Our management's discussion and analysis of financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto appearing elsewhere in this report and our audited consolidated financial statements which appear in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 28, 2008. Our management's discussion and analysis contains "forward-looking statements". All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions about future events and are subject to known and unknown risks and uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements. See "Forward Looking Statements and Factors That May Affect Future Results" on page 3 of this Quarterly Report on Form 10-Q and Item 1A in Part II of this Quarterly Report on Form 10-Q.
Overview
We are a leading provider of customer care services and solutions to market leaders in the healthcare, business services, communications, publishing, travel and entertainment, financial services, and media industries. Our services are provided through customer care centers staffed with skilled customer service representatives in domestic, off-shore, and client-owned locations. As of June 28, 2009, we operated nine customer care centers in the United States, two of which are client-owned facilities, and four off-shore customer care centers in the Philippines. As of June 28, 2009, our domestic operations consisted of approximately 5,200 workstations and our off-shore operations consisted of approximately 3,500 workstations.
Early in 2008, our Board of Directors selected Michael P. Marrow as President and CEO, bringing 25 years of industry experience to our company. Since joining us, Mr. Marrow has assembled a team of talented mid- and senior-level managers, many of whom have deep experience in running successful outsourced call center operations, as well as senior-level managers with significant turnaround experience. The entire organization, under Mr. Marrow's leadership, has transformed our Company into what we believe to be a more efficient and productive operation, which we believe has returned us to a profitable operating model. During 2008, we restructured operations resulting in the reduction of overhead costs and headcount, refinanced our debt, and took steps to improve our operating efficiencies. We saw an immediate impact from these and other cost savings initiatives resulting in the Company's profitability on a full year basis for fiscal year 2008. Additionally, our focus on improving our financial performance also resulted in increased gross profit margins, improved cash flow and lower levels of debt in fiscal year 2008.
During the first half of 2009, we continued to see a favorable impact from the initiatives launched in 2008 and prior years. Our revenue has grown by 12.1% for the twenty-six weeks ended June 28, 2009 as compared with the comparable prior year period, driven by expanded services with existing clients and the acquisition of new clients. Cost of services as a percentage of revenue has declined significantly driven by cost savings initiatives. This has resulted in a gross profit margin of 24.4% for the twenty-six weeks ended June 28, 2009, as compared to 14.9% for the twenty-six weeks ended June 29, 2008. Net income for the first half of 2009 was $18.4 million, a 548.7% increase over the same period of 2008. In addition, our outstanding borrowings were eliminated in June 2009, allowing us to use our cash generated from operations to fund our capital expenditures to drive further growth.

Critical Accounting Policies and Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires us to make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Certain of our accounting policies are considered critical, due to the level of subjectivity and judgment necessary in applying these policies and because the impact of these estimates and assumptions on our financial condition and operating performance may be material. On an ongoing basis, we evaluate our estimates and judgments in these areas based on historic experience and other relevant factors. The estimates as of the date of the financial statements reflect our best judgment giving consideration to all currently available facts and circumstances. We believe our estimates and judgments are reasonable, however, actual results and the timing of the recognition of such amounts could differ from those estimates. We have used methodologies that are consistent from year to year in all material respects. We have identified the following accounting policies and estimates that we believe are most critical in the preparation of our condensed consolidated financial statements: accounting for derivatives, allowance for doubtful accounts, accounting for employee benefits, revenue recognition, intangible assets, restructuring charges, accounting for stock-based compensation and income taxes. For details concerning these critical accounting policies and estimates see Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 28, 2008, under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" and Note 3 to our audited consolidated financial statements which appears in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 28, 2008. Any deviation from these policies or estimates could have a material impact on our condensed consolidated financial statements.

Results of Operations
The following table sets forth selected information about our results of
operations for the thirteen and twenty-six weeks ended June 28, 2009 and
June 29, 2008, respectively. Certain additional components of cost of services
have been included as we believe they would enhance an understanding of our
results of operations. All amounts in the table below are presented in
thousands.

                                      Thirteen Weeks Ended                            Twenty-Six Weeks Ended
                           June 28,       June 29,        Fav (Unfav)       June 28,       June 29,        Fav (Unfav)
                             2009           2008           % Change           2009           2008           % Change

Net Revenue                $  66,042      $  60,710                8.8 %    $ 139,288      $ 124,227               12.1 %

Cost of Services:
Direct labor                  34,212         34,449                0.7         72,520         71,979               (0.8 )
Other facility expenses       16,426         15,529               (5.8 )       32,814         33,745                2.8

Total cost of services        50,638         49,978               (1.3 )      105,334        105,724                0.4

Percentage of revenue           76.7 %         82.3 %                -           75.6 %         85.1 %                -


Gross profit                  15,404         10,732               43.5         33,954         18,503               83.5
Gross profit margin             23.3 %         17.7 %                -           24.4 %         14.9 %                -

Operating Expenses:
Selling, general &
administrative expenses        7,596          7,827                3.0         15,350         16,395                6.4
Restructuring and other
charges (reversals)                7            437               98.4            (49 )        2,778              101.8

Total operating
expenses                       7,603          8,264                8.0         15,301         19,173               20.2

Operating income (loss)        7,801          2,468              216.1         18,653           (670 )                *
Other income                     (23 )         (142 )            (83.8 )          (30 )         (174 )            (82.8 )
Interest
(income) expense, net            (47 )        2,673              101.8             42          3,595               98.8

Income (loss) before
income taxes                   7,871            (63 )                *         18,641         (4,091 )            555.7
Income tax provision             135              -                  *            286              -                  *

Net income (loss)          $   7,736      $     (63 )                *      $  18,355      $  (4,091 )            548.7 %

* Means that the percentage change is not meaningful

Non-GAAP Financial Measures
To supplement our Condensed Consolidated Financial Statements presented in accordance with GAAP, we use EBITDA, which is defined as a non-GAAP financial measure. The presentation of this non-GAAP financial measure is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The items excluded from this non-GAAP financial measure are significant components of our financial statements and must be considered in performing a comprehensive analysis of our overall financial results.
We believe this non-GAAP financial measure provides meaningful supplemental information and is useful in understanding our results of operations and analyzing trends because it excludes certain charges such as interest, taxes, depreciation and amortization expenses that are not part of our ordinary business operations.
EBITDA is a measure used by our lenders, investors and analysts to evaluate our financial performance and our ability to pay interest and repay debt. This measure is also indicative of our ability to fund the capital investments necessary for our continued growth. We use this measure, together with our GAAP financial metrics, to assess our financial performance, allocate resources, measure our performance against debt covenants and evaluate our overall progress towards meeting our long-term financial objectives.

We believe that this non-GAAP financial measure is useful to investors and analysts in allowing for greater transparency with respect to the supplemental information used by us in our financial and operational decision making. In addition, we believe investors, analysts and lenders benefit from referring to this non-GAAP financial measure when assessing our performance and expectations of our future performance. However, this information should not be used as a substitute for our GAAP financial information; rather it should be used in conjunction with financial statement information contained in our condensed consolidated financial statements presented in accordance with GAAP. We use consistent methods for computation of non-GAAP financial measures. Our calculations of non-GAAP financial measures may not be consistent with calculations of similar measures used by other companies. The accompanying notes have more details on the GAAP financial measure that is most directly comparable to our non-GAAP financial measure and the related reconciliation between these financial measures.

                                                  Thirteen Weeks Ended (1)                         Twenty-Six Weeks Ended
                                          June 28,       June 29,       Fav (Unfav)      June 28,       June 29,       Fav (Unfav)
                                            2009           2008          % Change          2009           2008          % Change
                                                          (Dollars in thousands except statistical data and notes)
EBITDA (2)                               $   10,777     $    5,561              93.8 %   $  24,465     $    5,926             312.8 %

Statistical information:
Number of customer care centers:
Domestic                                          9              9                               9              9
Off-shore                                         4              3                               4              3

Total                                            13             12                              13             12


Number of workstations, end of period:
Domestic                                      5,177          4,655                           5,177          4,655
Off-shore                                     3,486          3,259                           3,486          3,259

Total                                         8,663          7,914                           8,663          7,914

Notes to Non-GAAP Financial Measures

(1) We operate on a thirteen-week fiscal quarter that ends on the Sunday closest to June 30.

(2) We define EBITDA as net income (loss) plus the provision (benefit) for income taxes, depreciation and amortization, and interest expense.

EBITDA is a measure used by our lenders, investors and analysts to evaluate our financial performance and our ability to pay interest and repay debt. This measure is also indicative of our ability to fund the capital investments necessary for our continued growth. We use this measure, together with our GAAP financial metrics, to assess our financial performance, allocate resources, measure our performance against debt covenants and evaluate our overall progress towards meeting our long-term financial objectives.

EBITDA is not intended to be considered in isolation or used as a substitute for net income (loss) or cash flow from operations data presented in accordance with GAAP or as a measure of liquidity. The items excluded from EBITDA are significant components of our statements of operations and must be considered in performing a comprehensive assessment of our overall financial results. EBITDA can be reconciled to net income (loss), which we believe to be the most directly comparable financial measure calculated and presented in accordance with GAAP, as follows:

                                           Thirteen Weeks Ended             Twenty-Six Weeks Ended
                                        June 28,          June 29,         June 28,          June 29,
                                          2009              2008             2009              2008
                                                           (Dollars in thousands)
Net income (loss)                      $     7,736       $      (63 )    $     18,355       $   (4,091 )

Interest (income) expense, net                 (47 )          2,673                42            3,595
Income tax provision                           135                -               286                -
Depreciation and amortization                2,953            2,951             5,782            6,422

EBITDA                                 $    10,777       $    5,561      $     24,465       $    5,926

Comparison of Results of Operations for the Thirteen Weeks Ended June 28, 2009 and June 29, 2008
Net revenue increased 8.8% to $66.0 million for the thirteen weeks ended June 28, 2009, as compared to $60.7 million for the thirteen weeks ended June 29, 2008. The increase in revenue of $5.3 million is primarily driven by growth with existing and new clients of $11.8 million driven by increased volume across the communications, healthcare and publishing verticals. This was partially offset by the decline in revenue of $3.2 million from the seasonal Medicare Part D program, $1.1 million from the exit of a retail client in 2008, $1.0 million from the business services vertical and $1.2 million of other business.
Cost of services increased $0.6 million, or 1.3%, to $50.6 million for the thirteen weeks ended June 28, 2009, from $50.0 million for the thirteen weeks ended June 29, 2008. Direct labor decreased $0.2 million, or less than 1%, primarily driven by lower direct wage rates and benefits, improved efficiencies both domestically and off-shore, and lower volume in the business services vertical, partially offset by higher volume in the domestic communications vertical and higher volume off-shore. Facility and other costs increased $0.9 million, or 5.8%, primarily due to $1.2 million of increased facility costs related to growth and expansion domestically and from the build-out of our fourth facility in the Philippines, partially offset by $0.3 million of other continued cost savings initiatives. Cost of services as a percentage of revenue declined to 76.7% for the thirteen weeks ended June 28, 2009 from 82.3% for the thirteen weeks ended June 29, 2008, driven by lower direct wages and benefits, and improved efficiencies.
Gross profit increased $4.7 million, or 43.5%, to $15.4 million for the thirteen weeks ended June 28, 2009, as compared to $10.7 million for the thirteen weeks ended June 29, 2008, primarily due to an increase in off-shore and domestic volume, lower domestic direct wages and benefits, and overall improved efficiencies, offset partially by increased facility and other costs. Lower direct wages and benefits as a percentage of revenue and improved efficiencies in direct labor contributed to the improvement in the gross profit margin which increased to 23.3% for the thirteen weeks ended June 28, 2009 from 17.7% for the thirteen weeks ended June 29, 2008.
Selling, general and administrative expenses were $7.6 million for the thirteen weeks ended June 28, 2009, a decrease of $0.2 million from $7.8 million for the thirteen weeks ended June 29, 2008. The decrease is primarily due to a $0.2 million reduction in rent and other facility charges resulting from the relocation of our corporate office and a $0.2 reduction in bad debt expense, partially offset by a $0.2 million increase in franchise taxes and professional fees.
Restructuring and other charges of less than $0.1 million were recorded for the thirteen weeks ended June 28, 2009, as compared to $0.4 million for the thirteen weeks ended June 29, 2008 and were primarily related to adjustments in severance charges and retirement obligations recorded in fiscal year 2008. We recorded $0.4 million of severance charges for the thirteen weeks ended June 29, 2008 primarily related to changes in our executive team and further reductions in our operational and administrative headcount. For more information regarding restructuring and other charges, see Note 9 of our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Operating income was $7.8 million for the thirteen weeks ended June 28, 2009, as compared to $2.5 million for the thirteen weeks ended June 29, 2008. The $5.3 million improvement was the result of a $4.7 million increase in gross profit, a $0.4 million decrease in restructuring and other charges and a $0.2 million decrease in selling, general and administrative expenses as noted above.
Net interest income was less than $0.1 million for the thirteen weeks ended June 28, 2009 and was primarily related to $0.2 million from the amortization of points on forward contracts, partially offset by $0.2 million of fees and interest associated with borrowings under the Revolving Loan Facility with PNC. Net interest expense of $2.7 million for the thirteen weeks ended June 29, 2008 was primarily related to the acceleration of deferred financing charges and prepayment fees of $1.8 million due to the early repayment in May 2008 of our loan facilities with LaSalle and Atalaya, $0.6 million of fees and interest associated with borrowings of those loan facilities and $0.3 million of fees and interest associated with borrowings under the new Revolving Loan Agreement with PNC.
EBITDA was $10.8 million for the thirteen weeks ended June 28, 2009, an increase of $5.2 million, as compared to $5.6 million for the thirteen weeks ended June 29, 2008. The increase was primarily due to a $4.7 million increase in gross profit, a $0.4 million decrease in restructuring and other charges and a $0.2 million decrease in selling, general and administrative expenses as noted above, offset by a $0.1 million decrease in other income. More information concerning this non-GAAP financial measure, including the definition of EBITDA and a reconciliation of this measure to the most directly comparable financial measure calculated and presented in accordance with GAAP, can be found under the heading "Non-GAAP Financial Measures" and the accompanying notes thereto appearing elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

The income tax provision for the thirteen weeks ended June 28, 2009 was $0.1 million. This is driven by a gross income earned tax of 5% on a portion of our Philippine financial results and domestic state income taxes. The Federal tax provision is fully offset by the utilization of net operating loss carryforwards and work opportunity tax credits. This resulted in a 1.7% effective income tax rate for the thirteen weeks ended June 28, 2009. The tax benefit associated with the loss before income taxes incurred for the thirteen weeks ended June 29, 2008 of less than $0.1 million and the related deferred tax asset were offset with a corresponding valuation allowance. This resulted in a zero effective income tax rate for the thirteen weeks ended June 29, 2008. Net income for the thirteen weeks ended June 28, 2009 was $7.7 million, a $7.8 million increase from the net loss of $0.1 million for the thirteen weeks ended June 29, 2008.
Comparison of Results of Operations for the Twenty-six Weeks Ended June 28, 2009 and June 29, 2008
Net revenue increased 12.1% to $139.3 million for the twenty-six weeks ended June 28, 2009, as compared to $124.2 million for the twenty-six weeks ended June 29, 2008. The increase in revenue of $15.1 million is primarily driven by growth with existing and new clients of $28.6 million as a result of increased volume across the communications, healthcare and publishing verticals. This was partially offset by the decline in revenue of $8.4 million from the seasonal Medicare Part D program, $2.5 million from the exit of a retail client in 2008, $1.4 million in the business services vertical and $1.2 million of other business.
Cost of services decreased $0.4 million, or 0.4%, to $105.3 million for the twenty-six weeks ended June 28, 2009, from $105.7 million for the twenty-six weeks ended June 29, 2008. Direct labor increased $0.5 million, or 0.8%, primarily driven by higher volume off-shore and in the domestic communications and healthcare verticals, partially offset by lower direct wage rates and benefits, and improved efficiencies both domestically and off-shore. Total facility and other costs decreased $0.9 million, or 2.8%, primarily due to $0.8 million of reduced information technology costs resulting from the 2008 workforce reduction and a $0.5 million decrease in facility costs, partially offset by a $0.4 million increase in telecommunication costs associated with increased volumes off-shore. Cost of services as a percentage of revenue declined to 75.6% for the twenty-six weeks ended June 28, 2009 from 85.1% for the twenty-six weeks ended June 29, 2008, primarily driven by lower direct wages and benefits, improved efficiencies and reduced information technology costs. Gross profit increased $15.5 million, or 83.5%, to $34.0 million for the twenty-six weeks ended June 28, 2009, as compared to $18.5 million for the twenty-six weeks ended June 29, 2008, primarily due to an increase in off-shore and domestic volume, lower domestic direct wages and benefits, and a decline in facility and other costs. Lower direct wages and benefits as a percent of revenue, improved efficiencies in direct labor and reduced information technology costs contributed to the improvement in the gross profit margin which increased to 24.4% for the twenty-six weeks ended June 28, 2009 from 14.9% for the twenty-six weeks ended June 29, 2008.
Selling, general and administrative expenses were $15.4 million for the twenty-six weeks ended June 28, 2009, a decrease of $1.0 million from $16.4 million for the twenty-six weeks ended June 29, 2008. The decrease is primarily due to a $0.4 million reduction in rent and other facility charges resulting from the relocation of our corporate office, a $0.2 reduction in bad debt expense, a $0.2 million reduction in salaries and wages and $0.2 million of other cost savings obtained through continued efforts to control expenses. Restructuring and other charges decreased $2.8 million to a negative $0.1 million, as compared to $2.8 million for the twenty-six weeks ended June 28, 2009 and were primarily related to adjustments in severance charges and retirement obligations recorded in fiscal year 2008. During the twenty-six weeks ended June 29, 2008, we recorded charges of $2.8 million resulting from the accrual of retirement obligations of $1.1 million to Robert Keller, our former CEO, upon his retirement and $1.7 million of severance charges related to the elimination of approximately 130 operations and administrative positions and changes to our executive team. For more information regarding restructuring and other charges, see Note 9 of the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Operating income was $18.7 million for the twenty-six weeks ended June 28, 2009, as compared an operating loss of $0.7 million for the twenty-six weeks ended June 29, 2008. The $19.4 million improvement was the result of a $15.5 million increase in gross profit, a $2.8 million decrease in restructuring and other charges and a $1.0 million decrease in selling, general and administrative expenses as noted above.
Net interest expense was less than $0.1 million for the twenty-six weeks ended June 28, 2009 and was primarily related to $0.4 million of fees and interest associated with borrowings under the Revolving Loan Facility, offset by $0.4 million related to the amortization of points on forward contracts. Net interest expense of $3.6 million for the twenty-six weeks ended June 29, 2008 was primarily related to the acceleration of deferred financing charges and prepayment fees of $1.8 million due to the early repayment in May 2008 of our loan facilities with LaSalle and Atalaya, $1.5 million of fees and interest associated with borrowings of those loan facilities and $0.3 million of fees and interest associated with borrowings under the new Revolving Loan Agreement with PNC.
EBITDA was $24.4 million for the twenty-six weeks ended June 28, 2009, an increase of $18.5 million, as compared to $5.9 million for the twenty-six weeks ended June 29, 2008. The increase was primarily due to an increase in gross profit of $14.8 million, excluding a change in depreciation and amortization expense of $0.7 million, a $2.8 million decrease in restructuring and other charges and a $1.0 million decrease in selling, general and administrative expenses as noted above, offset by a $0.1 million decrease in other income. More information concerning this non-GAAP financial measure, including the definition of EBITDA and a reconciliation of this measure to the most directly comparable financial measure calculated and presented in accordance with GAAP, can be found under the heading "Non-GAAP Financial Measures" and the accompanying notes . . .