---

---

---

---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-K

(Mark One)



For the fiscal year ended December 30, 2001
OR



|Illinois                                                       |  | 36-2777140                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction
of Incorporation or organization) |  | (I.R.S. Employer
Identification No.)



Registrant's
telephone number, including area code: (847) 374-4980
Securities registered pursuant to Section 12(b) of the Act:

|Title of Each Class |  | Names of each exchange
on which registered
|------------------- |  | ------------------------------------------
|None                |  | None                                      

Securities registered pursuant to Section 12(g) of the Act:

Common
Shares, $0.01 Par Value
(Title of class)

Indicate
by check mark whether the Registrant (l) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes
/x/        No / /

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

Yes
/x/        No / /

As
of March 28, 2002, 49,531,811 Common Shares were outstanding.

The
aggregate market value of the Registrant's Common Shares held by non-affiliates on March 28, 2002 was approximately $160,483,068.

DOCUMENTS INCORPORATED BY REFERENCE

Certain
portions of the Registrant's Proxy Statement for Annual Meeting
of Shareholders to be held on June 7, 2002 are incorporated by reference in Part III

---



PART I

Item 1. Business.

General

APAC Customer Services, Inc. ("APAC Customer Services", "APAC" or the "Company") is a leading provider of customer interaction solutions and electronic
solutions for market leaders in financial services, insurance, telecommunications, healthcare and logistics. To help its clients better manage relationships with their customers, APAC Customer
Services develops and delivers end-to-end customer care, customer acquisition and Web-enabled programs. The Company operates and manages approximately 10,200
workstations in 48 Customer Interaction Centers. The Customer Interaction Centers are managed centrally through the application of telecommunications and computer technology to promote the consistent
delivery of quality service. The Company delivers a full suite of electronic products and services, including e.PACSM, a multi-channel platform that supports a broad range of integrated,
e-commerce-based customer interaction capabilities and solutions integration services. The Company has two primary service offerings: Customer Acquisition and Customer Care. In 2001, the
Company reorganized its operating structure along client lines, combining operations into one unit and account management, marketing, sales and other client-facing functions across service offering
lines. The Company is utilizing certain Customer Interaction Centers to provide both Customer Care and Customer Acquisition services. It is therefore impractical to separate the results by these
service offerings as shown in prior years. Accordingly, the Company no longer presents operating results in reportable segments.

Services

Customer Care.Customer Care services include customer relationship management solutions including supporting inbound
customer care, customer retention, direct mail response, integrated voice response, "help" line support, and customer order processing. Certain Customer Care services include specialized customer
service representatives such as insurance agents and licensed pharmacists capable of responding to more technical inquiries from customers and prospects.

Customer
Care services involve the receipt of a call from a client's customer or prospect, and the identification and routing of the call to the appropriate APAC customer service
representative. The caller typically uses a toll-free "800" number to request product or service information, place an order for a product or service or obtain assistance regarding a
client's products or services. APAC utilizes automated call distributors and digital switches to identify each inbound call by "800" number and route the call to an APAC customer service
representative trained for the client's program. Simultaneously with receipt of the call, the customer service representative's computer screen displays customer, product and service information
relevant to the call. The Company reports information and results captured during the call to its client for order processing, customer service and database management.

Customer Acquisition.Customer Acquisition services include sales support to consumers and businesses, market research,
targeted marketing plan development and customer lead generation, acquisition and retention. Customer Acquisition services typically begin when APAC Customer Services calls a consumer or business
prospect targeted by one of its clients to offer the client's products or services. Prospect information, which APAC Customer Services typically receives electronically from its clients, is selected
to match the demographic profile of the targeted customer for the product or service being offered. APAC's data management system sorts the prospect information and delivers it to one of the Customer
Interaction Centers. Computerized call-management systems utilizing predictive dialers automatically dial the telephone numbers, determine if a live connection is made, and present
connected calls to a sales representative who has been specifically trained for the client's program. When a call is presented, the prospect's name, other information about the prospect, and the
program script simultaneously appear on the sales representative's computer screen. The sales representative then uses the script to solicit an order for the client's product or service or to request
information, which will be added to the

2

---

client's database. APAC's advanced systems permit on-line monitoring of marketing campaigns allowing its clients to refine programs while in progress.

Clients

APAC directs its business development efforts primarily towards large companies with substantial customer acquisition and customer care activity. APAC often
targets those companies that operate in high cost metropolitan areas, that are currently utilizing inefficient or expensive technology in their customer service and/or acquisition operations, or that
have the greatest potential to generate recurring revenue driven by their ongoing telephone based direct sales and marketing programs. Contracts for customer care services provide for terms of up to
five years, and can be terminated for convenience subject to a negotiated phase-out period. Contracts for customer acquisition services may generally be terminated or modified on short
notice, although the Company tends to establish long term relationships with many of the clients for which it provides such services. The Company is generally paid on the basis of time
billed by the Company representative providing either customer care or customer acquisition services. The Company's fees are often subject to performance standards such as sales per hour, average
handle time, occupancy rate, abandonment rate and standards as agreed with the client. In the case of Customer Acquisition the Company's services are also occasionally priced on a per sale basis,
rather than the predominant time-based method.

The
Company's significant relationships include United Parcel Service General Services, Inc. ("UPS") which accounted for 15.2% and 15.3%, respectively of the Company's
consolidated net revenue in fiscal 2001 and 2000. In addition 10.1 and 9.1% of the Company's consolidated net revenues in 2001 and 2002 respectively were provided by AEGON, a large insurance company.
See Management's Discussion and Analysis of Financial Condition and Results of Operations.

Technology Resources

APAC Customer Services has successfully integrated interaction management, database marketing and management information systems within its Customer Interaction
Centers. APAC's multichannel CRM platform, known as e.PACSM, is a best-of-breed application that leverages off-the-shelf applications,
in-house developed software, and real-time integrated reporting.

e.PACSM
provides a 360-degree view of the customer through the use of an integrated routing layer and a contact management application layer. Multiple
communications channels are linked into the contact management layer to allow clients' customers to contact APAC using any communication medium they choose, including voice, e-mail,
Internet chat and web collaboration. Information obtained from interacting with customers is captured in the contact management layer to ensure that regardless of the medium of communication, APAC's
customer service representatives will always be able to provide applicable and current information to the customer. These technologies allow APAC to provide customer service representatives with
real-time access to customer and product information and allows the Company to design and implement application software for each client's program.

e.PACSM
incorporates PC-based workstations, object-oriented software modules, relational database management systems, call tracking and workforce management
systems, computer telephony and Internet based services integration, and interactive voice response. The technologies used by APAC Customer Services enable customer service representatives to focus on
assisting the customer, rather than on technology, by providing all necessary customer information at interaction arrival. In addition, the e.PACSM platform also helps to decrease
training time and increase the interaction handling efficiencies.

Supporting
the integration of the call handling technologies and call management for acquisition systems is First Alert, a proprietary agent productivity system, which provides
real-time information on each customer contact. First Alert captures all contact information and reports on each sales representative's activities so that the Company and its clients can
make real-time decisions with respect to quality and performance.

3

---

The
UNIX-based computer system that the Company has developed utilizes a "hub and spoke" configuration to electronically link each Customer Interaction Center's systems to
the Company's data center. This open architecture system provides APAC Customer Services with the flexibility to integrate its client server and mid-range systems with the variety of
systems maintained by its clients. By integrating with its clients' systems, APAC Customer Services is able to receive calls and data directly from its clients' in-house systems, forward
calls to its clients' in-house telephone representatives when appropriate, and report, on a real-time basis, the status and results of the Company's services. APAC's custom
software is built on relational database technology that enables the Company to quickly design tailored software applications that enhance the efficiency of its interaction services, while providing
flexible scripting and readily accessible screen navigation.

Sales and Marketing

The Company seeks to differentiate itself from other providers of customer interaction solutions by offering tailored solutions that address the specialized needs
of its clients. The Company's organization structure is focused on providing value-added industry specific solutions to companies in the financial services, insurance, telecommunications, healthcare
and logistics industries. The Company has developed a targeted approach to identifying new clients and additional needs of existing clients. Often, APAC Customer Services initially develops a pilot
program for a new client to demonstrate the Company's abilities and effectiveness in telephone-based and web-enabled marketing and customer service. The Company's account management and
sales personnel also assist clients in identifying high potential customers and developing programs to reach those customers, communicate results of the program and assist clients in modifying
programs for future use. The Company markets its services by targeting companies within vertical sectors for proactive development of industry specific solutions, expanding relationships with existing
clients, responding to requests for proposals, pursuing client referrals and participating in trade shows and advertising in business publications. The Company believes its increasingly consultative
approach will enhance its ability to successfully identify additional business opportunities and secure new business.

Human Resources

The Company believes a key component of APAC's success is the quality of its employees. Therefore, the Company is continually refining its systematic approach to
hiring, training and managing qualified personnel. APAC Customer Services locates Customer Interaction Centers primarily in small to mid-sized communities in an effort to lower its
operating costs and attract a high quality, dedicated work force. The Company believes that by employing a significant number of full-time employees it is able to maintain a more stable
work force and reduce the Company's recruiting and training expenditures. At each Customer Interaction Center, the Company utilizes a management structure designed to ensure that its sales and service
representatives are properly supervised, managed and developed.

The
Company offers extensive classroom and on-the-job training programs for its people, including instruction about the client's company and its product and
service offerings as well as proper telephone-based sales or customer service techniques. Once hired, each new sales and service representative receives on-site training lasting from two
to over twenty days. The amount of initial training each employee receives varies depending upon the nature of the services being offered for the client to which the representative will be assigned.
In addition, the Company offers one and two week courses to its sales and service representatives who are preparing for the insurance agent license exam. The Company believes in developing and
challenging all employees to grow personally and professionally.

For
employee recruitment and job tracking, the e-SMART System (SiMple Accurate Record Tracking) assists the Company in selecting people who can meet and exceed expectations.
The e-SMART System is a comprehensive electronic process for applicant tracking and performance evaluation. The process begins with an applicant's search of a database to find available
positions, review job information, and

4

---

learn more about the Company. After a candidate completes a series of online templates and tests, a recruiter reviews qualifications and skills, sets appointments and tracks progress of the
application.

The
Company had approximately 12,400 full-time and 4,300 part-time employees for a total of 16,700 employees on March 28, 2002. None of APAC's employees
are subject to a collective bargaining agreement. The Company considers its relations with its employees to be good.

Quality Assurance

Since APAC's services involve direct contact with its clients' customers, the Company's reputation for quality service is critical to acquiring and retaining
clients. Therefore, the Company and its clients monitor the Company's sales and service representatives for strict compliance with the clients scripts and to maintain quality and efficiency. The
Company also regularly measures the quality of its services by benchmarking such factors as customer service levels, average handle times, first call resolutions, sales per hour and average speed of
answer. The Company's information systems enable APAC to provide clients with reports on a real-time basis as to the status of ongoing services and can transmit summary data and captured
information electronically to clients. This data enables APAC and its clients to modify or enhance ongoing services to improve effectiveness.

Competition

The industry in which the Company operates is very competitive and highly fragmented. APAC's competitors range in size from very small firms offering specialized
applications or short term projects, to large independent public firms and the in-house operations of many clients and potential clients. A
number of competitors have capabilities and resources equal to, or greater than, the Company's. The market includes non-captive customer acquisition and customer service operations as well
as in-house telemarketing and customer service organizations throughout the United States. In-house telemarketing, customer relationship management, and customer service
organizations comprise by far the largest segment of the industry. In addition, some of the Company's services also compete with other forms of direct marketing such as mail, television and radio. The
Internet and other new technologies are creating new and competing forms of marketing and data collection, such as interactive television and targeted electronic mail and advertisements, which, if
successful, may cause new competitors to enter the field and increase competition. The Company believes the principal competitive distinctions in the telephone-based and web enabled marketing and
customer service industry are reputation for quality, sales and marketing results, price, technological expertise, and the ability to promptly provide clients with customized solutions for their
sales, marketing and customer service needs.

Government Regulation

Telephone sales practices are regulated at both the Federal and state level. The Federal Communications Commission's (the "FCC") rules under the Federal Telephone
Consumer Protection Act of 1991 (the "TCPA") prohibit the initiation of telephone solicitations to residential telephone subscribers before 8:00 a.m. or after 9:00 p.m., local time, and
prohibit the use of certain automated sequential telephone-dialers and their ability to call certain numbers. In addition, the FCC's rules require the maintenance of a list of residential consumers
who have stated that they do not want to receive telephone solicitations from the caller and requires that such caller cease making calls to such consumers' telephone numbers.

In
addition to the TCPA, the Federal Telemarketing Consumer Fraud and Abuse Protection Act of 1994 (the "TCFAPA") broadly authorizes the Federal Trade Commission (the "FTC") to issue
regulations designed to prevent deceptive and abusive telemarketing acts and practices. The FTC's Telemarketing Sales Rule (the "TSR") went into effect in January 1996. The TSR applies to most
direct telemarketing calls and generally prohibits a variety of deceptive, unfair or abusive practices in telemarketing sales. In February of 2001 the FTC initiated administrative rulemaking
proceedings to amend the TSR, including, among other provisions, the addition of a provision that would create a national "Do-Not-Call" registry. Under the amendment proposed
by the FTC, it would be illegal for telemarketers to call consumers who

5

---

place their phone numbers on the national registry. The FTC's proposal also includes a provision that would prohibit the practice of receiving any consumer billing information from any third party
for use in telemarketing, among other things. The Company cannot predict whether the FTC's proposed modifications to the TSR will be made, in whole or in part, and if so, what impact such revisions
would have on the Company or its industry.

In
addition to the Federal legislation and regulations, there are numerous state statutes and regulations governing telemarketing activities, which do, or may, apply to the Company. For
example, a recent trend among certain states has been the creation of statewide "Do-Not-Call" registries, which prohibit telemarketers from contacting those who have registered
with the state. Additional trends include
placing restrictions on the methods and timing of telemarketing calls, placing restrictions on the percentage of abandoned calls generated by automated telephone-dialing equipment, and specifying the
types of disclosures that must be made during the course of a telemarketing call. States have also begun to pass legislation prohibiting telemarketers from using any method or device to block
consumers' use of caller identification devices. The Company believes that states will continue to adopt similar legislation and regulations aimed at protecting consumers' privacy rights and at
reducing fraudulent and abusive sales and marketing acts, which may or may not impact the Company's operations.

In
addition to the Federal and state laws regulating telemarketing activity, there are additional Federal and state laws and regulations governing consumer privacy and the collection and
use of consumer data. Key Federal laws include the Gramm-Leach-Bliley Act and the Health Insurance Portability and Accountability Act. There is increasing Federal and State interest in privacy
protections, some aspects of which could impose additional regulatory pressure on the business of the Company's clients and, less directly, on the Company's business.

The
industries served by the Company are also subject to varying degrees of government regulation. The Company and its employees who are involved in certain types of sales activities,
such as the sale of insurance products, are required to be licensed by various state commissions or regulatory bodies and to comply with regulations enacted by those entities. Other examples of
activities requiring licensing include gaming, pharmaceutical and mortgage banking activities. In its contracts the Company generally assumes responsibility to companies with federal and stock laws
regulating telemarketing. The Company does, however rely on its clients and their advisors to develop the scripts to be used by the Company in making consumer solicitations. The Company generally
requires its clients to indemnify it against claims and expenses arising in connection with the scripts provided or approved by a client, actions taken at a client's direction, a client's failure to
provide purchased products or services to customers, and any defect or deficiency in such products or services.

The
Company believes it is in compliance in all material respects with federal and state telemarketing laws and regulations.

Item 2. Properties

The Company leases approximately 91,000 square feet of office space in Deerfield, Illinois. The term of this lease expires in August 2008. This space
houses corporate headquarters, business unit management, the technology demonstration center, and a customer interaction center. The Company has approximately 79,000 square feet of office space in
Cedar Rapids, Iowa. This office space is located on all or part of six floors which are owned by the Company and is part of an office condominium. The Company has approximately 87,000 square feet of
office space in Omaha, Nebraska and 22,000 square feet of office space in Atlanta, Georgia. The Omaha space was acquired with the purchase of ITI. The lease for the Omaha office space expires in
August 2007. Approximately 49,000 square feet of this space is sublet. The lease for the Atlanta space expires in December 2004. All of this space has been sublet.

The
Company also leases the facilities listed below, except for the Eau Claire, Newport News, Fort Worth and High Point facilities which are not leased by the Company, but are managed,
staffed and operated by the Company on behalf of its clients. As of December 30, 2001, the Company operated the following Customer Interaction Centers and workstations:

6

---

Customer Interaction Centers

|Location                         |       | Date Opened
or Acquired |  | Number of
Workstations(1)
|-------------------------------- | ----- | ----------------------- |  | -------------------------
|Dubuque, Iowa                    |       | September, 1990         |  | 88                       
|Clinton, Iowa                    |       | October, 1990           |  | 80                       
|Burlington, Iowa                 |       | October, 1991           |  | 80                       
|Oskaloosa, Iowa                  |       | September, 1992         |  | 96                       
|Cedar Falls, Iowa                |       | February, 1993          |  | 64                       
|Ottumwa, Iowa                    |       | November, 1993          |  | 144                      
|Decorah, Iowa                    |       | January, 1994           |  | 80                       
|Fort Madison, Iowa               |       | March, 1994             |  | 112                      
|Keokuk, Iowa                     |       | May, 1994               |  | 80                       
|Mason City, Iowa                 |       | December, 1994          |  | 96                       
|Cedar Rapids, Iowa-Park Place I  |       | January, 1995           |  | 120                      
|Knoxville, Iowa                  |       | March, 1995             |  | 80                       
|Spencer, Iowa                    |       | May, 1995               |  | 64                       
|Newport News, Virginia           |       | August, 1995            |  | 717                      
|Fort Worth, Texas                |       | October, 1995           |  | 638                      
|Cedar Rapids, Iowa-Park Place II |       | November, 1995          |  | 162                      
|High Point, North Carolina       |       | November, 1995          |  | 620                      
|Maquoketa, Iowa                  |       | February, 1996          |  | 80                       
|Kewanee, Illinois                |       | February, 1996          |  | 96                       
|Quincy, Illinois                 |       | February, 1996          |  | 96                       
|Rock Falls, Illinois             |       | March, 1996             |  | 96                       
|Jacksonville, Illinois           |       | April, 1996             |  | 96                       
|Canton, Illinois                 |       | May, 1996               |  | 96                       
|Lincoln, Illinois                |       | May, 1996               |  | 96                       
|Pekin, Illinois                  |       | May, 1996               |  | 88                       
|Peoria, Illinois                 |       | May, 1996               |  | 160                      
|Galesburg, Illinois              |       | June, 1996              |  | 96                       
|Waterloo, Iowa                   |       | October, 1996           |  | 304                      
|Corpus Christi, Texas            |       | October, 1996           |  | 793                      
|Alton, Illinois                  |       | December, 1996          |  | 152                      
|Columbia, South Carolina         |       | December, 1996          |  | 577                      
|Marion, Illinois                 |       | December, 1996          |  | 192                      
|LaCrosse, Wisconsin              |       | May, 1997               |  | 350                      
|Aberdeen, South Dakota           |       | May, 1998               |  | 88                       
|Grand Island, Nebraska           |       | May, 1998               |  | 88                       
|Green Bay, Wisconsin             |       | May, 1998               |  | 277                      
|Lawton, Oklahoma                 |       | May, 1998               |  | 120                      
|Oklahoma City, Oklahoma          |       | May, 1998               |  | 386                      
|Omaha, Nebraska                  |       | May, 1998               |  | 320                      
|Pawnee, Kansas                   |       | May, 1998               |  | 96                       
|St. Joseph, Missouri             |       | May, 1998               |  | 96                       
|Westminster, Oklahoma            |       | May, 1998               |  | 120                      
|Davenport, Iowa                  |       | September, 1998         |  | 668                      
|Utica, New York                  |       | December, 1998          |  | 405                      
|Deerfield, Illinois              |       | October, 1999           |  | 55                       
|Greenbay, Wisconsin              |       | October, 2000           |  | 208                      
|Eau Claire, Wisconsin            |       | December, 2000          |  | 167                      
|Tucson, Arizona                  |       | June, 2001              |  | 425                      
|                                 |       |                         |  |                          
|                                 | Total |                         |  |                          
|                                 |       |                         |  |                          

---

7

---

The Company's profitability is influenced significantly by its Customer Interaction Center capacity utilization. Customer Interaction Centers
providing primarily Customer Acquisition services tend to be utilized primarily in the early evening hours on weekdays and to a limited extent on weekends. Customer Care services tend to be utilized
primarily during normal business hours on weekdays and to a limited extent on weekends. In an attempt to improve profitability and maximize utilization, the Company manages its Customer Interaction
Centers with the intention of achieving higher levels of fixed cost absorption. The Company closely monitors the capacity utilization of its Customer Interaction Centers and considers the costs
associated with maintaining excess capacity in relationship to the flexibility needed to quickly respond to incremental client demands. To enable the Company to respond rapidly to changing market
demands, implement new programs and expand existing programs, Customer Interaction Center capacity may be expanded or contracted in the future. As part of the Company's efforts to improve capacity
utilization, the Company will continue to increase the amount of Customer Acquistion services provided at Customer Interaction Centers previously dedicated to Customer Care services.

Item 3. Legal Proceedings

In March, 2000, the Company agreed to the settlement of a collective action instituted by present and former employees. This settlement remains subject to court
approval. The settlement did not have a material impact on the Company's results of operations.

The
Company is subject to occasional lawsuits, governmental investigations and claims arising out of the normal conduct of its business. Management does not believe the outcome of any
pending claims will have a materially adverse impact on the Company's consolidated financial position. Although the Company does not believe that any of these proceedings will result in a materially
adverse effect on its consolidated financial position, no assurance to that effect can be given.

Item 4. Submission of Matters to a Vote of Security Holders

None

Executive Officers of the Registrant

The executive officers of the Company are as follows:

|Name                 |  | Age |  | Position                                                        
|-------------------- |  | --- |  | ----------------------------------------------------------------
|Theodore G. Schwartz |  | 48  |  | Chairman, Director and Chief Executive Officer                  
|John R. Bowden       |  | 47  |  | Senior Vice President, Operations                               
|Carlos E. Galarce    |  | 41  |  | Senior Vice President and Chief Information Officer             
|Steven A. Shlensky   |  | 40  |  | Senior Vice President, Human Resources and Corporate Development
|L. Clark Sisson      |  | 40  |  | Senior Vice President, Relationship Management                  
|Marc T. Tanenberg    |  | 50  |  | Senior Vice President and Chief Financial Officer               
|Linda R. Witte       |  | 49  |  | Senior Vice President, General Counsel and Secretary            
|Daniel S. Hicks      |  | 37  |  | Vice President, Relationship Management                         
|J. Eric Smith        |  | 44  |  | Vice President, Business Development                            

Theodore
G. Schwartz has served as the Company's Chairman since its formation in May 1973 and resumed the position of CEO effective May, 2001.

John
R. Bowden joined the Company as Senior Vice President, in October 1999. From January 1996 to May 1999 Mr. Bowden was Vice President-Consumer Sales and
Customer Service for Ameritech, Inc. Prior to January 1996 he held the office of Vice President for LCI, Inc. and MCI Communications, Inc.

8

---



Carlos E. Galarce joined the Company as Vice President and Chief Information Officer in November 1999 and was promoted to Senior Vice President in November, 2000. From
October 1997 through October 1999 Mr. Galarce was Director- Information Technology for Sears, Roebuck, and Co. Home Services Division. From October 1995 through
September 1997 Mr. Galarce was Division Vice President for Automatic Data Processing, Dealer Service Division. Prior to October 1995 Mr. Galarce was Director of
Development-Auburn Hills Region, Automatic Data Processing.

Steven
A. Shlensky joined the Company in November 1999 as Senior Vice President, Strategic Planning and Corporate Development. In July 2001 he became the Senior Vice
President, Human Resources and Corporate Development. From March 1996 through October 1999 Mr. Shlensky served as Managing Director of TCS Group, L.L.C., the private investment
office of Theodore G. Schwartz. Prior to March 1996 Mr. Shlensky was a Senior Tax Manager for Arthur Andersen LLP.

L.
Clark Sisson, Senior Vice President, joined the Company in October 1998. Prior to joining the Company, Mr. Sisson served as the Vice President-Inbound of ITI Marketing
Services, Inc. from November 1993 to September 1998.

Marc
T. Tanenberg joined the Company in August 2001 as Senior Vice President and Chief Financial Officer. From November, 1993 to August, 2001 Mr. Tanenberg was employed by
International Jensen Incorporated where he held a variety of positions, most recently as Executive Vice PresidentOperations and Chief Financial Officer.

Linda
R. Witte joined the Company as Vice President, General Counsel and Secretary in June 1999 and was promoted to Senior Vice President in March 2000. From
July 1997 to May 1999 Ms. Witte was Senior Vice President, General Counsel and Secretary of Beloit Corporation, an 80% owned subsidiary of Harnischfeger Industries, Inc.
Prior to that Ms. Witte was Vice President and General Counsel of Wheelabrator Water Technologies, Inc. a division of Waste Management, Inc. Before joining Waste Management,
Ms. Witte was a partner in Jenner & Block, a national law firm headquartered in Chicago, IL.

Daniel
S. Hicks, Vice President of Relationship Management joined the Company in May 1998. Prior to joining the Company Mr. Hicks was Vice President of Account Management
for ITI Marketing Services from January 1995 to May 1998. From 1993 to 1995 Mr. Hicks was the Director of Vendor Management for Time, Inc.

J.
Eric Smith joined the Company in November 2000 as Vice President. Prior to joining the Company Mr. Smith was employed by Country Companies Group for over twenty years
where he held various executive positions, most recently as Vice President, E-Commerce.

9

---

PART II

Item 5. Market for Registrant's Common Equity and Related Share Owner Matters

The Company's Common Stock is quoted on the Nasdaq National Market under the symbol "APAC." The following table sets forth, for the periods indicated, the high
and low sale prices of the Common Shares as reported on the Nasdaq National Market during such period.

High

LowFiscal 2001:First Quarter

$
6.00

$
3.14Second Quarter

$
5.25

$
2.45Third Quarter

$
3.27

$
1.55Fourth Quarter

$
3.52

$
1.42


High

LowFiscal 2000:First Quarter

$
16.50

$
6.38Second Quarter

$
11.75

$
5.50Third Quarter

$
12.48

$
4.06Fourth Quarter

$
5.69

$
2.75


As
of March 28, 2002 there were 267 holders of record of the Common Shares. The Company did not pay any dividends on its Common Shares in fiscal years 2001 or 2000. The Company
currently intends to retain future earnings to finance its growth and development and therefore does not anticipate paying any cash dividends in the foreseeable future. In addition, the Company's
Credit Facility restricts the payment of cash dividends by the Company. Payment of any future dividends will depend upon the future earnings and capital requirements of the Company and other factors
the Board of Directors considers appropriate.

10

---

Item 6. Selected Financial Data

APAC CUSTOMER SERVICES, INC.    SELECTED FINANCIAL DATA    (Unaudited)

|                                                |                                          | For the Fiscal Years Ended (1) |        
|----------------------------------------------- | ---------------------------------------- | ------------------------------ | -------
|
|
|OPERATING DATA:                                 |                                          |                                |        
|Net revenue                                     |                                          | $                              | 428,844
|Cost of services(8)                             |                                          |                                | 356,221
|Selling, general and administrative expenses(3) |                                          |                                | 65,971 
|Asset impairment charges(2)                     |                                          |                                | 8,608  
|                                                |                                          |                                |        
|                                                | Operating income (loss)                  |                                |        
|Interest expense, net                           |                                          |                                | 7,778  
|Income taxes (benefit)                          |                                          |                                | (4,770 
|                                                |                                          |                                |        
|                                                | Income (loss) from continuing operations |                                |        
|Gain (loss) from discontinued operations(4)     |                                          |                                |       
|Cumulative effect of accounting change(5)       |                                          |                                |       
|                                                |                                          |                                |        
|Net income (loss)                               |                                          | $                              | (4,964 
|                                                |                                          |                                |        
|Net income (loss) per share:                    |                                          |                                |        
|Basic:                                          |                                          |                                |        
|                                                | Continuing operations                    |                                | $      
|                                                | Discontinued operations                  |                                |        
|                                                |                                          |                                |        
|                                                | Net Income (loss)                        |                                | $      
|                                                |                                          |                                |        
|Diluted:                                        |                                          |                                |        
|                                                | Continuing operations                    |                                | $      
|                                                | Discontinued operations                  |                                |        
|                                                |                                          |                                |        
|                                                | Net Income (loss)                        |                                | $      
|                                                |                                          |                                |        
|Weighted average shares outstanding:            |                                          |                                |        
|                                                | Basic                                    |                                |        
|                                                | Diluted                                  |                                |        

11

---



|                    |                                            | For the Fiscal Years Ended(1)           
|------------------- | ------------------------------------------ | ----------------------------------------
|
|
|STATISTICAL DATA:   |                                            |                                         
|                    | Number of Customer Interaction Centers(6): |                                         
|                    | Number of workstation(6):                  |                                         
|                    | Net Revenue per workstation(7):            |                                         
|BALANCE SHEET DATA: |                                            |                                         
|                    |                                            | Cash and short-term investments         
|                    |                                            | Net assets of discontinued operations(4)
|                    |                                            | Working capital                         
|                    |                                            | Capital expenditures                    
|                    |                                            | Total assets                            
|                    |                                            | Long-term debt, less current maturities 
|                    |                                            | Share owners' equity                    

---

NOTES (000's except for Note 7):

12

---

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the Company's results of operations and liquidity and capital resources should be read in conjunction with the Selected Financial Data
and the Consolidated Financial Statements of the Company and related notes thereto appearing elsewhere in this report.

Description of Business

APAC Customer Services, Inc. ("APAC Customer Services", "APAC" or the "Company") is a leading provider of customer interaction solutions and electronic
solutions for market leaders in financial services, insurance, telecommunications, healthcare and logistics. To help its clients better manage relationships with their customers, APAC Customer
Services develops and delivers end-to-end customer care, customer acquisition and Web-enabled programs. The Company operates and manages approximately 10,200
workstations in 48 Customer Interaction Centers. The Customer Interaction Centers are managed centrally through the application of telecommunications and computer technology to promote the consistent
delivery of quality service. The Company delivers a full suite of electronic products and services, including e.PACSM, a multi-channel platform that supports a broad range of integrated,
e-commerce-based customer interaction capabilities and solutions integration services. The Company has two primary service offerings: Customer Acquisition and Customer Care. In 2001, the
Company reorganized its operating structure along client lines, combining operations into one unit and account management, marketing, sales and other client-facing functions across service offering
lines. The Company is utilizing certain Customer Interaction Centers to provide both Customer Care and Customer Acquisition services. It is therefore impractical to separate the results by these
service offerings as shown in prior years. Accordingly, the Company no longer presents operating results in reportable segments.

Significant Clients

The nature of the industry is such that the Company is dependent on several large clients for a significant portion of its annual net revenue. The Company's ten
largest clients collectively accounted for 65.6% of the Company's net revenue in fiscal 2001. The Company has one client, United Parcel Service

13

---

General Services, Inc. ("UPS") which accounted for 15.2% of the Company's consolidated net revenues and AEGON, a large insurance company which accounted for 10.1% of the Company's consolidated
net revenues.

The
Company's contract with UPS is a facilities management contract. The cost characteristics and capital requirements of the Company's fully outsourced programs differ significantly
from the cost characteristics and capital requirements of its facilities management programs. Under this facilities management program, the Customer Interaction Centers where the work is performed are
owned by the client, but are staffed and managed by the Company. Accordingly, facilities management programs have higher costs of services as a percentage of net revenue and lower selling, general and
administrative expenses as a percentage of net revenue compared to fully outsourced programs.

The
Company, whose contract with UPS expires September 30, 2002, is engaged in active negotiations with UPS seeking a new agreement. The Company presently provides services for
UPS at three UPS owned facilities. UPS has indicated that it will be closing one of these facilities and that it will not be renewing the Company's services at a second facility. The Company is
negotiating to provide a greater volume of services at its largest facility, which it believes should result in greater capacity utilization and therefore higher margins at that facility. However, the
Company's sales and gross profits from its services to UPS are expected to decline as a result of these changes. There are no assurances at this time that the Company's negotiations with UPS will lead
to a contract or as to the terms of such contract.

In
2001 AEGON acquired the direct marketing business of JCPenney, to which the Company had provided Customer Care and Customer Acquisition services since 1994. Since AEGON acquired this
business segment, AEGON has been decreasing its spending on these services, both overall and with respect to the Company relative to other providers. It is not anticipated that AEGON will constitute
10% of the Company's revenues in 2002.

There
can be no assurance that the Company will be able to retain any of its largest clients or that the volumes of its most profitable or largest programs will not be reduced, or that
the Company would be able to replace such clients or programs with clients or programs that generate a comparable amount of revenue or profits. Consequently, the loss of one or more of its significant
clients could have a materially adverse effect on the Company's business, results of operations and financial condition.

14

---

Results of Operations

The following table sets forth statement of operations data as a percent of net revenue from services performed by the Company for the fiscal years ended
December 30, 2001, December 31, 2000 and January 2, 2000, (fiscal 2001, fiscal 2000 and fiscal 1999, respectively).

2001

2000

1999Net revenue:

100.0
%
100.0
%
100.0
%Operating expenses:Cost of services

83.1

77.4

81.1Selling, general and administrative expenses

13.3

13.0

11.8Restructuring and other nonrecurring charges

2.1

1.8

1.8Asset impairment charges

2.0



Total operating expenses

100.5

92.2

94.7Operating income (loss)

(0.5
)
7.8

5.3Interest expense, net

1.8

2.0

3.2Income (loss) from continuing operations before income taxes

(2.3
)
5.8

2.1Provision (benefit) for income taxes

(1.1
)
2.2

0.8Income (loss) from continuing operations

(1.2
)
3.6

1.3Gain from discontinued operations, less income tax provision



0.1

Net income (loss)

(1.2
)%
3.7
%
1.3
%


Fiscal 2001 Compared to Fiscal 2000

Net revenue decreased $35.6 million, or 7.6%, to $428.8 million in fiscal 2001 from $464.4 million in fiscal 2000, primarily as a result of
reduced market spending by certain telecommunications and financial services clients, which lowered the demand for customer acquisition services. Revenues for customer care services increased as a
result of revenue growth principally from two significant new clients which more than offset the loss of certain clients programs.

Cost
of services decreased $3.5 million in fiscal 2001, or 1.0%, to $356.2 million from $359.7 million in fiscal 2000. This decrease was primarily the result of
volume related reductions substantially offset by higher wage rates, increased training related to new clients and center consolidation, additional operating costs associated with certain clients and
excess workstation capacity in the first half of fiscal 2001. Cost of services in 2000 includes the reversal of $1.4 million of accrued telephone charges recorded in the fourth quarter of 1998.
Cost of services for 2001 decreased $4.9 million or 1.4% versus 2000 absent this reversal.

Selling,
general and administrative expenses excluding the impact of restructuring and other non-recurring charges and asset impairment charges, decreased
$2.9 million, or 4.9%, to $57.0 million in fiscal 2001 from $59.9 million in fiscal 2000. This decrease was primarily due to the strategic cost savings initiatives implemented
early in the second half of fiscal 2001. As a percent of net revenue, selling,
general and administrative expenses were 13.3% in fiscal 2001 versus 13.0% in fiscal 2000. The percentage increase was due to a reduction in revenues disproportionately higher than the decrease in
headcount and administrative expenses related to the general volume shortfall.

The
Company recorded $6.6 million in restructuring charges in the second quarter of fiscal 2001. These costs related to the closing of seven Customer Interaction Centers. This
charge included $0.6 million for the write down of property and equipment, $4.1 million of severance costs related to 900 employees and $1.9 million of lease termination and other
costs.

15

---

Non-recurring
charges of $2.4 million associated with the settlement of litigation and additional bad debt provisions were recorded in the first half of fiscal 2001.
Non-recurring charges in the same period of 2000 were $8.7 million.

The
Company generated an operating loss of $2.0 million for fiscal 2001 compared to $36.1 million of operating income for fiscal 2000. Operating income excluding the impact
of restructuring and other non-recurring charges and asset impairment charges for fiscal 2001 was $15.7 million versus $44.8 million in fiscal 2000. The decrease was
primarily the result of reduced revenue, higher wages and training expenses related to new clients and excess capacity in the first half of fiscal 2001 as previously discussed.

Net
interest expense for fiscal 2001 decreased by $1.6 million compared to fiscal 2000. This decrease reflects the $30 million reduction in the term loan during fiscal
2001, and positive results from the Company's working capital management efforts partially offset by lower interest income associated with a reduction in rates and investment balances.

The
Company's effective income tax rate benefit is 49.0% for fiscal 2001, compared to a 37.6% effective income tax expense rate for fiscal 2000. The increase in the effective rate is
primarily the result of net favorable benefits related to the finalization and filing of 2000 tax returns which increased the tax benefit for 2001.

Fiscal 2000 Compared to Fiscal 1999

Net revenue increased to $464.4 million in fiscal 2000 from $427.6 million in fiscal 1999, an increase of $36.8 million. The increase was due
primarily to growth in call volumes with new and existing clients, higher rates, new programs for existing clients, new clients and a more favorable business mix partially offset by the reduction in
volumes from under performing and expired contracts.

Cost
of Services increased $12.7 million, or 3.7%, to $359.7 million from $347.0 million in fiscal 1999. This smaller increase in comparison to the 8.6% revenue
growth was primarily due to operational improvements. Cost of services for fiscal 1999 include the reversal of $4.9 million in 1999 of accrued telephone charges that had been recorded in the
fourth quarter of 1998. Cost of services in 2000 included $1.4 million of such credits in the third and fourth quarters. Gross profit margins improved to 22.5% in fiscal 2000 from 18.9% in the
previous year on improved business mix, better capacity utilization, increased productivity, a reduction in fixed costs which resulted from the restructuring plans implemented in fiscal 1999 and,
improved workforce management efforts.

Selling,
general and administrative expenses increased to $68.6 million in fiscal 2000 from $58.0 million in fiscal 1999, an increase of $10.6 million or 18.3%.
Fiscal 1999 expenses included $7.6 million of restructuring expenses. Excluding these charges, selling, general and administrative expenses increased $18.2 million in fiscal 2000 or 36%.
As a percent of net revenue, selling, general and administrative expenses including restructuring and nonrecurring charges increased to 14.8% in fiscal 2000 from 13.6% in fiscal 1999. This increase
was primarily due to costs related to additional investments in the areas of people, adding marketing, sales and senior management personnel and $8.7 million of non-recurring costs
related to the development of a new technology platform, e.PACSM, the development of new product service offerings and the new headquarters, operational facilities and associated
personnel relocation in Deerfield, IL.

During
fiscal 1999, the Company recorded restructuring charges of $7.6 million associated with the closure of 24 Customer Interaction Centers and reductions in the salaried
workforce. The facility closure charge included $5.4 million for the write-down of property and equipment. $0.9 million for employee severance costs and $1.3 million
for lease termination costs.

The
Company generated operating income of $36.1 million for fiscal 2000 compared to $22.6 million in fiscal 1999. The increase was due to higher gross profit dollars in
2000 resulting from higher gross profit margins and the successful implementation of the restructuring plans initiated in fiscal 1999 to reduce

16

---

excess capacity and improve operating performance partially offset by higher selling, general and administrative expenses as previously discussed.

Net
interest expense for fiscal 2000 decreased by $4.0 million compared to fiscal 1999. This decrease reflects the $27 million reduction of the term loan during fiscal
2000, and positive results from the Company's working capital management efforts that have contributed to increased cash balances and interest income from short-term investments.

The
Company's effective income tax rate was 37.6% in fiscal 2000, compared to 38.8% for fiscal 1999. The decrease in the effective rate was primarily the result of the utilization by the
Company of
$12.8 million of net operating loss carry-forwards that had previously been fully reserved, partially offset by the tax impact from the sale of Paragren.

Critical Accounting Policies and Estimates

The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company believes its estimates and assumptions are reasonable; however, actual results
and the timing of the recognition of such amounts could differ from those estimates. The Company has identified the following critical accounting policies and estimates utilized by management in the
preparation of the Company's financial statements: revenue recognition, accounting for long-lived assets, allowance for doubtful accounts, and employee benefit accounting. Any deviation
from these policies or estimates could have a material impact on the financial statements of the Company.

Revenue recognition

The Company recognizes customer services revenue as services are performed for its clients which is generally based upon hours incurred, in accordance with Staff
Accounting Bulletin (SAB) No. 101 "Revenue Recognition".

Accounting for long-lived assets

The Company has approximately $86.4 million of long-lived assets as of December 30, 2001. These assets are comprised primarily of
property and equipment, capitalized software and intangible assets. In addition to the original cost of these assets, their recorded value is impacted by a number of policy elections made by the
Company, including estimated useful lives, salvage values and impairment charges. In addition, any decision by the Company to reduce capacity by closing Customer Interaction Centers or to abandon
software would result in a writeoff of the net book value of these affected assets. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121), the Company records impairment charges on long-lived assets used in operations
when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In
this circumstance, the impairment charge is determined based upon the amount the net book value of the assets exceeds their fair market value. In making these determinations, the Company utilizes
certain assumptions, including, but not limited to: (i) estimated fair market value of the assets, which are based on additional assumptions such as asset utilization, length of service the
asset will be used in the Company's operations and estimated salvage values. During 2001, the Company recorded an asset impairment charge of $8.6 million related to the write-off of
certain non-performing IT hardware and software costs under SFAS 121. The Company has adopted the Statement of Financial Accounting Standards Number 142, Goodwill and Other
Intangible Assets in January 2002. See discussion on page 18 regarding the effect of this adoption.

17

---



Allowance for doubtful accounts

The Company records an allowance for doubtful accounts based on a quarterly assessment of the probable estimated losses in trade accounts receivable. This
estimate is based on specific allowances for identified problem receivables and a general valuation for all other receivables based on their age and collection history.

Accounting for employee benefits

The Company records an accrued liability for group health and workers compensation based on an estimate of claims incurred but not reported as well as asserted
claims at the end of the year. This estimate is derived from analysis performed by actuaries hired by the Company who have expertise in this area. However, although these estimates are generally
reliable, changes in the employee mix and unforeseen events could result in an adjustment to the financial statements of the Company.

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standard Number 133, Accounting for Derivative and Hedging Activities

Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended (SFAS 133). SFAS 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivatives'
change in fair value will be immediately recognized in earnings. The adoption of SFAS 133 did not result in a cumulative effect adjustment being recorded to net income for the change in
accounting. However, the Company recorded a transition and current year adjustment aggregating $1.4 million (net of tax of $0.7 million) in Accumulated Other Comprehensive Income for
fiscal 2001 related to the unrealized loss on interest rate swaps.

Statements of Financial Accounting Standards Number 141, Business Combination and 142, Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible assets" ("SFAS 142"). SFAS 141 addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in a business combination. SFAS 142 addresses the initial recognition and measurement of intangible assets acquired outside of a
business combination, whether acquired individually or with a group of other assets, and the accounting and reporting for goodwill and other intangibles subsequent to their acquisition. These
standards require all future business combinations to be accounted for using the purchase method of accounting. Goodwill will no longer be amortized but instead will be subject to impairment tests.
The Company has adopted these standards for fiscal 2002. The elimination of goodwill amortization in fiscal 2002 as required by SFAS 142 will increase earnings per diluted share by
approximately two cents.

18

---

Liquidity and Capital Resources

The following table sets forth consolidated statements of cash flow data for the Company for years ended December 30, 2001 December 31, 2000, and
January 2, 2000, respectively.

2001

2000

1999Net cash provided by operating activities

$
19.0

$
41.4

$
47.3Net cash provided (used) by investing activities


(6.2
)

1.7


(7.8
)Net cash used by financing activities


(32.8
)

(20.8
)

(24.2
)Net increase (decrease) in cash

$
(20.0
)
$
22.3

$
15.3


Cash
provided by operating activities during fiscal 2001 decreased $22.4 million from fiscal 2000 primarily as a result of weaker operating results relating to a decline in
revenue and lower margins. Net cash used by investing activities in fiscal 2001 was $6.2 million versus $1.7 million provided in fiscal 2000. This change is primarily due to the fact
that capital expenditures of $15.2 million in fiscal 2000 were more than offset by $17.0 million of proceeds from the sale of Paragren. The Company also received $2.8 million from
the sale of Paragren in fiscal 2001, which were offset by capital expenditures of $9.0 million.

Capital
expenditures in fiscal 2001 related primarily to the build-out and furnishing of a customer interaction center in Tucson, Arizona for a new client and for information
technology. Expenditures for fiscal 2000 related primarily to information technology. These capital expenditures were funded with cash provided by operations. In March, 2000 the company sold an
aggregate of 695,652 common shares held in treasury to a member of the Board of Directors, for $5.0 million in cash, or $7.185 per share.

At
December 31, 2000, the Company had a term loan of $103.0 million and a $50.0 million Revolving Credit Facility ("Revolving Facility") available for general
working capital purposes and capital expenditures. In May, 2001 the Company completed an amendment to the amended and restated Credit Facility which revised several covenants. In conjunction with the
amendment, the Company paid an additional $10 million of the balance outstanding on the Term Loan and the Total Facility was reduced to $119.0 million consisting of an
$89.0 million Term Loan and a $30 million Revolving Facility. As of December 30, 2001 and the date of this filing there were no borrowings outstanding under the Revolving Facility
but approximately $5.5 million was utilized through the issuance of standby letters of credit primarily to support self insurance reserves. The Company made $30 million of repayments on
its Term
Loan during fiscal 2001 including the additional $10 million payment made June 1, 2001, resulting in a balance outstanding at December 30, 2001 of $73.0 million.

Subsequent
to December 30, 2001 the Company completed another amendment to the amended and restated Credit Facility which further revised several covenants and required an
additional $5 million repayment of principal on the Term Loan. This additional payment has been included in current maturities of long term debt in the balance sheet of December 30, 2001
and was paid on February 1, 2002. A total of $31 million in principal payments are expected to be made in fiscal 2002.

The
Company's amended and restated Credit Facility expires in June, 2003. It is the Company's intent to refinance the debt related to this agreement and negotiate a new revolving credit
facility prior to the expiration date. At the time of refinancing, the Company will have to writeoff the remaining unamortized balance of finance costs and unwind the Swap Agreement associated with
the term loan which, depending on the timing, could have a material impact. Terms of the refinancing could result in higher interest rates and tighter debt covenant restrictions due to market
conditions and/or fluctuations in the Company's financial condition.

19

---

In
addition to debt the Company has other contractual obligations. The following table set forth these obligations by maturity and type of obligation.

Payment due by period2002

2003/
2004

2005/
2006

After
2006

TotalCONTRACTED OBLIGATIONSTerm Loan

$
31,000

$
42,000

$


$


$
73,000Capital lease obligations


145


12








157Operating leases


11,574


17,463


12,320


8,821


50,178Other debt


355


436


319


201


1,311$
43,074

$
59,911

$
12,639

$
9,022

$
124,646


The
Company expects that its cash balances, cash flow from future operations and available borrowings under the Revolving Facility will be sufficient to meet normal operating needs, fund
any planned capital expenditures and repay debt obligations during fiscal year 2002. However a significant change in operating cash flow could have a material impact on the company's ability to meet
its cash requirement needs and comply with the covenants of its credit facility.

Quarterly Results

The Company's operating results in any single period should not be viewed as indicative of future operating results as the services offered by the Company are
subject to variations in profitability. The Company could experience variations in net revenue and income as a result of many factors, including the timing of clients' marketing campaigns and customer
service programs, the timing of additional selling, general and administrative expenses to acquire and support such new business and changes in the Company's revenue mix among its various service
offerings. In connection with certain contracts, the Company could incur costs in periods prior to recognizing revenue under those contracts. In addition, the Company must plan its operating
expenditures based on revenue forecasts, and a revenue shortfall below such forecast in any quarter would likely adversely affect the Company's operating results for that quarter. While the effects of
seasonality on the Company's business have historically been obscured by its growing net revenue, the Company's business tends to be slower in the first and third quarters of its fiscal year due to
client marketing programs which are typically slower in the post-holiday and summer months.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. This Report on Form 10-K
may contain forward-looking statements that reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks
and uncertainties, which could cause future results to differ materially from historical results or those anticipated. The words "believe," "expect," "anticipate," "intend," "estimate," "goals,"
"would," "could," "should," and other expressions which indicate future events and trends identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of their dates. If no date is provided, such statements speak only as of the date of this Report on Form 10-K. The Company undertakes no
obligation to publicly update or revise any forward-looking statements in connection with new information or future events or otherwise. Factors that could cause future results to differ materially
from historical results or those anticipated include, but are not limited to, reliance by the Company on a small number of principal clients for a substantial proportion of its total revenue; possible
changes in or events affecting the business of the Company's clients, including changes in customers' interest in, and use of, clients' products and services; fluctuations in quarterly results of
operations due to timing of clients' initiation and termination of large programs; changes in competitive conditions affecting the Company's industry; the ability of the

20

---

Company's clients to terminate contracts with the Company on a relatively short notice; changes in the availability and cost of qualified employees; variations in the performance of the Company's
automated system and other technological factors; changes in government regulations affecting the teleservices and telecommunications industries; and competition from other outside providers of
customer interaction solutions and in-house customer interaction operations.

In
addition to the risks and uncertainties of ordinary business operations, the forward-looking statements of the Company contained in this Report on Form 10-K are
also subject to the following risks and uncertainties:

Reliance on Major Clients

Because a substantial portion of the Company's revenue is generated from relatively few clients, the loss of a significant client or clients could have a
materially adverse effect on the Company. The Company had clients which individually accounted for more than 10% of the Company's net revenue for fiscal years 2001, 2000, and 1999. The Company's ten
largest clients collectively accounted for 65.6% of the Company's net revenue in fiscal 2001. The Company's largest client in fiscal 2001 was UPS, which accounted for 15.2% of the Company's net
revenue in fiscal 2001. The Company's second largest client in fiscal 2001 was AEGON, which accounted for 10.1% of the Company's net revenue during that period. No other clients exceeded 10% of the
Company's net revenue in fiscal 2001. In fiscal 2000, two clients accounted for 15.3% and 9.1% of the Company's net revenue and in fiscal 1999, two clients accounted for 14.5% and 10.1% of the
Company's net revenue, respectively. Many of the Company's clients are concentrated in the business and consumer products, parcel delivery, financial services, insurance, retail, health care and
pharmaceuticals, and telecommunications industries. A significant downturn in any of these industries or a trend in any of these industries not to use, or to reduce their use of, telephone-based
sales, marketing or customer management solutions could have a materially adverse effect on the Company's business. The Company generally operates under contracts, which
may be terminated on short notice, most of which do not have minimum volume requirements. Additionally, the Company's contracts do not typically ensure that it will generate a minimum level of
revenues or generate a minimum level of volume, and the profitability of each client program may fluctuate, sometimes significantly, throughout the various stages of such program.

The
Company, whose contract with UPS expires September 30, 2002, is engaged in active negotiations with UPS seeking a new agreement. The Company presently provides services for
UPS at three UPS owned facilities. UPS has indicated that it will be closing one of these facilities and that it will not be renewing the Company's services at a second facility. The Company is
negotiating to provide a greater volume of services at its largest facility, which it believes should result in greater capacity utilization and therefore higher margins at that facility. However, the
Company's sales and gross profits from its services to UPS are expected to decline as a result of these changes. There are no assurances at this time that the Company's negotiations with UPS will lead
to a contract or as to the terms of such contract.

In
2001 AEGON acquired the direct marketing business of JCPenney, to which the Company had provided customer care and customer acquisition services since 1994. Since AEGON acquired this
business segment, AEGON has been decreasing its spending on these services, both overall and with respect to the Company relative to other providers. It is not anticipated that AEGON will constitute
10% of the Company's revenues in 2002.

There
can be no assurance that the Company will be able to retain any of its largest clients, that such clients will not terminate their contracts before their scheduled expiration date
or that the volumes of its most profitable or largest programs will not be reduced, or that the Company would be able to replace such clients or programs with clients or programs that generate a
comparable amount of revenue or profits. Consequently, the loss of one or more of its significant clients could have a materially adverse effect on the Company's business, results of operations and
financial condition.

21

---

Factors Affecting Ability to Manage and Sustain Growth

Future growth will depend on a number of factors, including the effective and timely initiation and development of client relationships, opening of new Customer
Interaction Centers, and recruitment, motivation and retention of qualified personnel. Sustaining growth will also require the implementation of enhanced operational and financial systems and will
require additional management, operational and financial resources. There can be no assurance that the Company will be able to manage its expanding operations effectively or that it will be able to
maintain or accelerate its growth.

Competitive and Fragmented Industry; International Capacity; Potential Future Competing Technologies and Trends

The industry in which the Company competes is extremely competitive and highly fragmented. The Company's competitors range in size from very small firms offering
special applications or short-term projects to large independent firms and the in-house operations of many clients and potential clients. A number of competitors have
capabilities and resources equal to, or greater than, the Company's. A number of the Company's competitors have announced the opening of customer interaction centers in Canada, the Caribbean, India,
the Philippines or other offshore locations in order to provide services to North American clients at reduced cost. It is uncertain whether these offshore capabilities will be as effective on a large
scale basis as the same competitors' United States facilities. Nonetheless, the potential movement of business offshore at reduced prices may result in pressure on the Company's gross profit margin or
a loss of business to such competitors. Some of the Company's services also compete with direct mail, television, radio and other advertising media, including the Internet. There can be no assurance
that, as the Company's industry continues to evolve, additional competitors with greater resources than the Company will not enter the industry (or particular segments of the industry) or that the
Company's clients will not choose to conduct more of their telephone-based sales, marketing or customer service activities internally.

Because
the Company's primary competitors are the in-house operations of existing or potential clients, the Company's performance and growth could be adversely affected if
its existing or potential clients decide to provide in-house customer care services that are currently outsourced or to retain or increase their in-house customer service and
product support capabilities.

The
development of new forms of direct sales and marketing techniques, such as interactive home shopping through television, computer networks and other media, could have an adverse
effect on the demand for the Company's Customer Acquisition services. In addition, the increased use of new telephone-based technologies, such as interactive voice response systems and increased use
of the Internet, could reduce the demand for certain of the Company's Customer Care offerings. Moreover, the effectiveness of marketing by telephone could also decrease as a result of consumer
saturation and increased consumer resistance to this direct marketing tool as well as technologies and service devices to screen calls from marketers. Although the Company attempts to monitor industry
trends and respond accordingly, there can be no assurance that the Company will be able to anticipate and successfully respond to all such trends in a timely manner.

Reliance on Technology

The Company has invested significantly in sophisticated and specialized telecommunications and computer technology, and has focused on the application of this
technology to provide customized solutions to meet its clients needs. The Company anticipates that it will be necessary to continue to select, invest in and develop new and enhanced technology on a
timely basis in the future in order to maintain its competitiveness. The Company's future success will depend in part on its ability to continue to develop information technology solutions which keep
pace with evolving industry standards and changing client demands. In
addition, the Company's business is highly dependent on its computer and telephone equipment and software systems, and the temporary or permanent loss of such equipment or systems,

22

---

through casualty or operating malfunction, could have a materially adverse effect on the Company's business.

Dependence on Key Personnel

The success of the Company depends in large part upon the abilities and continued service of its executive officers and other key employees. There can be no
assurance that the Company will be able to retain the services of such officers and employees. The loss of key personnel could have a materially adverse effect on the Company. The Company has
non-competition agreements with each of its existing key personnel. However, courts are at times reluctant to enforce such agreements. In order to support growth, the Company will be
required to effectively recruit, develop and retain additional qualified management personnel.

Dependence on Labor Force

The Company's industry is very labor intensive and has experienced high personnel turnover. Many of the Company's employees receive modest hourly wages and many
are employed on a part-time basis. A higher turnover rate among the Company's employees would increase the Company's recruiting and training costs and decrease operating efficiencies and
productivity. Some of the Company's operations, particularly insurance product sales and technology-based inbound customer service, require specially trained employees. Growth in the Company's
business will require it to recruit and train qualified personnel at an accelerated rate from time to time. There can be no assurance that the Company will be able to continue to hire, train and
retain a sufficient labor force of qualified employees. A significant portion of the Company's costs consists of wages to hourly workers. An increase in hourly wages, costs of employee benefits or
employment taxes could have a materially adverse effect on the Company.

Dependence on Telephone Service

The Company's business is materially dependent on service provided by various local and long distance telephone companies. A significant increase in the cost of
telephone services that is not recoverable through an increase in the price of the Company's services, or any significant interruption in telephone services, could have a materially adverse impact on
the Company.

Government Regulation

Both the FCC and FTC have enacted rules that govern the methods and processes of making and completing telephone solicitations and sales. Furthermore, states are
increasingly passing legislation aimed at controlling telemarketing activities affecting persons residing therein. The Company believes that its operating procedures comply in all material respects
with the current telephone solicitation and sales rules of the FCC, FTC and applicable state agencies. There can be no assurance, however, that the Company would not be subject to agency or state
proceedings alleging violation of such rules.

In
2002 the FTC initiated administrative rulemaking proceedings to modify the current Telemarketing Sales Rule. The proposed modifications include the creation of a national "Do Not
Call" registry and restrictions on the transfer of consumer billing information. Along similar lines, state governments continue to propose legislation that regulates the telemarketing industry,
including laws creating statewide "Do Not Call" registries, law restricting the methods and timing of telemarketing calls, and laws effectively prohibiting the use of automated telephone-dialing
devices. Many of the proposed laws and regulations are in the early stages of consideration and so the Company cannot determine the impact these proposed laws and regulations may have on the Company's
business. Future laws and regulations may require the Company to modify its operations or service offerings in order to effectively meet its clients' service requirements. There can be no assurance
that additional Federal or state legislation or regulations, or

23

---

changes in regulatory implementation, would not limit the activities of the Company or significantly increase the cost of regulatory compliance.

Several
of the industries in which the Company's clients operate are subject to varying degrees of government regulation, particularly in the telecommunications, insurance and financial
services industries. The Company could be subject to a variety of enforcement or private actions for its failure or the failure of its clients to comply with such regulations. There is increasing
Federal and state interest in privacy protection, some aspects of which could impose additional regulatory pressure on the business of the Company's clients and, less directly, on the Company's
business.

Sales
of certain client products and services may also be subject to Federal and state regulation, thus requiring the Company to comply with the regulations. For example, the Company's
telephone representatives who sell insurance products are required to be licensed by various state insurance commissions. Changes in the licensing regulations or their implementation could materially
increase the Company's operating costs.

Potential Fluctuations in Quarterly Operating Results

The Company could experience quarterly variations in revenue and operating income as a result of many factors, including the timing of clients' marketing
campaigns and customer service programs, the
timing of additional selling, general and administrative expenses to acquire and support such new business and changes in the Company's revenue mix among its various service offerings. In connection
with certain contracts, the Company could incur costs in periods prior to recognizing revenue under those contracts. In addition, the Company must plan its operating expenditures based on revenue
forecasts, and a revenue shortfall below such forecast in any quarter would likely adversely affect the Company's operating results for that quarter. The effects of seasonality on the Company's
business have historically been obscured by its growing net revenue. However, the Company's business tends to be slower in the first and third quarters due to client marketing programs which are
typically slower in the post-holiday and summer months.

Volatility of Stock Price

The market price of the Company's Common Shares has fluctuated over a wide range during the past several years and may continue to do so in the future. See
"Market for Registrant's Common Equity and Related Share Owner Matters." The market price of the Common Shares could be subject to significant fluctuations in response to various factors or events,
including among other things, the depth and liquidity of the trading market of the Common Shares, quarterly variations in actual liquidity of the trading market of the Common Shares, quarterly
variations in actual and anticipated operating results, growth rates, changes in estimates by analysts, loss of analyst coverage, market conditions in the industry in which the Company competes,
announcements by competitors, the loss of a significant client or a significant change in the Company's relationship with a significant client, regulatory actions, litigation, including class action
litigation, and general economic conditions.

Control by Principal Share Owner

Mr. Schwartz, the Company's Chairman, beneficially owns approximately 39.8% of the outstanding Common Shares. In addition, two trusts, established by
Mr. Schwartz, each beneficially owns approximately 5.3% of the outstanding Common Shares. As a result, Mr. Schwartz is able to exercise significant control over the outcome of
substantially all matters requiring action by the Company's share owners. Such voting concentration may have the effect of discouraging, delaying or preventing a change in control of the Company.

24

---

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

The Company is exposed to the impact of U.S. interest rate changes directly related to its normal operating and funding activities. The Company enters into
derivatives in order to minimize these risks, but not for trading purposes and has entered into interest rate agreements which effectively fix or limit
the rates on all of its term loan obligations. As a result, the interest rate on approximately 70% of debt obligations as of December 30, 2001 is fixed and rates on the balance of the
obligations are capped.

The
Company prepared a sensitivity analysis of its derivatives assuming a one percentage point adverse change in interest rates. Holding all other variables constant, the hypothetical
adverse change would not significantly increase interest expense due to the fact that most all debt is at fixed rate. The effect of the interest change on the fair market value of the outstanding debt
is insignificant and the sensitivity analysis assumes no changes in the Company's financial structure.

25

---

Item 8. Financial Statements and Supplementary Data

The following financial information is included in this Report:

|                                         |                                                                                                                                     | Page
|---------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ----
|Report of Independent Public Accountants |                                                                                                                                     | 27  
|                                         | Consolidated Statements of Operations for the Fiscal Years Ended December 30, 2001, December 31, 2000 and January 2, 2000           |     
|                                         | Consolidated Balance Sheets as of December 30, 2001 and December 31, 2000                                                           |     
|                                         | Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended December 30, 2001, December 31, 2000 and January 2, 2000 |     
|                                         | Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30, 2001, December 31, 2000 and January 2, 2000           |     
|                                         | Notes to Consolidated Financial Statements                                                                                          |     

26

---



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
APAC Customer Services, Inc.:

We
have audited the accompanying consolidated balance sheets of APAC CUSTOMER SERVICES, INC. and subsidiaries as of December 30, 2001 and December 31, 2000, and the
related consolidated statements of operations, share owners' equity and cash flows for the years ended December 30, 2001, December 31, 2000 and January 2, 2000. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of APAC Customer Services, Inc. and Subsidiaries as of
December 30, 2001 and December 31, 2000, and the results of its operations and its cash flows for the years ended December 30, 2001, December 31, 2000 and January 2,
2000, in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Chicago, Illinois
January 30, 2002

27

---



APAC CUSTOMER SERVICES, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        (Dollars in Thousands)

|                                     |                                                                                       | For the Fiscal Years Ended              
|------------------------------------ | ------------------------------------------------------------------------------------- | ----------------------------------------
|
|Net Revenue                          |                                                                                       | $                                       
|Operating Expenses:                  |                                                                                       |                                         
|                                     | Cost of services                                                                      |                                         
|                                     | Selling, general and administrative expenses                                          |                                         
|                                     | Restructuring and other non recurring charges                                         |                                         
|                                     | Asset impairment charges                                                              |                                         
|                                     |                                                                                       |                                         
|                                     |                                                                                       |                                         
|                                     |                                                                                       |                                         
|                                     | Operating income (loss)                                                               |                                         
|Interest Expense                     |                                                                                       |                                         
|                                     |                                                                                       |                                         
|                                     | Income (loss) from continuing operations before income taxes                          |                                         
|Provision (Benefit) for Income Taxes |                                                                                       |                                         
|                                     |                                                                                       |                                         
|                                     | Income (loss) from continuing operations                                              |                                         
|Discontinued Operations:             |                                                                                       |                                         
|                                     | Gain on disposal of Paragren Technologies, Inc., net of income tax provision of $321. |                                         
|                                     |                                                                                       |                                         
|                                     |                                                                                       |                                         
|                                     |                                                                                       |                                         
|Net Income (Loss)                    |                                                                                       | $                                       
|                                     |                                                                                       |                                         
|Net Income (Loss) Per Share:         |                                                                                       |                                         
|                                     | Basic:                                                                                |                                         
|                                     |                                                                                       | Income (loss) from continuing operations
|                                     |                                                                                       | Gain from discontinued operations       
|                                     |                                                                                       |                                         
|                                     |                                                                                       |                                         
|                                     |                                                                                       |                                         
|                                     | Diluted:                                                                              |                                         
|                                     |                                                                                       | Income loss from continuing operations  
|                                     |                                                                                       | Gain from discontinued operations       
|                                     |                                                                                       |                                         
|                                     |                                                                                       |                                         
|                                     |                                                                                       |                                         
|Weighted Average Shares Outstanding: |                                                                                       |                                         
|                                     | Basic                                                                                 |                                         
|                                     | Diluted                                                                               |                                         
|                                     |                                                                                       |                                         

See
Notes to Consolidated Financial Statements.

28

---



APAC CUSTOMER SERVICES, INC.        CONSOLIDATED BALANCE SHEETS        (Dollars in Thousands)

|                                          |                                                                                                                               | December 30,
2001          |         | December 31,
2000 |       
|----------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ----------------- | ------
|ASSETS                                    |                                                                                                                               |                            |         |                   |       
|Current assets                            |                                                                                                                               |                            |         |                   |       
|                                          | Cash and cash equivalents                                                                                                     |                            | $       | 21,213            |       
|                                          | Accounts receivable, less allowances of $3,956 and $3,089, respectively                                                       |                            |         | 64,496            |       
|                                          | Other current assets                                                                                                          |                            |         | 11,627            |       
|                                          |                                                                                                                               |                            |         |                   |       
|                                          |                                                                                                                               | Total current assets       |         |                   | 97,336
|Property and equipment, net               |                                                                                                                               |                            | 36,404  |                   |       
|Goodwill and other intangible assets, net |                                                                                                                               |                            | 43,605  |                   |       
|Deferred taxes                            |                                                                                                                               |                            | 4,336   |                   |       
|Other assets                              |                                                                                                                               |                            | 2,029   |                   |       
|                                          |                                                                                                                               |                            |         |                   |       
|                                          |                                                                                                                               | $                          | 183,710 |                   | $     
|                                          |                                                                                                                               |                            |         |                   |       
|LIABILITIES AND SHAREHOLDERS' EQUITY      |                                                                                                                               |                            |         |                   |       
|Current liabilities                       |                                                                                                                               |                            |         |                   |       
|                                          | Current maturities of long-term debt                                                                                          |                            | $       | 31,500            |       
|                                          | Accounts payable                                                                                                              |                            |         | 4,625             |       
|                                          | Accrued liabilities                                                                                                           |                            |         | 33,418            |       
|                                          |                                                                                                                               |                            |         |                   |       
|                                          |                                                                                                                               | Total current liabilities  |         |                   | 69,543
|                                          |                                                                                                                               |                            |         |                   |       
|Long-term debt, less current maturities   |                                                                                                                               |                            | 42,968  |                   |       
|Other liabilities                         |                                                                                                                               |                            | 3,202   |                   |       
|Commitments and contingencies             |                                                                                                                               |                            |         |                   |       
|Shareholders' equity                      |                                                                                                                               |                            |         |                   |       
|                                          | Common shares, $0.01 par value; 200,000,000 shares authorized issued: 49,541,866 shares in 2001 and 49,520,906 shares in 2000 |                            |         | 495               |       
|                                          | Additional paid-in capital                                                                                                    |                            |         | 100,229           |       
|                                          | Accumulated deficit                                                                                                           |                            |         | (28,946           | )     
|                                          | Accumulated other comprehensive income                                                                                        |                            |         | (1,393            | )     
|                                          | Treasury shares; 679,901 and 866,704 shares, respectively, at cost                                                            |                            |         | (2,388            | )     
|                                          |                                                                                                                               |                            |         |                   |       
|                                          |                                                                                                                               | Total shareholders' equity |         |                   | 67,997
|                                          |                                                                                                                               |                            |         |                   |       
|                                          |                                                                                                                               | $                          | 183,710 |                   | $     
|                                          |                                                                                                                               |                            |         |                   |       

See
Notes to Consolidated Financial Statements.

29

---



APAC CUSTOMER SERVICES, INC.        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY        (Dollars in Thousands)

|                                                                          |  | Common
Shares
Issued |  | Amount |     | Additional
Paid-In
Capital |   | Accumulated
Deficit |   | Accumulated
Other
Comprehensive
Income |         | Total
Treasury
Shares |   | Share
Holders'
Equity |  
|------------------------------------------------------------------------- |  | -------------------- |  | ------ | --- | -------------------------- | - | ------------------- | - | -------------------------------------- | ------- | --------------------- | - | --------------------- | -
|Balance, January 3, 1999                                                  |  | 48,893,873           |  | $      | 489 |                            | $ | 93,799              |   | $                                      | (46,813 | )                     | $ |                      |  
|Net income                                                                |  |                     |  |        |    |                            |   |                    |   |                                        | 5,650   |                       |   |                       |  
|Exercise of employee stock options, including related income tax benefits |  | 93,418               |  |        | 1   |                            |   | 546                 |   |                                        |        |                       |   |                       |  
|Issuance of Common Shares through employee stock purchase plan            |  | 92,326               |  |        | 1   |                            |   | 266                 |   |                                        |        |                       |   |                       |  
|Stock option and warrant transactions                                     |  |                     |  |        |    |                            |   | 334                 |   |                                        |        |                       |   |                       |  
|                                                                          |  |                      |  |        |     |                            |   |                     |   |                                        |         |                       |   |                       |  
|Balance, January 2, 2000                                                  |  | 49,079,617           |  |        | 491 |                            |   | 94,945              |   |                                        | (41,163 | )                     |   |                      |  
|Net income                                                                |  |                     |  |        |    |                            |   |                    |   |                                        | 17,181  |                       |   |                       |  
|Exercise of employee stock options, including related income tax benefits |  | 370,974              |  |        | 3   |                            |   | 2,485               |   |                                        |        |                       |   |                       |  
|Issuance of Common Shares through employee stock purchase plan            |  | 70,315               |  |        | 1   |                            |   | 362                 |   |                                        |        |                       |   |                       |  
|Sale of 742,296 treasury shares                                           |  |                     |  |        |    |                            |   | 2,395               |   |                                        |        |                       |   |                       |  
|Stock option and warrant transactions                                     |  |                     |  |        |    |                            |   | 157                 |   |                                        |        |                       |   |                       |  
|                                                                          |  |                      |  |        |     |                            |   |                     |   |                                        |         |                       |   |                       |  
|Balance, December 31, 2000                                                |  | 49,520,906           |  |        | 495 |                            |   | 100,344             |   |                                        | (23,982 | )                     |   |                      |  
|Net loss                                                                  |  |                     |  |        |    |                            |   |                    |   |                                        | (4,964  | )                     |   |                      |  
|Exercise of employee stock options, including related income tax benefits |  | 20,960               |  |        |    |                            |   | 63                  |   |                                        |        |                       |   |                      |  
|Issuance of Treasury Shares through employee stock purchase plan          |  |                     |  |        |    |                            |   | (228                | ) |                                        |        |                       |   |                      |  
|Stock option and warrant transactions                                     |  |                     |  |        |    |                            |   | 50                  |   |                                        |        |                       |   |                      |  
|Other Comprehensive income:                                               |  |                      |  |        |     |                            |   |                     |   |                                        |         |                       |   |                       |  
|Unrealized loss on derivatives                                            |  |                     |  |        |    |                            |   |                    |   |                                        |        |                       |   | (1,393                | )
|                                                                          |  |                      |  |        |     |                            |   |                     |   |                                        |         |                       |   |                       |  
|Balance, December 30, 2001                                                |  | 49,541,866           |  | $      | 495 |                            | $ | 100,229             |   | $                                      | (28,946 | )                     | $ | (1,393                | )
|                                                                          |  |                      |  |        |     |                            |   |                     |   |                                        |         |                       |   |                       |  

See Notes to Consolidated Financial Statements.

30

---



APAC CUSTOMER SERVICES, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (Dollars in Thousands)

|                                                     |                                                                                                       | For the Fiscal Years Ended                              |                                                 
|---------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------
|
|Operating Activities:                                |                                                                                                       |                                                         |                                                 
|                                                     | Net income (loss)                                                                                     |                                                         | $                                               
|                                                     | Depreciation and amortization                                                                         |                                                         |                                                 
|                                                     | Deferred income taxes                                                                                 |                                                         |                                                 
|                                                     | Non cash restructuring charges                                                                       |                                                         |                                                 
|                                                     | Tax effect of stock option exercises                                                                  |                                                         |                                                 
|                                                     | Asset impairment charges                                                                              |                                                         |                                                 
|                                                     | Changes in operating assets and liabilities, net of effects of acquisition and restructuring charges: |                                                         |                                                 
|                                                     |                                                                                                       | Receivables                                             |                                                 
|                                                     |                                                                                                       | Recoverable income taxes                                |                                                 
|                                                     |                                                                                                       | Other current assets                                    |                                                 
|                                                     |                                                                                                       | Accounts payable                                        |                                                 
|                                                     |                                                                                                       | Accrued expenses                                        |                                                 
|                                                     |                                                                                                       | Discontinued operations                                 |                                                 
|                                                     |                                                                                                       | Increase in other assets                                |                                                 
|                                                     |                                                                                                       |                                                         |                                                 
|                                                     |                                                                                                       |                                                         | Net cash provided by operating activities       
|Investing Activities:                                |                                                                                                       |                                                         |                                                 
|                                                     | Proceeds from sale of Paragren Technologies, Inc                                                      |                                                         |                                                 
|                                                     | Purchase of property and equipment, net of disposals                                                  |                                                         |                                                 
|                                                     |                                                                                                       |                                                         |                                                 
|                                                     |                                                                                                       |                                                         | Net cash provided (used) by investing activities
|Financing Activities:                                |                                                                                                       |                                                         |                                                 
|                                                     | Payments on long-term debt                                                                            |                                                         |                                                 
|                                                     | Decrease in customer deposits and other liabilities                                                   |                                                         |                                                 
|                                                     | Stock option and warrant transactions including related income tax benefits                           |                                                         |                                                 
|                                                     | Sale of treasury shares                                                                               |                                                         |                                                 
|                                                     |                                                                                                       |                                                         |                                                 
|                                                     |                                                                                                       |                                                         | Net cash used by financing activities           
|                                                     |                                                                                                       |                                                         |                                                 
|Net Increase (Decrease) In Cash And Cash Equivalents |                                                                                                       |                                                         | (19,979                                         
|Cash And Cash Equivalents:                           |                                                                                                       |                                                         |                                                 
|                                                     | Beginning of year                                                                                     |                                                         |                                                 
|                                                     |                                                                                                       |                                                         |                                                 
|                                                     | End of year                                                                                           |                                                         | $                                               
|                                                     |                                                                                                       |                                                         |                                                 
|Supplemental Disclosures:                            |                                                                                                       |                                                         |                                                 
|                                                     | Cash flow information:                                                                                |                                                         |                                                 
|                                                     |                                                                                                       | Cash payments for interest (net of amounts capitalized) |                                                 
|                                                     |                                                                                                       | Cash payments for income taxes                          |                                                 

See
Notes to Consolidated Financial Statements.

31

---



APAC CUSTOMER SERVICES, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (Dollars in thousands, except as otherwise indicated)

1. Summary of Significant Accounting Policies and Estimates

Description of Business

APAC Customer Services, Inc. ("APAC Customer Services", "APAC" or the "Company") is a leading provider of customer interaction solutions and electronic
solutions for market leaders in financial services, insurance, telecommunications, healthcare and logistics. To help its clients better manage relationships with their customers, APAC Customer
Services develops and delivers end-to-end customer care, customer acquisition and Web-enabled programs. The Company operates and manages approximately 10,200
workstations in 48 Customer Interaction Centers. The Customer Interaction Centers are managed centrally through the application of telecommunications and computer technology to promote the consistent
delivery of quality service. The Company delivers a full suite of electronic products and services, including e.PACSM, a multi-channel platform that supports a broad range of integrated,
e-commerce-based customer interaction capabilities and solutions integration services. The Company has two primary service offerings: Customer Acquisition and Customer Care. In 2001, the
Company reorganized its operating structure along client lines, combining operations into one unit and account management, marketing, sales and other client-facing functions across service offering
lines. The Company is utilizing certain Customer Interaction Centers to provide both Customer Care and Customer Acquisition services. It is therefore impractical to separate the results by these
service offerings as shown in prior years. Accordingly, the Company no longer presents operating results in reportable segments.

Significant Clients

The Company's significant relationships include United Parcel Service General Services, Inc. ("UPS") which accounted for 15.2% and 15.3%, respectively of
the Company's consolidated net revenue in fiscal 2001 and 2000. In addition 10.1 and 9.1% of the Company's consolidated net revenues in 2001 and 2002 respectively were provided by AEGON, a large
insurance company.

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. Results of operations of business combinations accounted for as a purchase have been included in the consolidated financial statements for all periods
subsequent to the dates of acquisition.

Certain
reclassifications of prior years' amounts have been made to conform with the current year presentation.

Critical Accounting Policies and Estimates

The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company believes its estimates and assumptions are reasonable; however, actual results
and the timing of the recognition of such amounts could differ from those estimates. The Company has identified the following critical accounting policies and estimates utilized by management in the
preparation of the Company's financial statements: revenue recognition, accounting for long-lived assets, allowance for doubtful accounts, and

32

---

employee benefit accounting. Any deviation from these policies or estimates could have a material impact on the financial statements of the Company.

Accounting for long-lived assets

The Company has approximately $86.4 million of long-lived assets as of December 30, 2001. These assets are comprised primarily of
property and equipment, capitalized software and intangible assets. In addition to the original cost of these assets, their recorded value is impacted by a number of policy elections made by the
Company, including estimated useful lives, salvage values and impairment
charges. In addition, any decision by the Company to reduce capacity by closing Customer Interaction Centers or to abandon software would result in a writeoff of the net book value of these affected
assets. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS 121), the Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired and
the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those APAC assets. In this circumstance, the impairment charge is determined based upon the
amount the net book value of the assets exceeds their fair market value. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (i) estimated
fair market value of the assets, which are based on additional assumptions such as asset utilization, length of service the asset will be used in the Company's operations and estimated salvage values.
During 2001, the Company recorded an asset impairment charge of $8.6 million related to the write-off of certain non-performing IT hardware and software costs under
SFAS 121. The Company has adopted the "Statement of Financial Accounting Standards Number 142, Goodwill and Other Intangible Assets" in January 2002. See discussion on page 36 regarding
the effect of this adoption.

Allowance for doubtful accounts

The Company records an allowance for doubtful accounts based on a quarterly assessment of the probable estimated losses in trade accounts receivable. This
estimate is based on specific allowances for identified problem receivables and a general valuation for all other receivables based on their age and collection history.

Accounting for employee benefits

The Company records an accrued liability for group health and workers compensation based on an estimate of claims incurred but not reported as well as asserted
claims at the end of the year. This estimate is derived from analysis performed by actuaries hired by the Company who have expertise in this area. However, although these estimates are generally
reliable, changes in the employee mix and unforeseen events could result in an adjustment to the financial statements of the Company.

Revenue recognition

The Company recognizes customer services revenue as services are performed for its clients which is generally based upon hours incurred, in accordance with Staff
Accounting Bulletin (SAB) No. 101 "Revenue Recognition".

33

---

Fiscal Year

The Company operates on a 52/53 week fiscal year that ends on the Sunday closest to December 31. Fiscal years for the consolidated financial statements
included herein, ended on December 30, 2001, December 31, 2000, and January 2, 2000, are all in 52 weeks.

Cash Equivalents

Cash equivalents consist of highly liquid, short-term investments readily converted to cash.

Trade Receivables

Concentration of credit risk is limited to trade receivables and is subject to the financial conditions of its clients. The Company generally does not require
collateral or other security to support clients' receivables. The Company conducts periodic reviews of its clients' financial conditions and vendor payment practices to minimize collection risks on
trade receivables.

Long-Lived Assets

Property and Equipment.Property and equipment are recorded at cost and depreciated on a straight-line basis,
using estimated useful lives of up to 15 years for building and leasehold improvements, 3 to 7 years for telecommunications equipment, and 3 to 7 years for workstations and office
equipment. Total depreciation expense for property and equipment for fiscal years 2001, 2000 and 1999 was $17,801, $23,231 and $25,770 respectively.

Capitalized Software.The Company capitalizes certain costs related to the purchase and installation of computer software for
internal use. Amortization is provided on a straight-line basis over estimated useful lives ranging up to 5 years. Amortization of capitalized software costs for fiscal years 2001,
2000 and 1999 was $3,143, $3,408 and $3,721 respectively.

Intangible Assets.Goodwill and other intangible assets have been amortized on a straight-line basis over the
expected period of benefit ranging from 4 to 21 years. Total amortization of goodwill and other intangible assets for fiscal years 2001, 2000 and 1999 was $4,152, $4,185 and $4,494,
respectively. Subsequent to fiscal 2001 the Company will no longer amortize goodwill as discussed in footnote 2.

Accounting for Stock-Based Compensation

For stock-based employee compensation plans, the Company has elected to use the intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." No compensation expense is recognized for stock options issued to employees when the option price equals or exceeds the fair market value of
the Company's Common Shares at the date of grant. In accordance with Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," the Company
provides pro forma disclosures of net income and net income per share as if the fair value based method had been used. Stock-based compensation expense for non-employees is recognized in
accordance with SFAS No. 123.

34

---

Interest Rate Agreements

The Company uses interest rate swaps and caps to effectively hedge interest rate exposures. Amounts due to or from interest rate swap counterparties are recorded
in interest expense in the period in which they accrue. The premiums paid to purchase interest rate caps, as well as any gains and losses on terminated interest rate swap and cap agreements, are
amortized to interest expense over the life of the debt to which they are matched. (See Note 2 regarding the adoption of SFAS 133).

Comprehensive Income

Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income," which established standards for reporting of
comprehensive income, was adopted by the Company in January 1998. As of January 2, 2000 and January 3, 1999, the Company had no transactions separately identified as components of
"other comprehensive income" under SFAS No. 130. Comprehensive income for fiscal 2001, 2000 and 1999 is as follows:

2001

2000

1999Net income (loss)

$
(4,964
)
$
17,181

$
5,650Other comprehensive income(1)


(1,393
)




Total

$
(6,357
)
$
17,181

$
5,650


---

2. New Accounting Pronouncements

Statement of Financial Accounting Standard Number 133, Accounting for Derivative and Hedging Activities:

Effective
January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended (SFAS 133). SFAS 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value will either be offset against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivatives' change in fair value will be
immediately recognized in earnings. The adoption of SFAS 133 did not result in a cumulative effect adjustment being recorded to net income for the change in accounting. However, the Company
recorded a transition and current year adjustment aggregating $1.4 million (net of tax of $0.7 million) in Accumulated Other Comprehensive Income for fiscal 2001 related to the
unrealized loss on interest rate swaps.

35

---

Statements of Financial Accounting Standards Number 141, Business Combination and 142, Goodwill and Other Intangible Assets:

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible assets" ("SFAS 142"). SFAS 141 addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in a business combination. SFAS 142 addresses the initial recognition and measurement of intangible assets acquired outside of a
business combination, whether acquired individually or with a group of other assets, and the accounting and reporting for goodwill and other intangibles subsequent to their acquisition. These
standards require all future business combinations to be accounted for using the purchase method of accounting. Goodwill will no longer be amortized but instead will be subject to impairment tests.
The Company has adopted these standards for fiscal 2002. The elimination of goodwill amortization in fiscal 2002 as required by SFAS 142 will increase earnings per diluted share by
approximately two cents.

3. Supplemental Balance Sheet Data

Consolidated Balance Sheet

December 30,
2001

December 31,
2000Deferred tax assets

$
4,960

$
4,860Refundable Federal income taxes


1,630


Prepaid expenses


4,954


4,901Non-trade receivables


83


3,572Other current assets

$
11,627

$
13,333Building and leasehold improvements

$
31,630

$
32,554Telecommunications equipment


62,269


74,928Workstations and office equipment


17,484


16,228Capitalized software


15,539


15,778Construction in progress


2,154


3,232Accumulated depreciation and amortization


(92,672
)

(88,240
)Property and equipment, net

$
36,404

$
54,480Goodwill

$
28,317

$
28,317Assembled workforce


3,600


3,600Customer relationships


28,493


28,493Accumulated amortization


(16,805
)

(12,653
)Goodwill and other intangibles, net

$
43,605

$
47,757Payroll and related items

$
23,023

$
23,128Restructuring charges


1,500


94Accrued relocation and severance


847


4,321Accrued professional fees


1,342


1,146Income taxes payable





3,174Telecommunications expenses


604


1,145Other accrued liabilities


6,102


7,085Accrued liabilities

$
33,418

$
40,093


36

---



4. Acquisition of ITI Holdings, Inc.

Acquisition

On May 20, 1998, the Company acquired through merger all of the common stock of ITI Holdings, Inc., the sole shareholder of ITI Marketing
Services, Inc. ("ITI"), a leading teleservices provider based in Omaha, Nebraska. In exchange for all of the common stock of ITI, the Company paid $149.2 million, net of cash acquired.
The initial purchase price was funded with proceeds from a $150 million Term Loan. ITI's business consisted of telephone-based sales, marketing and customer management services to corporate
clients with high volumes of outgoing or incoming calls through a network of customer interaction centers. The acquisition was accounted for as a purchase and, accordingly, the assets and liabilities
and results of operations of ITI have been included in the Company's consolidated financial statements since the date of acquisition.

The
excess of purchase price over the fair value of tangible assets acquired, liabilities assumed and additional liabilities recorded of $136.7 million was initially allocated to
intangible assets based upon their estimated fair values as determined by independent appraisal. Purchased intangibles consisted of assembled workforce of $3.6 million, customer relationships
of $36.8 million and goodwill of $96.3 million. The intangible assets are being amortized over their estimated useful lives ranging from 7 to 21 years. In addition, ITI had
accumulated net operating loss carryforwards of $12.8 million as of the date of acquisition, which were fully reserved through a valuation allowance. In fiscal 2000 all net operating loss
carryforwards were utilized (see note 7 Income Taxes.)

In
connection with the acquisition, the Company provided a total of $21.2 million in estimated costs to close facilities, terminate unfavorable contracts, write-off
uncollectible trade receivables and reduce the workforce by 135 employees. The amounts provided included $6.5 million for facilities, $9.7 million for contracts, $2.4 million for
trade receivables and $2.6 million for employee severance. Of this reserve, $13.4 million has been utilized or paid through December 31, 2000 and $6.7 million has been
taken as a
reduction of goodwill. The remaining balance of acquisition related reserves was $1.1 million and $1.6 million as of December 30, 2001, and December 31, 2000, respectively.
To the extent that unused facilities covered by long-term leases were subleased and unfavorable contracts were renegotiated, a reduction in the acquisition-related reserves and goodwill
recorded as of the end of fiscal year 1998 was required during fiscal year 1999, as discussed below. The remaining reserve is being utilized for the reduction of lease obligations over the term of
such leases.

Valuation Adjustments

During fiscal year 1999, the Company recorded a $7.8 million reduction in goodwill related to the 1998 acquisition of ITI. The decrease in goodwill did not
affect the reported results of operations. The Company reduced liabilities relating to the ITI purchase by $6.1 million due to a reduction in the estimated costs to close facilities and
renegotiate contracts, and the Company revalued and increased certain deferred income tax assets by $1.7 million. In fiscal year 2000 the final accounting related to the acquisition was
completed and excess reserves of $0.6 million were taken as a reduction to goodwill.

Nonrecurring Charges

During fiscal year 1998, the Company recorded two nonrecurring charges in cost of services in connection with the ITI purchase. The Company provided allowances
for doubtful accounts of $2.5 million

37

---

to fully reserve trade accounts receivable balances due from two ITI clients who had filed for protection under Federal bankruptcy law. The Company also accrued a total of $7.1 million in
future telecommunications costs guaranteed under two minimum usage contracts scheduled to expire in the year 2000. As a result of the downturn in ITI's business, the Company had not expected to
achieve the minimum volumes under these contracts and, accordingly, did not expect to recover the guaranteed costs from future results of operations.

During
fiscal year 2000 and 1999, results of operations were favorably affected by the reversal of $1.4 million and $4.9 million, respectively, of telecommunications
charges that had been accrued in fiscal 1998. These reversals, which were reflected in cost of services, were realized when the Company was able to negotiate the favorable dispositions of costs
associated with guaranteed minimum usage telecommunications contracts.

Asset Impairment

During fiscal year 1998, fourth quarter reductions in clients' use of outbound telemarketing programs as a method of customer acquisition had reduced ITI's
Customer Acquisition division net revenue and
profitability substantially below levels that existed at the date of acquisition. Six clients, comprising approximately 65% of ITI's Customer Acquisition net revenue, had either ceased or
substantially reduced their telemarketing activities due to apparent financial impairment or consolidation in the consumer and financial services industries. In addition, lower than expected outbound
telemarketing volume had prevented the Company from realizing synergies anticipated with and valued in the ITI acquisition.

These
events required the Company to evaluate the recoverability of the long-lived assets of the Customer Acquisition division of ITI in the fourth quarter of fiscal year
1998. As a result of the loss of ITI's client base, estimated future undiscounted cash flows from ITI's Customer Acquisition business were less than the carrying value of its long-lived
assets. Accordingly, the Company adjusted the carrying value of the Customer Acquisition division's long-lived assets to their fair value of $13.6 million resulting in an impairment
loss of $69.7 million ($65.9 million, or $1.36 per share, net of income tax benefit). The impairment loss was comprised of a write-off of property and equipment of
$1.9 million, customer relationships of $8.3 million and goodwill of $59.5 million. The fair market valuation was based upon the appraised value of the remaining customer base of
the Customer Acquisition division as determined from projections of discounted future cash flows. The remainder of ITI's business had not been impaired.

5. Discontinued Operations

On August 19, 1997, the Company acquired all of the common and preferred stock of Paragren Technologies, Inc. ("Paragren"), a specialist in
software-based marketing products. The acquisition was accounted for as a purchase. The purchase price of approximately $32.9 million was allocated to the assets acquired and the liabilities
assumed based upon their estimated fair values as determined by an independent appraisal. The allocation of values to intangible assets consisted of $1.5 million to assembled workforce and
non-compete covenants, $19.8 million to in-process research and development, and $12.0 million to goodwill.

38

---

In
December 1998, the Company's management approved a plan to sell Paragren. Accordingly, Paragren was reported as a discontinued operation, and the consolidated financial
statements for fiscal year 1998 were reclassified to segregate the operating results and net assets of the business.

In
January 2000, pursuant to an agreement executed in December 1999, the Company sold the stock of Paragren Technologies, Inc. (representing substantially all of the
assets of Paragren) and received $17 million in cash proceeds. After selling expenses and other costs, $11 million of the proceeds were used to reduce outstanding borrowings under the
Term Loan in accordance with the financial covenants concerning the sale of assets. In January 2001, the Company received an additional $2.8 million of proceeds related to the terms of
escrow and earn-out agreements. As a result of the sale, the Company
recorded a net gain on the sale of Paragren of $0.5 million, net of $0.3 million of income tax expenses in fiscal 2000.

The
operations and anticipated disposal of Paragren did not affect the Company's results of operations in 1999 as the loss provision established in fiscal 1998 was sufficient to absorb
these losses. The proceeds from the sale of Paragren exceeded the amount estimated in 1998, and, accordingly, asset values were increased by $3.6 million. However, actual losses from operations
for Paragren in fiscal 1999 were $3.6 million greater than the amount estimated in 1998 and offset the increase in the estimated proceeds. As a result, there was no income statement impact to
the Company in 1999. Due to the sale of Paragren in January 2000, there were no operating results for fiscal 2000.

Summary
operating results for Paragren for fiscal year 1999 are as follows (in thousands):

1999Net revenue

$
7,465Operating expenses:Cost of services


5,190Selling, general and administrative expenses


10,603Total operating expenses


15,793Loss from operations


(8,328
)Interest income, net


(286
)Loss before income taxes


(8,614
)Income taxes benefit


(3,139
)Net loss

$
(5,475
)


6. Restructuring and Other Nonrecurring Charges/Asset Impairment Charges

During the second quarter of fiscal 2001, the Company conducted a review of its capacity, overhead and operating performance with the goal of improving its
operations and profitability. In connection with this effort, the Company closed seven Customer Interaction Centers, eliminated certain administrative and support positions, implemented specific plans
to improve operational performance and wrote off certain non-performing assets. Restructuring charges of $6.6 million related to this review were recorded in the second quarter and
included $0.6 million for the write down of property and equipment, $4.1 million of

39

---

severance costs related to 900 employees and $1.9 million of lease termination and other costs. Cash charges relating to the restructuring of approximately $4.3 million have been paid
through December 30, 2001, the remainder of $1.7 million, primarily related to severance costs, is payable in 2002 and thereafter.

Nonrecurring
charges of $2.4 million associated with the settlement of litigation and additional bad debt provisions were also recorded in the first half of 2001.

Asset
impairment charges of $8.6 million recorded in the second quarter of fiscal 2001 were related to the write off of certain non-performing IT hardware and software
costs.

Nonrecurring
charges for fiscal 2000 totaling $8.7 million were related to the development of a new technology platform, e.PACSM, the development of new product
service offerings and the new headquarters, operational facilities and associated personnel relocation in Deerfield, IL.

Fiscal
year 1999 results include three separate restructuring charges totaling $7.6 million related to a program to close a total of 24 Customer Interaction Centers and to reduce
the supporting salaried workforce. A charge of $2.0 million was recorded in the first quarter, including $1.4 million for the write-down of property and equipment and
$0.6 million for employee severance costs. An additional charge of $4.0 million was recorded in the second quarter, including $2.7 million for the write-down of
property and equipment, $0.3 million for employee severance costs and $1.0 million for lease termination costs. The final charge of $1.6 million was recorded in the third quarter,
including $1.3 million for the write-down of property and equipment and $0.3 for lease termination costs. All restructuring charges were fully utilized by the end of fiscal 2000
except for a balance of $0.5 million, related to one center that was not closed. This amount was credited to cost of services in fiscal 2000.

7. Income Taxes

The provision (benefit) for income taxes for continuing operations for fiscal years 2001, 2000 and 1999 consisted of the following:

2001

2000

1999Current provision (benefit)

$
(3,123
)
$
14,817

$
(2,352
)Deferred provision (benefit)


(1,647
)

(4,761
)

5,932Total provision (benefit) for income taxes

$
(4,770
)
$
10,056

$
3,580


40

---

A
reconciliation of the statutory Federal income tax expense (benefit) to the actual effective income tax expense (benefit) for continuing operations for fiscal years 2001, 2000 and 1999
is as follows:

2001

2000

1999Statutory tax expense (benefit)

$
(3,407
)
$
9,354

$
3,231State taxes, net of Federal benefit and state credits


(341
)

962


332Non-deductible goodwill(1)


178


5,051


434Utilization of net operating losses previously benefited(2)





(4,490
)

Adjustment for fiscal 2000 tax return(3)


(1,703
)




Work Opportunity Tax credit


(779
)

(1,203
)

(535
)Other(4)


1,282


382


118Actual tax expense (benefit)

$
(4,770
)
$
10,056

$
3,580


---

41

---

The
significant components of deferred income tax assets and liabilities for continuing operations are as follows:

December 30,
2001

December 31,
2000Deferred tax assets:Vacation accrual

$
1,316

$
940Self-insurance related costs


2,432


1,669Acquisition-related costs


350


683Restructuring charge


894


Revenue recognition





1,155Allowance for doubtful accounts


1,523


1,234Excess depreciation


2,582


Other


361


2,551Total deferred tax assets


9,458


8,232Deferred tax liabilities:Excess depreciation





350Change in accounting methods





146Other


162


87Total deferred tax liabilities


162


583Net deferred tax assets

$
9,296

$
7,649


At
January 2, 2000, the Company had a net operating loss carryforward for tax purposes of $4.9 million from operations in fiscal 1999 and $12.8 million acquired in
connection with the purchase of ITI. For financial reporting purposes, a valuation allowance in the amount of approximately $4.5 million was recorded in 1998 as an offset to the deferred tax
assets of ITI that could only be realized to the extent that the Company generates sufficient future book and taxable income. In fiscal 2000 the Company generated taxable income sufficient to utilize
all $17.7 million of these net operating loss carryforwards including the $12.8 million of such carryforwards fully reserved in previous years.

42

---



8. Long-Term Debt

Long-term debt consisted of the following:

|                                                                                                   |                         | December 30,
2001 |        | December 31,
2000
|-------------------------------------------------------------------------------------------------- | ----------------------- | ----------------- | ------ | -----------------
|Term Loan, average fixed interest rate of 8.7% and 9.3% respectively, final payment due June 2003. |                         | $                 | 73,000 |                  
|Industrial Revenue Bonds, payable monthly at 7%, final payment due June 2008                       |                         |                   | 922    |                  
|County Development Note, payable monthly at 4%, final payment due January 2004                     |                         |                   | 323    |                  
|Promissory Note, payable monthly at 9%, final payment due September 2002                           |                         |                   | 66     |                  
|Capital leases, payable monthly at 7.8% average rate, final payment due January 2003               |                         |                   | 157    |                  
|                                                                                                   |                         |                   |        |                  
|                                                                                                   | Total long-term debt    |                   |        | 74,468           
|                                                                                                   | Less-current maturities |                   |        | 31,500           
|                                                                                                   |                         |                   |        |                  
|Long-term debt, net                                                                                |                         | $                 | 42,968 |                  
|                                                                                                   |                         |                   |        |                  

As
of December 30, 2001, the carrying value of future debt obligations reasonably approximates their fair value, and the principal payments of long-term debt are due
as follows:

2003

$
42,2932004


1552005


1542006


165Thereafter


201Total payments

$
42,968


On May 20, 1998, the Company entered into a $250 million Senior Credit Facility ("Credit Facility") with a group of lending institutions and at the
same time repaid all amounts outstanding on its prior $80 million credit facility. The Credit Facility consisted of a $150 million Term Loan and a $100 million Revolving Facility.
Borrowings under the Revolving Facility would be used to provide working capital and fund capital expenditures. Proceeds from the Term Loan were used to acquire the common stock of ITI
Holdings, Inc. The common stock of ITI and all existing or acquired subsidiaries serve as collateral under the terms of the Credit Facility.

On
September 8, 1998, the Credit Facility was amended and restated, reducing the available borrowings to $225 million consisting of a $150 million Term Loan and a
$75 million Revolving Facility. Subsequently, there have been six amendments to the September 8, 1998 amended and restated Credit Facility. Most recently, the Sixth Amendment was adopted
on January 10, 2002.

Under
the terms of the Credit Facility as amended and in effect at the end of fiscal 2001, the total facility is $103 million, consisting of a $73 million Term Loan and a
$30 million Revolving Facility. The Company is required to make quarterly principal payments on the Term Loan, ranging from $6 million to $7 million per quarter, with a specified
final payment of $35 million due June 1, 2003. At December 30,

43

---

2001, the Company had $73 million outstanding under the Term Loan and zero outstanding on the Revolving Facility. As of December 30, 2001, the Company had $5.5 million of
outstanding standby letters of credit under the revolving facility primarily to support self insurance reserves.

In
conjunction with the Sixth Amendment to the Credit Facility, the Company was required to make an additional $5 million repayment of principal which was made on
February 1, 2002. This amount has been included in current maturities of long term debt of December 30, 2001.

Under
the terms of the Credit Facility, the Company is required to maintain certain financial covenants which limit the Company's ability to incur additional indebtedness, repurchase
outstanding common shares, create liens, acquire, sell or dispose of certain assets, engage in certain mergers and acquisitions, and to make certain restricted payments. As a result, the Company is
not allowed to pay dividends on its Common Shares. The Company is currently in compliance with all covenants and restrictions imposed by the terms of the Credit Facility as of December 30,
2001.

Borrowings
under the Credit Facility incur a floating interest rate usually based on the LIBOR index rate, although the Company has the option of using an alternate base rate defined in
the agreement. In addition, the Company pays a commitment fee on the unused portion of the Revolving Facility as well as an annual fee on the outstanding letters of credit.

In
connection with securing the Credit Facility in 1998, the Company paid fees and expenses of $2.7 million. The debt issuance costs are recorded as deferred charges and are being
amortized over the term of the Credit Facility of five years. The amortization of deferred debt costs for fiscal years 2001, 2000 and 1999 was $0.5 million, $0.4 million and
$0.4 million, respectively.

Interest Rate Agreements

The Company has entered into various interest rate agreements with one of the parties to the Credit Facility. On May 20, 1998, the Company entered into an
interest rate swap agreement ("Swap") and an interest rate cap agreement ("Cap") to hedge a portion of the interest rate risk associated with its floating rate debt. Under the terms of the Swap,
through June 1, 2003, the Company pays a fixed interest rate of 6.0% and receives a floating rate payment based on the 30-day LIBOR rate. The Swap had an initial notional amount of
$100 million and amortizes, pro rata, with principal payments on the Term Loan. Under the terms of the Cap, through June 1, 2003, the Company will make payments based on .63% of the
outstanding notional amount of the Term Loan, and the Company will receive payments any time the 30-day LIBOR rate exceeds 6.0%. The Cap had an initial notional amount of
$50 million and amortizes, pro rata, with principal payments on the Term Loan. At December 30, 2001, the fair market values of the Swap and Cap were $(2,069) and $8, respectively. The
Company has recorded a
transition and current year adjustment aggregating $1.4 million (net of tax of $0.7 million) in Accumulated Other Comprehensive Income for fiscal 2001 related to the Swap Agreement.

9. Commitments and Contingencies

Lease Commitments

The Company leases its Customer Interaction Centers, administrative offices and certain equipment. Rent expense for the fiscal years 2001, 2000, and 1999 was
$10,829, $9,370 and $7,548 respectively.

44

---

Minimum
future rental payments at December 30, 2001 are as follows (in thousands):

Operating
Leases2002

$
11,5742003


8,9732004


8,4902005


6,1832006


6,137Thereafter


8,821Total payments

$
50,178


Legal Proceedings

In March, 2000, the Company agreed to the settlement of a collective action instituted by present and former employees. This settlement remains subject to court
approval. The settlement did not have a material impact on the Company's results of operations.

The
Company is subject to occasional lawsuits, governmental investigations and claims arising out of the normal conduct of business. Management does not believe the outcome of any
pending claims will have a materially adverse impact on the Company's consolidated financial position. Although the Company does not believe that any of these proceedings will result in a materially
adverse effect on its consolidated financial position, no assurance to that effect can be given.

Training Bonds

At the end of the 2001, 2000 and 1999 fiscal years, the Company had guaranteed the repayment of approximately $441, $625 and $887 respectively, of the remaining
outstanding community college bond obligations, which were issued in connection with various job-training agreements. At December 30, 2001, the Company estimates that the deposits
made into escrow will be adequate to cover the cost of the maturing bonds.

10. Shareholders' Equity

The authorized capital stock of APAC Customer Services, Inc. consists of (a) 200 million Common Shares, $.01 par value per share, of which
49,541,866 were issued as of December 30, 2001, and (b) 50 million Preferred Shares, $.01 par value per share, of which no shares have been issued. On August 31, 1998, the
Board of Directors authorized the Company to repurchase, from time to time at management's discretion, up to 2,500,000 shares of its outstanding Common Shares at market prices. During fiscal 1998, the
Company repurchased 1,609,000 shares at an average price of $3.50 per share. The remaining authorization has expired. In fiscal 2000, 742,296 of the treasury shares previously purchased were sold
primarily to a member of the Board of Directors. In fiscal 2001, 186,803 treasury shares were issued through the Company's employee stock purchase plan and certain stock option exercises.

45

---

11. Equity Instruments

Stock Options

The Company has granted options to purchase Common Shares under three plans all established in 1995. Under the Executive Plan, on May 26, 1995, the Company
granted an officer options to purchase 565,034 Common Shares at an aggregate price of $1,765 or an average exercise price of $3.12 per share. The options, now fully vested, will expire in February,
2003. The weighted average fair value of the options at the date of grant was $1.83 per share, based upon the assumptions described below using the Black-Scholes option pricing model.

Under
the Incentive Stock Option Plan, which is the result of a merger of the Incentive Stock Option Plan and the Non-employee Director Stock Option Plan, directors,
officers, key employees and non-employee consultants may be granted nonqualified stock options, incentive stock options, stock appreciation rights, performance shares and stock awards, all
as determined by a committee of the Board of Directors or by the full board in the case of non-employee Directors. A total of 11.8 million shares have been authorized for grant
under the Incentive and Director Stock Option Plans. The exercise price of incentive stock options granted may not be less than 100% of the fair market value of the Common Shares at the date of grant.
The exercise price of non-qualified stock options granted may not be less than 85% of the fair market value of the Common Shares at the date of grant.

Non-employee
Directors receive annual grants of 20,000 non-qualified stock options. In addition, the Company provides attendance grants for the
non-affiliated directors. For each meeting, 1,000 options are awarded for attendance and 500 options are awarded for participation by telephone. The exercise price of the directors'
options granted is equal to the fair market value of the Common Shares at the date of grant.

Options
under both the Incentive Stock Option Plan and the Non-employee Director Stock Option Plan expire at periods between 5 and 15 years after date of grant.

46

---

Stock
option activity under the Company's Executive Plan, Incentive Stock Option Plan, and Non-employee Director Stock Option Plan for fiscal years 2001, 2000 and 1999 is as
follows:

Description

Shares

Price Range

Weighted
Average
Exercise
PriceOutstanding as of January 3, 1999

5,388,501

$
0.97-$38.13

$
6.70Granted

4,372,271

$
2.34-$13.13

$
4.17Exercised

(93,418
)
$
0.97-$8.50

$
5.72Canceled

(2,495,744
)
$
0.97-$38.13

$
5.66Outstanding as of January 2, 2000

7,171,610

$
0.97-$38.13

$
5.71Granted

1,999,000

$
3.06-$15.31

$
7.84Exercised

(370,974
)
$
0.97-$8.50

$
5.55Canceled

(935,200
)
$
2.34-$25.00

$
9.53Outstanding as of December 31, 2000

7,864,436

$
0.97-$38.13

$
5.66Granted

1,217,000

$
1.59-$5.69

$
3.85Exercised

(47,260
)
$
2.34-$4.03

$
3.30Canceled

(3,000,940
)
$
2.34-$37.25

$
6.49Outstanding as of December 30, 2001

6,033,236

$
0.97-$38.13

$
4.90Stock options exercisable at December 30, 2001

3,100,338

$
0.97-$38.13

$
5.00


The
following table summarizes information concerning stock options outstanding as of December 30, 2001:

|                                    |                                 | Exercise Price Ranges |           | Total    
|----------------------------------- | ------------------------------- | --------------------- | --------- | ---------
|
|Outstanding as of December 30, 2001 |                                 | 4,212,925             |           | 1,579,395
|                                    | Remaining life                  |                       | 7.5 years |          
|                                    | Weighted Average Exercise Price |                       | $3.54     |          
|Exercisable as of December 30, 2001 |                                 | 1,961,561             |           | 1,021,195
|                                    | Remaining life                  |                       | 6.4 years |          
|                                    | Weighted Average Exercise Price |                       | $3.42     |          

The
Company applies APB No. 25 in accounting for the stock option plans above. No compensation expense has been recognized for stock options when the option price equals or
exceeds the fair market value at date of grant. In order to calculate the pro forma information below, the fair value of each option is estimated on the date of grant based on the Black-Scholes option
pricing model. Assumptions include no dividend yield, risk-free interest rates ranging from 5% to 7%, expected volatility ranging between 70% and 90%, and an expected life ranging from
7 years to 10 years. Pro forma results of operations for fiscal

47

---

years 2001, 2000 and 1999 which reflect the adjustment to compensation expense to account for stock options in accordance with SFAS No. 123 are as follows:

|                                                                      |  | 2001 |        | 2000 |   | 1999   |  
|--------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | -
|Net income (loss) as reported                                         |  | $    | (4,964 | )    | $ | 17,181 |  
|Less-compensation expense on stock options, net of income tax benefit |  |      | (2,222 | )    |   | (3,855 | )
|                                                                      |  |      |        |      |   |        |  
|Pro forma net income (loss)                                           |  | $    | (7,186 | )    | $ | 13,326 |  
|                                                                      |  |      |        |      |   |        |  
|Pro forma net income (loss) per diluted share                         |  | $    | (0.15  | )    | $ | 0.26   |  
|                                                                      |  |      |        |      |   |        |  

The
pro forma disclosure is not likely to be indicative of pro forma results of operations which may be expected in future years because of the fact that options vest over several years,
compensation expense is recognized as the options vest and additional awards may also be granted.

Stock Purchase Warrants

In March 1998, the Company entered into a Sales Agreement with a client and issued 75,000 stock purchase warrants at an exercise price of $14.25 per share
in exchange for services to be performed. Each warrant represents the right to purchase one share of the Company's Common Shares at the exercise price. Warrants representing 35,000 shares vested in
fiscal year 1998 with the balance vesting over the next four years. The warrants became exercisable on March 10, 1998, and expire on March 9, 2007. The estimated fair value of the
warrants on the date issued was $7.14 per share using the Black-Scholes option pricing model and assumptions similar to those used for valuing the Company's stock options described above. The Company
recorded $50, $82, and $153 in selling expense in fiscal years 2001, 2000 and 1999, respectively, for warrants that vested during the year.

12. Benefit Plans

In October 1995, the Company adopted a 401(k) savings plan. Employees, meeting certain eligibility requirements as defined, may contribute up to 15% of
pretax gross wages, subject to certain restrictions. The Company makes matching contributions of 50% of the first 6% of employee wages contributed to the plan. Company matching contributions vest 20%
per year over a five-year period. For fiscal years 2001, 2000 and 1999, the Company made matching contributions to the plan of $1,316, $411 and $365, respectively.

In
fiscal year 1996, share owners of the Company adopted an employee stock purchase plan. The plan is administered by the compensation committee and permits eligible employees to
purchase an aggregate of 600,000 Common Shares at 85% of the lesser of the current market closing price of the Company's Common Shares at the beginning or end of a quarter. Employees may annually
purchase Common Shares up to the lesser of 15% of their gross wages or $25. During the fiscal years 2001, 2000 and 1999, 160,503, 70,315, and 92,326, Common Shares, respectively, were issued to
employees under this plan.

48

---



13.  Segment Information

Prior to fiscal 2001, the Company had three reportable segments organized around divisions providing separate and distinct services to clients. The operating
divisions were managed separately because the service offerings required different technology and marketing strategies and had different operating models and performance metrics. The Customer Care
business unit provided inbound customer service, direct mail response, "help" line support and customer order processing. The Customer Acquisition business unit provided outbound sales support to
customers and businesses, market research, targeted marketing plan development and customer lead generation, acquisition and retention. CustomerAssistance.com provided Web-based customer
relationship management products and services for Fortune 1000 and "dot.com" companies. In 2001, the Company reorganized its structure along client lines, commingling operations into one unit and
commingling account management, marketing, sales and other functions across service offering lines. The Company is utilizing certain Customer Interaction Centers to provide both Customer Care and
Customer Acquisition services. It is therefore impractical to separate the results by these service offerings. Accordingly the Company no longer presents operating results in reportable segments.

14.  Related Party Transactions

The Company utilizes McLeod USA to provide telecommunications services at certain of the Company's call centers. Clark McLeod, the Chairman of McLeod USA is a
member of the Board of Directors of the Company. During the fiscal years 2001, 2000 and 1999 the Company purchased $398, $471 and $372, respectively of telecommunications services. In addition,
beginning in fiscal 2001 the Company provided customer interaction solutions for McLeod for which it received $2,900.

During
fiscal 2001 the Company purchased $348 of consulting services from Form and Function Consulting, and $118 from marchFIRST. Additionally in fiscal 2000, the Company purchased
$2.4 million of consulting services from marchFIRST. Robert Bernard, Chairman and CEO of Form and Function and former Chairman and CEO of marchFIRST is a member of the Board of Directors of the
Company.

49

---

15.  Quarterly Data (Unaudited)

The following is a summary of the quarterly results of operations, including income per share, for APAC Customer Services, Inc. for the quarterly periods
of 2001 and 2000 fiscal years (in thousands, except per share data):

|Fiscal Years Ended                        |                                                    | First
Quarter |   | Second
Quarter |   | Third
Quarter |         | Fourth
Quarter |   | Full
Year | 
|----------------------------------------- | -------------------------------------------------- | ------------- | - | -------------- | - | ------------- | ------- | -------------- | - | --------- | 
|2001 Fiscal year ended December 30, 2001: |                                                    |               |   |                |   |               |         |                |   |           | 
|                                          | Net revenue                                        |               | $ | 111,778        |   | $             | 102,564 |                | $ | 103,918   | 
|                                          | Gross profit                                       |               |   | 17,755         |   |               | 15,785  |                |   | 18,581    | 
|                                          | Income (loss) from continuing
operations(b)        |               |   | (161           | ) |               | (10,018 | )              |   | 2,257     | 
|                                          | Net income (loss)(b)                               |               |   | (161           | ) |               | (10,018 | )              |   | 2,257     | 
|Net income (loss) per share:              |                                                    |               |   |                |   |               |         |                |   |           | 
|                                          | Income (loss) from continuing
operations(b)        |               | $ | 0.00           |   | $             | (0.21   | )              | $ | 0.05      | 
|                                          | Net income (loss)(b)                               |               | $ | 0.00           |   | $             | (0.21   | )              | $ | 0.05      | 
|2000 Fiscal year ended December 31, 2000: |                                                    |               |   |                |   |               |         |                |   |           | 
|                                          | Net revenue                                        |               | $ | 118,364        |   | $             | 118,594 |                | $ | 113,311   | 
|                                          | Gross profit                                       |               |   | 27,342         |   |               | 29,983  |                |   | 24,852    | 
|                                          | Income (loss) from continuing
operations(a)        |               |   | 3,556          |   |               | 3,998   |                |   | 4,553     | 
|                                          | Gain on disposal of Paragren Technologies, Inc.(c) |               |   | 115            |   |               |        |                |   |          | 
|                                          | Net income (loss)(a)                               |               |   | 3,671          |   |               | 3,998   |                |   | 4,553     | 
|Net income (loss) per share:              |                                                    |               |   |                |   |               |         |                |   |           | 
|                                          | Income (loss) from continuing
operations(a)        |               | $ | 0.07           |   | $             | 0.08    |                | $ | 0.09      | 
|                                          | Net income (loss)(a)                               |               | $ | 0.07           |   | $             | 0.08    |                | $ | 0.09      | 

---

Notes:

50

---



PART III

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

Item 10. Directors and Executive Officers of the Registrant.

The information required by this Item (except for the information regarding executive officers required by Item 401 of Regulation S-K which is
included in Part I under the caption "Executive Officers of Registrant") is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on June 7, 2002,
under the caption "Election of Directors," which information is incorporated herein by reference.

Item 11. Executive Compensation

The information required by this Item is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on June 7, 2002,
under the caption "Compensation of Executive Officers," which information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on June 7, 2002,
under the caption "Securities Beneficially Owned by Principal Share Owners and Management," which information is incorporated hereby by reference.

Item 13. Certain Relationships and Related Transactions

The information required by this item is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on June 7, 2002,
under the caption "Certain Transactions" which information is incorporated herein by reference.

51

---

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)1.    Financial Statements

The following financial statements of the Company are included in Part II, Item 8:



2.    Financial Statement Schedules

The following financial statement schedules are submitted as part of this report:



All
other schedules are not submitted because they are not applicable or are not required under Regulation S-X or because the required information is included in the
financial statements or notes thereto.

3.    Exhibits

The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index hereto.

(b)  Reports on Form 8-K

None

52

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

| |  | APAC CUSTOMER SERVICES, INC.
| |  | ----------------------------
| |  | By:                         

Dated:
March 29, 2002

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated:

|Signature                                    |  | Title                                                                           |  | Date          
|-------------------------------------------- |  | ------------------------------------------------------------------------------- |  | --------------
|                                             |  |                                                                                 |  |               
|/s/THEODORE G. SCHWARTZ*Theodore G. Schwartz |  | Chairman of the Board of Directors                                              |  | March 29, 2002
|/s/MARC T. TANENBERGMarc T. Tanenberg        |  | Senior Vice President and Chief Financial Officer (Principal Financial Officer) |  | March 29, 2002
|/s/KENNETH R. BATKOKenneth R. Batko          |  | Vice President and Controller (Principal Accounting Officer)                    |  | March 29, 2002
|/s/ROBERT F. BERNARD*Robert F. Bernard       |  | Director                                                                        |  | March 29, 2002
|/s/THOMAS M. COLLINS*Thomas M. Collins       |  | Director                                                                        |  | March 29, 2002
|/s/JOHN W. GERDELMAN*John W. Gerdelman       |  | Director                                                                        |  | March 29, 2002
|/s/CLARK E. MCLEOD*Clark E. McLeod           |  | Director                                                                        |  | March 29, 2002
|/s/PAUL G. YOVOVICH*Paul G. Yovovich         |  | Director                                                                        |  | March 29, 2002

---

53

---



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Shareholders of APAC Customer Services, Inc.:

We
have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of APAC Customer Services, Inc. and issued
our unqualified opinion thereon dated January 30, 2002. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements. The schedule of Valuation and
Qualifying Accounts is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic consolidated financial statements. This schedule has been
subject to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.

ARTHUR
ANDERSEN LLP

Chicago,
Illinois
January 30, 2002

54

---



Schedule II

VALUATION AND QUALIFYING ACCOUNTS    (in thousands)

|Column A                         |  | Column B |  | Column C |   | Column D |  | Column E
|-------------------------------- |  | -------- |  | -------- | - | -------- |  | --------
|
|
|Allowance for doubtful accounts: |  |          |  |          |   |          |  |         
|Year ended January 2, 2000       |  | 4,250    |  | 1,080    |   |         |  | 3,770   
|Year ended December 31, 2000     |  | 1,560    |  | 1,730    |   |         |  | 201     
|Year ended December 30, 2001     |  | 3,089    |  | 1,789    |   |         |  | 922     
|Accrued Restructuring Charge:    |  |          |  |          |   |          |  |         
|Year ended January 2, 2000       |  | 3,736    |  | 7,600    |   |         |  | 9,086   
|Year ended December 31, 2000     |  | 2,250    |  | (500     | ) |         |  | 1,656   
|Year ended December 30, 2001     |  | 94       |  | 6,600    |   |         |  | 5,194   

---

Notes:

55

---

EXHIBIT INDEX

|Exhibit
Number |  | Description                                                                                                                                                                                                                                 
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Articles of Incorporation of APAC Customer Services, Inc. are incorporated by reference to APAC Customer Services, Inc.'s quarterly Report on Form 10-Q for the quarter ended October 3, 1999.                                              
|3.2            |  | Amended and Restated Bylaws of APAC Customer Services, Inc. as amended through April 30, 2000 incorporated by reference to Exhibit 3.2 to APAC Customer Services, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended April 2, 2000. 
|4.1            |  | Specimen Common Stock Certificate incorporated by reference to APAC Customer Services, Inc.'s Annual Report on Form 10K for the fiscal year ended December 31, 2000.                                                                        
|*10.1          |  | APAC TeleServices, Inc. Amended and Restated 1995 Incentive Stock Plan, as amended, incorporated by reference to Exhibit 99.1 to APAC TeleServices, Inc.'s Current Report on Form 8-K dated April 10,
1998.                                 
|*10.2          |  | Amendment No. 1 to Amended and Restated APAC TeleServices, Inc. 1995 Incentive Stock Plan incorporated by reference to Exhibit 10.11 to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as
amended, Registration No. 33-95638.
|*10.3          |  | Second Amended and Restated 1995 Incentive Stock Plan incorporated by reference to APAC Customer Services, Inc.'s quarterly report on Form 10Q for the quarter ended July 2000.                                                             
|*10.4          |  | First Amendment to the Second Amended and Restated 1995 Incentive Stock Plan incorporated by reference to APAC Customer Services, Inc.s quarterly report on Form 10Q for the Quarter ended July 2,
2000.                                    
|*10.5          |  | Amended and Restated APAC TeleServices, Inc. 1995 Nonemployee Director Stock Option Plan incorporated by reference to Exhibit 10.2 to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638.  
|*10.6          |  | Employment Agreement with Peter M. Leger incorporated by reference to APAC Customer Services, Inc. Quarterly Report on Form 10-Q for the quarter ended October 3, 1999.                                                                     
|*10.7          |  | Amendment to the Employment Agreement with Peter M. Leger dated January 31, 2001 incorporated by reference to APAC Customer Services, Inc. Annual Report on Form 10K for the fiscal year ended December 31,
2000.                           
|*10.8          |  | Employment Agreement with John L. Gray incorporated by reference to APAC Customer Services, Inc. Quarterly Report on Form 10-Q for the quarter ended April 1, 2001.                                                                         
|*10.9          |  | Separation Agreements with Peter M. Leger dated May 2, 2001.                                                                                                                                                                                
|*10.10         |  | Separation Agreements with John L. Gray dated July 10, 2001.                                                                                                                                                                                
|*10.11         |  | Employment Agreement with John R. Bowden dated October 1, 1999.                                                                                                                                                                             
|*10.12         |  | Employment Agreement with Marc T. Tanenberg.                                                                                                                                                                                                
|*10.13         |  | Employment and Relocation Agreements with Daniel S. Hicks.                                                                                                                                                                                  
|*10.14         |  | Employment and relocation agreement with L. Clark Sisson incorporated by reference to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000.                                                    
|*10.15         |  | Fiscal 2001 Management Incentive Plan incorporated by reference to APAC Customer Services, Inc.'s Quarterly Report on Form 10Q for the quarter ended July 1, 2001.                                                                          

56

---

|*10.16  |  | Revised form of Employment Security Agreement between the Company and its Senior Management Team incorporated by reference to APAC Customer Services, Inc. Annual Report on Form 10K for the fiscal year ended
December 31, 2000.                          
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.17   |  | Amended and Restated Credit Agreement dated September 8, 1998 and First Amendment to Agreement, incorporated by reference to APAC TeleServices, Inc.'s Quarterly Report on Form 10-Q for the period ended
September 27, 1998.                              
|10.18   |  | Second Amendment and Waiver to Amended and Restated Credit Agreement incorporated by reference to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000.                                                       
|10.19   |  | Third Amendment and Waiver to Amended and Restated Credit Agreement incorporated by reference to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000.                                                        
|10.20   |  | Fourth Amendment to Amended and Restated Credit Agreement incorporated by reference to APAC Customer Services, Inc. Annual Report on Form 10-K for the fiscal year ended January 2, 2000.                                                                  
|10.21   |  | Fifth Amendment and Waiver to Amended and Restated Credit Agreement incorporated by reference to APAC Customer Services, Inc. Current Report on Form 8-K dated May 30, 2001.                                                                               
|10.22   |  | Sixth Amendment to Amended and Restated Credit Agreement.                                                                                                                                                                                                  
|**10.23 |  | Agreement with United Parcel Service General Services Inc. incorporated by reference to Exhibit 10.6 to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration
No. 33-95638.                                               
|**10.24 |  | Amendment, dated September 22, 1999, to Agreement for In-Bound Telemarketing with United Parcel Services Global Services Co. incorporated by reference to APAC Customer Services, Inc. Quarterly Report on
Form 10-Q for the quarter ended October 3, 1999.
|10.25   |  | Registration Rights Agreement incorporated by reference to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration No. 33-95638.                                                                                            
|10.26   |  | Tax Agreement incorporated by reference to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration No. 33-95638.                                                                                                            
|**10.27 |  | Agreement with J.C. Penney Insurance Company, dated November 1, 1994 incorporated by reference to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended, Registration
No. 33-95638.                                                     
|21.1    |  | Subsidiaries of APAC Customer Services, Inc.                                                                                                                                                                                                               
|23.1    |  | Consent of Arthur Andersen LLP.                                                                                                                                                                                                                            
|24.1    |  | Power of attorney executed by Theodore G. Schwartz, Robert F. Bernard, Thomas M. Collins, John W. Gerdelman, Clark E. McLeod,, Paul G. Yovovich.                                                                                                           
|99.1    |  | Letter regarding independent public accountants.                                                                                                                                                                                                           

---

57

---

QuickLinks