-----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, WaOJv6X9Qpl5UZXQs7ctXq6VmtJsHrCNPmjuiDDwCJ5ClDU1lQ7SJV1PEFadZ4cO 5etxxuiiHOFvDMlkP+zmTA== 0000950124-04-002145.txt : 20040507 0000950124-04-002145.hdr.sgml : 20040507 20040507163909 ACCESSION NUMBER: 0000950124-04-002145 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040507 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: 04789629 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 k84953e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED 03/31/04 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2004 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: 40,260,339 shares issued and outstanding as of April 29, 2004. 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 17 Item 4 Controls and Procedures 17 Part II Other Information 19 Signatures 20 Certificate of Chief Executive officer 22 Certificate of Chief Financial officer 23 Certification of Chief Executive Officer and Chief Financial Officer 24
2 SYNTEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED MARCH 31, --------- 2004 2003 ---- ---- Net Revenues $45,089 $44,078 Cost of revenues 26,085 25,080 ------- ------- GROSS PROFIT 19,004 18,998 Selling, general and administrative expenses 8,839 7,889 ------- ------- Income from operations 10,165 11,109 Other income, principally interest 996 615 ------- ------- Income before income taxes 11,161 11,724 Provision for income tax 1,839 3,347 ------- ------- Net income before loss from equity investment 9,322 8,377 Loss from equity investment -- 25 ------- ------- Net income $ 9,322 $ 8,352 ======= ======= Dividend per share $ 0.06 $ -- EARNINGS PER SHARE: Basic $ 0.23 $ 0.21 Diluted $ 0.23 $ 0.21 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 40,121 39,247 Diluted 40,614 40,493
The accompanying notes are an integral part of the consolidated financial statements. 3 SYNTEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 2004 2003 ---- ---- ASSETS Current assets: Cash and cash equivalents $113,702 $110,699 Short term investments, principally marketable securities 31,875 26,137 Accounts receivable, net of allowances of $814 and $809 at March 31, 2004 and December 31, 2003, respectively 26,778 25,828 Revenue earned in excess of billings 8,229 6,601 Deferred income taxes and other current assets 3,257 5,617 -------- -------- Total current assets 183,841 174,882 Property and equipment 27,102 25,617 Less accumulated depreciation 19,412 18,502 -------- -------- Property and equipment, net 7,690 7,115 Goodwill 906 906 Deferred income taxes and other non current assets 3,311 3,178 -------- -------- $195,748 $186,081 ======== ======== LIABILITIES Current liabilities: Accounts payable 2,098 1,662 Accrued payroll and related costs 11,548 11,851 Income taxes payable 7,841 6,507 Accrued liabilities 4,897 5,798 Deferred revenue 2,792 4,456 Dividends payable 2,415 2,401 -------- -------- Total current liabilities 31,591 32,675 SHAREHOLDERS' EQUITY Total Shareholders' Equity 164,157 153,406 -------- -------- Total liabilities and shareholders' equity $195,748 $186,081 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 SYNTEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, --------- 2004 2003 ---- ---- Cash flows from operating activities: Net income $ 9,322 $ 8,352 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 666 534 Realized (gains)/losses on sales of available-for-sale securities (542) -- Deferred income taxes (84) 388 Stock warrants 77 86 Loss on equity investments -- 25 Changes in assets and liabilities: Accounts receivable and revenue earned in excess of billings, net (1,536) (4,205) Other current assets 2,449 744 Accrued payroll and other liabilities 1,315 3,036 Deferred revenue (1,700) (1,806) --------- --------- Net cash provided by operating activities 9,967 7,154 --------- --------- Cash flows used in investing activities: Property and equipment expenditures (1,016) (819) Purchase of available-for-sale securities (10,715) (2,465) Proceeds from sales of available-for-sale securities 6,296 -- --------- --------- Net cash (used in) investing activities (5,435) (3,284) --------- --------- Cash flows provided by (used in) financing activities: Net proceeds from issuance of stock 1,418 1,440 Common stock repurchases -- (160) Dividends paid (2,401) -- --------- --------- Net cash provided by (used in) financing activities (983) 1,280 --------- --------- Effect of foreign currency exchange rate changes on cash (546) (156) Net increase in cash and cash equivalents 3,003 4,994 Cash and cash equivalents, beginning of period $ 110,699 $ 134,976 --------- --------- Cash and cash equivalents, end of period $ 113,702 $ 139,970 ========= ========= Non cash investing and financing activities: Cash dividend for first quarter of 2004 declared but unpaid as on March 31, 2004 $ 2,415 $ -- Stock Warrants 77 86 --------- --------- $ 2,492 $ 86 ========= ========= Cash paid for income taxes $ 932 $ 942 ========= =========
The accompanying notes are an integral part of the 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 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 March 31, 2004, the results of their operations for the three month period ended March 31, 2004 and March 31, 2003, and cash flows for the three months ended March 31, 2004 and March 31, 2003. The year end condensed balance sheet as of December 31, 2003 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, 2003. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. 2. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION The consolidated financial statements include the accounts of Syntel, Inc. ("Syntel"), a Michigan corporation, and its wholly owned subsidiaries, Syntel (India) Ltd. ("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") an Ontario limited liability company; Syntel Deutschland GmbH, ("Syntel Germany") a German limited liability company; Syntel Hong Kong Ltd. ("Syntel Hong Kong") a Hong Kong limited liability company; Syntel Limited ("Syntel Mauritius") a Mauritius limited liability company; Syntel (Australia) Pty. Limited ("Syntel Australia"), an Australian limited liability company; Syntel Delaware LLC ("Syntel Delaware") a Delaware limited liability company; and SkillBay LLC, a Michigan limited liability company. All significant inter-company balances and transactions have been eliminated. 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include, but are not limited to allowance for doubtful accounts, impairment of goodwill, contingencies and litigation, the recognition of revenues and profits based on the proportional performance method and potential tax liabilities. Actual results could differ from those estimates and assumptions used in the preparation of the accompanying financial statements. 4. REVENUE RECOGNITION The Company recognizes revenues from TeamSourcing services provided through time and material contracts as the services are performed. Revenue from fixed-price applications management, maintenance and support engagements is recognized as earned which generally results in straight-line revenue recognition as services are performed continuously over the term of the engagement. Revenue on fixed-price, applications development and integration projects in the Company's application outsourcing and E-Business segments are measured using the proportional performance method of accounting. Performance is generally 6 measured based upon the efforts incurred to date in relation to the total estimated efforts to the completion of the contract. The Company monitors estimates of total contract revenues and cost on a routine basis throughout the delivery period. The cumulative impact of any change in estimates of the contract revenues or costs is reflected in the period in which the changes become known. In the event that a loss is anticipated on a particular contract, provision is made for the estimated loss. The Company issues invoices related to fixed price contracts based on either the achievement of milestones during a project or other contractual terms. Differences between the timing of billings and the recognition of revenue based upon the proportional performance method of accounting are recorded as revenue earned in excess of billings or deferred revenue in the accompanying financial statements. Revenues are reported net of sales incentives. Reimbursements of out-of-pocket expenses are included in revenue in accordance with Emerging Issues Task Force Consensus ("EITF') 01-14, "Income Statement Characterization of Reimbursement received for `Out of Pocket' expenses incurred". 5. CASH AND CASH EQUIVALENTS For the purpose of reporting Cash and Cash Equivalents, the Company considers all liquid investments purchased with maturity of three months or less to be cash equivalents. At March 31, 2004 and 2003, approximately $26.3 million and $63.1 million, respectively, represent corporate bonds and treasury notes held by Bank One, for which "AAA" rated letters of credit have been provided by the bank. The remaining amounts of cash and cash equivalents are invested in money market accounts with various banking and financial institutions. 6. STOCK WARRANTS SALES INCENTIVE During 2002, the Company granted to a significant customer immediately exercisable warrants 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 purchasing a specified minimum level of services (the "Performance Milestone") from the Company over a specified period ended on October 16, 2003. The customer earned the sales incentive as they met the Performance Milestone within the specified period. The customer exercised the warrant in February 2003 and received 209,739 shares in a cashless exercise. 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 recorded the value of this sales incentive as a reduction of revenues, to the extent of revenues earned up to October 16, 2003. The measurement of this sales incentive, which previously was based on the market value of the Company's stock at each period end, was finalized 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 was $4.7 million. Cumulatively, the Company had recorded $2.9 million of the sales incentive as a reduction of revenue up to December 31, 2002. The remaining sales incentive of $1.8 million was recorded during 2003, $0.09 million of which was recorded in the first quarter of 2003. The Company has also 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 during this year. 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. 7 7. COMPREHENSIVE INCOME Total Comprehensive Income for the three months period ended March 31, 2004 and 2003 was as follows:
THREE MONTHS ENDED MARCH 31, --------- 2004 2003 ---- ---- (in thousands) Net income $ 9,322 $8,352 Other comprehensive income - Unrealized Gain (loss) (245) 14 - Foreign currency translation adjustments 1,524 62 -------- ------ Total comprehensive income $ 10,601 $8,428 ======== ======
8. EARNINGS PER SHARE Basic and diluted earnings per share are computed in accordance with Statement of Financial Accounting Standards (SFAS) No, 128 "Earnings per share". Basic earnings per share are calculated by dividing net income by the weighted average number of shares outstanding during the applicable period. The Company has stock options outstanding, which are considered to be potentially dilutive to the basic earnings per share. Diluted earnings per share is calculated using the treasury stock method for the dilutive effect of options which have been granted pursuant to the stock option plan, by dividing the net income by the weighted average number of shares outstanding during the period adjusted for these potentially dilutive options, except when the results would be anti-dilutive. The potential tax benefits on exercise of stock options is considered as additional proceeds while computing dilutive earnings per share using the treasury stock method. The following table summarizes the movement in the Capital Structure from Dec 31, 2003.
PARTICULARS NO. OF SHARES (IN THOUSANDS) Balance as on December 31, 2003 40,016 ADD: Shares issued on exercise of stock options 226 Shares issued on exercise of warrants 3 ------ BALANCE AS ON MARCH 31, 2004 40,245 ------
The following table sets forth the computation of earnings per share.
THREE MONTHS ENDED MARCH 31, ---------------------------- 2004 2003 ---- ---- Weighted Earnings Weighted Earnings Average per Average per Shares Shares Shares Shares ------ ------ ------ ------ (in thousands, except per share earnings) Basic earnings per share 40,121 $ 0.23 39,247 $ 0.21 Potential dilutive effect of stock options outstanding 493 -- 1,246 -- ------ ------ ------ ------ DILUTED EARNINGS PER SHARE 40,614 $ 0.23 40,493 $ 0.21 ====== ====== ====== ======
8 9. SEGMENT REPORTING The Company is organized geographically and by business segment. For management purpose, the Company is primarily organized on a worldwide basis into four business segments: - Application Outsourcing - e-business - TeamSourcing - Others These segments are the basis on which the Company reports its primary segment information to management. The Others segment includes business process outsourcing. Management allocates all corporate expenses among the segments. No balance sheet/identifiable assets data is presented since the Company does not segregate its assets by segment. Financial data for each segment for the three months period ended March 31, 2004 and 2003 is as follows:
THREE MONTHS ENDED MARCH 31, --------- 2004 2003 ---- ---- (in thousands) REVENUES: Applications Outsourcing $33,854 $32,967 e-Business 8,501 8,466 TeamSourcing 2,429 2,645 Others 305 -- ------- ------- $45,089 $44,078 ------- ------- GROSS PROFIT: Applications Outsourcing $14,533 $15,010 e-Business 3,472 3,685 TeamSourcing 869 303 Others 130 -- ------- ------- 19,004 18,998 Selling, general and administrative expenses 8,839 7,889 ------- ------- Income from operations $10,165 $11,109 ------- -------
During the quarter ended March 31, 2004, one customer, American Express Corp., contributed revenue in excess of 10% of total consolidated revenues. Revenue from this customer was $6.8 million, contributing approximately 15.1% of total consolidated revenues during the first quarter of 2004. During the quarter ended March 31, 2003, two customers, American Express Corp. and Target Corporation, contributed revenues in excess of 10% of total consolidated revenues. Revenues from these customers were $6.5 million and $4.9 million, contributing approximately 15 % and 11%, respectively, of total consolidated revenues during the first quarter of 2003. 9 10. GEOGRAPHIC INFORMATION Customers of the Company are primarily located in the United States. Net revenues and net income (loss) attributed to each geographic location were as follows:
THREE MONTHS ENDED MARCH 31, ------------------ 2004 2003 ---- ---- (in thousands) NET REVENUES North America, primarily United States $ 39,911 $ 40,396 India 19,783 15,236 UK 3,900 3,543 Far East, primarily Singapore 371 137 Germany 1,205 5 Inter-company revenue elimination (primarily India) (20,081) (15,239) -------- -------- TOTAL REVENUE $ 45,089 $ 44,078 -------- -------- NET INCOME/(LOSS) North America, primarily United States 1,647 $ 1,372 India 6,760 6,802 UK 595 332 Far East, primarily Singapore 24 (51) Germany 296 (103) -------- -------- INCOME/(LOSS) AFTER INCOME TAXES $ 9,322 $ 8,352 -------- --------
11. INCOME TAXES The following table accounts for the differences between the federal statutory tax rate of 35% and the Company's overall effective tax rate :
THREE MONTHS ENDED MARCH 31, -------------------- 2004 2003 ---- ---- (in thousands) Income before income taxes 11,161 11,724 ------ ------ Statutory provision 35.0% 35.0% State taxes, net of federal benefit 0.7% 1.1% Tax-free investment income (0.5%) (0.9%) Foreign effective tax rates different from US statutory rate (18.7%) (13.7%) Tax reserves 0.0% 7.0% -------- -------- EFFECTIVE INCOME TAX RATE 16.5% 28.5% -------- --------
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, which 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 reviewers. During the first three months of 2004, the combined effects of continued offshore transition, reduced onsite profitability and consequential transfer pricing related changes, resulted in reducing the tax rate to 16.5 percent. The tax reduction applicable to the tax reserve had a positive impact on EPS of $0.02. Syntel (India) Limited (SIL) has not provided for disputed Indian income tax liabilities aggregating $2.2 million for the financial years 1995-96 to 2000-01. SIL has obtained an opinion from one independent legal counsel (former Chief Justice of the Supreme Court of India) for the financial year 1998-99 and two opinions from another independent legal counsel (also a former Chief Justice of the Supreme Court of India) for the financial years 1999-2000 and 2000-01, which support SIL's stand in this matter. Management believes the disputed matter for all other years is similar to those for which opinions have been obtained. SIL had filed an appeal with Commissioner of Income tax (Appeals)for the financial year 1998-99 and received a favorable decision. However the Income tax department has gone into further appeal with the Income Tax Appellate 10 Tribunal against this favorable decision. A similar appeal filed by SIL with Commissioner of Income tax (Appeals)for the financial year 1999-2000 was however dismissed in March 2004, against which, SIL is in the process of filing further appeal with the Income Tax Appellate Tribunal. SIL has since also filed appeals against the demands raised in March 2004 by the Income Tax Officer for similar matters relating to the financial years 1995-96, 1996-97, 1997-98 and 2000-01. 12. STOCK BASED COMPENSATION As permitted by SFAS No. 123, the Company has elected to measure stock based compensation cost using the intrinsic value method, in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and has adopted the disclosure requirements of SFAS No. 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 MARCH 31, ------------------ 2004 2003 -------- -------- (in thousands) NET INCOME As reported $ 9,322 $ 8,352 Stock based compensation expenses determined under the fair value method, net of tax ($935) ($1,168) ------- -------- PRO FORMA NET INCOME $ 8,387 $ 7,184 ------- -------- EARNINGS PER SHARE, PRO FORMA Basic earnings per share $ 0.21 $ 0.18 Diluted earnings per share $ 0.21 $ 0.18 EARNINGS PER SHARE AS REPORTED Basic earnings per share $ 0.23 $ 0.21 Diluted earnings per share $ 0.23 $ 0.21 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 40,121 39,247 Diluted 40,614 40,493 Estimated fair value of option granted $ 5.70 $ 5.85
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 for grants:
THREE MONTHS ENDED MARCH 31, --------- 2004 2003 ---- ---- Assumptions Risk free interest rate 3.13% 2.80% Expected life 5.00 5.00 Expected volatility 74.83% 78.41% Expected dividend yield 0.87% 0.00
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, TeamSourcing and Others business segments, where others segment includes primarily Business Process Outsourcing. Net revenues in the first three months of 2004 increased to $45.1 million from $44.1 million in the first three months of 2003, representing an 2.3% increase. Our revenues have increased primarily consequent to our increased workforce. Information technology offshoring is a growing trend with increasing numbers of Global Corporations aggressively outsourcing their crucial applications development or business processes to vendors with an offshore presence. Syntel has benefited from this trend. Worldwide billable headcount, including personnel employed by Syntel India, Syntel Singapore, Syntel Europe, and Syntel Germany as of March 31, 2004 increased 18% to 2,660 employees as compared to 2,251 employees as of March 31, 2003. However, the growth in revenues was not commensurate with the growth in the billable headcount. This is primarily because a significant growth in the billable headcount was in India, where our recoveries per off-shore billable resource is generally lower as compared to an on-site based resource. As of March 31, 2004, the Company had approximately 53% of its billable workforce in India as compared to 47% as of March 31, 2003. The Company also decreased its dependence on its larger customers. The top five customers accounted for 40% of the total revenues in the first three months of 2004, down from 45% of the total revenues in the first three months of 2003. Moreover, the top 10 customers accounted for 62% of the revenues in the first three months of 2004 as compared to 67% in the first three months of 2003. APPLICATIONS OUTSOURCING REVENUES. Applications Outsourcing revenues increased to $33.9 million for the first three months of 2004, or 75.1% of total revenues, from $33.0 million, or 74.8% of revenues for first three months of 2003. The $0.9 million increase was attributable primarily to net growth in new engagements contributing $12.7 million largely offset by $11.8 million in lost revenues as a result of project completion and net reduction in revenues from 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 57.1% of total Applications Outsourcing revenues for the first three months of 2004, from 54.5% for the first three months of 2003. The 2.6% increase in cost of revenues as a percent of revenues was attributable primarily to the aggressive offshore hiring in the second half of 2003 which impacted costs, but did not necessarily add to revenues as a significant number of these hires were still in training. E-BUSINESS REVENUES. e-Business revenues remained virtually constant at $8.5 million, being 18.9% and 19.2% of total consolidated revenues for the first quarter of 2004 and 2003 respectively. The revenues from this segment remained more or less constant. 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 59.2% of total e-Business revenues for the first three months of 2004, from 56.5% for the first three months of 2003. The 2.7% increase in cost of revenues as a percent of revenues was attributable primarily to the aggressive hiring from the second half of 2003 which impacted costs, but did not necessarily add to revenues as a significant number of these hires were still in training. TEAMSOURCING REVENUES. TeamSourcing revenues decreased to $2.4 million for the first three months of 2004, or 5.4% of total revenues, from $2.6 million, or 6% of total revenues for the first three months of 2003. The $0.2 million decrease was primarily due to decision by management to shift the Company's focus away from this segment and towards 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 decreased to 64.2% of TeamSourcing revenues for the first three months of 2004, from 88.5% for the first three months of 2003. The 24.3% decrease in cost of revenues as a percent of total TeamSourcing revenues was attributable primarily to the higher margin TeamSourcing placements in the first three months 12 of 2004. OTHERS REVENUES. The Others segment started contributing revenues during the first three months of 2004. Revenues from this segment were $0.3 million or 0.7% of total revenues for the first three months of 2004. OTHERS COST OF REVENUES. The Others segment cost of revenues consists of costs directly associated with billable consultants, including salaries, payroll taxes, benefits, finders fees, trainee compensation, and travel. The Others segment cost of revenues was 57.4% of the segment's revenues for the first three months of 2004. 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 other offices. Selling, general, and administrative costs for the first three months of 2004 were $8.8 million or 19.6% of total revenues, compared to $7.9 million or 17.9% of total revenues for the first three months of 2003. Selling, general, and administrative costs for the first three month of 2003 include $0.5 million downward revision of the estimated reserve for litigation and legal fees due to settlements and other changes in estimates of underlying legal costs, and a downward revision of the 2002 estimates of bonus compensation of $0.6 million. After considering the impact of the above-mentioned items, the selling, general, and administrative expenses are at 19.6% and 20.5% of total revenues, for the first three months of 2004 and 2003, respectively. The 0.9% reduction in selling, general, and administrative expenses as a percentage of revenue is primarily on account of increase in revenue in the first three month of 2004 as against the first three months of 2003. INCOME TAXES During the first three months of 2004, the combined effects of continued offshore transition, reduced onsite profitability and consequential transfer pricing related changes, resulted in reducing the tax rate to 16.5 percent. The tax reduction applicable to the tax reserve had a positive impact on EPS of $0.02. 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 AAA rated letter of credit has been provided. The remaining amounts are held by various banking institutions including other US-based and India-based banks. Net cash generated by operating activities was $10.0 million for the first three months of 2004, compared to $7.1 million for the first three months of 2003. The number of days sales outstanding in accounts receivable was approximately 70 days and 59 days as of March 31, 2004 and March 31, 2003, respectively. The increase in the number of days sales outstanding in accounts receivable was due to relatively lower collection during the first three month of 2004. Collections during the first three months of a financial year have tended to be low due to year end holiday season affecting processing of invoices/payments within the client organizations as well as within the Company. Net cash used in investing activities was $5.4 million for the first three months of 2004, consisting principally of $10.7 million for the purchase of available-for-sale securities and $1.0 million for capital expenditures, consisting principally of PCs and communications equipment, partially offset by the sale of available-for-sale securities of $6.3 million. Net cash used in investing activities was $3.3 million for the first three months of 2003, consisting principally of $2.5 million for the purchase of available-for-sale securities and $0.8 million for capital expenditures, consisting principally of PCs and communications equipment. Net cash used in financing activities was $1.0 million for the first three months of 2004, consisting principally of $2.4 million in dividends paid out, partially offset by $1.4 million of proceeds from the exercise of stock options. Net cash provided by financing activities was $1.3 million for the first three months of 2003, consisting principally of $1.4 million of proceeds from the exercise of stock options, offset by common stock repurchases of $0.1 million. The Company has a line of credit with Bank One, which provides for borrowings up to $20.0 million. The line of credit has 13 been renewed and 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. 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 (i) a formula approximating the Eurodollar rate plus the applicable margin of 1.25%, or (ii) the bank's prime rate plus 1.25%. No borrowings were outstanding at March 31, 2004 and 2003. The Company believes that the combination of present cash balances and future operating cash flows will be sufficient to meet the Company's anticipated cash requirements for at least the next 12 months. CRITICAL ACCOUNTING POLICIES We believe the following critical accounting policy, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. The Company has discussed the critical accounting policies and estimates with the Audit Committee of the Board of Directors. REVENUE RECOGNITION. Revenue recognition is the most significant accounting policy for the Company. The Company recognizes revenue from time and material contracts as services are performed. During the quarter ended March 31, 2004 and 2003, revenues from time and material contracts constituted 49.1% and 47.6%, respectively of total revenues. Revenue from fixed-price, application management, maintenance and support engagements is recognized as earned, which generally results in straight-line revenue recognition as services are performed continuously over the term of the engagement. During the quarter ended March 31, 2004 and 2003, revenues from fixed price application management and support engagements constituted 30.0% and 28.1%, respectively. Revenue on fixed price development projects is measured using the proportional performance method of accounting. Performance is generally measured based upon the efforts incurred to date in relation to the total estimated efforts to the completion of the contract. The Company monitors estimates of total contract revenues and cost on a routine basis throughout the delivery period. The cumulative impact of any change in estimates of the contract revenues or costs is reflected in the period in which the changes become known. In the event that a loss is anticipated on a particular contract, provision is made for the estimated loss. The Company issues invoices related to fixed price contracts based on either the achievement of milestones during a project or other contractual terms. Differences between the timing of billings and the recognition of revenue based upon the proportional performance method of accounting are recorded as revenue earned in excess of billings or deferred revenue in the accompanying financial statements. During the quarter ended March 31, 2004 and 2003, revenues from fixed price development contracts constituted 20.9% and 24.3%, respectively. SIGNIFICANT ACCOUNTING ESTIMATES The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses for the reporting period. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. The Company bases it's estimates and judgments on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. REVENUE RECOGNITION. The use of the proportional performance method of accounting requires that we make estimates about our future efforts and costs relative to our fixed price contracts. While the Company has procedures in place to monitor the estimates throughout the performance period, such estimates are subject to change as each contract progresses. The cumulative impact of any such changes is reflected in the period in which the changes become known. ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Company records an allowance for doubtful accounts based on a specific review of aged receivables. The provision for the allowance for doubtful accounts is recorded in selling, general and administrative expenses. These estimates are based on our assessment of the probable collection from specific customer accounts, the aging of the accounts receivable, analysis of credit data, bad debt write-offs, and other known factors. INCOME TAXES -- ESTIMATES OF EFFECTIVE TAX RATES AND RESERVES FOR TAX CONTINGENCIES. When preparing financial statements, the Company records provisions for income taxes based on tax laws and regulations in each of the various 14 jurisdictions where we conduct business. In determining the tax provisions, the Company also provides reserves 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 and are based on management's estimates and accordingly are subject to revision based on additional information and are dependent upon the judgment of regulatory reviewers. During the first three months of 2004, the combined effects of continued offshore transition, reduced onsite profitability and consequential transfer pricing related changes, resulted in reducing the tax rate to 16.5 percent. The tax reduction applicable to the tax reserve had a positive impact on EPS of $0.02. Syntel (India) Limited (SIL) has not provided for disputed Indian income tax liabilities aggregating $2.2 million for the financial years 1995-96 to 2000-01. SIL has obtained an opinion from one independent legal counsel (former Chief Justice of the Supreme Court of India) for the financial year 1998-99 and two opinions from another independent legal counsel (also a former Chief Justice of the Supreme Court of India) for the financial years 1999-2000 and 2000-01, which support SIL's stand in this matter. Management believes the disputed matter for all other years is similar to those for which opinions have been obtained. SIL had filed an appeal with Commissioner of Income tax (Appeals)for the financial year 1998-99 and received a favorable decision. However the Income tax department has gone into further appeal with the Income Tax Appellate Tribunal against this favorable decision. A similar appeal filed by SIL with Commissioner of Income tax (Appeals)for the financial year 1999-2000 was however dismissed in March 2004, against which, SIL is in the process of filing further appeal with the Income Tax Appellate Tribunal. SIL has since also filed appeals against the demands raised in March 2004 by the Income Tax Officer for similar matters relating to the financial years 1995-96, 1996-97, 1997-98 and 2000-01. ACCRUALS FOR LEGAL EXPOSURES. The Company estimates the costs associated with legal exposures that it has and the related legal expenses and records the probable liability if it can be reasonably estimated or the lower end of a range, if the amount cannot be reasonably estimated. FORWARD LOOKING STATEMENTS / RISK FACTORS Certain statements contained in this Report are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 Certain information and statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this report, including statements containing words such as "could", "expects", "may", "anticipates", "believes", "estimates", "plans", and similar expressions, are forward-looking statements. The forward-looking statements of the Company are subject to risks and uncertainties. Some of the factors that could cause future results to materially differ from the recent results or those projected in the forward-looking statements include, but are not limited to, significant increases or decreases in demand for Syntel's services, increased competition, lower prices and margins, changes in customer's technology spending, failure to successfully develop and market new products and services, competitor introductions of superior services, continued industry consolidation, instability and currency fluctuations in India 15 and other international markets, results of litigation, failure to retain and recruit key employees, adverse economic conditions, acts of war or global terrorism, and unexpected natural disasters. RECENT ACCOUNTING PRONOUNCEMENTS ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, " Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities " (SFAS 149"). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under issued Statement of Financial Accounting Standards No. 133, " Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 149 is effective for contracts entered into or modified after June 30, 2003 and hedging relationships designated after June 30, 2003. The Company currently does not hold derivative financial instruments or engage in hedging activities and the adoption of SFAS 149 did not have a material impact on its financial condition or results of operation. ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. In May 2003, the FASB issued Statement of Financial Accounting Standards No.150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity " ("SFAS 150"). SFAS 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS 150 is effective for the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have a material effect on the Company's results of operations or financial position. ACCOUNTING FOR REVENUE ARRANGEMENTS WITH MULTIPLE ELEMENTS. In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-21, " Revenue Arrangements with Multiple Deliverables" ("EITF 00-21"). EITF 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 did not have a material impact on the Company's results of operations and financial condition. VARIABLE INTEREST ENTITIES - In January 2003, the FASB issued Financial Accounting Standards Board Interpretation No.46, " Consolidation of Variable Interest Entities " ("FIN 46"). In December 2003, FIN 46 was revised for clarifications and modification of the effective dates. FIN 46 requires that if an entity has a controlling financial interest in a variable interest entity, the assets, liabilities and results of activities of the variable interest entity should be included in the consolidated financial statements of the entity. FIN 46 shall be applied to all variable interests held no later than the end of the first reporting period after March 15, 2004. The Company has no contractual relationships or other business relationships with any variable interest entities and, therefore, the initial adoption of FIN 46 did not have an effect on the Company's results of operations or financial condition. 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to the impact of interest rate changes and foreign currency fluctuations. INTEREST RATE RISK We consider investments purchased with an original or remaining maturity of less than three months at date of purchase to be cash equivalents. The following table summarizes our cash and cash equivalents and investments in marketable securities (in thousands):
MARCH 31, DECEMBER 31, ASSETS 2004 2003 ---- ---- Cash and cash equivalents $113,702 $110,699 Investments, marketable securities 31,875 26,137 -------- -------- TOTAL $145,577 $136,836 -------- --------
Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. Our investments are in high-quality Indian Mutual Funds and, by policy, limit the amount of credit exposure to any one issuer. At any time, changes in interest rates could have an impact on interest earnings for our investment portfolio. We protect and preserve our invested funds by limiting default, market and reinvestment risk. Investments in interest earning instruments carry a degree of interest rate risk. Floating rate securities may produce less income than expected if there is a decline in interest rates. Due in part to these factors, our future investment income may fall short of expectations, or we may suffer a loss in principal if we are forced to sell securities, which have declined in market value due to changes in interest rates as stated above. FOREIGN CURRENCY RISK Our sales are primarily sourced in the United States and our subsidiary in the United Kingdom and are mostly denominated in U.S. dollars or UK pounds respectively. Our foreign subsidiaries incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. Our business is subject to risks typical of an international business, including, but not limited to differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors. The risk is partially mitigated as the Company has sufficient resources in the respective local currencies to meet immediate requirements. We are also exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. As exchange rates vary, these results, when translated, may vary from expectations. During the first quarter of 2004, the Indian rupee has appreciated by 2% as compared to the year ended 2003. The impact of this rupee appreciation adversely impacted our gross margin by 21 basis points, operating income by 27 basis points and net income by 25 basis points, each as a percentage of revenue. The Indian rupee denominated cost of revenues and selling, general and administrative cost was 24% and 19%, respectively, which did not have a significant impact. Although the Company cannot predict future movement in interest rates or fluctuations in foreign currency rates, the Company does not currently anticipate that interest rate risk or foreign currency risk will have a significant impact. 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 March 31, 2004 as well as based on 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. There have been no changes in the Company's internal controls or in other factors which could 17 materially affect internal controls subsequent to the date the Company carried out its evaluation. 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. OUTLOOK. During the year 2003, the company created a Task force of Management to fulfill compliance requirements of Section 404 of the Sarbanes Oxley Act. An external firm was also appointed to assist in the exercise enterprise wide. The Company is also moving ahead with BS 7799 and SAS 70 related initiatives during 2004. 18 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 During the quarter for which this report is filed, the Company filed a Report on Form 8-K dated February 11, 2004. In that report on Form 8-K, the Company reported under Item 12 that it was releasing its results of operations and financial condition for the fourth quarter and full year ended December 31, 2003 and included the text of that press release as an exhibit under Item 7. 19 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 May 07, 2004 /s/ Bharat Desai --------------------------------- Bharat Desai, Chairman, President and Chief Executive Officer Date May 07, 2004 /s/ Keshav Murugesh --------------------------------- Keshav Murugesh, Chief Financial Officer 20 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
21 EX-31.1 2 k84953exv31w1.txt 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 May 07, 2004 /s/ Bharat Desai - ---------------------------------------- Bharat Desai, Chairman, President, and Chief Executive Officer 22 EX-31.2 3 k84953exv31w2.txt 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 May 07, 2004 /s/ Keshav Murugesh - ---------------------------------------- Keshav Murugesh, Chief Financial Officer 23 EX-32 4 k84953exv32.txt SECTION 1350 CERTIFICATION OF CEO AND 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 March 31, 2004 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) or 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 May 07, 2004 /s/ Keshav Murugesh - ------------------------------------------------ Keshav Murugesh Syntel, Inc. Chief Financial Officer May 07, 2004 24 -----END PRIVACY-ENHANCED MESSAGE-----