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 |
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| For the quarterly period ended June 30, 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 |
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| For the transition period from to . |
Commission File Number: 0-28074
Sapient Corporation
| Delaware | 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 |
02142 (Zip Code) |
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(Address of principal executive
offices)
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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 August 11, 2003, there were 120,742,234 shares of the Company’s Common Stock outstanding.
SAPIENT CORPORATION
INDEX
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| PART I. FINANCIAL INFORMATION | ||||||
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Item 1.
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Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002 | 2 | ||||
| Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2003 and 2002 | 3 | |||||
| Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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 | 17 | ||||
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk | 37 | ||||
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Item 4.
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Controls and Procedures | 37 | ||||
| PART II. OTHER INFORMATION | ||||||
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Item 4.
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Submission of Matters to a Vote of Security Holders | 38 | ||||
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Item 6.
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Exhibits and Reports on Form 8-K | 38 | ||||
| Signatures | 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
| June 30, | December 31, | ||||||||||
| 2003 | 2002 | ||||||||||
| (Unaudited) | |||||||||||
| (In thousands, | |||||||||||
| except share amounts) | |||||||||||
| ASSETS | |||||||||||
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Current assets:
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Cash and cash equivalents
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$ | 74,654 | $ | 91,229 | |||||||
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Marketable investments, current
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49,118 | 59,085 | |||||||||
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Restricted cash
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6,547 | 3,963 | |||||||||
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Accounts receivable, less allowance for doubtful
accounts of $2,092 and $2,246, respectively
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35,175 | 29,134 | |||||||||
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Unbilled revenues on contracts
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8,674 | 11,468 | |||||||||
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Income tax receivable
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657 | 642 | |||||||||
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Prepaid expenses and other current assets
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5,891 | 6,724 | |||||||||
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Total current assets
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180,716 | 202,245 | |||||||||
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Marketable investments
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17,450 | 20,426 | |||||||||
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Restricted cash
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8,772 | 6,659 | |||||||||
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Property and equipment, net
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17,080 | 24,262 | |||||||||
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Intangible assets, net
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1,605 | 1,386 | |||||||||
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Other assets
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4,485 | 7,675 | |||||||||
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Total assets
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$ | 230,108 | $ | 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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$ | 3,741 | $ | 4,005 | |||||||
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Accrued expenses
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12,656 | 12,888 | |||||||||
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Accrued restructuring costs, current portion
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25,870 | 36,466 | |||||||||
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Accrued compensation
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8,784 | 7,138 | |||||||||
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Income taxes payable
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888 | 513 | |||||||||
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Deferred revenues on contracts
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2,824 | 5,910 | |||||||||
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Total current liabilities
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54,763 | 66,920 | |||||||||
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Accrued restructuring costs, net of current
portion
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28,751 | 37,110 | |||||||||
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Other long term liabilities
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760 | 2,819 | |||||||||
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Total liabilities
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84,274 | 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 June 30, 2003
and December 31, 2002
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— | — | |||||||||
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Common stock, par value $.01 per share,
200,000,000 shares authorized, 128,413,089 and 127,648,747
shares issued at June 30, 2003 and December 31, 2002,
respectively
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1,284 | 1,276 | |||||||||
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Additional paid-in capital
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470,619 | 469,648 | |||||||||
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Treasury stock, at cost, 7,742,938 and 5,867,259
shares at June 30, 2003 and December 31, 2002,
respectively
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(9,117 | ) | (5,688 | ) | |||||||
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Deferred compensation
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(1,375 | ) | (2,143 | ) | |||||||
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Accumulated other comprehensive income
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163 | 511 | |||||||||
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Accumulated deficit
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(315,740 | ) | (307,800 | ) | |||||||
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Total stockholders’ equity
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145,834 | 155,804 | |||||||||
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Total liabilities and stockholders’ equity
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$ | 230,108 | $ | 262,653 | |||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
2
SAPIENT CORPORATION
| Three Months Ended | Six Months Ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
| (Unaudited) | ||||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||
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Revenues:
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Service revenues
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$ | 44,439 | $ | 39,741 | $ | 88,285 | $ | 88,864 | ||||||||||
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Reimbursable expenses
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2,347 | 2,050 | 4,701 | 4,722 | ||||||||||||||
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Total gross revenues
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46,786 | 41,791 | 92,986 | 93,586 | ||||||||||||||
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Operating expenses:
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Project personnel costs, before reimbursable
expenses
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27,508 | 33,201 | 55,896 | 74,220 | ||||||||||||||
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Reimbursable expenses
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2,347 | 2,050 | 4,701 | 4,722 | ||||||||||||||
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Total project personnel costs
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29,855 | 35,251 | 60,597 | 78,942 | ||||||||||||||
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Selling and marketing costs
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4,824 | 7,002 | 9,975 | 13,805 | ||||||||||||||
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General and administrative costs
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14,219 | 21,350 | 27,752 | 45,694 | ||||||||||||||
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Restructuring and other related charges
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1,398 | 9,778 | 1,398 | 58,513 | ||||||||||||||
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Impairment of goodwill and intangible assets
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— | 107,430 | — | 107,430 | ||||||||||||||
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Amortization of intangible assets
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727 | 1,566 | 1,325 | 3,132 | ||||||||||||||
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Stock-based compensation
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305 | 701 | 689 | 1,339 | ||||||||||||||
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Total operating expenses
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51,328 | 183,078 | 101,736 | 308,855 | ||||||||||||||
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Loss from operations
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(4,542 | ) | (141,287 | ) | (8,750 | ) | (215,269 | ) | ||||||||||
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Gain on equity investment change in interest
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— | 1,755 | — | 1,755 | ||||||||||||||
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Other income (expense)
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(170 | ) | 8 | (196 | ) | 4 | ||||||||||||
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Interest income
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792 | 1,229 | 1,631 | 2,413 | ||||||||||||||
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Loss before income taxes and net equity loss from
investees
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(3,920 | ) | (138,295 | ) | (7,315 | ) | (211,097 | ) | ||||||||||
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Income tax provision (benefit)
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270 | 451 | 625 | (19,009 | ) | |||||||||||||
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Loss before net equity loss from investees
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(4,190 | ) | (138,746 | ) | (7,940 | ) | (192,088 | ) | ||||||||||
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Net equity loss from investees
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— | (529 | ) | — | (535 | ) | ||||||||||||
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Loss from continuing operations
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(4,190 | ) | (139,275 | ) | (7,940 | ) | (192,623 | ) | ||||||||||
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Loss from discontinued operations
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— | (453 | ) | — | (1,077 | ) | ||||||||||||
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Net loss
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$ | (4,190 | ) | $ | (139,728 | ) | $ | (7,940 | ) | $ | (193,700 | ) | ||||||
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Basic and diluted loss per share:
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Continuing operations
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$ | (0.03 | ) | $ | (1.10 | ) | $ | (0.07 | ) | $ | (1.52 | ) | ||||||
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Discontinued operations
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$ | — | $ | (0.00 | ) | $ | — | $ | (0.01 | ) | ||||||||
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Net loss per share
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$ | (0.03 | ) | $ | (1.10 | ) | $ | (0.07 | ) | $ | (1.53 | ) | ||||||
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Weighted average common shares
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120,636 | 126,680 | 120,849 | 126,644 | ||||||||||||||
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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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120,636 | 126,680 | 120,849 | 126,644 | ||||||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
3
SAPIENT CORPORATION
| Six Months Ended | |||||||||||
| June 30, | |||||||||||
| 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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$ | (7,940 | ) | $ | (192,623 | ) | |||||
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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 | 26 | |||||||||
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Realized loss (gain) on investments
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151 | (30 | ) | ||||||||
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Gain on equity investment change in interest
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— | (1,755 | ) | ||||||||
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Depreciation and amortization
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5,046 | 7,216 | |||||||||
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Amortization of intangible assets
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1,325 | 3,132 | |||||||||
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Impairment of goodwill and intangible assets
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— | 107,430 | |||||||||
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Stock-based compensation
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689 | 1,339 | |||||||||
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Non-cash restructuring charges
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— | 6,014 | |||||||||
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Net equity loss from investees
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— | 535 | |||||||||
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Changes in operating assets and liabilities:
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Increase in restricted cash
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(4,697 | ) | (4,055 | ) | |||||||
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(Increase) decrease in accounts receivable
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(6,041 | ) | 5,430 | ||||||||
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Decrease in unbilled revenues on contracts
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2,794 | 257 | |||||||||
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Decrease (increase) in prepaid expenses and
other current assets
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833 | (1,196 | ) | ||||||||
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Decrease in other assets
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1,187 | 58 | |||||||||
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Decrease in accounts payable
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(264 | ) | (2,273 | ) | |||||||
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(Decrease) increase in accrued expenses
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(232 | ) | 2,639 | ||||||||
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(Decrease) increase in accrued restructuring costs
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(17,422 | ) | 29,010 | ||||||||
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Increase (decrease) in accrued compensation
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1,646 | (2,004 | ) | ||||||||
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Increase (decrease) in income taxes
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360 | (18,151 | ) | ||||||||
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Decrease in deferred revenues on contracts
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(3,086 | ) | (4,072 | ) | |||||||
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Decrease in other long term liabilities
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(827 | ) | (524 | ) | |||||||
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Net cash used in operating activities from
continuing operations
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(26,433 | ) | (63,597 | ) | |||||||
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Net cash used in operating activities from
discontinued operations
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— | (1,091 | ) | ||||||||
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Net cash used in operating activities
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(26,433 | ) | (64,688 | ) | |||||||
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Cash flows from investing activities:
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Purchases of property and equipment
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(803 | ) | (4,233 | ) | |||||||
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Investments in consolidated subsidiary
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(1,679 | ) | — | ||||||||
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Proceeds from sale of investment
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1,490 | — | |||||||||
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Long term investments
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— | 55 | |||||||||
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Maturities of marketable investments, net
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12,416 | 38,485 | |||||||||
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Net cash provided by investing activities from
continuing operations
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11,424 | 34,307 | |||||||||