##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the fiscal year ended January 3, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the transition period from  to
 Commission file number: 0-26786
 APAC Customer Services, Inc.
  Illinois
(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
 Yes o No þ
 Yes o No þ
 þ o
 Yes o No o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer* o
    
    Smaller reporting company o(*Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 PageForward-Looking Statements and Factors that May Affect Future Results
    
    
    3PART I
    
    
    5Item 1. Description of Business
    
    
    5Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    18Item 2. Properties
    
    
    18Item 3. Legal Proceedings
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Executive Officers of the Registrant
    
    
    20PART II
    
    
    21Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    21Item 6. Selected Financial Data
    
    
    23Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 8. Financial Statements and Supplementary Data
    
    
    39Item 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 and Corporate Governance
    
    
    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, and Director Independence
    
    
    70Item 14. Principal Accounting Fees and Services
    
    
    70PART IV
    
    
    70Item 15. Exhibits and Financial Statement Schedules
    
    
    70Signatures
    
    
    71Exhibit Index
    
    
    73Exhibit 21.1Exhibit 23.2Exhibit 24.1Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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Forward-Looking Statements and Factors that May Affect Future Results
      
    
    A large portion of our revenue is generated from a limited number of clients and the loss of one or more of them, or a
reduction in their demand for our services, could materially affect our financial results.
 
    
    Our operating results and financial condition 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 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 the retention of key personnel.
 
    
    We operate in a highly competitive environment.
 
    
    Circumstances outside our control such as typhoons, hurricanes, earthquakes, floods and other acts of God, political
instability, equipment malfunction, telephone or data service interruptions, changes in the telecommunications market,
war and terrorism could seriously harm our domestic or international business operations.
 
    
    Our inability to attract and retain a sufficient number of qualified employees could negatively impact our business.
  3




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
    
    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.
 
    
    Uncertainties relating to future litigation could result in negative impact to financial results.
 
    
    Our industry is subject to rapid technological change.
 
    
    Volatility of stock price may result in loss of investment.
   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
 Core Industries
   Seasonality
  Our Services
  Communications
  Healthcare
   6




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Business Services
  Media & Publishing
  Travel & 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
  Available Information
 www.sec.gov
 www.apaccustomerservices.com
  12




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Item 1A. Risk Factors.
 Risk Relating to the Company and its Business
  A large portion of our revenue is generated from a limited number of clients and the loss of one or
more of them, or a reduction in their demand for our services, could materially affect our
financial results.
   Our operating results and financial condition 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 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 over us.
   Our success depends on the retention of key personnel.
  We operate in a highly competitive environment.
     Circumstances outside our control such as typhoons, hurricanes, earthquakes, floods and other acts
of God, political instability, equipment malfunction, telephone or data service interruptions,
changes in the telecommunications market, war and terrorism could seriously harm our domestic or
international business operations.
    15




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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.
     16




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Uncertainties relating to future litigation could result in negative impact to financial results.
  Our industry is subject to rapid technological change.
   Volatility of stock price may result in loss of investment.
   17




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Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
    Number ofCustomer Care Center Locations
    
    WorkstationsCedar Rapids, Iowa
    
    
    529Corpus Christi, Texas
    
    
    370Davenport, Iowa
    
    
    695Green Bay, Wisconsin
    
    
    774LaCrosse, Wisconsin
    
    
    379Newport News, Virginia (client owned)
    
    
    717Tampa, Florida (client owned)
    
    
    677Tuscon, Arizona (East)
    
    
    853Tuscon, Arizona (West)
    
    
    700Utica, New York
    
    
    409atHOME
    
    
    119Total Domestic
    
    
    6,222Alabang, Muntilupa City, Philippines
    
    
    1,309Alabang, Muntilupa City, Philippines
    
    
    442Cubao, Quezon City, Philippines
    
    
    1,765Palo, Leyte, Philippines
    
    
    633San Isidro, Dominican Republic
    
    
    57Total International
    
    
    4,206Total all customer care center locations
    
    
    10,428
 
 Item 3. Legal Proceedings.
   18




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Item 4. Submission of Matters to a Vote of Security Holders.
   19




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Executive Officers of the Registrant
  Name
    
    Age
    
    PositionMichael P. Marrow
    
    
    52
    
    
    President and Chief Executive OfficerChristopher H. Crowley
    
    
    39
    
    
    Senior Vice President, SalesArthur D. DiBari
    
    
    52
    
    
    Senior Vice President, OperationsJoseph R. Doolan
    
    
    46
    
    
    Vice President and ControllerMark E. McDermott
    
    
    49
    
    
    Vice President and Chief Information OfficerRobert B. Nachwalter
    
    
    39
    
    
    Senior Vice President, General Counsel and Corporate SecretaryAndrew B. Szafran
    
    
    43
    
    
    Senior Vice President and Chief Financial Officer
         20




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
  High
    
    
    LowFiscal Year 2009:First Quarter
    
    $
    3.30
    
    
    $
    0.94Second Quarter
    
    $
    6.40
    
    
    $
    2.55Third Quarter
    
    $
    6.27
    
    
    $
    4.67Fourth Quarter
    
    $
    7.02
    
    
    $
    5.02
 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
    21




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Item 6. Selected Financial Data.
  For the Fiscal Years Ended(1)January 3,
    
    
    December 28,
    
    
    December 30,
    
    
    December 31,
    
    
    January 1,2010
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2006(Dollars in thousands, except share data and notes)Operating Data:Net revenue
    
    $
    293,177
    
    
    $
    248,799
    
    
    $
    224,683
    
    
    $
    224,297
    
    
    $
    239,845Cost of services
    
    
    227,845
    
    
    
    207,953
    
    
    
    203,880
    
    
    
    197,881
    
    
    
    218,121Gross profit
    
    
    65,332
    
    
    
    40,846
    
    
    
    20,803
    
    
    
    26,416
    
    
    
    21,724Selling, general and
administrative
expenses(5)
    
    
    30,732
    
    
    
    30,148
    
    
    
    28,362
    
    
    
    31,279
    
    
    
    33,372Restructuring and other
charges (reversals)(2)
    
    
    (56
    )
    
    
    3,635
    
    
    
    1,632
    
    
    
    2,384
    
    
    
    8,216Asset impairment charges(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,886Total operating expenses
    
    
    30,676
    
    
    
    33,783
    
    
    
    29,994
    
    
    
    33,663
    
    
    
    52,474Operating income (loss)
    
    
    34,656
    
    
    
    7,063
    
    
    
    (9,191
    )
    
    
    (7,247
    )
    
    
    (30,750
    )Other income
    
    
    (36
    )
    
    
    (347
    )
    
    
    (249
    )
    
    
    (101
    )
    
    
    (600
    )Interest (income) expense, net
    
    
    (34
    )
    
    
    4,358
    
    
    
    3,537
    
    
    
    2,013
    
    
    
    1,408Income (loss) before income taxes
    
    
    34,726
    
    
    
    3,052
    
    
    
    (12,479
    )
    
    
    (9,159
    )
    
    
    (31,558
    )Income tax expense (benefit) (4)
    
    
    (23,327
    )
    
    
    33
    
    
    
    (17,568
    )
    
    
    21,380
    
    
    
    (9,160
    )Net income (loss)
    
    $
    58,053
    
    
    $
    3,019
    
    
    $
    5,089
    
    
    $
    (30,539
    )
    
    $
    (22,398
    )Net income (loss) per share:Basic
    
    $
    1.13
    
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    (0.62
    )
    
    $
    (0.45
    )Diluted
    
    $
    1.09
    
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    (0.62
    )
    
    $
    (0.45
    )Weighted average shares
outstanding:Basic
    
    
    51,570
    
    
    
    50,424
    
    
    
    49,800
    
    
    
    49,458
    
    
    
    49,455Diluted
    
    
    53,296
    
    
    
    50,477
    
    
    
    52,019
    
    
    
    49,458
    
    
    
    49,455Balance Sheet Data:Cash and cash equivalents
    
    $
    20,557
    
    
    $
    618
    
    
    $
    1,426
    
    
    $
    1,305
    
    
    $
    960Working capital (deficit)
    
    
    52,145
    
    
    
    (1,549
    )
    
    
    645
    
    
    
    (16,679
    )
    
    
    (7,685
    )Capital expenditures, net
    
    
    12,102
    
    
    
    5,810
    
    
    
    12,827
    
    
    
    10,713
    
    
    
    8,699Total assets
    
    
    138,605
    
    
    
    76,564
    
    
    
    89,926
    
    
    
    92,054
    
    
    
    110,353Short-term obligations
    
    
    397
    
    
    
    6,100
    
    
    
    14,707
    
    
    
    14,378
    
    
    
    11,971Long-term obligations, less
current
maturities
    
    
    667
    
    
    
    
    
    
    
    11,600
    
    
    
    4,400
    
    
    
    Shareholders equity
    
    
    99,748
    
    
    
    35,420
    
    
    
    33,381
    
    
    
    23,306
    
    
    
    51,874
   23




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Notes to Selected Financial Data
 (1)
    
    We operate on a 52/53-week fiscal year that ends on the Sunday closest to December 31. All
fiscal years presented were 52 weeks, except for fiscal year 2009 which ended on January 3,
2010. Fiscal year 2009 was 53 weeks. The effect of the additional week in fiscal year 2009
was to increase revenues and gross profit by $6.0 million and $0.9 million, respectively and
to increase net income by $0.4 million.The fiscal years presented are as follows: Fiscal Year
    
    Fiscal Year End2005
    
    January 1, 20062006
    
    December 31, 20062007
    
    December 30, 20072008
    
    December 28, 20082009
    
    January 3, 2010
 (2)
    
    We recorded restructuring charges in each of the fiscal years presented in the Selected
Financial Data table noted above. For fiscal years 2009, 2008 and 2007, 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 $2.4 million of restructuring and other charges in fiscal year
2006. During the year, we closed four customer care centers with approximately 960
workstations. Restructuring and other charges associated with these closures were $1.8
million comprised of lease termination and other costs of $0.8 million, the write down of
property and equipment of $0.5 million net of reductions from the proceeds from the sale of
related assets, and severance costs of $0.5 million related to the elimination of 119
administrative and support positions. We also recorded additional charges of $0.9 million
related to the 2005 restructuring as a result of delays in subletting space in our corporate
office, which charges were partially offset by a reversal of $0.3 million of prior year
charges not utilized. 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.(3)
    
    We recorded $10.9 million of asset impairment charges in fiscal year 2005, including a
write-down of goodwill of $10.5 million.(4)
    
    During the fiscal year 2009, we reversed $37.9 million of the valuation allowance that had
been provided against the deferred tax assets, which resulted in a deferred income tax benefit
of $23.8 million. In 2007, we reversed a $17.6 million tax reserve and related accrued
interest, in connection with the Internal Revenue Services proposed adjustment to our 2002
tax return, which was favorably resolved in 2007. We provided a valuation allowance of $27.3
million against deferred tax assets as of December 31, 2006. See Note 8 of the Notes to
Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for more
information.(5)
    
    Effective January 2, 2006, we adopted FASB guidance regarding 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 $0.9 million for the fiscal year ended
January 3, 2010, $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.  24




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




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Business Outlook
   26




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Results of Operations
  For the Fiscal Year Ended (1)January 3,
    
    
    December 28,
    
    
    December 30,
    
    
    2009 vs 2008
    
    
    2008 vs 20072010
    
    
    2008
    
    
    2007
    
    
    % Fav (Unfav)
    
    
    % Fav (Unfav)(Dollars in thousands, except statistical data and notes)Net revenue
    
    $
    293,177
    
    
    $
    248,799
    
    
    $
    224,683
    
    
    
    17.8
    %
    
    
    10.7
    %Cost of Services:Direct labor
    
    
    158,669
    
    
    
    143,500
    
    
    
    134,137
    
    
    
    (10.6
    )
    
    
    (7.0
    )Other facility expenses
    
    
    69,176
    
    
    
    64,453
    
    
    
    69,743
    
    
    
    (7.3
    )
    
    
    7.6Total cost of services
    
    
    227,845
    
    
    
    207,953
    
    
    
    203,880
    
    
    
    (9.6
    )
    
    
    (2.0
    )Percentage of revenue
    
    
    77.7
    %
    
    
    83.6
    %
    
    
    90.7
    %Gross profit
    
    
    65,332
    
    
    
    40,846
    
    
    
    20,803
    
    
    
    59.9
    
    
    
    96.3Gross profit margin
    
    
    22.3
    %
    
    
    16.4
    %
    
    
    9.3
    %Operating Expenses:Selling, general & administrative
expenses
    
    
    30,732
    
    
    
    30,148
    
    
    
    28,362
    
    
    
    (1.9
    )
    
    
    (6.3
    )Restructuring and other charges
(reversals)
    
    
    (56
    )
    
    
    3,635
    
    
    
    1,632
    
    
    
    101.5
    
    
    
    (122.7
    )Total operating expenses
    
    
    30,676
    
    
    
    33,783
    
    
    
    29,994
    
    
    
    9.2
    
    
    
    (12.6
    )Operating income (loss)
    
    
    34,656
    
    
    
    7,063
    
    
    
    (9,191
    )
    
    
    390.7
    
    
    
    176.8Other income
    
    
    (36
    )
    
    
    (347
    )
    
    
    (249
    )
    
    
    (89.6
    )
    
    
    39.4Interest (income) expense, net
    
    
    (34
    )
    
    
    4,358
    
    
    
    3,537
    
    
    
    100.8
    
    
    
    (23.2
    )Income (loss) before income taxes
    
    
    34,726
    
    
    
    3,052
    
    
    
    (12,479
    )
    
    
    1,037.8
    
    
    
    124.5Income tax expense (benefit)
    
    
    (23,327
    )
    
    
    33
    
    
    
    (17,568
    )
    
    
    *
    
    
    
    *Net income
    
    $
    58,053
    
    
    $
    3,019
    
    
    $
    5,089
    
    
    
    1,822.9
    %
    
    
    (40.7
    )%Statistical Information:Number of customer care centersDomestic
    
    
    10
    
    
    
    9
    
    
    
    9
    
    
    
    1
    
    
    
    International
    
    
    5
    
    
    
    4
    
    
    
    3
    
    
    
    1
    
    
    
    1Total
    
    
    15
    
    
    
    13
    
    
    
    12
    
    
    
    2
    
    
    
    1Number of workstations, end of
periodDomestic
    
    
    6,222
    
    
    
    4,855
    
    
    
    4,597
    
    
    
    1,367
    
    
    
    258International
    
    
    4,206
    
    
    
    3,467
    
    
    
    2,944
    
    
    
    739
    
    
    
    523Total
    
    
    10,428
    
    
    
    8,322
    
    
    
    7,541
    
    
    
    2,106
    
    
    
    781
 
 (1)
    
    We operate on a 52/53-week fiscal year that ends on the Sunday closest to December 31. All
fiscal years presented were 52 weeks, except for fiscal year 2009 which ended on January 3,
2010. Fiscal year 2009 was 53 weeks. The effect of the additional week in fiscal year 2009
was to increase revenues and gross profit by $6.0 million and $0.9 million, respectively and
to increase net income by $0.4 million.*
    
    Percentage change is not meaningful.  27




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Fiscal Year 2009 Results of Operations Compared to Fiscal Year 2008 Results of Operations
         28




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




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Liquidity and Capital Resources
  For the Fiscal Year EndedJanuary 3,
    
    
    December 28,
    
    
    December 30,2010
    
    
    2008
    
    
    2007(Dollars in thousands)Net cash provided by operating activities (1)
    
    $
    31,937
    
    
    $
    27,035
    
    
    $
    4,880Net cash used in investing activities
    
    
    (10,898
    )
    
    
    (5,753
    )
    
    
    (12,636
    )Net cash (used in) provided by financing activities (1)
    
    
    (1,812
    )
    
    
    (20,849
    )
    
    
    7,432Effect of exchange rates on cash
    
    
    712
    
    
    
    (1,241
    )
    
    
    445Net change in cash
    
    $
    19,939
    
    
    $
    (808
    )
    
    $
    121
 
 (1)
    
    We adjusted the presentation of reclassified financing costs of $1.0 million and $0.8 million
from operating activities to financing activities for the fiscal years of 2008 and 2007,
respectively.
 Operating Activities
   Investing Activities
   30




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Financing Activities
    Bank Financing
      31




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Future Liquidity
    Off Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
  Accounting for derivatives
   Allowance for doubtful accounts
   32




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Accounting for employee benefits and obligations
  Revenue recognition
    .
 Intangible assets
    33




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##### Table of Contents



Restructuring charges
   Accounting for stock-based compensation
   Income taxes
    34




---



##### Table of Contents



New Accounting Pronouncements
 Accounting Standards Codification
  Business Combinations
   Derivative Instruments and Hedging Activities
  Fair Value
    35




---



##### Table of Contents



Intangible Assets
  Revenue Recognition
  Subsequent Events
   36




---



##### Table of Contents



Contractual Obligations and Commitments
  Payment due by periodLess than 1
    
    
    
    
    
    
    
    
    
    
    Over 5Year
    
    
    2 to 3 Years
    
    
    4 to 5 Years
    
    
    Years
    
    
    Total(Dollars in thousands)Contractual Obligations:Operating leases
    
    $
    9,136
    
    
    $
    12,354
    
    
    $
    7,392
    
    
    $
    8,483
    
    
    $
    37,365Capital leases
    
    
    396
    
    
    
    668
    
    
    
    
    
    
    
    
    
    
    
    1,064Total contractual obligations
    
    $
    9,532
    
    
    $
    13,022
    
    
    $
    7,392
    
    
    $
    8,483
    
    
    $
    38,429Other Commercial Commitments:Telecommunications commitments
    
    $
    4,052
    
    
    $
    6,130
    
    
    $
    
    
    
    $
    
    
    
    $
    10,182Letters of Credit
    
    
    3,441
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,441Total other commercial commitments
    
    $
    7,493
    
    
    $
    6,130
    
    
    $
    
    
    
    $
    
    
    
    $
    13,623
  37




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
      38




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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 January 3, 2010, December 28, 2008 and December 30, 2007
    
    
    40Consolidated Statements of Operations for the Fiscal Years Ended January 3, 2010, December 28, 2008 and December 30, 2007
    
    
    41Consolidated Balance Sheets as of January 3, 2010 and December 28, 2008
    
    
    42Consolidated Statements of Shareholders Equity for the Fiscal Years Ended January 3, 2010, December 28, 2008 and December 30, 2007
    
    
    43Consolidated Statements of Cash Flows for the Fiscal Years Ended January 3, 2010, December 28, 2008 and December 30, 2007
    
    
    44Notes to Consolidated Financial Statements
    
    
    45Quarterly Results of Operations for the Fiscal Years Ended January 3, 2010 and December 28, 2008
    
    
    66Managements Report on Internal Control over Financial Reporting for the Fiscal Year Ended January 3, 2010
    
    
    67Report of Independent Registered Public Accounting Firm for the Fiscal Year Ended January 3, 2010
    
    
    68
  39




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ Ernst & Young LLP
 
  40




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands, except net income per share data)
 For the Fiscal Year EndedJanuary 3,
    
    
    December 28,
    
    
    December 30,2010
    
    
    2008
    
    
    2007Net revenue
    
    $
    293,177
    
    
    $
    248,799
    
    
    $
    224,683Cost of services
    
    
    227,845
    
    
    
    207,953
    
    
    
    203,880Gross profit
    
    
    65,332
    
    
    
    40,846
    
    
    
    20,803Operating expenses:Selling, general and administrative
expenses
    
    
    30,732
    
    
    
    30,148
    
    
    
    28,362Restructuring and other charges (reversals)
    
    
    (56
    )
    
    
    3,635
    
    
    
    1,632Total operating expenses
    
    
    30,676
    
    
    
    33,783
    
    
    
    29,994Operating income (loss )
    
    
    34,656
    
    
    
    7,063
    
    
    
    (9,191
    )Other income
    
    
    (36
    )
    
    
    (347
    )
    
    
    (249
    )Interest (income) expense, net
    
    
    (34
    )
    
    
    4,358
    
    
    
    3,537Income (loss) before income taxes
    
    
    34,726
    
    
    
    3,052
    
    
    
    (12,479
    )Income tax expense (benefit)
    
    
    (23,327
    )
    
    
    33
    
    
    
    (17,568
    )Net income
    
    $
    58,053
    
    
    $
    3,019
    
    
    $
    5,089Net income per share:Basic
    
    $
    1.13
    
    
    $
    0.06
    
    
    $
    0.10Diluted
    
    $
    1.09
    
    
    $
    0.06
    
    
    $
    0.10Weighted average shares outstanding:Basic
    
    
    51,570
    
    
    
    50,424
    
    
    
    49,800Diluted
    
    
    53,296
    
    
    
    50,477
    
    
    
    52,019
   41




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except share data)
 January 3,
    
    
    December 28,2010
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,557
    
    
    $
    618Accounts receivable, less allowances of $1,144 and $1,435, respectively
    
    
    45,358
    
    
    
    31,547Deferred tax assets, current
    
    
    14,593
    
    
    
    Other current assets
    
    
    6,323
    
    
    
    3,515Total Current Assets
    
    
    86,831
    
    
    
    35,680Property and equipment, net
    
    
    25,653
    
    
    
    22,664Goodwill
    
    
    13,338
    
    
    
    13,338Other intangible assets, net
    
    
    1,028
    
    
    
    3,434Deferred tax assets, non-current
    
    
    10,170
    
    
    
    Other assets
    
    
    1,585
    
    
    
    1,448Total Assets
    
    $
    138,605
    
    
    $
    76,564LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term debt
    
    $
    
    
    
    $
    6,100Capital leases  current portion
    
    
    397
    
    
    
    Accounts payable
    
    
    2,770
    
    
    
    1,641Income taxes payable
    
    
    365
    
    
    
    253Accrued payroll and related items
    
    
    21,964
    
    
    
    18,727Accrued liabilities
    
    
    9,190
    
    
    
    10,508Total Current Liabilities
    
    
    34,686
    
    
    
    37,229Other liabilities
    
    
    4,171
    
    
    
    3,915Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common Shares, $0.01 per share; authorized 200,000,000 shares;
52,318,726 shares issued and outstanding at January 3, 2010, and
50,783,312 shares issued and 50,782,353 shares outstanding at
December 28, 2008
    
    
    523
    
    
    
    509Additional paid-in capital
    
    
    109,818
    
    
    
    104,517Accumulated deficit
    
    
    (11,688
    )
    
    
    (69,741
    )Accumulated other comprehensive income
    
    
    1,095
    
    
    
    136Treasury shares: 0 and 959 shares at cost at January 3, 2010
and December 28, 2008, respectively
    
    
    
    
    
    
    (1
    )Total Shareholders Equity
    
    
    99,748
    
    
    
    35,420Total Liabilities and Shareholders Equity
    
    $
    138,605
    
    
    $
    76,564
   42




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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, 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )
    
    
    (49
    )Exercise of employee stock options,
including related excess income tax
benefits
    
    
    404,016
    
    
    
    5
    
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    403Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    1,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,305Balance, December 28, 2008
    
    
    50,783,312
    
    
    $
    509
    
    
    $
    104,517
    
    
    $
    (69,741
    )
    
    $
    136
    
    
    $
    (1
    )
    
    $
    35,420Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,053
    
    
    
    
    
    
    
    
    
    
    
    58,053Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    25Unrealized gain on derivative contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    934
    
    
    
    
    
    
    
    934Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,012Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Exercise of employee stock options,
including related excess income tax
benefits
    
    
    1,535,414
    
    
    
    14
    
    
    
    4,441
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    4,462Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    860
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    860Balance, January 3, 2010
    
    
    52,318,726
    
    
    $
    523
    
    
    $
    109,818
    
    
    $
    (11,688
    )
    
    $
    1,095
    
    
    $
    
    
    
    $
    99,748
   43




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 For the Fiscal Year EndedJanuary 3,
    
    
    December 28,
    
    
    December 30,2010
    
    
    2008
    
    
    2007Operating Activities:Net income
    
    $
    58,053
    
    
    $
    3,019
    
    
    $
    5,089Adjustments to reconcile net income to net cash
provided by operating activitiesDepreciation and amortization
    
    
    11,870
    
    
    
    12,067
    
    
    
    14,112Deferred income taxes
    
    
    (24,763
    )
    
    
    
    
    
    
    Non-cash restructuring charges
    
    
    
    
    
    
    14
    
    
    
    12Stock compensation expense
    
    
    860
    
    
    
    1,305
    
    
    
    1,543Non-cash warrant issuances
    
    
    
    
    
    
    215
    
    
    
    Loss (gain) on sale of property and equipment
    
    
    38
    
    
    
    193
    
    
    
    (18
    )Amortized gain on sale leaseback
    
    
    (94
    )
    
    
    (118
    )
    
    
    (175
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (13,811
    )
    
    
    2,921
    
    
    
    3,389Other current assets
    
    
    (2,782
    )
    
    
    2,955
    
    
    
    990Accounts payable
    
    
    1,129
    
    
    
    (646
    )
    
    
    (603
    )Accrued payroll and related items
    
    
    3,237
    
    
    
    2,773
    
    
    
    1,351Income taxes payable
    
    
    112
    
    
    
    33
    
    
    
    (17,580
    )Accrued liabilities
    
    
    (1,310
    )
    
    
    2,471
    
    
    
    (4,464
    )Other assets and liabilities
    
    
    (602
    )
    
    
    (167
    )
    
    
    1,234Net cash provided by operating activities
    
    
    31,937
    
    
    
    27,035
    
    
    
    4,880Investing Activities:Purchase of property and equipment, net
    
    
    (10,899
    )
    
    
    (5,810
    )
    
    
    (12,827
    )Net proceeds from sale of property and equipment
    
    
    1
    
    
    
    57
    
    
    
    191Net cash used in investing activities
    
    
    (10,898
    )
    
    
    (5,753
    )
    
    
    (12,636
    )Financing Activities:Borrowings under revolving credit facility
    
    
    326,021
    
    
    
    324,936
    
    
    
    249,644Payments under revolving credit facility
    
    
    (332,121
    )
    
    
    (331,143
    )
    
    
    (251,115
    )Borrowings on long-term debt
    
    
    
    
    
    
    
    
    
    
    10,000Payments on long-term debt
    
    
    
    
    
    
    (14,000
    )
    
    
    (1,000
    )Payment of capital lease obligations
    
    
    (139
    )
    
    
    
    
    
    
    Payment of financing costs
    
    
    (29
    )
    
    
    (996
    )
    
    
    (830
    )Stock option transactions including related excess income tax
benefits
    
    
    4,462
    
    
    
    403
    
    
    
    733Purchase of treasury stock
    
    
    (6
    )
    
    
    (49
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (1,812
    )
    
    
    (20,849
    )
    
    
    7,432Effect of exchange rates on cash
    
    
    712
    
    
    
    (1,241
    )
    
    
    445Net (decrease) increase in cash and cash equivalents
    
    
    19,939
    
    
    
    (808
    )
    
    
    121Cash and Cash Equivalents:Beginning of year
    
    
    618
    
    
    
    1,426
    
    
    
    1,305End of year
    
    $
    20,557
    
    
    $
    618
    
    
    $
    1,426Supplemental Disclosures:Cash payments for interest
    
    $
    393
    
    
    $
    2,396
    
    
    $
    2,947Cash payments for income taxes
    
    
    227
    
    
    
    
    
    
    
    12Income tax refund received
    
    
    3
    
    
    
    
    
    
    
    6Capital expenditures funded by landlord and others
    
    
    295
    
    
    
    1,413
    
    
    
    182Property and equipment purchases acquired under capital leases
    
    
    1,203
    
    
    
    
    
    
    
    
   44




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands, except share data and as otherwise indicated)
 1. Description of Business
  2. Basis of Presentation and Principles of Consolidation
 Consolidation
  Use of estimates
  Fiscal Year
  3. Summary of Significant Accounting Policies and Estimates
 Revenue recognition
     45




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
  Cost of services
   Restructuring charges
  Accounting for derivatives
  Allowance for doubtful accounts
  Accounting for employee benefits and obligations
   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)
  2009
    
    
    2008Group Health Insurance
    
    $
    1,170
    
    
    $
    2,253Workers Compensation
    
    $
    929
    
    
    $
    1,536
 Income taxes
   Cash equivalents
  Accounting for long-lived assets
  Property and Equipment
   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)
  January 3,
    
    
    December 28,2010
    
    
    2008Building and leasehold improvements
    
    $
    22,677
    
    
    $
    18,927Telecommunications equipment
    
    
    39,691
    
    
    
    35,793Workstations and office equipment
    
    
    12,435
    
    
    
    10,301Capitalized software
    
    
    18,972
    
    
    
    17,907Construction in progress
    
    
    2,151
    
    
    
    1,776Accumulated depreciation and amortization
    
    
    (70,273
    )
    
    
    (62,040
    )Property and equipment, net
    
    $
    25,653
    
    
    $
    22,664
  Capitalized Software
  Goodwill
  Intangible Asset
   48




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
  Financial Information about Industry Segments
  Accounting for Stock-Based Compensation
      Concentrations of Credit and Other Risk
   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)
   New Accounting Pronouncements
 Accounting Standards Codification
  Derivative Instruments and Hedging Activities
  Fair Value
    50




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
  4. Comprehensive Income
  2009
    
    
    2008
    
    
    2007Net income
    
    $
    58,053
    
    
    $
    3,019
    
    
    $
    5,089Foreign currency translation adjustment(1)
    
    
    25
    
    
    
    (1,315
    )
    
    
    1,917Unrealized gain (loss) on derivative contracts
    
    
    934
    
    
    
    (1,539
    )
    
    
    793Total comprehensive income
    
    $
    59,012
    
    
    $
    165
    
    
    $
    7,799
 
 (1)
    
    The foreign currency translation adjustments in fiscal year 2009, 2008 and 2007 relate to the
impact of the change in exchange rates on net assets located outside of the United States.  Cash Flow
    
    
    AccumulatedHedges -
    
    
    OtherCurrency
    
    
    Derivative
    
    
    ComprehensiveTranslations
    
    
    Contracts
    
    
    Income (Loss)Balance, December 31, 2006
    
    $
    280
    
    
    $
    
    
    
    $
    280Pretax activity
    
    
    1,917
    
    
    
    793
    
    
    
    2,710Tax effect
    
    
    
    
    
    
    
    
    
    
    Balance, December 30, 2007
    
    $
    2,197
    
    
    $
    793
    
    
    $
    2,990Pretax activity
    
    
    (1,315
    )
    
    
    (1,539
    )
    
    
    (2,854
    )Tax effect
    
    
    
    
    
    
    
    
    
    
    Balance, December 28, 2008
    
    $
    882
    
    
    $
    (746
    )
    
    $
    136Pretax activity
    
    
    176
    
    
    
    1,173
    
    
    
    1,349Tax effect
    
    
    (151
    )
    
    
    (239
    )
    
    
    (390
    )Balance, January 3, 2010
    
    $
    907
    
    
    $
    188
    
    
    $
    1,095
  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)
 5. Significant Clients
  2009
    
    
    2008
    
    
    2007Verizon Wireless
    
    
    27.7
    %
    
    
    21.0
    %
    
    
    19.6
    %United Parcel Services, Inc.
    
    
    20.6
    
    
    
    25.1
    
    
    
    23.6Medco Health Solutions, Inc.
    
    
    13.5
    
    
    
    11.5
    
    
    
    9.7WellPoint, Inc.
    
    
    6.9
    
    
    
    12.5
    
    
    
    16.1Total
    
    
    68.7
    %
    
    
    70.1
    %
    
    
    69.0
    %
  Percent of NetAccounts Receivable2009
    
    
    2008Verizon Wireless
    
    
    34.7
    %
    
    
    29.8
    %Medco Health Solutions, Inc.
    
    
    12.4
    
    
    
    16.4United Parcel Services, Inc.
    
    
    9.9
    
    
    
    15.5WellPoint, Inc.
    
    
    8.8
    
    
    
    6.5Total
    
    
    65.7
    %
    
    
    68.2
    %
 6. Supplemental Balance Sheet Data
 January 3,
    
    
    December 28,Consolidated Balance Sheet
    
    2010
    
    
    2008Prepaid expenses and other assets
    
    $
    5,519
    
    
    $
    2,929Non-trade receivables
    
    
    804
    
    
    
    586Other current assets
    
    $
    6,323
    
    
    $
    3,515Deferred rent
    
    $
    1,134
    
    
    $
    1,071Accrued telecom
    
    
    961
    
    
    
    163Accrued workers compensation
    
    
    929
    
    
    
    1,536Accrued capital expenditures
    
    
    890
    
    
    
    91Accrued professional fees
    
    
    719
    
    
    
    767Accrued severance
    
    
    261
    
    
    
    1,372Other accrued liabilities
    
    
    4,296
    
    
    
    5,508Accrued liabilities
    
    $
    9,190
    
    
    $
    10,508
 7. Restructuring and Other Charges
 Severance 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)
  Restructuring Charges
      Lease ObligationsSeverance Costs
    
    
    Asset Write-off
    
    
    and Other
    
    
    TotalRestructuring 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
    
    
    
    54Total expense
    
    
    (22
    )
    
    
    
    
    
    
    (29
    )
    
    
    (51
    )Total payments
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )Restructuring Reserve, January 3, 2010
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  53




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
 8. Income Taxes
  2009
    
    
    2008
    
    
    2007Current foreign provision
    
    $
    275
    
    
    $
    
    
    
    $
    Current state provision
    
    
    236
    
    
    
    33
    
    
    
    0Total current provision
    
    
    511
    
    
    
    33
    
    
    
    Deferred federal provision (benefit)
    
    
    (23,108
    )
    
    
    
    
    
    
    (17,580
    )Deferred state provision (benefit)
    
    
    (730
    )
    
    
    
    
    
    
    12Total deferred provision (benefit)
    
    
    (23,838
    )
    
    
    
    
    
    
    (17,568
    )Total income tax expense (benefit)
    
    $
    (23,327
    )
    
    $
    33
    
    
    $
    (17,568
    )
  2009
    
    
    2008
    
    
    2007U.S. Statutory tax expense (benefit)  rate (35%)
    
    $
    12,154
    
    
    $
    1,068
    
    
    $
    (4,368
    )U.S. State taxes (benefit), net of U.S. Federal benefit
and state credits
    
    
    790
    
    
    
    63
    
    
    
    (450
    )Work opportunity tax credits
    
    
    (558
    )
    
    
    (246
    )
    
    
    (5,103
    )Reversal of reserve
    
    
    
    
    
    
    
    
    
    
    (17,580
    )AMT credit
    
    
    
    
    
    
    
    
    
    
    (1,024
    )State tax rate adjustment
    
    
    
    
    
    
    
    
    
    
    354Other, including permanent items
    
    
    411
    
    
    
    30
    
    
    
    51Decrease in state NOL
    
    
    993
    
    
    
    
    
    
    
    Deferred tax asset adjustment
    
    
    783
    
    
    
    (2,418
    )
    
    
    Valuation allowance (reversal)
    
    
    (37,900
    )
    
    
    1,536
    
    
    
    10,552Actual tax expense (benefit)
    
    $
    (23,327
    )
    
    $
    33
    
    
    $
    (17,568
    )
   54




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
  January 3,
    
    
    December 28,2010
    
    
    2008Deferred tax assets:Net operating loss and credit carryforwards
    
    $
    20,270
    
    
    $
    29,421Deferred rent
    
    
    1,498
    
    
    
    1,605Payroll related items
    
    
    1,480
    
    
    
    1,354Stock compensation expense
    
    
    925
    
    
    
    559Self-insurance related costs
    
    
    781
    
    
    
    1,202Depreciation
    
    
    550
    
    
    
    3,098Other
    
    
    900
    
    
    
    1,808Total deferred tax assets
    
    
    26,404
    
    
    
    39,047Deferred tax liabilities :Foreign exchange adjustment on fixed assets
    
    
    (151
    )
    
    
    Derivative contracts
    
    
    (239
    )
    
    
    Intangible assets
    
    
    (271
    )
    
    
    Total deferred tax liabilities
    
    
    (661
    )
    
    
    Net deferred tax assets before valuation allowance
    
    
    25,743
    
    
    
    39,047Valuation allowance
    
    
    (980
    )
    
    
    (39,047
    )Net deferred tax assets
    
    $
    24,763
    
    
    $
    
    55




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
   Net Operating LossExpiration
    
    Carryforward2025
    
    $
    2,8122026
    
    
    9,2272027
    
    
    12,7522028
    
    
    209$
    25,000
  Net Operating LossExpiration
    
    Carryforward2010
    
    $
    1,4192011
    
    
    1,1012012
    
    
    1,3302013
    
    
    42014
    
    
    406Thereafter
    
    
    27,135$
    31,395
      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)
 9. Long-term Obligations
  January 3, 2010Obligations under capital leases
    
    $
    1,064Less: current portion of capital leases
    
    
    397Long-term obligations of capital leases
    
    $
    667
 Debt
         57




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
     Capital Leases
  January 3, 2010Capital leases
    
    $
    1,203Less: accumulated amortization
    
    
    150Net capital leases
    
    $
    1,053
  58




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
  Capital Leases2010
    
    $
    4362011
    
    
    4362012
    
    
    282Total minimum lease payments
    
    
    1,154Less: amount representing estimated executory costs
    
    
    66Net minimum lease payments
    
    
    1,088Less: amount representing interest
    
    
    24Present value of net minimum lease payments
    
    $
    1,064
 10. Commitments and Contingencies
 Lease Commitments
    OperatingLeases2010
    
    $
    9,1362011
    
    
    6,9622012
    
    
    5,3922013
    
    
    4,0432014
    
    
    3,349Years thereafter
    
    
    8,483Total payments
    
    $
    37,365
 Telecommunications Commitments
  Total2010
    
    $
    4,0522011
    
    
    3,7972012
    
    
    2,333Total commitments
    
    $
    10,182
  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)
 Legal Proceedings
   11. Shareholders Equity
  12. Earnings Per Share
  2009
    
    
    2008
    
    
    2007Net income
    
    $
    58,053
    
    
    $
    3,019
    
    
    $
    5,089Weighted average common shares outstanding
    
    
    51,570
    
    
    
    50,424
    
    
    
    49,800Income per sharebasic
    
    $
    1.13
    
    
    $
    0.06
    
    
    $
    0.10Effects of dilutive securities
    
    
    1,726
    
    
    
    53
    
    
    
    2,219Weighted average common and common equivalent shares outstanding
    
    
    53,296
    
    
    
    50,477
    
    
    
    52,019Income per sharediluted
    
    $
    1.09
    
    
    $
    0.06
    
    
    $
    0.10
  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)
 13. Stock Awards
    For the FiscalYear EndedJanuary 3, 2010Expected volatility
    

    87 - 91
%Risk-free interest rate
    

    1.27-1.70
%Expected life in years
    

    2.96-3.29Annualized forfeiture rate
    

    13.3
%Weighted average grant date fair value
    
$
    2.60
  61




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
 Stock Option Activity
  WeightedGrant Price
    
    
    Average Exercise
    
    
    AggregateRange
    
    
    Price
    
    
    IntrinsicDescription
    
    Shares
    
    
    Per Share
    
    
    Per Share
    
    
    ValueOutstanding as of December 31, 2006
    
    
    7,461,965
    
    
    $
    0.85 - 16.75
    
    
    $
    2.19Granted
    
    
    532,192
    
    
    
    2.43 -  4.73
    
    
    
    3.47Exercised
    
    
    (501,324
    )
    
    
    0.86 -  3.57
    
    
    
    1.46Cancelled
    
    
    (548,814
    )
    
    
    0.86 - 16.75
    
    
    
    2.91Outstanding as of December 30, 2007
    
    
    6,944,019
    
    
    $
    0.85 - 11.63
    
    
    $
    2.22Granted
    
    
    2,859,352
    
    
    
    0.79 -  2.15
    
    
    
    1.19Exercised
    
    
    (450,250
    )
    
    
    0.85 -  1.35
    
    
    
    0.90Cancelled
    
    
    (2,838,482
    )
    
    
    0.79 - 11.56
    
    
    
    2.10Outstanding as of December 28, 2008
    
    
    6,514,639
    
    
    $
    0.79 - 11.63
    
    
    $
    1.98Granted
    
    
    1,216,114
    
    
    
    1.38 -  6.05
    
    
    
    4.42Exercised
    
    
    (1,268,502
    )
    
    
    0.86 -  5.64
    
    
    
    2.47Cancelled
    
    
    (325,574
    )
    
    
    1.35 - 10.97
    
    
    
    4.31Outstanding as of January 3, 2010
    
    
    6,136,677
    
    
    $
    0.79 - 11.63
    
    
    $
    2.24
    
    
    $
    22,947Stock options exercisable
at January 3, 2010
    
    
    2,580,483
    
    
    
    
    
    
    $
    2.16
    
    
    $
    9,896
   Per Share Exercise Price Ranges
    
    
    Total$0.79-$1.21
    
    
    $1.25-$2.15
    
    
    $2.43-$11.63
    
    
    $0.79-$11.63Outstanding as of January 3,
2010
    
    
    2,178,557
    
    
    
    2,106,316
    
    
    
    1,851,804
    
    
    
    6,136,677Weighted average remaining term
    
    
    7.94
    
    
    
    6.86
    
    
    
    6.81
    
    
    
    7.23Weighted average exercise price
    
    $
    1.08
    
    
    $
    1.66
    
    
    $
    4.25
    
    
    $
    2.24Exercisable as of January 3,
2010
    
    
    552,949
    
    
    
    1,169,132
    
    
    
    858,402
    
    
    
    2,580,483Weighted average remaining term
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.56Weighted average exercise price
    
    $
    1.05
    
    
    $
    1.67
    
    
    $
    3.55
    
    
    $
    2.16
 Non-vested Common Share Activity
  Description
    
    SharesOutstanding as of December 28, 2008
    
    
    53,000Granted
    
    
    Issued
    
    
    (28,000
    )Cancelled
    
    
    Outstanding as of January 3, 2010
    
    
    25,000
   62




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##### Table of Contents



APAC CUSTOMER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in thousands, except share data and as otherwise indicated)
 14. Benefit Plans
  15. Related Party Transactions
   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.
  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)
  Fair Value Measurements as of January 3, 2010Level 1
    
    
    Level 2
    
    
    Level 3Assets:Cash equivalents(1)
    
    $
    20,557
    
    
    $
    
    
    
    $
    Non-qualified retirement plan(2)
    
    
    1,931
    
    
    
    
    
    
    
    Foreign currency contracts(3)
    
    
    
    
    
    
    657
    
    
    
    Non-current investments(4)
    
    
    126
    
    
    
    
    
    
    
    Liabilities:Foreign currency contracts(3)
    
    $
    
    
    
    $
    15
    
    
    $
    Non-qualified retirement plan obligation(2)
    
    
    1,931
    
    
    
    
    
    
    
    
 (1)
    
    Cash equivalents: The carrying amount of these items approximates fair value at period end.(2)
    
    Non-qualified retirement plan: The Company maintains a non-qualified retirement plan (Select
Plan) for highly compensated employees who are limited in the amount of contributions that they can
make in the Companys 401K plan. As of January 3, 2010, the fair value of investments in the Select
Plan totaled $1.9 million and is reflected on the Companys balance sheet in other current assets.
The offsetting obligation to employees participating in the Select Plan, which will always equal
the fair value of the investments, are recorded on the Companys balance sheet in other current
liabilities.(3)
    
    Foreign currency contracts: The carrying amount of these items is based on valuations provided
by the counter-party institution, but there are no guaranteed selling prices for these forward
currency contracts.(4)
    
    Non-current investments: The carrying amount of these items, which represent Philippine
treasury bills, approximates fair value at fiscal year-end and is recorded as a component of other
assets on the Companys balance sheet.  18. Derivative Instruments
    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)
   Asset Derivatives
    
    
    Liability DerivativesBalance Sheet
    
    Fair Value
    
    
    Balance Sheet
    
    Fair ValueLocation
    
    2009
    
    
    2008
    
    
    Location
    
    2009
    
    
    2008Derivatives designated as hedging instruments:Foreign currency contracts
    
    Other Current Assets
    
    $
    657
    
    
    $
    261
    
    
    Accrued Liabilities
    
    $
    15
    
    
    $
    695Derivatives not designated as hedging
instruments:Interest rate swap
    
    Other Current Assets
    
    
    
    
    
    
    
    
    
    Accrued Liabilities
    
    
    
    
    
    
    259Total derivatives
    
    
    
    $
    657
    
    
    $
    261
    
    
    
    
    $
    15
    
    
    $
    954
  Amount of Gain (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    Gain (Loss) Recognized in IncomeRecognized in OCI on
    
    
    Gain (Loss) Reclassified from
    
    
    on Derivatives (Ineffective PortionDerivatives (Effective
    
    
    Accumulated OCI into Income
    
    
    and Amount Excluded fromDerivatives Designated as
    
    Portion)
    
    
    (Effective Portion)
    
    
    Effectiveness Testing)Cash Flow Hedging Instruments
    
    2009
    
    2008
    
    
    Location

    
    2009
    
    2008
    
    
    Location
    
    
    2009
    
    
    2008Foreign currency
contracts
    
    $          934
    
    $
    (1,539
    )
    
    Cost of Services
    
    $            (923
    )
    $
    (1,075
    )
    
    na
    
    
    $
    
    
    
    $
    
 Location of Gain (Loss)
    
    Amount of Gain (Loss)Recognized in Income on
    
    Recognized in Income onDerivatives not Designated as Hedging Instruments
    
    Derivative
    
    Derivative2009
    
    
    2008Interest rate swap
    
    Interest income (expense)
    
    $
    (18
    )
    
    $
    (278
    )
 19. 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)
 
 20. Quarterly Data (Unaudited)
  First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    FullQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    YearFiscal year ended January 3,
2010:Net revenue
    
    $
    73,246
    
    
    $
    66,042
    
    
    $
    68,360
    
    
    $
    85,529
    
    
    $
    293,177Gross profit
    
    
    18,550
    
    
    
    15,404
    
    
    
    14,165
    
    
    
    17,213
    
    
    
    65,332Operating income
    
    
    10,852
    
    
    
    7,801
    
    
    
    6,656
    
    
    
    9,347
    
    
    
    34,656Net income
    
    
    10,619
    
    
    
    7,736
    
    
    
    6,588
    
    
    
    33,110
    
    
    
    58,053Net income per share:Basic
    
    $
    0.21
    
    
    $
    0.15
    
    
    $
    0.13
    
    
    $
    0.63
    
    
    $
    1.13Diluted
    
    $
    0.20
    
    
    $
    0.14
    
    
    $
    0.12
    
    
    $
    0.61
    
    
    $
    1.09Fiscal 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 share:Basic
    
    $
    (0.08
    )
    
    $
    0.00
    
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    0.06Diluted
    
    $
    (0.08
    )
    
    $
    0.00
    
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    0.06
 
    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
 
       /s/ Ernst & Young LLP
 
  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 15, 2010 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 15,
2010 under the caption Common Shares Beneficially Owned by Principal Shareholders and
Management, which information is hereby incorporated by reference.
 
 Equity Compensation Plan Information
  Number of Securities
    
    
    
    
    
    
    Number of Securitiesto Be Issued
    
    
    Weighted Average
    
    
    Remaining Available for FutureUpon Exercise of
    
    
    Exercise Price of
    
    
    Issuance Under Equity CompensationOutstanding Options,
    
    
    Outstanding Options,
    
    
    Plans (Excluding SecuritiesPlan Category
    
    Warrants, and Rights
    
    
    Warrants, and Rights
    
    
    Reflected in the First Column)Equity compensation plans
approved by security
holders
    
    
    6,136,677
    
    
    $
    2.24
    
    
    
    1,675,931Equity 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
 Form 10-K:
 (i)
    
    Report of Independent Registered Public Accounting Firm for the Fiscal Years
Ended January 3, 2010, December 28, 2008, and December 30, 2007
 (ii)
    
    Consolidated Statements of Operations for the Fiscal Years Ended January 3,
2010, December 28, 2008, and December 30, 2007
 (iii)
    
    Consolidated Balance Sheets as of January 3, 2010 and December 28, 2008
 (iv)
    
    Consolidated Statements of Shareholders Equity for the Fiscal Years Ended
January 3, 2010, December 28, 2008, and December 30, 2007
 (v)
    
    Consolidated Statements of Cash Flows for the Fiscal Years Ended January 3,
2010, December 28, 2008, and December 30, 2007
 (vi)
    
    Notes to Consolidated Financial Statements
 (vii)
    
    Quarterly Results of Operations for the Fiscal Years Ended January 3, 2010 and
December 28, 2008
 (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.By:
    
    /s/ Andrew B. Szafran

Andrew B. SzafranSenior Vice President andChief Financial OfficerDated: March 1, 2010
  Signature
    
    Title
    
    Date/s/ Theodore G. Schwartz*

Theodore G. Schwartz
    
    Chairman of the Board of Directors
    
    March 1, 2010/s/ Michael P. Marrow

Michael P. Marrow
    
    Director, President and Chief Executive Officer(Principal
Executive Officer)
    
    March 1, 2010/s/ Andrew B. Szafran

Andrew B. Szafran
    
    Senior Vice President and Chief Financial Officer  (Principal
Financial Officer)
    
    March 1, 2010/s/ Joseph R. Doolan

Joseph R. Doolan
    
    Vice President and Controller
(Principal
Accounting Officer)
    
    March 1, 2010/s/ Katherine Andreasen*

Katherine Andreasen
    
    Director
    
    March 1, 2010/s/ Cindy K. Andreotti*

Cindy K. Andreotti
    
    Director
    
    March 1, 2010/s/ Kevin T. Keleghan *

Kevin Keleghan
    
    Director
    
    March 1, 2010/s/ John C. Kraft *

John C. Kraft
    
    Director
    
    March 1, 2010/s/ John J. Park *

John J. Park
    
    Director
    
    March 1, 2010/s/ Samuel K. Skinner*

Samuel K. Skinner
    
    Director
    
    March 1, 2010/s/ John L. Workman *

John L. Workman
    
    Director
    
    March 1, 2010
 *
    
    Andrew B. Szafran, 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 December 30, 2007
    
    $
    1,473
    
    
    $
    562
    
    
    $
    938
    
    
    $
    1,097Fiscal Year ended December 28, 2008
    
    
    1,097
    
    
    
    2,203
    
    
    
    1,865
    
    
    
    1,435Fiscal Year ended January 3, 2010
    
    
    1,435
    
    
    
    888
    
    
    
    1,179
    
    
    
    1,144
 (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 28, 2008.*10.1
    
    
    APAC Customer Services, Inc. Amended and Restated 2005 Incentive Stock Plan incorporated by reference into
APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2007.*10.2
    
    
    Form of Non-Employee Director Stock Option Agreement (revised 2007), incorporated by reference to APAC
Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2007.*10.3
    
    
    Form of Employee Stock Option Agreement (revised 2007), incorporated by reference to APAC Customer Services,
Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2007.*10.4
    
    
    Form of Restricted Stock Award Agreement (revised 2007), incorporated by reference to APAC Customer Services,
Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2007.*10.5
    
    
    APAC Customer Services, Inc. Retirement Plan for Senior Employees, incorporated by reference to APAC Customer
Services, Inc.s Annual Report on Form 10-K for the fiscal year ended December 30, 2007.*10.6
    
    
    Amended and Restated Executive Employment Agreement with Robert J. Keller, dated August 6, 2007, incorporated
by reference to APAC Customer Services, Inc.s Quarterly Report on Form 10-Q for the fiscal quarter ended July
1, 2007.*10.7
    
    
    Letter Agreement, dated January 16, 2008, with Robert J. Keller, incorporated by reference to APAC Customer
Services, Inc.s Current Report on Form 8-K, dated January 17, 2008.*10.14
    
    
    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.*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.
  73




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##### Table of Contents



ExhibitNumber
    
    Description10.24
    
    
    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. 33-95638.10.37
    
    
    Tax Agreement, incorporated by reference to APAC TeleServices, Inc.s Registration Statement on Form S-1, as
amended, Registration No. 33-95638.10.44
    
    
    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.,
incorporated by reference to APAC Customer Services, Inc.s Annual Report on Form 10-K for the fiscal year
ended December 28, 2008.
  74




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ExhibitNumber
    
    Description10.49
    
    
    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.*10.51
    
    
    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, 2008.10.54
    
    
    Form of Indemnification Agreement dated April 28, 2009, incorporated by reference to APAC Customer Services,
Inc.s Current Report on Form 8-K, dated April 28, 2009.*10.55
    
    
    Employment Agreement with Christopher H. Crowley, dated February 12, 2009, incorporated by reference to APAC
Customer Services, Inc.s Current Report on Form 8-K, dated March 12, 2009.10.56
    
    
    Master Agreement for Call Center Services Between Verizon Corporate Services Group Inc. and APAC Customer
Services, Inc., incorporated by reference to APAC Customer Services, Inc.s Current Report on Form 8-K, dated
July 14, 2009.21.1
    
    
    Subsidiaries of APAC Customer Services, Inc.23.2
    
    
    Consent of Ernst & Young LLP.24.1
    
    
    Power of attorney executed by Katherine Andreasen, Cindy K. Andreotti, Kevin T. Keleghan, John C. Kraft, 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.  75