##### 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 September 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(State or other jurisdiction of 
incorporation or organization)
    
    84-1370538(I.R.S. employer
Identification No.)44 Cook Street, 4thFloor 
Denver, Colorado(Address of principal executive offices)
    
    80206(Zip code)
 (303) 399-2400  (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




---



##### 



STARTEK, INC. AND SUBSIDIARIES
 FORM 10-Q
 INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited):
    
    
    4Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2008 and 2007
    
    
    4Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007
    
    
    5Condensed Consolidated Statements of Cash Flows for the nine months ended September 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
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 6. Exhibits
    
    
    25SIGNATURES
    
    
    26Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



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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##### Table of Contents



Part I. Financial Information
 
 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
 STARTEK, INC. AND SUBSIDIARIES
 
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    69,056
    
    
    $
    63,169
    
    
    $
    199,420
    
    
    $
    179,648Cost of services
    
    
    60,761
    
    
    
    52,853
    
    
    
    173,128
    
    
    
    151,885Gross profit
    
    
    8,295
    
    
    
    10,316
    
    
    
    26,292
    
    
    
    27,763Selling, general and administrative expenses
    
    
    10,205
    
    
    
    9,693
    
    
    
    30,522
    
    
    
    28,125Impairment losses and restructuring charges
    
    
    346
    
    
    
    1,032
    
    
    
    5,954
    
    
    
    4,050Operating loss
    
    
    (2,256
    )
    
    
    (409
    )
    
    
    (10,184
    )
    
    
    (4,412
    )Net interest and other (expense) income
    
    
    (304
    )
    
    
    232
    
    
    
    96
    
    
    
    563Loss from continuing operations before income taxes
    
    
    (2,560
    )
    
    
    (177
    )
    
    
    (10,088
    )
    
    
    (3,849
    )Income tax benefit
    
    
    (1,111
    )
    
    
    (548
    )
    
    
    (3,789
    )
    
    
    (588
    )Net (loss) income from continuing operations
    
    
    (1,449
    )
    
    
    371
    
    
    
    (6,299
    )
    
    
    (3,261
    )Loss from discontinued operations, net of tax
    
    
    (461
    )
    
    
    
    
    
    
    (461
    )
    
    
    Net (loss) income
    
    $
    (1,910
    )
    
    $
    371
    
    
    $
    (6,760
    )
    
    $
    (3,261
    )Net (loss) income per share from continuing
operations:Basic
    
    $
    (0.10
    )
    
    $
    0.03
    
    
    $
    (0.43
    )
    
    $
    (0.22
    )Diluted
    
    $
    (0.10
    )
    
    $
    0.03
    
    
    $
    (0.43
    )
    
    $
    (0.22
    )Net (loss) income per share including
discontinued operations:Basic
    
    $
    (0.13
    )
    
    $
    0.03
    
    
    $
    (0.46
    )
    
    $
    (0.22
    )Diluted
    
    $
    (0.13
    )
    
    $
    0.03
    
    
    $
    (0.46
    )
    
    $
    (0.22
    )
 See notes to condensed consolidated financial statements.
  4




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STARTEK, INC. AND SUBSIDIARIES
 
   As ofSeptember 30, 2008
    
    
    December 31, 2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    15,953
    
    
    $
    23,026Investments
    
    
    14,737
    
    
    
    16,349Trade accounts receivable, less allowance for
doubtful accounts of $0 and $0, respectively
    
    
    47,041
    
    
    
    48,887Income tax receivable
    
    
    4,039
    
    
    
    2,502Prepaid expenses and other current assets
    
    
    3,587
    
    
    
    2,408Total current assets
    
    
    85,357
    
    
    
    93,172Property, plant and equipment, net
    
    
    62,421
    
    
    
    57,532Long-term deferred income tax assets
    
    
    6,066
    
    
    
    3,686Other assets
    
    
    724
    
    
    
    1,068Total assets
    
    $
    154,568
    
    
    $
    155,458LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    11,458
    
    
    $
    5,908Accrued liabilities:Accrued payroll
    
    
    8,261
    
    
    
    7,902Accrued compensated absences
    
    
    5,163
    
    
    
    5,072Other accrued liabilities
    
    
    4,609
    
    
    
    1,494Current portion of long-term debt
    
    
    3,607
    
    
    
    3,975Other current liabilities
    
    
    927
    
    
    
    2,632Total current liabilities
    
    
    34,025
    
    
    
    26,983Long-term debt, less current portion
    
    
    4,678
    
    
    
    7,380Long-term deferred rent liability
    
    
    4,785
    
    
    
    2,731Other liabilities
    
    
    127
    
    
    
    150Total liabilities
    
    
    43,615
    
    
    
    37,244Commitments and contingenciesStockholders equity:Common stock, 32,000,000 non-convertible shares, $0.01 par value,
authorized; 14,797,171 and 14,735,791
shares issued and outstanding at September
30, 2008 and December 31, 2007,
respectively
    
    
    148
    
    
    
    147Additional paid-in capital
    
    
    63,930
    
    
    
    62,776Cumulative translation adjustment, net of tax
    
    
    1,728
    
    
    
    2,553Unrealized loss on investments available for sale, net of tax
    
    
    (234
    )
    
    
    (29
    )Unrealized (loss) gain on derivative instruments, net of tax
    
    
    (606
    )
    
    
    20Retained earnings
    
    
    45,987
    
    
    
    52,747Total stockholders equity
    
    
    110,953
    
    
    
    118,214Total liabilities and stockholders equity
    
    $
    154,568
    
    
    $
    155,458
 See notes to condensed consolidated financial statements.
  5




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STARTEK, INC. AND SUBSIDIARIES
 
    Nine Months EndedSeptember 30,2008
    
    
    2007Operating ActivitiesNet loss
    
    $
    (6,760
    )
    
    $
    (3,261
    )Adjustments to reconcile net loss to net cash provided by operating activitiesDepreciation
    
    
    13,473
    
    
    
    12,724Non-cash compensation cost
    
    
    1,054
    
    
    
    760Impairment losses
    
    
    4,070
    
    
    
    3,583Deferred income taxes
    
    
    (3,532
    )
    
    
    482Realized loss on investments available for sale
    
    
    437
    
    
    
    Loss on sale of assets
    
    
    16
    
    
    
    53Changes in operating assets and liabilities:Trade accounts receivable, net
    
    
    1,751
    
    
    
    (4,230
    )Prepaid expenses and other
assets
    
    
    (200
    )
    
    
    644Accounts payable
    
    
    4,693
    
    
    
    (1,624
    )Income taxes receivable, net
    
    
    (1,570
    )
    
    
    (2,579
    )Accrued and other liabilities
    
    
    5,416
    
    
    
    1,719Net cash provided by operating activities
    
    
    18,848
    
    
    
    8,271Investing ActivitiesPurchases of investments available for sale
    
    
    (11,384
    )
    
    
    (28,931
    )Proceeds from disposition of investments available for sale
    
    
    12,229
    
    
    
    18,569Purchases of property, plant and equipment
    
    
    (22,964
    )
    
    
    (10,605
    )Net cash used in investing activities
    
    
    (22,119
    )
    
    
    (20,967
    )Financing ActivitiesPrincipal payments on borrowings
    
    
    (3,042
    )
    
    
    (4,191
    )Principal payments on line of credit
    
    
    (82,346
    )
    
    
    (29,603
    )Proceeds from line of credit
    
    
    82,346
    
    
    
    29,603Proceeds from issuance of common stock
    
    
    101
    
    
    
    Principal payments on capital lease obligations
    
    
    (42
    )
    
    
    Net cash used in financing activities
    
    
    (2,983
    )
    
    
    (4,191
    )Effect of exchange rate changes on cash
    
    
    (819
    )
    
    
    507Net decrease in cash and cash equivalents
    
    
    (7,073
    )
    
    
    (16,380
    )Cash and cash equivalents at beginning of period
    
    
    23,026
    
    
    
    33,437Cash and cash equivalents at end of period
    
    $
    15,953
    
    
    $
    17,057Supplemental Disclosure of Cash Flow InformationCash paid for interest
    
    $
    532
    
    
    $
    585Income taxes paid
    
    $
    1,940
    
    
    $
    1,576Unrealized (loss) gain on investments available for sale, net of tax
    
    $
    (205
    )
    
    $
    36Property, 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. RESTRUCTURING CHARGES AND IMPAIRMENT LOSSES
   8




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##### Table of Contents



Hawkesbury Closure
  Facility-Related CostsBalance as of January 1, 2008
    
    $
    502Expense
    
    
    1,538Payments
    
    
    (583
    )Foreign currency
translation
adjustment
    
    
    (84
    )Balance as of September 30, 2008
    
    $
    1,373
  Big Spring Closure
  Facility-Related CostsBalance as of January 1, 2008
    
    $
    Expense
    
    
    346Payments
    
    
    (32
    )Reclassification of
long-term liability
    
    
    132Balance as of September 30, 2008
    
    $
    446
  Impairment Losses
   9




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3. NET INCOME (LOSS) PER SHARE
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net (loss) income from continuing operations
    
    $
    (1,449
    )
    
    $
    371
    
    
    $
    (6,299
    )
    
    $
    (3,261
    )Loss from discontinued operations, net of tax
    
    
    (461
    )
    
    
    
    
    
    
    (461
    )
    
    
    Net (loss) income
    
    $
    (1,910
    )
    
    $
    371
    
    
    $
    (6,760
    )
    
    $
    (3,261
    )Weighted average shares of common stock
    
    
    14,708
    
    
    
    14,696
    
    
    
    14,706
    
    
    
    14,696Dilutive effect of stock options
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Common stock and common stock equivalents
    
    
    14,708
    
    
    
    14,697
    
    
    
    14,706
    
    
    
    14,696Basic net (loss) income per share from:Continuing operations
    
    $
    (0.10
    )
    
    $
    0.03
    
    
    $
    (0.43
    )
    
    $
    (0.22
    )Discontinued operations
    
    
    (0.03
    )
    
    
    
    
    
    
    (0.03
    )
    
    
    Net (loss) income
    
    $
    (0.13
    )
    
    $
    0.03
    
    
    $
    (0.46
    )
    
    $
    (0.22
    )Diluted net (loss) income per share from:Continuing operations
    
    $
    (0.10
    )
    
    $
    0.03
    
    
    $
    (0.43
    )
    
    $
    (0.22
    )Discontinued operations
    
    
    (0.03
    )
    
    
    
    
    
    
    (0.03
    )
    
    
    Net (loss) income
    
    $
    (0.13
    )
    
    $
    0.03
    
    
    $
    (0.46
    )
    
    $
    (0.22
    )
  4. DISCONTINUED OPERATIONS
   10




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5. PRINCIPAL CLIENTS
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007AT&T, Inc.
    
    
    56.4
    %
    
    
    49.0
    %
    
    
    52.6
    %
    
    
    51.4
    %T-Mobile, a
subsidiary of
Deutsche Telekom
    
    
    26.3
    %
    
    
    22.7
    %
    
    
    27.6
    %
    
    
    21.0
    %
   6. FAIR VALUE OF FINANCIAL INSTRUMENTS
   As ofSeptember 30, 2008
    
    
    December 31, 2007Assets
    
    
    Liabilities
    
    
    Assets
    
    
    LiabilitiesCash and cash
equivalents
    
    $
    15,953
    
    
    $
    
    
    
    $
    23,026
    
    
    $
    Investments
    
    
    14,737
    
    
    
    
    
    
    
    16,349
    
    
    
    Derivative instruments
    
    
    
    
    
    
    882
    
    
    
    27
    
    
    
    Total
    
    $
    30,690
    
    
    $
    882
    
    
    $
    39,402
    
    
    $
    
 Cash and Cash Equivalents
   11




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Investments
  Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    FairBasis
    
    
    Gains
    
    
    Losses
    
    
    ValueCorporate debt securities
    
    $
    15,088
    
    
    $
    11
    
    
    $
    (362
    )
    
    $
    14,737
    Derivative Instruments and Hedging Activities
   Fair Value Hierarchy
  Assets and Liabilities at Fair Value as of September 30, 2008Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial assets:Commercial paper
    
    $
    
    
    
    $
    5,469
    
    
    $
    
    
    
    $
    5,469Corporate debt securities
    
    
    14,737
    
    
    
    
    
    
    
    
    
    
    
    14,737Total financial assets
    
    $
    14,737
    
    
    $
    5,469
    
    
    $
    
    
    
    $
    20,206Financial liabilities:Derivative instruments
    
    $
    
    
    
    $
    882
    
    
    $
    
    
    
    $
    882Total financial liabilities
    
    $
    
    
    
    $
    882
    
    
    $
    
    
    
    $
    882
  12




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7. COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net (loss) income
    
    $
    (1,910
    )
    
    $
    371
    
    
    $
    (6,760
    )
    
    $
    (3,261
    )Other comprehensive (loss) income:Foreign currency translation adjustments, net of tax
    
    
    (374
    )
    
    
    679
    
    
    
    (825
    )
    
    
    1,586Unrealized (loss) gain on available for sale securities,
net of tax
    
    
    (138
    )
    
    
    27
    
    
    
    (205
    )
    
    
    36Change in fair value of derivative instruments, net of tax
    
    
    (585
    )
    
    
    667
    
    
    
    (626
    )
    
    
    1,110Comprehensive (loss) income
    
    $
    (3,007
    )
    
    $
    1,744
    
    
    $
    (8,416
    )
    
    $
    (529
    )
 8. SHARE-BASED COMPENSATION
      13




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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
    
    
    407,000
    
    
    
    9.02Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (359,208
    )
    
    
    11.91Outstanding as of September 30,
2008
    
    
    1,668,134
    
    
    $
    11.78
    
    
    
    8.24
    
    
    $
    Exercisable as of September 30,
2008
    
    
    577,457
    
    
    $
    15.64
    
    
    
    7.03
    
    
    $
    
   Three Months Ended September 30,
    
    Nine Months Ended September 30,2008
    
    2007
    
    2008
    
    2007Risk-free interest
rate
    
    3.19%
    
    3.90%  4.62%
    
    2.76%  3.60%
    
    3.90%  4.74%Dividend yield
    
    0%
    
    0%
    
    0%
    
    0%Expected volatility
    
    44.38%
    
    43.12%  43.45%
    
    43.81%  45.13%
    
    43.12%  50.47%Expected life in
years
    
    4.0
    
    4.0
    
    4.1
    
    4.4
   Restricted Shares
  Restricted Shares
    
    
    Grant Date Fair ValueNonvested balance as of January 1, 2008
    
    
    40,000
    
    
    $
    12.37Granted
    
    
    47,800
    
    
    
    9.01Vested
    
    
    (16,033
    )
    
    
    11.80Forfeited
    
    
    (5,000
    )
    
    
    9.01Nonvested balance as of September 30,
2008
    
    
    66,767
    
    
    $
    10.35
  14




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##### Table of Contents



Employee Stock Purchase Plan
  9. INCOME TAXES
   Nine Months Ended September 30,2008
    
    
    2007U.S. statutory tax rate
    
    
    35.0
    %
    
    
    35.0
    %Effect of state taxes (net of Federal benefit)
    
    
    2.3
    %
    
    
    2.8
    %Work opportunity credits
    
    
    7.2
    %
    
    
    20.0
    %Effect of change in Canadian tax rate
    
    
    (4.5
    %)
    
    
    0.0
    %Capital loss valuation allowance
    
    
    0.5
    %
    
    
    (43.8
    %)Other, net
    
    
    (2.9
    %)
    
    
    1.3
    %Total
    
    
    37.6
    %
    
    
    15.3
    %
 10. LITIGATION
   
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    15




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BUSINESS DESCRIPTION AND OVERVIEW
    SIGNIFICANT DEVELOPMENTS DURING THE THREE MONTHS ENDED SEPTEMBER 30, 2008
     16




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RESULTS OF OPERATIONS  THREE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
 Three Months
    
    
    
    
    
    
    Three Months
    
    
    
    
    
    
    % change Q3Ended September 30,
    
    
    % of
    
    
    Ended September 30,
    
    
    % of
    
    
    2007 to Q32008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    2008Revenue
    
    $
    69,056
    
    
    
    100.0
    %
    
    $
    63,169
    
    
    
    100.0
    %
    
    
    9.3
    %Cost of services
    
    
    60,761
    
    
    
    88.0
    %
    
    
    52,853
    
    
    
    83.7
    %
    
    
    15.0
    %Gross profit
    
    
    8,295
    
    
    
    12.0
    %
    
    
    10,316
    
    
    
    16.3
    %
    
    
    -19.6
    %Selling, general and administrative expenses
    
    
    10,205
    
    
    
    14.8
    %
    
    
    9,693
    
    
    
    15.3
    %
    
    
    5.3
    %Impairment losses and restructuring charges
    
    
    346
    
    
    
    0.5
    %
    
    
    1,032
    
    
    
    1.6
    %
    
    
    -66.5
    %Operating loss
    
    
    (2,256
    )
    
    
    -3.3
    %
    
    
    (409
    )
    
    
    -0.6
    %
    
    
    451.6
    %Net interest and other (expense) income
    
    
    (304
    )
    
    
    -0.4
    %
    
    
    232
    
    
    
    0.4
    %
    
    
    -231.0
    %Loss from continuing operations before
income taxes
    
    
    (2,560
    )
    
    
    -3.7
    %
    
    
    (177
    )
    
    
    -0.2
    %
    
    
    1346.3
    %Income tax benefit
    
    
    (1,111
    )
    
    
    -1.6
    %
    
    
    (548
    )
    
    
    -0.8
    %
    
    
    102.7
    %Net (loss) income from continuing operations
    
    
    (1,449
    )
    
    
    -2.1
    %
    
    
    371
    
    
    
    0.6
    %
    
    
    -490.6
    %Loss from discontinued operations, net of tax
    
    
    (461
    )
    
    
    -0.7
    %
    
    
    
    
    
    
    0.0
    %
    
    
    100.0
    %Net (loss) income
    
    $
    (1,910
    )
    
    
    -2.8
    %
    
    $
    371
    
    
    
    0.6
    %
    
    
    -614.8
    %
 Revenue
  Cost of Services and Gross Profit
  Selling, General and Administrative Expenses
  Impairment Losses and Restructuring Charges
   17




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##### Table of Contents



Operating Loss
  Net Interest and Other (Expense) Income
  Income Tax Benefit
  Loss from Discontinued Operations, net of tax
  Net (Loss) Income
  RESULTS OF OPERATIONS  NINE MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007
 % changeYTDNine Months
    
    
    
    
    
    
    Nine Months
    
    
    
    
    
    
    September 30,Ended September 30,
    
    
    % of
    
    
    Ended September 30,
    
    
    % of
    
    
    2007 to2008
    
    
    Revenue
    
    
    2007
    
    
    Revenue
    
    
    2008Revenue
    
    $
    199,420
    
    
    
    100.0
    %
    
    $
    179,648
    
    
    
    100.0
    %
    
    
    11.0
    %Cost of services
    
    
    173,128
    
    
    
    86.8
    %
    
    
    151,885
    
    
    
    84.5
    %
    
    
    14.0
    %Gross profit
    
    
    26,292
    
    
    
    13.2
    %
    
    
    27,763
    
    
    
    15.5
    %
    
    
    -5.3
    %Selling, general and administrative expenses
    
    
    30,522
    
    
    
    15.3
    %
    
    
    28,125
    
    
    
    15.7
    %
    
    
    8.5
    %Impairment losses and restructuring charges
    
    
    5,954
    
    
    
    3.0
    %
    
    
    4,050
    
    
    
    2.3
    %
    
    
    47.0
    %Operating loss
    
    
    (10,184
    )
    
    
    -5.1
    %
    
    
    (4,412
    )
    
    
    -2.5
    %
    
    
    130.8
    %Net interest and other income
    
    
    96
    
    
    
    0.0
    %
    
    
    563
    
    
    
    0.3
    %
    
    
    -82.9
    %Loss from continuing operations before
income taxes
    
    
    (10,088
    )
    
    
    -5.1
    %
    
    
    (3,849
    )
    
    
    -2.2
    %
    
    
    162.1
    %Income tax benefit
    
    
    (3,789
    )
    
    
    -1.9
    %
    
    
    (588
    )
    
    
    -0.4
    %
    
    
    544.4
    %Net loss from continuing operations
    
    
    (6,299
    )
    
    
    -3.2
    %
    
    
    (3,261
    )
    
    
    -1.8
    %
    
    
    93.2
    %Loss from discontinued operations, net of tax
    
    
    (461
    )
    
    
    -0.2
    %
    
    
    
    
    
    
    0.0
    %
    
    
    100.0
    %Net loss
    
    $
    (6,760
    )
    
    
    -3.4
    %
    
    $
    (3,261
    )
    
    
    -1.8
    %
    
    
    107.3
    %
  18




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##### Table of Contents



Revenue
  Cost of Services and Gross Profit
  Selling, General and Administrative Expenses
  Impairment Losses and Restructuring Charges
  Operating Loss
  Net Interest and Other Income
   19




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##### Table of Contents



Income Tax Benefit
  Loss from Discontinued Operations, net of tax
  Net Loss
  LIQUIDITY AND CAPITAL RESOURCES
  Nine Months Ended September 30,2008
    
    
    2007Net cash provided by (used in):Operating activities
    
    $
    18,848
    
    
    $
    8,271Investing activities
    
    
    (22,119
    )
    
    
    (20,967
    )Financing activities
    
    
    (2,983
    )
    
    
    (4,191
    )Effect of foreign
exchange rates on
cash
    
    
    (819
    )
    
    
    507Net decrease in cash and cash equivalents
    
    $
    (7,073
    )
    
    $
    (16,380
    )
   20




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##### Table of Contents



Operating Activities.
 Investing Activities.
 Financing Activities.
 Contractual Obligations.
 Less Than
    
    
    One to Three
    
    
    Three to Five
    
    
    More ThanOne Year
    
    
    Years
    
    
    Years
    
    
    Five Years
    
    
    TotalOperating leases (1)
    
    $
    6,703
    
    
    $
    12,739
    
    
    $
    7,560
    
    
    $
    7,578
    
    
    $
    34,580Capital leases (2)
    
    
    69
    
    
    
    155
    
    
    
    119
    
    
    
    
    
    
    
    343Purchase obligations (3)
    
    
    397
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    413Long-term debt(4)
    
    
    3,538
    
    
    
    4,404
    
    
    
    
    
    
    
    
    
    
    
    7,942Total contractual obligations
    
    $
    10,707
    
    
    $
    17,314
    
    
    $
    7,679
    
    
    $
    7,578
    
    
    $
    43,278
 (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 September 30, 2008 are described below.  21




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##### Table of Contents



Line of Credit
  Canadian Dollar Secured Equipment Loan
  Secured Promissory Note
  Other Factors Impacting Liquidity.
    22




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##### Table of Contents



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
     23




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
  Foreign Currency Exchange Risks
    
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
 Changes in internal controls over financial reporting.
  24




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##### Table of Contents



Part II. Other Information
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
  We face risks inherent in conducting business outside of North America.
   If we are unable to renew or replace sources of capital funding on satisfactory terms, potential growth and results of
operations may suffer. We currently have three debt facilities in place, with approximately $7.9 million in debt outstanding as of September
30, 2008. One of these facilities, a $10.0 million line of credit, is scheduled to expire in June 2009 (See footnote
(4) in Contractual Obligations section of Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations  Liquidity and Capital Resources ). If we are unable to renew this line of credit or are
unable to secure alternative sources of capital funding under satisfactory terms, we may be unable to meet short-term
cash needs required for operations or growth opportunities. Our client base is concentrated in the communications industry and our strategy partially depends on a trend of
communications companies continuing to outsource non-core services. If the communications industry suffers a downturn
or the trend toward outsourcing reverses, our business will suffer. Our current clients are almost exclusively communications companies, which include companies in the wire-line,
wireless, cable and broadband lines of business. Over 95% of our revenue in 2007 was concentrated in the
telecommunications industry. Our business and growth is largely dependent on continued demand for our services from
clients in this industry, and other industries that we may target in the future, and on trends in those industries to
purchase outsourced services. A general and continuing economic downturn in the telecommunications industry or in other
industries that we target, or a slowdown or reversal of the trend in these industries to outsource services we provide,
could adversely affect our business, results of operations, growth prospects, and financial condition. A general and
continuing economic downturn in other industries may result in excess capacity of contact center services in those
industries attracting clients in the telecommunications industry or in other industries that we target. If this
happens, it could adversely affect our business, results of operations, growth prospects, and financial condition. We may not collect on a $740 thousand note receivable due from the purchasers of our Supply Chain Management Services
platform. On December 16, 2005, we sold our Supply Chain Management Services platform. In connection with the transaction, we
accepted a 5-year unsecured $740 thousand note. The terms of the note call for the buyer to make quarterly interest
payments to us at a fixed rate of 7% per annum for the first two years of the note. Thereafter, the buyer must pay us
interest plus set principal amounts, in accordance with the terms of the note, with the entire balance due on or before
December 16, 2010. The buyer of the Supply Chain Management Services platform is a startup company that commenced
operations at the time of the purchase. Management actively monitors activity related to this note receivable and
regularly assesses the collectibility of the principal and interest payments due. The buyer has fallen behind in
interest payments, amounting to approximately $52 thousand, and management believes the buyer will miss the first
principal payment of $185 thousand due in December 2008 with the way the note is currently structured. As a result, a
reserve has been created for uncollectible amounts of this note receivable. We intend to work with the buyer to
restructure the note. However, given the uncertainty about our ability to collect on the note receivable, we recorded
a reserve for the entire principal balance, which was recorded as a loss from discontinued operations, and we also
wrote-off the past due interest payments during the three months ended September 30, 2008. 
 ITEM 6. EXHIBITS
 Index of Exhibits
  25




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##### Table of Contents



SIGNATURES
  STARTEK, INC.(REGISTRANT)By:
    
    /s/ A. LAURENCE JONES

A. Laurence Jones
    
    Date: October 31, 2008President and Chief Executive Officer(Principal Executive Officer)By:
    
    /s/ DAVID G. DURHAM

David G. Durham
    
    Date: October 31, 2008Executive Vice President, Chief Financial
Officer and Treasurer(Principal Financial and Accounting Officer)
  26




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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
    *
    
    Amended 2008 Sales Commission Plan.10.2
    
    
    Transition Agreement between StarTek, Inc. and
Mr. Michael Griffith effective September 30, 2008.
    
    8-K
    
    
    10.1
    
    
    9/30/200810.3
    &
    
    Amendment 20070105.006.S.007.A.001 effective July
14, 2008 between StarTek, Inc. and AT&T Crop.
    
    10-Q
    
    
    10.17
    
    
    8/11/200810.4
    &
    
    General Agreement Order 20070105.006.S.012 effective
July 10, 2008 by and between StarTek, Inc. and AT&T
Services, Inc.
    
    10-Q
    
    
    10.22
    
    
    8/11/200831.1
    *
    
    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