<PAGE> 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, 1996 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 12, 1996, there were 10,944,045 shares of Common Stock, $.01
par value, outstanding.
<PAGE> 2
SAPIENT CORPORATION
INDEX
-----
Part I. Financial Information Page Number
--------------------- -----------
Item 1. Balance Sheets as of December 31, 1995 and 3
June 30, 1996
Statements of Income for the Three and Six Months 4
Ended June 30, 1995 and 1996
Statements of Cash Flows for the Six Months 5
Ended June 30, 1995 and 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7-9
Condition and Results of Operations
Part II. Other Information
-----------------
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Exhibit 11.1 12
Exhibit 27.1 13
2
<PAGE> 3
SAPIENT CORPORATION
<TABLE>
Balance Sheets
(Unaudited)
<CAPTION>
December 31, June 30,
Assets 1995 1996
------ ------------ --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 378,019 36,231,744
Accounts receivable, less allowance for doubtful accounts of $150,000 7,357,003 8,025,321
Unbilled revenues on contracts 2,282,011 4,614,467
Income tax receivable 479,892 -
Prepaid expenses and other current assets 129,792 317,188
----------- ----------
Total current assets 10,626,717 49,188,720
Property and equipment, net 1,349,616 1,829,797
Other assets 110,011 61,088
----------- ----------
Total assets $12,086,344 51,079,605
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long term debt $ 55,994 -
Accounts payable 489,481 589,178
Accrued expenses 973,673 2,065,691
Accrued compensation 862,131 1,307,379
Income taxes payable - 465,584
Deferred income taxes 2,081,348 2,333,710
Deferred revenues on contracts 2,374,805 3,305,340
----------- ----------
Total current liabilities 6,837,432 10,066,882
Long term debt, less current portion 37,421 -
Other long term liabilities - 392,836
----------- ----------
Total liabilities 6,874,853 10,459,718
----------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share, none authorized or
outstanding at December 31, 1995 and 5,000,000 authorized and
none outstanding at June 30, 1996
Common stock, par value $.01 per share, voting, 5,000,000 shares
authorized and issued at December 31, 1995; 40,000,000 shares
authorized, and 10,891,390 shares issued at June 30, 1996 50,000 108,916
Common stock, par value $.01 per share, nonvoting, 5,200,000 shares
authorized, 3,831,730 shares issued at December 31, 1995;
none authorized or outstanding at June 30, 1996 38,317 -
Additional paid-in capital 110,683 32,623,322
Retained earnings 5,087,491 7,912,649
Notes receivable from stockholders (75,000) (25,000)
----------- ----------
Total stockholders' equity 5,211,491 40,619,887
----------- ----------
Total liabilities and stockholders' equity $12,086,344 51,079,605
=========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
SAPIENT CORPORATION
<TABLE>
Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $4,567,111 10,360,397 8,184,748 19,627,513
Operating Expenses:
Project Personnel Costs 2,093,499 4,768,991 3,732,999 9,321,026
Selling and Marketing 197,979 574,755 289,137 1,041,554
General and Administrative 1,387,990 2,726,224 2,508,661 4,939,048
---------- ---------- ---------- ----------
Total operating expenses 3,679,468 8,069,970 6,530,797 15,301,628
Income from operations 887,643 2,290,427 1,653,951 4,325,885
Other income 2,986 292,533 29,851 297,711
---------- ---------- ---------- ----------
Income before income taxes 890,629 2,582,960 1,683,802 4,623,596
Income taxes 365,029 982,184 690,230 1,798,438
---------- ---------- ---------- ----------
Net Income $ 525,600 1,600,776 993,572 2,825,158
========== ========== ========== ==========
Net income per share $ .05 .13 .10 .25
========== ========== ========== ==========
Weighted average common shares and
equivalents outstanding 10,280,748 12,096,789 10,280,748 11,259,022
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
SAPIENT CORPORATION
<TABLE>
Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended
--------------------------
June 30, June 30,
1995 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 993,572 2,825,158
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 193,409 390,442
Deferred income taxes 705,156 252,362
Changes in assets and liabilities:
Increase in accounts receivable (134,428) (668,318)
Increase in unbilled revenues on contracts (1,259,312) (2,332,456)
Increase decrease in prepaid expenses and other
current assets (557,623) (187,396)
Decrease in income tax receivable - 479,892
Decrease in other assets - 48,923
(Decrease) increase in accounts payable (243,792) 99,697
Increase in accrued expenses 1,144,232 1,092,018
(Decrease) increase in accrued compensation (369,000) 445,248
(Decrease) increase in income taxes payable (1,132,548) 465,584
(Decrease) increase in other long term liabilities (18,842) 392,836
(Decrease) increase in deferred revenues on contracts (995,698) 930,535
----------- ----------
Net cash (used in) provided by operating activities (1,674,874) 4,234,525
----------- ----------
Cash flows from investing activities:
Purchase of property and equipment (437,900) (870,623)
----------- ----------
Net cash used for investing activities (437,900) (870,623)
----------- ----------
Cash flows from financing activities:
Decrease in notes receivable stockholder - 50,000
Exercise of stock options 4,819 129,888
Proceeds from public offering - 32,403,350
Principal payments on notes payable to related parties (132,884) -
Advances from (principal payments on) notes payable to bank 91,504 (93,415)
----------- ----------
Net cash (used in) provided by financing activities (36,561) 32,489,823
----------- ----------
(Decrease) increase in cash and cash equivalents (2,149,335) 35,853,725
Cash and cash equivalents, at beginning of period 2,655,599 378,019
----------- ----------
Cash and cash equivalents, at end of period $ 506,264 36,231,744
=========== ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
SAPIENT CORPORATION
Notes to 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, 1995 included in the Company's
Registration Statement on Form S-1 (File No. 333-1586). 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, 1996 are not necessarily indicative
of the results to be expected for the full fiscal year.
(2) 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 an 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.
(3) 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 no liability resulting from his termination. Management
plans to vigorously contest this litigation. Although the Company does
not expect the suit 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.
6
<PAGE> 7
SAPIENT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Sapient performs its services on a fixed-price, fixed-time frame
basis. 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.
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth the percentage of revenues of certain items
included in the Company's statements of income:
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Operating expenses:
Project personnel costs 46 46 46 48
Selling and marketing 4 6 3 5
General and administrative 31 26 31 25
--- --- --- ---
Total operating expenses 81 78 80 78
Income from operations 19 22 20 22
Income taxes 8 9 8 9
Net income 12% 15% 12% 14%
</TABLE>
7
<PAGE> 8
REVENUES
Revenues for the second quarter of 1996 increased 127% over revenues
for the second quarter of 1995. For the first half of the year, revenues
increased 140% over the comparable period of the prior year. The increase in
revenues reflects increases in both the size and number of client projects. The
increase in "unbilled revenues on contracts" from $2.3 million at December 31,
1995, to $4.6 million at June 30, 1996, was primarily due to the increase in
revenues in 1996, as well as to contractual billing and payment terms on certain
projects which are more heavily weighted toward the end of projects.
PROJECT PERSONNEL COSTS
Project personnel costs consist primarily of salaries and employee
benefits for personnel dedicated to client assignments and fees paid to
subcontractors for work performed in connection with projects. 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, 1996 was primarily due to an increase in project
personnel from 154 at June 30, 1995 to 276 at June 30, 1996. Project personnel
costs increased as a percentage of revenues from 46% for the first six months
of 1995 to 48% for the same period in 1996 and remained constant as a
percentage of revenues at 46% for the second quarters of 1995 and 1996. The
increase for the six month period in 1996 was due to an increase in total
headcount and a slight increase in salaries compared to the same period in
1995.
SALES AND MARKETING
Sales and marketing costs consist primarily of salaries, employee
benefits, travel expenses and promotional costs. In the second quarter and first
half of 1996, sales and marketing costs as a percentage of revenues were 6% and
5%, respectively, compared to 4% and 3%, respectively, in the second quarter and
first half of 1995. These increases were primarily the result of the Company's
decision to expand its sales and marketing group, which grew from 7 employees at
June 30, 1995 to 17 employees at June 30, 1996.
GENERAL AND ADMINISTRATIVE
General and administrative costs consist primarily of expenses
associated with the Company's management, finance and administrative groups and
occupancy costs. The increase in general and administrative costs for the three
and six month periods ended June 30, 1996 was primarily due to an increase in
the incremental costs associated with the additional employees hired during
1996. The Company's total headcount increased from 184 at June 30, 1995 to 345
at June 30, 1996. As a percentage of revenues, general and administrative costs
were 26% in the second quarter of 1996, and 25% for the first half of 1996,
compared to 31% in the second quarter and first half of 1995. The decrease as a
percentage of revenues in the second quarter of 1996 was a result of the growth
in revenues combined with less travel, as well as improved space utilization.
8
<PAGE> 9
PROVISION FOR INCOME TAXES
Income tax expense represents combined federal and state taxes at an
effective rate of 39% for 1996 and 41% for 1995. The decrease in the effective
tax rate primarily represents a reduction in the effective federal tax rate
because excess cash has been invested in tax-exempt municipal bonds.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, the Company had financed its
operations and investments in property and equipment primarily through cash
generated from operations, bank borrowings and capital lease financing. 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. 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, 1997, 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 prohibits the payment of any dividends. At June 30, 1996, the
Company had no significant bank borrowings outstanding and no material capital
commitments.
Cash and cash equivalents increased to $36.2 million at June 30, 1996,
from $.4 million at December 31, 1995. The increase was primarily due to cash
provided as a result of the completion of the Company's initial public offering
and cash provided by operations. During the second quarter of 1996, the proceeds
of the initial public offering were invested primarily in tax-exempt short-term
municipal bonds.
The Company believes that the cash provided from operations,
borrowings available under its revolving line of credit and the net proceeds of
its recent initial public offering will be sufficient to meet the Company's
working capital and capital expenditure requirements for at least the next 18
months.
9
<PAGE> 10
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
As indicated in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, a former employee of the Company has filed a suit
against the Company and certain of its executive officers alleging, among other
things, wrongful termination of his employment. In July 1996, the plaintiff
amended his complaint to add a new claim for an additional 50,000 shares of
Common Stock which he claims the Company owed him pursuant to a purported oral
option agreement for fully vested shares. The Company intends to vigorously
defend the suit. Although the Company does not expect the suit to have a
material adverse effect on the Company's business, operating income 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.
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.
(b) Reports on Form 8-K.
The Company did not file any Reports on Form 8-K during the
quarter ended June 30, 1996.
10
<PAGE> 11
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 14, 1996 By: /s/ J. STUART MOORE
--------------------------------
J. Stuart Moore
Co-Chief Executive Officer
Co-Chairman of the Board
Date: August 14, 1996 By: /s/ SUSAN D. JOHNSON
--------------------------------
Susan D. Johnson
Chief Financial Officer
11
<PAGE> 1
Exhibit 11.1
Sapient Corporation
Article 6.01 of Regulation S-K
<TABLE>
Computation of Shares Used in Computing Net Income Per Share
<CAPTION>
For the Three Months For the Six Months
ended June 30, ended June 30,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common Stock, beginning of period 8,562,450 8,929,720 8,548,425 8,831,730
Options exercised during the period 85,885 64,720 99,910 367,660
Weighted average optionS outstanding
other than exercised during the period 1,264,999 1,076,122 1,264,999 1,388,844
Weighted average shares related to initial
public offering - 1,620,495 - 828,455
Cheap stock relating to SAB No. 83(1) 519,525 519,525 519,525 -
Treasury Stock buyback (152,111) (113,793) (152,111) (157,667)
---------- ---------- ---------- ----------
10,280,748 12,096,789 10,280,748 11,259,022
========== ========== ========== ==========
<FN>
- -----------
(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.
</TABLE>
12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 36,231,744 36,231,744
<SECURITIES> 0 0
<RECEIVABLES> 8,025,321 8,025,321
<ALLOWANCES> 150,000 150,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 49,188,720 49,188,720
<PP&E> 2,972,987 2,972,987
<DEPRECIATION> 1,143,190 1,143,190
<TOTAL-ASSETS> 51,079,605 51,079,605
<CURRENT-LIABILITIES> 10,066,882 10,066,882
<BONDS> 0 0
<COMMON> 108,916 108,916
0 0
0 0
<OTHER-SE> 40,510,971 40,510,971
<TOTAL-LIABILITY-AND-EQUITY> 51,079,605 51,079,605
<SALES> 0 0
<TOTAL-REVENUES> 10,360,397 19,627,513
<CGS> 0 0
<TOTAL-COSTS> 8,069,970 15,301,628
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (292,533) (297,711)
<INCOME-PRETAX> 2,582,960 4,623,596
<INCOME-TAX> 982,184 1,798,438
<INCOME-CONTINUING> 1,600,776 2,825,158
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,600,776 2,825,158
<EPS-PRIMARY> .13 .25
<EPS-DILUTED> .13 .25
13
</TABLE>
