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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission File Number 1-12793

STARTEK, INC.
(Exact name of Registrant as specified in its charter)

        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 ý    No o

        Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý    No o

        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—14,291,761 shares as of November 11, 2003.

STARTEK, INC.
FORM 10-Q

INDEX

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

STARTEK, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(dollars in thousands)

See notes to condensed consolidated financial statements.

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STARTEK, INC. AND SUBSIDIARIES

Condensed Consolidated Income Statements
(dollars in thousands, except per share data)
(unaudited)

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)

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 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 and nine months ended September 30, 2003 are not necessarily indicative of operating results that may be expected during any other interim period of 2003.

        The condensed consolidated balance sheet as of December 31, 2002 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, 2002.

Stock Option Plans

        The Company's stock options plans are accounted for under the intrinsic value recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. Because the exercise price of all options granted under these plans was equal to the market price of the underlying stock on the grant date, no stock-based employee compensation cost is recognized in net income. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", to employee stock benefits.

        For purposes of this pro forma disclosure, the estimated fair value of the options is assumed to be amortized to expense over the options' vesting periods.

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New Accounting Pronouncements

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated asset retirement costs. The Company adopted SFAS No. 143 on January 1, 2003. The adoption of this statement did not result in any material impact.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which provides guidance related to accounting for costs associated with disposal activities covered by SFAS No. 144 or with exit or restructuring activities previously covered by Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 supercedes EITF Issue No. 94-3 in its entirety. SFAS No. 146 requires that costs related to exiting an activity or to a restructuring not be recognized until the liability is incurred. SFAS No. 146 will be applied to exit or disposal activities initiated after December 31, 2002.

        In December 2002, the FASB issued SFAS No. 148, which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The transition requirements of SFAS No. 148 are effective for the Company's fiscal year 2003. SFAS No. 123, "Accounting and Disclosure of Stock-Based Compensation," establishes an alternative method of expense recognition for stock-based compensation awards to employees based on estimated fair values. The Company elected not to adopt SFAS 123 for expense recognition purposes. It is expected FASB may require fair value accounting for stock options in the future, potentially beginning in 2005. However, the methodology to establish fair value for this purpose has not yet been determined. The Company does not anticipate that such a change would have a cash impact.

2.     Earnings Per Share

        Basic earnings per share is computed based on weighted average number of common shares outstanding. Diluted earnings per share is computed based on weighted average number of common shares outstanding plus effects of outstanding stock options using the "treasury stock" method.

3.     Investments

        As of December 31, 2002, investments available for sale consisted of:

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        As of September 30, 2003, investments available for sale consisted of:

        As of September 30, 2003, amortized costs and estimated fair values of investments available for sale by contractual maturity were:

        Equity securities primarily consisted of publicly traded common stock of U.S.-based companies, equity mutual funds, and real estate investment trusts.

        As of December 31, 2002, the Company was invested in trading securities, which, in the aggregate, had an original cost and fair market value of $6,214 and $7,394, respectively. As of September 30, 2003, the Company was invested in trading securities, which, in the aggregate, had an original cost and fair market value of $4,002 and $5,437, respectively. Trading securities consisted primarily of U.S. and international mutual funds and investments in limited partnerships. Certain investments include hedging and derivative securities. Trading securities were held to meet short-term investment objectives. As part of trading securities and as of September 30, 2003, the Company had sold call options for a total of 96,000 shares of U.S. equity securities which, in the aggregate, had a basis and fair market value of $13 and $8, respectively, and sold put options for a total of 119,000 shares of U.S. equity securities which, in the aggregate, had a basis and fair market value of $63 and $92, respectively. The foregoing call and put options were reported net as components of trading securities and expire between October 18, 2003 and November 22, 2003.

        Risk of loss to the Company regarding its current investments in the event of nonperformance by any party is not considered substantial. The foregoing call and put options may involve elements of credit and market risks in excess of the amounts recognized in the Company's financial statements. A substantial decline and/or change in value of equity securities, equity prices in general, international equity mutual funds, investment limited partnerships, and/or call and put options could have a material adverse effect on the Company's portfolio of trading securities. Also, trading securities could be materially and adversely affected by increasing interest and/or inflation rates or market expectations thereon, poor management, shrinking product demand, and other risks that may affect single companies, or groups of companies, as well as adverse economic conditions generally.

4.     Inventories

        The Company purchases components of its clients' products as an integral part of its supply chain management services. At the close of an accounting period, packaged and assembled products (together

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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 valued in the Company's balance sheet. Inventories consisted of:

5.     Principal Clients

        The following table represents revenue concentrations of the Company's principal clients:

        The loss of a principal client and/or changes in timing or termination of a principal client's product launch or service offering would have a material adverse effect on the Company's business, revenue, operating results, and financial condition. To limit the Company's credit risk, management performs ongoing credit evaluations of its clients. Although the Company is directly impacted by economic conditions in which its clients operate, management does not believe substantial credit risk existed as of September 30, 2003.

6.     Comprehensive Income

        SFAS No. 130, "Reporting Comprehensive Income", establishes standards for 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 $3,055 and $6,186 for the three months ended September 30, 2002 and 2003, respectively. Comprehensive income was $9,562 and $16,033 for the nine months ended September 30, 2002 and 2003, respectively.

7.     Related Party Transactions

        The Company leased office space from a related party at an annual rent of $165 until the building was sold to an unrelated third party on October 27, 2003. Management believes the terms of the lease were consistent with prevailing market conditions.

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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 which are not statements of historical facts are forward-looking statements 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 factors include, but are not limited to, inflation and general economic conditions in the Company's and its clients' markets, risks associated with the Company's reliance on principal clients, loss or delayed implementation of a large project or service offering for a principal client, which could cause substantial quarterly variation in the Company's revenue and earnings, difficulties in managing rapid growth, risks associated with rapidly changing technology, dependence on labor force, risks associated with international operations and expansion, risks from offshore competition, control by principal stockholders, dependence on key personnel, dependence on key industries and trends toward outsourcing, risks associated with the Company's contracts, highly competitive domestic and international markets, risks of business interruptions, volatility of the Company's stock price, risks related to the Company's Internet web site operations, risks related to the Company's portfolio of Internet domain names, and risks related to changes in valuation of the Company's investments. 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. Similarly, it is impossible for management to foresee or identify all such factors. As such, investors should not consider the foregoing list to be an exhaustive statement of all risks, uncertainties, or potentially inaccurate assumptions. All forward-looking statements herein are made as of the date hereof, and the Company undertakes no obligation to update any such forward-looking statements. All forward-looking statements herein are qualified in their entirety by information set forth in "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, 2002.

        The following table sets forth certain unaudited condensed consolidated income statement data expressed as a percentage of revenue:

Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002

        Revenue.    Revenue increased $7.9 million, or 15.2%, from $52.1 million to $60.0 million during the three months ended September 30, 2002 and 2003, respectively. This increase was due to increased

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revenue from business process management services, partially offset by a decrease in supply chain management services.

        Cost of Services.    Cost of services increased $5.4 million, or 13.9%, from $39.0 million to $44.4 million during the three months ended September 30, 2002 and 2003, respectively. As a percentage of revenue, cost of services was 74.9% and 74.1% during the three months ended September 30, 2002 and 2003, respectively. This percentage decrease was primarily a result of a change in the mix of product services provided, partially offset by a weakened U.S. dollar in connection with the Company's Canadian operations.

        Gross Profit.    Gross profit increased $2.5 million, or 18.9%, from $13.1 million to $15.6 million during the three months ended September 30, 2002 and 2003, respectively. As a percentage of revenue, gross profit was 25.1% and 25.9% during the three months ended September 30, 2002 and 2003, respectively.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased $1.3 million, or 22.5%, from $5.8 million to $7.1 million during the three months ended September 30, 2002 and 2003, respectively. As a percentage of revenue, selling, general and administrative expenses were 11.2% and 11.9% during the three months ended September 30, 2002 and 2003, respectively. This increase is primarily due to the addition of management personnel and increased infrastructure costs not present in the third quarter of 2002.

        Operating Profit.    As a result of the foregoing factors, operating profit increased $1.2 million, or 16.1%, from $7.2 million to $8.4 million during the three months ended September 30, 2002 and 2003, respectively. As a percentage of revenue, operating profit was 13.9% and 14.0% during the three months ended September 30, 2002 and 2003, respectively.

        Net Interest Income and Other.    Net interest income and other increased $0.9 million, from $47,000 to $1.0 million during the three months ended September 30, 2002 and 2003, respectively. Substantially all 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 and lease arrangements. The increase is primarily due to improved market conditions, partially offset by lower interest rates.

        Income Before Income Taxes.    As a result of the foregoing factors, income before income taxes increased $2.1 million, or 28.8%, from $7.3 million to $9.4 million during the three months ended September 30, 2002 and 2003, respectively. As a percentage of revenue, income before income taxes increased from 14.0% to 15.6% during the three months ended September 30, 2002 and 2003, respectively.

        Income Tax Expense.    Income tax expense during the three months ended September 30, 2002 and 2003 reflects a provision for federal, state, and foreign income taxes at an effective rate of 38.2% and 37.2%, respectively.

        Net Income.    Based on the factors discussed above, net income increased $1.4 million, or 30.9%, from $4.5 million to $5.9 million during the three months ended September 30, 2002 and 2003, respectively.

Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002

        Revenue.    Revenue increased $23.7 million, or 16.7%, from $141.4 million to $165.1 million during the nine months ended September 30, 2002 and 2003, respectively. This increase was due to increased revenue from business process management services, partially offset by a decrease in supply chain management services.

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        Cost of Services.    Cost of services increased $18.5 million, or 17.5%, from $106.0 million to $124.5 million during the nine months ended September 30, 2002 and 2003, respectively. As a percentage of revenue, cost of services was 75.0% and 75.5% during the nine months ended September 30, 2002 and 2003, respectively. This percentage increase was primarily a result of the costs from the ramp-up of two additional facilities and a weakened U.S. dollar in connection with the Company's Canadian operations, partially offset by the mix of product services provided.

        Gross Profit.    Due to the foregoing factors, gross profit increased $5.1 million, or 14.5%, from $35.4 million to $40.5 million during the nine months ended September 30, 2002 and 2003, respectively. As a percentage of revenue, gross profit was 25.0% and 24.5% during the nine months ended September 30, 2002 and 2003, respectively.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased $4.6 million, or 28.3%, from $16.1 million to $20.7 million during the nine months ended September 30, 2002 and 2003, respectively. As a percentage of revenue, selling, general and administrative expenses were 11.4% and 12.5% during the nine months ended September 30, 2002 and 2003, respectively. This increase is primarily due to the addition of management personnel and increased infrastructure costs not present in the first nine months of 2002.

        Operating Profit.    As a result of the foregoing factors, operating profit increased from $19.2 million to $19.8 million during the nine months ended September 30, 2002 and 2003, respectively. As a percentage of revenue, operating profit was 13.6% and 12.0% during the nine months ended September 30, 2002 and 2003, respectively.

        Net Interest Income and Other.    Net interest income and other increased $1.8 million, or 181.3%, from $1.0 million to $2.8 million during the nine months ended September 30, 2002 and 2003, respectively. Substantially all 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 and lease arrangements. The increase is primarily due to improved market conditions, partially offset by lower interest rates.

        Income Before Income Taxes.    As a result of the foregoing factors, income before income taxes increased $2.4 million, or 11.9%, from $20.3 million to $22.6 million during the nine months ended September 30, 2002 and 2003, respectively. As a percentage of revenue, income before income taxes decreased from 14.3% to 13.7% during the nine months ended September 30, 2002 and 2003, respectively.

        Income Tax Expense.    Income tax expense during the nine months ended September 30, 2002 and 2003 reflects a provision for federal, state, and foreign income taxes at an effective rate of 38.3% and 37.2%, respectively.

        Net Income.    Based on the factors discussed above, net income increased $1.7 million, or 13.8%, from $12.5 million to $14.2 million during the nine months ended September 30, 2002 and 2003, respectively.

Liquidity and Capital Resources

        Since its 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 and leasing arrangements.

        The Company maintains a $10.0 million unsecured line of credit with Wells Fargo Bank West, N.A. (the "Bank") that expires on September 30, 2005. Borrowings under the line of credit bear interest at the Bank's prime rate minus 1% (3.00% as of September 30, 2003). Under this line of credit, the

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Company is required to maintain minimum tangible net worth of $80.0 million and operate at a profit. The Company may not pay dividends in an amount that would cause a failure to meet these financial covenants. As of September 30, 2003 and the date of this Form 10-Q, the Company was in compliance with the financial covenants, and no balance was outstanding under the line of credit.

        As of September 30, 2003, the Company had cash, cash equivalents, and investment balances of $62.6 million, working capital of $81.3 million, and stockholders' equity of $127.5 million. Cash and cash equivalents are not restricted. On November 5, 2003 the Board of Directors declared a quarterly cash dividend of $0.37 per share, payable November 25, 2003 to StarTek holders of record on November 14, 2003. 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 was $20.3 million and $26.7 million for the nine months ended September 30, 2002 and 2003, respectively. The increase was primarily a result of additional cash flow from the collection of accounts receivable and other net changes in operating assets.

        Net cash used in investing activities was $16.4 million and $19.3 million for the nine months ended September 30, 2002 and 2003, respectively. This increase was primarily due to an increase in purchases of property, plant, and equipment, offset by a decrease in net purchases of investments available for sale.

        Net cash used in financing activities was $2.8 million and $6.1 million for the nine months ended September 30, 2002 and 2003, respectively. Financing activities during both periods consisted of principal payments on borrowings, partially offset by proceeds from exerc