thousands, except share and per share amounts)



|                                                                                              |  |              |          |   |      |   |          |  
|--------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                              |  | December 31, |         
|                                                                                              |  | 2008         |          |   | 2007 |  
|ASSETS                                                                                        |  |              |          |   |      |   |          |  
|Current assets:                                                                               |  |              |          |   |      |   |          |  
|Cash and cash equivalents                                                                     |  | $            | 73,292   |   |      | $ | 40,393   |  
|Trade accounts receivable, net of allowances of $1,070 and $734 at December 31, 2008 and 2007 |  |              | 18,251   |   |      |   | 15,503   |  
|Prepaid expenses and other current assets                                                     |  |              | 5,310    |   |      |   | 4,189    |  
|Deferred income taxes                                                                         |  |              | 2,635    |   |      |   | 3,596    |  
|                                                                                              |  |              |          |   |      |   |          |  
|Total current assets                                                                          |  |              | 99,488   |   |      |   | 63,681   |  
|Property and equipment, net                                                                   |  |              | 16,188   |   |      |   | 10,664   |  
|Intangible assets, net                                                                        |  |              | 129,643  |   |      |   | 158,316  |  
|Goodwill                                                                                      |  |              | 289,278  |   |      |   | 291,456  |  
|Non-current deferred income taxes, net                                                        |  |              | 20,512   |   |      |   | 9,773    |  
|Other non-current assets                                                                      |  |              | 2,539    |   |      |   | 2,341    |  
|Restricted cash                                                                               |  |              | 1,548    |   |      |   | 1,516    |  
|                                                                                              |  |              |          |   |      |   |          |  
|Total assets                                                                                  |  | $            | 559,196  |   |      | $ | 537,747  |  
|                                                                                              |  |              |          |   |      |   |          |  
|                                                                                              |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                          |  |              |          |   |      |   |          |  
|Current liabilities:                                                                          |  |              |          |   |      |   |          |  
|Accounts payable                                                                              |  | $            | 588      |   |      | $ | 613      |  
|Funds due to merchants                                                                        |  |              | 12,162   |   |      |   | 11,399   |  
|Other accrued liabilities                                                                     |  |              | 18,272   |   |      |   | 14,297   |  
|Deferred revenue                                                                              |  |              | 4,519    |   |      |   | 3,772    |  
|Accrued restructuring                                                                         |  |              | 847      |   |      |   | 904      |  
|                                                                                              |  |              |          |   |      |   |          |  
|Total current liabilities                                                                     |  |              | 36,388   |   |      |   | 30,985   |  
|Deferred revenue, less current portion                                                        |  |              | 996      |   |      |   | 493      |  
|Other non-current liabilities                                                                 |  |              | 1,099    |   |      |   |         |  
|Accrued restructuring, less current portion                                                   |  |              | 832      |   |      |   | 860      |  
|Other non-current tax liabilities                                                             |  |              | 1,928    |   |      |   | 2,195    |  
|                                                                                              |  |              |          |   |      |   |          |  
|Total liabilities                                                                             |  |              | 41,243   |   |      |   | 34,533   |  
|                                                                                              |  |              |          |   |      |   |          |  
|                                                                                              |  |             
|Commitments and contingencies                                                                 |  |              |          |   |      |   |          |  
|                                                                                              |  |             
|Stockholders equity:                                                                         |  |              |          |   |      |   |          |  
|Common stock, $0.001 par value:                                                               |  |              |          |   |      |   |          |  
|Authorized shares125,000,000                                                                 |  |              |          |   |      |   |          |  
|Issued and outstanding shares68,935,857 in 2008 and 68,682,474 in 2007                       |  |              | 69       |   |      |   | 69       |  
|Additional paid-in capital                                                                    |  |              | 796,912  |   |      |   | 790,682  |  
|Accumulated other comprehensive loss                                                          |  |              | (2,225   | ) |      |   | (5       | )
|Accumulated deficit                                                                           |  |              | (276,803 | ) |      |   | (287,532 | )
|                                                                                              |  |              |          |   |      |   |          |  
|Total stockholders equity                                                                    |  |              | 517,953  |   |      |   | 503,214  |  
|                                                                                              |  |              |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                    |  | $            | 559,196  |   |      | $ | 537,747  |  
|                                                                                              |  |              |          |   |      |   |          |  

See accompanying notes.



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CYBERSOURCE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)



|                                                                                 |  |                         |         |   |      |   |         |      |  |   |        |  
|-------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                 |  | Year Ended December 31, |        
|                                                                                 |  | 2008                    |         |   | 2007 |   |         | 2006 | 
|Revenues                                                                         |  | $                       | 229,026 |   |      | $ | 116,999 |      |  | $ | 70,250 |  
|                                                                                 |  |                         |        
|Cost of revenues                                                                 |  |                         | 111,768 |   |      |   | 62,113  |      |  |   | 34,627 |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |        |  
|Gross profit                                                                     |  |                         | 117,258 |   |      |   | 54,886  |      |  |   | 35,623 |  
|Operating expenses:                                                              |  |                         |         |   |      |   |         |      |  |   |        |  
|Product development                                                              |  |                         | 22,903  |   |      |   | 13,397  |      |  |   | 9,283  |  
|Sales and marketing                                                              |  |                         | 68,424  |   |      |   | 25,685  |      |  |   | 14,443 |  
|General and administrative                                                       |  |                         | 25,133  |   |      |   | 16,734  |      |  |   | 9,861  |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |        |  
|Total operating expenses                                                         |  |                         | 116,460 |   |      |   | 55,816  |      |  |   | 33,587 |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |        |  
|Income (loss) from operations                                                    |  |                         | 798     |   |      |   | (930    | )    |  |   | 2,036  |  
|Other income, net                                                                |  |                         | 1,134   |   |      |   | 314     |      |  |   | 341    |  
|Interest income                                                                  |  |                         | 1,444   |   |      |   | 2,726   |      |  |   | 2,344  |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |        |  
|Income before taxes                                                              |  |                         | 3,376   |   |      |   | 2,110   |      |  |   | 4,721  |  
|Income tax benefit                                                               |  |                         | (7,353  | ) |      |   | (319    | )    |  |   | (9,690 | )
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |        |  
|Net income                                                                       |  | $                       | 10,729  |   |      | $ | 2,429   |      |  | $ | 14,411 |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |        |  
|Basic net income per share                                                       |  | $                       | 0.16    |   |      | $ | 0.06    |      |  | $ | 0.42   |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |        |  
|Diluted net income per share                                                     |  | $                       | 0.15    |   |      | $ | 0.06    |      |  | $ | 0.39   |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |        |  
|                                                                                 |  |                         |        
|Weighted average number of shares used in computing basic net income per share   |  |                         | 69,132  |   |      |   | 40,736  |      |  |   | 34,623 |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |        |  
|                                                                                 |  |                         |        
|Weighted average number of shares used in computing diluted net income per share |  |                         | 71,789  |   |      |   | 43,225  |      |  |   | 36,593 |  
|                                                                                 |  |                         |         |   |      |   |         |      |  |   |        |  

See accompanying notes.



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CYBERSOURCE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands, except share amounts)



|                                                             |  |              |   |  |        |    |   |                          |   |         |                                            |  |   |                    |   |  |       |          |   |  |   |         |  
|------------------------------------------------------------ |  | ------------ | - |  | ------ | -- | - | ------------------------ | - | ------- | ------------------------------------------ |  | - | ------------------ | - |  | ----- | -------- | - |  | - | ------- | -
|                                                             |  |              |   |  |        |    |   | AdditionalPaid-inCapital |   |         | AccumulatedOtherComprehensiveIncome (Loss) |  |   | AccumulatedDeficit |   |  | Total |         
|                                                             |  | Common Stock |   |  |        |    |  
|                                                             |  | Shares       |   |  | Amount |    |   |                          |   |        
|Balance at December 31, 2005                                 |  | 33,940,021   |   |  | $      | 34 |   |                          | $ | 361,710 |                                            |  | $ | (439               | ) |  | $     | (304,372 | ) |  | $ | 56,933  |  
|Issuance of common stock under stock option plans            |  | 1,221,765    |   |  |        | 1  |   |                          |   | 4,539   |                                            |  |   |                   |   |  |       |         |   |  |   | 4,540   |  
|Issuance of common stock under employee stock purchase plan  |  | 15,113       |   |  |        |   |   |                          |   | 132     |                                            |  |   |                   |   |  |       |         |   |  |   | 132     |  
|Repurchase of common stock, net                              |  | (268,005     | ) |  |        |   |   |                          |   | (2,461  | )                                          |  |   |                   |   |  |       |         |   |  |   | (2,461  | )
|Stock-based compensation                                     |  |             |   |  |        |   |   |                          |   | 4,686   |                                            |  |   |                   |   |  |       |         |   |  |   | 4,686   |  
|Unrealized gain on short-term investments                    |  |             |   |  |        |   |   |                          |   |        |                                            |  |   | 21                 |   |  |       |         |   |  |   | 21      |  
|Foreign currency translation adjustment                      |  |             |   |  |        |   |   |                          |   |        |                                            |  |   | 366                |   |  |       |         |   |  |   | 366     |  
|Net income                                                   |  |             |   |  |        |   |   |                          |   |        |                                            |  |   |                   |   |  |       | 14,411   |   |  |   | 14,411  |  
|                                                             |  |              |   |  |        |    |   |                          |   |         |                                            |  |   |                    |   |  |       |          |   |  |   |         |  
|Comprehensive income                                         |  |             |   |  |        |   |   |                          |   |        |                                            |  |   |                   |   |  |       |         |   |  |   | 14,798  |  
|                                                             |  |              |   |  |        |    |   |                          |   |         |                                            |  |   |                    |   |  |       |          |   |  |   |         |  
|Balance at December 31, 2006                                 |  | 34,908,894   |   |  |        | 35 |   |                          |   | 368,606 |                                            |  |   | (52                | ) |  |       | (289,961 | ) |  |   | 78,628  |  
|Issuance of common stock under stock option plans            |  | 1,330,898    |   |  |        | 1  |   |                          |   | 6,843   |                                            |  |   |                   |   |  |       |         |   |  |   | 6,844   |  
|Issuance of common stock under employee stock purchase plan  |  | 7,345        |   |  |        |   |   |                          |   | 84      |                                            |  |   |                   |   |  |       |         |   |  |   | 84      |  
|Repurchase of common stock, net                              |  | (420,800     | ) |  |        |   |   |                          |   | (5,032  | )                                          |  |   |                   |   |  |       |         |   |  |   | (5,032  | )
|Issuance of common stock in the acquisition of Authorize.Net |  | 32,856,137   |   |  |        | 33 |   |                          |   | 412,933 |                                            |  |   |                   |   |  |       |         |   |  |   | 412,966 |  
|Tax benefit from employee stock options                      |  |             |   |  |        |   |   |                          |   | 287     |                                            |  |   |                   |   |  |       |         |   |  |   | 287     |  
|Stock-based compensation                                     |  |             |   |  |        |   |   |                          |   | 6,961   |                                            |  |   |                   |   |  |       |         |   |  |   | 6,961   |  
|Unrealized gain on short-term investments                    |  |             |   |  |        |   |   |                          |   |        |                                            |  |   | 27                 |   |  |       |         |   |  |   | 27      |  
|Foreign currency translation adjustment                      |  |             |   |  |        |   |   |                          |   |        |                                            |  |   | 20                 |   |  |       |         |   |  |   | 20      |  
|Net income                                                   |  |             |   |  |        |   |   |                          |   |        |                                            |  |   |                   |   |  |       | 2,429    |   |  |   | 2,429   |  
|                                                             |  |              |   |  |        |    |   |                          |   |         |                                            |  |   |                    |   |  |       |          |   |  |   |         |  
|Comprehensive income                                         |  |             |   |  |        |   |   |                          |   |        |                                            |  |   |                   |   |  |       |         |   |  |   | 2,476   |  
|                                                             |  |              |   |  |        |    |   |                          |   |         |                                            |  |   |                    |   |  |       |          |   |  |   |         |  
|Balance at December 31, 2007                                 |  | 68,682,474   |   |  |        | 69 |   |                          |   | 790,682 |                                            |  |   | (5                 | ) |  |       | (287,532 | ) |  |   | 503,214 |  
|Issuance of common stock under stock option plans            |  | 1,040,278    |   |  |        | 1  |   |                          |   | 7,049   |                                            |  |   |                   |   |  |       |         |   |  |   | 7,050   |  
|Issuance of common stock under employee stock purchase plan  |  | 6,811        |   |  |        |   |   |                          |   | 111     |                                            |  |   |                   |   |  |       |         |   |  |   | 111     |  
|Repurchase of common stock, net                              |  | (793,706     | ) |  |        | (1 | ) |                          |   | (10,702 | )                                          |  |   |                   |   |  |       |         |   |  |   | (10,703 | )
|Tax benefit from employee stock options                      |  |             |   |  |        |   |   |                          |   | 272     |                                            |  |   |                   |   |  |       |         |   |  |   | 272     |  
|Stock-based compensation                                     |  |             |   |  |        |   |   |                          |   | 9,500   |                                            |  |   |                   |   |  |       |         |   |  |   | 9,500   |  
|Foreign currency translation adjustment                      |  |             |   |  |        |   |   |                          |   |        |                                            |  |   | (2,220             | ) |  |       |         |   |  |   | (2,220  | )
|Net income                                                   |  |             |   |  |        |   |   |                          |   |        |                                            |  |   |                   |   |  |       | 10,729   |   |  |   | 10,729  |  
|                                                             |  |              |   |  |        |    |   |                          |   |         |                                            |  |   |                    |   |  |       |          |   |  |   |         |  
|Comprehensive income                                         |  |             |   |  |        |   |   |                          |   |        |                                            |  |   |                   |   |  |       |         |   |  |   | 8,509   |  
|                                                             |  |              |   |  |        |    |   |                          |   |         |                                            |  |   |                    |   |  |       |          |   |  |   |         |  
|Balance at December 31, 2008                                 |  | 68,935,857   |   |  | $      | 69 |   |                          | $ | 796,912 |                                            |  | $ | (2,225             | ) |  | $     | (276,803 | ) |  | $ | 517,953 |  
|                                                             |  |              |   |  |        |    |   |                          |   |         |                                            |  |   |                    |   |  |       |          |   |  |   |         |  

See accompanying notes.



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##### Table of Contents

CYBERSOURCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                            |  | Year Ended December 31, |        
|                                                                                                            |  | 2008                    |         |   | 2007 |   |         | 2006 | 
|Operating activities:                                                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                  |  | $                       | 10,729  |   |      | $ | 2,429   |      |  | $ | 14,411  |  
|Adjustments to reconcile net income to net cash provided by operating activities:                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Depreciation expense                                                                                        |  |                         | 6,305   |   |      |   | 2,360   |      |  |   | 1,430   |  
|Amortization expense                                                                                        |  |                         | 28,673  |   |      |   | 4,218   |      |  |   | 112     |  
|Stock-based compensation                                                                                    |  |                         | 9,500   |   |      |   | 6,961   |      |  |   | 4,686   |  
|Income on investment in joint venture                                                                       |  |                         | (263    | ) |      |   | (180    | )    |  |   | (41     | )
|Deferred income taxes                                                                                       |  |                         | (9,778  | ) |      |   | (1,889  | )    |  |   | (9,724  | )
|Write-off of intangible assets                                                                              |  |                         |        |   |      |   | 2,710   |      |  |   |        |  
|Restructuring related charges                                                                               |  |                         | 960     |   |      |   | 191     |      |  |   |        |  
|Loss on disposal of property and equipment                                                                  |  |                         | 18      |   |      |   | 8       |      |  |   |        |  
|Changes in assets and liabilities:                                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Increase in accounts receivable                                                                             |  |                         | (2,748  | ) |      |   | (1,747  | )    |  |   | (1,022  | )
|(Increase) decrease in prepaid expenses and other current assets                                            |  |                         | (1,121  | ) |      |   | (5,411  | )    |  |   | 1,020   |  
|(Increase) decrease in other non-current assets                                                             |  |                         | 2,211   |   |      |   | (1,336  | )    |  |   | (1,052  | )
|Decrease in accounts payable                                                                                |  |                         | (25     | ) |      |   | (411    | )    |  |   | (110    | )
|Increase in other accrued liabilities                                                                       |  |                         | 4,029   |   |      |   | 4,247   |      |  |   | 112     |  
|Increase in funds due to merchants                                                                          |  |                         | 763     |   |      |   | 393     |      |  |   |        |  
|Increase (decrease) in non-current tax liabilities                                                          |  |                         | (267    | ) |      |   | 23      |      |  |   |        |  
|Increase in deferred revenue                                                                                |  |                         | 1,250   |   |      |   | 962     |      |  |   | 19      |  
|                                                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                                                   |  |                         | 50,236  |   |      |   | 13,528  |      |  |   | 9,841   |  
|                                                                                                            |  |                         |        
|Investing activities:                                                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Purchases of property and equipment                                                                         |  |                         | (11,847 | ) |      |   | (4,574  | )    |  |   | (2,506  | )
|Acquisition of BidPay.com                                                                                   |  |                         |        |   |      |   |        |      |  |   | (1,990  | )
|Cash used in the acquisition of Authorize.Net                                                               |  |                         |        |   |      |   | (25,734 | )    |  |   |        |  
|Purchases of short-term investments                                                                         |  |                         |        |   |      |   | (61,964 | )    |  |   | (58,842 | )
|Maturities of short-term investments                                                                        |  |                         |        |   |      |   | 95,233  |      |  |   | 58,238  |  
|                                                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) investing activities                                                         |  |                         | (11,847 | ) |      |   | 2,961   |      |  |   | (5,100  | )
|                                                                                                            |  |                         |        
|Financing activities:                                                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Proceeds from exercise of stock options and issuance of common stock under the employee stock purchase plan |  |                         | 7,161   |   |      |   | 6,928   |      |  |   | 4,672   |  
|Repurchase of common stock, net                                                                             |  |                         | (10,703 | ) |      |   | (5,032  | )    |  |   | (2,461  | )
|Tax benefit from employee stock options                                                                     |  |                         | 272     |   |      |   | 287     |      |  |   |        |  
|                                                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash provided (used in) by financing activities                                                         |  |                         | (3,270  | ) |      |   | 2,183   |      |  |   | 2,211   |  
|                                                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Effect of foreign exchange rate changes on cash                                                             |  |                         | (2,220  | ) |      |   | 20      |      |  |   | 366     |  
|                                                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Net increase in cash and cash equivalents                                                                   |  |                         | 32,899  |   |      |   | 18,692  |      |  |   | 7,318   |  
|Cash and cash equivalents at beginning of period                                                            |  |                         | 40,393  |   |      |   | 21,701  |      |  |   | 14,383  |  
|                                                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of period                                                                  |  | $                       | 73,292  |   |      | $ | 40,393  |      |  | $ | 21,701  |  
|                                                                                                            |  |                         |         |   |      |   |         |      |  |   |         |  
|                                                                                                            |  |                         |        
|Supplemental disclosure of noncash investing activity:                                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|Common stock issued in the acquisition of Authorize.Net                                                     |  | $                       |        |   |      | $ | 412,966 |      |  | $ |        |  
|Supplemental disclosure of cash flow information:                                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Taxes paid                                                                                                  |  | $                       | 768     |   |      | $ | 17      |      |  | $ | 80      |  

See accompanying notes.



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##### Table of Contents

CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

The Company

CyberSource Corporation (CyberSource or the Company) provides electronic payment and risk management solutions.
CyberSource solutions enable electronic payment processing for Web, call center, and point-of-sale environments. The Company partners with and connects to a large network of payment processors and other payment service providers to offer merchants a
single source solution that simplifies electronic payment management. CyberSources payment solutions allow eCommerce merchants to accept a wide range of online payment options, from credit cards and electronic checks, to global payment options
and emerging payment types. The Company also offers industry leading risk management solutions to help online merchants address complexities such as credit card fraud, online tax requirements, and export controls. The Companys professional
services help to design, integrate, and optimize commerce transaction processing systems for merchants.

Basis of Presentation

The accompanying consolidated financial statements reflect the financial position and results of operations of the Company and its wholly owned
subsidiaries. All intercompany transactions and balances have been eliminated.

On November 1, 2007, the Company acquired
Authorize.Net Holdings, Inc. (Authorize.Net). The transaction has been accounted for using the purchase method of accounting. The balance sheet as of December 31, 2007 includes the net assets of Authorize.Net and the statement of
income for the year ended December 31, 2007 includes the results of operations of Authorize.Net for the period from November 1, 2007, the date of acquisition, to December 31, 2007.

In order to conform to the current period presentation, certain reclassifications have been made to prior year balances. Such reclassifications do not
have a material impact on the Companys consolidated balance sheets, statements of income, or statements of cash flows.

Foreign Currency
Translation

The financial statements of the Companys non-U.S. subsidiaries are translated into U.S. Dollars in accordance with
Statement of Financial Accounting Standards (SFAS) No. 52, Foreign Currency Translation. Assets and liabilities of the Companys subsidiaries are translated at the rates of exchange at the end of the period.
Revenues and expenses are translated using the average exchange rates in effect during the period. Foreign currency translation adjustments are recorded in other comprehensive income (loss). Gains and losses realized from foreign currency
transactions denominated in currencies other than the subsidiarys functional currency were approximately $0.8 million and $0.1 million in gains for the years ended December 31, 2008 and 2007, respectively, and approximately $0.1 million
in losses for the year ended December 31, 2006.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Revenue Recognition

The Company derives its revenues primarily from monthly commerce transaction processing fees and global acquiring fees, support service fees and setup fees. The Company recognizes revenue in accordance with SEC Staff
Accounting Bulletin No. 104, Revenue Recognition (SAB 104). SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or services rendered; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured. Determination of criteria (4) is based on managements judgments regarding the collectibility of those fees.



36



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##### Table of Contents

CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Transaction revenues are recognized in the period in which the transactions occur. The Company
derives a significant portion of its transaction processing revenues from global acquiring fees charged to merchants for payment processing services. The Companys fees, which are primarily a percentage of the dollar amount of each transaction
processed, are based upon the merchants monthly charge volume and risk profile. In addition, the Company records revenues for miscellaneous services related to global acquiring, such as fees for processing credit card chargebacks. In
accordance with Emerging Issues Task Force 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent (EITF 99-19), the Company recognizes these fees on a gross basis as it is the primary agent in the transaction in the period
the merchants transactions are processed. Related interchange fees paid to card issuing banks and assessments paid to credit card associations are recognized in cost of revenues at that time.

Provisions are provided for sales returns and are based on historical experience and other known factors. For the years ended December 31, 2008,
2007 and 2006, no customer accounted for more than 10% of total revenues.

Segment Information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available that is evaluated by
the chief operating decision maker or decision-making group to make decisions about how to allocate resources and assess performance. The Companys chief operating decision maker is the Chief Executive Officer (CEO). As of
December 31, 2008, the Company views its operations as one segment, commerce transaction services, and support and manages the business based on the revenues of this segment.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity from the date of purchase of three months or less to be cash equivalents. As of December 31, 2008 and 2007, cash equivalents consist of investments in money market funds.

Fair Value Measurements

Effective January 1, 2008, the Company adopted Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (SFAS 157). In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157, which provides a one year
deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the
provisions of SFAS 157 with respect to its financial assets and liabilities only. SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value
measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair
value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:



| |  |  | Level 1Quoted prices in active markets for identical assets or liabilities.
| | - |  | ----------------------------------------------------------------------------



| |  |  | Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

The adoption of this statement did not have a material impact on the Companys consolidated results of operations
and financial condition. All of the Companys cash and cash equivalents were Level 1 financial assets measured at fair value on a recurring basis as of December 31, 2008. The Company had no Level 2 or Level 3 financial assets measured at
fair value on a recurring basis as of December 31, 2008.



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Concentration of Credit Risk

Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

Cash and cash equivalents are invested in major financial institutions in the United States. Such deposits may be in excess of insured limits and are not
insured in other jurisdictions. Management believes that the financial institutions that hold the Companys investments are financially sound and, accordingly, relatively minimal credit risk exists with respect to these investments.

The accounts receivable of the Company and its subsidiaries are derived from sales to customers located primarily in the United States and Europe. The
Company performs ongoing credit evaluations of its customers. The Company generally does not require collateral.

An allowance for doubtful
accounts is determined with respect to those amounts that the Company has determined to be doubtful of collection. At December 31, 2008 and 2007, no customer accounted for 10% or more of the Companys accounts receivable balance. At
December 31, 2008 and 2007, the percentage of accounts receivable due from foreign customers was 17% and 14%, respectively.

The
Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other hedging arrangements.

The credit card associations require a bank sponsor that ultimately assumes chargeback or merchant fraud losses if the Company was financially unable to assume such losses. The Company currently has an agreement with a bank sponsor that
renews automatically in March of each year and requires at least 180 days written notice prior to the expiration of any annual term if either party wishes to exercise its right not to renew the agreement. As of the date of this report, the Company
has not received any notice of non-renewal from its bank sponsor.

Property and Equipment

Property and equipment are stated at cost and are depreciated on a straight-line basis over estimated useful lives of three to five years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the lease terms or the estimated useful lives. Depreciation expense was $6.3 million, $2.4 million and $1.4 million for the years ended December 31, 2008, 2007 and 2006,
respectively.

Product Development

Product development expenditures are charged to operations as incurred. SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility. Based on the Companys product development process, technological feasibility is established upon the completion of a working model. To date, costs incurred by the
Company between the completion of the working model and the point at which the product is ready for general release have been insignificant. Accordingly, the Company has charged all such costs to product development expense in the period incurred.

Internal Use Software

The company
follows the guidance set forth in Statement of Position No. 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use (SOP 98-1), in accounting for the development of its on demand use
systems. SOP 98-1 requires companies to capitalize qualifying computer software costs which are incurred during the application development stage, and to amortize them over the softwares estimated useful life. The Company amortizes such costs
when the systems become operational. In 2007, as a result of the acquisition of Authorize.Net, the Company acquired approximately $0.8 million of internal use software, of which approximately $0.1 million of this software was operational prior to
the acquisition and approximately $0.7 million of this software was placed in service in 2008. In 2008, the Company added $3.4 million of internal use software, of which approximately $0.2 million was placed in service in 2008.



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Advertising Expense

The cost of advertising is recorded as an expense when incurred. Advertising costs were approximately $73,000, $31,000 and $54,000 during the years ended December 31, 2008, 2007 and 2006, respectively.

Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS 123R). Total stock-based compensation expense recognized in
the consolidated statement of operations for the years ended December 31, 2008, 2007 and 2006 was $9.5 million, $7.0 million and $4.7 million, respectively, before income taxes. They were included in the consolidated statements of income as
follows (in thousands):



|                           |  |                         |       |      |   |       |  |   |      
|-------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                           |  | Year Ended December 31,
|                           |  | 2008                    |       | 2007 |   | 2006 
|Cost of revenues           |  | $                       | 1,562 |      | $ | 872   |  | $ | 596  
|Product development        |  |                         | 2,087 |      |   | 1,373 |  |   | 848  
|Sales and marketing        |  |                         | 1,819 |      |   | 1,380 |  |   | 1,011
|General and administrative |  |                         | 4,032 |      |   | 3,336 |  |   | 2,231
|                           |  |                         |       |      |   |       |  |   |      
|                           |  | $                       | 9,500 |      | $ | 6,961 |  | $ | 4,686
|                           |  |                         |       |      |   |       |  |   |      

Long-Lived Assets

Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142) requires that the Company perform tests for impairment of its goodwill annually and
between annual tests in certain circumstances. As of December 31, 2008, the Company had recorded goodwill in connection with its acquisition of Authorize.Net in November 2007, with a carrying value of approximately $289.3 million. Significant
judgments are required to evaluate goodwill for impairment including the determination of reporting units, estimating future cash flows, determining appropriate discount rates and other assumptions. The Company evaluates the goodwill related to the
Authorize.Net acquisition on an annual basis as of July 31. The Company did not record any goodwill or intangible asset impairment charges during 2008.

Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144) requires that the Company perform tests for impairment of its
intangible assets subject to amortization annually and more frequently whenever events or circumstances suggest that its intangible assets may be impaired. The Company evaluates the intangible assets related to the Authorize.Net acquisition on an
annual basis as of July 31. As of December 31, 2008, the Company had recorded intangible assets in connection with its acquisition of Authorize.Net with a carrying value of approximately $129.6 million.

To evaluate potential impairment, SFAS 142 and SFAS 144 require the Company to assess whether the estimated fair value of its goodwill and intangible
assets are greater than their respective carrying value at the time of the test. Accordingly, there could be significant judgment in determining the fair values attributable to goodwill and intangible assets, including the determination of reporting
units, estimating future cash flows, determining appropriate discount rates and other assumptions.

Net Income Per Share

In accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share, basic net income per share is computed using
the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares and dilutive potential common shares outstanding during the period. Dilutive
potential common shares consist of the incremental common shares issuable upon the exercise of stock options, restricted shares and unvested common shares subject to repurchase or cancellation.

Income Taxes

Income taxes are calculated under the
provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS 109, the liability method is used in accounting for income taxes, which includes the



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



effects of temporary differences between financial and taxable amounts of assets and liabilities as well as the effects of net operating loss and credit
carryforwards to determine deferred tax assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to more likely than not be realized.

Effective January 1, 2007, the Company adopted Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109 (FIN 48). Although the Company believes it has adequately reserved for its uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be
different. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.

Accumulated Other Comprehensive Loss

The
Companys comprehensive income consists of its net income and other comprehensive income (loss), including unrealized gains or losses on available for sale securities and foreign currency translation gains or losses. At December 31, 2008
and 2007, accumulated other comprehensive loss consisted only of foreign currency translation adjustments.

New Accounting Pronouncements

In December 2007, the FASB issued SFAS 141 (revised 2007), Business Combinations (SFAS 141R).
SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, including goodwill, the liabilities assumed and any non-controlling interest in the
acquiree. SFAS 141R also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact of adopting SFAS 141R will be dependent on the future business combinations that the Company may pursue.



|2. | Authorize.Net Acquisition
|-- | -------------------------

On November 1,
2007, the Company completed the acquisition of Authorize.Net Holdings, Inc., a provider of products and services primarily for businesses that sell products and services online. Pursuant to the terms of the merger agreement, each Authorize.Net
common share outstanding immediately prior to the consummation of the merger was converted into the right to receive 1.1611 shares of CyberSource common stock and a pro-rata share of $125 million in cash. We issued approximately 33 million
shares of CyberSource common stock and paid approximately $125 million of cash in exchange for all shares of Authorize.Net common stock outstanding immediately prior to the merger. The Company assumed outstanding Authorize.Net options to purchase
approximately 800,000 shares of common stock. The total purchase price was as follows (in thousands):



|                                                 |  |        |        
|------------------------------------------------ |  | ------ | -------
|                                                 |  | Amount
|Cash                                             |  | $      | 125,092
|Fair value of CyberSource common shares issued   |  |        | 411,194
|Fair value of fully vested stock options assumed |  |        | 1,773  
|Acquisition-related costs                        |  |        | 4,742  
|                                                 |  |        |        
|Total                                            |  | $      | 542,801
|                                                 |  |        |        

The fair value of Authorize.Net stock options assumed was determined using a Black-Scholes option
valuation model. The use of the Black-Scholes option valuation model is consistent with our valuation of stock options in accordance with SFAS 123(R).



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The acquisition has been accounted for using the purchase method of accounting. Under the purchase
method of accounting, the total purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over
the aggregate fair values was recorded as goodwill. The fair value assigned to identifiable intangible assets acquired is determined using the income approach, which discounts expected future cash flows to present value using estimates and
assumptions determined by management. The purchase price allocation was as follows (in thousands):



|                            |  |        |         |  
|--------------------------- |  | ------ | ------- | -
|                            |  | Amount |        
|Cash and cash equivalents   |  | $      | 137,154 |  
|Goodwill                    |  |        | 291,456 |  
|Purchased intangible assets |  |        | 162,400 |  
|Other tangible assets       |  |        | 11,357  |  
|Accrued severance costs     |  |        | (29,416 | )
|Funds due to merchants      |  |        | (11,006 | )
|Other liabilities assumed   |  |        | (19,144 | )
|                            |  |        |         |  
|Total                       |  | $      | 542,801 |  
|                            |  |        |         |  

Other tangible assets consist primarily of property and equipment, trade accounts receivable and
prepaid assets. Other liabilities assumed consist primarily of non-current tax liabilities, deferred revenue and accrued liabilities. The amount of goodwill that was expected to be tax deductible was approximately $46.3 million.

During 2008 the carrying amount of goodwill was adjusted by approximately $0.1 million to reflect the reversal of certain liabilities accrued prior to
the close of the Authorize.Net acquisition and by approximately $2.1 million to release certain tax accruals related to Authorize.Net which were assumed as part of the acquisition. As of December 31, 2008, the carrying amount of goodwill was
$289.3 million.

Intangible assets related to the acquisition of Authorize.Net consist of the following (in thousands):



|                                             |  |        |         |                                       |   
|-------------------------------------------- |  | ------ | ------- | ------------------------------------- | --
|                                             |  | Amount |         | Weighted-AverageUseful Life(in years)
|Partner contracts and related relationships  |  | $      | 86,100  |                                       | 11
|Merchant contracts and related relationships |  |        | 49,300  |                                       | 4 
|Existing technology                          |  |        | 21,900  |                                       | 5 
|Trade name                                   |  |        | 3,900   |                                       | 2 
|Processor relationships                      |  |        | 1,200   |                                       | 5 
|                                             |  |        |         |                                       |   
|Total                                        |  | $      | 162,400 |                                       |   
|                                             |  |        |         |                                       |   

Partner contracts and related relationships represent Authorize.Nets network of independent
sales organizations and resellers. Merchant contracts and related relationships represent Authorize.Nets underlying merchant agreements and relationships with their installed customer base. Existing technology represents Authorize.Nets
payment gateway platform. Trade name represents Authorize.Nets brand and trademarks. Processor relationships represent Authorize.Nets electronic connectivity with various processing networks which allow their gateway to process
transactions for their merchants.

The value of the partner contracts and related relationships as well as the merchant contracts and
related relationships were derived by considering, among other factors, the expected income and discounted cash flows to be generated from such contracts and relationships. The value of the existing technology was derived by considering, among other
factors, the expected income and discounted cash flows to be generated, taking into account risks related to the characteristics and applications of the technology and assessments of the life cycle state of the technology. The value of the trade
name was derived by considering, among other factors, expected income and discounted cash flows to be generated, also taking into account the expected period in which the company intends to utilize the trade name. The value of the processor
relationships was derived by considering the expected cost that would be incurred to establish and build connections with the processors.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Intangible assets are being amortized over their respective estimated useful lives and have a total
weighted average amortization period of approximately 8 years.

The components of acquired intangible assets as of December 31, 2008
are as follows (in thousands):



|                                             |  |       |         |                         |   |        |  |   |        
|-------------------------------------------- |  | ----- | ------- | ----------------------- | - | ------ |  | - | -------
|                                             |  | Gross |         | AccumulatedAmortization |   | Net   
|Partner contracts and related relationships  |  | $     | 86,100  |                         | $ | 2,678  |  | $ | 83,422 
|Merchant contracts and related relationships |  |       | 49,300  |                         |   | 20,968 |  |   | 28,332 
|Existing technology                          |  |       | 21,900  |                         |   | 6,586  |  |   | 15,314 
|Trade name                                   |  |       | 3,900   |                         |   | 2,245  |  |   | 1,655  
|Processor relationships                      |  |       | 1,200   |                         |   | 280    |  |   | 920    
|                                             |  |       |         |                         |   |        |  |   |        
|Total                                        |  | $     | 162,400 |                         | $ | 32,757 |  | $ | 129,643
|                                             |  |       |         |                         |   |        |  |   |        

The components of acquired intangible assets as of December 31, 2007 were as follows (in
thousands):



|                                             |  |       |         |                         |   |       |  |   |        
|-------------------------------------------- |  | ----- | ------- | ----------------------- | - | ----- |  | - | -------
|                                             |  | Gross |         | AccumulatedAmortization |   | Net  
|Partner contracts and related relationships  |  | $     | 86,100  |                         | $ | 18    |  | $ | 86,082 
|Merchant contracts and related relationships |  |       | 49,300  |                         |   | 2,678 |  |   | 46,622 
|Existing technology                          |  |       | 21,900  |                         |   | 1,027 |  |   | 20,873 
|Trade name                                   |  |       | 3,900   |                         |   | 321   |  |   | 3,579  
|Processor relationships                      |  |       | 1,200   |                         |   | 40    |  |   | 1,160  
|                                             |  |       |         |                         |   |       |  |   |        
|Total                                        |  | $     | 162,400 |                         | $ | 4,084 |  | $ | 158,316
|                                             |  |       |         |                         |   |       |  |   |        

The amortization expense related to the Authorize.Net intangible assets for the period from
November 1, 2007, the date of acquisition, to December 31, 2007 and for the year ended December 31, 2008 was approximately $4.1 million and $28.7 million, respectively.

Estimated future amortization expense for the intangible assets recorded on the Companys December 31, 2008 balance sheet is as follows (in
thousands):



|           |  |        |        
|---------- |  | ------ | -------
|           |  | Amount
|2009       |  | $      | 26,230 
|2010       |  |        | 21,777 
|2011       |  |        | 18,743 
|2012       |  |        | 12,903 
|2013       |  |        | 10,038 
|Thereafter |  |        | 39,952 
|           |  |        |        
|Total      |  | $      | 129,643
|           |  |        |        

The financial information in the table below summarizes the combined results of operations of
CyberSource and Authorize.Net, on a pro forma basis, as though the companies had been combined as of the beginning of each of the years presented. The unaudited pro forma financial information for fiscal 2007 combines the historical results of
operations of CyberSource for 2007, which include the results of operations of Authorize.Net subsequent to November 1, 2007, and the historical results of operations of Authorize.Net for the ten months ended October 31, 2007. The unaudited
pro forma financial information for 2006 combines the historical results of operations of CyberSource for 2006 with the historical results of operations of Authorize.Net for 2006. The unaudited pro forma results include adjustments to reflect
amortization of intangible assets and stock-based compensation expense.

This information is presented for informational purposes only and
is not indicative of the results of operations that would have been achieved if the acquisition of Authorize.Net had taken place at the beginning of each of the years presented.



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes the unaudited pro forma financial information (in thousands, except
per-share amounts):



|                                    |  |                         |         |   |      |   |        
|----------------------------------- |  | ----------------------- | ------- | - | ---- | - | -------
|                                    |  | Year Ended December 31,
|                                    |  | 2007                    |         |   | 2006
|Revenues                            |  | $                       | 175,195 |   |      | $ | 127,799
|Net income (loss)                   |  | $                       | (7,992  | ) |      | $ | 17,496 
|Net income (loss) per sharebasic   |  | $                       | (0.12   | ) |      | $ | 0.26   
|Net income (loss) per sharediluted |  | $                       | (0.12   | ) |      | $ | 0.25   



|3. | BidPay.com Acquisition
|-- | ----------------------

In March 2006, the Company
acquired BidPay.com, Inc. (BidPay), a payment service provider for online auctions. The aggregate purchase price of approximately $3.0 million consisted of cash consideration of approximately $2.0 million, including $0.2 million of
acquisition costs, and $1.0 million in deferred taxes related to the difference between the financial and tax basis of the assets acquired, in exchange for BidPays proprietary technology, its databases, and certain intellectual property
rights, including exclusive rights to the BidPay brand.

In accordance with Emerging Issues Task Force 98-3, Determining Whether a
Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business, the Company determined that it had acquired productive assets as opposed to a business. As a result, no amount of the purchase price was allocated to goodwill. The
total purchase price of $3.0 million was allocated based on the fair values presented below (in thousands):



|                    |  |                  |       |                           |  
|------------------- |  | ---------------- | ----- | ------------------------- | -
|                    |  | Fair MarketValue |       | Straight-lineAmortization
|Technology platform |  | $                | 269   |                           | 3
|Customer list       |  |                  | 269   |                           | 6
|Trade name          |  |                  | 2,419 |                           | 
|                    |  |                  |       |                           |  
|Total               |  | $                | 2,957 |                           |  
|                    |  |                  |       |                           |  

The Company recorded approximately $0.1 million of amortization expense related to the BidPay
intangible assets in each of the years ended December 31, 2007 and 2006.

The pro forma results of operations have not been presented
for the acquisition of BidPay because the effect of this acquisition was not considered material.

In December of 2007, the Company
announced the closure of BidPay. As a result, the Company recorded a restructuring charge of approximately $1.8 million in the fourth quarter of 2007. This charge was reported in general and administrative expenses and included $1.6 million for the
write-off of the remaining intangible assets related to BidPay, net of deferred tax liabilities, and $0.1 million for the write-off of property and equipment.



|4. | Restructuring Charges
|-- | ---------------------

As a result of the
Companys acquisition of Authorize.Net, the Company acquired certain restructuring accruals related to certain facilities that Authorize.Net had exited. In December 2007, the Company also exited certain redundant office space in Marlborough,
Massachusetts and recorded a restructuring charge of approximately $0.1 million. This amount represents future lease obligations, net of projected sublease rental income. The Company also recorded approximately $0.1 million of severance related to
terminated employees. During 2008, the Company consolidated certain office space in American Fork, Utah and updated its assumptions associated with its excess office space in Burlington, Massachusetts. As a result, the Company recorded restructuring
charges totaling approximately $1.0 million. The expense was included in general and administrative expenses during the years ended December 31, 2008 and 2007. In addition, in conjunction with the closure of BidPay in 2007, the Company recorded
$0.1 million of severance related to terminated employees.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes the activity in the restructuring accrual during 2008 (in thousands):



|                           |  |                            |       |                                 |   |              |  |   |                            |   |  |   |      
|-------------------------- |  | -------------------------- | ----- | ------------------------------- | - | ------------ |  | - | -------------------------- | - |  | - | -----
|                           |  | Balance atDecember 31,2007 |       | AdjustmenttoRestructuringCharge |   | CashPayments |  |   | Balance atDecember 31,2008
|Severance and benefits     |  | $                          | 189   |                                 | $ |             |  | $ | (189                       | ) |  | $ |     
|Facilities related charges |  |                            | 1,575 |                                 |   | 960          |  |   | (856                       | ) |  |   | 1,679
|                           |  |                            |       |                                 |   |              |  |   |                            |   |  |   |      
|                           |  | $                          | 1,764 |                                 | $ | 960          |  | $ | (1,045                     | ) |  | $ | 1,679
|                           |  |                            |       |                                 |   |              |  |   |                            |   |  |   |      

The Company has lease obligations related to its exited facilities which extend through the year
2012.



|5. | Balance Sheet Detail
|-- | --------------------

Property and equipment
consist of the following (in thousands):



|                                               |  |              |        |      |   |       
|---------------------------------------------- |  | ------------ | ------ | ---- | - | ------
|                                               |  | December 31,
|                                               |  | 2008         |        | 2007
|Computer equipment and software                |  | $            | 42,721 |      | $ | 32,894
|Furniture and fixtures                         |  |              | 3,245  |      |   | 2,240 
|Office equipment                               |  |              | 1,124  |      |   | 1,041 
|Leasehold improvements                         |  |              | 3,821  |      |   | 3,041 
|Internally developed software                  |  |              | 977    |      |   | 861   
|                                               |  |              |        |      |   |       
|                                               |  |              | 51,888 |      |   | 40,077
|Less accumulated depreciation and amortization |  |              | 35,700 |      |   | 29,413
|                                               |  |              |        |      |   |       
|                                               |  | $            | 16,188 |      | $ | 10,664
|                                               |  |              |        |      |   |       

Prepaid expenses and other current assets consist of the following (in thousands):



|                                                |  |              |       |      |   |      
|----------------------------------------------- |  | ------------ | ----- | ---- | - | -----
|                                                |  | December 31,
|                                                |  | 2008         |       | 2007
|Prepaid expenses                                |  | $            | 2,970 |      | $ | 2,649
|Other current assets                            |  |              | 2,340 |      |   | 1,540
|                                                |  |              |       |      |   |      
|Total prepaid expenses and other current assets |  | $            | 5,310 |      | $ | 4,189
|                                                |  |              |       |      |   |      

Other accrued liabilities consist of the following (in thousands):



|                                       |  |              |        |      |   |       
|-------------------------------------- |  | ------------ | ------ | ---- | - | ------
|                                       |  | December 31,
|                                       |  | 2008         |        | 2007
|Employee benefits and related expenses |  | $            | 7,937  |      | $ | 5,269 
|Accrued cost of revenues               |  |              | 2,753  |      |   | 2,594 
|Accrued reseller residual payments     |  |              | 2,978  |      |   | 2,711 
|Other liabilities                      |  |              | 4,604  |      |   | 3,723 
|                                       |  |              |        |      |   |       
|Total other accrued liabilities        |  | $            | 18,272 |      | $ | 14,297
|                                       |  |              |        |      |   |       

Accrued reseller residual payments represent commissions due to third party sales agents that have
sold the Companys transaction services.



|6. | Investment in Joint Venture
|-- | ---------------------------

On March 1,
2000, the Company entered into a joint venture agreement with Japanese partners Marubeni Corporation and Trans-Cosmos, Inc. to establish CyberSource K.K. to provide commerce transaction services to the Japanese market. The Company will maintain a
majority controlling interest in CyberSource K.K., subject to certain veto rights granted to the partners, which will expire when CyberSource K.K. achieves at least $2.0 million in quarterly revenue. The joint venture is being



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



accounted for under the equity method of accounting until the veto rights granted to the partners as described above expire. After such date, in accordance
with the joint venture agreement, the Company will consolidate the financial position and results of operations of CyberSource K.K. In 2008, 2007 and 2006, the Company recognized joint venture income of approximately $0.3 million, $0.2 million and
$41,000, respectively.



|7. | Funds Due to Merchants
|-- | ----------------------

At December 31, 2008,
the Company was holding funds in the amount of $12.2 million due to merchants. The funds are included in cash and cash equivalents and funds due to merchants on the Companys consolidated balance sheet. The Company typically holds certain funds
related to certain electronic check transactions based on the contractual terms with the merchant, generally seven business days. The Company also holds certain funds related to certain credit card and automated clearing house transactions based on
the contractual terms with the financial institution which processes the transactions, generally two to four business days.

In addition,
the Company has $0.5 million on deposit with a financial institution to cover any deficit account balance that could occur if the amount of transactions returned or charged back exceeds the balance on deposit with the financial institution. This
amount is classified as restricted cash in the Companys balance sheet. To date, the deposit has not been applied to offset any deficit balance. The deposit will be held continuously for as long as the Company utilizes certain processing
services of the financial institution, and the amount of the deposit may increase as processing volume increases.



|8. | Commitments
|-- | -----------

The Company leases its primary
facility and certain equipment under noncancelable operating leases. The lease agreement for the Companys primary facility expires in December 2011. Rental expense was approximately $3.1 million, $2.2 million and $1.9 million for the years
ended December 31, 2008, 2007 and 2006, respectively.

Future minimum lease payments under noncancelable operating leases at
December 31, 2008 are as follows (in thousands):



|                         |  |                 |       
|------------------------ |  | --------------- | ------
|Year ending December 31, |  | OperatingLeases
|2009                     |  | $               | 4,848 
|2010                     |  |                 | 5,192 
|2011                     |  |                 | 4,878 
|2012                     |  |                 | 2,116 
|2013                     |  |                 | 323   
|                         |  |                 |       
|Total minimum payments   |  | $               | 17,357
|                         |  |                 |       

The total of minimum rentals to be received in the future under noncancelable subleases is
approximately $3.5 million.



|9. | Letter of Credit
|-- | ----------------

At December 31, 2008, the
Company had an unsecured letter of credit in the amount of $1.0 million per the terms of the operating lease related to the Burlington, Massachusetts office facility it acquired through the acquisition of Authorize.Net. The Company also has $1.0
million on deposit with the financial institution that issued the letter of credit to the Company. This amount is classified as restricted cash in the Companys balance sheet.



|10. | Stockholders Equity
|--- | --------------------

Stock Options

In March 1998, the Company adopted its 1998 Stock Option Plan (the 1998 Option Plan). There are 1,900,000 shares of common stock authorized
for issuance under the 1998 Option Plan. The 1998 Option Plan provides for the issuance of common stock and the granting of options to employees, officers, directors, consultants, independent contractors, and advisors of the Company. The exercise
price of a nonqualifying stock option and an incentive stock option shall not be less than 85% and 100%, respectively, of the fair value of the underlying shares on the date of grant. Options granted under the 1998 Option Plan generally become
exercisable over four years at the rate of 25% per year from the grant date.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In January 1999, the Company adopted its 1999 Stock Option Plan (the 1999 Option Plan).
The Company has reserved a total of 15,500,000 shares of common stock for issuance under the 1999 Option Plan. The provisions of the 1999 Option Plan are similar to those of the 1998 Option Plan.

In October 1999, the Company adopted the 1999 Nonqualified Stock Option Plan (the 1999 Nonqualified Option Plan). The Company has reserved a
total of 2,487,500 shares of common stock for issuance under the 1999 Nonqualified Option Plan. The 1999 Nonqualified Option Plan provides for the granting of non-qualified stock options to employees, consultants and directors. The other provisions
of the 1999 Nonqualified Option Plan are similar to those of the 1999 and 1998 Stock Option Plans.

In September 2000, the Company assumed
the PaylinX Stock Option Plan as a result of its acquisition of PaylinX Corporation in September 2000. During 2004, the Company retired the unissued shares available for grant. Options previously granted under this plan that have not yet expired or
otherwise become unexercisable continue to be administered under such plan, and any portions that expire or become unexercisable for any reason shall be canceled and be unavailable for future issuance.

Stock options to purchase the Companys common stock are granted at prices equal to the fair market value on the date of grant. Options generally
vest monthly over a four year period beginning from the date of grant and generally expire six to ten years from the date of grant. Options granted to non-employee directors generally become vested nine months from the date of grant. Nearly all
outstanding stock options are non-qualified stock options. As of December 31, 2008, 21.1 million shares are authorized for issuance under the Companys stock option plans.

A summary of the Companys stock option activity is presented in the following table:



|                                                    |  |            |   |  |                                        |       |                                          |      |                         |   |           
|--------------------------------------------------- |  | ---------- | - |  | -------------------------------------- | ----- | ---------------------------------------- | ---- | ----------------------- | - | ----------
|                                                    |  | Shares     |   |  | Weightedaverageexercise priceper share |       | Weightedaverageremainingcontractual life |      | Aggregateintrinsicvalue
|Outstanding as of December 31, 2007                 |  | 8,488,620  |   |  |                                        | 8.95  |                                          |      |                         |   |           
|Granted                                             |  | 2,009,950  |   |  |                                        | 13.41 |                                          |      |                         |   |           
|Exercised                                           |  | (1,040,278 | ) |  |                                        | 6.78  |                                          |      |                         |   |           
|Forfeited                                           |  | (632,796   | ) |  |                                        | 14.47 |                                          |      |                         |   |           
|                                                    |  |            |   |  |                                        |       |                                          |      |                         |   |           
|Outstanding as of December 31, 2008                 |  | 8,825,496  |   |  | $                                      | 9.82  |                                          | 4.41 |                         | $ | 28,332,692
|                                                    |  |            |   |  |                                        |       |                                          |      |                         |   |           
|Vested and expected to vest as of December 31, 2008 |  | 8,475,012  |   |  | $                                      | 9.72  |                                          | 4.40 |                         | $ | 28,084,102
|Exercisable as of December 31, 2008                 |  | 5,222,322  |   |  | $                                      | 8.37  |                                          | 4.21 |                         | $ | 25,017,346
|Exercisable as of December 31, 2007                 |  | 4,703,979  |   |  | $                                      | 7.42  |                                          |      |                         |   |           
|Exercisable as of December 31, 2006                 |  | 4,079,790  |   |  | $                                      | 6.59  |                                          |      |                         |   |           

The following table summarizes information about options outstanding at December 31, 2008:



|                |  |                             |  |                               |       |                                                  |      |                             |           |                               |   |      
|--------------- |  | --------------------------- |  | ----------------------------- | ----- | ------------------------------------------------ | ---- | --------------------------- | --------- | ----------------------------- | - | -----
|Exercise Price  |  | Number ofOptionsOutstanding |  | WeightedAverageExercise Price |       | Weighted AverageRemainingContractual Life(Years) |      | Number ofOptionsExercisable |           | WeightedAverageExercise Price
|$  0.83$  5.43 |  | 2,030,161                   |  | $                             | 3.83  |                                                  | 4.77 |                             | 1,974,573 |                               | $ | 3.79 
|$  5.46$  8.36 |  | 1,828,780                   |  | $                             | 7.27  |                                                  | 3.78 |                             | 1,516,695 |                               | $ | 7.09 
|$  8.53$12.23  |  | 2,549,113                   |  | $                             | 10.83 |                                                  | 4.15 |                             | 1,012,113 |                               | $ | 10.69
|$12.26$15.60   |  | 1,825,692                   |  | $                             | 13.05 |                                                  | 5.14 |                             | 421,213   |                               | $ | 13.24
|$15.63$64.63   |  | 591,750                     |  | $                             | 23.99 |                                                  | 4.02 |                             | 297,728   |                               | $ | 30.59
|                |  |                             |  |                               |       |                                                  |      |                             |           |                               |   |      
|                |  | 8,825,496                   |  | $                             | 9.82  |                                                  |      |                             | 5,222,322 |                               | $ | 8.37 
|                |  |                             |  |                               |       |                                                  |      |                             |           |                               |   |      



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



For stock options granted, the Company determined the fair value at the date of grant or purchase
using the Black-Scholes option valuation model and the following weighted average assumptions:



|                        |  |                         |  |               |  |              
|----------------------- |  | ----------------------- |  | ------------- |  | -------------
|                        |  | Year Ended December 31,
|                        |  | 2008                    |  | 2007          |  | 2006         
|Risk-free interest rate |  | 1.86% - 3.18%           |  | 4.34% - 4.74% |  | 4.64% - 4.75%
|Dividend yield          |  |                        |  |              |  |             
|Volatility              |  | 49% - 56%               |  | 51% - 58%     |  | 58% - 64%    
|Expected life (years)   |  | 3.54                    |  | 3.46          |  | 2.96         

The expected life of the options represents the estimated period of time until exercise and is
based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. Expected stock price volatility is based on historical volatility of the Companys
stock over the expected life of the options. The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues with an equivalent remaining expected life. The Company has not paid dividends in the past and does not plan
to pay any dividends in the near future. The weighted average fair value of options granted was $5.12, $5.81 and $4.80 per share for options granted during 2008, 2007 and 2006, respectively.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option valuation model. The assumptions used to
calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Companys experience. Options granted are valued using the single option valuation approach, and the resulting expense is
recognized on a straight-line basis over the vesting period of the option. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated at the date of grant based on the Companys historical experience
and future expectations.

As of December 31, 2008, total unrecognized stock-based compensation expense related to non-vested stock
options was approximately $17.6 million, which is expected to be recognized over a weighted average period of approximately 2.56 years. During 2008, 2007 and 2006, the total intrinsic value of stock options exercised was approximately $11.2
million, $11.8 million and $6.9 million, respectively. During 2008, the total cash received from the exercise of stock options was approximately $7.2 million.

During 2006, the Company granted 100,000 restricted shares at a weighted average grant date fair value of $10.46. No shares have vested as of December 31, 2008.

Employee Stock Purchase Plan

In June 1999, the
Companys Board of Directors and stockholders adopted the 1999 Employee Stock Purchase Plan (ESPP). The Company has reserved a total of 700,000 shares of common stock for issuance under this plan. In accordance with Section 423
of the Internal Revenue Code, this plan permitted eligible employees to authorize payroll deductions of up to 10% of their base compensation to purchase shares of the Companys common stock at the lower of 85% of the fair market value of the
common stock on the first day of the offering period or the purchase date. In July 2005, the Company amended the ESPP, permitting eligible employees to authorize payroll deductions of up to 10% of their base compensation to purchase shares of the
Companys common stock at 95% of the fair market value of the common stock on the purchase date. As a result of this amendment and the provisions of SFAS 123R, shares granted under the ESPP are non-compensatory. During the year ended
December 31, 2008, the Company issued 6,811 shares of common stock to employees under the terms of the plan. As of December 31, 2008, 132,260 shares remain available for purchase under the plan.

Preferred Shares

The Company is authorized to issue
5,610,969 shares of preferred stock. The Companys Board of Directors has the ability to determine the rights and preferences of the preferred stock and can issue the preferred stock without the approval of the holders of the common stock. As
of December 31, 2008, there are no shares of preferred stock outstanding.



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Common Shares

During 2007, the Company amended its certificate of incorporation to increase the number of shares of authorized common stock from 50,000,000 to 125,000,000 in connection with the acquisition of Authorize.Net. The
holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders of the Company. Subject to the preferences that may be applicable to any outstanding shares of preferred stock, the holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors.

The Company has reserved
shares of common stock for future issuance at December 31, 2008 as follows:



|                                                                       |  |           
|---------------------------------------------------------------------- |  | ----------
|Options outstanding                                                    |  | 8,825,496 
|Options available for future grants                                    |  | 2,800,623 
|1999 Employee Stock Purchase Planshares available for future purchase |  | 132,260   
|                                                                       |  |           
|                                                                       |  | 11,758,379
|                                                                       |  |           

11.   Common Stock Repurchase Program

On February 7, 2006, the Board of Directors authorized management to use up to $10.0 million over a twelve-month period beginning at
February 10, 2006 to repurchase additional shares of the Companys common stock. During the period beginning February 10, 2006 and ending December 31, 2006, the Company repurchased 268,005 shares at an average price of $9.18 per
share, including repurchase costs.

On January 24, 2007, the Board of Directors authorized management to use up to $10.0 million over
a twelve-month period beginning at January 30, 2007 to repurchase additional shares of the Companys common stock. During the period beginning January 30, 2007 and ending December 31, 2007, the Company repurchased 420,800 shares
at an average price of $11.96 per share, including repurchase costs. For the period beginning January 30, 2007 through February 9, 2007, the common stock repurchase program authorized on February 7, 2006 was superseded by the common
stock repurchase program authorized on January 24, 2007.

On April 22, 2008, the Board of Directors authorized management to use
up to $10.0 million over a twelve-month period beginning on May 5, 2008 to repurchase shares of the Companys common stock. During the period beginning May 5, 2008 and ending November 20, 2008, the Company repurchased 704,925
shares at an average price of $14.18 per share, including repurchase costs.

On November 21, 2008, the Board of Directors authorized
management to use up to $15.0 million to repurchase shares of the Companys common stock through March 31, 2009. During the period beginning November 21, 2008 and ending December 31, 2008, the Company repurchased 88,781 shares at
an average price of $7.95 per share, including repurchase costs.

All of the repurchased shares were cancelled and returned to the status
of authorized, unissued shares.

12.   Related Party Transactions

During the period the years ended December 31, 2008, 2007 and 2006, legal fees of approximately $0.6 million, $1.2 million and $0.4 million,
respectively, were paid to Morrison & Foerster LLP, a law firm in which a director of the Company was a partner. In addition, during the year ended December 31, 2008, legal fees of approximately $0.1 million were paid to Reed Smith,
LLP, a law firm in which a director of the Company is a partner. As of December 31, 2008 and 2007, the Company had immaterial amounts of accounts payable due to Reed Smith, LLP and Morrison & Foerster, LLP, respectively.

For the years ended December 31, 2008, 2007 and 2006, the Company paid fees of approximately $1.0 million, $0.6 million and $0.4 million,
respectively, to CyberSource K.K. for services provided to certain customers. As of December 31, 2008 and 2007, the Company had immaterial amounts of accounts payable due to CyberSource K.K.

The terms of the Companys contracts with the above-related parties are consistent with its contracts with other independent parties.



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



13.   Litigation and Contingencies

In July and August 2001, various class action lawsuits were filed in the United States District Court, Southern District of New York, against the
Company, its Chairman and CEO, a former officer, and four brokerage firms that served as underwriters in its initial public offering. The actions were filed on behalf of persons who purchased the Companys stock issued pursuant to or traceable
to the initial public offering during the period from June 23, 1999 through December 6, 2000. The action alleges that the Companys underwriters charged secret excessive commissions to certain of their customers in return for
allocations of the Companys stock in the offering. The two individual defendants are alleged to be liable because of their involvement in preparing and signing the registration statement for the offering, which allegedly failed to disclose the
supposedly excessive commissions. On December 7, 2001, an amended complaint was filed in one of the actions to expand the purported class to persons who purchased the Companys stock issued pursuant to or traceable to the follow-on public
offering during the period from November 4, 1999 through December 6, 2000. The lawsuit filed against the Company is one of several hundred lawsuits filed against other companies based on substantially similar claims. On April 19,
2002, a consolidated amended complaint was filed to consolidate all of the complaints and claims into one case. The consolidated amended complaint alleges claims that are virtually identical to the amended complaint filed on December 7, 2001
and the original complaints. In October 2002, the claims against the Companys officer and a former officer that were named in the amended complaint were dismissed without prejudice. In July 2002, the Company, along with other issuer defendants
in the case, filed a motion to dismiss the consolidated amended complaint with prejudice. On February 19, 2003, the court issued a written decision denying the motion to dismiss with respect to CyberSource and the individual defendants. On
July 2, 2003, a committee of the Companys Board of Directors approved a proposed partial settlement with the plaintiffs in this matter. The settlement would have provided, among other things, a release of the Company and of the individual
defendants for the alleged wrongful conduct in the Amended Complaint in exchange for a guarantee from the Companys insurers regarding recovery from the underwriter defendants and other consideration from the Company regarding its underwriters.
While the partial settlement was pending approval, the plaintiffs continued to litigate against the underwriter defendants. The district court directed that the litigation proceed within a number of focus cases rather than in all of the
310 cases that have been consolidated. The Companys case is not one of these focus cases. On October 13, 2004, the district court certified the focus cases as class actions. The underwriter defendants appealed that ruling, and on
December 5, 2006, the Court of Appeals for the Second Circuit reversed the district courts class certification decision. On April 6, 2007, the Second Circuit denied plaintiffs petition for rehearing. In light of the Second
Circuit opinion, the Company informed the district court that the settlement could not be approved because the defined settlement class, like the litigation class, could not be certified. On June 25, 2007, the district court entered an order
terminating the settlement agreement. On August 14, 2007, the plaintiffs filed their second consolidated amended class action complaints against the focus cases and on September 27, 2007, again moved for class certification. On
November 12, 2007, certain of the defendants in the focus cases moved to dismiss the second consolidated amended class action complaints. On March 26, 2008, the district court denied the motions to dismiss except as to Section 11
claims raised by those plaintiffs who sold their securities for a price in excess of the initial offering price and those who purchased outside the previously certified class period. Briefing on the class certification motion was filed on
April 22, 2008, and briefing on these motions was completed in May 2008. The Company cannot predict whether the Company will be able to renegotiate a settlement that complies with the Second Circuits mandate. Due to the inherent
uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of the matter.

On August 11, 2004, the
Company filed suit in the Northern District of California against Retail Decisions, Inc. (ReD US) and Retail Decisions Plc (ReD UK) (collectively, ReD), Case No. 3:04-CIV-03268, alleging that ReD infringes
the Companys U.S. Patent No. 6,029,154 (the 154 Patent). The Company served ReD US with the complaint on August 12, 2004, and the Company served ReD UK with the complaint on August 13, 2004. On
September 30, 2004, ReD responded to the Companys complaint. ReD filed a motion to stay the case for 90 days pending a determination by the U.S. Patent and Trademark Office (PTO) as to whether it will grant ReDs request
that the PTO re-examine the 154 Patent. ReD also filed a motion for a more definite statement by the Company with respect to its allegation that ReD is willfully infringing the 154 Patent. In addition, ReD UK filed a motion to dismiss
the action against it on the ground that it is not subject to personal jurisdiction in the Northern District of California. On October 27, 2004, ReD filed a request for re-examination with the PTO, based on prior art ReD discovered that
allegedly invalidates the Patent. On October 28, 2004, the Company filed an opposition to ReDs motion to stay the case for 90 days and an opposition to ReDs motion for a more definite statement with respect to willful infringement.
Based on ReD UKs representation that ReD US is the sole entity that develops, operates, and distributes the eBitGuard service, the Company agreed to dismiss ReD UK while reserving the right to reinstitute action against ReD UK in the event the
Company later discovers that ReD UK is subject to the courts personal jurisdiction. In return, ReD UK agreed that if the Company later establishes that personal jurisdiction existed, the Company could re-file against ReD UK in this action
without prejudice to its



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



damages claim. The Company also filed an amended complaint, removing ReD UK as a named defendant and restating the willful infringement claim. On
November 16, 2004, the court granted ReDs motion to stay the proceedings pending the PTOs decision as to whether it will grant ReDs request for re-examination. On December 30, 2004, the PTO granted ReDs request for
a re-examination. On January 19, 2005, ReD filed a motion to dismiss the case without prejudice or to extend the stay until completion of the re-examination process. On January 24, 2005, the court extended the stay pending the
re-examination process, vacated ReDs motion to dismiss, and ordered quarterly updates as to the status of the re-examination process. On April 25, 2005, the parties filed a joint status report that was approved by the court. On
June 20, 2005, the PTO issued a preliminary office action rejecting all of the claims of the 154 Patent based on one of the prior art references cited by ReD. On July 14, 2005, the Company met with the PTO examiner handling the
re-examination to distinguish the prior art from the claims of the 154 Patent. On August 9, 2006, the PTO issued a final office action rejecting all of the claims of the 154 Patent. On September 7, 2006, the Company filed a
response to the office action requesting certain amendments to the claims. On October 10, 2006, the PTO filed a response rejecting the amendments and extending the Companys deadline to file a notice of appeal. On October 30, 2006,
the Company filed a notice of appeal. On December 22, 2006, the Company filed the appeal brief. On May 3, 2007, the PTO issued a Notice of Intent to Issue Reexam Certificate, reversing its action of August 9, 2006. On
August 5, 2008, the PTO issued the Ex Parte Reexamination Certificate. Accordingly, the patent has been re-validated. On April 25, 2008, litigation proceedings in the case were reinstated. Several motions have been filed by ReD and the
Company since April 25, 2008, which are still pending before the Court. On July 14, 2008, a case management conference was held, at which time the parties agreed to participate in a settlement conference. The settlement conference was held on
August 15, 2008, but no agreement was reached. In October 2008, ReD filed two motions for summary judgment. On November 24, 2008, the Court denied one of the motions and ruled that the other motion was premature. On January 26, 2009, ReD filed three
additional motions for summary judgment. On February 24, 2009, we filed responses to two out of the three motions for summary judgment. No hearing date has yet been set on the summary judgment motions. While there can be no assurances as to the
outcome of the lawsuit, the Company does not presently believe that the lawsuit would have a material effect on its financial condition, results of operations, or cash flows.

On June 25, 2008, the Company filed suit in the Supreme Court of the State of New York against VeriSign, Inc. (VeriSign), Case
No. 650207/2008, seeking declaratory judgment to order the release of $1.725 million held in escrow (Escrow Funds) to CyberSource. The Escrow Funds constitute a portion of the purchase price paid by VeriSign to Lightbridge, Inc. for
certain assets of Lightbridge related to Lightbridges Intelligent Network Systems business unit, including Lightbridges Prepay IN software, which was acquired by VeriSign in April 2005 pursuant to an Asset Purchase Agreement
(APA). Lightbridge, Inc., which later became Lightbridge Holdings, Inc. and then Authorize.Net Holdings, Inc. (collectively Lightbridge), was acquired by the Company on November 1, 2007. On December 12, 2006,
Lightbridge received a letter from VeriSign asserting that Lightbridge is obliged to indemnify VeriSign with respect to a lawsuit filed against VeriSign on November 30, 2006 by Freedom Wireless, Inc. (Freedom Wireless), in the
Eastern District of Texas (Marshall Division), which alleged that VeriSign is infringing certain patents of Freedom Wireless. VeriSign asserts that Lightbridges obligation to indemnify it arises in connection with certain assets purchased by
VeriSign under the APA. Lightbridge objected to VeriSigns claim in a letter dated December 15, 2006 and asked for additional information. Lightbridge received no further correspondence from VeriSign. On March 14, 2008, the Company
received a letter from VeriSign advising that it was engaged in settlement discussions with Freedom Wireless. On April 14, 2008, the Company sent a letter to VeriSign denying any indemnification obligations and demanding release of the Escrow
Funds. Neither Lightbridge nor the Company was ever a party to the litigation by Freedom Wireless at any time. In May 2008, VeriSign entered into a settlement with Freedom Wireless. On June 9, 2008, the Company sent another letter demanding
release of the Escrow Funds. On June 19, 2008, VeriSign responded to the Companys letter of April 14, 2008 and reiterated its position on indemnification. The indemnification obligation under the Asset Purchase Agreement is limited
to a maximum of $5 million. The Company filed the suit asking the court to declare that VeriSign is not entitled to indemnification under the APA and to order the escrow agent to release the Escrow Funds to CyberSource. On August 15, 2008,
VeriSign filed an answer and counterclaim. Each party has served the other party with discovery demands but responses have been postponed temporarily by mutual agreement of the parties. Due to the inherent uncertainties of litigation, the Company
cannot accurately predict the ultimate outcome of the matter.

The Company is currently party to various legal proceedings and claims which
arise in the ordinary course of business. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that the outcome of any of these claims or any of the above mentioned legal matters will have a material
adverse effect on its consolidated financial position, results of operations or cash flows.



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



14.   Income Taxes

The components of income before income taxes are as follows (in thousands):



|                    |  |              |       |      |   |       |      |  |   |      
|------------------- |  | ------------ | ----- | ---- | - | ----- | ---- |  | - | -----
|                    |  | December 31,
|                    |  | 2008         |       | 2007 |   |       | 2006
|Domestic            |  | $            | 1,053 |      | $ | (1    | )    |  | $ | 3,421
|Foreign             |  |              | 2,323 |      |   | 2,111 |      |  |   | 1,300
|                    |  |              |       |      |   |       |      |  |   |      
|Income before taxes |  | $            | 3,376 |      | $ | 2,110 |      |  | $ | 4,721
|                    |  |              |       |      |   |       |      |  |   |      

The Companys (benefit) for income taxes consists of the following (in thousands):



|                                  |  |              |         |   |      |   |        |      |  |   |        |  
|--------------------------------- |  | ------------ | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                  |  | December 31, |        
|                                  |  | 2008         |         |   | 2007 |   |        | 2006 | 
|Current income taxes:             |  |              |         |   |      |   |        |      |  |   |        |  
|Federal                           |  | $            | 299     |   |      | $ | 319    |      |  | $ | 22     |  
|State                             |  |              | 934     |   |      |   | 99     |      |  |   | 12     |  
|Foreign                           |  |              | 1,625   |   |      |   |       |      |  |   |       |  
|                                  |  |              |         |   |      |   |        |      |  |   |        |  
|Total current income tax expense  |  |              | 2,858   |   |      |   | 418    |      |  |   | 34     |  
|                                  |  |              |         |   |      |   |        |      |  |   |        |  
|Deferred income taxes:            |  |              |         |   |      |   |        |      |  |   |        |  
|Federal                           |  |              | (8,480  | ) |      |   | (1,101 | )    |  |   | (7,458 | )
|State                             |  |              | (1,687  | ) |      |   | (301   | )    |  |   | (1,770 | )
|Foreign                           |  |              | (44     | ) |      |   | 665    |      |  |   | (496   | )
|                                  |  |              |         |   |      |   |        |      |  |   |        |  
|Total deferred income tax benefit |  |              | (10,211 | ) |      |   | (737   | )    |  |   | (9,724 | )
|                                  |  |              |         |   |      |   |        |      |  |   |        |  
|Total benefit for income taxes    |  | $            | (7,353  | ) |      | $ | (319   | )    |  | $ | (9,690 | )
|                                  |  |              |         |   |      |   |        |      |  |   |        |  

A reconciliation between the tax provision computed at the statutory income tax rate and the
Companys actual effective income tax provision is as follows (in thousands):



|                                |  |              |        |   |      |   |      |      |  |   |        |  
|------------------------------- |  | ------------ | ------ | - | ---- | - | ---- | ---- |  | - | ------ | -
|                                |  | December 31, |       
|                                |  | 2008         |        |   | 2007 |   |      | 2006 | 
|Provision at statutory rate     |  | $            | 1,182  |   |      | $ | 738  |      |  | $ | 1,605  |  
|State income taxes              |  |              | 163    |   |      |   | 113  |      |  |   | (1,160 | )
|Other                           |  |              | 209    |   |      |   | (17  | )    |  |   | 52     |  
|Foreign tax impact              |  |              | 655    |   |      |   | (218 | )    |  |   | (886   | )
|Stock-based compensation        |  |              | 185    |   |      |   | 33   |      |  |   | 35     |  
|Decrease in valuation allowance |  |              | (9,747 | ) |      |   | (968 | )    |  |   | (9,336 | )
|                                |  |              |        |   |      |   |      |      |  |   |        |  
|Provision for income taxes      |  | $            | (7,353 | ) |      | $ | (319 | )    |  | $ | (9,690 | )
|                                |  |              |        |   |      |   |      |      |  |   |        |  

During 2008, the Company recorded an income tax benefit of approximately $7.4 million. This
benefit included a $10.3 million reduction in the Companys remaining valuation allowance related to its deferred tax assets that will more likely than not be realized. During 2007, the Company recorded an income tax benefit of approximately
$0.3 million. This benefit included a $1.0 million reduction in the Companys valuation allowance related to a portion of its deferred tax assets that will more likely than not be realized. In addition, as a result of the acquisition of
Authorize.Net, the Company recorded as an adjustment to goodwill a $34.5 million reduction in the valuation allowance related to deferred tax assets established in purchase accounting. During 2006, the Company recorded an income tax benefit of
approximately $9.7 million. This benefit included a $9.9 million reduction in the Companys valuation allowance against its deferred tax assets, all of which was recorded as a benefit to the income tax provision.

In evaluating its ability to recover its deferred tax assets, the Company considers all available positive and negative evidence including its past
operating results, the existence of cumulative losses and its forecast of future taxable income. In



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



determining future taxable income, the Company is responsible for assumptions utilized including the amount of state, federal and international pre-tax
operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the
plans and estimates the Company is using to manage the underlying businesses.

As of December 31, 2008, the Company had $183.9 million
federal and $45.1 million state net operating loss carryforwards available to reduce future taxable income. Of these amounts, $37.4 million and $15.6 million, respectively, represent tax deductions from stock option compensation which will be
recorded as an adjustment to additional paid-in capital when they reduce taxes payable. If the Company is not able to use them, the federal and state net operating loss carryforwards will expire in 2013 through 2024. Internal Revenue Code
Section 382 imposes substantial restrictions on the utilization of net operating losses and tax credits in the event of a corporations ownership change, as defined in the Internal Revenue Code. The Companys ability to utilize net
operating loss carryforwards may be limited if such an ownership change occurs.

As of December 31, 2008, the Company also has
research and development tax credit carryforwards of approximately $3.4 million and $0.6 million for federal and state income tax purposes, respectively. The federal carryforward will expire at various dates beginning in 2018 through 2028. The state
carryforward can be carried forward indefinitely.

The Company has not provided for U.S. federal income and state income taxes on non-U.S.
subsidiaries undistributed earnings as of December 31, 2008, because such earnings are intended to be reinvested in the operations and potential acquisitions of its international subsidiaries indefinitely. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to applicable U.S. federal and state income taxes.

The
components of the net deferred tax assets are as follows (in thousands):



|                                          |  |              |         |   |      |   |         |  
|----------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                          |  | December 31, |        
|                                          |  | 2008         |         |   | 2007 |  
|Deferred tax assets:                      |  |              |         |   |      |   |         |  
|Net operating loss carryforwards          |  | $            | 52,959  |   |      | $ | 62,606  |  
|Tax credit carryforwards                  |  |              | 4,857   |   |      |   | 6,011   |  
|Depreciation differences                  |  |              | 7,946   |   |      |   | 10,321  |  
|Non-deductible stock compensation charges |  |              | 6,393   |   |      |   | 4,397   |  
|Other, net                                |  |              | 2,635   |   |      |   | 4,192   |  
|                                          |  |              |         |   |      |   |         |  
|Deferred tax assets                       |  |              | 74,790  |   |      |   | 87,527  |  
|                                          |  |             
|Deferred tax liabilities:                 |  |              |         |   |      |   |         |  
|Acquired intangibles                      |  |              | (51,643 | ) |      |   | (63,870 | )
|                                          |  |              |         |   |      |   |         |  
|Net deferred tax assets                   |  |              | 23,147  |   |      |   | 23,657  |  
|Valuation allowance                       |  |              |        |   |      |   | (10,288 | )
|                                          |  |              |         |   |      |   |         |  
|Net deferred tax assets                   |  | $            | 23,147  |   |      | $ | 13,369  |  
|                                          |  |              |         |   |      |   |         |  

Under SFAS 109, deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. As a result of adopting SFAS No. 123R, the deferred tax asset
balances at December 31, 2008 and 2007 did not include excess tax benefits from stock option exercises. The valuation allowance decreased approximately $10.3 million from December 31, 2007 to December 31, 2008.

Effective January 1, 2007, the Company adopted FIN 48 which clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with SFAS 109. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on de-recognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. Upon adoption of FIN 48 on
January 1, 2007, the Company did not recognize any unrecognized tax benefits or adjustments to the opening balance in retained earnings.



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



As of December 31, 2008, the Company has provided a $1.9 million liability representing
unrecognized tax benefits relating to various federal, state, and foreign income tax matters which is classified as other non-current tax liabilities in the Companys balance sheet. Of this amount, the amount that would impact the
Companys effective tax rate, if recognized, is $1.9 million. The Company does not expect that the amounts of unrecognized tax benefits will change significantly within the next twelve months.

As of December 31, 2008, the Company has accrued $0.5 million of interest related to uncertain tax positions. The Company accounts for interest
related to uncertain tax positions as part of its provision for federal and state income taxes.

A reconciliation of the beginning and
ending balance of the consolidated liability for unrecognized income tax benefits is as follows (in thousands):



|                                                        |  |      |        |   |      |   |      
|------------------------------------------------------- |  | ---- | ------ | - | ---- | - | -----
|                                                        |  | 2008 |        |   | 2007
|Balance at January 1,                                   |  | $    | 1,787  |   |      | $ |     
|Additions for tax positions of prior years              |  |      | 3,799  |   |      |   | 1,787
|Additions for tax positions related to the current year |  |      | 795    |   |      |   |     
|Reductions for tax positions of prior years             |  |      | (1,709 | ) |      |   |     
|                                                        |  |      |        |   |      |   |      
|Balance at December 31,                                 |  | $    | 4,672  |   |      | $ | 1,787
|                                                        |  |      |        |   |      |   |      

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various
U.S. states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2001. Tax years from 2001 through 2008 remain open
to examination by U.S. federal, state and local, or non-U.S. tax jurisdictions.

15.   Employee Savings and Retirement Plan

The Company maintains a defined contribution plan under Internal Revenue Service Code 401(k) (the 401(k) Plan). The 401(k) Plan provides for
tax deferred salary deductions. Employees can elect to contribute to the 401(k) Plan up to 20% of their salary, subject to current statutory limits. The Company began to contribute to the 401(k) Plan in 2008 and made contributions of approximately
$0.9 million for the year ended December 31, 2008.

16.   Net Income Per Share

The following table reconciles the numerators and denominators of the net income per share calculation for the years ended December 31, 2008, 2007
and 2006 (in thousands, except per share data):



|                                                                               |  |              |        |      |   |        |  |   |       
|------------------------------------------------------------------------------ |  | ------------ | ------ | ---- | - | ------ |  | - | ------
|                                                                               |  | December 31,
|                                                                               |  | 2008         |        | 2007 |   | 2006  
|Basic net income per share computation:                                        |  |              |        |      |   |        |  |   |       
|Net income                                                                     |  | $            | 10,729 |      | $ | 2,429  |  | $ | 14,411
|                                                                               |  |              |        |      |   |        |  |   |       
|Weighted-average common shares outstanding                                     |  |              | 69,132 |      |   | 40,736 |  |   | 34,623
|                                                                               |  |              |        |      |   |        |  |   |       
|Basic net income per share attributable to common stockholders                 |  | $            | 0.16   |      | $ | 0.06   |  | $ | 0.42  
|                                                                               |  |              |        |      |   |        |  |   |       
|Diluted net income per share computation:                                      |  |              |        |      |   |        |  |   |       
|Net income                                                                     |  | $            | 10,729 |      | $ | 2,429  |  | $ | 14,411
|                                                                               |  |              |        |      |   |        |  |   |       
|Weighted-average common shares outstanding                                     |  |              | 69,132 |      |   | 40,736 |  |   | 34,623
|Incremental shares attributable to the assumed exercise of outstanding options |  |              | 2,657  |      |   | 2,489  |  |   | 1,970 
|                                                                               |  |              |        |      |   |        |  |   |       
|Total diluted weighted average common shares                                   |  |              | 71,789 |      |   | 43,225 |  |   | 36,593
|                                                                               |  |              |        |      |   |        |  |   |       
|Diluted net income per share attributable to common stockholders               |  | $            | 0.15   |      | $ | 0.06   |  | $ | 0.39  
|                                                                               |  |              |        |      |   |        |  |   |       



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CYBERSOURCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The computation of diluted net income per share excluded approximately 737,000, 1,039,000, and
361,000 options to purchase shares of common stock for the year ended December 31, 2008, 2007 and 2006, respectively, because the effect would have been antidilutive.

17.   Guarantees

From time to time, the Company enters into certain types of contracts
that require the Company to indemnify parties against third-party claims on a contingent basis. These contracts primarily relate to: (i) licenses for software and services; (ii) certain real estate leases, under which the Company may be
required to indemnify property owners for environmental and other liabilities, and other claims arising from the Companys use of the applicable premises; and (iii) certain agreements with the Companys officers, directors and
employees, under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship.

The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot
be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have been recorded for these obligations on its balance sheet as of December 31, 2008 or 2007.

18.   Quarterly Financial Information (Unaudited)

Summarized quarterly financial information for fiscal 2008 and 2007 is as follows (in thousands, except per share data):



|                             |  |              |        |               |   |        |              |  |               |        |            |   |        |  |   |        
|---------------------------- |  | ------------ | ------ | ------------- | - | ------ | ------------ |  | ------------- | ------ | ---------- | - | ------ |  | - | -------
|                             |  | FirstQuarter |        | SecondQuarter |   |        | ThirdQuarter |  | FourthQuarter |        | FiscalYear
|Fiscal 2008                  |  |              |        |               |   |        |              |  |               |        |           
|Revenues                     |  | $            | 53,420 |               | $ | 55,659 |              |  | $             | 57,693 |            | $ | 62,254 |  | $ | 229,026
|Gross profit                 |  |              | 27,592 |               |   | 28,101 |              |  |               | 29,574 |            |   | 31,991 |  |   | 117,258
|Net income (loss)            |  |              | 533    |               |   | (45    | )            |  |               | 207    |            |   | 10,034 |  |   | 10,729 
|Basic net income per share   |  | $            | 0.01   |               | $ |       |              |  | $             |       |            | $ | 0.15   |  | $ | 0.16   
|Diluted net income per share |  | $            | 0.01   |               | $ |       |              |  | $             |       |            | $ | 0.14   |  | $ | 0.15   
|                             |  |              |        |               |  
|Fiscal 2007                  |  |              |        |               |   |        |              |  |               |        |           
|Revenues                     |  | $            | 22,125 |               | $ | 22,893 |              |  | $             | 26,546 |            | $ | 45,435 |  | $ | 116,999
|Gross profit                 |  |              | 10,209 |               |   | 10,476 |              |  |               | 11,489 |            |   | 22,712 |  |   | 54,886 
|Net income                   |  |              | 736    |               |   | 160    |              |  |               | 347    |            |   | 1,186  |  |   | 2,429  
|Basic net income per share   |  | $            | 0.02   |               | $ |       |              |  | $             | 0.01   |            | $ | 0.02   |  | $ | 0.06   
|Diluted net income per share |  | $            | 0.02   |               | $ |       |              |  | $             | 0.01   |            | $ | 0.02   |  | $ | 0.06   

The fourth quarter fiscal 2008 and 2007 net income includes a reduction in the Companys
deferred tax asset valuation allowance of $10.3 million and $1.0 million, respectively. The fourth quarter fiscal 2008 and 2007 net income includes restructuring and other non-recurring charges of approximately $0.5 million and $1.8 million,
respectively. The first and third quarter fiscal 2008 net income includes restructuring and other non-recurring charges of approximately $0.1 and $0.3 million, respectively.



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|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

Not Applicable

ITEM 9A.    
CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, under the supervision and with the participation of Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the design and operation of CyberSources disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

Internal
Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles.

As of the end of the period
covered by this report, our management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of CyberSources internal control over financial
reporting. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was
effective.

It should be noted that internal control over financial reporting can provide only reasonable, not absolute, assurance of
achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from
human failures. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our independent registered public accounting firm, Ernst & Young LLP, has audited the consolidated financial statements included in this Annual
Report on Form 10-K and has issued its report on the effectiveness of our internal control over financial reporting as of December 31, 2008.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting
during the fiscal quarter ended December 31, 2008 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

CyberSource Corporation

We have audited CyberSource Corporations internal control over financial reporting as of December 31, 2008, based on criteria
established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). CyberSource Corporations management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the companys internal control over financial reporting based on our audit.

We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, CyberSource Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31,
2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheet of CyberSource Corporation as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders equity and cash flows for each of the three years in the period
ended December 31, 2008 of CyberSource Corporation and our report dated February 26, 2009 expressed an unqualified opinion thereon.

/s/    ERNST & YOUNG LLP

San Jose, California

February 26, 2009



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ITEM 9B.    OTHER INFORMATION

Not applicable.

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to our Proxy Statement for the 2009 Annual Meeting of Stockholders (to be filed with
the Securities and Exchange Commission within 120 days of our December 31, 2008 fiscal year end) under the headings Election of Directors, Board and Corporate Governance Matters, Management, and Other
Matters.

ITEM 11.    EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to our Proxy Statement for the 2009 Annual Meeting of Stockholders (to be filed with
the Securities and Exchange Commission within 120 days of our December 31, 2008 fiscal year end) under the headings Board and Corporate Governance Matters, Executive Officer and Director Compensation, and
Compensation Committee Report on Executive Compensation.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The information required by this item is incorporated by reference to our Proxy Statement for the 2009 Annual Meeting of Stockholders (to be filed with
the Securities and Exchange Commission within 120 days of our December 31, 2008 fiscal year end) under the headings Security Ownership of Beneficial Owners and Management and Equity Compensation Plan Information.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to our Proxy Statement for the 2009 Annual Meeting of Stockholders (to be filed with
the Securities and Exchange Commission within 120 days of our December 31, 2008 fiscal year end) under the headings Board and Corporate Governance Matters and Certain Related Transactions.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to our Proxy Statement for the 2009 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our
December 31, 2008 fiscal year end) under the heading Ratification of Appointment of Independent Registered Public Accounting Firm.

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements

The following
financial statements are filed as part of this Annual Report on Form 10-K and set forth on the page indicated:



|                                                        |  |     
|------------------------------------------------------- |  | ----
|                                                        |  | Page
|Report of Independent Registered Public Accounting Firm |  | 31  
|Consolidated Balance Sheets                             |  | 32  
|Consolidated Statements of Income                       |  | 33  
|Consolidated Statements of Stockholders Equity         |  | 34  
|Consolidated Statements of Cash Flows                   |  | 35  
|Notes to Consolidated Financial Statements              |  | 36  



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##### Table of Contents

Financial Statement Schedule

Schedule IIValuation and Qualifying Accounts is set forth on page 60 of this Annual Report on Form 10-K. All other schedules are omitted because
they are not applicable or the required information is shown in the Consolidated Financial Statements and the Notes thereto.

Exhibits

The exhibits required by Item 601 of Regulation S-K are set forth on the exhibit index that follows the signature page to this
Annual Report on Form 10-K.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized,
in Mountain View, California on the 27th day of February, 2009.



CYBERSOURCE CORPORATIONBy:

/s/

WILLIAM S. MCKIERNANWilliam S. McKiernan Chief Executive
Officer


POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William S. McKiernan and Steven D. Pellizzer,
and each of them, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.



|    |  |                        |  |                                                                                                           |  |                  
|--- |  | ---------------------- |  | --------------------------------------------------------------------------------------------------------- |  | -----------------
|    |  | Signature              |  | Title                                                                                                     |  | Date             
|    |  |                        | 
|/S/ |  | WILLIAM S. MCKIERNAN   |  | Chief Executive Officer and Chairman of the Board (Principal Executive Officer)                           |  | February 27, 2009
|    |  | William S. McKiernan   |  |                                                                                                           | 
|    |  |                        | 
|/S/ |  | STEVEN D. PELLIZZER    |  | Chief Financial Officer and Senior Vice President of Finance (Principal Financial and Accounting Officer) |  | February 27, 2009
|    |  | Steven D. Pellizzer    |  |                                                                                                           | 
|    |  |                        | 
|    |  |                        | 
|/S/ |  | ROBERT E. DONAHUE      |  | Director                                                                                                  |  | February 27, 2009
|    |  | Robert E. Donahue      |  |                                                                                                           |  |                  
|    |  |                        | 
|/S/ |  | JOHN J. MCDONNELL, JR. |  | Director                                                                                                  |  | February 27, 2009
|    |  | John J. McDonnell, Jr. |  |                                                                                                           |  |                  
|    |  |                        | 
|/S/ |  | STEVEN P. NOVAK        |  | Director                                                                                                  |  | February 27, 2009
|    |  | Steven P. Novak        |  |                                                                                                           |  |                  
|    |  |                        | 
|/S/ |  | RICHARD SCUDELLARI     |  | Director                                                                                                  |  | February 27, 2009
|    |  | Richard Scudellari     |  |                                                                                                           |  |                  
|    |  |                        | 
|/S/ |  | KENNETH R. THORNTON    |  | Director                                                                                                  |  | February 27, 2009
|    |  | Kenneth R. Thornton    |  |                                                                                                           |  |                  



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CYBERSOURCE CORPORATION

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

December 31, 2006,
2007 and 2008

(In thousands)



|                                |  |                            |     |                                                         |   |                          |  |                       |       |  |   |      
|------------------------------- |  | -------------------------- | --- | ------------------------------------------------------- | - | ------------------------ |  | --------------------- | ----- |  | - | -----
|                                |  | Balanceat Beginningof Year |     | Amounts Acquiredor Chargedto Revenue, Costs,or Expenses |   | Write-offs andRecoveries |  | Balance atEnd of Year
|2006                            |  |                            |     |                                                         |   |                          |  |                       |       |  |   |      
|Allowance for Doubtful Accounts |  | $                          | 650 |                                                         | $ | 793                      |  | $                     | 950   |  | $ | 493  
|2007                            |  |                            |     |                                                         |   |                          |  |                       |       |  |   |      
|Allowance for Doubtful Accounts |  | $                          | 493 |                                                         | $ | 1,209                    |  | $                     | 968   |  | $ | 734  
|2008                            |  |                            |     |                                                         |   |                          |  |                       |       |  |   |      
|Allowance for Doubtful Accounts |  | $                          | 734 |                                                         | $ | 2,270                    |  | $                     | 1,934 |  | $ | 1,070



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                     
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Document                                                                                                                                                                                                                                                                                            
|2.1           |  | Agreement and Plan of Reorganization dated June 17, 2007, by and between CyberSource Corporation, Congress Acquisition-Sub, Inc., Congress Acquisition Sub 1 LLC, and Authorize. Net Holdings,
Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed June 19, 2007)
|              | 
|3.1           |  | Certificate of Incorporation of the Registrant, as amended and restated (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2007
filed March 11, 2008)                                                                               
|              | 
|3.2           |  | Bylaws of the Registrant, as amended (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the period ended September 30, 2008 filed November 10,
2008)                                                                                                                
|              | 
|10.1          |  | Lease Agreement dated November 3, 1999 by and between Shoreline Investments V and CyberSource Corporation (incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 filed March 30, 2000)                                           
|              | 
|10.2          |  | Second Amendment, dated December 30, 2004, to Lease, dated November 3, 1999 by and between Shoreline Investments V and CyberSource Corporation (incorporated by reference to Exhibit 10.13 to the
Annual Report on Form 10-K for the fiscal year ended December 31, 2004 filed March 10, 2005)      
|              | 
|10.3          |  | Lease dated December 14, 2007, by and between CyberSource Corporation and Pracvest, LC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed December 26,
2007)                                                                                                        
|              | 
|10.4+         |  | Form of Indemnification Agreement between the Registrant and each of its directors and officers (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-1 (No.
333-77545) filed April 30, 1999)                                                                          
|              | 
|10.5+         |  | 1998 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the period ended March 31, 2003 filed May 12, 2003)                                                                                                                                      
|              | 
|10.6+         |  | 1999 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the period ended March 31, 2008 filed May 6,
2008)                                                                                                              
|              | 
|10.7+         |  | 1999 Nonqualified Stock Option Plan, as amended (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the period ended March 31, 2003 filed May 12,
2003)                                                                                                             
|              | 
|10.8+         |  | 1999 Employee Stock Purchase Plan, as amended and restated (incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q for the period ended June 30, 2006 filed August 9,
2006)                                                                                                 
|              | 
|10.9+         |  | Executive Employment Agreement dated March 31, 2006, by and between CyberSource Corporation and Scott Cruickshank (incorporated by reference to Exhibit 10.15 to the Quarterly Report on Form 10-Q
for the period ended March 31, 2006 filed May 9, 2006)                                           
|              | 
|10.10+        |  | Executive Employment Agreement dated June 17, 2007, by and between CyberSource Corporation and Roy Banks (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed June
22, 2007)                                                                                          
|              | 
|23.1          |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                           
|              | 
|24.1          |  | Power of Attorney (included on the signature page of this Annual Repot on Form 10-K)                                                                                                                                                                                                                
|              | 
|31.1          |  | Certification of William S. McKiernan, Chief Executive Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                          
|              | 
|31.2          |  | Certification of Steven D. Pellizzer, Chief Financial Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                           
|              | 
|32.1          |  | Certification of William S. McKiernan, Chief Executive Officer of the Registrant pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                   
|              | 
|32.2          |  | Certification of Steven D. Pellizzer, Chief Financial Officer of the Registrant pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                    



|+ | Management contract or compensation plan, contract or arrangement.
|- | ------------------------------------------------------------------



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