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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 28, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-26786
 APAC Customer Services, Inc.
  Illinois
(State or other jurisdiction of incorporation or
organization)
    
    36-2777140
(I.R.S. employer identification no.)
 Bannockburn Lake Office Plaza 1, 2333 Waukegan Road, Suite 100, Bannockburn, Illinois 60015
 (847) 374-4980
 Common Shares, $0.01 Par Value, NASDAQ
 None
  o þ
  o þ
  þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer* þ
    
    Smaller reporting company o(*Do not check if a smaller reporting company)
  o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 PageForward-Looking Statements and Factors that May Affect Future Results
    
    
    3PART I
    
    
    5Item 1. Description of Business
    
    
    5Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    18Item 2. Properties
    
    
    18Item 3. Legal Proceedings
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Executive Officers of the Registrant
    
    
    19PART II
    
    
    20Item 5. Market for Registrants Common Equity, Related Stockholder Matters and
and Issuer Purchases of Equity Securities
    
    
    20Item 6. Selected Financial Data
    
    
    22Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 8. Financial Statements and Supplementary Data
    
    
    40Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    65Item 9A. Controls and Procedures
    
    
    65Item 9B. Other Information
    
    
    67PART III
    
    
    67Item 10.
Directors and Executive Officers and Corporate Governance
    
    
    67Item 11. Executive Compensation
    
    
    67Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    67Equity Compensation Plan Information
    
    
    67Item 13.
Certain Relationships and Related Transactions, and Director
Independence
    
    
    68Item 14. Principal Accounting Fees and Services
    
    
    68PART IV
    
    
    68Item 15. Exhibits and Financial Statement Schedules
    
    
    68Signatures
    
    
    69Exhibit Index
    
    
    71Exhibit 4.1Exhibit 10.48Exhibit 21.1Exhibit 23.2Exhibit 24.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



Forward-Looking Statements and Factors that May Affect Future Results
      
    
    Our revenue is generated from a limited number of clients and the loss of one or more of them, or a reduction in their
demand for our services, could materially affect our financial results.
 
    
    Our business may be affected by the performance of our clients and general economic conditions.
 
    
    Our financial results depend on our ability to effectively manage our production capacity and our workforce.
 
    
    Our success is subject to the terms of our client contracts.
 
    
    Our success depends on our ability to sustain profitability.
 
    
    Our business may be affected by our cash flows from operations and our ability to comply with our debt covenants and
funding requirements under our credit facility.
 
    
    Our financial results may be affected by risks associated with international operations and expansion, including
foreign currency fluctuations.
 
    
    Our principal shareholder can exercise significant control over us.
 
    
    Our success depends on key personnel.
  3




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
    
    We operate in a highly competitive environment.
 
    
    Circumstances outside our control such as typhoons, earthquakes, floods and other acts of God, political instability,
equipment malfunction, telephone or data service interruptions, changes in the telecommunications market, war and
terrorism could seriously harm our domestic or off-shore business.
 
    
    Our inability to attract and retain a sufficient number of qualified employees could negatively impact our business.
 
    
    Unauthorized disclosure of sensitive or confidential client and customer data could expose us to protracted and costly
litigation, penalties and may cause us to lose clients.
 
    
    Our business and our clients businesses are subject to federal and state regulation and industry standards.
    4




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




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Our Core Industries and Clients
 Core Industries
   Major Clients
  Seasonality
  Our Services
   6




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Healthcare
  Business Services
  Communications
  Publishing
  Travel and Entertainment
  Financial Services
  Personnel and Training
      7




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




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




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System Architecture and Redundancy
   Client Relationships
    .
 Competition
    10




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




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Compliance Activities
 
 Financial Information about Industry Segments
 Disclosures About Segments of an
Enterprise and Related Information
 Available Information
 www.sec.gov
 www.apaccustomerservices.com
  12




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##### Table of Contents



Item 1A. Risk Factors.
 Risk Relating to the Company and its Business
  Our revenue is generated from a limited number of clients and the loss of one or more of them, or a
reduction in their demand for our services, could materially affect our financial results.
   Our business may be affected by the performance of our clients and general economic conditions.
  Our financial results depend on our ability to effectively manage our production capacity and our
workforce.
    13




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Our success is subject to the terms of our client contracts.
  Our success depends on our ability to sustain profitability.
  Our business may be affected by our cash flows from operations and our ability to comply with our
debt covenants and funding requirements under our credit facility.
   Our financial results may be affected by risks associated with international operations and
expansion, including foreign currency fluctuations.
    14




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Our principal shareholder can exercise significant control us.
     Our success depends on key personnel.
  We operate in a highly competitive environment.
     15




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Circumstances outside our control such as typhoons, earthquakes, floods and other acts of God,
political instability, equipment malfunction, telephone or data service interruptions, changes in
the telecommunications market, war and terrorism could seriously harm our domestic or off-shore
business.
    Our inability to attract and retain a sufficient number of qualified employees could negatively
impact our business.
   Unauthorized disclosure of sensitive or confidential client and customer data could expose us to
protracted and costly litigation, penalties and may cause us to lose clients.
   16




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Our business and our clients businesses are subject to federal and state regulation and industry
standards
       17




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Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
 Accounting for Sales with Leaseback
   Number ofCustomer Care Center Locations
    
    WorkstationsTuscon, Arizona
    
    
    545Tampa, Florida (client owned)
    
    
    677Davenport, Iowa
    
    
    674Cedar Rapids, Iowa
    
    
    385Utica, New York
    
    
    329Corpus Christi, Texas
    
    
    318Newport News, Virginia (client owned)
    
    
    761Green Bay, Wisconsin
    
    
    632LaCrosse, Wisconsin
    
    
    366Total US
    
    
    4,687Alabang, Muntilupa City, Philippines
    
    
    1,214Alabang, Muntilupa City, Philippines
    
    
    416Cubao, Quezon City, Philippines
    
    
    1,637Palo, Leyte, Philippines (1)
    
    
    Total Philippines
    
    
    3,267Total all customer care center locations
    
    
    7,954
 
 (1)
    
    As of December 1, 2008, we began construction on our fourth customer care facility in the
Philippines. This facility opened during the first quarter of 2009. 
 Item 3. Legal Proceedings.
   
 Item 4. Submission of Matters to a Vote of Security Holders.
   18




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Executive Officers of the Registrant
  Name
    
    Age
    
    PositionMichael P. Marrow
    
    
    51
    
    
    President and Chief Executive OfficerArthur D. DiBari
    
    
    51
    
    
    Senior Vice President, OperationsJoseph R. Doolan
    
    
    45
    
    
    Vice President and ControllerMark E. McDermott
    
    
    48
    
    
    Vice President and Chief Information OfficerRobert B. Nachwalter
    
    
    38
    
    
    Senior Vice President, General Counsel and Corporate SecretaryAndrew B. Szafran
    
    
    42
    
    
    Senior Vice President and Chief Financial Officer
        19




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
  High
    
    
    LowFiscal Year 2008:First Quarter
    
    $
    1.35
    
    
    $
    0.68Second Quarter
    
    $
    1.64
    
    
    $
    0.74Third Quarter
    
    $
    2.39
    
    
    $
    1.16Fourth Quarter
    
    $
    2.17
    
    
    $
    0.98
 High
    
    
    LowFiscal Year 2007:First Quarter
    
    $
    5.18
    
    
    $
    3.57Second Quarter
    
    $
    4.85
    
    
    $
    2.41Third Quarter
    
    $
    3.15
    
    
    $
    2.02Fourth Quarter
    
    $
    2.64
    
    
    $
    1.00
  Issuer Purchases of Equity Securities(a) Total
    
    
    
    
    
    
    (c)Total Number
    
    
    (d) Maximum NumberNumber of
    
    
    
    
    
    
    of Shares (or
    
    
    (or Approximate DollarShares (or
    
    
    (b) Average
    
    
    Units) Purchased
    
    
    Value) of Shares (orUnits)
    
    
    Price Paid
    
    
    as Part of Publicly
    
    
    Units) that May Yet BePurchased
    
    
    per Share
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    (1)
    
    
    (or Unit)
    
    
    or Programs
    
    
    Plans or Programs12/30/2007  1/27/2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    1/28/2008  2/24/2008
    
    
    31,509
    
    
    
    1.00
    
    
    
    
    
    
    
    2/25/2008  4/27/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4/28/2009  5/25/2008
    
    
    14,725
    
    
    
    1.12
    
    
    
    
    
    
    
    5/26/2008  9/28/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9/29/2008  10/26/2008
    
    
    959
    
    
    
    1.20
    
    
    
    
    
    
    
    10/27/2008  12/28/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    47,193
    
    
    $
    1.04
    
    
    
    
    
    
    $
    
 
 (1)
    
    During fiscal year 2008, we repurchased 47,193 shares of common stock at an average price of
$1.04 per share related to employee withholding tax upon the full vesting of previously issued
non-vested shares. Of this amount, 959 shares remained in treasury at December 28, 2008. We
did not repurchase any common shares during 2007.  20




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21




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Item 6. Selected Financial Data.
  For the Fiscal Years Ended(1)December 28,
    
    
    December 30,
    
    
    December 31,
    
    
    January 1,
    
    
    January 2,2008
    
    
    2007
    
    
    2006
    
    
    2006
    
    
    2005(Dollars in thousands, except share data, statistical data and notes)Operating Data:Net revenue
    
    $
    248,799
    
    
    $
    224,683
    
    
    $
    224,297
    
    
    $
    239,845
    
    
    $
    273,239Cost of services(6)
    
    
    207,953
    
    
    
    203,880
    
    
    
    197,881
    
    
    
    218,121
    
    
    
    240,882Gross profit
    
    
    40,846
    
    
    
    20,803
    
    
    
    26,416
    
    
    
    21,724
    
    
    
    32,357Selling, general and administrative
expenses(5)(6)
    
    
    30,148
    
    
    
    28,362
    
    
    
    31,279
    
    
    
    33,372
    
    
    
    38,613Restructuring and other charges(2)
    
    
    3,635
    
    
    
    1,632
    
    
    
    2,384
    
    
    
    8,216
    
    
    
    1,873Asset impairment charges(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,886
    
    
    
    2,234Total operating expenses
    
    
    33,783
    
    
    
    29,994
    
    
    
    33,663
    
    
    
    52,474
    
    
    
    42,720Operating income (loss)
    
    
    7,063
    
    
    
    (9,191
    )
    
    
    (7,247
    )
    
    
    (30,750
    )
    
    
    (10,363
    )Other income
    
    
    (347
    )
    
    
    (249
    )
    
    
    (101
    )
    
    
    (600
    )
    
    
    (361
    )Interest expense, net
    
    
    4,358
    
    
    
    3,537
    
    
    
    2,013
    
    
    
    1,408
    
    
    
    620Income tax provision (benefit) (4)
    
    
    33
    
    
    
    (17,568
    )
    
    
    21,380
    
    
    
    (9,160
    )
    
    
    (4,123
    )Net income (loss)
    
    $
    3,019
    
    
    $
    5,089
    
    
    $
    (30,539
    )
    
    $
    (22,398
    )
    
    $
    (6,499
    )Net income (loss) per share:Basic
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    (0.62
    )
    
    $
    (0.45
    )
    
    $
    (0.13
    )Diluted
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    (0.62
    )
    
    $
    (0.45
    )
    
    $
    (0.13
    )Weighted average shares outstanding:Basic
    
    
    50,424
    
    
    
    49,800
    
    
    
    49,458
    
    
    
    49,455
    
    
    
    49,453Diluted
    
    
    50,477
    
    
    
    52,019
    
    
    
    49,458
    
    
    
    49,455
    
    
    
    49,453Balance Sheet Data:Cash and cash equivalents
    
    $
    618
    
    
    $
    1,426
    
    
    $
    1,305
    
    
    $
    960
    
    
    $
    271Working capital (deficit)(7)
    
    
    (1,549
    )
    
    
    645
    
    
    
    (16,679
    )
    
    
    (7,685
    )
    
    
    8,511Capital expenditures, net
    
    
    5,810
    
    
    
    12,827
    
    
    
    10,713
    
    
    
    8,699
    
    
    
    11,206Total assets
    
    
    76,564
    
    
    
    89,926
    
    
    
    92,054
    
    
    
    110,353
    
    
    
    119,533Short-term debt
    
    
    6,100
    
    
    
    14,707
    
    
    
    14,378
    
    
    
    11,971
    
    
    
    313Long-term debt, less current
maturities
    
    
    
    
    
    
    11,600
    
    
    
    4,400
    
    
    
    
    
    
    
    Shareholders equity
    
    
    35,420
    
    
    
    33,381
    
    
    
    23,306
    
    
    
    51,874
    
    
    
    74,163
   22




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Notes to Selected Financial Data
 (1)
    
    We operate on a 52/53-week fiscal year that ends on the Sunday closest to December 31. All
fiscal years presented were 52 weeks, except for fiscal year 2004 which ended on January 2,
2005. Fiscal year 2004 was 53 weeks. The effect of the additional week in fiscal year 2004
was to increase revenues and gross profit by $4.1 million and $87,000, respectively and to
increase operating loss by $336,000.The fiscal years presented are as follows: Fiscal Year
    
    Fiscal Year End2004
    
    January 2, 20052005
    
    January 1, 20062006
    
    December 31, 20062007
    
    December 30, 20072008
    
    December 28, 2008
 (2)
    
    We recorded restructuring charges in each of the fiscal years presented in the Selected
Financial Data table noted above. For fiscal years 2008, 2007 and 2006, see Note 7 of the
Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for
more information. We recorded $8.2 million of restructuring and other charges in fiscal year
2005 which included $7.7 million of restructuring charges and $0.5 million of other charges.
The restructuring charges consisted of $4.9 million and $0.5 million, respectively, for the
write-off of property and lease termination and other costs associated with the reduction of
our corporate office space in Deerfield, Illinois and the closure of seven additional customer
care centers and $2.3 million in severance costs related to the elimination of administrative
and support positions. Restructuring charges totaled $2.0 million in fiscal year 2004,
partially offset by the reversal of $0.2 million in prior year charges not utilized. The 2004
restructuring charges consisted of $1.5 million in severance costs related to the elimination
of administrative and support positions and $0.5 million for the write-off of property and
lease termination and other costs associated with the closure of three customer care centers.(3)
    
    We recorded $10.9 million of asset impairment charges in fiscal year 2005, including a
write-down of goodwill of $10.5 million. We recorded $2.2 million of asset impairment charges
during fiscal year 2004 relating to the write-off of unutilized software and
telecommunications equipment.(4)
    
    In 2007, we reversed a $17.6 million tax reserve and related accrued interest, in connection
with the Internal Revenue Services proposed adjustment to our 2002 tax return, which was
favorably resolved in 2007. We provided a valuation allowance of $27.3 million against
deferred tax assets as of December 31, 2006. See Note 8 of the Notes to Consolidated
Financial Statements in Item 8 of this Annual Report on Form 10-K for more information.(5)
    
    Effective January 2, 2006, we adopted FASB Statement No. 123(R) Share-Based Payments. See
Note 3 of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on
Form 10-K for more information. Total stock-based compensation expense which is included in
selling, general and administrative expenses was $1.3 million for fiscal year ended December
28, 2008 and $1.5 million for the fiscal years ended December 30, 2007 and December 31, 2006.(6)
    
    We reclassified the following prior year expenses related to workforce management from
selling, general and administrative expenses to cost of services to more appropriately reflect
the nature of these expenses: 2006 $0.8 million; 2005 $1.0 million and 2004 $1.1 million.(7)
    
    We reclassified deferred rent of $3.1 million from current accrued liabilities to other
liabilities for the period ended December 30, 2007.  23




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Form 10-K.
 Overview
      24




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Business Outlook
   25




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Results of Operations
  For the Fiscal Year Ended (1)December 28,
    
    
    December 30,
    
    
    December 31,
    
    
    2008 vs 2007
    
    
    2007 vs 20062008
    
    
    2007
    
    
    2006
    
    
    % Fav (Unfav)
    
    
    % Fav (Unfav)(Dollars in thousands, except statistical data and notes)Net revenue
    
    $
    248,799
    
    
    $
    224,683
    
    
    $
    224,297
    
    
    
    10.7
    %
    
    
    0.2
    %Cost of Services:Direct labor
    
    
    143,500
    
    
    
    134,137
    
    
    
    129,839
    
    
    
    (7.0
    )
    
    
    (3.3
    )Other facility expenses
    
    
    64,453
    
    
    
    69,743
    
    
    
    68,042
    
    
    
    7.6
    
    
    
    (2.5
    )Total cost of services
    
    
    207,953
    
    
    
    203,880
    
    
    
    197,881
    
    
    
    (2.0
    )
    
    
    (3.0
    )Percentage of revenue
    
    
    83.6
    %
    
    
    90.7
    %
    
    
    88.2
    %
    
    
    *
    
    
    
    *Gross profit
    
    
    40,846
    
    
    
    20,803
    
    
    
    26,416
    
    
    
    96.3
    
    
    
    (21.2
    )Gross profit margin
    
    
    16.4
    %
    
    
    9.3
    %
    
    
    11.8
    %
    
    
    *
    
    
    
    *Operating Expenses:Selling, general & administrative
expenses
    
    
    30,148
    
    
    
    28,362
    
    
    
    31,279
    
    
    
    (6.3
    )
    
    
    9.3Restructuring and other charges
    
    
    3,635
    
    
    
    1,632
    
    
    
    2,384
    
    
    
    (122.7
    )
    
    
    31.5Total operating expenses
    
    
    33,783
    
    
    
    29,994
    
    
    
    33,663
    
    
    
    (12.6
    )
    
    
    10.9Operating income (loss)
    
    
    7,063
    
    
    
    (9,191
    )
    
    
    (7,247
    )
    
    
    176.8
    
    
    
    (26.8
    )Other income
    
    
    (347
    )
    
    
    (249
    )
    
    
    (101
    )
    
    
    39.4
    
    
    
    146.5Interest expense, net
    
    
    4,358
    
    
    
    3,537
    
    
    
    2,013
    
    
    
    (23.2
    )
    
    
    (75.7
    )Income (loss) before income taxes
    
    
    3,052
    
    
    
    (12,479
    )
    
    
    (9,159
    )
    
    
    124.5
    
    
    
    (36.2
    )Provision (benefit) for income taxes
    
    
    33
    
    
    
    (17,568
    )
    
    
    21,380
    
    
    
    *
    
    
    
    *Net income (loss)
    
    $
    3,019
    
    
    $
    5,089
    
    
    $
    (30,539
    )
    
    
    40.7
    %
    
    
    116.7
    %
 
 (1)
    
    We operate on a 52/53-week fiscal year that ends on the Sunday closest to December 31. All
fiscal years presented were 52 weeks.*
    
    Means that the percentage change is not meaningful.  26




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Non-GAAP Financial Measures
      For the Fiscal Year Ended (1)December 28,
    
    
    December 30,
    
    
    December 31,
    
    
    2008 vs 2007
    
    
    2007 vs 20062008
    
    
    2007
    
    
    2006
    
    
    Fav (Unfav)
    
    
    Fav (Unfav)(Dollars in thousands, except statistical data and notes)EBITDA (2)
    
    $
    19,477
    
    
    $
    5,170
    
    
    $
    5,320
    
    
    
    276.7
    %
    
    
    (2.8
    )%Statistical Information:Number of customer care centersDomestic
    
    
    9
    
    
    
    9
    
    
    
    8
    
    
    
    
    
    
    
    1Off-shore
    
    
    4
    
    
    
    3
    
    
    
    3
    
    
    
    1
    
    
    
    Total
    
    
    13
    
    
    
    12
    
    
    
    11
    
    
    
    1
    
    
    
    1Number of workstations, end of periodDomestic
    
    
    4,687
    
    
    
    4,597
    
    
    
    4,730
    
    
    
    90
    
    
    
    (133
    )Off-shore
    
    
    3,267
    
    
    
    2,944
    
    
    
    2,098
    
    
    
    323
    
    
    
    846Total
    
    
    7,954
    
    
    
    7,541
    
    
    
    6,828
    
    
    
    413
    
    
    
    713
   27




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##### Table of Contents



Notes to Non-GAAP Financial Measures.
 (1)
    
    We operate on a 52/53-week fiscal year that ends on the Sunday closest to December 31. All
fiscal years presented were 52 weeks.(2)
    
    We define EBITDA as net income (loss) plus the provision (benefit) for income taxes,
depreciation and amortization, and interest expense.EBITDA is a measure used by our lenders, investors and analysts to evaluate our financial
performance and our ability to pay interest and repay debt. This measure is also indicative
of our ability to fund the capital investments necessary for our continued growth. We use
this measure, together with our GAAP financial metrics, to assess our financial performance,
allocate resources, measure our performance against debt covenants, determine management
bonuses and evaluate our overall progress towards meeting our long-term financial
objectives.EBITDA is not intended to be considered in isolation or used as a substitute for net income
(loss) or cash flow from operations data presented in accordance with GAAP or as a measure
of liquidity. The items excluded from EBITDA are significant components of our statements of
operations and must be considered in performing a comprehensive assessment of our overall
financial results.EBITDA can be reconciled to net income (loss), which we believe to be the most directly
comparable financial measure calculated and presented in accordance with GAAP, as follows: For the Fiscal Year EndedDecember 28,
    
    
    December 30,
    
    
    December 31,2008
    
    
    2007
    
    
    2006(Dollars in thousands)Net income (loss)
    
    $
    3,019
    
    
    $
    5,089
    
    
    $
    (30,539
    )Interest expense
    
    
    4,358
    
    
    
    3,537
    
    
    
    2,013Income tax provision (benefit)
    
    
    33
    
    
    
    (17,568
    )
    
    
    21,380Depreciation and amortization
    
    
    12,067
    
    
    
    14,112
    
    
    
    12,466EBITDA
    
    $
    19,477
    
    
    $
    5,170
    
    
    $
    5,320
  28




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Fiscal Year 2008 Results of Operations Compared to Fiscal Year 2007 Results of Operations
          29




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##### Table of Contents



Fiscal Year 2007 Results of Operations Compared to Fiscal Year 2006 Results of Operations
      30




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##### Table of Contents



31




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##### Table of Contents



Critical Accounting Policies and Estimates
 Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement
No. 109
 Accounting for derivatives
 Accounting for Derivative
Instruments and Hedging Activities: Accounting for Certain Derivative
Instruments and Certain Hedging Activities Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
  Allowance for doubtful accounts
  Accounting for employee benefits
   32




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##### Table of Contents



Revenue recognition
 Revenue Recognition in
Financial Statements Revenue Recognition Revenue Arrangements with Multiple Deliverables
 Revenue Arrangements with
Multiple Deliverables.
  .
 Intangible assets
 Goodwill and Other
Intangible Assets Accounting for the Impairment or Disposal of Long-Lived Assets
     33




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##### Table of Contents



Restructuring charges
 Accounting for Costs Associated with Exit or Disposal
Activities
  Accounting for stock-based compensation
 Share-Based Payment Accounting for Stock-Based Compensation
  Income taxes
    34




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##### Table of Contents



Liquidity and Capital Resources
  For the Fiscal Year EndedDecember 28,
    
    
    December 30,
    
    
    December 31,2008
    
    
    2007
    
    
    2006(Dollars in thousands)Net cash provided by operating activities (1)
    
    $
    25,043
    
    
    $
    3,220
    
    
    $
    1,903Net cash used in investing activities
    
    
    (5,753
    )
    
    
    (12,636
    )
    
    
    (8,737
    )Net cash (used in) provided by financing activities (1)
    
    
    (18,857
    )
    
    
    9,092
    
    
    
    7,321Effect of exchange rates on cash
    
    
    (1,241
    )
    
    
    445
    
    
    
    (142
    )Net change in cash
    
    $
    (808
    )
    
    $
    121
    
    
    $
    345
 
 (1)
    
    We reclassified financing costs of $1.0 million, $0.8 million and $0.4 million from operating
activities to financing activities for the fiscal years of 2008, 2007 and 2006, respectively. Operating Activities
   Investing Activities
    Financing Activities
   35




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##### Table of Contents



Bank Financing
          36




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##### Table of Contents



Future Liquidity
    Off Balance Sheet Arrangements
   37




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##### Table of Contents



Contractual Obligations and Commitments
  Payment due by periodLess than 1
    
    
    2 to 3
    
    
    4 to 5
    
    
    Over 5Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total(Dollars in thousands)Contractual Obligations:Operating leases
    
    $
    8,371
    
    
    $
    11,491
    
    
    $
    7,032
    
    
    $
    8,378
    
    
    $
    35,272Other Commercial Commitments:Telecommunications commitments
    
    
    3,621
    
    
    
    3,183
    
    
    
    
    
    
    
    
    
    
    
    6,804Letters of Credit
    
    
    12,466
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,466Total other commercial commitments
    
    $
    16,087
    
    
    $
    3,183
    
    
    $
    
    
    
    $
    
    
    
    $
    19,270
 New Accounting Pronouncements
     38




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
     39




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data.
  PageReport of Independent Registered Public Accounting Firm for the Fiscal Years Ended
December 28, 2008, December 30, 2007, and December 31, 2006
    
    
    41Consolidated Statements of Operations for the Fiscal Years Ended December 28, 2008,
December 30, 2007 and December 31, 2006
    
    
    42Consolidated Balance Sheets as of December 28, 2008 and December 30, 2007
    
    
    43Consolidated Statements of Shareholders Equity for the Fiscal Years Ended December 28,
2008, December 30, 2007, and December 31, 2006
    
    
    44Consolidated Statements of Cash Flows for the Fiscal Years Ended December 28, 2008,
December 30, 2007, and December 31, 2006
    
    
    45Notes to Consolidated Financial Statements
    
    
    46Quarterly Results of Operations for the Fiscal Years Ended December 28, 2008, and
December 30, 2007
    
    
    64Managements Report on Internal Control over Financial Reporting for the Fiscal
Year Ended December 28, 2008
    
    
    65Report of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting for the Fiscal Year Ended December 28, 2008
    
    
    66
  40




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
  41




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands, except share data)
 For the Fiscal Year EndedDecember 28,
    
    
    December 30,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Net revenue
    
    $
    248,799
    
    
    $
    224,683
    
    
    $
    224,297Cost of services
    
    
    207,953
    
    
    
    203,880
    
    
    
    197,881Gross profit
    
    
    40,846
    
    
    
    20,803
    
    
    
    26,416Operating expenses:Selling, general and administrative expenses
    
    
    30,148
    
    
    
    28,362
    
    
    
    31,279Restructuring and other charges
    
    
    3,635
    
    
    
    1,632
    
    
    
    2,384Total operating expenses
    
    
    33,783
    
    
    
    29,994
    
    
    
    33,663Operating income (loss)
    
    
    7,063
    
    
    
    (9,191
    )
    
    
    (7,247
    )Other income
    
    
    (347
    )
    
    
    (249
    )
    
    
    (101
    )Interest expense, net
    
    
    4,358
    
    
    
    3,537
    
    
    
    2,013Income (loss) before income taxes
    
    
    3,052
    
    
    
    (12,479
    )
    
    
    (9,159
    )Income tax provision (benefit)
    
    
    33
    
    
    
    (17,568
    )
    
    
    21,380Net income (loss)
    
    $
    3,019
    
    
    $
    5,089
    
    
    $
    (30,539
    )Net income (loss) per share:Basic
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    (0.62
    )Diluted
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    (0.62
    )Weighted average shares outstanding:Basic
    
    
    50,424
    
    
    
    49,800
    
    
    
    49,458Diluted
    
    
    50,477
    
    
    
    52,019
    
    
    
    49,458
   42




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except share data)
 December 28,
    
    
    December 30,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    618
    
    
    $
    1,426Accounts receivable, less allowances of $1,435 and $1,097, respectively
    
    
    31,547
    
    
    
    34,468Other current assets
    
    
    3,515
    
    
    
    5,971Total Current Assets
    
    
    35,680
    
    
    
    41,865Property and equipment, net
    
    
    22,664
    
    
    
    26,772Goodwill
    
    
    13,338
    
    
    
    13,338Other intangible assets, net
    
    
    3,434
    
    
    
    5,891Other assets
    
    
    1,448
    
    
    
    2,060Total Assets
    
    $
    76,564
    
    
    $
    89,926LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term debt
    
    $
    6,100
    
    
    $
    12,307Current portion of long-term debt
    
    
    
    
    
    
    2,400Accounts payable
    
    
    1,641
    
    
    
    2,287Income taxes payable
    
    
    253
    
    
    
    220Accrued payroll and related items
    
    
    18,727
    
    
    
    15,954Accrued liabilities
    
    
    10,508
    
    
    
    8,052Total Current Liabilities
    
    
    37,229
    
    
    
    41,220Long-term debt
    
    
    
    
    
    
    11,600Other liabilities
    
    
    3,915
    
    
    
    3,725Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common Shares, $0.01 per share; authorized 200,000,000 shares;
50,783,312 shares issued and 50,782,353 shares outstanding at
December 28, 2008, and 50,379,296 shares issued and outstanding
at December 30, 2007
    
    
    509
    
    
    
    504Additional paid-in capital
    
    
    104,517
    
    
    
    102,647Accumulated deficit
    
    
    (69,741
    )
    
    
    (72,760
    )Accumulated other comprehensive income
    
    
    136
    
    
    
    2,990Treasury shares: 959 and 0 shares at cost at December 28, 2008
and December 30, 2007, respectively
    
    
    (1
    )
    
    
    Total Shareholders Equity
    
    
    35,420
    
    
    
    33,381Total Liabilities and Shareholders Equity
    
    $
    76,564
    
    
    $
    89,926
   43




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Dollars in thousands, except share data)
 Common
    
    
    Common
    
    
    Additional
    
    
    
    
    
    
    Accumulated Other
    
    
    TotalShares
    
    
    Share
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    ShareholdersIssued
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Stock
    
    
    EquityBalance, January 1, 2006
    
    
    49,695,699
    
    
    $
    497
    
    
    $
    99,598
    
    
    $
    (47,310
    )
    
    $
    (64
    )
    
    $
    (847
    )
    
    $
    51,874Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,539
    )
    
    
    
    
    
    
    
    
    
    
    (30,539
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344
    
    
    
    
    
    
    
    344Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,195
    )Issuance of non-vested stock
    
    
    370,929
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Exercise of employee stock options,
including related excess income tax
benefits
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    144
    
    
    
    145Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    1,478
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,478Balance, December 31, 2006
    
    
    50,066,628
    
    
    $
    501
    
    
    $
    101,077
    
    
    $
    (77,849
    )
    
    $
    280
    
    
    $
    (703
    )
    
    $
    23,306Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,089
    
    
    
    
    
    
    
    
    
    
    
    5,089Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,917
    
    
    
    
    
    
    
    1,917Unrealized gain on derivative contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    793
    
    
    
    
    
    
    
    793Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,799Issuance of non-vested stock
    
    
    11,389
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of employee stock options,
including related excess income tax
benefits
    
    
    301,279
    
    
    
    3
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    703
    
    
    
    733Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    1,543
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,543Balance, December 30, 2007
    
    
    50,379,296
    
    
    $
    504
    
    
    $
    102,647
    
    
    $
    (72,760
    )
    
    $
    2,990
    
    
    $
    
    
    
    $
    33,381Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,019
    
    
    
    
    
    
    
    
    
    
    
    3,019Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,315
    )
    
    
    
    
    
    
    (1,315
    )Unrealized loss on derivative contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,539
    )
    
    
    
    
    
    
    (1,539
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    215
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215Exercise of employee stock options,
including related excess income tax
benefits
    
    
    404,016
    
    
    
    5
    
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    354Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    1,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,305Balance, December 28, 2008
    
    
    50,783,312
    
    
    $
    509
    
    
    $
    104,517
    
    
    $
    (69,741
    )
    
    $
    136
    
    
    $
    (1
    )
    
    $
    35,420
   44




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 For the Fiscal Year EndedDecember 28,
    
    
    December 30,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Operating Activities:Net income (loss)
    
    $
    3,019
    
    
    $
    5,089
    
    
    $
    (30,539
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activitiesDepreciation and amortization
    
    
    12,067
    
    
    
    14,112
    
    
    
    12,466Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    21,380Non-cash restructuring charges
    
    
    14
    
    
    
    12
    
    
    
    201Stock compensation expense
    
    
    1,305
    
    
    
    1,543
    
    
    
    1,478Non-cash warrant issuances
    
    
    215
    
    
    
    
    
    
    
    Loss (gain) on sale of property and equipment
    
    
    193
    
    
    
    (18
    )
    
    
    Amortized gain on sale leaseback
    
    
    (118
    )
    
    
    (175
    )
    
    
    (18
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    2,921
    
    
    
    3,389
    
    
    
    (266
    )Other current assets
    
    
    1,956
    
    
    
    504
    
    
    
    (2,338
    )Accounts payable
    
    
    (646
    )
    
    
    (603
    )
    
    
    (669
    )Accrued payroll and related items
    
    
    2,773
    
    
    
    1,351
    
    
    
    1,834Income taxes payable
    
    
    33
    
    
    
    (17,580
    )
    
    
    Accrued liabilities
    
    
    2,472
    
    
    
    (4,464
    )
    
    
    1,229Other assets and liabilities
    
    
    (1,161
    )
    
    
    60
    
    
    
    (2,855
    )Net cash provided by operating activities
    
    
    25,043
    
    
    
    3,220
    
    
    
    1,903Investing Activities:Purchase of property and equipment, net
    
    
    (5,810
    )
    
    
    (12,827
    )
    
    
    (10,713
    )Net proceeds from sale of property and equipment
    
    
    57
    
    
    
    191
    
    
    
    1,976Net cash used in investing activities
    
    
    (5,753
    )
    
    
    (12,636
    )
    
    
    (8,737
    )Financing Activities:Borrowings under revolving credit facility
    
    
    324,936
    
    
    
    249,644
    
    
    
    238,833Payments under revolving credit facility
    
    
    (331,143
    )
    
    
    (251,115
    )
    
    
    (237,026
    )Borrowings on long-term debt
    
    
    
    
    
    
    10,000
    
    
    
    5,000Payments on long-term debt
    
    
    (14,000
    )
    
    
    (1,000
    )
    
    
    Payments of financing costs
    
    
    996
    
    
    
    830
    
    
    
    365Stock option transactions including related excess income tax benefits
    
    
    354
    
    
    
    733
    
    
    
    149Net cash (used in) provided by financing activities
    
    
    (18,857
    )
    
    
    9,092
    
    
    
    7,321Effect of exchange rates on cash
    
    
    (1,241
    )
    
    
    445
    
    
    
    (142
    )Net (decrease) increase in cash and cash equivalents
    
    
    (808
    )
    
    
    121
    
    
    
    345Cash and Cash Equivalents:Beginning of year
    
    
    1,426
    
    
    
    1,305
    
    
    
    960End of year
    
    $
    618
    
    
    $
    1,426
    
    
    $
    1,305Supplemental Disclosures:Cash payments for interest
    
    $
    2,396
    
    
    $
    2,947
    
    
    $
    1,483Cash payments for income taxes
    
    
    
    
    
    
    12
    
    
    
    21Income tax refund received
    
    
    
    
    
    
    6
    
    
    
    Capital expenditures funded by landlord and others
    
    
    1,413
    
    
    
    182
    
    
    
    3,250
   45




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands, except share data and as otherwise indicated)
 1. Description of Business
  2. Basis of Presentation and Principles of Consolidation
 Consolidation
  Fiscal Year
  3. Summary of Significant Accounting Policies and Estimates
 Revenue recognition
 Revenue
Recognition in Financial Statements Revenue Recognition Revenue Arrangements with Multiple Deliverables
 Revenue Arrangements with Multiple Deliverables.
    46




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 Cost of services
 Recognition
and Measurement in Financial Statements of Business Enterprise
  Restructuring charges
 Accounting for Costs Associated with Exit or Disposal
Activities
 Accounting for derivatives
 Accounting for
Derivative Instruments and Hedging Activities: Accounting for Certain
Derivative Instruments and Certain Hedging Activities Amendment of Statement
133 on Derivative Instruments and Hedging Activities
   47




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  Allowance for doubtful accounts
  Accounting for employee benefits
   2008
    
    
    2007Group Health Insurance
    
    $
    2,253
    
    
    $
    1,744Workers Compensation
    
    $
    1,536
    
    
    $
    2,089
 Income taxes
  Accounting for
Uncertainty in Income Taxes: An interpretation of FASB Statement No. 109 , Accounting for Income Taxes
 Cash equivalents
   48




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 Use of estimates
  Accounting for long-lived assets
 Accounting for the Impairment or Disposal of Long-Lived Assets
 Property and Equipment
  December 28,
    
    
    December 30,2008
    
    
    2007Building and leasehold improvements
    
    $
    20,126
    
    
    $
    24,631Telecommunications equipment
    
    
    47,619
    
    
    
    48,382Workstations and office equipment
    
    
    12,260
    
    
    
    12,285Capitalized software
    
    
    24,960
    
    
    
    23,996Construction in progress
    
    
    1,776
    
    
    
    950Accumulated depreciation and amortization
    
    
    (84,077
    )
    
    
    (83,472
    )Property and equipment, net
    
    $
    22,664
    
    
    $
    26,772
  Capitalized Software
 Accounting for Costs of Computer Software Developed or Obtained for Internal Use
  49




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 Goodwill
 Goodwill and Other Intangible Assets
 Intangible Asset
 Goodwill and
Other Intangible Assets
 Accounting for the Impairment or Disposal of Long-Lived
Assets
 Financial Information about Industry Segments
 Disclosures About Segments of an Enterprise and Related Information
 Accounting for Stock-Based Compensation
  Share-Based Payment
 Accounting for Stock-Based Compensation
  50




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
    4. Comprehensive Income (Loss)
  2008
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    3,019
    
    
    $
    5,089
    
    
    $
    (30,539
    )Foreign currency translation adjustment(1)
    
    
    (1,315
    )
    
    
    1,917
    
    
    
    344Unrealized (loss) gain on derivative contracts
    
    
    (1,539
    )
    
    
    793
    
    
    
    Total comprehensive income (loss)
    
    $
    165
    
    
    $
    7,799
    
    
    $
    (30,195
    )
 
 (1)
    
    The foreign currency translation adjustments in fiscal year 2008, 2007 and 2006 relate to the
impact of the change in exchange rates on net assets located outside of the United States. 5. Significant Clients
  2008
    
    
    2007
    
    
    2006United Parcel Services, Inc.
    
    
    25.1
    %
    
    
    23.6
    %
    
    
    15.5
    %Verizon Wireless
    
    
    21.0
    
    
    
    19.6
    
    
    
    17.4WellPoint, Inc.
    
    
    12.5
    
    
    
    16.1
    
    
    
    19.5Medco Health Solutions, Inc.
    
    
    11.5
    
    
    
    9.7
    
    
    
    8.8Total
    
    
    70.1
    %
    
    
    69.0
    %
    
    
    61.2
    %
  Percent of NetAccounts Receivable2008
    
    
    2007Verizon Wireless
    
    
    29.8
    %
    
    
    19.9
    %Medco Health Solutions, Inc.
    
    
    16.4
    
    
    
    12.5United Parcel Services, Inc
    
    
    15.5
    
    
    
    11.1WellPoint, Inc.
    
    
    6.5
    
    
    
    18.9Total
    
    
    68.2
    %
    
    
    62.4
    %
  51




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 6. Supplemental Balance Sheet Data
 December 28,
    
    
    December 30,Consolidated Balance Sheet
    
    2008
    
    
    2007Prepaid expenses and other assets
    
    $
    2,929
    
    
    $
    5,268Non-trade receivables
    
    
    586
    
    
    
    703Other current assets
    
    $
    3,515
    
    
    $
    5,971Accrued workers compensation
    
    $
    1,536
    
    
    $
    2,089Accrued severance
    
    
    1,372
    
    
    
    Deferred rent
    
    
    1,071
    
    
    
    1,023Accrued professional fees
    
    
    767
    
    
    
    644Unrecognized loss on forward contracts
    
    
    695
    
    
    
    Accrued property tax
    
    
    256
    
    
    
    332Restructuring charges
    
    
    54
    
    
    
    1,756Other accrued liabilities
    
    
    4,757
    
    
    
    2,208Accrued liabilities
    
    $
    10,508
    
    
    $
    8,052
 7. Restructuring and Other Charges
 Severance Charges
  Restructuring Charges
     52




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
 Cash Payments
    LeaseSeverance
    
    
    Asset Write-
    
    
    Obligations andCosts
    
    
    off
    
    
    Other
    
    
    TotalRestructuring
Reserve, January 1,
2006
    
    $
    709
    
    
    $
    
    
    
    $
    3,989
    
    
    $
    4,698Total expense
    
    
    225
    
    
    
    501
    
    
    
    1,658
    
    
    
    2,384Total adjustments
    
    
    (88
    )
    
    
    (486
    )
    
    
    787
    
    
    
    213Total payments
    
    
    (839
    )
    
    
    5
    
    
    
    (3,284
    )
    
    
    (4,118
    )Restructuring
Reserve, December 31,
2006
    
    
    7
    
    
    
    20
    
    
    
    3,150
    
    
    
    3,177Total expense
    
    
    779
    
    
    
    13
    
    
    
    840
    
    
    
    1,632Total adjustments
    
    
    
    
    
    
    (33
    )
    
    
    2
    
    
    
    (31
    )Total payments
    
    
    (453
    )
    
    
    
    
    
    
    (2,554
    )
    
    
    (3,007
    )Restructuring
Reserve, December 30,
2007
    
    
    333
    
    
    
    
    
    
    
    1,438
    
    
    
    1,771Total expense
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    65Total adjustments
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    14Total payments
    
    
    (308
    )
    
    
    
    
    
    
    (1,488
    )
    
    
    (1,796
    )Restructuring
Reserve, December 28,
2008
    
    $
    25
    
    
    $
    
    
    
    $
    29
    
    
    $
    54
 8. Income Taxes
  2008
    
    
    2007
    
    
    2006Current provision
    
    $
    33
    
    
    $
    
    
    
    $
    Deferred provision (benefit)
    
    
    
    
    
    
    (17,568
    )
    
    
    21,380Total provision (benefit) for income taxes
    
    $
    33
    
    
    $
    (17,568
    )
    
    $
    21,380
  53




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  2008
    
    
    2007
    
    
    2006U.S. Statutory tax expense (benefit)  rate (35%)
    
    $
    1,068
    
    
    $
    (4,368
    )
    
    $
    (3,206
    )U.S. State taxes, net of U.S. Federal benefit
and state credits
    
    
    63
    
    
    
    (450
    )
    
    
    (359
    )Work opportunity tax credits
    
    
    (246
    )
    
    
    (5,103
    )
    
    
    (642
    )Reversal of reserve
    
    
    
    
    
    
    (17,580
    )
    
    
    AMT credit
    
    
    
    
    
    
    (1,024
    )
    
    
    State tax rate adjustment
    
    
    
    
    
    
    354
    
    
    
    Other
    
    
    30
    
    
    
    51
    
    
    
    381Deferred tax asset adjustment
    
    
    (2,418
    )
    
    
    
    
    
    
    (2,059
    )Valuation allowance recorded
    
    
    1,536
    
    
    
    10,552
    
    
    
    27,265Actual tax expense (benefit)
    
    $
    33
    
    
    $
    (17,568
    )
    
    $
    21,380
  December 28,
    
    
    December 30,2008
    
    
    2007Deferred tax assets:Net operating loss and credit carryforwards
    
    $
    29,421
    
    
    $
    28,350Depreciation
    
    
    3,098
    
    
    
    3,313Deferred rent
    
    
    1,605
    
    
    
    909Payroll related items
    
    
    1,354
    
    
    
    1,429Self-insurance related costs
    
    
    1,202
    
    
    
    1,278Stock compensation expense
    
    
    559
    
    
    
    841Allowance for doubtful accounts
    
    
    554
    
    
    
    424Restructuring and other severance charges
    
    
    441
    
    
    
    481Derivative contracts
    
    
    167
    
    
    
    Intangible assets
    
    
    114
    
    
    
    510Other
    
    
    532
    
    
    
    282Total deferred tax assets
    
    
    39,047
    
    
    
    37,817Deferred tax liabilities:Derivative contracts
    
    
    
    
    
    
    (306
    )Valuation allowance
    
    
    (39,047
    )
    
    
    (37,511
    )Net deferred tax assets
    
    $
    
    
    
    $
    
   54




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
    Net Operating LossExpiration
    
    Carryforward2024
    
    $
    12,6152025
    
    
    13,9012026
    
    
    9,1872027
    
    
    12,823$
    48,526
  Net Operating LossExpiration
    
    Carryforward2009
    
    $
    2,2802010
    
    
    1,8772011
    
    
    1,0742012
    
    
    9332013
    
    
    9Thereafter
    
    
    54,530$
    60,703
  Accounting for Uncertainty in Income Taxes: an
interpretation of FASB Statement No. 109, , Accounting for Income Taxes,
  55




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  2008
    
    
    2007Balance at beginning of period
    
    $
    220
    
    
    $
    220Additions based on tax positions related to the current
year
    
    
    
    
    
    
    Additions for tax positions for prior years
    
    
    
    
    
    
    Reductions for tax positions of prior years
    
    
    
    
    
    
    Reductions for tax positions related to the current year
    
    
    
    
    
    
    Settlement with taxing authorities
    
    
    
    
    
    
    Lapse of applicable statute of limitations
    
    
    
    
    
    
    Balance at end of period
    
    $
    220
    
    
    $
    220
  9. Debt
  December 30, 2007Term loan
    
    $
    14,000Total long-term debt
    
    
    14,000Lesscurrent maturities
    
    
    2,400Long-term debt, net
    
    $
    11,600
      56




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
          57




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
         58




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 10. Commitments and Contingencies
 Lease Commitments
  Accounting for Sales with Leaseback
  OperatingLeases2009
    
    $
    8,3712010
    
    
    6,6982011
    
    
    4,7932012
    
    
    4,0952013
    
    
    2,937Years thereafter
    
    
    8,378Total payments
    
    $
    35,272
 Telecommunications Commitments
  Total2009
    
    $
    3,6212010
    
    
    1,7192011
    
    
    1,464Total commitments
    
    $
    6,804
 Legal Proceedings
    59




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
 11. Shareholders Equity
  12. Earnings Per Share
  2008
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    3,019
    
    
    $
    5,089
    
    
    $
    (30,539
    )Weighted average common shares outstanding
    
    
    50,424
    
    
    
    49,800
    
    
    
    49,458Income (loss) per sharebasic
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    (0.62
    )Effects of dilutive securities
    
    
    53
    
    
    
    2,219
    
    
    
    Weighted average common and common
equivalent shares outstanding
    
    
    50,477
    
    
    
    52,019
    
    
    
    49,458Income (loss) per sharediluted
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    (0.62
    )
  13. Stock Awards
    60




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  For the Fiscal Year EndedDecember 28, 2008Non-vestedOptions
    
    
    Common SharesExpected volatility
    
    
    81 - 93
    %
    
    
    N/ARisk-free interest rate
    
    
    2.14  3.99
    %
    
    
    N/AExpected life in years
    
    
    2.11  2.40
    
    
    
    N/AAnnualized forfeiture rate
    
    
    14.4
    %
    
    
    14.4
    %Weighted average grant date fair value
    
    $
    0.56
    
    
    $
    1.10
 Stock Option Activity
  Grant Price
    
    
    WeightedAverage
    
    
    AggregateRange
    
    
    Exercise Price
    
    
    IntrinsicDescription
    
    Shares
    
    
    Per Share
    
    
    Per Share
    
    
    ValueOutstanding as of
January 1, 2006
    
    
    7,674,299
    
    
    $
    0.85  $38.13
    
    
    $
    2.48Granted
    
    
    720,112
    
    
    
    1.80  2.84
    
    
    
    2.21Exercised
    
    
    (41,000
    )
    
    
    1.55  3.57
    
    
    
    2.10Cancelled
    
    
    (1,091,446
    )
    
    
    1.35  38.13
    
    
    
    3.61Outstanding as of
December 31, 2006
    
    
    7,261,965
    
    
    $
    0.85  $16.75
    
    
    $
    2.15Granted
    
    
    532,192
    
    
    
    2.43  4.73
    
    
    
    3.47Exercised
    
    
    (501,324
    )
    
    
    .86  3.57
    
    
    
    1.46Cancelled
    
    
    (797,437
    )
    
    
    .86  16.75
    
    
    
    2.91Outstanding as of
December 30, 2007
    
    
    6,495,396
    
    
    $
    0.85  $11.63
    
    
    $
    2.22Granted
    
    
    3,371,597
    
    
    $
    0.79  $2.15
    
    
    
    1.14Exercised
    
    
    (450,250
    )
    
    
    .85  1.35
    
    
    
    0.90Cancelled
    
    
    (2,838,482
    )
    
    
    .79  11.56
    
    
    
    2.10Outstanding as of
December 28, 2008
    
    
    6,578,261
    
    
    $
    0.79  $11.63
    
    
    $
    1.81
    
    
    $
    192,437Stock options exercisable
at December 28, 2008
    
    
    2,995,364
    
    
    $
    0.86  $11.63
    
    
    $
    2.22
    
    
    $
    85,096
   61




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  Per Share Exercise Price Ranges
    
    
    Total$.79-$1.21
    
    
    $1.25-$2.34
    
    
    $2.43-$11.63
    
    
    $.79-$11.63Outstanding as of December 28,
2008
    
    
    2,854,605
    
    
    
    2,226,594
    
    
    
    1,497,062
    
    
    
    6,578,261Weighted average remaining term
    
    
    7.95
    
    
    
    7.19
    
    
    
    4.51
    
    
    
    6.91Weighted average exercise price
    
    $
    1.04
    
    
    $
    1.66
    
    
    $
    3.50
    
    
    $
    1.81Exercisable as of December 28,
2008
    
    
    743,393
    
    
    
    1,088,357
    
    
    
    1,163,614
    
    
    
    2,995,364Weighted average remaining term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.62Weighted average exercise price
    
    $
    0.91
    
    
    $
    1.68
    
    
    $
    3.56
    
    
    $
    2.22
 Non-vested Common Share Activity
  Description
    
    SharesOutstanding as of December 30, 2007
    
    
    366,758Granted
    
    
    50,000Exercised
    
    
    (313,758
    )Cancelled
    
    
    (50,000
    )Outstanding as of December 28, 2008
    
    
    53,000
  14. Benefit Plans
  15. Related Party Transactions
    62




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
  16. Reclassification
  17. Fair Value Measurements
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities.
    
    Level 2  Inputs, other than the quoted prices in active markets, that are observable
either directly or indirectly.
    
    Level 3  Unobservable inputs based on the Companys own assumptions.
  Fair Value Measurements at December 28, 2008Level 1
    
    
    Level 2
    
    
    Level 3Cash and cash equivalents(1)
    
    $
    618
    
    
    $
    
    
    
    $
    Foreign currency contracts, net liability(2)
    
    $
    
    
    
    $
    434
    
    
    $
    Interest rate swap, net liability(3)
    
    $
    
    
    
    $
    259
    
    
    $
    
 (1)
    
    Cash and cash equivalents: The carrying amount of these items approximates fair value at period
end.(2)
    
    Foreign currency contracts: The carrying amount of these items is based on valuations provided
by the counter-party institution, but there are no guaranteed selling prices for these forward
currency contracts.(3)
    
    Interest rate swap: The carrying amount of this item is based on a valuation provided by the
counter-party institution, but there is no guaranteed selling price for this contract.  18. Subsequent Events
   63




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APAC CUSTOMER SERVICES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (Dollars in thousands, except share data and as otherwise indicated)
   
 19. Quarterly Data (Unaudited)
  First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    FullQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    YearFiscal year ended December
28, 2008:Net revenue
    
    $
    63,517
    
    
    $
    60,710
    
    
    $
    59,243
    
    
    $
    65,329
    
    
    $
    248,799Gross profit
    
    
    7,771
    
    
    
    10,732
    
    
    
    10,071
    
    
    
    12,272
    
    
    
    40,846Operating income (loss)
    
    
    (3,138
    )
    
    
    2,468
    
    
    
    2,268
    
    
    
    5,465
    
    
    
    7,063Net income (loss)
    
    
    (4,028
    )
    
    
    (63
    )
    
    
    2,005
    
    
    
    5,105
    
    
    
    3,019Net income (loss) per shareBasic
    
    $
    (0.08
    )
    
    $
    0.00
    
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    0.06Diluted
    
    $
    (0.08
    )
    
    $
    0.00
    
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    0.06Fiscal year ended December
30, 2007:Net revenue
    
    $
    52,384
    
    
    $
    53,819
    
    
    $
    56,820
    
    
    $
    61,660
    
    
    $
    224,683Gross profit
    
    
    6,317
    
    
    
    4,090
    
    
    
    4,521
    
    
    
    5,875
    
    
    
    20,803Operating loss
    
    
    (1,574
    )
    
    
    (4,656
    )
    
    
    (1,987
    )
    
    
    (974
    )
    
    
    (9,191
    )Net income (loss)
    
    
    15,215
    
    
    
    (5,436
    )
    
    
    (2,763
    )
    
    
    (1,927
    )
    
    
    5,089Net income (loss) per shareBasic
    
    $
    0.31
    
    
    $
    (0.11
    )
    
    $
    (0.06
    )
    
    $
    (0.04
    )
    
    $
    0.10Diluted
    
    $
    0.30
    
    
    $
    (0.11
    )
    
    $
    (0.06
    )
    
    $
    (0.04
    )
    
    $
    0.10
   64




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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Disclosure Controls and Procedures
  
 Managements Report on Internal Control over Financial Reporting
 Internal ControlIntegrated
Framework Internal ControlIntegrated Framework,
 Inherent Limitations on the Effectiveness of Controls
   Internal Control Over Financial Reporting
 15d-15(f)
  65




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
 
        
  66




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Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
  http://www.apaccustomerservices.com
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
 (a)
    
    The information concerning the security ownership of certain beneficial owners required by
this Item will be set forth in our Proxy Statement for the Annual Meeting of Shareholders to
be held on June 3, 2009 under the caption Common Shares Beneficially Owned by Principal
Shareholders and Management, which information is hereby incorporated by reference.(b)
    
    The information concerning security ownership of management required by this Item will be set
forth in our Proxy Statement for the Annual Meeting of Shareholders to be held on June 3, 2009
under the caption Common Shares Beneficially Owned by Principal Shareholders and Management,
which information is hereby incorporated by reference.
 
 Equity Compensation Plan Information
  Number of Securities to Be
    
    
    
    
    
    
    Number of Securities Remaining AvailableIssued Upon Exercise of
    
    
    Weighted Average Exercise
    
    
    for Future Issuance Under EquityOutstanding Options,
    
    
    Price of Outstanding Options,
    
    
    Compensation Plans (Excluding SecuritiesPlan Category
    
    Warrants, and Rights
    
    
    Warrants, and Rights
    
    
    Reflected in the First Column)Equity compensation plans
approved by security
holders
    
    
    6,578,261
    
    
    $
    1.81
    
    
    
    2,502,849Equity compensation
plans not
approved by security
holders
    
    
    
    
    
    
    
    
    
    
    
  67




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accounting Fees and Services.
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a)
    
    (1) Financial Statements
 Form 10-K:
 (i)
    
    Report of Independent Registered Public Accounting Firm for the Fiscal Years
Ended December 28, 2008, December 30, 2007, and December 31, 2006(ii)
    
    Consolidated Statements of Operations for the Fiscal Years Ended December 28,
2008, December 30, 2007, and December 31, 2006(iii)
    
    Consolidated Balance Sheets as of December 28, 2008 and December 30, 2007(iv)
    
    Consolidated Statements of Shareholders Equity for the Fiscal Years Ended
December 28, 2008, December 30, 2007, and December 31, 2006(v)
    
    Consolidated Statements of Cash Flows for the Fiscal Years Ended December 28,
2008, December 30, 2007, and December 31, 2006(vi)
    
    Notes to Consolidated Financial Statements(vii)
    
    Quarterly Results of Operations for the Fiscal Years Ended December 28, 2008 and
December 30, 2007
 (2)
    
    Financial Statement SchedulesThe following financial statement schedule is submitted as part of this Annual Report on
Form 10-K:
 (i)
    
    Schedule IIValuation and Qualifying Accounts
  (3)
    
    ExhibitsThe exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index attached
hereto.(b)
    
    ExhibitsThe response to this portion of Item 15 is submitted as a separate section of this Annual
Report on Form 10-K. See Item 15(a) (3) above.
 (c)
    
    Financial Statement SchedulesThe response to this portion of Item 15 is submitted as a separate section of this Annual
Report on Form 10-K. See Item 15(a) (2) above.
  68




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SIGNATURES
  APAC CUSTOMER SERVICES, INC.By:
    /s/ Andrew B. SzafranAndrew B. SzafranSenior Vice President and
Chief Financial OfficerDated: March 13, 2009  Signature
    
    Title
    
    Date/s/ Theodore G. Schwartz*

Theodore G. Schwartz
    
    Chairman of the Board of Directors
    
    March 13, 2009/s/ Michael P. Marrow

Michael P. Marrow
    
    Director, President and Chief Executive Officer
(Principal Executive Officer)
    
    March 13, 2009/s/ Andrew B. Szafran

Andrew B. Szafran
    
    Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
    
    March 13, 2009/s/ Joseph R. Doolan

Joseph R. Doolan
    
    Vice President and Controller
(Principal Accounting Officer)
    
    March 13, 2009/s/ Cindy K. Andreotti*

Cindy K. Andreotti
    
    Director
    
    March 13, 2009/s/ John C. Kraft *

John C. Kraft
    
    Director
    
    March 13, 2009/s/ Bhaskar Menon *

Bhaskar Menon
    
    Director
    
    March 13, 2009/s/ John J. Park *

John J. Park
    
    Director
    
    March 13, 2009/s/ Samuel K. Skinner*

Samuel K. Skinner
    
    Director
    
    March 13, 2009s/ John L. Workman *

John L. Workman
    
    Director
    
    March 13, 2009
 *
    
    Andrew B. Szafran, as attorney in fact for each person indicated.  69




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##### Table of Contents



Schedule II
 VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
 Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EBalance at
    
    
    Charged to
    
    
    
    
    
    Balance atBeginning of
    
    
    Costs
    
    
    
    
    
    End ofDescription
    
    Period
    
    
    and Expenses
    
    
    Deductions (a)
    
    
    PeriodAllowance for doubtful accounts:Fiscal Year ended December 31,
2006
    
    $
    1,919
    
    
    $
    854
    
    
    $
    1,300
    
    
    $
    1,473Fiscal Year ended December 30,
2007
    
    
    1,473
    
    
    
    562
    
    
    
    938
    
    
    
    1,097Fiscal Year ended December 28,
2008
    
    
    1,097
    
    
    
    2,203
    
    
    
    1,865
    
    
    
    1,435
 (a)
    
    Represents charges for which the allowance account was created.  70




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Exhibit Index
 ExhibitNumber
    
    Description3.1
    
    
    Articles of Incorporation of APAC Customer Services, Inc., incorporated by reference to APAC Customer
Services, Inc.s Annual Report on Form 10-K for the fiscal
year ended January 1, 2006.3.2
    
    
    Second Amended and Restated By-laws of APAC Customer Services, Inc., incorporated by reference to APAC
Customer Services, Inc.s Current Report on Form 8-K, dated August 22, 2007.4.1
    
    
    Specimen Common Stock Certificate for APAC Customer Services, Inc.4.2
    
    
    Warrant to Purchase Common Shares, dated January 24, 2008, incorporated by reference to APAC Customer
Services, Inc.s Current Report on Form 8-K, dated January 29, 2008.4.3
    
    
    Amendment to Warrant to Purchase Common Shares, dated February 29, 2008, incorporated by reference to APAC
Customer Services, Inc.s Current Report on Form 8-K, dated March 5, 2008.*10.1
    
    
    APAC Customer Services, Inc. Amended and Restated 2005 Incentive Stock Plan incorporated by reference into
APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2007.*10.2
    
    
    Form of Non-Employee Director Stock Option Agreement (revised 2007), incorporated by reference to APAC
Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2007.*10.3
    
    
    Form of Employee Stock Option Agreement (revised 2007), incorporated by reference to APAC Customer Services,
Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2007.*10.4
    
    
    Form of Restricted Stock Award Agreement (revised 2007), incorporated by reference to APAC Customer Services,
Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2007.*10.5
    
    
    APAC Customer Services, Inc. Retirement Plan for Senior Employees, incorporated by reference to APAC Customer
Services, Inc.s Annual Report on Form 10-K for the fiscal year ended December 30, 2007.*10.6
    
    
    Amended and Restated Executive Employment Agreement with Robert J. Keller, dated August 6, 2007, incorporated
by reference to APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended July
1, 2007.*10.7
    
    
    Letter Agreement, dated January 16, 2008, with Robert J. Keller, incorporated by reference to APAC Customer
Services, Inc.s Current Report on Form 8-K, dated January 17, 2008.*10.8
    
    
    Employment Agreement with Pamela R. Schneider, dated June 1, 2005, incorporated by reference to APAC Customer
Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 2005.*10.9
    
    
    Amendment to Employment Agreement with Pamela R. Schneider, dated August 6, 2007, incorporated by reference to
APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2007.*10.10
    
    
    Employment Agreement with James M. McClenahan, dated May 9, 2004, incorporated by reference to APAC Customer
Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 2004.*10.11
    
    
    Amendment to Employment Agreement with James M. McClenahan, dated August 6, 2007, incorporated by reference to
APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2007.*10.12
    
    
    Employment Agreement with George H. Hepburn III, dated September 6, 2005, incorporated by reference to APAC
Customer Services, Inc.s Current Report on Form 8-K, dated September 15, 2005.*10.13
    
    
    Amendment to Employment Agreement with George H. Hepburn III, dated August 6, 2007, incorporated by reference
to APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2007.*10.14
    
    
    Employment Agreement with Mark E. McDermott, dated April 12, 2004, incorporated by reference into APAC
Customer Services, Inc.s Annual Report on Form 10-K for the fiscal year ended January 2, 2005.*10.15
    
    
    Amendment to Employment Agreement with Mark E. McDermott, dated August 6, 2007, incorporated by reference to
APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2007.
  71




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ExhibitNumber
    
    Description*10.16
    
    
    Employment Agreement with Joseph R. Doolan, dated January 11, 2006, incorporated by reference to APAC Customer
Services, Inc.s Current Report on Form 8-K, dated February 9, 2006.*10.17
    
    
    APAC Customer Services, Inc. Management Incentive Plan, as amended and restated effective August 2, 2007,
incorporated by reference into APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal
quarter ended July 1, 2007.*10.18
    
    
    Form of Amended and Restated Employment Security Agreement, incorporated by reference to APAC Customer
Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2007.*10.19
    
    
    Form of Employment Security Agreement, incorporated by reference to APAC Customer Services, Inc.s Quarterly
Report on Form 10-Q for the fiscal quarter ended July 1, 2007.*10.20
    
    
    Executive Employment Agreement, dated February 18, 2008, with Michael P. Marrow, incorporated by reference to
APAC Customer Services, Inc.s Current Report on Form 8-K, dated February 19, 2008.10.21
    
    
    Amended and Restated Credit Agreement, dated October 31, 2005, incorporated by reference to APAC Customer
Services, Inc.s Current Report on Form 8-K, dated November 3, 2005.10. 22
    
    
    Amendment No. 1 to Amended and Restated Credit Agreement, effective as of February 21, 2006, incorporated by
reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated March 9, 2006.10.23
    
    
    Amendment No. 2 to Amended and Restated Credit Agreement, effective as of April 2, 2006, incorporated by
reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated April 27, 2006.10.24
    
    
    Amendment No. 3 to Amended and Restated Credit Agreement, effective as of June 2, 2006, incorporated by
reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated June 9, 2006.10.25
    
    
    Amendment No. 4 to Amended and Restated Credit Agreement, effective as of October 1, 2006, incorporated by
reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated October 30, 2006.10.26
    
    
    Amendment No. 5 to Amended and Restated Credit Agreement, dated as of November 10, 2006, incorporated by
reference to APAC Customer Services, Inc.s Quarterly Report on Form 10-Q, for fiscal quarter ended October 1,
2006.10.27
    
    
    Amendment No. 6 to Amended and Restated Credit Agreement, dated as of December 5, 2006, incorporated by
reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated December 8 2006.10.28
    
    
    Second Amended and Restated Loan and Security Agreement, dated January 31, 2007, incorporated by reference to
APAC Customer Services, Inc.s Current Report on Form 8-K, dated February 5, 2007.10.29
    
    
    Amendment No. 1 to Second Amended and Restated Loan and Security Agreement, dated June 29, 2007, incorporated
by reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated July 3, 2007.10.30
    
    
    Amendment No. 2 to Second Amended and Restated Loan and Security Agreement, dated January 24, 2008
incorporated by reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated January 29,
2008.10.31
    
    
    Amendment No. 3 to Second Amended and Restated Loan and Security Agreement, dated February 29, 2008,
incorporated by reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated March 5, 2008.10.32
    
    
    Second Lien Loan and Security Agreement, dated January 31, 2007, incorporated by reference to APAC Customer
Services, Inc.s Current Report on Form 8-K, dated February 5, 2007.10.33
    
    
    First Amendment to Second Lien Loan and Security Agreement, dated June 29, 2007, incorporated by reference to
APAC Customer Services, Inc.s Current Report on Form 8-K, dated July 3, 2007.10.34
    
    
    Second Amendment to Second Lien Loan and Security Agreement, dated January 24, 2008, incorporated by reference
to APAC Customer Services, Inc.s Current Report on Form 8-K, dated January 29, 2008.10.35
    
    
    Third Amendment to Second Lien Loan and Security Agreement, dated February 29, 2008, incorporated by reference
to APAC Customer Services, Inc.s Current Report on Form 8-K, dated March 5, 2008.10.36
    
    
    Registration Rights Agreement, incorporated by reference to APAC TeleServices, Inc.s Registration Statement
on Form S-1, as amended, Registration No. 33-95638.
  72




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ExhibitNumber
    
    Description10.37
    
    

Tax
Agreement, incorporated by reference to APAC TeleServices,
Inc.s Registration Statement on
Form S-1, as
amended, Registration No. 33-95638.10.38
    
    
    Master Agreement for Call Center Services, dated February 1, 2003, with Cellco Partnership d/b/a Verizon
Wireless, incorporated by reference to APAC Customer Services, Inc.s Annual Report on Form 10-K for the
fiscal year ended December 30, 2007.10.39
    
    
    Amendment Number One to Master Teleservices Agreement, dated February 1, 2004, with Cellco Partnership d/b/a
Verizon Wireless, incorporated by reference to APAC Customer Services, Inc.s Annual Report on Form 10-K for
the fiscal year ended December 30, 2007.10.40
    
    
    Amendment Number Two to Master Teleservices Agreement, dated March 1, 2005, with Cellco Partnership d/b/a
Verizon Wireless, incorporated by reference to APAC Customer Services, Inc.s Annual Report on Form 10-K for
the fiscal year ended December 30, 2007.10.41
    
    
    Amendment Number Three to Master Teleservices Agreement, effective April 1, 2005, with Cellco Partnership
d/b/a Verizon Wireless, incorporated by reference to APAC Customer Services, Inc.s Annual Report on Form 10-K
for the fiscal year ended December 30, 2007.10.42
    
    
    Amendment Number Four to Master Teleservices Agreement, effective March 31, 2006, with Cellco Partnership
d/b/a Verizon Wireless, incorporated by reference to APAC Customer Services, Inc.s Annual Report on Form 10-K
for the fiscal year ended December 30, 2007.10.43
    
    
    Amendment Number Six to Master Teleservices Agreement, effective May 17, 2007, with Verizon Services Corp,
incorporated by reference to APAC Customer Services, Inc.s Annual Report on Form 10-K for the fiscal year
ended December 30, 2007.10.44
    
    
    Master Services Agreement, effective October 28, 2002, with United Parcel Services OASIS Supply Corporation,
incorporated by reference to APAC Customer Services, Inc.s Annual Report on Form 10-K for the fiscal year
ended December 30, 2007.10.45
    
    
    Tampa, Florida Facility Amendment to Master Services Agreement, effective April 30, 2007, with United Parcel
Services OASIS Supply Corporation, incorporated by reference to APAC Customer Services, Inc.s Annual Report
on Form 10-K for the fiscal year ended December 30, 2007.10.46
    
    
    Agreement, dated August 10, 2004, with Unicare Life & Health Insurance Company, incorporated by reference to
APAC Customer Services, Inc.s Annual Report on Form 10-K for the fiscal year ended December 30, 2007.
[CONFIDENTIAL TREATMENT REQUESTED]10.47
    
    
    Amendment Number 1 and Assignment, dated July 1, 2005, with Unicare Life and Health Insurance Company and
WellPoint, Inc. , incorporated by reference to APAC Customer Services, Inc.s Annual Report on Form 10-K for
the fiscal year ended December 30, 2007.10.48
    
    
    Vendor Agreement for Call Center Services, dated September 26, 2004 with Medco Health Solutions, Inc.10.49
    
    
    Revolving Loan and Security Agreement, dated May 5, 2008, among APAC Customer Services, Inc. and PNC Bank,
National Association, as agent, and the financial institutions from time to time party thereto as lenders,
incorporated by reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated May 6, 2008.10.50
    
    
    Reimbursement and Security Agreement, dated May 5, 2008, between APAC Customer Services, Inc. and TCS Global
Holdings, L.P., incorporated by reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated
May 6, 2008.*10.51
    
    
    Employment Agreement with Arthur DiBari, dated March 11, 2008, incorporated by reference to APAC Customer
Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2008.*10.52
    
    
    Employment Agreement with Andrew B. Szafran, dated May 12, 2008, incorporated by reference to APAC Customer
Services, Inc.s Current Report on Form 8-K, dated May 14, 2008.*10.53
    
    
    Employment Agreement with Robert B. Nachwalter, dated October 31, 2008, incorporated by reference to APAC
Customer Services, Inc.s Current Report on Form 8-K, dated November 20, 2008.
  73




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ExhibitNumber
    
    Description10.54
    
    
    Indemnification Agreement dated February 18, 2009, incorporated by reference to APAC Customer Services, Inc.s
Current Report on Form 8-K, dated February 24, 2009.*10.55
    
    
    Employment Agreement with Mark Anderson, dated March 18, 2008, incorporated by reference to APAC Customer
Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2008.21.1
    
    
    Subsidiaries of APAC Customer Services, Inc.23.2
    
    
    Consent of Ernst & Young LLP.24.1
    
    
    Power of attorney executed by Cindy K. Andreotti, John C. Kraft, Bhaskar Menon, John J. Park, Theodore G.
Schwartz, Samuel K. Skinner and John L. Workman.31.1
    
    
    Certification of Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Indicates management employment contracts or compensatory plans or arrangements.  74