1
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, 1999.
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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 INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 Par Value-- 13,856,421 shares as of August 12, 1999.
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STARTEK, INC.
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION Number
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Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -
December 31, 1998 and June 30, 1999 3
Condensed Consolidated Statements of Operations Three months ended
June 30, 1998 and 1999;
Six months ended June 30, 1998 and 1999 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 14
PART II. OTHER INFORMATION
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Item 2. Changes in Securities and Use of Proceeds 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STARTEK, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(dollars in thousands)
DECEMBER 31 JUNE 30
1998 1999
----------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 19,593 $ 14,295
Investments 16,829 27,374
Trade accounts receivable, less allowance for
doubtful accounts of $441 and $622, respectively 20,476 13,378
Inventories 2,772 1,700
Deferred tax assets 1,135 1,649
Prepaid expenses and other 165 228
-------- --------
Total current assets 60,970 58,624
Property, plant and equipment, net 19,171 20,965
Other assets 60 78
-------- --------
Total assets $ 80,201 $ 79,667
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,433 $ 11,074
Accrued liabilities 2,092 3,702
Income taxes payable 1,944 628
Current portion of capital lease obligations 46 32
Current portion of long-term debt 906 935
Other 213 488
-------- --------
Total current liabilities 22,634 16,859
Capital lease obligations, less current portion 77 58
Long-term debt, less current portion 3,196 2,738
Deferred income taxes 144 545
Other 17 7
Stockholders' equity:
Common stock 138 138
Additional paid-in capital 41,661 41,848
Cumulative translation adjustment 167 22
Unrealized loss on investments available for sale (606) (238)
Retained earnings 12,773 17,690
-------- --------
Total stockholders' equity 54,133 59,460
-------- --------
Total liabilities and stockholders' equity $ 80,201 $ 79,667
======== ========
See notes to condensed consolidated financial statements.
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STARTEK, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
------------------------- -------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
Revenues $ 24,692 $ 45,723 $ 49,013 $ 86,573
Cost of services 20,008 37,216 39,765 70,380
----------- ----------- ----------- -----------
Gross profit 4,684 8,507 9,248 16,193
Selling, general and administrative
expenses 3,285 5,202 6,017 9,631
----------- ----------- ----------- -----------
Operating profit 1,399 3,305 3,231 6,562
Net interest income and other 702 668 1,244 1,270
----------- ----------- ----------- -----------
Income before income taxes 2,101 3,973 4,475 7,832
Income tax expense 763 1,483 1,625 2,915
----------- ----------- ----------- -----------
Net income $ 1,338 $ 2,490 $ 2,850 $ 4,917
=========== =========== =========== ===========
Basic and diluted net income per share $ 0.10 $ 0.18 $ 0.21 $ 0.36
Weighted average shares outstanding 13,828,571 13,832,246 13,828,571 13,830,419
See notes to condensed consolidated financial statements.
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STARTEK, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
SIX MONTHS ENDED
JUNE 30
--------------------
1998 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,850 $ 4,917
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,180 1,892
Deferred income taxes (346) (354)
(Gain) loss on sale of assets (135) 3
Changes in operating assets and liabilities:
Accounts receivable 2,728 7,098
Inventories 1,692 1,072
Prepaid expenses and other assets (377) (81)
Accounts payable (4,055) (6,359)
Income taxes payable (106) (1,316)
Accrued and other liabilities 481 1,875
-------- --------
Net cash provided by operating activities 3,912 8,747
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (7,478) (3,812)
Proceeds from disposition of property, plant and equipment 176 2
Purchases of investments available for sale (9,986) (13,399)
Proceeds from disposition of investments available for sale -- 5,821
Purchases of trading securities -- (14,401)
Proceeds from disposition of trading securities -- 12,251
-------- --------
Net cash used in investing activities (17,288) (13,538)
CASH FLOWS FROM FINANCING ACTIVITIES
Stock options exercised -- 187
Principal payments on borrowings -- (429)
Principal payments on capital lease obligations (51) (33)
-------- --------
Net cash used in financing activities (51) (275)
Effect of exchange rate changes on cash 13 (232)
-------- --------
Net decrease in cash and cash equivalents (13,414) (5,298)
Cash and cash equivalents at beginning of period 26,960 19,593
-------- --------
Cash and cash equivalents at end of period $ 13,546 $ 14,295
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 41 $ 141
Income taxes paid $ 1,800 $ 4,550
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Change in unrealized loss on investments available
for sale, net of tax $ (184) $ 368
See notes to condensed consolidated financial statements.
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STARTEK, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six months
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999, or for any other interim period
of 1999.
The balance sheet as of December 31, 1998 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 further information, refer to the
consolidated financial statements and footnotes thereto included in StarTek,
Inc.'s annual report on Form 10-K for the year ended December 31, 1998.
2. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, ("SFAS No. 133") "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS No. 133 requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allow a derivative's gains and losses to offset related
results on the hedged item in the statement of operations, and requires that a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting treatment. SFAS No. 133 is effective
for fiscal years beginning after June 15, 2000. The Company has not yet
quantified the impacts of adopting SFAS No. 133 on its consolidated financial
statements and has not determined the timing or method of adoption of SFAS No.
133.
3. EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, ("SFAS 128") "Earnings per Share", which
supersedes Accounting Principles Board Opinion No. 15. Under SFAS 128, basic
earnings per common share is computed by dividing net income by the weighted
average number of shares of common stock 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 periods
presented, the additional shares assuming dilution had no impact on basic
earnings per share because the average price per share of common stock was less
than the exercise price of the majority of stock options outstanding. The
dilutive effect of stock options with exercise prices less than the average
price per share of common stock during such periods did not change basic
earnings per share.
4. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income, which was effective in 1998 for the
Company. The statement establishes 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 $1,128 and $2,742 for the three months ended June 30, 1998 and 1999,
respectively. Comprehensive income was $2,679 and $5,140 for the six months
ended June 30, 1998 and 1999, respectively.
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5. INVESTMENTS
The following is a summary of investments available for sale as of
December 31, 1998:
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- ---------
Corporate bonds $ 8,987 $ 80 $ (239) $ 8,828
Foreign government bonds 2,915 150 (308) 2,757
Bond mutual funds 4,005 1 (132) 3,874
Other debt securities 286 -- (138) 148
Equity securities 1,598 -- (376) 1,222
------- ---- ------- -------
Total $17,791 $231 $(1,193) $16,829
======= ==== ======= =======
The following is a summary of investments available for sale as of June
30, 1999:
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- ---------
Corporate bonds $16,546 $100 $(224) $16,422
Foreign government bonds 4,416 146 (230) 4,332
Bond mutual funds 1,513 83 -- 1,596
Equity securities 2,495 49 (303) 2,241
------- ---- ----- -------
Total $24,970 $378 $(757) $24,591
======= ==== ===== =======
The amortized cost and estimated fair value of investments available
for sale as of June 30, 1999, by contractual maturity, are:
ESTIMATED
COST FAIR VALUE
------- ----------
Corporate bonds and foreign government bonds
maturing within:
One year $ 6,570 $ 6,577
Two to five years 9,707 9,690
Due after five years 4,685 4,487
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20,962 20,754
Bond mutual funds 1,513 1,596
Equity securities 2,495 2,241
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Total $24,970 $24,591
======= =======
Bond mutual funds are primarily invested in investment grade bonds of
U.S. and foreign issuers denominated in U.S. and foreign currencies, and
interests in floating or variable rate senior collateralized loans to
corporations, partnerships, and other entities in a variety of industries and
geographic regions. Equity securities consist of real estate investment trusts,
equity mutual funds, and publicly traded common stock of U.S. based companies.
Investments available for sale are reported at fair value, with the gross
unrealized gains and losses, net of tax reported in a separate component of
stockholders' equity.
As of June 30, 1999, the Company was also invested in trading
securities which, in the aggregate, had an original cost and fair market value
of approximately $2,665 and $2,783, respectively. Trading securities are
recorded on a trade date basis and are carried at fair market values. Fair
market values are determined by the most recently traded price of the security
as of the balance sheet date. Gross unrealized gains and losses are reflected in
income currently, and as part of interest income and other in the accompanying
unaudited consolidated statements of operations. During the three months ended
June 30, 1999, gross unrealized gains and losses were $202 and $84,
respectively. Trading securities consist primarily of publicly traded common
stock of U.S. based companies and international equity mutual funds, together
with certain hedging securities, and various forms of derivative securities.
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6. INVENTORIES
The Company frequently purchases components of its clients' products as
an integral part of its process management services. At the close of an
accounting period, packaged and assembled products (together with other
associated costs) are reflected as finished goods inventories pending shipment.
The Company generally has the right to be reimbursed from its clients for unused
inventories. Client-owned inventories are not reflected in the Company's balance
sheet. Inventories consist of:
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
Purchased components and fabricated
assemblies $2,313 $1,388
Finished goods 459 312
------ ------
$2,772 $1,700
====== ======
7. PRINCIPAL CLIENTS
Two clients accounted for approximately 61.6% and 17.2% of the
Company's revenues during the three months ended June 30, 1998, and two clients
accounted for approximately 61.8% and 19.1% of the Company's revenues during the
six months ended June 30, 1998. One client accounted for approximately 77.3% of
the Company's revenues during the three months ended June 30, 1999. One client
accounted for approximately 76.6% of the Company's revenues during the six
months ended June 30, 1999. The loss of a principal client could have a material
adverse effect on the Company's business, operating results, and financial
condition.
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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 (as
defined in the Private Securities Litigation Reform Act of 1995) that involve
substantial risks and uncertainties. Forward-looking statements are preceded by
terms such as "may", "will", "should", "anticipates", "expects", "believes",
"plans", "future", "estimate", "continue", and similar expressions. 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 the Company's principal client(s), the loss or
delayed implementation of a large project which could cause quarterly variation
in the Company's revenues and earnings, difficulties of managing rapid growth,
dependence on key personnel, dependence on key industries and the 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, the year 2000 issue, and highly competitive markets. These factors
include risks and uncertainties beyond the Company's ability to control; and, in
many cases, the Company and its management cannot predict the risks and
uncertainties that could cause actual results to differ materially from those
indicated by use of forward-looking statements. All forward-looking statements
herein are qualified in their entirety by the information set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"--"Factors That May Affect Future Results" section of StarTek, Inc.'s
annual report on Form 10-K for the year ended December 31, 1998.
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 SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
-------------- --------------
1998 1999 1998 1999
----- ----- ----- -----
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of services 81.0 81.4 81.1 81.3
----- ----- ----- -----
Gross profit 19.0 18.6 18.9 18.7
Selling, general and administrative
expenses 13.3 11.4 12.3 11.1
----- ----- ----- -----
Operating profit 5.7 7.2 6.6 7.6
Net interest income and other 2.8 1.5 2.5 1.5
----- ----- ----- -----
Income before income taxes 8.5 8.7 9.1 9.1
Income tax expense 3.1 3.2 3.3 3.4
----- ----- ----- -----
Net income 5.4% 5.5% 5.8% 5.7%
===== ===== ===== =====
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues. Revenues increased $21.0 million, or 85.2%, from $24.7
million during the three months ended June 30, 1998 to $45.7 million during the
three months ended June 30, 1999. This increase was primarily from existing and
new clients, partially offset by decreases in the volume of services provided to
other existing clients.
Cost of Services. Cost of services increased $17.2 million, or 86.0%,
from $20.0 million during the three months ended June 30, 1998 to $37.2 million
during the three months ended June 30, 1999. As a percentage of revenues, cost
of services was 81.0% and 81.4% during the three months ended June 30, 1998 and
1999, respectively. This percentage amount remained relatively consistent from
period to period.
Gross Profit. Due to the foregoing factors, gross profit increased $3.8
million, or 81.6%, from $4.7 million during the three months ended June 30, 1998
to $8.5 million during the three months ended June 30, 1999. As a percentage of
revenues, gross profit was 19.0% and 18.6% during the three months ended June
30, 1998 and 1999, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.9 million, or 58.4%, from $3.3 million
during the three months ended June 30, 1998 to $5.2 million during the three
months ended June 30, 1999, primarily as a result of increased personnel costs
and related expansion costs incurred to service increasing business. As a
percentage of revenues, selling, general and administrative expenses decreased
from 13.3% during the three months ended June 30, 1998 to 11.4% during the three
months ended June 30, 1999, reflecting a lesser relative increase in selling,
general and administrative expenses as compared to the increase in revenues.
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Operating Profit. As a result of the foregoing factors, operating
profit increased from $1.4 million during the three months ended June 30, 1998
to $3.3 million during the three months ended June 30, 1999. As a percentage of
revenues, operating profit increased from 5.7% during the three months ended
June 30, 1998 to 7.2% during the three months ended June 30, 1999.
Net Interest Income and Other. Net interest income and other was
approximately $0.7 million during the three months ended June 30, 1998 and 1999.
A substantial portion of net interest income and other continues to be derived
from cash equivalents and investment balances, partially offset by interest
expense incurred as a result of the Company's various debt arrangements.
Income Before Income Taxes. As a result of the foregoing factors,
income before income taxes increased $1.9 million, or 89.1%, from $2.1 million
during the three months ended June 30, 1998 to $4.0 million during the three
months ended June 30, 1999. As a percentage of revenues, income before income
taxes increased from 8.5% during the three months ended June 30, 1998 to 8.7%
during the three months ended June 30, 1999.
Income Tax Expense. Income tax expense during the three months ended
June 30, 1998 and 1999, reflects a provision for federal, state, and foreign
income taxes at an effective rate of 36.3% and 37.3%, respectively.
Net Income. Based on the factors discussed above, net income increased
$1.2 million, or 86.1%, from $1.3 million during the three months ended June 30,
1998 to $2.5 million during the three months ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues. Revenues increased $37.6 million, or 76.6%, from $49.0
million during the six months ended June 30, 1998 to $86.6 million during the
six months ended June 30, 1999. This increase was primarily from existing and
new clients, partially offset by decreases in the volume of services provided to
other existing clients.
Cost of Services. Cost of services increased $30.6 million, or 77.0%,
from $39.8 million during the six months ended June 30, 1998 to $70.4 million
during the six months ended June 30, 1999. As a percentage of revenues, cost of
services was 81.1% and 81.3% during the six months ended June 30, 1998 and 1999,
respectively. This percentage amount remained relatively consistent from period
to period.
Gross Profit. Due to the foregoing factors, gross profit increased $6.9
million, or 75.1%, from $9.3 million during the six months ended June 30, 1998
to $16.2 million during the six months ended June 30, 1999. As a percentage of
revenues, gross profit was 18.9% and 18.7% during the six months ended June 30,
1998 and 1999, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.6 million, or 60.1%, from $6.0 million
during the six months ended June 30, 1998 to $9.6 million during the six months
ended June 30, 1999, primarily as a result of increased personnel and related
expansion costs incurred to service increasing business. As a percentage of
revenues, selling, general and administrative expenses decreased from 12.3%
during the six months ended June 30, 1998 to 11.1% during the six months ended
June 30, 1999, reflecting a lesser relative increase in selling, general and
administrative expenses as compared to the increase in revenues.
Operating Profit. As a result of the foregoing factors, operating
profit increased from $3.2 million during the six months ended June 30, 1998 to
$6.6 million during the six months ended June 30, 1999. As a percentage of
revenues, operating profit increased from 6.6% during the six months ended June
30, 1998 to 7.6% during the six months ended June 30, 1999.
Net Interest Income and Other. Net interest income and other was $1.2
million during the six months ended June 30, 1998 and $1.3 million during the
six months ended June 30, 1999. A substantial portion of net interest income and
other continues to be derived from cash equivalents and investment balances,
partially offset by interest expense incurred as a result of the Company's
various debt arrangements.
Income Before Income Taxes. As a result of the foregoing factors,
income before income taxes increased $3.3 million, or 75.0%, from $4.5 million
during the six months ended June 30, 1998 to $7.8 million during the six months
ended June 30, 1999. As a percentage of revenues, income before income taxes was
9.1% during the six months ended June 30, 1998 and 1999.
Income Tax Expense. Income tax expense during the six months ended June
30, 1998 and 1999, reflects a provision for federal, state and foreign income
taxes at an effective rate of 36.3% and 37.2%, respectively.
Net Income. Based on the factors discussed above, net income increased
$2.0 million, or 72.5%, from $2.9 million during the six months ended June 30,
1998 to $4.9 million during the six months ended June 30, 1999.
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LIQUIDITY AND CAPITAL RESOURCES
In June 1997, the Company completed an initial public offering of its
common stock, which yielded net proceeds to the Company of approximately $41.0
million. The Company applied such proceeds to repay substantially all of its
then outstanding debt, and for working capital and other general corporate
purposes, including capital expenditures to expand its operating capacity. Since
fully applying the net proceeds it received from the June 1997 initial public
offering, the Company has primarily financed its operations, liquidity
requirements, capital expenditures, and capacity expansion through cash flows
from operations and, to a lesser degree, through various forms of debt financing
and leasing arrangements. The Company renewed its $5.0 million line of credit
with Norwest Bank Colorado, N.A. (the "Bank"), which, pursuant to the terms of
the renewed line of credit, matures on April 30, 2001. 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 $25.0 million. The Company may not pay dividends in an amount which
would cause a failure to meet these financial covenants. As of June 30, 1999 and
as of the date of this Form 10-Q, the Company was in compliance with these
financial covenants. Collateral for the line of credit is trade accounts
receivable of certain of the Company's wholly-owned subsidiaries. As of June 30,
1999 and as of the date of this Form 10-Q, no amount was outstanding under the
$5.0 million line of credit.
On February 16, 1999, the Company entered into a lease agreement for
building space in Grand Junction, Colorado, to be used for a call center,
general office use and other services offered by the Company (the "Grand
Junction Facility"). The revised term of the lease agreement commenced on May 1,
1999 and unless earlier terminated or extended, continues until April 30, 2009.
Pursuant to the terms of the lease agreement, the Company was granted, among
other things: (i) a right of first refusal to purchase the property, of which
the leased space is a part, during the revised lease term; and (ii) a right to
terminate the lease agreement anytime after the end of the fifth year, by giving
the landlord 180 day prior written notice to terminate. Assuming the lease
agreement is not terminated after the end of the fifth year, total minimum
rental commitments, in the aggregate, excluding certain taxes and utilities as
defined, are approximately $1.1 million and are payable on a monthly basis from
May 1999 through April 2009.
On July 16, 1999, the Company entered into a lease agreement for
building space in Hartlepool, England, to be used for the continuing operations
of StarTek Europe, Ltd. (a wholly-owned subsidiary of the Company). The term of
the lease agreement commenced on May 1, 1998 and unless earlier terminated,
extended, or otherwise revised, continues until April 30, 2013. If the Company
and the landlord do not complete a new lease agreement for additional premises,
as defined, the Company was granted the right to terminate the lease agreement
on May 1, 2003 by giving the landlord at least six months written notice to
terminate. Additionally, if a new lease agreement for additional premises, as
defined, is consummated, the Company was granted the right to terminate the
lease agreement on May 1, 2008 by giving the landlord at least six months
written notice to terminate. Pursuant to the terms of the lease agreement, the
Company was granted an option, which commences on May 1, 2008 and expires on
July 31, 2008, to purchase the leased property at market value as determined at
such time. The lease agreement provides for quarterly lease payments which, in
the aggregate for the periods described, are: 106,000 British Pounds from May 1,
1998 through April 30, 1999, all of which the Company has paid; 584,000 British
Pounds from May 1, 1999 through April 30, 2003, a portion of which the Company
has paid pursuant to the quarterly lease payment schedule provided for in the
lease agreement; and 1,095,000 British Pounds from May 1, 2003 through April 30,
2008. Quarterly lease payments from May 1, 2008 through April 30, 2013 are lease
payments as agreed to between the landlord and the Company, or by formula in the
absence of such an agreement.
As of June 30, 1999, the Company had cash, cash equivalents, and
investment balances of $41.7 million, working capital of $41.8 million and net
worth of $59.5 million. The Company's cash and cash equivalents are not
restricted. The Company's investments available for sale generally consist of
corporate bonds, foreign government bonds denominated in U.S. dollars, bond
mutual funds, real estate investment trusts, equity mutual funds, and publicly
traded common stock of U.S. based companies. As of June 30, 1999, the Company's
trading securities consist primarily of publicly traded common stock of U.S.
based companies and international equity mutual funds, together with certain
hedging securities, and various forms of derivative securities. The Company's
investments available for sale and trading securities could be materially and
adversely affected by: (i) various domestic and foreign economic conditions,
such as recessions, increasing interest rates, adverse foreign currency exchange
fluctuations, foreign and domestic inflation, and other factors; (ii) the
inability of certain corporations to repay their debts, including interest
amounts, to the Company; and (iii) changes in market prices of common stock,
international equity mutual funds, hedging securities, and other derivative
securities held by the Company due to the level of trading in such securities,
and other risks generally attributable to U.S. based publicly traded companies.
See "Quantitative and Qualitative Disclosure About Market Risk" set forth herein
for further discussions regarding the Company's cash, cash equivalents,
investments available for sale, and trading securities.
Net cash provided by operating activities increased from $3.9 million
during the six months ended June 30, 1998 to $8.8 million during the six months
ended June 30, 1999. This increase was primarily a result of increases in net
income, accrued and other liabilities, and decreases in accounts receivable and
inventories. The positive effects of the foregoing were partially offset by
decreases in accounts payable, income taxes payable, and deferred income taxes.
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Net cash used in investing activities was $17.3 million during the six
months ended June 30, 1998 and $13.5 million during the six months ended June
30, 1999. This decrease was primarily due to decreases in: (i) net purchases of
property, plant, and equipment; and (ii) net purchases of investments.
Net cash used in financing activities was $51,000 during the six months
ended June 30, 1998 and $0.3 million during the six months ended June 30, 1999.
This increase was primarily due to an increase in principal payments on
borrowings, partially offset by: (i) a decrease in principal payments on capital
lease obligations; and (ii) proceeds received from exercises of employee stock
options during the three months ended June 30, 1999.
The effect of currency exchange rate changes on the translation of the
Company's United Kingdom and Singapore operations was not substantial during the
six months ended June 30, 1998 and 1999. The terms of the Company's agreements
with its clients and its subcontracts are typically in U.S. dollars except for
certain of its agreements related to its United Kingdom and Singapore
operations. In the past, the Company's exposure to foreign currency exchange
risks has been minimal in connection with its day to day operations in the
United Kingdom and Singapore. However, as the international portion of the
Company's business grows, more revenues and expenses will be denominated in
foreign currencies, and this will increase the Company's exposure to
fluctuations in currency exchange rates. See "Quantitative and Qualitative
Disclosure About Market Risk" set forth herein for a further discussion of the
Company's exposure to foreign currency exchange risks in connection with certain
of its investments available for sale.
The Company believes its current cash, cash equivalents, and investment
balances, anticipated cash flows from future operations, and the $5.0 million of
currently available financing under its $5.0 million 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 Company's ability to retain or successfully
and timely replace its principal client(s) and 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.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company cannot accurately anticipate the effect of
domestic and foreign inflation on its operations, the Company does not believe
that inflation has had, or is likely in the foreseeable future to have, a
material adverse effect on its results of operations or financial condition.
RELIANCE ON PRINCIPAL CLIENT RELATIONSHIPS
A substantial portion of the Company's revenues is generated from its
principal client(s) and the loss of its principal client(s) 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 three months
ended June 30, 1998 were Microsoft Corporation ("Microsoft") and Hewlett-Packard
Company ("Hewlett-Packard"). The Company provides various outsourced services to
various divisions of Microsoft, which began its outsourcing relationship with
the Company in April 1996, and which accounted for approximately 61.6% of the
Company's revenues during the three months ended June 30, 1998. Hewlett-Packard
accounted for approximately 17.2% of the Company's revenues during the three
months ended June 30, 1998. The Company's largest client during the three months
ended June 30, 1999 was Microsoft. Microsoft accounted for approximately 77.3%
of the Company's revenues during the three months ended June 30, 1999. There can
be no assurance the Company will be able to retain its principal client(s) or,
if it were to lose its principal client(s), it would be able to timely replace
its principal client(s) with clients which generate a comparable amount of
revenues.
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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 substantially 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 season. However,
the Company's revenues and operating results for the first and second quarter of
1999 are not necessarily indicative of the results that may be expected for the
third and fourth quarter of 1999, or for the year ending December 31, 1999.
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; (v) the cyclical nature of certain high technology clients'
businesses; and (vi) changes in the Company's principal client base.
Revenues for the three months ended March 31, 1999 and June 30, 1999
were approximately $40.9 million and $45.7 million, respectively. Typically, the
Company's revenues have been lower in the first and second quarters due to the
seasonal nature of its principal clients' and other clients' businesses.
However, the Company's revenues for the first and second quarter of 1999 are not
necessarily indicative of the revenues that may be expected for the third and
fourth quarter of 1999, or for the year ending December 31, 1999.
Gross profit as a percent of revenues remained relatively consistent
for each of the three month periods ended March 31, 1999 and June 30, 1999.
Selling, general and administrative expenses increased from the three
months ended March 31, 1999 to the three months ended June 30, 1999 as a result
of increases in certain operating expenses associated with increases in
revenues, and increases in personnel and related expansion costs incurred to
service increasing business. As a percentage of revenues, selling, general and
administrative expenses remained relatively consistent for the three months
ended March 31, 1999 and June 30, 1999.
YEAR 2000 COMPLIANCE
The year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Some of
the Company's older computer programs and technologies fall into this category.
As a result, those programs have time-sensitive applications that recognize a
date using "00" as the year 1900 rather than the year 2000. This could cause
system failures or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in other normal business activities.
The Company formally created a year 2000 project team (the "Y2K Team")
during the first quarter of 1998. The Y2K Team reports directly to the Company's
executive committee and periodically provides the executive committee status
updates of its year 2000 compliance efforts. To date, the Y2K Team has, among
other things, completed its initial assessment of the Company's year 2000
compliance issues, identified non year 2000 compliant computer equipment and
software, communicated with applicable third party vendors of the Company in
order to gather information on year 2000 matters beyond the Company's internal
information technologies, scheduled and partially completed year 2000 testing of
the Company's applicable information systems, and has begun to develop the
Company's year 2000 contingency plan. The Company plans for the Y2K Team to test
its year 2000 contingency plan during the third quarter of 1999. The total cost
of the Company's year 2000 compliance efforts is estimated to be approximately
$100,000.
The Company anticipates that the Y2K Team will complete its year 2000
compliance efforts during the third quarter of 1999, which is prior to any
anticipated material adverse effect the year 2000 issue may have on the
Company's business, financial condition and results of operations. Additionally,
the Company uses certain of its clients' software applications in performing its
outsourced services. Such client-owned software used by the Company, if not year
2000 compliant, could cause significant interruptions and delays in the
Company's services, revenues, and cash receipts. Management is unaware of any
specific year 2000 issues related to client-owned software used in the Company's
day to day operations. Management believes, based on its current year 2000
compliance planning, the year 2000 issue will not pose material adverse problems
to the Company's business. However, if the Company's, its third party vendors',
subcontractors', and/or clients' year 2000 compliance efforts are not
successful, or not completed in a timely manner, the year 2000 issue could have
a material adverse effect on the operations of the Company.
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The anticipated cost and timing to complete the year 2000 compliance
efforts mentioned above are based on estimates which have been 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 completely identify and correct all relevant
information systems, the ability to coordinate successfully with its third party
vendors, subcontractors, and clients in order to attempt to insure year 2000
issues beyond the Company's internal information systems are also successfully
and timely addressed, and other uncertainties.
The Company's principal client(s)' and other clients' future revenues
may be adversely and materially impacted due to slowing demand for their
products and services caused by uncertainties surrounding the year 2000 issue.
Similarly, the effect the year 2000 issue may have on the Company's revenues and
gross profits is difficult to estimate but is a risk to be considered in
evaluating the future growth of the Company.
In a recent Securities and Exchange Commission release regarding year
2000 disclosure, the Securities and Exchange Commission stated that public
companies must disclose the most reasonable likely worst case year 2000
scenario. Although it is not possible to assess the likelihood of any of the
following events, each must be included in a consideration of worst case
scenarios: widespread failure of electrical and similar supplies serving the
Company; widespread disruption of services and functions provided by the
Company's telephone, software, and hardware systems; widespread disruption of
the services provided by common communications carriers and power grids serving
the Company's domestic and international operations; similar disruption to the
means and modes of transportation for the Company and its employees, suppliers,
and customers; significant disruption to the Company's ability to gain access
to, and remain working in, office buildings and other facilities; the failure of
the Company's customers' and its suppliers' critical computer hardware and
software systems; and the failure of outside entities' systems, including
systems related to banking and finance. These and other outages would cause
major challenges and would significantly impact the Company's ability to
generate revenues during the outage.
Although the Company expects its systems to be year 2000 compliant on
or before December 31, 1999, it cannot predict the outcome or success of its
efforts to become year 2000 compliant, or that third party systems are or will
be year 2000 compliant, or that the costs required to address the year 2000
issue, or that the impact of a failure to achieve substantial year 2000
compliance, will not have a material adverse effect on the Company's business,
financial condition, or results of operations. The Company is in the process of
developing contingency plans for certain of its systems and processes in order
to attempt to insure continued operations of such systems and processes. This
contingency planning consists of preparing to implement alternative work
processes in the event of possible system or process failures for certain of the
Company's operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discusses the Company's exposure to market risk related
to changes in interest rates and other general market risks, equity market
prices and other general market risks, and foreign currency exchange rates.
Historically, primarily all of the Company's investment decisions were directed
by its Chairman of the Board. On May 19, 1999, the Company's Board of Directors
approved the Company's current investment portfolio policy which provides for,
among other things, investment objectives, and investment portfolio allocation
guidelines. This discussion contains forward-looking statements that are subject
to risks and uncertainties. Actual results could vary materially as a result of
a number of factors, including but not limited to, changes in interest rates and
other general market risks, equity market prices and other general market risks,
foreign currency exchange rates, and those set forth in the "Management's
Discussion and Analysis of Financial Condition and Results of
Operations"--"Factors That May Affect Future Results" section of the Company's
annual report on Form 10-K for the year ended December 31, 1998.
Interest Rate Sensitivity and Other General Market Risks
Cash and Cash Equivalents. As of June 30, 1999, the Company had cash
and cash equivalents of approximately $14.3 million, none of which is
restricted, and which consisted of: (i) approximately $13.2 million invested in
various money market funds, overnight investments, and various commercial paper
securities at a combined weighted average interest rate of approximately 5.0%;
and (ii) approximately $1.1 million in various non-interest bearing accounts.
Management considers cash equivalents to be short-term, highly liquid
investments that are readily convertible to known amounts of cash, and so near
their maturity that they present insignificant risk of changes in value because
of changes in interest rates. The Company does not expect any material loss with
respect to its cash and cash equivalents as a result of interest rate changes,
and the estimated fair value of its cash and cash equivalents approximates
original cost.
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Investments Available for Sale. As of June 30, 1999, the Company had
investments available for sale of $24.6 million. These investments available for
sale generally consist of corporate bonds, foreign government bonds denominated
in U.S. dollars, bond mutual funds, real estate investment trusts, equity mutual
funds, and publicly traded common stock of U.S. based companies. Corporate
bonds, foreign government bonds denominated in U.S. dollars, and bond mutual
funds held in the Company's investment portfolio are subject to interest rate
risk and will fall in value if market interest rates increase.
The fair market value of, and the estimated cash flows from, the
Company's investments in corporate bonds are substantially dependent upon the
credit worthiness of certain corporations that are expected to repay their
debts, including interest, as they become due, to the Company. If such
corporations' financial condition and liquidity adversely changes, the Company's
investments in their debts can be expected to be materially and adversely
affected.
The Company's investments in foreign government bonds denominated in
U.S. dollars entail special risks of global investing, these include, but are
not limited to: (i) currency exchange fluctuations which could adversely affect
the ability of foreign governments to repay their debts in U.S. dollars; (ii)
foreign government regulations; and (iii) the potential for political and
economic instability. The fair market value of such investments in foreign
government bonds (denominated in U.S. dollars) can be expected to be more
volatile than that of U.S. government bonds. These risks are intensified for the
Company's investments in debt of foreign governments located in countries
generally considered to be emerging markets.
The table below provides information about maturity dates and
corresponding weighted average interest rates with regard to certain of the
Company's investments available for sale as of June 30, 1999.
WEIGHTED EXPECTED MATURITY DATE
AVERAGE --COST--
INTEREST RATES (DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------------ ----------
1 year 2 years 3 years 4 years 5 years Thereafter Total FAIR VALUE
------- ------- ------- ------- ------- ---------- ------- ----------
Corporate bonds 7.8% $ 4,590 -- -- -- -- -- $ 4,590 $ 4,586
Foreign government bonds 6.3% 1,980 -- -- -- -- -- 1,980 1,991
Corporate bonds 6.0% -- $ 4,289 -- -- -- -- 4,289 4,317
Corporate bonds 7.7% -- -- $ 3,819 -- -- -- 3,819 3,835
Corporate bonds 5.3% -- -- -- $ 781 -- -- 781 780
Corporate bonds 4.3% -- -- -- -- $ 818 -- 818 758
Corporate bonds 6.4% -- -- -- -- -- $ 2,249 2,249 2,146
Foreign government bonds 9.1% -- -- -- -- -- 2,436 2,436 2,341
------- ------- ------- ------- ------- ------- ------- -------
Total 7.0% $ 6,570 $ 4,289 $ 3,819 $ 781 $ 818 $ 4,685 $20,962 $20,754
======= ======= ======= ======= ======= ======= ======= =======
Management believes the Company currently has the ability to hold these
investments until maturity, and therefore, if held to maturity, the Company
would not expect the future proceeds from these investments to be affected, to
any significant degree, by the effect of a sudden change in market interest
rates. Declines in interest rates over time will, however, reduce the Company's
interest income derived from future investments.
As of June 30, 1999 and as part of its investments available for sale
portfolio, the Company also was invested in: (i) various bond mutual funds
which, in the aggregate, had an original cost and fair market value of
approximately $1.5 million and $1.6 million, respectively; and (ii) real estate
investment trusts, equity mutual funds, and publicly traded common stock of U.S.
based companies which, in the aggregate, had an original cost and fair market
value of approximately $2.5 million and $2.2 million, respectively.
Such bond mutual funds, as of June 30, 1999: (i) had a weighted average
yield of approximately 7.9%, and a weighted average maturity of approximately 3
years; (ii) are primarily invested in investment grade bonds of U.S. and foreign
issuers denominated in U.S. and foreign currencies, and interests in floating or
variable rate senior collateralized loans to corporations, partnerships, and
other entities in a variety of industries and geographic regions; (iii) include
certain foreign currency risk hedging instruments which are intended to reduce
fair market value fluctuations; (iv) are subject to interest rate risk and will
fall in value if market interest rates increase; and (v) are subject to the
quality of the underlying securities within the mutual funds. The Company's
investments in such bond mutual funds entail special risks of global investing,
including, but not limited to: (i) currency exchange fluctuations; (ii) foreign
government regulations; and (iii) the potential for political and economic
instability. The fair market value of the Company's investments in such bond
mutual funds can be expected to be more volatile than that of a U.S.-only fund.
These risks are intensified for certain investments in debt of foreign
governments (included in bond mutual funds) which are located in countries
generally considered to be emerging markets. Additionally, certain of the bond
mutual fund investments are also subject to the effect of leverage, which in a
declining market can be expected to result in a greater decrease in fair market
value than if such investments were not leveraged.
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Outstanding Debt of the Company. As of June 30, 1999, the Company had
outstanding debt of approximately $3.7 million, approximately $3.1 million of
which bears interest at an annual fixed rate of 7.0%. Since substantially all of
the interest on the Company's debt is fixed, management believes that a
hypothetical 10.0% decrease in interest rates would not have a material adverse
effect on the Company. Increases in interest rates could, however, increase
interest expense associated with future borrowings by the Company, if any. For
example, the Company may from time to time effect borrowings under its $5.0
million line of credit for general corporate purposes, including working capital
requirements, capital expenditures and other purposes related to expansion of
the Company's capacity. Borrowings under the $5.0 million line of credit bear
interest at the lender's prime rate. As of June 30, 1999, the Company had no
outstanding line of credit obligations. The Company has not hedged against
interest rate changes.
Equity Price Risk and Other General Market Risks
Investments Available for Sale. As of June 30, 1999, the Company held
in its investments available for sale portfolio, certain equity securities with
original costs and fair market values, in the aggregate, of $2.5 million and
$2.2 million, respectively. The Company's investments in equity securities
consist of real investment trusts, equity mutual funds, and publicly traded
common stock of U.S. based companies. A substantial decline in the value of
equity securities and equity prices in general could have a material adverse
effect on the Company's equity investments. Also, the price of common stock held
by the Company could be materially and adversely affected by poor management,
shrinking product demand, and other risks that may affect single companies, as
well as groups of companies. The Company has partially hedged against some
equity price changes.
Trading Securities. As of June 30, 1999, the Company was also invested
in trading securities which, in the aggregate, had an original cost and fair
market value of approximately $2.7 million and $2.8 million, respectively.
Trading securities, which consist primarily of publicly traded common stock of
U.S. based companies and international equity mutual funds, together with
certain hedging securities, and various forms of derivative securities are held
to meet short-term investment objectives. The Company enters into hedging and
derivative securities in an effort to maximize its return on investments in
trading securities while managing risk. As part of trading securities and as of
June 30, 1999, the Company was invested in derivative securities which consist
of: (i) written put options for a total of 41,000 shares of common stock of
certain U.S. based publicly traded companies with a weighted average exercise
price of approximately $20.18 per share, all of which had a contractual
expiration date of July 16, 1999; and (ii) written call options for a total of
41,000 shares of common stock of certain U.S. based publicly traded companies
with a weighted average exercise price of approximately $20.18 per share, all of
which had a contractual expiration date of July 16, 1999. Management believes
the risk of loss to the Company in the event of nonperformance by any party
under these agreements is not substantial. Because of the potential limited
liquidity of some of these instruments, the recorded values of these
transactions may be different than the values that might be realized if the
Company were to sell or close out the transactions. Management believes such
differences are not substantial to the Company's results of operations,
financial condition, or liquidity. A substantial decline and/or change in the
value of equity securities, equity prices in general, international equity
mutual funds, hedging securities, and derivative securities could have a
material adverse effect on the Company's trading securities. Also, the price of
common stock, hedging securities, and other derivative securities held by the
Company as trading securities could be materially and adversely affected by poor
management, shrinking product demand, and other risks that may affect single
companies, as well as groups of companies.
Foreign Currency Exchange Risk
Approximately 8.3% of the Company's revenues during the six months
ended June 30, 1999 were derived from arrangements whereby the Company received
payments from its clients in currencies other than U.S. dollars. The terms of
the Company's agreements with its clients and its subcontracts are typically in
U.S. dollars except for certain of its agreements related to its United Kingdom
and Singapore operations. If an arrangement provides for the Company to receive
payments in a foreign currency, the ultimate revenues realized from such an
arrangement may be less if the value of such foreign currency declines.
Similarly, if an arrangement provides for the Company to make payments in a
foreign currency, the ultimate cost of services and operating expenses for such
an arrangement may be more if the value of such foreign currency increases. For
example, a 10% change in the relative value of such foreign currency could cause
a related 10% change in the Company's previously expected revenues, cost of
services and operating expenses. In the past, the Company's exposure to currency
exchange risks has been minimal in connection with its day to day operations in
the United Kingdom and Singapore. However, as the international portion of the
Company's business grows, more revenues and expenses will be denominated in
foreign currencies, and this will increase the Company's exposure to
fluctuations in currency exchange rates. In the past, the Company has not hedged
against foreign currency exchange rate changes related to its day to day
operations in the United Kingdom and Singapore.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities
The Company did not issue or sell any unregistered securities
during the three months ended June 30, 1999, except as
follows:
(i) On May 19, 1999 the Company granted options to
purchase 55,600 shares of common stock, in the
aggregate, to 29 employees pursuant to the Company's
Stock Option Plan. These options vest at a rate of
20% per year beginning May 19, 2000, expire on May
19, 2009, and are exercisable at $18.50 per share,
which was the market value of the Company's common
stock on the date the options were granted.
(ii) On May 19, 1999, 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
Director Stock Option Plan. These options are
immediately and fully vested upon the date of grant,
expire on May 19, 2009, and are exercisable at $18.50
per share, which was the market value of the
Company's common stock on the date the options were
granted.
The stock option grants in Item 2. (c) above were made in
reliance upon exemptions from registration provided by
Section 4 (2) and 3 (b) of the Securities Act of 1933, as
amended, and the regulations promulgated thereunder.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 19, 1999, the Company held its 1999 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 WITHHELD
-------- ------------ --------
A. Emmet Stephenson, Jr. 11,785,164 (99.93%) 8,510 (00.07%)
--------------- ------------
Michael W. Morgan 11,785,164 (99.93%) 8,510 (00.07%)
--------------- ------------
Thomas O. Ryder 11,785,164 (99.93%) 8,510 (00.07%)
--------------- ------------
Ed Zschau 11,785,164 (99.93%) 8,510 (00.07%)
--------------- ------------
(c.1) Another matter voted upon at the Annual Meeting was a proposal
to amend the Company's Certificate of Incorporation to reduce
the number of shares of common stock that the Company has the
authority to issue, from 95,000,000 shares to 18,000,000
shares, and eliminate the authorization of preferred stock.
This proposal, which was approved, received the number and
percentage of votes as set forth below:
VOTES
For 11,784,924 (99.93%)
------------
Against 5,870 (00.05%)
------------
Abstain 2,880 (00.02%)
------------
(c.2) 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 1999. This
proposal, which was approved, received the number and
percentage of votes as set forth below:
VOTES
For 11,787,086 (99.94%)
------------
Against 3,738 (00.03%)
------------
Abstain 2,850 (00.03%)
------------
(d) Not applicable
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PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.18 Lease by and between StarTek Europe, Ltd., as Lessee,
and Spencer Holdings Plc., as Lessor, dated May 27,
1999.
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, 1999.
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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 16, 1999 /s/ MICHAEL W. MORGAN
----------------------- ----------------------------------------
Michael W. Morgan
President and Chief Executive Officer
Date: August 16, 1999 /s/ DENNIS M. SWENSON
----------------------- ----------------------------------------
Dennis M. Swenson
Executive Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.18 Lease by and between StarTek Europe, Ltd., as Lessee,
and Spencer Holdings Plc., as Lessor, dated May 27,
1999.
27.1 Financial Data Schedule.