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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
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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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes X No
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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