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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2002 or
--------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number 0-22903
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SYNTEL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan 38-2312018
----------------------------- ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
525 E. Big Beaver Road, Suite 300, Troy, Michigan 48083
- ------------------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
(248) 619-2800
---------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----------------- ----------------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, no par value: 38,746,271 shares issued and outstanding as of
October 9, 2002.
1
SYNTEL, INC.
INDEX
Page
----
Part I Financial Information
Item 1 Financial Statements
Condensed Consolidated Statement of Income 3
Condensed Consolidated Balance Sheet 4
Condensed Consolidated Statement of Cash Flows 5
Notes to the Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
Part II Other Information 12
Signatures 13
Certificate of Principal Executive officer 14
Certificate of Principal Financial officer 15
2
SYNTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3 MONTHS 9 MONTHS
ENDED SEPT 30 ENDED SEPT 30
-------------------------------------- ------------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues $ 42,126 $ 43,257 $ 122,116 $ 128,962
Cost of revenues 23,332 26,726 71,794 80,208
------------------- ----------------- ------------------ -----------------
Gross profit 18,794 16,531 50,322 48,754
Selling, general and administrative expenses 7,976 8,622 23,645 25,871
------------------- ----------------- ------------------ -----------------
Income from operations 10,818 7,909 26,677 22,883
Other income, principally interest 795 1,108 2,206 2,977
------------------- ----------------- ------------------ -----------------
Income before income taxes 11,613 9,017 28,883 25,860
Income taxes 2,924 2,471 7,548 6,858
------------------- ----------------- ------------------ -----------------
Net income before loss from equity
investment in unconsolidated subsidiaries 8,689 6,546 21,335 19,002
Loss from equity investment in unconsolidated
subsidiaries 0 213 0 752
------------------- ----------------- ------------------ -----------------
Net income $ 8,689 $ 6,333 $ 21,335 $ 18,250
=================== ================= ================== =================
EARNINGS PER SHARE
Basic $ 0.22 $ 0.16 $ 0.55 $ 0.47
Diluted $ 0.22 $ 0.16 $ 0.53 $ 0.47
Weighted average common shares
outstanding - diluted 39,816 38,826 40,077 38,827
Basic Shares outstanding 39,016 38,436 39,024 38,457
The accompanying notes are an integral part of the consolidated financial
statements.
3
SYNTEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2002 2001
---- ----
ASSETS
Current assets:
Cash and cash equivalents $116,625 $ 88,010
Investments, marketable securities 8,260 17,203
Accounts receivable, net 25,500 30,982
Advanced billings and other current assets 7,739 7,448
-------- --------
Total current assets 158,124 143,643
Property and equipment 20,234 19,041
Less accumulated depreciation 15,245 13,823
-------- --------
Property and equipment, net 4,989 5,218
Goodwill, net of amortization 906 906
Deferred income taxes, noncurrent 2,730 2,632
-------- --------
$166,749 $152,399
======== ========
LIABILITIES
Current liabilities:
Accrued payroll and related costs $ 9,793 $ 12,984
Accounts payable and other current liabilities 14,429 16,968
Deferred revenue 3,148 5,451
-------- --------
Total current liabilities 27,370 35,403
SHAREHOLDERS' EQUITY
Total shareholders' equity 139,379 116,996
-------- --------
Total liabilities and shareholders' equity $166,749 $152,399
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
4
SYNTEL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS
ENDED SEPTEMBER 30
----------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 21,335 $ 18,250
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,422 1,994
Realized losses on sales of available-for-sale securities (390) (2)
Deferred income taxes (98) 690
Compensation expense related to stock options 0 41
Loss on equity investments 0 752
Changes in assets and liabilities:
Accounts receivable, net 5,721 1,478
Advance billing and other assets (291) (2,952)
Accrued payroll and other liabilities (5,730) 3,001
Deferred revenues (2,302) 1,229
--------- ---------
Net cash provided by operating activities 19,667 24,481
--------- ---------
Cash flows provided by ( used in ) investing activities,
Property and equipment expenditures (1,193) (2,264)
Equity and other investments 0 (380)
Purchase of available-for-sale securities (15,175) (30,808)
Proceeds from sales of available-for-sale securities 24,508 14,243
--------- ---------
Net cash provided by (used in ) investing activities 8,140 (19,209)
--------- ---------
Cash flows provided by (used in ) financing activities:
Net proceeds from issuance of stock 3,802 1,380
Common stock repurchases (3,325) (1,491)
--------- ---------
Net cash provided by (used in ) financing activities 477 (111)
--------- ---------
Effect of foreign currency exchange rate changes on cash 331 (76)
--------- ---------
Net increase in cash and cash equivalents 28,615 5,085
Cash and cash equivalents, beginning of period $ 88,010 $ 73,478
========= =========
Cash and cash equivalents, end of period $ 116,625 $ 78,563
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
5
SYNTEL, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying condensed consolidated financial statements of Syntel, Inc.
(the "Company") have been prepared by management, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in United
States of America have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments, consisting
of normal recurring adjustments, necessary to present fairly the financial
position of Syntel, Inc. and its subsidiaries as of September 30, 2002, the
results of their operations for the three and nine month periods ended September
30, 2002 and September 30, 2001, and cash flows for the nine months ended
September 30, 2002 and September 30, 2001. The year end condensed balance sheet
as of December 31, 2001 was derived from audited financial statements but does
not include all disclosures required by accounting principles generally accepted
in the United States of America. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10K for the year ended December 31, 2001.
Operating results for the nine months ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002.
2. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
The consolidated financial statements include the accounts of Syntel, Inc.
("Syntel") and its wholly owned subsidiaries Syntel (India) Limited ("Syntel
India"), an Indian limited liability company, Syntel "Singapore" PTE., Ltd.,
("Syntel Singapore"), a Singapore limited liability company, Syntel Europe,
Ltd., ("Syntel U.K."), a United Kingdom limited liability company, Syntel Canada
Inc., ("Syntel Canada") a Canada limited liability company, Syntel Deutschland
GmbH, ("Syntel Germany") a Germany limited liability Company, Syntel Hong Kong
Ltd., ("Syntel Hong Kong") a Hong Kong limited liability Company, Syntel
Mauritius Limited, ("Syntel Mauritius") a Mauritius limited liability Company
and Syntel "Australia" Pty. Limited, ("Syntel Australia"), an Australian limited
liability Company. All intercompany balances and transactions have been
eliminated.
3. RECLASSIFICATION
Certain prior quarter amounts have been reclassified to conform with the current
quarter presentation.
4. REVENUE RECOGNITION
The Company recognizes revenues from time and material contracts as services are
rendered and costs are incurred. Revenue on fixed-price, fixed deliverable
projects is measured by the percentage of cost incurred to date to the estimated
total cost at completion. Revenue from fixed-price application management and
support engagements is recognized as earned. The cumulative impact of any change
in estimates of the percentage complete or losses on contracts is reflected in
the period in which the changes become known.
5. CASH AND CASH EQUIVALENTS
For the purpose of reporting cash and cash equivalents, the Company considers
all liquid investments purchased with a maturity of three months or less to be
cash equivalents.
At September 30, 2002 and 2001, approximately $58,790 thousand and $53,325
thousand, respectively, represent corporate bonds and treasury notes held by
Bank One, for which a triple A rated letter of credit has been provided by the
bank. The remaining cash and cash equivalents are certificates of deposit,
corporate bonds, and treasury notes held by various banking institutions
including other U.S.-based and local India-based banks.
6
6. EQUITY
During the second quarter of 2002, Syntel Inc. issued 322,210 warrants at $ 7.25
per share. Under the terms of the agreement, certain milestones are required to
be met in order for the holder to exercise these warrants. It is not probable
such milestones will be met. Accordingly, the impact of such issuance has not
been given in the accompanying statements or earnings-per-share calculations.
The warrants have a term of 10 years and were issued with a retroactive
effective date of October 16, 2000.
7. COMPREHENSIVE INCOME
Total comprehensive income for the three and nine months period ended Sept 30,
2002 and 2001 was as follows (in thousands):
Three Months Ended Nine Months Ended
------------------ -----------------
Sept 30 Sept 30
------- -------
2002 2001 2002 2001
---- ---- ---- ----
Net income $8,689 $6,333 $21,335 $18,250
Other comprehensive income
Foreign currency translation adjustments 435 (613) 571 (796)
------ ------ ------- -------
Total comprehensive income $9,124 $5,720 $21,906 $17,454
====== ====== ======= =======
8. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted
average number of shares outstanding during the applicable period. The Company
has stock options, which are considered to be potentially dilutive to common
stock. Diluted earnings per share are calculated considering these potentially
dilutive options.
The following table sets forth the computation of earnings per share.
Three Months Ended
Sept 30, 2002 Sept 30, 2001
------------- -------------
Weighted Earnings Weighted Earnings
Average per Average per
Shares share Shares share
------ ----- ------ ------
(in thousands, except per share earnings)
Basic earnings per share 39,016 $ 0.22 38,436 $ 0.16
Net dilutive effect of stock options
outstanding 800 - 390 -
--------- --------- --------- ---------
Diluted earnings per share 39,816 $ 0.22 38,826 $ 0.16
========= ========= ========= =========
Nine Months Ended
Sept 30, 2002 Sept 30, 2001
------------- -------------
Weighted Earnings Weighted Earnings
Average per Average per
Shares share Shares share
------ ----- ------ -----
(in thousands, except per share earnings)
Basic earnings per share 39,024 $ 0.55 38,457 $ 0.47
Net dilutive effect of stock options
outstanding 1,053 (0.02) 370 -
--------- --------- --------- ---------
Diluted earnings per share 40,077 $ 0.53 38,827 $ 0.47
========= ========= ========= =========
7
9. SEGMENT REPORTING
The Company manages its operations through three segments, Applications
Outsourcing, e-Business, and TeamSourcing. Management allocates all direct
expenses to the segments. Financial data for each segment for the three and nine
months period ended Sept 30, 2002 and Sept 30, 2001 is as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
Sept 30, 2002 Sept 30, 2001 Sept 30, 2002 Sept 30, 2001
------------- ------------- ------------- -------------
(In thousands) (In thousands)
Revenues:
Applications Outsourcing $ 29,100 $ 28,742 $ 83,293 $ 80,798
e-Business 9,332 8,917 26,461 30,668
TeamSourcing 3,694 5,598 12,362 17,496
---------- ----------- ---------- ----------
42,126 43,257 122,116 128,962
Gross Profit:
Applications Outsourcing 14,414 12,485 38,535 34,013
e-Business 3,971 3,015 10,153 10,798
TeamSourcing 409 1,031 1,634 3,943
---------- ----------- ---------- ----------
18,794 16,531 50,322 48,754
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SYNTEL INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
REVENUES. The Company's revenues consist of fees derived from its Applications
Outsourcing, e-Business, and TeamSourcing business segments. Revenues decreased
2.6% to $42.1 million in the third quarter of 2002 from $43.3 million in the
third quarter of 2001. Worldwide billable headcount, including personnel
employed by Syntel India, Syntel Singapore, Syntel Europe, and Syntel Germany as
of Sept 30, 2002 increased to 1,938 compared to 1,421 as of Sept 30, 2001.
APPLICATIONS OUTSOURCING REVENUES. Applications Outsourcing revenues increased
to $29.1 million for the third quarter of 2002, or 69.1% of total revenues, from
$28.7 million, or 66.4% of third quarter revenues for 2001. The revenues for
first nine months of 2002 increased to $83.3 million, or 68.2% of total
revenues, from $80.8 million or 62.7% of total revenues for the first nine
months of 2001. The $0.4 million increase for the third quarter was attributable
principally to net growth in new engagements, contributing approximately $8.9
million, reversal of reserve (created in June 2002 which was determined to no
longer be required), surrounding a contract renegotiation, contributing
approximately $0.6 million, largely offset by $9.1 million in lost revenues as a
result of project completion. The $2.5 million increase for first nine months of
2002 was attributable principally to net growth in new engagements, contributing
approximately $21.2 million, largely offset by $18.7 million in lost revenues as
a result of projects completion.
APPLICATIONS OUTSOURCING COST OF REVENUES. Cost of revenues consists of costs
directly associated with billable consultants in the US and offshore, including
salaries, payroll taxes, benefits, relocation costs, immigration costs, finders
fees, trainee compensation, and travel. Applications Outsourcing costs of
revenues decreased to 50.5% of total Applications Outsourcing revenues for the
third quarter of 2002, from 56.6% for the third quarter of 2001. Cost of
Revenues for the first nine months of 2002 decreased to 53.7% of total
Applications Outsourcing revenues, from 57.9% for the first nine months of 2001.
Both the 6.1% and 4.2% decreases in cost of revenues, as a percent of revenues
for the third quarter and for the first nine months of 2002 were attributable to
the increase in higher margin offshore component of the overall services.
e-BUSINESS REVENUES. e-Business revenues increased to $9.3 million for the third
quarter of 2002, or 22.2% of total consolidated revenues, from $ 8.9 million, or
20.6% of total consolidated revenues for the third quarter of 2001. The $0.4
million increase for the third quarter was attributable principally to net
growth in new engagements, contributing approximately $3.1 million, largely
offset by $2.7 million in lost revenues as a result of project completion.
Revenues for the first nine months of 2002 decreased to $26.5 million, or 21.7%
of total revenues, from $30.7 million or 23.8% of total
8
revenues for the first nine months of 2001. The $4.2 million decrease for the
nine months of 2002 was attributable principally to lost revenues as a result of
project completions, contributing approximately $11.8 million, largely offset by
new business revenues of $7.6 million.
e-BUSINESS COST OF REVENUES. e-Business cost of revenues consists of costs
directly associated with billable consultants in the US and offshore, including
salaries, payroll taxes, benefits, relocation costs, immigration costs, finders
fees, trainee compensation, and travel. e-Business cost of revenues decreased to
57.4% of total e-Business revenues for the third quarter of 2002, from 66.2% for
the third quarter of 2001. For the first nine months of 2002, e-Business costs
of revenues decreased to 61.6% of total e-business revenues, from 64.8% for the
first nine months of 2001. Both 8.8% and 3.2% decrease in cost of revenues as a
percent of total e-business revenues for the three and nine months of 2002,
respectively, was attributable primarily to improved onsite utilization rates.
TEAMSOURCING REVENUES. TeamSourcing revenues decreased to $3.7 million for the
third quarter of 2002, or 8.8% of total revenues, down from $5.6 million, or
12.9% of total revenues for the third quarter of 2001. For the first nine months
of 2002, TeamSourcing revenues decreased to $12.4 million, or 10.1% of total
revenues, down from $17.5 million or 13.6% of total revenues for the first nine
months of 2001. Both the $1.9 million decrease for the third quarter and the
$5.1 million decrease for the first nine months of 2002 were principally due to
a decrease in US based billable consultants on various engagements, as a result
of a conscious decision by management to reduce organizational focus away from
this segment and focusing on higher margin segments.
TEAMSOURCING COST OF REVENUES. TeamSourcing cost of revenues consists of costs
directly associated with billable consultants in the US, including salaries,
payroll taxes, benefits, relocation costs, immigration costs, finders fees,
trainee compensation, and travel. TeamSourcing cost of revenues increased to
88.9% of TeamSourcing revenues for the third quarter of 2002, from 81.6% for the
third quarter of 2001. The cost of revenues as a percent of revenues increased
to 86.8% of total TeamSourcing revenues for the nine months period ended Sept
30, 2002, from 77.5% for the nine months period ending Sept 30, 2001. Both the
7.3% and 9.3% increase in cost of revenues as a percent of total TeamSourcing
revenues for the three and nine months of 2002, respectively, was attributable
primarily to lower utilization due to the softness in the economy.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses consist primarily of salaries, payroll taxes and
benefits for sales, solutions, finance, administrative, and corporate staff,
travel, telecommunications, business promotions, marketing and various facility
costs for the Company's Global Development Centers and various offices. Selling,
general, and administrative costs for the three months ended Sept 30, 2002 were
$7.97 million, or 18.9% of total revenues, compared to $8.6 million or 19.9% of
total revenues for the three months ended Sept 30, 2001. The $0.6 million
decrease was attributable principally to a decrease in compensation costs due to
reduced corporate staff in US and UK ($1.5 million), reduction in
telecommunication costs ($0.1 million) and reversal of outstanding checks
pertaining to earlier periods ($0.1 million). The decrease was largely offset by
increase in travel ($0.1 million), office rent ($0.1 million), marketing
expenses ($0.1 million), recognition of current period allowance for doubtful
accounts provision ($0.7 million) and increased facility costs at Germany ($0.1
million). Selling, general and administrative expenses decreased to $23.6
million, or 19.4% of total revenues for the nine months period ending Sept 30,
2002 from $25.9 million or 20.1% of total revenue for the same period in 2001.
The decrease of $2.3 million in selling, general and administrative expenses in
the nine months period ended Sept 30, 2002 over the same period in 2001 was
attributable principally to decrease in compensation costs due to reduced
corporate staff in US and UK ($3.3 million), reversal of bonus provisions in US
($2.8 million), reduction in the depreciation expenses due to fully depreciated
assets ($0.4 million), reversal of outstanding checks pertaining to earlier
periods ($0.3 million) and recovery of previously reserved for receivable ($0.8
million). The decrease was partially offset by increase in marketing expenses
($0.3 million), office expenses ($0.2 million), telecommunication costs ($0.1
million), recognition of current period allowance for doubtful accounts in US
($1.8 million), recognition of current period bonus provision ($2.2 million),
travel ($0.1 million), office rent ($0.2 million) and increased facility costs
at Germany ($0.4 million).
LIQUIDITY AND CAPITAL RESOURCES
In recent history, the Company has financed its working capital needs through
operations. The Company's cash and cash equivalents consist primarily of
certificates of deposit, corporate bonds and treasury notes. A large majority of
such amounts are held by Bank One for which a triple A rated letter of credit
has been provided. Remaining amounts are held by various banking institutions
including other U.S.-based and local India-based banks.
9
Net cash generated by operating activities was $ 19.7 million for the first nine
months of 2002, compared to $ 24.5 million for the first nine months of 2001.
The number of days sales outstanding in accounts receivable was approximately 54
days and 61 days as of Sept 30, 2002 and Sept 30, 2001, respectively.
Net cash provided by investing activities was $8.1 million for the first nine
months of 2002, consisting principally of $24.5 million for proceeds from sale
of available-for-sale securities, partially offset by $15.2 million for purchase
of available-for- sale securities and $ 1.2 million for capital expenditures,
consisting principally of computer equipment and communication equipment. Net
cash used in investing activities was $19.2 million for the nine months of 2001,
consisting principally of $30.8 million for purchase of available-for- sale
securities, $1.1 million for the acquisition of land for construction of the new
development and training center in Pune, India, $1.1 million in capitalized
software costs and computer equipment and $0.4 million in equity and other
investments, partially offset by $14.2 million for proceeds from sale of
available-for-sale securities.
Net cash provided by financing activities for the first nine months of 2002
totalled approximately $0.5 million, consisting principally of $3.8 million for
the proceeds from the exercise of stock options, offset by common stock
repurchases of $3.3 million. Net cash used in financing activities for the first
nine months of 2001 totalled approximately $0.1 million, consisted principally
of $1.5 million for the common stock repurchases, offset by proceeds from the
exercise of stock options of $1.4 million.
The Company renewed its line of credit with Bank One, which provides for
borrowings up to $20.0 million and expires on August 31, 2003. The line of
credit contains covenants restricting the Company from, among other things,
incurring additional debt, issuing guarantees and creating liens on the
Company's property, without the prior consent of the bank. The line of credit
also requires the Company to maintain certain tangible net worth levels and
leverage ratios. At September 30, 2002, there was no indebtedness outstanding
under the line of credit. The letters of credit bear a 1% fee of the face value
payable annually in advance. Borrowings under the line of credit bear interest
at 1) a formula approximating the bank's Eurodollar rate plus applicable margin
of 1.25% or 2) the bank's prime rate.
The Company believes that the combination of present cash balances and future
operating cash flows will be sufficient to meet the Company's currently
anticipated cash requirements for at least the next 12 months.
FORWARD LOOKING STATEMENTS / RISK FACTORS
Certain statements contained in this Report are forward looking
statements within the meaning of the Securities Exchange Act of 1934. In
addition, the Company from time to time may publish other forward looking
statements. Such forward looking statements are based on management's estimates,
assumptions and projections and are subject to risks and uncertainties that
could cause actual results to differ materially from those discussed in the
forward looking statements. Factors which could affect the forward looking
statements include those listed below. The Company does not intend to update
these forward looking statements.
- Recruitment and Retention of IT Professionals
- Government Regulation of Immigration
- Variability of Quarterly Operating Results
- Customer Concentration; Risk of Termination
- Exposure to Regulatory and General Economic Conditions in India
- Intense Competition
- Ability to Manage Growth
- Fixed-Price Engagements
- Potential Liability to Customers
- Dependence on Principal
- Risks Related to Possible Acquisitions
- Limited Intellectual Property Protection
10
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets".
SFAS 141 replaces Accounting Principles Board Opinion 16, "Business
Combinations" and requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. SFAS 142 replaces APB
17, "Intangible Assets". In accordance with SFAS No. 141 and 142, effective for
the Company's year ended December 31, 2002, as a replacement to amortization of
goodwill and intangible assets with indefinite lives, the Company will evaluate
goodwill and intangible assets for impairment annually. The standards have been
adopted as of January 1, 2002 and have not had a material effect on the
financial statements. As of September 30, 2002, net goodwill was approximately
$906,000.
In February 2002, the Emerging Issues Task Force issued Topic D-103, "Income
Statement Characterization of Reimbursements Received for "Out-of-Pocket"
Expenses", which requires reimbursements of out-of-pocket expenses to be
presented as revenues and the associated costs to be presented as expenses. The
Company has adopted the above statement from January 1, 2002 resulting in
increased revenues and corresponding expenses, the impact of which is not
significant. The prior quarter figures have been reclassified to conform with
the current quarter presentation as above.
11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
While the Company is a party to ordinary routine litigation incidental to its
business, the Company is not a party to any material pending legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description
99.1 Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The Corporation did not file any reports on Form 8-K during the three month
period ended September 30, 2002.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNTEL, INC.
Date October 30, 2002 By /s/ Bharat Desai
-----------------------
Bharat Desai, President and
Chief Executive Officer
Date October 30, 2002 By /s/ Keshav Murugesh
-----------------------
Keshav Murugesh, Chief Financial
Officer
13
CERTIFICATIONS
I, Bharat Desai, Chief Executive Officer of Syntel, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Syntel, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date October 30, 2002
By /s/ Bharat Desai
-------------------------------------------
Bharat Desai, Chief Executive Officer
14
CERTIFICATIONS
I, Keshav Murugesh, Chief Financial Officer of Syntel, Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Syntel, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date October 30, 2002
----------------------------------------
By /s/ Keshav Murugesh
----------------------------------------
Keshav Murugesh, Chief Financial Officer
15
EXHIBIT INDEX
Exhibit No. Description
99.1 Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
16