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Sapient Announces Third Quarter Financial Results; Results Exceed Analyst Consensus Expectations.

Business Editors/High-Tech Writers

CAMBRIDGE, Mass.--(BUSINESS WIRE)--Oct. 24, 2002

Sapient (NASDAQ: SAPE), a leading business and technology consultancy, today announced financial results for its third quarter ended September 30, 2002. For the three months ended September 30, 2002, consolidated service revenues were $43.6 million, an eight percent increase from service revenues of $40.5 million for the second quarter of 2002 and a 38 percent decrease from the third quarter of 2001. Gross revenues were $45.5 million for the three months ended September 30, 2002, which included $1.9 million of reimbursable expenses. Below are results stated in both pro forma and GAAP formats.

Pro forma net loss (excluding amortization of intangibles, stock-based compensation charges, restructuring charges and credits, impairment of goodwill and intangible assets and other non-recurring items, along with the associated tax effects) was $12.1 million, or $0.10 per diluted share, for the third quarter of 2002. This compared to pro forma net loss of $21.4 million, or $0.17 per diluted share for the second quarter of 2002, and $25.0 million, or $0.20 per diluted share, for the third quarter of 2001.

These results exceed guidance Sapient's management set on the second quarter earnings call and analyst consensus. Sapient guided to net revenue of $41 million to $42 million and pro forma net loss of $0.12 to $0.13 per share. Analyst consensus estimates for this quarter's net revenue, according to I/B/E/S, was $41 million and pro forma net loss of $0.12 per share. For the third quarter, Sapient guided to a cash balance of $185 million, excluding potential stock buy-back. The company's third quarter cash balance is $191 million, net of $5 million used to purchase 5.4 million shares under the company's share repurchase program.

Net loss for the third quarter on a GAAP basis (which includes the charges, credits and associated tax effects listed above) totaled $10.8 million, or $0.09 per diluted share. This compared to net loss on a GAAP basis of $139.7 million, or $1.10 per diluted share, for the second quarter of 2002 and $94.7 million, or $0.76 per diluted share, for the third quarter of 2001. The third quarter 2002 GAAP net loss includes a $3.6 million restructuring credit for reserves recorded in prior quarters. The credit is a result of outplacement service and facility cost savings, net of a restructuring charge in connection with the closure of the company's Tokyo office at the end of this year.

For the nine months ended September 30, 2002, consolidated service revenues were $134.1 million, a 50 percent decrease from the first nine months of 2001. Pro forma net loss for the first nine months of 2002 was $36.9 million, or $0.29 per diluted share, compared to pro forma net loss of $39.5 million, or $0.32 per diluted share, for the comparable prior year period.

Net loss on a GAAP basis for the nine months ended September 30, 2002 was $204.5 million, or $1.62 per diluted share, compared to net loss on a GAAP basis of $160.3 million, or $1.30 per diluted share, for the first nine months of 2001.

"We are pleased to see sequential growth in the third quarter. It's clear that our clients continue to see advantage in Sapient's unique value proposition," said Jerry A. Greenberg, Sapient's co-chairman and co-chief executive officer. "The growth in revenue combined with disciplined cost management has produced bottom line results that exceed expectations, and the balance sheet remains strong. While market visibility is still unclear, Sapient is well-positioned to weather further downturns or to capitalize on the opportunities that an economic recovery would bring."

Recent highlights
-- Sapient won assignments with many new and existing clients, including Star Alliance, Motorola, UPS, Wells Fargo Bank, Deutsche Telekom, Pfizer, Verizon, British Petroleum, Volkswagen, General Motors Acceptance Corp., Blue Cross/Blue Shield, Janus, ERGO, Harvard University, Rock-Tenn and Bridgeline.

-- Engagements on which Sapient is currently working or has recently delivered work include the following:

-- Sapient is helping Wells Fargo Bank develop a strategy and design for a messaging platform that will provide online customers with time-sensitive information about their finances and accounts.

-- Sapient worked with Blue Cross/Blue Shield on several advanced technology implementations, including an application that facilitates HIPAA compliance.

-- Sapient worked with T-Mobile and T-Online to develop and implement a PDA portal for the German market that provides access to a broad range of premium content.

-- In ongoing work for the UK government's eEnvoy Office, Sapient is delivering an enterprise content management solution to serve multiple government departments.

-- Sapient has re-engaged with Staples to help the retailer extend its global presence with the development of a flexible technology infrastructure that can support commerce in multiple-language environments.

-- For National Savings & Investments (NS&I), a UK government organization that seeks to reduce the cost of government borrowing through offering savings and investments products directly to the public, Sapient worked to document and define best practices to help NS&I plan future customer registration, identification, authorization processes, and single sign-on technologies to enable greater use of low-cost channels.

-- Sapient is partnering with Bowne & Co. to review its current service delivery platform in order to expand the company's product offerings.

-- Sapient announced it has formed an alliance with x.eye incorporated, the leading provider of integrated client relationship software for wealth management, to deploy the first global advisor desktop platforms using a fixed-time, fixed-price delivery model. Sapient also announced it has been named a member of the Microsoft BizTalk Server Partner Program and that it has formed an alliance with Plumtree Software, the industry leader in corporate portal software, to deliver corporate portal solutions to Global 2000 companies.

-- Sapient's Advanced Technology team developed and released a new product called Management Console for Java, or MC4J, to the open source community. MC4J enables easy graphical monitoring and maintenance of Java applications written to Java Management Extensions, the emerging industry standard. The company's Advanced Technology team also selected IBM as the new sponsor of Sapient's Enterprise Java Scalability Lab.


Stock Repurchase Plan

Sapient's board of directors has authorized a stock repurchase program of up to $20 million over the next year. The program is effective immediately.

Purchases under Sapient's stock repurchase program may be made from time-to-time in the open market through block trades or otherwise, depending on market conditions and other factors, without prior notice. As of October 23, 2002, Sapient has approximately 122 million shares outstanding.

Pro Forma Results

Pro forma results, which generally exclude non-operational, non-cash charges and benefits as well as one-time charges, are provided as a complement to results provided in accordance with accounting principles generally accepted in the United States (known as "GAAP"). Sapient management uses such pro forma measures internally to evaluate the company's performance and manage its operations. A further explanation of items excluded from these pro forma measures and a reconciliation of GAAP to pro forma are included in the attached financial statements.

Forward-Looking Statements

This press release contains forward-looking statements that involve a number of risks and uncertainties. There are a number of factors that could cause actual events to differ materially from those indicated. Such factors include, without limitation, the Company's ability to continue to attract and retain high quality employees, accurately set fees for and timely complete its current and future client projects, the continued acceptance of the Company's services, the ability of the Company to manage its growth and projects effectively, and the other factors set forth in the Company's most recent Form 10-K and quarterly Form 10-Q, as filed with the SEC.

Conference Call

Sapient will host a discussion of the third quarter results in a conference call today at 4:30 p.m. (ET), which will be broadcast live on the Internet. For webcast registration information, please go to http://www.sapient.com/earnings.htm. It is advisable to register at least 15 minutes prior to the call to download and install any necessary audio software. A re-broadcast of the call will be available from October 24 at 7:30 p.m. (ET) through November 1 at 11:59 p.m. (ET) by dialing (800) 642-1687 (within the U.S.) or (706) 645-9291 (outside the U.S.) and entering passcode 5848203 when prompted.

About Sapient

Sapient, a leading business and technology consultancy, helps Global 2000 clients achieve measurable business results through the rapid application and support of advanced technology on a fixed-price basis. Founded in 1991, Sapient employs more than 1,500 people in offices in Atlanta, Cambridge (Mass.), Chicago, Dallas, Dusseldorf, London, Los Angeles, Milan, Munich, New Delhi, New York, San Francisco, Toronto and Washington, D.C. More information about Sapient can be found at www.sapient.com.

Sapient is a registered servicemark of Sapient Corporation. MC4J is a trademark of Sapient Corporation. All other product, service and company names are trademarks or servicemarks of their respective owners.

Consolidated Balance Sheets
(In thousands) September 30, December 31,
(Unaudited) 2002 2001

Assets
Current Assets:
Cash and short term investments $190,555 $244,537
Accounts receivable, net 29,051 37,036
Unbilled revenues on contracts 11,439 11,289
Prepaid expenses and other current
 assets 10,553 19,218
 Total current assets 241,598 312,080

Net fixed assets and other assets 41,459 49,646
Net intangible assets 1,984 113,144
 --------------- ---------------
 43,443 162,790

 Total assets $285,041 $474,870

Liabilities and stockholders' equity

Current Liabilities:
Accounts payable and accrued expenses $26,788 $26,061
Accrued restructuring costs 29,978 17,829
Income taxes payable 411 907
Deferred revenues on contracts 3,981 9,465
 Total current liabilities 61,158 54,262
Accrued restructuring costs 42,544 35,511
Other long term liabilities 3,844 3,883
 --------------- ---------------
 107,546 93,656

Minority interest in consolidated
 subsidiary 102 444

Stockholders' equity 177,393 380,770

 Total liabilities and stockholders'
 equity $285,041 $474,870



Consolidated Statements of Operations
(In thousands) Three months ended Nine months ended
(Unaudited) September 30, September 30,
 2002 2001 2002 2001
Revenues:
 Service revenues $43,600 $69,980 $134,103 $266,407
 Reimbursable expenses 1,893 4,471 6,621 16,333
 Total gross revenues 45,493 74,451 140,724 282,740
Operating Expenses:
 Project personnel costs 32,180 51,510 108,188 189,497
 Reimbursable expenses 1,893 4,471 6,621 16,333
 Total project personnel
 costs 34,073 55,981 114,809 205,830
 Selling and marketing
 costs 6,535 5,948 20,439 21,841
 General and administrative
 costs 18,255 29,352 64,962 103,611
 Restructuring and other
 related charges (credits) (3,607) 42,608 54,906 93,420
 Impairment charges 0 0 107,430 0
 Stock-based compensation 1,358 939 2,697 3,749
 Amortization of intangible
 assets 598 7,504 3,730 20,690

Total operating expenses 57,212 142,332 368,973 449,141
 Loss from operations (11,719) (67,881) (228,249) (166,401)

Other income (expense) (246) (131) 1,513 (3,420)
Interest income 977 2,315 3,397 8,011
 Loss before income taxes,
 net equity income (loss)
 from investees and minority
 interest (10,988) (65,697) (223,339) (161,810)
Income tax expense
 (benefit) 174 29,030 (18,833) (1,726)
 Loss before net equity
 income (loss) from
 investees and minority
 interest (11,162) (94,727) (204,506) (160,084)
Net equity income (loss)
 from investees 162 (113) (373) (464)
Minority interest in
 consolidated subsidiary 163 189 342 274
 Net loss $(10,837) $(94,651) $(204,537) $(160,274)

Basic net loss per share $(0.09) $(0.76) $(1.62) $(1.30)
Diluted net loss per share $(0.09) $(0.76) $(1.62) $(1.30)

Weighted average common
 shares 124,614 125,346 125,960 123,541
Weighted average common
 share equivalents 0 0 0 0
Weighted average common
 shares and common share
 equivalents 124,614 125,346 125,960 123,541

Pro forma Data:
Loss before income taxes,
 net equity income (loss)
 from investees and minority
 interest (10,988) (65,697) (223,339) (161,810)
Net equity income (loss)
 from investees, net of
 restructuring charges 162 (113) 28 (464)
Minority interest in
 consolidated subsidiary 163 189 342 274
Restructuring and other
 related charges (credits) (3,607) 42,608 54,906 93,420
Impairment charges 0 0 107,430 0
Investment revaluation 246 131 (1,513) 3,420
Non-cash & merger-related
 charges 1,956 8,443 6,427 24,439

Pro forma loss before taxes (12,068) (14,439) (55,719) (40,721)
Impact of tax legislation
 change, tax carry-back 0 0 (17,217) 0
Impact of income tax
 valuation allowance 0 16,240 0 16,240
Pro forma tax expense
 (benefit), excluding
 valuation allowance 37 (5,683) (1,630) (17,510)

Pro forma net loss $(12,105) $(24,996) $(36,872) $(39,451)

Pro forma basic net loss per
 share $(0.10) $(0.20) $(0.29) $(0.32)
Pro forma diluted net loss
 per share $(0.10) $(0.20) $(0.29) $(0.32)

Weighted average common
 shares 124,614 125,346 125,960 123,541
Weighted average common
 share equivalents 0 0 0 0
Weighted average common shares
 and common share equivalents 124,614 125,346 125,960 123,541
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