-----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, T0XHdeayta1qkb/b1ui4Ya7JHyHx8hQt2mMPbcQrypmcjcQOM0syZm+K9Har4FvO WbVfl0zHywo03oOmjX1WHQ== 0000950124-02-003352.txt : 20021105 0000950124-02-003352.hdr.sgml : 20021105 20021105145658 ACCESSION NUMBER: 0000950124-02-003352 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021105 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: 02809723 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 k72432e10vq.txt QUARTERLY REPORT FOR PERIOD END SEPTEMBER 30, 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 September 30, 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: 38,746,271 shares issued and outstanding as of October 9, 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 12 Signatures 13 Certificate of Principal Executive officer 14 Certificate of Principal Financial officer 15
2 SYNTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
3 MONTHS 9 MONTHS ENDED SEPT 30 ENDED SEPT 30 -------------------------------------- ------------------------------------ 2002 2001 2002 2001 ---- ---- ---- ---- Revenues $ 42,126 $ 43,257 $ 122,116 $ 128,962 Cost of revenues 23,332 26,726 71,794 80,208 ------------------- ----------------- ------------------ ----------------- Gross profit 18,794 16,531 50,322 48,754 Selling, general and administrative expenses 7,976 8,622 23,645 25,871 ------------------- ----------------- ------------------ ----------------- Income from operations 10,818 7,909 26,677 22,883 Other income, principally interest 795 1,108 2,206 2,977 ------------------- ----------------- ------------------ ----------------- Income before income taxes 11,613 9,017 28,883 25,860 Income taxes 2,924 2,471 7,548 6,858 ------------------- ----------------- ------------------ ----------------- Net income before loss from equity investment in unconsolidated subsidiaries 8,689 6,546 21,335 19,002 Loss from equity investment in unconsolidated subsidiaries 0 213 0 752 ------------------- ----------------- ------------------ ----------------- Net income $ 8,689 $ 6,333 $ 21,335 $ 18,250 =================== ================= ================== ================= EARNINGS PER SHARE Basic $ 0.22 $ 0.16 $ 0.55 $ 0.47 Diluted $ 0.22 $ 0.16 $ 0.53 $ 0.47 Weighted average common shares outstanding - diluted 39,816 38,826 40,077 38,827 Basic Shares outstanding 39,016 38,436 39,024 38,457
The accompanying notes are an integral part of the consolidated financial statements. 3 SYNTEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 2002 2001 ---- ---- ASSETS Current assets: Cash and cash equivalents $116,625 $ 88,010 Investments, marketable securities 8,260 17,203 Accounts receivable, net 25,500 30,982 Advanced billings and other current assets 7,739 7,448 -------- -------- Total current assets 158,124 143,643 Property and equipment 20,234 19,041 Less accumulated depreciation 15,245 13,823 -------- -------- Property and equipment, net 4,989 5,218 Goodwill, net of amortization 906 906 Deferred income taxes, noncurrent 2,730 2,632 -------- -------- $166,749 $152,399 ======== ======== LIABILITIES Current liabilities: Accrued payroll and related costs $ 9,793 $ 12,984 Accounts payable and other current liabilities 14,429 16,968 Deferred revenue 3,148 5,451 -------- -------- Total current liabilities 27,370 35,403 SHAREHOLDERS' EQUITY Total shareholders' equity 139,379 116,996 -------- -------- Total liabilities and shareholders' equity $166,749 $152,399 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 SYNTEL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30 ---------------------------- 2002 2001 ---- ---- Cash flows from operating activities: Net income $ 21,335 $ 18,250 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,422 1,994 Realized losses on sales of available-for-sale securities (390) (2) Deferred income taxes (98) 690 Compensation expense related to stock options 0 41 Loss on equity investments 0 752 Changes in assets and liabilities: Accounts receivable, net 5,721 1,478 Advance billing and other assets (291) (2,952) Accrued payroll and other liabilities (5,730) 3,001 Deferred revenues (2,302) 1,229 --------- --------- Net cash provided by operating activities 19,667 24,481 --------- --------- Cash flows provided by ( used in ) investing activities, Property and equipment expenditures (1,193) (2,264) Equity and other investments 0 (380) Purchase of available-for-sale securities (15,175) (30,808) Proceeds from sales of available-for-sale securities 24,508 14,243 --------- --------- Net cash provided by (used in ) investing activities 8,140 (19,209) --------- --------- Cash flows provided by (used in ) financing activities: Net proceeds from issuance of stock 3,802 1,380 Common stock repurchases (3,325) (1,491) --------- --------- Net cash provided by (used in ) financing activities 477 (111) --------- --------- Effect of foreign currency exchange rate changes on cash 331 (76) --------- --------- Net increase in cash and cash equivalents 28,615 5,085 Cash and cash equivalents, beginning of period $ 88,010 $ 73,478 ========= ========= Cash and cash equivalents, end of period $ 116,625 $ 78,563 ========= =========
The accompanying notes are an integral part of the 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 accounting principles generally accepted in United States of America 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 September 30, 2002, the results of their operations for the three and nine month periods ended September 30, 2002 and September 30, 2001, and cash flows for the nine months ended September 30, 2002 and September 30, 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 nine months ended September 30, 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 AND 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 September 30, 2002 and 2001, approximately $58,790 thousand and $53,325 thousand, 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 6. EQUITY During the second quarter of 2002, Syntel Inc. issued 322,210 warrants at $ 7.25 per share. Under the terms of the agreement, certain milestones are required to be met in order for the holder to exercise these warrants. It is not probable such milestones will be met. Accordingly, the impact of such issuance has not been given in the accompanying statements or earnings-per-share calculations. The warrants have a term of 10 years and were issued with a retroactive effective date of October 16, 2000. 7. COMPREHENSIVE INCOME Total comprehensive income for the three and nine months period ended Sept 30, 2002 and 2001 was as follows (in thousands):
Three Months Ended Nine Months Ended ------------------ ----------------- Sept 30 Sept 30 ------- ------- 2002 2001 2002 2001 ---- ---- ---- ---- Net income $8,689 $6,333 $21,335 $18,250 Other comprehensive income Foreign currency translation adjustments 435 (613) 571 (796) ------ ------ ------- ------- Total comprehensive income $9,124 $5,720 $21,906 $17,454 ====== ====== ======= =======
8. 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 Sept 30, 2002 Sept 30, 2001 ------------- ------------- Weighted Earnings Weighted Earnings Average per Average per Shares share Shares share ------ ----- ------ ------ (in thousands, except per share earnings) Basic earnings per share 39,016 $ 0.22 38,436 $ 0.16 Net dilutive effect of stock options outstanding 800 - 390 - --------- --------- --------- --------- Diluted earnings per share 39,816 $ 0.22 38,826 $ 0.16 ========= ========= ========= ========= Nine Months Ended Sept 30, 2002 Sept 30, 2001 ------------- ------------- Weighted Earnings Weighted Earnings Average per Average per Shares share Shares share ------ ----- ------ ----- (in thousands, except per share earnings) Basic earnings per share 39,024 $ 0.55 38,457 $ 0.47 Net dilutive effect of stock options outstanding 1,053 (0.02) 370 - --------- --------- --------- --------- Diluted earnings per share 40,077 $ 0.53 38,827 $ 0.47 ========= ========= ========= =========
7 9. 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 and nine months period ended Sept 30, 2002 and Sept 30, 2001 is as follows:
Three Months Ended Nine Months Ended ------------------ ----------------- Sept 30, 2002 Sept 30, 2001 Sept 30, 2002 Sept 30, 2001 ------------- ------------- ------------- ------------- (In thousands) (In thousands) Revenues: Applications Outsourcing $ 29,100 $ 28,742 $ 83,293 $ 80,798 e-Business 9,332 8,917 26,461 30,668 TeamSourcing 3,694 5,598 12,362 17,496 ---------- ----------- ---------- ---------- 42,126 43,257 122,116 128,962 Gross Profit: Applications Outsourcing 14,414 12,485 38,535 34,013 e-Business 3,971 3,015 10,153 10,798 TeamSourcing 409 1,031 1,634 3,943 ---------- ----------- ---------- ---------- 18,794 16,531 50,322 48,754
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 2.6% to $42.1 million in the third quarter of 2002 from $43.3 million in the third quarter of 2001. Worldwide billable headcount, including personnel employed by Syntel India, Syntel Singapore, Syntel Europe, and Syntel Germany as of Sept 30, 2002 increased to 1,938 compared to 1,421 as of Sept 30, 2001. APPLICATIONS OUTSOURCING REVENUES. Applications Outsourcing revenues increased to $29.1 million for the third quarter of 2002, or 69.1% of total revenues, from $28.7 million, or 66.4% of third quarter revenues for 2001. The revenues for first nine months of 2002 increased to $83.3 million, or 68.2% of total revenues, from $80.8 million or 62.7% of total revenues for the first nine months of 2001. The $0.4 million increase for the third quarter was attributable principally to net growth in new engagements, contributing approximately $8.9 million, reversal of reserve (created in June 2002 which was determined to no longer be required), surrounding a contract renegotiation, contributing approximately $0.6 million, largely offset by $9.1 million in lost revenues as a result of project completion. The $2.5 million increase for first nine months of 2002 was attributable principally to net growth in new engagements, contributing approximately $21.2 million, largely offset by $18.7 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 50.5% of total Applications Outsourcing revenues for the third quarter of 2002, from 56.6% for the third quarter of 2001. Cost of Revenues for the first nine months of 2002 decreased to 53.7% of total Applications Outsourcing revenues, from 57.9% for the first nine months of 2001. Both the 6.1% and 4.2% decreases in cost of revenues, as a percent of revenues for the third quarter and for the first nine months of 2002 were attributable to the increase in higher margin offshore component of the overall services. e-BUSINESS REVENUES. e-Business revenues increased to $9.3 million for the third quarter of 2002, or 22.2% of total consolidated revenues, from $ 8.9 million, or 20.6% of total consolidated revenues for the third quarter of 2001. The $0.4 million increase for the third quarter was attributable principally to net growth in new engagements, contributing approximately $3.1 million, largely offset by $2.7 million in lost revenues as a result of project completion. Revenues for the first nine months of 2002 decreased to $26.5 million, or 21.7% of total revenues, from $30.7 million or 23.8% of total 8 revenues for the first nine months of 2001. The $4.2 million decrease for the nine months of 2002 was attributable principally to lost revenues as a result of project completions, contributing approximately $11.8 million, largely offset by new business revenues of $7.6 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 decreased to 57.4% of total e-Business revenues for the third quarter of 2002, from 66.2% for the third quarter of 2001. For the first nine months of 2002, e-Business costs of revenues decreased to 61.6% of total e-business revenues, from 64.8% for the first nine months of 2001. Both 8.8% and 3.2% decrease in cost of revenues as a percent of total e-business revenues for the three and nine months of 2002, respectively, was attributable primarily to improved onsite utilization rates. TEAMSOURCING REVENUES. TeamSourcing revenues decreased to $3.7 million for the third quarter of 2002, or 8.8% of total revenues, down from $5.6 million, or 12.9% of total revenues for the third quarter of 2001. For the first nine months of 2002, TeamSourcing revenues decreased to $12.4 million, or 10.1% of total revenues, down from $17.5 million or 13.6% of total revenues for the first nine months of 2001. Both the $1.9 million decrease for the third quarter and the $5.1 million decrease for the first nine months of 2002 were 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 88.9% of TeamSourcing revenues for the third quarter of 2002, from 81.6% for the third quarter of 2001. The cost of revenues as a percent of revenues increased to 86.8% of total TeamSourcing revenues for the nine months period ended Sept 30, 2002, from 77.5% for the nine months period ending Sept 30, 2001. Both the 7.3% and 9.3% increase in cost of revenues as a percent of total TeamSourcing revenues for the three and nine months of 2002, respectively, 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 Sept 30, 2002 were $7.97 million, or 18.9% of total revenues, compared to $8.6 million or 19.9% of total revenues for the three months ended Sept 30, 2001. The $0.6 million decrease was attributable principally to a decrease in compensation costs due to reduced corporate staff in US and UK ($1.5 million), reduction in telecommunication costs ($0.1 million) and reversal of outstanding checks pertaining to earlier periods ($0.1 million). The decrease was largely offset by increase in travel ($0.1 million), office rent ($0.1 million), marketing expenses ($0.1 million), recognition of current period allowance for doubtful accounts provision ($0.7 million) and increased facility costs at Germany ($0.1 million). Selling, general and administrative expenses decreased to $23.6 million, or 19.4% of total revenues for the nine months period ending Sept 30, 2002 from $25.9 million or 20.1% of total revenue for the same period in 2001. The decrease of $2.3 million in selling, general and administrative expenses in the nine months period ended Sept 30, 2002 over the same period in 2001 was attributable principally to decrease in compensation costs due to reduced corporate staff in US and UK ($3.3 million), reversal of bonus provisions in US ($2.8 million), reduction in the depreciation expenses due to fully depreciated assets ($0.4 million), reversal of outstanding checks pertaining to earlier periods ($0.3 million) and recovery of previously reserved for receivable ($0.8 million). The decrease was partially offset by increase in marketing expenses ($0.3 million), office expenses ($0.2 million), telecommunication costs ($0.1 million), recognition of current period allowance for doubtful accounts in US ($1.8 million), recognition of current period bonus provision ($2.2 million), travel ($0.1 million), office rent ($0.2 million) and increased facility costs at Germany ($0.4 million). 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. 9 Net cash generated by operating activities was $ 19.7 million for the first nine months of 2002, compared to $ 24.5 million for the first nine months of 2001. The number of days sales outstanding in accounts receivable was approximately 54 days and 61 days as of Sept 30, 2002 and Sept 30, 2001, respectively. Net cash provided by investing activities was $8.1 million for the first nine months of 2002, consisting principally of $24.5 million for proceeds from sale of available-for-sale securities, partially offset by $15.2 million for purchase of available-for- sale securities and $ 1.2 million for capital expenditures, consisting principally of computer equipment and communication equipment. Net cash used in investing activities was $19.2 million for the nine months of 2001, consisting principally of $30.8 million for purchase of available-for- sale securities, $1.1 million for the acquisition of land for construction of the new development and training center in Pune, India, $1.1 million in capitalized software costs and computer equipment and $0.4 million in equity and other investments, partially offset by $14.2 million for proceeds from sale of available-for-sale securities. Net cash provided by financing activities for the first nine months of 2002 totalled approximately $0.5 million, consisting principally of $3.8 million for the proceeds from the exercise of stock options, offset by common stock repurchases of $3.3 million. Net cash used in financing activities for the first nine months of 2001 totalled approximately $0.1 million, consisted principally of $1.5 million for the common stock repurchases, offset by proceeds from the exercise of stock options of $1.4 million. The Company renewed its line of credit with Bank One, which provides for borrowings up to $20.0 million and expires on August 31, 2003. 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 September 30, 2002, there was no indebtedness outstanding under the line of credit. The letters of credit bear a 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. 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 - Risks Related to Possible Acquisitions - Limited Intellectual Property Protection 10 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 September 30, 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. 11 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. While the Company is a party to ordinary routine litigation incidental to its business, the Company is 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 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K The Corporation did not file any reports on Form 8-K during the three month period ended September 30, 2002. 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. Date October 30, 2002 By /s/ Bharat Desai ----------------------- Bharat Desai, President and Chief Executive Officer Date October 30, 2002 By /s/ Keshav Murugesh ----------------------- Keshav Murugesh, Chief Financial Officer 13 CERTIFICATIONS I, Bharat Desai, Chief Executive Officer of Syntel, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Syntel, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date October 30, 2002 By /s/ Bharat Desai ------------------------------------------- Bharat Desai, Chief Executive Officer 14 CERTIFICATIONS I, Keshav Murugesh, Chief Financial Officer of Syntel, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Syntel, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date October 30, 2002 ---------------------------------------- By /s/ Keshav Murugesh ---------------------------------------- Keshav Murugesh, Chief Financial Officer 15 EXHIBIT INDEX Exhibit No. Description 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 16 EX-99.1 3 k72432exv99w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Syntel, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bharat Desai, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Bharat Desai - ------------------------------------------- Bharat Desai Syntel, Inc. Chief Executive Officer October 30, 2002 17 EX-99.2 4 k72432exv99w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Syntel, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Keshav Murugesh, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Keshav Murugesh - ------------------------------------------- Keshav Murugesh Syntel, Inc. Chief Financial Officer October 30, 2002 18 -----END PRIVACY-ENHANCED MESSAGE-----