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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2010
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.)

131 Dartmouth Street, Boston, MA (Address of principal executive offices)		02116 (Zip Code)

617-621-0200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $0.01 par value per share		The Nasdaq Global Select Stock Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

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. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of June 30, 2010 the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $1.2 billion based on the closing sale price as reported on the Nasdaq Global Select Stock Market. Solely for purposes of the foregoing calculation, “affiliates” are deemed to consist of each officer and director of the registrant, and each person known to the registrant to own 10% or more of the outstanding voting power of the registrant.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.


Class		Outstanding at February 18, 2011

Common Stock, $0.01 par value per share		137,014,605 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the 2011 Annual Meeting of Stockholders, which document will be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year to which this Form 10-K relates, are incorporated by reference into Items 10 through 14 of Part III of this Form 10-K.

SAPIENT CORPORATION

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2010

TABLE OF CONTENTS


		Page

Item 1.	Business		1
Item 1A.	Risk Factors		10
Item 1B.	Unresolved Staff Comments		17
Item 2.	Properties		17
Item 3.	Legal Proceedings		17
Item 4.	Removed and Reserved		17
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		18
Item 6.	Selected Financial Data		20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		42
Item 8.	Financial Statements and Supplementary Data		44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		91
Item 9A.	Controls and Procedures		91
Item 9B.	Other Information
Item 10.	Directors, Executive Officers and Corporate Governance		92
Item 11.	Executive Compensation		93
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		93
Item 13.	Certain Relationships and Related Transactions, and Director Independence		94
Item 14.	Principal Accounting Fees and Services		94
Item 15.	Exhibits and Financial Statement Schedules		95
Signatures			96
EX-10.29
EX-10.30
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K 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 Annual Report, including those related to our cash and liquidity resources and our cash expenditures related to dividend payments and restructuring, as well as any statements other than statements of historical fact, regarding our strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives are forward-looking statements. When used in this Annual 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

PART I


Item 1.	*Business*

General

Sapient Corporation (“Sapient” or the “Company”) ¹ is a global services company that helps clients leverage marketing and technology to transform their businesses. We provide the following services that enable our clients to gain a competitive advantage and succeed in an increasingly-digital, customer-centric world. We do this through three main divisions: SapientNitro, Sapient Global Markets, and Sapient Government Services.

SapientNitro (formerly Sapient Interactive and Nitro Ltd.) is a leading integrated marketing and technology services group. We provide brand and marketing strategy and analytics, creative services, Web design and technology development, media buying and planning, search engine marketing, commerce solutions, emerging media expertise (including social media, mobile applications, and digital signage), and traditional advertising services. Through this group, we combine multi-channel marketing and commerce, and the technology that binds them, to influence customer behavior across the spectrum of our clients’ communication channels, resulting in deeper, more meaningful relationships between customers and brands.

Sapient Global Markets provides integrated advisory, program management, analytics, technology and operations services to leaders in today’s capital and commodity markets. We provide a full range of capabilities to help clients in investment banking, investment management and commodities, as well as intermediaries and government, grow and enhance their businesses, create robust and transparent infrastructure, manage operating costs, and foster innovation throughout their organizations. We also leverage our unique perspective, full capabilities, global reach and disciplined execution to enable our clients to succeed in these dynamic markets.

Sapient Government Services is a leading provider of consulting, technology, and marketing services to a wide array of U.S. governmental agencies. Focused on driving long-term change and transforming the citizen experience, we use technology and communications to help agencies become more accessible and transparent. With a track record of delivering mission-critical solutions and the ability to leverage commercial best practices, we serve as trusted advisors to government agencies such as the Federal Bureau of Investigation, Library of Congress, National Institutes of Health and United States Department of Homeland Security.

Founded in 1990 and incorporated in Delaware in 1991, Sapient maintains a strong global presence with offices and over 9,000 employees in North America, Europe and the Asia-Pacific region, including India. Our headquarters and executive offices are located at 131 Dartmouth Street, Boston, Massachusetts 02116, and our telephone number is (617) 621-0200. Our stock trades on the Nasdaq Global Select Market under the symbol “SAPE.” Our Internet address is http://www.sapient.com. Material contained on our website is not incorporated by reference into this Annual Report.

Our clients consist of leading Global 2000 and other companies within the following industries in which we have extensive expertise (our “industry sectors”): financial services, technology and communications, consumer, travel and automotive, energy services and government, health and education. We also provide services to federal government clients within the U.S. and to provincial and other governmental entities in Canada and Europe.

Integral to our service capabilities is our Global Distributed Delivery (“GDD”) model, which enables us to perform services on a continuous basis, through client teams located in North America, Europe and the Asia-Pacific region, including India. Our GDD model involves a single, coordinated effort between development teams in a remote location (typically highly-skilled business, technology, and creative specialists in our Gurgaon, Bangalore, and Noida India offices) and development and client teams in North America, Europe, the Asia-Pacific region and India. To work effectively in this globally-distributed environment, we have developed extensive expertise and processes in coordinating project management and implementation efforts among the various development teams that we deploy to enable continuous project work. Through our GDD model, we believe that we deliver greater value to our clients at a competitive cost and in an accelerated timeframe. In addition to solution design and

¹ Unless the context otherwise requires, references in this Annual Report to “Sapient,” the “company,” “we,” “us” or “our” refer to Sapient Corporation and its wholly-owned subsidiaries.

implementation, many of our long-term engagement and outsourcing relationships leverage our longstanding GDD execution model.

We derive Long Term and Retainer Revenues from many client relationships. Long Term and Retainer Revenues are revenues from contracts with durations equal to or greater than twelve months, or contracts in which our clients have chosen us as an exclusive provider, for retainer-based, capacity, applications management and other services. In 2010, Long Term and Retainers Revenues represented 46% of our global services revenues, compared to 44% in 2009 and 43% in 2008. Further, in 2010 our five largest clients accounted for approximately 19% of our revenues in the aggregate, compared to 21% and 24% in 2009 and 2008. No client accounted for more than 10% of our revenues in 2010, 2009 or 2008.

We provide our services under fixed-price, time and materials and retainer contracts. We price our work based on established rates that vary according to our professionals’ experience levels, roles and geographic locations. Under our time and materials arrangements, we charge for our actual time and expenses incurred on an engagement. These arrangements may include an estimated fee range or a cap on our total fees. Under the latter circumstances, we assume the risk that we have correctly estimated the timeframe and level of effort required to complete any deliverables within the allotted fee cap.

In fixed-price contracts, we charge a fixed amount based on our anticipated total level of effort required for a project. For these arrangements, we similarly assume the risk of estimating correctly the scope of work and required resources for the applicable project. While we undertake rigorous project management throughout an engagement to ensure we deliver the project on time and on budget, we may recognize losses or lower profitability on capped arrangements or fixed-price contracts if we do not successfully manage these risks. These risks are magnified for large projects — which are increasingly part of our business — and multi-staged projects in which we perform our scope and labor estimates, and fix the total project price from inception through implementation, at an early stage of an engagement.

Under our retainer contracts, we charge our clients a fixed fee in exchange for providing a defined team of consultants, for a defined number of hours, to perform marketing, creative and other services at our clients’ direction. These arrangements are designed to afford our clients flexibility to engage us for myriad services as and when needed and, therefore, do not typically include defined scope or deliverables. Additionally, as our fees and level of effort are fixed in advance, should our clients choose not to use all level of effort allotted to them under the contract, we nonetheless charge and are entitled to receive our full fixed fee. Conversely, while we are contractually obligated to provide a specified number of hours of retainer service under each retainer contract, our clients may demand hours in excess of the contractually allotted amount. Under those circumstances, our retainer contracts typically include provisions that enable our clients to purchase additional hours of service on a time and materials basis fee basis.

Segment Information

Beginning in 2010, we realigned our North America and Europe business into three operating segments: SapientNitro, Sapient Global Markets and Sapient Government Services. Further information about these operating segments, including a presentation of financial information, is located in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 18 in the Notes to Consolidated Financial Statements included in this Annual Report. The principal risks and uncertainties facing our business, operations and financial condition are discussed in Part I, Item 1A in this Annual Report.

Each of our Sapient Nitro and Sapient Global Markets operating segments includes globally-based professionals and, with respect to Sapient Government Services, professionals based in the United States. Within each operating segment, we focus our sales and delivery efforts on clients within our industry sectors. Through this global, industry sector-specific focus, we have developed an extensive understanding of our clients’ markets that enables us to skillfully address the market dynamics and business opportunities that our clients face. This understanding also enables us to identify and focus on critical areas to help our clients grow, perform, and innovate.

Acquisitions

In the past few years we have acquired certain businesses to enhance and/or complement our service offerings.

On July 1, 2009, we acquired 100% of the outstanding shares of NITRO Group Ltd. (“Nitro”), a global advertising network operating across North America, Europe, Australia and Asia. The acquisition added approximately 300 employees and was integrated into our SapientNitro operating segment. We acquired Nitro to leverage its traditional advertising services with our digital commerce and marketing technology services.

On August 6, 2008, we acquired 100% of the outstanding shares of Derivatives Consulting Group Limited (“DCG”), a London-based international financial advisory firm that is a provider of derivatives consulting and outsourcing services. The DCG acquisition added approximately 200 employees and was integrated into our Sapient Global Markets operating segment.

Our Services

SapientNitro

SapientNitro services include integrated marketing and creative services, Web and interactive development, traditional advertising, media planning and buying, strategic planning and marketing analytics, commerce and content technologies, and business applications. These capabilities are applied to solve our clients’ most challenging business problems. We integrate creative marketing concepts with technology tools and platforms to build brand experiences designed to acquire new customers and increase demand, create profitable customer relationships and build brand awareness and loyalty.

Integrated Marketing and Creative Services

We conceive, design, develop and deliver seamlessly integrated, highly measurable, multi-channel marketing and commerce experiences that are as efficient as they are engaging. Our marketing and creative services consist of:


	•	Visual concept, design and implementation via multiple media;

	•	Brand building and direct response programs, audience segmentation and profiling strategies;

	•	Customer loyalty strategies;

	•	Customer relationship strategy and implementation;

	•	Customer lead generation and management; and

	•	Integrated advertising campaigns.

Our strategic and creative capabilities span the entire spectrum of interactive and traditional media and include brand and marketing strategy and analytics, paid and natural search advertising, targeted email advertising campaigns, third party banner advertisement campaigns, print and television advertising, and viral marketing initiatives.

Additionally, we offer our clients BridgeTrack^®, a proprietary advertising campaign tracking and measurement software application that enables customers to measure the effectiveness of an online campaign in real-time and, in turn, improve results at the earliest possible phase of their campaigns by re-allocating marketing dollars across those marketing channels that are generating the best return on investment. BridgeTrack^® generates real-time reporting and optimization of advertising campaigns across multiple media channels, including advertising via email, website displays/banner ads and internet natural search advertising. Through BridgeTrack^®, our clients see how consumers react to their online marketing campaigns — whether, for example, consumers ultimately decide to buy the client’s offerings, even if the consumers make a purchase at a later date.

Web & Interactive Development

We conceive, develop and implement world class, award-winning websites and applications for our clients. Our services include user interface design and development, site design and development, custom application

development, user research and testing, content management and technology development and implementation, and quality assurance testing. As digital channels expand beyond the Web, we have applied our strategy, design, and development services to new digital platforms, such as mobile phones, tablet devices, kiosks, touch-screen displays, and digital signage.

Traditional Advertising

We integrate our interactive marketing services with award-winning off-line media capabilities. Our services include brand strategy, copywriting, advertising work, and production for print, radio, and television campaigns. By combining the best of traditional advertising with an expansive mix of interactive and emerging technology expertise, our traditional advertising not only creates and engineers highly relevant experiences, it helps accelerate business growth and fuels brand advocacy by eliminating the operational silos that often block business success.

Media Planning and Buying

We help our clients design and implement media and customer channel planning and buying strategies and purchase and arrange for placement of our clients’ advertisements in the media. Our media planning and buying services include media strategy development, website search engine marketing, email marketing, online advertising, viral and social media marketing, emerging channels marketing (e.g., online video, mobile technologies, social networking), gaming (placing advertisements in online games and creating “advergames”), real-time reporting and optimizing of the success of campaigns, and integration of our customers’ media spending strategy with their other marketing initiatives.

Strategic Planning & Marketing Analytics

We provide our clients a broad array of strategic planning services that are intended to maximize returns on their marketing initiatives investments. We combine our deep business and technology expertise to analyze how products, brands and consumers interact and the role that current and emerging technologies play in this relationship. Additionally, we apply expertise in marketing analytics to collect, analyze and report on online consumer behavior and insights, and assist our clients to develop successful online marketing strategies and campaigns. Our array of strategic planning and marketing analytics services includes brand strategy development, consumer and market research (primary and secondary), advertising message content and medium strategy development, internet and blogosphere analytics (researching and analyzing what social networking websites and blogs say about our clients) and coordination, and management of mixed media (e.g., online and print media).

Commerce & Content Technologies

We apply our substantial knowledge and expertise in marketing technologies to help our clients achieve their business goals. Our marketing technologies services include e-commerce platform selection and implementation, content management customization and implementation, the building of marketing asset management platforms, selection and implementation of advertising campaign management systems, application integration and research, and implementation of emerging technologies.

We also devise content, collaboration, commerce and IT strategies that improve our clients’ competitive position and performance, as well as the value they realize from their IT portfolio. We apply our substantial expertise in diverse technologies and our understanding of each client’s business issues to design solutions that align, and create a roadmap for the achievement of, the client’s business objectives. Our areas of content, collaboration, commerce and IT strategy expertise include:


	•	Business process consulting;

	•	E-business & digital strategy;

	•	IT governance & advisory services; and

	•	Program management office.

Business Applications

Our substantial industry expertise and understanding of our clients’ customers, partners, competitors and processes enable us to rapidly define user requirements and gain alignment among client executives, chief marketing officers, chief information officers, chief technology officers and other client stakeholders concerning the design of mission-critical business applications. Additionally, we apply our expertise in business processes, enabling technologies and applications, and user-centered design to create and implement business and technology solutions that achieve substantial returns on our clients’ IT investments. Our primary areas of software development expertise are:


	•	Business applications;

	•	Customer relationship solutions;

	•	Custom & package applications; and

	•	Web solutions.

Sapient Global Markets

Sapient Global Markets operates in key centers relevant to the global capital and commodity markets, including New York, London, Zurich, Chicago, Houston, Amsterdam, Singapore, Boston, Toronto and Calgary.

Within Sapient Global Markets we have created a number of practices, designed to enable us to align our services directly with the manner in which our clients do business, and to focus on key areas of need within their operations. Our practice areas include:


	•	Derivative Platforms;

	•	Energy & Commodity;

	•	Market Initiatives and Infrastructure;

	•	Order Management Systems (OMS) / Execution Management Systems (EMS) Platforms;

	•	Portfolio Accounting;

	•	Trade and Transaction Reporting;

	•	Trade Documentation;

	•	Valuation and Risk Analytics; and

	•	Visualization.

Additionally, we offer a full set of services that enable us to provide capabilities across the full project lifecycle — from concept to delivery. These service lines are:

Advisory

Our Advisory service line studies and develops best practices in business processes and technology architecture to develop industry-leading solutions throughout the trade and client management lifecycle within our clients’ businesses. Our business analysts, system architects and designers are, in many cases, former practitioners and, thus, apply real-world experience when customizing solutions for our clients. We focus on the following core capabilities within Advisory:


	•	Strategy alignment & roadmap;

	•	Subject matter expertise;

	•	Organizational design and change management;

	•	Process model definition;

	•	Process & architecture definition; and


	•	User experience & interface design.

Program Management

Within our Program Management service line we ensure that our clients’ programs are successfully managed from inception to completion. Our service lines operate independently or together, to provide full lifecycle capabilities across all stages of a project. We perform strategic planning, enterprise architecture development, program management, and IT governance services for large-scale, multi-vendor initiatives to ensure on-time, on-budget delivery of solutions that provide the right results for our clients.

Some of the capabilities of our Program Management service line include:


	•	Program management (PMO);

	•	Technology project management;

	•	Agile methodology consulting;

	•	Governance model definition;

	•	Project benchmarking and reporting; and

	•	Project & program diagnosis and turnaround.

Analytics

Our Analytics service line comprises industry leaders in areas such as portfolio valuation as well as assessing market, credit and operational risk management techniques. Key engagements of this group have included helping clients value and manage their portfolios to meet increased regulatory requirements, and benchmarking the trade lifecycle processes of the largest investment banks in the world in support of their commitments to operational excellence made to government regulators. Our current offerings include:


	•	Quantitative methodologies;

	•	Audits & process reviews;

	•	Benchmark-driven roadmaps; and

	•	Trade & portfolio evaluation.

Technology

Our Technology service line, in conjunction with our Advisory service line, designs, develops, integrates, supports and tests software solutions for the most critical functions of today’s capital and commodity market participants. Our capabilities range from GDD-enabled custom software development and third-party system integration for our clients. We also maintain core expertise in all of today’s most relevant technology platforms and uniquely instill our people with industry-leading business knowledge to ensure that we create technology solutions with the full context of the business environment embedded into our solutions. Our specific capabilities include:


	•	Architecture & technical design;

	•	System selection & implementation;

	•	Custom software development;

	•	Systems integration;

	•	Data architecture & management;

	•	Quality assurance (QA) & testing services; and

	•	Application maintenance & support.

Operations

Our Operations service line designs, implements, executes and enables offshore delivery of some of the most difficult trading and risk management processes within the global markets arena. Bolstered by our 2008 acquisition of London-based DCG, we have a unique understanding of the global markets industry through our combination of

deep industry expertise, customized outsourcing methodology and ability to innovate solutions to some of the day’s most pressing trade management issues. Representative work includes master agreement negotiation, confirmation reconciliation, settlement calculation, collateral management, and clearing. Further, we have worked at the center of several of the largest bank mergers in recent history, developing and implementing plans for integrating two entities into one.

Additionally, in 2009, we launched a major initiative to take our industry-leading onshore process capabilities and offer the same solutions to clients leveraging our offshore capabilities in India. We developed a unique methodology for transitioning these processes, and several of our clients have begun applying this methodology to shift substantial portions of their operations offshore to our offices in Gurgaon and Bangalore. Our expertise in complex areas such as derivatives has enabled our clients to consider higher-order processes for outsourcing than previously possible. Further, by co-locating our technology and process activities in India, we have developed important new solutions and capabilities for our clients, including the automation of complex processes in a single, unified environment.

Capabilities within our Operations service line include:


	•	Process analysis & optimization;

	•	Testing services;

	•	Outsourced operations;

	•	Operations staff support;

	•	Merger & divesture support;

	•	Trade documentation support;

	•	Middle-office; and

	•	Outsourcing.

We pride ourselves on our record of attracting, training and retaining the highest quality professionals available in the market. In 2006 we developed the unique “Institute of Trading and Risk Management,” a four-month course for incoming staff designed to provide grounding in the processes and technologies supporting the clients and industries we serve.

Sapient Government Services

Sapient Government Services offers a robust suite of high-value capabilities to U.S. government clients including program management; solution delivery; strategy; and communications outreach. We help U.S. Government agencies to optimize and align technology, programs, and systems, while solving our clients’ most challenging problems.

Program Management

We ensure that our clients’ programs are successfully managed from inception to completion. We perform strategic planning, enterprise architecture development, program management, and IT governance services for large-scale, multi-vendor initiatives to ensure on-time, on-budget delivery of solutions that provide the right results for our clients.

Solution Delivery

We design, develop, and deliver innovative IT and marketing solutions for our government clients. We rapidly prototype new solutions and integrate critical business processes and information for our clients. Through systems engineering, we rationalize IT infrastructures to reduce cost and complexity while retiring legacy infrastructures, streamlining existing systems, and incorporating the best commercial products.

Strategy

We help our clients to identify, establish, and execute changes to their strategic missions. We provide knowledge management, mission needs analysis, requirements and design services to enable users to streamline their business processes, tools, and metrics; enhance productivity and effectiveness; and enable continuous improvement. We employ our expertise to transform strategic intent into actionable plans for implementing client strategies.

Communications and Outreach

We help our public sector clients to communicate and collaborate with key stakeholders and constituents. We develop communications strategies that align our clients’ stakeholders and business users’ buy-in to ensure their needs are considered in program and system design. Our propriety Fusion workshops help our clients validate their proposed approach, gather requirements, and design effective project roadmaps. Additionally, we provide marketing services that help the government better communicate and connect to citizens across all channels and to improve the overall citizen experience.

Process Engineering

We provide knowledge management, mission needs analysis, and requirements and design services to enable business users to streamline their business processes, tools, and metrics; enhance productivity and effectiveness; and enable continuous improvement. We also employ our expertise in process management to streamline our clients’ critical business processes, thereby reducing waste and optimizing efficiency.

Alliances

We focus on building the right results for our clients’ businesses. To support this focus, we work closely with alliance partners to develop industry-leading solutions that we can deliver to meet our clients’ needs. We have established global partnerships are with industry leaders and include Adobe, IBM, Microsoft, Google, Oracle, Hybris, Endeca, Autonomy Interwoven, SDL Tridion and Jive Software. We have a skilled knowledge base in their products to help our clients solve their business challenges through technology. Further, we have formed “Centers of Excellence,” comprising dedicated, globally-distributed teams with deep application knowledge and a proven track record in implementing solutions based on Sapient’s strategic partner technologies. Through our expert knowledge and commitment to collaboration, we help our clients identify and implement faster the right solutions at lower overall costs.

Our alliances with leading technology and services companies help us rapidly deliver high-performance business and technology solutions. We frequently recommend the use of pre-engineered components from our alliance partners to deliver the rapid business value our clients need. Our alliance relationships, and the solutions that we derive from these relationships, are structured in a manner to ensure that we deliver to our clients solutions that will be sustainable and provide long-term value.

We also collaborate with our partners to selectively target specific markets and opportunities to offer quality repeatable solutions, frameworks and components that speed deployment and time-to-value for our customers. Additionally, our alliance partners provide us advance information and access to their product road maps to ensure that our technology solutions are more cost-effective to build and maintain over the long-term.

We continue to actively build relationships and strategic alliances with technology and other consulting companies, including packaged technology vendors. These relationships focus on a wide range of joint activities, including working on client engagements, evaluating and recommending the other party’s technology and other solutions to customers, and training and transferring knowledge regarding the other party’s solutions. We believe that these relationships and strategic alliances enable us to provide better delivery and value to our existing clients and attract new clients through referrals.

Additionally, we have a dedicated global industry analyst relations team that maintains ongoing relationships with leading industry analysts such as Gartner, Forrester, Aite and Celent. These relationships are integral to our business and help ensure that a core set of focused analysts maintain a good understanding of our offerings and positioning to help us drive innovative and creative solutions to the marketplace. These research analysts also manage related market research and advisory sessions that help identify market and technology trends for our clients and our internal business teams.

The Sapient Approach

Our unique consulting methodology, Sapient Approach, is designed to address the biggest problems that most companies face when pursuing business-enabling marketing, technology and other initiatives: the majority of projects never finish, are completed late or over budget, lack promised capabilities, or contain unused functionality. We employ a collaborative, agile/lean-based delivery approach, in which we develop and release in an iterative manner usable components of a deliverable, thus enabling our clients to review, validate and commence use of work product throughout the life cycle of a project, rather than await the end of the project to realize the project’s full benefits.

While this delivery approach provides clients the most value and return on investment in the shortest possible time period, it also minimizes project risk because discrete pieces of work are tested and accepted throughout the project. By contrast to traditional consulting services methods that require heavy up-front investment in time and effort to define all possible requirements, our agile/lean-based methodology uses actual development to evaluate and improve the design as the project progresses. This means that unnecessary steps or features are identified and eliminated early in the design and implementation process, dramatically reducing overall project cost.

Sapient Approach also enables us to commit to delivering our marketing services and other solutions within the price and schedule that we have promised to our clients, and to create solutions that bring together business, user, creative and technology requirements to solve our clients’ business problems. We design these solutions to deliver tangible business value to clients, including increased revenues, reduced costs and more effective use of assets.

Additionally, Sapient Approach integrates a creative methodology to design and create user experiences that are useful, usable and compelling. Our creative approach is highly iterative, and integrates input from a wide range of perspectives and disciplines. This approach is highly scalable, and evolves based upon whether the creative output is intended to be a marketing campaign, a social media initiative, a website customer experience, a mobile application, or a retail experience. Through our creative approach we develop a deep understanding of the target user’s needs, and synchronize the design of the user experience with agile delivery of the supporting technology to minimize risk and rework.

Sapient Approach also enables flexibility in selecting the process standardization and continuous improvement models that work best for each client. Our teams regularly incorporate Six Sigma, Capability Maturity Model Integration^® (CMMI), International Standards Organization (ISO) and Information Technology Infrastructure Library (ITIL) processes to ensure that appropriate rigor, discipline and accountability are built into each project. By employing these industry-leading techniques, our teams establish an enduring environment of process improvement that enables organizational capabilities essential to sustaining competitive business advantage.

Strategic Context, People and Culture

We have established and continuously promote a strong corporate culture based on our “strategic context” — purpose, core company values, vision, goals and client value proposition — which is critical to our success.

Our unwavering attention to our strategic context has enabled us to adapt and thrive in the fast-changing markets we serve, as we strive to build a great company that has a long-lasting impact on the world. Our passion for client success — evidenced by our ability to foster collaboration, drive innovation and solve challenging problems — is the subject of case studies on leadership and organizational behavior used by MBA students at both Harvard and Yale business schools.

To foster and encourage the realization of our strategic context, we reward teamwork and evaluate our people’s performance, and promote people, based on their adoption of and adherence to our strategic context. In addition, we conduct an intensive orientation program to introduce new hires to our culture and values, and conduct internal communications and training initiatives that define and promote our culture and values.

As of December 31, 2010 we had 9,015 full-time employees, consisting of 8,053 project personnel, 882 general and administrative personnel and 80 sales and marketing personnel. None of our employees is subject to a collective bargaining agreement. We believe that we have good relationships with our employees.

Selling and Marketing

Our corporate marketing team strives to build greater brand awareness and drive client acquisition, retention and loyalty in all global markets in which we operate. We conduct marketing activities at the company, industry and service levels across SapientNitro, Sapient Global Markets and Sapient Government Services.

Our dedicated team drives globally-integrated initiatives including, but not limited to, developing and implementing an overall global marketing and brand strategy for Sapient and its three business units; executing thought leadership campaigns; sponsoring focused multi-client events; cultivating media and industry analyst relations; conducting market research and analysis; sponsoring and participating in targeted industry conferences, award shows, and events; creating marketing assets and materials to assist client-development teams with lead generation; and publishing our website, http://www.sapient.com, our blog, and content on all corporate social media channels.

We organize our sales professionals primarily along our operating segments. We believe that the industry and geographic focus of our sales professionals enhances their knowledge and expertise within their applicable segments and generates additional client engagements.

Competition

The markets for the services we provide are highly competitive. We believe that we compete principally with large systems consulting and implementation firms, traditional and interactive advertising and marketing agencies, offshore consulting and outsourcing companies, and clients’ internal IT departments. To a lesser extent, we compete with boutique consulting firms that maintain specialized skills and/or are geographically focused. Additionally, with respect to Sapient Government Services, we both compete and partner with large systems integrators, major consulting firms with dedicated government business units, and government contractors.

We believe that the principal competitive factors in our markets include: ability to solve business problems; ability to provide creative concepts and solutions; expertise and talent with advanced technologies; global scale; expertise in delivering complex projects through teams located in globally distributed geographies; availability of resources; quality and speed of delivery; price of solutions; industry knowledge; technology-enabled marketing expertise; understanding of user experience; and sophisticated project and program management capability.

We also believe that we compete favorably when considering these factors and that our ability to deliver business innovation and outstanding value to our clients on time and on budget, our GDD model, our integrated marketing services capabilities and our successful track record in working with our clients distinguish us from our competitors.

Intellectual Property Rights

We rely upon a combination of trade secrets, nondisclosure and other contractual arrangements; and patent, copyright and trademark laws to protect our proprietary consulting methodology, custom-developed software and other rights. We enter into confidentiality agreements with our employees, subcontractors, vendors, professionals, and clients, and limit access to and distribution of our proprietary information.

Our services involve the development of business, technology and marketing solutions for specific client engagements. Ownership of these solutions is the subject of negotiation and is frequently assigned to the client, although we often retain ownership of certain development tools and may be granted a license to use the solutions for certain purposes. Certain of our clients have prohibited us from marketing for specified periods of time or to specified third parties the solutions we develop for them, and we anticipate that certain of our clients will demand similar or other restrictions in the future.

Where to Find More Information

We make our public filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports, available free of charge at our website, http://www.sapient.com, as soon as reasonably practicable after we file such materials with the SEC. We also make available on our website reports filed by our executive officers, directors and holders of more than 10% of our common stock, on Forms 3, 4 and 5 regarding their ownership of our securities. These materials are available in the “Investors” portion of our website, under the link “SEC Filings,” and on the SEC’s website, http://www.sec.gov. You may also read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.


Item 1A.	*Risk Factors*

Risk Factors

The following important factors, among others, could cause our actual business, financial condition and future results to differ materially from those contained in forward-looking statements made in this Annual Report or presented elsewhere by management from time to time.

Our business, financial condition and results of operations may be materially impacted by economic conditions and related fluctuations in customer demand for marketing, business, technology and other consulting services.

The market for our consulting services and the technologies used in our solutions historically has tended to fluctuate with economic cycles — particularly those cycles in the United States and Europe, where we earn the majority of our revenues. During economic cycles in which many companies are experiencing financial difficulties or uncertainty, clients and potential clients may cancel or delay spending on marketing, technology and other business initiatives. Our efforts to down-size, when necessary, in a manner intended to mirror downturned economic conditions could be delayed and costly. A downturn could result in reduced demand for our services, project cancellations or delays, lower revenues and operating margins resulting from price reduction pressures for our services, and payment and collection issues with our clients. Any of these events could materially and adversely impact our business, financial condition and results of operations.

Our markets are highly competitive and we may not be able to continue to compete effectively.

The markets for the services we provide are highly competitive. We believe that we compete principally with large systems consulting and implementation firms, offshore outsourcing companies, interactive and traditional advertising agencies, and clients’ internal information systems departments. To a lesser extent, other competitors include boutique consulting firms that maintain specialized skills and/or are geography based. Regarding our Government Services practice, we both compete and partner with large defense contractors. Some of our competitors have significantly greater financial, technical and marketing resources, and generate greater revenues and have greater name recognition, than we do. Often, these competitors offer a larger and more diversified suite of products and services than we offer. These competitors may win client engagements by significantly discounting their services in exchange for a client’s promise to purchase other goods and services from the competitor, either concurrently or in the future. If we cannot keep pace with the intense competition in our marketplace, our business, financial condition and results of operations will suffer.

Our international operations and Global Distributed Delivery (“GDD”) model subject us to increased risk.

We have offices throughout the world. Our international operations are a significant percentage of our total revenues, and our GDD model is a key component of our ability to deliver our services successfully. Our international operations are subject to inherent risks, including:


	•	economic recessions in foreign countries;

	•	fluctuations in currency exchange rates or impositions of restrictive currency controls;

	•	political instability, war or military conflict;

	•	changes in regulatory requirements;

	•	complexities and costs in effectively managing multi-national operations and associated internal controls and procedures;

	•	significant changes in immigration policies or difficulties in obtaining required immigration approvals for international assignments;

	•	restrictions imposed on the import and export of technologies in countries where we operate;

	•	reduced protection for intellectual property in some countries; and

	•	changes in tax laws.

In particular, our GDD model depends heavily on our offices in Gurgaon, Bangalore and Noida, India. Any escalation in the political or military instability in India or Pakistan or the surrounding countries, or a business interruption resulting from a natural disaster, such as an earthquake, could hinder our ability to use GDD successfully and could result in material adverse effects to our business, financial condition and results of

operations. Furthermore, the delivery of our services from remote locations causes us to rely on data, phone, power and other networks which are not as reliable in India as those in other countries where we operate. Any failures of these systems, or any failure of our systems generally, could affect the success of our GDD model. Remote delivery of our services also increases the complexity and risk of delivering our services, which could affect our ability to satisfy our clients’ expectations or perform our services within the estimated time frame and budget for each project. Changes to government structure or policies in countries in which we operate could negatively impact our operations if such changes were to limit or cease any benefits that may currently be available to us. For example, although the Indian government has historically offered generous tax incentives to induce foreign companies to base operations in India, new taxes have been introduced in recent years that partially offset those benefits. On April 1, 2009 the income-tax incentive of one of our Software Technology Parks (“STPs”) Units in India expired. Beginning April 1, 2011, the income-tax incentives applicable to our other two STPs Units in India are scheduled to expire. In addition, in 2009 we established a new India unit in a Special Economic Zone (“SEZ”) which is eligible for a five year, 100% tax holiday. This expiration of incentives may adversely affect our cost of operations and increase the risk of delivering our services on budget for client projects. Expiration of benefits provided to us by having operations based in India could have a material adverse effect on our business, financial condition and results of operations.

Our business, financial condition and results of operations may be materially impacted by military actions, global terrorism, natural disasters and political unrest.

Military actions in Iraq, Afghanistan and elsewhere, global terrorism, natural disasters and political unrest in the Middle East and other countries are among the factors that may adversely impact regional and global economic conditions and, concomitantly, client investments in our services. In addition to the potential impact of any of these events on the business of our clients, these events could pose a threat to our global operations and people. Specifically, our people and operations in India could be impacted if the recent rise in civil unrest, terrorism and conflicts with bordering countries in India were to increase significantly. As a result, significant disruptions caused by such events could materially and adversely affect our business, financial condition and results of operations.

If we do not attract and retain qualified professional staff, we may be unable to perform adequately our client engagements and could be limited in accepting new client engagements.

Our business is labor intensive, and our success depends upon our ability to attract, retain, train and motivate highly skilled employees. The improvement in demand for marketing and business and technology consulting services has further increased the need for employees with specialized skills or significant experience in marketing, business and technology consulting, particularly at senior levels. We have been expanding our operations, and these expansion efforts will be highly dependent on attracting a sufficient number of highly skilled people. We may not be successful in attracting enough employees to achieve our expansion or staffing plans. Furthermore, the industry turnover rates for these types of employees are high, and we may not be successful in retaining, training and motivating the employees we attract. Any inability to attract, retain, train and motivate employees could impair our ability to manage adequately and complete existing projects and to bid for or accept new client engagements. Such inability may also force us to increase our hiring of expensive independent contractors, which may increase our costs and reduce our profitability on client engagements. We must also devote substantial managerial and financial resources to monitoring and managing our workforce and other resources. Our future success will depend on our ability to manage the levels and related costs of our workforce and other resources effectively.

We earn revenues, incur costs and maintain cash balances in multiple currencies, and currency fluctuations affect our financial results.

We have significant international operations, and we frequently earn our revenues and incur our costs in various foreign currencies. Our international service revenues were $339.6 million for 2010. Doing business in these foreign currencies exposes us to foreign currency risks in numerous areas, including revenues and receivables, purchases, payroll and investments. As of December 31, 2010 52% of our assets and liabilities were subject to foreign currency exchange fluctuations. We also have a significant amount of foreign currency operating income and net asset exposures. Certain foreign currency exposures, to some extent, are naturally offset within an

international business unit, because revenues and costs are denominated in the same foreign currency, and certain cash balances are held in U.S. dollar denominated accounts. However, due to the increasing size and importance of our international operations, fluctuations in foreign currency exchange rates could materially impact our financial results. Our GDD model also subjects us to increased currency risk because we incur a significant portion of our project costs in Indian rupees and earn revenue from our clients in other currencies. While we have entered into foreign currency offsetting option positions that allow the Company partially to hedge certain short-term translation exposures in Indian rupee, British pound sterling and the euro currencies, and may in the future enter into foreign currency exchanges swaps and purchases as well as sales of foreign currency options, we will continue to experience foreign currency gains and losses in certain instances where it is not possible or cost effective to hedge foreign currencies. There is no guarantee that such hedging activity will be effective or that our financial condition will not be negatively impacted by the currency exchange rate fluctuations of the Indian rupee versus the U.S. dollar. Costs for our delivery of services, including labor, could increase as a result of the decrease in value of the U.S. dollar against the Indian rupee, affecting our reported results.

Our cash positions include amounts denominated in foreign currencies. We manage our worldwide cash requirements considering available funds from our subsidiaries and the cost effectiveness with which these funds can be accessed. The repatriation of cash balances from certain of our subsidiaries outside the United States could have adverse tax consequences and be limited by foreign currency exchange controls. However, those balances are generally available without legal restrictions to fund ordinary business operations. Any fluctuations in foreign currency exchange rates, or changes in local tax laws, could materially impact the availability and size of these funds for repatriation or transfer.

We have significant fixed operating costs, which may be difficult to adjust in response to unanticipated fluctuations in revenues.

A high percentage of our operating expenses, particularly salary expense, rent, depreciation expense and amortization of intangible assets, are fixed in advance of any particular quarter. As a result, an unanticipated decrease in the number or average size of, or an unanticipated delay in the scheduling for, our projects may cause significant variations in operating results in any particular quarter and could have a material adverse effect on operations for that quarter.

An unanticipated termination or decrease in size or scope of a major project, a client’s decision not to proceed with a project we anticipated or the completion during a quarter of several major client projects could require us to maintain underutilized employees and could have a material adverse effect on our business, financial condition and results of operations. Our revenues and earnings may also fluctuate from quarter to quarter because of such factors as:


	•	the contractual terms and timing of completion of projects, including achievement of certain business results;

	•	any delays incurred in connection with projects;

	•	the adequacy of provisions for losses and bad debts;

	•	the accuracy of our estimates of resources required to complete ongoing projects;

	•	loss of key highly-skilled personnel necessary to complete projects; and

	•	general economic conditions.

Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations.

Our effective tax rate could be adversely impacted by several factors, some of which are outside our control, including:


	•	Changes in relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;

	•	Changes in tax laws and the interpretation of those tax laws;


	•	Changes to our assessments about the realizability of our deferred tax assets which are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies and the economic environment in which we do business;

	•	The outcome of future tax audits and examinations; and

	•	Changes in generally accepted accounting principles that affect the accounting for taxes.

In the ordinary course of our business, many transactions occur where the ultimate tax determination is uncertain. Significant judgment is required in determining our worldwide provision for income taxes. Although we believe our tax estimates are reasonable, the final determination could be materially different from our historical tax provisions and accruals.

Our profits may decrease and/or we may incur significant unanticipated costs if we do not accurately estimate the costs of fixed-price engagements.

Approximately 46% of our projects are based on fixed-price contracts, rather than contracts in which payment to us is determined on a time and materials or other basis. Our failure to estimate accurately the resources and schedule required for a project, or our failure to complete our contractual obligations in a manner consistent with the project plan upon which our fixed-price contract was based, could adversely affect our overall profitability and could have a material adverse effect on our business, financial condition and results of operations. We are consistently entering into contracts for large projects that magnify this risk. We have been required to commit unanticipated additional resources to complete projects in the past, which has occasionally resulted in losses on those contracts. We will likely experience similar situations in the future. In addition, we may fix the price for some projects at an early stage of the project engagement, which could result in a fixed price that is too low. Therefore, any changes from our original estimates could adversely affect our business, financial condition and results of operations.

Our profitability will be adversely impacted if we are unable to maintain our pricing and utilization rates as well as control our costs.

Our profitability derives from and is impacted primarily by three factors, primarily: (i) the prices for our services; (ii) our professionals’ utilization or billable time, and (iii) our costs. To achieve our desired level of profitability, our utilization must remain at an appropriate rate, and we must contain our costs. Should we reduce our prices in the future as a result of pricing pressures, or should we be unable to achieve our target utilization rates and costs, our profitability could be adversely impacted and our stock price could decline materially.

We partner with third parties on certain complex engagements in which our performance depends upon, and may be adversely impacted by, the performance of such third parties.

Certain complex projects may require that we partner with specialized software or systems vendors or other partners to perform our services. Often in these circumstances, we are liable to our clients for the performance of these third parties. Should the third parties fail to perform timely or satisfactorily, our clients may elect to terminate the projects or withhold payment until the services have been completed successfully. Additionally, the timing of our revenue recognition may be affected or we may realize lower profits if we incur additional costs due to delays or because we must assign additional personnel to complete the project. Furthermore, our relationships with our clients and our reputation generally may suffer harm as a result of our partners’ unsatisfactory performance.

Our clients could unexpectedly terminate their contracts for our services.

Most of our contracts can be canceled by the client with limited advance notice and without significant penalty. A client’s termination of a contract for our services could result in a loss of expected revenues and additional expenses for staff that were allocated to that client’s project. We could be required to maintain underutilized employees who were assigned to the terminated contract. The unexpected cancellation or significant reduction in the scope of any of our large projects, or client termination of one or more recurring revenue contracts (see

explanation of “Long Term and Retainer Revenues” in Part I, Item 1, above), could have a material adverse effect on our business, financial condition and results of operations.

We may be liable to our clients for substantial damages caused by our unauthorized disclosures of confidential information, breaches of data security, failure to remedy system failures or other material contract breaches.

We frequently receive confidential information from our clients, including confidential customer data that we use to develop solutions. If any person, including one of our employees, misappropriates client confidential information, or if client confidential information is inappropriately disclosed due to a breach of our computer systems, system failures or otherwise, we may have substantial liabilities to our clients or client customers.

Further, many of our projects involve technology applications or systems that are critical to the operations of our clients’ businesses and handle very large volumes of transactions. If we fail to perform our services correctly, we may be unable to deliver applications or systems to our clients with the promised functionality or within the promised time frame, or to satisfy the required service levels for support and maintenance. While we have taken precautionary actions to create redundancy and back-up systems, any such failures by us could result in claims by our clients for substantial damages against us.

Although we attempt to limit the amount and type of our contractual liability for our breaches of confidentiality or data security, defects in the applications or systems we deliver or other material contract breaches that we may commit during the performance of our services (collectively, “Contract Breaches”), in certain circumstances we agree to unlimited liability for Contract Breaches. Additionally, while we carry insurance that is intended to mitigate our liabilities for such Contract Breaches, we cannot be assured that our insurance coverages will be applicable and enforceable in all cases, or sufficient to cover substantial liabilities that we may incur. Further, we cannot be assured that contractual limitations on liability will be applicable and enforceable in all cases. Accordingly, even if our insurance coverages or contractual limitations on liability are found to be applicable and enforceable, our liability to our clients for Contract Breaches could be material in amount and affect our business, financial condition and results of operations. Moreover, such claims may harm our reputation and cause us to lose clients.

Our services may infringe the intellectual property rights of third parties, and create liability for us as well as harm our reputation and client relationships.

The services that we offer to clients may infringe the intellectual property (“IP”) rights of third parties and result in legal claims against our clients and Sapient. These claims may damage our reputation, adversely impact our client relationships and create liability for us. Moreover, although we generally agree in our client contracts to indemnify the clients for expenses or liabilities they incur as a result of third party IP infringement claims associated with our services, the resolution of these claims, irrespective of whether a court determines that our services infringed another party’s IP rights, may be time-consuming, disruptive to our business and extraordinarily costly. Finally, in connection with an IP infringement dispute, we may be required to cease using or developing certain IP that we offer to our clients. These circumstances could adversely impact our ability to generate revenue as well as require us to incur significant expense to develop alternative or modified services for our clients.

We may be unable to protect our proprietary methodology.

Our success depends, in part, upon our proprietary methodology and other IP rights. We rely upon a combination of trade secrets, nondisclosure and other contractual arrangements, and copyright and trademark laws to protect our proprietary rights. We enter into confidentiality agreements with our employees, contractors, vendors and clients, and limit access to and distribution of our proprietary information. We cannot be certain that the steps we take in this regard will be adequate to deter misappropriation of our proprietary information or that we will be able to detect unauthorized use and take appropriate steps to enforce our IP rights.

Our stock price is volatile and may result in substantial losses for investors.

The trading price of our common stock has been subject to wide fluctuations, particularly in the second half of 2008 and the first half of 2009. Our trading price could continue to be subject to wide fluctuations in response to:


	•	quarterly variations in operating results and achievement of key business metrics by us or our competitors;

	•	changes in operating results estimates by securities analysts;

	•	any differences between our reported results and securities analysts’ published or unpublished expectations;

	•	announcements of new contracts or service offerings made by us or our competitors;

	•	announcements of acquisitions or joint ventures made by us or our competitors; and

	•	general economic or stock market conditions.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of their securities. The commencement of this type of litigation against us could result in substantial costs and a diversion of management’s attention and resources.

Certain of our directors have significant voting power and may effectively control the outcome of any stockholder vote.

Jerry A. Greenberg, our former Co-Chairman of the Board of Directors and Chief Executive Officer of the Company and current member of our Board of Directors, and J. Stuart Moore, our former Co-Chairman of the Board of Directors and Co-Chief Executive Officer and current member of our Board of Directors, own, in the aggregate, approximately 20% of our outstanding common stock as of February 21, 2011. As a result, they have the ability to substantially influence and may effectively control the outcome of corporate actions requiring stockholder approval, including the election of directors. This concentration of ownership may also have the effect of delaying or preventing a change in control of Sapient, even if such a change in control would benefit other investors.

We are dependent on our key employees.

Our success depends in large part upon the continued services of a number of key employees. Our employment arrangements with key personnel provide that employment is terminable at will by either party. The loss of the services of any of our key personnel could have a material adverse effect on our business, financial condition and results of operations. In addition, if our key employees resign from Sapient to join a competitor or to form a competing company, the loss of such personnel and any resulting loss of existing or potential clients to any such competitor could have a material adverse effect on our business, financial condition and results of operations. Although, to the extent permitted by law, we require our employees to sign agreements prohibiting them from joining a competitor, forming a competing company or soliciting our clients or employees for certain periods of time, we cannot be certain that these agreements will be effective in preventing our key employees from engaging in these actions or that courts or other adjudicative entities will substantially enforce these agreements.

We may be unable to achieve anticipated benefits from acquisitions.

The anticipated benefits from any acquisitions that we may undertake might not be achieved. For example, if we acquire a company, we cannot be certain that clients of the acquired business will continue to conduct business with us, or that employees of the acquired business will continue their employment or integrate successfully into our operations and culture. The identification, consummation and integration of acquisitions and joint ventures require substantial attention from management. The diversion of management’s attention, as well as any difficulties encountered in the integration process, could have an adverse impact on our business, financial condition and results of operations. Further, we may incur significant expenses in completing any such acquisitions, and we may assume significant liabilities, some of which may be unknown at the time of such acquisition.

The failure to successfully and timely implement certain financial system changes to improve operating efficiency and enhance our reporting controls could harm our business.

In parallel with the foregoing operational process redesign and role transition activities, we have implemented and continue to install several upgrades and enhancements to our financial systems. We expect these initiatives to enable us to achieve greater operating and financial reporting efficiency and also enhance our existing control environment through increased levels of automation of certain processes. Failure to successfully execute these initiatives in a timely, effective and efficient manner could result in the disruption of our operations, the inability to comply with our Sarbanes-Oxley obligations and the inability to report our financial results in a timely and accurate manner.

A failure to maintain effective internal controls over financial reporting could have a material adverse impact on the Company.

We are required to maintain internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. We may in the future identify material weaknesses in our internal control over financial reporting. Further, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements, regardless of the adequacy of such controls. Should we fail either to maintain adequate internal controls or implement required new or improved controls, our business and results of operations could be harmed, we may be unable to report properly or timely the results of our operations, and investors could lose faith in the reliability of our financial statements. Consequently, the price of our securities may be adversely and materially impacted.


Item 1B.	*Unresolved Staff Comments*

None.


Item 2.	*Properties*

Our headquarters and principal administrative, finance, selling and marketing operations are located in approximately 32,000 square feet of leased office space in Boston, Massachusetts. We also lease offices in other parts of the United States and in Canada, Europe, India, Asia and Australia. We do not own any material real property. Substantially all of our office space is leased under long-term leases with varying expiration dates.


Item 3.	*Legal Proceedings*

We are subject to certain legal proceedings and claims, as discussed below. We are also subject to certain other legal proceedings and claims that have arisen in the course of business and that have not been fully adjudicated. However, the results of legal proceedings cannot be predicted with certainty. Should the we fail to prevail in any of these legal matters or should several of these legal matters be resolved against us in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.

We accrue contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. We are subject to various legal claims totaling approximately $10.7 million, for which the likelihood of a loss is considered more than remote, and various administrative audits each of which have arisen in the ordinary course of our business. We have an accrual at December 31, 2010 of approximately $0.7 million related to certain of these items. We intend to defend these matters vigorously, although the ultimate outcome of these items is uncertain and the potential loss, if any, may be significantly higher or lower than the amounts that we have previously accrued.


Item 4.	*Removed and Reserved*

PART II


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

Market Price of Common Stock

Our common stock is quoted on the Nasdaq Global Select Stock Market under the symbol “SAPE.” The following table sets forth, for the periods indicated, the high and low intraday sale prices for our common stock.


	High		Low

2009:
First Quarter	$	5.01	$	3.25
Second Quarter	$	6.46	$	4.26
Third Quarter	$	8.44	$	5.66
Fourth Quarter	$	9.02	$	6.99
2010:
First Quarter	$	10.01	$	7.60
Second Quarter	$	11.00	$	9.03
Third Quarter	$	12.17	$	9.71
Fourth Quarter	$	13.44	$	11.66

On February 18, 2011 the last reported sale price of our common stock was $12.21 per share. As of February 18, 2011 there were approximately 366 holders of record of our common stock.

Stock Performance

The following graph compares the cumulative five-year total stockholder return on our common stock from December 31, 2005 through December 31, 2010, with the cumulative five-year total return, during the equivalent period, on the (i) NASDAQ Composite Index and (ii) Dow Jones US Technology Index. The comparison assumes the investment of $100 on December 31, 2004 in our common stock and in each of the comparison indices and, in each case, assumes reinvestment of all dividends.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Sapient Corporation, the NASDAQ Composite Index
and the Dow Jones US Technology Index


	12/05		12/06		12/07		12/08		12/09		12/10
Sapient Corporation		100.00		96.49		154.83		78.03		145.34		221.21
NASDAQ Composite		100.00		111.74		124.67		73.77		107.12		125.93
Dow Jones US Technology		100.00		110.10		127.38		72.78		119.70		134.76

Dividends

On February 18, 2010 we declared a special dividend of $0.35 per share for all shareholders as of the record date of March 1, 2010, payable on March 15, 2010. In addition, we declared a special dividend equivalent payment of $0.35 per Restricted Stock Unit (“RSU”) for all outstanding RSU awards as of March 1, 2010, to be paid in shares when the awards vest. If an RSU does not vest, the dividend is forfeited. We may declare or pay special cash dividends on our common stock in the near future. The payment of future dividends is within the discretion of our Board of Directors and will depend upon various factors including our results of operations, financial condition, cash requirements and business projections.

Issuer Purchases of Equity Securities

We did not make any purchases during the three months ended December 31, 2010.


Item 6.	*Selected Financial Data*

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the notes thereto and management’s discussion and analysis of financial condition and results of operations included elsewhere in this Annual Report. The balance sheet data at December 31, 2010 and 2009 and the statement of operations data for each of the three years ended December 31, 2010, 2009 and 2008 are derived from the audited consolidated financial statements for such years, included elsewhere in this Annual Report. The statement of operations data set forth below for the years ended December 31, 2007 and 2006 and the balance sheet data set forth below at December 31, 2008, 2007 and 2006 are derived from our consolidated financial statements not included in the annual report and are presented herein on an unaudited basis.


	Twelve Months Ended December 31,
	2010		2009			2008		2007		2006
	(In thousands, except per share amounts)

Statement of Operations Data(1):
Revenues:
Service revenues	$	823,511	$	638,884		$	662,412	$	546,438	$	405,582
Reimbursable expenses		40,008		27,794			25,076		19,551		16,061

Total gross revenues		863,519		666,678			687,488		565,989		421,643

Operating expenses:
Project personnel expenses		563,930		435,859			435,508		372,363		270,213
Reimbursable expenses		40,008		27,794			25,076		19,551		16,061

Total project personnel expenses and reimbursable expenses		603,938		463,653			460,584		391,914		286,274
Selling and marketing expenses		38,833		31,931			36,233		33,113		24,025
General and administrative expenses		150,877		118,018			123,188		120,617		109,022
Restructuring and other related charges		414		4,548			194		32		1,912
Amortization of intangible assets		5,448		5,146			2,660		2,038		3,564
Acquisition costs and other related charges		111		2,962			—		—		—

Total operating expenses		799,621		626,258			622,859		547,714		424,797

Income (loss) from operations		63,898		40,420			64,629		18,275		(3,154	)
Other income, net		196		267			1,280		422		1,929
Interest income, net		3,509		2,889			5,806		5,478		4,238
Income from continuing operations before income taxes, discontinued operations and cumulative effect of accounting change		67,603		43,576			71,715		24,175		3,013
(Benefit from) provision for income taxes:
Provision for income taxes		23,798		13,735			9,239		8,959		4,432
Benefit from release of valuation allowance		—		(58,285	)		—		—		—

(Benefit from) provision for income taxes		23,798		(44,550	)		9,239		8,959		4,432

Income (loss) from continuing operations before discontinued, operations and cumulative effect of accounting change		43,805		88,126			62,476		15,216		(1,419	)
(Loss) income from discontinued operations		—		—			—		—		(433	)
Gain on disposal of discontinued operations (net of tax provision of $342)		—		—			—		—		4,834

Income before cumulative effect of accounting change		43,805		88,126			62,476		15,216		2,982
Cumulative effect of accounting change		—		—			—		—		154

Net income	$	43,805	$	88,126		$	62,476	$	15,216	$	3,136

Basic income (loss) per share from continuing operations	$	0.33	$	0.69		$	0.50	$	0.12	$	(0.01	)

Diluted income (loss) per share from continuing operations	$	0.32	$	0.66		$	0.48	$	0.12	$	(0.01	)

Basic net income per share	$	0.33	$	0.69		$	0.50	$	0.12	$	0.03

Diluted net income per share	$	0.32	$	0.66		$	0.48	$	0.12	$	0.03

Weighted average common shares		132,060		127,969			125,988		124,180		123,692
Weighted average dilutive common share equivalents		6,669		4,912			3,176		3,711		—

Weighted average common shares and dilutive common share equivalents		138,729		132,881			129,164		127,891		123,692


	Twelve Months Ended December 31,
	2010		2009		2008		2007		2006

Balance Sheet Data:
Working capital	$	301,963	$	276,564	$	198,062	$	189,201	$	148,899
Total assets		623,722		594,919		452,270		407,604		342,064
Total long-term liabilities		22,396		21,207		22,393		20,598		18,386
Redeemable common stock		—		—		—		290		480
Total stockholders’ equity(2)		442,305		426,201		301,947		260,559		214,497
Cash dividends declared	$	46,843	$	—	$	—	$	—	$	—


(1)		We sold our HWT, Inc. (“HWT”) unit in May 2006. As a result, operating results of this subsidiary for all prior periods presented have been reclassified into the caption “(Loss) income from discontinued operations.”

(2)		On February 18, 2010 we declared a one-time special dividend equivalent payment of $0.35 per Restricted Stock Unit (“RSU”) for all outstanding RSU awards as of March 1, 2010, to be paid in shares when the awards vest. If an RSU does not vest, the dividend is forfeited.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

Overview

The Company

Sapient Corporation (“Sapient” or the “Company”), a global services firm, helps clients transform in the areas of business, marketing, and technology and succeed in an increasingly complex marketplace. We market our services through three primary business units — SapientNitro, Sapient Global Markets, and Sapient Government Services — positioned at the intersection of marketing, business and technology. SapientNitro, one of the world’s largest independent digitally-led, integrated marketing services firms, provides multi-channel marketing and commerce services that span brand and marketing strategy, digital/broadcast/print advertising creative, web design and development, e-commerce, media planning and buying, and emerging platforms, such as social media and mobile. Through SapientNitro we offer a complete, multi-channel marketing and commerce solution that strengthens relationships between our clients’ customers and their brands. For simplicity of operations, SapientNitro also includes our traditional IT consulting services, which is currently, and is expected to remain, below 10% of our total revenues. Our Sapient Global Markets segment provides business and IT strategy, process and system design, program management, custom development and package implementation, systems integration and outsourced services to financial services and energy services market leaders. A core focus area within Sapient Global Markets is trading and risk management, to which we bring more than 15 years of experience and a globally integrated service in derivatives processing. Sapient Government Services provides consulting, technology, and marketing services to a wide array of U.S. governmental agencies. Focused on driving long-term change and transforming the citizen experience, we use technology to help government agencies become more accessible, efficient, and transparent.

Founded in 1990 and incorporated in Delaware in 1991, Sapient maintains a strong global presence with offices around the world. We utilize our proprietary Global Distributed Delivery (“GDD”) model in support of our SapientNitro and Sapient Global Markets segments. Our GDD model enables us to provide high-quality, cost-effective solutions under accelerated project schedules. By engaging India’s highly skilled technology specialists, we can provide services at lower total costs as well as offer a continuous delivery capability resulting from time differences between India and the countries we serve. We also employ our GDD model to provide application management services.

Summary of Results of Operations

Our service revenues increased $184.6 million, or 29%, compared to 2009. This was due to an increase in demand for our services in all three of our primary business units. Compared geographically to 2009, 2010 service revenue growth from clients in the United States increased 37% compared to 19% growth from our international

clients. Service revenues also increased, to lesser extent, due to incremental service revenues from our Nitro acquisition. Nitro’s results of operations are reflected in ours as of the acquisition date, July 1, 2009. Our income from operations increased $23.5 million, or 58%, compared to 2009. This increase is primarily due to higher margin (service revenues less project personnel expenses) compared to 2009 as we were able to maintain these expenses at 68% of service revenues while service revenues grew 29%. In addition we also maintained selling and marketing expenses and general and administrative expenses as a percentage of revenue. Finally, 2010 operating income increased compared to the prior year as 2009 reflected more restructuring and acquisition related expenses as we had more activity of this nature in 2009. Our net income decreased $44.3 million, or 50%, compared to 2009. This was due to a benefit of $58.3 million from the release of our valuation allowance on our U.S. deferred tax assets at the end of 2009. Through the end of 2009 we had achieved sustained profitability in the U.S. and this was the primary reason we released the valuation allowance on our U.S. deferred tax assets. Please see our Results of Operations section for our discussion and analysis of these items.

In 2009 our service revenues decreased $23.5 million, or 4%, compared to 2008. The decrease in our service revenues was due to pricing pressures, and in the first half of 2009, a decrease in demand for our services compared to 2008. These negative factors were a result of the overall economic downturn that began in the latter half of 2008. Revenue also decreased due to currency fluctuations. These decreases were partially offset by incremental service revenues from our Nitro and DCG acquisitions. DCG’s results of operations are reflected in ours as of the acquisition date, August 6, 2008. Our income from operations decreased $24.2 million, or 37%, compared to 2008. The decrease in operating income is primarily due to lower margin as a result of pricing pressures on our service revenues, causing 2009 margin to drop to 32% of service revenues compared to 34% in 2008. The increases in restructuring expenses, amortization expense and acquisition costs were offset by decreases in selling and marketing expenses and general and administrative expenses. Our net income increased $25.7 million, or 41%, compared to 2008. The main reason for the increase in net income was the benefit of $58.3 million from the release of our valuation allowance on our U.S. deferred tax assets. Please see our Results of Operations section for our discussion and analysis of these items.

Non-GAAP Financial Measures

In our quarterly earnings press releases and conference calls we discuss two key measures that are not calculated according to generally accepted accounting principles (“GAAP”). The first non-GAAP measure is operating income, as reported on our consolidated and condensed statements of operations, excluding certain expenses and benefits, which we call “non-GAAP income from operations”. The second measure calculates non-GAAP income from operations as a percentage of reported services revenues, which we call “non-GAAP operating margin”. We believe that non-GAAP measures help illustrate underlying trends in our business, and use the measures to establish budgets and operational goals, communicated internally and externally, for managing our business and evaluating our performance. We exclude certain expenses from our non-GAAP operating income that we believe are not reflective of these underlying business trends or useful measures for determining our operational performance and overall business strategy. These non-GAAP financial measures should be used in addition to and in conjunction with GAAP results. The following table reconciles income from operations as reported on our consolidated and condensed statements of operations to non-GAAP income from operations and non-GAAP operating margin for 2010, 2009 and 2008 (in thousands, except percentages):


	Twelve Months Ended December 31,
	2010			2009			2008

Service revenues	$	823,511		$	638,884		$	662,412

GAAP income from operations	$	63,898		$	40,420		$	64,629
Stock-based compensation expense		18,156			14,921			15,213
Restructuring and other related charges		414			4,548			194
Amortization of purchased intangible assets		5,448			5,146			2,660
Acquisition costs and other related charges		111			2,962			—
Stock-based compensation review and restatement benefit		(301	)		(992	)		(36	)

Non-GAAP income from operations	$	87,726		$	67,005		$	82,660

GAAP operating margin		7.8	%		6.3	%		9.8	%
Effect of adjustments detailed above		2.9	%		4.2	%		2.7	%

Non-GAAP operating margin		10.7	%		10.5	%		12.5	%

The increase in non-GAAP operating margin in 2010 compared to 2009, as an amount and as a percentage of service revenues, is due to the increase in income from operations. The decrease in 2009 compared to 2008 in both amount and percentage is due to the decrease in income from operations.

When important to management’s analysis operating results are compared in “constant currency terms”, which excludes the effect of foreign exchange rate fluctuations, a non-GAAP measure. The effect is excluded by translating the current period’s local currency service revenues and expenses into U.S. dollars at the average exchange rates of the prior period of comparison. For a discussion of our exposure to exchange rates see “Item 7a. Quantitative and Qualitative Disclosures About Market Risk”.

Summary of Critical Accounting Policies; Significant Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates relied upon in preparing these financial statements include estimated costs to complete long-term contracts, estimated fair value of investments, including whether any decline in such fair value is other-than-temporary, estimated fair values of reporting units used to evaluate goodwill for impairment stock-based compensation expenses, restructuring and other related charges, contingent liabilities and recoverability of our net deferred tax assets and related valuation allowances. Although management regularly assesses these estimates, actual results

could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. Management bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances

A summary of those accounting policies, significant judgments and estimates that we believe are most critical to fully understanding and evaluating our financial results is set forth below. This summary should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report.

Revenue Recognition

We recognize revenue from the provision of professional services, digital marketing services and offline printing and production services arrangements with our clients when persuasive evidence of an arrangement exists, services or product have been provided to the customer, the fee is fixed or determinable and collectability is reasonably assured. In instances where the customer, at its discretion, has the right to reject the services or product prior to final acceptance, revenue is deferred until such acceptance occurs.

We recognize revenues from our fixed-price and time-and-materials technology implementation consulting contracts using the percentage-of-completion method. We use the percentage-of-completion method because the nature of the services provided in these contracts are similar to contracts that are required to use the percentage-of-completion per generally accepted accounting principles, like services provided by engineers and architects, for example. Revenues generated from fixed-price and time-and-materials non-technology implementation contracts, except for support and maintenance contracts, are recognized based upon a proportional performance model. Our percentage-of-completion method and our proportional performance method of accounting calculate revenue based on the percentage-of-labor incurred to estimated total labor. This method is used because reasonably dependable estimates of the revenues and labor applicable to various stages of an arrangement can be made, based on historical experience and milestones set in the contract. Revenue from time-and-materials contracts is recognized as services are provided. In situations where time-and-materials contracts require deliverables and provide for a ceiling on fees that can be charged, the arrangement is recognized as time-and-materials are incurred unless calculated fees are estimated to exceed the ceiling, in which case revenue recognition is based on the proportional performance method. Revenues generated from staff augmentation, support and maintenance contracts are recognized ratably over the arrangement’s term.

Our project delivery and business unit finance personnel continually review labor incurred and estimated total labor, which may result in revisions to the amount of recognized revenue under an arrangement. Certain arrangements provide for revenue to be generated based upon the achievement of certain performance standards. Revenue related to achieving such performance standards is recognized when such standards are achieved. Revenue related to the achievement of performance standards was immaterial for any of the periods presented in our consolidated financial statements.

Revenues related to our digital marketing media sales are recorded as the net amount of our gross billings less pass-through expenses charged to a client. In most cases, the amount that is billed to clients significantly exceeds the amount of revenue that is earned and reflected in our financial statements, because of various pass-through expenses such as production and media costs. We are required to assess whether the agency or the third-party supplier is the primary obligor. We evaluate the terms of our client agreements as part of this assessment. In addition, we give appropriate consideration to other key indicators such as latitude in establishing price, discretion in supplier selection and credit risk to the vendor. Because we broadly operate as an advertising agency based on our primary lines of business and given the industry practice to generally record revenue on a net versus gross basis, we believe that there must be strong evidence in place to overcome the presumption of net revenue accounting. Accordingly, we record revenue net of pass-through charges when we believe the key indicators of the business suggest we generally act as an agent on behalf of our clients in our primary lines of business. In those businesses where the key indicators suggest we act as a principal, we record the gross amount billed to the client as revenue.

Our marketing services, including access to our BridgeTrack software application, help our clients optimize their cross platform marketing effectively to track behavior and improve conversion rates through data-driven

analysis. These services are provided in exchange for monthly retainer fees and license fees and are recognized as the monthly services are provided.

Revenue from offline printing and production services are recognized at the time title of the related items transfers to our customers, provided that all other revenue recognition criteria have been met.

If we do not accurately estimate the resources required or the scope of work to be performed for an arrangement or we do not manage the project properly within the planned time period, then we may recognize a loss on the arrangement. Provisions for estimated losses on uncompleted arrangements are made on an arrangement-by-arrangement basis and are recognized in the period in which such losses are identified. We have committed unanticipated additional resources to complete projects in the past, which has resulted in lower than anticipated profitability or losses on those arrangements. We expect that we will experience similar situations in the future. In addition, we may fix the price for some projects at an early stage of the process, which could result in a fixed-price that is too low and, therefore, a corrected estimation could adversely affect our business, financial condition and results of operations.

We recognize revenue for services when collection from the client is reasonably assured, and our fees are fixed or determinable, provided that all other revenue recognition criteria have been met. We establish billing terms at the time project deliverables and milestones are agreed. Our normal payment terms are thirty days from invoice date. Revenues recognized in excess of the amounts invoiced to clients are classified as unbilled revenues. Amounts invoiced to clients in excess of revenue recognized are classified as deferred revenues. Our project delivery and business unit finance personnel continually monitor timely payments from our clients and assess any collection issues.

Valuation and Impairment of Investments and/or Marketable Securities and Other Financial Assets

Assessing whether a decline in value in available-for-sale securities is other-than-temporary requires us to assess whether we intend to sell the security and if it would be more likely than not that we would be required to sell the available-for-sale security before its cost can be recovered, for reasons such as contractual obligations or working capital needs. Also, we have to assess whether cost of the available-for-sale security will be recovered regardless of intent and/or requirement to sell. This assessment requires us to evaluate, among other factors: the duration of the period that, and extent to which, the fair value is less than cost basis, the financial health of the business outlook for the issuer, including industry and sector performance, operational and financing cash flow factors and overall market conditions and trends. Assessing the above factors involves inherent uncertainty. Accordingly, declines in fair value, if recorded, could be materially different from the actual market performance of marketable securities in our portfolio, if, among other things, relevant information related to our marketable securities was not publicly available or other factors not considered by us would have been relevant to the determination of impairment.

Effective January 1, 2008 we adopted new accounting standard stating that valuation techniques used to measure fair value under the current fair value standard must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:


	•	Level 1 — Quoted prices in active markets for identical assets or liabilities.

	•	Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

	•	Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

Accounting for Income Taxes

We record income taxes under the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carry forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences, operating losses, or tax credit carry forwards are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We are required to establish a valuation allowance based on whether realization of deferred tax assets are considered to be more likely than not. Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We evaluate the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. We reinvest certain earnings of foreign operations indefinitely and, accordingly, we do not provide for income taxes that could result from the remittance of such earnings. When we can no longer assert indefinite reinvestment of foreign earnings we must provide for income taxes on these amounts.

Accounting for income taxes requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely than not that the position will be sustained upon audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any changes in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision.

We record interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes. As of December 31, 2010 and 2009, interest and penalties accrued were approximately $1.1 million and $1.6 million, respectively.

Valuation of Long-Lived Assets and Goodwill

Long-lived assets are reviewed for impairment on a regular basis for the existence of facts and circumstances that may suggest that the carrying amount of an asset, or group of assets, may not be recoverable. Recoverability of long-lived assets or groups of assets is assessed based on a comparison of the carrying amount to the estimated undiscounted future cash flows. If estimated future undiscounted net cash flows are less than the carrying amount, the asset is considered impaired and expense is recorded at an amount required to reduce the carrying amount to fair value. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results. We assess the useful lives and possible impairment of long — lived assets when an event occurs that may trigger such a review. Factors we consider important which could trigger an impairment review include, but are not limited to:


	•	significant underperformance relative to historical or projected future operating results;

	•	significant changes in the manner of or use of the acquired assets or the strategy for our overall business;

	•	identification of other impaired assets within a reporting unit;

	•	disposition of a significant portion of an operating segment;

	•	significant negative industry or economic trends;

	•	significant decline in our stock price for a sustained period; and

	•	a decline in our market capitalization relative to net book value.

Determining whether a triggering event has occurred includes significant judgment from management.

The goodwill impairment test requires us to identify reporting units and to determine estimates of the fair value of our reporting units as of the date we test for impairment. Assets and liabilities, including goodwill, were allocated to reporting units based on factors such as specific identification and percentage of revenue. To conduct a goodwill impairment test, the fair value of the reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, we record an impairment loss to the extent that the carrying value of goodwill exceeds its implied fair value. Management estimates the fair value of the Company’s reporting units using the income approach, via discounted cash flow valuation models which include, but are not limited to, assumptions such as a “risk-free” rate of return on an investment, the weighted average cost of capital of a market participant, and future revenue, operating margin, working capital and capital expenditure trends. We performed the annual assessment of our goodwill during the fourth quarter of 2010 and determined that the estimated fair values of our reporting units significantly exceed their carrying value and, therefore, goodwill was not impaired. We complete goodwill impairment analyses at least annually, or more frequently when events and circumstances, like the ones mentioned above, occur indicating that the recorded goodwill may be impaired. Determining fair value of reporting units and goodwill includes significant judgment by management and different judgments could yield different results.

Restructuring and Other Related Charges

From time to time we establish exit plans for restructuring activities which require that we make estimates as to the nature, timing and amount of the exit costs that we specifically identified. The consolidation of facilities requires us to make estimates, which included contractual rental commitments or lease buy-outs for office space vacated and related costs, offset by estimated sub-lease income. We review on a regular basis our sub-lease assumptions and lease buy-out assumptions. These estimates include lease buy-out costs, anticipated sublease rates, other terms and conditions in sub-lease contracts, and the timing of these sub-lease arrangements. If the rental markets continue to change, our lease buy-out, sub-lease and space requirement assumptions may not be accurate and it is possible that changes in these estimates could materially affect our financial condition and results of operations. Our sub-lease income estimates are sensitive to the level of sub-lease rent anticipated and the timing of sub-lease commencement. If the estimated sub-lease dates were to be delayed by six months, based on our current estimates, we would potentially have to recognize an additional $0.3 million in our consolidated statement of operations for restructuring and other related charges. A 10% reduction in our sublease rate would have resulted in additional charges of approximately $0.1 million as of the end of 2010.

Contingent Liabilities

We have certain contingent liabilities that arise in the ordinary course of our business activities. We accrue contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. We are subject to various legal claims totaling approximately $10.7 million, for which the likelihood of loss is considered more than remote, and various administrative audits, each of which have arisen in the ordinary course of our business. We have an accrual at December 31, 2010 of approximately $0.7 million related to certain of these items. We intend to defend these matters vigorously, although the ultimate outcome of these items is uncertain and the potential loss, if any, may be significantly higher or lower than the amounts we have accrued.

Accounting for Acquisitions

We account for acquisitions completed after December 31, 2008 using the acquisition method. The acquisition method requires us to recognize and measure identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquired entity. Our accounting for acquisitions involves significant judgments and estimates primarily, but not limited to: the fair value of certain forms of consideration, the fair value of acquired intangible assets, which involve projections of future revenues and cash flows, the fair value of other acquired assets and assumed liabilities, including potential contingencies, and the useful lives and, as applicable, the reporting unit, of the assets. The impact of prior or future acquisitions on our financial position or results of operations may be materially impacted by the change in or initial selection of assumptions and estimates.

Acquisitions completed prior to January 1, 2009 are accounted for using the purchase method. The purchase method and acquisition method are similar in many aspects, though the two most significant changes, as it pertains to our financial statements, are how the purchase method accounts for contingent consideration and transaction

costs. Under the purchase method, contingent consideration is only recorded in the period in which the consideration is earned as goodwill in that period. Under the acquisition method we are required to estimate the fair value of contingent consideration as an assumed liability on the acquisition date by estimating the amount of the consideration and probability of the contingencies being met. This estimate is recorded as goodwill on the acquisition date and its value is assessed at each reporting date. Any subsequent change to the estimated fair value is reflected in earnings and not in goodwill. Under the purchase method we were able to record transaction costs related to the completion of the acquisition as goodwill. Under the acquisition method we are required to expense these costs as they are incurred. These costs are reflected in “acquisition costs and other related charges” on our consolidated statement of operations.

Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated into our financial statements.

Results of Operations

The following table sets forth items included in our consolidated statements of operations as a percentage of service revenues of:


	Year Ended December 31,
	2010			2009			2008

Revenues:
Service revenues		100	%		100	%		100	%
Reimbursable expenses		5	%		4	%		4	%

Total gross revenues		105	%		104	%		104	%
Operating expenses:
Project personnel expenses		68	%		68	%		66	%
Reimbursable expenses		5	%		4	%		4	%

Total project personnel expenses and reimbursable expenses		73	%		73	%		70	%
Selling and marketing expenses		5	%		5	%		5	%
General and administrative expenses		18	%		18	%		19	%
Restructuring and other related charges		0	%		1	%		0	%
Amortization of purchased intangible assets		1	%		1	%		0	%
Acquisition costs and other related charges		0	%		0	%		0	%

Total operating expenses (net of reimbursable expenses)		92	%		93	%		90	%

Income from operations		8	%		6	%		10	%
Other income, net		0	%		0	%		0	%
Interest income, net		1	%		1	%		1	%

Income before income taxes		8	%		7	%		11	%

Provision for income taxes		3	%		2	%		2	%
Benefit from release of valuation allowance		0	%		−9	%		0	%

Provision for (benefit from) income taxes		3	%		−7	%		2	%

Net income		5	%		14	%		9	%

Years Ended December 31, 2010 and 2009

Service Revenues

Our service revenues for 2010 and 2009 were as follows (in thousands, except percentages):


	Twelve Months Ended
	December 31,						Percentage
	2010		2009		Increase		Increase

Service revenues	$	823,511	$	638,884	$	184,627		29	%

Service revenues increased due to an increase in demand for our services in all three of our primary business units. Compared geographically to 2009, 2010 service revenue growth from clients in the United States increased 37% compared to 19% growth from our international clients (see Results by Operating Segment). Service revenues also increased, to lesser extent, due to incremental service revenues from our Nitro acquisition.

The following table compares our 2010 service revenues by industry sector to 2009 (in millions, except percentages):


								Percentage
	Twelve Months Ended December 31,				Increase /			Increase /
Industry Sector	2010		2009		(Decrease)			(Decrease)

Financial Services	$	264.8	$	209.0	$	55.8			27	%
Consumer, Travel & Automotive		256.1		152.8		103.3			68	%
Technology & Communications		116.7		99.5		17.2			17	%
Government, Health & Education		104.2		92.9		11.3			12	%
Energy Services		81.7		84.7		(3.0	)		−4	%

Total	$	823.5	$	638.9	$	184.6			29	%

The increases in industry sector service revenues were due to an increase in demand for our services in these sectors, and to a lesser extent in the Consumer, Travel and Automotive sector, incremental revenue from our Nitro acquisition. The decrease in the Energy Services sector was due to a slight decrease in demand compared to 2009.

Utilization represents the percentage of our project personnel’s time spent on billable client work. Our 2010 utilization was 75%, a two point decrease from our 2009 utilization of 77%. Our 2010 average project personnel peoplecount increased 30% compared to 2009, which is in line with service revenue growth. Contractors and consultant usage, measured by expense, increased 20% compared to 2009 as our need for contractors and consultants in specialized areas for certain client contracts increased.

Our five largest customers, in the aggregate, accounted for 19% of our service revenues in 2010 compared to 21% in 2009. No customer accounted for more than 10% of our service revenues for 2010 and 2009. Long Term and Retainer Revenues are revenue from contracts with durations equal to or greater than twelve months, applications management and long term support projects, which are cancelable. Our Long Term and Retainer Revenues were 46% and 44% of our global service revenues for 2010 and 2009, respectively.

Project Personnel Expenses

Project personnel expenses consist principally of salaries and employee benefits for personnel dedicated to client projects, independent contractors and direct expenses incurred to complete projects that were not reimbursed by the client. These expenses represent the most significant costs we incur in providing our services.


	Twelve Months Ended
	December 31,								Percentage
	2010			2009			Increase		Increase

Project personnel expenses	$	563,930		$	435,859		$	128,071		29	%
Project personnel expenses as a percentage of service revenues		68	%		68	%		—

The increase in project personnel expense in 2010 was a direct result of our service revenue growth as we had to increase project personnel peoplecount, use of contractors and consultants and other direct expenses in order to support the increase in demand for our services. Compensation expenses increased $105.7 million, primarily due to a 30% increase in project personnel peoplecount. Contractor and consultant expense increased $12.9 million as our need for contractors and consultants in specialized areas for certain client contracts increased. Travel expenses increased $4.2 million to support revenue growth in addition to the fact that we made a concerted effort to manage these expenses in 2009 during the general economic downturn. Stock-based compensation expense also increased $2.2 million, primarily due to the increase in average stock price compared to 2009. Finally, other project personnel expenses increased, in the aggregate, $3.1 million.

Selling and Marketing Expenses

Selling and marketing expenses consist principally of salaries, employee benefits and travel expenses of selling and marketing personnel, and promotional expenses.


	Twelve Months Ended
	December 31,								Percentage
	2010			2009			Increase		Increase

Selling and marketing expenses	$	38,833		$	31,931		$	6,902		22	%
Selling and marketing expenses as a percentage of service revenues		5	%		5	%		—

The increase in selling and marketing expenses was due to multiple factors: (i) compensation expense increased $3.2 million, primarily due to an increase in peoplecount, (ii) use of consultants increased $2.6 million due to increased need for sales support in light of revenue growth, and (iii) other selling and marketing expenses increased, in the aggregate, $1.1 million.

General and Administrative Expenses

General and administrative expenses relate principally to salaries and employee benefits associated with our management, legal, finance, information technology, hiring, training and administrative groups, and depreciation and occupancy expenses.


	Twelve Months Ended December 31,								Percentage
	2010			2009			Increase		Increase

General and administrative expenses	$	150,877		$	118,018		$	32,859		28	%
General and administrative expenses as a percentage of service revenues		18	%		18	%		—

The increase in general and administrative expenses was due to multiple factors: (i) facilities expenses increased $9.2 million primarily due to our new Special Economic Zone (“SEZ”) unit in India and moving into new office space in the United Kingdom midway through 2009, (ii) compensation expense increased $7.4 million, (iii) consultant expense increased $3.7 million, (iv) professional service fees such as agency fees and legal fees increased, in the aggregate, $3.8 million due to an overall increase in peoplecount and corporate maintenance expenses, respectively, (v) travel expenses increased $2.0 million due to internal projects and the fact that we made a concerted effort to manage these costs in 2009 during the general economic downturn, (vi) stock based compensation expense increased $1.5 million due to incremental expense from the Nitro acquisition and the increase of the company’s average stock price compared to 2009 and (vii) health insurance costs increased $1.2 million due to the overall increase in peoplecount. Finally, other general and administrative expenses increased, in the aggregate, $4.2 million.

Restructuring and Other Related Charges

Restructuring and other related charges decreased $4.1 million compared to 2009 due to two reasons. First, we had a workforce restructuring where we recorded a $2.0 million restructuring charge in the first quarter of 2009. Second, we recorded a $2.6 million charge in the third quarter o 2009 principally as a result of a change in estimated

sub-lease income associated with two previously restructured leases. In 2010 we had one facility restructuring which resulted in a charge of only $0.8 million which was offset by a benefit of $0.4 million principally as a result of a change in estimated sub-lease income associated with two previously restructured leases.

Amortization of Purchased Intangible Assets

During 2010 and 2009, purchased intangible assets consisted of non-compete and non-solicitation agreements, customer lists, and tradenames acquired in business combinations. Amortization expense related to intangible assets increased $0.3 million due to the amortization of intangible assets acquired in the Nitro acquisition, offset by a decrease in expense as the useful economic lives of other intangibles ended.

Acquisition Costs and Other Related Charges

On January 1, 2009, we began accounting for business combinations using the acquisition method which requires acquisition related costs to be expensed as incurred. These costs include expenses associated with third-party professional services we incur related to our evaluation process of potential acquisition opportunities and other related charges. Though we may incur acquisition costs and other related charges it is not indicative that any transaction will be consummated. The reason why expenses decreased in 2010 is that the previous year reflected the bulk of expenses related to the Nitro acquisition while we had no acquisitions in 2010.

Interest and Other Income

Interest and other income is derived primarily from investments in U.S. government securities, bank time deposits, and money market funds.


	Twelve Months Ended December 31,						Percentage
	2010		2009		Increase		Increase

Interest and other income, net	$	3,705	$	3,156	$	549		17	%

Interest and other income increased due to an increase in interest income as we had higher average cash balances compared to 2009, and, to a lesser extent, an increase in interest rates.

Provision for Income Taxes and Benefit From Release of Valuation Allowance

Our income tax is related to federal, state and foreign tax obligations. The increase in our provision for income taxes is due to higher income before taxes and a higher tax rate on our U.S. income due to the release of our valuation allowance on a substantial portion of our U.S. deferred taxes in the fourth quarter of 2009. Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. At December 31, 2008 all of our U.S. deferred tax assets had a full valuation allowance of $112.1 million. Based upon our operating results for the years immediately preceding and through December 31, 2009, as well as an assessment of our expected future results of operations in the U.S., at December 31, 2009 we determined that it had become more likely than not that we would realize a substantial portion of our deferred tax assets in the U.S. As a result, we released our valuation allowances on a substantial portion of our U.S. deferred tax assets in the fourth quarter of 2009. Certain state tax net operating loss carry forwards, as well as a portion of the net operating loss carry forwards relating to certain stock-based compensation deductions will remain with a valuation allowance recorded against them at December 31, 2010 and 2009. At December 31, 2010 we determined that it had become more likely than not that we would realize a portion of our deferred tax assets related to state net operating loss carry forwards. As a result, we released $2.3 million of valuation allowances on our state deferred tax assets which was recorded as an income tax benefit. In addition, at December 31, 2010 we established a valuation allowance of $1.5 million against deferred tax assets in Switzerland, but continue to believe that the deferred tax assets in other foreign subsidiaries are more likely than not to be realized and, therefore, no valuation allowance has been recorded against these assets.

We have gross unrecognized tax benefits, including interest and penalties, of approximately $12.0 million as of December 31, 2010 and $8.9 million as of December 31, 2009. These amounts represent the amount of unrecognized tax benefits that, if recognized, would result in a reduction of our effective tax rate. We recognize

interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes. As of December 31, 2010 interest accrued was approximately $1.1 million.

We conduct business globally and, as a result, one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world.

Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to federal, state or foreign tax laws, future expansion into areas with varying country, state, and local income tax rates, deductibility of certain costs and expenses by jurisdiction and as a result of acquisitions.

Results by Operating Segment

We have discrete financial data by operating segments available based on our method of internal reporting, which disaggregates our operations. Operating segments are defined as components of the Company for which separate financial information is available to manage resources and evaluate performance.

Beginning in 2010, we realigned our North America and Europe operating segments and internal reporting systems to better align our services with our business and operational strategy. The new operating segments are: SapientNitro (new), Sapient Global Markets (new) and Sapient Government Services. As such, results by operating segment for the twelve months ended December 31, 2009 and 2008 have been recast to reflect the operating segment unit structure.

We do not allocate certain marketing and general and administrative expenses to our business unit segments because these activities are managed separately from the business units. We allocated $1.2 million and $0.6 million of $2.0 million related to our first quarter 2009 reduction in workforce to our SapientNitro and Sapient Global Markets segments, respectively. We did not allocate the remaining $0.2 million in costs associated with our 2009 restructuring activity or any costs associated with our 2001, 2002, 2003 and 2010 restructuring events across our operating segments for internal measurement purposes because the substantial majority of these restructuring costs impacted areas of the business that supported the business units and, specifically in the case of our 2001, 2002, 2003 and 2010 events, were related to the initiative to reengineer general and administrative activities and the consolidation of facilities. Management does not allocate stock-based compensation to the segments for the review of results by the Chief Operating Decision Maker (“CODM”). Asset information by operating segment is not reported to or reviewed by the CODM, and therefore, the Company has not disclosed asset information for each operating segment.

The tables below present the service revenues and income before income taxes attributable to these operating segments for the periods presented (in thousands).


	2010		2009

Service Revenues:
SapientNitro	$	514,727	$	405,020
Sapient Global Markets		260,359		198,043
Sapient Government Services		48,425		35,821

Total Service Revenues	$	823,511	$	638,884


	2010			2009

Income Before Income Taxes:
SapientNitro	$	150,429		$	115,461
Sapient Global Markets		84,974			65,316
Sapient Government Services		13,749			10,303

Total Reportable Segments(1)		249,152			191,080
Less Reconciling Items(2)		(181,549	)		(147,504	)

Consolidated Income Before Income Taxes	$	67,603		$	43,576


(1)		Reflects only the direct controllable expenses of each business unit segment. It does not represent the total operating results for each business unit as it does not contain an allocation of certain corporate and general and administrative expenses incurred in support of the business unit segments.

(2)		Adjustments that are made to the total of the segments’ operating income to arrive at consolidated income before income taxes include the following:


	2010			2009

Centrally managed functions	$	161,426		$	125,864
Restructuring and other related charges		414			2,759
Amortization of intangible assets		5,448			5,146
Stock-based compensation expense		18,156			14,921
Interest and other income, net		(3,705	)		(3,156	)
Acquisition costs and other related charges		111			2,962
Unallocated benefits(a)		(301	)		(992	)

	$	181,549		$	147,504


(a)		Reflects stock-option restatement related benefits.

Service Revenues by Operating Segments

Our SapientNitro service revenues increased 27% due to an increase in demand for our services, and to a lesser extent, incremental revenue from our Nitro acquisition. In constant currency terms, SapientNitro service revenues increased 26%.

The following table compares our 2010 SapientNitro service revenues by industry sector to 2009:


								Percentage
	Twelve Months Ended December 31,				Increase /			Increase /
Industry Sector	2010		2009		(Decrease)			(Decrease)

Consumer, Travel & Automotive	$	256.1	$	152.8	$	103.3			68	%
Technology & Communications		116.7		99.5		17.2			17	%
Financial Services		79.5		76.7		2.8			4	%
Government, Health & Education		53.2		57.0		(3.8	)		−7	%
Energy Services		9.2		19.1		(9.9	)		−52	%

Total	$	514.7	$	405.1	$	109.6			27	%

The increases in sector service revenues are due to an increase in demand for our services and, to a lesser extent in the case of the Consumer, Travel and Automotive sector, incremental revenue from our Nitro acquisition. The decreases in the Government, Health and Education and Energy Services sectors are due to a decrease in demand for our services in these sectors.

The following table compares our 2010 Sapient Global Markets service revenues by industry sector to 2009:


							Percentage
	Twelve Months Ended December 31,				Increase /		Increase /
Industry Sector	2010		2009		(Decrease)		(Decrease)

Financial Services	$	185.1	$	132.3	$	52.8		40	%
Government, Health & Education		2.8		—		2.8		NA
Energy Services		72.5		65.7		6.8		10	%

Total	$	260.4	$	198.0	$	62.4		32	%

The increase in service revenues in these sectors is due to an increase in demand for our services.

Service revenues for our Sapient Government Services segment increased by 35% in 2010 compared to 2009 due to an increase in demand for our services in this sector.

Operating Income by Operating Segments

SapientNitro’s operating income increased $35.0 million due to the increase in service revenues. As a percentage of revenue, SapientNitro’s operating income remained constant at 29% compared to 2009.

Sapient Global Markets operating income increased $19.7 million due to the increase in service revenues. As a percentage of revenue, Sapient Global Markets operating income remain constant at 33% compared to 2009.

Sapient Government Services operating income increased $3.5 million due to the increase in service revenues. As a percentage of revenue, Sapient Government Services operating income decreased to 28% compared to 29% in 2009. The reason for the decrease is an increase in contractor and consultant usage as our need for contractors and consultants in specialized areas for certain client contracts increased.

Years Ended December 31, 2009 and 2008

Service Revenues

Our service revenues for 2009 and 2008 were as follows:


	Twelve Months Ended December 31,							Percentage
	2009		2008		Decrease			Decrease

Service revenues	$	638,884	$	662,412	$	(23,528	)		−4	%

Our service revenues decreased $23.5 million, or 4%, in U.S. dollars in 2009 compared to 2008. Service revenues were $670.1 million in constant currency terms, a 1% increase compared to 2008. The increase in constant currency terms was due to incremental revenues from our Nitro and DCG acquisitions, offset by pricing pressures and, to a lesser extent, a decrease in demand for our services in our SapientNitro segment (see Results by Operating Segment).

The following table compares our 2009 service revenues by industry sector to 2008:


								Percentage
	Twelve Months Ended December 31,				Increase /			Increase /
Industry Sector	2009		2008		(Decrease)			(Decrease)

Financial Services	$	209.0	$	203.7	$	5.3			3	%
Consumer, Travel & Automotive		152.8		144.5		8.3			6	%
Technology & Communications		99.5		123.5		(24.0	)		−19	%
Government, Health & Education		92.9		98.3		(5.4	)		−5	%
Energy Services		84.7		92.4		(7.7	)		−8	%

Total	$	638.9	$	662.4	$	(23.5	)		−4	%

The following table compares our 2009 service revenues by industry sector to 2008 in constant currency terms:


								Percentage
	Twelve Months Ended December 31,				Increase /			Increase /
Industry Sector	2009		2008		(Decrease)			(Decrease)

Financial Services	$	217.4	$	203.7	$	13.7			7	%
Consumer, Travel & Automotive		156.7		144.5		12.2			8	%
Technology & Communications		106.7		123.5		(16.8	)		−14	%
Government, Health & Education		100.4		98.3		2.1			2	%
Energy Services		88.9		92.4		(3.5	)		−4	%

Total	$	670.1	$	662.4	$	7.7			1	%

The increases in the Financial Services and Consumer, Travel and Automotive sectors were primarily due to incremental revenues from our DCG and Nitro acquisitions, respectively. The increase in the Government, Health and Education sector was due to an increase in demand in the U.S. in our Government Services segment, offset by pricing pressures. The decreases in other sector revenues were due to pricing pressures, and to a lesser extent, a decrease in demand for our services, primarily in our SapientNitro segment.

Our 2009 utilization was 77%, a one point decrease from our 2008 utilization of 78%. Our 2009 average project personnel peoplecount remained relatively flat compared to 2008. Contractors and consultant usage, measured by expense, increased 4% compared to 2008. In constant currency terms, we increased our use of contractors and consultants by 8% in 2009 compared to 2008 as our need for contractors and consultants in specialized areas for certain client contracts increased.

Our five largest customers, in the aggregate, accounted for 21% of our service revenues in 2009 compared to 24% in 2008. No customer accounted for more than 10% of our service revenues for 2009 or 2008. Long Term and Retainer Revenues were 44% and 43% of our global service revenues for 2009 and 2008, respectively.

Project Personnel Expenses


	Twelve Months Ended December 31,								Percentage
	2009			2008			Increase		Increase

Project personnel expenses	$	435,859		$	435,508		$	351		0	%
Project personnel expenses as a percentage of service revenues		68	%		66	%		2 points

Project personnel expenses remained flat in 2009 compared to 2008. Excluding a decrease of $24.6 million in expenses due to currency fluctuations, project personnel expenses, in constant currency terms, increased $24.9 million, or 6%. This increase was due to multiple factors. Compensation expense increased $11.7 million, though average personnel peoplecount remained constant in 2009 compared to 2008. The reason for the increase is due to an increase in non-India project personnel, whose compensation costs are higher than our India project personnel. Average peoplecount in total remained constant due to a decrease in India project personnel as part of our 2009 restructure event (see Restructuring and Other Related Charges). Other increases were: (i) contractor and consultant expense increased $5.1 million as our need for contractors and consultants in specialized areas for certain client contracts increased, (ii) stock-based compensation expense increased $1.5 million due to an increased number of grants made to project personnel compared to 2008, (iii) other project personnel expenses increased $0.9 million and (iv) project personnel expense increased $13.0 million as a result of the Nitro acquisition. These increases were offset by a decrease of $5.3 million in travel expenses and a $1.9 million decrease in equipment expenses. Travel expenses decreased due to a concerted effort to manage these costs and equipment expenses decreased due to non-recurring, project specific expenses incurred in 2008. Project personnel expenses increased as a percentage of revenue due to pricing pressures on our service revenues.

Selling and Marketing Expenses

Selling and marketing expenses consist principally of salaries, employee benefits and travel expenses of selling and marketing personnel, and promotional expenses.


	Twelve Months Ended
	December 31,									Percentage
	2009			2008			Decrease			Decrease

Selling and marketing expenses	$	31,931		$	36,233		$	(4,302	)		−12	%
Selling and marketing expenses as a percentage of service revenues		5	%		5	%		—

Selling and marketing expenses decreased $4.3 million in 2009 compared to 2008. Selling and marketing compensation expenses decreased $5.7 million and stock-based compensation expenses decreased $1.9 million, primarily due to a decrease in selling and marketing peoplecount. Other selling and marketing expenses also decreased $0.5 million. These decreases were offset by an increase in consultant usage and related travel expenses of $3.0 million and incremental expenses of $0.8 million due to the Nitro acquisition.

General and Administrative Expenses


	Twelve Months Ended December 31,									Percentage
	2009			2008			Decrease			Decrease

General and administrative expenses	$	118,018		$	123,188		$	(5,170	)		−4	%
General and administrative expenses as a percentage of service revenues		18	%		19	%		(1 point	)

General and administrative expenses decreased $5.2 million in 2009 compared to 2008. Excluding a decrease of $5.7 million of expenses due to currency fluctuations, general and administrative expense, in constant currency terms, increased $0.5 million. The increase was due to: (i) incremental expense of $8.3 million due to the Nitro acquisition and (ii) $2.8 million less in currency transaction gains as we recorded a $0.3 million currency loss in 2009 compared to a $2.5 million gain in 2008. These increase were offset by: (i) a $5.0 million decrease in compensation expenses, (ii) a $3.1 million decrease, in the aggregate, of professional fees, employment agency fees and travel expenses as we made a concerted effort to manage these costs, (iii) a decrease of $1.6 million in other general and administrative expenses primarily due to a $0.9 million reimbursement of expenses related to our stock-option restatement in 2007 and a $0.8 million decrease in realized and unrealized losses on hedge positions in 2009 compared to 2008, and (iv) a decrease of $0.8 million in stock-based compensation expense. General and administrative expenses decreased as a percentage of revenue as a result of the foregoing.

Restructuring and Other Related Charges

Restructuring and other related charges increased $4.4 million compared to 2008 due to the 2009 workforce restructuring where we recorded a $2.0 million restructuring charge and a $2.6 million charge recorded in 2009 principally as a result of a change in estimated sub-lease income associated with two previously restructured leases. In 2008 we had a charge of $0.2 million principally related to a change in estimated sub-lease income associated with two previously restructured leases.

Amortization of Purchased Intangible Assets

During 2009 and 2008, amortization of intangible assets consisted primarily of non-compete and non-solicitation agreements, customer lists, an SAP license agreement and tradenames acquired in business combinations. Amortization expense related to intangible assets was $5.1 million in 2009 compared to $2.7 million in 2008. The increase in expense was due to the amortization of intangible assets acquired in the Nitro and DCG acquisitions.

Acquisition Costs and Other Related Charges

On January 1, 2009, we began accounting for business combinations using the acquisition method which requires acquisition related costs to be expensed as incurred. These costs include expenses associated with third-party professional services we incur related to our evaluation process of potential acquisition opportunities and other related charges. Though we may incur acquisition costs and other related charges it is not indicative that any transaction will be consummated. Acquisition costs and other related expenses were $3.0 million for 2009. The majority of these expenses were incurred as a result of the Nitro acquisition.

Interest and Other Income

Interest and other income is derived primarily from investments in U.S. government securities, corporate debt securities, auction rate securities, commercial paper, time deposits, and money market funds.


	Twelve Months Ended December 31,							Percentage
	2009		2008		Decrease			Decrease

Interest and other income, net	$	3,156	$	7,086	$	(3,930	)		−55	%

Interest and other income decreased $3.9 million in 2009 compared to 2008. The decrease was primarily due to a decrease of $2.9 million in interest income due to lower interest rates and a more conservative investment strategy in 2009 compared to 2008. Other income decreased $1.0 million due to a number of non-recurring items that were recorded as income during the three months ended March 31, 2008.

Provision for Income Taxes and Benefit From Release of Valuation Allowance

Our income tax provision is primarily related to foreign, federal alternative minimum tax and state tax obligations and, in 2009, the release of our valuation allowance on our U.S. deferred tax assets (discussed below). Our effective income tax rate for 2009 was (102%) as a result of releasing our valuation allowance on our U.S. deferred tax assets. The releases of the valuation allowance resulted in a benefit of $58.3 million. Excluding this benefit our income tax provision for 2009 was $13.7 million compared to $9.2 million for 2008. The increase, in both dollars and as a percentage of profit before income taxes, was due to the income tax effect of a royalty fee arrangement completed in the fourth quarter of 2009 between the Company and one of its foreign subsidiaries.

Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. At December 31, 2008 all of our U.S. deferred tax assets had a full valuation allowance of $112.1 million. Based upon our operating results for the years immediately preceding and through December 31, 2009, as well as an assessment of our expected future results of operations in the U.S., at December 31, 2009, we determined that it had become more likely than not that we would realize a substantial portion of our deferred tax assets in the U.S. As a result, we released $58.3 million of valuation allowances on our U.S. deferred tax assets.

Certain state tax net operating loss carry forwards, as well as a portion of the net operating loss carry forwards relating to certain stock based compensation deductions remain with a valuation allowance recorded against them at December 31, 2009. We continue to believe that deferred tax assets in Germany, Canada, United Kingdom, Australia and India are more likely than not to be realized and, therefore, no valuation allowance has been recorded against these assets.

Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss, changes to the valuation allowance, changes to federal, state or foreign tax laws, future expansion into areas with varying country, state, and local income tax rates, deductibility of certain costs and expenses by jurisdiction and as a result of acquisitions.

Results by Operating Segment

The tables below present the service revenues and income before income taxes attributable to these operating segments for the periods presented (in thousands):


	2009		2008

Service Revenues:
SapientNitro	$	405,020	$	461,682
Sapient Global Markets		198,043		172,457
Sapient Government Services		35,821		28,273

Total Service Revenues	$	638,884	$	662,412


	2009			2008

Income Before Income Taxes:
SapientNitro	$	115,461		$	144,301
Sapient Global Markets		65,316			62,338
Sapient Government Services		10,303			8,812

Total Reportable Segments(1)		191,080			215,451
Less Reconciling Items(2)		(147,504	)		(143,736	)

Consolidated Income Before Income Taxes	$	43,576		$	71,715


(1)		Reflects only the direct controllable expenses of each business unit segment. It does not represent the total operating results for each business unit as it does not contain an allocation of certain corporate and general and administrative expenses incurred in support of the business unit segments.

(2)		Adjustments that are made to the total of the segments’ operating income to arrive at consolidated income before income taxes include the following:


	2009			2008

Centrally managed functions	$	125,864		$	132,882
Restructuring and other related charges		2,759			194
Amortization of intangible assets		5,146			2,660
Stock-based compensation expense		14,921			15,122
Interest and other income, net		(3,156	)		(7,086	)
Acquisition costs and other related charges		2,962			—
Unallocated expenses(a)		(992	)		(36	)

	$	147,504		$	143,736


(a)		Reflects stock-option restatement related benefits.

Service Revenues by Operating Segments

Our SapientNitro service revenues decreased compared to 2008 due to pricing pressures and, to a lesser extent, a decrease in demand for our services. The decrease was offset by incremental revenues from out Nitro acquisition.

The following table compares 2009 SapientNitro service revenues by industry sector to 2008:


								Percentage
	Twelve Months Ended December 31,				Increase /			Increase /
Industry Sector	2009		2008		(Decrease)			(Decrease)

Consumer, Travel & Automotive	$	152.8	$	144.5	$	8.3			6	%
Technology & Communications		99.5		123.5		(24.0	)		−19	%
Financial Services		76.7		74.7		2.0			3	%
Government, Health & Education		57.0		70.0		(13.0	)		−19	%
Energy Services		19.1		49.0		(29.9	)		−61	%

Total	$	405.1	$	461.7	$	(56.6	)		−12	%

The following table compares 2009 SapientNitro service revenues by industry sector to 2008 in constant currency terms:


								Percentage
	Twelve Months Ended December 31,				Increase /			Increase /
Industry Sector	2009		2008		(Decrease)			(Decrease)

Consumer, Travel & Automotive	$	156.7	$	144.5	$	12.2			8	%
Technology & Communications		106.7		123.5		(16.8	)		−14	%
Financial Services		79.8		74.7		5.1			7	%
Government, Health & Education		64.5		70.0		(5.5	)		−8	%
Energy Services		20.0		49.0		(29.0	)		−59	%

Total	$	427.7	$	461.7	$	(34.0	)		−7	%

On a constant currency basis, the increase in service revenues in the Consumer, Travel and Automotive sector is primarily due to incremental revenue from the Nitro acquisition. The increase in the Financial Services sector is due to an increase in demand for SapientNitro’s services in this sector, offset by pricing pressures. The decrease in service revenues in the other industry sectors is due to pricing pressures and, to a lesser extent, a decrease in demand for our services compared to 2008.

Our Sapient Global Markets service revenues increased compared to 2008. The increase was due to an increase in demand for our services and incremental revenue from our DCG acquisition, offset by pricing pressures.

The following table compares 2009 Sapient Global Markets service revenues by industry sector to 2008:


							Percentage
	Twelve Months Ended December 31,				Increase /		Increase /
Industry Sector	2009		2008		(Decrease)		(Decrease)

Financial Services	$	132.3	$	129.0	$	3.3		3	%
Energy Services		65.7		43.4		22.3		51	%

Total	$	198.0	$	172.4	$	25.6		15	%

The following table compares 2009 Sapient Global Markets service revenues by industry sector to 2008 in constant currency terms:


							Percentage
	Twelve Months Ended December 31,				Increase /		Increase /
Industry Sector	2009		2008		(Decrease)		(Decrease)

Financial Services	$	137.6	$	129.0	$	8.6		7	%
Energy Services		69.0		43.4		25.6		59	%

Total	$	206.6	$	172.4	$	34.2		20	%

In constant currency terms, the increases in the Financial Services and Energy Services sectors were due to an increase in demand and incremental revenue from our DCG acquisition, offset by pricing pressures.

Service revenues for our Government Services operating segment increased compared to the 2008 as we saw a strong market demand for our services in this segment.

Operating Income by Operating Segments

SapientNitro’s operating income decreased $28.8 million due to the decrease in service revenues. As a percentage of revenue, SapientNitro’s operating income decreased to 29% compared to 31% in 2008. This decrease was also a result of the revenue decrease as direct expenses actually decreased by $27.8 million.

Sapient Global Markets operating income increased $3 million due to the increase in service revenues. As a percentage of revenue, Sapient Global Markets operating income decreased to 33% compared to 36% in 2008. The decrease in operating income as a percentage of revenue was due to an increased in contractor and consultant usage as our need for contractors and consultants in specialized areas for certain client contracts increased.

Sapient Government Services operating income increased $1.5 million. This was due to our management of direct expenses as direct expenses only increased $6.1 million compared to an increase of $7.5 million in revenues.

Liquidity and Capital Resources

During 2010 and 2009 we funded our operations with cash flows generated from operations. We invest our excess cash predominantly in money market funds, time deposits with maturities of less than or equal to 90 days, mutual funds and other cash equivalents. At December 31, 2010 we had approximately $234.1 million in cash, cash equivalents, restricted cash and marketable investments, compared to $215.8 million at December 31, 2009. This increase was due to cash flow from operations of $87.3 million, net of cash used in financing activities for our special dividend payment in the first quarter of 2010 of $46.8 million and the purchase of property, plant and equipment.

We have approximately $4.5 million with various banks as collateral for letters of credit and performance bonds and have classified this cash as restricted on our consolidated balance sheet at December 31, 2010.

At December 31, 2010 we had the following contractual obligations:


	Payments Due By Period
	Less Than		1 - 3		3 - 5		More Than
	One Year		Years		Years		5 Years		Total
	(In thousands)

Operating leases	$	14,582	$	27,720	$	23,220	$	45,167	$	110,689
Cash outlays for restructuring and other related activities(1)		2,460		—		—		—		2,460
Purchase obligations(2)		1,161		1,009		—		—		2,170
Uncertain tax positions		—		10,864		—		—		10,864

Total	$	18,203	$	39,593	$	23,220	$	45,167	$	126,183


(1)		Cash outlay for restructuring and other related activities include minimum future lease and related payments for excess facilities, net of estimated sublease income of $2.7 million under existing arrangements.

(2)		Purchase obligations represent minimum commitments due to third parties, including subcontractor agreements, telecommunications contracts, IT maintenance contracts in support of internal use of software and hardware and other marketing and consulting contracts. Contracts for which our commitment is variable based on volumes, with no fixed minimum quantities, and contracts that can be cancelled without payment penalties, have been excluded. Amounts presented also exclude accounts payable and accrued expenses at December 31, 2010.

Cash provided by operating activities resulted from net income, the addition of non-cash charges, the sale of $16.4 million in trading marketable securities and an increase in accrued compensation. These increases in

operating cash flow were primarily offset by an increase in accounts receivable. The increase in accounts receivable is due to the increase in service revenues. Cash provided by operating activities increased compared to the same period in 2009 due to lower bonus payment of prior year bonuses — as bonuses based on 2009 results were lower than those paid in the first quarter of 2009 which were based on 2008 results — net income and, to a lesser extent, sales of trading marketable securities.

Days sales outstanding (“DSO”) is calculated based on actual three months of total revenue and period end receivables, unbilled and deferred revenue balances. Our DSO decreased 2% to 65 days as of December 31, 2010 compared to our DSO of 66 days as of December 31, 2009. DSO decreased due to a concerted effort to improve collections.

Cash used by investing activities was $33.4 million. This was due to $3.2 million in payments of deferred consideration related to the Nitro acquisition, $21.3 million in capital expenditures and the costs of internally developed software and $8.8 million in purchases of marketable securities. These uses of cash were offset by $0.8 million in redemptions of available-for-sale marketable securities and the receipt of $0.7 million on our hedge positions. Cash used by investing activities increased compared to the same period in 2009 due to the purchases of marketable securities. Though the current period reflected more capital expenditures, primarily related to build-out costs for a new India unit (discussed below), 2009 reflected more cash paid for acquisitions which related to Nitro.

Cash used by financing activities was $33.9 million as a result of a $46.8 million special dividend payment on all outstanding common stock as of March 1, 2010 as a return of capital to shareholders. This was offset by $8.7 million in proceeds associated with the issuance of common stock for stock option exercises and $4.4 million in proceeds from our credit facility. The difference between the financing activities in the current period compared to the same period in 2009 is the dividend payment. In addition, in 2010 we entered into a $10.0 million revolving credit facility in India, which matures in May 2011, to finance the build-out of a new India unit in a Special Economic Zone (“SEZ”) which is eligible for a five year, 100% tax holiday. Management concluded that this short-term credit facility was the most efficient financing method available.

Non-cash investing activity of $2.4 million reflects the value of common shares issued as part of contingent consideration in connection with our DCG acquisition.

We use foreign currency option contracts to partially mitigate the effects of exchange rate fluctuations on certain revenues and operating expenses denominated in foreign currencies. Please see “Item 7a. Quantitative and Qualitative Disclosures About Market Risk” for a discussion of our use of such derivative financial instruments.

We accrue contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. We are subject to various legal claims totaling approximately $10.7 million, for which the likelihood of loss is considered more than remote, and various administrative audits, each of which have arisen in the ordinary course of our business. We have an accrual at December 31, 2010 of approximately $0.7 million related to certain of these items. We intend to defend these matters vigorously, although the ultimate outcome of these items is uncertain and the potential loss, if any, may be significantly higher or lower than the amounts that we have previously accrued and may have a material effect on our operating results.

We believe that our existing cash, credit facility and other short-term investments will be sufficient to meet our working capital and capital expenditure requirements, investing activities and the expected cash outlay for our previously recorded restructuring activities for at least the next 12 months.

New Accounting Pronouncements

In January 2010, we adopted ASU No. 2010-06 — Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This standard amends the disclosure guidance with respect to fair value measurements for both interim and annual reporting periods. Specifically, this standard requires new disclosures for significant transfers of assets or liabilities between Level 1 and Level 2 in the fair value hierarchy; separate disclosures for purchases, sales, issuance and settlements of Level 3 fair value items on a gross, rather than net basis; and more robust disclosure of the valuation techniques and inputs used to measure Level 2 and Level 3 assets and liabilities. We have included these new disclosures, as applicable, in Note 3 in the Notes to Consolidated and Condensed Financial Statements.


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk*

We account for our marketable securities as “available-for-sale” or “trading” securities. Available-for-sale securities are carried on the balance sheet at fair value. Unrealized gains and losses on available-for-sale securities that are considered temporary are reflected in the “accumulated other comprehensive loss” section of our consolidated balance sheet. Unrealized losses on available-for-sale securities are reflected in earnings when the decline in fair value below cost basis is determined to be other-than-temporary. Credit losses on debt securities classified as available-for-sale are an example of other-than-temporary declines in value and are reflected in the “other income, net” section of our consolidated statements of operations. Trading securities are carried on the balance sheet at fair value with unrealized gains and losses reflected in the “other income, net” section of our consolidated statements of operations.

The estimated fair value of our marketable securities portfolio was $10.1 million as of December 31, 2010 which includes $8.8 million of mutual finds and $1.3 million of auction rate securities (“ARS”).

The estimated fair value of our marketable securities portfolio was $17.4 million as of December 31, 2009 which includes $16.7 million of ARS and $0.8 million of a money market fund (the “Primary Fund”) classified as marketable securities. Our investment in the Primary Fund is classified as available-for-sale securities. In January 2010 we received the remaining Primary Fund balance of $0.8 million. As of December 31, 2009 the estimated fair value of our ARS classified as available-for-sale was $1.4 million and our ARS classified as trading securities was $15.3 million. In 2010 we sold all our trading securities at amortized cost.

Our cash equivalents and our portfolio of marketable securities are subject to market risk due to changes in interest rates. Fixed rate interest securities may have their market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in the market value due to changes in interest rates. Should the interest rate fluctuate by 10%, the change in value of our marketable securities would not have been material as of December 31, 2010 and our interest income would not have changed by a material amount for the three months ended December 31, 2010.

Exchange Rate Sensitivity

We face exposure to adverse movements in foreign currency exchange rates because a significant portion of our revenues, expenses, assets, and liabilities are denominated in currencies other than the U.S. dollar, primarily the British pound sterling, the euro, the Indian rupee and the Canadian dollar. These exposures may change over time as business practices evolve.

For 2010, approximately 41% of our revenues and approximately 54% of our operating expenses were denominated in foreign currencies, as compared to 45% and 56%, respectively, during the same period in 2009. In addition, 52% of our assets and liabilities were subject to foreign currency exchange fluctuations at December 31, 2010 as compared to 49% and 47% for our assets and liabilities, respectively, at December 31, 2009. We also have assets and liabilities in certain entities that are denominated in currencies other than the entity’s functional currency.

Approximately 16% of our operating expenses for 2010 were denominated in Indian rupees. Because we have minimal associated revenues in Indian rupees, any movement in the exchange rate between the U.S. dollar and the Indian rupee has a significant impact on our operating expenses and operating profit. Approximately 19% of our service revenues for 2010 are denominated in the British pound sterling. Any movement in the exchange rate between the U.S. dollar and the British pound has a significant impact on our revenues and operating income. Approximately 5% of our service revenues for 2010 are denominated in the euro. Any movement in the exchange rate between the U.S. dollar and the euro has a significant impact on our revenues and operating income. We manage this exposure through a risk management program that partially mitigates our exposure to operating expenses denominated in the Indian rupee and operating margins denominated in the British pound sterling and the euro, and that includes the use of derivative financial instruments which are not designated as accounting hedges. As of December 31, 2010 we had option contracts outstanding in the notional amount of approximately $24.2 million ($15.4 million for our Indian rupee contracts, $6.2 million for our British pound sterling contracts and $2.6 million

for our euro contracts). Because these instruments are option collars that are settled on a net basis with the bank, we have not recorded the gross underlying notional amounts in our assets and liabilities as of December 31, 2010. The following table details our net realized and unrealized gains/losses on these option contracts for 2010, 2009 and 2008.


	Twelve Months Ended December 31,
	2010		2009		2008

Gain (loss) on foreign exchange option contracts not designated	$	530	$	19	$	(802	)

We also performed a sensitivity analysis of the possible loss that could be incurred on these contracts as a result of movements in the Indian rupee. Changes of 10%, 15% and 20% of the underlying average exchange rate of our unsettled Indian rupee positions as of December 31, 2010 would result in maximum losses on these positions of $0.7 million, $1.3 million, and $1.9 million, respectively. Changes of 10%, 15% and 20% of the underlying average exchange rate of our unsettled British pound sterling positions as of December 31, 2010 would result in maximum losses on these positions of $0.2 million, $0.3 million, and $0.4 million, respectively. Changes of 10%, 15% and 20% of the underlying average exchange rate of our unsettled euro positions as of December 31, 2010 would result in maximum losses on these positions of $0.1 million, $0.2 million, and $0.2 million, respectively. Positions expire in January and February of 2011 and therefore, any losses in respect to these positions after December 31, 2010 would be recognized in the three months ending March 31, 2011.

For a discussion of the risks we face as a result of foreign currency fluctuations, please see “Risk Factors” in Part I, Item 1A and — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
of Sapient Corporation

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Sapient Corporation and its subsidiaries at December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for business combinations as of January 1, 2009.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 25, 2011

SAPIENT CORPORATION

CONSOLIDATED BALANCE SHEETS


	December 31,			December 31,
	2010			2009
	(In thousands, except share and per share amounts)

ASSETS
Current assets:
Cash and cash equivalents	$	219,448		$	195,678
Marketable securities, current portion		8,861			16,082
Restricted cash, current portion		1,416			393
Accounts receivable, less allowance for doubtful accounts of $91 and $610 at December 31, 2010 and December 31, 2009, respectively		136,300			111,987
Unbilled revenues		49,765			47,426
Deferred tax assets, current portion		23,938			27,616
Prepaid expenses and other current assets		21,256			24,893

Total current assets		460,984			424,075
Marketable securities, net of current portion		1,269			1,362
Restricted cash, net of current portion		3,093			2,308
Property and equipment, net		35,571			29,229
Purchased intangible assets, net		17,629			23,061
Goodwill		77,865			76,004
Deferred tax assets, net of current portion		19,692			33,521
Other assets		7,619			5,359

Total assets	$	623,722		$	594,919


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,714		$	19,238
Accrued expenses		51,444			47,185
Accrued compensation		66,609			49,147
Accrued restructuring costs, current portion		3,129			3,727
Income taxes payable		567			8,534
Deferred tax liabilities, current portion		—			136
Deferred revenues, current portion		18,558			19,544

Total current liabilities		159,021			147,511
Accrued restructuring costs, net of current portion		—			2,994
Deferred tax liabilities, net of current portion		831			1,579
Other long-term liabilities		21,565			16,634

Total liabilities		181,417			168,718
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 5,000,000 authorized and none issued at December 31, 2010 and 2009		—			—
Common stock, par value $0.01 per share, 200,000,000 shares authorized, 137,307,612 and 133,272,997 shares issued at December 31, 2010 and 2009, respectively		1,373			1,333
Additional paid-in capital		555,562			583,291
Treasury stock, at cost, 458,664 and 444,418 shares at December 31, 2010 and 2009, respectively		(2,466	)		(2,316	)
Accumulated other comprehensive loss		(12,488	)		(12,626	)
Accumulated deficit		(99,676	)		(143,481	)

Total stockholders’ equity		442,305			426,201

Total liabilities and stockholders’ equity	$	623,722		$	594,919

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

SAPIENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended December 31,
	2010		2009			2008
	(In thousands, except per share amounts)

Revenues:
Service revenues	$	823,511	$	638,884		$	662,412
Reimbursable expenses		40,008		27,794			25,076
Total gross revenues		863,519		666,678			687,488

Operating expenses:
Project personnel expenses		563,930		435,859			435,508
Reimbursable expenses		40,008		27,794			25,076

Total project personnel expenses and reimbursable expenses		603,938		463,653			460,584
Selling and marketing expenses		38,833		31,931			36,233
General and administrative expenses		150,877		118,018			123,188
Restructuring and other related charges		414		4,548			194
Amortization of purchased intangible assets		5,448		5,146			2,660
Acquisition costs and other related charges		111		2,962			—

Total operating expenses		799,621		626,258			622,859
Income from operations		63,898		40,420			64,629
Other income, net		196		267			1,280
Interest income, net		3,509		2,889			5,806

Income before income taxes		67,603		43,576			71,715
Provision for income taxes		23,798		13,735			9,239
Benefit from release of valuation allowance		—		(58,285	)		—

Provision for (benefit from) income taxes		23,798		(44,550	)		9,239

Net income	$	43,805	$	88,126		$	62,476

Basic net income per share	$	0.33	$	0.69		$	0.50

Diluted net income per share	$	0.32	$	0.66		$	0.48

Weighted average common shares		132,060		127,969			125,988
Weighted average dilutive common share equivalents		6,669		4,912			3,176

Weighted average common shares and dilutive common share equivalents		138,729		132,881			129,164

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

SAPIENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


																	Accumulated
					Additional												Other						Total
	Common Shares				Paid-			Treasury Shares						Comprehensive			Comprehensive			Accumulated			Stockholders’
	Shares		Amount		In Capital			Shares			Amount			Income			Income (Loss)			Deficit			Equity
	(In thousands)

Balance at December 31, 2007		131,785	$	1,318	$	564,878			(6,072	)	$	(24,240	)				$	12,686		$	(294,083	)	$	260,559

Shares issued under stock option and purchase plans		—		—		425			1,304			5,759						—			—			6,184
Vesting of restricted stock, net						(5,252	)		662			2,799												(2,453	)
Stock-based compensation expense		—		—		15,122			—			—						—			—			15,122
Repurchase of common stock		—		—		—			(1,441	)		(9,902	)					—			—			(9,902	)
Reclassification of redeemable common stock		—		—		290			—			—						—			—			290
Issuance of common stock in connection with acquisition		—		—		5,388			308			1,419						—			—			6,807
Tax benefits from stock plans		—		—		85			—			—						—			—			85
Comprehensive income:
Net income		—		—		—			—			—			62,476			—			62,476			62,476
Other comprehensive income:
Currency translation adjustments		—		—		—			—			—			(37,064	)		(37,064	)		—			(37,064	)
Net unrealized loss on investments		—		—		—			—			—			(157	)		(157	)		—			(157	)

Total comprehensive income		—		—		—			—			—		$	25,255			—			—			—

Balance at December 31, 2008		131,785	$	1,318	$	580,936			(5,239	)	$	(24,165	)				$	(24,535	)	$	(231,607	)	$	301,947

Shares issued under stock option and purchase plans		338		3		1,074			64			296						—			—			1,373
Vesting of restricted stock, net		838		9		(8,502	)		754			3,479												(5,014	)
Stock-based compensation expense		—		—		14,721			—			—						—			—			14,721
Issuance of common stock in connection with Derivatives
Consulting Group Ltd. acquisition		312		3		2,360			—			—						—			—			2,363
Issuance of common stock in connection with Nitro Limited acquisition		—		—		(7,242	)		3,114			14,096						—			—			6,854
Issuance of employment-based restricted shares in connection with Nitro Limited acquisition		—		—		—			863			3,978						—			—			3,978
Tax shortfall from stock plans		—		—		(56	)		—			—						—			—			(56	)
Comprehensive income:
Net income		—		—		—			—			—			88,126			—			88,126			88,126
Other comprehensive income:
Currency translation adjustments		—		—		—			—			—			11,871			11,871			—			11,871
Net unrealized gain on investments		—		—		—			—			—			38			38			—			38

Total comprehensive income		—		—		—			—			—		$	100,035			—			—			—

Balance at December 31, 2009		133,273		1,333		583,291			(444	)		(2,316	)					(12,626	)		(143,481	)		426,201

Shares issued under stock option and purchase plans		1,543		15		8,675			—			—						—			—			8,690
Vesting of restricted stock, net		1,842		18		(10,084	)		—			—												(10,066	)
Stock-based compensation expense		—		—		18,156			—			—						—			—			18,156
Issuance of common stock in connection with Derivatives
Consulting Group Ltd. acquisition		650		7		2,367			—			—						—			—			2,374
Dividends paid on Common Stock		—		—		(46,843	)		—			—						—			—			(46,843	)
Return of Shares Related to Acquisitions		—		—		—			(15	)		(150	)					—			—			(150	)
Comprehensive income:
Net income		—		—		—			—			—			43,805			—			43,805			43,805
Other comprehensive income:
Currency translation adjustments		—		—		—			—			—			128			128			—			128
Net unrealized gain on investments		—		—		—			—			—			10			10			—			10
															—

Total comprehensive income		—		—		—			—			—		$	43,943			—			—			—

Balance at December 31, 2010		137,308		1,373		555,562			(459	)		(2,466	)				$	(12,488	)	$	(99,676	)	$	442,305

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

SAPIENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
	2010			2009			2008
	(In thousands)

Cash flows from operating activities:
Net income	$	43,805		$	88,126		$	62,476
Adjustments to reconcile net income to net cash provided by operating activities:
(Gain) loss recognized on disposition of fixed assets		(35	)		85			660
Unrealized loss (gain) on financial instruments		139			44			(264	)
Realized (gain) loss on investments		(132	)		(103	)		310
Depreciation expense		16,214			15,984			17,218
Amortization of purchased intangible assets		5,448			5,146			2,660
Deferred income taxes		16,681			869			45
Income tax benefit from release of valuation allowance		—			(58,285	)		—
(Recovery of) provision for doubtful accounts, net		(227	)		215			(54	)
Stock-based compensation expense		18,156			14,921			15,122
Changes in operating assets and liabilities, net of acquisitions and disposition:
Accounts receivable		(24,474	)		(8,805	)		(7,132	)
Unbilled revenues		(2,447	)		(1,286	)		(15,914	)
Prepaid expenses and other current assets		1,738			(3,255	)		753
Sales of trading marketable securities		16,425			—			—
Other assets		(2,205	)		(141	)		(189	)
Accounts payable		(1,299	)		3,484			(685	)
Accrued compensation		17,202			(12,030	)		4,462
Payments of withholding taxes in connection with vesting of stock-based awards		(10,031	)		(5,018	)		(2,453	)
Accrued restructuring costs		(3,548	)		(1,207	)		(3,323	)
Deferred revenues		(900	)		3,325			3,002
Accrued expenses		130			(7,471	)		1,984
Income taxes payable		(8,075	)		2,098			6,409
Other long-term liabilities		4,745			2,016			(27	)

Net cash provided by operating activities		87,310			38,712			85,060
Cash flows from investing activities:
Cash paid for acquisitions, net of cash received		(3,163	)		(19,057	)		(23,517	)
Cash received for sale of discontinued operations, net, and payment to minority stockholders		—			—			720
Purchases of property and equipment and cost of internally developed software		(21,253	)		(9,419	)		(17,889	)
Sales and maturities of marketable securities		881			4,023			54,741
Purchases of marketable securities		(8,781	)		—			(8,330	)
Designation of cash equivalent to marketable securities		—			—			(11,626	)
Cash received (paid) on financial instruments, net		669			479			(955	)
Restricted cash		(1,789	)		(122	)		(908	)

Net cash used in investing activities		(33,436	)		(24,096	)		(7,764	)
Cash flows from financing activities:
Principal payments under capital lease obligations		(83	)		(34	)		(68	)
Proceeds from credit facilities		4,380			—			—
Repayment of bank loan		—			—			(1,364	)
Tax benefit from stock plans		—			29			85
Proceeds from stock option and purchase plans		8,690			1,373			6,184
Dividends paid on common stock		(46,843	)		—			—
Repurchases of common stock		—			—			(9,902	)

Net cash (used in) provided by financing activities		(33,856	)		1,368			(5,065	)

Effect of exchange rate changes on cash and cash equivalents		3,752			10,354			(21,588	)

Increase in cash and cash equivalents		23,770			26,338			50,643
Cash and cash equivalents, at beginning of period		195,678			169,340			118,697
Cash and cash equivalents, at end of period	$	219,448		$	195,678		$	169,340

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

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)	Nature of Business

Sapient Corporation (“Sapient” or the “Company”), a global services firm, helps clients compete, evolve and grow in an increasingly complex marketplace. The Company markets its services through three primary business units — SapientNitro, Sapient Global Markets and Sapient Government Services — positioned at the intersection of marketing, business and technology. SapientNitro provides multi-channel marketing and commerce services that span brand and marketing strategy, digital/broadcast/print advertising creative, web design and development, e-commerce, media planning and buying, and emerging platforms, such as social media and mobile. Sapient’s Global Markets services provide business and information technology (“IT”) strategy, process and system design, program management, custom development and package implementation, systems integration and outsourced services, including testing, maintenance and support. Sapient Government Services provides consulting, technology, and marketing services to a wide array of U.S. governmental agencies. Headquartered in Boston, Massachusetts, Sapient maintains a global presence with offices across North America, Europe, India and Asia.

In the first quarter of 2010, the Company realigned its North America and Europe business units and internal reporting systems to better align its services with its business and operational strategy. As such, the results of operations in Note 18, Segment Reporting, reflect the Company’s current business units: SapientNitro (new), Sapient Global Markets (new) and Sapient Government Services. SapientNitro is the Company’s customer experience business that combines multi-channel marketing, multi-channel commerce and the technology that binds them to help clients grow their businesses and create brand advocates. Sapient Global Markets provides advisory, analytics, technology, and operations solutions to today’s evolving financial and commodity markets. Sapient Government Services provides consulting, technology, and marketing services to a wide array of U.S. governmental agencies. 2009 and 2008 segment information have been recast to conform to the current structure.

During the third quarter of 2010, the Company identified errors totaling $0.8 million in the recording of project personnel expenses and reimbursable expenses of which approximately $0.4 million understated income in the fourth quarter of 2009. The remaining errors were spread across multiple quarters with no other quarter impact being greater than $0.1 million. The Company recorded a reduction to project personnel expenses of $0.8 million in the third quarter of 2010 to correct the error. Management has concluded that that the impact of these errors were not material to the affected prior periods or the twelve months ended December 31, 2010.


(2)	Summary of Significant Accounting Policies


*(a)*	*Principles of Consolidation and Basis of Presentation*

The consolidated financial statements include the accounts of the Company and its wholly-owned, controlled subsidiaries. All intercompany transactions have been eliminated in consolidation.

On July 1, 2009 the Company acquired 100% of the outstanding shares of Nitro Ltd. (“Nitro”). The acquisition was accounted for using the acquisition method and the results of operations of Nitro have been included in the Company’s consolidated financial statement as of the acquisition date. On August 6, 2008, the Company acquired 100% of the outstanding shares of Derivatives Consulting Group, Limited (“DCG”). The acquisition of DCG was accounted for under the purchase method of accounting and the results of operations of DCG have been included in the Company’s consolidated financial statements as of the acquisition date.

Certain prior year reclassifications have been made to conform to the current year presentation.


*(b)*	*Use of Estimates*

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

reported amounts of revenues and expenses during the reporting periods. Significant estimates relied upon in preparing these financial statements include estimated costs to complete long-term contracts, estimated fair value of investments, including whether any decline in such fair value is other-than-temporary, estimated fair values of reporting units used to evaluate goodwill for impairment stock-based compensation expenses, restructuring and other related charges, contingent liabilities and recoverability of the Company’s net deferred tax assets and related valuation allowances. Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.


*(c)*	*Foreign Currency Translation and Transactions*

For non-U.S. subsidiaries assets and liabilities are translated at period-end exchange rates, and income statement items are translated at the average exchange rates for the period. The functional currency for the majority of foreign subsidiaries is considered to be the local currency and, accordingly, translation adjustments are reported as a separate component of stockholders’ equity under the caption “accumulated other comprehensive loss”.

Cash flows of non-U.S. subsidiaries, whose functional currency is the local currency, are translated to U.S. dollars using average exchange rates for the period. The Company reports the effect of exchange rate changes on cash balances held in foreign currencies as a separate item in the consolidated statements of cash flows during the period.

(Losses) gains from foreign currency transactions of approximately ($0.7 million), ($0.1 million) and $2.5 million are included in general and administrative expenses in the consolidated statements of operations for 2010, 2009 and 2008, respectively.


*(d)*	*Cash and Cash Equivalents*

The Company considers highly liquid investments with maturities of three months or less, from the date of purchase, cash equivalents.


*(e)*	*Marketable Securities, Investment and Other Financial Assets*

The Company accounts for its marketable securities as “available-for-sale” and “trading” securities.

Available-for-sale securities are carried on the balance sheet at fair value. Unrealized gains and losses on available-for-sale securities that are considered temporary are reflected in the “accumulated other comprehensive loss” section of the Company’s consolidated balance sheet. Unrealized losses, excluding losses related to the credit rating of the security (credit losses), on available-for-sale securities that are considered other-than-temporary but relate to securities that the Company (i) does not intend to sell and (ii) will not be required to sell below cost are also reflected in “accumulated other comprehensive loss”. As the Company does not intend to sell its available-for-sale securities before they mature, nor does the Company believe it will be required to sell them below cost, the only other-than-temporary losses the Company reflects in “other income, net” on its consolidated statement of operations are related to credit losses. The Company’s available-for-sale securities consist of Auction Rate Securities (“ARS”), which are collateralized by municipal debt and student loans, and mutual funds that are listed on a foreign exchange.

Assessing whether a decline in value in available-for-sale securities is other-than-temporary requires the Company to assess whether it intends to sell the security and if it would be more likely than not that the Company would be required to sell the available-for-sale security before its cost can be recovered, for reasons such as contractual obligations or working capital needs. Also, the Company has to assess whether cost of the available-for-sale security will be recovered regardless of intent and/or requirement to sell. This assessment requires the Company to evaluate, among other factors: the duration of the period that, and extent to which, the fair

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

value is less than cost basis, the financial health of the business outlook for the issuer, including industry and sector performance, operational and financing cash flow factors and overall market conditions and trends. Assessing the above factors involves inherent uncertainty. Accordingly, declines in fair value, if recorded, could be materially different from the actual market performance of marketable securities in the Company’s portfolio, if, among other things, relevant information related to its marketable securities was not publicly available or other factors not considered by the Company would have been relevant to the determination of impairment.

Trading securities are carried on the balance sheet at fair value with unrealized gains and losses reflected in the “other income, net” section of the consolidated statements of operations. As of December 31, 2009 the Company held, at cost, $16.4 million of ARS classified as trading securities which were sold, at cost, during 2010.

Effective January 1, 2008 the Company adopted a new accounting standard stating that valuation techniques used to measure fair value under the current fair value standard must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:


	•	Level 1 — Quoted prices in active markets for identical assets or liabilities.

	•	Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

	•	Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

The Company classifies its marketable securities, investment and other financial assets and liabilities either Level 1, 2 or 3 assets according to the above hierarchy.


*(f)*	*Financial Instruments and Concentration of Credit Risk*

Financial instruments which potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents, restricted cash, marketable securities, accounts receivable, accounts payable, accrued expenses and income taxes payable.

The Company performs credit evaluations of its customers and generally does not require collateral on accounts receivable. The Company maintains allowances for credit losses and such losses have been within management’s expectations. During 2010, 2009 and 2008 no individual customer accounted for greater than 10% of service revenues. No customer’s accounts receivable balance exceeded 10% of total accounts receivable as of December 31, 2010 or 2009.

The fair market values of cash and cash equivalents, restricted cash, marketable securities, accounts receivable, accounts payable, accrued expenses and income taxes payable at both December 31, 2010 and 2009 approximate their carrying amounts.


*(g)*	*Derivative Financial Instruments*

Derivative financial instruments are used by the Company principally in the management of its foreign currency exposures. The Company does not hold or issue derivative financial instruments for speculative purposes.

The Company records all derivative instruments on the balance sheet at fair value. Changes in a derivative’s fair value through the settlement date are recognized in current period earnings unless specific hedge criteria are met. The Company’s derivative instruments consist of foreign currency options.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company had recorded realized gains of $0.7 million and less than $0.1 million in 2010 and 2009, respectively, and recorded realized losses of $1.1 million in 2008, in the consolidated statement of operations related to these instruments. The Company had recorded unrealized losses of $0.1 million and less than $0.1 million in 2010 and 2009, respectively, and unrealized gains of $0.3 million in 2008 related to these instruments. The Company enters into 30 day average rate instruments covering a rolling 90 day period with notional amounts of 350 million rupees (approximately $7.7 million), 2 million pounds sterling (approximately $3.1 million) and 1 million euro (approximately $1.3 million) per month. As these instruments are option collars that are settled on a net basis with the bank, the Company has not recorded the gross underlying notional amounts in its consolidated balance sheets as of December 31, 2010. These option positions settle in the three month period ended March 31, 2011. None of the Company’s derivative financial instruments qualified for hedge accounting.

The following table reflects the fair value of the Company’s derivative assets and liabilities on its consolidated balance sheets as of December 31, 2010 and 2009 (in thousands):


	Derivative Assets Reported in				Derivative Liabilities Reported
	Other Current Assets				in Other Current Accrued Liabilities
	December 31,				December 31,
	2010		2009		2010		2009

Foreign exchange option contracts not designated	$	133	$	238	$	—	$	21

The following table shows the effect of realized and unrealized gains and losses, net, of the Company’s foreign exchange option contracts on its results of operations for twelve months ended December 31, 2010, 2009 and 2008 (in thousands):


	Twelve Months Ended December 31,
	2010		2009		2008

Gain (loss) on foreign exchange option contracts not designated	$	530	$	19	$	(802	)


*(h)*	*Property and Equipment*

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets, which primarily range from three to five years. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the remaining lease term. When an item is sold or retired, the cost and related accumulated depreciation is relieved, and the resulting gain or loss, if any, is recognized in the consolidated statement of operations.


*(i)*	*Costs Incurred to Develop Computer Software for Internal Use*

The Company capitalizes costs incurred during the application development stage, which include costs to design the software configuration and interfaces, coding, installation and testing. Costs incurred during the preliminary project stage along with post-implementation stages of internal use computer software are expensed as incurred. Capitalized development costs are typically amortized over the estimated life of the software, typically three years. The capitalization and ongoing assessment of recoverability of development cost requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life. Capitalized software is included in property and equipment.

During 2010, the Company capitalized costs of $2.6 million primarily related to internal financial systems, a project planning application, a staffing module and upgrades, of which $1.6 million relates to costs associated with

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

software developed for internal use that was placed into service during 2010. The remaining $1.0 million relates to costs associated with the development of software for internal use that was not yet placed into service as of December 31, 2010. During 2009, the Company capitalized costs of $2.4 million primarily related to internal financial systems, a staffing module and upgrades, of which $2.1 million relates to costs associated with software developed for internal use that was placed into service during 2009. The remaining $0.3 million relates to costs associated with the development of software for internal use that was not yet placed into service as of December 31, 2009. During 2008, the Company capitalized costs of $3.0 million primarily related to internal financial systems, a staffing module and upgrades, of which $2.7 million relates to costs associated with software developed for internal use that was placed into service during 2008. The remaining $0.3 million relates to costs associated with the development of software for internal use that was not yet placed into service as of December 31, 2008. The capitalized costs placed in service during 2010, 2009 and 2008 are being amortized over three years. Amortization expense for costs incurred to develop computer software for internal use totaled $3.1million, $2.9 million and $2.6 million during 2010, 2009 and 2008, respectively, and are reflected in “general and administrative expenses” on the consolidated statement of operations and “depreciation expense” on the consolidated statements of cash flows.


*(j)*	*Costs Incurred to Sell, Lease, or Otherwise Market Computer Software*

Generally accepted accounting principles specify that costs incurred internally in researching and developing a computer software product to sell, lease or otherwise market, should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. The Company has determined that technological feasibility for its software products is reached after all high-risk development issues have been resolved through coding and testing. This is generally shortly before the products are released. Unamortized capitalized software costs, included in property and equipment, net on the consolidated balance sheet, as of December 31, 2010 and 2009 were approximately $1.3 million and $1.1 million, respectively. Amortization expense totaled approximately $0.7 million, $0.6 million and $0.8 million for the year ended December 31, 2010, 2009 and 2008, respectively. The Company capitalized costs of $1.1 million, $0.4 million and $1.1 million for the year ended December 31, 2010, 2009 and 2008, respectively.


*(k)*	*Purchased Intangible Assets and Goodwill*

The Company assesses the useful lives and possible impairment of existing recognized intangible assets when an event occurs that may trigger such a review. Factors we consider important which could trigger a review include:


	•	significant underperformance relative to historical or projected future operating results;

	•	significant changes in the manner of or use of the acquired assets or the strategy for our overall business;

	•	identification of other impaired assets within a reporting unit;

	•	disposition of a significant portion of an operating segment;

	•	significant negative industry or economic trends;

	•	significant decline in our stock price for a sustained period; and

	•	a decline in our market capitalization relative to net book value.

Determining whether a triggering event has occurred involves significant judgment from the Company. Identifiable intangible assets include purchased intangible assets with finite lives, which primarily consist of marketing assets and customer lists, customer contracts, non-compete agreements, developed technology,

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

purchased license agreements, tradenames and order backlog. Finite-lived purchased intangible assets are amortized over their expected period of benefit, which generally ranges from one to seven years.

The goodwill impairment test requires the Company to identify reporting units and to determine estimates of the fair value of our reporting units as of the date we test for impairment. Assets and liabilities, including goodwill, are allocated to reporting units based on factors such as specific identification and percentage of revenue. To conduct a goodwill impairment test, the fair value of the reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, the Company will record an impairment loss to the extent that the carrying value of goodwill exceeds its implied fair value. The Company estimates the fair value of its reporting units using the income approach, via discounted cash flow valuation models which include, but are not limited to, assumptions such as a “risk-free” rate of return on an investment, the weighted average cost of capital of a market participant, and future revenue, operating margin, working capital and capital expenditure trends. The Company performed its annual assessment of our goodwill during the fourth quarter of 2010 and determined that the estimated fair values of its reporting units significantly exceed their carrying value and, therefore, goodwill was not impaired. The Company completes its goodwill impairment analyses at least annually, or more frequently when events and circumstances, like the ones mentioned above, occur indicating that the recorded goodwill may be impaired. Determining fair value of reporting units and goodwill includes significant judgment by the Company and different judgments could yield different results.


*(l)*	*Valuation of Long-lived Assets*

Long-lived assets primarily include property and equipment and intangible assets with finite lives. Long-lived assets are reviewed on a regular basis for the existence of facts and circumstances that may suggest that the carrying amount of an asset or group of assets may not be recoverable. Recoverability of long-lived assets or groups of assets is assessed based on a comparison of the carrying amount to the estimated undiscounted future cash flows. If estimated future undiscounted net cash flows are less than the carrying amount, the asset is considered impaired and expense is recorded at an amount required to reduce the carrying amount to fair value. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results.


*(m)*	*Revenue Recognition and Allowance for Doubtful Accounts*

The Company recognizes revenue from the provision of professional services, digital marketing services and offline printing and production services arrangements with its clients when persuasive evidence of an arrangement exists, services have been provided to the customer, the fee is fixed or determinable and collectability is reasonably assured. In instances where the customer, at its discretion, has the right to reject the services prior to final acceptance, revenue is deferred until such acceptance occurs.

The Company recognizes revenues from its fixed-price and time-and-materials technology implementation consulting contracts using the percentage-of-completion method. The Company uses the percentage-of-completion method because the nature of the services provided in these contracts are similar to contracts that are required to use the percentage-of-completion per generally accepted accounting principles, like services provided by engineers and architects, for example. Revenues generated from fixed-price and time-and-materials non-technology implementation contracts, except for support and maintenance contracts, are recognized based upon a proportional performance model. The Company’s percentage-of-completion method and its proportional performance method of accounting calculate revenue based on the percentage-of-labor incurred to estimated total labor. This method is used because reasonably dependable estimates of the revenues and labor applicable to various stages of an arrangement can be made, based on historical experience and milestones set in the contract. Revenue from time-and-materials contracts is recognized as services are provided. In situations where time-and-materials contracts require deliverables and provide for a ceiling on fees that can be charged, the arrangement is recognized as time-and-materials are incurred unless calculated fees are estimated to exceed the ceiling, in which case revenue

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

recognition is based on the proportional performance method. Revenues generated from staff augmentation, support and maintenance contracts are recognized ratably over the arrangement’s term.

The Company’s project delivery and business unit finance personnel continually review labor incurred and estimated total labor, which may result in revisions to the amount of recognized revenue under an arrangement. Certain arrangements provide for revenue to be generated based upon the achievement of certain performance standards. Revenue related to achieving such performance standards is recognized when such standards are achieved. Revenue related to the achievement of performance standards was immaterial during 2010, 2009 and 2008.

Revenues related to digital marketing media sales are recorded as the net amount of our gross billings less pass-through expenses charged to a client. In most cases, the amount that is billed to clients significantly exceeds the amount of revenue that is earned and reflected in the Company’s financial statements, because of various pass-through expenses such as production and media costs. The Company is required to assesses whether the agency or the third-party supplier is the primary obligor. The terms of client agreements are evaluated as part of this assessment. In addition, the Company gives appropriate consideration to other key indicators such as latitude in establishing price, discretion in supplier selection and credit risk to the vendor. Because Sapient broadly operates as an advertising agency based on its primary lines of business and given the industry practice to generally record revenue on a net versus gross basis, the Company believes that there must be strong evidence in place to overcome the presumption of net revenue accounting. Accordingly, revenue is recorded net of pass-through charges when management believes the key indicators of the business suggest that the Company generally act as an agent on behalf of its clients in its primary lines of business. In those businesses where the key indicators suggest Sapient acts as a principal, the Company records the gross amount billed to the client as revenue.

Marketing services, including access to the company’s BridgeTrack software application, that are provided in exchange for monthly retainer fees and license fees are recognized as the monthly services are provided. Revenue from offline printing and production services are recognized at the time title of the related items transfers to the customer, provided that all other revenue recognition criteria have been met.

If the resources required or the scope of work to be performed for an arrangement cannot be accurately estimated, or if the project is not managed properly within the planned time period, then a loss, or lower profitability on the arrangement may be recorded.

Provisions for estimated losses on uncompleted arrangements are made on an arrangement-by-arrangement basis and are recognized in the period in which such losses are identified.

The Company recognizes revenue for services when collection from the client is reasonably assured, and the fees are fixed or determinable. The Company establishes billing terms at the time project deliverables and milestones are agreed. Normal payment terms are thirty days from invoice date. Revenues recognized in excess of the amounts invoiced to clients are classified as unbilled revenues. Amounts invoiced to clients in excess of revenue recognized are classified as deferred revenues. The Company’s project delivery and business unit finance personnel continually monitor timely payments from clients and assess any collection issues. The Company maintains allowances for doubtful accounts for losses resulting from the inability of clients to make required payments. The Company uses the specific identification method and bases its estimates on historical collection and write-off experience, current trends, credit policy, and detailed analysis of specific client situations. While such credit losses have historically been within management’s expectations and the allowances established, the Company cannot guarantee that it will continue to experience the same credit loss rates that it has in the past. If the financial condition of the Company’s clients were to deteriorate, resulting in an impairment of their ability to make payment, additional allowances may be required. Failure to accurately estimate the losses for doubtful accounts and ensure that payments are received on a timely basis could have a material adverse effect on the Company’s business, financial condition and results of operations.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


*(n)*	*Stock-Based Compensation*

The Company recognizes the fair value of stock-based awards as stock-based compensation expense, net of a forfeiture rate, for only those shares expected to vest on a straight-line basis over the requisite service period of the award when the only condition to vesting is continued employment. If vesting is subject to a market or performance condition, vesting is based on the derived service period. The Company estimates its forfeiture rate based on its historical experience and any known factors that may influence future forfeitures. The fair value per share of Restricted Stock Unit (“RSU”) awards is equal to the quoted market price of the Company’s common stock on the date of grant. Restricted stock that is contingent on employment and/or has performance conditions are valued based on the fair market value on the date of issuance. RSU awards with market-based vesting criteria are valued using a lattice model. The Company uses the Black-Scholes valuation model for estimating the fair value of stock options granted.

The Company granted RSUs in 2010, 2009 and 2008. The Company has not granted stock options, regularly, since 2006. The Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period. As a result of the Company’s forfeiture analysis conducted in the fourth quarter of 2008, which considered the trend of historical forfeitures as well as future expectations of forfeiture activity, it increased its forfeiture rate estimate and recorded a reduction in stock-based compensation expense of $2.8 million, relating to grants made in 2005 and 2006. Of the $2.8 million reduction recorded in 2008, $1.7 million is reflected in project personnel expenses, $0.8 million is reflected in general and administrative expenses and $0.3 million is reflected in selling and marketing expenses. The Company’s 2010 and 2009 annual review of its forfeiture estimate did not yield a material adjustment.


*(o)*	*Advertising Costs*

The Company charges the costs of advertising to expense as incurred, and includes these costs in selling and marketing expenses in the consolidated statements of operations. The amounts of advertising expenses recorded by the Company were immaterial for all periods presented.


*(p)*	*Income Taxes*

The Company records income taxes under the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carry forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences, operating losses, or tax credit carry forwards are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company is required to establish a valuation allowance based on whether realization of deferred tax assets are considered to be more likely than not. Significant management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets. The Company evaluates the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The Company reinvests certain earnings of foreign operations indefinitely and, accordingly, does not provide for income taxes that could result from the remittance of such earnings. When the Company can no longer assert indefinite reinvestment of foreign earnings it must provide for income taxes on those amounts.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any changes in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision.


*(q)*	*Restructuring and Other Related Charges*

From time to time, the Company establishes exit plans for restructuring activities which require that the Company make estimates as to the nature, timing and amount of the exit costs that it specifically identified. The consolidation of facilities requires the Company to make estimates, which include contractual rental commitments or lease buy-outs for office space vacated and related costs, offset by estimated sub-lease income. The Company reviews on a regular basis its sub-lease assumptions and lease buy-out assumptions. These estimates include lease buy-out costs, anticipated sublease rates, other terms and conditions in sub-lease contracts, and the timing of these sub-lease arrangements. If the rental markets continue to change, the Company’s lease buy-out, sub-lease and space requirement assumptions may not be accurate and it is possible that changes in these estimates could materially affect its financial condition and results of operations. A reduction of workforce requires the Company to make estimates, which include estimating the cost of benefits and severance.


*(r)*	*Net Income Per Share*

Company presents basic net income per share and diluted net income per share. Basic income per share is based on the weighted average number of shares outstanding during the period, less restricted stock considered contingently issuable. Diluted income per share reflects the per share effect of dilutive common stock equivalents.


*(s)*	*Comprehensive Income*

Comprehensive income includes net income and also considers the effect of other changes to stockholders’ equity that are not required to be recorded in determining net income, but are rather reported as a separate component of stockholders’ equity. The Company reports foreign currency translation gains and losses and unrealized gains and losses on investments which are considered temporary as components of comprehensive income.


*(t)*	*New Accounting Pronouncements*

In January 2010, we adopted ASU No. 2010-06 — Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This standard amends the disclosure guidance with respect to fair value measurements for both interim and annual reporting periods. Specifically, this standard requires new disclosures for significant transfers of assets or liabilities between Level 1 and Level 2 in the fair value hierarchy; separate disclosures for purchases, sales, issuance and settlements of Level 3 fair value items on a gross, rather than net basis; and more robust disclosure of the valuation techniques and inputs used to measure Level 2 and Level 3 assets and liabilities. We have included these new disclosures, as applicable, in Note 5 in the Notes to Consolidated Financial Statements.


*(u)*	*Accounting for Acquisitions*

Acquisitions completed prior to January 1, 2009 are accounted for using the purchase method per generally accepted accounting principles. Any acquisitions completed after January 1, 2009 are accounted for using the acquisition method. The purchase method and acquisition method are similar in many aspects, though the two most significant changes, as it pertains to the Company’s financial statements, are accounting for contingent consideration and transaction costs. Under the purchase method, contingent consideration is only recorded in the period in which the consideration is earned as goodwill in that period. Under the acquisition method the Company is required

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

to estimate the fair value of contingent consideration as an assumed asset, liability or equity on the acquisition date by estimating the amount of the consideration and probability of the contingencies being met. For contingent consideration classified as an asset or liability, this estimate is recorded as goodwill on the acquisition date and its value is assessed at each reporting date. Any subsequent change to the estimated fair value is reflected in earnings and not in goodwill. Under the purchase method the Company was able to record transaction costs related to the completion of the acquisition as goodwill. Under the acquisition method the Company is required to expense these costs as they are incurred. These costs are reflected in “acquisition costs and other related charges” on the consolidated statement of operations.


(3)	Acquisitions

Nitro Limited

On July 1, 2009 the Company completed its acquisition of Nitro Ltd. (“Nitro”), a global advertising network. Nitro operates across North America, Europe, Australia and Asia. The acquisition added approximately 300 employees. The Company acquired Nitro to leverage Nitro’s traditional advertising services with the Company’s digital commerce and marketing technology services. Nitro’s results of operations are reflected in the Company’s consolidated statements of operations as of July 1, 2009.

The purchase price, net of cash acquired, was $31.0 million for the acquisition of 100% of Nitro’s outstanding shares. The $31.0 million consisted of $11.1 million in cash, net of cash acquired, deferred consideration with an estimated fair value of $8.1 million and the issuance of 3.3 million shares of restricted common stock valued at $11.8 million. The value of common stock was determined as $6.27 per share, the value of the Company’s common stock on the acquisition date, less $8.7 million. The $8.7 million reduction in purchase price reflects the impact of the selling restrictions on the shares of $7.1 million. The remaining $1.6 million reduction reflects the value of shares transferred as consideration that are also tied to the seller’s continued employment. The $1.6 million is being accounted for as compensation expense. As of December 31, 2010 $1.0 million of expense remained unamortized, all of which will be recognized as a restructuring charge in the first quarter of 2011 (see Note 21, Subsequent Events) over the associated vesting period.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The acquisition of Nitro has been accounted for as business combination using the acquisition method. Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The fair values of identifiable intangible assets were based on valuations using the income approach based on estimates provided by management. The excess of purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The allocation of the purchase price is based upon a valuation of certain assets and liabilities acquired. The purchase price allocation was as follows (in thousands):


	Amount

Cash	$	3,290
Accounts receivable		10,438
Other current assets		3,308
Property and equipment		2,281
Indentifiable intangible assets		18,000
Goodwill		16,943

Total assets acquired		54,260

Accounts payable, accrued expenses and other current liabilities		(16,912	)
Deferred revenues		(416	)
Deferred tax liability		(1,379	)
Other long term liabilities		(1,312	)

Total liabilities assumed		(20,019	)

Total allocation of purchase price consideration	$	34,241

Less: cash acquired		(3,290	)

Total purchase price, net of cash acquired	$	30,951

Except for accounts receivable, leases, other long term liabilities and deferred taxes, net tangible assets were valued at the respective carrying amounts recorded by Nitro as the Company believes that their carrying value amounts approximate their fair value at the acquisition date. Included in other current assets is the estimated fair value, as of the acquisition date, of indemnification assets totaling $1.2 million. These assets reflect amounts due from the seller of Nitro as a result of potential breaches in or inaccuracies of representations and warranties made in the stock purchase agreement. The Company clawed back 14,246 shares from the seller to satisfy a $0.2 million indemnification asset during the third quarter of 2010. The Company acquired a deferred consideration obligation of $8.1 million. The obligation is denominated in a foreign currency. Pursuant to the purchase agreement, the seller agreed to indemnify the Company for payments in excess of $8.0 million. The Company paid $4.6 million in the fourth quarter of 2009 and $3.2 million in 2010 to settle this obligation. At December 31, 2010 the Company had a deferred consideration obligation of $1.3 million, offset by an indemnification asset of $1.1 million. Please see Note 5 for the changes in fair value of the acquired indemnification assets, deferred consideration and other long-term liability. Total net tangible assets consist of the fair value of tangible assets acquired less the fair value of assumed liabilities.

The purchase price allocation resulted in $16.9 million of purchase price that exceeded the estimated fair value of tangible and intangible assets and liabilities, which was allocated to goodwill. The Company believes the resulting amount of goodwill reflects its expectations of the synergistic benefits of being able to leverage Nitro’s traditional advertising expertise with the Company’s own digital commerce and marketing technology services to provide an integrated advertising service to both the Company’s existing customer base and Nitro’s customer base.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

See Note 8 for the allocation of goodwill by the Company’s segments. The following table reflects the estimated fair values and useful lives of intangible assets acquired:


			Weighted Average Useful
	Amount		Life
			(In years)

Customer relationships	$	10,100		7
Non-compete agreements		5,600		5
Tradename		2,300		5

Identifiable intangible assets	$	18,000

The useful lives of these intangible assets were based upon the pattern in which economic benefits related to such assets are expected to be realized and will be amortized on a basis reflecting that economic pattern. The goodwill and intangible assets acquired are not deductible for tax purposes.

The former shareholder of Nitro could have received additional consideration of up to $3.0 million, which was contingent on certain financial performance conditions during the twelve month period from October 1, 2009 to September 30, 2010, and was payable in either cash or stock at the Company’s discretion. The Company did not record a liability as of the acquisition date. Nitro did not achieve the prescribed performance targets and as a result the Company did not record a liability as of September 30, 2010. Furthermore, if Nitro’s financial performance did not meet certain minimum revenue thresholds for the twelve months ended June 30, 2010, the Company could have clawed-back shares from the former shareholder of Nitro. Nitro’s financial performance met the prescribed target and the Company did not record an asset for this contingency. The following unaudited, pro forma information assumes the Nitro acquisition occurred at the beginning of the periods presented (in thousands, except per share amounts):


	Twelve Months Ended
	December 31,
	2009		2008
	(unaudited)

Service revenues	$	663,189	$	718,608

Net income	$	84,399	$	62,846

Basic net income per share	$	0.66	$	0.50

Diluted net income per share	$	0.65	$	0.49

The pro forma information above is presented for information purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

Derivatives Consulting Group Limited

On August 6, 2008 the Company acquired 100% of the outstanding shares of Derivatives Consulting Group Limited (“DCG”). Aggregate initial consideration for the acquisition totaled $31.3 million, which consisted of: (i) cash consideration of $21.9 million, (ii) stock consideration of 307,892 shares, issued on the acquisition date, valued at $2.3 million, (iii) deferred stock consideration of 395,125 shares, valued at $4.5 million, which were issued in February 2010, and (iv) transaction costs of $2.6 million.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The results of operations of the acquired business have been included in the financial statements of the Company since August 6, 2008. The purchase price allocation is as follows (in thousands, at the acquisition date exchange rate):


	Amount

Cash	$	2,294
Accounts receivable		9,370
Other current assets		1,660
Property and equipment		834
Indentifiable intangible assets		9,045
Goodwill		18,130

Total assets acquired		41,333

Accounts payable, accrued expenses and other current liabilities		(7,327	)
Deferred revenues		(221	)
Deferred tax liability		(2,533	)

Total liabilities assumed		(10,081	)

Total allocation of purchase price consideration	$	31,252

Pursuant to the agreement, the former shareholders of DCG could earn additional consideration subject to achieving certain operating objectives in years one, two and three, ending March 31, 2009, 2010 and 2011, respectively. The year one operating objectives were partially achieved and, as a result, the Company paid approximately $5.6 million in contingent consideration in 2009 which comprised $2.4 million in stock and $3.2 million in cash. The Company determined the amount of contingent consideration due to achievement of year two performance objectives was $2.4 million, which was paid by issuing 235,744 shares of common stock during the second quarter of 2010. The maximum potential future consideration for the year three performance objectives, to be resolved over the next year, is £6.0 million (approximately $9.3 million at December 31, 2010 exchange rate) payable in cash or common stock. As the DCG acquisition was completed in 2008, it is accounted for as a business combination under the purchase method. Accordingly, any future contingent consideration payments will result in an increase in goodwill at the time the contingent consideration is earned.

The following table lists the identifiable intangible assets acquired and their respective weighted average useful life over which the assets will be amortized. The useful lives of these intangible assets were based upon the pattern in which economic benefits related to such assets are expected to be realized and will be amortized on a basis reflecting that economic pattern. (in thousands, except useful lives, at the acquisition date exchange rate):


			Weighted Average Useful
	Amount		Life
			(In years)

Customer relationships	$	5,814		5
Non-compete agreements		2,193		5
Tradename		1,038		1.5

Identifiable intangible assets	$	9,045

The income approach was used to value each of these identifiable intangible assets. The income approach is based upon the economic principle of anticipation in that the value of any property is the present value of the expected income that can be generated through ownership of that property. The excess of the purchase price over tangible and identifiable intangible assets was recorded as goodwill and amounted to approximately $18.1 million at the acquisition date (see Note 8 for segment allocation of goodwill). The acquisition has been treated as a non-taxable transaction. The identifiable intangible assets, including goodwill, are non-deductible for tax purposes.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During the first quarter of 2009, the Company finalized an integration plan for DCG, which was initiated at the date of acquisition, which resulted in the termination of certain employees. The total cost of this plan was $0.5 million, which is for employee severance costs. The total cost of $0.5 million was recorded as an increase to goodwill and accrued in other current liabilities, and as of March 31, 2010 all amounts had been paid.

The following unaudited, pro forma information assumes the DCG acquisition occurred at the beginning of the periods presented (in thousands, except per share amounts):


	Twelve Months Ended
	December 31,
	2008
	(Unaudited)

Service revenues	$	686,992

Net income	$	60,871

Basic net income per share	$	0.48

Diluted net income per share	$	0.47


(4)	Supplemental Cash Flow Information

Net total income taxes paid in 2010, 2009 and 2008 were approximately $12.1 million, $7.4 million and $4.2 million, respectively.

Non-cash investing transactions in 2010 consisted of the issuance of common stock in the amount of $2.4 million as contingent consideration for the acquisition of DCG. Non-cash investing transactions in 2009 consisted of the issuance of common stock in the amount of $11.8 million as consideration for the Nitro acquisition and $2.6 million as contingent consideration for the acquisition of DCG. Non-cash investing transactions in 2008 consisted of the issuance of common stock in the amount of $6.8 million as consideration for the acquisition of DCG.


(5)	Marketable Securities, the Put Right and Fair Value Disclosures

Marketable Securities and the Put Right

Please see Note 2(e) for a discussion of the Company’s accounting policy related to its marketable securities investments and other financial assets and the methods and assumptions used to determine their fair value.

At December 31, 2010 the estimated fair value of the Company’s marketable securities classified as available-for-sale securities was $10.1 million. At December 31, 2009 the estimated fair value of the Company’s marketable securities classified as available-for-sale securities and trading securities were $2.1 million and $15.3 million, respectively. The Company sold, at amortized cost, $16.4 million of auction rate securities (“ARS”) classified as trading securities and $0.1 million of ARS classified as available-for-sale during 2010. In the fourth quarter, the Company purchased $8.9 million of mutual funds classified as available-for-sale.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables summarize the Company’s marketable securities:


	Available-for-Sale Securities as of December 31, 2010
	Amortized		Gross Unrealized		Gross Unrealized			Estimated Fair
	Cost		Gains		Losses			Value

Long-term:
Auction rate securities	$	1,400	$	—	$	(131	)	$	1,269
Short-term:
Mutual fund deposits		8,882		—		(21	)		8,861

Total	$	10,282	$	—	$	(152	)	$	10,130


	Available-for-Sale Securities as of December 31, 2009
	Amortized		Gross Unrealized		Gross Unrealized			Estimated Fair
	Cost		Gains		Losses			Value

Long-term:
Auction rate securities	$	1,500	$	—	$	(138	)	$	1,362
Short-term:
Money market fund deposits		940		—		(186	)		754

Total	$	2,440	$	—	$	(324	)	$	2,116


	Trading Securities as of December 31, 2009
			Gross		Gross
			Unrealized		Unrealized			Estimated Fair
	Amortized Cost		Gains		Losses			Value

Short-term:
Auction rate securities	$	16,425	$	—	$	(1,097	)	$	15,328

The Company’s available-for-sale securities comprise ARS and mutual funds. As of December 31, 2010 all of the Company’s available-for-sale ARS have been in an unrealized loss position for more than twelve months.

As a result of the discounted cash flow analysis described in Note 2(e), the Company has assessed that the fair value of its ARS classified as available-for-sale securities is $131,000 less than their amortized cost at December 31, 2010 compared to $138,000 less than amortized cost at December 31, 2009. The Company has recorded the change in valuation, a gain of $7,000, in the “accumulated other comprehensive loss” section on its consolidated and condensed balance sheets. The Company does not intend to sell its ARS classified as available-for-sale until a successful auction occurs and these ARS investments are liquidated at amortized cost, nor does the Company expect to be required to sell these ARS before a successful auction occurs.

At December 31, 2009 the amortized cost of the Company’s investment in the Primary Fund, a mutual fund that suspended redemptions, was $1.0 million. Due to events in 2009 that limited the liquidity of this investment the Company recorded an impairment of $0.2 million in 2009. In January 2010 the Company received the remaining $0.8 million balance.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table reconciles the total other-than-temporary impairment losses to other-than-temporary losses reflected in earnings for the Company’s available-for-sale securities for 2010 and 2009 (in thousands):


	Twelve Months Ended December 31,
	2010		2009

Total other-than-temporary losses(1)	$	—	$	(205	)
Less: portion of loss recognized in other comprehensive loss(2)		—		—

Net impairment losses recognized in earnings	$	—	$	(205	)


(1)		Reflects $186 impairment for Primary Fund and $19 credit losses related to ARS.

(2)		The Company recognized an increase in the fair value of its ARS classified as available-for-sale during the twelve months ended December 31, 2010. As a result, a gain was recorded in “accumulated other comprehensive loss”.

At December 31, 2009 the Company recorded its ARS classified as trading securities at their amortized cost. The fair value of the ARS classified as trading securities was $1.1 million less than their amortized cost. The Company recorded the change in the other-than-temporary impairment in “interest and other income, net.” All of the Company’s ARS classified as trading securities were held with UBS, one of the Company’s brokers. On November 5, 2008 the Company accepted an offer from UBS which provided the Company with rights, the “Put Right”, to sell UBS its ARS investments at par at any time during a two-year period beginning June 30, 2010. The Put Right was initially measured at its fair value and changes in fair value of the Put Right were reflected in earnings. As the Company exercised the Put Right on June 30, 2010 — and on July 1, 2010 sold at amortized cost the remaining $6.8 million held with UBS as of June 30, 2010, back to UBS — the Put Right no longer held any significant value and the Company recorded the change in fair value of the Put Right, a loss of $1.1 million compared to its valuation as of December 31, 2009, in “interest and other income, net”. This loss was offset by a $1.1 million gain in fair value on the UBS ARS compared to their valuation as of December 31, 2009 as they were all sold at amortized cost.

Actual maturities of our marketable securities may differ from contractual maturities because some borrowers have the right to call or prepay obligations. Gross realized gains and losses on the sale of securities are calculated using the specific identification method, and were not material to the Company’s operations for 2010 and 2009.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair Value Disclosures

The Company accounts for certain assets and liabilities at fair value. The following tables represent the Company’s fair value hierarchy for its cash equivalents, marketable securities, Put Right, foreign exchange option contracts and acquired assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2009 (in thousands):


	Fair Value Measurements at December 31, 2010 Using
	Level 1		Level 2		Level 3		Total

Financial assets:
Auction rate securities	$	—	$	—	$	1,269	$	1,269
Bank time deposits		—		65,646		—		65,646
Foreign exchange option contracts, net		—		133		—		133
Money market fund deposits		27,703		—		—		27,703
Mutual funds		8,861		—		—		8,861
Indemnification assets acquired		—		—		1,078		1,078

Total	$	36,564	$	65,779	$	2,347	$	104,690


	Level 1		Level 2		Level 3		Total

Financial liabilities:
Foreign exchange option contracts, net	$	—	$	—	$	—	$	—
Deferred consideration acquired		—		—		231		231
Other long-term liabilities acquired		—		—		1,419		1,419

Total	$	—	$	—	$	1,650	$	1,650


	Fair Value Measurements at December 31, 2009 Using
	Level 1		Level 2		Level 3		Total

Financial assets:
Auction rate securities	$	—	$	—	$	16,690	$	16,690
Bank time deposits		—		56,202		—		56,202
Foreign exchange option contracts, net		—		238		—		238
Money market fund deposits		44,571		—		754		45,325
Put Right		—		—		1,096		1,096
Indemnification assets acquired		—		—		2,307		2,307

Total	$	44,571	$	56,440	$	20,847	$	121,858


	Level 1		Level 2		Level 3		Total

Financial liabilities:
Foreign exchange option contracts, net	$	—	$	21	$	—	$	21
Deferred consideration acquired		—		—		4,437		4,437
Other long-term liabilities acquired		—		—		1,299		1,299

Total	$	—	$	21	$	5,736	$	5,757

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance related to disclosures of fair value measurements. The guidance requires gross presentation of activity within the Level 3 measurement roll-forward (below) and details of transfers in and out of Level 1 and 2 measurements. It also clarifies two existing disclosure requirements on the level of disaggregation of fair value measurements and disclosures on inputs and valuation techniques. A change in the hierarchy of an investment from its current level will be reflected in the period during which the pricing methodology of such investment changes. Disclosure of the transfer of securities from Level 1 to Level 2 or Level 3 will be made in the event that the related security is significant to total cash and investments. The Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during 2010.

Level 1 assets consist of money market fund deposits and mutual funds that are traded in an active market with sufficient volume and frequency of transactions. The fair value of these assets was determined from quoted prices in active markets for identical assets.

Level 2 assets consist of bank time deposits and foreign exchange option contracts and Level 2 liabilities include foreign exchange option contracts. The fair value of these assets was determined from inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 assets consist of ARS investments structured with short-term interest rate reset dates of generally less than ninety days but with contractual maturities that can be well in excess of ten years. At the end of each reset period, which occurs every seven to thirty-five days, investors can continue to hold the investments at par or sell the securities at auction provided there are willing buyers to make the auction successful. The ARS investments the Company holds are collateralized by student loans and municipal debt and have experienced failed auctions. Level 3 assets also include the following assumed, financial assets and liabilities as a result of the Nitro acquisition: (i) indemnification assets, (ii) deferred consideration and (iii) other long-term liability.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table provides a summary of changes in fair value of the Company’s Level 3 assets and liabilities, measured on a recurring basis for 2010 and 20009 (in thousands):


	Level 3 Inputs
	Assets			Liabilities

Balance at December 31, 2008	$	21,418		$	—
Transfers into Level 3 (marketable securities)		—			—
Transfers into Level 3 (acquired indemnification assets)(1)		1,202			—
Transfers into Level 3 (deferred consideration and other long-term liability acquired)(1)		—			9,299
Gain on increase in fair value of acquired indemnification assets included in general and administrative expenses ($1,079) and acquisition costs and other related charges(2)		1,105			—
Loss on increase of fair value of deferred consideration acquired included in acquisition costs and other related charges		—			154
Currency transaction loss on deferred consideration acquired included in general and administrative expenses(2)		—			1,079
Loss on increase in fair value of other long-term liability acquired included in general and administrative expenses		—			61
Payment of other acquired liability ($295) and acquired deferred consideration ($4,562)(2)		—			(4,857	)
Unrealized gain included in accumulated other comprehensive loss		38			—
Unrealized loss included in other income, net		(797	)		—
Unrealized gain included in other income, net		904			—
Maturities and sales of marketable securities		(3,023	)		—

Balance at December 31, 2009		20,847			5,736
Settlement of indemnification asset related to currency transaction loss on deferred consideration(2)		(1,079	)		(1,079	)
Settlement of other indemnification asset related to Nitro acquisition		(150	)		—
Loss on increase in fair value of deferred consideration acquired included in acquisition costs and other related charges		—			36
Loss on increase in fair value of other long-term liability acquired included in general and administrative expenses		—			120
Payment of acquired deferred consideration(2)		—			(3,163	)
Unrealized loss included in accumulated other comprehensive loss		7			—
Realized loss included in other income, net		(1,096	)		—
Realized gain included in other income, net		1,096			—
Sales of marketable securities		(17,278	)		—

Balance at December 31, 2010	$	2,347		$	1,650


(1)		See Footnote 3, Acquisitions

(2)		Deferred consideration acquired in Nitro transaction is denominated in a foreign currency. Pursuant to the purchase agreement, the Company is indemnified against all currency transaction losses related to the deferred consideration. In 2009 the Company paid $4,562 of the acquired deferred consideration. In 2010 the Company paid $3,163 and applied the $1,079 currency loss indemnification asset against the $4,437 accrued as of December 31, 2009.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Included in the Company’s cash and cash equivalents balance of $219.4 million as of December 31, 2010, were $65.6 million of time deposits with maturities of less than or equal to 90 days and money market fund deposits of $27.7 million. Included in the Company’s cash and cash equivalents balance of $195.7 million as of December 31, 2009 were $56.2 million of time deposits with maturities of less than or equal to 90 days and money market fund deposits of $44.6 million.


(6)	Restricted Cash

The Company has deposited approximately $4.5 million and $2.7 million with various banks as collateral for letters of credit and performance bonds and has classified this cash as restricted on the accompanying consolidated balance sheet at December 31, 2010 and 2009, respectively, and certain portions are reflected in current or non-current assets based on the expiration of the requirement with the various banks.


(7)	Property and Equipment

The cost and accumulated depreciation of property and equipment at December 31, 2010 and 2009 are as follows (in thousands):


	December 31,
	2010			2009			Estimated Useful Life

Leasehold improvements	$	28,121		$	23,379		Lesser of estimated useful life or the remaining lease term
Furniture and fixtures		9,250			7,310		5 years
Office equipment		7,500			5,623		5 years
Computer software		34,862			29,547		3 years
Computer hardware		37,088			28,289		3 years
Property and equipment, gross		116,821			94,148
Less accumulated depreciation		(81,250	)		(64,919	)

Property and equipment, net	$	35,571		$	29,229

Depreciation expense was $16.2 million, $16.0 million and $17.2 million during 2010, 2009 and 2008, respectively. During 2010, the Company disposed of approximately $0.5 million of gross property and equipment with a net book value of less than $0.1 million and received less than $0.1 million in cash. During 2009, the Company disposed of approximately $3.4 million of gross property and equipment with a net book value of $0.4 million and received $0.3 million in cash.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(8)	Goodwill

As a result of the Company realigning its North America and Europe reportable segments, creating two new segments, SapientNitro and Sapient Global Markets, the Company’s goodwill balance as of December 31, 2009 has been allocated among the new business units based on the business units’ relative fair value as estimated by the Company. The following tables present the changes in goodwill allocated to our reportable segments during 2010 and 2009 and the allocation of December 31, 2009 goodwill balances to the new reportable segments (in thousands):


	North America			Europe		Total

Goodwill as of December 31, 2008	$	38,289		$	13,422	$	51,711
Contingent consideration paid during the period		—			5,565		5,565
Goodwill acquired during the period		5,100			11,843		16,943
Costs associated with employee termination		—			517		517
Adjustment to goodwill recorded during the period		(103	)		—		(103	)
Exchange rate effect		—			1,371		1,371

Goodwill as of December 31, 2009	$	43,286		$	32,718	$	76,004


	North America			Europe			Total

Balance as of December 31, 2009	$	43,286		$	32,718		$	76,004
Allocation to SapientNitro		(31,797	)		(21,477	)		(53,274	)
Allocation to Sapient Global Markets		(11,489	)		(11,241	)		(22,730	)

Balance after allocation	$	—		$	—		$	—


				Sapient Global
	SapientNitro			Markets			Total

Allocation of December 31, 2009 goodwill balance to new operating segments	$	53,274		$	22,730		$	76,004
Contingent consideration recorded during the period		—			2,371			2,371
Exchange rate effect		(372	)		(138	)		(510	)

Goodwill as of December 31, 2010	$	52,902		$	24,963		$	77,865

In 2010 the Company recorded earnout consideration related to DCG of $2.4 million that was contingent on financial performance for the twelve months ended March 31, 2010 and paid out in 2010. In 2009 (prior to the realignment of reportable segments) the Company acquired Nitro and allocated $5.1 million to the North America segment and $11.8 million to the Europe segment. In addition, earnout consideration related to DCG of $5.6 million that was contingent upon financial performance for the twelve months ended March 31, 2009 was paid in 2009 and allocated to the Europe segment. See Note 3, Acquisitions for more detail.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(9)	Purchased Intangible and Long-lived Assets

The following is a summary of intangible assets as of December 31, 2010 and 2009 (2010 and 2009 gross carrying amounts of foreign currency denominated purchased intangible assets are reflected at December 31, 2010 and 2009 exchange rates, respectively, in thousands):


	December 31, 2010
	Gross					Net
	Carrying		Accumulated			Book
	Amount		Amortization			Value

Customer lists and customer relationships	$	22,954	$	(12,351	)	$	10,603
SAP license agreement		1,100		(1,100	)		—
Non-compete agreements		8,538		(3,074	)		5,464
Tradename		3,149		(1,587	)		1,562

Total purchased intangibles	$	35,741	$	(18,112	)	$	17,629


	December 31, 2009
	Gross					Net
	Carrying		Accumulated			Book
	Amount		Amortization			Value

Customer lists and customer relationships	$	22,927	$	(8,804	)	$	14,123
SAP license agreement		1,100		(1,100	)		—
Non-compete agreements		8,554		(1,716	)		6,838
Tradename		3,144		(1,044	)		2,100

Total purchased intangibles	$	35,725	$	(12,664	)	$	23,061

Amortization expense related to the purchased intangible assets was $5.4 million, $5.1 million and $2.7 million for 2010, 2009 and 2008, respectively.

The estimated future amortization expense of purchased intangible assets as of December 31, 2010 is as follows:


	Total
	(In thousands)

2011		5,026
2012		5,365
2013		4,155
2014		1,861
2015		818
Thereafter		404
Total	$	17,629


(10)	Restructuring and Other Related Charges

2010 — Restructure Event

In the first quarter of 2010, we consolidated our UK operations into one office space. As such, the Company restructured one lease which ends in March 2011. Estimated costs for the consolidation of facilities included contractual rental commitments and related costs. The Company recorded $0.8 million in restructuring expense in the first quarter of 2010. These charges were not recorded to a segment because they impacted areas of the business

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

that supported the business units and are reflected in “Reconciling Items” in Note 18, Segment Reporting. The following table shows activity during 2010 related to the 2010 restructuring event (in thousands):


	Facilities

2010 provision	$	846
Cash utilized		(604	)

Balance, December 31, 2010	$	242

The remaining $0.2 million accrued restructuring as of December 31, 2010 is expected to be paid by March 2011.

2009 — Restructure Event

In February 2009, in response to the impact of current global economic conditions on its demand environment, the Company implemented a restructuring plan to reduce its peoplecount during the first quarter of 2009. For the nine months ended September 30, 2009, 392 employees were terminated in connection with this restructuring plan and the Company recorded restructuring charges of $2.0 million in its consolidated and condensed statements of operations. These charges consisted of $1.9 million in employee cash severance payments and the remaining charges consisted of outplacement assistance fees and other associated costs. Of the $2.0 million restructuring charge, $1.2 million and $0.6 million were recorded to the Company’s SapientNitro and Sapient Global Markets operating segments, respectively. The remaining $0.2 million was not recorded to a segment because they impacted areas of the business that supported the business units and are reflected in “Reconciling Items” in Note 18, Segment Reporting. There were no amounts accrued for this restructuring event as of December 31, 2009.

2001, 2002 and 2003 — Restructure Events

As a result of the decline in the demand for advanced technology consulting services that began in 2000, we restructured our workforce and operations in 2001, 2002 and 2003. These charges were not recorded to a segment because they impacted areas of the business that supported the business units, but are included in reconciling items section in Results by Operating Segment. The restructuring consisted of ceasing operations and consolidating or closing excess offices. Estimated costs for the consolidation of facilities included contractual rental commitments or lease buy-outs for office space vacated and related costs, offset by estimated sublease income.

We recorded a net restructuring benefit of approximately $0.4 million in 2010 principally related to changes in the Company’s estimated operating expenses to be incurred and sub-lease income in connection with a previously restructured lease, which ends in 2011.

We recorded net restructuring and other related charges of approximately $2.6 million in 2009 principally as a result of a change in estimated sub-lease income associated with two previously restructured leases.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table shows activity during 2010 and 2009 related to 2001, 2002 and 2003 restructuring events (in thousands):


	Facilities

Balance at December 31, 2008	$	7,922

2009 provision		2,590
Cash utilized		(3,791	)

Balance at December 31, 2009		6,721

Cash utilized		(3,401	)
Benefits, net		(433	)

Balance at December 31, 2010	$	2,887

The total remaining accrued restructuring costs for these events are $2.9 million at December 31, 2010. This balance will be paid through 2011.

These restructuring charges and accruals require significant estimates and assumptions, including sub-lease income assumptions. The consolidation of facilities required the Company to make estimates, which included contractual rental commitments or lease buy-outs for office space vacated and related costs, offset by estimated sublease income. The Company’s sublease assumptions include anticipated rates to be charged to a sub-tenant and the timing of the sublease arrangement. These estimates and assumptions are monitored on a quarterly basis for changes in circumstances. It is reasonably possible that such estimates could change in the future; resulting in additional adjustments and these adjustments could be material.


(11)	Income Taxes

The provision (benefit) for income taxes consists of the following (in thousands):


	2010			2009			2008

Federal, current	$	810		$	1,488		$	1,274
State, current		(236	)		3,595			1,160
Foreign, current		7,051			4,878			7,097

Subtotal, current income tax (benefit) provision		7,625			9,961			9,531
Federal, deferred		20,858			(48,239	)		946
State, deferred		(4,758	)		(9,217	)		156
Foreign, deferred		73			2,945			(1,394	)

Subtotal, deferred income tax (benefit) provision		16,173			(54,511	)		(292	)

Income tax (benefit) provision	$	23,798		$	(44,550	)	$	9,239

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Income tax provision (benefit) for 2010, 2009 and 2008 differed from the amounts computed by applying the U.S. statutory income tax rate to pre-tax income as a result of the following:


	2010			2009			2008

Statutory income tax rate		35.0	%		35.0	%		35.0	%
Permanent items		1.8			4.8			1.7
State income taxes, net of federal benefit		(1.4	)		8.2			1.5
Foreign taxes		(0.8	)		42.8			(8.7	)
Amortization		—			1.9			1.5
Valuation allowance		(1.2	)		(198.4	)		(19.0	)
Other		1.8			3.5			0.9

Effective income tax (benefit) rate		35.2	%		(102.2	)%		12.9	%

In 2010, significant components of the Company’s effective rate relate to valuation allowance changes arising from judgments about the realizability of certain deferred tax assets, adjustments to state income taxes, and the tax rate differential attributable to the Company’s foreign subsidiaries and related mix of jurisdictional profits.

The sources of income before the provision (benefit) for income taxes for the years ended December 31, 2010, 2009 and 2008 are as follows:


	2010		2009			2008

United States	$	58,671	$	77,265		$	40,307
International		8,932		(33,689	)		31,408

	$	67,603	$	43,576		$	71,715

During 2009, the Company implemented a plan to realign its international business and legal entities within its worldwide group. The objective of this realignment was to make its legal and operational structure more consistent with its Global Distributed Delivery model and the geographic mix of its customers. To effect this realignment, the Company established operations in Switzerland to provide operational and financial services to the majority of its international subsidiaries. A significant element of the new structure involves the sharing of certain expenses related to the development of intangible property. The geographic breakout of income before income taxes reflects the changes made to global cost allocations and additional intercompany expenses incurred by the Company’s foreign subsidiaries resulting from the realignment.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At December 31, 2010 and 2009, deferred income tax assets and liabilities resulted from differences in the recognition of income and expense for tax and financial reporting purposes. The sources and tax effects of these temporary differences are presented below:


	December 31,
	2010			2009

Deferred income tax assets (liabilities), current:
Deferred revenues	$	4,289		$	5,822
Unused net operating losses		16,741			19,786
Other reserves and accruals		3,468			2,562
Restructuring charges		1,122			1,481

Gross deferred income tax assets, current		25,620			29,651
Valuation allowance		(1,682	)		(2,171	)

Net deferred income tax assets, current	$	23,938		$	27,480

Deferred income taxes (liabilities), non-current:
Property and equipment	$	2,056		$	2,086
Deferred compensation		16,398			18,624
Goodwill and other intangibles		(2,545	)		(1,834	)
Tax credits		7,790			8,203
Unused net operating losses		6,430			17,060
Restructuring charges		—			1,200
Unremitted earnings		(10,836	)		(13,200	)
Other		2,944			3,495

Gross deferred income taxes, non-current		22,237			35,634
Valuation allowance		(3,376	)		(3,692	)

Net deferred income tax assets, non-current	$	18,861		$	31,942

Net deferred income tax assets	$	42,799		$	59,422

Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. At December 31, 2008 all of the Company’s U.S. deferred tax assets had a full valuation allowance of $112.1 million. Based upon its operating results for the years immediately preceding and through December 31, 2009, as well as an assessment of our expected future results of operations in the U.S., at December 31, 2009 the Company determined that it had become more likely than not that it would realize a substantial portion of its deferred tax assets in the U.S. As a result, the Company released $58.3 million of valuation allowances on its U.S. deferred tax assets which was recorded as an income tax benefit.

Certain state tax net operating loss carry forwards, as well as a portion of the net operating loss carry forwards relating to certain stock based compensation deductions will remain with a valuation allowance recorded against them at December 31, 2010 and 2009. At December 31, 2010 the Company determined that it had become more likely than not that it would realize a portion of its deferred tax assets related to state net operating loss carry forwards. As a result, the Company released $2.3 million of valuation allowances on its state deferred tax assets which was recorded as an income tax benefit.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Also at December 31, 2010 the Company established a valuation allowance of $1.5 million against deferred tax assets in Switzerland, but continues to believe that deferred tax assets in its other foreign subsidiaries are more likely than not to be realized and, therefore, no valuation allowance has been recorded against these assets.

The following table summarizes changes in our valuation allowance:


	2010			2009			2008

Balance at beginning of year	$	5,863		$	112,138		$	117,409
Additions		1,499			—			8,354
Utilization		—			(47,990	)		(13,625	)
Releases		(2,305	)		(58,285	)		—
Other adjustments		—			—			—

Balance at end of year	$	5,057		$	5,863		$	112,138

The Company has net operating loss carry forwards of approximately $44.5 million and $86.6 million for U.S. federal purposes, and $25.9 million and $7.8 million related to foreign jurisdictions at December 31, 2010 and 2009, respectively. If not utilized, the federal net operating loss carry forwards will expire at various times through 2027 and the foreign loss carry forwards will expire at various times through 2017. The Company’s federal research and development tax credit carry forwards were $4.5 million at December 31, 2010 and 2009. If not utilized, the federal tax credit carry forwards will expire at various times through 2020.

The current accounting standard for stock-based compensation prohibits the recognition of windfall tax benefits from stock-based compensation deducted on tax returns until realized through a reduction of income tax payable. The Company has a deferred tax asset pertaining to net operating loss carry forwards resulting from the exercise of employee stock options prior to January 1, 2006 of approximately $2.8 million at December 31, 2010 and 2009 which is fully offset by a valuation allowance. The Company has additional unrecognized tax benefits related to stock-based compensation from January 1, 2006 onwards of $5.5 million and $2.9 million at December 31, 2010 and 2009, respectively. The cumulative tax benefits of $8.3 million will be recorded as additional paid-in-capital when the net operating loss carry forwards are utilized and the benefit is realized.

The Company reinvests unremitted earnings of certain foreign operations indefinitely and, accordingly, does not provide for income taxes that could result from the remittance of such earnings. At December 31, 2010 and 2009 $45.0 million and $48.0 million of unremitted earnings were not reinvested indefinitely and recorded a long-term deferred tax liability of $10.8 million and $13.2 million, respectively. At December 31, 2010 and 2009, earnings of such operations that could result in incremental taxes, if remitted, amounted to $86.9 million and $53.1 million, respectively. Determination of the potential deferred tax liability on these unremitted earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when such remittance occurs.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes. As of December 31, 2010 and 2009, interest and penalties accrued were approximately $1.1 million and $1.6 million, respectively.

A tabular roll forward of the Company’s uncertainties in income tax provision liability is presented below:


	2010			2009			2008

Balance at January 1	$	7,332		$	5,551		$	4,118
Additions based on current year tax positions		3,168			1,586			1,433
Additions based on tax positions of prior years		1,454			1,456			—
Reductions for tax positions of prior years		(1,090	)		(1,261	)		—
Settlements		—			—			—

Balance at end of year	$	10,864		$	7,332		$	5,551

The Company conducts business globally and, as a result, our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, Germany, India, United Kingdom and the United States. The Company’s U.S. federal tax filings are open for examination for tax years 2007 through the present. The statute of limitations in the Company’s other tax jurisdictions remains open between 2004 through the present. However, carry forward attributes from prior years may still be adjusted upon examination by tax authorities if they are used in a future period.

Although we believe our tax estimates are appropriate, the final determination of tax audits could result in favorable or unfavorable changes in our estimates. We anticipate the settlement of tax audits in the next twelve months and the expiration of relevant statutes of limitations could result in a decrease in our unrecognized tax benefits of an amount between $0.3 million and $1.3 million.

The Company enjoys the benefits of income tax holidays in certain jurisdictions it operates in. The tax holiday for our business in Gurgaon, India, expired on March 31, 2009, while the enabling legislation for the tax holidays for our business located in Bangalore and Noida, India, are scheduled to expire on March 31, 2011 In addition, in 2009 the Company established a new India unit in a Special Economic Zone (“SEZ”) which is eligible for a five year, 100% tax holiday. These benefits resulted in a decrease in its income tax provision of $3.3 million, $2.3 million and $3.1 million for 2010, 2009 and 2008, respectively. Excluding these benefits, diluted earnings per share would have been $0.29, $0.65 and $0.46 for 2010, 2009 and 2008, respectively.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(12)	Commitments and Contingencies

Lease Commitments

The Company maintains its executive offices in Boston, Massachusetts and operating offices in several locations throughout the United States and abroad. Future minimum rental commitments under non-cancelable operating leases with initial or remaining terms in excess of one year at December 31, 2010 were as follows (in thousands):


	Total

2011		14,582
2012		14,498
2013		13,222
2014		11,637
2015		11,583
Thereafter		45,167

Total	$	110,689

Rent expense for the years ended December 31, 2010, 2009 and 2008 was approximately $19.5 million, $15.0 million and $13.5 million, respectively. The Company’s capital lease obligations as of December 31, 2010 were not material.

Guarantees and Indemnification Obligations

As permitted under Delaware law, the Company’s Amended and Restated Certificate of Incorporation provides that the Company will indemnify its officers and Directors for certain claims asserted against them in connection with their service as an officer or Director of the Company. The maximum potential amount of future payments that the Company could be required to make under these indemnification provisions is unlimited. However, the Company has purchased certain Directors’ and Officers’ insurance policies that reduce its monetary exposure and that may enable it to recover a portion of any future amounts paid. As a result of the Company’s insurance coverage, the Company believes the estimated fair value of these indemnification arrangements is minimal.

The Company frequently has agreed to indemnification provisions in professional services agreements with its clients and in its real estate leases in the ordinary course of its business. Pursuant to these provisions, the Company indemnifies the indemnified party for certain losses suffered or incurred by the indemnified party. With respect to the Company’s professional services agreements, these indemnification provisions typically apply to any third party claim asserted against its client for infringement of intellectual property rights, but may also include third party claims asserted against its client relating to personal injury or property damage, violations of law or certain breaches of the Company’s contractual obligations. With respect to lease agreements, these indemnification provisions typically apply to third party claims asserted against the landlord relating to personal injury and property damage caused by the Company, violations of law or to certain breaches of the Company’s contractual obligations. In each case, the term of these indemnification provisions generally survives the termination of the agreement, although the provision has the most relevance during the contract term and for a short period of time thereafter. The maximum potential amount of future payments that the Company could be required to make under these indemnification provisions is unlimited, although in many cases the Company’s liability for indemnification is limited to a specific dollar amount in the applicable contract. The Company also has purchased insurance policies covering professional errors and omissions, property damage and general liability that reduce its monetary exposure for indemnification and enable it to recover a portion of any future amounts paid. The Company has never paid any material amounts to defend lawsuits or settle claims related to these indemnification provisions. Accordingly, the Company believes the estimated fair value of these indemnification arrangements is minimal.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company frequently warrants that the technology solutions it develops for its clients will operate in accordance with the project specifications without defects for a specified warranty period, subject to certain limitations that the Company believes are standard in the industry. In the event that defects are discovered during the warranty period, and none of the limitations apply, the Company is obligated to remedy the defects until the solution that the Company provided operates within the project specifications. The Company is not typically obligated by contract to provide its clients with any refunds of the fees they have paid, although a small number of its contracts provide for the payment of liquidated damages upon default. The Company has purchased insurance policies covering professional errors and omissions, property damage and general liability that reduce its monetary exposure for warranty-related claims and enable it to recover a portion of any future amounts paid. The Company typically provides in its contracts for testing and client acceptance procedures that are designed to mitigate the likelihood of warranty-related claims, although there can be no assurance that such procedures will be effective for each project. The Company has never paid any material amounts with respect to the warranties for its solutions, although the Company sometimes commits unanticipated levels of effort to projects to remedy defects covered by its warranties. Deferred revenues on contracts related to warranties were immaterial as of December 31, 2010 and 2009.

Legal Claims

The Company is subject to certain legal proceedings and claims, as discussed below. The Company is also subject to certain other legal proceedings and claims that have arisen in the course of business and that have not been fully adjudicated. However, the results of legal proceedings cannot be predicted with certainty. Should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.

The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. The Company is subject to various legal claims totaling approximately $10.7 million, for which the likelihood of a loss is considered more than remote, and various administrative audits, each of which have arisen in the ordinary course of our business. The Company has an accrual at December 31, 2010 of approximately $0.7 million related to certain of these items. The Company intends to defend these matters vigorously, although the ultimate outcome of these items is uncertain and the potential loss, if any, may be significantly higher or lower than the amounts that the Company has previously accrued.


(13)	Debt

In May 2010, Sapient Consulting Pvt. Limited (a subsidiary of the Company in India) entered into a $10,000,000 uncommitted revolving credit facility. The facility matures in May 2011 and can be used to finance working capital requirements, capital expenditures or any other purpose which may be permissible under local regulations. Borrowings in U.S. dollars bear interest at the six-month LIBOR plus 2%. Short-term loans denominated in Indian rupees are also permissible and bear interest at prevailing local borrowing rates, dependant on the payback period selected at the time of borrowing. There are no covenants based on financial measures governing this facility. At December 31, 2010 the Company has three 30-day short-term loans outstanding at interest rates ranging from 9.25% to 9.65%. These loans total 200 million rupees (approximately $4.4 million) and mature in January 2011. These borrowings are reflected in other current accrued liabilities on the consolidated and condensed balance sheets.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(14)	Stock Plans

The Company recorded $18.2 million, $14.9 million and $15.1 million of stock-based compensation expense in the accompanying consolidated statement of operations for 2010, 2009 and 2008, respectively. Project personnel expenses, selling and marketing expenses and general and administrative expenses appearing in the consolidated statements of operations for 2010, 2009 and 2008 include the following stock-based compensation amounts (in thousands):


	2010		2009		2008

Project personnel expenses	$	10,389	$	8,222	$	6,890
Selling and marketing expenses		1,108		1,472		3,403
General and administrative expenses		6,659		5,227		4,829

	$	18,156	$	14,921	$	15,122

Stock-based compensation expense capitalized related to individuals working on internally developed software was immaterial. The Company values restricted stock units (“RSUs”) and restricted stock that is contingent on employment and/or performance conditions based on the fair market value on the date of grant, which is equal to the quoted market price of the Company’s common stock on the date of grant. RSUs with market-based vesting criteria are valued using a lattice model. The Company values stock options using the Black-Scholes valuation model.

The Company recognizes compensation costs net of a forfeiture rate and recognizes the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the vesting term. The Company estimated the forfeiture rate is based on its historical experience and any known factors that may affect future forfeitures. The Company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeitures are higher than estimated. The actual expense recognized over the vesting period will only be for those shares that vest. As a result of the Company’s forfeiture analysis conducted in the fourth quarter of 2008, which considered the trend of historical forfeitures as well as future expectations of forfeiture activity, the Company increased its forfeiture rate estimate and recorded a reduction in stock-based compensation expense of $2.8 million, related to grants made in 2005 and 2006. Of the $2.8 million reduction recorded in 2008, $1.7 million is reflected in project personnel expenses, $0.8 million is reflected in general and administrative expenses and $0.3 million is reflected in selling and marketing expenses. The Company’s 2010 and 2009 annual review of its forfeiture estimate did not result in a material change in estimate.

During the first quarter of 2010, the Company granted a special dividend equivalent payment of $0.35 per RSU for each outstanding RSU award as of March 1, 2010, to be paid in shares when the underlying award vests. If the underlying RSU does not vest, the dividend equivalent is forfeited. Under the terms of our RSU awards, RSUs were not entitled to dividends. As a result, the dividend declared on outstanding RSUs is a modification of the original awards, the cost of the dividend equivalent will be recognized as stock-based compensation in the same manner the Company recognizes stock-based compensation for RSUs. The Company estimated the total additional stock-based compensation expense related to the special dividend equivalent on RSUs, net of forfeitures, to be approximately $2.0 million. This expense will be recognized through March 1, 2014, the amounts recorded in each period to be commensurate with the vesting of the underlying awards. During the second quarter, the Company granted RSU with service and performance conditions to its Chief Executive Officer (“CEO”). Up to 100,000 units will vest on March 1, 2013 if the performance conditions are met for the three year period ending December 31, 2012. The CEO will be granted an additional 50,000 RSUs that will vest based on strategic objectives that will be determined by the Company’s Board of Directors.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


*(a)*	*1996 Equity Stock Incentive Plan*

The Company’s 1996 Equity Stock Incentive Plan (the “1996 Plan”) authorized the Company to grant options to purchase common stock, and certain other equity-related awards such as restricted common stock and restricted stock units, to employees and directors of, and consultants to, the Company. A total of 19,200,000 shares of common stock were available for issuance under the 1996 Plan. The 1996 Plan is administered by the Compensation Committee of the Board of Directors, which selects the persons to whom stock options and other awards are granted and determines the number of shares, the exercise or purchase prices, the vesting terms and the expiration dates of options granted. Non-qualified stock options may be granted at exercise prices which are above, equal to or below the grant date fair market value of the common stock. The exercise price of options qualifying as Incentive Stock Options may not be less than the fair market value of the common stock on the grant date. Stock options granted under the 1996 Plan are nontransferable, generally become exercisable over a four-year period and expire ten years after the date of grant (subject to earlier termination in the event of the termination of the optionee’s employment or other relationship with the Company). No award has been made under the plan after February 13, 2006 and as of December 31, 2008 the plan had expired.


*(b)*	*1996 Director Stock Option Plan*

Options granted pursuant to the Directors Plan vest in four equal annual installments commencing on the first anniversary of the date of grant and generally expire ten years after the date of grant. As of December 31, 2010 and 2009, options to purchase zero shares of common stock were outstanding under the Director Plan.


*(c)*	*1998 Stock Incentive Plan*

The Company’s 1998 Stock Incentive Plan (the “1998 Plan”) authorizes the Company to grant options to purchase common stock, to make awards of restricted common stock, and to issue certain other equity-related awards to employees and directors of the Company. The total number of shares of common stock which may be issued under the 1998 Plan is 18,000,000 shares. The 1998 Plan is administered by the Compensation Committee of the Board of Directors, which selects the persons to whom stock options and other awards are granted and determines the number of shares, the exercise or purchase prices, the vesting terms and the expiration date. Non-qualified stock options may be granted at exercise prices which are above, equal to or below the grant date fair market value of the common stock. The exercise price of options qualifying as Incentive Stock Options may not be less than the fair market value of the common stock on the grant date. As of December 31, 2010, 4.8 million shares were available for grant under the 1998 Stock Incentive Plan. On August 15, 2007, the Company’s stockholders approved an amendment to the 1998 Plan that, among other things, extended the term of the 1998 Plan to the earlier of (i) the date at which the Plan has no underlying shares available for issuance; or (ii) March 29, 2012.


*(d)*	*2001 Stock Option Plan*

The Company’s 2001 Stock Option Plan (the “2001 Plan”) authorizes the Company to grant options to purchase common stock to employees and directors of the Company. The total number of shares of common stock which may be issued under the 2001 Plan is 12,000,000 shares. The 2001 Plan is administered by the Board of Directors, or a subcommittee thereof, which selects the persons to whom stock options are granted and determines the number of shares, the exercise prices, the vesting terms and the expiration date. Under the terms of the 2001 Plan, no stock options, including non-qualified options, may be granted at exercise prices which are below the grant date fair market value of the common stock. In connection with the Company’s internal investigation into its historical stock-based compensation practices, management determined that certain stock option grants under the 2001 Plan were made at exercise prices below fair market value (“FMV”). Although the 2001 Plan requires that all stock option awards be made at FMV, management has determined that these below-FMV awards are valid because the Company historically has honored the awards upon exercise and the Company has the ability and intent to continue honoring the awards in the future. Stock options granted under the 2001 Plan are nontransferable,

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

generally become exercisable over a four-year period and expire ten years after the date of grant (subject to earlier termination in the event of the termination of the optionee’s employment or other relationship with the Company). As of December 31, 2010 there were 3.3 million shares available for grant under the 2001 Stock Option Plan.


*(e)*	*2005 Employee Stock Purchase Plan*

The Company’s 2005 Employee Stock Purchase Plan (the “2005 Purchase Plan”) authorizes the issuance of up to 2,074,000 shares of common stock, plus 276,248 shares of common stock unpurchased under the Company’s 2002 Purchase Plan after the May 31, 2005 purchase, to participating employees through a series of periodic offerings. The precise length of each offering, and the maximum number of shares available for purchase in each offering, are established by the Company’s Board of Directors in advance of the applicable offering commencement date, no plan period may have a duration exceeding twelve months. An employee becomes eligible to participate in the Purchase Plan when he or she is regularly employed by the Company of a Designated Subsidiary for at least 20 hours a week and for more than five months in a calendar year on the first day of the applicable offering and an employee has not become ineligible to so participate. The price at which employees can purchase common stock in an offering is 85 percent of the closing price of the common stock on the Nasdaq Global Select Market on the day the offering terminates. The first offering under the 2005 Purchase Plan ran from June 1, 2005 until November 30, 2005, and the maximum number of shares available was 400,000 shares.

The second offering began on December 1, 2005 and extended through May 31, 2006, and the maximum number of shares available was 400,000, which represented the unpurchased shares from previous offerings. On June 1, 2006, 283,926 shares were issued under the 2005 Purchase Plan related to the second offering at a price of $4.55 per share. No new shares were available for the second offering. As a result of the Company’s internal investigation into historic stock option practices, activity under this plan was suspended during 2006 and no shares have been issued since June 1, 2006. In December of 2007, the Company decided to discontinue the Employee Stock Purchase Plan offering.

A summary of activity in the Company’s stock option plans for 2010 is presented below (in thousands, except weighted average prices):


	2010
				Weighted
				Average
	Shares			Exercise Price

Outstanding as of December 31, 2009		5,810		$	12.55
Options exercised		(1,523	)		5.65
Options forfeited/cancelled		(1,041	)		43.54

Outstanding as of December 31, 2010		3,246		$	5.89

Outstanding and expected to vest as of December 31, 2010		3,246

Options exercisable as of December 31, 2010		3,244

Aggregate intrinsic value of outstanding	$	20,172
Aggregate intrinsic value of vested and expected to vest	$	20,171
Aggregate intrinsic value of exerciseable	$	20,164

The aggregate intrinsic value of stock options exercised in 2010, 2009, and 2008 was $7.4 million, $1.6 million and $4.6 million, respectively, determined as of the date of exercise. At December 31, 2010 the weighted average remaining contractual term for stock options outstanding, vested and expected to vest, and exercisable was less than one year.

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2010 there remained less than $0.1 million of compensation expense, net of estimated forfeitures related to non-vested stock options to be recognized as expense over a weighted average period of less than one year.

The table below summarizes activity relating to RSUs for 2010 (in thousands, except weighted average prices):


	2010
	Number of Shares			Weighted
	Underlying			Average Grant
	Restricted Units			Date Fair Value

Unvested as of December 31, 2009		6,629		$	6.23
Restricted units granted		2,785			9.51
Restricted units vested		(2,676	)		6.54
Restricted units forfeited/cancelled		(550	)		6.61

Unvested as of December 31, 2010		6,188		$	6.23

Unvested and expected to vest as of December 31, 2010		5,729		$	6.23

The weighted average grant date fair value of RSUs granted in 2010, 2009, and 2008 were $9.51, $6.04 and $6.51, respectively. The aggregate intrinsic value of RSUs vested in 2010, 2009 and 2008 was $28.0 million, $14.1 million and $6.1 million, respectively. The intrinsic value of the non-vested RSUs, net of forfeitures, as of December 31, 2010 was $74.9 million. As of December 31, 2010 there remained $37.9 million of compensation expense, net of forfeitures, related to non-vested RSUs and restricted stock that is contingent on employment to be recognized as expense over a weighted average period of approximately 2.5 years.


(15)	Retirement Plans

The Company established a 401(k) retirement savings plan for employees in June 1994. Under the provisions of the plan, the Company matches 25 percent of an employee’s contribution, up to a maximum of $1,250 per employee per year. Total Company contributions were $1.3 million in 2010, $1.0 million in 2009 and $0.9 million in 2008.


(16)	Stockholders’ Equity


*(a)*	*Preferred Stock*

The Company’s Certificate of Incorporation authorizes the Board to issue up to 5,000,000 shares, $0.01 par value, of preferred stock with terms to be established by the Board at the time of issuance. To date the Company has not issued shares of preferred stock to date.


*(b)*	*Restricted Common Stock*

On July 1, 2009 the Company issued 3.3 million shares of restricted common stock to certain Nitro senior executives and key employees as part of the acquisition. A portion of these shares were tied to continued employment. The restricted shares tied to employment will vest over a period of four years from the acquisition date. The Company valued these shares based on the Company’s stock price on the acquisition date. The stock-based compensation charge for 2010 and 2009 related to these restricted shares was $1.6 million and $0.8 million, respectively. As of December 31, 2010 there remained $4.5 million of unamortized expense, which will be recorded as a restructuring charge in the first quarter of 2011 (see Note 21, Subsequent Event).

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


*(c)*	*Treasury Stock*

The Company uses the cost method to account for its treasury stock transactions. Treasury stock shares are issued in connection with the Company’s stock option plans, restricted stock plans and its employee stock purchase plan using the average cost basis method.

On November 16, 2004, the Company’s Board of Directors authorized up to $25.0 million in funds for use in the Company’s common stock repurchase program. On February 10, 2006 the Board of Directors authorized an additional $25.0 million in funds for use in such programs. During 2005, the Company repurchased approximately 3.0 million shares at an average price of $5.84 per share for an aggregate purchase price of approximately $17.6 million. During 2006, the Company repurchased approximately 3.4 million shares at an average price of $5.27 per share for an aggregate purchase price of approximately $18.1 million. During 2007, the Company repurchased approximately 702,000 shares at an average price of $6.24 per share for an aggregate purchase price of approximately $4.4 million. During 2008, the Company repurchased approximately 1.4 million shares at an average price of $6.87 for an aggregate purchase price of approximately $9.9 million. The first $25.0 million of funds authorized on November 16, 2004 and the second $25.0 million of funds authorized on February 10, 2006 had been used in their entirety prior to expiration. As of December 31, 2008 no funds remained available for repurchase under the buy back plan authorized on February 10, 2006.


*(d)*	*Net Income Per Share*

The following information presents the Company’s computation of basic and diluted income per share from continuing operations and basic and diluted net income per share for the periods presented in the consolidated statements of operations:


	2010		2009		2008

Net income	$	43,805	$	88,126	$	62,476
Basic net income per share:
Weighted average common shares outstanding		132,060		127,969		125,988
Basic net income per share	$	0.33	$	0.69	$	0.50

Diluted net income per share:
Weighted average common shares outstanding		132,060		127,969		125,988
Weighted average dilutive common share equivalents		6,669		4,912		3,176
Weighted average common shares and dilutive common share equivalents		138,729		132,881		129,164

Diluted net income per share	$	0.32	$	0.66	$	0.48

Anti-dilutive options and share-based awards not included in the calculation		1,241		4,887		6,414

Included in the weighted average dilutive common share equivalents for 2009 and 2008 are shares associated with deferred consideration for the DCG acquisition. Included in weighted average dilutive common share equivalents for 2010 and 2009 are restricted shares associated with the Nitro acquisition. These shares are reflected in weighted average dilutive common share equivalents as they were contingent shares during the periods presented.


(17)	Related Party Transactions

In October of 2006, in connection with his resignation as Chief Executive Officer, Jerry A. Greenberg and Sapient entered into a consulting agreement pursuant to which Mr. Greenberg may provide consulting services to

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the Company in respect of long-term strategic planning, ongoing client relations and general business development. The initial consulting agreement, effective October 16, 2006, had an initial term of one year and could be terminated by either party upon written notice. In November of 2007, the agreement term was extended for a two-year period. In November of 2009 the agreement was amended and restated, extending the terms for an additional two-year period. The agreement would have expired in November 2011, but was terminated by mutual agreement in October 2010 in connection with Mr. Greenberg’s reappointment to the Company’s Board of Directors. The Company incurred no early termination penalties and neither party has any post-termination obligations under the agreement. The amounts earned under this arrangement were $122,500 for 2010 and $200,000 for both 2009 and 2008.


(18)	Segment Reporting

The Company has discrete financial data by operating segments available based on its method of internal reporting, which disaggregates its operations. Operating segments are defined as components of the Company for which separate financial information is available to manage resources and evaluate performance.

Beginning in 2010, the Company realigned its North America and Europe business units and internal reporting systems to better align its services with the Company’s business and operational strategy. The new business units are: SapientNitro (new), Sapient Global Markets (new) and Sapient Government Services. As such, results by operating segment for 2009 and 2008 been recast to reflect the new business unit structure.

The Company does not allocate certain marketing and general and administrative expenses to its business unit segments because these activities are managed separately from the business units. The Company allocated $1.2 million and $0.6 million of $2.0 million related to its first quarter 2009 reduction in workforce to the SapientNitro and Sapient Global Markets segments, respectively. The Company did not allocate the remaining $0.2 million of costs associated with the 2009 restructuring activity or any costs associated with the 2001, 2002, 2003 and 2010 restructuring events across its operating segments for internal measurement purposes, because the substantial majority of these restructuring costs impacted areas of the business that supported the business units and, specifically in the case of our 2001, 2002, 2003 and 2010 events, were related to the initiative to reengineer general and administrative activities and the consolidation of facilities. Management does not allocate stock-based compensation to the segments for the review of results by the Chief Operating Decision Maker (“CODM”). Asset information by operating segment is not reported to or reviewed by the CODM, and therefore, the Company has not disclosed asset information for each operating segment.

The tables below present the service revenues and income before income taxes attributable to these operating segments for the periods presented (in thousands):


	2010		2009		2008

Service Revenues:
SapientNitro	$	514,727	$	405,020	$	461,682
Sapient Global Markets		260,359		198,043		172,457
Sapient Government Services		48,425		35,821		28,273

Total	$	823,511	$	638,884	$	662,412

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	2010			2009			2008

Income Before Income Taxes:
SapientNitro	$	150,429		$	115,461		$	144,301
Sapient Global Markets		84,974			65,316			62,338
Sapient Government Services		13,749			10,303			8,812

Total reportable segments(1)		249,152			191,080			215,451
Less Reconciling Items(2)		(181,549	)		(147,504	)		(143,736	)

Consolidated Income Before Income Taxes	$	67,603		$	43,576		$	71,715


(1)		Reflects only the direct controllable expenses of each business unit segment. It does not represent the total operating results for each business unit as it does not contain an allocation of certain corporate and general and administrative expenses incurred in support of the business unit segments.

(2)		Adjustments that are made to the total of the segments’ operating income to arrive at consolidated income before income taxes include the following (in thousands):


	2010			2009			2008

Centrally managed functions	$	161,426		$	125,864		$	132,882
Restructuring and other related charges		414			2,759			194
Amortization of purchased intangible assets		5,448			5,146			2,660
Stock-based compensation expense		18,156			14,921			15,122
Interest and other income, net		(3,705	)		(3,156	)		(7,086	)
Acquisition expense and other related charges		111			2,962			—
Unallocated expenses(a)		(301	)		(992	)		(36	)

	$	181,549		$	147,504		$	143,736


(a)		Reflects stock-option restatement related benefits.

Geographic Data

Data for the geographic regions in which the Company operates is presented below for the periods presented in the consolidated and condensed statements of operations and the consolidated and condensed balance sheets (in thousands):


	December 31,
	2010		2009		2008

Service revenues:
United States	$	483,908	$	353,092	$	370,858
International		339,603		285,792		291,554

Total service revenues	$	823,511	$	638,884	$	662,412

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	December 31,
	2010		2009

Long-lived assets:
United States	$	14,792	$	14,844
International		20,779		14,385

Total long-lived assets(1)	$	35,571	$	29,229


(1)		Reflects net book value of Company’s property and equipment.


(19)	Prepaid Expenses and Other Current Assets, Accrued Expenses and Other Long-Term Liabilities

The following is a table summarizing the components of selected balance sheet items as of December 31, 2010 and 2009 (in thousands).


	December 31, 2010		December 31, 2009

Prepaid expenses and other current assets:
Prepaid insurance	$	1,208	$	1,100
Prepaid media		4,721		6,661
Prepaid rent		2,764		3,108
VAT tax receivable		27		301
Put right related to marketable securities		—		1,115
Prepaid other		12,536		12,608

	$	21,256	$	24,893

Accrued expenses:
Accrued media	$	3,991	$	5,026
Accrued accounts payable		22,429		19,250
VAT tax payable		5,389		6,032
Other accrued expenses		19,635		16,877

	$	51,444	$	47,185

Other long-term liabilities:
Unrecognized tax benefit	$	11,582	$	8,924
Other long-term liabilities		9,983		7,710

	$	21,565	$	16,634

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(20)	Quarterly Financial Results (Unaudited)

The following tables set forth certain unaudited quarterly results of operations of the Company for 2010 and 2009. The quarterly operating results are not necessarily indicative of future results of operations.


	Three Months Ended
	March 31,		June 30,		September 30,		December 31,
	2010		2010		2010		2010
	(In thousands, except per share amounts)
	(Unaudited)

Revenues:
Service revenues	$	183,223	$	200,351	$	217,057	$	222,880
Reimbursable expenses		8,501		10,350		11,525		9,633

Total gross revenues		191,724		210,701		228,582		232,513

Operating expenses:
Project personnel expenses		127,767		139,345		148,003		148,815
Reimbursable expenses		8,501		10,350		11,525		9,633

Total project personnel expenses and reimbursable expenses		136,268		149,695		159,528		158,448
Selling and marketing expenses		8,647		10,225		9,298		10,663
General and administrative expenses		35,943		36,435		38,443		40,056
Restructuring and other related (benefits) charges		286		128		34		(34	)
Amortization of purchased intangible assets		1,467		1,359		1,301		1,321
Acquisition costs and other related charges		111		—		—		—

Total operating expenses		182,722		197,842		208,604		210,454
Income from operations		9,002		12,859		19,978		22,059
Interest and other income, net		800		745		942		1,218
Income before income taxes		9,802		13,604		20,920		23,277
Provision for income taxes		3,563		6,000		6,645		7,590

Net income	$	6,239	$	7,604	$	14,275	$	15,687

Basic net income per share	$	0.05	$	0.06	$	0.11	$	0.12

Diluted net income per share	$	0.05	$	0.06	$	0.10	$	0.11

Weighted average common shares		130,054		130,915		132,774		133,582
Weighted average dilutive common share equivalents		6,743		6,996		6,469		6,288

Weighted average common shares and dilutive common share equivalents		136,797		137,911		139,243		139,870

SAPIENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Three Months Ended
	March 31,		June 30,		September 30,		December 31,
	2009		2009		2009		2009
	(In thousands, except per share amounts)
			(Unaudited)

Revenues:
Service revenues	$	142,359	$	147,534	$	165,541	$	183,450
Reimbursable expenses		6,953		6,070		6,919		7,851
Total gross revenues		149,312		153,604		172,460		191,301

Operating expenses:
Project personnel expenses		100,178		101,939		114,219		119,523
Reimbursable expenses		6,953		6,070		6,919		7,851

Total project personnel expenses and reimbursable expenses		107,131		108,009		121,138		127,374
Selling and marketing expenses		7,142		7,274		8,055		9,460
General and administrative expenses		26,354		27,764		30,207		33,693
Restructuring and other related (benefits) charges		2,145		158		2,518		(273	)
Amortization of purchased intangible assets		867		898		1,681		1,700
Acquisition costs and other related charges		638		1,035		1,110		179

Total operating expenses		144,277		145,138		164,709		172,133
Income from operations		5,035		8,466		7,751		19,168
Interest and other income, net		1,006		809		652		689
Income before income taxes		6,041		9,275		8,403		19,857
Provision for income taxes		1,543		1,679		2,470		8,043
Benefit from release of valuation allowance		—		—		—		(58,285	)

(Benefit from) provision for income taxes		1,543		1,679		2,470		(50,242	)

Net income	$	4,498	$	7,596	$	5,933	$	70,099

Basic net income per share	$	0.04	$	0.06	$	0.05	$	0.54

Diluted net income per share	$	0.03	$	0.06	$	0.04	$	0.51

Weighted average common shares		126,889		127,066		128,582		129,273
Weighted average dilutive common share equivalents		3,479		3,759		6,739		7,089
Weighted average common shares and dilutive common share equivalents		130,368		130,825		135,321		136,362


(21)	Subsequent Event

As part of a workforce restructuring to eliminate redundancies, on January 28, 2011 the Company announced the departure of Chris Clarke, the founder of Nitro which the Company acquired on July 1, 2009. Up to this point Mr. Clarke served as a director and co-chief creative officer of the Company’s SapientNitro segment. In addition to Mr. Clark another legacy Nitro employee was included in this restructuring event. The Company expects to record a restructuring charge in the first quarter of 2011 of approximately $5.3 million. Of the $5.3 million, $4.5 million is related to the acceleration of stock-based compensation expense and $0.8 million is related to salary and benefits.


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*

None.


Item 9A.	*Controls and Procedures*

Evaluation of Disclosure Controls and Procedures

Management has conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”)) as of December 31, 2010. Based on that evaluation, the CEO and CFO concluded that our disclosure controls and procedures as of December 31, 2010 were effective.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Act. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:


	•	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company;

	•	provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

	•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, including the CEO and CFO, an evaluation was performed, as of December 31, 2010, of the effectiveness of the Company’s internal control over financial reporting. The evaluation was based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under those criteria, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2010.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, the Company’s management, including the Company’s CEO and CFO, has evaluated the Company’s internal control over financial reporting to determine whether any changes occurred during the fourth fiscal quarter covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. No changes were made during the fourth fiscal quarter covered by this annual report.

PART III


Item 10.	*Directors, Executive Officers and Corporate Governance*

Executive Officers

Below are the name, age and principal occupations for the last five years of each executive officer of Sapient, as of February 22, 2011. All such persons have been elected to serve until their successors are elected and qualified or until their earlier resignation or removal.


Preston B. Bradford, Senior Vice President and Chief Operations and Administrative Officer	54	Mr. Bradford joined Sapient in September 1994. Mr. Bradford was appointed as Senior Vice President in April 2000 and Executive Vice President in February 2004. Prior to joining Sapient, Mr. Bradford held various positions with Sprint Corporation, a telecommunications company, from July 1980 to August 1994.
Alan J. Herrick, President and Chief Executive Officer	45	Mr. Herrick joined Sapient in March 1995. Mr. Herrick was appointed as Vice President in December 1996, Executive Vice President in June 2002 and President and Chief Executive Officer in October 2006. Prior to joining Sapient, Mr. Herrick held key management positions at PSE&G, Prudential and Home Holdings Inc.
Christian Oversohl, Senior Vice President and European Lead	43	Dr. Oversohl joined Sapient in April 2000, following Sapient’s merger with the company he founded, The Launch Group. Prior to his current role, Dr. Oversohl served as Senior Vice President and Managing Director of Sapient Germany and Sapient Netherlands. Prior to joining Sapient, Dr. Oversohl was a manager at A.T. Kearney and also worked with Dicke & Wicharz Management Consulting, BMW, Henkel-Kosmetik, and Dresdner Bank.
Joseph A. LaSala, Senior Vice President, General Counsel and Secretary	56	Mr. LaSala joined Sapient on February 21, 2011 as Senior Vice President, General Counsel and Secretary. Prior to joining Sapient, Mr. LaSala served as Senior Executive Vice President, General Counsel and Secretary for Discovery Communications, Inc. from January 2008 to December 2010. Mr. LaSala served as Senior Vice President, General Counsel and Secretary for Novell, Inc. from January 2003 to January 2008.
H. B. “Chip” Register, Senior Vice President and Managing Director, Sapient Global Markets	44	Mr. Register joined Sapient in June 2007 and serves as Senior Vice President and Managing Director, Global Markets. Prior to joining Sapient, Mr. Register served as a Senior Vice President at Louis Dreyfus Energy Services from 2005 to 2007. Over the last two decades Mr. Register has built and managed a number of trading groups including at Essent Energy Trading in the Netherlands, CIBC World Markets and Weyerhauser in Toronto, and Union Bank of Switzerland in New York.
Joseph S. Tibbetts, Jr., Senior Vice President and Global Chief Financial Officer; Managing Director — Asia Pacific	58	Mr. Tibbetts joined Sapient in October 2006 as Senior Vice President and Chief Financial Officer, and began serving as the Company’s Chief Accounting Officer in 2009. In 2010, Mr. Tibbetts was also appointed Managing Director — AsiaPacific. Prior to joining Sapient, Mr. Tibbetts was most recently the Chief Financial Officer of Novell, Inc. and also held a variety of senior financial management positions at Charles River Ventures, Lightbridge, Inc., and SeaChange International, Inc. Mr. Tibbetts was also formerly a partner with Price Waterhouse LLP.


Alan M. Wexler, Senior Vice President and North American Lead			47			Mr. Wexler joined Sapient in April 1998 and serves as Senior Vice President and North American Lead. Previously, Mr. Wexler served as Managing Director of Sapient’s North American Operations. Since joining Sapient in 1998, Mr. Wexler has held a number of key management positions, including Vice President and Managing Director of Sapient’s Technology and Communications Group. He launched Sapient’s Global Wireless Group, and led Sapient’s Media, Entertainment, and Communication Group in New York. Prior to joining Sapient, Mr. Wexler founded and operated a management and technology-consulting firm.

Directors

The information required by this item is incorporated by reference to the information appearing under the caption “Director Nominees,” in our in our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days of December 31, 2010 (the “2011 Proxy Statement”).

Certain other information required by this Item regarding our officers, Directors, and corporate governance is incorporated herein by reference to the information appearing under the headings “Information About Our Directors” and “Information About Ownership of Our Common Stock” in our 2011 Proxy Statement.


Item 11.	*Executive Compensation*

The information required by this Item is incorporated herein by reference to the information appearing under the headings “Information About Our Directors,” “Executive Compensation,” and “Report of the Compensation Committee on Executive Compensation” in our 2011 Proxy Statement.


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

The information required by this Item with respect to security ownership of certain beneficial owners and management is incorporated herein by reference to the information appearing under the heading “Information About Ownership of Our Common Stock” in our 2011 Proxy Statement. The following table summarizes, as of December 31, 2010 the number of options issued under our equity compensation plans and the number of awards available for future issuance under these plans.

(c)

(a)

Number of Securities

(b)

Remaining Available for

to be Issued Upon

Weighted-Average

Future Issuance Under

Exercise of

Exercise Price of

Equity Compensation Plans

Outstanding Options,

(Excluding Securities

Plan Category

Warrants and Rights

Reflected in Column (a)(1)(2)

Equity compensation plans approved by stockholders

9,447,694

6.11

10,196,222

Equity compensation plans not approved by stockholders(3)

119,149

6.27

—

Total

9,566,843

6.11

10,196,222


(1)		4,821,710 of the shares listed in column (c) may be issued in the form of restricted stock or RSUs, pursuant to the terms of our 1998 Stock Incentive Plan, as amended. No shares of restricted stock are currently available for issuance under our other equity compensation plans.

(2)		Column (c) includes 1,773,600 shares that are available for issuance under our 2005 Employee Stock Purchase Plan as of December 31, 2010, shuold the Company decide to continue the 2005 Employee Stock Purchase Plan.

(3)		Consists of RSU awards approved by the Company’s Board of Directors and granted as inducements material to employment following the Company’s acquisition of Nitro Group Ltd. A portion of the RSUs will vest on the third anniversary of the award date and the rest will vest over the next four years on a schedule consistent with the vesting schedule of equity awards that each individual held in Nitro. All unvested RSUs will be forfeited upon termination of employment for any reason. The RSU awards were granted without shareholder approval in reliance upon NASDAQ Marketplace Rule 5635(c)(4).

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SAPIENT CORPORATION


	By:	/s/ Alan J. Herrick

Alan J. Herrick

President and Chief Executive Officer

Dated: February 25, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the following capacities and on the dates indicated.


Signature	Title	Date


Principal Executive Officer:

/s/ ALAN J. HERRICK Alan J. Herrick	President and Chief Executive Officer	February 25, 2011

Principal Financial and Accounting Officer:

/s/ JOSEPH S. TIBBETTS, JR. Joseph S. Tibbetts, Jr.	Chief Financial Officer	February 25, 2011

Directors:

James M. Benson

/s/ HERMANN BUERGER Hermann Buerger		February 25, 2011

/s/ DARIUS W. GASKINS, JR. Darius W. Gaskins, Jr.		February 25, 2011

/s/ JERRY A. GREENBERG Jerry A. Greenberg		February 25, 2011

/s/ ALAN J. HERRICK Alan J. Herrick		February 25, 2011

/s/ J. STUART MOORE J. Stuart Moore		February 25, 2011

/s/ ASHOK SHAH Ashok Shah		February 25, 2011

/s/ VIJAY SINGAL Vijay Singal		February 25, 2011

EXHIBIT INDEX


Exhibit
Number		Description

2.1	—	Agreement dated as of August 6, 2008, among Sapient Limited, Sapient Corporation and the persons listed on Schedule I thereto(1)
3.1	—	Second Amended and Restated Certificate of Incorporation(2)
3.2	—	Amended and Restated Bylaws(3)
4.1	—	Specimen Certificate for Shares of Common Stock, $.01 par value, of the Company(4)
10.1†	—	1996 Equity Stock Incentive Plan(4)
10.2†	—	1996 Director Stock Option Plan(4)
10.3†	—	1998 Stock Incentive Plan(5)
10.4†	—	Amendment to 1998 Stock Incentive Plan(6)
10.5†	—	2001 Stock Option Plan(7)
10.6†	—	Sapient Corporation Winning Performance Plan(8)
10.7†	—	2007 Global Performance Bonus Plan(9)
10.8†	—	Joseph S. Tibbetts, Jr. Restricted Stock Units Agreement(9)
10.9†	—	Director Compensation Matters(10)
10.10†	—	J. Stuart Moore Separation Agreement(10)
10.11†	—	Joseph S. Tibbetts, Jr. Offer Letter(10)
10.12†	—	Alan M. Wexler Severance Agreement(10)
10.13†	—	Alan J. Herrick Employment Agreement(6)
10.14†	—	Amendment to Alan J. Herrick Employment Agreement(12)
10.15†	—	Second Amended and Restated Consulting Agreement with Jerry A. Greenberg(11)
10.16†	—	Change in Control Severance Agreement — Alan J. Herrick(13)
10.17†	—	Change in Control Severance Agreement — Joseph S. Tibbetts, Jr.(13)
10.18†	—	Change in Control Severance Agreement — Alan Wexler(13)
10.19†	—	Change in Control Severance Agreement — Jane Elizabeth Owens(13)
10.20†	—	Change in Control Severance Agreement — Harry B. Register III(13)
10.21†	—	Change in Control Severance Agreement — Preston B. Bradford(13)
10.22†	—	Change in Control Severance Agreement — Dr. Christian Oversohl(13)
10.23†	—	Alan J. Herrick Restricted Stock Units Agreement(14)
10.24†	—	Amendment to 1998 Stock Incentive Plan(14)
10.25†	—	Form of Restricted Stock Units Agreement for Initial Grant to re-elected Board members(14)
10.26†	—	Form of Restricted Stock Units Agreement for Initial Grant to newly appointed Board members(14)
10.27†	—	Form of Restricted Stock Units Agreement for Employees(14)
10.28†	—	Employment Agreement between Sapient GmbH and Dr. Christian Oversohl(15)
10.29*	—	Form of Global Restricted Stock Units Agreement
10.30*	—	Amendment to J. Stuart Moore Separation Agreement
21.1*	—	List of Subsidiaries
23.1*	—	Consent of PricewaterhouseCoopers LLP
31.1*	—	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	—	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	—	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	—	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*	—	The following materials from Sapient Corporation on Form 10-K for the year ended December 31, 2010, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Changes in Stockholder’s Equity, (iv) the Consolidated Statements of Cash Flows and (v) Notes to the Consolidated Financial Statements, tagged as blocks of text.


*		Exhibits filed herewith.
†		Management contract or compensatory plan or arrangement.


(1)		Incorporated herein by reference to the Company’s Form 8-K filed August 7, 2008. (File No. 000-28074).
(2)		Incorporated herein by reference to the Company’s Form 10-Q for the fiscal quarter ended September 30, 2004 (File No. 000-28074).
(3)		Incorporated herein by reference to the Company’s Form 8-K filed February 10, 2009. (File No. 000-28074).
(4)		Incorporated herein by reference to the Company’s Registration Statement on Form S-1 (File No. 333-12671).
(5)		Incorporated herein by reference to the Company’s Form 10-K for the fiscal year ended December 31, 1998 (File No. 000-28074).
(6)		Incorporated herein by reference to the Company’s Form 10-Q for the period ended September 30, 2007 (File No. 000-28074).
(7)		Incorporated herein by reference to the Company’s Proxy Statement for the 2001 Annual Meeting of Stockholders (File No. 000-28074).
(8)		Incorporated herein by reference to the Company’s Form 10-Q for the period ended June 30, 2006 (File No. 000-28074).
(9)		Incorporated herein by reference to the Company’s Form 10-Q for the period ended June 30, 2007 (File No. 000-28074).
(10)		Incorporated herein by reference to the Company’s Form 10-K for the fiscal year ended December 31, 2006 (File No. 000-28074).
(11)		Incorporated herein by reference to the Company’s Form 8-K filed November 12, 2009. (File No. 000-28074).
(12)		Incorporated herein by reference to the Company’s Form 10-Q for the period ended June 30, 2009 (File No. 000-28074).
(13)		Incorporated herein by reference to the Company’s Form 10-Q for the period ended March 31, 2010 (File No. 000-28074).
(14)		Incorporated herein by reference to the Company’s Form 10-Q for the period ended June 30, 2010 (File No. 000-28074).
(15)		Incorporated herein by reference to the Company’s Form 8-K filed September 2, 2010 (File No. 000-28074).


Item 8.	*Financial Statements and Supplementary Data*


Report of Independent Registered Public Accounting Firm			45
Consolidated Balance Sheets			46
Consolidated Statements of Operations			47
Consolidated Statements of Changes in Stockholders’ Equity			48
Consolidated Statements of Cash Flows			49
Notes to Consolidated Financial Statements			50
Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts and Reserves			90


	Balance at
	Beginning of		Charge (Benefit)								Balance at
Allowance for Doubtful Accounts	Year		to Expense		Recoveries			Write-Offs			End of Year
					(In thousands)

December 31, 2008	$	956	$	262	$	(316	)	$	(507	)	$	395
December 31, 2009	$	395	$	266	$	—		$	(51	)	$	610
December 31, 2010	$	610	$	75	$	(302	)	$	(292	)	$	91


Item 13.	*Certain Relationships and Related Transactions, and Director Independence*


Item 15.	*Exhibits and Financial Statement Schedules*