Room 4561
May 31, 2005
Jaime W. Ellertson
Chief Executive Officer
S1 Corporation
3500 Lenox Road, NE
Suite 200
Atlanta, GA 30326
Re: S1 Corporation
Form 10-K for Fiscal Fear Ended December 31, 2004
Filed March 16, 2005
File No. 000-24931
Dear Mr. Ellertson:
We have reviewed the above referenced filing and have the
following comments. Please note that we have limited the scope of
our review to the financial statements and related disclosures.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for the year ended December 31, 2004
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations, page 20
Restructuring Charges, page 22
1. Your disclosures indicate that you recorded the 2003 Edify
restructuring in order to "align costs with expected revenues."
Supplementally explain to us what you mean by this disclosure. We
further note that you also recorded a goodwill impairment charge
and
accelerated amortization in 2003 related to the Edify segment.
Supplementally explain to us why you recorded accelerated
amortization of the intangibles and tell us whether these
intangibles
were tested for impairment prior to you recording the accelerated
amortization.
2. Supplementally quantify the amount of sublease income which
will
offset future restructuring related cash expenditures.
Results of Operations, page 27
3. In the discussion of your results of operations, you refer to
various factors that have impacted results without quantifying the
impact of each factor. For example, you refer to several factors
that contributed to the increase in selling and marketing expenses
in
fiscal 2004, but give no indication as to the relative impact of
each
factor. Explain to us how you considered Section III.D of SEC
Release
No. 33-6835.
Item 8. Financial Statements and Supplementary Data, page 41
Consolidated Statements of Operations, page 45
4. We note that you exclude depreciation, amortization of
purchased
technology, and software developments costs from cost of revenues.
Revise your presentation as these costs should not be excluded
from
cost of revenues. Revisions should also be made to your
Management`s Discussion and Analysis and your Quarterly Financial
Information (Unaudited). Refer to Item 5-03(b)(2) of Regulation
S-X
and Question 17 of the FASB Staff Implementation Guide to SFAS 86.
Note 2. Summary of Significant Accounting Policies, page 48
Financial instruments, page 49
5. We note that you reclassified certain auction rate securities
from
cash and cash equivalents to short-term investments. Revise your
disclosures to quantify the effect the reclassification had on
your
balance sheet and statement of cash flows. You indicate that the
reclassification was made based on a re-evaluation of the maturity
dates associated with the underlying bonds yet it appears the
reclass
was made in order to comply with SFAS 95. Your disclosures should
be
revised accordingly. Additionally, tell us how you considered
disclosing the reclassification in the "Reclassifications" policy
on
page 55.
6. We further note that your auction rate securities are
classified
as available-for-sale securities. Justify the classification of
these securities as current by addressing how you determined that
you
have a reasonable expectation of completing a successful auction
within the subsequent twelve-month period. Refer to paragraph 17
of
SFAS 115 and Chapter 3A of ARB No 43 as well as SFAS 95.
7. Supplementally tell us how you considered this reclassification
when assessing your Item 307 disclosure controls and procedures
and
Item 308(c) changes in internal controls over financial reporting.
Revenue recognition, deferred revenues and cost of revenues, page
51
8. Tell us how you have established VSOE of fair value for each of
the elements included in multiple element arrangements.
9. We note that you provide professional services on a fixed fee
basis and revenues are "recognized using a percentage of
completion
method, measured by the percentage of labor hours incurred to date
to
estimated total labor hours for the contract." Tell us
specifically
the types of services being provided. Note that the recognition
of
revenue pursuant to SOP 81-1 is not permitted for service
arrangements.
10. You disclose that data center arrangements are reviewed on a
contract -by-contract basis to determine whether a software
element
covered by SOP 97-2 is included in the arrangement. Tell us more
about the arrangements that do include software elements and those
that do not. Tell us how you have considered EITF 00-3 in
assessing
whether these arrangements include software elements.
Note 6. Accounts Receivable, page 58
11. We note you have unbilled receivables. Tell us more about the
arrangements that result in these unbilled receivables and tell us
how you have considered the collectibility criteria when
recognizing
revenue. Tell us when they typically become billable and address
the
extent to which you have successfully billed and collected these
amounts subsequent to the balance sheet date. Revise to include
disclosure regarding unbilled receivables in your accounting
policies. See Item 5-02(3)(b) of Regulation S-X.
Certifications - Exhibits 31.1 and 31.2
12. It appears that you have omitted Item 4b. from your
Certifications which you have filed pursuant to Rules 13a-14(a)
and
15d-14(a). Please revise the Certifications to conform to the
format
provided in Item 601(b)(31) of Regulation S-K.
As appropriate, please amend your filing and respond to these
comments via EDGAR within 10 business days or tell us when you
will
provide us with a response. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Christine Davis, Staff Accountant, at (202)
551-
3408, Marc Thomas, Review Accountant at (202) 551-3452 or me at
(202)
551-3226 if you have questions regarding these comments.
Sincerely,
Craig Wilson
Senior Assistant Chief
Accountant
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Mr. Jaime W. Ellertson
S1 Corporation
May 31, 2005
Page 5