SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended March 31, 2003 | ||
| or | ||
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o
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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
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Delaware
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04-3130648 | |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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One Memorial Drive, Cambridge, MA (Address of principal executive offices) |
02142 (Zip Code) |
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617-621-0200
N/A
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. þ Yes o No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). þ Yes o No
As of May 12, 2003, there were 120,625,803 shares of the Company’s Common Stock outstanding.
SAPIENT CORPORATION
INDEX
| Page | ||||||
| Number | ||||||
| PART I. FINANCIAL INFORMATION | ||||||
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Item 1.
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Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 | 2 | ||||
| Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2002 | 3 | |||||
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 | 4 | |||||
| Notes to Consolidated Financial Statements | 5 | |||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||||
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk | 33 | ||||
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Item 4.
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Controls and Procedures | 33 | ||||
| PART II. OTHER INFORMATION | ||||||
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Item 6.
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Exhibits and Reports on Form 8-K | 34 | ||||
| Signatures | 35 | |||||
| Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 36 | |||||
| Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 37 | |||||
| Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 38 | |||||
| Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 39 | |||||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “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 expectations change.
1
SAPIENT CORPORATION
| March 31, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands, | ||||||||||
| except share amounts) | ||||||||||
| ASSETS | ||||||||||
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Current assets:
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||||||||||
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Cash and cash equivalents
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$ | 85,916 | $ | 91,229 | ||||||
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Marketable investments, current
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38,496 | 59,085 | ||||||||
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Restricted cash
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7,292 | 3,963 | ||||||||
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Accounts receivable, less allowance for doubtful
accounts of $1,546 and $2,246, respectively
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37,220 | 29,134 | ||||||||
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Unbilled revenues on contracts
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11,072 | 11,468 | ||||||||
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Income tax receivable
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630 | 642 | ||||||||
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Prepaid expenses and other current assets
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7,433 | 6,724 | ||||||||
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Total current assets
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188,059 | 202,245 | ||||||||
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Marketable investments
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23,765 | 20,426 | ||||||||
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Restricted cash
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6,834 | 6,659 | ||||||||
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Property and equipment, net
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19,899 | 24,262 | ||||||||
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Intangible assets, net
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2,170 | 1,386 | ||||||||
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Other assets
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4,702 | 7,675 | ||||||||
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Total assets
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$ | 245,429 | $ | 262,653 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
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Current liabilities:
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||||||||||
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Accounts payable
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$ | 3,015 | $ | 4,005 | ||||||
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Accrued expenses
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13,722 | 12,888 | ||||||||
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Accrued restructuring costs, current portion
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30,277 | 36,466 | ||||||||
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Accrued compensation
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9,006 | 7,138 | ||||||||
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Income taxes payable
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701 | 513 | ||||||||
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Deferred revenues on contracts
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5,682 | 5,910 | ||||||||
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Total current liabilities
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62,403 | 66,920 | ||||||||
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Accrued restructuring costs, net of current
portion
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33,966 | 37,110 | ||||||||
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Other long term liabilities
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805 | 2,819 | ||||||||
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Total liabilities
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97,174 | 106,849 | ||||||||
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Stockholders’ equity:
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||||||||||
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Preferred stock, par value $.01 per share,
5,000,000 authorized and none outstanding at March 31, 2003
and December 31, 2002
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— | — | ||||||||
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Common stock, par value $.01 per share,
200,000,000 shares authorized, 128,368,741 and 127,648,747
shares issued at March 31, 2003 and December 31, 2002,
respectively
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1,284 | 1,276 | ||||||||
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Additional paid-in capital
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470,617 | 469,648 | ||||||||
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Treasury stock, at cost, 7,742,938 and 5,867,259
shares at March 31, 2003 and December 31, 2002,
respectively
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(9,117 | ) | (5,688 | ) | ||||||
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Deferred compensation
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(1,759 | ) | (2,143 | ) | ||||||
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Accumulated other comprehensive income (loss)
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(1,220 | ) | 511 | |||||||
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Accumulated deficit
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(311,550 | ) | (307,800 | ) | ||||||
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Total stockholders’ equity
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148,255 | 155,804 | ||||||||
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Total liabilities and stockholders’ equity
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$ | 245,429 | $ | 262,653 | ||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
2
SAPIENT CORPORATION
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands, except | ||||||||||
| per share amounts) | ||||||||||
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Revenues:
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||||||||||
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Service revenues
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$ | 43,846 | $ | 49,123 | ||||||
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Reimbursable expenses
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2,354 | 2,672 | ||||||||
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Total gross revenues
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46,200 | 51,795 | ||||||||
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Operating expenses:
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Project personnel costs, before reimbursable
expenses
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28,388 | 41,019 | ||||||||
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Reimbursable expenses
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2,354 | 2,672 | ||||||||
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Total project personnel costs
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30,742 | 43,691 | ||||||||
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Selling and marketing costs
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5,151 | 6,803 | ||||||||
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General and administrative costs
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13,533 | 24,344 | ||||||||
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Restructuring and other related charges
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— | 48,735 | ||||||||
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Amortization of intangible assets
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598 | 1,566 | ||||||||
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Stock-based compensation
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384 | 638 | ||||||||
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Total operating expenses
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50,408 | 125,777 | ||||||||
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Loss from operations
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(4,208 | ) | (73,982 | ) | ||||||
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Other expense
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(26 | ) | (4 | ) | ||||||
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Interest income
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839 | 1,184 | ||||||||
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Loss before income taxes and net equity loss from
investees
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(3,395 | ) | (72,802 | ) | ||||||
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Income tax provision (benefit)
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355 | (19,460 | ) | |||||||
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Loss before net equity loss from investees
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(3,750 | ) | (53,342 | ) | ||||||
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Net equity loss from investees
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— | (6 | ) | |||||||
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Loss from continuing operations
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(3,750 | ) | (53,348 | ) | ||||||
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Loss from discontinued operations
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— | (624 | ) | |||||||
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Net loss
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$ | (3,750 | ) | $ | (53,972 | ) | ||||
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Basic and diluted loss per share:
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||||||||||
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Continuing operations
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$ | (0.03 | ) | $ | (0.42 | ) | ||||
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Discontinued operations
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$ | — | $ | (0.01 | ) | |||||
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Net loss per share
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$ | (0.03 | ) | $ | (0.43 | ) | ||||
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Weighted average common shares
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121,064 | 126,601 | ||||||||
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Dilutive common share equivalents
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— | — | ||||||||
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Weighted average common shares and dilutive
common share equivalents
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121,064 | 126,601 | ||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements
3
SAPIENT CORPORATION
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2003 | 2002 | ||||||||||
| (Unaudited) | |||||||||||
| (In thousands) | |||||||||||
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Cash flows from operating activities:
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Loss from continuing operations
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$ | (3,750 | ) | $ | (53,348 | ) | |||||
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Adjustments to reconcile loss from continuing
operations to net cash used in operating activities from
continuing operations:
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Loss recognized on write-down of investments
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45 | 4 | |||||||||
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Realized gain on investments
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(19 | ) | — | ||||||||
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Depreciation and amortization
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2,750 | 4,012 | |||||||||
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Amortization of intangible assets
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598 | 1,566 | |||||||||
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Stock-based compensation
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384 | 638 | |||||||||
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Non-cash restructuring charges
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— | 4,850 | |||||||||
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Net equity loss from investees
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— | 6 | |||||||||
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Changes in operating assets and liabilities:
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Increase in restricted cash
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(3,504 | ) | (2,564 | ) | |||||||
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(Increase) decrease in accounts receivable
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(8,086 | ) | 1,815 | ||||||||
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Decrease in unbilled revenues on contracts
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396 | 3,018 | |||||||||
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Increase in prepaid expenses and other current
assets
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(709 | ) | (1,059 | ) | |||||||
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Decrease in other assets
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1,187 | 24 | |||||||||
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Decrease in accounts payable
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(990 | ) | (842 | ) | |||||||
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Increase in accrued expenses
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834 | 61 | |||||||||
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(Decrease) increase in accrued restructuring costs
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(9,081 | ) | 28,778 | ||||||||
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Increase (decrease) in accrued compensation
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1,868 | (2,777 | ) | ||||||||
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Increase (decrease) in income taxes
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200 | (19,398 | ) | ||||||||
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Decrease in deferred revenues on contracts
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(228 | ) | (3,523 | ) | |||||||
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Decrease in other long term liabilities
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(808 | ) | (329 | ) | |||||||
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Net cash used in operating activities from
continuing operations
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(18,913 | ) | (39,068 | ) | |||||||
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Net cash used in operating activities from
discontinued operations
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— | (777 | ) | ||||||||
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Net cash used in operating activities
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(18,913 | ) | (39,845 | ) | |||||||
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Cash flows from investing activities:
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Purchases of property and equipment
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(245 | ) | (2,540 | ) | |||||||
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Investments in consolidated subsidiary
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(1,517 | ) | — | ||||||||
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Proceeds from sale of investment
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730 | — | |||||||||
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Maturities of marketable investments, net
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16,934 | 18,622 | |||||||||
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Net cash provided by investing activities from
continuing operations
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15,902 | 16,082 | |||||||||
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Net cash used in investing activities from
discontinued operations
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— | (4 | ) | ||||||||
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Net cash provided by investing activities
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15,902 | 16,078 | |||||||||
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Cash flows from financing activities:
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|||||||||||
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Proceeds from stock option and purchase plans
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612 | 2,604 | |||||||||
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Repurchases of common stock
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(3,429 | ) | — | ||||||||
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Proceeds from sale of common stock of
consolidated subsidiary
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500 | — | |||||||||
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Net cash (used in) provided by financing
activities
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(2,317 | ) | 2,604 | ||||||||
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Effect of exchange rate changes on cash and cash
equivalents
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15 | (303 | ) | ||||||||
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Decrease in cash and cash equivalents
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(5,313 | ) | (21,466 | ) | |||||||
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Cash and cash equivalents, at beginning of period
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91,229 | 109,744 | |||||||||
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Cash and cash equivalents, at end of period
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$ | 85,916 | $ | 88,278 | |||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
4
SAPIENT CORPORATION
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by Sapient Corporation pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2002 included in the Company’s Annual Report on Form 10-K. The accompanying consolidated financial statements reflect all adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of results for the interim periods presented. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for any future period or the full fiscal year.
The market for advanced technology consulting services declined significantly in 2001 and 2002 and has not changed significantly to date in 2003. As a result of this decrease in demand, the Company’s service revenues for the first quarter of 2003 decreased 11% from its service revenues for the first quarter of 2002. As a result of restructuring and other cost cutting actions during 2001 and 2002, the Company’s loss from continuing operations decreased from $53.3 million for the first quarter of 2002 to $3.8 million for the first quarter of 2003. The Company’s cash used in operations for the first quarter of 2003 was $18.9 million, including $9.1 million used for previously recorded restructuring actions. The Company has accrued restructuring costs, primarily related to vacated facilities, of $64.2 million at March 31, 2003. The Company’s cash, cash equivalents, restricted cash and marketable investments at March 31, 2003 were $162.3 million. The Company believes that its existing cash, cash equivalents, restricted cash and marketable investments will be sufficient to meet its working capital, capital expenditure, restructuring requirements and stock repurchase program for at least the next 12 months. However, if the demand for the Company’s services remains weak or declines further, the Company may incur additional losses and negative cash flows, and these could be significant.
Certain amounts in previously issued financial statements have been reclassified to conform to the current presentation. In December 2002, the Company ceased operations in Japan. The financial statements and financial information included in this report for 2002 reflect the results of operations for Japan as a single line item listed as “Loss from discontinued operations.”
Unless the context requires otherwise, references in this Quarterly Report to “Sapient,” “the Company,” “we,” “us” or “our” refer to Sapient Corporation and its consolidated subsidiaries.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2. Net Loss Per Share
The following information presents the Company’s computation of basic and diluted net loss per share for the periods presented in the consolidated statements of operations (in thousands, except per share data):
| Three Months Ended | |||||||||
| March 31, | |||||||||
| 2003 | 2002 | ||||||||
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Loss from continuing operations
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$ | (3,750 | ) | $ | (53,348 | ) | |||
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Loss from discontinued operations
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$ | — | $ | (624 | ) | ||||
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Net loss
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$ | (3,750 | ) | $ | (53,972 | ) | |||
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Basic net loss per share:
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|||||||||
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Weighted average common shares outstanding
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121,064 | 126,601 | |||||||
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Continuing operations
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$ | (0.03 | ) | $ | (0.42 | ) | |||
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Discontinued operations
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$ | — | $ | (0.01 | ) | ||||
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Basic net loss per share
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$ | (0.03 | ) | $ | |||||