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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

     
x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
or
 
o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to                     .

Commission File Number: 0-28074

SAPIENT CORPORATION

(Exact name of registrant as specified in its charter)
     
Delaware
(State or other jurisdiction of
incorporation or organization)		   04-3130648
(I.R.S. Employer
Identification No.)
 
One Memorial Drive, Cambridge, MA
(Address of principal executive offices)
   02142
(Zip Code)

617-621-0200

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year,
if changed since last report)

     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.

x     Yes     o     No

      As of August 7, 2002, there were 125,339,754 shares of Common Stock, $.01 par value, outstanding.

TABLE OF CONTENTS

CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATION

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SAPIENT CORPORATION

INDEX

             
Page
Number
PART 1.
   FINANCIAL INFORMATION        
Item 1.
  Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001     2  
    Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001     3  
    Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001     4  
    Notes to Consolidated Financial Statements     5-13  
Item 2.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     14-32  
Item 3.
  Quantitative and Qualitative Disclosures About Market Risk     32  
 
PART II.
   OTHER INFORMATION        
Item 4.
  Submission of Matters to a Vote of Security Holders     33  
Item 6.
  Exhibits and Reports on Form 8-K     33  
SIGNATURES     34  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements included in this Quarterly Report, other than statements of historical facts, regarding our strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives are forward-looking statements. When used in this Quarterly Report, the words “will,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee future results, levels of activity, performance or achievements and you should not place undue reliance on our forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Factors” and elsewhere in this Quarterly Report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or strategic investments. In addition, any forward-looking statements represent our expectation only as of the day this Quarterly Report was first filed with the SEC and should not be relied on as representing our expectations as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

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SAPIENT CORPORATION

 
CONSOLIDATED BALANCE SHEETS
                     
June 30, December 31,
2002 2001
(In thousands,
except share amounts)
(Unaudited)
ASSETS
Current assets:
               
 
Cash and cash equivalents
  $ 82,873     $ 109,744  
 
Short-term investments
    95,986       134,793  
 
Restricted cash
    4,055       —  
 
Accounts receivable, less allowance for doubtful accounts of $2,566 and $3,220, respectively
    30,506       37,036  
 
Unbilled revenues on contracts
    11,032       11,289  
 
Income tax receivable
    31,248       13,562  
 
Prepaid expenses and other current assets
    6,852       5,656  
     
     
 
   
Total current assets
    262,552       312,080  
Property and equipment, net
    35,291       41,466  
Intangible assets, net
    2,582       11,349  
Goodwill
    —       101,795  
Other assets
    9,261       8,180  
     
     
 
   
Total assets
  $ 309,686     $ 474,870  
     
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
 
Accounts payable
  $ 3,395     $ 5,668  
 
Accrued expenses
    15,833       13,194  
 
Accrued restructuring costs, current portion
    34,700       17,829  
 
Accrued compensation
    5,195       7,199  
 
Accrued income taxes payable
    442       907  
 
Deferred revenues on contracts
    4,293       9,465  
     
     
 
   
Total current liabilities
    63,858       54,262  
 
Accrued restructuring costs, net of current portion
    50,517       35,511  
 
Other long term liabilities
    4,106       3,883  
     
     
 
   
Total liabilities
    118,481       93,656  
     
     
 
 
Minority interest
    265       444  
     
     
 
Stockholders’ equity:
               
 
Preferred stock, par value $.01 per share, 5,000,000 authorized and none issued and outstanding at June 30, 2002 and December 31, 2001.
    —       —  
 
Common stock, par value $.01 per share, voting, 200,000,000 shares authorized, 126,602,809 and 126,314,050 shares issued and outstanding at June 30, 2002 and December 31, 2001, respectively
    1,265       1,262  
 
Additional paid-in capital
    470,852       468,447  
 
Treasury stock, at cost
    (586 )     (421 )
 
Deferred compensation
    (6,825 )     (8,443 )
 
Accumulated other comprehensive loss
    (1,469 )     (1,478 )
 
Accumulated deficit
    (272,297 )     (78,597 )
     
     
 
   
Total stockholders’ equity
    190,940       380,770  
     
     
 
   
Total liabilities and stockholders’ equity
  $ 309,686     $ 474,870  
     
     
 

The accompanying notes are an integral part of these Consolidated Financial Statements.

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SAPIENT CORPORATION

 
CONSOLIDATED STATEMENTS OF OPERATIONS
                                     
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
(In thousands, except per share amounts)
(Unaudited)
Revenues:
                               
Service revenues
  $ 40,467     $ 87,286     $ 90,503     $ 196,427  
Reimbursable expenses
    2,053       5,807       4,728       11,862  
     
     
     
     
 
   
Total gross revenues
    42,520       93,093       95,231       208,289  
     
     
     
     
 
Operating expenses:
                               
 
Project personnel costs, before reimbursable expenses (exclusive of stock-based compensation of $627 and $1,180 for the three and six months ended June 30, 2002, respectively, and $1,018 and $2,047 for the three and six months ended June 30, 2001, respectively)
    34,070       63,578       76,008       137,987  
 
Reimbursable expenses
    2,053       5,807       4,728       11,862  
     
     
     
     
 
   
Total project personnel costs
    36,123       69,385       80,736       149,849  
 
Selling and marketing costs (exclusive of stock-based compensation of $59 and $118 for the three and six months ended June 30, 2002, respectively, and $67 and $137 for the three and six months ended June 30, 2001, respectively)
    7,025       8,377       13,904       15,893  
 
General and administrative costs (exclusive of stock-based compensation of $15 and $41 for the three and six months ended June 30, 2002, respectively, and $224 and $626 for the three and six months ended June 30, 2001, respectively)
    21,741       34,641       46,707       74,259  
 
Restructuring and other related charges
    9,778       3,470       58,513       50,812  
 
Impairment of goodwill and intangible assets
    107,430       —       107,430       —  
 
Amortization of intangible assets
    1,566       6,593       3,132       13,186  
 
Stock-based compensation
    701       1,309       1,339       2,810  
     
     
     
     
 
   
Total operating expenses
    184,364       123,775       311,761       306,809  
     
     
     
     
 
Loss from operations
    (141,844 )     (30,682 )     (216,530 )     (98,520 )
Gain on equity investment change in interest
    1,755       —       1,755       1,407  
Other income (expense)
    8       (2,339 )     4       (4,696 )
Interest income
    1,229       2,674       2,420       5,696  
     
     
     
     
 
Loss before income taxes, net equity loss from investees and minority interest
    (138,852 )     (30,347 )     (212,351 )     (96,113 )
Income tax provision (benefit)
    451       (13,134 )     (19,007 )     (30,756 )
     
     
     
     
 
Loss before net equity loss from investees and minority interest
    (139,303 )     (17,213 )     (193,344 )     (65,357 )
Net equity loss from investees
    (529 )     (241 )     (535 )     (351 )
Minority interest
    104       84       179       85  
     
     
     
     
 
   
Net loss
  $ (139,728 )   $ (17,370 )   $ (193,700 )   $ (65,623 )
     
     
     
     
 
Basic net loss per share
  $ (1.10 )   $ (0.14 )   $ (1.53 )   $ (0.54 )
     
     
     
     
 
Diluted net loss per share
  $ (1.10 )   $ (0.14 )   $ (1.53 )   $ (0.54 )
     
     
     
     
 
Weighted average common shares
    126,680       123,011       126,644       122,629  
Weighted average dilutive common share equivalents
    —       —       —       —  
     
     
     
     
 
Weighted average common shares and dilutive common share equivalents
    126,680       123,011       126,644       122,629  
     
     
     
     
 

The accompanying notes are an integral part of these Consolidated Financial Statements.

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SAPIENT CORPORATION

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
                       
Six Months Ended
June 30,
2002 2001
(Unaudited)
(In thousands)
Cash flows from operating activities:
               
 
Net loss
  $ (193,700 )   $ (65,623 )
 
Adjustments to reconcile net loss to net cash used in operating activities:
               
   
Loss recognized on write-down of investments
    26       4,696  
   
Realized gain on short-term investments
    (30 )     —  
   
Gain on equity investment change in interest
    (1,755 )     (1,407 )
   
Depreciation and amortization
    7,381       9,771  
   
Amortization of intangible assets
    3,132       13,186  
   
Impairment of goodwill and intangible assets
    107,430       —  
   
Deferred income taxes
    —       (3,884 )
   
Stock-based compensation
    1,339       2,810  
   
Equity received for services rendered
    —       (156 )
   
Non-cash restructuring charges
    6,014       6,219  
   
Net equity loss from investees
    535       351  
   
Minority interest in net loss of consolidated subsidiary
    (179 )     (85 )
   
Changes in assets and liabilities:
               
     
Increase in restricted cash
    (4,055 )     —  
     
Decrease in accounts receivable
    5,430       20,231  
     
Decrease in unbilled revenues on contracts
    257       120  
     
(Increase) decrease in prepaid expenses and other current assets
    (1,196 )     1,251  
     
Decrease (increase) in other assets
    58       (278 )
     
(Decrease) increase in accounts payable
    (2,273 )     5,760  
     
Increase in accrued expenses
    2,639       3,261  
     
Increase in accrued restructuring costs
    29,010       27,209  
     
Decrease in accrued compensation
    (2,004 )     (5,345 )
     
Increase in income tax receivable, net
    (18,151 )     (20,468 )
     
Decrease in deferred revenues on contracts
    (4,072 )     (6,626 )
     
Decrease in other long term liabilities
    (524 )     (385 )
     
     
 
 
Net cash used in operating activities
    (64,688 )     (9,392 )
     
     
 
Cash flows from investing activities:
               
 
Purchase of property and equipment
    (4,353 )     (10,981 )
 
Investments in and advances to affiliates
    —       (962 )
 
Long term investments
    55       (58 )
 
Maturities (purchases) of short-term investments
    38,485       (10,041 )
     
     
 
 
Net cash provided by (used in) investing activities
    34,187       (22,042 )
     
     
 
Cash flows from financing activities:
               
 
Proceeds from stock option and purchase plans
    2,687       12,764  
 
Repurchases of common stock
    (165 )     —  
     
     
 
   
Net cash provided by financing activities
    2,522       12,764  
     
     
 
Effect of exchange rate changes on cash
    1,108       (1,036 )
Decrease in cash and cash equivalents
    (26,871 )