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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): AUGUST 25, 1998
SAPIENT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
0-28074 04-3130648
(Commission File Number) (I.R.S. Employer Identification No.)
One Memorial Drive
Cambridge, MA 02142
(Address of Principal Executive Offices) (Zip Code)
(617) 621-0200
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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Item 7 of the Current Report on Form 8-K, as originally filed on August 31, 1998
and amended on November 4, 1998, is hereby amended and restated in its entirety
as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The financial statements of Studio Archetype, Inc. required by this item
are included as Exhibit 99.1 to this Current Report on Form 8-K and incorporated
herein by reference.
(b) PRO FORMA FINANCIAL INFORMATION.
The amended and restated pro forma financial information required by this
item is included as Exhibit 99.2 to this Current Report on Form 8-K and
incorporated herein by reference.
(c) EXHIBITS.
See Exhibit Index attached hereto.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: February 23, 1999 SAPIENT CORPORATION
----------------------------
(Registrant)
By: /s/ Susan D. Johnson
------------------------
Susan D. Johnson
Chief Financial Officer
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EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
2* Stock Purchase Agreement, dated as of August 25, 1998, by and
among Sapient Corporation, Studio Archetype, Inc., Clement Mok,
Mark Crumpacker, Peter Rack, Eric Wilson and Todd Holcomb and
Clement Mok as Exchange Agent. (In accordance with SEC rules,
certain schedules and exhibits to the Agreement, which are listed
in the table of contents to the Agreement, are omitted. Such
schedules and exhibits will be furnished supplementally to the
SEC upon request.)
23.1* Consent of PricewaterhouseCoopers LLP.
99.1* Financial Statements of Studio Archetype, Inc.
99.2 Pro Forma Financial Information
- ------------
* Previously Filed.
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EXHIBIT 99.2
In August 1998, Sapient Corporation ("Sapient" or "the Company") acquired Studio
Archetype, Inc. ("Studio") for approximately $25.3 million in stock and cash,
including direct acquisition costs of approximately $2.3 million. The
acquisition was accounted for as a purchase and accordingly, the purchase price
was allocated to the assets acquired and the liabilities assumed based on their
respective fair values.
The unaudited Pro Forma Condensed Consolidated Statements of Operations (the
"Pro Forma Statements of Operations") for the year ended December 31, 1997 and
the six months ended June 30, 1998 give effect to the acquisition of Studio as
if it had occurred on January 1, 1997. The Pro Forma Statements of Operations
are based on the historical results of operations of the Company and Studio for
the year ended December 31, 1997 and the six months ended June 30, 1998. The
unaudited Pro Forma Condensed Consolidated Balance Sheet ("Pro Forma Balance
Sheet") give effect to the acquisition of Studio as if it had acquired on June
30, 1998. The Pro Forma Statements of Operations and the Pro Forma Balance Sheet
(the "Pro Forma Financial Information") and the accompanying notes thereto
should be read in conjunction with and are qualified by the historical
consolidated financial statements of the Company and notes thereto.
The Pro Forma Financial Information is intended for informational purposes only
and is not necessarily indicative of the future financial position or future
results of operations of the combined company after the acquisition of Studio,
or of the financial position or results of operations of the combined company
that would have actually occurred had the acquisition of Studio been effected on
January 1, 1997.
In connection with the acquisition of Studio in the third quarter of 1998,
Sapient allocated $14.8 million of the purchase price to in-process research and
development projects. Although the Company reported its third quarter results of
1998 in accordance with established accounting practices and valuation
methodologies for acquired in-process research and development, the Company has
taken the initiative to conform its accounting for acquisition-related
in-process research and development charges related to the acquisition of Studio
to recent Securities and Exchange Commission ("SEC") interpretive guidance. This
resulting adjustment decreased the amount previously allocated to in-process
technology by $3.7 million, which has been capitalized as goodwill and will be
amortized on a straight line basis over seven years, and decreased the income
tax benefit and the corresponding deferred tax asset by $1,357,900. As a result
of this restatement, in the third quarter of 1998, the Company allocated $11.1
million to in-process technology and recorded a corresponding income tax benefit
of $4.2 million. This allocation represents the estimated fair value based on
risk-adjusted cash flows related to the incomplete projects. At the date of
acquisition, the development of these projects had not yet reached technological
feasibility and the research and development ("R&D") in progress had no
alternative future uses. Accordingly, these costs were expensed as of the
acquisition date.
The Company engaged independent third-party appraisers to assess and allocate
values to the in-process research and development by identifying significant
research projects for which technological feasibility had not been established,
including development, engineering and testing activities associated with the
introduction of Studio's next-generation enterprise-wide suite of development,
scheduling, bug tracking and content management applications.
The value assigned to purchased in-process technology was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value. The revenue
projection used to value the in-process research and development is based on
estimates of relevant market sizes and growth factors, expected trends in
technology and the nature and expected timing of new product introductions by
Studio and its competitors. The estimated revenues for the projects are expected
to be realized over a six year period through 2004 when other new products are
expected to enter the market. Studio's projected revenues are dependent upon
successful introduction of the in-process projects.
The nature of the efforts to develop the acquired in-process technology into
commercially viable products and services principally relate to the completion
of all planning, designing, prototyping, verification, and testing activities
that are necessary to establish that the proposed technologies meet their design
specifications including functional, technical, and economic performance
requirements. The efforts to develop the purchased in-process technology also
include testing of the technology for compatability and interoperability with
other applications. Expenditures on these projects to date have been
approximately $2.5 million, and estimated
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costs to complete these projects are expected to total approximately $625,000 in
aggregate through 2001. These estimates are subject to change, given the
uncertainties of the development process, and no assurance can be given that
deviations from these estimates will not occur.
The rates utilized to discount the net cash flows to their present value are
based on venture capital rates of return. Due to the nature of the forecast and
the risks associated with the projected growth, profitability and developmental
projects, discount rates of 25.0 to 30.0 percent were utilized for the business
enterprise and for the in-process R&D. The Company believes that these discount
rates are commensurate with Studio's stage of development; the uncertainties in
the economic estimates described above; the inherent uncertainty surrounding the
successful development of the purchased in-process technology; the useful life
of such technology; the profitability levels of such technology; and, the
uncertainty of technological advances that are unknown at this time.
The forecasts used by Sapient in valuing in-process R&D were based upon
assumptions that Sapient believes to be reasonable but which are inherently
uncertain and unpredictable. Sapient's assumptions may be incomplete or
inaccurate, and unanticipated events and circumstances are likely to occur. For
these reasons, actual results may materially vary from the assumed results and
could have a material adverse effect on the Company's business, results of
operations and financial condition.
Sapient believes that the assumptions used in the forecasts were reasonable at
the time of the acquisition. No assurance can be given, however, that the
underlying assumptions used to estimate expected project sales, development
costs or profitability, or the events associated with such projects, will
transpire as estimated. For these reasons, actual results may vary from the
assumed results and there is no assurance that any will meet with either
technological or commercial success.
Sapient expects to continue its support of these efforts and believes Studio has
a reasonable chance of successfully completing the R&D programs. However, there
is risk associated with the completion of the projects and there is no assurance
that any will meet with either technological or commercial success.
If these projects are not successfully developed, the sales and profitability of
Studio may be adversely affected in future periods. Additionally, the value of
the other intangible assets acquired may become impaired. Studio expects to
benefit from the purchased in-process technology beginning in 1999.
Other intangible assets of $13.3 million is comprised of $3.8 million for
marketing assets, $1.6 million for assembled work force and approximately $7.9
million of other goodwill type assets comprising the reputation of Studio which
have estimated useful lives of approximately 7 years. However, there are no
assurances that the value of these intangible assets acquired will not become
impaired.
2
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SAPIENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SAPIENT STUDIO PRO FORMA
CORPORATION ARCHETYPE, INC. ADJUSTMENTS PRO FORMA
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ................ $ 68,262 $ 453 $ (250)(a) $ 68,465
Short term investments ................... 16,853 133 (133)(c) 16,853
Accounts receivable, less allowance for
doubtful accounts ..................... 22,005 2,638 24,643
Unbilled revenues on contracts ........... 17,647 141 17,788
Other current assets ..................... 2,394 12 2,406
Deferred income taxes .................... 35 35
-------- -------- -------- --------
Current assets .................... 127,196 3,377 (383) 130,190
Property and equipment, net ................ 7,659 2,168 9,827
Goodwill and other intangibles.............. 13,363 (b) 13,363
Deferred taxes.............................. 4,266 (b) 4,266
Other assets ............................... 260 212 (36)(d) 436
-------- -------- -------- --------
Total assets ...................... $135,115 $ 5,757 $ 17,210 $158,082
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Accounts payable ......................... 1,302 1,302
Accrued expenses ......................... 1,533 478 2,335 (a) 4,346
Accrued compensation ..................... 3,345 700 4,045
Accrued income taxes payable ............. 2,091 2,091
Debt and lease obligations, current ...... 1,024 1,024
Deferred revenues on contracts ........... 4,735 391 5,126
-------- -------- -------- --------
Total current liabilities ......... 11,704 3,895 2,335 17,934
Deferred income taxes .................... 121 121
Long term debt ........................... 957 941 1,898
Other long term liabilities ..............
-------- -------- -------- --------
Total liabilities ................. 12,782 4,836 2,335 19,953
Common Stock ............................. 252 282 5 (a)
(282)(b) 257
Additional paid-in capital ............... 88,487 22,794 (a) 111,281
Retained earnings ........................ 33,594 514 (514)(b) 26,591
(6,834)(b)
(133)(c)
(36)(d)
Unrealized gain on marketable securities . 125 (125)(b)
-------- -------- -------- --------
Total stockholders' equity ............... $122,333 $ 921 $ 14,875 $138,129
======== ======== ======== ========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $135,115 $ 5,757 17,210 $158,082
======== ======== ======== ========
</TABLE>
(a) The pro forma adjustment reflects Sapient's purchase of 100% of the
outstanding common stock of Studio Archetype, Inc. (Studio)
Cash paid by Sapient................................... 250
Restricted Common Stock issued......................... 22,800
Direct Transaction Costs............................... 2,335
Investment in Studio Archetype......................... 25,385
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(b) The pro forma adjustment reflects adjustments and the allocation of the
purchase price paid to the assets acquired and liabilities assumed based on
their respective fair values and to eliminate the equity of Studio.
Fair value of identifiable tangible assets and liabilities...... 921
Purchased in process research and development, net of tax....... 6,834
Deferred tax benefit resulting from in-process R&D.............. 4,266
Goodwill and other intangibles.................................. 13,364
Investment in Studio Archetype.................................. 25,385
(c) Sale of marketable securities and distribution to shareholders.
(d) Distributions of other assets to shareholders.
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SAPIENT CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SAPIENT STUDIO PRO FORMA COMBINED
CORPORATION ARCHETYPE, INC. ADJUSTMENTS PRO FORMA
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES............................................ $ 66,080 $ 7,685 $ $73,765
COSTS AND EXPENSES:
Project personnel costs........................... 31,679 3,596 35,275
Selling and marketing............................. 4,446 1,062 5,508
General and administrative........................ 16,488 2,912 954 (a) 20,354
--------- ------- ------- -------
Total Operating Expenses........................ $ 52,613 $ 7,570 954 $61,137
--------- ------- ------- -------
OPERATING INCOME.................................... 13,467 115 (954) 12,628
INTEREST INCOME (EXPENSE)........................... 1,280 (87) (4)(b) 1,189
OTHER INCOME (GAIN ON SALE OF INVESTMENTS).......... 346 346
--------- ------- ------- -------
INCOME BEFORE INCOME TAXES.......................... 14,747 374 (958) 14,163
INCOME TAX EXPENSE.................................. 5,433 (364)(c) 5,211
142 (d)
--------- ------- ------- -------
NET INCOME.......................................... $ 9,314 $ 374 $ (736) $ 8,952
========= ======= ======= =======
NET INCOME PER SHARE:
Basic............................................. .38 .35
Diluted........................................... .34 .32
========= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic............................................. 24,740 498 25,238
Diluted........................................... 27,539 498 28,037
========= ======= =======
</TABLE>
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(a) Increase in amortization resulting from goodwill and other intangibles.
(b) Lost interest due to use of cash in acquisition.
(c) Tax benefit of above entries.
(d) Pro-forma tax expense on S Corporation earnings of Studio Archetype.
Does not include an in-process R&D charge of $6,834 net of a deferred tax
benefit of $4,266, which will be reflected in the combined company's third
quarter results.
5
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SAPIENT CORPORATION
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SAPIENT STUDIO PRO FORMA COMBINED
CORPORATION ARCHETYPE, INC. ADJUSTMENTS PRO FORMA
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES.......................................................... $ 90,360 $ 10,365 $ $ 100,725
COSTS AND EXPENSES:
Project personnel costs......................................... 43,816 4,593 48,409
Selling and marketing........................................... 5,893 1,016 6,909
General and administrative...................................... 22,108 4,328 1,908 (a) 28,344
Acquisition Costs............................................... 560 560
--------- --------- --------- ----------
Total Operating Expenses...................................... $ 72,377 $ 9,937 1,908 $ 84,222
--------- --------- --------- ----------
OPERATING INCOME (LOSS)........................................... 17,983 428 (1,908) 16,503
INTEREST INCOME (EXPENSE)......................................... 2,078 (120) (9)(b) 1,949
OTHER INCOME (GAIN ON SALE OF INVESTMENTS)........................ 642 642
--------- --------- --------- ----------
INCOME BEFORE TAXES............................................... 20,061 950 (1,917) 19,094
INCOME TAX EXPENSE................................................ 7,703 -- (728)(c) 7,336
361 (d)
--------- --------- --------- ----------
NET INCOME........................................................ $ 12,358 $ 950 $ (1,550) $ 11,758
========= ========= ========= ==========
NET INCOME PER SHARE:
Basic........................................................... .52 .48
Diluted......................................................... .47 .44
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic........................................................... 23,996 498 24,494
Diluted......................................................... 26,079 498 26,577
========= ========= ==========
</TABLE>
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(a) Increase in amortization resulting from goodwill and other intangibles.
(b) Lost interest due to use of cash in acquisition.
(c) Tax benefit of above entries.
(d) Pro-forma tax expense on S Corporation earnings of Studio Archetype.
Does not include an in-process R&D charge of $6,834 net of a deferred tax
benefit of $4,266, which will be reflected in the combined company's third
quarter results.
6
