-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FPVergj9eRTz/dA+W6OztmRn3qcKb/BHcwgX43qUvgan+Co95ZvvRMzJ2gBbut9N wxtYBhqifIVNnbpvWVIsaA== 0000950135-97-003458.txt : 19970814 0000950135-97-003458.hdr.sgml : 19970814 ACCESSION NUMBER: 0000950135-97-003458 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAPIENT CORP CENTRAL INDEX KEY: 0001008817 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 043130648 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28074 FILM NUMBER: 97659686 BUSINESS ADDRESS: STREET 1: ONE MEMORIAL DR CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6176210200 MAIL ADDRESS: STREET 1: ONE MEMORIAL DRIVE CITY: CAMBRIDGE STATE: MA ZIP: 02142 10-Q 1 SAPIENT CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1997 or / / 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 (I.R.S. Employer Incorporation or Organization) Identification No.) One Memorial Drive, Cambridge, MA 02142 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) 617-621-0200 ------------ (Registrant's Telephone Number, Including Area Code) N/A --- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of August 8, 1997 there were 11,675,783 shares of Common Stock, $.01 par value, outstanding. 2 SAPIENT CORPORATION INDEX Part I. Financial Information Page Number Item 1. Consolidated Balance Sheets as of December 31, 1996 and 3 June 30, 1997 Consolidated Statements of Income for the Three and 4 Six Months Ended June 30, 1996 and 1997 Consolidated Statements of Cash Flows for the Six Months 5 Ended June 30, 1996 and 1997 Notes to Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial 8-11 Condition and Results of Operations Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 12-13 Signatures 14 Exhibit 11.1 15 Exhibit 27 16 2 3 SAPIENT CORPORATION Consolidated Balance Sheets
December 31, June 30, Assets 1996 1997 ------ ------------ ------------ (Unaudited) Current assets: Cash and cash equivalents $ 49,997,905 $ 51,848,798 Short term investments 9,540,498 6,223,775 Accounts receivable, less allowance for doubtful accounts of $150,000 and $350,000 for 1996 and 1997, respectively 11,387,576 13,600,254 Unbilled revenues on contracts 4,673,812 5,749,448 Deferred income tax asset 188,534 188,534 Prepaid expenses and other current assets 450,885 1,010,706 ------------ ------------ Total current assets 76,239,210 78,621,515 Property and equipment, net 2,256,635 4,535,485 Other assets 61,088 61,088 ------------ ------------ Total assets $ 78,556,933 $ 83,218,088 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 72,419 $ 150,368 Accrued expenses 1,554,473 893,220 Accrued compensation 2,162,016 2,086,314 Accrued income taxes payable 1,551,661 425,322 Deferred revenues on contracts 4,915,681 4,993,069 ------------ ------------ Total current liabilities 10,256,250 8,548,293 Deferred income taxes 1,296,171 1,296,171 Other long term liabilities 754,484 928,293 ------------ ------------ Total liabilities 12,306,905 10,772,757 ------------ ------------ Stockholders' equity: Preferred stock, par value $.01 per share, 5,000,000 authorized and none outstanding at December 31, 1996 and June 30, 1997 -- -- Common stock, par value $.01 per share, voting, 40,000,000 shares authorized, 11,492,760 issued at December 31, 1996; 40,000,000 shares authorized, 11,594,970 shares issued at June 30, 1997 114,928 115,950 Additional paid-in capital 54,502,520 55,233,458 Retained earnings 11,657,580 17,095,923 Notes receivable from stockholders (25,000) -- ------------ ------------ Total stockholders' equity 66,250,028 72,445,331 ------------ ------------ Total liabilities and stockholders' equity $ 78,556,933 $ 83,218,088 ============ ============
See accompanying notes to consolidated financial statements. 3 4 SAPIENT CORPORATION Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1996 1997 1996 1997 ----------- ----------- ----------- ----------- Revenues $10,360,397 $18,824,354 $19,627,513 $35,328,458 Operating expenses: Project personnel costs 4,768,991 9,037,372 9,321,026 16,918,603 Selling and marketing 574,755 1,055,311 1,041,554 2,122,855 General and administrative 2,726,224 4,687,173 4,939,048 8,715,759 ----------- ----------- ----------- ----------- Total operating expenses 8,069,970 14,779,856 15,301,628 27,757,217 Income from operations 2,290,427 4,044,498 4,325,885 7,571,241 Interest income, net 292,533 582,707 297,711 1,108,203 ----------- ----------- ----------- ----------- Income before income taxes 2,582,960 4,627,205 4,623,596 8,679,444 Income taxes 982,184 1,733,314 1,798,438 3,241,104 ----------- ----------- ----------- ----------- Net Income $ 1,600,776 $ 2,893,891 $ 2,825,158 $ 5,438,340 =========== =========== =========== =========== Net income per share $ 0.13 $ 0.23 $ 0.25 $ 0.43 =========== =========== =========== =========== Weighted average common shares and equivalents outstanding 12,096,789 12,637,440 11,259,022 12,624,745 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. 4 5 SAPIENT CORPORATION Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1996 1997 ------------ ------------ Cash flows from operating activities: Net income $ 2,825,158 $ 5,438,340 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 390,442 820,280 Deferred income taxes 252,362 -- Changes in assets and liabilities: (Increase) in accounts receivable (668,318) (2,212,678) (Increase) in unbilled revenues on contracts (2,332,456) (1,075,636) (Increase) in prepaid expenses and other current assets (187,396) (559,820) Decrease in income tax receivable 479,892 -- Decrease in other assets 48,923 -- Increase in accounts payable 99,697 77,949 Increase (decrease) increase in accrued expenses 1,092,018 (661,252) Increase (decrease) in accrued compensation 445,248 (75,702) Increase (decrease) in income taxes payable 465,584 (1,126,339) Increase in deferred revenues on contracts 930,535 77,388 Increase in other long term liabilities 392,836 173,809 ------------ ------------ Net cash provided by operating activities 4,234,525 876,339 ------------ ------------ Cash flows provided by investing activities: Purchase of property and equipment (870,623) (3,099,130) Net proceeds from maturity of short term investments -- 3,316,723 ------------ ------------ Net cash provided by (used for) investing activities (870,623) 217,593 ------------ ------------ Cash flows provided by financing activities: Repayment of notes receivable from stockholder 50,000 25,000 Exercise of stock options 129,888 142,450 Proceeds from public stock offering 32,403,350 -- Proceeds from employee stock purchase plan -- 589,511 Principal payments on notes payable to bank (93,415) -- ------------ ------------ Net cash provided by financing activities 32,489,823 756,961 ------------ ------------ Increase in cash and cash equivalents 35,853,725 1,850,893 Cash and cash equivalents, at beginning of period 378,019 49,997,905 ------------ ------------ Cash and cash equivalents, at end of period $ 36,231,744 $ 51,848,798 ============ ============ Supplemental disclosures for cash flow information: Cash paid during the period for income taxes $ 605,600 $ 4,348,635 ============ ============
See accompanying notes to consolidated financial statements. 5 6 SAPIENT CORPORATION Notes to Consolidated Financial Statements (1) BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared by Sapient Corporation (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1996 included in the Company's Annual Report on Form 10-K. The accompanying financial statements reflect all adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of results for the interim periods presented. The results of operations for the three and six month periods ended June 30, 1997 are not necessarily indicative of the results to be expected for the full fiscal year or for any future period. (2) SHORT TERM INVESTMENTS Short term investments are available-for-sale securities, which are recorded at fair market value. The difference between fair market value and cost is not material. Realized gains and losses from sales of available-for-sale securities were not material for any period presented. (3) NET INCOME PER SHARE Net income per share is computed using the weighted average number of shares of common stock outstanding and dilutive common equivalent shares from stock options using the treasury stock method. Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins, for all periods prior to the Company's initial public offering, such computations include all common and common equivalent shares issued within twelve months of the offering date as if they were outstanding for all periods presented using the treasury stock method and the initial public offering price ($21.00). Fully diluted and primary earnings per share are the same for all periods presented. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS 128 establishes a different method of computing net income per share than is currently required under the provisions of Accounting Principles Board Opinion No. 15. Under SFAS No.128, the Company will be required to present both basic net income per share and diluted net income per share. Basic net income per share is expected to be higher than the currently presented net income per share as the effect of dilutive stock options will not be considered in computing basic net income per share. The impact on diluted net income per share is not expected to be material. 6 7 The Company plans to adopt SFAS No. 128 in its quarter ending December 31, 1997 and at that time all historical net income per share data presented will be restated to conform to the provisions of SFAS No. 128. (4) CONTINGENT LIABILITIES The Company has certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. The Company is in litigation with a former employee who alleges breach of certain contractual and other violations resulting from his termination as an employee. Management denies that it breached any obligations or duties to this former employee, and asserts that the Company has meritorious defenses. In August 1996, the Company's motion to compel arbitration on these claims was allowed. The Company plans to vigorously contest these claims. Although the Company does not expect the claim to have a material adverse effect on the Company's business, results of operations or financial condition, an adverse judgment or settlement could have a material adverse effect on the operating results reported by the Company for the period in which any such adverse judgment or settlement occurs. 7 8 SAPIENT CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Sapient designs, develops, integrates and implements client/server and Web-based information systems that enable clients to rapidly achieve their business objectives. Sapient delivers its solutions for both enterprise-wide and departmental initiatives on a fixed-price, fixed-timeframe basis using its proprietary QUADD(R) (Quality Design and Delivery) process. QUADD is a workshop-based, rapid development methodology which emphasizes active client participation to help visualize, prioritize and create time-critical business and technology solutions. To determine its proposed fixed price for a project, the Company uses an internally developed estimation process which takes into account standard billing rates and the risks associated with the particular project, such as the number and type of key functions to be developed, the technology environment and application type to be applied, the project's timetable and the overall technical complexity of the project. Each fixed-price proposal must be approved by a member of the Company's senior management team. The Company's revenues and earnings may fluctuate from quarter to quarter based on such factors as the number, size and scope of projects in which the Company is engaged, the contractual terms and degree of completion of such projects, any delays incurred in connection with a project, employee utilization rates, the adequacy of provisions for losses, the accuracy of estimates of resources required to complete ongoing projects, and general economic conditions. In addition, revenues from a large client may constitute a significant portion of the Company's total revenues in a particular quarter. 8 9 RESULTS OF OPERATIONS The following table sets forth the percentage of revenues of certain items included in the Company's statements of income:
Three Months Ended Six Months Ended June 30, June 30, 1996 1997 1996 1997 --- --- --- --- Revenues 100% 100% 100% 100% Operating expenses: Project personnel costs 46 48 48 48 Selling and marketing 6 6 5 6 General and administrative 26 25 25 25 --- --- --- --- Total operating expenses 78 79 78 79 Income from operations 22 21 22 21 Interest income 2 3 1 3 Income taxes 9 9 9 9 --- --- --- --- Net income 15% 15% 14% 15% === === === ===
REVENUES Revenues for the second quarter of 1997 increased 82% over revenues for the second quarter of 1996. For the first six months of the year, revenues increased 80% over the comparable period of the prior year. The increase in revenues reflects increases in both the size and number of client projects. Unbilled revenues on contracts increased from $4.7 million at December 31, 1996 to $5.7 million at June 30, 1997 due to an increase in revenues in 1997. In the second quarter of 1997, the Company's five largest clients accounted for approximately 50% of its revenues. During this period, two clients each accounted for more than 10% of such revenues. For the six month period ended June 30, 1997 the Company's five largest clients accounted for approximately 41% of its revenues. During this period, one client accounted for more than 10% of such revenues. PROJECT PERSONNEL COSTS Project personnel costs consist primarily of salaries and employee benefits for personnel dedicated to client assignments and direct expenses incurred to complete projects that were not reimbursed by the client. These costs represent the most significant expense the Company incurs in providing its services. The increase in project personnel costs for the three and six month periods ended June 30, 1997 was primarily due to an increase in project personnel from 276 at June 30, 1996 to 500 at June 30, 1997. Project personnel costs increased as a percentage of revenues from 46% in the second quarter of 1996 to 48% for the second quarter of 1997. This increase reflects lower costs as a percentage of revenues during the quarter ended 9 10 June 30, 1996 as a result of high staff utilization during the second quarter of 1996. For the first six months of 1996 and 1997 project personnel costs remained constant at 48% of revenues. SELLING AND MARKETING Selling and marketing costs consist primarily of salaries, employee benefits, travel expenses and promotional costs. In the second quarter of 1996 and 1997, selling and marketing costs as a percentage of revenues was 6%. For the first six months of 1996 and 1997, selling and marketing costs increased from 5% to 6% primarily as a result of the Company's decision to expand its selling and marketing group, which grew from 17 employees at June 30, 1996 to 29 employees at June 30, 1997. GENERAL AND ADMINISTRATIVE General and administrative costs consist primarily of expenses associated with the Company's management, finance and administrative groups, including personnel devoted to recruiting and training project personnel, and occupancy costs. The increase in general and administrative costs for the three month period ended June 30, 1997 was primarily due to an increase in costs associated with the employees hired during 1997, along with an increase in occupancy costs related to having three additional offices during the second quarter of 1997. The Company's total headcount increased from 345 at June 30, 1996 to 621 at June 30, 1997. As a percentage of revenues, general and administrative costs remained constant at 25% for the first six months of both 1996 and 1997. General and administrative costs as a percentage of revenues decreased slightly from 26% to 25% for the three month period ended June 30, 1997 compared to June 30, 1996 as a result of improved space utilization. INTEREST INCOME Interest income for the three and six month periods ended June 30, 1997 was derived from the Company's investments, which were primarily tax-exempt, short-term municipal bonds. PROVISION FOR INCOME TAXES Income tax expense represents combined federal and state taxes at an effective rate of 37% for 1997 and 39% for 1996. The decrease in the effective tax rate primarily represents a reduction in the effective federal tax rate due to excess cash being invested in tax-exempt municipal bonds. LIQUIDITY AND CAPITAL RESOURCES In April 1996, the Company completed an initial public offering of common stock resulting in net proceeds to the Company of approximately $32.4 million. In October 1996, the Company completed a follow-on offering of common stock resulting in net proceeds of $21.7 10 11 million. The Company has a bank revolving line of credit providing for borrowings of up to $5.0 million. Borrowings under this line of credit, which expires on June 30, 1998, are collateralized by the Company's accounts receivable and bear interest at the bank's prime rate. The line of credit includes covenants relating to the maintenance of certain financial ratios, such as minimum net worth and profitability, and limits the payment of dividends. At June 30, 1997, the Company had no bank borrowings outstanding and no material capital commitments. Cash and cash equivalents increased to $51.8 million at June 30, 1997, from $50.0 million at December 31, 1996. The increase was primarily due to cash generated from operations, along with the proceeds from the exercise of stock options. At June 30, 1997, $6.2 million was invested in tax-exempt, short-term municipal bonds which mature in less than 12 months, compared to $9.5 million which was invested as of December 31, 1996. The Company believes that the cash provided from operations, borrowings available under its revolving line of credit and the net proceeds of its public offerings of common stock will be sufficient to meet the Company's working capital and capital expenditure requirements for at least the next 18 months. 11 12 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting of Stockholders held on May 7, 1997, the following proposals were adopted by the vote specified below.
- ----- ------------------------- ------------------ ------------------ ----------------- ------------------ Against or Broker For Withheld Abstain Non-Votes - ----- ------------------------- ------------------ ------------------ ----------------- ------------------ 1. Election of Directors - Class I Jerry Greenberg 8,121,722 1,160 0 0 Bruce Parker 8,121,722 1,160 0 0 Directors-Class II (Terms Expire in 1998) J. Stuart Moore Darius Gaskins, Jr. Directors-Class III (Terms Expire in 1999) Carl S. Sloane R. Stephen Cheheyl - ----- ------------------------- ------------------ ------------------ ----------------- ------------------ 2. Ratification of KPMG Peat Marwick LLP as independent auditors 8,121,972 600 310 0 - ----- ------------------------- ------------------ ------------------ ----------------- ------------------
Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 11.1 Computation of weighted average number of shares outstanding used in determining primary and fully diluted earnings per share. 27.1 Financial data schedule. 12 13 (b) Reports on Form 8-K. The Company did not file any Reports on Form 8-K during the quarter ended June 30, 1997. 13 14 SIGNATURES Pursuant to the requirements 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 Date: August 12, 1997 By:/ Jerry A. Greenberg ---------------------- Jerry A. Greenberg Co-Chief Executive Officer Co-Chairman of the Board Date: August 12, 1997 By:/ Susan D. Johnson --------------------- Susan D. Johnson Chief Financial Officer 14 EX-11.1 2 COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES 1 Exhibit 11.1 Sapient Corporation Article 6.01 of Regulation S-K Computation of Shares Used in Computing Net Income Per Share
Three Months Ended Six Months Ended June 30, June 30, 1996 1997 1996 1997 ---------- ---------- ---------- ---------- Common Stock, beginning of period 8,929,720 11,576,165 8,831,730 11,492,760 Weighted average options exercised during the period 64,720 40,393 367,660 92,976 Weighted average options outstanding other than exercised during the period using the treasury stock method 962,329 1,020,882 1,231,177 1,039,009 Stock issued for initial public offering 1,620,495 -- 828,455 -- Cheap stock relating to SAB No. 83(1) 519,525 -- -- -- ---------- ---------- ---------- ---------- 12,096,789 12,637,440 11,259,022 12,624,745 ---------- ---------- ---------- ----------
- ----------- (1) In accordance with SEC Staff Accounting Bulletin No. 83 ("SAB No. 83"), issuances of Common Stock equivalents (common stock and stock options) one year prior to the initial filing date of the Company's registration statement (February 22, 1996) at share prices below the public offering price of $21.00 per share ("Cheap Stock"), are considered to have been made in anticipation of the public offering and have been included as if the shares were outstanding for all periods presented using the treasury stock method at the public offering price of $21.00 per share. 15 EX-27 3 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 3-MOS 6-MOS DEC-31-1997 DEC-31-1997 JUN-30-1997 JUN-30-1997 51,848,798 51,848,798 6,223,775 6,223,775 19,699,702 19,699,702 350,000 350,000 0 0 78,621,515 78,621,515 7,198,011 7,198,011 2,662,526 2,662,526 83,218,088 83,218,088 8,549,293 8,549,293 0 0 0 0 0 0 115,950 115,950 72,329,381 72,329,381 83,218,088 83,218,088 0 0 18,824,354 35,328,458 0 0 14,779,856 27,757,217 0 0 0 0 582,707 1,108,203 4,627,205 8,679,444 1,733,314 3,241,104 2,893,891 5,438,340 0 0 0 0 0 0 2,893,891 5,438,340 .23 .43 .23 .43 16
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