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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.
Commission File Number 1-12793
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STARTEK, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1370538
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
111 HAVANA STREET
DENVER, COLORADO 80010
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(303) 361-6000
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Common Stock Outstanding at August 14, 1998
Common Stock, par value $.01 per share 13,828,571
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STARTEK, INC.
FORM 10-Q
INDEX
Page
Number
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets - December 31, 1997
and June 30, 1998 3
Condensed Consolidated Statements of Operations - Three months ended
June 30, 1997 and 1998; Six months ended June 30, 1997 and 1998 4
Condensed Consolidated Statements of Cash Flow - Six months ended
June 30, 1997 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STARTEK, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands)
ASSETS
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
(UNAUDITED)
Current assets:
Cash and cash equivalents .................................... $ 26,960 $ 13,546
Investments available for sale ............................... 7,356 17,158
Trade accounts receivable, less
allowance for doubtful accounts of
$383 and $415, respectively ............................... 12,518 9,790
Inventories .................................................. 2,539 847
Deferred tax asset ........................................... 440 450
Prepaid income taxes ......................................... -- 380
Prepaid expenses and other ................................... 205 577
------------ ------------
Total current assets .............................................. 50,018 42,748
Property, plant and equipment, net ................................ 8,151 14,408
Other assets ...................................................... 3 8
------------ ------------
Total assets ...................................................... $ 58,172 $ 57,164
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 9,387 $ 5,332
Accrued liabilities .......................................... 1,292 1,915
Income taxes payable ......................................... 106 --
Current portion of capital lease obligations ................. 82 60
Current portion of long-term debt ............................ 26 56
Other ........................................................ 421 298
------------ ------------
Total current liabilities ......................................... 11,314 7,661
Capital lease obligations, less current portion ................... 121 92
Long-term debt, less current portion .............................. 435 405
Deferred income tax ............................................... 231 275
Other ............................................................. 65 46
Stockholders' equity:
Common stock ................................................. 138 138
Additional paid-in capital ................................... 41,661 41,661
Cumulative translation adjustment ............................ 70 83
Unrealized loss on investments ............................... (92) (276)
Retained earnings ............................................ 4,229 7,079
------------ ------------
Total stockholders' equity ........................................ 46,006 48,685
------------ ------------
Total liabilities and stockholders' equity ........................ $ 58,172 $ 57,164
============ ============
See accompanying notes.
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STARTEK, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
Revenues ................................... $ 16,067 $ 24,692 $ 32,733 $ 49,013
Cost of services ........................... 12,541 20,008 25,273 39,765
----------- ----------- ----------- -----------
Gross profit ............................... 3,526 4,684 7,460 9,248
Selling, general and adminIstrative
expenses .............................. 1,952 3,285 4,115 6,017
Management fee expense ..................... 2,333 -- 3,126 --
----------- ----------- ----------- -----------
Operating profit (loss) .................... (759) 1,399 219 3,231
Net interest income (expense) and other .... (98) 702 (183) 1,244
----------- ----------- ----------- -----------
Income (loss) before income taxes .......... (857) 2,101 36 4,475
Income tax expense (credit) ................ (216) 763 (216) 1,625
----------- ----------- ----------- -----------
Net income (loss) .......................... $ (641) $ 1,338 $ 252 $ 2,850
=========== =========== =========== ===========
Basic and diluted net income per share ..... $ 0.10 $ 0.21
Weighted average shares outstanding ........ 13,828,571 13,828,571
See accompanying notes
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STARTEK, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
SIX MONTHS ENDED JUNE 30,
--------------------------
1997 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................. $ 252 $ 2,850
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................... 907 1,180
Gain on sale of assets .................................. -- (135)
Changes in operating assets and liabilities:
Accounts receivable .................................. 3,625 2,728
Inventories .......................................... 889 1,692
Prepaid expenses and other assets .................... (103) (377)
Prepaid income taxes ................................. -- (380)
Deferred taxes ....................................... (299) 34
Accounts payable ..................................... (2,482) (4,055)
Accrued and other liabilities ........................ (358) 481
Income taxes payable ................................. 192 (106)
---------- ----------
Net cash provided by operating activities .................. 2,623 3,912
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment, net ............ (693) (7,478)
Proceeds from sale of property, plant and equipment ........ -- 176
Collections on notes receivable-stockholders ............... 213 --
Purchases of investments ................................... (25,125) (9,986)
---------- ----------
Net cash used in investing activities ...................... (25,605) (17,288)
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on line of credit borrowings .................. (3,500) --
Net principal payments on borrowings ....................... (354) --
Principal payments on capital lease obligations ............ (2,130) (51)
Dividend to S corporation stockholders ..................... (8,000) --
Net proceeds from initial public offering of common stock .. 41,042 --
Contributed capital ........................................ 1,641 --
---------- ----------
Net cash provided by financing activities .................. 28,699 (51)
Effect of exchange rate changes on cash .................... (36) 13
---------- ----------
Net increase (decrease) in cash and cash equivalents ....... 5,681 (13,414)
Cash and cash equivalents at beginning of period ........... 2,742 26,960
---------- ----------
Cash and cash equivalents at end of period ................. $ 8,423 $ 13,546
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ..................................... $ 339 $ 41
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Unrealized losses, net of deferred taxes ................... $ -- $ 184
Common stock split effected by stock dividend .............. $ 107 $ --
See accompanying notes.
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STARTEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. The condensed consolidated financial statements
reflect all adjustments (consisting of only normal recurring accruals) which, in
the opinion of management, are necessary for a fair presentation. Operating
results for the three and six month period ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
The balance sheet at December 31, 1997, has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. For additional information, refer to
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1997.
2. NEW ACCOUNTING STANDARDS
In the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, Earnings Per Share (FAS 128), which
supersedes Accounting Principles Board Opinion No. 15. Under FAS 128, basic
earnings per common share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock. For the three and
six months ended June 30, 1998, the additional shares assuming dilution has no
impact on earnings per share because the average price per share of common stock
during the period was less than the exercise price of outstanding options.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income, which is effective in 1998 for the
Company. The Statement establishes new rules for the reporting and display of
comprehensive income. Comprehensive income is defined essentially as all changes
in stockholders' equity, exclusive of transactions with owners. Comprehensive
income was a loss of $639 and income of $1,128 for the three months ended June
30, 1997 and 1998, respectively. Comprehensive income was income of $203 and
$2,679 for the six months ended June 30, 1997 and 1998, respectively.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, Disclosures About Segments of an Enterprise and Related Information,
which is effective for 1998 for the Company. The Statement changes the way
companies report segment information in annual financial statements by requiring
the "management approach" for reporting financial and descriptive information
about operating segments. The Statement does not provide for application in 1998
interim financial statements, but comparative information for interim periods of
the initial year of application is to be reported for interim periods in the
second year of application.
3. INITIAL PUBLIC OFFERING OF COMMON STOCK
On June 24, 1997 the Company closed an initial public offering of its
common stock. The Company sold 3,000,000 shares of common stock at an offering
price of $15.00 per share. Total proceeds after deducting $3,958 in costs
associated with the offering were $41,042. Immediately prior to the closing of
the offering the Company completed a 322.1064-for-one common stock split
effected by a stock dividend. All common stock amounts, equivalent share amounts
and per share amounts included in the accompanying financial statements and
related notes have been adjusted to give effect to the stock dividend.
Effective immediately prior to the closing of the initial public
offering, the Company declared an $8,000 dividend in an amount approximately
equal to the estimated additional paid-in capital and retained earnings of the
Company as of the closing date of the initial public offering, pursuant to
certain promissory notes. Such notes were paid on June 30, 1997 from the net
proceeds of the initial public offering.
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STARTEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except share data)
(unaudited)
4. INVESTMENTS AVAILABLE FOR SALE
The following is a summary of available-for-sale investments at
December 31, 1997:
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
Corporate bonds ........................ $ 2,205 $ 5 $ (45) $ 2,165
Other debt securities .................. 5,299 -- (108) 5,191
----------- ----------- ----------- -----------
Total .................................. $ 7,504 $ 5 $ (153) $ 7,356
=========== =========== =========== ===========
The following is a summary of available-for-sale investments at June 30, 1998:
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
Corporate bonds ...................... $ 7,097 $ 35 $ (91) $ 7,041
Other debt securities ................. 8,113 -- (352) 7,761
Equity securities ..................... 2,381 38 (63) 2,356
----------- ----------- ----------- -----------
Total .................................. $ 17,591 $ 73 $ (506) $ 17,158
=========== =========== =========== ===========
The amortized cost and estimated fair value of available-for-sale
investments at June 30, 1998, by contractual maturity, are shown below:
ESTIMATED
COST FAIR VALUE
------------ ------------
Debt securities maturing within:
One year ....................................... $ 1,702 $ 1,712
Two to five years .............................. 2,147 2,145
Due after five years ........................... 6,163 5,894
------------ ------------
10,012 9,751
Other debt securities ............................ 5,198 5,051
Equity securities ................................ 2,381 2,356
------------ ------------
Total ............................................ $ 17,591 $ 17,158
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STARTEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
(unaudited)
5. INVENTORIES
Total inventories consisted of the following:
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
Raw materials ............................... $ 2,171 $ 718
Finished goods .............................. 368 129
----------------- -------------
$ 2,539 $ 847
================= =============
6. COMMON STOCK
A summary of the Company's stock option activity is as follows:
SIX MONTHS
ENDED
JUNE 30, 1998
---------------
Outstanding at beginning of period ...................... 611,500
Granted ................................................. 20,500
Forfeitures ............................................. (5,500)
-------
Outstanding at end of period ............................ 626,500
=======
Exercisable at end of period ............................ 141,600
=======
The exercise price for options as of June 30, 1998 was $15.00 per
share, except for 8,000 options exercisable at $13.06 per share, 14,500 options
exercisable at $12.25 per share and 6,000 options exercisable at $12.69 per
share.
There were 13,878,571 shares outstanding for the six months ended June
30, 1998.
7. MANAGEMENT FEE EXPENSE
Historically, certain S corporation stockholders and an affiliate have
been paid certain management fees, bonuses and other fees in connection with
services rendered to the Company which have not been included in selling,
general and administrative expenses, in addition to general compensation for
services rendered. Such management fees are reflected as management fee expenses
as set forth below. Effective with the closing of the Company's initial public
offering in June 1997, these management fees, bonuses and other fees were
discontinued.
After the closing of the initial public offering, all compensation
payable to persons who had been S corporation stockholders of the Company (or an
affiliate of such stockholder) is in the form of advisory fees, salaries and
bonuses (which at current rates will aggregate approximately $516 annually) and
are included in selling, general and administrative expenses. Such advisory fees
and salaries are reflected as selling, general and administrative expense as set
forth below.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
Selling, general and administrative
expense ........................... $ 129 $ 129 $ 258 $ 258
Management fee expense ................. 2,333 -- 3,126 --
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STARTEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
(unaudited)
8. INCOME TAXES
The Company was taxed as an S corporation for federal and state income
tax purposes from July 1, 1992 through June 17, 1997, when S corporation status
was terminated in contemplation of the Company's initial public offering.
Accordingly, the income and expenses of the Company were reportable on tax
returns of the stockholders. Income taxes for the three and six months periods
ended June 30, 1998 reflect a provision for federal, state and foreign income
taxes at an effective rate of 36.3%. The Company is subject to foreign income
taxes on certain of its operations.
9. SIGNIFICANT CLIENTS
Two clients accounted for approximately 62% and 19% of revenues for the
six months ended June 30, 1998. Two clients accounted for approximately 47% and
34% of revenues for the six months ended June 30, 1997. The loss of one or more
of its significant clients could have a material adverse effect on the Company's
business, operating results and financial condition.
10. SUBSEQUENT EVENT
On July 8, 1998, the Company, through its wholly-owned subsidiary
StarTek USA, Inc., entered into certain financing agreements with the Industrial
Development Board of the County of Montgomery, Tennessee, (the "Board") in
connection with the Board's issuance to StarTek USA, Inc. of an Industrial
Development Revenue Note, Series A not to exceed $4,500 (the "Facility Note")
and an Industrial Development Revenue Note, Series B not to exceed $3,500 (the
"Equipment Loan"). The Facility Note bears interest at 9% per annum commencing
on September 1, 1998, which is payable quarterly and matures on July 8, 2008.
Concurrently, the Company advanced $3,575 in exchange for the Facility Note and
correspondingly entered into a lease agreement, maturing July 8, 2008, with the
Board for the use and acquisition of a 305,000 square foot process management
and distribution facility in Clarksville, Tennessee (the "Facility Lease"). The
Facility Lease provides for the Company to pay to the Board lease payments
sufficient to pay, when and as due, the principal of and interest on the
Facility Note due to the Company from the Board. Pursuant to the provisions of
the Facility Lease and upon the Company's payment of the Facility Lease in full,
the Company shall have the option to purchase the 305,000 square foot,
Clarksville, Tennessee facility for a lump sum payment of one hundred dollars.
The Equipment Loan generally contains the same provisions as the Facility Note
and provides for an equipment lease, except the Equipment Loan and lease mature
on January 1, 2004.
As of the date of this Form 10-Q, the Company has not advanced monies
to activate the Equipment Loan and lease. Although the Company is not obligated
to do so, the Company expects to activate the Equipment Loan and lease in the
third quarter of 1998. When the Equipment Loan and lease are activated, the
Board will acquire equipment for lease to the Company on terms similar to the
Facility Lease but maturing January 1, 2004.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
All statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" or elsewhere in this Form 10-Q
that are not statements of historical facts are forward-looking statements that
involve substantial risks and uncertainties. Forward-looking statements include
(i) the anticipated level of capital expenditures, (ii) the Company's belief
that existing cash, available for sale investments and available borrowings will
be sufficient to finance the Company's operations; and (iii) statements relating
to the Company or its operations that are preceded by terms such as "may",
"will", "should", "anticipates", "expects", "believes", "plans", "future",
"estimate", or "continue", and similar expressions.
In accordance with the Private Securities Litigation Reform Act of
1995, the following are important factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements; these include, but are not limited to, general economic conditions
in the Company's markets, the loss of one or more of its significant clients,
the loss or delayed implementation of a large project which could cause
quarterly variations in the Company's revenues and earnings, difficulties of
managing rapid growth, dependence on key personnel, dependence on key industries
and trend toward outsourcing, risks associated with the Company's contracts,
risks associated with rapidly changing technology, risks of business
interruption, risks associated with international operations and expansion,
dependence on labor force, and highly competitive markets. All forward-looking
statements herein are qualified in their entirety by the information set forth
in the "Risk Factors" portion of the Company's Prospectus dated June 18, 1997.
RESULTS OF OPERATIONS
The following table sets forth certain unaudited pro forma condensed
consolidated statement of operations data for the three and six month period
ended June 30, 1997 (dollars in thousands, except share data):
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1997
------------- --------------
Revenues ....................................................................... $ 16,067 $ 32,733
Cost of services ............................................................... 12,541 25,273
------------ ------------
Gross profit ................................................................... 3,526 7,460
SG&A expenses .................................................................. 1,952 4,115
Management fee expense ......................................................... -- --
------------ ------------
Operating profit ............................................................... 1,574 3,345
Net interest expense and other ................................................. (98) (183)
------------ ------------
Income before income taxes ..................................................... 1,476 3,162
Income tax expense ............................................................. 551 1,179
------------ ------------
Net income ..................................................................... $ 925 $ 1,983
============ ============
Pro forma net income per share ................................................. $ 0.08 $ 0.17
Weighted average shares outstanding ............................................ 11,551,647 11,457,300
Computation of weighted shares outstanding:
Shares outstanding after giving effect to 322.1064-for-one
stock split effected by a stock dividend .................................... 10,828,571 10,828,571
Shares deemed outstanding prior to closing of June 1997
initial public offering, representing the number of shares
(at an initial public offering price of $15.00 per share) sufficient to
fund payment of $8,000 note payable to principal
stockholders ................................................................ 492,307 512,707
3 million shares issued in connection with initial public offering completed
June 24, 1998, for days outstanding in the respective
periods ..................................................................... 230,769 116,022
------------ ------------
Weighted average shares outstanding ......................................... 11,551,647 11,457,300
============ ============
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This pro forma condensed consolidated statement of operations data
presents the effect on historical consolidated financial statements of the
elimination of management fee expense paid to stockholders and their affiliates,
as these fees were discontinued upon the completion of the Company's initial
public offering, and the provision for related income taxes at an effective rate
of 37.3% as if the Company were taxed as a C corporation.
The following table sets forth, for the periods indicated, certain
unaudited condensed consolidated statement of operations data expressed as a
percentage of revenues:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------- -------------------------------------
PRO FORMA PRO FORMA
1997 1997 1998 1997 1997 1998
--------- --------- --------- --------- --------- ---------
Revenues .................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services ............................ 78.1 78.1 81.0 77.2 77.2 81.1
--------- --------- --------- --------- --------- ---------
Gross profit ................................ 21.9 21.9 19.0 22.8 22.8 18.9
SG&A expenses ............................... 12.1 12.1 13.3 12.6 12.6 12.3
Management fee expense ...................... 14.5 -- -- 9.5 -- --
--------- --------- --------- --------- --------- ---------
Operating profit (loss) ..................... (4.7) 9.8 5.7 0.7 10.2 6.6
Net interest income (expense) and other ..... (0.6) (0.6) 2.8 (0.6) (0.6) 2.5
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes ........... (5.3) 9.2 8.5 0.1 9.6 9.1
Income tax expense (credit) ................. (1.3) 3.4 3.1 (0.7) 3.6 3.3
--------- --------- --------- --------- --------- ---------
Net income (loss) ........................... (4.0%) 5.8% 5.4% 0.8% 6.0% 5.8%
========= ========= ========= ========= ========= =========
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues. Revenues increased $8.6 million, or 53.7%, to $24.7 million
for the three months ended June 30, 1998 from $16.1 million for the three months
ended June 30, 1997. This increase was primarily from existing clients and one
new client.
Cost of Services. Cost of services increased $7.5 million, or 59.5%, to
$20.0 million for the three months ended June 30, 1998 from $12.5 million for
the three months ended June 30, 1997. As a percentage of revenues, costs of
services increased from 78.1% for the three months ended June 30, 1997 as
compared to 81.0% for the three months ended June 30, 1998. Factors pertaining
to this percentage increase were primarily higher overall costs of certain
business at lower relative margins, mix of services performed and training and
start-up expenses related to the new Greeley, Colorado and Laramie, Wyoming call
centers, both of which became operational in the second quarter of 1998.
Gross Profit. As a result of the foregoing factors, gross profit
increased $1.2 million, or 32.8%, to $4.7 million for the three months ended
June 30, 1998 from $3.5 million for the three months ended June 30, 1997. As a
percentage of revenues, gross profit decreased to 19.0% for the three months
ended June 30, 1998 from 21.9% for the three months ended June 30, 1997.
Selling, General and Administrative Expenses. SG&A expenses increased
$1.3 million, or 68.3%, to $3.3 million for the three months ended June 30, 1998
from $2.0 million for the three months ended June 30, 1997, primarily as a
result of increased personnel costs incurred to service increasing business and
costs associated with capacity expansion. As a percentage of revenues, SG&A
expenses increased to 13.3% for the three months ended June 30, 1998 from 12.1%
for the three months ended June 30, 1997.
Management Fee Expense. Management fee expense was $2.3 million during
the three months ended June 30, 1997 and zero for the three months ended June
30, 1998. Effective with the closing of the Company's initial public offering in
June 1997, management fees were discontinued.
Operating Profit (Loss). As a result of the foregoing factors,
operating profit increased to $1.4 million for the three months ended June 30,
1998 from an operating loss of $0.8 million for the three months ended June 30,
1997. As a percentage of revenues, operating profit increased to 5.7% for the
three months ended June 30, 1998 from a negative 4.7% for the three months ended
June 30, 1997.
Net Interest Income (Expense) and Other. Net interest income (expense)
and other was $0.7 million income for the three months ended June 30, 1998,
while it was $0.1 million expense for the three months ended June 30, 1997.
There was an $0.6 million increase in net interest earnings in the three months
ended June 30, 1998 which was primarily due to interest earnings from the
retained net proceeds of the Company's initial public offering in June 1997
whereas there were line-of-credit and significantly more capital lease
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borrowings in the three months ended June 30, 1997. Included in net interest
income (expense) and other is $0.1 million from gain on sale of assets in the
three months ended June 30, 1998.
Income (Loss) Before Income Taxes. As a result of the foregoing
factors, income before income taxes increased $3.0 million, or 345.2%, to $2.1
million for the three months ended June 30, 1998 from a loss of $0.9 million for
the three months ended June 30, 1997. As a percentage of revenues, income before
income taxes increased to 8.5% for the three months ended June 30, 1998 from a
negative 5.3% for the three months ended June 30, 1997.
Income Tax Expense (Credit). The Company was taxed as an S corporation
for federal and state income tax purposes from July 1, 1992 through June 17,
1997, when S corporation status was terminated in contemplation of the Company's
initial public offering. Accordingly, the Company was not subject to federal or
state income taxes through June 17, 1997. The $0.2 million income tax credit for
the three months ended June 30, 1997 is composed of a one-time credit to record
a net deferred tax asset of $0.3 million upon the termination of S corporation
status, less income tax expense on earnings during the June 1997 period when the
Company was taxed as a C corporation as adjusted for a foreign tax credit item.
Income taxes for the three months ended June 30, 1998 reflect a provision for
federal, state and foreign income taxes at an effective rate of 36.3%.
Net Income (Loss). Based on the factors discussed above, net income
increased $1.9 million, or 308.7%, from a net loss of $0.6 million for the three
months ended June 30, 1997 compared to net income of $1.3 million for the three
months ended June 30, 1998. As a percentage of revenues, net income increased to
5.4% for the three months ended June 30, 1998 from a negative 4.0% for the three
months ended June 30, 1997.
Pro Forma Management Fee Expense; Pro Forma Operating Profit; Pro Forma
Income Before Income Taxes; Pro Forma Income Taxes and Pro Forma Net Income for
the three months ended June 30, 1997 compared to actual results for the three
months ended June 30, 1998. No pro forma presentation was applicable to the
three months ended June 30, 1998. Pro forma amounts for the three months ended
June 30, 1997 reflect the elimination of management fees and bonuses to
stockholders and their affiliates as these fees and bonuses were discontinued
upon the closing of the Company's initial public offering, and provide for
related income taxes at 37.3% of pre-tax income as if the Company were taxed as
a C corporation. As a result of the foregoing factors: (i) management fee
expense is zero for the three months ended June 30, 1998 and pro forma
management fee expense is zero for the three months ended June 30, 1997; (ii)
proforma operating profit was $1.6 million for the three months ended June 30,
1997 compared to $1.4 million of actual operating profit for the three months
ended June 30, 1998, while such operating profit represented 9.8% and 5.7% of
revenues, respectively; (iii) income before income taxes increased $0.6 million,
or 42.3%, to $2.1 million for the three months ended June 30, 1998 from $1.5
million pro forma income before income taxes for the three months ended June 30,
1997; (iv) income taxes increased $0.2 million, or 38.5%, to $0.8 million for
the three months ended June 30, 1998 from $0.6 million pro forma income tax
expense for the three months ended June 30, 1997; and (v) net income increased
$0.4 million, or 44.7%, to $1.3 million for the three months ended June 30, 1998
from $0.9 million pro forma net income for the three months ended June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998.
Revenues. Revenues increased $16.3 million, or 49.7%, to $49.0 million
for the six months ended June 30, 1998 from $32.7 million for the six months
ended June 30, 1997. This increase was primarily from existing clients and one
new client.
Cost of Services. Cost of services increased $14.5 million, or 57.3%,
to $39.8 million for the six months ended June 30, 1998 from $25.3 million for
the six months ended June 30, 1997. As a percentage of revenues, costs of
services increased to 81.1% for the six months ended June 30, 1998 from 77.2%
for the six months ended June 30, 1997. Factors pertaining to this percentage
increase were primarily higher overall costs of certain business at lower
relative margins, mix of services performed and training and start-up expenses
related to the new Greeley, Colorado and Laramie, Wyoming call centers, both of
which became operational in the second quarter of 1998.
Gross Profit. As a result of the foregoing factors, gross profit
increased $1.8 million, or 24.0%, to $9.3 million for the six months ended June
30, 1998 from $7.5 million for the six months ended June 30, 1997. As a
percentage of revenues, gross profit decreased to 18.9% for the six months ended
June 30, 1998 from 22.8% for the six months ended June 30, 1997.
Selling, General and Administrative Expenses. SG&A expenses increased
$1.9 million, or 46.2%, to $6.0 million for the six months ended June 30, 1998
from $4.1 million for the six months ended June 30, 1997, primarily as a result
of increased personnel costs incurred to service increasing business and costs
associated with capacity expansion. As a percentage of revenues, SG&A expenses
decreased to 12.3% for the six months ended June 30, 1998 from 12.6% for the six
months ended June 30, 1997.
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Management Fee Expense. Management fee expense was $3.1 million during
the six months ended June 30, 1997 and zero for the six months ended June 30,
1998. Effective with the closing of the Company's initial public offering in
June 1997, management fees were discontinued.
Operating Profit. As a result of the foregoing factors, operating
profit increased to $3.2 million for the six months ended June 30, 1998 from
$0.2 million for the six months ended June 30, 1997. As a percentage of
revenues, operating profit increased to 6.6% for the six months ended June 30,
1998 from 0.7% for the six months ended June 30, 1997.
Net Interest Income (Expense) and Other. Net interest income (expense)
and other was $1.2 million income for the six months ended June 30, 1998, while
it was $0.2 million expense for the six months ended June 30, 1997. The increase
in net interest earnings in the six months ended June 30, 1998 was primarily due
to interest earnings from the retained net proceeds of the Company's initial
public offering in June 1997 whereas there were line-of-credit and significantly
more capital lease borrowings in the six months ended June 30, 1997. Included in
net interest income (expense) and other is $0.1 million from gain on sale of
assets in the six months ended June 30, 1998.
Income Before Income Taxes. As a result of the foregoing factors,
income before income taxes increased $4.4 million for the six months ended June
30, 1998 from approximately zero for the six months ended June 30, 1997. As a
percentage of revenues, income before income taxes increased to 9.1% for the six
months ended June 30, 1998 from approximately 0.1% for the six months ended June
30, 1997.
Income Tax Expense (Credit). The Company was taxed as an S corporation
for federal and state income tax purposes from July 1, 1992 through June 17,
1997, when S corporation status was terminated in contemplation of the Company's
initial public offering. Accordingly, the Company was not subject to federal or
state income taxes through June 17, 1997. The $0.2 million income tax credit for
the six months ended June 30, 1997 is composed of a one-time credit to record a
net deferred tax asset of $0.3 million upon the termination of S corporation
status, less income tax expense on earnings during the June 1997 period when the
Company was taxed as a C corporation as adjusted for a foreign tax credit item.
Income taxes for the six months ended June 30, 1998 reflect a provision for
federal, state and foreign income taxes at an effective rate of 36.3%.
Net Income. Based on the factors discussed above, net income increased
$2.6 million to $2.9 million for the six months ended June 30, 1998 from $0.3
million for the three months ended June 30, 1997. As a percentage of revenues,
net income increased to 5.8% for the six months ended June 30, 1998 from 0.8%
for the six months ended June 30, 1997.
Pro Forma Management Fee Expense; Pro Forma Operating Profit; Pro Forma
Income Before Income Taxes; Pro Forma Income Taxes and Pro Forma Net Income for
the six months ended June 30, 1997 compared to actual results for the six months
ended June 30, 1998. No pro forma presentation was applicable to the six months
ended June 30, 1998. Pro forma amounts for the six months ended June 30, 1997
reflect the elimination of management fees and bonuses to stockholders and their
affiliates as these fees and bonuses were discontinued upon the closing of the
Company's initial public offering, and provide for related income taxes at 37.3%
of pre-tax income as if the Company were taxed as a C corporation. As a result
of the foregoing factors: (i) management fee expense is zero for the six months
ended June 30, 1998 and pro forma management fee expense is zero for the six
months ended June 30, 1997; (ii) proforma operating profit was $3.4 million for
the six months ended June 30, 1997 compared to $3.2 million of actual operating
profit for the six months ended June 30, 1998 while such operating profit
represented 10.2% and 6.6% of revenues, respectively; (iii) income before income
taxes increased $1.3 million, or 41.5%, to $4.5 million for the six months ended
June 30, 1998 from $3.2 million pro forma income before income taxes for the six
months ended June 30, 1997; (iv) income taxes increased $0.4 million, or 37.8%,
to $1.6 million for the six months ended June 30, 1998 from $1.2 million pro
forma income tax expense for the six months ended June 30, 1997; and (v) net
income increased $0.9 million, or 43.7%, to $2.9 million for the six months
ended June 30, 1998 from $2.0 million pro forma net income for the six months
ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering in June 1997, the Company funded
its operations and capital expenditures primarily through cash flow from
operations, borrowings under various lines of credit, capital lease
arrangements, short-term borrowings from its stockholders and their affiliates,
and additional capital contributions by its stockholders. In November 1997, the
Company replaced its previous $3.5 million line of credit with Norwest Business
Credit, Inc. with a $5.0 million revolving line of credit with Norwest Bank (the
"Bank"), which matures on April 30, 1999. Borrowings under the line of credit
bear interest at the Bank's prime rate. Under this line of credit, the Company
is required to maintain working capital of $17.5 million and tangible net worth
of $25 million.
13
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The Company may not pay dividends in an amount which would cause a failure to
meet these financial covenants. Collateral for the line of credit is the
accounts receivable of the Company and subsidiaries.
The Company closed an initial public offering of common stock on June
24, 1997. The net proceeds, after deducting underwriting discounts and
commissions and offering expenses, were approximately $41.0 million. From the
net proceeds, the Company repaid substantially all of its outstanding
indebtedness, which included approximately $5.0 million of bank and mortgage
indebtedness, $1.8 million of capital lease obligations and $8.0 million of
notes payable to principal stockholders arising from an S corporation dividend
in an amount approximating the additional paid-in capital and retained earnings
of the Company as of the closing date. The balance of the net proceeds
(approximately $26.2 million) is for working capital and other general corporate
purposes, including approximately $8.0 million for capital expenditures to
expand into new facilities and build-out its existing facilities, and to
potentially make strategic acquisitions of complementary businesses.
During the six months ended June 1998, the Company acquired land and
completed substantially all of the construction of a new 35,000 square foot call
center facility in Greeley, Colorado (the "Greeley Facility"). The Company
purchased the Greeley Facility in order to expand its call center capacity. The
estimated cost of the Greeley Facility and equipment is approximately $3.5
million (excluding land). The Company financed the land for the Greeley Facility
through a $0.3 million non-interest bearing ten year promissory note. The ten
year promissory note shall decline on an equal basis, without payment, over ten
years so long as the Company does not sell or transfer the land or fail to
continuously operate a customer service center thereon. The Greeley Facility
became operational during the three months ended June 30, 1998.
The Company has purchased a total of approximately $1.7 million in
equipment, leasehold improvements and other fixed assets in order to operate a
22,000 square foot call center facility in Laramie, Wyoming (the "Laramie
Facility"). The Laramie Facility also became operational during the three months
ended June 30, 1998.
During June 1998, the Company selected a software solution to enable
multi-national customer support and product order fulfillment operations (the
"Fulfillment Software"). The Company expects the Fulfillment Software will
provide an integrated customer support and product order fulfillment solution
which will provide its clients' customers with immediate assistance for a wide
variety of requests and other value-added capabilities. The Company has expended
approximately $0.9 million for the purchase of the Fulfillment Software, other
related applications, training, consulting and support services.
On July 8, 1998, the Company, through its wholly-owned subsidiary
StarTek USA, Inc., entered into certain financing agreements with the Industrial
Development Board of the County of Montgomery, Tennessee, (the "Board") in
connection with the Board's issuance to StarTek USA, Inc. of an Industrial
Development Revenue Note, Series A not to exceed $4.5 million (the "Facility
Note") and an Industrial Development Revenue Note, Series B not to exceed $3.5
million (the "Equipment Loan"). The Facility Note bears interest at 9% per annum
commencing on September 1, 1998, which is payable quarterly and matures on July
8, 2008. Concurrently, the Company advanced approximately $3.6 million in
exchange for the Facility Note and correspondingly entered into a lease
agreement, maturing July 8, 2008, with the Board for the use and acquisition of
a 305,000 square foot process management and distribution facility in
Clarksville, Tennessee (the "Facility Lease"). The Facility Lease provides for
the Company to pay to the Board lease payments sufficient to pay, when and as
due, the principal of and interest on the Facility Note due to the Company from
the Board. Pursuant to the provisions of the Facility Lease and upon the
Company's payment of the Facility Lease in full, the Company shall have the
option to purchase the 305,000 square foot, Clarksville, Tennessee facility for
a lump sum payment of one hundred dollars. The Equipment Loan generally contains
the same provisions as the Facility Note and provides for an equipment lease,
except the Equipment Loan and lease mature on January 1, 2004.
As of the date of this Form 10-Q, the Company has not advanced monies
to activate the Equipment Loan and lease. Although the Company is not obligated
to do so, the Company expects to activate the Equipment Loan and lease in the
third quarter of 1998. When the Equipment Loan and lease are activated, the
Board will acquire equipment for lease to the Company on terms similar to the
Facility Lease but maturing January 1, 2004.
As of June 30, 1998, the Company had cash, cash equivalents and
investments available for sale of $30.7 million, working capital of $35.1
million and net worth of $48.7 million. As of June 30, 1998, the Company held in
its investments available for sale portfolio corporate bonds, other debt
securities and various equity securities. Such investments held by the Company
could be materially and adversely effected by various economic conditions, such
as recessions, increasing interest rates, adverse foreign currency exchange
fluctuations, foreign and domestic inflation and other factors.
14
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Net cash provided by operating activities increased to $3.9 million
during the six months ended June 30, 1998 from $2.6 million for the same period
in the prior year. This was primarily the result of (i) an increase in net
income and (ii) a reduction in inventories, partially off-set by relatively
smaller decreases in accounts receivable and reductions in accounts payable.
Net cash used in investing activities was $25.6 million and $17.3
million for the six months ended June 30, 1997 and 1998, respectively. This
reduction was principally due to a reduced level of investment purchases ($15.1
million) partially off-set by increased purchases of property, plant and
equipment ($6.8 million).
Net cash used in financing activities during the six months ended June
30, 1998 consisted entirely of principal payments for capital lease obligations.
Net cash provided by financing activities during the same period in 1997 was
primarily the result of net proceeds received from the June 1997 Offering
together with contributed capital from certain S corporation stockholders prior
to the June 1997 Offering, partially off-set by repayments of various debt
obligations.
The effect of currency exchange rate changes on the translation of the
Company's United Kingdom operations was not significant during the six months
ended June 30, 1997 and 1998. The terms of the Company's agreements with its
clients and its foreign subcontracts are typically in US dollars except for
certain of its agreements related to its United Kingdom operations. Therefore,
management currently believes the Company's exposure to currency exchange risks
is minimal.
The Company believes its current cash and investments available for
sale balances, anticipated cash flows from future operations and available
financing under its line of credit, will be sufficient to support its
operations, capital expenditures and various repayment obligations under its
debt and lease agreements for the foreseeable future. However, liquidity and
capital requirements depend on many factors including, but not limited to, the
rate at which the Company expands its business, whether internally or through
acquisitions and strategic alliances. To the extent the funds generated from the
sources described above are insufficient to fund the Company's activities in the
short or long term, the Company will be required to raise additional funds
through public or private financing. No assurance can be given that additional
financing will be available or that, if available, it will be available on terms
favorable to the Company.
RELIANCE ON PRINCIPAL CLIENT RELATIONSHIPS
A substantial portion of the Company's revenue is generated from
relatively few clients and the loss of a significant client or clients could
have a material adverse effect on the Company's business, results of operations
and financial condition. The Company's two largest clients during the six months
ended June 30, 1998 were Microsoft Corporation ("Microsoft") and Hewlett-Packard
Company ("Hewlett Packard"). Microsoft, which began its outsourcing relationship
with StarTek in April 1996, accounted for approximately 62% of the Company's
total revenues during the six months ended June 30, 1998. The Company provides
various outsourced services to various divisions of Hewlett Packard, each of
which the Company considers to be separate clients since each division acts
through a relatively autonomous decision maker. Hewlett Packard's various
divisions accounted for approximately 19% of the Company's total revenues during
the six months ended June 30, 1998. Hewlett Packard began its outsourcing
relationship with the Company in 1987. There can be no assurance that the
Company will be able to retain its significant clients or that, if it were to
lose one or more of its significant clients, it would be able replace such
clients with clients that generate a comparable amount of revenues.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's business is highly seasonal and is, at times, conducted
in support of product launches for new and existing clients. Historically, the
Company's revenues have been significantly lower in the first and second
quarters due to the timing of its clients' marketing programs and product
launches, which are typically geared toward the holiday buying seasons.
Additionally, the Company has experienced, and expects to continue to
experience, quarterly variations in operating results as a result of a variety
of factors, many of which are outside the Company's control, including: (i) the
timing of existing and future client product launches; (ii) the expiration or
termination of existing client projects; (iii) the timing and amount of costs
incurred to expand capacity in order to provide for further revenue growth from
current and future clients; (iv) the seasonal nature of certain clients'
businesses; and (v) the cyclical nature of certain high technology clients'
businesses.
Revenues for the three months ended March 31, 1998 were approximately
$24.3 million and revenues for the three months ended June 30, 1998 were
approximately $24.7 million. Typically, the Company's revenues have been lower
in the first and second quarters due to the seasonal nature of various clients'
businesses.
Gross profit as a percent of revenues remained relatively constant for
both the first and second quarter of 1998.
15
16
The increase in selling, general and administrative expenses from the
first quarter of 1998 compared to the second quarter of 1998 was primarily a
result of increased personnel costs incurred to service increasing business and
costs associated with capacity expansion.
YEAR 2000 COMPLIANCE
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Some of the
Company's older computer programs fall into this category. As a result, those
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment and will have to modify or
replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 project cost is currently estimated at approximately $0.1 million.
The project is estimated to be completed not later than December 31,
1998, which is prior to any anticipated negative affect on its operating
systems. The Company believes, with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made, or are not completed in a timely manner, the Year
2000 Issue could have a material adverse impact on the operations of the
Company.
The anticipated cost and timing to complete the Year 2000 modifications
are based on management's best estimates, which were derived using numerous
assumptions of future events, including the continued availability of certain
resources and other factors. However, there can be no assurance that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes and
similar uncertainties.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company cannot accurately anticipate the effect of
inflation on its operations, the Company does not believe that inflation has
had, or is likely in the foreseeable future to have, a material effect on its
results of operations or financial condition.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) Sales of Unregistered Securities
The Company did not issue or sell any unregistered securities
during the quarter ended June 30, 1998, except as follows:
(i) In April 1998, the Company granted options to purchase 14,500
shares of common stock, in aggregate, to three employees
pursuant to the Company's 1997 Stock Option Plan. These
options vest at a rate of 20% per year beginning in April
1999, expire in April 2008 and are exercisable at $12.25 per
share.
(ii) In May 1998, the Company also granted an option to purchase
3,000 shares of common stock to each of two non-employee
directors pursuant to the Company's 1997 Director Stock Option
Plan. These options are immediately and fully vested upon the
date of grant, expire in May 2008 and are exercisable at
$12.69 per share.
The stock option grants in Item 2.(c) above were made in reliance upon
the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended.
(d) Use of proceeds
The Company filed a Registration Statement (Commission file no.
333-20633) for the public offering of 3,666,667 shares of common
stock with the Securities and Exchange Commission, which became
effective June 19, 1997. The managing underwriters were Donaldson,
Lufkin & Jenrette Securities Corporation and Morgan Stanley Dean
Witter.
The shares were sold for $15.00 per share for an aggregate amount
of $55,000,005. Of the shares sold, 3,000,000 shares ($45,000,000
aggregate amount) were sold by the Company and 666,667 shares
($10,000,005 aggregate amount) were sold by five selling
stockholders, each of whom owned in excess of ten percent of the
outstanding shares prior to the offering. Offering and distribution
costs associated with the offering amounted to approximately
$4,000,000. The Company received net proceeds of approximately
$41,000,000 in connection with the offering.
As of June 30, 1998, the Company has applied the net proceeds from
the offering as follows (in thousands):
Repayment of indebtedness:
Bank and mortgage indebtedness ....................... $ 4,932
Capital lease obligations ............................ 1,767
Notes payable to S corporation stockholders .......... 8,000
----------
14,699
Capital expenditures .................................... 8,000
Working capital ......................................... 18,343
----------
$ 41,042
==========
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PART II. OTHER INFORMATION (CONTINUE)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 20, 1998, the Company held its 1998 annual meeting of
shareholders (the "Annual Meeting").
(b) One matter voted on at the Annual Meeting was the election of
all four directors of the Company. The four nominees, who were
all existing directors of the Company, were re-elected at the
Annual Meeting as directors of the Company, receiving the
number and percentage of votes for election as set forth
below:
NOMINEES FOR ELECTION AGAINST ELECTION ABSTENTIONS
- ------------------------ ------------ ---------------- -----------
A. Emmet Stephenson, Jr. 12,246,187 (99.96%) -- (--%) 5,471 (00.04%)
---------- ---------------- -----
Michael W. Morgan 12,246,187 (99.96%) -- (--%) 5,471 (00.04%)
---------- ---------------- -----
Thomas O. Ryder 12,246,187 (99.96%) -- (--%) 5,471 (00.04%)
---------- ---------------- -----
Ed Zschau 12,246,187 (99.96%) -- (--%) 5,471 (00.04%)
---------- ---------------- -----
(c) The only other matter voted upon at the Annual Meeting was a
proposal to ratify and approve the selection of Ernst & Young
LLP as the Company's independent auditors for 1998. This
proposal, which was approved, received the number and
percentage of votes as set forth below:
VOTES PERCENTAGE
------------ ------------
For 12,223,400 99.77%
------------ ------------
Against 27,258 00.22%
------------ ------------
Abstain 1,000 00.01%
------------ ------------
(d) Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.14 Facility lease agreement dated as of July 8,
1998 between StarTek USA, Inc. (a wholly owned
subsidiary of the Company) and the Industrial
Development Board of the County of Montgomery,
Tennessee and Industrial Development Revenue
Note, Series A dated as of July 8, 1998 and
issued by the Industrial Development Board of
the County of Montgomery, Tennessee
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
three months ended June 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
STARTEK, INC.
-----------------------------------
(Registrant)
Date: August 14, 1998 /s/ MICHAEL W. MORGAN
--------------------------- -----------------------------------
Michael W. Morgan
President and Chief Executive Officer
Date: August 14, 1998 /s/ DENNIS M. SWENSON
--------------------------- ------------------------------------
Dennis M. Swenson
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
20
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.14 Facility lease agreement dated as of July 8, 1998 between
StarTek USA, Inc. (a wholly owned subsidiary of the Company)
and the Industrial Development Board of the County of
Montgomery, Tennessee and Industrial Development Revenue Note,
Series A dated as of July 8, 1998 and issued by the Industrial
Development Board of the County of Montgomery, Tennessee
27.1 Financial Data Schedule