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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 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from  to
 Commission file number: 0-26786
 APAC Customer Services, Inc.
  Illinois
    
    36-2777140(State or other jurisdiction of incorporation or 
organization)
    
    (I.R.S. employer identification no.)
 Six Parkway North, Deerfield, Illinois 60015
 (847) 374-4980
 Common Shares, $0.01 Par Value
 None
  o þ
  o þ
  þ o
 Form 10-K þ
  o þ o
  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
    
    
    17Item 2.
    
    Properties
    
    
    17Item 3.
    
    Legal Proceedings
    
    
    17Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    17Executive Officers of the Registrant
    
    
    18PART II
    
    
    19Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and and Issuer Purchases of Equity Securities
    
    
    19Item 6.
    
    Selected Financial Data
    
    
    21Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 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
    
    
    67Item 9A.
    
    Controls and Procedures
    
    
    67Item 9B.
    
    Other Information
    
    
    69PART III
    
    
    69Item 10.
    
    Directors and Executive Officers of the Registrant
    
    
    69Item 11.
    
    Executive Compensation
    
    
    69Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    69Equity Compensation Plan Information
    
    
    69Item 13.
    
    Certain Relationships and Related Transactions
    
    
    70Item 14.
    
    Principal Accounting Fees and Services
    
    
    70PART IV
    
    
    70Item 15.
    
    Exhibits and Financial Statement Schedules
    
    
    70Signatures
    
    
    71Exhibit Index
    
    
    73Exhibit 10.5Exhibit 10.38Exhibit 10.39Exhibit 10.40Exhibit 10.41Exhibit 10.42Exhibit 10.43Exhibit 10.44Exhibit 10.45Exhibit 10.46Exhibit 10.47Exhibit 21.1Exhibit 23.1Exhibit 23.2Exhibit 24.1Exhibit 24.2Exhibit 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 business may be affected by our cash flows from operations and our ability to comply with, or obtain waivers of or
changes to, our debt covenants.
 
    
    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 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 return to profitability.
 
    
    Our principal shareholder can exercise significant control over the Company.
 
    
    Our financial results may be affected by risks associated with international operations and expansion, including
foreign currency fluctuations.
 
    
    Our success depends on key personnel.
 
    
    Our business operates in a highly competitive market.
 
    
    Circumstances outside our control such as typhoons, earthquakes 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.
  3




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
    
    Our business and our clients businesses are subject to federal and state regulation and industry standards, including
laws and industry standards regarding consumer privacy and information security.
    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
  Healthcare
  Business Services
   6




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Communications
  Publishing
  Travel and Entertainment
  Financial Services
  Personnel and Training
   Ô
  Operations and Capacity Utilization
 Customer Care Centers
    7




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Capacity and Workforce Management
  Ô
   Operational Disciplines
  Program Implementation
  Quality
  Ô
    8




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Technology and Telecommunications
   Customer Care Applications
   Ô
 Operating Systems and Telephony
 Ô Ô
 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
  Compliance Activities
   11




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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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Item 1A. Risk Factors.
 Risk Relating to the Company and its Business
  Our business may be affected by our cash flows from operations and our ability to comply with, or
obtain waivers of or changes to, our debt covenants.
    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 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 return to profitability.
  Our principal shareholder can exercise significant control over the Company.
  Our financial results may be affected by risks associated with international operations and
expansion, including foreign currency fluctuations.
     14




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Our success depends on key personnel.
  Our business operates in a highly competitive market.
     Circumstances outside our control such as typhoons, earthquakes 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.
    15




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Our inability to attract and retain a sufficient number of qualified employees could negatively
impact our business.
   Our business and our clients businesses are subject to federal and state regulation and industry
standards, including laws and industry standards regarding consumer privacy and information
security.
       16




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Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
 Accounting for Sales
with Leaseback
   Number ofCustomer Care Center Locations
    
    WorkstationsTuscon, Arizona
    
    
    467Tampa, Florida (client owned)
    
    
    677Davenport, Iowa
    
    
    688Cedar Rapids, Iowa
    
    
    337Utica, New York
    
    
    379Corpus Christi, Texas
    
    
    323Newport News, Virginia (client owned)
    
    
    761Green Bay, Wisconsin
    
    
    623LaCrosse, Wisconsin
    
    
    342Total US
    
    
    4,597Alabang, Muntilupa City, Philippines
    
    
    1,147Alabang, Muntilupa City, Philippines
    
    
    464Cubao, Quezon City, Philippines
    
    
    1,333Total Philippines
    
    
    2,944Total all Customer Care Center Locations
    
    
    7,541
 
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
   17




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Executive Officers of the Registrant
  Name
    
    Age
    
    PositionMichael P. Marrow
    
    50
    
    President and Chief Executive OfficerJoseph R. Doolan
    
    44
    
    Vice President and ControllerGeorge H. Hepburn III
    
    48
    
    Senior Vice President and Chief Financial OfficerJames M. McClenahan
    
    49
    
    Senior Vice President, Sales and MarketingMark E. McDermott
    
    47
    
    Senior Vice President, Operations and Chief Information OfficerPamela R. Schneider
    
    48
    
    Senior Vice President, General Counsel and Secretary
        18




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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 2007:First Quarter
    
    $
    5.18
    
    
    $
    3.57Second Quarter
    
    $
    4.85
    
    
    $
    2.41Third Quarter
    
    $
    3.15
    
    
    $
    2.02Fourth Quarter
    
    $
    2.64
    
    
    $
    1.00
 High
    
    
    LowFiscal Year 2006:First Quarter
    
    $
    2.50
    
    
    $
    1.65Second Quarter
    
    $
    2.30
    
    
    $
    1.42Third Quarter
    
    $
    2.96
    
    
    $
    1.87Fourth Quarter
    
    $
    3.84
    
    
    $
    2.28
   19




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Comparison of 5 Year Cumulative Total Return
Among APAC Customer Services, Inc., The S&P 500 Index
and a Self-Determined Peer Group
12/27/2002 12/26/2003 12/31/2004 12/30/2005 12/29/2006 12/28/2007
APAC Customer Services, Inc. 100.00 113.60 76.32 80.26 164.47 51.75
S&P 500 Stock Index 100.00 125.19 138.44 142.60 162.02 168.89
Self-Determined Peer Group 100.00 129.17 109.42 124.36 192.50 147.44  20




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Item 6. Selected Financial Data.
  For the Fiscal Years Ended(1)December 30,
    
    
    December 31,
    
    
    January 1,
    
    
    January 2,
    
    
    December 28,2007
    
    
    2006
    
    
    2006
    
    
    2005
    
    
    2003(Dollars in thousands, except share data, statistical data and notes)Operating Data:Net revenue
    
    $
    224,683
    
    
    $
    224,297
    
    
    $
    239,845
    
    
    $
    273,239
    
    
    $
    322,852Cost of services(6)
    
    
    203,880
    
    
    
    197,881
    
    
    
    218,121
    
    
    
    240,882
    
    
    
    264,621Gross profit
    
    
    20,803
    
    
    
    26,416
    
    
    
    21,724
    
    
    
    32,357
    
    
    
    58,231Selling, general and administrative
expenses(5)(6)
    
    
    28,362
    
    
    
    31,279
    
    
    
    33,372
    
    
    
    38,613
    
    
    
    47,165Restructuring and other charges(2)
    
    
    1,632
    
    
    
    2,384
    
    
    
    8,216
    
    
    
    1,873
    
    
    
    3,238Asset impairment charges(3)
    
    
    
    
    
    
    
    
    
    
    10,886
    
    
    
    2,234
    
    
    
    420Total operating expenses
    
    
    29,994
    
    
    
    33,663
    
    
    
    52,474
    
    
    
    42,720
    
    
    
    50,823Operating (loss) income
    
    
    (9,191
    )
    
    
    (7,247
    )
    
    
    (30,750
    )
    
    
    (10,363
    )
    
    
    7,408Other income
    
    
    (249
    )
    
    
    (101
    )
    
    
    (600
    )
    
    
    (361
    )
    
    
    (100
    )Interest expense
    
    
    3,537
    
    
    
    2,013
    
    
    
    1,408
    
    
    
    620
    
    
    
    1,131Income tax (benefit) provision (4)
    
    
    (17,568
    )
    
    
    21,380
    
    
    
    (9,160
    )
    
    
    (4,123
    )
    
    
    2,038Net income (loss)
    
    $
    5,089
    
    
    $
    (30,539
    )
    
    $
    (22,398
    )
    
    $
    (6,499
    )
    
    $
    4,339Net income (loss) per share:Basic
    
    $
    0.10
    
    
    $
    (0.62
    )
    
    $
    (0.45
    )
    
    $
    (0.13
    )
    
    $
    0.09Diluted
    
    $
    0.10
    
    
    $
    (0.62
    )
    
    $
    (0.45
    )
    
    $
    (0.13
    )
    
    $
    0.09Weighted average shares
outstanding:Basic
    
    
    49,800
    
    
    
    49,458
    
    
    
    49,455
    
    
    
    49,453
    
    
    
    49,436Diluted
    
    
    52,019
    
    
    
    49,458
    
    
    
    49,455
    
    
    
    49,453
    
    
    
    49,461Balance Sheet Data:Cash and cash equivalents
    
    $
    1,426
    
    
    $
    1,305
    
    
    $
    960
    
    
    $
    271
    
    
    $
    11,428Working capital (deficit)
    
    
    (2,426
    )
    
    
    (16,679
    )
    
    
    (7,685
    )
    
    
    8,511
    
    
    
    15,681Capital expenditures, net
    
    
    12,827
    
    
    
    10,713
    
    
    
    8,699
    
    
    
    11,206
    
    
    
    8,348Total assets
    
    
    89,926
    
    
    
    92,054
    
    
    
    110,353
    
    
    
    119,533
    
    
    
    134,593Short-term debt
    
    
    14,707
    
    
    
    14,378
    
    
    
    11,971
    
    
    
    313
    
    
    
    389Long-term debt, less current
maturities
    
    
    11,600
    
    
    
    4,400
    
    
    
    
    
    
    
    
    
    
    
    313Shareholders equity
    
    
    33,381
    
    
    
    23,306
    
    
    
    51,874
    
    
    
    74,163
    
    
    
    80,730
   21




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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.
  Fiscal Year
    
    Fiscal Year End2003
    
    December 28, 20032004
    
    January 2, 20052005
    
    January 1, 20062006
    
    December 31, 20062007
    
    December 30, 2007
 (2)
    
    We recorded restructuring charges in each of the fiscal years presented in the Selected
Financial Data table noted above. For fiscal years 2007, 2006 and 2005, see Note 7 of the
Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for
more information. 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.
In fiscal year 2003, we recorded $3.4 million of restructuring charges, partially offset by
the reversal of $0.1 million in prior year charges not utilized. The 2003 restructuring
charges consisted of $2.8 million in severance costs related to the elimination of
administrative and support positions and $0.6 million for the write-off of property and lease
termination and other costs associated with the closure of five 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. Fiscal year 2003 asset impairment charges of $0.4 million
related to the write-off of certain software licenses and computer hardware.
 (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 $1.5 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; 2004 $1.1 million and 2003
$1.5 million.
  22




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
         23




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Financial Outlook
   24




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Results of Operations
  For the Fiscal Year Ended (1)December 30,
    
    
    December 31,
    
    
    January 1,
    
    
    2007 vs 2006
    
    
    2006 vs 20052007
    
    
    2006
    
    
    2006
    
    
    Fav (Unfav)
    
    
    Fav (Unfav)(Dollars in thousands, except statistical data and notes)Net Revenue:On-goingDomestic
    
    $
    180,909
    
    
    $
    195,209
    
    
    $
    190,054
    
    
    
    (7.3
    )%
    
    
    2.7
    %Off-shore
    
    
    43,774
    
    
    
    28,159
    
    
    
    10,967
    
    
    
    55.5
    
    
    
    156.8Exited outbound business
    
    
    
    
    
    
    929
    
    
    
    38,824
    
    
    
    (100.0
    )
    
    
    (97.6
    )Total net revenue
    
    
    224,683
    
    
    
    224,297
    
    
    
    239,845
    
    
    
    0.2
    
    
    
    (6.5
    )Cost of Services:Direct labor
    
    
    134,137
    
    
    
    129,839
    
    
    
    137,695
    
    
    
    (3.3
    )
    
    
    5.7Other facility expenses
    
    
    69,743
    
    
    
    68,042
    
    
    
    80,426
    
    
    
    (2.5
    )
    
    
    15.4Total cost of services
    
    
    203,880
    
    
    
    197,881
    
    
    
    218,121
    
    
    
    (3.0
    )
    
    
    9.3Percentage of revenue
    
    
    90.7
    %
    
    
    88.2
    %
    
    
    90.9
    %
    
    
    *
    
    
    
    *Gross profit
    
    
    20,803
    
    
    
    26,416
    
    
    
    21,724
    
    
    
    (21.2
    )
    
    
    21.6Gross profit margin
    
    
    9.3
    %
    
    
    11.8
    %
    
    
    9.1
    %
    
    
    *
    
    
    
    *Operating Expenses:Selling, general & administrative
expenses
    
    
    28,362
    
    
    
    31,279
    
    
    
    33,372
    
    
    
    9.3
    
    
    
    6.3Restructuring and other charges
    
    
    1,632
    
    
    
    2,384
    
    
    
    8,216
    
    
    
    31.5
    
    
    
    71.0Asset impairment charges
    
    
    
    
    
    
    
    
    
    
    10,886
    
    
    
    
    
    
    
    100.0Total operating expenses
    
    
    29,994
    
    
    
    33,663
    
    
    
    52,474
    
    
    
    10.9
    
    
    
    35.8Operating loss
    
    
    (9,191
    )
    
    
    (7,247
    )
    
    
    (30,750
    )
    
    
    (26.8
    )
    
    
    76.4Other income
    
    
    (249
    )
    
    
    (101
    )
    
    
    (600
    )
    
    
    146.5
    
    
    
    (83.2
    )Interest expense, net
    
    
    3,537
    
    
    
    2,013
    
    
    
    1,408
    
    
    
    (75.7
    )
    
    
    (43.0
    )Loss before income taxes
    
    
    (12,479
    )
    
    
    (9,159
    )
    
    
    (31,558
    )
    
    
    (36.3
    )
    
    
    71.0Provision (benefit) for income
taxes
    
    
    (17,568
    )
    
    
    21,380
    
    
    
    (9,160
    )
    
    
    *
    
    
    
    *Net income (loss)
    
    $
    5,089
    
    
    $
    (30,539
    )
    
    $
    (22,398
    )
    
    
    116.7
    %
    
    
    (36.3
    )%
 
 (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.  25




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Non-GAAP Financial Measures
      For the Fiscal Year Ended (1)December 30,
    
    
    December 31,
    
    
    January 1,
    
    
    2007 vs 2006
    
    
    2006 vs 20052007
    
    
    2006
    
    
    2006
    
    
    Fav (Unfav)
    
    
    Fav (Unfav)(Dollars in thousands, except statistical data and notes)EBITDA (2)
    
    $
    5,170
    
    
    $
    5,320
    
    
    $
    (18,032
    )
    
    
    (2.8
    )%
    
    
    129.5
    %Free cash flow (3)
    
    
    (7,657
    )
    
    
    (5,393
    )
    
    
    (26,731
    )
    
    
    (42.0
    )
    
    
    79.8Statistical Information:Number of customer care centersDomestic
    
    
    9
    
    
    
    8
    
    
    
    12
    
    
    
    1
    
    
    
    (4
    )Off-shore
    
    
    3
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    2Total
    
    
    12
    
    
    
    11
    
    
    
    13
    
    
    
    1
    
    
    
    (2
    )Number of workstations, end of periodDomestic
    
    
    4,597
    
    
    
    4,730
    
    
    
    5,313
    
    
    
    (133
    )
    
    
    (583
    )Off-shore
    
    
    2,944
    
    
    
    2,098
    
    
    
    1,240
    
    
    
    846
    
    
    
    858Total
    
    
    7,541
    
    
    
    6,828
    
    
    
    6,553
    
    
    
    713
    
    
    
    275Net revenue per weighted average
workstationDomestic
    
    $
    38,976
    
    
    $
    38,616
    
    
    $
    37,564
    
    
    $
    360
    
    
    $
    1,052Off-shore
    
    
    18,210
    
    
    
    19,624
    
    
    
    15,102
    
    
    
    (1,414
    )
    
    
    4,522Total
    
    
    31,803
    
    
    
    34,298
    
    
    
    35,172
    
    
    
    (2,495
    )
    
    
    (874
    )
   26




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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.
    For the Fiscal Year EndedDecember 30,
    
    
    December 31,
    
    
    January 1,2007
    
    
    2006
    
    
    2006(Dollars in thousands)Net income (loss)
    
    $
    5,089
    
    
    $
    (30,539
    )
    
    $
    (22,398
    )Interest expense
    
    
    3,537
    
    
    
    2,013
    
    
    
    1,408Income tax (benefit) provision
    
    
    (17,568
    )
    
    
    21,380
    
    
    
    (9,160
    )Depreciation and amortization
    
    
    14,112
    
    
    
    12,466
    
    
    
    12,118EBITDA
    
    $
    5,170
    
    
    $
    5,320
    
    
    $
    (18,032
    )
 (3)
    
    We define free cash flow as EBITDA less capital expenditures.
   For the Fiscal Year EndedDecember 30,
    
    
    December 31,
    
    
    January 1,2007
    
    
    2006
    
    
    2006(Dollars in thousands)EBITDA
    
    $
    5,170
    
    
    $
    5,320
    
    
    $
    (18,032
    )Capital expenditures
    
    
    (13,009
    )
    
    
    (13,963
    )
    
    
    (8,699
    )Leasehold improvements funded by landlord
    
    
    182
    
    
    
    3,250
    
    
    
    Free cash flow
    
    $
    (7,657
    )
    
    $
    (5,393
    )
    
    $
    (26,731
    )
  27




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##### Table of Contents



For the Fiscal Year EndedDecember 30,
    
    
    December 31,
    
    
    January 1,2007
    
    
    2006
    
    
    2006(Dollars in thousands)Net cash provided by (used in) operating activities
    
    $
    4,050
    
    
    $
    2,268
    
    
    $
    (2,405
    )Purchase of property and equipment, net
    
    
    (12,827
    )
    
    
    (10,713
    )
    
    
    (8,699
    )Income tax (benefit) provision
    
    
    (17,568
    )
    
    
    21,380
    
    
    
    (9,160
    )Interest expense
    
    
    3,537
    
    
    
    2,013
    
    
    
    1,408Income tax payable
    
    
    17,580
    
    
    
    
    
    
    
    Changes in operating assets and liabilities
    
    
    (1,067
    )
    
    
    2,700
    
    
    
    (5,431
    )Asset impairment charges
    
    
    
    
    
    
    
    
    
    
    (10,886
    )Gain on sale of property and equipment
    
    
    18
    
    
    
    
    
    
    
    339Amortized gain on sale leaseback
    
    
    175
    
    
    
    18
    
    
    
    Increase (decrease) in deferred income taxes
    
    
    
    
    
    
    (21,380
    )
    
    
    9,007Stock compensation expense
    
    
    (1,543
    )
    
    
    (1,478
    )
    
    
    Non-cash restructuring charges
    
    
    (12
    )
    
    
    (201
    )
    
    
    (904
    )Free cash flow
    
    $
    (7,657
    )
    
    $
    (5,393
    )
    
    $
    (26,731
    )
  28




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Fiscal Year 2007 Results of Operations Compared to Fiscal Year 2006 Results of Operations
         29




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##### Table of Contents



Fiscal Year 2006 Results of Operations Compared to Fiscal Year 2005 Results of Operations
    30




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##### Table of Contents



31




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##### Table of Contents



Critical Accounting Policies and Estimates
 Share-Based Payment 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
  Revenue recognition
 Revenue Recognition in
Financial Statements Revenue Recognition Revenue Arrangements with Multiple Deliverables
  32




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Revenue Arrangements with
Multiple Deliverables.
  .
 Intangible assets
 Goodwill and Other
Intangible Assets Accounting for the Impairment or Disposal of Long-Lived Assets
    Restructuring charges
 Accounting for Costs Associated with Exit or Disposal
Activities
  33




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##### Table of Contents



Accounting for stock-based compensation
 Share-Based Payment Accounting for Stock-Based
Compensation Accounting for Stock Issued to Employees
 Accounting for Stock-Based Compensation
  Income taxes
    34




---



##### Table of Contents



Liquidity and Capital Resources
  For the Fiscal Year EndedDecember 30,
    
    
    December 31,
    
    
    January 1,2007
    
    
    2006
    
    
    2006(Dollars in thousands)Net cash provided by (used in) operating activities
    
    $
    4,050
    
    
    $
    2,268
    
    
    $
    (2,405
    )Net cash used in investing activities
    
    
    (12,636
    )
    
    
    (8,737
    )
    
    
    (7,628
    )Net cash provided by financing activities
    
    
    8,262
    
    
    
    6,956
    
    
    
    10,836Effect of exchange rates on cash
    
    
    445
    
    
    
    (142
    )
    
    
    (114
    )Net change in cash
    
    $
    121
    
    
    $
    345
    
    
    $
    689
 Operating Activities
   Investing Activities
    Financing Activities
     35




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##### Table of Contents



Free Cash Flow
   Bank Financing
         36




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##### Table of Contents



Future Liquidity
     37




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##### Table of Contents



Off Balance Sheet Arrangements
  Contractual Obligations and Commitments
  Payment due by periodLess than
    
    
    2 to 3
    
    
    4 to 5
    
    
    Over 51 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total(Dollars in thousands)Contractual Obligations:Operating leases
    
    $
    9,218
    
    
    $
    13,224
    
    
    $
    8,989
    
    
    $
    11,204
    
    
    $
    42,635Other Commercial Commitments:Long-term debt, including interest
    
    
    4,192
    
    
    
    7,534
    
    
    
    7,062
    
    
    
    
    
    
    
    18,788Telecommunications commitments
    
    
    4,275
    
    
    
    3,500
    
    
    
    
    
    
    
    
    
    
    
    7,775Letters of Credit
    
    
    3,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,959Total other commercial commitments
    
    $
    12,426
    
    
    $
    11,034
    
    
    $
    7,062
    
    
    $
    
    
    
    $
    30,522
 New Accounting Pronouncements
 Transition Election Related to Accounting for the Tax Effects of
Share-Based Payment Awards. Share-Based Payment
  38




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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 30, 2007 and December 31, 2006
    
    
    41Report of Independent Registered Public Accounting Firm for the Fiscal Year Ended
January 1, 2006
    
    
    42Consolidated Statements of Operations for the Fiscal Years Ended December 30, 2007,
December 31, 2006, and January 1, 2006
    
    
    43Consolidated Balance Sheets as of December 30, 2007 and December 31, 2006
    
    
    44Consolidated Statements of Shareholders Equity for the Fiscal Years Ended December 30,
2007, December 31, 2006, and January 1, 2006
    
    
    45Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30, 2007,
December 31, 2006, and January 1, 2006
    
    
    46Notes to Consolidated Financial Statements
    
    
    47Quarterly Results of Operations for the Fiscal Years Ended December 30, 2007, and
December 31, 2006
    
    
    66Managements Report on Internal Control over Financial Reporting for the Fiscal
Year Ended December 30, 2007
    
    
    67Report of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting for the Fiscal Year Ended December 30, 2007
    
    
    68
  40




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Share-Based Payment
   
  41




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      
  42




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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 30,
    
    
    December 31,
    
    
    January 1,2007
    
    
    2006
    
    
    2006Net revenue
    
    $
    224,683
    
    
    $
    224,297
    
    
    $
    239,845Cost of services
    
    
    203,880
    
    
    
    197,881
    
    
    
    218,121Gross profit
    
    
    20,803
    
    
    
    26,416
    
    
    
    21,724Operating expenses:Selling, general and administrative expenses
    
    
    28,362
    
    
    
    31,279
    
    
    
    33,372Restructuring and other charges
    
    
    1,632
    
    
    
    2,384
    
    
    
    8,216Asset impairment charges
    
    
    
    
    
    
    
    
    
    
    10,886Total operating expenses
    
    
    29,994
    
    
    
    33,663
    
    
    
    52,474Operating loss
    
    
    (9,191
    )
    
    
    (7,247
    )
    
    
    (30,750
    )Other income
    
    
    (249
    )
    
    
    (101
    )
    
    
    (600
    )Interest expense
    
    
    3,537
    
    
    
    2,013
    
    
    
    1,408Loss before income taxes
    
    
    (12,479
    )
    
    
    (9,159
    )
    
    
    (31,558
    )Income tax (benefit) provision
    
    
    (17,568
    )
    
    
    21,380
    
    
    
    (9,160
    )Net income (loss)
    
    $
    5,089
    
    
    $
    (30,539
    )
    
    $
    (22,398
    )Net income (loss) per share:Basic
    
    $
    0.10
    
    
    $
    (0.62
    )
    
    $
    (0.45
    )Diluted
    
    $
    0.10
    
    
    $
    (0.62
    )
    
    $
    (0.45
    )Weighted average shares outstanding:Basic
    
    
    49,800
    
    
    
    49,458
    
    
    
    49,455Diluted
    
    
    52,019
    
    
    
    49,458
    
    
    
    49,455
   43




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
 December 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,426
    
    
    $
    1,305Accounts receivable, less allowances of $1,097 and $1,473, respectively
    
    
    34,468
    
    
    
    37,858Other current assets
    
    
    5,971
    
    
    
    6,717Total Current Assets
    
    
    41,865
    
    
    
    45,880Property and equipment, net
    
    
    26,772
    
    
    
    23,930Goodwill
    
    
    13,338
    
    
    
    13,338Other intangible assets, net
    
    
    5,891
    
    
    
    8,070Other assets
    
    
    2,060
    
    
    
    836Total Assets
    
    $
    89,926
    
    
    $
    92,054LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term debt
    
    $
    12,307
    
    
    $
    13,778Current portion of long-term debt
    
    
    2,400
    
    
    
    600Accounts payable
    
    
    2,287
    
    
    
    2,890Income taxes payable
    
    
    220
    
    
    
    17,800Accrued payroll and related items
    
    
    15,954
    
    
    
    14,603Accrued liabilities
    
    
    11,123
    
    
    
    12,888Total Current Liabilities
    
    
    44,291
    
    
    
    62,559Long-term debt
    
    
    11,600
    
    
    
    4,400Other liabilities
    
    
    654
    
    
    
    1,789Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common Shares, $0.01 per share; authorized 200,000,000 shares; 50,379,296
and 50,066,628 shares issued at December 30, 2007, and December 31,
2006, respectively; 50,379,296 and 49,866,583 shares outstanding at
December 30, 2007, and December 31, 2006, respectively
    
    
    504
    
    
    
    501Additional paid-in capital
    
    
    102,647
    
    
    
    101,077Accumulated deficit
    
    
    (72,760
    )
    
    
    (77,849
    )Accumulated other comprehensive income
    
    
    2,990
    
    
    
    280Treasury shares: 0 and 200,045 shares at cost at December 30, 2007
and December 31, 2006, respectively
    
    
    
    
    
    
    (703
    )Total Shareholders Equity
    
    
    33,381
    
    
    
    23,306Total Liabilities and Shareholders Equity
    
    $
    89,926
    
    
    $
    92,054
   44




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars in thousands, except share data)
 AccumulatedCommon
    
    
    Common
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    TotalShares
    
    
    Share
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    Shareholders'Issued
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Stock
    
    
    EquityBalance, January 2, 2005
    
    
    49,695,699
    
    
    $
    497
    
    
    $
    99,598
    
    
    $
    (24,912
    )
    
    $
    (173
    )
    
    $
    (847
    )
    
    $
    74,163Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,398
    )
    
    
    
    
    
    
    
    
    
    
    (22,398
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    
    
    
    
    109Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,289
    )Balance, 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
    
    
    $
    
    
    
    $
    33,381
   45




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
 For the Fiscal Year EndedDecember 30,
    
    
    December 31,
    
    
    January 1,2007
    
    
    2006
    
    
    2006Operating Activities:Net income (loss)
    
    $
    5,089
    
    
    $
    (30,539
    )
    
    $
    (22,398
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activitiesDepreciation and amortization
    
    
    14,112
    
    
    
    12,466
    
    
    
    12,118Deferred income taxes
    
    
    
    
    
    
    21,380
    
    
    
    (9,007
    )Non-cash restructuring charges
    
    
    12
    
    
    
    201
    
    
    
    904Asset impairment charges
    
    
    
    
    
    
    
    
    
    
    10,886Stock compensation expense
    
    
    1,543
    
    
    
    1,478
    
    
    
    Gain on sale of property and equipment
    
    
    (18
    )
    
    
    
    
    
    
    (339
    )Amortized gain on sale leaseback
    
    
    (175
    )
    
    
    (18
    )
    
    
    Changes in operating assets and liabilities:
    
    
    
    
    
    
    
    
    
    
    Accounts receivable
    
    
    3,389
    
    
    
    (266
    )
    
    
    3,410Other current assets
    
    
    747
    
    
    
    (2,190
    )
    
    
    863Accounts payable
    
    
    (603
    )
    
    
    (669
    )
    
    
    14Accrued payroll and related items
    
    
    1,351
    
    
    
    1,834
    
    
    
    (2,279
    )Income taxes payable
    
    
    (17,580
    )
    
    
    
    
    
    
    748Accrued liabilities
    
    
    (1,393
    )
    
    
    1,229
    
    
    
    1,444Other assets and liabilities
    
    
    (2,424
    )
    
    
    (2,638
    )
    
    
    1,231Net cash provided by (used in) operating activities
    
    
    4,050
    
    
    
    2,268
    
    
    
    (2,405
    )Investing Activities:Purchase of property and equipment, net
    
    
    (12,827
    )
    
    
    (10,713
    )
    
    
    (8,699
    )Net proceeds from sale of property and equipment
    
    
    191
    
    
    
    1,976
    
    
    
    1,071Net cash used in investing activities
    
    
    (12,636
    )
    
    
    (8,737
    )
    
    
    (7,628
    )Financing Activities:Borrowings under revolving credit facility
    
    
    249,644
    
    
    
    238,833
    
    
    
    172,432Payments under revolving credit facility
    
    
    (251,115
    )
    
    
    (237,026
    )
    
    
    (160,461
    )Borrowings on long-term debt
    
    
    10,000
    
    
    
    5,000
    
    
    
    Payments on long-term debt
    
    
    (1,000
    )
    
    
    
    
    
    
    (313
    )Financing costs
    
    
    
    
    
    
    
    
    
    
    (822
    )Stock option transactions including related excess income tax benefits
    
    
    733
    
    
    
    149
    
    
    
    Net cash provided by financing activities
    
    
    8,262
    
    
    
    6,956
    
    
    
    10,836Effect of exchange rates on cash
    
    
    445
    
    
    
    (142
    )
    
    
    (114
    )Net increase in cash and cash equivalents
    
    
    121
    
    
    
    345
    
    
    
    689Cash and Cash Equivalents:Beginning of year
    
    
    1,305
    
    
    
    960
    
    
    
    271End of year
    
    $
    1,426
    
    
    $
    1,305
    
    
    $
    960Supplemental Disclosures:Cash payments for interest
    
    $
    2,947
    
    
    $
    1,483
    
    
    $
    671Cash payments for income taxes
    
    
    12
    
    
    
    21
    
    
    
    5Income tax refund received
    
    
    6
    
    
    
    
    
    
    
    445Leasehold improvements funded by landlord
    
    
    182
    
    
    
    3,250
    
    
    
    
   46




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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.
   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)
  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
   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)
 Allowance for doubtful accounts
  Accounting for employee benefits
   2007
    
    
    2006Group Health Insurance
    
    $
    1,744
    
    
    $
    1,220Workers Compensation
    
    $
    2,089
    
    
    $
    2,705
 Income taxes
  Accounting for
Uncertainty in Income Taxes: An interpretation of FASB Statement No. 109 , Accounting for Income Taxes
 Cash equivalents
  Use of estimates
   49




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
 Accounting for long-lived assets
 Accounting for the Impairment or Disposal of Long-Lived Assets
 Property and Equipment
  December 30,
    
    
    December 31,2007
    
    
    2006Building and leasehold improvements
    
    $
    24,631
    
    
    $
    17,989Telecommunications equipment
    
    
    48,382
    
    
    
    46,349Workstations and office equipment
    
    
    12,285
    
    
    
    11,064Capitalized software
    
    
    23,996
    
    
    
    22,989Construction in progress
    
    
    950
    
    
    
    2,751Accumulated depreciation and amortization
    
    
    (83,472
    )
    
    
    (77,212
    )Property and equipment, net
    
    $
    26,772
    
    
    $
    23,930
 Capitalized Software
 Accounting for Costs of Computer Software Developed or Obtained for Internal Use
 Goodwill
 Goodwill and Other Intangible Assets
  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)
 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 Accounting for Stock Issued to Employees
 Accounting for Stock-Based Compensation
  51




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
     2005Net loss as reported
    
    $
    (22,398
    )Lesscompensation expense on stock options, net
of income tax benefit
    
    
    (927
    )Net loss pro forma
    
    $
    (23,325
    )Loss per sharebasicAs reported
    
    $
    (0.45
    )Pro forma
    
    $
    (0.47
    )Loss per sharedilutedAs reported
    
    $
    (0.45
    )Pro forma
    
    $
    (0.47
    )
 4. Comprehensive Income/Loss
  2007
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    5,089
    
    
    $
    (30,539
    )
    
    $
    (22,398
    )Foreign currency translation adjustment(1)
    
    
    1,917
    
    
    
    344
    
    
    
    109Unrealized gain on derivative contracts
    
    
    793
    
    
    
    
    
    
    
    Total comprehensive income (loss)
    
    $
    7,799
    
    
    $
    (30,195
    )
    
    $
    (22,289
    )
 
 (1)
    
    The foreign currency translation adjustments in fiscal year 2007, 2006 and 2005 relate to the
impact of the change in exchange rates on net assets located outside of the United States.  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)
 5. Significant Clients
  2007
    
    
    2006
    
    
    2005United Parcel Services, Inc.
    
    
    23.6
    %
    
    
    15.5
    %
    
    
    12.8
    %Verizon Wireless
    
    
    19.6
    
    
    
    17.4
    
    
    
    10.8WellPoint, Inc.
    
    
    16.1
    
    
    
    19.5
    
    
    
    6.1Citigroup, Inc.
    
    
    3.2
    
    
    
    6.8
    
    
    
    10.2T-Mobile USA
    
    
    
    
    
    
    3.9
    
    
    
    10.6Total
    
    
    62.5
    %
    
    
    63.1
    %
    
    
    50.5
    %
  Percent of NetAccounts Receivable2007
    
    
    2006United Parcel Services, Inc
    
    
    11.1
    %
    
    
    7.0
    %Verizon Wireless
    
    
    19.9
    
    
    
    20.7WellPoint, Inc.
    
    
    18.9
    
    
    
    26.3Citigroup, Inc.
    
    
    4.6
    
    
    
    7.2Total
    
    
    54.5
    %
    
    
    61.2
    %
 6. Supplemental Balance Sheet Data
 December 30,
    
    
    December 31,Consolidated Balance Sheet
    
    2007
    
    
    2006Prepaid expenses
    
    $
    5,268
    
    
    $
    5,066Non-trade receivables
    
    
    703
    
    
    
    1,651Other current assets
    
    $
    5,971
    
    
    $
    6,717Deferred rent
    
    $
    4,094
    
    
    $
    3,070Accrued workers compensation
    
    
    2,089
    
    
    
    2,705Restructuring charges
    
    
    1,756
    
    
    
    2,032Accrued professional fees
    
    
    644
    
    
    
    837Accrued property tax
    
    
    332
    
    
    
    261Other accrued liabilities
    
    
    2,208
    
    
    
    3,983Accrued liabilities
    
    $
    11,123
    
    
    $
    12,888
 7. Restructuring and Other Charges/Asset Impairment Charges
 Restructuring Charges
   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)
   Cash Payments
     LeaseSeverance
    
    
    Asset
    
    
    ObligationsCosts
    
    
    Write-off
    
    
    and Other
    
    
    TotalRestructuring Reserve, January 2, 2005
    
    $
    562
    
    
    $
    
    
    
    $
    81
    
    
    $
    643Total expense
    
    
    2,300
    
    
    
    894
    
    
    
    4,544
    
    
    
    7,738Total adjustments
    
    
    
    
    
    
    (894
    )
    
    
    
    
    
    
    (894
    )Total payments
    
    
    (2,153
    )
    
    
    
    
    
    
    (636
    )
    
    
    (2,789
    )Restructuring 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
    
    
    $
    1,771
  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)
 Asset Impairment Charges
  8. Income Taxes
  2007
    
    
    2006
    
    
    2005Current provision (benefit)
    
    $
    
    
    
    $
    
    
    
    $
    (153
    )Deferred provision (benefit)
    
    
    (17,568
    )
    
    
    21,380
    
    
    
    (9,007
    )Total provision (benefit) for income taxes
    
    $
    (17,568
    )
    
    $
    21,380
    
    
    $
    (9,160
    )
  2007
    
    
    2006
    
    
    2005U.S. Statutory tax expense (benefit)  rate (35%)
    
    $
    (4,368
    )
    
    $
    (3,206
    )
    
    $
    (6,832
    )U.S. State taxes, net of U.S. Federal benefit and state credits
    
    
    (450
    )
    
    
    (359
    )
    
    
    (871
    )Work opportunity tax credits
    
    
    (5,103
    )
    
    
    (642
    )
    
    
    (1,725
    )Reversal of reserve
    
    
    (17,580
    )
    
    
    
    
    
    
    AMT credit
    
    
    (1,024
    )
    
    
    
    
    
    
    State tax rate adjustment
    
    
    354
    
    
    
    
    
    
    
    Other
    
    
    51
    
    
    
    381
    
    
    
    268Deferred tax
asset adjustment
    
    
    
    
    
    
    (2,059
    )
    
    
    Valuation allowance recorded
    
    
    10,552
    
    
    
    27,265
    
    
    
    Actual tax expense (benefit)
    
    $
    (17,568
    )
    
    $
    21,380
    
    
    $
    (9,160
    )
  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)
  December 30,
    
    
    December 31,2007
    
    
    2006Deferred tax assets:Net operating loss and credit carryforwards
    
    $
    28,350
    
    
    $
    17,571Depreciation
    
    
    3,313
    
    
    
    2,407Payroll related items
    
    
    1,429
    
    
    
    1,098Self-insurance related costs
    
    
    1,278
    
    
    
    1,395Deferred rent
    
    
    909
    
    
    
    1,203Stock compensation expense
    
    
    841
    
    
    
    477Restructuring charge
    
    
    481
    
    
    
    1,013Allowance for doubtful accounts
    
    
    424
    
    
    
    578Intangible assets
    
    
    510
    
    
    
    919Other
    
    
    282
    
    
    
    726Total deferred tax assets
    
    
    37,817
    
    
    
    27,387Deferred tax liabilities
    
    
    (306
    )
    
    
    (122
    )Valuation allowance
    
    
    (37,511
    )
    
    
    (27,265
    )Net deferred tax assets
    
    $
    
    
    
    $
    
     56




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
  Net Operating LossExpiration
    
    Carryforward2024
    
    
    14,3552025
    
    
    13,9012026
    
    
    9,0462027
    
    
    12,58849,890
 Accounting for Uncertainty in Income Taxes: an
interpretation of FASB Statement No. 109, , Accounting for Income Taxes,
  2007Balance at January 1, 2007
    
    $
    17,800Additions 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
    
    
    (17,580
    )Lapse of applicable statute of limitations
    
    
    Balance at December 31, 2007
    
    $
    220
  9. Long-Term Debt
  December 30, 2007
    
    
    December 31, 2006Term loan
    
    $
    14,000
    
    
    $
    5,000Total long-term debt
    
    
    14,000
    
    
    
    5,000Lesscurrent maturities
    
    
    2,400
    
    
    
    600Long-term debt, net
    
    $
    11,600
    
    
    $
    4,400
  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)
   Future Payment of Long-term Debt2008
    
    $
    2,4002009
    
    
    2,6002010
    
    
    2,4002011
    
    
    6,600Total payments
    
    $
    14,000
        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)
         59




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
          60




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
 10. Commitments and Contingencies
 Lease Commitments
  Accounting for Sales with Leaseback
  OperatingLeases2008
    
    $
    9,2182009
    
    
    7,2922010
    
    
    5,9322011
    
    
    4,6652012
    
    
    4,324Years thereafter
    
    
    11,204Total payments
    
    $
    42,635
 Telecommunications Commitments
  Total2008
    
    $
    4,2752009
    
    
    3,500Total commitments
    
    $
    7,775
 Legal Proceedings
     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)
 11. Shareholders Equity
  12. Earnings Per Share
  2007
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    5,089
    
    
    $
    (30,539
    )
    
    $
    (22,398
    )Weighted average common shares outstanding
    
    
    49,800
    
    
    
    49,458
    
    
    
    49,455Income (loss) per sharebasic
    
    $
    0.10
    
    
    $
    (0.62
    )
    
    $
    (0.45
    )Effects of dilutive securities
    
    
    2,219
    
    
    
    
    
    
    
    Weighted average common and common equivalent shares outstanding
    
    
    52,019
    
    
    
    49,458
    
    
    
    49,455Income (loss) per sharediluted
    
    $
    0.10
    
    
    $
    (0.62
    )
    
    $
    (0.45
    )
  13. Stock Awards
    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)
 Share-Based Payment
  For the Fiscal Year EndedDecember 30, 2007Non-vestedOptions
    
    
    Common SharesExpected volatility
    
    
    55 - 71
    %
    
    
    N/ARisk-free interest rate
    
    
    4.1 - 5.0
    %
    
    
    N/AExpected life in years
    
    
    2.0 - 2.36
    
    
    
    N/AAnnualized forfeiture rate
    
    
    15.4
    %
    
    
    15.4
    %Weighted average grant date fair value
    
    $
    1.27
    
    
    $
    4.48
 Stock Option Activity
  Grant Price
    
    
    Weighted Average
    
    
    AggregateRange
    
    
    Exercise Price
    
    
    IntrinsicDescription
    
    Shares
    
    
    Per Share
    
    
    Per Share
    
    
    ValueOutstanding as of January 2, 2005
    
    
    5,259,026
    
    
    $
    1.55-$38.13
    
    
    $
    3.96Granted
    
    
    6,425,090
    
    
    
    0.85-1.74
    
    
    
    1.41Exercised
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    (4,009,817
    )
    
    
    1.06-15.31
    
    
    
    2.70Outstanding 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
    
    
    $
    2.22
    
    
    $
    323Stock options exercisable
at December 30, 2007
    
    
    3,577,840
    
    
    $
    1.35-$5.34
    
    
    $
    2.49
    
    
    $
    136
   63




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
  Per Share Exercise Price Ranges
    
    
    Total$.85-$1.62
    
    
    $1.63-$2.98
    
    
    $2.99-$11.63
    
    
    $.85-$11.63Outstanding as of December 30, 2007
    
    
    3,496,784
    
    
    
    2,180,026
    
    
    
    818,586
    
    
    
    6,495,396Weighted average remaining term
    
    
    7.00
    
    
    
    6.19
    
    
    
    4.20
    
    
    
    6.38Weighted average exercise price
    
    $
    1.36
    
    
    $
    2.56
    
    
    $
    4.96
    
    
    $
    2.22Exercisable as of December 30, 2007
    
    
    1,618,603
    
    
    
    1,388,091
    
    
    
    571,146
    
    
    
    3,577,840Weighted average remaining term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.29Weighted average exercise price
    
    $
    1.35
    
    
    $
    2.64
    
    
    $
    5.34
    
    
    $
    2.49
 Non-vested Common Share Activity
  Description
    
    SharesOutstanding as of December 31, 2006
    
    
    370,929Granted
    
    
    106,000Exercised
    
    
    (15,560
    )Cancelled
    
    
    (94,611
    )Outstanding as of December 30, 2007
    
    
    366,758
  14. Benefit Plans
  15. Related Party Transactions
   16. Reclassification
   64




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APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
 17. Subsequent Events
     65




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APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
 18. Quarterly Data (Unaudited)
  
 First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    FullQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    YearFiscal 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
    )
    
    $
    0.10Fiscal year ended December 31, 2006:Net revenue
    
    $
    60,723
    
    
    $
    58,236
    
    
    $
    49,282
    
    
    $
    56,056
    
    
    $
    224,297Gross profit as originally reported in 2006
    
    
    7,651
    
    
    
    7,286
    
    
    
    3,136
    
    
    
    9,129
    
    
    
    27,202Reclassification (1)
    
    
    (175
    )
    
    
    (177
    )
    
    
    (174
    )
    
    
    (260
    )
    
    
    (786
    )Gross profit as adjusted
    
    
    7,476
    
    
    
    7,109
    
    
    
    2,962
    
    
    
    8,869
    
    
    
    26,416Operating (loss) income
    
    
    (401
    )
    
    
    (1,005
    )
    
    
    (7,375
    )
    
    
    1,534
    
    
    
    (7,247
    )Net loss
    
    
    (741
    )
    
    
    (793
    )
    
    
    (5,005
    )
    
    
    (24,000
    )
    
    
    (30,539
    )Net loss per shareBasic
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.10
    )
    
    $
    (0.49
    )
    
    $
    (0.62
    )Diluted
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.10
    )
    
    $
    (0.49
    )
    
    $
    (0.62
    )
 
 (1)
    
    Reclassification of costs from selling, general and administration to cost of sales. See
Note 16 for more information.   66




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Disclosure Controls and Procedures
  
 Managements Report on Internal Control over Financial Reporting
 Internal ControlIntegrated
Framework Internal ControlIntegrated Framework,
 Inherent Limitations on the Effectiveness of Controls
   Internal Control Over Financial Reporting
   67




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
        
  68




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##### Table of Contents



Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
  http://www.apaccustomerservices.com
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 (a)
    
    The information concerning the security ownership of certain beneficial owners required by
this Item will be set forth in our Proxy Statement for the Annual Meeting of Shareholders to
be held on June 6, 2008 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 6, 2008
under the caption Common Shares Beneficially Owned by Principal Shareholders and Management,
which information is hereby incorporated by reference.
 
 Equity Compensation Plan Information
  Number ofSecuritiesRemaining AvailableNumber of
    
    
    
    
    
    
    for Future IssuanceSecurities to Be
    
    
    
    
    
    
    Under EquityIssued Upon
    
    
    Weighted Average
    
    
    Compensation PlansExercise of
    
    
    Exercise Price of
    
    
    (ExcludingOutstanding
    
    
    Outstanding
    
    
    SecuritiesOptions, Warrants,
    
    
    Options, Warrants,
    
    
    Reflected in thePlan Category
    
    and Rights
    
    
    and Rights
    
    
    First Column)Equity compensation plans
approved by security holders
    
    
    6,862,154
    
    
    $
    2.10
    
    
    
    3,035,964Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    
  69




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accounting Fees and Services.
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a) (1) Financial Statements
  (i)
    
    Report of Independent Registered Public Accounting Firm for the Fiscal Year
Ended December 30, 2007 and December 31, 2006(ii)
    
    Report of Independent Registered Public Accounting Firm for the Fiscal Years
Ended January 1, 2006(iii)
    
    Consolidated Statements of Operations for the Fiscal Years Ended December 30,
2007, December 31, 2006, and January 1, 2006(iv)
    
    Consolidated Balance Sheets as of December 30, 2007 and December 31, 2006(v)
    
    Consolidated Statements of Shareholders Equity for the Fiscal Years Ended
December 30, 2007, December 31, 2006, and January 1, 2006(vi)
    
    Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30,
2007, December 31, 2006, and January 1, 2006(vii)
    
    Notes to Consolidated Financial Statements(viii)
    
    Quarterly Results of Operations for the Fiscal Years Ended December 30, 2007 and
December 31, 2006
 (2) Financial Statement Schedules
  (i)
    
    Schedule IIValuation and Qualifying Accounts
  (3) Exhibits
  (b) Exhibits
  (c) Financial Statement Schedules
   70




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##### Table of Contents



SIGNATURES
  APAC CUSTOMER SERVICES, INC.Dated: March 14, 2008
    By:
    /s/ George H. Hepburn IIIGeorge H. Hepburn IIISenior Vice President and
Chief Financial Officer  Signature
    
    Title
    
    Date/s/ Theodore G. Schwartz*

Theodore G. Schwartz
    
    Chairman of the Board of Directors
    
    March 14, 2008/s/ Michael P. Marrow

Michael P. Marrow
    
    Director, President and Chief Executive Officer
(Principal Executive Officer)
    
    March 14, 2008/s/ George H. Hepburn III

George H. Hepburn III
    
    Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
    
    March 14, 2008/s/ Joseph R. Doolan

Joseph R. Doolan
    
    Vice President and Controller
(Principal Accounting Officer)
    
    March 14, 2008/s/ Cindy K. Andreotti*

Cindy K. Andreotti
    
    Director
    
    March 14, 2008/s/ John W. Gerdelman *

John W. Gerdelman
    
    Director
    
    March 14, 2008/s/ John C. Kraft *

John C. Kraft
    
    Director
    
    March 14, 2008/s/ John J. Park *

John J. Park
    
    Director
    
    March 14, 2008/s/ Lynn E. Refer*

Lynn E. Refer
    
    Director
    
    March 14, 2008
 *
    
    George H. Hepburn III, as attorney in fact for each person indicated.  71




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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 January 1, 2006
    
    
    2,193
    
    
    
    50
    
    
    
    324
    
    
    
    1,919Fiscal Year ended December 31, 2006
    
    
    1,919
    
    
    
    854
    
    
    
    1,300
    
    
    
    1,473Fiscal Year ended December 30, 2007
    
    
    1,473
    
    
    
    562
    
    
    
    938
    
    
    
    1,097
 (a)
    
    Represents charges for which the allowance account was created.  72




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##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    Description3.1
    
    
    Articles of Incorporation of APAC Customer Services, Inc., incorporated by reference to APAC Customer
Services, Inc.s Annual Report on Form 10-K for the fiscal year ended January 1, 2006.3.2
    
    
    Second Amended and Restated By-laws of APAC Customer Services, Inc., incorporated by reference to APAC
Customer Services, Inc.s Current Report on Form 8-K, dated August 22, 2007.4.1
    
    
    Specimen Common Stock Certificate, incorporated by reference to APAC Customer Services, Inc.s Annual Report
on Form 10-K for the fiscal year ended December 29, 2002.4.2
    
    
    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*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.
  73




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##### Table of Contents



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.
  74




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##### Table of Contents



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.10.39
    
    
    Amendment Number One to Master Teleservices Agreement, dated February 1, 2004, with Cellco Partnership d/b/a
Verizon Wireless.10.40
    
    
    Amendment Number Two to Master Teleservices Agreement, dated March 1, 2005, with Cellco Partnership d/b/a
Verizon Wireless.10.41
    
    
    Amendment Number Three to Master Teleservices Agreement, effective April 1, 2005, with Cellco Partnership
d/b/a Verizon Wireless.10.42
    
    
    Amendment Number Four to Master Teleservices Agreement, effective March 31, 2006, with Cellco Partnership
d/b/a Verizon Wireless.10.43
    
    
    Amendment Number Six to Master Teleservices Agreement, effective May 17, 2007, with Verizon Services Corp.10.44
    
    
    Master Services Agreement, effective October 28, 2002, with United Parcel Services OASIS Supply Corporation.10.45
    
    
    Tampa, Florida Facility Amendment to Master Services Agreement, effective April 30, 2007, with United Parcel
Services OASIS Supply Corporation.10.46
    
    
    Agreement, dated August 10, 2004, with Unicare Life & Health Insurance Company. [CONFIDENTIAL TREATMENT REQUESTED]10.47
    
    
    Amendment Number 1 and Assignment, dated July 1, 2005, with Unicare Life and Health Insurance Company and
WellPoint, Inc.21.1
    
    
    Subsidiaries of APAC Customer Services, Inc.23.1
    
    
    Consent of Deloitte & Touche LLP.23.2
    
    
    Consent of Ernst & Young LLP.24.1
    
    
    Power of attorney executed by Cindy K. Andreotti, John W. Gerdelman, John C. Kraft, Michael P. Marrow, John J.
Park and Lynn E. Refer.24.2
    
    
    Power of attorney executed by Theodore G. Schwartz.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.  75