Notes to Consolidated Financial Statements
1. Business
Syntel, incorporated under Michigan law on
April 15, 1980, is a global provider of digital transformation, information technology (IT) and knowledge process outsourcing (KPO) services to Global 2000 companies.
The Companys reportable business segments are as follows:
|
|
|
Banking and Financial Services
|
|
|
|
Healthcare and Life Sciences
|
|
|
|
Retail, Logistics and Telecom
|
In each of our business segments, Syntel helps customers adapt to market change
by providing a broad array of technology-based, industry-specific solutions. These solutions leverage Syntels strong understanding of the underlying trends and market forces in our chosen industry segments. These solutions are complemented by
strong capabilities in Digital Modernization, Social, Mobile, Analytics and Cloud (SMAC) technologies, Business Intelligence (BI), Knowledge Process Outsourcing (KPO), application services, testing, Enterprise Resource Planning (ERP), IT
Infrastructure Management Services (IMS), and business and technology consulting.
Banking and Financial Services
Our Banking and Financial Services segment serves financial institutions throughout the world. Our clients include companies providing banking, capital
markets, cards and payments, investments and transaction processing services to third parties. Our clients engage us to help make their operations as effective, productive and cost-efficient as possible, and to support new capabilities. We assist
these clients in such areas as: payment solutions, retail banking, wholesale banking, consumer lending, risk management, investment banking, reconciliation, fraud analysis, mobile banking, and compliance and securities services. The demand for our
services in the banking and financial services sector is being driven by changing global regulatory requirements, customer interest in newer technology areas and related services such as digital modernization, and an ongoing focus on cost reduction
and operational efficiencies.
Healthcare and Life Sciences
Our Healthcare and Life Sciences segment serves healthcare payers, providers and pharmaceutical and medical device providers, among others. The healthcare
industry is constantly seeking to improve the quality of care while managing the cost of care in order to make healthcare affordable to a larger population. Our healthcare practice focuses on providing a broad range of services and solutions to the
industry across the consumer lifecycle, which includes regulatory requirements, integrated care, stakeholder engagement and wider use of electronic health records, among others. We also partner with clients to modernize their systems and
processes to enable them to deal with the increasing consumer orientation of healthcare, such as adoption of mobile and analytics solutions to improve access to health information and decision making by end consumers.
F-9
In the life sciences category, we partner with leading pharmaceutical, biotech, and medical device companies, as
well as providers of generics, animal health and consumer health products. Our life sciences solutions help transform many of the business processes in the life sciences value chain (research, clinical development, manufacturing and supply chain,
and sales and marketing) as well as regulatory and administrative functions.
Insurance
Syntel serves the needs of global property and casualty insurers, insurance brokers, personal, commercial, life and retirement insurance service providers.
These customers turn to us for assistance in improving the efficiency and effectiveness of their operations and in achieving business transformation. We focus on aspects of our clients systems and operations, such as policy administration,
claims processing and compliance reporting. We also serve the growing trend among insurers to improve their sales and marketing processes by deepening direct customer relationships and strengthening interactions with networks of independent and
captive insurance agents. This is often accomplished through the use of digital
front-end
technologies like web enablement, social media and mobility, and supported by modernization of applications, product
implementations and infrastructure elements, along with cloud enablement. Additionally, many insurers seek to improve business effectiveness by reducing expense ratios. Syntel helps our customers achieve this by managed services and IT and process
automation with our industry leading SyntBots
®
automation platform.
Manufacturing
We provide technology services and business consulting in a range of
sub-sectors
including industrial products,
aerospace and automotive manufacturing, as well as to processors of raw materials and natural resources. Demand for our services in this segment is being driven by trends that, among others, include the increasing globalization of sourcing and the
desire of clients to further penetrate emerging markets, leading to longer and more complex supply chains. Some of our solutions for industrial and manufacturing clients include warranty management, dealer system integration, Product Lifecycle
Management (PLM), Supply Chain Management (SCM), sales and operations planning, and mobility. Digitization, including connectivity leveraging the Internet of Things, Analytics based decision support and Mobility are some of the emerging trends on
which we are working with our clients.
Retail, Logistics and Telecom
Syntels Retail, Logistics and Telecom (RLT) Business unit is the fastest growing and second-largest business unit and leverages its comprehensive
understanding of the business and technology needs of these industries. Aligned to Syntels Corporate Offering strategy, the RLT business unit offers legacy elimination and digital modernization solutions to its clientele. Our industry
solutions for our clients include SCM, merchandising, sales and operations planning, point of sale (POS) solutions, omnichannel enablement and integration, web content management solutions, sales force and cloud foundry enablement, among others.
Syntels RLT offerings are designed to provide effective operations and enhanced customer experiences.
F-10
2. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
The condensed consolidated financial statements include the accounts of Syntel, its wholly owned subsidiaries, and a joint venture and its subsidiary. All
significant inter-company balances and transactions have been eliminated.
The wholly owned subsidiaries of Syntel, Inc. are:
|
|
|
Syntel (Australia) Pty. Ltd., an Australian limited liability company;
|
|
|
|
Syntel Canada Inc., an Ontario limited liability company;
|
|
|
|
Syntel Delaware, LLC, a Delaware limited liability company (Syntel Delaware);
|
|
|
|
Syntel Deutschland GmbH, a German limited liability company;
|
|
|
|
Syntel Europe Limited, a United Kingdom limited liability company;
|
|
|
|
Syntel Holding (Mauritius) Limited, a Mauritius limited liability company;
|
|
|
|
Syntel (Hong Kong) Limited, a Hong Kong limited liability company;
|
|
|
|
Syntel (Mauritius) Limited, a Mauritius limited liability company;
|
|
|
|
Syntel Private Limited, an Indian limited liability company (Syntel India);
|
|
|
|
Syntel Solutions Mexico, S. de R.L. de C.V., a Mexican limited liability company;
|
|
|
|
Syntel SPC, Inc., a Michigan corporation; and
|
|
|
|
Syntel Worldwide (Mauritius) Limited, a Mauritius limited liability company.
|
The wholly owned
subsidiaries of Syntel Europe Limited are:
|
|
|
Intellisourcing, SARL, a French limited liability company;
|
|
|
|
Syntel Poland, sp. z o.o., a Polish limited liability company (Syntel Poland);
|
|
|
|
Syntel Solutions BV, a Netherlands limited liability company; and
|
|
|
|
Syntel Switzerland GmbH, a Switzerland limited liability company.
|
The partially owned joint
venture of Syntel Delaware is:
|
|
|
State Street Syntel Services (Mauritius) Limited, a Mauritius limited liability company (SSSSML).
|
The wholly owned subsidiary of SSSSML is:
|
|
|
State Street Syntel Services Private Limited, an Indian limited liability company
|
The wholly
owned subsidiaries of Syntel (Mauritius) Limited are:
|
|
|
Syntel Global Private Limited, an Indian limited liability company;
|
|
|
|
Syntel International Private Limited, an Indian limited liability company; and
|
|
|
|
Syntel Technologies (Mauritius) Limited, a Mauritius limited liability company.
|
F-11
The wholly owned subsidiaries of Syntel Holding (Mauritius) Limited are:
|
|
|
Syntel Services Private Limited, an Indian limited liability company;
|
|
|
|
Syntel Software (Mauritius) Limited, a Mauritius limited liability company; and
|
|
|
|
Syntel Solutions (Mauritius) Limited, a Mauritius limited liability company.
|
The wholly owned
subsidiary of Syntel Solutions (Mauritius) Limited is:
|
|
|
Syntel Solutions (India) Private Limited, an Indian limited liability company.
|
The wholly
owned subsidiary of Syntel Worldwide (Mauritius) Limited is:
|
|
|
Syntel (Singapore) PTE Limited, a Singapore limited liability company.
|
The wholly owned
subsidiary of Syntel (Singapore) PTE Limited is:
|
|
|
Syntel Infotech, Inc., a Philippines corporation.
|
The wholly owned subsidiary of Syntel
Technologies (Mauritius) Limited is:
|
|
|
Syntel Technologies LLP, an Indian limited liability partnership.
|
The wholly owned subsidiary
of Syntel Software (Mauritius) Limited
is:
|
|
|
Syntel Software LLP, an Indian limited liability partnership.
|
Through August 31, 2017, SkillBay LLC, a
Michigan limited liability company (SkillBay), and Syntel Consulting Inc., a Michigan corporation (Syntel Consulting), were wholly-owned subsidiaries of Syntel. On September 1, 2017 (the Effective Date),
SkillBay and Syntel Consulting were merged with and into Syntel and ceased to exist. Also on the Effective Date, all assets, liabilities, interests, and reserves of SkillBay and Syntel Consulting were transferred to and assumed by Syntel and all
common stock issued by Syntel Consulting to Syntel as the sole shareholder and Syntels membership interest in SkillBay as the sole member were cancelled.
Revenue recognition
The Company recognizes revenues from
time-and-materials
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 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 costs 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, a 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 to customers.
Reimbursements of
out-of-pocket
expenses are included in revenue.
F-12
Stock-based employee compensation plans
The Company recognizes stock-based compensation expense in the consolidated financial statements for awards of equity instruments to employees and
non-employee
directors based on the grant-date fair value of those awards on a straight-line basis over the requisite service period of the award, which is generally the vesting term. If a plan is modified, the
incremental compensation cost is measured as the excess, if any, of the fair value of the modified award over the fair value of the original award. The benefits/deficiencies of tax deductions in excess/short of recognized compensation expense are
reported as an operating cash flow.
Stock repurchase plans
The Company recognizes the cost of repurchasing common stock acquired for purposes other than retirement (formal or constructive),as a reduction from the total
of capital stock, additional
paid-in
capital, and retained earnings. The Company has recorded the cost of repurchasing common stock, as a reduction from capital stock.
Derivative instruments
The Company is directly and
indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Companys financial performance and are referred to as market risks. When deemed appropriate, the Company uses
derivatives as a risk management tool to mitigate the potential impact of certain market risks. The primary market risks managed by the Company through the use of derivative instruments are foreign currency exchange rate risk and interest rate risk.
Hedging transactions and derivative financial instruments
The Company uses derivative instruments such as interest rate swaps. A swap agreement is a contract between two parties to exchange cash flows based on
specified underlying notional amounts, assets and/or indices. We do not enter into derivative financial instruments for trading purposes.
All derivatives
are carried at fair value in our consolidated balance sheets in the following line items, as applicable: other current assets; deferred income taxes and other
non-current
assets; accounts payable; and deferred
income taxes and other
non-current
liabilities. The carrying values of the derivatives reflect the impact of legally enforceable master netting agreements as applicable. These master netting agreements allow
the Company to net settle positive and negative positions (assets and liabilities) arising from different transactions with the same counterparty.
The
accounting for gains and losses that result from changes in the fair values of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the type of hedging relationships. Derivatives such
as interest rate swaps can be designated as cash flow hedges. The changes in the fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in Accumulated Other Comprehensive Income (Loss) (AOCI)
and are reclassified into the line item in our consolidated statement of income in which the hedged items are recorded in the same period the hedged items affect earnings. Due to the high degree of effectiveness between the hedging instruments and
the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair values or cash flows of the underlying exposures being hedged. The changes in the fair values of derivatives
that are not designated and/or do not qualify as hedging instruments are immediately recognized into earnings.
F-13
For derivatives that will be accounted for as hedging instruments, the Company formally designates and documents,
at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. In addition, the Company formally assesses both at the inception and at least
quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in either the fair values or cash flows of the related underlying exposures. Any ineffective portion of a financial
instruments change in fair value is immediately recognized into earnings.
The Company determines the fair values of its derivatives based on quoted
market prices or pricing models using current market rates. Fair values of interest rate swaps are measured using standard valuation models using inputs that are readily available in public markets, or can be derived from observable market
transactions, including LIBOR spot and forward rates.
Credit risk associated with derivatives
The Company considers the risks of
non-performance
by the counterparty as not material. The Company utilizes standard
counterparty master agreements containing provisions for the netting of certain foreign currency transaction and interest rate swap obligations. The Company also mitigates the credit risk of these derivatives by transacting with major banks as
counterparties that are highly rated globally. The Company evaluates the credit and
non-performance
risks associated with its derivative counterparties, and believes that the impact of the credit risk
associated with the outstanding derivatives is insignificant.
Cash flow hedging strategy
The Company uses cash flow hedges to minimize the variability in cash flows of assets or liabilities or forecasted transactions caused by fluctuations in
interest rates. The changes in the fair values of derivatives designated as cash flow hedges are recorded in AOCI and are reclassified into the line item in our consolidated statement of income in which the hedged items are recorded in the same
period the hedged items affect earnings. The changes in fair values of hedges that are determined to be ineffective are immediately reclassified from AOCI into earnings. The maximum length of time for which the Company hedges its exposure to the
variability in future cash flows is typically over the terms of hedged items.
Interest rate swaps
In connection with the Companys Senior Credit facility with Bank of America N.A., the Company entered into an interest rate swap arrangement on
November 30, 2016 to hedge interest rate risk on the entire term loan of $300 million by entering into a Pay Fixed and Receive Floating interest rate swap (the Swap) for the entire duration of the term loan. The Swap is
designed to reduce the variability of future interest payments with respect to the term loan by effectively fixing the annual interest rate payable on the loans outstanding principal. The pay fixed component of interest rate swap is fixed at
3.16%.
F-14
A designated hedge with exposure to variability in the future interest payments of a floating rate loan is a cash
flow hedge. The criteria for designating a derivative as a cash flow hedge include the assessment of the instruments effectiveness in risk reduction, matching of the derivative instrument to its underlying transaction including its terms, and
the assessment of the probability that the underlying transaction will occur. For derivatives with cash flow hedge accounting designation, the Company reports the
after-tax
gain or loss from the effective
portion of the hedge as a component of accumulated other comprehensive income and reclassifies it into earnings in the same period or periods in which the hedged transaction affects earnings, and in the same line item on the consolidated statements
of income as the impact of the hedged transaction.
Measurement of effectiveness and ineffectiveness:
Effectiveness for interest rate swaps is generally measured by comparing the critical terms of the hedged item and the hedging instrument, whereas
ineffectiveness is measured by comparing the cumulative change in fair value of the swap with the cumulative change in the fair value of the hedged item.
An interest rate swap with an aggregate amount of $300 million economically converts a portion of the Companys variable rate debt to fixed rate
debt. The effective portions of cash flow hedges are recorded in Accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of interest
expense are recognized in Other income (expense), net in the same period as the related expense is recognized. The ineffective portions and amounts excluded from the effectiveness testing of cash flow hedges are recognized in Other
income (expense), net.
Derivative instruments designated as cash flow hedges must be
de-designated
as
hedges when it is probable that the forecasted hedged transaction will not occur in the initially identified time period. Deferred gains and losses in Accumulated other comprehensive income (loss) associated with such derivative
instruments are reclassified immediately into Other income (expense), net. Any subsequent changes in fair value of such derivative instruments are reflected in Other income (expense), net unless they are
re-designated
as hedges of other transactions.
F-15
The following table provides information of location and fair value of derivative financial instrument included
in our consolidated statement of financial positions as of December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Particulars
|
|
Nominal
Amount
|
|
|
Fair Value of derivative and location on statement
|
|
|
Gain/(loss) on fair value
|
|
|
|
of financial position as on 31st December 2017
|
|
|
Effective
|
|
|
Ineffective
|
|
|
|
|
|
|
(In thousands)
|
|
Cash flow Hedge
|
|
|
|
|
Deferred Income
Taxes and Other
non-current
assets
|
|
|
Other current assets
|
|
|
|
|
Pay fixed Interest rate swap
|
|
$
|
279.4 Million
|
|
|
$
|
3,019
|
|
|
$
|
288
|
|
|
$
|
2,774
|
|
|
|
|
|
The following table present the net gains (losses) recorded in accumulated other comprehensive (loss) income relating to the
interest rate swap contract designated as cash flow hedges for the period ending December 31, 2017, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Gains/ (losses) recognized in other comprehensive income
|
|
$
|
2,774
|
|
|
$
|
533
|
|
|
$
|
|
|
The Company will reclassify an amount equivalent to the accrued interest on the swap contract on every reporting period, as
there is a similar impact of accrued interest on the loan in the income statement.
Derivative
(Non-Designated)
Hedging Strategy
In addition to derivative instruments that are designated and qualify for hedge accounting, the Company also uses certain derivatives
for its foreign currency exposure. These derivatives were not designated and/or did not qualify for hedge accounting. The changes in fair value of derivatives are immediately recognized into earnings. The Company does not enter into derivative
financial instruments for trading purposes.
The Company periodically enters into foreign exchange forward contracts to mitigate the risk of changes in
foreign currency exchange rates, specifically changes between the Indian rupee currency and U.S. dollar currency. The contracts are adjusted to fair value at each reporting period. Gains and losses on forward contracts are generally recorded in
Other (expense) income, net unless they are designated as an effective hedge. Although the Company cannot predict fluctuations in foreign currency rates, the Company currently anticipates that foreign currency risk may have a significant
impact on the financial statements. In order to limit the exposure to fluctuations in foreign currency rates, when the Company enters into foreign exchange forward contracts, where the counter-party is a bank, these contracts may also have a
material impact on the financial statements.
F-16
The Companys Indian subsidiaries, whose functional currency is the Indian rupee, periodically enter into
foreign exchange forward contracts to buy Indian rupees and sell U.S. dollars to mitigate the risk of changes in foreign exchange rates on U.S. dollar denominated assets, primarily comprised of receivables from the parent Company (Syntel, Inc.) and
other direct customers, and liabilities recorded on the books of the Indian subsidiaries. These forward contracts are denominated in U.S. dollars.
These
forward contracts do not qualify for hedge accounting under ASC 815, Derivative and Hedging. Accordingly, these contracts are carried at a fair value with the resulting gains or losses included in the statement of comprehensive income
under Other income (expense), net. The related cash flow impacts of all of our derivative activities are recorded in the consolidated statements of cash flows under cash flows from operating activities.
During the year ended December 31, 2017, the Company did not enter into new foreign exchange forward contracts. At December 31, 2017 and
December 31, 2016, no foreign exchange forward contracts were outstanding.
Change in accumulated other comprehensive income by component (Net of
tax expense or benefit)
The change in balances of accumulated comprehensive loss for the year ended December 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Unrealized
Gains
(losses) on
Securities
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Unrealized
gain on
derivatives
designated
as cash
flow hedge
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
Beginning balance
|
|
$
|
(254,210
|
)
|
|
$
|
328
|
|
|
$
|
(1,345
|
)
|
|
$
|
322
|
|
|
$
|
(254,905
|
)
|
Other comprehensive income before reclassifications
|
|
|
9,814
|
|
|
|
274
|
|
|
|
1,100
|
|
|
|
2,108
|
|
|
|
13,296
|
|
Amounts reclassified from accumulated other comprehensive (loss) income
|
|
|
|
|
|
|
(87
|
)
|
|
|
55
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income
|
|
$
|
9,814
|
|
|
$
|
187
|
|
|
$
|
1,155
|
|
|
$
|
2,108
|
|
|
$
|
13,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(244,396
|
)
|
|
$
|
515
|
|
|
$
|
(190
|
)
|
|
$
|
2,430
|
|
|
$
|
(241,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
Reclassifications out of accumulated other comprehensive income for the year ended December 31, 2017 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Details about Accumulated Other Comprehensive Income
(Loss) Components
|
|
Affected
Line Item in the
Statement
Where Net Income
Is Presented
|
|
Before Tax
Amount
|
|
|
Tax (Expense)
Benefit
|
|
|
Net of Tax
|
|
Unrealized gains on available for sale securities realized in current year
|
|
Other income, net
|
|
$
|
(115
|
)
|
|
$
|
28
|
|
|
$
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost included in net periodic pension cost
|
|
Cost of revenues
|
|
$
|
76
|
|
|
$
|
(21
|
)
|
|
$
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in accumulated other comprehensive income (loss) by component (Net of tax expense or benefit)
The change in balances of accumulated comprehensive loss for the year ended December 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Unrealized
Gains
(Losses)
on
Securities
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Unrealized
gain on
derivatives
designated
as cash flow
hedge
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Beginning balance
|
|
$
|
(235,146
|
)
|
|
$
|
332
|
|
|
$
|
(795
|
)
|
|
|
|
|
|
$
|
(235,609
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(19,064
|
)
|
|
|
161
|
|
|
|
(525
|
)
|
|
|
322
|
|
|
|
(19,106
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
(165
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
$
|
(19,064
|
)
|
|
$
|
(4
|
)
|
|
$
|
(550
|
)
|
|
$
|
322
|
|
|
$
|
(19,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(254,210
|
)
|
|
$
|
328
|
|
|
$
|
(1,345
|
)
|
|
$
|
322
|
|
|
$
|
(254,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
Reclassifications out of accumulated other comprehensive income (loss) for the year ended December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Details about Accumulated Other Comprehensive Income
(Loss) Components
|
|
Affected
Line Item in the
Statement
Where Net Income
Is Presented
|
|
Before Tax
Amount
|
|
|
Tax (Expense)
Benefit
|
|
|
Net of Tax
|
|
Unrealized gains on available for sale securities realized in current year
|
|
Other income, net
|
|
$
|
(248
|
)
|
|
$
|
83
|
|
|
$
|
(165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost included in net periodic pension cost
|
|
Cost of revenues
|
|
$
|
(35
|
)
|
|
$
|
10
|
|
|
$
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in balances of accumulated comprehensive loss for the year ended December 31, 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Unrealized
Gains
(losses) on
Securities
|
|
|
Defined
Benefit
Pension
Plans
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Beginning balance
|
|
$
|
(189,410
|
)
|
|
$
|
4,600
|
|
|
$
|
(1,434
|
)
|
|
$
|
(186,244
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(45,736
|
)
|
|
|
50
|
|
|
|
524
|
|
|
|
(45,162
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
(4,318
|
)
|
|
|
115
|
|
|
|
(4,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
$
|
(45,736
|
)
|
|
$
|
(4,268
|
)
|
|
$
|
639
|
|
|
$
|
(49,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(235,146
|
)
|
|
$
|
332
|
|
|
$
|
(795
|
)
|
|
$
|
(235,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Reclassifications out of accumulated other comprehensive income (loss) for the year ended December 31, 2015
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Details about Accumulated Other Comprehensive Income (Loss)
Components
|
|
Affected Line Item in
the Statement Where
Net Income Is
Presented
|
|
Before
Tax
Amount
|
|
|
Tax (Expense)
Benefit
|
|
|
Net of Tax
|
|
Unrealized gains on available for sale securities realized in the current year
|
|
Other income, net
|
|
$
|
(6,580
|
)
|
|
$
|
2,262
|
|
|
$
|
(4,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost included in net periodic pension cost
|
|
Cost of revenues
|
|
$
|
149
|
|
|
$
|
(34
|
)
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
Other
income includes interest and dividend income, gains and losses on forward contracts
,
gains and losses from the sale of securities, other investments, treasury operations and interest expenses on loans and borrowing.
Other comprehensive income (loss)
The other
comprehensive income (loss) consists of foreign currency translation adjustments, gains (losses) on net investment hedge derivatives, gain (losses) on cash flow hedge reserve, unrealized gains (losses) on securities and a component of a defined
benefit plan. During the years ended December 31, 2017, 2016 and 2015, the other comprehensive income (loss) amounts to $13.3 million, $(19.3) million and $(49.4) million, respectively, primarily attributable to the foreign currency
translation income (loss) adjustments of $9.8 million, $(19.0) million and $(45.4) million, respectively.
F-20
Tax on other comprehensive loss
Total tax (expense) benefit on other comprehensive income (loss) for the years ended December 31, 2017, 2016 and 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Tax expense on Foreign currency translation adjustments
|
|
$
|
|
|
|
$
|
(46
|
)
|
|
$
|
(308
|
)
|
Tax expense on unrealized gains on securities
|
|
|
(85
|
)
|
|
|
2
|
|
|
|
2,196
|
|
Tax (expense) benefit on defined benefit pension plans
|
|
|
(605
|
)
|
|
|
287
|
|
|
|
(312
|
)
|
Tax expense on cash flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(666
|
)
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (taxes) benefit on other comprehensive (loss) income
|
|
$
|
(1,356
|
)
|
|
$
|
32
|
|
|
$
|
1,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
For 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.
The cash and cash equivalents as at December 31, 2017 and December 31, 2016, were $96.00 million and $78.3 million,
respectively, which were held in bank and fixed deposits with various banking and financial institutions.
Fair value of financial instruments
The fair values of the Companys current assets and current liabilities approximate their carrying values because of their short maturities. Such
financial instruments are classified as current and are expected to be liquidated within the next twelve months.
Concentration of credit risks
Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash, investments and accounts
receivable and certain derivative instruments (IRS) designated as hedge instruments. Cash on deposit is held with financial institutions with high credit standings. The Company has cash deposited with financial institutions that, at times, may
exceed the federally insured limits.
The Company establishes an allowance for doubtful accounts for known and inherent collection risks related to its
accounts receivable. The estimation of the allowance is primarily based on the Companys 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.
The Company considers the risks of
non-performance
by the counterparties to its
derivative instruments as not material. The Company utilizes standard counterparty master agreements containing provisions for the
F-21
netting of certain foreign currency transaction obligations. The Company also mitigates the credit risk of these derivatives by transacting with highly rated counterparties globally, which are
major banks. The Company evaluates the credit and
non-performance
risks associated with its derivative counterparties, and believes that the impact of the credit risk associated with the outstanding
derivatives was insignificant.
Investments
Short-term investments
The Companys short-term investments
consist of short-term mutual funds, which have been classified as
available-for-sale
and are carried at estimated fair value. Fair value is determined based on quoted
market prices. Unrealized gains and losses, net of taxes, on
available-for-sale
securities are reported as a separate component of accumulated other comprehensive income
(loss) in shareholders equity. Net realized gains or losses resulting from the sale of these investments, and losses resulting from decline in fair values of these investments that are other than temporary declines, are included in other
income. The cost of securities sold is determined using the weighted-average method.
Short-term investments also include term deposits with an original
maturity exceeding three months and whose maturity date is within one year from the date of the balance sheet. Term deposits were $0.8 million and $6.6 million at December 31, 2017 and 2016, respectively.
Non-current
term deposits with banks
Non-current
term deposits with banks include deposits with maturity exceeding one year from the date of the balance
sheet. As at December 31, 2017 and 2016,
non-current
term deposits with banks were at $0.4 million and $0.2 million, respectively. Term deposits with banks include restricted deposits of
$0.54 million and $0.44 million as at December 31, 2017 and December 31, 2016, respectively, placed as security towards performance guarantees issued by the Companys bankers on the Companys behalf.
Property and equipment
Property and equipment are stated
at cost. Maintenance and repairs are charged to expense when incurred. Depreciation is computed primarily using the straight-line method over the estimated useful lives as follows:
|
|
|
|
|
Years
|
Office building
|
|
30
|
Residential property
|
|
20
|
Computer equipment and software
|
|
3
|
Furniture, fixtures and other equipment
|
|
5-7
|
Vehicles
|
|
3-5
|
Leasehold improvements
|
|
Shorter of economic life or life of lease
|
Leasehold land
|
|
Shorter of economic life or life of lease
|
Depreciation and amortization expense for the years ended December 31, 2017, 2016 and 2015 was $13.9 million,
$14.7 million and $15.6 million, respectively.
F-22
Long-lived assets (other than goodwill)
In accordance with guidance on Accounting for the Impairment or Disposal of Long-Lived Assets in the FASB Codification, the Company reviews its
long-lived assets (other than goodwill) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When factors indicate that such costs should be evaluated for possible
impairment, the Company assesses the recoverability of the long-lived assets (other than goodwill) by comparing the estimated undiscounted cash flows associated with the related asset or group of assets against their respective carrying amounts. The
amount of an impairment charge, if any, is calculated based on the excess of the carrying amount over the fair value of those assets. Management believes assets were not impaired at December 31, 2017 and 2016.
Goodwill
During the first quarter of 2014, as a result
of the completion of organizational changes, the Company changed its basis of segmentation to vertical segments. The Company reassigned goodwill to the new reportable segment Healthcare and Life Sciences. In accordance with guidance on goodwill
impairment in the FASB Codification, goodwill is evaluated for impairment at least annually. Management believes goodwill was not impaired at December 31, 2017 or 2016. The Company evaluated goodwill for impairment in the third quarter of each
of 2017 and 2016.
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 long-lived
assets and goodwill, contingencies and litigation, the recognition of revenues and profits based on the proportional performance method, potential tax liabilities and bonus accrual. Actual results could differ from those estimates and assumptions
used in the preparation of the accompanying financial statements.
Foreign currency translation
The financial statements of the Companys foreign subsidiaries use the currency of the primary economic environment in which they operate as its
functional currency. Revenues and expenses of the foreign subsidiaries are translated to U.S. dollars at average period exchange rates. Assets and liabilities are translated to U.S. dollars at
period-end
exchange rates with the effects of these cumulative translation adjustments being reported as a separate component of accumulated other comprehensive loss in shareholders deficit/equity. Transaction gains and losses are reflected within
selling, general and administrative expenses in the consolidated statements of comprehensive income. During the years ended December 31, 2017, 2016 and 2015, foreign exchange gain of $1.7 million, $8.3 million and $18.1 million
were included in selling, general and administrative expenses, respectively.
F-23
Earnings per share
Basic earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of shares outstanding during the applicable period.
If the number of common shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split, the computations of basic and diluted earnings per share are adjusted retroactively for all
periods presented to reflect that change in capital structure. If such changes occur after the close of the reporting period but before issuance of the financial statements, the
per-share
computations for that
period and any prior-period financial statements presented are based on the new number of shares.
The Company has issued stock options and restricted
stock, which are considered to be potentially dilutive to its basic earnings per share. Diluted earnings per share is calculated using the treasury stock method for the dilutive effect of options and restricted stock granted pursuant to the stock
option and incentive plan, by dividing the net income (loss) 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.
Vacation pay
The accrual for unutilized leave balance is
determined based on the entire leave balance available to the employees at year-end. The leave balance eligible for carry-forward is valued at gross compensation rates and eligible for compulsory encashment is valued at a lower basic compensation
rates.
The gross (reversal)/charge for unutilized earned leave was $(2.2)million, $3.4 million and $5.3 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
The gross charge (reversal) for unutilized earned leave of $(2.2)million during the year ended
December 31, 2017 was primarily on account of reversal of leave cost for the differential between eligible leave encashment accrued at gross compensation rates during the year 2017 and which as a result of the change in policy during 2017 are
payable at basic rate as at December 31, 2017 as per the scheme of leave encashment.
The amounts accrued for unutilized earned leave were
$16.2 million and $23.1 million as of December 31, 2017 and 2016, respectively, and are included within accrued payroll and related costs.
Income taxes
Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities, along with any related
valuation allowances are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax laws is recognized in income in the period that includes the enactment date. The Company has not provided for dividend distribution taxes on the portion of undistributed earnings of subsidiaries whose earnings are considered to be permanently
reinvested outside the U.S. The Company intends to continue to reinvest these earnings in international operations. If the Company decided at a later date to repatriate these earnings to the U.S., the Company would be required to provide for the net
tax effects on these amounts.
F-24
Recently adopted accounting standards
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU
2016-09).
The effective date of
ASU
2016-09
is for fiscal years beginning after December 15, 2016. The Company adopted the amendments in ASU
2016-09
during the first quarter of 2017. This standard
simplifies or clarifies several aspects of the accounting for equity-based payment awards, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the Consolidated Statements of Cash
Flows. Certain changes under the ASU are required to be applied retrospectively, while other changes are required to be applied prospectively. There were no material impacts to the Companys results of operations or liquidity as a result of
adopting ASU
2016-09.
The adoption of this ASU resulted in the following:
During the three months ended
March 31, 2017, the Company has accounted on a prospective basis in the income statement for the income tax expense or benefit for the tax effects of differences recognized on or after the effective date of the equity-based payment awards
between the deduction for an award for tax purposes and the cumulative compensation costs of that award recognized for financial reporting purposes. The Company has also presented on a prospective basis the excess tax benefits (deficiencies) as
operating cash flows in its cash flow statement. Prior period cash flow statements have not been adjusted retrospectively to take into account the transition method.
The Company recognizes share-based payment forfeitures as they occur. Prior to adoption of this ASU, forfeitures were estimated in order to arrive at current
period expense. There are no cumulative effect adjustments to accumulated deficit on the Consolidated Balance Sheet as of January 1, 2017 as a result of the adoption of these amendments.
Recently issued accounting standards
ASU
2014-09,
Revenue from Contracts with Customers Issued May 2014, was scheduled to be effective for Syntel beginning January 1, 2017, however on July 9, 2015, the FASB approved the proposal to defer
the effective date of the ASU for public companies to January 1, 2018 with an option to elect to adopt the ASU as of the original effective date. The new standard is intended to substantially enhance the quality and consistency of how revenue
is reported while also improving the comparability of the financial statements of companies using U.S. generally accepted accounting principles (GAAP) and those using International Financial Reporting Standards (IFRS). The core principle of ASU
2014-09
is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. The new guidance also addresses the accounting for some costs to obtain or fulfill a customer contract and provides a set of disclosure requirements intended to give financial statement users comprehensive
information about the nature, amount, timing, and uncertainty of revenues and cash flows arising from customer contracts.
On March 17, 2016, the
FASB issued ASU
No. 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), that clarifies how to apply revenue recognition
guidance related to whether an entity is a principal or an agent. In April 2016, the FASB issued ASU
2016-10,
Identifying Performance Obligations and Licensing, and ASU
2016-12
Narrow Scope Improvements and Practical Expedients, which amended ASU
2014-09,
Revenue from Contract from Customers (Topic 606). These amendments of this ASU
provide additional clarification on criteria within Topic 606 as well as additional guidance for transition to the new revenue recognition criteria.
F-25
We established a cross-functional coordinated implementation team to implement the new ASU related to the
recognition of revenue from contracts with customers. In addition to establishing a cross-functional coordinated implementation team, we engaged a third party expert to assist in the assessment of the impacts of the new standard. The Company
performed an assessment of the impact of the ASU and developed a transition plan. Based on the outcome of that assessment, the Company expects revenue recognition across its portfolio of services to remain largely unchanged. The Company does not
currently anticipate that the ASU will have a material impact on its financial statements based on the analysis completed to date but will result in significant additional disclosure regarding the nature, amount, timing and uncertainty of revenue
and cash flows arising from contracts with customers, including significant judgments and assumptions used in applying the standard.
Additionally, we
have identified changes to our processes to meet the standards updated reporting and disclosure requirements, as well as evaluated the internal control changes, during the implementation and continued application of the new standard. The
Company has elected to adopt the new ASU on January 1, 2018 using the modified retrospective transition method.
In January 2016, the FASB issued an
update (ASU
2016-01)
to the standard on financial instruments. The update significantly revises an entitys accounting related to (1) the classification and measurement of investments in equity
securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements. The update is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after January 1, 2018. Upon adoption, entities will be required to make a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance
is effective. However, the specific guidance on equity securities without readily determinable fair value will apply prospectively to all equity investments that exist as of the date of adoption. Early adoption of certain sections of this
update is permitted. The adoption of this guidance is not expected to have a material effect on the Companys consolidated financial statements.
In
February 2016, the FASB issued an update (ASU
2016-02)
to the standard on Leases to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance
sheet and disclosing key information about leasing arrangements. The ASU is effective for public business entities issuing financial statements for the annual periods beginning after December 15, 2018, and interim periods within those annual
periods. The requirements of this ASU and its impact on the Company are currently being evaluated.
In June 2016, the FASB issued an update on Financial
InstrumentsCredit Losses (ASU
2016-13)Measurement
of Credit Losses on Financial Instruments which (i) significantly changes the impairment model for most financial assets that are measured at amortized
cost and certain other instruments from an incurred loss model to an expected loss model; and (ii) provides for recording credit losses on
available-for-sale
(AFS)
debt securities through an allowance account. The update also requires certain incremental disclosures. The amendments in this update are effective for fiscal years beginning after December 15, 2020, including interim periods within those
fiscal years. The requirements of this ASU and its impact on the Company are currently being evaluated.
F-26
In August 2016, the FASB issued an update on Statement of Cash Flows (Topic 230)- Clarification of certain cash
receipts and cash payments (ASU
2016-15)
which requires the Company to present and classify certain cash receipts and cash payments in the statement of cash flows under Topic 230, Statement of Cash Flows, and
other Topics. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim
periods within those fiscal years. The adoption of this guidance is not expected to have a material effect on the Companys consolidated financial statements.
In October 2016, the FASB issued ASU
2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other
Than Inventory. This update requires the income tax consequences of intra-entity transfers of assets other than inventory to be recognized when the intra-entity transfer occurs rather than deferring recognition of income tax consequences until
the transfer was made with an outside party. ASU
2016-16
is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted as of the
beginning of the interim or annual reporting period. A modified retrospective approach should be applied. The Company does not expect that the adoption of this guidance will have a significant impact on the Companys Consolidated Financial
Statements.
In November 2016, the FASB issued an update on Statement of Cash Flows (Topic 230) - Restricted Cash (ASU
2016-18).
The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the
beginning-of-period
and
end-of-period
total amounts shown on the statement of cash flows. The amendments in this update do not
provide a definition of restricted cash or restricted cash equivalents. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
The adoption of this guidance is not expected to have a material effect on the Companys consolidated financial statements.
In January 2017, the
FASB issued an update (ASU
2017-04)
to the standard on IntangiblesGoodwill and Other (Topic 350). To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill
impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and
liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. The amendments in this Update modify the concept of impairment from the condition that
exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the
implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Because these amendments eliminate Step 2 from the goodwill
impairment test, they should reduce the cost and complexity of evaluating goodwill for impairment. A public business entity that is a U.S. Securities and Exchange Commission filer should adopt the amendments in this update for its annual or any
interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The requirements of this ASU are not expected to have material impact on the Companys Consolidated Financial Statements.
F-27
In March 2017, the FASB issued Accounting Standards Update
No. 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU
2017-07).
The update requires
employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost,
including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. Employers will have
to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. ASU
2017-07
is effective for fiscal years and
interim periods beginning after December 15, 2017, and early adoption is permitted. We expect the adoption of the amended standard to result in the reclassification from
non-service
components above the
subtotal of income from operations to Other (expense) income, net.
In May 2017, the FASB issued ASU
2017-09,
CompensationStock Compensation (Topic 718): Scope of Modification Accounting guidance which provide clarity and reduce both (i) diversity in practice; and (ii) cost and complexity when accounting for a change in the terms or
conditions of a share-based payment award. The amendments in this guidance should be applied prospectively in annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The
adoption of this guidance is not expected to have a material effect on the Companys consolidated financial statements.
In August 2017, the FASB
issued
ASU 2017-12, Derivatives
and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends and simplifies existing guidance in order to allow companies to
more accurately present the economic effects of risk management activities in the financial statements. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption
is permitted. The Company is currently evaluating the impact of the standard on its consolidated financial statements and related disclosures.
In
February 2018, as a result of the enactment of the Tax Cuts and Jobs Act (the Tax Act), the FASB issued new accounting guidance on the reclassification of certain tax effects from AOCI to retained earnings. The optional guidance is effective
January 1, 2019, with early adoption permitted. The Company is evaluating whether it will adopt the new guidance along with any impacts on the Companys financial position, results of operations and cash flows, none of which are expected
to be material.
3. Short-Term Investments
Short-term investments included the following at December 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Investments in mutual funds at fair value
|
|
$
|
25,719
|
|
|
$
|
15,016
|
|
Term deposits with banks
|
|
|
782
|
|
|
|
6,598
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,501
|
|
|
$
|
21,614
|
|
|
|
|
|
|
|
|
|
|
Information related to investments in mutual funds (primarily Indian Mutual Funds) is as follows at and for the years ended
December 31, 2017, 2016 and 2015:
F-28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Cost
|
|
$
|
25,314
|
|
|
$
|
14,882
|
|
|
$
|
126,243
|
|
Unrealized gain, net
|
|
|
405
|
|
|
|
134
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
$
|
25,719
|
|
|
$
|
15,016
|
|
|
$
|
126,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains
|
|
$
|
1,494
|
|
|
$
|
5,790
|
|
|
$
|
18,796
|
|
Proceeds on sales of mutual funds
|
|
|
239,019
|
|
|
|
299,208
|
|
|
|
304,083
|
|
Purchases of mutual funds
|
|
|
246,660
|
|
|
|
184,692
|
|
|
|
221,097
|
|
Information related to investments in term deposits with banks included the following for the years ended December 31,
2017, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Cost
|
|
$
|
782
|
|
|
$
|
6,598
|
|
|
$
|
413,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities of term deposits
|
|
$
|
7,644
|
|
|
$
|
621,824
|
|
|
$
|
486,651
|
|
Purchases of term deposits
|
|
|
1,616
|
|
|
|
223,904
|
|
|
|
446,768
|
|
4. Revenue Earned in Excess of Billings and Deferred Revenue
Revenue earned in excess of billings at December 31, 2017 and 2016 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Unbilled revenue for
time-and-materials
projects
|
|
$
|
23,999
|
|
|
$
|
20,828
|
|
Unbilled revenue for fixed-price projects, net of discounts
|
|
|
996
|
|
|
|
4,211
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,995
|
|
|
$
|
25,039
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue at December 31, 2017 and 2016 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Deferred revenue on uncompleted fixed-price development contracts
|
|
$
|
2,346
|
|
|
$
|
5,216
|
|
Other deferred revenue
|
|
|
894
|
|
|
|
2,757
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,240
|
|
|
$
|
7,973
|
|
|
|
|
|
|
|
|
|
|
5. Allowances for Doubtful Accounts
The movement in the allowance for doubtful accounts for the years ended December 31, 2017, 2016 and 2015 is summarized as follows:
F-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Balance, beginning of year
|
|
$
|
801
|
|
|
$
|
622
|
|
|
$
|
703
|
|
Provision
|
|
|
1,345
|
|
|
|
190
|
|
|
|
|
|
Write-offs, net of recoveries
|
|
|
(2,146
|
)
|
|
|
(11
|
)
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
|
|
|
$
|
801
|
|
|
$
|
622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Property and Equipment
Property and equipment at December 31, 2017 and 2016 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Office building
|
|
$
|
57,452
|
|
|
$
|
54,125
|
|
Computer equipment and software
|
|
|
58,012
|
|
|
|
55,614
|
|
Furniture, fixtures and other equipment
|
|
|
77,966
|
|
|
|
72,264
|
|
Vehicles
|
|
|
2,110
|
|
|
|
2,058
|
|
Leasehold improvements
|
|
|
6,725
|
|
|
|
7,536
|
|
Leasehold land
|
|
|
4,929
|
|
|
|
4,680
|
|
Residential property
|
|
|
1,700
|
|
|
|
1,602
|
|
Capital advances / work in progress
|
|
|
32,054
|
|
|
|
29,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,948
|
|
|
|
227,056
|
|
Less accumulated depreciation and amortization
|
|
|
134,650
|
|
|
|
120,580
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
106,298
|
|
|
$
|
106,476
|
|
|
|
|
|
|
|
|
|
|
7. Line of Credit and Term Loan
On May 23, 2013, Syntel entered into a Credit Agreement with Bank of America, N.A. for $150 million in credit facilities consisting of a three-year
term loan facility of $60 million and a three-year revolving credit facility of $90 million (the Credit Agreement). The maturity date of both the three-year term loan facility and the three-year revolving credit facility was
May 23, 2016. The Credit Agreement was amended on May 9, 2016 (the First Amendment Effective Date) thereby extending the maturity date from May 23, 2016 to May 9, 2019. Further, by way of the amended Credit Agreement,
an additional $40 million for the term loan facility and $10 million for the revolving credit facility was granted by Bank of America to Syntel (the First Amendment and together with the Credit Agreement, the Amended
Credit Agreement). Thus, the total amount of the credit facility was $200 million, consisting of a three-year term loan facility of $100 million and a three-year revolving credit facility of $100 million. The Amended Credit
Agreement was guaranteed by two of the Companys domestic subsidiaries, SkillBay and Syntel Consulting (collectively, the Guarantors). In connection with the First Amendment, the Company and the Guarantors also entered into a
related security and pledge agreement granting a security interest in the assets of the Company and the Guarantors, including, without limitation, a pledge of 65% of the equity interests in Syntel India.
F-30
The interest rates under the Amended Credit Agreement were, with respect to both the revolving credit facility
and the term loan, (a) for the period beginning on the First Amendment Effective Date through and including the date prior to the first anniversary of the First Amendment Effective Date, (i) the Eurodollar Rate (as that term is defined in
the Amended Credit Agreement) plus 1.50% with respect to Eurodollar Rate Loans (as that term is defined in the Amended Credit Agreement) and (ii) the Base Rate (as that term is defined in the Amended Credit Agreement) plus 0.50% with respect to
Base Rate Loans (as that term is defined in the amendment to the Credit Agreement), (b) for the period beginning on the first anniversary of the First Amendment Effective Date through and including the date prior to the second anniversary of the
First Amendment Effective Date, (i) the Eurodollar Rate plus 1.45% with respect to Eurodollar Rate Loans and (ii) the Base Rate plus 0.45% with respect to Base Rate Loans, and (c) for the period beginning on the second anniversary of
the First Amendment Effective Date and continuing thereafter, (i) the Eurodollar Rate plus 1.40% with respect to Eurodollar Rate Loans and (ii) the Base Rate plus 0.40% with respect to Base Rate Loans.
During the year ended December 31, 2016, the Company fully repaid the revolving credit and term loan of $190.0 million, and terminated the Amended
Credit Agreement.
On September 12, 2016, the Company entered into a new credit agreement (Senior Credit Facility), as amended as of
October 26, 2016 and July 18, 2017 (the Second Amendment) , with Bank of America, N.A, as administrative agent, L/C issuer and swing line lender, the other lenders party thereto, and Merrill, Lynch, Pierce, Fenner &
Smith Incorporated, as sole lead arranger and sole bookrunner for $500 million in credit facilities consisting of a five-year term loan facility of $300 million (the Term Loan) and a five-year revolving credit facility of
$200 million (the Revolving Facility). The maturity date of the Senior Credit Facility is September 11, 2021. The Revolving Facility allows for the issuance of letters of credit and swingline loans. The Senior Credit Facility
was guaranteed by two of the Companys domestic subsidiaries, SkillBay and Syntel Consulting (collectively, the Guarantors). In connection with the Senior Credit Facility, the Company and the Guarantors also entered into a related
security and pledge agreement granting a security interest in the assets of the Company and the Guarantors, including, without limitation, a pledge of 65% of the equity interests in Syntel India. The Second Amendment modified the Senior Credit
Facility to allow the Company to make additional restricted payments in an aggregate amount not to exceed $50,000,000 so long as the Company had not defaulted and remained in compliance with the financial covenants set forth in the Senior Credit
Facility on a pro forma basis. On September 1, 2017, SkillBay and Syntel Consulting were merged with and into Syntel, Inc. No approvals or amendments were required under the terms of the Senior Credit Facility for this merger among parties to
the agreement.
The interest rates applicable to the Senior Credit Facility other than in respect of swing line loans are LIBOR plus 1.50% or, at the
option of the Company, the Base Rate (to be defined as the highest of (x) the Federal Funds Rate [as that term is defined in the Senior Credit Facility plus 0.50%, (y) the Bank of America prime rate, or (z) LIBOR plus 1.00%) plus 0.50%.
Each swingline loan shall bear interest at the Base Rate plus 0.50%. In no event shall LIBOR be less than 0% per annum. As of December 31, 2017, the interest rates were 2.85% for the Term Loan of $300 million and 2.85% and 2.81% for the
two portions of the Revolving Facility equaling $160 million and $40 million, respectively.
F-31
The Company has also hedged interest rate risk on the entire Term Loan of $300 million by entering into the
Swap. The Pay Fixed component of the Swap is fixed at 3.16%. The Company has designated the Swap in a hedging relationship with the Term Loan. The Swap is recorded at fair value and a gain of $2.8 million and $0.5 million during the year
ended December 31, 2017 and 2016 is recorded in Accumulated other comprehensive income with the corresponding adjustment in other current assets and other
non-current
assets.
With the interest rates charged on the Senior Credit Facility being variable, the fair value of the Senior Credit Facility approximates the reported value as
of December 31, 2017, as it reflects the current market value.
The Term Loan provides for the principal payments as under:
|
|
|
|
|
Period
|
|
Payment amount per quarter
|
Beginning from
|
|
Until
|
|
(In millions)
|
October 31, 2017
|
|
September 30, 2018
|
|
$5.625
|
October 31, 2018
|
|
September 30, 2021
|
|
$7.500
|
During the year ended December 31, 2017, $20.625 million principal payments were made toward the term loan and
$120.0 million principal payments were made toward the revolving credit facility.
The Senior Credit Facility requires compliance with certain
financial ratios and covenants. As of December 31, 2017, the Company was in compliance with all financial covenants.
As of December 31, 2017
the outstanding balances of the Term Loan and Revolving Facility, including accrued interest, were $278.9 million and $79.8 million (net of $0.7 million unamortized debt issuance cost), respectively. As of December 31, 2016 the
outstanding balances of the Term Loan and Revolving Facility, including accrued interest, were $299.9 million and $199.9 million (net of $0.9 million unamortized debt issuance cost), respectively.
Future scheduled payments on the Senior Credit Facility, at December 31, 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Term Loan
|
|
|
Revolving Facility
|
|
|
|
(In thousands)
|
|
|
|
Principal
Payments
|
|
|
Principal
Payments
|
|
2018
|
|
$
|
24,375
|
|
|
|
|
|
2019
|
|
$
|
30,000
|
|
|
|
|
|
2020
|
|
$
|
30,000
|
|
|
|
|
|
2021
|
|
$
|
195,000
|
|
|
$
|
80,000
|
|
F-32
8. Leases
Operating Lease
The Company leases certain facilities and
equipment under operating leases. Current operating lease obligations are expected to be renewed or replaced upon expiration. Future minimum lease payments under all
non-cancelable
leases expiring beyond one
year as of December 31, 2017 are as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
2018
|
|
$
|
6,524
|
|
2019
|
|
$
|
3,653
|
|
2020
|
|
$
|
2,377
|
|
2021
|
|
$
|
1,873
|
|
2022
|
|
$
|
379
|
|
Thereafter
|
|
|
_
|
|
|
|
|
|
|
|
|
$
|
14,806
|
|
|
|
|
|
|
Total rent expense amounted to approximately $10.0 million, $10.7 million and $11.3 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
9. Income Taxes
Income before income taxes for the Companys U.S. and foreign operations for the years ended December 31, 2017, 2016 and 2015 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
U.S.
|
|
$
|
64,947
|
|
|
$
|
52,742
|
|
|
$
|
42,342
|
|
Foreign
|
|
|
160,538
|
|
|
|
220,643
|
|
|
|
284,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
225,485
|
|
|
$
|
273,385
|
|
|
$
|
327,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes for the years ended December 31, 2017, 2016 and 2015 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
20,777
|
|
|
$
|
65,636
|
|
|
$
|
14,521
|
|
State
|
|
|
4,066
|
|
|
|
3,192
|
|
|
|
2,639
|
|
City
|
|
|
678
|
|
|
|
533
|
|
|
|
439
|
|
Foreign
|
|
|
40,011
|
|
|
|
256,117
|
|
|
|
61,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
|
65,532
|
|
|
|
325,478
|
|
|
|
78,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(915
|
)
|
|
|
(150
|
)
|
|
|
(537
|
)
|
State
|
|
|
(170
|
)
|
|
|
(28
|
)
|
|
|
(99
|
)
|
City
|
|
|
(28
|
)
|
|
|
(5
|
)
|
|
|
(16
|
)
|
Foreign
|
|
|
(5,202
|
)
|
|
|
5,480
|
|
|
|
(3,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred expense(benefit)
|
|
|
(6,315
|
)
|
|
|
5,297
|
|
|
|
(4,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
59,217
|
|
|
$
|
330,775
|
|
|
$
|
74,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
The components of net deferred tax assets as of December 31, 2017 and 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Carry-forward losses of subsidiaries
|
|
|
|
|
|
$
|
7
|
|
Minimum alternate tax credit of subsidiaries
|
|
|
46,938
|
|
|
|
35,979
|
|
Property, plant and equipment
|
|
|
686
|
|
|
|
198
|
|
Accrued expenses and allowances
|
|
|
13,420
|
|
|
|
15,055
|
|
Valuation allowance
|
|
|
(6,122
|
)
|
|
|
(9,167
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
54,922
|
|
|
|
42,072
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Provision for branch tax on dividend equivalent in India
|
|
|
(9,972
|
)
|
|
|
(9,782
|
)
|
Provision for tax on unrealized gains in India
|
|
|
(59
|
)
|
|
|
(33
|
)
|
Others
|
|
|
(1,114
|
)
|
|
|
(258
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(11,145
|
)
|
|
|
(10,073
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
43,777
|
|
|
$
|
31,999
|
|
|
|
|
|
|
|
|
|
|
The balance sheet classification of the net deferred tax asset is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Deferred tax asset,
non-current
|
|
|
54,922
|
|
|
|
42,072
|
|
Deferred tax liabilities,
non-current
|
|
|
(11,145
|
)
|
|
|
(10,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,777
|
|
|
$
|
31,999
|
|
|
|
|
|
|
|
|
|
|
Syntels software development centers/units in India are located in Mumbai, Chennai Pune and Gurugram. Software
development centers/units enjoy favorable tax provisions due to their registration in Special Economic Zone (SEZ), as Export Oriented Unit (EOU) and as units located in Software Technologies Parks of India (STPI). Units registered with STPI, EOUs
and certain units located in SEZ were exempt from payment of corporate income taxes for ten years of operations on the profits generated by these units or March 31, 2011, whichever was earlier. Certain units located in SEZ are eligible for 100%
exemption from payment of corporate taxes for the first five years of operation and 50% exemption for the next two years and a further 50% exemption for another three years, subject to fulfillment of certain criteria laid down. New units in SEZ
operational after April 1, 2005 are eligible for 100% exemption from payment of corporate taxes for the first five years of operation, 50% exemption for the next five years and a further 50% exemption for another five years, subject to
fulfillment of criteria.
The Companys units located at SEEPZ Mumbai and the STPI/EOU units ceased to enjoy the tax exemption on March 31,
2011. Three SEZ units completed their first five years of 100% exemption as of March 31, 2016. One SEZ unit located at Chennai completed its first five years of 100% exemption as of March 31, 2015. The Company started operations in KPO SEZ
units in Airoli, Navi Mumbai in the quarters ended June 30, 2015 and June 30, 2016, respectively. The Company started operations in a SEZ unit in Pune in the quarter ended June 30, 2017.
Syntels SEZ in Pune set up under the SEZ Act 2005, commenced operations in 2008. The SEZ for Chennai commenced operations in 2010. Income from operation
of the SEZ, as a developer, is exempt from payment of corporate income taxes for ten out of 15 years from the date of SEZ notification.
F-34
Provision for Indian Income Tax is made only in respect of business profits generated from these software
development units, to the extent they are not covered by the above exemptions and on income from treasury operations and other income.
The benefit of the
tax holiday under Indian Income Tax was $28.59 million, $38.97 million and $45.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.
For the year ended December 31, 2017, the Company has recorded
one-time
additional tax of $8.16 million due
to changes to the Internal Revenue Code of 1986 made by the Tax Cuts and Jobs Act,2017.Out of aforesaid $8.16 million $0.9 million for deferred income tax due to change in Federal tax rate and $7.26 million on undistributed foreign
income.
During the three months ended September 30, 2016, and after a comprehensive review of anticipated sources and uses of capital both
domestically and abroad, as well as other considerations, the Board of Directors determined that it was in the best interests of the Company and its shareholders to declare a special cash dividend of fifteen dollars ($15.00) per share. In conducting
this evaluation, the Board of Directors considered, among other factors, the operational and financial objectives of the Company, long-term and short-term capital needs, the Companys projections on growth and working capital needs, planned
uses of U.S. and foreign earnings, the available sources of liquidity in the U.S., and growth plans outside of the U.S. As part of this evaluation, the Company determined that certain amounts which had been previously designated for internal and
external expansion and investment at its foreign subsidiaries were no longer required for these purposes. The special cash dividend was funded through a
one-time
repatriation of approximately
$1.03 billion (net of foreign income tax $210 million paid outside of the U.S) of cash held by the Companys foreign subsidiaries and a portion of borrowings under the new Senior Credit Facility. In connection with the
one-time
repatriation, the Company recognized a
one-time
tax expense of approximately $270.6 million (net of foreign tax credits) in the third quarter of 2016. The
Company has recorded additional state tax of $0.9 million, attributable to the above repatriation, in the quarter ended March 31, 2017. The Company has reversed $6.26 million relating to the true up of tax provisions including the
impact of foreign exchange rates, in the computation of the tax related to the dividend repatriation, upon the finalization of the federal tax return attributable to the above repatriation, in the quarter ended September 30, 2017.
Management regularly evaluates foreign earnings to determine whether future foreign earnings that accumulate will be permanently invested outside the U.S. In
conducting this evaluation, management considers, among other factors, the operational and financial objectives of the Company, long-term and short-term capital needs, the Companys projections on growth and working capital needs, planned uses
of U.S. and foreign earnings, the available sources of liquidity in the U.S., and growth plans outside of the U.S. The Company provides dividend distribution taxes on any foreign earnings in excess of these requirements. The December 31, 2017
provision includes the impact of certain foreign earnings that are not permanently invested. If in the future, management were to conclude that any additional portion of foreign earnings will not be permanently reinvested outside the U.S., this
would result in an additional provision for income taxes, which could affect the Companys future effective tax rate. If the Company determines to repatriate all undistributed repatriable earnings of foreign subsidiaries as of December 31,
2017, the Company would have accrued taxes of approximately $30.0 million.
F-35
During the years ended December 31, 2017, 2016 and 2015, the effective income tax rate was 26.3%, 121.0% and
22.8%, respectively.
The tax rate for the year ended December 31, 2017 was impacted
by one-time
additional tax of $0.9 million deferred income tax due to change in federal tax rate and $7.26 million on deferred foreign income due to changes to the Internal
Revenue Code of 1986 made by the Tax Cuts and Jobs Act, 2017. The tax rate for the year ended December 31, 2017 was also impacted by
one-time
favorable adjustments of $6.26 million relating to the
true up of tax provisions including the impact of foreign exchange rates, in the computation of the tax related to the dividend repatriation, upon the finalization of the federal tax return and
one-time
reversal of valuation allowance of $2.92 million and additional charge of $0.9 million (net of federal tax benefits) of state income tax on repatriation. Without the above, the effective tax rate for the year ended December 31, 2017
would have been 26.3%.
The U.S. Government and state tax authorities are expected to continue to issue guidance regarding the Tax Cuts and Jobs Act of
2017, which may result in adjustments to our provisional estimates of deferred tax charge of $0.9 million. The adjustments to net deferred tax liabilities are provisional amounts estimated based on information available as of December 31, 2017.
These amounts are subject to change as we obtain information necessary to complete the calculations. We will recognize any changes to the provisional amounts as we refine our estimates of the cumulative temporary differences, including those related
to immediate deduction for qualified property, and our interpretations of the application of the Tax Act. We are continuing to analyze certain aspects of the Act and may refine our estimates, which could potentially affect the measurement of our net
deferred tax assets or give rise to new deferred tax amounts. The final determination of the remeasurement of our net deferred tax assets and the transition tax will be completed as additional information becomes available, but no later than
one year from the enactment date.
The tax rate for the year ended December 31, 2016 was primarily impacted by a
one-time
repatriation. The Company recognized a
one-time
tax expense of approximately $270.6 million (net of foreign tax credits) and reversal of unrecognized tax
benefits of $3.08 million. Without the above, the effective tax rate for the year ended December 31, 2016 would have been 23.0%.
The tax rate
for the year ended December 31, 2015 was impacted by a favorable adjustment of $1.10 million relating to the true up of tax provisions upon the finalization of the India tax computation and $1.20 million relating to the finalization
of state tax and local tax matters. The Company has provided tax charges of $0.84 million on account of valuation allowances against the minimum alternative tax. Without the above, the effective tax rate for the year ended December 31,
2015 would have been 23.3%.
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 provides for tax uncertainties in income taxes, when it is more likely than not, based on the technical merits, that a tax position would not be sustained upon examination. Such
uncertainties, which are recorded in income taxes payable, are based on managements 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 periods income tax expense. Conversely, in the event of a future tax examination, any additional tax expense not previously provided for will be recognized in the period in which the actual liability is concluded or the management
determines that the Company will not prevail on certain tax positions taken in filed returns, based on the more likely than not concept.
Syntel Inc. and its subsidiaries file income tax returns in various tax jurisdictions. The Company is no longer subject to U.S. federal tax examinations by
tax authorities for years before 2014 and for state tax examinations for years before 2013.
F-36
Syntel India, the Companys India subsidiary, has disputed tax matters for the financial years
1996-97
to
2014-15
pending at various levels of tax authorities. Financial year
2015-16
and onwards are open for regular tax
examination by the Indian tax authorities. However, the tax authorities in India are authorized to reopen the already concluded tax assessments for financial years
2010-11
and onwards.
The following table accounts for the differences between the actual effective tax rate and the statutory U.S. Federal income tax rate of 35% for the years
ended December 31, 2017, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes, net of federal Benefit
|
|
|
1.6
|
%
|
|
|
1.0
|
%
|
|
|
0.6
|
%
|
City taxes
|
|
|
0.2
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Foreign effective tax rates different from U.S. Statutory Rate
1
|
|
|
(10.5
|
%)
|
|
|
(13.0
|
%)
|
|
|
(12.6
|
%)
|
Tax reserves
|
|
|
(2.4
|
%)
|
|
|
(1.0
|
%)
|
|
|
(0.0
|
%)
|
Prior Year state tax payment
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
%)
|
One-time
tax due to the 2017 Tax Cuts and Jobs Acts
Law
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
Valuation Allowance
|
|
|
(1.3
|
%)
|
|
|
|
|
|
|
0.2
|
%
|
Tax related to repatriation
|
|
|
|
|
|
|
99.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
26.3
|
%
|
|
|
121.0
|
%
|
|
|
22.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
The foreign jurisdiction that materially affects the effective income tax rate is India.
|
During the years
ended December 31, 2017, 2016 and 2015, the effective income tax rates were 26.3%, 121.0% and 22.8%, respectively.
A reconciliation of the beginning
and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
2017
|
|
|
2016
|
|
Balance as at January 1
|
|
$
|
68.51
|
|
|
$
|
50.24
|
|
Additions based on tax positions related to the current year
|
|
|
0.02
|
|
|
|
22.48
|
|
Additions based on tax positions for prior years
|
|
|
6.79
|
|
|
|
0.0
|
|
Reductions for tax positions of prior years
|
|
|
(0.42
|
)
|
|
|
(3.08
|
)
|
Foreign currency translation effect
|
|
|
3.04
|
|
|
|
(1.13
|
)
|
|
|
|
|
|
|
|
|
|
Balance as at December 31
|
|
$
|
77.94
|
|
|
$
|
68.51
|
|
Income taxes paid, see below
|
|
|
(44.03
|
)
|
|
|
(41.41
|
)
|
|
|
|
|
|
|
|
|
|
Amounts, net of income taxes paid
|
|
$
|
33.91
|
|
|
$
|
27.10
|
|
|
|
|
|
|
|
|
|
|
The above table shows the unrecognized tax benefits that, if recognized, would affect the effective tax rate.
F-37
The Company has paid income taxes of $44.03 million and $41.41 million against the liabilities for
unrecognized tax benefits of $77.94 million and $68.51 million, as at December 31, 2017 and 2016, respectively. The Company has paid the taxes in order to reduce the possible interest and penalties related to these unrecognized tax
benefits.
The Company recognized accrued interest and penalties related to unrecognized tax benefits as part of tax expense. During the years ended
December 31, 2017 and December 31, 2016, the Company recognized a tax charge and tax reversal towards interest of approximately $0.76 million and $0.15 million, respectively.
The Company had accrued approximately $2.21 million and $1.45 million for interest and penalties as of December 31, 2017 and December 31,
2016, respectively.
The Companys amount of net unrecognized tax benefits for the tax disputes of $1.71 million could change in the next twelve
months as litigation and global tax audits progress. At this time, due to the uncertain nature of this process, it is not reasonably possible to estimate an overall range of possible change.
Syntel has not provided for India Income Tax which are disputed and pending at various level (including potential tax dispute) of $15.91 million for the
financial year
1996-97
to December 31, 2017, which is after providing $54.61 million as unrecognized tax benefits under ASC740. Indian tax exposures involve complex issues and may need an extended
period to resolve the issues with the Indian income tax authorities. Syntels management, after consultation with legal counsel, believes that the resolution of these matters will not have a material adverse effect on the Companys
consolidated financial position or results of operations.
Service Tax Audit
Syntel India regularly files quarterly Service Tax refund applications and claims refunds of Service Tax on input services, which remain unutilized against a
no service tax on export of services. As of December 31, 2017, Syntel Indian entities has not provided against Service tax refunds claims of $3.87 million disputed by Service tax Department which are pending at various level.
The Company obtained a tax consultants advice on the aforesaid disputes. The consultant is of the view that the tax disputes are contrary to the wording
of the service tax notifications and provisions. The Company therefore believes that its claims of service tax refunds should be upheld at the appellate stage and the refunds should be accordingly granted. Based on the consultants tax advice,
the Company believes that it has a reasonable basis to defend the rejection of the refunds. Accordingly, no provision has been made in the Companys books.
Local Taxes
As of December 31, 2017 and 2016, the
Company had a local tax liability provision of approximately $0.4 million, equal to $0.3 million net of federal tax benefit, relating to local taxes including employer withholding taxes, employer payroll expense taxes, business licenses,
and corporate income taxes.
F-38
Minimum Alternate Tax (MAT)
Minimum Alternate Tax (MAT) is payable on the Book Income, including the income for which deduction is claimed under section 10A and section 10AA
of the Indian Income Tax Act. The excess MAT over the normal tax liability is MAT Credit. MAT Credit can be carried forward for 15 years (as amended by the Finance Act, 2017, as compared to 10 years, as previously provided) and
set-off
against future tax liabilities, if normal tax provisions are in excess of taxes payable under MAT. Accordingly, for the three months ended March 31, 2017, the Company has reversed a valuation allowance
of $2.92 million against deferred tax assets which was recognized on MAT Credit. The MAT credit as of December 31, 2017 of $44.63 million (net of valuation allowance of $2.62 million) must be utilized before March 31 of the
following financial years and will expire as follows
|
|
|
|
|
Year of Expiry of MAT Credit
|
|
|
|
|
|
(In millions)
|
|
2022 - 2023
|
|
|
0.15
|
|
2023 - 2024
|
|
|
0.65
|
|
2024 - 2025
|
|
|
2.08
|
|
2025 - 2026
|
|
|
2.96
|
|
2026 - 2027
|
|
|
0.74
|
|
2027 - 2028
|
|
|
6.22
|
|
2028 - 2029
|
|
|
7.37
|
|
2029 - 2030
|
|
|
8.09
|
|
2030 - 2031
|
|
|
10.40
|
|
2031 - 2032
|
|
|
4.93
|
|
2032 - 2033
|
|
|
3.66
|
|
Total
|
|
|
47.25
|
|
Less: Valuation allowance
|
|
|
2.62
|
|
Total (net of valuation allowance)
|
|
|
44.63
|
|
India Budget Proposal 2018
The Finance Bill 2018 was presented on February 1, 2018. These proposals include an increase in income tax cess to 4%, against the existing 3%. The
proposals would increase the effective tax rate to 34.944% from 34.608%.The Indian corporate tax rate would be reduced to 25%, as compared to the existing 30% for companies with annual turnover below INR 2500 million ($39.5 million). The
proposal includes no other changes to corporate income tax rates.
If enacted, these proposals, would have a
one-time
marginal tax benefit to Syntel of $0.1 million. These tax benefits would be accounted in the quarter in which the aforesaid proposal is enacted.
F-39
10. Earnings Per Share
The reconciliation of basic and diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Weighted-
Average
Shares
Out-standing
|
|
|
Per
Share
|
|
|
Weighted-
Average
Shares
Out-standing
|
|
|
Per
Share
|
|
|
Weighted-
Average
Shares
Out-standing
|
|
|
Per
Share
|
|
|
|
(In thousands, except per share data)
|
|
Basic earnings per share
|
|
|
83,537
|
|
|
$
|
1.99
|
|
|
|
84,146
|
|
|
$
|
(0.68
|
)
|
|
|
83,982
|
|
|
$
|
3.01
|
|
Potential dilutive effect of restricted
stock
1
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
83,618
|
|
|
$
|
1.99
|
|
|
|
84,146
|
|
|
$
|
(0.68
|
)
|
|
|
84,149
|
|
|
$
|
3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
|
For calculating dilutive earning (loss) per share during the year ended December 31, 2016, the potential dilutive effect of restricted stock of 103 units is not considered as the units are antidilutive in view of
loss during the year 2016.
|
11. Dividends
During the third quarter of 2016, the Board of Directors declared a special cash dividend of fifteen dollars ($15.00) per share on outstanding common stock
which was payable on October 3, 2016, to shareholders of record at the close of business on September 22, 2016. Accordingly, $1.261 billion in dividends was paid on October 3, 2016. Further, it was resolved by the Board of
Directors that restricted stock units granted to employee and directors prior to the dividend record date will receive an amount equivalent to the dividend when the applicable restriction on the restricted stock units lapses.
The special cash dividend was funded through a
one-time
repatriation of approximately $1.03 billion (net of
dividend distribution tax $210 million paid outside the U.S) of cash held by the Companys foreign subsidiaries and a portion of borrowings under the new Senior Credit Facility. In connection with the
one-time
repatriation, the Company recognized a
one-time
tax expense of approximately $270.6 million (net of foreign tax credits) in the third quarter of 2016.
The Company has not declared or paid any dividends in 2017.
12. Stock Compensation Plans
Share-Based
Compensation
The Company originally established a Stock Option and Incentive Plan in 1997 (the 1997 Plan). On June 1, 2006, the
Company adopted the Amended and Restated Stock Option and Incentive Plan (the Amended Plan), which amended and extended the 1997 Plan. Under the Amended Plan, a total of sixteen million shares of common stock were reserved for issuance.
The dates on which options or restricted stock units granted under the Amended Plan become first exercisable or have their restriction lapse are determined by the Compensation Committee of the Board of Directors, but generally occur over a four-year
period from the date of grant. The term of any option may not exceed ten years from the date of grant. As of June 1, 2016, the Amended Plan terminated and no further awards may be made under the Amended Plan.
F-40
On February 28, 2016, the Companys Board of Directors approved the adoption of the 2016 Incentive Plan
(the 2016 Plan) subject to shareholder approval. On June 8, 2016 the Companys shareholders approved the 2016 Plan. The principal features of the 2016 Plan are substantially the same as those of the Amended Plan. Under the 2016
Plan, a total of sixteen million shares of common stock were reserved for issuance. The dates on which options or restricted stock units granted under the Amended Plan become first exercisable or have their restriction lapse are determined by the
Compensation Committee of the Board of Directors, but for employees generally occur over a four-year period from the date of grant and for
non-employee
directors generally occur at the Companys next
annual meeting of shareholders.
On November 30, 2016, Companys Board of Directors and the Compensation Committee established a program for a
one-time
grant of Restricted Stock Units (RSUs) to certain senior management employees. The parameters of the program and the restrictions on the RSUs granted are consistent with the 2016 Incentive Plan
approved by shareholders on June 8, 2016, except as follows:
1.
|
The employee may purchase up to a specified number of shares of Syntel, Inc. common stock (Common Stock) whose purchase price is equal to up to 25% of the employees base salary (Purchased
Shares).
|
2.
|
Upon proof of purchase of the Common Stock, the employee will receive a grant of RSUs equal to 25% of the number of the Purchased Shares (the Grant).
|
3.
|
The restriction period on 25% of the Grant will lapse on each of the first four anniversaries of the grant date.
|
4.
|
The RSUs will be forfeited if the employee ceases to be an employee of the Company or if the employee does not retain Purchased Shares equal to four times the remaining RSUs from the Grant through the applicable
restriction period.
|
No stock options were issued for the years ended December 31, 2017 and 2016 under either the Amended Plan or the
2016 Plan.
The Company accounts for share-based compensation based on the fair value of share-based payment awards on the date of grant. Fair value of
share-based payment awards are calculated based on the Companys share prices which are quoted in market. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in
the Companys Statement of Comprehensive Income. Share-based compensation expense recognized as above for the years ended December 31, 2017, 2016 and 2015 was $8.6 million (including charges for restricted stock units and a dividend
equivalent), $8.1 million and $7.2 million, respectively, including a charge for restricted stock.
The shares issued upon the exercise of the
options are new share issues.
Restricted Stock
On different dates during the years ended December 31, 2017, 2016 and 2015, the Company issued restricted stock awards of 315,022, 415,519 and 135,440
(adjusted to account for the 2014 stock split), respectively, to its
non-employee
directors and some employees, as well as to some employees of its subsidiaries. The restricted stock awards were granted to
employees for their future services as a retention tool at a zero exercise price, vest in shares with regards to 25% of the awards issued on or after the first, second, third and fourth anniversary of the grant dates.
F-41
During the third quarter of 2016, the Board of Directors declared a special cash dividend of fifteen dollars
($15.00) per share on outstanding common stock which was payable on October 3, 2016, to shareholders of record at the close of business on September 22, 2016. Further, it was resolved by the Board of Directors that restricted stock units
granted to employees and directors prior to the dividend record date will receive an amount equivalent to the dividend when the applicable restriction on the restricted stock units lapses. The special dividend resulted in a modification of the
existing stock compensation plan. Accordingly, incremental compensation cost was measured as the excess, if any, of the fair value of the modified award over the fair value of the original award accounted on a graded basis with the incremental
expense being recognized over the remaining vesting period. As a result of the above, the Company has recorded an additional compensation cost of $1.8 million and $1.5 million, respectively during the year ended December 31, 2017 and
2016.
The impact on the Companys results of operations of recording stock-based compensation (including impact of restricted stock) for the years
ended December 31, 2017, 2016 and 2015 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Cost of revenues
|
|
$
|
2,690
|
|
|
$
|
2,597
|
|
|
$
|
2,478
|
|
Selling, general and administrative expenses
|
|
|
4,114
|
|
|
|
4,054
|
|
|
|
4,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,804
|
|
|
$
|
6,651
|
|
|
$
|
7,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No cash was received from option exercises under all share-based payment arrangements for the years ended December 31,
2017, 2016 and 2015, respectively.
A summary of the activity for restricted stock awards granted under our stock-based compensation plans as of
December 31, 2017, 2016 and 2015, and changes during the years then ended are presented below, appropriately adjusted to reflect the 2014 stock split:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Number
Of
Awards
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
Number
Of
Awards
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
Number
Of
Awards
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
Unvested at January 1
|
|
|
669,556
|
|
|
$
|
29.16
|
|
|
|
465,290
|
|
|
$
|
41.47
|
|
|
|
564,314
|
|
|
$
|
37.37
|
|
Granted
|
|
|
315,022
|
|
|
$
|
18.13
|
|
|
|
415,519
|
|
|
$
|
20.57
|
|
|
|
135,440
|
|
|
$
|
46.73
|
|
Vested
|
|
|
(209,816
|
)
|
|
$
|
32.09
|
|
|
|
(198,725
|
)
|
|
$
|
39.10
|
|
|
|
(205,233
|
)
|
|
$
|
34.40
|
|
Forfeited
|
|
|
(83,294
|
)
|
|
$
|
35.54
|
|
|
|
(12,528
|
)
|
|
$
|
43.77
|
|
|
|
(29,231
|
)
|
|
$
|
36.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31
|
|
|
691,468
|
|
|
$
|
22.48
|
|
|
|
669,556
|
|
|
$
|
29.16
|
|
|
|
465,290
|
|
|
$
|
41.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017, $13.16 million of total remaining unrecognized stock-based compensation cost related to
restricted stock awards is expected to be recognized over the weighted-average remaining requisite service period of 2.97 years.
F-42
13. Commitments and Contingencies
As of December 31, 2017 and December 31, 2016, Syntels subsidiaries have commitments for capital expenditures (net of advances) of
$28.0 million and $33.0 million, respectively, primarily related to the technology campuses being constructed at Pune and Chennai in India.
Syntels Indian subsidiaries operations are carried out from their development centers/units in Mumbai forming part of a Special Economic Zone
(SEZ) and in Chennai and Pune, which are registered under the Software Technology Parks (STP) scheme. Under these schemes, the registered units have export obligations, which are based on the formula provided by the
notifications/circulars issued by the STP and SEZ authorities from time to time. The consequence of not meeting the above commitments would be a retroactive levy of import duty on items previously imported duty free for these units. Additionally,
the respective authorities have rights to levy penalties for any defaults on a
case-by-case
basis. The Company is confident of meeting these obligations. During the year
ended December 31, 2016, $0.75 million was held as a security deposit in favor of the lessor concerning a performance guarantee for certain leasehold improvements in Syntel Poland. During the three months ended March 31, 2017, the
Company received $0.75 million of funds previously held as a security deposit on a lease with Syntel Poland.
The Company is party to various legal
actions arising in the ordinary course of business, including litigation and governmental and regulatory controls. The Companys estimates regarding legal contingencies are based on information known about the matters and its experience in
contesting, litigating and settling similar matters. It is the opinion of management with respect to pending or threatened litigation matters that unfavorable outcomes are neither probable nor remote and that estimates of possible loss are not able
to be made. Although actual amounts could differ from managements estimate, none of the actions are believed by management to involve future amounts that would be material to the Companys financial position or results of operations.
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. During the year ended December 31, 2017 there was no accrual related to litigation. During the year ended December 31,
2016, the Company recorded a $0.3 million liability for a litigation matter related contingency which was subsequently paid during the three months ended March 31, 2017.
14. Employee Benefit Plans
The Company maintains a
401(k) retirement plan that covers all regular employees on Syntels U.S. payroll. Eligible employees may contribute the lesser of 60% of their compensation or $18,000, subject to certain limitations, to the retirement plan. The Company
may make contributions to the plan at the discretion of the Board of Directors; however, through December 31, 2017, no Company contributions have been made.
Eligible employees on Syntels Indian payroll receive benefits under the Provident Fund (PF), which is a defined contribution plan. Both the
employee and the Company make monthly contributions equal to a specified percentage of the covered employees salary. The Company has no further obligations under the plan beyond its monthly contributions. The contributions made to the fund are
administered and managed by the Government of India. The Companys monthly contributions are expensed in
F-43
the period they are incurred. Provident Fund Contribution expense recognized by Indian entities was $5.70 million, $5.90 million and $6.50 million for the years ended
December 31, 2017, 2016 and 2015, respectively.
In accordance with the Payment of Gratuity Act, 1972 of India, the Indian subsidiary provides for
gratuity, a defined retirement benefit plan (the Gratuity Plan) covering eligible employees. The Gratuity Plan provides a lump sum payment to vested employees at retirement, death, incapacitation or termination of employment based on the
respective employees salary and the tenure of employment. Liabilities with regard to the Gratuity Plan are determined by actuarial valuation and are expensed in the period determined. The Gratuity Plan is a
non-funded
plan. The amounts accrued under this plan are $15.3 million and $13.6 million as of December 31, 2017 and 2016, respectively, and are included within current and other
non-current
liabilities, as applicable. Expense recognized by Indian entities under the Gratuity Plan was $3.8 million, $3.5 million and $3.7 million for the years ended December 31, 2017, 2016
and 2015, respectively.
The following table sets forth the funded status of the Gratuity Plan of the Company and the amounts recognized in the
Companys consolidated balance sheets and statements of comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
2017
|
|
|
2016
|
|
Accumulated benefit obligation
|
|
$
|
10,161
|
|
|
$
|
9,081
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of the year
|
|
$
|
14,527
|
|
|
$
|
12,349
|
|
Service cost
|
|
|
2,564
|
|
|
|
2,279
|
|
Interest cost
|
|
|
1,239
|
|
|
|
1,167
|
|
Actuarial loss/(gain)
|
|
|
(1,672
|
)
|
|
|
900
|
|
Adjustments due to transfer of employees within the group
|
|
|
(2
|
)
|
|
|
|
|
Benefits paid
|
|
|
(2,125
|
)
|
|
|
(1,928
|
)
|
Effect of exchange rate changes
|
|
|
888
|
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of the year
|
|
$
|
15,419
|
|
|
$
|
14,527
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the balance sheet consists of:
|
|
|
|
|
|
|
|
|
Provision for gratuity (included in total current liabilities)
|
|
$
|
3,102
|
|
|
$
|
2,983
|
|
Provision for gratuity (included in
non-current
liabilities)
|
|
|
12,317
|
|
|
|
11,544
|
|
|
|
|
|
|
|
|
|
|
|
|
$15,419
|
|
|
$14,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017 and December 31, 2016 amounts in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
(328
|
)
|
|
$
|
1,353
|
|
Net prior service cost
|
|
|
84
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
$
|
(244
|
)
|
|
$
|
1,459
|
|
|
|
|
|
|
|
|
|
|
Expected amortization out of comprehensive income in 2018 is $0.03 million.
F-44
|
|
|
|
|
|
|
|
|
Reconciliation of net amount recognized
|
|
Net amount recognized as at beginning of the period
|
|
$
|
(14,527
|
)
|
|
$
|
(12,349
|
)
|
Benefits Paid
|
|
|
2,125
|
|
|
|
1,928
|
|
Net periodic benefit cost for the period
|
|
|
(3,899
|
)
|
|
|
(3,509
|
)
|
Amount recognized in accumulated other comprehensive loss
|
|
|
1,768
|
|
|
|
(863
|
)
|
Adjustments on account of employees transferred
|
|
|
2
|
|
|
|
26
|
|
Foreign currency translation adjustment
|
|
|
(888
|
)
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized as at end of the period
|
|
|
(15,419
|
)
|
|
|
(14,527
|
)
|
Funded status of the plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost
|
|
$
|
(15,419
|
)
|
|
$
|
(14,527
|
)
|
|
|
|
|
|
|
|
|
|
The components of net gratuity costs are reflected below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
2,442
|
|
|
$
|
2,279
|
|
Interest cost
|
|
|
1,232
|
|
|
|
1,167
|
|
Amortization of transition obligation
|
|
|
72
|
|
|
|
61
|
|
Amortization of net actuarial (gain)/loss
|
|
|
26
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,772
|
|
|
$
|
3,509
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine benefit obligations:
|
|
|
|
|
|
|
2017
|
|
2016
|
Discount rate
|
|
7.65% per annum.
|
|
7.75% per annum
|
Long-term rate of compensation increase
|
|
9% per annum for first 5 year and 7% thereafter
|
|
11% per annum for first year, 10% for next five years and 7% thereafter
|
Weighted-average assumptions used to determine net periodic benefit cost:
|
|
|
|
|
|
|
2017
|
|
2016
|
Discount rate
|
|
7.75% per annum
|
|
7.75% per annum
|
Long-term rate of compensation increase
|
|
11% per annum for first year, 10% for next five years and 7% thereafter
|
|
11% per annum for first year, 10% for next five years and 7% thereafter
|
F-45
Cash Flows
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
|
|
|
|
|
For the year ended December 31,
|
|
Expected
contribution
|
|
|
|
(In thousands)
|
|
2018
|
|
$
|
3,103
|
|
2019
|
|
|
3,039
|
|
2020
|
|
|
3,163
|
|
2021
|
|
|
3,177
|
|
2022
|
|
|
3,345
|
|
20232027
|
|
|
13,337
|
|
15. Segment Reporting
The Companys reportable business segments are as follows:
|
|
|
Banking and Financial Services
|
|
|
|
Healthcare and Life Sciences
|
|
|
|
Retail, Logistics and Telecom
|
For detailed discussion on each of these segments, please refer Note 1 on
Business forming part of Notes to the Consolidated Financial Statements.
Syntels leadership evaluates the Companys performance
and allocates resources based on segment revenues and segment cost of revenues. Segment gross profit is defined as gross profit before Corporate Direct Costs.
The Companys cost of revenues consists of costs directly associated with billable professionals in the U.S. and offshore, including salaries, payroll
taxes, benefits, relocation costs, immigration costs, finders fees, trainee compensation and travel. Generally, the cost of revenues for each operating segment has similar characteristics and is subject to the same factors, pressures and
challenges. However, the economic environment and its effects on industries served by our operating groups may affect revenue and cost of revenues to differing degrees.
Corporate Direct Costs
Certain expenses, for cost
centers such as Centers of Excellence, Architecture Solutions Group, certain portion of Research and Development, Cloud Computing, and Application Management, are not allocated to specific industry segments because management believes it is not
practical to allocate such expenses to individual segments as they are not directly attributable to any specific segment. Accordingly, these expenses are separately disclosed as Corporate Direct Costs and adjusted only against Total Gross Profit.
In accordance with ASC 280 Disclosures about Segments of an Enterprise and Related Information, segment disclosures are presented below.
Revenues from external customers and gross profit for the Banking and Financial Services; Healthcare and Life Sciences; Insurance; Manufacturing; and Retail, Logistics and Telecom segments for three years ended December 31, 2017, 2016 and 2015 are
as follows:
F-46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Net Revenues:
|
|
|
|
|
Banking and Financial Services
|
|
$
|
419,088
|
|
|
$
|
472,999
|
|
|
$
|
474,943
|
|
Healthcare and Life Sciences
|
|
|
162,424
|
|
|
|
155,970
|
|
|
|
157,970
|
|
Insurance
|
|
|
138,343
|
|
|
|
128,270
|
|
|
|
133,519
|
|
Manufacturing
|
|
|
39,369
|
|
|
|
44,420
|
|
|
|
41,154
|
|
Retail, Logistics and Telecom
|
|
|
164,604
|
|
|
|
164,891
|
|
|
|
161,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit:
|
|
$
|
923,828
|
|
|
$
|
966,550
|
|
|
$
|
968,612
|
|
Banking and Financial Services
|
|
|
162,772
|
|
|
|
183,530
|
|
|
|
188,152
|
|
Healthcare and Life Sciences
|
|
|
66,719
|
|
|
|
62,466
|
|
|
|
68,822
|
|
Insurance
|
|
|
45,867
|
|
|
|
46,192
|
|
|
|
49,497
|
|
Manufacturing
|
|
|
10,526
|
|
|
|
13,091
|
|
|
|
13,111
|
|
Retail, Logistics and Telecom
|
|
|
66,865
|
|
|
|
68,113
|
|
|
|
69,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Gross Profit
|
|
|
352,749
|
|
|
|
373,392
|
|
|
|
389,087
|
|
Corporate Direct Costs
|
|
|
(1,710
|
)
|
|
|
(2,567
|
)
|
|
|
(5,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
$
|
351,039
|
|
|
$
|
370,825
|
|
|
$
|
384,001
|
|
Selling, general and administrative expenses
|
|
|
115,323
|
|
|
|
108,528
|
|
|
|
100,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
235,716
|
|
|
$
|
262,297
|
|
|
$
|
283,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys largest customer in 2017, 2016 and 2015 was American Express, which accounted for revenues in excess of 10%
of total consolidated revenues. Revenue from this customer was approximately $143.3 million, $210.1 million and $204.0 million, contributing approximately 16%, 22% and 21% of total consolidated revenues during 2017, 2016 and 2015,
respectively. At December 31, 2017, 2016 and 2015, accounts receivable from this customer were $11.4 million, $24.3 million and $31.8 million, respectively. The revenue from American Express Corp. was generated in Banking and
Financial Services segment.
The Companys second largest customer, State Street Bank, had revenues in excess of 10% of total consolidated revenues
for the years 2017, 2016 and 2015. Revenue from this customer was approximately $142.8 million, $134.3 million and $140.6 million, contributing approximately 15%, 14% and 15% of total consolidated revenues during 2017, 2016 and 2015,
respectively. At December 31, 2017, 2016 and 2015, accounts receivable from this customer was $10.9 million, $10.9 million and $16.6 million, respectively. The revenue from State Street Bank was generated in Banking and Financial
Services segment.
The Companys third largest customer, Federal Express Corporation, had revenues in excess of 10% of total consolidated revenues
for the year ended 2017, 2016 and 2015. Revenue from this customer was approximately $128.8 million, $119.9 million and $120.1 million, contributing approximately 14%, 12% and 12% of total consolidated revenues during 2017, 2016 and
2015, respectively. At December 31, 2017, 2016 and 2015, accounts receivable from this customer was $17.2 million, $17.8 million and $12.2 million, respectively. The revenue from Federal Express Corporation was generated in the
Retail Logistics and Telecom segment.
F-47
16. Geographic Information
The Companys net revenues and long-lived assets, by geographic area, for the years ended December 31, 2017, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net revenues (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
North America (2)
|
|
$
|
823,142
|
|
|
$
|
865,679
|
|
|
$
|
872,788
|
|
India
|
|
|
4,071
|
|
|
|
5,475
|
|
|
|
3,740
|
|
Europe (3)
|
|
|
94,000
|
|
|
|
92,899
|
|
|
|
89,088
|
|
Rest of the World
|
|
|
2,615
|
|
|
|
2,497
|
|
|
|
2,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
923,828
|
|
|
$
|
966,550
|
|
|
$
|
968,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets (4):
|
|
|
|
|
|
|
|
|
|
|
|
|
North America (2)
|
|
$
|
3,600
|
|
|
$
|
3,307
|
|
|
$
|
3,517
|
|
India
|
|
|
100,950
|
|
|
|
102,638
|
|
|
|
101,686
|
|
Europe (3)
|
|
|
1,992
|
|
|
|
632
|
|
|
|
374
|
|
Rest of the World
|
|
|
662
|
|
|
|
805
|
|
|
|
1,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
107,204
|
|
|
$
|
107,382
|
|
|
$
|
106,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes for the Geographic Information Disclosure:
1.
|
Net revenues are attributed to regions based upon customer location.
|
2.
|
Primarily relates to operations in the United States.
|
3.
|
Primarily relates to operations in the United Kingdom and Poland.
|
4.
|
Long-lived assets include property and equipment, net of accumulated depreciation and amortization and goodwill.
|
F-48
17. Selected Quarterly Financial Data (Unaudited)
Selected financial data by calendar quarter were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Full Year
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
$
|
225,869
|
|
|
$
|
226,811
|
|
|
$
|
231,340
|
|
|
$
|
239,808
|
|
|
$
|
923,828
|
|
Cost of revenues
|
|
|
|
143,447
|
|
|
|
145,351
|
|
|
|
143,219
|
|
|
|
140,772
|
|
|
|
572,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
82,422
|
|
|
|
81,460
|
|
|
|
88,121
|
|
|
|
99,036
|
|
|
|
351,039
|
|
Selling, general and administrative expenses
|
|
|
|
30,291
|
|
|
|
28,699
|
|
|
|
27,160
|
|
|
|
29,173
|
|
|
|
115,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
52,131
|
|
|
|
52,761
|
|
|
|
60,961
|
|
|
|
69,863
|
|
|
|
235,716
|
|
Other income (expense), net
|
|
|
|
(2,880
|
)
|
|
|
(2,754
|
)
|
|
|
(2,521
|
)
|
|
|
(2,076
|
)
|
|
|
(10,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
49,251
|
|
|
|
50,007
|
|
|
|
58,440
|
|
|
|
67,787
|
|
|
|
225,485
|
|
Income tax expense
|
|
|
|
10,871
|
|
|
|
13,355
|
|
|
|
9,607
|
|
|
|
25,384
|
|
|
|
59,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(Loss)
|
|
|
$
|
38,380
|
|
|
$
|
36,652
|
|
|
$
|
48,833
|
|
|
$
|
42,403
|
|
|
$
|
166,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(Loss) per share, diluted (a)
|
|
|
$
|
0.46
|
|
|
$
|
0.44
|
|
|
$
|
0.58
|
|
|
$
|
0.51
|
|
|
$
|
1.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted
|
|
|
|
83,834
|
|
|
|
83,853
|
|
|
|
83,537
|
|
|
|
83,248
|
|
|
|
83,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
$
|
241,390
|
|
|
$
|
246,018
|
|
|
$
|
241,255
|
|
|
$
|
237,887
|
|
|
$
|
966,550
|
|
Cost of revenues
|
|
|
|
151,666
|
|
|
|
155,033
|
|
|
|
146,672
|
|
|
|
142,354
|
|
|
|
595,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
89,724
|
|
|
|
90,985
|
|
|
|
94,583
|
|
|
|
95,533
|
|
|
|
370,825
|
|
Selling, general and administrative expenses
|
|
|
|
29,677
|
|
|
|
18,265
|
|
|
|
29,526
|
|
|
|
31,060
|
|
|
|
108,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
60,047
|
|
|
|
72,720
|
|
|
|
65,057
|
|
|
|
64,473
|
|
|
|
262,297
|
|
Other income (expense), net
|
|
|
|
4,096
|
|
|
|
4,875
|
|
|
|
4,227
|
|
|
|
(2,110
|
)
|
|
|
11,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
64,143
|
|
|
|
77,595
|
|
|
|
69,284
|
|
|
|
62,363
|
|
|
|
273,385
|
|
Income tax expense
|
|
|
|
11,086
|
|
|
|
18,804
|
|
|
|
286,513
|
|
|
|
14,372
|
|
|
|
330,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
53,057
|
|
|
$
|
58,791
|
|
|
$
|
(217,229
|
)
|
|
$
|
47,991
|
|
|
$
|
(57,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, diluted (a)
|
|
|
$
|
0.63
|
|
|
$
|
0.70
|
|
|
$
|
(2.58
|
)
|
|
$
|
0.57
|
|
|
$
|
(0.68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted
|
|
|
|
84,266
|
|
|
|
84,278
|
|
|
|
84,214
|
|
|
|
84,163
|
|
|
|
84,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Earnings per share for the quarter are computed independently and may not equal the earnings per share computed for the total year.
|
18. CONSOLIDATION OF A VARIABLE INTEREST ENTITY
Syntel
Delaware is a 100% subsidiary of Syntel, Inc. and a 49% shareholder of the joint venture (JV) entity SSSSML, the other shareholder being an affiliate of State Street Bank. Syntel Delaware has a variable interest in SSSSML as it is
entitled to all the profits and solely responsible for all losses incurred by SSSSML even though it holds only 49% in the JV entity. Accordingly, Syntel Delaware consolidates the JV entity SSSSML.
The Companys KPO services to State Street Bank and one other client are provided through the above joint venture between the Company and an affiliate of
State Street Bank. Sales of KPO services only to these two clients represented approximately 10%, 11% and 12% of the Companys total revenues for the years ended December 31, 2017, 2016 and 2015, respectively.
F-49
19. FAIR VALUE MEASUREMENTS
The Company follows the guidance for fair value measurements and fair value option for financial assets and liabilities, which primarily relate to the
Companys investments and forward contracts, interest rate swap and other financial assets and liabilities.
This standard includes a fair value
hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either
observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entitys
pricing based upon their own market assumptions.
Fair values of interest rate swaps are measured using standard valuation models using inputs that are
readily available in public markets, or can be derived from observable market transactions, including LIBOR spot and forward rates.
The fair value
hierarchy consists of the following three levels:
|
|
|
Level 1 Inputs are quoted prices in active markets for identical assets or liabilities.
|
|
|
|
Level 2 Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted
prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
|
|
|
|
Level 3 Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
|
The following table summarizes our financial assets measured at fair value on a recurring basis as of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
$
|
25.7
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
25.7
|
|
Term deposits
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
Interest rate swaps
|
|
|
|
|
|
|
3.3
|
|
|
|
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
25.7
|
|
|
$
|
4.5
|
|
|
$
|
|
|
|
$
|
30.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes our financial assets measured at fair value on a recurring basis as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
$
|
15.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15.0
|
|
Term deposits
|
|
|
|
|
|
|
6.8
|
|
|
|
|
|
|
|
6.8
|
|
Interest rate swaps
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
15.0
|
|
|
$
|
7.3
|
|
|
$
|
|
|
|
$
|
22.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-50
20. Term Deposits
The following table summarizes the term deposits with various banks outstanding as at December 31, 2017 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Balance Sheet Item
|
|
As at
December 31,
2017
|
|
|
As at
December 31,
2016
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
Short term investments
|
|
|
0.8
|
|
|
|
6.6
|
|
Non-current
assets
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.2
|
|
|
$
|
6.8
|
|
|
|
|
|
|
|
|
|
|
21. Other (Expense)Income, Net
The following table represents the components of other (expense) income, net.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Interest income on term deposits
|
|
$
|
551
|
|
|
$
|
9,695
|
|
|
$
|
26,751
|
|
Gain (loss) on sale of mutual funds,net
|
|
|
1,494
|
|
|
|
5,790
|
|
|
|
18,796
|
|
Interest expense
|
|
|
(12,627
|
)
|
|
|
(4,707
|
)
|
|
|
(2,220
|
)
|
Miscellaneous income
|
|
|
351
|
|
|
|
310
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(10,231
|
)
|
|
$
|
11,088
|
|
|
$
|
43,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22. RELATED PARTY TRANSACTIONS
There were no related party transactions in 2017, 2016 and 2015.
23. STOCK REPURCHASE PLAN
On July 25, 2017,the
Board authorized a stock repurchase plan under which the Company may repurchase shares of common stock with a total value not to exceed $60 Million. The stock repurchase plan is authorized to continue through December 31, 2018. Repurchases
under the Companys new program may be made in open market , privately negotiated transactions or through a Rule
10b5-1
plan in compliance with Securities and Exchange Commission Rule
10b-18,
subject to market conditions, applicable legal requirements, and other relevant factors. Any repurchased common stock will be available for use in connection with the Companys incentive plan and for
other corporate purposes.
The Company repurchased 880,435 shares of common stock with a total value of $16.2 million at an average price of $18.37
per share during year ended December 31, 2017.
F-51