SAPIENT CORP - 10-Q Quarterly Report

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 June 30, 2004

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.)

25 First Street, Cambridge, MA (Address of principal executive offices)		02141 (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 August 3, 2004, there were 122,921,236 shares of the Company’s common stock outstanding.

SAPIENT CORPORATION

INDEX


		Page
		Number

PART I. FINANCIAL INFORMATION
Item 1.	Consolidated and Condensed Balance Sheets as of June 30, 2004 and December 31, 2003		2
	Consolidated and Condensed Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003		3
	Consolidated and Condensed Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003		4
	Notes to Consolidated and Condensed Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		29
Item 4.	Controls and Procedures		30
PART II. OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders		31
Item 6.	Exhibits and Reports on Form 8-K		31
Signatures			32
EX-31.1 SECT 302 CERTIFICATION JERRY A. GREENBERG
EX-31.2 SECT 302 CERTIFICATION J. STUART MOORE
EX-31.3 SECT 302 CERTIFICATION SUSAN D. COOKE
EX-32.1 SECT 906 CERT GREENBERG, MOORE AND COOKE

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 below 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.

SAPIENT CORPORATION

CONSOLIDATED AND CONDENSED BALANCE SHEETS


				June 30,			December 31,
				2004			2003


				(Unaudited)
				(In thousands,
				except share amounts)
ASSETS
Current assets:
	Cash and cash equivalents			$	71,650		$	67,592
	Marketable investments, current				50,852			72,961
	Restricted cash				5,115			3,174
	Accounts receivable, less allowance for doubtful accounts of $1,301 and $1,516, respectively				42,540			30,078
	Unbilled revenues on contracts				14,941			14,387
	Income tax receivable				729			657
	Prepaid expenses and other current assets				6,004			5,626

			Total current assets		191,831			194,475
Marketable investments					29,050			9,201
Restricted cash					3,653			8,311
Property and equipment, net					11,456			13,180
Intangible assets, net					900			1,158
Other assets					767			575

		Total assets		$	237,657		$	226,900


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	4,523		$	3,882
	Accrued expenses				15,615			14,637
	Accrued restructuring costs, current portion				12,585			18,237
	Accrued compensation				17,124			8,718
	Income taxes payable				2,539			1,976
	Deferred revenues on contracts				3,338			3,867

		Total current liabilities			55,724			51,317
Accrued restructuring costs, net of current portion					19,313			22,550
Other long term liabilities					1,206			621

		Total liabilities			76,243			74,488

Stockholders’ equity:
	Preferred stock, par value $.01 per share, 5,000,000 authorized and none issued at June 30, 2004 and December 31, 2003				—			—
	Common stock, par value $.01 per share, 200,000,000 shares authorized, 130,482,574 and 129,897,952 shares issued at June 30, 2004 and December 31, 2003, respectively				1,304			1,299
	Additional paid-in capital				473,387			471,653
	Treasury stock, at cost, 7,713,684 and 7,817,942 shares at June 30, 2004 and December 31, 2003, respectively				(8,996	)		(9,118	)
	Deferred compensation				(172	)		(594	)
	Accumulated other comprehensive income				1,624			1,870
	Accumulated deficit				(305,733	)		(312,698	)

		Total stockholders’ equity			161,414			152,412

		Total liabilities and stockholders’ equity		$	237,657		$	226,900

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

SAPIENT CORPORATION

CONSOLIDATED AND CONDENSED STATEMENTS OF OPERATIONS



			Three Months Ended					Six Months Ended
			June 30,					June 30,

			2004		2003			2004		2003


			(Unaudited)

			(In thousands, except per share amounts)
Revenues:
	Service revenues		$	64,464	$	44,439		$	123,342	$	88,285
	Reimbursable expenses			3,554		2,347			5,733		4,701

		Total gross revenues		68,018		46,786			129,075		92,986

Operating expenses:
	Project personnel costs, before reimbursable expenses			36,218		27,796			72,544		56,358
	Reimbursable expenses			3,554		2,347			5,733		4,701

		Total project personnel costs		39,772		30,143			78,277		61,059
	Selling and marketing costs			4,230		4,794			8,492		9,912
	General and administrative costs			17,507		13,961			34,468		27,353
	Restructuring and other related charges			867		1,398			867		1,398
	Amortization of intangible assets			129		727			258		1,325
	Stock-based compensation			210		305			422		689

		Total operating expenses		62,715		51,328			122,784		101,736

Income (loss) from operations				5,303		(4,542	)		6,291		(8,750	)
Other income (expense)				18		(170	)		18		(196	)
Interest income				581		604			1,036		1,106

Income (loss) before income taxes				5,902		(4,108	)		7,345		(7,840	)
Income tax provision				232		270			380		625

	Net income (loss)		$	5,670	$	(4,378	)	$	6,965	$	(8,465	)

Basic net income (loss) per share			$	0.05	$	(0.04	)	$	0.06	$	(0.07	)

Diluted net income (loss) per share			$	0.04	$	(0.04	)	$	0.05	$	(0.07	)

Weighted average common shares				122,696		120,636			122,511		120,849
Dilutive common share equivalents				4,664		—			4,832		—

Weighted average common shares and dilutive common share equivalents				127,360		120,636			127,343		120,849

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

SAPIENT CORPORATION

CONSOLIDATED AND CONDENSED STATEMENTS OF CASH FLOWS



				Six Months Ended
				June 30,

				2004			2003


				(Unaudited)
				(In thousands)
Cash flows from operating activities:
	Net income (loss)			$	6,965		$	(8,465	)
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Loss recognized on write-down of investments			—			45
		Realized loss on investments			—			151
		Loss recognized on disposition of fixed assets			72			—
		Depreciation and amortization			3,089			5,046
		Amortization of intangible assets			258			1,325
		Stock-based compensation			422			689
		Allowance for doubtful accounts			126			697
		Changes in operating assets and liabilities:
			Decrease (increase) in restricted cash		2,717			(4,697	)
			Increase in accounts receivable		(12,588	)		(6,738	)
			(Increase) decrease in unbilled revenues on contracts		(554	)		2,794
			(Increase) decrease in prepaid expenses and other current assets		(378	)		833
			(Increase) decrease in other assets		(192	)		1,187
			Increase (decrease) in accounts payable		641			(264	)
			Increase (decrease) in accrued expenses		978			(232	)
			Decrease in accrued restructuring costs		(7,879	)		(17,422	)
			Increase in accrued compensation		8,406			1,646
			Increase in income taxes payable		491			360
			Decrease in deferred revenues on contracts		(529	)		(3,086	)
			Increase (decrease) in other long term liabilities		927			(827	)

		Net cash provided by (used in) operating activities			2,972			(26,958	)
Cash flows from investing activities:
	Purchases of property and equipment				(2,433	)		(803	)
	Investments in consolidated subsidiary				—			(1,679	)
	Proceeds from sale of investment				—			1,490
	Maturities of marketable investments, net				1,875			12,941

	Net cash (used in) provided by investing activities				(558	)		11,949
Cash flows from financing activities:
	Proceeds from stock option and purchase plans				1,861			677
	Repurchases of common stock				—			(3,429	)
	Proceeds from sale of common stock of consolidated subsidiary				—			500

		Net cash provided by (used in) financing activities			1,861			(2,252	)

Effect of exchange rate changes on cash and cash equivalents					(217	)		686
Increase (decrease) in cash and cash equivalents					4,058			(16,575	)
Cash and cash equivalents, at beginning of period					67,592			91,229

Cash and cash equivalents, at end of period				$	71,650		$	74,654

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

SAPIENT CORPORATION

NOTES TO CONSOLIDATED AND CONDENSED FINANCIAL STATEMENTS


1.	Basis of Presentation

The accompanying unaudited consolidated and condensed 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 accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2003 included in the Company’s Annual Report on Form 10-K. The accompanying consolidated and condensed 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 and six months ended June 30, 2004 are not necessarily indicative of the results to be expected for any future period or the full fiscal year.

Certain amounts in previously issued financial statements have been reclassified to conform to the current presentation.

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.


2.	Net Income (Loss) Per Share

The following information presents the Company’s computation of basic and diluted net income (loss) per share for the periods presented in the consolidated and condensed statements of operations (in thousands, except per share data):



		Three Months Ended					Six Months Ended
		June 30,					June 30,

		2004		2003			2004		2003

Net income (loss)		$	5,670	$	(4,378	)	$	6,965	$	(8,465	)
Basic net income (loss) per share:
	Weighted average common shares outstanding		122,696

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