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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended July 4, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the Transition Period From  to
 Commission file number: 0-26786
 APAC Customer Services, Inc.
  Illinois
    
    36-2777140(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 Bannockburn Lake Office Plaza 1, 2333 Waukegan Road, Suite 100, Bannockburn, Illinois 60015
 (847) 374-4980
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer* o
    
    Smaller reporting company o(*Do not check if a smaller reporting company)
  o þ




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##### 



INDEX
 PageForward-Looking Statements and Factors That May Affect Future Results
    
    
    3Part I. Financial Information
    
    
    5Item 1. Condensed Consolidated Financial Statements (Unaudited)
    
    
    5Condensed Consolidated Balance Sheets as of July 4, 2010 and January 3, 2010
    
    
    5Condensed Consolidated Statements of Operations for the Thirteen and Twenty-Six Weeks Ended July 4, 2010 and June 28, 2009
    
    
    6Condensed Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended July 4, 2010 and June 28, 2009
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27Part II. Other Information
    
    
    28Item 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 6. Exhibits
    
    
    28Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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Forward-Looking Statements and Factors That May Affect Future Results
      
    
    A large portion of our revenue is generated from a limited number
of clients and the loss of one or more of them, or a reduction in
their demand for our services, could materially affect our
financial results.
 
    
    Our operating results and financial condition may be affected by
the performance of our clients and unfavorable general economic
conditions.
 
    
    The failure to effectively manage our production capacity and our
workforce could negatively impact our financial results.
 
    
    Our success is subject to the terms of our client contracts and if
we are unable to continue operating under existing client
contracts or renew existing client contracts with terms favorable
to the Company, our results of operations and financial condition
may be adversely affected by the loss of clients or by the less
favorable terms.
 
    
    Our business may be affected by our cash flows from operations and
our ability to comply with our debt covenants and funding
requirements under our credit facility.
 
    
    Our financial results may be affected by risks associated with
international operations and expansion, including, but not limited
to foreign currency fluctuations and changes to laws in other
countries.
 
    
    Our principal shareholder can exercise significant control over
the Company and, as a result of such control may be able to exert
considerable influence over our future direction and operations.
 
    
    Our success depends on our ability to recruit and retain a
sufficient number of qualified key personnel and the loss of the
services of key personnel without adequate replacement or the
inability to attract new qualified personnel could have a material
adverse effect on us.
  3




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
    
    We operate in a highly competitive industry and our financial
results may suffer if we are unable to adequately address
potential downward pricing pressures and other competitive
factors.
 
    
    Circumstances outside our control such as typhoons, hurricanes,
earthquakes, floods and other acts of God, political instability,
equipment malfunction, telephone or data service interruptions,
changes in the telecommunications market, war and terrorism could
seriously harm our domestic or international business operations.
 
    
    Unauthorized disclosure of sensitive or confidential client and
customer data could expose us to protracted and costly litigation,
penalties and may cause us to lose clients.
 
    
    Our business and our clients businesses are subject to federal
and state regulation and industry standards and the costs of
compliance with, or liability for violation of, existing or future
regulations or standards could significantly increase our costs of
doing business.
 
    
    The costs and management time and attention associated with
litigation could result in a negative impact to financial results.
 
    
    Our business is subject to rapid changes in technology and if our
technology is rendered obsolete or we are unable to compete
effectively, our operating results and financial condition could
be materially and adversely affected.
 
    
    Volatility in our stock price may result in loss of investment for
shareholders as well as litigation, substantial cost and diversion
of managements attention.
    4




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PART I. FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements
 APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands)
 July 4,
    
    
    January 3,2010
    
    
    2010(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    45,416
    
    
    $
    20,557Accounts receivable, net
    
    
    36,540
    
    
    
    45,358Deferred tax assets, current
    
    
    9,045
    
    
    
    14,593Other current assets
    
    
    8,508
    
    
    
    6,323Total current assets
    
    
    99,509
    
    
    
    86,831Property and equipment, net
    
    
    24,796
    
    
    
    25,653Goodwill
    
    
    13,338
    
    
    
    13,338Other intangible assets, net
    
    
    147
    
    
    
    1,028Deferred tax assets, non-current
    
    
    10,170
    
    
    
    10,170Other assets
    
    
    1,742
    
    
    
    1,585Total assets
    
    $
    149,702
    
    
    $
    138,605LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Capital leases  current portion
    
    $
    505
    
    
    $
    397Accounts payable
    
    
    2,395
    
    
    
    2,770Income taxes payable
    
    
    
    
    
    
    365Accrued payroll and related items
    
    
    20,227
    
    
    
    21,964Accrued liabilities
    
    
    10,384
    
    
    
    9,190Total current liabilities
    
    
    33,511
    
    
    
    34,686Other non-current liabilities
    
    
    3,170
    
    
    
    4,171Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common shares, $0.01 per share; authorized 200,000,000 shares;
52,642,438 shares issued and outstanding at July 4, 2010, and
52,318,726 shares issued and outstanding at January 3, 2010
    
    
    526
    
    
    
    523Additional paid-in capital
    
    
    111,542
    
    
    
    109,818Accumulated earnings (deficit)
    
    
    201
    
    
    
    (11,688
    )Accumulated other comprehensive income
    
    
    752
    
    
    
    1,095Total shareholders equity
    
    
    113,021
    
    
    
    99,748Total liabilities and shareholders equity
    
    $
    149,702
    
    
    $
    138,605
   5




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APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands, except per share data)
 (Unaudited)
 Thirteen Weeks Ended
    
    
    Twenty-Six Weeks EndedJuly 4,
    
    
    June 28,
    
    
    July 4,
    
    
    June 28,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue
    
    $
    77,386
    
    
    $
    66,042
    
    
    $
    162,640
    
    
    $
    139,288Cost of services
    
    
    61,009
    
    
    
    50,638
    
    
    
    125,817
    
    
    
    105,334Gross profit
    
    
    16,377
    
    
    
    15,404
    
    
    
    36,823
    
    
    
    33,954Operating expenses:Selling, general and administrative
expenses
    
    
    8,103
    
    
    
    7,603
    
    
    
    16,250
    
    
    
    15,297Legal settlement
    
    
    7
    
    
    
    
    
    
    
    2,407
    
    
    
    4Total operating expenses
    
    
    8,110
    
    
    
    7,603
    
    
    
    18,657
    
    
    
    15,301Operating income
    
    
    8,267
    
    
    
    7,801
    
    
    
    18,166
    
    
    
    18,653Other (income) expense
    
    
    139
    
    
    
    (23
    )
    
    
    30
    
    
    
    (30
    )Interest (income) expense
    
    
    (7
    )
    
    
    (47
    )
    
    
    (15
    )
    
    
    42Income before income taxes
    
    
    8,135
    
    
    
    7,871
    
    
    
    18,151
    
    
    
    18,641Income tax expense
    
    
    2,806
    
    
    
    135
    
    
    
    6,262
    
    
    
    286Net income
    
    $
    5,329
    
    
    $
    7,736
    
    
    $
    11,889
    
    
    $
    18,355Net income per share:Basic
    
    $
    0.10
    
    
    $
    0.15
    
    
    $
    0.23
    
    
    $
    0.36Diluted
    
    $
    0.10
    
    
    $
    0.14
    
    
    $
    0.22
    
    
    $
    0.34Weighted average number of shares
outstanding:Basic
    
    
    52,476
    
    
    
    51,404
    
    
    
    52,393
    
    
    
    51,111Diluted
    
    
    54,831
    
    
    
    54,567
    
    
    
    54,745
    
    
    
    53,241
   6




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APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 (Unaudited)
 Twenty-Six Weeks EndedJuly 4,
    
    
    June 28,2010
    
    
    2009Operating activities:Net income
    
    $
    11,889
    
    
    $
    18,355Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    6,071
    
    
    
    5,782Deferred income taxes
    
    
    5,548
    
    
    
    Stock compensation expense
    
    
    1,195
    
    
    
    219Amortized gain on sale leaseback
    
    
    (52
    )
    
    
    (47
    )Gain on sale of property and equipment
    
    
    (1
    )
    
    
    (1
    )Income taxes payable
    
    
    (365
    )
    
    
    283Change in operating assets and liabilities
    
    
    4,676
    
    
    
    (6,473
    )Net cash provided by operating activities
    
    
    28,961
    
    
    
    18,118Investing activities:Purchases of property and equipment, net
    
    
    (3,968
    )
    
    
    (5,467
    )Net proceeds from sale of property and equipment
    
    
    1
    
    
    
    1Net cash used in investing activities
    
    
    (3,967
    )
    
    
    (5,466
    )Financing activities:Net payments under revolving credit facility
    
    
    
    
    
    
    (6,100
    )Payment of capital lease obligations
    
    
    (332
    )
    
    
    (16
    )Stock option transactions, including related excess
income tax benefits
    
    
    533
    
    
    
    1,771Net cash provided by (used in) financing activities
    
    
    201
    
    
    
    (4,345
    )Effect of exchange rate change on cash
    
    
    (336
    )
    
    
    680Net increase in cash and cash equivalents
    
    
    24,859
    
    
    
    8,987Cash and cash equivalents:Beginning balance
    
    
    20,557
    
    
    
    618Ending balance
    
    $
    45,416
    
    
    $
    9,605
   7




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APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (Dollars in thousands, except per share data)
 1. Basis of Presentation and Principles of Consolidation
  http://www.sec.gov
 
 2. New Accounting Pronouncements
 Fair Value
 Fair Value Measurements and Disclosures
 Revenue Recognition
 Revenue Recognition
  8




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APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
 Subsequent Events
 Subsequent Events
 3. Accrued Liabilities
  July 4,
    
    
    January 3,2010
    
    
    2010Accrued legal settlement
    
    $
    2,400
    
    
    $
    Non-qualified retirement plan liability
    
    
    1,981
    
    
    
    1,931Deferred rent
    
    
    1,012
    
    
    
    1,134Accrued professional fees
    
    
    858
    
    
    
    719Accrued temporary labor
    
    
    674
    
    
    
    839Accrued workers compensation
    
    
    582
    
    
    
    929Accrued telecommunications expense
    
    
    537
    
    
    
    961Accrued capital expenditures
    
    
    253
    
    
    
    890Other accrued liabilities
    
    
    2,087
    
    
    
    1,787Total
    
    $
    10,384
    
    
    $
    9,190
 4. Goodwill and Other Intangible Assets
   5. Accounting for Stock-Based Compensation
   9




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APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
   Number ofSharesOutstanding on January 3, 2010
    
    
    25,000Granted
    
    
    Issued
    
    
    (25,000
    )Forfeited
    
    
    Expired
    
    
    Outstanding on July 4, 2010
    
    
    
   WeightedAverage
    
    
    AggregateNumber of
    
    
    Grant Price Range
    
    
    Exercise Price
    
    
    IntrinsicOptions
    
    
    Per Share
    
    
    Per Share
    
    
    ValueOutstanding on January 3, 2010
    
    
    6,136,677
    
    
    $
    0.79
    
    
    $
    11.63
    
    
    $
    2.24Granted
    
    
    482,440
    
    
    
    5.68
    
    
    
    5.96
    
    
    
    5.80Exercised
    
    
    (323,712
    )
    
    
    1.06
    
    
    
    3.57
    
    
    
    1.65Forfeited
    
    
    (3,500
    )
    
    
    5.31
    
    
    
    5.31
    
    
    
    5.31Expired
    
    
    (18,000
    )
    
    
    2.81
    
    
    
    11.63
    
    
    
    10.20Outstanding on July 4, 2010
    
    
    6,273,905
    
    
    $
    0.79
    
    
    $
    7.36
    
    
    $
    2.52
    
    
    $
    19,542Exercisable on July 4, 2010
    
    
    3,161,719
    
    
    $
    0.79
    
    
    $
    7.36
    
    
    $
    2.17
    
    
    $
    10,908
   10




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APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
 6. Comprehensive Income
  Thirteen Weeks Ended
    
    
    Twenty-Six Weeks EndedJuly 4,
    
    
    June 28,
    
    
    July 4,
    
    
    June 28,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    5,329
    
    
    $
    7,736
    
    
    $
    11,889
    
    
    $
    18,355Foreign currency translation adjustment
    
    
    (167
    )
    
    
    19
    
    
    
    23
    
    
    
    (104
    )Unrealized gain on derivative contracts
    
    
    (636
    )
    
    
    257
    
    
    
    (366
    )
    
    
    614Total comprehensive income
    
    $
    4,526
    
    
    $
    8,012
    
    
    $
    11,546
    
    
    $
    18,865
 7. Legal Proceedings
      11




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APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
 8. Debt
       9. Income Taxes
    12




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APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
 10. Earnings Per Share
  Thirteen Weeks Ended
    
    
    Twenty-Six Weeks EndedJuly 4,
    
    
    June 28,
    
    
    July 4,
    
    
    June 28,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands, except earnings per share)Net income
    
    $
    5,329
    
    
    $
    7,736
    
    
    $
    11,889
    
    
    $
    18,355Shares used in basic per share calculation
    
    
    52,476
    
    
    
    51,404
    
    
    
    52,393
    
    
    
    51,111Effects of dilutive securities:Stock options
    
    
    2,355
    
    
    
    3,138
    
    
    
    2,348
    
    
    
    2,105Non-vested stock
    
    
    
    
    
    
    25
    
    
    
    4
    
    
    
    25Shares used in diluted per share calculation
    
    
    54,831
    
    
    
    54,567
    
    
    
    54,745
    
    
    
    53,241Net income per share:Basic
    
    $
    0.10
    
    
    $
    0.15
    
    
    $
    0.23
    
    
    $
    0.36Diluted
    
    $
    0.10
    
    
    $
    0.14
    
    
    $
    0.22
    
    
    $
    0.34
 11. Fair Value Measurements
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
 
    
    Level 2  Inputs, other than the quoted prices in active markets, that are observable
either directly or indirectly.
 
    
    Level 3  Unobservable inputs based on the Companys own assumptions.
  Fair Value Measurements as of July 4, 2010Level 1
    
    
    Level 2
    
    
    Level 3Assets:Cash equivalents(1)
    
    $
    35,773
    
    
    $
    
    
    
    $
    Non-qualified retirement plan(2)
    
    
    1,981
    
    
    
    
    
    
    
    Foreign currency derivative contracts(3)
    
    
    
    
    
    
    163
    
    
    
    Non-current investments(4)
    
    
    126
    
    
    
    
    
    
    
    Liabilities:Foreign currency contracts(3)
    
    $
    
    
    
    $
    160
    
    
    $
    Non-qualified retirement plan obligation(2)
    
    
    1,981
    
    
    
    
    
    
    
    
 
 (1)
    
    Cash equivalents: The carrying amount of these items approximates fair value at period end.(2)
    
    Non-qualified retirement plan: The Company maintains a non-qualified retirement plan (Select
Plan) for highly compensated employees who are limited in the amount of contributions that they can
make in the Companys 401-K plan. As of July 4, 2010, the fair value of investments in the Select
Plan totaled $2.0 million and is reflected on the Companys balance sheet in other current assets.
The related obligation to employees participating in the Select Plan, which will always equal the
fair value of the investments, are recorded on the Companys balance sheet in other current
liabilities.  13




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APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
 (3)
    
    Foreign currency derivative contracts: The carrying amount of these items is based on
valuations provided by the counter-party institution, but there are no guaranteed selling prices
for these forward currency contracts.(4)
    
    Non-current investments: The carrying amount of these items, which represent Philippine
treasury bills, approximates fair value at as of July 4, 2010 and is recorded as a component of
other assets on the Companys balance sheet.   12. Derivative Instruments
     14




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APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
  Asset DerivativesFair ValueBalance Sheet
    
    
    July 4,
    
    
    January 3,Location
    
    
    2010
    
    
    2010Derivatives designated as hedging instruments:Foreign currency contracts
    
    Other Current Assets
    
    
    $
    163
    
    
    $
    657Total derivatives
    
    
    
    
    
    $
    163
    
    
    $
    657Liability DerivativesFair ValueBalance Sheet
    
    
    July 4,
    
    
    January 3,Location
    
    
    2010
    
    
    2010Derivatives designated as hedging instruments:Foreign currency contracts
    
    Accrued Liabilities
    
    
    $
    160
    
    
    $
    15Total derivatives
    
    
    
    
    
    $
    160
    
    
    $
    15
  Amount of Gain (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain (Loss) Recognized in Income onRecognized in OCI on
    
    
    Gain (Loss) Reclassified from
    
    
    Derivatives (Ineffective Portion andDerivatives
    
    Derivatives (Effective
    
    
    
    Accumulated OCI into Income
    
    Amount Excluded from EffectivenessDesignated as
    
    Portion)
    
    
    (Effective Portion)
    
    
    Testing)Cash Flow
    
    Thirteen Weeks EndedHedging
    
    July 4,
    
    
    June 28,
    
    
    
    
    
    
    July 4,
    
    
    June 28,
    
    
    
    
    
    
    July 4,
    
    
    June 28,Instruments
    
    2010
    
    
    2009
    
    
    Location
    
    2010
    
    
    2009
    
    
    Location
    
    
    2010
    
    
    2009Foreign currency contracts
    
    $
    (636
    )
    
    $
    257
    
    
    Cost of Services
    
    $
    259
    
    
    $
    (398
    )
    
    na
    
    $
    
    
    
    $
    Amount of Gain (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain (Loss) Recognized in Income onRecognized in OCI on
    
    
    Gain (Loss) Reclassified from
    
    
    Derivatives (Ineffective Portion andDerivatives
    
    Derivatives (Effective
    
    
    Accumulated OCI into Income
    
    
    Amount Excluded from EffectivenessDesignated as
    
    Portion)
    
    
    (Effective Portion)
    
    
    Testing)Cash Flow
    
    Twenty-Six Weeks EndedHedging
    
    July 4,
    
    
    June 28,
    
    
    
    
    
    
    July 4,
    
    
    June 28,
    
    
    
    
    
    
    July 4,
    
    
    June 28,Instruments
    
    2010
    
    
    2009
    
    
    Location
    
    2010
    
    
    2009
    
    
    Location
    
    
    2010
    
    
    2009Foreign currency contracts
    
    $
    (366
    )
    
    $
    614
    
    
    Cost of Services
    
    $
    465
    
    
    $
    (942
    )
    
    na
    
    $
    
    
    
    $
    
  15




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APAC CUSTOMER SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)
 13. Reclassifications
  14. Subsequent Events
   16




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
   at 
    17




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Critical Accounting Policies and Estimates
    18




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Results of Operations
  Thirteen Weeks Ended
    
    
    Twenty-Six Weeks EndedJuly 4,
    
    
    June 28,
    
    
    Fav (Unfav)
    
    
    July 4,
    
    
    June 28,
    
    
    Fav (Unfav)2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % ChangeNet Revenue
    
    $
    77,386
    
    
    $
    66,042
    
    
    
    17.2
    %
    
    $
    162,640
    
    
    $
    139,288
    
    
    
    16.8
    %Cost of Services:Direct labor
    
    
    41,170
    
    
    
    34,212
    
    
    
    (20.3
    )
    
    
    86,372
    
    
    
    72,520
    
    
    
    (19.1
    )Other facility expenses
    
    
    19,839
    
    
    
    16,426
    
    
    
    (20.8
    )
    
    
    39,445
    
    
    
    32,814
    
    
    
    (20.2
    )Total cost of services
    
    
    61,009
    
    
    
    50,638
    
    
    
    (20.5
    )
    
    
    125,817
    
    
    
    105,334
    
    
    
    (19.4
    )Percentage of revenue
    
    
    78.8
    %
    
    
    76.7
    %
    
    
    
    
    
    
    77.4
    %
    
    
    75.6
    %
    
    
    Gross profit
    
    
    16,377
    
    
    
    15,404
    
    
    
    6.3
    
    
    
    36,823
    
    
    
    33,954
    
    
    
    8.4Gross profit margin
    
    
    21.2
    %
    
    
    23.3
    %
    
    
    
    
    
    
    22.6
    %
    
    
    24.4
    %
    
    
    Operating Expenses:Selling, general &
administrative expenses
    
    
    8,103
    
    
    
    7,603
    
    
    
    (6.6
    )
    
    
    16,250
    
    
    
    15,297
    
    
    
    (6.2
    )Legal settlement
    
    
    7
    
    
    
    
    
    
    
    *
    
    
    
    2,407
    
    
    
    4
    
    
    
    *Total operating expenses
    
    
    8,110
    
    
    
    7,603
    
    
    
    (6.7
    )
    
    
    18,657
    
    
    
    15,301
    
    
    
    (21.9
    )Operating income
    
    
    8,267
    
    
    
    7,801
    
    
    
    6.0
    
    
    
    18,166
    
    
    
    18,653
    
    
    
    (2.6
    )Other (income) expense
    
    
    139
    
    
    
    (23
    )
    
    
    (704.3
    )
    
    
    30
    
    
    
    (30
    )
    
    
    (200.0
    )Interest (income) expense
    
    
    (7
    )
    
    
    (47
    )
    
    
    (85.1
    )
    
    
    (15
    )
    
    
    42
    
    
    
    135.7Income before income taxes
    
    
    8,135
    
    
    
    7,871
    
    
    
    3.4
    
    
    
    18,151
    
    
    
    18,641
    
    
    
    (2.6
    )Income tax expense
    
    
    2,806
    
    
    
    135
    
    
    
    *
    
    
    
    6,262
    
    
    
    286
    
    
    
    *Net income
    
    $
    5,329
    
    
    $
    7,736
    
    
    
    (31.1
    )%
    
    $
    11,889
    
    
    $
    18,355
    
    
    
    (35.2
    )%
 
 *
    
    Means that the percentage change is not meaningful Non-GAAP Financial Measures
     19




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Thirteen Weeks Ended (1)
    
    
    Twenty-Six Weeks EndedJuly 4,
    
    
    June 28,
    
    
    Fav (Unfav)
    
    
    July 4,
    
    
    June 28,
    
    
    Fav (Unfav)2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % Change(Dollars in thousands except statistical data and notes)EBITDA (2)
    
    $
    11,087
    
    
    $
    10,777
    
    
    
    2.9
    %
    
    $
    24,207
    
    
    $
    24,465
    
    
    
    (1.1
    )%Statistical information:Number of customer care centers:Domestic
    
    
    10
    
    
    
    9
    
    
    
    
    
    
    
    10
    
    
    
    9International
    
    
    5
    
    
    
    4
    
    
    
    
    
    
    
    5
    
    
    
    4Total
    
    
    15
    
    
    
    13
    
    
    
    
    
    
    
    15
    
    
    
    13Number of workstations,
end of period:Domestic
    
    
    6,267
    
    
    
    5,396
    
    
    
    
    
    
    
    6,267
    
    
    
    5,396International
    
    
    4,222
    
    
    
    3,707
    
    
    
    
    
    
    
    4,222
    
    
    
    3,707Total
    
    
    10,489
    
    
    
    9,103
    
    
    
    
    
    
    
    10,489
    
    
    
    9,103
 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 plus income tax expense (benefit), depreciation and
amortization, and interest expense.    20




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Thirteen Weeks Ended
    
    
    Twenty-Six Weeks EndedJuly 4,
    
    
    June 28,
    
    
    July 4,
    
    
    June 28,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)Net income
    
    $
    5,329
    
    
    $
    7,736
    
    
    $
    11,889
    
    
    $
    18,355Interest (income) expense
    
    
    (7
    )
    
    
    (47
    )
    
    
    (15
    )
    
    
    42Income tax expense
    
    
    2,806
    
    
    
    135
    
    
    
    6,262
    
    
    
    286Depreciation and amortization
    
    
    2,959
    
    
    
    2,953
    
    
    
    6,071
    
    
    
    5,782EBITDA
    
    $
    11,087
    
    
    $
    10,777
    
    
    $
    24,207
    
    
    $
    24,465
  21




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Comparison of Results of Operations for the Thirteen Weeks Ended July 4, 2010 and June 28, 2009
         22




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Comparison of Results of Operations for the Twenty-six Weeks Ended July 4, 2010 and June 28, 2009
      23




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24




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Liquidity and Capital Resources
  Twenty-Six Weeks EndedJuly 4,
    
    
    June 28,2010
    
    
    2009(Dollars in thousands)Net cash provided by operating activities
    
    $
    28,961
    
    
    $
    18,118Net cash used in investing activities
    
    
    (3,967
    )
    
    
    (5,466
    )Net cash provided by (used in) financing activities
    
    
    201
    
    
    
    (4,345
    )Effect of exchange rate changes on cash
    
    
    (336
    )
    
    
    680Net increase in cash and cash equivalents
    
    $
    24,859
    
    
    $
    8,987
 Operating Activities
  Investing Activities
  Financing Activities
   25




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Bank Financing
    Future Liquidity
    26




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
   27




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Part II. Other Information
 
 Item 1. Legal Proceedings
    
 Item 1A. Risk Factors
  
 Item 6. Exhibits
   28




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SIGNATURES
  APAC Customer Services, Inc.Date: August 11, 2010
    
    By:
    
    /s/ Arthur D. DiBariArthur D. DiBariInterim Chief Executive Officer(Principal Executive Officer)Date: August 11, 2010
    
    By:
    
    /s/ Andrew B. SzafranAndrew B. SzafranSenior Vice President andChief Financial Officer(Principal Financial Officer)Date: August 11, 2010
    
    By:
    
    /s/ Joseph R. DoolanJoseph R. DoolanVice President and Controller(Principal Accounting Officer)
  29




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Exhibit Index
 ExhibitNumber
    
    Description3.1
    
    
    Amended and Restated Articles of Incorporation of APAC Customer
Services, Inc., incorporated by reference to APAC Customer
Services, Inc.s Annual Report on Form 10-K for the fiscal year
ended January 1, 2006.3.2
    
    
    Second Amended and Restated Bylaws of APAC Customer
Services, Inc., dated August 20, 2007, incorporated by reference
to APAC Customer Services, Inc.s Current Report on Form 8-K,
dated August 22, 2007.4.1
    
    
    Specimen Common Stock Certificate, incorporated by reference to
APAC Customer Services, Inc.s Annual Report on Form 10-K for the
fiscal year ended December 28, 2008.10.1
    
    
    Employment agreement with Eric Tinch, dated April 1, 2010,
incorporated by reference to APAC Customer Services, Inc.s
Current Report on Form 8-K, dated April 12, 2010.31.1
    
    
    Certification of Chief Executive Officer, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
  30