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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

     
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the quarterly period ended September 30, 2003
 
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
   04-3130648
(State or other jurisdiction of
incorporation or organization)		   (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.     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 November 11, 2003, there were 121,836,220 shares of the Company’s Common Stock outstanding.

TABLE OF CONTENTS

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EX-31.1 SECTION 302 CERTIFICATION OF C0-C.E.O.
EX-31.2 SECTION 302 CERTIFICATION OF CO-C.E.O.
EX-31.3 SECTION 302 CERTIFICATION OF C.F.O.
EX-32.1 SECTION 906 CERTIFICATIONS

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SAPIENT CORPORATION

INDEX

                 
Page
Number
PART I. FINANCIAL INFORMATION
  Item  1.     Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002     2  
        Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002     3  
        Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002     4  
        Notes to Consolidated Financial Statements     5  
  Item  2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     18  
  Item  3.     Quantitative and Qualitative Disclosures About Market Risk     39  
  Item  4.     Controls and Procedures     39  
PART II. OTHER INFORMATION
  Item  6.     Exhibits and Reports on Form 8-K     40  
Signatures     41  

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

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SAPIENT CORPORATION

CONSOLIDATED BALANCE SHEETS

                     
September 30, December 31,
2003 2002
(Unaudited)
(In thousands, except share
amounts)
ASSETS
Current assets:
               
 
Cash and cash equivalents
  $ 76,778     $ 91,229  
 
Marketable investments
    47,976       59,085  
 
Restricted cash
    8,453       3,963  
 
Accounts receivable, less allowance for doubtful accounts of $849 and $2,246, respectively
    24,633       29,134  
 
Unbilled revenues on contracts
    15,517       11,468  
 
Income taxes receivable
    657       642  
 
Prepaid expenses and other current assets
    7,503       6,724  
     
     
 
   
Total current assets
    181,517       202,245  
Non current assets:
               
Marketable investments
    17,640       20,426  
Restricted cash
    6,915       6,659  
Property and equipment, net
    15,173       24,262  
Intangible assets, net
    1,286       1,386  
Other assets
    575       7,675  
     
     
 
   
Total assets
  $ 223,106     $ 262,653  
     
     
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
 
Accounts payable
  $ 4,104     $ 4,005  
 
Accrued expenses
    11,748       12,888  
 
Accrued restructuring costs, current
    21,772       36,466  
 
Accrued compensation
    8,030       7,138  
 
Income taxes payable
    1,082       513  
 
Deferred revenues on contracts
    2,715       5,910  
     
     
 
   
Total current liabilities
    49,451       66,920  
Accrued restructuring costs, net of current portion
    24,311       37,110  
Other long term liabilities
    686       2,819  
     
     
 
   
Total liabilities
    74,448       106,849  
     
     
 
Stockholders’ equity:
               
 
Preferred stock, par value $.01 per share, 5,000,000 authorized and none outstanding at September 30, 2003 and December 31, 2002
    —       —  
 
Common stock, par value $.01 per share, 200,000,000 shares authorized, 129,385,108 and 127,648,747 shares issued at September 30, 2003 and December 31, 2002, respectively
    1,292       1,276  
 
Additional paid-in capital
    471,713       469,648  
 
Treasury stock, at cost, 7,742,938 and 5,867,259 shares at September 30, 2003 and December 31, 2002, respectively
    (9,117 )     (5,688 )
 
Deferred compensation
    (1,051 )     (2,143 )
 
Accumulated other comprehensive income
    1,077       511  
 
Accumulated deficit
    (315,256 )     (307,800 )
     
     
 
   
Total stockholders’ equity
    148,658       155,804  
     
     
 
   
Total liabilities and stockholders’ equity
  $ 223,106     $ 262,653  
     
     
 

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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
(Unaudited)
(In thousands, except per share amounts)
Revenues:
                               
Service revenues
  $ 44,661     $ 43,042     $ 132,946     $ 131,906  
Reimbursable expenses
    2,265       1,893       6,966       6,615  
     
     
     
     
 
   
Total gross revenues
    46,926       44,935       139,912       138,521  
     
     
     
     
 
Operating expenses:
                               
 
Project personnel costs, before reimbursable expenses
    25,059       31,189       80,955       105,409  
 
Reimbursable expenses
    2,265       1,893       6,966       6,615  
     
     
     
     
 
   
Total project personnel costs
    27,324       33,082       87,921       112,024  
 
Selling and marketing costs
    4,328       6,532       14,303       20,337  
 
General and administrative costs
    14,442       17,333       42,194       63,027  
 
Restructuring and other related charges (credits)
    737       (4,269 )     2,135       54,244  
 
Impairment of goodwill and intangible assets
    —       —       —       107,430  
 
Amortization of intangible assets
    319       598       1,644       3,730  
 
Stock-based compensation
    332       1,358       1,021       2,697  
     
     
     
     
 
   
Total operating expenses
    47,482       54,634       149,218       363,489  
     
     
     
     
 
Loss from operations
    (556 )     (9,699 )     (9,306 )     (224,968 )
Gain on equity investment change in interest
    —       —       —       1,755  
Other income (expense)
    1,485       (246 )     1,289       (242 )
Interest income
    385       975       1,491       3,388  
     
     
     
     
 
Income (loss) before income taxes and net equity income (loss) from investees
    1,314       (8,970 )     (6,526 )     (220,067 )
Income tax provision (benefit)
    305       174       930       (18,835 )
     
     
     
     
 
Income (loss) before net equity income (loss) from investees
    1,009       (9,144 )     (7,456 )     (201,232 )
Net equity income (loss) from investees
    —       162       —       (373 )
     
     
     
     
 
Income (loss) from continuing operations
    1,009       (8,982 )     (7,456 )     (201,605 )
Loss from discontinued operations
    —       (1,855 )     —       (2,932 )
     
     
     
     
 
 
Net income (loss)
  $ 1,009     $ (10,837 )   $ (7,456 )   $ (204,537 )
     
     
     
     
 
Basic and diluted income (loss) per share:
                               
Continuing operations
  $ 0.01     $ (0.07 )   $ (0.06 )   $ (1.60 )
Discontinued operations
  $ —     $ (0.02 )   $ —     $ (0.02 )
     
     
     
     
 
Net income (loss) per share
  $ 0.01     $ (0.09 )   $ (0.06 )   $ (1.62 )
     
     
     
     
 
Weighted average common shares
    121,182       124,614       120,961       125,960  
Dilutive common share equivalents
    3,868       —       —       —  
     
     
     
     
 
Weighted average common shares and dilutive common share equivalents
    125,050       124,614       120,961       125,960  
     
     
     
     
 

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

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SAPIENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

                       
Nine Months Ended
September 30,
2003 2002
(Unaudited)
(In thousands)
Cash flows from operating activities:
               
 
Loss from continuing operations
  $ (7,456 )   $ (201,605 )
 
Adjustments to reconcile loss from continuing operations to net cash used in operating activities from continuing operations:
               
   
Loss recognized on write-down of investments
    45       271  
   
Realized gain on investments
    (1,334 )     (1,784 )
   
Depreciation and amortization
    6,861       10,429  
   
Amortization of intangible assets
    1,644       3,730  
   
Impairment of goodwill and intangible assets
    —       107,430  
   
Stock-based compensation
    1,021       2,697  
   
Non-cash restructuring charges
    —       5,754  
   
Net equity loss from investees
    —       373  
   
Changes in operating assets and liabilities:
               
     
Increase in restricted cash
    (4,746 )     (5,312 )
     
Decrease in accounts receivable
    4,501       6,885  
     
Increase in unbilled revenues on contracts
    (5,159 )     (150 )
     
Increase in prepaid expenses and other current assets
    (779 )     (3,651 )
     
Decrease in other assets
    1,463       128  
     
Increase (decrease) in accounts payable
    99       (670 )
     
(Decrease) increase in accrued expenses
    (30 )     2,570  
     
(Decrease) increase in accrued restructuring costs
    (25,474 )     17,235  
     
Increase (decrease) in accrued compensation
    892       (1,173 )
     
Increase in income taxes payable
    554       11,820  
     
Decrease in deferred revenues on contracts
    (3,195 )     (4,384 )
     
Decrease in other long term liabilities
    (912 )     (682 )
     
     
 
   
Net cash used in operating activities from continuing operations
    (32,005 )     (50,089 )
   
Net cash used in operating activities from discontinued operations
    —       (3,027 )
     
     
 
   
Net cash used in operating activities
    (32,005 )     (53,116 )
Cash flows from investing activities:
               
 
Purchases of property and equipment
    (1,124 )     (5,269 )
 
Investments in consolidated subsidiary
    (1,679 )     —  
 
Proceeds from sale of investment
    6,929       —  
 
Long term investments
    —       55  
 
Maturities of marketable investments, net
    13,737       18,090  
     
     
 
 
Net cash provided by investing activities from continuing operations
    17,863       12,876  
 
Net cash used in investing activities from discontinued operations
    —       (120 )
     
     
 
 
Net cash provided by investing activities
    17,863       12,756  
Cash flows from financing activities:
     </