UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

S1 CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		58-2395199 (I.R.S. Employer Identification No.)		(404) 923-3500 (Registrant’s telephone number including area code)
705 Westech Drive Norcross, Georgia (Address of principal executive offices)		30092 (Zip Code)

Title of each class		Name of each exchange on which registered
Common Stock, par value $0.01 per share		The Nasdaq Stock 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. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

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 definition of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(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 Act). Yes o No þ

The aggregate market value of the Company’s voting common stock held by non-affiliates of the registrant on June 30, 2009 (the last business day of the registrant’s most recently completed second fiscal quarter), based upon the last sale price of the common stock on that date of $6.92, and was $363.3 million. For purposes of this calculation, executive officers, directors and holders of 10% or more of the outstanding shares of the registrant’s common stock are deemed to be affiliates of the registrant.

Shares of common stock outstanding as of February 17, 2010: 51,746,087

Documents Incorporated by Reference

Portions of S1 Corporation’s definitive proxy statement for the annual meeting of shareholders to be held on or about May 24, 2010 is expected to be filed with the Securities and Exchange Commission pursuant to Regulation 14A which the registrant intends to file no later than 120 days after December 31, 2009 are incorporated herein by reference into Part III of this Annual Report on Form 10-K.

 

 

S1 CORPORATION
FOR THE YEAR ENDED DECEMBER 31, 2009
TABLE OF CONTENTS

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

PART I

This annual report on Form 10-K and the documents incorporated into this annual report on Form 10-K by reference contain forward-looking statements and information relating to our subsidiaries and us within the safe harbor provisions of the Private Securities Litigation Reform Act. These statements include statements with respect to our financial position, results of operations and business. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “estimates,” “intends” or similar terminology identify forward-looking statements. Forward-looking statements may include projections of our revenue, expenses, capital expenditures, earnings per share, product development projects, future economic performance or management objectives. These statements are based on the beliefs of management as well as assumptions made using information currently available to management. Because these statements reflect the current views of management concerning future events, they involve risks, uncertainties and assumptions. Therefore, actual results may differ significantly from the results discussed in the forward-looking statements. You are urged to read the risk factors described under the caption “Risk Factors” in Item 1A of Part I of this report. Except as required by law, we undertake no obligation to update publicly any forward-looking statement for any reason, even if new information becomes available. When we use the terms “S1 Corporation”, “S1”, “Company”, “we”, “us” and “our,” we mean S1 Corporation, a Delaware corporation, and its subsidiaries.

Item 1. Business.

General Information

S1 Corporation is a leading global provider of payments and financial services software solutions. We offer payments solutions for ATM and retail point-of-sale (“POS”) driving, card management, and merchant acquiring, as well as financial services solutions for consumer, small business and corporate online banking, trade finance, mobile banking, voice banking, branch and call center banking. We sell our solutions primarily to banks, credit unions, retailers and transaction processors. We also provide software, custom software development, hosting and other services to State Farm Mutual Automobile Insurance Company and its subsidiary State Farm Bank (“State Farm”), a relationship that we expect will conclude by the end of 2011.

Founded in 1996, we started the world’s first Internet bank — Security First Network Bank. In 1998, we sold the banking operations and focused on software development, implementation and support services. For several years, our core business was primarily providing Internet banking and insurance applications. Then, through a series of strategic acquisitions and product development initiatives, we expanded our solution set to include applications that deliver financial services across multiple channels and provide payments and card management functionality.

Our vision is to be the leading global provider of payments and financial services software solutions. The key initiatives supporting this vision are to:

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Maintain the highest possible level of customer satisfaction to create opportunities to sell additional solutions and services;

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Cross-sell applications from our payments and financial services solution sets;

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Become the most efficient software company possible through continuous operational improvements;

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Deliver innovative, quality products and services to meet current market demands and future customer needs; and

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Broaden our product offerings and increase our market penetration through selective acquisitions and the development of new markets.

Subsequent Event — Acquisition

On March 4, 2010, the Company acquired 100% of the outstanding shares of PM Systems Corporation, a company that provides internet banking, bill payment and security services to credit unions. The purchase price was approximately $28.9 million in cash, net of cash acquired.

Descriptions of Software Solutions

S1 Payments Processing and Card Management

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ATM Driving drives a wide array of ATM terminals, whether dial-up, leased line, or advanced-functionality devices. Our solution for ATM owners manages online connections to networks, card schemes, and host systems, and provides sophisticated performance monitoring, back office functionality and management information. The solution supports magnetic stripe and EMV cards as well as a comprehensive set of value-added transactions and services.

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Retail Payments drives fast, cost-effective, and secure payment card processing for retailers, gift card management, merchants and e-commerce operators, enabling all aspects of a payment transaction, from the POS through to the authorizer.

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Card Management supports secure issuance and life cycle management for credit, debit and prepaid cards and provides extensive authorization and validation services, personal identification number management and management information. Our solution supports magnetic stripe, EMV, contactless and instant issuance options.

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Merchant Acquiring provides a comprehensive processing platform for handling card payment transactions generated at multiple sales channels including the POS, Internet, call center and mobile phone. A wide variety of card and transaction types are supported including EMV, prepaid and contactless.

S1 Online Banking

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S1 Consumer Online Banking allows our customers to offer online banking capabilities, including personal finance management, electronic bill payment and presentment, account transfers, alerts and reminders, and online self-service tools. We provide bill-pay services through third-party partnerships.

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S1 Business Online Banking provides online financial solutions suited for small to mid-market business banking customers. Our software allows our financial institution customers to offer product packages that can satisfy an array of business customer segments with such features as account management and enhanced reporting, payments, foreign exchange and self-service features, including the ability to open new accounts online, report lost cards, reset passwords, stop payments, reorder checks, request check copies, and create electronic alerts.

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S1 Corporate Banking provides online cash management solutions to some of the world’s largest banks. S1 Corporate Banking is built in a multilingual and multi-currency framework and delivers diverse payment methods, multi-factor authentication capabilities, electronic file delivery, check services, robust information reporting, real-time data on account balances and transactions as well as straight-thru processing on payments from the Automated Clearing House (“ACH”) to Fedwire to the Society for Worldwide Interbank Finance Telecommunication (“SWIFT”).

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S1 Trade Finance provides online trade finance solutions to some of the world’s largest banks. S1 Trade Finance allows a bank’s customers to quickly and easily manage their international buying and selling activities with one integrated system to create, process and report on trade instruments such as letters of credit, collections, and open account transactions.

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S1 Mobile Banking and Payments provides the ability for consumers and businesses to access and manage bank account information and perform financial transactions via the convenience of a mobile device. S1 Out-of-Band Authentication provides security against phishing and keystroke-logging attacks to mobile phones.

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S1 Voice Banking delivers a full range of voice banking functionality, including online and offline transaction processing, call-flow management, and voice driver management.

S1 Branch Banking

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S1 Teller enables front-line teller employees to perform tasks from a single screen using workflow processes that simplify and enforce adherence to a financial institutions business rules. Efficient workflows also create opportunities for tellers to promote new products and make referrals.

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S1 Sales and Service Platform provides transaction functionality and embedded relationship management tools along with a universal desktop for instant, real-time access to complete customer and account data. S1 Sales and Service provides tools such as case and lead management, portfolio management and pipeline management and can fill the need for a branch automation, sales force automation and customer relationship management system at the same time in one seamless desktop.

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S1 Call Center is a fully integrated call center solution that offers workflows, transactions and core services that meet the specialized needs of the call center environment. In addition to the core services found in the teller and sales and service platform, S1 Call Center provides the customer information, sales and service capabilities, process flows, reporting, and fulfillment management functionality that is typically found in call center operations.

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S1 Lending provides a highly configurable and robust consumer, business and credit origination software solution that delivers straight-through processing control from application through loan booking, with support for multiple data entry channels. The software is differentiated in part through its ability to deliver broad application-level strength in each area of lending through a universal platform, which provides operational and administrative consistency and control.

Reporting Segments

We operate and manage S1 in two business segments: Postilion and Enterprise. We separate our banking businesses based on the size of the financial institution we sell to as the solutions and related services required by each can differ in complexity and the length of the implementation cycle. We group our payments solutions with our community and regional banking and credit union solutions due to similar platform technology and the service requirements for implementation.

The Postilion segment provides ATM and retail POS driving, card management and merchant acquiring solutions targeting organizations of all sizes globally as well as online banking, mobile banking, voice banking, call center, branch and lending solutions for community and regional banks and credit unions in North America.

The Enterprise segment targets large financial institutions worldwide, providing software solutions and related services that financial institutions use to deliver services to their consumer and corporate customers including those for online, mobile, branch and call center banking. The Enterprise segment also provides software, custom software development, hosting and other services to State Farm. We expect our relationship with State Farm will conclude by the end of 2011.

Industry Background

There are many global factors influencing the competitive environment for financial institutions and retailers including:

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economic conditions and particularly the impact of the lack of liquidity in credit markets;

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pressure to grow their businesses;

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pressure to reduce costs;

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impact of mergers and acquisitions;

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pressure on customer retention and better use of customer data;

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increasing electronic payment transaction volumes;

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increased security concerns and regulatory requirements; and

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the need to minimize information technology and infrastructure costs while meeting the ever-rising consumer expectations for customer service and convenience.

We believe that the above factors are influencing financial institutions and retailers to look for new ways to effectively service and sell to their customers through all of their interaction channels, including their physical locations, call centers, the Internet, the telephone, at the ATM and at the POS.

Financial institutions can more cost-effectively grow their businesses by cross-selling additional products and services to existing customers. This is difficult to do if they are not able to understand the needs of their customers and customer segment behavior and intelligently market services and products to these customers. Our financial services solutions are designed to not only provide financial institutions with greater insight into customer data, but also into customer transaction behavior.

As new channels for delivering financial services were introduced, many financial institutions took a tactical approach in expanding their offerings, incrementally adding these new channels as they fit in with their evolving business plans. Each channel functioned independently, with limited, if any, interactions and knowledge of the customer interactions occurring in the other channels. This infrastructure, which features disparate vendors and technologies, has become too expensive for many institutions to support and too inefficient for consumers and businesses to utilize as a basis for interacting with their financial institution.

By implementing multiple applications on a single technology platform — the long-term value proposition for many of our solutions — financial institutions are able to reduce the number of technology platforms, interfaces and administrative resources associated with supporting their operations. We believe that financial institutions which provide a unified experience for their customers across multiple points of interaction, delivered at the lowest possible cost, will gain a key competitive advantage.

In addition to these broad industry drivers, there are other catalysts that are driving new technology purchase decisions by financial institutions including increased regulatory requirements such as those in the areas of identity theft prevention, “Check 21” legislation, anti-money laundering, and in the European Union, the conversion to the Single Euro Payments Area. Many internally developed systems or older systems either do not support these requirements or require a costly investment to bring those systems into compliance. Additional security requirements are expected for high risk transactions.

Retailers face constant pressure to become more efficient in order to protect and improve their margins in an increasingly competitive environment. Current economic conditions are amplifying this pressure and creating additional focus by retailers on how to process payments at the POS in their stores, via the Internet and with mobile devices in a more cost-effective manner.

Retailers can realize significant savings by using our software to acquire and route payments initiated in their stores, on the Internet and through other delivery channels. In addition, our software also provides additional back office functionality that can improve operational efficiencies. Lastly, for retailers who prefer outsourcing their payments processing, we offer a hosting solution which allows them to utilize the functional strength of our solution without requiring additional staff to manage an on-premise implementation.

There are also a variety of factors, both global and territory/country-specific, that influences the competitive marketplace for our payments processing and card management solutions. One of the primary drivers is security concerns which have given rise to an increase in regulatory requirements and security enhancements, such as the Payment Card Industry Data Security Standard (“PCI-DSS”) and Visa’s Payment Application Best Practices. We believe this increase in security concerns and the associated regulatory requirements can cause organizations in the payments space to consider replacing their existing legacy payments platforms, including in-house systems, which are generally more expensive to maintain from a compliance perspective.

Another factor influencing the competitive marketplace is that a large proportion of payments systems are still based on legacy and/or proprietary technology and organizations are increasingly under pressure to adopt modern, open-system payments platforms to reduce the costs associated with operations, management and maintenance. In line with the pressure to reduce costs, organizations with payments platforms are also continually looking for opportunities to increase revenue by adding new payment channels and accepting new payment methods. Additionally, a significant number of developing countries are rapidly adopting electronic payments instruments in lieu of cash which not only provides opportunities for new payments systems, but also for additional infrastructure to keep pace with the growth in transaction volumes and the demand for new payments channels and instruments.

We believe these factors are examples of initiatives that are influencing the decision on the part of organizations of all sizes to consider new solutions to help them increase revenue opportunities, improve customer loyalty, reduce costs and comply with regulatory requirements. We believe our solutions can help address these needs.

Customers and Revenue

We derive a significant portion of our revenue from licensing our solutions and providing professional services. We generate recurring revenue from support and maintenance, hosting applications in our data center, and from electronic bill payment services. We also generate recurring revenue by charging our customers a periodic fee for term licenses including the right-to-use the software and receive maintenance and support for a specified period of time. For certain customers, this fee includes the right to receive hosting services. We reported revenue of $238.9 million, $228.4 million and $204.9 million in 2009, 2008 and 2007, respectively. Our revenue attributed to sales in the United States as compared to total reported revenue was 72%, 72% and 75% in 2009, 2008 and 2007, respectively.

We have one customer that accounts for over 10% of our total revenue. Revenue from State Farm was 16%, 18% and 21% of our consolidated revenue and 30%, 33% and 39% of our Enterprise segment revenue during the years ended December 31, 2009, 2008 and 2007, respectively. In 2008, we announced that we expected our relationship with State Farm to conclude by the end of 2011. We generated $38.4 million of revenue in 2009 from State Farm and expect to generate approximately $25 - $26 million in revenue in 2010 and approximately $15 - $16 million in revenue in 2011 from this customer.

Refer to the notes of our consolidated financial statements for a further discussion of the various types of revenue, revenue recognition policies, and financial information regarding segment reporting and geographic areas.

Sales and Marketing

Each business segment maintains dedicated sales forces that are focused on product sales for their specific solutions to their target markets. Within each segment are trained sales support personnel and solutions architects who provide functional and technical expertise to maximize the customer’s understanding of our solutions. The sales cycle for large financial institutions generally lasts from six to 18 months and is typically facilitated by direct sales teams. Sales to community and regional banks and credit unions are typically facilitated by both direct and telephone-based sales teams and the sales cycle generally lasts from six to nine months. The sales cycle for our payments solutions, which target financial institutions and retailers of all sizes, generally lasts from six to 12 months and is typically facilitated by direct sales teams. We also have relationships with resellers that act as an indirect channel to expand our market penetration, primarily for our payments and branch banking solutions.

In the United States, we primarily utilize direct sales teams that call on financial institutions and retailers to identify sales opportunities. Our Postilion segment also utilizes resellers for its branch banking solutions. Our sales teams are organized by product lines and call on existing customers and new prospects for first time sales and for cross-selling new and add-on applications and services. Our sales teams are responsible for the relationship with their assigned customers, including customer satisfaction, product and service delivery, and cross-selling new and add-on applications and services. Additionally, we have dedicated client service personnel in place for our larger customers to further support the relationship.

In the Europe and Middle East region, we sell primarily through direct sales in specific territories such as the United Kingdom, Belgium, the Netherlands, Germany, Italy, the Nordics, Eastern Europe, Dubai and certain other countries in the Middle East, and through resellers in other areas such as Kuwait, Austria, Greece, Jordan, Egypt and Israel. In Africa, we sell on a direct sales basis in South Africa and on a reseller basis in the rest of Africa. In the Asia-Pacific region, our sales efforts are focused primarily through resellers in countries such as China, Taiwan, Indonesia and Malaysia with direct sales into Thailand, Singapore, Australia and New Zealand.

In addition to internal sales efforts and joint efforts with distribution partners, we market our products and services in other ways to build awareness of our brands coordinated through a centralized marketing team. Our marketing efforts include the use of online marketing, direct marketing, telemarketing, special events, public relations, memberships in key industry organizations, participation in industry conferences and establishing close relationships with industry analysts to help drive demand for our solutions as well as guide product development and marketing efforts.

We have built a global network of alliances, allowing us to more fully extend our expertise, capabilities, and reach within the markets we address. We have established strategic, technology, and channel relationships with a number of organizations. We have relationships with companies such as IBM, Microsoft and numerous core processing vendors such as Fiserv, Inc. and Fidelity National Information Services, Inc. We also have relationships with key technology providers, including bill payment providers, credit card processing vendors, retail POS vendors, and printed product vendors.

Services

In addition to licensing software, both the Postilion and Enterprise segments provide a broad array of services to meet the needs of our customers. The services include planning, project management, implementation, integration and customization of customer software applications, ongoing maintenance and support and application hosting.

Professional Services. Our professional services teams facilitate the implementation and customization of our software solutions. Our professional services organizations are engaged in the following activities:

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Project Management — our project managers are responsible for the oversight of services projects throughout the implementation cycle;

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Implementation — our professional services teams install and configure our software;

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Custom Software Development — our software developers customize our software solutions to meet the specific business requirements of our customers;

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Integration — we assist our customers in integrating and testing our software with core banking systems and other applications within their environment;

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Educational Services — our training professionals help our customers train their employees to use our solutions to better serve their customers; and

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Web Design Services — our web design group assists with the delivery of a complete web presence for financial institutions.

Customer Support. Our customer support teams offer various levels of service to meet an organization’s support needs including:

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Technical Support — our customer support engineers provide technical support for our products;

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Software Release Management — we provide software upgrades that include enhancements to our software as well as operational and performance improvements; and

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Online Support — our support website is designed to provide “one-stop” access to technical information for our products including FAQs, download patches, updated documentation, and support bulletins.

Data Center Services. Our hosting services provide systems outsourcing, data center hosting, operational management and control across the full range of personal, small business and corporate Internet banking, mobile, voice, and payment processing applications. We host S1 applications for our global and international customers in our data center facility in Norcross, Georgia. Our operating environment was designed to address mission-critical operations, such as security, recovery and availability of data. Our data center is a hardened facility that can scale to support large volumes of customers.

Competition

The market for financial and payments software is competitive, rapidly evolving and subject to technological change. We currently perceive our near-term competition as coming from three primary areas: (1) financial institutions’ proprietary in-house development organizations, (2) single-point solution vendors, and (3) core processing vendors.

In-house Development Organizations. Some financial institutions conduct a significant portion of their software development in-house while others have chosen to outsource to third-party vendors. Generally, only very large organizations have the ability to develop solutions internally. We believe financial organizations may encounter the following challenges when developing financial software in-house:

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building, maintaining and upgrading an in-house solution can be very costly and may lack an industry-wide best practices approach;

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attracting and retaining the necessary technical personnel can be difficult and costly;

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the cost of and skills required to maintain regulatory compliance can prove onerous;

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the development of third party partnerships necessary to support the primary software product is time consuming, costly, and requires a partner management infrastructure; and

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technological development may be too far outside the financial organization’s core competencies to be effective or successful.

Single-Point Solution Vendors. These vendors offer solutions for a specific line of business and/or channel. In the online consumer and business banking space, we compete primarily with Digital Insight (a division of Intuit Inc.), Financial Fusion (a division of Sybase Inc.), Corillian Corporation (a division of Fiserv, Inc.), and Q2 Software. In the corporate banking space, we compete primarily with Fundtech Ltd., ACI Worldwide, Inc., Clear2Pay and Bottomline Technologies. In branch banking, we compete primarily with Argo Data Resource Corporation and Fidelity National Information Services, Inc. In the payments processing and card management space, we compete primarily with ACI Worldwide, Inc. We believe the disadvantages associated with single-point solution providers include:

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integrating applications and channels from multiple vendors may greatly lengthen a financial organization’s time-to-market and implementation costs;

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operating and upgrading solutions from multiple vendors is typically very costly; and

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combining solutions across different channels does not provide a single view of the customer.

Core Processing Vendors. These vendors offer data processing services and outsourcing for financial institutions’ systems of record. In this space, we compete with companies such as Fidelity National Information Services, Inc., Fiserv, Inc. and Jack Henry and Associates, Inc. A number of these companies offer front office products within a packaged pricing scheme integrated with their core back office capabilities. We believe the primary disadvantage of this approach is that these front office applications will generally lag behind the market to some degree in terms of functions and features and are of a secondary focus to the vendor behind their data processing and other back office products and services. Although we are in competition with core processing vendors, we do partner with certain core processing vendors for bill-pay services.

Product Development

As software and related services are influenced by rapid technological changes, customer needs and regulatory requirements, we continue to invest in the development of enhancements to existing solutions and new product solutions. We employ best practices from well-known enterprise software companies to help ensure that the entire organization — products, services, delivery and support - is ready to successfully and repeatedly deliver products to the market and focus on customer success. We utilize resources from locations in the United States, South Africa and India for product development, support and implementation services. We develop most of our solutions internally and spent $34.6 million, $29.3 million and $23.7 million on product development efforts in 2009, 2008 and 2007, respectively.

We continue to expand our product functionality across all channels of our financial services solutions to support demand for new enhancements and customizations to better support our customers and address sales opportunities. We continue to expand our payments solutions to meet the growing demand around the world. We also expect to continue to focus significant product development efforts updating the technology platforms for several of our solutions, including the Postilion segment’s online solutions.

Government Regulation

As a service provider to financial institutions, we are subject to examination and are indirectly regulated by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, National Credit Union Association and the various state financial regulatory agencies that supervise and regulate the banks, credit unions and thrift institutions for which we provide data processing services. Matters subject to review and examination by federal and state financial institution regulatory agencies include our internal controls in connection with our performance of data processing services, the agreements giving rise to those processing activities, as well as certain design specifications of our software licensed to financial institutions.

Laws and regulations that apply to communications and commerce over the Internet are becoming more prevalent. Currently, there are Internet laws regarding copyrights, taxation and the transmission of specified types of material. Congress also adopted legislation imposing obligations on financial institutions to notify their customers of the institution’s privacy practices, restrict the sharing of non-public customer data with non-affiliated parties at the customer’s request, establish procedures and practices to protect and secure customer data, establish fraud detection capabilities for customer transactions and notify customers of data breach incidents. These privacy provisions are implemented by regulations with which compliance is required. Additionally, many legislative and regulatory actions have been enacted or are pending at the state and federal level with respect to privacy. Further, we and our customers may be faced with state and federal requirements that differ drastically, and in some cases conflict. In addition, the European Union enacted its own privacy regulations and may in the future consider other Internet-related legislation. Laws applicable to Internet based transactions remain unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet. In addition, the growth and development of the market for online financial services, including online banking, may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business online. We also may be subject to encryption and technology export laws which, depending on future developments, could adversely affect our business.

Employees

As of December 31, 2009, we had approximately 1,560 full-time employees, including 910 in customer support, hosting services and professional services, 120 in sales and marketing, 390 in product development, and 140 in general and administrative. Additionally, we use the services of independent contractors, primarily for professional service projects and product development. We believe that relations between the Company and its employees are satisfactory. Our success is highly dependent on our ability to attract and retain qualified employees.

Patents, Trademarks, Copyrights, Licenses and Proprietary Rights

We rely on a combination of patent, copyright, trademark and trade secret laws and confidentiality procedures to protect our proprietary technology and information. For a discussion of certain risks associated with intellectual property, please refer to “Risk Factors” in Item 1A of Part I.

Available Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) and 15(d) of the Securities Exchange Act of 1934 are available free of charge at our website at www.s1.com on our investors page as soon as reasonably practicable after we electronically file such materials with, or furnish such materials to, the Securities and Exchange Commission (“SEC”). You may also obtain a copy of any of these reports directly from the SEC. You may read and copy any material we file or furnish with the SEC at their Office of Investor Education and Advocacy, located at 100 F Street N.E., Washington, D.C. 20549. The phone number for information about the operation of the SEC Office of Investor Education and Advocacy is 1-800-732-0330 (if you are calling from within the United States), or 202-551-8090. Because we electronically file our reports, you may also obtain this information from the SEC internet website at www.sec.gov. You can obtain additional contact information for the SEC on their website. Additionally, you can request copies of our Annual Report on Form 10-K without charge by contacting Investor Relations, S1 Corporation, 705 Westech Drive, Norcross, Georgia 30092 or by calling 404-923-3500.

We also make available, on our website, the charters of our Audit, Compensation, Corporate Governance and Nominating and Strategic Planning Committees, and our Code of Ethics.

Item 1A. Risk Factors.

You should consider carefully the following risks. If any of the following risks actually occur, our business, financial position or results of operations would likely suffer. In that case, the trading price of our common stock could decline, and you may lose all or a part of the money you paid to buy our common stock.

Our business, which depends heavily on revenue from customers in the banking and insurance industries and other financial services firms, may be materially adversely impacted by volatile U.S. and global market and economic conditions

For the foreseeable future, we expect to continue to derive most of our revenue from products and services we provide to the banking and insurance industries and other financial services firms. Given the concentration of our business activities in financial industries, we may be particularly exposed to economic downturns in those industries. U.S. and global market and economic conditions have been, and continue to be, disrupted and volatile, and volatility reached unprecedented levels over the past two years. General business and economic conditions that could affect us and our customers include fluctuations in debt and equity capital markets, liquidity of the global financial markets, the availability and cost of credit, investor and consumer confidence, and the strength of the economies in which our customers operate. A poor economic environment could result in significant decreases in demand for our products and services, including the delay or cancellation of current or anticipated projects, and adversely affect our operating results. In addition to mergers and acquisitions in the banking industry, we have seen an increased level of bank closures and government supervised consolidation transactions. Our existing customers may be acquired by or merged into other financial institutions that have their own financial software solutions, be closed by regulators, or decide to terminate their relationships with us for other reasons. As a result, our sales could decline if an existing customer is merged with or acquired by another company or closed. Additionally, our investment portfolio is generally subject to credit, market, liquidity and interest rate risks and the value and liquidity of our investments may be adversely impacted by U.S. and global market and economic conditions including bank closures.

We expect that the revenue we generate from our largest customer, State Farm, will decrease over the next two years as our work efforts for them conclude by the end of 2011 which may cause our financial performance and our stock price to suffer

State Farm accounted for 16%, 18% and 21% of our consolidated revenue and 30%, 33% and 39% of our Enterprise segment revenue during the years ended December 31, 2009, 2008 and 2007, respectively. In 2008, we announced that we expected our relationship with State Farm to conclude by the end of 2011. We generated $38.4 million of revenue in 2009 from State Farm and expect to generate approximately $25 — $26 million in revenue in 2010 and approximately $15 — $16 million in revenue in 2011 from this customer. We can give no assurance that we will be able to generate the foregoing revenue amounts from State Farm or that we will be able to replace the revenue or associated gross margin from State Farm.

Security breaches or computer viruses could harm our business by disrupting our delivery of services, damaging our reputation and business, or resulting in material liability to us

Our products and business may be vulnerable to unauthorized access, computer viruses and other disruptive problems. In the course of providing services to our customers, we may collect, store, process or transmit sensitive and confidential financial information. Accordingly, it is critical that our facilities and infrastructure remain secure. A security breach affecting us could damage our reputation, deter organizations from purchasing our products, deter their end-user customers from using our products, or result in material liability to us.

Privacy, security, and compliance concerns continue to increase. Security compromises, including identity theft and fraud, could deter people from using electronic commerce services such as ours. We may need to spend significant capital or other resources for compliance requirements and protection against the threat of security breaches or to alleviate problems caused by security breaches. Additionally, computer viruses could infiltrate our systems and disrupt our business. Any inability to prevent security breaches, fraud or computer viruses could cause our customers to lose confidence in our services and terminate their agreements with us, and could reduce our ability to attract new customers or result in material liability to us.

The delay or cancellation of a customer project, or inaccurate project completion estimates, may adversely affect our operating results and cause our financial performance to suffer

Any unanticipated delays in a customer project, changes in customer requirements or priorities during the project implementation period, inaccurate project completion estimates, or a customer’s decision to cancel a project, may adversely impact our operating results and financial performance. When professional services are considered essential to the functionality of our software, we record license and professional services revenue over the project implementation period using the percentage of completion method, which is generally measured by the percentage of labor hours incurred to date to estimated total labor hours for each contract. The percentage of completion accounting method requires ongoing estimates of the progress being made on complex and difficult projects and documenting this progress is subject to potential inaccuracies. Any inaccuracies or changes in estimates may lead to significant changes to our financial results and adversely impact our operating results and financial performance.

Our quarterly operating results may fluctuate and any fluctuations could adversely affect the price of our common stock

If we fail to meet the expectations of securities analysts or investors as a result of any future fluctuations in our quarterly operating results, the market price of our common stock would likely decline. We may experience fluctuations in future quarters because:

•

we cannot accurately predict the value, number and timing of license or services agreements we will sign in a period, in part because the budget constraints and internal review processes of existing and potential customers are not within our control;

•

as we sell our products on both a perpetual license and a term or subscription license, we cannot accurately predict the mix of perpetual licenses to term licenses sold in any one quarter. Term licenses significantly reduce the amount of revenue recognized in the first year of the contract, but is intended to increase the overall revenue earned from the customer during the typical customer life cycle; perpetual license revenue can vary significantly on a quarterly basis;

•

the length of our sales cycle to large financial organizations generally lasts from six to 18 months, which adds an element of uncertainty to our ability to forecast revenue;

•

if we fail to or are delayed in the introduction of new or enhanced products, or if our competitors introduce new or enhanced products, sales of our products and services may not achieve expected levels and/or may decline;

•

our ability to expand the mix of distribution channels through which our products are sold may be limited;

•

our products may not achieve widespread market acceptance, which could cause our revenue to be lower than expected;

•

we have had significant contracts with legacy customers that have decreased or terminated their services and we may not be able to replace this revenue and/or the gross margins associated with this revenue;

•

our sales may be constrained by the timing of releases of third-party software that works with our products;

•

a significant percentage of our expenses is relatively fixed and we may be unable to reduce expenses in the short term if revenue decreases; and

•

the migration of our license sales model to be more focused on recurring revenue contracts may result in less predictable revenue due to an inability to predict the rate at which it is adopted by our customers, or the rate at which it may be deferred.

System failures, errors, defects or other performance problems with our products or data center operations could cause demand for our products to decrease, impair customer relations, or result in material liability to us

Our products are used by our customers to provide services that are integral to their businesses and operations. Accordingly, any system failures, errors, defects or other performance problems could result in financial or other damages to our customers and could damage our reputation, deter organizations from purchasing our products, deter their end-user customers from using our products, or result in material liability to us. Additionally, our data center is an integral part of our business and any interruption in our data center operations, whether as a result of human error, power failure, telecommunications failure, fire, terrorism or otherwise, could damage our reputation, deter organizations from purchasing our products, deter their end-user customers from using our products, or result in material liability to us.

We have engaged third-parties to assist us with certain implementation activities which may not be successful and which may result in harm to our business, reputation and financial results

In order to optimize available professional services resources and meet delivery timeframes, we have established relationships with several third parties to assist us with implementing and customizing our products. As a result, we have less quality control over the implementation and customization of our software with respect to these deployments and are more reliant on the ability of these third parties to correctly implement and customize our software in a timely manner. While our experience to date with these third parties has been positive, there is no assurance that this will continue. If these third parties fail to properly implement our software or meet delivery deadlines, our business, reputation and financial results may be harmed.

We are engaged in offshore software development activities which may not be successful and which may put our intellectual property at risk

In order to optimize available research and development resources and meet development timeframes, in 2004 we acquired an Indian based development center. This center had been owned and operated for us by a third party since 2002. In 2004, associated with our acquisition of Mosaic Software Holdings Limited, we acquired a development center in Cape Town, South Africa. While our experience to date with these offshore development centers has been positive, there is no assurance this will continue. Specifically, there are a number of risks associated with this activity, including but not limited to the following:

•

communications and information flow may be less efficient and accurate as a consequence of time zone differences, distance and language differences between our primary development organization and the foreign based activities, resulting in delays in development or errors in the software developed;

•

potential disruption from the involvement of the United States in political and military conflicts around the world;

•

the quality of the development efforts undertaken offshore may not meet our requirements because of language, cultural and experience differences, resulting in potential product errors and/or delays;

•

we have experienced a greater level of voluntary turnover of personnel in India than in other development centers which could have an adverse impact on efficiency and timeliness of development as well as the opportunity for misappropriation of our intellectual property;

•

in addition to the risk of misappropriation of intellectual property from departing personnel, there is a general risk that the misappropriation of our intellectual property might not be readily discoverable; and

•

currency exchange rates could fluctuate and adversely impact the cost advantages intended from maintaining these facilities.

We are from time to time involved in litigation over intellectual property or other proprietary rights which may be costly and time consuming to defend and our operating results would suffer if we were subject to a protracted infringement claim or a significant damage award

Substantial intellectual property litigation and threats of litigation exist in our industry. Third parties may have, or may eventually be issued, patents or assert copyrights and/or trade secrets that could be infringed by our products or technology. Any of these third parties could make a claim of infringement against us with respect to our products or technology and from time to time, we have received claims that certain of our products or other proprietary rights require a license of intellectual property rights of a party and infringe, or may infringe, the intellectual property rights of others. In some instances, our customers may be accused of infringing the intellectual property rights of third parties. As a result, we provide certain indemnity for our customers against infringement claims. Even if such accusations ultimately prove lacking in merit, the disposition of such disputes may be costly, distracting, and result in damages, royalties, or injunctive relief preventing the use of the intellectual property in question and may require entering into licensing agreements, redesigning our products or ceasing production entirely. Any claims, with or without merit, could have the following negative consequences:

•

be time-consuming to investigate and defend;

•

result in costly litigation and damage awards;

•

divert management attention and resources;

•

cause product shipment delays or suspensions;

•

cause us to spend significant resources to develop non-infringing technology, which we may not be able to do;

•

result in an injunction being issued against the use and sale of our products; and

•

require us to enter into royalty or licensing agreements, which may not be available on terms acceptable to us, if at all.

Infringement of our proprietary technology could hurt our competitive position and income potential

Our success depends upon our proprietary technology and information. We rely on a combination of patent, copyright, trademark and trade secret laws and confidentiality procedures to protect our proprietary technology and information. Because it is difficult to police unauthorized use of software, the steps we have taken to protect our services and products may not prevent misappropriation of our technology. Any misappropriation of our proprietary technology or information could reduce any competitive advantages we may have or result in costly litigation. We also have a significant international presence and the laws of some foreign countries may not protect our proprietary technology as well as the laws of the United States. Additionally, it may be more difficult to identify the misappropriation of our intellectual property in foreign countries. Our ability to protect our proprietary technology may not be adequate.

Our business and financial results may be negatively impacted by fluctuations in foreign currency exchange rates

In 2009, approximately 16% of our revenue and 26% of our operating expenses were transacted in currencies other than U.S. Dollars. We believe most of our international operations are naturally hedged for foreign currency risk as our foreign subsidiaries generally invoice their customers and satisfy their obligations in their local currencies. Therefore, our revenue may be impacted by foreign currency fluctuations from these international operations but the impact to our net income is generally minimized. However, our development center in India is not naturally hedged as their costs are in the local currency but they are funded in U.S. Dollars or British Pounds. Additionally, our South Africa operations are approximately 50% naturally hedged as some of the development and professional services performed are funded in U.S. Dollars and British Pounds. Accordingly, currency fluctuations in the Indian Rupee or South African Rand may negatively impact our net income.

Acquisitions may be costly and difficult to integrate, divert management resources or dilute stockholder value

We have made acquisitions in the past and we may make additional acquisitions in the future. The integration of these companies and any future acquisitions into our existing operations is a complex, time-consuming and expensive process and may disrupt our business. Among the potential issues related to integration are:

•

incompatibility of business cultures;

•

delays in integrating diverse technology platforms;

•

difficulties in coordinating geographically separated organizations;

•

difficulties in re-training sales forces to market all of our products across all of our intended markets;

•

difficulties implementing common internal business systems and processes;

•

conflicts in third-party relationships; and

•

loss of customers and key employees and the diversion of the attention of management from other ongoing business concerns.

Additionally, the use of equity to finance an acquisition could dilute the interests of our stockholders.

Our market is highly competitive and if we are unable to keep pace with evolving technology, successfully introduce new or enhanced products, or successfully migrate customers to new versions of our software, our financial performance maybe adversely impacted and our future prospects may decline

The market for our products and services is characterized by rapidly changing technology, intense competition and evolving industry standards. We have many competitors who offer various components of our suite of applications or who use a different technology platform to accomplish similar tasks. In some cases, our existing customers also use some of our competitors’ products. Our future success will depend on our ability to develop, sell, implement and support enhancements of current products and new software products in response to changing customer needs. If the completion of the next version of any of our products is delayed or is otherwise unsuccessful, or if we are unable to successfully migrate customers to new versions of our software, including without limitation the Postilion segment’s new online banking solution, our financial performance and future prospects could be harmed. In addition, competitors may develop products or technologies that the industry considers more attractive than those we offer or that render our technology obsolete.

We are subject to government regulation which may interfere with our ability to conduct our business, including our ability to attract and maintain customers, and could negatively impact our business and financial results

We are subject to external audits, examination, and are indirectly regulated by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, National Credit Union Association and the various state financial regulatory agencies that supervise and regulate the banks, credit unions and thrift institutions for which we provide data processing services. Matters subject to review and examination by federal and state financial institution regulatory agencies and external auditors include our internal information technology controls in connection with our performance of data processing services, the agreements giving rise to those processing activities, and the design of our products that perform banking functions. Our ability to satisfy these audits and examinations and maintain compliance with applicable regulations could negatively affect our ability to conduct our business, including our ability to attract and maintain customers.

Market volatility may affect the price of our common stock

The trading prices of technology stocks in general and ours in particular, have experienced extreme price fluctuations. Our stock price has fluctuated after declining from its high in 2000. More recently, the financial services sector has also experienced price fluctuations. Any further negative change in the public’s perception of the prospects of technology based companies, particularly those which provide services to the financial services sector such as ours, could further depress our stock price regardless of our results of operations. Other broad market and industry factors may decrease the trading price of our common stock, regardless of our operating performance. Market fluctuations, as well as general political and economic conditions such as a recession or interest rate or currency rate fluctuations, also may affect the trading price of our common stock. In addition, our stock price could be subject to wide fluctuations in response to the following factors:

•

actual or anticipated variations in our quarterly operating results;

•

approximately 28% of our common stock is owned by five institutions as of December 31, 2009, and a change in position of any one of these holders could cause a significant drop in our stock price if market demand is insufficient to meet sales demand;

•

announcements of new products, product enhancements, technological innovations or new services by us or our competitors;

•

delays or failures in introducing new or enhanced products or in migrating customers to new versions of our software:

•

changes in financial estimates by securities analysts;

•

conditions or trends in the computer software, electronic commerce and Internet industries;

•

changes in the market valuations of other technology companies;

•

developments in Internet regulations;

•

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

•

unscheduled system downtime of our products in either a hosted or in-house environment;

•

security breaches in our software or facilities may cause harm to our business and reputation, result in a loss of customers or result in material liability to us;

•

additions or departures of key personnel; and

•

sales of our common stock or other securities in the open market.

Future sales of our common stock in the public market could negatively affect our stock price

If our stockholders sell substantial amounts of our common stock, including shares issued when options are exercised or shares of our preferred stock are converted into common stock, the market price of our common stock could fall. As of December 31, 2009, we had approximately 51.7 million shares of common stock outstanding, assuming no exercise of outstanding options or conversion of preferred stock. As of December 31, 2009, there were outstanding employee stock options to purchase approximately 6.3 million shares of our common stock, 1.0 million shares of unvested restricted stock and 749 thousand shares of preferred stock convertible into an aggregate of 1.1 million shares of our common stock. The common stock issuable upon exercise of these options, vesting of restricted stock, and conversion of this preferred stock will be eligible for sale in the public market from time to time. The possible sale of a significant number of these shares may cause the market price of our common stock to fall.

We face added business, political, regulatory, operational, financial and economic risks as a result of our international operations, any of which could increase our costs and hinder our growth

We conduct our business worldwide and may be adversely affected by changes in demand resulting from:

•

fluctuations in currency exchange rates;

•

governmental currency controls;

•

changes in various regulatory requirements;

•

political, economic and military changes and disruptions;

•

difficulties in enforcing our contracts in foreign jurisdictions;

•

export/import controls;

•

tariff regulations;

•

difficulties in staffing and managing foreign sales, professional services, product development and support operations;

•

greater difficulties in trade accounts receivable collection; and

•

possible adverse tax consequences.

Some of our solutions may use encrypted technology, the export of which is regulated by the United States government. If the United States government were to adopt new legislation restricting the export of software or encryption technology, we could experience delays or reductions in our shipments of products internationally. In addition, existing or future export regulations could limit our ability to distribute our solutions outside of the United States.

We maintain international offices and portions of our maintenance, consulting, and research and development operations in Europe, Middle East, Africa and Asia. Therefore, our operations may also be affected by economic conditions in international regions. Additionally, from time to time, we lend funds to our foreign subsidiaries to meet their operating and capital requirements and several of our foreign subsidiaries are subject to laws that authorize regulatory bodies to block or limit the flow of funds from those subsidiaries. Regulatory action of that kind could impede access to funds that we need to make payments on obligations. The risks associated with international operations may harm our business.

Our balance sheet includes significant amounts of goodwill and intangible assets. The impairment of a significant portion of these assets would negatively affect our financial results

Our balance sheet includes goodwill and intangible assets that represent approximately 44% of our total assets at December 31, 2009. These assets consist of goodwill and identified intangible assets associated with our acquisitions. On at least an annual basis, we assess whether there have been impairments in the carrying value of goodwill and intangible assets. If the carrying value of the asset is determined to be impaired, then it is written down to fair value by a charge to operating earnings. An impairment of a significant portion of goodwill or intangible assets could materially negatively affect our results of operations.

We depend upon key employees and may be unable to hire or retain a sufficient number of qualified personnel

Our future performance depends to a significant degree upon the continued contributions of our senior management team and other key employees and on our ability to hire and retain highly skilled management, technical, sales, and customer support personnel. There is substantial competition for employees with the skills we require and we compete for qualified employees with companies that may have greater financial resources than we have. Our failure to hire and retain talented personnel could have a material adverse effect on our business, operating results and financial position.

The adoption or modification of laws or regulations relating to the Internet, or interpretations of existing law, could adversely affect our business

Laws and regulations which apply to communications and commerce over the Internet are becoming more prevalent. Currently, there are Internet laws regarding copyrights, taxation and the transmission of specified types of material. Congress also adopted legislation imposing obligations on financial institutions to notify their customers of the institution’s privacy practices, restrict the sharing of non-public customer data with non-affiliated parties at the customer’s request, and establish procedures and practices to protect and secure customer data. These privacy provisions are implemented by regulations with which compliance is required. Additionally, many legislative and regulatory actions have been enacted or are pending at the state and federal level with respect to privacy. Further, our customers and we may be faced with state and federal requirements that differ drastically, and in some cases conflict. In addition, the European Union enacted its own privacy regulations and it may in the future consider other Internet-related legislation. The law of the Internet, however, remains largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet. In addition, the growth and development of the market for online financial services, including online and mobile banking, may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies.

Some anti-takeover provisions contained in our charter and under Delaware law could hinder a takeover attempt

We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware prohibiting, under some circumstances, publicly-held Delaware corporations from engaging in business combinations with some stockholders for a specified period of time without the approval of the holders of substantially all of our outstanding voting stock. Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, even if such events could be beneficial, in the short-term, to the interests of our stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions relating to the limitations of liability and indemnification of our directors and officers, dividing our board of directors into three classes of directors serving three-year terms and providing that our stockholders can take action only at a duly called annual or special meeting of stockholders.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

Our executive offices and corporate headquarters are located in Norcross, Georgia, USA and our other primary domestic offices are in Littleton, Massachusetts; Charlotte, North Carolina; Austin, Texas, and West Hills, California. Our primary international offices are located in Chertsey, England; Capetown, South Africa; Johannesburg, South Africa; Melbourne, Australia; and Pune, India. We maintain additional domestic offices in Colorado Springs, Colorado and Fairport, New York. We maintain additional international offices in Brussels, Dublin, Dubai, Munich and Singapore. We lease all of our office locations except for our corporate headquarters located in Norcross, Georgia, USA, which also houses our data center operations. We believe that our principal properties are suitable and adequate for their use, which are general office buildings. We believe our facilities have sufficient capacity for our existing needs and expected near-term growth.

Our principal locations are as follows:

		Principal Business		Approximate Size				Lease
Principal Locations		Segment		(square feet)				Expiration
Austin, TX, USA		Postilion			26,400			2015
Cape Town, South Africa		Postilion			35,700			2013
Charlotte, NC, USA		Enterprise			26,300			2015
Chertsey, England		Enterprise and Postilion			9,800			2014
Johannesburg, South Africa		Postilion			8,100			2013
Littleton, MA, USA		Enterprise			12,700			2013
Norcross, GA, USA		Enterprise and Postilion			71,000			Owned
Pune, India		Enterprise and Postilion			75,800			2013
West Hills, CA, USA		Postilion			24,900			2018

Item 3. Legal Proceedings.

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we, or any of our subsidiaries is a party or of which our or any of our subsidiaries’ property is subject.

Item 4. [Reserved].

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Securities.

As of the close of business on February 17, 2010 there were 445 holders of record of our common stock. We have never paid or declared cash dividends on our common stock or preferred stock and do not anticipate paying cash dividends on our capital stock in the foreseeable future, although there are no restrictions on our ability to do so. Our common stock is quoted on the Nasdaq Stock Market under the symbol “SONE”. The following table shows, for the periods indicated, the high and low sales prices per share of our common stock as reported on the Nasdaq Stock Market.

		2009								2008
		High				Low				High				Low
First Quarter		$	8.00			$	4.75			$	8.16			$	5.25
Second Quarter			7.42				5.04				8.26				5.91
Third Quarter			7.43				5.87				8.28				5.64
Fourth Quarter			6.60				5.65				8.00				4.00

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information with respect to compensation plans under which equity securities of S1 are authorized for issuance to employees, non-employee directors and others as of December 31, 2009:

Number of securities to be

Number of securities remaining

issued upon exercise of

Weighted-average

available for future issuance under

outstanding options and

exercise price of

equity compensation plans (excluding

vesting of restricted stock

outstanding options

securities reflected in column (a))

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by stockholders

6,164,228

$

5.80

2,080,526

Equity compensation plans not approved by stockholders (1)

1,129,619

12.25

—

Total

7,293,847

$

6.96

2,080,526

Comparison of Cumulative Total Return from December 31, 2004 to December 31, 2009

The following table sets forth comparative information regarding the cumulative stockholder return on our common stock since December 31, 2004. Total stockholder return is measured by dividing the sum of the cumulative amount of dividends for the measurement period (assuming dividend reinvestment) and the difference between our share price at the end and the beginning of the measurement period by the share price at the beginning of the measurement period. Neither S1 nor its predecessor, Security First Network Bank, has paid dividends on its common stock from the date of the initial public offering of Security First Network Bank, May 26, 1996, to December 31, 2009. Our cumulative stockholder return over this period is based on an investment of $100 on December 31, 2004 and is compared to the cumulative total return of the Interactive Week Internet Index and the Nasdaq Composite Index.

		12/31/2004				12/31/2005				12/31/2006				12/31/2007				12/31/2008				12/31/2009
S1 Corporation		$	100			$	48			$	61			$	81			$	87			$	72
Interactive Week Internet Index		$	100			$	101			$	115			$	132			$	77			$	135
NASDAQ Composite		$	100			$	101			$	111			$	122			$	72			$	104

Issuer Purchases of Equity Securities

During 2007, our Board of Directors authorized a stock repurchase program under which we could repurchase up to $60.0 million of our common stock. In September 2008, our Board of Directors authorized an increase to this program that provided total authorization for us to purchase up to 4,000,000 shares of our common stock. In November 2008, the total authorization under our stock repurchase program was increased by an additional $10.0 million. We completed the stock repurchase program in December 2009. Repurchases under the program were able to be made from time to time in open market and privately negotiated transactions as market and business conditions warranted. The repurchase program was able to be modified or suspended at any time or from time to time, without prior notice, at our discretion and had no expiration date. Shares acquired pursuant to the stock repurchase program were canceled, thereby reducing the total number of shares of common stock outstanding. We did not repurchase any stock in the first six months of 2009. The following table is a summary of the stock repurchases by month made by the Company during 2009:

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

Item 6. Selected Financial Data.

The following table presents selected statement of operations data, selected balance sheet data and other selected data for S1 on a consolidated basis. We derived the selected historical consolidated financial data presented below from our audited consolidated financial statements and related notes. You should read this data together with our audited consolidated financial statements and related notes.

		Year Ended December 31,
		2009				2008				2007				2006				2005
														(4) (5)				(5)
Statement of Operations Data:
Total revenue		$	238,927			$	228,435			$	204,925			$	192,310			$	179,140
Income (loss) from continuing operations			30,423				21,850				19,495				(12,239	)			(28,382	)
Income from discontinued operations			—				—				—				30,141				27,325
Net income (loss)			30,423				21,850				19,495				17,902				(1,057	)
Revenue from significant customers (1)			38,402				42,084				43,425				47,898				45,374
Stock-based compensation expense			1,602				8,092				8,522				5,663				570
Merger related and restructuring costs			—				—				—				12,485				15,030
Basic earnings (loss) per share:
Continuing operations		$	0.56			$	0.38			$	0.32			$	(0.17	)		$	(0.40	)
Discontinued operations			—				—				—				0.42				0.38
Net income (loss)		$	0.56			$	0.38			$	0.32			$	0.25			$	(0.02	)
Diluted earnings (loss) per share:
Continuing operations		$	0.55			$	0.38			$	0.32			$	(0.17	)		$	(0.40	)
Discontinued operations			—				—				—				0.42				0.38
Net income (loss)		$	0.55			$	0.38			$	0.32			$	0.25			$	(0.02	)
Balance Sheet Data:
Cash and cash equivalents		$	61,784			$	63,840			$	45,011			$	69,612			$	85,108
Investments included in current assets (2)			2,318				1,493				23,855				21,392				44,170
Working capital			82,942				55,804				64,318				83,227				106,250
Goodwill			126,605				124,362				125,281				125,300				125,808
Total assets			300,066				278,686				281,844				307,805				344,523
Debt obligation, excluding current portion			5,026				6,196				8,805				4,119				1,391
Total liabilities			61,425				69,946				71,939				83,576				92,137
Stockholders’ equity			238,641				208,740				209,905				224,229				252,386
Other Selected Data:
Cash provided by operating activities		$	16,035			$	34,147			$	31,332			$	3,460			$	219
Cash (used in) provided by investing activities			(7,688	)			15,765				(13,893	)			31,626				46,597
Cash used in financing activities (3)			(12,172	)			(27,488	)			(42,940	)			(50,671	)			(4,332	)
Weighted average common shares outstanding — basic			52,584				55,734				59,746				70,780				70,359
Weighted average common shares outstanding — diluted			53,291				56,449				60,596				n/a				n/a

Item 7. Management’s Discussion and Analysis of Financial Condition and results of Operations.

This annual report on Form 10-K and the documents incorporated into this annual report on Form 10-K by reference contains forward-looking statements and information relating to our subsidiaries and us within the safe harbor provisions of the Private Securities Litigation Reform Act. These statements include statements with respect to our financial position, results of operations and business. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “estimates,” “intends” or similar terminology identify forward-looking statements. Forward-looking statements may include projections of our revenue, expenses, capital expenditures, earnings per share, product development projects, future economic performance or management objectives. These statements are based on the beliefs of management as well as assumptions made using information currently available to management. Because these statements reflect the current views of management concerning future events, they involve risks, uncertainties and assumptions. Therefore, actual results may differ significantly from the results discussed in the forward-looking statements. You are urged to read the risk factors described under the caption “Risk Factors” in Item 1A of Part I of this report. Except as required by law, we undertake no obligation to update publicly any forward-looking statement for any reason, even if new information becomes available. When we use the terms “S1 Corporation”, “S1”, “Company”, “we”, “us” and “our,” we mean S1 Corporation, a Delaware corporation, and its subsidiaries. The following discussion should be read in conjunction with the audited consolidated financial statements and notes appearing elsewhere in this report.

Executive Overview

Background. S1 Corporation is a leading global provider of payments and financial services software solutions. We offer payments solutions for ATM and retail point-of-sale (“POS”) driving, card management, and merchant acquiring, as well as financial services solutions for consumer, small business and corporate online banking, trade finance, mobile banking, voice banking, branch and call center banking. We sell our solutions primarily to banks, credit unions, retailers and transaction processors. We also provide software, custom software development, hosting and other services to State Farm Mutual Automobile Insurance Company and its subsidiary State Farm Bank (“State Farm”), a relationship that we expect will conclude by the end of 2011.

We operate and manage S1 in two business segments: Postilion and Enterprise. We separate our banking businesses based on the size of the financial institution we sell to as the solutions and related services required by each can differ in complexity and the length of the implementation cycle. We group our payments solutions with our community and regional banking and credit union solutions due to similar platform technology and the service requirements for implementation.

The Postilion segment provides ATM and retail POS driving, card management and merchant acquiring solutions targeting organizations of all sizes globally as well as online banking, mobile banking, voice banking, call center, branch and lending solutions for community and regional banks and credit unions in North America.

The Enterprise segment targets large financial institutions worldwide, providing software solutions and related services that financial institutions use to deliver services to their consumer and corporate customers including those for online, mobile, branch and call center banking. The Enterprise segment also provides software, custom software development, hosting and other services to State Farm. We expect our relationship with State Farm will conclude by the end of 2011.

Summary financial results. Our revenue was $238.9 million for the year ended December 31, 2009 which is an increase of $10.5 million or 5% as compared to the same period in 2008 due primarily to the demand for Postilion’s payments and Enterprise’s online banking solutions offset by a decline in projects with our largest customer, State Farm. In 2009, our net income was $30.4 million which is an increase of $8.6 million when compared to 2008 due primarily to increased revenue, improved professional services margins and lower stock-based compensation expense partially offset by the continued build-out of product functionality, investments in customer satisfaction initiatives, and customer attrition in the Postilion segment’s online banking business. During 2009, we generated $16.0 million in cash provided by operating activities primarily from our net income partially offset by an increase in our accounts receivable.

Subsequent Event — Acquisition

On March 4, 2010, the Company acquired 100% of the outstanding shares of PM Systems Corporation, a company that provides internet banking, bill payment and security services to credit unions. The purchase price was approximately $28.9 million in cash, net of cash acquired.

Revenue from Significant Customers

Revenue from State Farm was 16%, 18% and 21% of our consolidated revenue and 30%, 33% and 39% of our Enterprise segment revenue during the years ended December 31, 2009, 2008 and 2007, respectively. In 2008, we announced that we expected our relationship with State Farm to conclude by the end of 2011. We generated $38.4 million of revenue in 2009 from State Farm and expect to generate approximately $25 — $26 million in revenue in 2010 and approximately $15 — $16 million in revenue in 2011 from this customer.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial position and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Generally, we base our estimates on historical experience and on various other assumptions in accordance with U.S. GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under other assumptions or conditions. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial position and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. To see further discussion of all the accounting policies and related disclosures, review the notes to the consolidated financial statements. Our critical accounting policies and estimates include those related to:

•

revenue recognition;

•

estimation of our allowance for doubtful accounts and billing adjustments;

•

valuation and recoverability of long-lived assets, including goodwill;

•

determination of the fair value of stock-based compensation;

•

recognition of costs in connection with restructuring plans; and

•

income taxes.

Revenue recognition. Revenue is a key component of our results of operations and is a key metric used by management, securities analysts and investors to evaluate our performance. Our revenue generally includes multiple element arrangements such as software license fees for software products, implementation and customization services, training, post-contract customer support, hosting and data center services and, in some cases, hardware or other third party products and services.

Software licenses revenue. For software license sales for which professional services rendered are not considered essential to the functionality of the software, we recognize revenue upon delivery of the software provided (1) there is evidence of an arrangement, (2) collection of our fee is reasonably assured, and (3) the fee is fixed or determinable. In our arrangements that included software licenses, for which vendor specific objective evidence of fair value (“VSOE”) does not exist for the delivered element and exists for all undelivered elements, we use the residual method.

When professional services are considered essential to the functionality of the software, we record revenue for the license and professional services over the implementation period using the percentage of completion method, which is generally measured by the percentage of labor hours incurred to date to estimated total labor hours. We typically use labor hours to estimate contract costs. Contract costs generally include direct labor, contractor costs and indirect costs identifiable with or allocable to the contracts. If other judgments or assumptions were used in the evaluation of our revenue arrangements, the timing and amounts of revenue recognized may have been significantly different. For instance, many of our software license revenue arrangements in our Enterprise segment are accounted for using the percentage of completion method since the services are considered essential to the functionality of the software. If it was determined that those services were not essential to the functionality of the software, we may have recognized the license revenue upon delivery of the license, provided other required criteria were satisfied. Further, if we determined that we cannot make reasonably dependable estimates in the application of the percentage of completion method, we would defer all revenue and recognize the revenue upon completion of the contract.

For subscription license arrangements where we sell customers the rights to unspecified products as well as unspecified upgrades and enhancements during a specified term and sometimes includes hosted services, the license revenue is recognized ratably over the term of the arrangement. Subscription revenue is allocated to all elements of the arrangement (Software license, Support and maintenance, and Data center revenue) using a consistent approach which considers the VSOE of support and maintenance and pricing methodologies. In addition, subscription agreements typically contain renewal terms that automatically extend the term of the arrangement for one year or more unless a timely notice of termination is provided.

Support and maintenance revenue. Revenue for post-contract customer support and maintenance is recognized ratably over the contract period.

Professional services revenue. Revenue derived from arrangements to provide professional services on a time and materials basis is recognized as the related services are performed. Revenue for professional services that are deemed to be essential to the functionality of the software is recognized using the percentage of completion method. For other revenue from professional services that are provided on a fixed fee basis, revenue is recognized on a proportional performance basis which is generally a method based upon labor hours incurred as a percentage of total estimated labor hours to complete the project. Provisions for estimated losses on incomplete contracts are made in the period in which such losses are determined. Our contractual arrangements are evaluated on a contract-by-contract basis and often require our judgment and estimates that affect the classification and timing of revenue recognized in our statements of operations. The complexity of our process for estimates and factors relating to the assumptions, risks and uncertainties inherent with the application of the proportional performance method of accounting affects the amount of revenue and related expenses reported in our consolidated financial statements. A number of internal and external factors can affect our estimates including labor rates, utilization and efficiency variances, and specification and testing requirement changes. Specifically, we may be required to make judgments about:

•

whether the fees associated with our products and services are fixed or determinable;

•

whether the collection of our fees is reasonably assured;

•

whether professional services are essential to the functionality of the related software product;

•

whether we have the ability to make reasonably dependable estimates in the application of the percentage of completion and proportional performance methods; and

•

whether we have VSOE of fair value for our products and services.

Additionally, we may be required to make the following estimates which may impact the timing and amounts of revenue recognized during the periods if our presented estimates change:

•

percentage of labor hours incurred to date to the estimated total labor hours for each contract;

•

accrual of unbilled professional services revenue until the milestone billing occurs;

•

provisions for estimated losses on uncompleted contracts; and

•

the need for an allowance for doubtful accounts or billing adjustments.

Data center revenue. Data center arrangements typically include two elements: implementation and transaction processing services. For those data center arrangements which contain elements that qualify as separate units of accounting, the implementation and transaction processing services are recognized as the services are performed. For those data center arrangements that contain elements that do not qualify as separate units of accounting, the professional services revenue earned under these arrangements is initially deferred and then recognized over the term of the data center arrangement or the expected period of performance, whichever is longer. Over-usage fees, bill pay fees and fees billed based on the actual number of transactions from which we capture data, are billed in accordance with contract terms as these fees are incurred.

Estimation of allowance for doubtful accounts and billing adjustments. We are required to report accounts receivable at the amount we expect to collect from our customers. As a result, we are required to use our judgment to estimate the likelihood that certain receivables may not be collected or that we might offer future discounts or concessions for previously billed amounts. Accordingly, we have established a discount allowance for estimated billing adjustments and a bad debt allowance for estimated amounts that we will not collect. We report provisions for billing adjustments as a reduction of revenue and provisions for bad debts as a component of selling and marketing expense. We review specific accounts for collectability based on circumstances known to us at the date of our financial statements. In addition, we maintain reserves based on historical billing adjustments and write-offs, and historical discounts, concessions and bad debts, customer concentrations, customer credit-worthiness and current economic trends. Accordingly, our judgments and estimates about the collectability of our accounts receivable affect revenue, selling expense and the carrying value of our accounts receivable.

Valuation and recoverability of long-lived assets, including goodwill. We evaluate the recoverability of long-lived assets, including goodwill, whenever events or changes in circumstances indicate that the carrying amount should be assessed by comparing their carrying value to the undiscounted estimated future net operating cash flows expected to be derived from such assets. If such evaluation indicates a potential impairment, we use discounted cash flows and market approach to measure fair value in determining the amount of the long-lived assets that should be written off. Factors we consider important which could trigger an impairment review include, but are not limited to, the following:

•

significant under-performance relative to expected historical or projected future operating results;

•

significant changes in the manner of our use of the acquired assets or the strategy of our overall business;

•

significant negative industry or economic trends;

•

significant decline in our stock price for a sustained period; and

•

our market capitalization relative to net book value.

We are required to perform an annual test of goodwill value to determine whether or not it has been impaired. We use long term forecasts to determine the discounted cash flows and we use the market approach of revenue multiples to estimate the fair value of our reporting units. Our fair value estimates are impacted by many factors including but not limited to changing economic conditions of our customer base, expected growth rates, discount rate, and long term business plans. Future events and changes in circumstances may require us to record an impairment charge if our financial condition or results of operations significantly decline.

Determination of the fair value of stock-based compensation. We account for stock-based compensation using the modified prospective method. In determining the fair value, management makes certain estimates such as but not limited to the expected life of an equity award, the volatility of our stock and risk free rates. Additionally, we are required to estimate forfeitures at the time of grant and adjust them over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from their estimates. These assumptions affect the estimated fair value of the equity grant. As such, these estimates will affect the compensation expense we record in future periods. These estimates affect the timing of the compensation expense we record. Also, we have outstanding stock appreciation rights (“SARs”) that are cash settled. Therefore, we revalue our liability to settle the SARs awards each period based on an updated valuation which includes, among other factors, our closing stock price for the period. Future volatility in our stock price will impact the liability to settle the SARs awards which will be reflected in operating expenses.

Recognition of costs in connection with restructuring plans. We establish a liability for the estimated fair value of exit costs at the date we incur a liability under an approved restructuring plan. At that time and thereafter until the plan activities are complete, the actual costs or timing of payments associated with the plan may differ from our estimates. We use our judgment and information available to us at the date of the financial statements to reevaluate our initial estimates of the exit costs. If we believe that our previous estimates of exit costs or timing of payments are no longer accurate in light of current conditions, we adjust the liability with a corresponding increase or decrease to current period earnings. Any adjustments to estimates of our exit costs under restructuring plans are reflected on the same line item in the statement of operations as the initial charge to establish the restructuring liability. Additionally, in periods subsequent to the initial measurement, we increase the carrying amount of the liability by the amount of accretion recorded as an expense due to the passage of time.

Accrued restructuring costs at year end reflect our estimate of the fair value of future rental obligations and other costs associated with office space that we do not plan to use in our operations as a result of the restructuring plans, offset by our estimate of the fair value of sublease income for this space. The determination of fair value is based on a discounted future cash flow model using a credit-adjusted risk-free rate. While we know the terms of our contractual lease obligations and related future commitments, we must estimate when and under what terms we will be able to sublet the office space, if at all. Additionally, operating expenses associated with certain facility leases, such as utilities and property taxes, are variable. Such estimates require a substantial amount of judgment, especially given current real estate market conditions. Actual sublease terms or operating expenses may differ substantially from our estimates. Any future changes in our estimates of lease termination reserves could materially impact our financial position, results of operations and cash flows.

Income taxes. We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Management must make assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset.

Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income, such as income from operations or capital gains income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, thus materially impacting our financial position and results of operations. We released a portion of our valuation allowance for deferred tax assets in 2009 and in 2008 for multiple foreign jurisdictions. However, we still have a valuation allowance on our deferred tax assets in the United States. In order to release additional amounts of the valuation allowance, we must show a history of sustained profitability or other positive evidence. As our economic conditions in the United States improve, we will evaluate the possibility of releasing a portion of the valuation allowance in the near future based on estimates regarding our future earnings and the recoverability of the deferred tax assets. A portion of any such reversal could have a positive impact on our earnings in the period in which it is reversed. In the event the valuation allowance is released, the portion of the allowance associated with loss carryforwards generated by stock options will be credited to additional paid-in-capital and will not be reported as a benefit on the statement of operations.

Recent Accounting Pronouncements

In October 2009, FASB amended FASB ASC 605-25 Revenue Recognition: Multiple -Element Arrangements on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method and additional disclosures on selling price method. This change is effective for revenue arrangements that begin or are changed in fiscal years that start June 15, 2010, or later with earlier adoption permitted. As most arrangements accounted for under software revenue recognition guidance are excluded from the update, we do not believe the adoption of this change will have a material effect on our results of operations.

In October 2009, FASB amended FASB ASC 985-605 Software: Revenue Recognition to exclude from its scope all tangible products containing both software and non-software components that operate together to deliver the product’s functions. This change is effective for revenue arrangements that begin or are changed in fiscal years that start June 15, 2010, or later with earlier adoption permitted. As this change does not affect revenue arrangements that have no tangible products or contracts that bundle services and software, we do not believe the adoption of this change will have a material effect on our results of operations since most of our arrangements have little to no tangible products.

Effects of Foreign Currencies

Our revenue and net income were impacted by foreign exchange rate fluctuations mainly for transactions in the British Pound, South African Rand, Indian Rupee and the European Euro. Generally, expenses are denominated in the same currency as our revenue and the exposure to rate changes is naturally hedged for transactions in the British Pound and European Euro which minimizes the impact to net income. However, our development center in India is not naturally hedged as their costs are in the local currency but are funded in U.S. Dollars and British Pounds. Additionally, our South African operations are approximately 50% naturally hedged as some of the development and professional services performed are funded in U.S. Dollars and British Pounds. We did not enter into material financial derivatives to hedge our currency risks in 2009, 2008 or 2007. Please refer to Item 7A of Part II, “Quantitative and Qualitative Disclosures about our Market Risk” for further discussions on potential foreign currency risks.

The estimated effect on our consolidated statements of operations from changes in exchange rates versus the U.S. Dollar is as follows (in thousands, except per share data):

		Year Ended December 31, 2009												Year Ended December 31, 2008
		At Prior Year												At Prior Year
		Exchange				Exchange Rate								Exchange				Exchange Rate
		Rates (1)				Effect				As reported				Rates (1)				Effect				As reported
Revenue		$	243,127			$	(4,200	)		$	238,927			$	229,775			$	(1,340	)		$	228,435
Operating Expenses			210,042				(4,720	)			205,322				207,554				(2,470	)			205,084
Operating Income			33,085				520				33,605				22,221				1,130				23,351
Net Income			29,523				900				30,423				20,470				1,380				21,850
Basic earnings per share		$	0.54			$	0.02			$	0.56			$	0.36			$	0.02			$	0.38
Diluted earnings per share		$	0.54			$	0.01			$	0.55			$	0.35			$	0.03			$	0.38

Stock-based compensation

Our stock-based compensation expense relates to our stock options, restricted stock and cash-settled SARs. Our expense for stock options and restricted stock is recognized ratably over the vesting period which is generally three to four years. While the mix of stock option and restricted stock expense has varied, the total combined expense decreased slightly in 2009 as certain 2006 grants had vesting periods of only two years. However, our cash-settled SARs expense is recalculated each quarter based on our updated valuation which includes, among other factors, our closing stock price for the period. Therefore, changes in our stock price during a period will cause our SARs liability to change thus impacting our stock-based compensation expense until the SARs are settled. Our stock price decreased 17% during 2009 causing a benefit as the liability was reduced accordingly. Our stock-based compensation expenses included in operating expenses and by grant type were as follows (in thousands):

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

Consolidated Results of Operations

The following table sets forth our statement of operations data for the three years ended December 31, 2009, 2008 and 2007 and the percentage of revenue of each line item for the periods presented (dollars in thousands):

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

Consolidated Results — Comparison of 2009 to 2008

Revenue. Total revenue increased by $10.5 million, or 5%, in 2009 compared to 2008 due primarily to high demand for Postilion’s payments solutions and Enterprise’s online banking solutions. This demand, from new customers and cross-sales to existing customers, drove our growth in Software licenses, Support and maintenance and Professional services revenue. Our growth in Support and maintenance revenue in Postilion’s payments and Enterprise’s U.S. online banking business reflects the growth in software licensing activity. Our Professional services revenue increased due to demand for Postilion’s payments and Enterprise’s banking solutions but was offset by declines in projects with State Farm. Our business with State Farm declined $3.7 million as we wind down projects with this customer through 2011. We expect approximately $25 — $26 million in revenue in 2010 and approximately $15 — $16 million in revenue in 2011 from this customer. Most of the growth in our Enterprise segment’s international banking business was offset by unfavorable changes in foreign exchange rates in Europe. Our 2009 revenue had declines in Postilion’s online banking business, primarily in Data Center revenue, due to customer attrition and the impact of migrating existing customers to our new product platform which slowed new customer growth. Revenue for both segments was negatively affected in 2009 as a result of changes in foreign exchange rates by approximately $4.2 million due primarily to operations in Europe and South Africa.

Operating income. Operating income was $33.6 million in 2009 which was an increase of $10.3 million, or 44%, as compared to 2008. This increase was mainly due to revenue growth, improving direct costs margins, lower stock-based compensation, and the favorable impact on operating income resulting from changes in foreign exchange rates of $500 thousand for operations in Europe, South Africa and India.

As a percentage of revenue, direct costs, which exclude charges for depreciation of property and equipment, were 44% and 46% for the years ended 2009 and 2008, respectively. The Cost of software licenses includes the cost of software components that we license from third parties as well as the amortization of purchased technology. In general, the Cost of software licenses for our products is minimal because we internally develop most of the software components, the cost of which is reflected in product development expense as it is incurred. The Cost of software licenses as a percent of Software license revenue improved during 2009 as the amortization of acquired technology declined $900 thousand as certain intangible assets became fully amortized. The Cost of professional services, support and maintenance as a percentage of Support and maintenance and Professional services revenue improved primarily due to better margins on projects in our Enterprise U.S. online banking business, growth in higher margin projects for our Postilion payments business, and cost reductions related to reduced project work for State Farm. The Cost of data center as a percentage of Data center revenue increased primarily due to customer attrition in the Postilion online banking business as some of the costs in our data center are fixed.

As a percentage of revenue, Selling and marketing costs decreased to 13% in 2009 from 16% in 2008 due primarily to lower stock-based compensation of $3.2 million, the favorable impact of $1.0 million from changes in foreign exchange rates for operations in Europe and South Africa, and lower sales commissions due to higher sales targets not fully met in 2009. As a percentage of revenue, Product development costs increased to 14% in 2009 from 13% in 2008 as both segments continued to build out product functionality and invest in customer satisfaction initiatives. This increase was partially offset by a decrease in stock-based compensation expense of $800 thousand and a $1.7 million favorable impact from foreign currency exchange rates for operations in Europe, South Africa and India. Historically, we have not capitalized product development costs because of the insignificant amount of costs incurred between technological feasibility and general customer release. However, if the amount of time between the completion of beta testing and general customer release lengthens, we may be required to capitalize certain software development costs in the future. As a percentage of revenue, General and administrative costs decreased to 10% in 2009 from 11% in 2008 due primarily to lower stock-based compensation of $2.3 million partially offset by an increase in personnel costs. Depreciation and amortization of intangible assets increased by $500 thousand, or 6%, in 2009 due to increases in capital expenditures for our data center offset by lower amortization of acquired customer lists.

Interest and other (expense) income, net. Our interest income declined by $1.6 million in 2009 as compared to 2008 primarily due to lower interest rates on our cash and investments. Other non-operating expenses had an increase in net foreign exchange losses on international trade receivables of $1.3 million partially offset by impairment charges of $700 thousand incurred in 2008 related to a mutual fund trust investment.

Income tax expense. We had income tax expense of $2.0 million and $2.3 million for 2009 and 2008, respectively. We recorded alternative minimum tax expense for components of our domestic operations as a result of limitations on the use of our federal net operating loss carryforwards (“NOLs”). Some components of our domestic operations incurred income tax expense at regular statutory rates because they are not included in our consolidated federal income tax return and therefore, do not benefit from our federal NOLs. Some of our international operations incur income tax expense in jurisdictions where we do not have NOLs to offset income.

Periodically, management reviews our deferred tax assets and evaluates the need for a valuation allowance. Based on this evaluation, we determined that approximately $3.1 million and $2.0 million of the deferred tax valuation allowance should be released with respect to certain international jurisdictions through income tax expense during 2009 and 2008, respectively. We also have significant deferred tax assets in domestic jurisdictions with a valuation allowance and periodically, management reviews our deferred tax assets and evaluates the need for a valuation allowance. Given the current economic environment and the anticipated decline in revenue from our largest customer, management believes it is necessary to see further evidence of the achievement of our domestic growth targets before any valuation allowance can be released with respect to these operations. A portion of any such reversal could have a positive impact on our income tax expense and net income in the period in which it is reversed. For periods subsequent to the release of the deferred tax valuation allowance, we expect a significant increase in the effective tax rate reported on earnings after deferred tax assets have been utilized. We may begin to release a portion of the deferred tax asset valuation allowance in domestic jurisdictions as early as 2010.

Consolidated Results — Comparison of 2008 to 2007

Revenue. Total revenue increased by $23.5 million, or 11%, in 2008 compared to 2007 due primarily to high demand for Postilion’s payments and Enterprise’s banking businesses. The demand from new customers and cross-sales to existing customers drove the growth in Software licenses, Support and maintenance and Professional services revenue during 2008. Our Software licenses revenue in 2008 included a settlement with an international customer for $600 thousand that was thought to be uncollectable and reserved for in 2007. Postilion’s branch banking business declined in 2008 primarily due to lower software license increases for existing customers. The growth in Support and maintenance revenue in Postilion’s payments and Enterprise’s banking solutions reflects the growth in software licensing activity. Our Professional services revenue increased due to demand for Postilion’s payments and Enterprise’s banking solutions but was offset by declines in projects with State Farm. Our business with State Farm declined $1.3 million as we announced we would wind down projects with this customer through 2011. The growth of Enterprise’s international banking business, primarily in Professional services revenue, was mainly attributable to projects related to an implementation for a large international bank. Our 2008 revenue had declines in Postilion’s online banking business due to customer attrition, primarily in Data Center revenue. Revenue was negatively affected in 2008, primarily in the Postilion segment, as a result of changes in foreign exchange rates by approximately $1.3 million.

Operating income. Operating income was $23.4 million in 2008 which is an increase of $4.9 million, or 27%, as compared to 2007. Operating income improved mainly due to strong revenue growth while holding margins flat and the favorable impact to operating income resulting from changes in foreign exchange rates of $1.1 million for operations in Europe, India and South Africa.

As a percentage of revenue, direct costs, which exclude charges for depreciation of property and equipment, were 46% and 47% for 2008 and 2007, respectively. The Cost of software licenses includes the cost of software components that we license from third parties as well as the amortization of purchased technology. In general, the Cost of software licenses for our products is minimal because we internally develop most of the software components, the cost of which is reflected in product development expense as it is incurred. The Cost of software licenses as a percent of Software license revenue improved during 2008 as the amortization of acquired technology declined $400 thousand as certain intangibles became fully amortized. The Cost of professional services, support and maintenance as a percentage of Support and maintenance and Professional services revenue improved primarily due to better margins on projects in our Enterprise banking business and growth in high margin projects for our Postilion payments business. Additionally, the improvements were net of the cost impact from the release of approximately $1.3 million in 2007 for contract loss reserves relating to an agreement for an Enterprise online banking solution entered into and reserved for in 2005. The agreement was renegotiated in 2007 and subsequently replaced with a new license agreement for a Postilion online banking solution. The Cost of data center as a percentage of Data center revenue declined primarily due to customer attrition in the Postilion online banking business as some of the costs in our data center are fixed.

As a percentage of revenue, Selling and marketing costs increased to 16% in 2008 from 15% in 2007 primary due to increased sales staff and higher commissions associated with revenue growth partially offset by lower stock-based compensation of $1.0 million and the favorable impact of $500 thousand from changes in foreign exchange rates for operations in Europe and South Africa. As a percentage of revenue, Product development costs increased to 13% in 2008 from 12% in 2007 as both segments continued to build out product functionality and invest in customer satisfaction initiatives. This increase was partially offset by a decrease in stock-based compensation expense of $600 thousand and a $1.0 million favorable impact from foreign currency exchange rates for operations in Europe, South Africa and India. Historically, we have not capitalized product development costs because of the insignificant amount of costs incurred between technological feasibility and general customer release. As a percentage of revenue, General and administrative costs decreased to 11% in 2008 from 13% in 2007 due primarily to lower professional consulting fees in 2008 and the favorable impact of $500 thousand from changes in foreign exchange rates for operations in Europe and South Africa partially offset by higher stock-based compensation of $1.4 million. Depreciation and amortization of the intangible assets increased by $900 thousand, or 11%, in 2009 due to increases in capital expenditures for our data center and for our corporate headquarters which we purchased in late 2007.

Interest and other (expense) income, net. Our interest income declined by $2.1 million in 2008 as compared to 2007 primarily due to lower interest rates on our cash and investments. Other non-operating expenses include the impairment charges taken in 2008 for a mutual fund trust of $700 thousand partially offset by net foreign exchange gains on international trade receivables of $900 thousand.

Income tax expense. We had income tax expense of $2.3 million and $1.5 million for 2008 and 2007, respectively. We recorded alternative minimum tax expense for components of our domestic operations as a result of limitations on the use of our federal NOLs. Some components of our domestic operations incurred income tax expense at regular statutory rates because they are not included in our consolidated federal income tax return and therefore, do not benefit from our federal NOLs. Some of our international operations incur income tax expense in jurisdictions where we do not have NOLs to offset income.

Periodically, management reviews our deferred tax assets and evaluates the need for a valuation allowance. Based on this evaluation, we determined that approximately $2.0 million of the deferred tax valuation allowance should be released with respect to certain international jurisdictions through income tax expense during 2008.

Postilion Segment Results of Operations

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

Postilion Results — Comparison of 2009 to 2008

Revenue. Total revenue increased by $7.5 million, or 7%, in 2009 compared to 2008 due primarily to high demand for Postilion’s payments solutions. The demand from new customers and cross-sales to existing customers drove growth in Postilion’s payments solutions for Software licenses revenue, Support and maintenance and Professional services revenue during 2009. Our growth in Support and maintenance revenue in Postilion’s payments solutions reflects growth in software licensing activity. Professional services revenue growth reflects an increase in projects for our Postilion payments solutions and an increase in the size and length of the implementation cycle for certain projects for our Postilion payments solutions. Postilion’s Data center revenue declined in 2009 due to customer attrition in Postilion’s online banking business and the impact of migrating existing customers to our new product platform which slowed new customer growth and reduced transaction volumes. While we believe attrition in Postilion’s online banking business has slowed, the migration of existing customers to the new platform will continue to impact revenue during 2010. Revenue was negatively affected in 2009 as a result of changes in foreign exchange rates by approximately $2.5 million due primarily to operations in Europe and South Africa.

Operating income. Operating income was $13.9 million in 2009 which is an increase of $2.4 million, or 21%, as compared to 2008. Operating income improved mainly due to revenue growth while holding margins flat and lower stock-based compensation of $2.2 million. As a percentage of revenue, direct costs, which exclude charges for depreciation of property and equipment, were 43% and 42% for 2009 and 2008, respectively. Postilion’s direct costs margins were favorably impacted by growth in higher margin projects for our Postilion payments business offset by lower data center margins due to customer attrition in the Postilion online banking business and the costs of migrating customers to our new online banking platform. Our Sales and marketing and General and administrative costs as a percentage of revenue declined mainly due to lower stock-based compensation expense. Product development cost increases during 2009 were mainly for work related to building out the new platform for Postilion’s online banking solutions.

Postilion Results — Comparison of 2008 to 2007

Revenue. Total revenue increased by $9.4 million, or 10%, in 2008 compared to 2007 due primarily to high demand for Postilion’s payments business as new customers drove our growth in Software licenses, Support and maintenance and Professional services revenue. The demand from new customers and cross-sales to existing customers drove growth in Postilion’s payments solutions for Software licenses revenue, Support and maintenance and Professional services revenue during 2009. Our growth in Support and maintenance revenue in Postilion’s payments solutions reflects growth in software licensing activity. Professional services revenue growth reflects an increase in projects for our Postilion payments solutions and an increase in the size and length of the implementation cycle for certain projects for our Postilion payments solutions. Postilion’s Data center revenue declined in 2008 due primarily to customer attrition in Postilion’s online banking business which reduced transaction volumes. Revenue was negatively affected in 2008 as a result of changes in foreign exchange rates by approximately $1.3 million due primarily to operations in Europe and South Africa.

Operating income. Operating income was $11.5 million in 2008 which is an increase of $3.9 million, or 50%, as compared to 2007. Operating income improved mainly due to revenue growth while holding margins flat, lower stock-based compensation of $700 thousand, and the favorable impact on operating income for changes in foreign exchange rates by approximately $900 thousand due primarily to operations in Europe, South Africa and India. As a percentage of revenue, direct costs, which exclude charges for depreciation of property and equipment, were 42% for both 2008 and 2007. Postilion’s operating income was favorably impacted by growth in higher margin projects for our Postilion payments business. As a percentage of revenue, Product development costs declined to 11% in 2008 from 13% in 2007 primarily due to the favorable impact of foreign exchange rates for operations in South Africa and lower stock-based compensation.

Enterprise Segment Results of Operations

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

Enterprise Results — Comparison of 2009 to 2008

Revenue. Total revenue increased by $3.0 million, or 2%, in 2009 compared to 2008 due primarily to high demand for Enterprise’s U.S. online banking business as demand from new customers and cross-sales to existing customers drove our growth in Software licenses revenue and increased licensing activity drove growth in Support and maintenance revenue. Our Enterprise segment’s Professional services revenue decreased 1% as the decline in projects with State Farm during 2009 was mostly offset by the growth of Enterprise’s banking business which included work related to an implementation for a large international bank. Our business with State Farm declined $3.7 million as we wind down projects with this customer through 2011. We expect approximately $25 — $26 million in revenue in 2010 and approximately $15 — $16 million in revenue in 2011 from this customer. We expect that revenue in the Enterprise’s international banking business will be flat in 2010 as growth in Professional services and Support and maintenance revenue will be offset by a decline in Data center revenue due to the loss of a hosted customer in Europe. Revenue was negatively affected in 2009 as a result of changes in foreign exchange rates by approximately $1.7 million due primarily to operations in Europe which offset most of the growth in Enterprise’s international banking business, mainly in Data center revenue.

Operating income. Operating income was $19.7 million in 2009 which is an increase of $7.9 million, or 66%, as compared to 2008. Operating income improved mainly due to improved direct costs margins, lower stock-based compensation of $4.3 million, and the favorable impact on operating income for changes in foreign exchange rates by approximately $900 thousand due primarily to operations in Europe and India. As a percentage of revenue, direct costs, which exclude charges for depreciation of property and equipment, were 46% and 49% for 2009 and 2008, respectively. The Cost of professional services, support and maintenance as a percentage of Support and maintenance and Professional services revenue improved primarily due to better margins on projects in our Enterprise U.S. online banking business and cost reductions related to reduced project work for State Farm. As a percentage of revenue, Sales and marketing costs declined to 9% in 2009 from 13% in 2008 primarily due to lower stock-based compensation expense of $2.4 million. As a percentage of revenue, Product development costs increased to 16% in 2009 from 14% in 2008 as Enterprise continued to build out product functionality and invest in customer satisfaction initiatives. We expect that Enterprise Product development costs, excluding stock-based compensation, should generally be flat in 2010 and thus, improve slightly as a percentage of revenue.

Enterprise Results — Comparison of 2008 to 2007

Revenue. Total revenue increased by $14.1 million, or 13%, in 2008 compared to 2007 due primarily to high demand for Enterprise’s banking businesses. This demand from new customers and cross-sales to existing customers drove the growth in Software licenses revenue and increased licensing activity drove growth in Support and maintenance revenue. Software licenses revenue was impacted by a settlement with an international customer for $600 thousand in 2008 that was thought to be uncollectable and reserved for in 2007. Professional services revenue grew due to demand for Enterprise’s banking solutions including projects related to an implementation for a large international bank. Our business with State Farm declined $1.3 million as we announced that we would wind down projects with this customer through 2011. Data center revenue growth reflects an increase in the number of transactions from existing customers.

Operating income. Operating income was $11.8 million in 2008 which was an increase of $1.0 million, or 10%, as compared to 2007. Operating income improved mainly due to strong revenue growth while holding most margins flat except for Product development. As a percentage of revenue, direct costs, which exclude charges for depreciation of property and equipment, were 49% and 51% for 2008 and 2007, respectively. The Cost of professional services, support and maintenance as a percentage of Support and maintenance and Professional services revenue improved primarily due to better margins on projects in our Enterprise banking businesses, offset by the impact of the release of approximately $1.3 million in 2007 for contract loss reserves relating to an agreement for an Enterprise online banking solution entered into and reserved for in 2005. The agreement was renegotiated in 2007 and subsequently replaced with a new license agreement for a Postilion online banking solution. As a percentage of revenue, Product development costs increased to 14% in 2008 from 10% in 2007 as Enterprise continued to build out product functionality for its online and branch banking solutions and invest in customer satisfaction initiatives.

Liquidity and Capital Resources

Our primary source of cash is cash collections from our customers following the purchase of software licenses, product support, professional services and hosting services. Payments from customers for product support and maintenance and software subscription agreements are generally billed annually in advance. Our primary uses of cash are for personnel, leased facilities and equipment and capital expenditures. The following tables show information about our cash flows during the years ended December 31, 2009, 2008 and 2007 and selected balance sheet data as of December 31, 2009 and 2008 (in thousands):

		Year Ended December 31,
		2009				2008				2007
Net cash provided by operating activities before changes in operating assets and liabilities		$	41,378			$	40,460			$	41,198
Change in operating assets and liabilities			(25,343	)			(6,313	)			(9,866	)
Net cash provided by operating activities			16,035				34,147				31,332
Net cash (used in) provided by investing activities			(7,688	)			15,765				(13,893	)
Net cash used in financing activities			(12,172	)			(27,488	)			(42,940	)
Effect of exchange rates on cash and cash equivalents			1,769				(3,595	)			900
Net (decrease) increase in cash and cash equivalents		$	(2,056	)		$	18,829			$	(24,601	)

		As of December 31,
		2009				2008
Cash and cash equivalents		$	61,784			$	63,840
Working capital (1)			82,942				55,804
Total assets			300,066				278,686
Total stockholders’ equity			238,641				208,740