-----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, KwFewFa9GvEH+4pqlWwKnkxIVeIEbw/KwgwYSVUA7xPIPX2rkNYh99FtOe7RxfjQ UDuhw/VbZUP5defxiv94oA== 0000950124-02-001690.txt : 20020513 0000950124-02-001690.hdr.sgml : 20020513 ACCESSION NUMBER: 0000950124-02-001690 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020513 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: 1934 Act SEC FILE NUMBER: 000-22903 FILM NUMBER: 02642455 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 k69401e10-q.txt FORM 10-Q FOR QUARTER ENDED MARCH 31, 2002 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, 2002 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.) 525 E. Big Beaver Road, Suite 300, 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: 38,802,772 shares issued and outstanding as of April 25, 2002. 1 SYNTEL, INC. INDEX
Page ---- Part I Financial Information Item 1 Financial Statements Condensed Consolidated Statement of Income 3 Condensed Consolidated Balance Sheet 4 Condensed Consolidated Statement of Cash Flows 5 Notes to the Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of 8 Financial Condition and Results of Operations Part II Other Information 11 Signatures 12
2 SYNTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
3 MONTHS ENDED MARCH 31 --------------------------------------------- 2002 2001 ---- ---- Revenues $40,490 $42,752 Cost of revenues 24,559 27,145 ------- ------- Gross profit 15,931 15,607 Selling, general and administrative expenses 8,021 8,813 ------- ------- Income from operations 7,910 6,794 Other income, principally interest 678 957 ------- ------- Income before income taxes 8,588 7,751 Income taxes 2,227 1,865 ------- ------- Net income before loss from equity investment in unconsolidated subsidiary 6,361 5,886 Loss from equity investment in unconsolidated subsidiary - 321 ------- ------- Net income $ 6,361 $ 5,565 ======= ======= EARNINGS PER SHARE Basic $ 0.16 $ 0.14 Diluted $ 0.16 $ 0.14 Weighted average common shares outstanding - diluted 40,276 38,814 ======= ======= Basic Shares outstanding 39,018 38,471 ======= =======
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 SYNTEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
MARCH 31, DECEMBER 31, 2002 2001 ----- ---- ASSETS Current assets: Cash and cash equivalents $ 95,280 $ 88,010 Investments, marketable securities 15,931 17,203 Accounts receivable, net 31,425 30,982 Advanced billings and other current assets 7,295 7,448 -------- -------- Total current assets 149,931 143,643 Property and equipment 19,560 19,041 Less accumulated depreciation 14,333 13,823 -------- -------- Property and equipment, net 5,227 5,218 Goodwill, net of amortization 906 906 Deferred income taxes, noncurrent 2,457 2,632 -------- -------- $158,521 $152,399 ======== ======== LIABILITIES Current liabilities: Accrued payroll and related costs $ 10,902 $ 12,984 Accounts payable and other current liabilities 18,618 16,968 Deferred revenue 3,922 5,451 -------- -------- Total current liabilities 33,442 35,403 SHAREHOLDERS' EQUITY Total shareholders' equity 125,079 116,996 -------- -------- Total liabilities and shareholders' equity $158,521 $152,399 ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 SYNTEL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31 ------------------------------------ 2002 2001 ---- ---- Cash flows from operating activities: Net income $ 6,361 $ 5,565 -------- -------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 510 682 Goodwill - 17 Realized losses on sales of available-for-sale securities 12 - Deferred income taxes 175 124 Non-cash compensation expense related to stock options - 37 Loss on equity investments - 321 Changes in assets and liabilities: Accounts receivable, net (569) 1,773 Advance billing and other assets 158 137 Accrued payroll and other liabilities (432) (2,646) Deferred revenues (1,529) 235 -------- -------- Net cash provided by operating activities 4,686 6,245 Cash flows provided by ( used in ) investing activities, Property and equipment expenditures (519) (1,240) Equity and other investments - (485) Purchase of available-for-sale securities (11,925) - Proceeds from sales of available-for-sale securities 13,185 - -------- -------- Net cash provided by (used in) investing activities 741 (1,725) Cash flows provided by (used in) financing activities: Net proceeds from issuance of stock 2,412 13 Common stock repurchases (634) (225) -------- -------- Net cash provided by (used in) financing activities 1,778 (212) Effect of foreign currency exchange rate changes on cash 65 (163) -------- -------- Net increase in cash and cash equivalents 7,270 4,145 Cash and cash equivalents, beginning of period 88,010 73,478 -------- -------- Cash and cash equivalents, end of period $ 95,280 $ 77,623 ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 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 the 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 its subsidiaries as of March 31, 2002, the results of their operations for the three month period ended March 31, 2002 and March 31, 2001, and cash flows for the three months ended March 31, 2002 and March 31, 2001. The year end condensed balance sheet as of December 31, 2001 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. 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, 2001. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. 2. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION The consolidated financial statements include the accounts of Syntel, Inc. ("Syntel") and its wholly owned subsidiaries Syntel (India) Limited ("Syntel India"), an Indian limited liability company, Syntel "Singapore" PTE., Ltd., ("Syntel Singapore"), a Singapore limited liability company, Syntel Europe, Ltd., ("Syntel U.K."), a United Kingdom limited liability company, Syntel Canada Inc., ("Syntel Canada") a Canada limited liability company, Syntel Deutschland GmbH, ("Syntel Germany") a Germany limited liability Company, Syntel Hong Kong Ltd. ("Syntel Hong Kong") a Hong Kong limited liability Company, Syntel Mauritius Limited ("Syntel Mauritius") a Mauritius limited liability Company and Syntel "Australia" Pty. Limited ("Syntel Australia"), an Australian limited liability Company. All intercompany balances and transactions have been eliminated. 3. RECLASSIFICATION Certain prior quarter amounts have been reclassified to conform with the current quarter presentation. 4. REVENUE RECOGNITION The Company recognizes revenues from time and material contracts as services are rendered and costs are incurred. Revenue on fixed-price, fixed deliverable projects is measured by the percentage of cost incurred to date to the estimated total cost at completion. Revenue from fixed-price Application management and support engagements is recognized as earned. The cumulative impact of any change in estimates of the percentage complete or losses on contracts is reflected in the period in which the changes become known. 5. 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. At March 31, 2002 and 2001, approximately $58,122 and $42,549, respectively, represent corporate bonds and treasury notes held by Bank One, for which a triple A rated letter of credit has been provided by the bank. The remaining cash and cash equivalents are certificates of deposit, corporate bonds, and treasury notes held by various banking institutions including other U.S.-based and local India-based banks. 6. COMPREHENSIVE INCOME 6 Total Comprehensive Income for the three month period ended March 31, 2002 and 2001 was as follows (in thousands):
Three Months Ended ------------------ March 31 -------- 2002 2001 ------- ------- Total comprehensive income $ 6,305 $ 5,402 ======= =======
7. EARNINGS PER SHARE Basic earnings per share is calculated by dividing net income by the weighted 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 are calculated considering these potentially dilutive options. The following table sets forth the computation of earnings per share.
Three Months Ended March 31, 2002 March 31, 2001 --------------- -------------- Weighted Earnings Weighted Earnings Average per Average per Shares share Shares share ------ ------ ------ ----- (in thousands, except per share earnings) Basic earnings per share 39,018 $ 0.16 38,471 $ 0.14 Net dilutive effect of stock options outstanding 1,258 343 ------- ------- ------- ------- Diluted earnings per share 40,276 $ 0.16 38,814 $ 0.14 ======= ======= ======= =======
8. SEGMENT REPORTING The Company manages its operations through three segments, Applications Outsourcing, e-Business, and TeamSourcing. Management allocates all direct expenses to the segments. Financial data for each segment for the three months period ended March 31, 2002 and March 31, 2001 is as follows:
Three Months Ended ------------------ March 31, 2002 March 31, 2001 -------------- -------------- (In thousands) Revenues: Applications Outsourcing $27,467 $25,505 e-Business 8,557 11,391 TeamSourcing 4,466 5,856 ------- ------- 40,490 42,752 Gross Profit: Applications Outsourcing 12,143 10,066 e-Business 3,061 4,145 TeamSourcing 727 1,396 ------- ------- 15,931 15,607
7 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 decreased 5.3% to $40.5 million in the first quarter of 2002 from $42.8 million in the first quarter of 2001. Worldwide billable headcount, including personnel employed by Syntel India, Syntel Singapore, Syntel Europe, and Syntel Germany as of March 31, 2002 decreased to 1,581 compared to 1,635 as of March 31, 2001. APPLICATIONS OUTSOURCING REVENUES. Applications Outsourcing revenues increased to $27.5 million for the first quarter of 2002, or 67.8% of total revenues, from $25.5 million, or 59.7% of first quarter revenues for 2001. The $2.0 million increase for the first quarter was attributable principally to net growth in new engagements, contributing approximately $5.2 million, partially offset by $3.2 million in lost revenues as a result of projects completion. APPLICATIONS OUTSOURCING COST OF REVENUES. Cost of revenues consists 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. Applications Outsourcing costs of revenues decreased to 55.8% of total Applications Outsourcing revenues for the first quarter of 2002, from 60.5% for the first quarter of 2001. The 4.7% decrease in cost of revenues as a percent of revenues for the first quarter was attributable to the increase in higher margin offshore component of the overall services. E-BUSINESS REVENUES. e-Business revenues decreased to $8.6 million for the first quarter of 2002, or 21.1% of total consolidated revenues, from $11.4 million, or 26.6% of total consolidated revenues for the first quarter of 2001. The $2.8 million decrease for the first quarter was attributable principally to lost revenues as a result of project completions, contributing approximately $5.0 million, largely offset by new business revenues of $2.2 million. E-BUSINESS COST OF REVENUES. e-Business cost of revenues consists 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 64.2% of total e-Business revenues for the first quarter of 2002, from 63.6% for the first quarter of 2001. The 0.6% increase was attributable principally to increased compensation and benefit costs in relation to the billing rates. TEAMSOURCING REVENUES. TeamSourcing revenues decreased to $4.5 million for the first quarter of 2002, or 11.0% of total revenues, down from $5.9 million, or 13.7% of total revenues for the first quarter of 2001. The $1.4 million decrease for the first quarter was principally due to a decrease in US based billable consultants on various engagements, as a result of a conscious decision by management to reduce organizational focus away from this segment and focusing on higher margin Segments. TEAMSOURCING COST OF REVENUES. TeamSourcing cost of revenues consists 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 83.7% of TeamSourcing revenues for the first quarter of 2002, from 76.2% for the first quarter of 2001. The 7.6% increase in cost of revenues as a percent of total TeamSourcing revenues was attributable primarily to lower utilization due to the softness in the economy. Selling, General, and Administrative Expenses. Selling, general, and administrative expenses consist primarily of salaries, payroll taxes and benefits for sales, solutions, 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, 2002 were $8.0 million, or 19.8% of total revenues, compared to $8.8 million or 20.6% of total revenues for the three months ended March 31, 2001. The $0.8 million decrease 8 was attributable principally to decrease in compensation costs due to reduced corporate staff in US and UK, reduction in the depreciation expenses due to fully depreciated assets, contributing approximately $0.9 million, $0.3 million respectively. The decrease was partially offset by increase in travel, telecommunication, office rent costs and increased facility costs at Germany contributing approximately $0.1 million, $0.1 million, $0.1 million and $0.1 million respectively. LIQUIDITY AND CAPITAL RESOURCES In recent history, the Company has financed its working capital needs through operations. The Company's cash and cash equivalents consist primarily of certificates of deposit, corporate bonds and treasury notes. A large majority of such amounts are held by Bank One for which a triple A rated letter of credit has been provided. Remaining amounts are held by various banking institutions including other U.S.-based and local India-based banks. Net cash generated by operating activities was $4.7 million for the first three months of 2002, compared to $6.2 million for the first three months of 2001. The number of days sales outstanding in accounts receivable was approximately 70 days and 62 days as of March 31, 2002 and March 31, 2001, respectively. Net cash provided by investing activities was $0.7 million for the first three months of 2002 consisted principally of $13.2 million for proceeds from sale of available-for-sale securities, partially offset by $12.0 million for purchase of available-for- sale securities and $ 0.5 million for capital expenditures, consisting principally of PC's and communication equipment's. Net cash used by investing activities was $1.7 million for the first three months of 2001, consisted principally of $1.1 million for the acquisition of land for construction of the new development and training center in Pune, India and $0.1 million in computer equipment and $0.5 million in equity and other investments. Net cash provided by financing activities was $1.8 million for the first three months of 2002, consisted principally of $2.4 million for the proceeds from the exercise of stock options, offset by common stock repurchases of $0.6 million. Net cash used in financing activities was $0.2 million for the first three months of 2001, consisted principally of common stock repurchases. The Company has a line of credit with Bank One, which provides for borrowings up to $20.0 million. The line of Credit expires on August 31, 2002. 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 the 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, 2002, there was no indebtedness outstanding under the line of credit. The letters of credit bear 1% fee of the face value payable annually in advance. Borrowings under the line of credit bear interest at 1) a formula approximating the bank's Eurodollar rate plus applicable margin of 1.25% or 2) the bank's prime rate plus 1.25%. 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 / RISK FACTORS Certain statements contained in this Report are forward looking statements within the meaning of the Securities Exchange Act of 1934. In addition, the Company from time to time may publish other forward looking statements. Such forward looking statements are based on management's estimates, assumptions and projections and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in the forward looking statements. Factors which could affect the forward looking statements include those listed below. The Company does not intend to update these forward looking statements. - Recruitment and Retention of IT Professionals - Government Regulation of Immigration - Variability of Quarterly Operating Results - Customer Concentration; Risk of Termination - Exposure to Regulatory and General Economic Conditions in India - Intense Competition - Ability to Manage Growth - Fixed-Price Engagements - Potential Liability to Customers - Dependence on Principal 9 - Risks Related to Possible Acquisitions - Limited Intellectual Property Protection RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS 141 replaces Accounting Principles Board Opinion 16, "Business Combinations" and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 142 replaces APB 17, "Intangible Assets". In accordance with SFAS No. 141 and 142, effective for the Company's year ended December 31, 2002, as a replacement to amortization of goodwill and intangible assets with indefinite lives, the Company will evaluate goodwill and intangible assets for impairment annually. The standards have been adopted as of January 1, 2002 and have not had a material effect on the financial statements. As of March 31, 2002, net goodwill was approximately $906,000. In February 2002, the Emerging Issues Task Force issued Topic D-103, "Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses", which requires reimbursements of out-of-pocket expenses to be presented as revenues and the associated costs to be presented as expenses. The Company has adopted the above statement from January 1, 2002 resulting in increased revenues and corresponding expenses, the impact of which is not significant. The prior quarter figures have been reclassified to conform with the current quarter presentation as above. 10 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 None. (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, 2002. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Syntel, Inc. ------------------------ (Registrant) Date May 8, 2002 By /s/ Bharat Desai ------------- -------------------------------- Bharat Desai, President and Chief Executive Officer Date May 8, 2002 By /s/ Sanjay Chheda ------------- -------------------------------- Sanjay Chheda, Interim Chief Financial Officer (principal financial and chief accounting officer) 12 -----END PRIVACY-ENHANCED MESSAGE-----