-----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, Rn2Arow/jRp7Wgsedg9xswZMsPrTROIXs90c0iX3WwmsNO6CbIkHXQ3eBh7oB9qi VLXMQCH8+XYNZeo0UtOqEg== 0000950124-03-003509.txt : 20031110 0000950124-03-003509.hdr.sgml : 20031110 20031110091451 ACCESSION NUMBER: 0000950124-03-003509 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031110 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: 03986816 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 k80510e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED 09/30/03 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, 2003 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) 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: 39,979,388 shares issued and outstanding as of October 14, 2003. 1 SYNTEL, INC. INDEX
Page ---- Part I Financial Information Item 1 Financial Statements Condensed Consolidated Statements of Income 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 5 Notes to the Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of 12 Financial Condition and Results of Operations Item 3 Quantitative and Qualitative Disclosures about Market Risk 15 Item 4 Controls and Procedures 16 Part II Other Information 17 Signatures 18 Certificate of Principal Executive officer 20 Certificate of Principal Financial officer 21
2 SYNTEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME UNAUDITED (In thousands, except per share data)
THREE MONTHS NINE MONTHS ENDED SEPT 30 ENDED SEPT 30 ---------------------------- ----------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net Revenues $ 44,105 $ 42,126 $ 132,098 $ 122,116 Cost of revenues 25,738 23,332 74,974 71,794 --------- --------- --------- --------- Gross profit 18,367 18,794 57,124 50,322 Selling, general and administrative expenses 5,371 7,976 19,769 23,645 --------- --------- --------- --------- Income from operations 12,996 10,818 37,355 26,677 Other income, principally interest 632 795 2,092 2,206 --------- --------- --------- --------- Income before income taxes 13,628 11,613 39,447 28,883 Provision for Income tax 2,884 2,924 10,052 7,548 --------- --------- --------- --------- Net income before profit / (loss) from equity investment 10,744 8,689 29,395 21,335 Profit / (Loss) from equity investment 13 0 (34) 0 --------- --------- --------- --------- Net income $ 10,757 $ 8,689 $ 29,361 $ 21,335 ========= ========= ========= ========= DIVIDEND PER SHARE $ 1.31 $ 0.00 $ 1.31 $ 0.00 EARNINGS PER SHARE Basic $ 0.27 $ 0.22 $ 0.74 $ 0.55 Diluted $ 0.26 $ 0.22 $ 0.72 $ 0.54 Weighted average common shares outstanding : Basic 39,718 38,726 39,478 38,672 ========= ========= ========= ========= Diluted 40,975 39,509 40,634 39,788 ========= ========= ========= =========
See notes to the condensed consolidated financial statements 3 SYNTEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
SEPTEMBER 30, DECEMBER 31, 2003 2002 ---- ---- (UNAUDITED) (NOTE 1) ----------- -------- ASSETS Current assets: Cash and cash equivalents $100,091 $134,976 Investments, marketable securities 24,965 5,737 Accounts receivable, net of allowance for doubtful accounts 30,416 24,329 Advanced billings and other current assets 8,162 9,674 -------- -------- Total current assets 163,634 174,716 Property and equipment 24,335 20,950 Less accumulated depreciation 17,853 15,801 -------- -------- Property and equipment, net 6,482 5,149 Goodwill 906 906 Deferred income taxes and other noncurrent assets 2,919 2,801 -------- -------- $173,941 $183,572 ======== ======== LIABILITIES Current liabilities: Accrued payroll and related costs $ 11,454 $ 11,885 Accounts payable and other current liabilities 9,284 9,027 Income taxes payable 7,871 2,530 Deferred revenue 2,124 5,286 -------- -------- Total liabilities 30,733 28,728 SHAREHOLDERS' EQUITY Total Shareholders' equity 143,208 154,844 -------- -------- Total liabilities and shareholders' equity $173,941 $183,572 ======== ========
See notes to the condensed consolidated financial statements 4 SYNTEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED (In thousands)
NINE MONTHS ENDED SEPTEMBER 30 2003 2002 ---- ---- Cash flows from operating activities: Net income $ 29,361 $ 21,335 --------- --------- Adjustments to reconcile net income to net cash provided by / (used in) operating activities: Depreciation and amortization 1,913 1,422 Realized (gains) on sales of available-for-sale securities (414) (390) Deferred income taxes 981 (98) Stock warrants sales incentive 1,621 0 Loss on equity investments 34 0 Changes in assets and liabilities: Accounts receivable, net (4,860) 5,721 Advance billing and other assets 442 (291) Accrued payroll and other liabilities 4,418 (5,730) Deferred revenues (3,161) (2,302) --------- --------- Net cash provided by operating activities 30,335 19,667 Cash flows from investing activities: Purchase of Property and equipment (3,012) (1,193) Equity and other investments 223 0 Purchase of available-for-sale securities (24,601) (15,175) Proceeds from sales of available-for-sale securities 7,002 24,508 --------- --------- Net cash provided by / ( used in ) investing activities (20,388) 8,140 Cash flows from financing activities: Net proceeds from issuance of stock 5,812 3,802 Common stock repurchases (160) (3,325) Dividend paid (49,865) 0 --------- --------- Net cash provided by / (used in) financing activities (44,213) 477 Effect of foreign currency exchange rate changes on cash (619) 331 --------- --------- Net (decrease)/ increase in cash and cash equivalents (34,885) 28,615 Cash and cash equivalents, beginning of period 134,976 88,010 ========= ========= Cash and cash equivalents, end of period $ 100,091 $ 116,625 ========= ========= NON CASH INVESTING AND FINANCING ACTIVITIES Cash dividend for third quarter of 2003 declared but unpaid as on September 30, 2003 $ 2,397 $ 0
See notes to the condensed consolidated financial statements 5 SYNTEL, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED 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 in United States 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 its subsidiaries as of September 30, 2003, the results of their operations for the three month and nine month periods ended September 30, 2003 and September 30, 2002, and cash flows for the nine months ended September 30, 2003 and September 30, 2002. The condensed consolidated balance sheet as of December 31, 2002 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2002. Operating results for the nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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 India 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 Australia limited liability Company. All intercompany balances and transactions have been eliminated. As of September 30, 2003, the Company has consolidated Skillbay.com, which until that date was accounted for as an equity basis investment, after Syntel acquired 100% of the voting interest in Skillbay.com from the sole voting shareholder. The effect of the consolidation of Skillbay.com was not significant to the Syntel financials. 3. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities including the recoverability of tangible and intangible assets, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts including, but not limited to warranty costs, allowance for doubtful accounts, reserves for employee benefits, amortization and impairment of goodwill, contingencies and litigation, the recognition of revenues and profits based on the percentage of completion method. Actual results could differ from those estimates and assumptions used in the preparation of the accompanying financial statements. During the third quarter of 2003, in connection with settlements and other changes in estimates of underlying litigation and related legal costs the Company reduced its accounts payable and other current liabilities by $1.7 million. The Company also reduced its allowance for doubtful accounts by $0.7 million primarily on account of successful collection of overdue debts that were previously provided for or written off. The above reversals had a post tax impact of increasing the diluted earnings for the quarter by $0.04 per share. 6 4. FOREIGN CURRENCY TRANSLATION The financial statements of the Company's foreign subsidiaries use the currency of the primary economic environment in which they operate as its functional currency. Revenues, costs and expenses of the foreign subsidiaries are translated to U. S. dollars at average period exchange rates. Assets and liabilities are translated to U. S. dollars at period-end exchange rates with the effects of these translation adjustments being reported as a separate component of accumulated other comprehensive income in shareholders' equity. A portion of the Company's costs in India are denominated in local currency and are subject to currency exchange fluctuations, which have not had any material adverse effect on the Company's results of operations. 5. RECLASSIFICATION Certain prior quarter amounts have been reclassified to conform with the current quarter presentation. 6. REVENUE RECOGNITION The Company recognizes revenues from time and material contracts as services are rendered and costs are incurred. Revenue on fixed-price, development projects is measured by the percentage of costs incurred to date to the estimated total costs at completion. The Company issues invoices related to fixed price contracts based on achievement of milestones during a project or other contractual terms. Differences between the timing of billings and the recognition of revenue based upon the percentage of completion method of accounting, are recognized as accrued or deferred revenue. 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. Revenues are reported net of sales incentives. Reimbursements of out-of-pocket expenses are included in net revenue in accordance with Emerging Issues Task Force Consensus ("EITF") 01-14, "Income Statement Characterization of Reimbursement received for `Out of Pocket' expenses incurred". 7. 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, 2003 and 2002, approximately $ 23.9 million and $ 58.8 million, respectively, are in money market accounts and 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, in money market accounts with various banking institutions, including other U.S.-based and local India-based banks and represent certificates of deposit, corporate bonds, and treasury notes. 8. STOCK WARRANTS SALES INCENTIVE During 2002, the Company granted to a significant customer an immediately exercisable warrant entitling the customer to purchase 322,210 shares of Company stock at an exercise price of $7.25 per share. The stated exercise price was based upon the customer achieving a specified minimum level of purchases of services (the "Performance Milestone") from the Company over a specified performance period ending on October 16, 2003. The customer exercised the warrant in February 2003 and received 209,739 shares in a cashless exercise. The customer has now earned the sales incentive as they have met the performance milestone over the specified performance period ending on October 16, 2003. 7 In accordance with EITF 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products", the Company has recorded the value of sales incentive as a reduction of revenues, to the extent of revenues earned up to September 30, 2003. The measurement of the sales incentive, which previously was based on the market value of the Company's stock at each period end, has been finalised based on sale of the shares in quarter ended September 30, 2003 by the customer at an average sale price of $22.31. Accordingly, the final value of the sales incentive is $4.7 million. Cumulatively, the Company has recorded $4.5 million of the sales incentive as a reduction of revenue up to September 30, 2003 and the remaining sales incentive of $0.2 million has been recorded as a contra-equity item in Shareholders' Equity. The remaining sales incentive of $0.2 million, will be recorded against revenues from the customer during the fourth quarter of 2003 for the remaining revenues earned from October 1, 2003 to October 16, 2003. The Company has granted the same customer certain additional performance warrants at significantly higher performance milestones. The Company has estimated that such higher performance milestones will not be met. Accordingly, the Company has not accounted for these performance warrants. If and when the Company estimates that such higher performance milestones will be met, the sales incentive associated with the performance warrants will be recorded as a reduction of revenue. 9. COMPREHENSIVE INCOME Total Comprehensive Income for the three and nine month periods ended September 30, 2003 and 2002 is as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 30 SEPTEMBER 30 ------------ ------------ 2003 2002 2003 2002 ---- ---- ---- ---- Net income $10,757 $ 8,689 $29,361 $21,335 Other Comprehensive Income Unrealized Gain 291 68 235 98 Foreign currency translation adjustments 626 367 1443 473 ------- ------- ------- ------- Total comprehensive income $11,674 $ 9,124 $31,039 $21,906 ======= ======= ======= =======
10. 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 ------------------ SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 ------------------ ------------------ Weighted Earnings Weighted Earnings Average per Average per Shares share Shares share ------ ----- ------ ------ (in thousands, except per share earnings) Basic earnings per share 39,718 0.27 38,726 0.22 Net dilutive effect of stock options outstanding 1,257 (0.01) 783 - Diluted earnings per share 40,975 0.26 39,509 0.22
8
NINE MONTHS ENDED ----------------- SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 ------------------ ------------------ Weighted Earnings Weighted Earnings Average per Average per Shares share Shares share ------ ----- ------ ------ (in thousands, except per share earnings) Basic earnings per share 39,478 0.74 38,672 0.55 Net dilutive effect of stock options outstanding 1,156 (0.02) 1,116 (0.01) Diluted earnings per share 40,634 0.72 39,788 0.54
11. 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 September 30, 2003 and September 30, 2002 is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 30 SEPTEMBER 30 ------------ ------------ 2003 2002 2003 2002 (in thousands) (in thousands) Net Revenues: Applications Outsourcing $ 34,561 $ 28,759 $100,435 $ 82,865 e-Business 7,491 9,673 24,565 26,889 TeamSourcing 2,053 3,694 7,098 12,362 -------- -------- -------- -------- $ 44,105 $ 42,126 $132,098 $122,116 ======== ======== ======== ======== Gross Profit: Applications Outsourcing $ 15,640 $ 14,311 $ 46,233 $ 38,375 e-Business 2,501 4,074 10,108 10,313 TeamSourcing 226 409 783 1,634 -------- -------- -------- -------- $ 18,367 $ 18,794 $ 57,124 $ 50,322 ======== ======== ======== ========
During the three months ended September 30, 2003, revenue from American Express Corp. was $6.9 million, which is approximately 16% of net revenues, as compared to $8.2 million during the three months ended September 30, 2002, contributing approximately 19 % of total consolidated revenues. During the nine months ended September 30, 2003, revenue from American Express Corp. was $20.1 million, which is approximately 15 % of net revenues as compared to $20.4 million during the nine months ended September 30, 2002, contributing approximately 17 % of total consolidated revenues. 9 12. GEOGRAPHIC INFORMATION Customers of the Company are primarily situated in the United States. Net revenues and net income/(loss) by geographic location were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 2003 2002 2003 2002 (in thousands) (in thousands) Net Revenues North America, primarily United States $ 40,421 $ 38,735 $ 120,803 $ 112,963 India 18,866 12,554 51,234 29,831 UK 3,328 3,131 10,632 8,317 Far East, primarily Singapore 253 217 552 692 Germany 163 20 192 76 Intercompany revenue elimination (primarily India) (18,926) (12,531) (51,315) (29,763) --------- --------- --------- --------- Net Revenue $ 44,105 $ 42,126 $ 132,098 $ 122,116 ========= ========= ========= ========= Net Income / (loss) North America, primarily United States $ 2,076 $ 2,848 $ 5,437 $ 8,323 India 8,627 5,610 23,521 13,280 UK 111 332 740 (24) Far East, primarily Singapore (31) (15) (124) 39 Germany (26) (86) (213) (283) --------- --------- --------- --------- Net Income $ 10,757 $ 8,689 $ 29,361 $ 21,335 ========= ========= ========= =========
13. INCOME TAXES The following table accounts for the differences between the provision for income taxes and the amounts obtained by applying the statutory U. S. federal income tax rate of 35% to income before income taxes:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 2003 2002 2003 2002 Income before income taxes $ 13,628 $ 11,613 $ 39,447 $ 28,883 --------- --------- --------- --------- Statutory provision 35.0% 35.0% 35.0% 35.0% State taxes net of federal benefit 1.1% 1.5% 1.1% 1.7% Tax Free Investment Income (0.4%) (0.8%) (0.6%) (1.0%) Foreign effective tax rates different from US Statutory Rate (18.9%) (12.3%) (15.9%) (10.3%) Tax reserves 4.4% 1.8% 5.9% 1.4% Other (0.7%) --------- --------- --------- --------- PROVISION FOR INCOME TAXES 21.2% 25.2% 25.5% 26.1% ========= ========= ========= =========
The Company records provisions for income taxes based on enacted tax laws and rates in the various taxing jurisdictions in which it operates. In determining the tax provisions, the Company also provides for tax contingencies based on the Company's assessment of future regulatory reviews of filed tax returns. Such reserves are recorded in income taxes payable, are based on management's estimates and accordingly are subject to revision based on additional information and are dependent upon the judgment of regulatory reviews. 10 14. STOCK BASED COMPENSATION As permitted by SFAS 123, the Company has elected to measure stock based compensation cost using the intrinsic value method, in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and has adopted the disclosure requirements of SFAS 148, Accounting for Stock-Based Compensation -- Transition and Disclosure, an amendment of FASB Statement No. 123. Had the fair value of each stock option granted been determined consistent with the methodology of FASB Statement No. 123, "Accounting for Stock Based Compensation", the pro forma impact on the Company's net income and earnings per share is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 2003 2002 2003 2002 (in thousands) in thousands) NET INCOME As reported $ 10,757 $ 8,689 $ 29,361 $ 21,335 Impact of SFAS No. 123, net of tax 60 (1) (1,201) (1,766) ---------------------------------------------------------- PRO FORMA NET INCOME $ 10,817 $ 8,688 $ 28,160 $ 19,569 EARNINGS PER SHARE, PRO FORMA Basic earnings per share $ 0.27 $ 0.22 $ 0.71 $ 0.51 Diluted earnings per share $ 0.26 $ 0.22 $ 0.69 $ 0.49 EARNINGS PER SHARE AS REPORTED Basic earnings per share $ 0.27 $ 0.22 $ 0.74 $ 0.55 Diluted earnings per share $ 0.26 $ 0.22 $ 0.72 $ 0.54 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 39,718 38,726 39,478 38,672 Diluted 40,975 39,509 40,634 39,788
Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions as on September 30, 2003 and 2002:
AS ON AS ON SEP 30 2003 SEP 30 2002 ----------- ----------- Estimated fair value of option granted $ 5.52 $ 5.26 ASSUMPTIONS Risk free interest rate 3.14% 3.25% Expected life 5 5 Expected volatility 76.91% 79.49% Expected dividend yield 1.05% 0.00%
15. EVENTS AFTER THE BALANCE SHEET DATE The Board of Directors at a meeting held on July 28, 2003 approved a quarterly cash dividend of $0.06 per share to the Company's shareholders of record on September 30, 2003, payable on October 13, 2003. Accordingly, the Company paid a total of $2.4 million as a dividend to its shareholders on October 13, 2003. 11 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 by 4.7% to $44.1 million in the three months ended September 30, 2003 from $42.1 million in the three months ended September 30, 2002. Fixed price revenues represented approximately 53% and 48% of total revenues for the three months ended September 30, 2003 and 2002 respectively. Worldwide billable headcount, including personnel employed by Syntel India, Syntel Singapore, Syntel Europe, and Syntel Germany as of September 30, 2003 increased to 2,584 compared to 1,938 as of September 30, 2002. As of September 30, 2003, the Company had approximately 51% of its billable workforce in India as compared to 38% as of September 30, 2002. Significant growth in billable headcount was in India where a majority of the Company's Development Centers are located. APPLICATIONS OUTSOURCING REVENUES. Applications Outsourcing revenues increased to $34.6 million for the three months ended September 30, 2003, or 78.4% of total revenues, from $28.8 million, or 68.3% of three months ended September 30, 2002. The $5.8 million increase for the three months ended September 30, 2003 was attributable principally to net growth in new engagements, contributing approximately $16.8 million, largely offset by $11.0 million in lost revenues as a result of project completion. The revenues for the nine months ended September 30, 2003 increased to $100.4 million, or 76.0% of total revenues, from $82.9 million or 67.9% of total revenues for the nine months ended September 30, 2002. The $17.5 million increase for the nine months ended September 30, 2003 was attributable principally to net growth in new engagements, contributing approximately $41.4 million, largely offset by $23.9 million in lost revenues as a result of projects completion and reductions in existing projects. 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 increased to 54.7% of total Applications Outsourcing revenues for the three months ended September 30, 2003, from 50.2% for the three months ended September 30, 2002. The 4.5% increase in cost of revenues, as a percent of revenues for the three months ended September 30, 2003 is principally attributable to aggressive hiring in the third quarter. Although, such hiring impacted costs during this quarter they did not necessarily add to revenues as a significant number of these hires went into training. Cost of revenues for the nine months ended September 30, 2003 increased to 54.0% of total Applications Outsourcing revenues, from 53.7% for the nine months ended September 30, 2002, which is a marginal increase of 0.3% in cost of revenues. E-BUSINESS REVENUES. e-Business revenues decreased to $7.5 million for the three months ended September 30, 2003, or 17.0% of total consolidated revenues, from $9.7 million, or 23.0% of total consolidated revenues for the three months ended September 30, 2002. The $2.2 million decrease for the three months ended September 30, 2003 was principally due to net growth in new engagements contributing approximately $5.8 million, offset by $6.4 million in lost revenues as a result of project completion and a $1.6 million sales incentive granted to a significant customer. Revenues for the nine months ended September 30, 2003 decreased to $24.6 million, or 18.6 % of total revenues, from $26.9 million or 22.0% of total revenues for the nine months ended September 30, 2002. The $2.3 million decrease for the nine months ended September 30, 2003 was attributable principally to a $1.6 million sales incentive granted to a significant customer and net growth in new engagements, contributing approximately $13.6 million, offset by $14.3 million in lost revenues as a result of projects completion and reductions in existing projects. 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 66.6% of total e-Business revenues for the three months ended September 30, 2003, from 57.9% for the three months ended September 30, 2002. Cost of revenues for the nine months ended September 30, 2003 decreased to 58.9% of total e-Business revenues, from 61.6% for the nine months ended September 30, 2002. The 8.7% increase in cost of revenues, as a percent of revenues for the three months ended September 30, 2003 is principally attributable to a reduction in revenues in this segment on account of a sales incentive granted to a significant customer and additional hiring in the third quarter. The 2.7% decrease in cost of revenues, as a percent of revenues for the nine months ended September 30, 2003 is principally attributable to the increase in the offshore component of the services. 12 TEAMSOURCING REVENUES. TeamSourcing revenues decreased to $2.1 million for the three months ended September 30, 2003, or 4.7% of total revenues, down from $3.7 million or 8.8 % of total revenues for the three months ended September 30, 2002. The revenues for nine months ended September 30, 2003 decreased to $7.1 million, or 5.4 % of total revenues, from $12.4 million or 10.1% of total revenues for the nine months ended September 30, 2003. Both the $1.6 million decrease for the three months ended September 30, 2003 as well as the $5.3 million decrease for the nine months ended September 30, 2003 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 on this segment and focus 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 89.0% of TeamSourcing revenues for the three months ended September 30, 2003, from 88.9% for the three months ended September 30, 2002. Cost of revenues for the nine months ended September 30, 2003 increased to 89.0% of total TeamSourcing revenues, from 86.8% for the nine months ended September 30, 2002. Both the 0.1% and 2.2% increase in cost of revenues, as a percent of revenues for the third quarter and for the nine months ended September 30, 2003 respectively, were attributable primarily to lower utilization and the conscious decision by management to reduce organizational focus on this segment and focus on higher margin segments. As a result of the continued uncertainty and weakness in the global economic and political environment, companies continue to seek to outsource their IT spending offshore. However, the Company also sees clients' needs to reduce their costs and the increased competitive environment among IT companies. The Company expects these conditions to continue in the next few quarters. In response to the continued pricing pressures and increased competition for outsourcing clients, the Company continues to focus on expanding its service offerings into areas with higher and sustainable price margins, on managing its cost structure, and on anticipating and correcting for decreased demand, and skill and pay level imbalances in its personnel. The Company's immediate measures include increased management of compensation expenses through headcount management and variable compensation plans, as well as increasing utilization rates or reducing non-deployed (sub-contractors) or non-billable IT professionals. 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 September 30, 2003 were $5.4 million or 12.2% of total revenues, compared to $7.9 million or 18.9% of total revenues for the three months ended September 30, 2002. Selling, general, and administrative costs for the three months ended September 30, 2003 includes reversal of $0.7 million bad debt expense, primarily on account of successful recovery of receivables previously provided for as allowance for doubtful accounts or written off, $1.7 million decrease in the estimated reserves for litigation and legal fees due to successful settlements ($1.4 million) and other changes in estimates of underlying legal costs ($0.3 million) during the third quarter and $0.3 million reduction in office related expenses due to settlement of vendor disputes and other miscellaneous reversals. Selling, general, and administrative costs for the three months ended September 30, 2002 included an additional allowance for doubtful accounts of $0.9 million after collection of $0.1 million of previously provided receivables and a $0.1 million reduction in office related expenses due to reversal of outstanding checks pertaining to earlier periods. Selling, general, and administrative costs for the nine months ended September 30, 2003 were $19.8 million or 15.0% of total revenues, compared to $23.6 million or 19.4% of total revenues for the nine months ended September 30, 2002. Selling, general, and administrative costs for the nine months ended September 30, 2003 includes reversals of $1.5 million primarily on account of successful recovery of receivables previously provided for as allowance for doubtful accounts or written off, $2.7 million revision of the estimated reserve for litigation and legal fees due to settlements and other changes in estimates of underlying legal costs, $0.5 million reduction in office related expenses due to the settlement of vendor disputes and other miscellaneous reversals, and a downward revision of the 2002 estimates of bonus compensation of $0.8 million. Selling, general, and administrative costs for the nine months ended September 30, 2002 included an additional allowance for doubtful accounts of $1.2 million after collection of $0.9 million of previously provided receivables, a downward revision of the 2001 estimates of bonus compensation of $2.2 million and a $0.1 million reduction in office related expenses due to reversal of outstanding checks pertaining to earlier periods. 13 The factors which affect the fluctuations in our allowance for doubtful accounts and write offs of uncollectible accounts include the financial health and economic environment of our clients. No one client has contributed significantly to a loss and we have had no significant changes in our collection policies or payment terms. LIQUIDITY AND CAPITAL RESOURCES The Company generally 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 $30.3 million for the nine months ended September 30, 2003, compared to $19.7 million for the nine months ended September 30, 2002. The number of days sales outstanding in accounts receivable was at approximately 62 days and 54 days as of September 30, 2003 and September 30, 2002 respectively. Net cash used in investing activities was $20.4 million for the nine months ended September 30, 2003, consisting principally of $24.6 million for the purchase of available-for-sale securities and $3.0 million for capital expenditures, consisting principally of software, PCs, communication equipment and property; partially offset by $7.0 million of proceeds from sale of available-for-sale securities. Net cash provided by investing activities was $8.1 million for the nine months ended September 30, 2002, which consisted principally of $24.5 million of proceeds from the sale of available-for-sale securities, partially offset by $15.2 million for the 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 financing activities was $44.2 million for the nine months ended September 30, 2003, consisting principally of $5.8 million in proceeds from the exercise of stock options, offset by common stock repurchases of $0.2 million and a $49.9 million dividend payout. Net cash provided by financing activities was $0.5 million for the nine months ended September 30, 2002, consisted principally of $3.8 million in proceeds from the exercise of stock options; offset by common stock repurchases of $3.3 million. The Company has a line of credit with Bank One, which provides for borrowings of up to $20.0 million. The line of credit has been renewed during this quarter and it now expires on August 31, 2004. 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, 2003, there was no indebtedness outstanding under the line of credit. The Line of Credit has a sub-limit of $5.0 million for letters of credit which bear a fee of 1 % per annum of the face value of each standby letter of credit issued. Borrowings under the line of credit bear interest at 1) a formula approximating the bank's Eurodollar rate plus an applicable margin of 1.25% or 2) the bank's prime rate plus 1.25%. The Company has made no borrowings under this facility. 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. CRITICAL ACCOUNTING POLICIES Revenue recognition is the most significant accounting policy for the Company. The Company recognizes revenue from time and material contracts as services are rendered and costs are incurred. Revenue on fixed price development 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. 14 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. o Recruitment and Retention of IT Professionals o Government Regulation of Immigration o Variability of Quarterly Operating Results o Customer Concentration; Risk of Termination o Exposure to Regulatory and General Economic Conditions in India o Intense Competition o Ability to Manage Growth o Fixed-Price Engagements o Potential Liability to Customers o Dependence on Principal o Risks Related to Possible Acquisitions o Limited Intellectual Property Protection ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is primarily exposed to the effects of changes in foreign currency. Foreign currency exchange risk exists as costs are paid in local currency and receipts are provided in U.S. dollars. The risk is partially mitigated as the Company has sufficient resources in the local currency to meet immediate requirements. The Company's holdings and positions in market sensitive instruments do not subject the Company to material risk. These exposures are monitored and managed by the Company. During the third quarter of 2003, the Indian rupee has appreciated by 2% as compared to second quarter of 2003 which has marginally reduced the Company's gross margin by 0.2%. The Indian rupee denominated Cost of revenues and Selling, General and Administrative cost was 17% and 26%, respectively which did not have a significant impact. RECENT ACCOUNTING PRONOUNCEMENTS Accounting for Derivative Instruments and Hedging Activities - In April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. This Statement is effective for contracts entered into or modified after June 30, 2003, except for specific situations and for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively. The Company has assessed the implication of this interpretation and no significant impact is anticipated. Accounting for Financial Instruments with Characteristics of Both Liabilities and Equity - On May 15, 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". The Statement requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. The Statement is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company has assessed the implication of this interpretation and no significant impact is anticipated. 15 ITEM 4. CONTROLS AND PROCEDURES. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Based on their evaluation of the Company's disclosure controls and procedures as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q as well as mirror certifications from senior Management, the Company's Chairman, President and Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and are operating in an effective manner. DISCLOSURE CONTROLS AND INTERNAL CONTROLS Disclosure Controls are procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's (the SEC) rules and forms. Disclosure Controls are also designed to ensure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Internal Controls are procedures designed to provide reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles. LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS The company's management, including the CEO and CFO, does not expect that our Disclosure Controls or our Internal Controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with its policies or procedures. SCOPE OF THE CONTROLS EVALUATION In the course of the Controls Evaluation, we sought to identify data errors, control problems or acts of fraud and confirm that appropriate corrective actions, including process improvements, were being undertaken. Our Internal Controls are also evaluated on an ongoing basis by our Internal Audit Department and by other personnel in our organization. The overall goals of these various evaluation activities are to monitor our Disclosure Controls and our Internal Controls, and to modify them as necessary; our intent is to maintain the Disclosure Controls and the Internal Controls as dynamic systems that change as conditions warrant. Among other matters, we sought in our evaluation to determine whether there were any "significant deficiencies" or "material weaknesses" in the company's Internal Controls, and whether the company had identified any acts of fraud involving personnel with a significant role in the company's Internal Controls. This information was important both for the Controls Evaluation generally, and because the Rule 13a-14 Certifications of the CEO and CFO require that the CEO and CFO disclose that information to our Board's Audit Committee and our independent auditors. We also sought to deal with other controls matters in the Controls Evaluation, and in each case if a problem was identified, we considered what revision, improvement and/or correction to make in accordance with our ongoing procedures. From the date of the Controls Evaluation to the date of this Report, there have been no significant changes in Internal Controls or in other factors that could significantly affect Internal Controls. CONCLUSIONS Based upon the Controls Evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective to ensure that material information relating to Syntel and its consolidated subsidiaries is made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared, and that our Internal Controls are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles. 16 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 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 32 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (b) Reports on Form 8-K On July 18, 2003, the Company filed a Report on Form 8-K dated July 18, 2003. In that report on Form 8-K, the Company reported under Item 12 (furnished under Item 9) that it was releasing its results of operations and financial condition for the three months ended June 30, 2003 and included the text of that press release as an exhibit under Item 7. 17 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 31st, 2003 /s/ Bharat Desai ---------------------------------------- Bharat Desai, Chairman, President and Chief Executive Officer Date October 31st, 2003 /s/ Keshav Murugesh ---------------------------------------- Keshav Murugesh, Chief Financial Officer 18 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 32 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer 19 EX-31.1 3 k80510exv31w1.txt 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATIONS I, Bharat Desai, Chairman, President, and 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date October 31st, 2003 /s/ Bharat Desai - --------------------------------------------------------------- Bharat Desai, Chairman, President, and Chief Executive Officer 20 EX-31.2 4 k80510exv31w2.txt 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date October 31st, 2003 /s/ Keshav Murugesh - ----------------------------------------------------------------------- Keshav Murugesh, Chief Financial Officer 21 EX-32 5 k80510exv32.txt 906 CERTIFICATION OF CEO & CFO EXHIBIT 32 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, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Bharat Desai, Chairman, President, and Chief Executive Officer of the Company and Keshav Murugesh, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) and 15(d) 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. Chairman, President, and Chief Executive Officer October 31st, 2003 /s/ Keshav Murugesh ------------------------------------------------ Keshav Murugesh Syntel, Inc. Chief Financial Officer October 31st, 2003 22 -----END PRIVACY-ENHANCED MESSAGE-----