##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 1-12793
 
 StarTek, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    84-1370538(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    Identification No.)44 Cook Street, 4thFloorDenver, Colorado
    
    80206(Address of principal executive offices)
    
    (Zip code)
 (303) 262-4500  (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, $.01 par value
    
    New York Stock Exchange, Inc.
 Securities registered pursuant to Section 12(g) of the Act:
None
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



STARTEK, INC. AND SUBSIDIARIES
 FORM 10-Q
 INDEX
 PART I. FINANCIAL INFORMATION
    


PageItem 1. Financial Statements (unaudited):Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 2008 and 2007
    
    
    4Condensed Consolidated Balance Sheets as of June 30, 2008
and December 31, 2007
    
    
    5Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2008 and 2007
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    23PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 1a. Risk Factors
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 6. Exhibits
    
    
    24SIGNATURES
    
    
    25Exhibit 10.9Exhibit 10.12Exhibit 10.13Exhibit 10.14Exhibit 10.15Exhibit 10.16Exhibit 10.17Exhibit 10.18Exhibit 10.19Exhibit 10.20Exhibit 10.21Exhibit 10.22Exhibit 10.23Exhibit 10.24Exhibit 10.25Exhibit 10.26Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
  
    
    certain statements, including possible or assumed future results of operations, in
Managements Discussion and Analysis of Financial Condition and Results of Operations;
    
    any statements contained herein regarding the prospects for our business or any of
our services;
    
    any statements preceded by, followed by or that include the words may, will,
should, seeks, believes, expects, anticipates, intends, continue,
estimate, plans, future, targets, predicts, budgeted, projections,
outlooks, attempts, is scheduled, or similar expressions; and
    
    other statements contained herein regarding matters that are not historical facts.
   3




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Part I. Financial Information
 
 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
 STARTEK, INC. AND SUBSIDIARIES
 
 
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    65,619
    
    
    $
    58,832
    
    
    $
    130,364
    
    
    $
    116,479Cost of services
    
    
    57,205
    
    
    
    50,295
    
    
    
    112,367
    
    
    
    99,032Gross profit
    
    
    8,414
    
    
    
    8,537
    
    
    
    17,997
    
    
    
    17,447Selling, general and administrative
expenses
    
    
    10,227
    
    
    
    9,040
    
    
    
    20,317
    
    
    
    18,432Impairment losses and restructuring
charges
    
    
    5,500
    
    
    
    3,018
    
    
    
    5,608
    
    
    
    3,018Operating loss
    
    
    (7,313
    )
    
    
    (3,521
    )
    
    
    (7,928
    )
    
    
    (4,003
    )Net interest and other income
    
    
    90
    
    
    
    143
    
    
    
    400
    
    
    
    331Loss before income taxes
    
    
    (7,223
    )
    
    
    (3,378
    )
    
    
    (7,528
    )
    
    
    (3,672
    )Income tax (benefit) expense
    
    
    (2,704
    )
    
    
    65
    
    
    
    (2,678
    )
    
    
    (40
    )Net loss
    
    $
    (4,519
    )
    
    $
    (3,443
    )
    
    $
    (4,850
    )
    
    $
    (3,632
    )Net loss per share:Basic
    
    $
    (0.31
    )
    
    $
    (0.23
    )
    
    $
    (0.33
    )
    
    $
    (0.25
    )Diluted
    
    $
    (0.31
    )
    
    $
    (0.23
    )
    
    $
    (0.33
    )
    
    $
    (0.25
    )
 See notes to condensed consolidated financial statements.
  4




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STARTEK, INC. AND SUBSIDIARIES
 
 
 As ofJune 30, 2008
    
    
    December 31, 2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    15,682
    
    
    $
    23,026Investments
    
    
    17,672
    
    
    
    16,349Trade accounts receivable, less allowance for
doubtful accounts of $0 and $0, respectively
    
    
    49,828
    
    
    
    48,887Income tax receivable
    
    
    4,039
    
    
    
    2,502Prepaid expenses and other current assets
    
    
    2,659
    
    
    
    2,408Total current assets
    
    
    89,880
    
    
    
    93,172Property, plant and equipment, net
    
    
    57,102
    
    
    
    57,532Long-term deferred income tax assets
    
    
    4,396
    
    
    
    3,686Other assets
    
    
    1,058
    
    
    
    1,068Total assets
    
    $
    152,436
    
    
    $
    155,458LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,706
    
    
    $
    5,908Accrued liabilities:Accrued payroll
    
    
    8,093
    
    
    
    7,902Accrued compensated absences
    
    
    5,511
    
    
    
    5,072Other accrued liabilities
    
    
    2,912
    
    
    
    1,494Current portion of long-term debt
    
    
    3,649
    
    
    
    3,975Other current liabilities
    
    
    1,338
    
    
    
    2,632Total current liabilities
    
    
    28,209
    
    
    
    26,983Long-term debt, less current portion
    
    
    5,744
    
    
    
    7,380Long-term deferred rent liability
    
    
    4,924
    
    
    
    2,731Other liabilities
    
    
    140
    
    
    
    150Total liabilities
    
    
    39,017
    
    
    
    37,244Commitments and contingenciesStockholders equity:Common stock, 32,000,000 non-convertible shares, $0.01 par value,
authorized; 14,778,591 and 14,735,791
shares issued and outstanding at June 30,
2008 and December 31, 2007, respectively
    
    
    148
    
    
    
    147Additional paid-in capital
    
    
    63,389
    
    
    
    62,776Cumulative translation adjustment
    
    
    2,102
    
    
    
    2,553Unrealized loss on investments available for sale
    
    
    (96
    )
    
    
    (29
    )Unrealized (loss) gain on derivative instruments
    
    
    (21
    )
    
    
    20Retained earnings
    
    
    47,897
    
    
    
    52,747Total stockholders equity
    
    
    113,419
    
    
    
    118,214Total liabilities and stockholders equity
    
    $
    152,436
    
    
    $
    155,458
 See notes to condensed consolidated financial statements.
  5




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STARTEK, INC. AND SUBSIDIARIES
 
 
 Six Months EndedJune 30,2008
    
    
    2007Operating ActivitiesNet loss
    
    $
    (4,850
    )
    
    $
    (3,632
    )Adjustments to reconcile net loss to net cash provided by operating activitiesDepreciation
    
    
    9,085
    
    
    
    8,429Non-cash compensation cost
    
    
    614
    
    
    
    533Impairment losses
    
    
    4,070
    
    
    
    3,018Deferred income taxes
    
    
    (1,612
    )
    
    
    1,272Loss on sale of assets
    
    
    16
    
    
    
    3Changes in operating assets and liabilities:Trade accounts receivable, net
    
    
    (863
    )
    
    
    5,771Prepaid expenses and other assets
    
    
    12
    
    
    
    (41
    )Accounts payable
    
    
    758
    
    
    
    (1,723
    )Income taxes receivable, net
    
    
    (1,532
    )
    
    
    (2,408
    )Accrued and other liabilities
    
    
    3,895
    
    
    
    1,635Net cash provided by operating activities
    
    
    9,593
    
    
    
    12,857Investing ActivitiesPurchases of investments available for sale
    
    
    (10,899
    )
    
    
    (17,497
    )Proceeds from disposition of investments available for sale
    
    
    9,469
    
    
    
    6,869Purchases of property, plant and equipment
    
    
    (12,733
    )
    
    
    (6,141
    )Net cash used in investing activities
    
    
    (14,163
    )
    
    
    (16,769
    )Financing ActivitiesPrincipal payments on borrowings
    
    
    (2,179
    )
    
    
    (2,716
    )Principal payments on line of credit
    
    
    (43,093
    )
    
    
    (1,877
    )Proceeds from line of credit
    
    
    43,093
    
    
    
    1,877Principal payments on capital lease obligations
    
    
    (25
    )
    
    
    Net cash used in financing activities
    
    
    (2,204
    )
    
    
    (2,716
    )Effect of exchange rate changes on cash
    
    
    (570
    )
    
    
    324Net decrease in cash and cash equivalents
    
    
    (7,344
    )
    
    
    (6,304
    )Cash and cash equivalents at beginning of period
    
    
    23,026
    
    
    
    33,437Cash and cash equivalents at end of period
    
    $
    15,682
    
    
    $
    27,133Supplemental Disclosure of Cash Flow InformationCash paid for interest
    
    $
    348
    
    
    $
    411Income taxes paid
    
    $
    1,384
    
    
    $
    1,143Unrealized (loss) gain on investments available for sale, net of tax
    
    $
    (67
    )
    
    $
    9Property, plant and equipment acquired or refinanced under long-term debt
    
    $
    385
    
    
    $
    
 See notes to condensed consolidated financial statements.
  6




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STARTEK, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
     Fair Value of Financial Instruments
     Level 1
    
    Valuation is based upon quoted prices for identical instruments traded in
active markets.Level 2
    
    Valuation is based upon quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are not
active, and model-based valuation techniques for which all significant assumptions are
observable in the market.Level 3
    
    Valuation is generated from model-based techniques that use significant
assumptions not observable in the market. These unobservable assumptions reflect our
own estimates of assumptions that market participants would use in pricing the asset or
liability. Valuation techniques include use of option pricing models, discounted cash
flow models and similar techniques.
  7




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Recently Issued Accounting Pronouncements
    2. IMPAIRMENT LOSSES AND RESTRUCTURING CHARGES
 Impairment Losses
    8




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Hawkesbury Closure
   Facility-Related CostsBalance as of January 1, 2008
    
    $
    502Expense
    
    
    1,538Payments
    
    
    (494
    )Balance as of June 30, 2008
    
    $
    1,546
  3. NET LOSS PER SHARE
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (4,519
    )
    
    $
    (3,443
    )
    
    $
    (4,850
    )
    
    $
    (3,632
    )Weighted average shares of common stock
    
    
    14,706
    
    
    
    14,696
    
    
    
    14,706
    
    
    
    14,696Dilutive effect of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock and common stock equivalents
    
    
    14,706
    
    
    
    14,696
    
    
    
    14,706
    
    
    
    14,696Net loss per basic share
    
    $
    (0.31
    )
    
    $
    (0.23
    )
    
    $
    (0.33
    )
    
    $
    (0.25
    )Net loss per diluted share
    
    $
    (0.31
    )
    
    $
    (0.23
    )
    
    $
    (0.33
    )
    
    $
    (0.25
    )
  9




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4. PRINCIPAL CLIENTS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007AT&T, Inc.
    
    
    51.7
    %
    
    
    52.5
    %
    
    
    50.6
    %
    
    
    52.7
    %T-Mobile, a subsidiary of Deutsche Telekom
    
    
    28.6
    %
    
    
    20.5
    %
    
    
    28.2
    %
    
    
    20.0
    %
   5. FAIR VALUE OF FINANCIAL INSTRUMENTS
   As ofJune 30, 2008
    
    
    December 31, 2007Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesCash and cash equivalents
    
    $
    15,682
    
    
    $
    
    
    
    $
    23,026
    
    
    $
    Investments
    
    
    17,672
    
    
    
    
    
    
    
    16,349
    
    
    
    Derivative instruments
    
    
    
    
    
    
    37
    
    
    
    27
    
    
    
    Total
    
    $
    33,354
    
    
    $
    37
    
    
    $
    39,402
    
    
    $
    
 Cash and Cash Equivalents
   10




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Investments
  Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    FairBasis
    
    
    Gains
    
    
    Losses
    
    
    ValueCorporate debt securities
    
    $
    16,798
    
    
    $
    3
    
    
    $
    (132
    )
    
    $
    16,669Government agency bonds
    
    
    1,003
    
    
    
    
    
    
    
    
    
    
    
    1,003$
    17,801
    
    
    $
    3
    
    
    $
    (132
    )
    
    $
    17,672
   Derivative Instruments and Hedging Activities
    11




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Fair Value Hierarchy
  Assets and Liabilities at Fair Value as of June 30, 2008Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial assets:Commercial paper
    
    $
    
    
    
    $
    12,351
    
    
    $
    
    
    
    $
    12,351Corporate debt securities
    
    
    16,669
    
    
    
    
    
    
    
    
    
    
    
    16,669Mortgage backed securities
    
    
    1,003
    
    
    
    
    
    
    
    
    
    
    
    1,003Total financial assets
    
    $
    17,672
    
    
    $
    12,351
    
    
    $
    
    
    
    $
    30,023Financial liabilities:Derivative instruments
    
    $
    
    
    
    $
    37
    
    
    $
    
    
    
    $
    37Total financial liabilities
    
    $
    
    
    
    $
    37
    
    
    $
    
    
    
    $
    37
 6. COMPREHENSIVE LOSS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (4,519
    )
    
    $
    (3,443
    )
    
    $
    (4,850
    )
    
    $
    (3,632
    )Other comprehensive income (loss):Foreign currency translation adjustments, net of tax
    
    
    (78
    )
    
    
    783
    
    
    
    (451
    )
    
    
    907Change in fair value of derivative instruments, net of tax
    
    
    71
    
    
    
    206
    
    
    
    (41
    )
    
    
    443Unrealized gain (loss) on available for sale securities,
net of tax
    
    
    153
    
    
    
    23
    
    
    
    (67
    )
    
    
    9Comprehensive loss
    
    $
    (4,373
    )
    
    $
    (2,431
    )
    
    $
    (5,409
    )
    
    $
    (2,273
    )
 7. SHARE-BASED COMPENSATION
     12




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Stock Options
  Weighted Average
    
    
    AggregateWeighted Average
    
    
    Remaining
    
    
    Intrinsic ValueShares
    
    
    Exercise Price
    
    
    Contractual Term (yrs)
    
    
    (000s)Outstanding as of January 1, 2008
    
    
    1,620,342
    
    
    $
    12.50Granted
    
    
    399,000
    
    
    
    9.01Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (224,972
    )
    
    
    11.00Outstanding as of June 30, 2008
    
    
    1,794,370
    
    
    $
    11.91
    
    
    
    8.47
    
    
    $
    159Exercisable as of June 30, 2008
    
    
    533,383
    
    
    $
    16.81
    
    
    
    6.97
    
    
    $
    
   Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007Risk-free interest rate
    
    2.85%-3.60%
    
    4.56% - 4.58%
    
    2.76%-3.60%
    
    4.56% - 4.74%Dividend yield
    
    0%
    
    0%
    
    0%
    
    0%Expected volatility
    
    44.38%-45.13%
    
    43.97% - 50.47%
    
    43.81%-45.13%
    
    43.97% - 50.47%Expected life in years
    
    4.1
    
    4.1
    
    4.1
    
    4.4
    13




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##### Table of Contents



Restricted Shares
  Restricted Shares
    
    
    Grant Date Fair ValueNonvested balance as of January 1, 2008
    
    
    40,000
    
    
    $
    12.37Granted
    
    
    47,800
    
    
    
    9.01Vested
    
    
    (10,000
    )
    
    
    13.14Forfeited
    
    
    (5,000
    )
    
    
    9.01Nonvested balance as of June 30, 2008
    
    
    72,800
    
    
    $
    10.29
 8. INCOME TAXES
   Six Months Ended June 30,2008
    
    
    2007U.S. statutory tax rate
    
    
    35.0
    %
    
    
    35.0
    %Effect of state taxes (net of
Federal benefit)
    
    
    1.6
    %
    
    
    5.2
    %Work opportunity credits
    
    
    7.4
    %
    
    
    9.9
    %Effect of change in Canadian tax rate
    
    
    (5.4
    %)
    
    
    0.0
    %Capital loss valuation allowance
    
    
    0.0
    %
    
    
    (48.8
    %)Other, net
    
    
    (3.0
    %)
    
    
    (0.2
    %)Total
    
    
    35.6
    %
    
    
    1.1
    %
 9. LITIGATION
     14




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##### Table of Contents



10. SUBSEQUENT EVENTS
   
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   BUSINESS DESCRIPTION AND OVERVIEW
    SIGNIFICANT DEVELOPMENTS DURING THE THREE MONTHS ENDED JUNE 30, 2008
  SUBSEQUENT EVENTS
    15




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RESULTS OF OPERATIONS  THREE MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
 Three Months
    
    
    
    
    
    
    Three Months
    
    
    
    
    
    
    % changeEnded June 30,
    
    
    % of
    
    
    Ended June 30,
    
    
    % of
    
    
    Q2 2007 to2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    Q2 2008Revenue
    
    $
    65,619
    
    
    
    100.0
    %
    
    $
    58,832
    
    
    
    100.0
    %
    
    
    11.5
    %Cost of services
    
    
    57,205
    
    
    
    87.2
    %
    
    
    50,295
    
    
    
    85.5
    %
    
    
    13.7
    %Gross profit
    
    
    8,414
    
    
    
    12.8
    %
    
    
    8,537
    
    
    
    14.5
    %
    
    
    -1.4
    %Selling, general and
administrative expenses
    
    
    10,227
    
    
    
    15.6
    %
    
    
    9,040
    
    
    
    15.4
    %
    
    
    13.1
    %Impairment losses and
restructuring charges
    
    
    5,500
    
    
    
    8.3
    %
    
    
    3,018
    
    
    
    5.1
    %
    
    
    82.2
    %Operating loss
    
    
    (7,313
    )
    
    
    -11.1
    %
    
    
    (3,521
    )
    
    
    -6.0
    %
    
    
    107.7
    %Net interest and other income
    
    
    90
    
    
    
    0.1
    %
    
    
    143
    
    
    
    0.2
    %
    
    
    -37.1
    %Loss before income taxes
    
    
    (7,223
    )
    
    
    -11.0
    %
    
    
    (3,378
    )
    
    
    -5.8
    %
    
    
    113.8
    %Income tax (benefit) expense
    
    
    (2,704
    )
    
    
    -4.1
    %
    
    
    65
    
    
    
    -0.1
    %
    
    
    -4260.0
    %Net loss
    
    $
    (4,519
    )
    
    
    -6.9
    %
    
    $
    (3,443
    )
    
    
    -5.9
    %
    
    
    31.3
    %
 Revenue
  Cost of Services and Gross Profit
  Selling, General and Administrative Expenses
  Impairment Losses and Restructuring Charges
   16




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##### Table of Contents



Operating Loss
  Income Tax
  Net Loss
  RESULTS OF OPERATIONS  SIX MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007
 % changeSix MonthsEnded
    
    
    
    
    
    
    Six Months Ended
    
    
    
    
    
    
    YTD JuneJune 30,
    
    
    % of
    
    
    June 30,
    
    
    % of
    
    
    30, 2007 to2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    2008Revenue
    
    $
    130,364
    
    
    
    100.0
    %
    
    $
    116,479
    
    
    
    100.0
    %
    
    
    11.9
    %Cost of services
    
    
    112,367
    
    
    
    86.2
    %
    
    
    99,032
    
    
    
    85.0
    %
    
    
    13.5
    %Gross profit
    
    
    17,997
    
    
    
    13.8
    %
    
    
    17,447
    
    
    
    15.0
    %
    
    
    3.2
    %Selling, general and
administrative expenses
    
    
    20,317
    
    
    
    15.6
    %
    
    
    18,432
    
    
    
    15.8
    %
    
    
    10.2
    %Impairment losses and
restructuring charges
    
    
    5,608
    
    
    
    4.3
    %
    
    
    3,018
    
    
    
    2.6
    %
    
    
    85.8
    %Operating loss
    
    
    (7,928
    )
    
    
    -6.1
    %
    
    
    (4,003
    )
    
    
    -3.4
    %
    
    
    98.1
    %Net interest and other income
    
    
    400
    
    
    
    0.3
    %
    
    
    331
    
    
    
    0.3
    %
    
    
    20.8
    %Loss before income taxes
    
    
    (7,528
    )
    
    
    -5.8
    %
    
    
    (3,672
    )
    
    
    -3.1
    %
    
    
    105.0
    %Income tax benefit
    
    
    (2,678
    )
    
    
    -2.1
    %
    
    
    (40
    )
    
    
    0.0
    %
    
    
    6595.0
    %Net loss
    
    $
    (4,850
    )
    
    
    -3.7
    %
    
    $
    (3,632
    )
    
    
    -3.1
    %
    
    
    33.5
    %
 Revenue
  Cost of Services and Gross Profit
   17




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##### Table of Contents



Selling, General and Administrative Expenses
  Impairment Losses and Restructuring Charges
  Operating Loss
  Income Tax
  Net Loss
   18




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
  Six Months Ended June 30,2008
    
    
    2007Net cash provided by (used in):Operating activities
    
    $
    9,593
    
    
    $
    12,857Investing activities
    
    
    (14,163
    )
    
    
    (16,769
    )Financing activities
    
    
    (2,204
    )
    
    
    (2,716
    )Effect of foreign exchange rates on cash
    
    
    (570
    )
    
    
    324Net decrease in cash and cash equivalents
    
    $
    (7,344
    )
    
    $
    (6,304
    )
  Operating Activities.
 Investing Activities.
 Financing Activities.
  19




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##### Table of Contents



Contractual Obligations.
 Less Than
    
    
    One to Three
    
    
    Three to Five
    
    
    More ThanOne Year
    
    
    Years
    
    
    Years
    
    
    Five Years
    
    
    TotalOperating leases (1)
    
    $
    5,629
    
    
    $
    10,636
    
    
    $
    6,263
    
    
    $
    1,873
    
    
    $
    24,401Capital leases (2)
    
    
    68
    
    
    
    152
    
    
    
    140
    
    
    
    
    
    
    
    360Purchase obligations (3)
    
    
    731
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    762Long-term debt(4)
    
    
    3,581
    
    
    
    5,452
    
    
    
    
    
    
    
    
    
    
    
    9,033Total contractual obligations
    
    $
    10,009
    
    
    $
    16,271
    
    
    $
    6,403
    
    
    $
    1,873
    
    
    $
    34,556
 (1)
    
    We lease facilities and equipment under various non-cancelable operating leases.(2)
    
    We lease equipment under certain capital lease agreements.(3)
    
    Purchase obligations include commitments to purchase goods and services that in some
cases may include provisions for cancellation.(4)
    
    Our outstanding debt obligations as of June 30, 2008 are described below. Line of Credit
  Canadian Dollar Secured Equipment Loan
  Secured Promissory Note
   20




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##### Table of Contents



Other Factors Impacting Liquidity.
   Variability of Operating Results.
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Managements
Discussion and Analysis of Financial Condition and Results of Operations
 Recently Adopted Accounting Pronouncements
   21




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##### Table of Contents



ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
  Foreign Currency Exchange Risks
    22




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
 Changes in internal controls over financial reporting.
 
 Part II. Other Information
 
 ITEM 1. LEGAL PROCEEDINGS
    
 ITEM 1A. RISK FACTORS
  Our operations outside of the USA subject us to the risk of currency exchange fluctuations.
   23




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##### Table of Contents



We face risks inherent in conducting business outside of North America.
   
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Abstain/For
    
    
    Against
    
    
    Withhold
    
    
    Broker Non-VoteElection of DirectorsEd Zschau
    
    
    13,461,136
    
    
    
    
    
    
    
    716,129P. Kay Norton
    
    
    13,466,190
    
    
    
    
    
    
    
    711,075Albert C. Yates
    
    
    13,452,040
    
    
    
    
    
    
    
    725,225A. Laurence Jones
    
    
    13,945,775
    
    
    
    
    
    
    
    231,490Harvey A. Wagner
    
    
    13,953,179
    
    
    
    
    
    
    
    224,086Ratify Appointment of Ernst & Young LLPas independent registered public accounting
firm of the company for the year
ending December 31, 2008
    
    
    14,149,617
    
    
    
    22,938
    
    
    
    4,710Approve the StarTek, Inc. Employee Stock Purchase Plan12,122,593
    
    
    
    72,847
    
    
    
    53,400
    
    
    
    1,928,425Approve the StarTek, Inc. 2008 Equity Incentive Plan11,341,927
    
    
    
    851,617
    
    
    
    55,296
    
    
    
    1,928,425
 
 ITEM 6. EXHIBITS
 Index of Exhibits
  24




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##### Table of Contents



SIGNATURES
  
 By:
    
    /s/ A. LAURENCE JONES
    
    Date: August 11, 2008A. Laurence JonesPresident and Chief Executive Officer(Principal Executive Officer)By:
    
    /s/ DAVID G. DURHAM
    
    Date: August 11, 2008David G. DurhamExecutive Vice President, Chief FinancialOfficer and Treasurer(Principal Financial and Accounting Officer)
  25




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##### Table of Contents



EXHIBIT INDEX
 Incorporated Herein by ReferenceExhibit
    
    Description
    
    Form
    
    Exhibit
    
    Filing Date3.1
    
    
    Restated Certificate of Incorporation of the Company.
    
    S-1
    
    
    3.1
    
    
    1/29/19973.2
    
    
    Restated Bylaws of the Company.
    
    8-K
    
    
    3.2
    
    
    8/2/20073.3
    
    
    Certificate of Amendment to the Certificate of
Incorporation of StarTek, Inc. filed with the Delaware
Secretary of State on May 21, 1999.
    
    10-K
    
    
    3.3
    
    
    3/8/20003.4
    
    
    Certificate of Amendment to the Certificate of
Incorporation of StarTek, Inc. filed with the Delaware
Secretary of State on May 23, 2000.
    
    10-Q
    
    
    3.4
    
    
    8/14/20004.1
    
    
    Specimen Common Stock certificate.
    
    10-Q
    
    
    4.2
    
    
    11/6/200710.1
    
    

StarTek, Inc. Employee Stock Purchase Plan.
    
    Def14a
    
    
    A
    
    
    3/20/200810.2
    
    

StarTek, Inc. 2008 Equity Incentive Plan.
    
    Def14a
    
    
    B
    
    
    3/20/200810.3
    
    
    Form of Non-Statutory Stock Option Agreement (Employee)
pursuant to StarTek, Inc. 2008 Equity Incentive Plan.
    
    8-K
    
    
    10.2
    
    
    5/5/200810.4
    
    
    Form of Non-Statutory Stock Option Agreement (Director)
pursuant to StarTek, Inc. 2008 Equity Incentive Plan.
    
    8-K
    
    
    10.3
    
    
    5/5/200810.5
    
    
    Form of Incentive Stock Option Agreement (Employee)
pursuant to StarTek, Inc. 2008 Equity Incentive Plan.
    
    8-K
    
    
    10.4
    
    
    5/5/200810.6
    
    
    Form of Restricted Stock Award Agreement (Employee)
pursuant to StarTek, Inc. 2008 Equity Incentive Plan.
    
    8-K
    
    
    10.5
    
    
    5/5/200810.7
    
    
    Form of Restricted Stock Award Agreement (Director)
pursuant to StarTek, Inc. 2008 Equity Incentive Plan.
    
    8-K
    
    
    10.6
    
    
    5/5/200810.8
    
    

Amendment No. 1 to Form of Executive Employment Contract.
    
    10-K
    
    
    10.11
    
    
    2/29/200810.9
    *
    
    Amendment to employment agreement of A. Laurence Jones
signed May 23, 2008.10.10
    
    
    Amendment effective April 1, 2008 to the Master Service
Agreement effective March 21, 2002 between StarTek,
Inc. and AT&T Mobility LLC for certain call center
services.
    
    10-Q
    
    
    10.5
    
    
    5/6/200810.11
    
    
    Amendment effective April 1, 2008 to Amendment No. 001
dated April 1, 2004 to the Master Service Agreement
incorporating a Statement of Work between StarTek, Inc.
and AT&T Mobility, LLC for certain call center
services.
    
    10-Q
    
    
    10.6
    
    
    5/6/200810.12
    *
    
    Amendment effective May 1, 2008 to the Master Service
Agreement effective March 21, 2002 between StarTek,
Inc. and AT&T Mobility LLC for certain call center
services.10.13
    *
    
    Amendment effective May 1, 2008 to Amendment No. 001
dated April 1, 2004 to the Master Service Agreement
incorporating a Statement of Work between StarTek, Inc.
and AT&T Mobility, LLC for certain call center
services.10.14
    *&
    
    Work Order 20080122.003.C effective May 1, 2008 between
StarTek USA, Inc. and AT&T Mobility LLC10.15
    *&
    
    Amendment Cing7866.A.001 effective April 16, 2008
between StarTek USA, Inc. and AT&T Mobility LLC
  26




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##### Table of Contents



Incorporated Herein by ReferenceExhibit
    
    Description
    
    Form
    
    Exhibit
    
    Filing Date10.16
    *&
    
    Amendment 20070105.006.S.002.A.001 effective June 27,
2008 by and between StarTek, Inc. and AT&T Services,
Inc.10.17
    *&
    
    Amendment 20070105.006.S.007.A.001 effective July 14,
2008 between StarTek, Inc. and AT&T Crop.10.18
    *&
    
    General Agreement Order 20070105.006.S.008 effective
June 19, 2008 by and between StarTek, Inc. and AT&T
Services, Inc.10.19
    *&
    
    General Agreement Order 20070105.006.S.009 effective
June 5, 2008 by and between StarTek, Inc. and AT&T
Services, Inc.10.20
    *&
    
    General Agreement Order 20070105.006.S.010 effective
June 5, 2008 by and between StarTek, Inc. and AT&T
Services, Inc.10.21
    *&
    
    General Agreement Order 20070105.006.S.011 effective
June 5, 2008 by and between StarTek, Inc. and AT&T
Services, Inc.10.22
    *&
    
    General Agreement Order 20070105.006.S.012 effective
July 10, 2008 by and between StarTek, Inc. and AT&T
Services, Inc.10.23
    *
    
    Fourth Amendment to Credit Agreement
entered into as of April 30, 2008.10.24
    *
    
    Fifth Amendment to Credit Agreement,
$10,000,000 Revolving Line of Credit
Note, and Addendum to Promissory
Note, each entered into as of
June 30, 2008.10.25
    *
    
    Continuing Security Agreement
between StarTek USA, Inc. and Wells
Fargo Bank, National Association,
entered into as of June 30, 2008.10.26
    *
    
    Continuing Security Agreement
between StarTek, Inc. and Wells
Fargo Bank, National Association,
entered into as of June 30, 2008.31.1
    *
    
    Certification of A. Laurence Jones
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    *
    
    Certification of David G. Durham
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    *
    
    Written Statement of the Chief
Executive Officer and Chief
Financial Officer furnished pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002.
 *
    
    Filed with this Form 10-Q.
    
    Management contract or compensatory plan or arrangement.&
    
    Certain portions of this exhibit have been omitted pursuant to a
request for confidential treatment and have been filed separately with
the Securities and Exchange Commission.  27