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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, 2005 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number 0-22903
SYNTEL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan 38-2312018
------------------------------ -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
525 E. Big Beaver Road, Suite 300, Troy, Michigan 48083
------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(248) 619-2800
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, no par value: 40,773,526 shares issued and outstanding as of April
25, 2005.
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 14
Financial Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk 19
Item 4 Controls and Procedures 20
Part II Other Information 22
Signatures 24
Certificate of Chief Executive Officer 36
Certificate of Chief Operating Officer and Chief Financial Officer 37
Certification of Chief Executive Officer and
Chief Operating Officer and Chief Financial Officer 38
2
SYNTEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
----------------------
2005 2004
--------- ---------
Net revenues $ 50,732 $ 45,089
Cost of revenues 29,704 26,085
--------- ---------
GROSS PROFIT 21,028 19,004
Selling, general and administrative expenses 11,165 8,839
--------- ---------
Income from operations 9,863 10,165
Other income, principally interest 1,136 996
--------- ---------
Income before income taxes 10,999 11,161
Provision for income taxes 2,005 1,839
--------- ---------
Net income $ 8,994 $ 9,322
========= =========
Dividend per share $ 1.56 $ 0.06
EARNINGS PER SHARE :
Basic $ 0.22 $ 0.23
Diluted $ 0.22 $ 0.23
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING :
Basic 40,366 40,121
Diluted 40,526 40,614
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,
2005 2004
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 73,892 $ 109,142
Short term investments 36,462 58,899
Accounts receivable, net of allowances for doubtful accounts of $ 1,012
and $ 1,213 at March 31, 2005 and December 31, 2004, respectively 25,517 28,790
Revenue earned in excess of billings 10,720 4,390
Deferred income taxes and other current assets 7,823 5,891
--------- ------------
Total current assets 154,414 207,112
Property and equipment 40,065 37,754
Less accumulated depreciation 22,219 21,290
--------- ------------
Property and equipment, net 17,846 16,464
Goodwill 906 906
Deferred income taxes and other non current assets 2,643 2,486
--------- ------------
TOTAL ASSETS $ 175,809 $ 226,968
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Accounts payable 2,010 2,394
Accrued payroll and related costs 14,252 13,963
Income taxes payable 8,640 6,290
Accrued liabilities 5,731 6,015
Deferred revenue 4,635 5,231
Dividends payable 2,446 2,433
--------- ------------
Total current liabilities 37,714 36,326
SHAREHOLDERS' EQUITY
Total shareholders' equity 138,095 190,642
--------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 175,809 $ 226,968
========= ============
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,
----------------------
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,994 $ 9,322
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 1,036 666
Realized gains on sales of available-for-sale securities (319) (542)
Deferred income taxes (1) (84)
Stock warrants sales incentive - 77
Compensation expense related to restricted stock 685 -
Changes in assets and liabilities :
Accounts receivable and revenue earned in excess of billings, net (3,330) (1,536)
Other current assets (2,048) 2,449
Accrued payroll and other liabilities 2,328 1,314
Deferred revenues (592) (1,700)
--------- ---------
Net cash provided by operating activities 6,753 9,967
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures (2,448) (1,016)
Purchase of short term investments :
Investments in mutual funds (2,985) (10,715)
Investments in term deposits with banks (4,266) (4,506)
Proceeds from sales of short term investments :
Proceeds from sales of mutual funds 12,320 6,296
Maturities of term deposits with banks 17,543 7,604
--------- ---------
Net cash provided by / (used in) investing activities 20,164 (2,337)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 2,133 1,418
Common stock repurchases (676) -
Dividends paid (63,546) (2,401)
--------- ---------
Net cash used in financing activities (62,089) (983)
--------- ---------
Effect of foreign currency exchange rate changes on cash (78) (546)
Net (decrease) / increase in cash and cash equivalents (35,250) 6,101
Cash and cash equivalents, beginning of period $ 109,142 $ 102,854
--------- ---------
Cash and cash equivalents, end of period $ 73,892 $ 108,955
========= =========
Non cash investing and financing activities:
Cash dividend declared but unpaid $ 2,446 $ 2,415
Stock Warrants - 77
--------- ---------
$ 2,446 $ 2,492
========= =========
Cash paid for income taxes $ 4,044 $ 932
========= =========
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" or "Syntel") 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 and its subsidiaries as of
March 31, 2005, the results of their operations for the three month period
ended March 31, 2005 and March 31, 2004, and cash flows for the three
months ended March 31, 2005 and March 31, 2004. The year end condensed
balance sheet as of December 31, 2004 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, 2004.
Operating results for the three months ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2005.
2. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
The consolidated financial statements include the accounts of Syntel, a
Michigan corporation, its wholly owned subsidiaries, and a joint venture.
All significant inter-company balances and transactions have been
eliminated.
The wholly owned subsidiaries of Syntel, Inc. are:
- Syntel Limited ("Syntel India"), an Indian limited liability company
formerly known as Syntel (India) Ltd.;
- 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 (Australia) Pty. Limited ("Syntel Australia"), an Australian
limited liability company;
- Syntel Delaware LLC ("Syntel Delaware"), a Delaware limited
liability company;
- SkillBay LLC ("SkillBay"), a Michigan limited liability company;
- Syntel (Mauritius) Limited ("Syntel Mauritius"), a Mauritius limited
liability company; and
- Syntel Consulting Inc ("Syntel Consulting"), a Michigan corporation.
The formerly wholly owned subsidiary of Syntel Delaware LLC (as of December 31,
2004) that became a partially owned joint venture of Syntel Delaware LLC on
February 1, 2005 is:
- Syntel Solutions (Mauritius) Ltd. ("Syntel Solutions"), a Mauritius
limited liability company.
The wholly owned subsidiary of Syntel Solutions is:
- Syntel Sourcing Pvt. Ltd. ("Syntel Sourcing"), an Indian limited
liability company.
The wholly owned subsidiaries of Syntel Mauritius are:
- Syntel International Pvt. Ltd. ("Syntel International"), an Indian
limited liability company; and
- Syntel Global Pvt. Ltd. ("Syntel Global"), an Indian limited
liability company.
6
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 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 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 consolidated balance sheets.
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 an original maturity of three months or
less to be cash equivalents.
At March 31, 2005 and 2004, approximately $8.9 million and $26.3 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
In 2000, the Company agreed to grant to a significant customer performance
warrants entitling the customer to purchase shares of Company stock. The
issuance of the performance warrants is dependent upon the customer meeting
performance milestones by purchasing specified minimum levels of services from
the Company over a specified period. The Company has estimated that such
performance milestones will not be met during the year. Accordingly, the Company
has not accounted for these performance warrants. If and when the Company
estimates that such 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, 2005
and 2004 was as follows:
THREE MONTHS ENDED
MARCH 31,
-------------------
2005 2004
------- --------
(in thousands)
Net income $ 8,994 $ 9,322
Other comprehensive income
- Unrealized gain (loss) 30 (245)
- Foreign currency translation adjustments (405) 1,524
------- --------
Total comprehensive income $ 8,619 $ 10,601
======= ========
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, 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 shares 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, 2004
PARTICULARS NO. OF SHARES
- ----------- -------------
(IN THOUSANDS)
Balance as on December 31, 2004 40,257
ADD:
Shares issued on exercise of stock options /purchase plan 281
LESS :
Common Stock repurchased (35)
------
Balance as on March 31, 2005 40,503
------
8
The following table sets forth the computation of earnings per share.
THREE MONTHS ENDED MARCH 31,
------------------------------------------------
2005 2004
---------------------- ----------------------
Weighted Weighted
Average Earnings Average Earnings
Shares per Shares Shares per Shares
-------- ---------- -------- ----------
(in thousands, except per share earnings)
Basic earnings per share 40,366 $ 0.22 40,121 $ 0.23
Potential dilutive effect of stock options
outstanding 160 - 493 -
-------- ---------- -------- ----------
DILUTED EARNINGS PER SHARE 40,526 $ 0.22 40,614 $ 0.23
======== ========== ======== ==========
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:
- Applications Outsourcing
- e-Business
- TeamSourcing; and
- Business Process Outsourcing (BPO)
These segments are the basis on which the Company reports its primary segment
information to management. 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, 2005 and 2004 is as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
2005 2004
-------- --------
(in thousands)
REVENUES:
Applications Outsourcing $ 39,109 $ 33,854
e-Business 6,868 8,501
TeamSourcing 3,694 2,429
BPO 1,061 305
-------- --------
$ 50,732 $ 45,089
-------- --------
GROSS PROFIT:
Applications Outsourcing $ 17,087 $ 14,533
e-Business 2,161 3,472
TeamSourcing 1,003 869
BPO 777 130
-------- --------
21,028 19,004
Selling, general and administrative expenses 11,165 8,839
-------- --------
Income from operations $ 9,863 $ 10,165
======== ========
During the quarter ended March 31, 2005, one customer, American Express Corp.,
contributed revenue in excess of 10% of total consolidated revenues. Revenue
from this customer was $7.44 million, contributing approximately 14.7% of total
consolidated revenues during the first quarter of 2005.
During the quarter ended March 31, 2004, one customer, American Express Corp.,
contributed revenues in excess of 10% of total consolidated revenues. Revenues
from this customer was $6.8 million, contributing approximately 15.1% of total
consolidated revenues during the first quarter of 2004.
9
10. GEOGRAPHIC INFORMATION
Customers of the Company are primarily located in the United States. Net
revenues and net income (loss) were attributed to each geographic location as
follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
2005 2004
---------- --------
(in thousands)
NET REVENUES
North America, primarily United States $ 45,287 $ 39,911
India 26,161 19,783
UK 3,319 3,900
Far East, primarily Singapore 303 371
Germany 402 1,205
Inter-company revenue elimination (primarily India) (24,740) (20,081)
---------- --------
TOTAL REVENUE $ 50,732 $ 45,089
========== ========
NET INCOME/(LOSS)
North America, primarily United States 2,122 1,647
India 6,350 6,760
UK 661 595
Far East, primarily Singapore (3) 24
Germany (136) 296
---------- --------
NET INCOME $ 8,994 $ 9,322
---------- --------
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,
----------------------------
2005 2004
------- -------
(in thousands)
Income before income taxes $10,999 $11,161
======= =======
Statutory provision 35.0% 35.0%
State taxes, net of federal benefit 1.0% 0.7%
Tax-free investment income (0.8%) (0.5%)
Foreign effective tax rates different from US statutory rate (17.0%) (18.7%)
------- -------
EFFECTIVE INCOME TAX RATE 18.2% 16.5%
======= =======
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. The provision no longer required for any particular tax year, is
credited to the current period's income tax expenses.
Syntel India has not provided for disputed Indian income tax liabilities
amounting to $2.6 million for the financial years 1995-96 to 2001-02. Syntel
India has obtained an opinion from one independent legal counsel (a 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 1995-96, 1996-97, 1997-98,
1999-2000 and 2000-01 and for subsequent periods to date, which support Syntel
India's stand in this matter.
10
Syntel India had filed an appeal with the Commissioner of Income Tax (Appeals)
for the financial year 1998-99 and received a favorable decision. A similar
appeal filed by Syntel India with the Commissioner of Income Tax (Appeals) for
the financial year 1999-2000 was however dismissed in March 2004. Syntel India
has appealed this decision with the Income Tax Appellate Tribunal. Syntel India
has since also received orders for appeals filed with the Commissioner of Income
Tax (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 and received a favorable decision for 1995-96 and the contention of
Syntel India was partially upheld for the other three years. Syntel India has
gone into further appeal with the Income Tax Appellate Tribunal for the amounts
not allowed by the Commissioner of Income Tax (Appeals). The Income Tax
Department has appealed the favorable decisions for 1995-96 and 1998-99 and the
partially favorable decisions for the other years with the Income Tax Appellate
Tribunal.
Further, Syntel India has not provided for $2.6 million for the financial year
2001-02 against which the Company has filed an appeal with the Commissioner of
Income Tax (Appeals). Syntel India has obtained an opinion from independent
legal counsel (former Chief Justice of the Supreme Court of India) which
supports Syntel India's stand in this matter. During the quarter Syntel India
has obtained opinion from another independent legal counsel (former Chief
Justice of the Supreme Court of India) which supports Syntel India's stand in
this matter.
Further, Syntel India has not provided for disputed income tax liabilities
aggregating to $ 0.061 million for financial years 1999-00 to 2001-02, against
which Syntel India had filed or is in the process of filing appeals or petitions
with the Commissioner of Income Tax (Appeals).
All the above tax exposures involve complex issues and may need an extended
period to resolve the issues with the Indian income tax authorities. Management,
after consultation with legal counsel, believes that the resolution of the above
matters will not have a material adverse effect on the Company's financial
position.
UNDISTRIBUTED EARNINGS OF FOREIGN SUBSIDIARIES
The Company intends to use accumulated and future earnings of foreign
subsidiaries to expand operations outside the United States and accordingly
undistributed earnings of foreign subsidiaries are considered to be indefinitely
reinvested outside the United States and no provision for U. S. federal and
state income tax or applicable dividend distribution tax has been provided
thereon.
However, the American Jobs Creation Act of 2004 enacted on October 22, 2004
("the Jobs Act") provides for reduced US income tax rates for repatriation of
foreign earnings that occurs prior to December 31, 2005. While the Company has
no current plans for the repatriation of foreign earnings, the Company is
evaluating the potential effects of the Jobs Act and foreign laws that might
effect any such repatriation. If the Company determines to repatriate all
undistributed repatriable earnings of foreign subsidiaries as of March 31, 2005
(without considering the Jobs Act provisions), the Company would have accrued
taxes of approximately $52.3 million. If the Company determines to repatriate
all undistributed repatriable earnings of foreign subsidiaries (under the Jobs
Act), the Company would accrue taxes, which would be material in amount but
significantly less than the $52.3 million mentioned above.
11
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 ("APB") 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 SFAS 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,
------------------------------
2005 2004
------------ ------------
(in thousands)
NET INCOME
As reported $ 8,994 $ 9,322
Stock based Compensation expense recognized in statement
of income, net of tax $ 598 -
Stock based compensation expense determined under the
fair value method, net of tax ($ 895) ($ 935)
------------ ------------
PRO FORMA NET INCOME $ 8697 $ 8,387
------------ ------------
EARNINGS PER SHARE, PRO FORMA
Basic earnings per share $ 0.22 $ 0.21
Diluted earnings per share $ 0.21 $ 0.21
EARNINGS PER SHARE AS REPORTED
Basic earnings per share $ 0.22 $ 0.23
Diluted earnings per share $ 0.22 $ 0.23
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 40,366 40,121
Diluted 40,526 40,614
Estimated fair value of option granted $ 2.51 $ 5.70
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,
---------------------------
2005 2004
------- --------
Assumptions
Risk free interest rate 4.12% 3.13%
Expected life 5.00 5.00
Expected volatility 71.07% 74.83%
Expected dividend yield 9.83% 0.87%
RESTRICTED STOCK:
On different dates during the quarter ended June 30, 2004 the Company issued
319,300 shares of incentive restricted stock to its non-employee directors and
some employees as well as to some employees of its subsidiaries. The stocks were
granted to employees for their future services as a retention tool at a zero
exercise price, with the restrictions on transferability lapsing with regard to
10%, 20%, 30%, and 40% of the shares issued on or after the first, second, third
and fourth anniversary of the grant dates, respectively.
Based upon the market value on the grant dates, the Company recorded $5.83
million of unearned compensation during the quarter ended June 30, 2004,
included as a separate component of shareholders equity to be expensed over the
four year's service period on a straight line basis. During the quarter ended
March 31, 2005, the Company reversed $0.54
12
million of unearned compensation towards forfeiture of restricted stock on
account of termination of employees and expensed $0.25 million as compensation
cost on account of these stock grants.
The recipients are also eligible for dividends declared on their restricted
stock. The dividends paid on shares of unvested restricted stock are charged to
compensation cost. For the quarter ended March 31, 2005, the Company recorded
$0.43 million as compensation cost for dividends paid on shares of unvested
restricted stock.
13. RECLASSIFICATION
Certain prior period amounts have been reclassified to conform with the current
period presentation.
13
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 Business Process Outsourcing business
segments. Net revenues in the three months ended March 31, 2005 increased to
$50.7 million from $45.1 in the three months ended March 31, 2004, representing
an 12.5% increase. During the first quarter of 2005 the Company witnessed a ramp
up in its BPO business. Further, revenues have increased primarily consequent to
our increased workforce. Information technology offshoring is a growing trend
with increasing numbers of multi-national corporations aggressively outsourcing
their applications development or business processes to vendors with an offshore
presence. Syntel has benefited from this trend. Also the Company's Client
Partner Program has enabled better relationships with key customers leading to
continued growth in business. Worldwide billable headcount, including personnel
employed by Syntel India, Syntel Singapore, Syntel U.K., and Syntel Germany as
of March 31, 2005 increased by 22.8% to 3,267 employees as compared to 2,660
employees as of March 31, 2004. 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
revenues per off-shore billable resource are generally lower as compared to an
on-site based resource. As of March 31, 2005, the Company had approximately
60.3% of its billable workforce in India as compared to 53.3% as of March 31,
2004. The Company's top five customers accounted for 41.5% of the total revenues
in the three months ended March 31, 2005, up from 40.0% of its total revenues in
the three months ended March 31, 2004. Moreover, the Company's top 10 customers
accounted for 62.0% of the revenues in the three months ended March 31, 2005 as
compared to 61.6% in the three months ended March 31, 2004.
APPLICATIONS OUTSOURCING REVENUES. Applications Outsourcing revenues increased
to $39.1 million for the three months ended March 31, 2005, or 77.1% of total
revenues, from $33.8 million, or 75.1% of revenues for the three months ended
March 31, 2004. The $5.3 million increase was attributable primarily to revenues
from new engagements contributing $20.8 million largely offset by $15.6 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, finder's
fees, trainee compensation and travel. Applications Outsourcing costs of
revenues decreased to 56.3% of total Applications Outsourcing revenues for the
three months ended March 31, 2005, from 57.1% for the three months ended March
31, 2004. The 0.8 percentage point decrease in cost of revenues, as a percent of
revenues for the three months ended March 31, 2005 was attributable primarily to
the increase in the offshore component of business contributing a decrease of
approximately 2.2 percentage points, offset by a 1.4 percentage point increase
attributable to an increase in compensation cost associated with a special
dividend on restricted stock, a performance-based incentive program for delivery
teams and increments to onsite resources.
E-BUSINESS REVENUES. e-Business revenues decreased to $6.9 million for the three
months ended March 31, 2005, or 13.5% of total revenues, from $8.5 million, or
18.9% of revenues for the three months ended March 31, 2004. The $1.6 million
decrease was attributable primarily to lost revenues as a result of project
completion and a net reduction in revenue from existing projects jointly
contributing $4.3 million offset by revenues from new engagements contributing
$2.7 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 increased to
68.5% of total e-Business revenues for the three months ended March 31, 2005,
from 59.2% for the three months ended March 31, 2004. The 9.3 percentage point
increase in cost of revenues as a percent of revenues for the three months ended
March 31, 2005 is principally attributable to an increase in compensation cost
associated with a special dividend on restricted stock and a performance-based
incentive program for delivery teams and also to increases in onsite resources
and hiring which impacted costs, but did not necessarily add to revenues as a
significant number of these hires were still in training.
14
TEAMSOURCING REVENUES. TeamSourcing revenues increased to $3.7 million for the
three months ended March 31, 2005, or 7.3% of total revenues, from $2.4 million,
or 5.4% of total revenues for the three months ended March 31, 2004. The $1.3
million increase was attributable primarily to revenues from new engagements and
revenue from the SkillBay web portal which helps clients of Syntel with their
supplemental staffing requirements, contributing $1.9 million largely offset by
$0.6 million in lost revenues as a result of project completion and net
reduction in revenues from existing projects.
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
72.8% of TeamSourcing revenues for the three months ended March 31, 2005, from
64.2% for the three months ended March 31, 2004. The 8.6 percentage point
increase in cost of revenues, as a percent of total TeamSourcing revenues was
attributable primarily to the increase in compensation cost associated with a
special dividend on restricted stock, a performance-based incentive program for
delivery teams and increments to onsite resources.
BPO REVENUES. This segment started contributing revenues during the first
quarter of 2004. Revenues from this segment were $1.1 million or 2.1% of total
revenues for the three months ended March 31, 2005 as against 0.3 million or
0.7% for the three months ended March 31, 2004. As of February 1, 2005, the
Company signed a joint venture with a large banking instituition which has
helped it to ramp up its business in the BPO segment.
BPO COST OF REVENUES. BPO cost of revenues consists of costs directly associated
with billable consultants, including salaries, payroll taxes, benefits, finders
fees, trainee compensation, and travel. The cost of revenues was 26.8% of the
segment's revenues for the three months ended March 31, 2005 and 57.4% of the
segment's revenues for the three months ended March 31, 2004. The 30.6
percentage point decrease in cost of revenues, as a percent of total BPO
revenues was attributable primarily to a higher utilization of billable
consultants.
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; and marketing and various
facility costs for the Company's global development centers and other offices.
Selling, general, and administrative costs for the three months ended March 31,
2005 were $11.2 million or 22.0% of total revenues, compared to $8.8 million or
19.6% of total revenues for the three months ended March 31, 2004.
Selling, general and administrative costs for the three months ended March 31,
2005 include an one time special performance based incentive program for sales
teams of $0.4 million and compensation expense related to a special dividend of
$1.50 per share on restricted stock held by employees of $0.1 million.
After removing the impact of the two above-mentioned items, selling, general,
and administrative expenses were 21.0% and 19.6% of total revenues for the three
months ended March 31, 2005 and 2004, respectively.
This 1.4 percentage point increase in selling, general, and administrative
expenses as a percentage of revenue is primarily due to increases in costs
related to an increase in compensation costs of $0.4 million in the US and
India, an increase in recruiting expenses of $0.1 million, depreciation of $0.4
million towards the BPO offices at the Hiranandani, Mumbai and the Pune
facilities in India, an increase in travel expenses of $0.2 million, legal
expenses of $0.2 million, consultancy charges of $0.3 million, and office
expenses of $0.2 million, which resulted in an approximately 3.6 percentage
point increase, partially offset by, increases in revenue in the three months
ended March 31, 2005 as against the three months ended March 31, 2004, which
resulted in an approximately 2.2 percentage point decrease.
INCOME TAXES
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.
15
The provision for income tax contingencies no longer required for any particular
tax year is credited to the current period's income tax expenses. During the
three months ended March 31, 2005 and March 31, 2004, the effective income tax
rate was 18.2% and 16.5% respectively.
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 part 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 $6.7 million for the three months
ended March 31, 2005, compared to $9.9 million for the three months ended March
31, 2004. The number of days sales outstanding in net accounts receivable was
approximately 64 days and 67 days as of March 31, 2005 and March 31, 2004,
respectively. The decrease in the number of day's sales outstanding in net
accounts receivable was due to relatively higher collections during the three
months ended March 31, 2005.
Net cash provided by investing activities was $20.2 million for the three months
ended March 31, 2005, consisting principally of $29.9 million for the sale of
short term investments partially offset by $2.4 million of capital expenditures,
consisting principally of capital work in progress, including capital advances
towards construction of a Global Development Center at Pune, India, PCs and
communications equipment and the purchase of short term investments of $7.3
million. Net cash used in investing activities was $2.3 million for the three
months ended March 31, 2004, consisting principally of $15.2 million for the
purchase of short term investments and $1.0 million for capital expenditures,
consisting principally of PCs and communications equipment partially offset by
the sale of short term investments of $13.9 million.
Net cash used in financing activities was $62.1 million for the three months
ended March 31, 2005, consisting principally of $63.5 million in dividends paid
out and $0.7 million in common stock repurchases, partially offset by $2.1
million of proceeds from the issuance of shares under the Company's employee
stock option plan and employee stock purchase plan. Net cash used in financing
activities was $1.0 million for the three months ended March 31, 2004,
consisting principally of $2.4 million in dividends paid out partially offset by
$1.4 million of proceeds from the issuance of shares under the Company's
employee stock option plan and employee stock purchase plan.
The Company has a line of credit with Bank One, which provides for borrowings up
to $20.0 million, out of which $1.7 million was drawn on April 26, 2005 and
subsequently repaid on April 28, 2005. The line of credit has been renewed and
now expires on August 31, 2005. 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.
Borrowing under the line of credit bears interest at (i) a formula approximating
the Eurodollar rate plus the applicable margin of 1.25%, (ii) the bank's prime
rate minus 1.0% or (iii) a negotiated rate plus 1.25%. No borrowings were
outstanding at March 31, 2005 and 2004.
The Company believes that the combination of present cash balances and future
operating cash flows will be sufficient to meet the Company's currently
anticipated cash requirements for at least the next 12 months.
CRITICAL ACCOUNTING POLICIES
We believe the following critical accounting policy, among others, affects the
more significant judgments and estimates used in the preparation of our
consolidated financial statements. The Company has discussed this critical
accounting policy and the 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 three months ended March 31,
2005 and 2004, revenues from time and material contracts constituted 45% and 49%
of total revenues, respectively.
16
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 three months ended March 31, 2005 and 2004, revenues from
fixed price application management and support engagements constituted 34% and
30% of total revenues, 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 required
through 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 three months ended
March 31, 2005 and 2004, revenues from fixed price development contracts
constituted 21% and 21% of total revenues, 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 the Company makes estimates about its future efforts
and costs relative to its 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. 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. The provision no longer required for any particular tax
year is credited to the current period's income tax expenses.
During the three months ended March 31, 2005 and March 31, 2004, the effective
income tax rate was 18.2% and 16.5%, respectively.
17
ACCRUALS FOR LEGAL EXPENSES AND EXPOSURES. The Company estimates the costs
associated with known legal exposures and their related legal expenses and
accrues reserves for either the probable liability, if that amount can be
reasonably estimated, or otherwise the lower end of an estimated range of
potential liability.
FORWARD LOOKING STATEMENTS / RISK FACTORS
Certain information and statements contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations and other sections of
this report, including the allowance for doubtful accounts, contingencies and
litigation, potential tax liabilities, interest rate or foreign currency risks,
and projections regarding our liquidity and capital resources, could be
construed as 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. Forward-looking statements include statements
containing words such as "could", "expects", "may", "anticipates", "believes",
"estimates", "plans", and similar expressions. In addition, the Company or
persons acting on its behalf may, from time to time, 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. 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 the following, which factors
are more fully discussed in the Company's most recently filed Annual Report on
Form 10-K and other SEC filings, in each case under the section entitled "Risk
Factors":
- 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 Key Personnel
- Risks Related to Possible Acquisitions
- Limited Intellectual Property Protection
- Potential Anti-Outsourcing Legislation
- Adverse Economic Conditions
- Failure to Successfully Develop and Market New Products and Services
- Benchmarking Provisions
- Corporate Governance Issues
- Telecom/Infrastructure Issues
- Confidentiality Issues
- New Facilities
- Stock Option Accounting
- Terrorist Activity, War or Natural Disasters
- Instability and Currency Fluctuations
The Company does not intend to update the forward looking statements or risk
factors to reflect future events or circumstances.
RECENT ACCOUNTING PRONOUNCEMENTS
None.
18
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 short term investments:
MARCH 31, DECEMBER 31,
2005 2004
--------- ------------
(in thousands)
ASSETS
Cash and cash equivalents $ 73,892 $109,142
Short term Investments 36,462 58,899
-------- --------
TOTAL $110,354 $168,041
-------- --------
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 that 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 three months ended March 31, 2005, the Indian rupee has appreciated,
against U.S. dollar, by 2.0% as compared to the year ended December 31, 2004.
The impact of this rupee appreciation adversely impacted our gross margin by 37
basis points, operating income by 49 basis points and net income by 46 basis
points, each as a percentage of revenue. The Indian rupee denominated cost of
revenues and selling, general and administrative expense was 31.3% and 25.3%,
respectively, which did not have a material impact on the operating results of
the company.
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 material
impact.
19
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, 2005 as well as
mirror certifications from senior management, the Company's Chairman, President
and Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are designed to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 (the Exchange Act) is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms and are operating in
an effective manner. There have been no changes in the Company's internal
controls over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) during the last quarter that materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
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. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. 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.
20
CONCLUSIONS. Based upon the Controls Evaluation, our CEO and CFO have concluded
that as of March 31, 2005 our disclosure controls and procedures 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.
21
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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
(c)
COMPANY PURCHASES OF EQUITY SECURITIES
(d) Maximum Number (or
(c) Total Number of Approximate Dollar
Shares (or Units) Value) of Shares (or
(a) Total Number of Purchased as Part of Units) that May Yet Be
Shares (or Units) (b) Average Price Paid Publicly Announced Purchased Under the
Period Purchased * per Share (or Unit) Plans or Programs Plans or Programs
------ ------------------- ---------------------- -------------------- ----------------------
January 1, 2005 to -0- Not Applicable -0- Not Applicable
January 31, 2005
February 1, 2005 to -0- Not Applicable -0- Not Applicable
February 28, 2005
March 1, 2005 to March 34,864 $19.31 -0- Not Applicable
31, 2005
Total 34,864 $19.31 -0- Not Applicable
* All common shares were purchased in open-market transactions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
22
ITEM 6. EXHIBITS.
Exhibits
Exhibit No. Description
- ----------- -----------
3 Bylaws of the Registrant
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
23
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 2, 2005 /s/ Bharat Desai
---------------------------------------------
Bharat Desai, Chairman, President and
Chief Executive Officer
Date May 2, 2005 /s/ Keshav Murugesh
-----------------------------------------------
Keshav Murugesh, Chief Operating Officer and
Chief Financial Officer
24
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3 Bylaws of the Registrant
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
25