1 UNITED STATES SECURITIES and EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q
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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 March 31, 2001. -------------- 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 ------- STARTEK, INC. -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 84-1370538 ------------------------------- ------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 100 GARFIELD STREET DENVER, COLORADO 80206 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (303) 361-6000 -------------------------------------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) -------------------------------------------------------------------------------- (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) Indicate by check mark 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 - 14,035,101 shares as of May 1, 2001. 2 STARTEK, INC. FORM 10-Q INDEX Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Condensed Consolidated Balance Sheets - December 31, 2000 and March 31, 2001 3 Condensed Consolidated Income Statements - Three months ended March 31, 2000 and 2001 4 Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2000 and 2001 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 12 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 15 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) STARTEK, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (dollars in thousands) DECEMBER 31 MARCH 31 2000 2001 ------------ ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 22,543 $ 16,295 Investments 32,413 37,962 Trade accounts receivable, less allowance for doubtful accounts of $672 and $659, respectively 20,399 13,756 Inventories 1,946 2,257 Deferred tax assets 1,902 2,073 Prepaid expenses and other assets 742 979 ------------ ------------ Total current assets 79,945 73,322 Property, plant and equipment, net 29,891 30,407 Investment in Gifts.com, Inc., at cost 2,606 2,606 Notes receivable from Gifts.com, Inc. 9,807 9,807 Other assets 34 34 ------------ ------------ Total assets $ 122,283 $ 116,176 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,375 $ 7,674 Accrued liabilities 5,962 5,997 Income taxes payable 3,108 1,961 Line of credit 4,000 -- Current portion of long-term debt 1,992 1,974 Other 362 331 ------------ ------------ Total current liabilities 23,799 17,937 Long-term debt, less current portion 5,505 4,839 Deferred income taxes 725 760 Other 290 143 Stockholders' equity: Common stock 140 140 Additional paid-in capital 47,095 47,121 Cumulative translation adjustment 8 (12) Unrealized loss on investments available for sale (495) (962) Retained earnings 45,216 46,210 ------------ ------------ Total stockholders' equity 91,964 92,497 ------------ ------------ Total liabilities and stockholders' equity $ 122,283 $ 116,176 ============ ============ See notes to condensed consolidated financial statements. 3 4 STARTEK, INC. AND SUBSIDIARIES Condensed Consolidated Income Statements (dollars in thousands, except per share data) (unaudited) THREE MONTHS ENDED MARCH 31 --------------------------- 2000 2001 ------------ ------------ Revenues $ 49,668 $ 32,432 Cost of services 38,457 23,682 ------------ ------------ Gross profit 11,211 8,750 Selling, general and administrative expenses 5,185 5,802 ------------ ------------ Operating profit 6,026 2,948 Net interest income and other 716 1,665 Non-recurring loss on impaired investment -- (3,040) ------------ ------------ Income before income taxes 6,742 1,573 Income tax expense 2,501 580 ------------ ------------ Net income(A) $ 4,241 $ 993 ============ ============ Weighted average shares of common stock(B) 13,989,184 14,034,015 Dilutive effect of stock options 302,922 30,793 ------------ ------------ Common stock and common stock equivalents(C) 14,292,106 14,064,808 ============ ============ Earnings per share: Basic (A/B) $ 0.30 $ 0.07 Diluted (A/C) $ 0.30 $ 0.07 See notes to condensed consolidated financial statements. 4 5 STARTEK, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (dollars in thousands) (unaudited) THREE MONTHS ENDED MARCH 31 ---------------------------- 2000 2001 ------------ ------------ OPERATING ACTIVITIES Net income $ 4,241 $ 993 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,132 1,454 Deferred income taxes 125 151 Changes in operating assets and liabilities: Purchases of trading securities, net (2,760) (1,047) Trade accounts receivable, net 2,618 6,643 Inventories (1,196) (311) Prepaid expenses and other assets 34 (237) Accounts payable (1,102) (701) Income taxes payable 1,583 (1,147) Accrued and other liabilities 1,131 (141) ------------ ------------ Net cash provided by operating activities 5,806 5,657 INVESTING ACTIVITIES Purchases of investments available for sale (9,878) (7,147) Proceeds from disposition of investments available for sale 5,629 1,903 Purchases of property, plant and equipment (1,019) (1,896) ------------ ------------ Net cash used in investing activities (5,268) (7,140) FINANCING ACTIVITIES Stock options exercised 289 26 Principal payments on borrowings, net (357) (4,685) Principal payments on capital lease obligations (9) -- ------------ ------------ Net cash used in financing activities (77) (4,659) Effect of exchange rate changes on cash 85 (106) ------------ ------------ Net increase (decrease) in cash and cash equivalents 546 (6,248) Cash and cash equivalents at beginning of period 11,943 22,543 ------------ ------------ Cash and cash equivalents at end of period $ 12,489 $ 16,295 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 86 $ 95 Income taxes paid $ 746 $ 1,531 (Increase) in unrealized loss on investments available for sale, net of tax $ (138) $ (467) See notes to condensed consolidated financial statements. 5 6 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 accounting principles generally accepted in the United States of America for interim financial information and instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In management's opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results during the three months ended March 31, 2001 are not necessarily indicative of operating results that may be expected during any other interim period of 2001. The condensed consolidated balance sheet as of December 31, 2000 was derived from audited financial statements, but does not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, refer to consolidated financial statements and footnotes thereto included in StarTek, Inc.'s annual report on Form 10-K for the year ended December 31, 2000. 2. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board 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 derivative instruments (including certain derivative instruments embedded in other contracts) to be recorded as either assets or liabilities measured at fair value. SFAS No. 133 requires changes in a derivative's fair value to be recognized currently in income 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 income statement, and requires a company to formally document, designate, and assess effectiveness of transactions receiving hedge accounting treatment. SFAS No. 133 was effective for the Company on January 1, 2001. The adoption of SFAS No. 133 had