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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended January 2, 2011
 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(State or other jurisdiction of incorporation or
    
    36-2777140organization)
    
    (I.R.S. employer identification no.)
 Bannockburn Lake Office, 2201 Waukegan Road, Suite 300, Bannockburn, Illinois 60015
 (847) 374-4980
 Common Shares, $0.01 Par Value, NASDAQ
 None
 o þ
 o þ
 þ o
 o o
 þ
  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
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 PageForward-Looking Statements and Factors that May Affect Future Results
    
    
    3PART I
    
    
    5Item 1. Description of Business
    
    
    5Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    18Item 2. Properties
    
    
    18Item 3. Legal Proceedings
    
    
    18Item 4. Removed and Reserved
    
    
    19Executive Officers of the Registrant
    
    
    20PART II
    
    
    21Item 5. Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    21Item 6. Selected Financial Data
    
    
    23Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 8. Financial Statements and Supplementary Data
    
    
    38Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    64Item 9A. Controls and Procedures
    
    
    64Item 9B. Other Information
    
    
    66PART III
    
    
    66Item 10. Directors, Executive Officers and Corporate Governance
    
    
    66Item 11. Executive Compensation
    
    
    66Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    66Equity Compensation Plan Information
    
    
    66Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    67Item 14. Principal Accounting Fees and Services
    
    
    67PART IV
    
    
    67Item 15. Exhibits and Financial Statement Schedules
    
    
    67Signatures
    
    
    68Exhibit Index
    
    
    70Exhibit 10.32Exhibit 21.1Exhibit 23.2Exhibit 24.1Exhibit 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 and adversely
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 us, 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, tax obligations and changes to
laws in other countries.
    
    Our principal shareholder can exercise significant control over us
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.
    
    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.
  3




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
    
    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 our 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, potential litigation and substantial cost associated
with litigation, as well as diversion of managements attention.
   4




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PART I
 
 Item 1.
    
    Description of Business.
 General Overview
     Our Approach and Competitive Strategy
      5




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Our Core Industries
 Core Industries
   Seasonality
  Our Services
  Healthcare
  Communications
   6




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Business Services
  Media & Publishing
  Travel & Entertainment
  Technology
  Financial Services
  Personnel and Training
      7




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Operations and Capacity Utilization
 Customer Care Centers
   Capacity and Workforce Management
    Operational Disciplines
  Program Implementation
  Quality
    8




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Technology and Telecommunications
   Customer Care Applications
    Operating Systems and Telephony
   at 
   9




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System Architecture and Redundancy
   Client Relationships
     Competition
   10




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Government Regulation and Industry Self-Regulation
  Consumer Privacy and Information Security
      Licensing
   11




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Outbound Telemarketing Sales
  Compliance Activities
  Financial Information about Industry Segments
  Available Information
 www.sec.gov
 www.apaccustomerservices.com
  12




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Item 1A.
    
    Risk Factors.
 Risk Relating to the Company and its Business
  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 and adversely
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.
    13




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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 us, 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, tax obligations and changes
to laws in other countries.
     14




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Our principal shareholder can exercise significant control over us 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.
    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.
      15




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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.
    16




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The costs and management time and attention associated with litigation could result in a negative
impact to our 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, potential
litigation and substantial cost associated with litigation, as well as diversion of managements
attention.
   17




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Item 1B.
    
    Unresolved Staff Comments.
  
 Item 2.
    
    Properties.
    Number ofCustomer Care Center Locations
    
    WorkstationsCedar Rapids, Iowa
    
    
    529Corpus Christi, Texas
    
    
    425Davenport, Iowa
    
    
    713Green Bay, Wisconsin
    
    
    806LaCrosse, Wisconsin
    
    
    379Newport News, Virginia (client owned)
    
    
    717Tampa, Florida (client owned)
    
    
    677Tuscon, Arizona (East)
    
    
    853Tuscon, Arizona (West)
    
    
    615Utica, New York
    
    
    409atHOME
    
    
    151Total Domestic
    
    
    6,274Alabang, Muntilupa City, Philippines
    
    
    1,309Alabang, Muntilupa City, Philippines
    
    
    442Cubao, Quezon City, Philippines
    
    
    1,831Palo, Leyte, Philippines
    
    
    798Santo Domingo, Dominican Republic
    
    
    193Montevideo, Uruguay1
    
    
    Total International
    
    
    4,573Total all customer care center locations
    
    
    10,847
 
 (1)
    
    In October 2010, we signed a lease for our newest center in Montevideo, Uruguay and we expect
to begin operations in early 2011. 
 Item 3.
    
    Legal Proceedings.
  Tiffany Sharpe, et al. v.
APAC Customer Services, Inc.
  18




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Item 4.
    
    (Removed and Reserved)
  19




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Executive Officers of the Registrant
  Name
    
    Age
    
    
    PositionKevin T. Keleghan
    
    
    53
    
    
    President and Chief Executive OfficerChristopher H. Crowley
    
    
    40
    
    
    Senior Vice President, SalesArthur D. DiBari
    
    
    53
    
    
    Senior Vice President, OperationsJoseph R. Doolan
    
    
    47
    
    
    Vice President and ControllerMark E. McDermott
    
    
    50
    
    
    Vice President and Chief Information OfficerRobert B. Nachwalter
    
    
    40
    
    
    Senior Vice President, General Counsel and Corporate SecretaryAndrew B. Szafran
    
    
    44
    
    
    Senior Vice President and Chief Financial Officer
         20




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PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
  High
    
    
    LowFiscal Year 2010:First Quarter
    
    $
    6.26
    
    
    $
    5.04Second Quarter
    
    $
    6.64
    
    
    $
    5.37Third Quarter
    
    $
    5.98
    
    
    $
    4.61Fourth Quarter
    
    $
    6.50
    
    
    $
    4.92
 High
    
    
    LowFiscal Year 2009:First Quarter
    
    $
    3.30
    
    
    $
    0.94Second Quarter
    
    $
    6.40
    
    
    $
    2.55Third Quarter
    
    $
    6.27
    
    
    $
    4.67Fourth Quarter
    
    $
    7.02
    
    
    $
    5.02
  Issuer Purchases of Equity SecuritiesTotal Number of
    
    
    Maximum NumberTotal Number
    
    
    
    
    
    
    Shares  Purchased
    
    
    of Shares that Mayof Shares (or
    
    
    Average Price
    
    
    as Part of Publicly
    
    
    Yet Be PurchasedUnits)
    
    
    Paid per Share
    
    
    Announced Plans
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    (or Unit)
    
    
    or Programs (1)
    
    
    Programs (1)7/05/2010 - 8/01/2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    5,000,0008/02/2010 - 8/29/2010
    
    
    159,938
    
    
    
    5.00
    
    
    
    159,938
    
    
    
    4,840,0628/30/2010 - 10/03/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,840,06210/04/2010 - 10/31/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,840,06211/01/2010 - 11/28/2010
    
    
    406,677
    
    
    
    5.57
    
    
    
    406,677
    
    
    
    4,433,38511/29/2010 - 1/02/2011
    
    
    304,018
    
    
    
    5.97
    
    
    
    304,018
    
    
    
    4,129,367Total
    
    
    870,633
    
    
    $
    5.60
    
    
    
    870,633
    
    
    
    4,129,367
 
 (1)
    
    On August 18, 2010, we announced that our Board of Directors had authorized the
repurchase of up to an aggregate of five million shares of our common stock. Under the stock
repurchase program, purchases will be made from time to time on the open market at prevailing
market prices or in negotiated transactions off the market. The repurchase program is expected to
continue over the next 12 months unless extended or shortened by the Board of Directors. We are
not obligated to acquire any particular amount of common stock as a result of the plan, which may
be suspended at any time at our discretion.  21




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22




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Item 6.
    
    Selected Financial Data.
  For the Fiscal Years Ended1January 2,
    
    
    January 3,
    
    
    December 28,
    
    
    December 30,
    
    
    December 31,2011
    
    
    2010
    
    
    2008
    
    
    2007
    
    
    2006(Dollars in thousands, except share data and notes)Operating Data:Net revenue
    
    $
    325,958
    
    
    $
    293,177
    
    
    $
    248,799
    
    
    $
    224,683
    
    
    $
    224,297Cost of services
    
    
    257,490
    
    
    
    227,845
    
    
    
    207,953
    
    
    
    203,880
    
    
    
    197,881Gross profit
    
    
    68,468
    
    
    
    65,332
    
    
    
    40,846
    
    
    
    20,803
    
    
    
    26,416Selling, general and administrative
expenses
    
    
    31,427
    
    
    
    30,773
    
    
    
    30,118
    
    
    
    28,366
    
    
    
    30,794Legal settlement2
    
    
    1,793
    
    
    
    (41
    )
    
    
    30
    
    
    
    (4
    )
    
    
    485Severance, restructuring and other
charges (reversals) 3
    
    
    1,404
    
    
    
    (56
    )
    
    
    3,635
    
    
    
    1,632
    
    
    
    2,384Total operating expenses
    
    
    34,624
    
    
    
    30,676
    
    
    
    33,783
    
    
    
    29,994
    
    
    
    33,663Operating income (loss)
    
    
    33,844
    
    
    
    34,656
    
    
    
    7,063
    
    
    
    (9,191
    )
    
    
    (7,247
    )Other (income) expense, net
    
    
    (138
    )
    
    
    (36
    )
    
    
    (347
    )
    
    
    (249
    )
    
    
    (101
    )Interest (income) expense, net
    
    
    (31
    )
    
    
    (34
    )
    
    
    4,358
    
    
    
    3,537
    
    
    
    2,013Income (loss) before income taxes
    
    
    34,013
    
    
    
    34,726
    
    
    
    3,052
    
    
    
    (12,479
    )
    
    
    (9,159
    )Income tax expense (benefit) 4
    
    
    11,159
    
    
    
    (23,327
    )
    
    
    33
    
    
    
    (17,568
    )
    
    
    21,380Net income (loss)
    
    $
    22,854
    
    
    $
    58,053
    
    
    $
    3,019
    
    
    $
    5,089
    
    
    $
    (30,539
    )Net income (loss) per share:Basic
    
    $
    0.44
    
    
    $
    1.13
    
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    (0.62
    )Diluted
    
    $
    0.42
    
    
    $
    1.09
    
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    (0.62
    )Weighted average shares outstanding:Basic
    
    
    52,455
    
    
    
    51,570
    
    
    
    50,424
    
    
    
    49,800
    
    
    
    49,458Diluted
    
    
    54,706
    
    
    
    53,296
    
    
    
    50,477
    
    
    
    52,019
    
    
    
    49,458Balance Sheet Data:Cash and cash equivalents
    
    $
    41,399
    
    
    $
    20,557
    
    
    $
    618
    
    
    $
    1,426
    
    
    $
    1,305Working capital (deficit)
    
    
    75,979
    
    
    
    52,145
    
    
    
    (1,549
    )
    
    
    645
    
    
    
    (16,679
    )Capital expenditures, net
    
    
    12,305
    
    
    
    12,102
    
    
    
    5,810
    
    
    
    12,827
    
    
    
    10,713Total assets
    
    
    163,165
    
    
    
    138,605
    
    
    
    76,564
    
    
    
    89,926
    
    
    
    92,054Short-term obligations
    
    
    696
    
    
    
    397
    
    
    
    6,100
    
    
    
    14,707
    
    
    
    14,378Long-term obligations, less current
maturities
    
    
    646
    
    
    
    667
    
    
    
    
    
    
    
    11,600
    
    
    
    4,400Shareholders equity
    
    
    121,471
    
    
    
    99,748
    
    
    
    35,420
    
    
    
    33,381
    
    
    
    23,306
   23




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Notes to Selected Financial Data
 (1)
    
    We operate on a 52/53-week fiscal year that ends on the Sunday closest to December 31. All
fiscal years presented were 52 weeks, except for fiscal year 2009 which ended on January 3,
2010. Fiscal year 2009 was 53 weeks. The effect of the additional week in fiscal year 2009
was to increase revenues and gross profit by $6.0 million and $0.9 million, respectively and
to increase net income by $0.4 million.The fiscal years presented are as follows: Fiscal Year
    
    Fiscal Year End2006
    
    December 31, 20062007
    
    December 30, 20072008
    
    December 28, 20082009
    
    January 3, 20102010
    
    January 2, 2011
 (2)
    
    During fiscal year 2010, we recorded legal settlement expense of $1.8 million related to the
settlement of the Tiffany Sharpe, et al. v APAC Customer Services, Inc. suit. See Note 10 of
the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K
for more information.(3)
    
    We recorded severance, restructuring and other charges (reversals) in each of the fiscal
years presented in the Selected Financial Data table noted above. For fiscal years 2010,
2009 and 2008, see Note 7 of the Notes to Consolidated Financial Statements in Item 8 of this
Annual Report on Form 10-K for more information. We recorded $1.6 million of restructuring
and other charges in fiscal year 2007 related to downsizing space in our Tucson, Arizona
customer care center and eliminating certain administrative and operations positions.
Restructuring and other charges related to this plan were $1.4 million and included $0.6
million in lease termination and other costs and $0.8 million in severance costs related to
the elimination of six positions. During 2007, we also reversed $0.1 million in lease
termination and other costs associated with the 2006 restructuring initiatives as operating
expenses were lower than originally estimated and recorded $0.3 million in charges related to
our July 2005 restructuring as a result of our conclusion that we would be unable to sublet
the remaining unused space in our corporate office in Deerfield, Illinois. We recorded $2.4
million of restructuring and other charges in fiscal year 2006. During that year, we closed
four customer care centers with approximately 960 workstations. Restructuring and other
charges associated with these closures were $1.8 million comprised of lease termination and
other costs of $0.8 million, the write down of property and equipment of $0.5 million net of
reductions from the proceeds from the sale of related assets, and severance costs of $0.5
million related to the elimination of 119 administrative and support positions. We also
recorded additional charges of $0.9 million related to the 2005 restructuring as a result of
delays in subletting space in our corporate office, which charges were partially offset by a
reversal of $0.3 million of prior year charges not utilized(4)
    
    During fiscal year 2009, we reversed $37.9 million of the valuation allowance that had been
provided against the deferred tax assets, which resulted in a deferred income tax benefit of
$23.8 million. In 2007, we reversed a $17.6 million tax reserve and related accrued interest,
in connection with the Internal Revenue Services proposed adjustment to our 2002 tax return,
which was favorably resolved in 2007. We provided a valuation allowance of $27.3 million
against deferred tax assets as of December 31, 2006. See Note 8 of the Notes to Consolidated
Financial Statements in Item 8 of this Annual Report on Form 10-K for more information.  24




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Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
      Business Outlook
   25




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Results of Operations
  For the Fiscal Year Ended1January 2,
    
    
    January 3,
    
    
    December 28,
    
    
    2010 vs 2009
    
    
    2009 vs 20082011
    
    
    2010
    
    
    2008
    
    

% Fav (Unfav)
    
    
    % Fav (Unfav)(Dollars in thousands, except statistical data and notes)Net revenue
    
    $
    325,958
    
    
    $
    293,177
    
    
    $
    248,799
    
    
    
    11.2
    %
    
    
    17.8
    %Cost of Services:Direct labor
    
    
    175,915
    
    
    
    158,669
    
    
    
    143,500
    
    
    
    (10.9
    )
    
    
    (10.6
    )Other facility expenses
    
    
    81,575
    
    
    
    69,176
    
    
    
    64,453
    
    
    
    (17.9
    )
    
    
    (7.3
    )Total cost of services
    
    
    257,490
    
    
    
    227,845
    
    
    
    207,953
    
    
    
    (13.0
    )
    
    
    (9.6
    )Percentage of revenue
    
    
    79.0
    %
    
    
    77.7
    %
    
    
    83.6
    %Gross profit
    
    
    68,468
    
    
    
    65,332
    
    
    
    40,846
    
    
    
    4.8
    
    
    
    59.9Gross profit margin
    
    
    21.0
    %
    
    
    22.3
    %
    
    
    16.4
    %Operating Expenses:Selling, general & administrative
expenses
    
    
    31,427
    
    
    
    30,773
    
    
    
    30,118
    
    
    
    (2.1
    )
    
    
    (2.2
    )Legal settlement
    
    
    1,793
    
    
    
    (41
    )
    
    
    30
    
    
    
    *
    
    
    
    236.7Severance, restructuring and
other charges (reversals)
    
    
    1,404
    
    
    
    (56
    )
    
    
    3,635
    
    
    
    *
    
    
    
    101.5Total operating expenses
    
    
    34,624
    
    
    
    30,676
    
    
    
    33,783
    
    
    
    (12.9
    )
    
    
    9.2Operating income
    
    
    33,844
    
    
    
    34,656
    
    
    
    7,063
    
    
    
    (2.3
    )
    
    
    390.7Other (income) expense, net
    
    
    (138
    )
    
    
    (36
    )
    
    
    (347
    )
    
    
    283.3
    
    
    
    (89.6
    )Interest (income) expense, net
    
    
    (31
    )
    
    
    (34
    )
    
    
    4,358
    
    
    
    (8.8
    )
    
    
    100.8Income before income taxes
    
    
    34,013
    
    
    
    34,726
    
    
    
    3,052
    
    
    
    (2.1
    )
    
    
    1,037.8Income tax expense (benefit)
    
    
    11,159
    
    
    
    (23,327
    )
    
    
    33
    
    
    
    (147.8
    )
    
    
    *Net income
    
    $
    22,854
    
    
    $
    58,053
    
    
    $
    3,019
    
    
    
    (60.6
    )%
    
    
    1,822.9
    %
 
 (1)
    
    We operate on a 52/53-week fiscal year that ends on the Sunday closest to December 31.
All fiscal years presented were 52 weeks, except for fiscal year 2009 which ended on January
3, 2010. Fiscal year 2009 was 53 weeks. The effect of the additional week in fiscal year
2009 was to increase revenues and gross profit by $6.0 million and $0.9 million, respectively
and to increase net income by $0.4 million.*
    
    Percentage change is not meaningful. Non-GAAP Financial Measures
     26




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##### Table of Contents



For the Fiscal Year Ended1January 2,
    
    
    January 3,
    
    
    December 28,
    
    
    2010 vs 2009
    
    
    2009 vs 20082011
    
    
    2010
    
    
    2008
    
    

% Fav (Unfav)
    
    
    % Fav (Unfav)(Dollars in thousands, except statistical data and notes)EBITDA 2
    
    $
    45,585
    
    
    $
    46,562
    
    
    $
    19,477
    
    
    
    (2.1
    )%
    
    
    139.1
    %Adjusted EBITDA2
    
    
    49,350
    
    
    
    46,465
    
    
    
    23,207
    
    
    
    6.2
    
    
    
    100.2Statistical Information:Number of customer care centersDomestic
    
    
    10
    
    
    
    10
    
    
    
    9
    
    
    
    
    
    
    
    1International
    
    
    5
    
    
    
    5
    
    
    
    4
    
    
    
    
    
    
    
    1Total
    
    
    15
    
    
    
    15
    
    
    
    13
    
    
    
    
    
    
    
    2Number of workstations, end of periodDomestic
    
    
    6,274
    
    
    
    6,222
    
    
    
    4,855
    
    
    
    52
    
    
    
    1,367International
    
    
    4,573
    
    
    
    4,206
    
    
    
    3,467
    
    
    
    367
    
    
    
    739Total
    
    
    10,847
    
    
    
    10,428
    
    
    
    8,322
    
    
    
    419
    
    
    
    2,106
 Notes to Non-GAAP Financial Measures
 (1)
    
    We operate on a 52/53- week fiscal year that ends on the Sunday closest to December 31. All
fiscal years presented were 52 weeks, except for fiscal year 2009 which ended on January 3, 2010.
Fiscal year 2009 was 53 weeks.(2)
    
    We define EBITDA as net income plus income tax expense (benefit), depreciation and
amortization, and interest expense. We define adjusted EBITDA as EBITDA adjusted for legal
settlement expense, severance, restructuring and other charges (reversals) and the acceleration of
certain stock compensation expense.    27




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##### Table of Contents



For the Fiscal Year EndedJanuary 2,
    
    
    January 3,
    
    
    December 28,2011
    
    
    2010
    
    
    2008(Dollars in thousands)Net income
    
    $
    22,854
    
    
    $
    58,053
    
    
    $
    3,019Interest (income) expense, net
    
    
    (31
    )
    
    
    (34
    )
    
    
    4,358Income tax expense (benefit)
    
    
    11,159
    
    
    
    (23,327
    )
    
    
    33Depreciation and amortization
    
    
    11,603
    
    
    
    11,870
    
    
    
    12,067EBITDA
    
    $
    45,585
    
    
    $
    46,562
    
    
    $
    19,477Legal settlement
    
    
    1,793
    
    
    
    (41
    )
    
    
    30Severance, restructuring and other charges (reversals)
    
    
    1,404
    
    
    
    (56
    )
    
    
    3,635Accelerated stock compensation expense (a)
    
    
    568
    
    
    
    
    
    
    
    65Adjusted EBITDA
    
    $
    49,350
    
    
    $
    46,465
    
    
    $
    23,207
 
 (a)
    
    Accelerated stock compensation expense for fiscal year 2010 was the result of the acceleration
of the vesting of stock options related to the June 2010 retirement of two members of our Board of
Directors and the September 2010 severance agreement with our former President and CEO.
Accelerated stock compensation expense for fiscal year 2008 was the result of the acceleration of
the vesting of stock options related to the June 2008 retirement of one member of our Board of
Directors. Non-GAAP Adjusted Financial Results
     For the Fiscal Year Ended January 3, 2010Non-GAAP AdjustmentsValuation
    
    
    
    
    
    
    Non-GAAPActual
    
    
    Allowance
    
    
    Fifty-Third Week
    
    
    Adjusted(Dollars in thousands)Revenue
    
    $
    293.2
    
    
    $
    
    
    
    $
    (6.0
    )
    
    $
    287.2Gross profit
    
    
    65.3
    
    
    
    
    
    
    
    (0.9
    )
    
    
    64.5Pretax profit (IBT)
    
    
    34.7
    
    
    
    
    
    
    
    (0.4
    )
    
    
    34.4Income tax expense (benefit)
    
    
    (23.3
    )
    
    
    23.8
    
    
    
    
    
    
    
    0.5Net income
    
    
    58.1
    
    
    
    (23.8
    )
    
    
    (0.4
    )
    
    
    33.8Adjusted EBITDA
    
    
    46.5
    
    
    
    
    
    
    
    (0.4
    )
    
    
    46.1
  28




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Fiscal Year 2010 Results of Operations Compared to Fiscal Year 2009 Results of Operations
     Tiffany Sharpe, et al. v. APAC Customer Services, Inc.
    29




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##### Table of Contents



Fiscal Year 2009 Results of Operations Compared to Fiscal Year 2008 Results of Operations
      30




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##### Table of Contents



Liquidity and Capital Resources
  For the Fiscal Year EndedJanuary 2,
    
    
    January 3,
    
    
    December 28,2011
    
    
    2010
    
    
    2008(Dollars in thousands)Net cash provided by operating activities
    
    $
    36,541
    
    
    $
    31,937
    
    
    $
    27,035Net cash used in investing activities
    
    
    (11,359
    )
    
    
    (10,898
    )
    
    
    (5,753
    )Net cash used in financing activities
    
    
    (4,776
    )
    
    
    (1,812
    )
    
    
    (20,849
    )Effect of exchange rates on cash
    
    
    436
    
    
    
    712
    
    
    
    (1,241
    )Net change in cash
    
    $
    20,842
    
    
    $
    19,939
    
    
    $
    (808
    )
  31




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##### Table of Contents



Operating Activities
    Investing Activities
    Financing Activities
    Bank Financing
   32




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##### Table of Contents



Future Liquidity
   Off Balance Sheet Arrangements
   33




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Accounting for derivatives
   Allowance for doubtful accounts
  Accounting for employee benefits and obligations
  Revenue recognition
   34




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##### Table of Contents



.
 Accounting for stock-based compensation
   Income taxes
    35




---



##### Table of Contents



New Accounting Pronouncements
 Fair Value
  Revenue Recognition
  Contractual Obligations and Commitments
  Payment due by periodLess than 1
    
    
    
    
    
    
    
    
    
    
    Over 5Year
    
    
    2 to 3 Years
    
    
    4 to 5 Years
    
    
    Years
    
    
    Total(Dollars in thousands)Contractual Obligations:Operating leases
    
    $
    6,861
    
    
    $
    11,860
    
    
    $
    10,667
    
    
    $
    11,687
    
    
    $
    41,075Capital leases
    
    
    696
    
    
    
    529
    
    
    
    151
    
    
    
    
    
    
    
    1,376Total contractual obligations
    
    $
    7,557
    
    
    $
    12,389
    
    
    $
    10,818
    
    
    $
    11,687
    
    
    $
    42,451Other Commercial Commitments:Telecommunications commitments
    
    $
    4,221
    
    
    $
    5,165
    
    
    $
    
    
    
    $
    
    
    
    $
    9,386Letters of Credit
    
    
    3,090
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,090Total other commercial
commitments
    
    $
    7,311
    
    
    $
    5,165
    
    
    $
    
    
    
    $
    
    
    
    $
    12,476
  36




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##### Table of Contents



Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk.
      37




---



##### Table of Contents



Item 8.
    
    Financial Statements and Supplementary Data.
  PageReport of Independent Registered Public Accounting Firm for the Fiscal Years Ended
January 2, 2011, January 3, 2010 and December 28, 2008
    
    
    39Consolidated Statements of Operations for the Fiscal Years Ended January 2, 2011,
January 3, 2010 and December 28, 2008
    
    
    40Consolidated Balance Sheets as of January 2, 2011 and January 3, 2010
    
    
    41Consolidated Statements of Shareholders Equity for the Fiscal Years Ended January 2, 2011,
January 3, 2010 and December 28, 2008
    
    
    42Consolidated Statements of Cash Flows for the Fiscal Years Ended January 2, 2011,
January 3, 2010 and December 28, 2008
    
    
    43Notes to Consolidated Financial Statements
    
    
    44Quarterly Results of Operations for the Fiscal Years Ended January 2, 2011 and
January 3, 2010
    
    
    63Managements Report on Internal Control over Financial Reporting as of January 2, 2011
    
    
    64Report of Independent Registered Public Accounting Firm as of January 2, 2011
    
    
    65
  38




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
  39




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars and shares in thousands, except net income per share data)
 For the Fiscal Year EndedJanuary 2,
    
    
    January 3,
    
    
    December 28,2011
    
    
    2010
    
    
    2008Net revenue
    
    $
    325,958
    
    
    $
    293,177
    
    
    $
    248,799Cost of services
    
    
    257,490
    
    
    
    227,845
    
    
    
    207,953Gross profit
    
    
    68,468
    
    
    
    65,332
    
    
    
    40,846Operating expenses:Selling, general and administrative expenses
    
    
    31,427
    
    
    
    30,773
    
    
    
    30,118Legal settlement
    
    
    1,793
    
    
    
    (41
    )
    
    
    30Severance, restructuring and other charges
(reversals)
    
    
    1,404
    
    
    
    (56
    )
    
    
    3,635Total operating expenses
    
    
    34,624
    
    
    
    30,676
    
    
    
    33,783Operating income
    
    
    33,844
    
    
    
    34,656
    
    
    
    7,063Other (income) expense, net
    
    
    (138
    )
    
    
    (36
    )
    
    
    (347
    )Interest (income) expense, net
    
    
    (31
    )
    
    
    (34
    )
    
    
    4,358Income before income taxes
    
    
    34,013
    
    
    
    34,726
    
    
    
    3,052Income tax expense (benefit)
    
    
    11,159
    
    
    
    (23,327
    )
    
    
    33Net income
    
    $
    22,854
    
    
    $
    58,053
    
    
    $
    3,019Net income per share:Basic
    
    $
    0.44
    
    
    $
    1.13
    
    
    $
    0.06Diluted
    
    $
    0.42
    
    
    $
    1.09
    
    
    $
    0.06Weighted average shares outstanding:Basic
    
    
    52,455
    
    
    
    51,570
    
    
    
    50,424Diluted
    
    
    54,706
    
    
    
    53,296
    
    
    
    50,477
   40




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except share data)
 January 2,
    
    
    January 3,2011
    
    
    2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    41,399
    
    
    $
    20,557Accounts receivable, less allowances of $1,065 and $1,144, respectively
    
    
    52,483
    
    
    
    45,358Deferred tax assets, current
    
    
    11,051
    
    
    
    14,593Other current assets
    
    
    8,204
    
    
    
    6,323Total current assets
    
    
    113,137
    
    
    
    86,831Property and equipment, net
    
    
    28,030
    
    
    
    25,653Goodwill
    
    
    13,338
    
    
    
    13,338Other intangible assets, net
    
    
    425
    
    
    
    1,028Deferred tax assets, non-current
    
    
    5,387
    
    
    
    10,170Other assets
    
    
    2,848
    
    
    
    1,585Total assets
    
    $
    163,165
    
    
    $
    138,605LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Capital leases  current portion
    
    $
    696
    
    
    $
    397Accounts payable
    
    
    4,964
    
    
    
    2,770Income taxes payable
    
    
    93
    
    
    
    365Accrued payroll and related items
    
    
    22,205
    
    
    
    21,964Accrued liabilities
    
    
    9,200
    
    
    
    9,190Total current liabilities
    
    
    37,158
    
    
    
    34,686Other non-current liabilities
    
    
    4,536
    
    
    
    4,171Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common Shares, $0.01 per share; authorized 200,000,000 shares;
53,359,090 shares issued and 52,488,457 shares outstanding at January 2,
2011, and 52,318,726 shares issued and outstanding at January 3, 2010
    
    
    533
    
    
    
    523Additional paid-in capital
    
    
    112,668
    
    
    
    109,818Accumulated earnings (deficit)
    
    
    11,166
    
    
    
    (11,688
    )Accumulated other comprehensive income
    
    
    1,980
    
    
    
    1,095Treasury shares: 870,633 and 0 shares at cost at January 2, 2011
and January 3, 2010, respectively
    
    
    (4,876
    )
    
    
    Total shareholders equity
    
    
    121,471
    
    
    
    99,748Total liabilities and shareholders equity
    
    $
    163,165
    
    
    $
    138,605
   41




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Dollars in thousands, except share data)
 AccumulatedCommon
    
    
    Common
    
    
    Additional
    
    
    Accumulated
    
    
    
    Other
    
    
    TotalShares
    
    
    Share
    
    
    Paid-In
    
    
    Earnings
    
    
    Comprehensive
    
    
    Treasury
    
    
    ShareholdersIssued
    
    
    Amount
    
    
    Capital
    
    
    (Deficit)
    
    
    Income
    
    
    Stock
    
    
    EquityBalance, December 30, 2007
    
    
    50,379,296
    
    
    $
    504
    
    
    $
    102,647
    
    
    $
    (72,760
    )
    
    $
    2,990
    
    
    $
    
    
    
    $
    33,381Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,019
    
    
    
    
    
    
    
    
    
    
    
    3,019Foreign currency translation adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,315
    )
    
    
    
    
    
    
    (1,315
    )Unrealized loss on derivative contracts, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,539
    )
    
    
    
    
    
    
    (1,539
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    215
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )
    
    
    (49
    )Exercise of employee stock options,
including related excess income tax
benefits
    
    
    404,016
    
    
    
    5
    
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    403Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    1,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,305Balance, December 28, 2008
    
    
    50,783,312
    
    
    $
    509
    
    
    $
    104,517
    
    
    $
    (69,741
    )
    
    $
    136
    
    
    $
    (1
    )
    
    $
    35,420Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,053
    
    
    
    
    
    
    
    
    
    
    
    58,053Foreign currency translation adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    25Unrealized gain on derivative contracts, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    934
    
    
    
    
    
    
    
    934Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,012Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Exercise of employee stock options,
including related excess income tax
benefits
    
    
    1,535,414
    
    
    
    14
    
    
    
    4,441
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    4,462Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    860
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    860Balance, January 3, 2010
    
    
    52,318,726
    
    
    $
    523
    
    
    $
    109,818
    
    
    $
    (11,688
    )
    
    $
    1,095
    
    
    $
    
    
    
    $
    99,748Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,854
    
    
    
    
    
    
    
    
    
    
    
    22,854Foreign currency translation adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    583
    
    
    
    
    
    
    
    583Unrealized gain on derivative contracts, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    302Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,739Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,876
    )
    
    
    (4,876
    )Exercise of employee stock options
    
    
    1,040,364
    
    
    
    10
    
    
    
    1,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,651Option settlement obligation
    
    
    
    
    
    
    
    
    
    
    (3,186
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,186
    )Excess tax benefit from share-based payments
    
    
    
    
    
    
    
    
    
    
    2,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,307Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    2,088
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,088Balance, January 2, 2011
    
    
    53,359,090
    
    
    $
    533
    
    
    $
    112,668
    
    
    $
    11,166
    
    
    $
    1,980
    
    
    $
    (4,876
    )
    
    $
    121,471
   42




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 For the Fiscal Year EndedJanuary 2,
    
    
    January 3,
    
    
    December 28,2011
    
    
    2010
    
    
    2008Operating Activities:Net income
    
    $
    22,854
    
    
    $
    58,053
    
    
    $
    3,019Adjustments to reconcile net income to net cash
provided by operating activitiesDepreciation and amortization
    
    
    11,603
    
    
    
    11,870
    
    
    
    12,067Deferred income taxes
    
    
    10,632
    
    
    
    (24,763
    )
    
    
    Non-cash restructuring charges
    
    
    
    
    
    
    
    
    
    
    14Stock compensation expense
    
    
    2,088
    
    
    
    860
    
    
    
    1,305Excess income tax benefits from stock option transactions
    
    
    (2,307
    )
    
    
    
    
    
    
    Non-cash warrant issuances
    
    
    
    
    
    
    
    
    
    
    215Loss on sale of property and equipment
    
    
    2
    
    
    
    38
    
    
    
    193Amortized gain on sale leaseback
    
    
    (133
    )
    
    
    (94
    )
    
    
    (118
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (7,125
    )
    
    
    (13,811
    )
    
    
    2,921Other current assets
    
    
    (1,880
    )
    
    
    (2,782
    )
    
    
    2,955Accounts payable
    
    
    2,194
    
    
    
    1,129
    
    
    
    (646
    )Accrued payroll and related items
    
    
    241
    
    
    
    3,237
    
    
    
    2,773Income taxes (receivable) payable
    
    
    (272
    )
    
    
    112
    
    
    
    33Accrued liabilities
    
    
    306
    
    
    
    (1,310
    )
    
    
    2,471Other assets and liabilities
    
    
    (1,662
    )
    
    
    (602
    )
    
    
    (167
    )Net cash provided by operating activities
    
    
    36,541
    
    
    
    31,937
    
    
    
    27,035Investing Activities:Purchase of property and equipment, net
    
    
    (11,360
    )
    
    
    (10,899
    )
    
    
    (5,810
    )Net proceeds from sale of property and equipment
    
    
    1
    
    
    
    1
    
    
    
    57Net cash used in investing activities
    
    
    (11,359
    )
    
    
    (10,898
    )
    
    
    (5,753
    )Financing Activities:Borrowings under revolving credit facility
    
    
    
    
    
    
    326,021
    
    
    
    324,936Payments under revolving credit facility
    
    
    
    
    
    
    (332,121
    )
    
    
    (331,143
    )Payments on long-term debt
    
    
    
    
    
    
    
    
    
    
    (14,000
    )Payment of capital lease obligations
    
    
    (672
    )
    
    
    (139
    )
    
    
    Payment of financing costs
    
    
    
    
    
    
    (29
    )
    
    
    (996
    )Payment of stock option repurchase obligation
    
    
    (3,186
    )
    
    
    
    
    
    
    Stock option transactions
    
    
    1,651
    
    
    
    4,462
    
    
    
    403Excess income tax benefits from stock option transactions
    
    
    2,307
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    (4,876
    )
    
    
    (6
    )
    
    
    (49
    )Net cash used in financing activities
    
    
    (4,776
    )
    
    
    (1,812
    )
    
    
    (20,849
    )Effect of exchange rates on cash
    
    
    436
    
    
    
    712
    
    
    
    (1,241
    )Net increase (decrease) in cash and cash equivalents
    
    
    20,842
    
    
    
    19,939
    
    
    
    (808
    )Cash and Cash Equivalents:Beginning of year
    
    
    20,557
    
    
    
    618
    
    
    
    1,426End of year
    
    $
    41,399
    
    
    $
    20,557
    
    
    $
    618Supplemental Disclosures:Cash payments for interest
    
    $
    231
    
    
    $
    393
    
    
    $
    2,396Cash payments for income taxes
    
    
    1,441
    
    
    
    227
    
    
    
    Capital expenditures funded by others
    
    
    624
    
    
    
    295
    
    
    
    1,413Property and equipment purchases acquired under capital
leases
    
    
    945
    
    
    
    1,203
    
    
    
    
   43




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands, except share data and as otherwise indicated)
 1. Description of Business
  2. Basis of Presentation and Principles of Consolidation
 Consolidation
  Use of estimates
  Fiscal Year
  3. Summary of Significant Accounting Policies and Estimates
 Revenue recognition
    44




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
   Cost of services
   Accounting for derivatives
  Allowance for doubtful accounts
  Accounting for employee benefits and obligations
   45




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  2010
    
    
    2009Group Health Insurance
    
    $
    1,486
    
    
    $
    1,170Workers Compensation
    
    $
    431
    
    
    $
    929
 Income taxes
   Cash equivalents
  Accounting for long-lived assets
  Property and Equipment
   46




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  January 2,
    
    
    January 3,2011
    
    
    2010Building and leasehold improvements
    
    $
    23,833
    
    
    $
    22,677Telecommunications equipment
    
    
    44,736
    
    
    
    39,691Workstations and office equipment
    
    
    13,770
    
    
    
    12,435Capitalized software
    
    
    22,117
    
    
    
    18,972Construction in progress
    
    
    4,861
    
    
    
    2,151Accumulated depreciation and amortization
    
    
    (81,287
    )
    
    
    (70,273
    )Property and equipment, net
    
    $
    28,030
    
    
    $
    25,653
  Capitalized Software
  Goodwill
  Financial Information about Industry Segments
  Accounting for Stock-Based Compensation
    47




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
    Concentrations of Credit and Other Risk
    New Accounting Pronouncements
 Fair Value
   48




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 Revenue Recognition
  4. Comprehensive Income
  2010
    
    
    2009
    
    
    2008Net income
    
    $
    22,854
    
    
    $
    58,053
    
    
    $
    3,019Foreign currency translation adjustment 1
    
    
    583
    
    
    
    25
    
    
    
    (1,315
    )Unrealized gain (loss) on derivative contracts
    
    
    302
    
    
    
    934
    
    
    
    (1,539
    )Total comprehensive income
    
    $
    23,739
    
    
    $
    59,012
    
    
    $
    165
 
 (1)
    
    The foreign currency translation adjustments in fiscal year 2010, 2009 and 2008 relate to the
impact of the change in exchange rates on net assets located outside of the United States.  Cash Flow
    
    
    AccumulatedHedges -
    
    
    OtherCurrency
    
    
    Derivative
    
    
    ComprehensiveTranslations
    
    
    Contracts
    
    
    IncomeBalance, December 30, 2007
    
    $
    2,197
    
    
    $
    793
    
    
    $
    2,990Depreciation on current period hedging
transactions
    
    
    
    
    
    
    (2,260
    )
    
    
    (2,260
    )Realized loss reclassified to earnings
    
    
    
    
    
    
    721
    
    
    
    721Foreign currency translation adjustment
    
    
    (1,315
    )
    
    
    
    
    
    
    (1,315
    )Tax effect
    
    
    
    
    
    
    
    
    
    
    Balance, December 28, 2008
    
    $
    882
    
    
    $
    (746
    )
    
    $
    136Appreciation on current period hedging
transactions
    
    
    
    
    
    
    1,012
    
    
    
    1,012Realized loss reclassified to earnings
    
    
    
    
    
    
    161
    
    
    
    161Foreign currency translation adjustment
    
    
    176
    
    
    
    
    
    
    
    176Tax effect
    
    
    (151
    )
    
    
    (239
    )
    
    
    (390
    )Balance, January 3, 2010
    
    $
    907
    
    
    $
    188
    
    
    $
    1,095Appreciation on current period hedging
transactions
    
    
    
    
    
    
    1,879
    
    
    
    1,879Realized gain reclassified to earnings
    
    
    
    
    
    
    (1,412
    )
    
    
    (1,412
    )Foreign currency translation adjustment
    
    
    674
    
    
    
    
    
    
    
    674Tax effect
    
    
    (91
    )
    
    
    (165
    )
    
    
    (256
    )Balance, January 2, 2011
    
    $
    1,490
    
    
    $
    490
    
    
    $
    1,980
  49




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 5. Significant Clients
  2010
    
    
    2009
    
    
    2008Verizon Wireless
    
    
    21.6
    %
    
    
    27.7
    %
    
    
    21.0
    %United Parcel Services, Inc.
    
    
    21.0
    
    
    
    20.6
    
    
    
    25.1Medco Health Solutions, Inc.
    
    
    13.9
    
    
    
    13.5
    
    
    
    11.5WellPoint, Inc.
    
    
    5.8
    
    
    
    6.9
    
    
    
    12.5Total
    
    
    62.3
    %
    
    
    68.7
    %
    
    
    70.1
    %
  Percent of NetAccounts Receivable2010
    
    
    2009Verizon Wireless
    
    
    19.1
    %
    
    
    34.7
    %Medco Health Solutions, Inc.
    
    
    13.6
    
    
    
    12.4United Parcel Services, Inc
    
    
    5.4
    
    
    
    9.9WellPoint, Inc.
    
    
    3.9
    
    
    
    8.8Total
    
    
    42.0
    %
    
    
    65.7
    %
 6. Supplemental Balance Sheet Data
  January 2,
    
    
    January 3,Consolidated Balance Sheet
    
    2011
    
    
    2010Prepaid expenses and other assets
    
    $
    4,365
    
    
    $
    2,931Non-qualified retirement plan
    
    
    2,375
    
    
    
    1,931Unrecognized gain on forward contracts
    
    
    1,109
    
    
    
    657Non-trade receivables
    
    
    355
    
    
    
    804Other current assets
    
    $
    8,204
    
    
    $
    6,323Non-qualified retirement plan obligation
    
    $
    2,375
    
    
    $
    1,931Accrued capital expenditures
    
    
    1,901
    
    
    
    890Accrued professional fees
    
    
    654
    
    
    
    719Accrued severance
    
    
    536
    
    
    
    261Accrued temporary labor
    
    
    476
    
    
    
    839Deferred rent
    
    
    473
    
    
    
    1,134Accrued workers compensation
    
    
    431
    
    
    
    929Accrued telecom
    
    
    424
    
    
    
    961Other accrued liabilities
    
    
    1,930
    
    
    
    1,526Accrued liabilities
    
    $
    9,200
    
    
    $
    9,190
  50




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 7. Severance, Restructuring and Other Charges
 Severance and Other Charges
   718-20-35-1
   Restructuring Charges
   8. Income Taxes
  2010
    
    
    2009
    
    
    2008Current foreign provision
    
    $
    336
    
    
    $
    275
    
    
    $
    Current state provision
    
    
    423
    
    
    
    236
    
    
    
    33Total current provision
    
    
    759
    
    
    
    511
    
    
    
    33Deferred federal provision (benefit)
    
    
    10,180
    
    
    
    (23,108
    )
    
    
    Deferred state provision (benefit)
    
    
    220
    
    
    
    (730
    )
    
    
    Total deferred provision (benefit)
    
    
    10,400
    
    
    
    (23,838
    )
    
    
    Total income tax expense (benefit)
    
    $
    11,159
    
    
    $
    (23,327
    )
    
    $
    33
  51




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  2010
    
    
    2009
    
    
    2008U.S. Statutory tax expense  rate (35%)
    
    $
    11,905
    
    
    $
    12,154
    
    
    $
    1,068U.S. State taxes, net of U.S. Federal benefit
and state credits
    
    
    625
    
    
    
    790
    
    
    
    63Work Opportunity Tax Credits
    
    
    (1,880
    )
    
    
    (558
    )
    
    
    (246
    )Work Opportunity Tax Credits add back to income
    
    
    771
    
    
    
    
    
    
    
    Other, including permanent items
    
    
    90
    
    
    
    411
    
    
    
    30Decrease in state NOL
    
    
    231
    
    
    
    993
    
    
    
    Deferred tax asset adjustment
    
    
    
    
    
    
    783
    
    
    
    (2,418
    )Valuation allowance (reversal)
    
    
    (583
    )
    
    
    (37,900
    )
    
    
    1,536Actual tax expense (benefit)
    
    $
    11,159
    
    
    $
    (23,327
    )
    
    $
    33
   January 2,
    
    
    January 3,2011
    
    
    2010Deferred tax assets:Net operating loss and credit carryforwards
    
    $
    10,030
    
    
    $
    20,270Payroll related items
    
    
    2,228
    
    
    
    1,480Depreciation
    
    
    1,899
    
    
    
    550Stock compensation expense
    
    
    1,263
    
    
    
    925Deferred rent
    
    
    1,206
    
    
    
    1,498Self-insurance related costs
    
    
    713
    
    
    
    781Other
    
    
    788
    
    
    
    900Total deferred tax assets
    
    
    18,127
    
    
    
    26,404Deferred tax liabilities:Foreign exchange adjustment on fixed assets
    
    
    (242
    )
    
    
    (151
    )Derivative contracts
    
    
    (404
    )
    
    
    (239
    )Intangible assets
    
    
    (646
    )
    
    
    (271
    )Total deferred tax liabilities
    
    
    (1,292
    )
    
    
    (661
    )Net deferred tax assets before valuation
allowance
    
    
    16,835
    
    
    
    25,743Valuation allowance
    
    
    (397
    )
    
    
    (980
    )Net deferred tax assets
    
    $
    16,438
    
    
    $
    24,763
  52




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
    Net Operating LossExpiration
    
    Carryforward2011
    
    $
    2462012
    
    
    4022013
    
    
    42014
    
    
    4062015
    
    
    0Thereafter
    
    
    18,913$
    19,971
      53




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 9. Long-term Obligations
 Debt
       Capital Leases
  January 2,
    
    
    January 3,2011
    
    
    2010Obligations under capital leases
    
    $
    1,376
    
    
    $
    1,064Less: current portion of capital leases
    
    
    696
    
    
    
    397Long-term obligations of capital leases
    
    $
    680
    
    
    $
    667
  54




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  January 2,
    
    
    January 3,2011
    
    
    2010Capital leases
    
    $
    2,151
    
    
    $
    1,203Less: accumulated amortization
    
    
    790
    
    
    
    150Net capital leases
    
    $
    1,361
    
    
    $
    1,053
  CapitalLeases2011
    
    $
    7812012
    
    
    4182013
    
    
    1312014
    
    
    1052015
    
    
    61Total minimum lease payments
    
    
    1,496Less: amount representing estimated executory costs
    
    
    73Net minimum lease payments
    
    
    1,423Less: amount representing interest
    
    
    47Present value of net minimum lease payments
    
    $
    1,376
 10. Commitments and Contingencies
 Lease Commitments
    OperatingLeases2011
    
    $
    6,8612012
    
    
    6,2692013
    
    
    5,5912014
    
    
    5,3362015
    
    
    5,331Years thereafter
    
    
    11,687Total payments
    
    $
    41,075
  55




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 Telecommunications Commitments
  Total2011
    
    $
    4,2212012
    
    
    4,2212013
    
    
    944Total commitments
    
    $
    9,386
 Legal Proceedings
  Tiffany Sharpe, et al. v.
APAC Customer Services, Inc.
     56




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 11. Shareholders Equity
   12. Earnings Per Share
  2010
    
    
    2009
    
    
    2008Net income
    
    $
    22,854
    
    
    $
    58,053
    
    
    $
    3,019Weighted average common shares outstanding
    
    
    52,455
    
    
    
    51,570
    
    
    
    50,424Income per sharebasic
    
    $
    0.44
    
    
    $
    1.13
    
    
    $
    0.06Effects of dilutive securities
    
    
    2,251
    
    
    
    1,726
    
    
    
    53Weighted average common and common
equivalent shares outstanding
    
    
    54,706
    
    
    
    53,296
    
    
    
    50,477Income per sharediluted
    
    $
    0.42
    
    
    $
    1.09
    
    
    $
    0.06
  13. Stock Awards
    57




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  For the Fiscal Year EndedJanuary 2,
    
    
    January 3,
    
    
    December 28,2011
    
    
    2010
    
    
    2008Expected volatility
    
    
    78 - 90
    %
    
    
    87 - 91
    %
    
    
    81 - 93
    %Risk-free interest rate
    
    
    0.63 - 1.70
    %
    
    
    1.27 - 1.70
    %
    
    
    2.14 - 3.99
    %Expected life in years
    
    
    3.14 - 3.42
    
    
    
    2.96 - 3.29
    
    
    
    2.11 - 2.40Annualized forfeiture rate
    
    
    5.4
    %
    
    
    13.3
    %
    
    
    14.4
    %Weighted average grant date fair value
    
    $
    3.11
    
    
    $
    2.60
    
    
    $
    0.56
 Stock Option Activity
  WeightedGrant Price
    
    
    Average
    
    
    AggregateRange
    
    
    Exercise Price
    
    
    IntrinsicDescription
    
    Shares
    
    
    Per Share
    
    
    Per Share
    
    
    ValueOutstanding as of December 30, 2007
    
    
    6,944,019
    
    
    $
    0.85 -   $11.63
    
    
    $
    2.22Granted
    
    
    2,859,352
    
    
    
    0.79 -     2.15
    
    
    
    1.19Exercised
    
    
    (450,250
    )
    
    
    0.85 -     1.35
    
    
    
    0.90Forfeited
    
    
    (1,140,501
    )
    
    
    0.79 -     4.60
    
    
    
    1.66Expired
    
    
    (1,697,981
    )
    
    
    1.35 -    11.56
    
    
    
    2.59Outstanding as of December 28, 2008
    
    
    6,514,639
    
    
    $
    0.79 -   $11.63
    
    
    $
    1.98Granted
    
    
    1,216,114
    
    
    
    1.38 -     6.05
    
    
    
    4.42Exercised
    
    
    (1,268,502
    )
    
    
    0.86 -     5.64
    
    
    
    2.47Forfeited
    
    
    (191,224
    )
    
    
    1.38 -     5.84
    
    
    
    3.98Expired
    
    
    (134,350
    )
    
    
    1.35 - 10.97
    
    
    
    4.79Outstanding as of January 3, 2010
    
    
    6,136,677
    
    
    $
    0.79 -   $11.63
    
    
    $
    2.24Granted
    
    
    1,490,165
    
    
    
    4.91 -     6.43
    
    
    
    5.45Exercised
    
    
    (790,364
    )
    
    
    0.86 -     5.53
    
    
    
    2.09Forfeited
    
    
    (256,500
    )
    
    
    1.49 -     5.75
    
    
    
    5.35Expired
    
    
    (935,500
    )
    
    
    1.21 -    11.63
    
    
    
    1.48Outstanding as of January 2, 2011
    
    
    5,644,478
    
    
    $
    0.79 -    $6.43
    
    
    $
    3.09
    
    
    $
    16,832Stock options exercisable
at January 2, 2011
    
    
    2,636,975
    
    
    
    
    
    
    $
    2.31
    
    
    $
    9,920
   58




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  Per Share Exercise Price Ranges
    
    
    Total$0.79-$1.62
    
    
    $1.64-$5.23
    
    
    $5.31-$6.43
    
    
    $0.79-$6.43Outstanding as of January 2,
2011
    
    
    2,182,078
    
    
    
    2,518,445
    
    
    
    943,955
    
    
    
    5,644,478Weighted average remaining term
    
    
    6.52
    
    
    
    6.87
    
    
    
    8.19
    
    
    
    6.96Weighted average exercise price
    
    $
    1.25
    
    
    $
    3.72
    
    
    $
    5.67
    
    
    $
    3.09Exercisable as of January 2,
2011
    
    
    1,263,824
    
    
    
    1,163,809
    
    
    
    209,342
    
    
    
    2,636,975Weighted average remaining term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.10Weighted average exercise price
    
    $
    1.31
    
    
    $
    2.79
    
    
    $
    5.67
    
    
    $
    2.31
 Non-vested Common Share Activity
  Description
    
    SharesOutstanding as of January 3, 2010
    
    
    25,000Granted
    
    
    250,000Issued
    
    
    (25,000
    )Cancelled
    
    
    Outstanding as of January 2, 2011
    
    
    250,000
  14. Benefit Plans
  15. Related Party Transactions
    59




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 16. 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 January 2, 2011Level 1
    
    
    Level 2
    
    
    Level 3Assets:Cash equivalents 1
    
    $
    38,465
    
    
    $
    
    
    
    $
    Non-qualified retirement plan 2
    
    
    2,375
    
    
    
    
    
    
    
    Foreign currency contracts 3
    
    
    
    
    
    
    1,109
    
    
    
    Non-current investments4
    
    
    1,179
    
    
    
    
    
    
    
    Liabilities:Foreign currency contracts 3
    
    $
    
    
    
    $
    22
    
    
    $
    Non-qualified retirement plan obligation 2
    
    
    2,375
    
    
    
    
    
    
    
    
 
 (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 401K plan. As of January 2, 2011, the fair value of investments in the Select
Plan totaled $2.4 million and is reflected on the Companys balance sheet in other current assets.
The offsetting 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.(3)
    
    Foreign currency contracts: The carrying amount of these items is based on the market valuation
approach which is provided by the counter-party institutions and uses the closing or mid-market
rate and forward points obtained from external sources on the date of valuation. 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 fiscal year-end and is recorded as a component of other
assets on the Companys balance sheet.   17. Derivative Instruments
   60




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
     Asset Derivatives
    
    
    Liability DerivativesFair Value
    
    
    
    
    
    
    Fair ValueBalance Sheet
    
    
    January 2,
    
    
    January 3,
    
    
    Balance Sheet
    
    
    January 2,
    
    
    January 3,Location
    
    
    2011
    
    
    2010
    
    
    Location
    
    
    2011
    
    
    2010Derivatives designated as
hedging instruments :Foreign currency contracts
    
    Other Current Assets
    
    
    $
    1,109
    
    
    $
    657
    
    
    Accrued Liabilities
    
    
    $
    22
    
    
    $
    15Derivatives not designated
as hedging instruments:NA
    
    Other Current Assets
    
    
    
    
    
    
    
    
    
    Accrued Liabilities
    
    
    
    
    
    
    Total derivatives
    
    
    
    
    
    $
    1,109
    
    
    $
    657
    
    
    
    
    
    
    $
    22
    
    
    $
    15
  61




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  Amount of Gain (Loss) Recognized
    
    
    Gain (Loss) Reclassified from AccumulatedDerivatives Designated as
    

in OCI on Derivatives (Effective Portion)
    
    

OCI into Income (Effective Portion)Cash Flow
    
    January 2,
    
    
    January 3,
    
    
    December 28,
    
    
    
    
    
    
    January 2,
    
    
    January 3,
    
    
    December 28,Hedging Instruments
    
    2011
    
    
    2010
    
    
    2008
    
    
    Location
    
    
    2011
    
    
    2010
    
    
    2008Foreign currency
contracts
    
    $
    302
    
    
    $
    934
    
    
    $
    (1,539
    )
    
    Cost of Services
    
    
    $
    1,412
    
    
    $
    (161
    )
    
    $
    (721
    )
 Amount of Gain (Loss) Recognized in Incomeon DerivativeDerivatives not Designated
    
    Location of Gain (Loss) Recognized
    
    
    January 2,
    
    
    January 3,
    
    
    December 28,as Hedging Instruments
    
    in Income on Derivative
    
    
    2011
    
    
    2010
    
    
    2008Interest rate swap
    
    Interest income (expense)
    
    $
    
    
    
    $
    (18
    )
    
    $
    (278
    )
 18. Subsequent Events
   62




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 19. Quarterly Data (Unaudited)
  First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    FullQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    YearFiscal year ended January 2, 2011:Net revenue
    
    $
    85,254
    
    
    $
    77,386
    
    
    $
    76,878
    
    
    $
    86,440
    
    
    $
    325,958Gross profit
    
    
    20,446
    
    
    
    16,377
    
    
    
    14,846
    
    
    
    16,799
    
    
    
    68,468Operating income
    
    
    9,899
    
    
    
    8,267
    
    
    
    6,704
    
    
    
    8,974
    
    
    
    33,844Net income
    
    
    6,560
    
    
    
    5,329
    
    
    
    4,644
    
    
    
    6,321
    
    
    
    22,854Net income per share:Basic
    
    $
    0.13
    
    
    $
    0.10
    
    
    $
    0.09
    
    
    $
    0.12
    
    
    $
    0.44Diluted
    
    $
    0.12
    
    
    $
    0.10
    
    
    $
    0.08
    
    
    $
    0.12
    
    
    $
    0.42Fiscal year ended January 3, 2010:Net revenue
    
    $
    73,246
    
    
    $
    66,042
    
    
    $
    68,360
    
    
    $
    85,529
    
    
    $
    293,177Gross profit
    
    
    18,550
    
    
    
    15,404
    
    
    
    14,165
    
    
    
    17,213
    
    
    
    65,332Operating income
    
    
    10,852
    
    
    
    7,801
    
    
    
    6,656
    
    
    
    9,347
    
    
    
    34,656Net income
    
    
    10,619
    
    
    
    7,736
    
    
    
    6,588
    
    
    
    33,110
    
    
    
    58,053Net income per share:Basic
    
    $
    0.21
    
    
    $
    0.15
    
    
    $
    0.13
    
    
    $
    0.63
    
    
    $
    1.13Diluted
    
    $
    0.20
    
    
    $
    0.14
    
    
    $
    0.12
    
    
    $
    0.61
    
    
    $
    1.09
    63




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##### Table of Contents



Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A.
    
    Controls and Procedures.
 Disclosure Controls and Procedures
  
 Managements Report on Internal Control over Financial Reporting
 Internal ControlIntegrated
Framework Internal ControlIntegrated Framework,
 Internal Control Over Financial Reporting
   64




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
        
  65




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##### Table of Contents



Item 9B.
    
    Other Information.
  
 PART III
 
 Item 10.
    
    Directors, Executive Officers and Corporate Governance.
  http://www.apaccustomerservices.com
  
 Item 11.
    
    Executive Compensation.
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
 (a)
    
    The information concerning the security ownership of certain beneficial owners required by
this Item will be set forth in our Proxy Statement for the Annual Meeting of Shareholders to
be held on June 7, 2011 under the caption Common Shares Beneficially Owned by Principal
Shareholders and Management, which information is hereby incorporated by reference.(b)
    
    The information concerning security ownership of management required by this Item will be set
forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on June 7, 2011
under the caption Common Shares Beneficially Owned by Principal Shareholders and Management,
which information is hereby incorporated by reference.
 
 Equity Compensation Plan Information
  Number of Securities
    
    
    
    
    
    
    Number of Securities Remainingto Be Issued Upon
    
    
    Weighted Average
    
    
    Available for Future IssuanceExercise of
    
    
    Exercise Price of
    
    
    Under Equity CompensationOutstanding Options,
    
    
    Outstanding Options,
    
    
    Plans (Excluding SecuritiesPlan Category
    
    Warrants, and Rights
    
    
    Warrants, and Rights
    
    
    Reflected in the First Column)Equity compensation plans
approved by security holders
    
    
    5,644,478
    
    
    $
    3.09
    
    
    
    1,127,766Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    
  66




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##### Table of Contents



Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14.
    
    Principal Accounting Fees and Services.
  
 PART IV
 
 Item 15.
    
    Exhibits and Financial Statement Schedules.
 (a) (1) Financial Statements
  (i)
    
    Report of Independent Registered Public Accounting Firm for the Fiscal Years
Ended January 2, 2011, January 3, 2010, and December 28, 2008(ii)
    
    Consolidated Statements of Operations for the Fiscal Years Ended January 2,
2011, January 3, 2010, and December 28, 2008(iii)
    
    Consolidated Balance Sheets as of January 2, 2011 and January 3, 2010(iv)
    
    Consolidated Statements of Shareholders Equity for the Fiscal Years Ended
January 2, 2011, January 3, 2010, and December 28, 2008(v)
    
    Consolidated Statements of Cash Flows for the Fiscal Years Ended January 2,
2011, January 3, 2010, and December 28, 2008(vi)
    
    Notes to Consolidated Financial Statements(vii)
    
    Quarterly Results of Operations for the Fiscal Years Ended January 2, 2011 and
January 3, 2010
 (2) Financial Statement Schedules
  (i)
    
    Schedule IIValuation and Qualifying Accounts
  (3) Exhibits
  (b) Exhibits
  (c) Financial Statement Schedules
   67




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##### Table of Contents



SIGNATURES
  APAC CUSTOMER SERVICES, INC.By:
    /s/ Andrew B. SzafranAndrew B. SzafranSenior Vice President and
Chief Financial Officer   Signature
    
    Title
    
    Date/s/ Theodore G. Schwartz*

Theodore G. Schwartz
    
    Chairman of the Board of Directors
    
    February 18, 2011/s/ Kevin T. Keleghan

Kevin T. Keleghan
    
    Director, President and Chief Executive Officer

(Principal Executive Officer)
    
    February 18, 2011/s/ Andrew B. Szafran

Andrew B. Szafran
    
    Senior Vice President and Chief Financial Officer

(Principal Financial Officer)
    
    February 18, 2011/s/ Joseph R. Doolan

Joseph R. Doolan
    
    Vice President and Controller

(Principal Accounting Officer)
    
    February 18, 2011/s/ Katherine Andreasen*

Katherine Andreasen
    
    Director
    
    February 18, 2011/s/ John J. Park *

John J. Park
    
    Director
    
    February 18, 2011/s/ Samuel K. Skinner*

Samuel K. Skinner
    
    Director
    
    February 18, 2011/s/ John L. Workman *

John L. Workman
    
    Director
    
    February 18, 2011
 *
    
    Andrew B. Szafran, as attorney in fact for each person indicated.  68




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##### Table of Contents



Schedule II
 VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
 Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EBalance at
    
    
    Charged to
    
    
    
    
    
    Balance atBeginning of
    
    
    Costs
    
    
    
    
    
    End ofDescription
    
    Period
    
    
    and Expenses
    
    
    Deductions (a)
    
    
    PeriodAllowance for doubtful accounts:Fiscal Year ended December 28, 2008
    
    
    1,097
    
    
    
    2,203
    
    
    
    1,865
    
    
    
    1,435Fiscal Year ended January 3, 2010
    
    
    1,435
    
    
    
    888
    
    
    
    1,179
    
    
    
    1,144Fiscal Year ended January 2, 2011
    
    
    1,144
    
    
    
    427
    
    
    
    506
    
    
    
    1,065
 (a)
    
    Represents charges for which the allowance account was created.  69




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##### Table of Contents



Exhibit Index
 ExhibitNumber

    
    Description3.1
    
    
    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 By-laws of APAC Customer Services, Inc., 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
    
    
    APAC Customer Services, Inc. Amended and Restated 2005 Incentive Stock Plan incorporated by reference into
APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2007.*10.2
    
    
    Form of Non-Employee Director Stock Option Agreement (revised 2007), incorporated by reference to APAC
Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2007.*10.3
    
    
    Form of Employee Stock Option Agreement (revised 2007), incorporated by reference to APAC Customer Services,
Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2007.*10.4
    
    
    Form of Restricted Stock Award Agreement (revised 2007), incorporated by reference to APAC Customer Services,
Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2007.*10.5
    
    
    APAC Customer Services, Inc. Retirement Plan for Senior Employees, incorporated by reference to APAC Customer
Services, Inc.s Annual Report on Form 10-K for the fiscal year ended December 30, 2007.*10.6
    
    
    Amended and Restated Executive Employment Agreement with Robert J. Keller, dated August 6, 2007, incorporated
by reference to APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended July
1, 2007.*10.7
    
    
    Letter Agreement, dated January 16, 2008, with Robert J. Keller, incorporated by reference to APAC Customer
Services, Inc.s Current Report on Form 8-K, dated January 17, 2008.*10.8
    
    
    Employment Agreement with Mark E. McDermott, dated April 12, 2004, incorporated by reference into APAC
Customer Services, Inc.s Annual Report on Form 10-K for the fiscal year ended January 2, 2005.*10.9
    
    
    Amendment to Employment Agreement with Mark E. McDermott, dated August 6, 2007, incorporated by reference to
APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2007.*10.10
    
    
    Employment Agreement with Joseph R. Doolan, dated January 11, 2006, incorporated by reference to APAC Customer
Services, Inc.s Current Report on Form 8-K, dated February 9, 2006.*10.11
    
    
    APAC Customer Services, Inc. Management Incentive Plan, as amended and restated effective August 2, 2007,
incorporated by reference into APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal
quarter ended July 1, 2007.*10.12
    
    
    Form of Amended and Restated Employment Security Agreement, incorporated by reference to APAC Customer
Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2007.*10.13
    
    
    Form of Employment Security Agreement, incorporated by reference to APAC Customer Services, Inc.s Quarterly
Report on Form 10-Q for the fiscal quarter ended July 1, 2007.*10.14
    
    
    Executive Employment Agreement, dated February 18, 2008, with Michael P. Marrow, incorporated by reference to
APAC Customer Services, Inc.s Current Report on Form 8-K, dated February 19, 2008.10.15
    
    
    Registration Rights Agreement, incorporated by reference to APAC TeleServices, Inc.s Registration Statement
on Form S-1, as amended, Registration No. 33-95638.10.16
    
    
    Master Services Agreement, dated April 24, 2008, with United Parcel Services OASIS Supply Corporation,
incorporated by reference to APAC Customer Services, Inc.s current Report on Form 8-K, dated April 28, 2008.10.17
    
    
    Vendor Agreement for Call Center Services, dated September 26, 2004 with Medco Health Solutions, Inc.,
incorporated by reference to APAC Customer Services, Inc.s Annual Report on Form 10-K for the fiscal year
ended December 28, 2008.
  70




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##### Table of Contents



ExhibitNumber
    
    Description10.18
    
    
    Revolving Loan and Security Agreement, dated May 5, 2008, among APAC Customer Services, Inc. and PNC Bank,
National Association, as agent, and the financial institutions from time to time party thereto as lenders,
incorporated by reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated May 6, 2008.*10.19
    
    
    Employment Agreement with Arthur DiBari, dated March 11, 2008, incorporated by reference to APAC Customer
Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2008.*10.20
    
    
    Employment Agreement with Andrew B. Szafran, dated May 12, 2008, incorporated by reference to APAC Customer
Services, Inc.s Current Report on Form 8-K, dated May 14, 2008.*10.21
    
    
    Employment Agreement with Robert B. Nachwalter, dated October 31, 2008, incorporated by reference to APAC
Customer Services, Inc.s Current Report on Form 8-K, dated November 20, 2008.10.22
    
    
    Form of Indemnification Agreement dated April 28, 2009, incorporated by reference to APAC Customer Services,
Inc.s Current Report on Form 8-K, dated April 28, 2009.*10.23
    
    
    Employment Agreement with Christopher H. Crowley, dated February 12, 2009, incorporated by reference to APAC
Customer Services, Inc.s Current Report on Form 8-K, dated March 12, 2009.10.24
    
    
    Master Agreement for Call Center Services Between Verizon Corporate Services Group Inc. and APAC Customer
Services, Inc., incorporated by reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated
July 14, 2009.*10.25
    
    
    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.*10.26
    
    
    Executive Employment Agreement with Kevin T. Keleghan, dated September 13, 2010, incorporated by reference to
APAC Customer Services, Inc.s Current Report on Form 8-K, filed September 13, 2010.*10.27
    
    
    Employment Security Agreement with Kevin T. Keleghan, dated September 13, 2010, incorporated by reference to
APAC Customer Services, Inc.s Current Report on Form 8-K, filed September 13, 2010.*10.28
    
    
    Agreement Protecting Company Interests with Kevin T. Keleghan, dated September 13, 2010, incorporated by
reference to APAC Customer Services, Inc.s Current Report on Form 8-K, filed September 13, 2010.*10.29
    
    
    Letter Amendment to Executive Employment Agreement with Michael P. Marrow, dated September 12, 2010,
incorporated by reference to APAC Customer Services, Inc.s Current Report on Form 8-K, filed September 13,
2010 (amendment filed September 14, 2010.)*10.30
    
    
    Letter Amendment to Employment Agreement with Arthur DiBari, executed on October 1, 2010, incorporated by
reference to APAC Customer Services, Inc.s Current Report on Form 8-K, filed October 6, 2010.*10.31
    
    
    Letter Amendment, dated December 31, 2010, to Employment Agreement with Eric Tinch, incorporated by reference
to APAC Customer Services, Inc.s Current Report on Form 8-K, filed January 3, 2011.10.32
    
    
    Amendment to Vendor Agreement, dated February 14, 2011 but effective as of December 29, 2010, between APAC
Customer Services, Inc. and Medco Health Services, Inc.,21.1
    
    
    Subsidiaries of APAC Customer Services, Inc.23.2
    
    
    Consent of Ernst & Young LLP.24.1
    
    
    Power of attorney executed by Katherine Andreasen, John J. Park, Theodore G. Schwartz, Samuel K. Skinner and
John L. Workman.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.
 
 *
    
    Indicates management employment contracts or compensatory plans or arrangements.  71