<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the fiscal year ended December 31, 1996, or
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----- and 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 (IRS Employer
incorporation or organization) Identification No.)
One Memorial Drive, Cambridge, MA 02142
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 621-0200
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Registrant's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
- --------------------------------------------------------------------------------
(Title of Class)
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
--- ---
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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 amendments to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Company was $139,979,140 on March 26, 1997 based on the last reported
sale prices of the Company's Common Stock on the Nasdaq National Market on March
26, 1997. There were 11,576,265 shares of Common Stock outstanding as of
March 26, 1997.
----------------------
Documents Incorporated by Reference
-----------------------------------
Portions of the Company's 1996 Annual Report to Shareholders are
incorporated by reference in Parts I, II and IV of this Report. Portions of the
Proxy Statement for the Annual Meeting of Shareholders to be held on May 7, 1997
are incorporated by reference in Items 10, 11, 12 and 13 of Part III of this
Report.
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SAPIENT CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
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PART I Page No.
- ------ --------
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security 9
Holders
PART II
- -------
Item 5. Market for Registrant's Common Equity 10
and Related Stockholder Matters
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants 11
on Accounting and Financial Disclosure
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial 12
Owners and Management
Item 13. Certain Relationships and Related Transactions 12
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules 12
and Reports on Form 8-K
Signatures 14
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PART I
------
ITEM 1. BUSINESS
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General
- -------
Sapient designs, develops, integrates and implements high quality, flexible
information technology applications and solutions for large organizations. The
Company develops client/server and Internet-enabled client/server software
applications designed to help organizations improve their processes and
performance. 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.
Sapient was incorporated in Delaware in September 1991 under the name
"Sapient Computing Corporation". The Company's name was changed to Sapient
Corporation in November 1992. Sapient completed its initial public offering of
Common Stock in April 1996 and a follow-on offering in October 1996. Its stock
is traded on the Nasdaq National Market under the symbol "SAPE." The Company's
executive offices are located at One Memorial Drive, Cambridge, MA 02142, and
its telephone number is (617) 621-0200. The Company's internet address is
http://www.sapient.com.
This Form 10-K contains a number of forward-looking statements, including
information with respect to the Company's future business plans. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause actual events or the Company's
actual results to differ materially from those indicated by such forward-looking
statements. These factors include, without limitation, those set forth under the
captions "Factors That May Affect Future Operating Results," included under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part II of this Annual Report on Form 10-K.
Services
- --------
The Company developed QUADD as an innovative approach to designing,
developing and implementing business solutions. QUADD is a highly disciplined,
integrated, workshop-oriented methodology which emphasizes short cycle times
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and fixed-price, fixed-timeframe projects. QUADD uses a high level of client
interaction to achieve timely delivery of high quality, flexible solutions to
meet the client's business needs.
The QUADD process consists of the following four stages, each of which
integrates the disciplines of strategy, process and technology: RIP(R) workshop,
Design, Implementation and Production. The RIP (Rapid Implementation Plan)
workshop is designed to rapidly identify the client's needs and develop a
strategy and action plan to meet those needs. The Design workshop focuses on
outlining the proposed process changes and required software applications. The
Implementation stage primarily involves the development and testing of the new
applications. The Production stage primarily involves the maintenance,
enhancement and support of the solution after it has been installed and is
operational.
While the QUADD process is designed as an integrated approach, each stage
represents a separate contractual commitment and concludes with the delivery of
a discrete value-added deliverable. Clients are able to elect at each stage
whether to proceed to the next stage of the process. Fees for most client
engagements which involve the completion of all stages of the QUADD process
range from approximately $750,000 to $5,000,000.
RIP WORKSHOP. The RIP (Rapid Implementation Plan) workshop is designed to
rapidly identify the client's needs and develop a strategy and action plan to
meet those needs. A team of Sapient personnel leads the RIP workshop at one of
the Company's 21 Design Centers located throughout its offices. A
cross-functional team of executives, managers and end-users from the client's
various business and technical units works with the Sapient team to create a
common vision, goal and action plan.
The RIP workshop uses visual tools and approaches, including process
matrices, prototyping and electronic storyboards, to help clients articulate
their needs more clearly than with traditional interview methods. The RIP
workshop employs rapid iteration and prioritization to focus on those aspects of
a solution that will provide the greatest business benefit and generally
concludes with consensus on the following key items: a clear statement of the
client's business need; a statement of vision that addresses the business need;
a plan to achieve the vision; a visual representation of the solution; and a
cost/benefit analysis of, and if appropriate, a business justification for
proceeding with, the outlined plan. The client team generally presents an
executive summary of the workshop to other senior members of the client's
organization. The Company believes these presentations increase the likelihood
that the client will proceed to the Design stage.
DESIGN. In the Design stage, a team consisting of Company and client
participants outlines more thoroughly the proposed processes and required
software applications. This workshop focuses on functional definition,
identifies process redesign
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opportunities and attempts to synthesize broad-based support for the proposed
changes. During this stage, the Company again uses rapid prototyping and
electronic storyboards, as well as object modeling techniques, to help the
project team iteratively define system functionality, process flows, systems
architectures and object models. The Company also uses software and techniques
it has developed to help clients visualize batch processes or other difficult to
define business processing elements. In addition, during this workshop the
project team typically creates a detailed prototype and defines the required
system interfaces.
The client's workshop participants typically present the proposed solution
to other members of the client's organization both during and at the end of the
Design stage. The Company believes that these client presentations are critical
to validating the workshop's results and gaining broad-based support for the
proposed changes and also increase the likelihood that the client will commit to
complete development of the proposed solution. At the conclusion of Design, the
client and the Sapient teams generally have defined a proposed solution to the
client's business needs and a detailed plan to develop and implement this
solution. At this point, the Company generally delivers to the client a
fixed-price, fixed-timeframe proposal for developing and implementing the
solution. In addition to pricing and timing, this proposal identifies the
critical tasks for the client to complete, such as preparing interfaces to and
modifications of legacy systems, preparing, formatting and collecting existing
data and testing and verifying the software application.
IMPLEMENTATION. Implementation primarily involves the development and
testing of a new software application, or customization of an existing
third-party application or a Sapient software application framework ("Solution
Framework"), to meet the client's needs identified during the Design stage.
A Sapient project manager and system architect manage Sapient's development
team, which usually consists of five to thirty people. The project manager
tracks the progress of the implementation on a daily basis and senior management
reviews each project's progress on a weekly basis by analyzing its expected time
to completion as compared to previous estimates. The Sapient development team
typically works in a dedicated workspace within the Company's 40 Development
Centers located throughout Sapient's offices.
Throughout the Implementation stage, Sapient and the client work together
to ensure that the solution continues to meet the client's business needs.
Proposed changes in the scope of the project resulting from a change in the
client's needs are analyzed using the QUADD process, and any adjustments to the
contract's fixed-price, fixed-timeframe parameters are negotiated in advance of
implementing the change.
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During the later parts of the Implementation stage, technical, process,
data and organizational changes are integrated into the client's organization.
At this time, the Company may also participate in rolling out the application
and training end-users as it transitions the solution to the production
environment. Implementation generally ends with the delivered software
application in use in the client's business.
PRODUCTION. During the Production stage, the Company maintains, enhances
and supports the solution after it has been installed and is operational.
Generally, the Company provides at least six months of production support and
maintenance after a system has been installed for an additional price. After the
initial support period, clients may assume responsibility for on-going support
or choose to have Sapient provide these services under a separate fixed-price
support agreement. To date, revenues from support/maintenance agreements have
not been material to the Company.
Clients; Markets; Competition
- -----------------------------
During 1996, Sapient focused its marketing efforts on clients in the
following vertical markets: financial services, telecommunications, energy
services, manufacturing, retail, and Governments. Many large organizations in
these vertical markets have moved over the past several years to client/server
computing and require the type of services provided by the Company. Within these
vertical markets, the Company has targeted clients with large scale information
access and processing needs. The Company intends to continue to explore
opportunities to provide its services in other industry sectors with similar
needs.
The Company has derived, and believes that it will continue to derive, a
significant portion of its revenues from a limited number of large clients. In
1996, the Company's five largest clients accounted for approximately 57% of its
revenues, Digital Equipment Corporation and Wells Fargo each accounted for more
than 10% of such revenues and four clients each accounted for more than 5% of
such revenues.
The markets for the Company's services are highly competitive. The Company
believes that it currently competes principally with the internal information
systems groups of its prospective clients, as well as with consulting and
software integration firms, including Andersen Consulting, the "Big Six"
accounting firms, IBM, Cambridge Technology Partners, SHL Systemhouse (a
subsidiary of MCI), and Computer Sciences Corporation, and with application
software vendors. Many of these companies have significantly greater financial,
technical and marketing resources than the Company and generate greater revenues
and have greater name recognition than Sapient. In addition, there are
relatively low barriers to entry into the Company's markets and the Company has
faced and expects to continue to face, additional competition from new entrants
into its markets.
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The Company believes that the principal competitive factors in its markets
include quality of service and deliverables, speed of development and
implementation, price, project management capability and technical and business
expertise. The Company believes it competes favorably with respect to these
factors and that its QUADD methodology, focus on providing high-quality
solutions to client business needs and fixed-price, fixed-timeframe contracting
practices distinguish it from its competitors. In addition, the Company believes
that its ability to compete depends in part on a number of competitive factors
outside its control, including the ability of its competitors to hire, retain
and motivate project managers and other senior technical staff, the development
by others of software that is competitive with the Company's products and
services and the extent of its competitors' responsiveness to client needs.
Selling and Marketing
- ---------------------
During 1996 the Company's dedicated sales force concentrated its efforts
on the Company's key vertical markets. The Company believes that focusing on
vertical markets will broaden its knowledge and expertise in selected key
industries, and generate additional client engagements in these industries.
A significant amount of the Company's business comes from referrals from
existing clients and strong relationship-building within the Company's defined
vertical markets. Supporting the sales force in deploying this approach are a
variety of marketing activities including attendance at targeted conferences
and trade shows, mailings to CIOs and CEOs, private briefings with individual
companies, one-day workshops which demonstrate the Company's unique
capabilities, and partnerships with other industry players. In addition, the
Company employs an outside public relations firm to ensure that the Sapient
story is as widely disseminated as possible.
As of December 31, 1996, the Company's selling and marketing group
consisted of 27 employees.
The Company's services typically require a substantial financial commitment
by clients. Sales cycles typically range from two to six months from the time
the Company initially meets with a prospective client until the client decides
whether to authorize commencement of an engagement. The Company often encounters
longer sales cycles with clients in certain industries such as energy services
and Governments.
The Company generally enters into written commitment letters with its
clients at or around the time it commences work on a project. These commitment
letters generally contemplate that Sapient and the client will subsequently
enter into a more detailed agreement. These written commitments and contracts
contain varying terms and conditions and the Company does not generally believe
it is appropriate to characterize them as consisting of backlog. In addition,
because these written commitments and
5
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contracts often provide that the arrangement can be terminated with limited
advance notice or penalty, the Company does not believe the projects in process
at any one time are a reliable indicator or measure of expected future revenues.
In the event a client terminates a project, the client usually remains obligated
to pay the Company for services performed through the termination date.
Employees
- ---------
Management believes that certain key values, namely, client-focused
delivery, leadership, openness, and professional growth, are critical to
attaining success and has developed a strong corporate culture around these
values. To encourage the achievement of these values, Sapient rewards teamwork
and promotes individuals who demonstrate these values. Also, the Company has an
intensive orientation program for new employees, a variable compensation system
centered around these values, and an internal team dedicated to defining,
tracking and promoting these core values. The Company believes that its growth
and success are attributable in large part to the high caliber of its employees
and the Company's commitment to maintain the values on which its success has
been based. The Company believes that it has been successful in its efforts to
attract and retain the number and quality of professionals needed to support
present operations and anticipated growth, in part because of its emphasis on
training and its QUADD methodology, which allows employees to progress with one
client through multiple phases of a project. The Company intends to continue to
recruit, hire and promote employees who share the Company's values.
There is significant competition for employees with the skills required to
perform the services the Company offers. Qualified project managers and senior
technical staff are in great demand and are likely to remain a limited resource
for the foreseeable future.
As of December 31, 1996, the Company had 493 full-time employees, comprised
of 395 project personnel, 71 employees in finance and administration and 27
employees in selling and marketing. None of the Company's employees is subject
to a collective bargaining agreement. The Company believes that its relations
with its employees are good.
The Company's success will depend in large part upon the continued services
of a number of key employees, including its founders and Co-Chairman of the
Board/Co-Chief Executive Officers, Jerry A. Greenberg and J. Stuart Moore. The
Company does not have an employment contract with either of Messrs. Greenberg
or Moore or with any of the Company's other key personnel.
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Intellectual Property Rights
- ----------------------------
The Company relies upon a combination of trade secret, nondisclosure and
other contractual arrangements, and copyright and trademark laws, to protect its
proprietary rights. The Company enters into confidentiality agreements with its
employees, generally requires that its consultants and clients enter into such
agreements, and limits access to and distribution of its proprietary
information. There can be no assurance that the steps taken by the Company in
this regard will be adequate to deter misappropriation of its proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights.
The Company's business generally involves the development of software
applications for specific client engagements. Ownership of such software is the
subject of negotiation and is frequently assigned to the client, with the
Company frequently retaining a license for certain uses. The Company also
develops Solution Frameworks and it is the Company's strategy to retain
significant ownership or marketing rights to these Solution Frameworks and to
build Solution Frameworks which it can market and adapt through further
customization for future client projects.
Certain clients have prohibited the Company from marketing the applications
developed for them for specified periods of time or to specified third parties
and there can be no assurance that clients will not continue to demand similar
or other restrictions in the future. Issues relating to the ownership of and
rights to use software applications and frameworks can be complicated and there
can be no assurance that disputes will not arise that affect the Company's
ability to resell or reuse such applications and frameworks.
In connection with Implementation stage projects which use previously
developed Solution Frameworks, the Company may, in certain cases, obtain a
license fee from the client for use of the Framework and a development fee from
such client for any required additional customization of the framework. A
portion of the license fee will generally be paid as a royalty to the client for
which the original Framework was developed pursuant to such original client's
agreement with the Company.
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ITEM 2. PROPERTIES
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The Company's headquarters and principal administrative, finance,
selling and marketing operations are located in approximately 70,000 square
feet of leased office space in Cambridge, Massachusetts. During 1996, the
Company also leased office space of approximately 35,000 square feet in
metropolitan New York and 20,000 square feet in San Francisco, California.
During 1996, the Company also occupied temporary office space of
approximately 4,000 square feet in Chicago, Illinois, and is presently
negotiating a lease for approximately 40,000 square feet of permanent space. In
January 1997, the Company opened an additional office in Atlanta, Georgia,
occupying approximately 9,150 square feet and is negotiating a lease for
additional space. The Company expects that additional space will be required
as it expands its business and believes that it will be able to obtain
suitable space as needed.
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ITEM 3. LEGAL PROCEEDINGS
-----------------
In April 1996, John Adler, a former employee of the Company (the
"Plaintiff") commenced suit against the Company and certain of its executive
officers, both individually and in their capacities as officers of the Company,
in Middlesex Superior Court, Commonwealth of Massachusetts. The Plaintiff's
complaint alleged, among other things, wrongful termination of his employment.
In addition to seeking unspecified damages, the Plaintiff is demanding that the
Company issue to him 35,000 shares of the Company's Common Stock pursuant to
certain stock options that had previously been granted to him. In addition, in
May 1996, the Plaintiff informed the Company that he believes he is owed
additional shares of Common Stock pursuant to a purported oral option agreement
for fully vested shares. Management denies that it breached any obligations or
duties to the Plaintiff and believes that the Company has meritorious defenses
(including that a substantial number of the 35,000 shares subject to the stock
options that were granted to the Plaintiff had not vested in accordance with
their terms at the time the Plaintiff's employment was terminated by the
Company).
In August 1996, the court allowed the Company's motion to compel
arbitration of the Plaintiff's claims and the Plaintiff's claims are now
proceeding in arbitration. The Company intends to vigorously defend the
Plaintiff's claims. Although the Company does not expect this case 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not Applicable.
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
-------------------------------------------------
(a) The following information contained in the 1996 Annual Report to
Shareholders (the "1996 Annual Report") which is filed as an Exhibit hereto and
is incorporated herein:
(i) The market prices of the Company's Common Stock included with the
Selected Financial Data; and
(ii) Footnote (1) to "Selected Financial Data."
(b) Recent Sales of Unregistered Securities
Since January 1, 1996, the Company issued and sold a total of 373,590
shares of Common Stock (including shares of Non-Voting Common Stock issued prior
to the closing of its initial public offering) to 70 employees and consultants
of the Company pursuant to the exercise of stock options or stock awards which
were not registered under the Securities Act. Upon the closing of the Company's
initial public offering in April 1996, all outstanding shares of Non-Voting
Common Stock were converted into shares of Common Stock. The aggregate
consideration paid upon the exercise of the underlying options was approximately
$151,642. These shares were offered and issued in reliance upon the exemptions
from registration set forth in Sections 3(a)(9), 3(b) and 4(2) of the Securities
Act and Rule 701 under the Securities Act. No underwriters were engaged in
connection with any of the foregoing sales of securities.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The response to this Item is contained in the 1996 Annual Report under the
caption "Selected Financial Data" and is incorporated herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
The response to this Item is contained in the 1996 Annual Report under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and is incorporated herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The Consolidated Financial Statements and supplementary data set forth in
Item 14 are incorporated herein.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
------------------------------------------------
None.
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
A. Directors
---------
The response to this Item regarding the directors of the Company and
compliance with Section 16(a) of the Securities Exchange Act of 1934 by the
Company's officers and directors is contained in the Proxy Statement for the
1997 Annual Meeting of Shareholders under the captions "Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein.
B. Executive Officers of the Company
---------------------------------
Below is the name, age and principal occupations for the last five years of
each current executive officer of the Company. All such persons have been
elected to serve until their successors are elected and qualified or until their
earlier resignation or removal.
Jerry A. Greenberg - Mr. Greenberg co-founded the Company in 1991 and has
31 served as Co-Chairman of the Board of Directors and
Co-Chief Executive Officer and as a director since the
Company's inception.
J. Stuart Moore - Mr. Moore co-founded the Company in 1991 and has served
35 as Co-Chairman of the Board of Directors and Co-Chief
Executive Officer and as a director since the Company's
inception.
Sheeroy Desai - Mr. Desai joined the Company in September 1991 and has
31 served as Executive Vice President since September
1994. Mr. Desai is responsible for the management of
the Company's metropolitan New York and Atlanta
offices. From September 1990 to September 1991,
Mr. Desai was a senior consultant at YACC, Inc., a
client/server software tools company.
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Susan D. Johnson - Ms. Johnson joined the Company as Chief Financial
31 Officer in February 1994. From April 1991 to February
1994, Ms. Johnson was employed by Bitstream, Inc., a
software company, where she served in various finance
positions prior to becoming Chief Financial Officer.
Prior to joining Bitstream, from June 1987 to April
1991, Ms. Johnson was a senior accountant at Arthur
Andersen & Company, an international accounting firm.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The response to this Item is contained in the Proxy Statement for the 1997
Annual Meeting of Shareholders under the captions "Director Compensation" and
"Compensation of Executive Officers" and is incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
---------------------------------------------------
The response to this Item is contained in the Proxy Statement for the 1997
Annual Meeting of Shareholders under the caption "Security Ownership of Certain
Beneficial Owners and Management" and is incorporated herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The response to this Item is contained in the Proxy Statement for the 1997
Annual Meeting of Stockholders under the caption "Compensation of Executive
Officers" and is incorporated herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
------------------------------------------------------
14(a)(1) FINANCIAL STATEMENTS
The documents listed below are incorporated herein by reference to the
Company's 1996 Annual Report to Shareholders and are incorporated
herein by reference to Item 8 hereof:
Consolidated Balance Sheets - December 31, 1995 and 1996.
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Consolidated Statements of Income for the fiscal years ended December
31, 1994, 1995 and 1996.
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 1994, 1995 and 1996.
Consolidated Statements of Shareholders' Equity for the fiscal years
ended December 31, 1994, 1995 and 1996.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
14(a)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission have been omitted because
the information is disclosed in the Consolidated Financial Statements or because
such schedules are not required or are not applicable.
14(a)(3) EXHIBITS
--------
The exhibits filed as part of this Annual Report on Form 10-K are listed in
the Exhibit Index immediately preceding the exhibits. The Company has identified
with an asterisk in the Exhibit Index each management contract and compensation
plan filed as an exhibit to this Annual Report on Form 10-K in response to Item
14(c) of Form 10-K.
14(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1996.
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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/ Jerry A. Greenberg
------------------------------
Jerry A. Greenberg
Co-Chairman of the Board
and Co-Chief Executive Officer
Dated: March 25, 1997
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
Officers:
/s/ Jerry A. Greenberg Co-Chairman of the Board, March 25, 1997
- ------------------------ Co-Chief Executive Officer and
Jerry A. Greenberg Secretary
/s/ J. Stuart Moore Co-Chairman of the Board, March 25, 1997
- ------------------------ and Chief Executive Officer
J. Stuart Moore
Principal Financial and
Accounting Officer:
/s/ Susan D. Johnson Chief Financial Officer March 25, 1997
- ------------------------ and Treasurer
Susan D. Johnson
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Directors:
- ----------
/s/ Jerry A. Greenberg March 25, 1997
- --------------------------
Jerry A. Greenberg
/s/ J. Stuart Moore March 25, 1997
- --------------------------
J. Stuart Moore
/s/ R. Stephen Cheheyl March 25, 1997
- --------------------------
R. Stephen Cheheyl
/s/ Darius W. Gaskins, Jr. March 25, 1997
- --------------------------
Darius W. Gaskins, Jr.
/s/ Bruce D. Parker March 25, 1997
- --------------------------
Bruce D. Parker
/s/ Carl S. Sloane
- -------------------------- March 25, 1997
Carl S. Sloane
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EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
3.1+ -- Amended and Restated Certificate of Incorporation
3.2+ -- Amended and Restated Bylaws
4.1+ -- Specimen Certificate for Shares of Common Stock, $.01 par value,
of the Registrant
10.1+ -- Lease between the Registrant and One Memorial Drive Limited
Partnership, dated March 30, 1994, as amended December 5, 1995,
for offices at One Memorial Drive, Cambridge, MA.
10.2+ -- Lease between the Registrant and S.P.N.W. Management Associates
Limited Partnership, dated November 2, 1995, for offices at 10
Exchange Place, Jersey City, NJ.
10.3+ -- Lease between the Registrant and The Prudential Insurance Company
of America, dated July 17, 1995, for offices at 580 California
Street, San Francisco, CA.
10.4*+ -- 1992 Stock Plan
10.5*+ -- 1996 Equity Stock Incentive Plan
10.6*+ -- 1996 Director Stock Option Plan
10.7*+ -- Executive Bonus Plan for 1996
10.8+ -- Revolving Loan Facility with Fleet Bank of Massachusetts, N.A.,
dated July 11, 1994, as amended July 1, 1995 and February 15, 1996
10.9++ -- Standard Form Employment Agreement between the Registrant and
its Employees
11 -- Computation of Average Number of Shares Outstanding used in
Determining Primary and Fully Diluted Earnings Per Share
<PAGE> 20
13 -- Such portions of the 1996 Annual Report to Shareholders which have
been incorporated by reference in this Annual Report on Form 10-K
21++ -- List of Subsidiaries
23 -- Consent of KPMG Peat Marwick LLP
27 -- Financial Data Schedule
- ---------------
* Exhibits filed pursuant to Item 14(c) of Form 10-K.
+ Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (File No. 333-1586).
++ Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (File No. 333-12671).
<PAGE> 1
EXHIBIT 11
Computation of Shares Used in Computing Net Income Per Share
<TABLE>
<CAPTION>
For the Three Months For the Year
ended December 31, ended December 31,
-------------------- ------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common Stock, beginning of period 8,548,425 8,831,730 8,548,425 8,831,730
Weighted average options exercised
during the period 210,782 441,976 104,727 338,317
Weighted average options outstanding
other than exercised during the period
using the treasury stock method 1,002,016 1,156,522 1,084,279 1,212,590
Weighted average shares related to
public stock offerings - 2,031,957 - 1,339,740
Cheap Stock relating to SAB
No.83(1) 519,525 - 519,525 -
---------- ---------- ---------- ----------
10,280,748 12,462,185 10,256,966 11,722,377
========== ========== ========== ==========
</TABLE>
- --------
(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 intial filing date of the Company's registration statement
(February 22, 1996) at share prices below the initial public offering price of
$21.00 per share ("Cheap Stock"), are considered to have been made in
anticipationof the initial public offering and have been included as if the
shares were outstanding for all periods presented using the treasury stock
method at the initial public offering price of $21.00 per share.
<PAGE> 1
EXHIBIT 13
PORTIONS OF THE
SAPIENT CORPORATION 1996 ANNUAL REPORT
TO SHAREHOLDERS
INCORPORATED BY REFERENCE INTO
THE ANNUAL REPORT ON FORM 10-K
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
Years Ended December 31,
-----------------------------------------------
(in thousands, except per share data) 1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues $ 953 $4,888 $ 9,373 $21,930 $44,580
Operating expenses:
Project personnel costs 497 1,670 4,310 10,084 21,033
Selling and marketing 27 90 268 1,095 2,299
General and administrative 320 1,437 2,728 5,967 11,770
- ---------------------------------------------------------------------------------------------
Total operating expenses 844 3,197 7,306 17,146 35,102
- ---------------------------------------------------------------------------------------------
Income from operations 109 1,691 2,067 4,784 9,478
Interest income (expense), net (3) - 9 10 1,091
- ---------------------------------------------------------------------------------------------
Income before income taxes 106 1,691 2,076 4,794 10,569
Income taxes 33 691 851 1,964 3,998
- ---------------------------------------------------------------------------------------------
Net income $ 73 $1,000 $ 1,225 $ 2,830 $ 6,571
- ---------------------------------------------------------------------------------------------
Net income per share $ 0.01 $ 0.10 $ 0.12 $ 0.28 $ 0.56
Weighted average common shares
and equivalents 8,557 9,792 10,115 10,257 11,722
December 31,
-----------------------------------------------
(in thousands) 1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Working capital $ 174 $1,127 $ 1,649 $ 3,789 $65,983
Total assets 237 2,296 6,349 12,086 78,557
Long term debt, less current portion 31 56 61 37 -
Total stockholders' equity (1) 146 1,149 2,350 5,211 66,250
<FN>
(1) The Company has never declared or paid any cash dividends.
</TABLE>
Sapient's Common Stock is quoted on the Nasdaq National Market under the symbol
"SAPE." The following table sets forth the high and low sales prices for the
Common Stock for each quarterly period indicated. At March 3, 1997 there were
204 record holders and approximately 1,400 beneficial holders of the Company's
Common Stock.
1996 High Low
--------------------------------------
Q2 (from April 3, 1996) $58.25 $29.25
Q3 $46.00 $29.75
Q4 $49.00 $37.00
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Sapient performs its services on a fixed-price, fixed-timeframe 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. In
addition, revenues from a large client may constitute a significant portion of
the Company's total revenues in a particular quarter.
Results of Operations
<TABLE>
The following table sets forth the percentage of revenues of certain items
included in the Company's Consolidated Statements of Income:
<CAPTION>
Years Ended December 31,
------------------------
1994 1995 1996
----------------------
<S> <C> <C> <C>
Revenues 100% 100% 100%
Operating expenses:
Project personnel costs 46 46 47
Selling and marketing 3 5 5
General and administrative 29 27 27
- ----------------------------------------------------------------
Total operating expenses 78 78 79
Income from operations 22 22 21
Interest income - - 3
Income taxes 9 9 9
- ----------------------------------------------------------------
Net income 13% 13% 15%
- ----------------------------------------------------------------
</TABLE>
Years Ended 1996 and 1995
Revenues
Revenues were $44.6 million in 1996, representing an increase of 103 percent
over revenues of $21.9 million in 1995. 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 $4.7
million at December 31, 1996 was primarily due to the increase in revenues in
1996. In 1996, the Company's five largest clients accounted for approximately 57
percent of its revenues, two clients each accounted for more than 10 percent of
such revenues and three clients each accounted for more than 5 percent of such
revenues. In 1995, revenues derived from the Company's five largest clients
accounted for approximately 58 percent of its revenues. The Company expects the
percentage of total revenues derived from its five largest clients in 1997 will
represent a substantial portion of total revenues for such year.
Project Personnel Costs
Project personnel costs consist primarily of salaries and employee benefits for
personnel dedicated to client assignments, fees paid to subcontractors for work
performed in connection with projects, 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 year ended December 31, 1996 was primarily
<PAGE> 3
due to an increase in project personnel from 213 at December 31, 1995 to 395 at
December 31, 1996. Project personnel costs increased slightly as a percentage of
revenues from 46 percent for 1995 to 47 percent for 1996. The increase was
mainly due to slightly higher salary levels and unreimbursed travel costs.
Selling and Marketing
Selling and marketing costs consist primarily of salaries, employee benefits,
travel expenses and promotional costs. Selling and marketing costs as a
percentage of revenues remained constant at 5 percent for 1995 and 1996. The
dollar increase in 1996 was mainly due to the Company's decision to expand its
selling and marketing group, which grew from 13 employees at December 31, 1995
to 27 employees at December 31, 1996.
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 1996 compared to 1995 was
primarily due to an increase in the incremental costs associated with the
additional employees hired during 1996, such as relocation costs, training costs
and salaries. The Company's total headcount increased from 247 at December 31,
1995 to 493 at December 31, 1996. As a percentage of revenues, general and
administrative costs remained constant at 27 percent for 1995 and 1996.
Interest Income
Interest income for 1996 consisted of interest earned on the proceeds of the
Company's initial and follow-on public offerings of Common Stock, which were
invested primarily in tax-exempt, short term municipal bonds.
Provision for Income Taxes
Income tax expense represents combined federal and state taxes at an effective
rate of 37.8 percent for 1996 and 41.0 percent for 1995. The decrease in the
effective tax rate primarily reflects reduced federal taxes due to excess cash
being invested in tax-exempt municipal bonds.
Years Ended 1995 and 1994
Revenues
Revenues were $21.9 million in 1995, representing an increase of 134 percent
over 1994 revenues of $9.4 million. The increase in revenues reflected a
significant increase in the size of projects, combined with an increase in the
number of client projects. Revenues derived from the Company's five largest
clients in 1995 and 1994 as a percentage of total revenues were 58 percent and
87 percent, respectively. The increase in "unbilled revenues on contracts" from
$18,000 at December 31, 1994 to $2.3 million at December 31, 1995 was primarily
due to the increase in revenues in 1995 compared with 1994 as well as to
contractual billing and payment terms which, on certain projects, were more
heavily weighted toward the end of the 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. The increase in project personnel
costs in 1995 was primarily due to an increase in project personnel from 95 at
the end of 1994 to 213 at the end of 1995. Project personnel costs remained
constant as a percentage of revenues at 46 percent in 1994 and 1995.
Selling and Marketing
Selling and marketing costs consist primarily of salaries, employee benefits,
travel expenses, and promotional costs. In 1995, selling and marketing costs as
a percentage of revenues were 5 percent compared to 3 percent in 1994. This
increase was primarily a result of the Company's decision to expand its selling
and marketing group, which grew from four employees at the end of 1994 to 13
employees at the end of 1995.
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. As
<PAGE> 4
a percentage of revenues, general and administrative costs were 27 percent in
1995 compared to 29 percent in 1994. The decrease as a percentage of revenues in
1995 was a result of improved office space utilization. In addition, the
administrative staff as a percentage of total staff declined in 1995.
Provision for Income Taxes
Income tax expense represents combined federal and state taxes at an effective
rate of 41.0 percent for each year.
<TABLE>
Quarterly Results
The following table sets forth certain unaudited quarterly consolidated results
of operations of the Company for 1995 and 1996. In the opinion of management,
this information has been prepared on the same basis as the audited Consolidated
Financial Statements and all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to present
fairly the quarterly information when read in conjunction with the audited
Consolidated Financial Statements and Notes thereto included elsewhere in this
Annual Report. The quarterly operating results are not necessarily indicative of
future results of operations.
<CAPTION>
Three Months Ended
------------------
Mar. 31, Jun. 30, Sept. 30, Dec. 31, Mar. 31, Jun. 30, Sept. 30, Dec. 31,
(in thousands) 1995 1995 1995 1995 1996 1996 1996 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $3,618 $4,567 $5,905 $7,840 $9,267 $10,361 $11,501 $13,451
Operating expenses:
Project personnel costs 1,640 2,093 2,881 3,470 4,552 4,769 5,378 6,333
Selling and marketing 91 198 342 464 467 575 479 779
General and administrative 1,121 1,388 1,400 2,058 2,213 2,726 3,188 3,644
- ------------------------------------------------------------------------------------------------------------
Total operating expenses 2,852 3,679 4,623 5,992 7,232 8,070 9,045 10,756
- ------------------------------------------------------------------------------------------------------------
Income from operations 766 888 1,282 1,848 2,035 2,291 2,456 2,695
Interest income (expense), net 27 3 (1) (19) 5 293 328 466
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 793 891 1,281 1,829 2,040 2,584 2,784 3,161
Income taxes 325 365 524 750 816 983 1,086 1,113
- ------------------------------------------------------------------------------------------------------------
Net income $ 468 $ 526 $ 757 $1,079 $1,224 $ 1,601 $ 1,698 $ 2,048
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Liquidity and Capital Resources
Prior to its initial public offering, the Company 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. In October 1996, the
Company completed a follow-on offering of Common Stock resulting in net proceeds
of approximately $21.7 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 December 31, 1996, the Company had no bank borrowings
outstanding and no material capital commitments.
Cash and cash equivalents increased to $50.0 million at December 31, 1996, from
$0.4 million at December 31, 1995. The increase was primarily due to cash
provided as a result of the completion of the Company's initial and follow-on
public offerings of Common Stock and cash provided by operations. The proceeds
of the two public offerings of Common Stock are invested primarily in
tax-exempt, short term municipal bonds which mature in less than 90 days. In
addition, at December 31, 1996, $9.5 million was invested in tax-exempt, short
term municipal bonds which mature in less than 12 months.
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.
Factors That May Affect Future Operating Results
<PAGE> 5
This Annual Report contains a number of forward-looking statements including
those under the headings "Initiatives for the year ahead" and "Critical success
factors" and other statements to the effect that the Company "plans," "intends,"
"believes," "expects," and similar expressions. There are a number of important
factors that could cause actual results to differ materially from those
indicated by such forward-looking statements, including, without limitation,
those set forth below.
The growth experienced by the Company to date has placed significant demands on
its management and other resources and the Company's future success will require
it to continue to develop and improve its operational, financial and other
internal systems. In addition, the Company's future success will depend in large
part on its ability to train, motivate and manage its employees and maintain
high rates of employee utilization and project quality.
The Company has derived, and expects that it will continue to derive, a
significant portion of its revenues from a small number of large clients. The
volume of work performed for specific clients is likely to vary from year to
year and a major client in one year may not use the Company's services in a
subsequent year. In addition, revenues from a large client may constitute a
significant portion of the Company's total revenues in a particular quarter. The
cancellation or a significant reduction in the scope of a large project could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's business strategy is substantially dependent on entering into
fixed-price, fixed-timeframe contracts. The Company's failure to accurately
estimate the resources required for a project or its failure to complete its
obligations in a manner consistent with the project plan upon which the
fixed-price was based could have a material adverse effect on the Company's
business, financial condition and results of operations.
Other factors that could cause actual results to differ materially from those
indicated by such forward-looking statements include the continued market
acceptance of information processing systems using client/server architectures,
the outcome of pending litigation involving a former employee and other factors
identified in the "Risk Factors" section of the Company's Prospectus dated
October 23, 1996 on file with the Securities and Exchange Commission and in
documents subsequently filed by the Company with the SEC.
<PAGE> 6
Independent Auditors' Report
The Board of Directors and Stockholders
Sapient Corporation
We have audited the accompanying consolidated balance sheets of Sapient
Corporation and subsidiary as of December 31, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sapient Corporation
and subsidiary as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 28, 1997
<PAGE> 7
<TABLE>
Consolidated Balance sheets
(in thousands, except share data)
<CAPTION>
December 31, December 31,
ASSETS 1995 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 378 $49,998
Short term investments - 9,540
Accounts receivable, less allowance
for doubtful accounts of $150 7,357 11,388
Unbilled revenues on contracts 2,282 4,673
Income taxes receivable 480 -
Prepaid expenses and other current assets 130 452
Deferred income tax asset - 188
- ---------------------------------------------------------------------------------------------------
Total current assets 10,627 76,239
Property and equipment, net 1,349 2,257
Other assets 110 61
- ---------------------------------------------------------------------------------------------------
Total assets $12,086 $78,557
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
Current liabilities:
Current portion of long term debt $ 56 $ -
Accounts payable 489 73
Accrued expenses 974 1,554
Accrued compensation 862 2,162
Accrued income taxes payable - 1,551
Deferred income taxes 2,081 -
Deferred revenues on contracts 2,375 4,916
- ---------------------------------------------------------------------------------------------------
Total current liabilities 6,837 10,256
Deferred income taxes - 1,296
Other long term liabilities 38 755
- ---------------------------------------------------------------------------------------------------
Total liabilities 6,875 12,307
- ---------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, par value $.01 per share, none authorized or
outstanding at December 31, 1995; 5,000,000 shares authorized
and none outstanding at December 31, 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, 11,492,760 shares issued at December 31, 1996 50 115
Common stock, par value $.01 per share, non-voting, 5,200,000 shares
authorized, 3,831,730 shares issued at December 31, 1995;
none authorized or outstanding at December 31, 1996 38 -
Additional paid-in capital 111 54,502
Retained earnings 5,087 11,658
Notes receivable from stockholders (75) (25)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 5,211 66,250
- ---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $12,086 $78,557
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<PAGE> 8
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<CAPTION>
Years Ended December 31,
------------------------
1994 1995 1996
---------------------------
<S> <C> <C> <C>
Revenues $ 9,373 $21,930 $44,580
Operating expenses:
Project personnel costs 4,310 10,084 21,033
Selling and marketing 269 1,095 2,299
General and administrative 2,727 5,967 11,770
- ----------------------------------------------------------------------------
Total operating expenses 7,306 17,146 35,102
- ----------------------------------------------------------------------------
Income from operations 2,067 4,784 9,478
Interest income, net 9 10 1,091
Income before income taxes 2,076 4,794 10,569
Income taxes 851 1,964 3,998
- ----------------------------------------------------------------------------
Net income $ 1,225 $ 2,830 $ 6,571
- ----------------------------------------------------------------------------
Net income per share $ 0.12 $ 0.28 $ 0.56
- ----------------------------------------------------------------------------
Weighted average common shares and
equivalents outstanding 10,115 10,257 11,722
- ----------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<PAGE> 9
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<CAPTION>
Notes Total
Voting Non-voting Additional Receivable Stock-
Common Stock Common Stock Paid-in Retained from holders'
Shares Amount Shares Amount Capital Earnings Stockholders Equity
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 5,000 $50 3,243 $ 32 $ 35 $ 1,032 $ - $ 1,149
- -----------------------------------------------------------------------------------------------------------------
Notes receivable from stockholders (50) (50)
Exercised stock options 306 3 23 26
Net income 1,225 1,225
- -----------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1994 5,000 50 3,549 35 58 2,257 (50) 2,350
- -----------------------------------------------------------------------------------------------------------------
Notes receivable from stockholders (25) (25)
Exercised stock options 283 3 53 56
Net income 2,830 2,830
- -----------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 5,000 50 3,832 38 111 5,087 (75) 5,211
- -----------------------------------------------------------------------------------------------------------------
Conversion of non-voting
shares to voting shares 3,832 38 (3,832) (38) -
Notes repaid from stockholders 50 50
Net proceeds from
public offerings 2,195 22 54,075 54,097
Exercised stock options 466 5 208 213
Tax benefit of disqualifying
dispositions of stock options 108 108
Net income 6,571 6,571
- -----------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 11,493 $115 - $ - $54,502 $11,658 $(25) $66,250
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<PAGE> 10
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Years Ended December 31,
--------------------------
1994 1995 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,225 $ 2,830 $ 6,571
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 223 512 1,089
Deferred income taxes (454) 2,006 (973)
Provision for doubtful accounts 76 50 -
Changes in operating assets and liabilities:
Increase in accounts receivable (1,376) (4,636) (4,031)
(Increase) decrease in unbilled revenues on contracts 461 (2,264) (2,392)
Decrease (increase) in advances to employees 244 (40) 15
Decrease (increase) in income taxes receivable - (480) 480
(Increase) decrease in prepaid expenses and other current assets (22) 5 (336)
Decrease (increase) in other assets (20) (75) 49
(Decrease) increase in accounts payable 26 163 (417)
Increase in accrued expenses 739 234 580
Increase in accrued compensation 369 493 1,300
Increase (decrease) in income taxes payable 993 (1,133) 1,659
Increase (decrease) in other long term liabilities (34) (48) 717
Increase in deferred revenues on contracts 896 1,207 2,541
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 3,346 (1,176) 6,852
- ----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (853) (1,086) (1,997)
Purchase of short term investments - - (9,540)
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (853) (1,086) (11,537)
- ----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from (payments on) notes
receivable from stockholders (50) (25) 50
Exercise of stock options 26 56 213
Net proceeds from initial public offering - - 32,403
Net proceeds from follow-on public offering - - 21,695
Principal payments on notes payable to related parties (20) (16) -
Proceeds from notes payable to bank 124 - -
Principal payments on notes payable to bank (58) (31) (56)
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 22 (16) 54,305
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,515 (2,278) 49,620
Cash and cash equivalents, beginning of years 141 2,656 378
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of years $ 2,656 $ 378 $49,998
- ----------------------------------------------------------------------------------------------------
Schedule of non-cash investing and financing activities:
Tax benefit of disqualifying disposition of stock options $ - $ - $ 108
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements.
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Nature of Business
Sapient Corporation ("Sapient" or the "Company") designs, develops, integrates
and implements information technology applications and solutions for large
organizations. The Company develops client/server and Internet-enabled
client/server software applications designed to help organizations improve their
processes and performance.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and
its wholly-owned subsidiary. All significant intercompany transactions have been
eliminated in consolidation.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash and cash equivalent balances
consist of deposits and repurchase agreements with a large U.S. commercial bank
and tax-exempt short term municipal bonds.
(c) 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.
(d) 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
and accelerated methods over the estimated useful lives of the related assets
which range from three to seven years. Leasehold improvements are amortized over
the shorter of the estimated useful lives of the assets or the lease term.
(e) Revenue Recognition
Revenues pursuant to fixed-fee contracts are generally recognized as services
are rendered on the percentage-of-completion method of accounting (based on the
ratio of costs incurred to total estimated costs). Fixed-fee contracts entered
into before design is completed are accounted for by deferring profit until
reasonable estimates of total contract costs can be made. Revenues from
maintenance agreements are recognized ratably over the terms of the agreements.
Provisions for estimated losses on uncompleted contracts are made on a contract
by contract basis and are recognized in the period in which such losses are
determined. Unbilled revenues on contracts is comprised of earnings on certain
contracts in excess of contractual billings on such contracts. Billings in
excess of earnings are classified as deferred revenues.
(f) Income Taxes
The Company records income taxes using the asset and liability method. Deferred
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 tax bases, operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized as income in the period that includes the enactment date.
(g) 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, such computations include all common and
common equivalent shares issued within twelve months of the initial public
offering ("IPO") as if they were outstanding for all periods presented prior to
the initial public offering using the treasury stock method and the IPO price.
Fully diluted and primary earnings per share are the same for all periods
presented.
<PAGE> 12
(h) 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, short term investments and
accounts receivable.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral on accounts receivable. The Company maintains
allowances for potential credit losses and such losses have been within
management's expectations. Write-offs of accounts receivable have not been
material for any of the periods presented. The Company's customers are
headquartered primarily in North America.
The fair market values of cash and cash equivalents, short term investments,
accounts receivable and debt instruments at both December 31, 1995 and 1996
approximate their carrying amounts.
(i) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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 period.
Actual results could differ from those estimates.
(j) Impairment of Long-Lived Assets
In accordance with Financial Accounting Standards Board Statement No. 121, the
Company records impairment losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
(k) Research and Development Costs
Research and development expenditures are charged to operations as incurred. To
date, substantially all research and development activities of the Company have
been pursuant to customer contracts and, accordingly, have been expensed as
project costs.
<TABLE>
(3) Property and Equipment
The cost and accumulated depreciation and amortization of property and equipment
at December 31, 1995 and 1996 are as follows:
<CAPTION>
(in thousands) 1995 1996
------------------------------------------------------------------
<S> <C> <C>
Leasehold improvements $ 453 $ 548
Furniture and fixtures 240 389
Office equipment 437 952
Computer equipment 940 2,178
Equipment under capital lease 32 32
------------------------------------------------------------------
2,102 4,099
Less accumulated depreciation and amortization (753) (1,842)
------------------------------------------------------------------
Property and equipment, net $1,349 $ 2,257
------------------------------------------------------------------
</TABLE>
(4) Bank Loans
The Company has a $5,000,000 revolving loan facility with a bank which expires
in June 1997. Borrowings under this agreement are secured by the Company's
accounts receivable and bear interest at the bank's prime rate. The Company had
no borrowings under this facility as of December 31, 1995 or 1996. The facility
contains various financial covenants, and a covenant which prohibits the Company
from paying cash dividends without the bank's consent.
The Company had fixed asset term loans at December 31, 1995. All term loans were
payable in 36 monthly installments and bore interest at the bank's prime rate
plus 2 percent. The fixed asset term notes were secured by the equipment
purchased. The Company paid off all term loans during 1996.
Interest paid on all loans in 1994, 1995 and 1996 was $10,264, $27,414, and
$1,221, respectively.
<PAGE> 13
(5) Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1994 1995 1996
-----------------------------------------------------------
<S> <C> <C> <C>
Federal, current $ 971 $ (44) $3,939
State, current 333 2 1,032
-----------------------------------------------------------
1,304 (42) 4,971
Federal, deferred (330) 1,552 (867)
State, deferred (123) 454 (106)
-----------------------------------------------------------
(453) 2,006 (973)
Income tax expense $ 851 $1,964 $3,998
-----------------------------------------------------------
</TABLE>
Income tax expense for the years ended December 31, 1994, 1995 and 1996 differed
from the amounts computed by applying the U.S. statutory tax rate to pre-tax
income as a result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------------------------------------------------
<S> <C> <C> <C>
Statutory income tax rate 34.0% 34.0% 35.0%
State income taxes, net of federal benefit 6.9 6.3 5.7
Tax exempt interest - - (2.6)
Other, net 0.1 0.7 (0.3)
-------------------------------------------------------------------
Effective income tax rate 41.0% 41.0% 37.8%
</TABLE>
At December 31, 1995 and 1996, deferred income tax assets and liabilities
resulted from reporting 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:
<TABLE>
<CAPTION>
(in thousands) 1995 1996
---------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Deferred revenue $- $ 1,736
Allowance for doubtful accounts - 62
Accrual for compensation - 408
Other accruals - 608
Property and equipment - 108
---------------------------------------------------------------------
Total gross deferred tax assets $- $ 2,922
---------------------------------------------------------------------
Deferred tax liabilities:
Deferred taxes relating to the use of cash method of accounting
for tax purposes prior to 1996 $(2,081) $(2,106)
Unbilled revenue - (1,924)
---------------------------------------------------------------------
Total gross deferred tax liabilities $(2,081) $(4,030)
Net deferred income tax liabilities $(2,081) $(1,108)
---------------------------------------------------------------------
</TABLE>
In assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Due to the fact that the Company has sufficient
taxable income in the federal carryback period and anticipates sufficient future
taxable income over the periods in which the deferred tax assets are deductible,
the ultimate realization of deferred tax assets for federal and state tax
purposes appears more likely than not.
Total income tax expense for the years ended December 31, 1994, 1995, and 1996
was allocated as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1995 1996
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes from continuing operations $851 $1,964 $3,998
Stockholders' equity, for compensation expense for tax purposes
<PAGE> 14
in excess of amounts recognized for financial statement purposes -1 -1 (108)
-------------------------------------------------------------------------------------------------------
$851 $1,964 $3,890
</TABLE>
Total income taxes paid in 1994, 1995 and 1996 were $76,000, $226,000 and
$2,836,000, respectively.
(6) Commitments and Contingencies
The Company maintains its executive office in Massachusetts and operating
offices in several locations throughout the United States. The office leases
begin to expire in 1999. The Company also leases office equipment under various
operating leases. Future minimum rental commitments under all noncancelable
operating leases with initial or remaining terms in excess of one year are as
follows at December 31, 1996:
(in thousands)
- --------------
1997 $3,442
1998 $3,532
1999 $2,486
2000 $1,399
2001 $1,439
Thereafter $8,349
Rent expense for the years ended December 31, 1994, 1995 and 1996 was $501,000,
$1,300,000, and $3,034,000, respectively.
The Company has issued letters of credit with a bank in the amount of $975,000,
as security deposits for certain of the Company's lease commitments.
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 obligations resulting from his termination as an employee.
Management denies that it breached any obligations or duties to this former
employee, and believes that the Company has meritorious defenses. In August
1996, the Company's motion to compel arbitration of these claims was allowed.
The Company plans to vigorously contest these claims. Although the Company does
not expect the outcome of this 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) Significant Customers
Three customers accounted for 45 percent, 17 percent and 12 percent,
respectively, of total revenues in 1994 and 61 percent of accounts receivable at
December 31, 1994. Three customers accounted for 16 percent, 16 percent and 13
percent, respectively, of total revenues in 1995 and 26 percent of accounts
receivable at December 31, 1995. Two customers accounted for 21 percent and 16
percent, respectively, of total revenues in 1996 and 11 percent of accounts
receivable at December 31, 1996.
(8) Equity Incentive Plans
The Company has four stock-based compensation plans which are described below.
The Company applies APB Opinion 25 and related interpretations in accounting for
its plans. No compensation cost has been recognized relative to grants under
these plans. Had compensation cost for the awards under those plans been
determined based on the fair values at the grant dates for awards under those
plans consistent with the method required under FASB Statement 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net income (in thousands) As reported $2,830 $6,571
Pro forma $2,815 $5,122
- ----------------------------------------------------------------
Net income per share As reported $ 0.28 $ 0.56
Pro forma $ 0.27 $ 0.44
- ----------------------------------------------------------------
</TABLE>
<PAGE> 15
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively: dividend yield of
0.0 percent for each year, expected volatility of 0.0 percent for the 1992 Plan
options and 104.9 percent for the 1996 Plan options, risk free interest rates
ranging from 5.0 to 5.25 percent for the 1992 Plan options and 5.0 percent for
the 1996 Plan options, and expected lives of 4 years for the 1992 Plan and the
1996 Plan options.
Pro forma net income derived as a result of applying FASB Statement 123 may not
be representative of the effects on reported net income for future years.
(a) 1992 Stock Plan
During 1992, the Company approved the 1992 Stock Plan (the "1992 Plan") for its
employees. The 1992 Plan provided for the Board of Directors to grant stock
options, stock purchase authorizations and stock bonus awards of up to an
aggregate of 2,500,000 shares of non-voting Common Stock. Since consummation of
its initial public offering of Common Stock in 1996, no further grants or awards
may be made pursuant to the 1992 Stock Plan (but previously outstanding awards
remain outstanding which are now exercisable for voting Common Stock).
Most of the stock options granted under the 1992 Plan are intended to qualify as
Incentive Stock Options ("ISO") under Section 422 of the Internal Revenue Code.
The price at which shares may be purchased with an option is specified by the
Board at the date the option is granted, but in the case of an ISO, shall not be
less than the fair market value on the date of grant. The duration of any option
shall be specified by the Board, but no option designated as an ISO may be
exercised beyond ten years from the date of grant. The outstanding stock options
generally become exercisable over a four-year period, are nontransferable, and
expire six 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).
(b) 1996 Equity Stock Incentive Plan
The Company's 1996 Equity Stock Incentive Plan (the "1996 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, and consultants to, the Company. The total number of shares of
Common Stock which may be issued under the 1996 Plan is 2,400,000 shares. 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 date. Non-qualified stock options may be
granted at exercise prices which are above, equal to or below the fair market
value of the Common Stock. The exercise price of shares of Common Stock subject
to options qualifying as Incentive Stock Options may not be less than the fair
market value of the Common Stock on the date of the grant. Stock options granted
under the 1996 Plan are nontransferable, they 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).
(c) Employee Stock Purchase Plan
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") authorizes
the issuance of up to 150,000 shares of Common Stock to participating employees
through a series of semi-annual offerings. The maximum number of shares
available in each offering is 25,000 shares (plus any unpurchased shares
available from previous offerings). An employee becomes eligible to participate
in the Purchase Plan when he or she is regularly employed by the Company 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. The price at which employees may purchase
Common Stock in an offering is 85 percent of the closing price of the Common
Stock on the Nasdaq National Market on the day the offering commences or on the
day the offering terminates, whichever is lower. Approximately 70 percent of
eligible employees participated in the first offering under the Purchase Plan,
which terminated on December 31, 1996, in which the Company sold 16,915 shares
of Common Stock. Pro forma compensation cost is recognized for the fair value of
the employees' purchase rights, which was estimated using the Black-Scholes
model with the following assumptions: dividend yield of 0.0 percent, expected
volatility of 67.5 percent, risk free interest rate of 5.0 percent and expected
life of 6 months.
(d) 1996 Directors Stock Option Plan
<PAGE> 16
The Company's 1996 Directors Stock Option Plan (the "Directors Plan") authorizes
the issuance of up to 30,000 shares of Common Stock. Each non-employee director
elected to the Board of Directors after the adoption of the Directors Plan will,
upon his or her election, automatically be granted an option to purchase 5,000
shares of Common Stock at an exercise price equal to the fair market value of
the stock on the date of grant. Options 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, 1996, no options had been granted under the Directors Plan.
A summary of the status of the Company's two fixed stock option plans as of
December 31, 1995 and 1996 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
(in thousands, except per share data) 1995 1996
- --------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Fixed Options Shares Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,426 $0.56 1,509 $ 1.51
Granted 439 $3.88 533 $26.36
Exercised (283) $0.15 (466) $ 0.50
Forfeited (73) $1.93 (85) $ 6.82
Outstanding at end of year 1,509 $1.51 1,491 $10.27
- --------------------------------------------------------------------------------------------
Options exercisable at year end 464 361 -
- --------------------------------------------------------------------------------------------
Weighted average fair value of
options granted during the year $ 0.20 $14.31
- --------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted
Number Average Average Number Weighted Average
Outstanding Remaining Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/96 Contractual Life Price at 12/31/96 Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.03 to $5.00 982,000 3.65 years $ 1.93 361 $0.49
$5.01 to $14.00 252,000 5.99 $11.48
$14.01 to $40.00 56,000 10.00 $35.37
$40.01 to $55.00 201,000 10.00 $42.49
$.03 to $55.00 1,491,000 4.45 $10.27 361 $0.49
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(9) Retirement Plan
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 in 1994, 1995 and 1996 were $18,700, $94,200 and $236,904,
respectively.
(10) Public Offerings
The Company completed its initial public offering (IPO) of Common Stock on April
10, 1996. The IPO resulted in the issuance of 1,695,000 shares of Common Stock.
Proceeds to the Company, net of underwriting discounts and costs of the
offering, were approximately $32.4 million.
The Company completed a follow-on offering of Common Stock on October 29, 1996
which resulted in the issuance of 500,000 shares of Common Stock. Proceeds to
the Company, net of underwriting discounts and costs of the offering, were
approximately $21.7 million.
(11) Capital Stock
(a) Increase in Authorized Common Stock; Conversion of Non-Voting Common Stock
<PAGE> 17
On February 13, 1996, the Company's Board of Directors authorized an increase in
the authorized number of shares of voting Common Stock to 30,000,000 and
non-voting Common Stock to 10,000,000 and provided that, upon the closing of an
IPO, all shares of non-voting Common Stock then outstanding would be converted
automatically into an equal number of shares of voting Common Stock and the
authorized capitalization of the Company will consist of 40,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
(b) Preferred Stock
On February 13, 1996, the Board of Directors authorized an amendment to the
Company's Certificate of Incorporation giving the Board the authority to issue
up to 5,000,000 shares, $.01 par value per share, of Preferred Stock with terms
to be established by the Board at the time of issuance.
<PAGE> 1
EXHIBIT 23
AUDITOR'S CONSENT
The Board of Directors
Sapient Corporation
We consent to incorporation by reference in the registration statements (Nos.
333-07563, 333-07565, 333-07561 and 333-05155) on Form S-8 of Sapient
Corporation of our report dated January 28, 1997, relating to the consolidated
balance sheets of Sapient Corporation and subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1996, and all related schedules, which report appears in the December 31, 1996
annual report on Form 10-K of Sapient Corporation.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<EXCHANGE-RATE> 1 1
<CASH> $49,997,905 $49,997,905
<SECURITIES> 9,540,498 9,540,498
<RECEIVABLES> 15,911,388 15,911,388
<ALLOWANCES> 150,000 150,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 76,239,211 76,239,211
<PP&E> 4,098,881 4,098,881
<DEPRECIATION> 1,842,246 1,842,246
<TOTAL-ASSETS> 78,556,933 78,556,933
<CURRENT-LIABILITIES> 10,256,250 10,256,250
<BONDS> 0 0
0 0
0 0
<COMMON> 114,555 114,555
<OTHER-SE> 66,135,473 66,135,473
<TOTAL-LIABILITY-AND-EQUITY> 78,556,933 78,556,933
<SALES> 0 0
<TOTAL-REVENUES> 13,451,095 44,579,504
<CGS> 0 0
<TOTAL-COSTS> 10,755,824 35,102,204
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 465,621 1,091,409
<INCOME-PRETAX> 3,160,892 10,568,709
<INCOME-TAX> 1,112,757 3,997,336
<INCOME-CONTINUING> 2,048,135 6,571,373
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,048,135 6,571,373
<EPS-PRIMARY> .16 .56
<EPS-DILUTED> .16 .56
</TABLE>
