-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JrA16WkU/Yj3Hrz3UDvN2knaXc6CLShOQ1ASHi8GyN9HUZqRjbG51lvSR9u8D8FP 3hNGuQ8xoNmP08BNCWJbtw== 0000950124-00-003150.txt : 20000516 0000950124-00-003150.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950124-00-003150 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNTEL INC CENTRAL INDEX KEY: 0001040426 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 382312018 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22903 FILM NUMBER: 630650 BUSINESS ADDRESS: STREET 1: 2800 LIVERNOIS RD STREET 2: SUITE 400 CITY: TROY STATE: MI ZIP: 48043 BUSINESS PHONE: 2486192800 MAIL ADDRESS: STREET 1: 2800 LIVERNOID RD STREET 2: SUITE 400 CITY: TROY STATE: MI ZIP: 48043 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000 or ---------------- [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------------- -------------- Commission file number 0-22903 ----------- Syntel, Inc. ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Michigan 38-2312018 - ------------------------------- ------------------- (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 2800 Livernois Road, Suite 400, Troy, Michigan 48083 - ---------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (248) 619-2800 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) 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 ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value: 38,367,439 shares issued and outstanding as of May 2, 2000. 2 SYNTEL, INC. INDEX Page ---- Part I Financial Information Item 1 Financial Statements 3 Item 2 Management's Discussion and Analysis of 8 Financial Condition and Results of Operation Part II Other Information 11 Signatures 12 Index to Exhibits 13 2 3 SYNTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
3 MONTHS ENDED MARCH 31 ----------------- 2000 1999 ------- ------- Revenues $40,506 $38,797 Cost of revenues 25,513 23,942 ------- ------- Gross profit 14,993 14,855 Selling, general and administrative expenses 8,993 7,245 ------- ------- Income from operations 6,000 7,610 Other income, principally interest 780 532 ------- ------- Income before income taxes 6,780 8,142 Income taxes 1,628 2,708 ------- ------- Net income $ 5,152 $ 5,434 ======= ======= EARNINGS PER SHARE Basic $ 0.13 $ 0.14 Diluted $ 0.13 $ 0.14 Weighted average common shares Outstanding - diluted 40,168 38,886 ======= =======
The accompanying notes are an integral part of the consolidated financial statements. 3 4 SYNTEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
MARCH 31, DECEMBER 31, 2000 1999 -------- ------------ ASSETS Current assets: Cash and cash equivalents $ 64,243 $ 63,611 Accounts receivable, net 24,239 23,800 Advanced billings and other current assets 8,558 9,522 -------- -------- Total current assets 97,040 96,933 Property and equipment 16,874 15,812 Less accumulated depreciation 10,075 9,390 -------- -------- Property and equipment, net 6,799 6,422 Goodwill, net of amortization 18,863 19,113 -------- -------- $122,702 $122,468 ======== ======== LIABILITIES Current liabilities: Line of credit, bank Accrued payroll and related costs $ 10,709 $ 12,748 Accounts payable and other current liabilities 11,973 14,853 Deferred revenue 4,105 4,506 -------- -------- Total current liabilities 26,787 32,107 SHAREHOLDERS' EQUITY Total shareholders' equity 95,915 90,361 -------- -------- Total liabilities and shareholders' equity $122,702 $122,468 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 5 SYNTEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31 ---------------------- 2000 1999 -------- -------- Cash flows from operating activities: Net income $ 5,152 $ 5,434 -------- -------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 604 533 Goodwill amortization 331 0 Deferred income taxes 0 (44) Compensation expense related to stock options 30 14 Changes in assets and liabilities: Accounts receivable, net (439) 1,282 Advance billing and other assets 964 23 Accrued payroll and other liabilities (4,919) (1,615) Deferred revenues (401) (3,390) -------- -------- Net cash provided by operating activities 1,322 2,237 Cash flows used in investing activities, property and equipment expenditures (1,062) (418) Cash flows provided by (used in) financing activities: Net proceeds from issuance of stock 415 24 Common stock repurchases (14) (590) -------- -------- Net cash provided by (used in) financing activities 401 (566) Effect of foreign currency exchange rate changes on cash (29) (25) -------- -------- Net increase in cash and cash equivalents 632 1,228 Cash and cash equivalents, beginning of period $ 63,611 $ 64,660 ======== ======== Cash and cash equivalents, end of period $ 64,243 $ 65,888 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 SYNTEL, INC. AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION: The accompanying condensed consolidated financial statements of Syntel, Inc. (the "Company") have been prepared by management, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited, condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of Syntel, Inc. and it's subsidiaries as of March 31, 2000, the results of its operations for the three month period ended March 31, 2000 and March 31, 1999, and cash flows for the three months ended March 31, 2000 and March 31, 1999. The year end condensed balance sheet as of December 31, 1999 was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10K for the year ended December 31, 1999. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. 2. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION The condensed consolidated financial statements include all the accounts of the Company and its wholly owned subsidiaries; Syntel Software Private Limited ("Syntel India"), an Indian limited liability company, Syntel (Singapore) PTE, Ltd. ("Syntel Singapore"), a Singapore limited liability company, and Syntel Europe Ltd. ("Syntel Europe"), a United Kingdom limited liability company. All intercompany accounts and transactions have been eliminated. 3. PRO FORMA FINANCIAL INFORMATION On September 22, 1999 the Company executed a purchase agreement with Metier, Inc. to acquire substantially all of the assets and business of Metier. The effective date of the acquisition was July 1, 1999. The unaudited consolidated results of operations on a pro forma basis are presented below, for the three month period ended March 31, 1999, as though Metier had been acquired as of January 1, 1999:
Three months ended March 31, 1999 ------------------ Revenue 45,825 Net income 5,485 Earnings per share (diluted) $ 0.14
4. CASH EQUIVALENTS For the purpose of reporting cash and cash equivalents, the Company considers all liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are principally triple A rated corporate bonds and treasury notes held by a bank with maturity dates of less than ninety 6 7 days. 5. COMPREHENSIVE INCOME Total Comprehensive Income for the three month period ended March 31, 2000 and 1999 was as follows (in thousands):
Three Months Ended March 31 --------------------------- 2000 1999 ------- ------- Net Income $ 5,152 $ 5,434 Other Comprehensive income Foreign currency translation Adjustments (29) (25) ------- ------- Total comprehensive income $ 5,123 $ 5,409
6. EARNINGS PER SHARE Basic earnings per share is calculated by dividing net income by the average number of shares outstanding during the applicable period. The Company has stock options which are considered to be potentially dilutive to common stock. Diluted earnings per share is calculated by dividing net income by the average number of shares outstanding during the applicable period adjusted for these potentially dilutive options. The following table sets forth the computation of earnings per share. Outstanding shares have been restated to reflect the 3:2 stock split for all periods presented.
Three Months Ended March 31, 2000 March 31, 1999 -------------------- -------------------- Weighted Earnings Weighted Earnings Average per Average per Shares share Shares share ------ ------- ------ ------- (in thousands, except per share earnings) Basic earnings per share 38,589 $ 0.13 38,182 $ 0.14 Net dilutive effect of stock options outstanding 1,579 704 ------ ------- ------ ------- Diluted earnings per share 40,168 $ 0.13 38,886 $ 0.14
7. SEGMENT REPORTING The Company manages its operations through three segments, Applications Outsourcing, e-Business, and TeamSourcing. Management allocates all corporate expenses to the segments. Financial data for each segment for the three month periods ending March 31, 2000 and March 31, 1999 is as follows:
Three Months Ended March 31, 2000 March 31, 1999 -------------- -------------- (in thousands) Revenues: Applications Outsourcing $18,918 $24,093 e-Business 11,441 3,693 TeamSourcing 10,147 11,011 ------- ------- 40,506 38,797 Gross Profit: Applications Outsourcing 8,981 10,304 e-business 3,113 1,285 TeamSourcing 2,899 3,266 ------- ------- 14,993 14,855
7 8 The Applications Outsourcing segment included Year 2000 remediation engagements for the first three months of 1999, all of which were completed before December 31, 1999. Excluding the impact of Year 2000 remediation engagements, Applications Outsourcing revenues for the first quarter of 1999 would have been $18.1 million and gross margins would have been $7.1 million. PART I - FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. SYNTEL INC. AND SUBSIDIARIES RESULTS OF OPERATIONS Revenues. The Company's revenues consist of fees derived from its Applications Outsourcing, e-Business, and TeamSourcing business segments. Revenues increased 4.4% to $40.5 million in the first quarter of 2000 from $38.8 million in the first quarter of 1999. Worldwide billable headcount, including personnel employed by Syntel India, Singapore, and Syntel Europe, as of March 31, 2000 decreased to 1,421 compared to 1,456 as of March 31, 1999. Applications Outsourcing Revenues. Applications Outsourcing revenues decreased to $18.9 million for the first quarter of 2000, or 46.7% of total revenues, from $24.1 million, or 62.1% of first quarter revenues for 1999. The $5.2 million decrease in revenues was attributable primarily to the completion of Year 2000 remediation projects that contributed revenues of $6.0 million in the first quarter of 1999 as well as the completion of outsourcing and development projects that contributed $2.3 million in the first quarter of 1999. These were partially offset by net growth in several engagements as well as new engagements, which combined, contributed approximately $3.1 million in the first quarter of 2000. Applications Outsourcing Cost of Revenues. Cost of revenues consist of costs directly associated with billable consultants in the US and offshore, including salaries, payroll taxes, benefits, relocation costs, immigration costs, finders fees, trainee compensation, travel, and warranty reserves. Applications Outsourcing costs of revenues decreased to 52.5% of total Applications Outsourcing revenues for the first quarter of 2000, from 57.2% for the first quarter of 1999. The decrease in cost of revenues as a percent of revenues was attributable primarily to a release of warranty reserves that were no longer deemed necessary in the first quarter of 2000, contributing approximately 7.4% to the reduction in cost of revenues as a percent of revenues; partially offset by high margin Year 2000 remediation engagements during the first quarter of 1999 as well as increased compensation levels on existing engagements of 2.0% and 0.7%, respectively e-Business Revenues. e-Business revenues increased to $11.4 million for the first quarter of 2000, or 28.2% of total consolidated revenues, from $3.7 million, or 9.5% of total consolidated revenues for the first quarter of 1999. The $7.7 million increase was attributable principally to the acquisitions of Metier, Inc. and IMG, Inc., as well as new engagements, contributing approximately $4.2 million and $3.5 million, respectively, to the increase in e-business revenues. e-Business Cost of Revenues. e-Business cost of revenues consist of costs directly associated with billable consultants in the US and offshore, including salaries, payroll taxes, benefits, relocation costs, immigration costs, finders fees, trainee compensation, and travel. e-Business cost of revenues increased to 72.8% of total e-Business revenues for the first quarter of 2000, from 65.2% for the first quarter of 1999. The increase in costs of revenues as a percent of revenues was attributable principally to reduced consultant utilization levels due to temporary softness in the Oracle marketplace and the establishment of a loss reserve for a fixed price engagement that is expected to require more resources than previously anticipated; contributing approximately 11.0% and 3.0%, respectively, to the increase in cost of revenues; partially offset by improved gross margins on non-Oracle engagements, contributing approximately 6.4%. 8 9 TeamSourcing Revenues. TeamSourcing revenues decreased to $10.1 million for the first quarter of 2000, or 25.1% of total revenues, down from $11.0 million, or 28.4% of total revenues for the first quarter of 1999. The $0.9 million revenue decrease was attributable primarily to a $1.7 million reduction due to a decrease in U.S. based billable consultants in various engagements, partially offset by billing rate increases of $0.8 million. TeamSourcing Cost of Revenues. TeamSourcing cost of revenues consist of costs directly associated with billable consultants in the US, including salaries, payroll taxes, benefits, relocation costs, immigration costs, finders fees, trainee compensation, and travel. TeamSourcing cost of revenues increased to 71.4% of TeamSourcing revenues for the first quarter of 2000, from 70.3% for the first quarter of 1999. The increase in cost of revenues as a percent of total TeamSourcing revenues was attributable primarily to increased travel, relocation, and training costs, as well as increased compensation costs in relation to respective bill rates, contributing approximately 0.6% and .5%, respectively to the decreased margins. Selling, General, and Administrative Expenses. Selling, general, and administrative expenses consist primarily of salaries, payroll taxes and benefits for sales, solutions, delivery, finance, administrative, and corporate staff, travel, telecommunications, business promotions, marketing and various facility costs for the Company's Global Development Centers and various offices. Selling, general, and administrative costs for the three months ended March 31, 2000 were $9.0 million, or 22.2% of total revenues, compared to $7.2 million or 18.7% of total revenues for the three months ended March 31, 1999. The $1.8 million increase in selling, general, and administrative costs was primarily attributable to acquisition related operating costs and associated goodwill, contributing $1.7 million and $0.3, respectively to the increase in sales, general, and administrative costs; partially offset by savings in marketing, recruiting, and other administrative expenses, which combined, contributing savings of approximately $0.2 million. LIQUIDITY AND CAPITAL RESOURCES The Company generally has financed its working capital needs through operations. Net cash generated by operating activities was $1.3 million for the first three months of 2000, compared to $2.2 million for the first three months of 1999. The number of days sales outstanding in accounts receivable was approximately 53 days and 52 days as of March 31, 2000 and March 31, 1999, respectively. Net cash used in investing activities was $1.1 million and $0.4 million for the first three months 2000 and 1999, respectively. Cash used for investing activities for the first three months of 2000 consisted principally of capitalized software development costs of approximately $0.8 and computer equipment of $0.3 million. Cash used for investing activities for the first three months of 1999 consisted primarily of capitalized development costs of $0.2 million and computer equipment of $0.2 million. Net cash generated in financing activities for the first three months of 2000 consisted primarily of $0.4 million from the issuance of stock from the employee option program. Net cash used in financing activities for the three months ended March 31, 1999 consisted primarily of the purchase of 65,000 shares of treasury stock for $0.6 million. The Company has a line of credit with Bank One which provides for borrowings of up to $40.0 million. The line of credit expires on August 31, 2000. The line of credit contains covenants restricting the Company from, among other things, incurring additional debt, issuing guarantees and creating liens on the Company's property, without prior consent of the bank. The line of credit also requires the Company to maintain certain tangible net worth levels and leverage ratios. At March 31, 2000, there was no indebtedness outstanding under the line of credit. Borrowings under the line of credit bear interest at the lower of the Eurodollar rate plus the applicable Eurodollar margin, the bank's prime rate or a negotiated rate established with the bank at the time of borrowing. In addition to the bank line of credit, the Company has a $20.0 million facility with Bank One to finance acquisitions which also expires on August 31, 2000. The Company has not borrowed any amounts under this facility. The Company intends to 9 10 renew both the $40 million and the $20 million line of credit before the expiration date. The Company believes that the combination of present cash balances and future operating cash flows will be sufficient to meet the Company's currently anticipated cash requirements for at least the next 12 months. FORWARD LOOKING STATEMENTS This report contains forward-looking statements, including those with respect to future levels of business for Syntel, Inc. These statements are necessarily subject to risk and uncertainty. Actual results could differ materially from those projected in these forward-looking statements as a result of certain risk factors set forth in the Company's Annual Report Form 10-K document dated March 30, 2000. Factors that could cause results to differ materially from those set forth above include general trends and developments in the information technology industry, which is subject to rapid technological changes, and the Company's concentration of sales in a relatively small number of large customers, as well as intense competition in the information technology industry, which the Company believes will increase. 10 11 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is currently not a party to any material pending legal proceedings. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits Exhibit No. Description - ---------------------------------- 27 Financial Data Schedule (b) Reports on Form 8-K The Corporation did not file any reports on Form 8-K during the three month period ended March 31, 2000. 11 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Syntel, Inc. -------------------------------------------- (Registrant) Date May 11, 2000 By /s/ Bharat Desai ------------ ----------------------------------------- Bharat Desai, President and Chief Executive Officer Date May 11, 2000 By /s/ John Andary ------------ ----------------------------------------- John Andary, Chief Financial Officer (principal financial and chief accounting officer) 12 13 EXHIBIT INDEX Sequentially Numbered Exhibit No. Description Page - ------------------------------------------------------------------------- 27 Financial Data Schedule 13 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 64,243 0 24,239 0 0 97,040 16,874 10,075 122,702 26,787 0 0 0 1 96,519 122,702 0 40,506 0 25,513 8,993 0 (780) 6,780 1,628 5,152 0 0 0 5,152 0.13 0.13
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