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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 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-28000
 PRG-Schultz International, Inc.
  Georgia
    
    58-2213805(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)600 Galleria Parkway
    
    30339-5986Suite 100
    
    (Zip Code)Atlanta, Georgia(Address of principal executive offices)
 Registrants telephone number, including area code : (770) 779-3900
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, No Par Value
    
    The NASDAQ Stock Market LLC (The Nasdaq Global Market)Preferred Stock Purchase Rights
    
    The NASDAQ Stock Market LLC (The Nasdaq Global Market)
 Securities registered pursuant to Section 12(g) of the Act: None
 o þ
 o þ
 Note
 þ o
 þ
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
   Documents Incorporated by Reference




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##### 



PRG-SCHULTZ INTERNATIONAL, INC.
 FORM 10-K
December 31, 2008
 PagePart IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    9Item 1B. Unresolved Staff Comments
    
    
    16Item 2. Properties
    
    
    16Item 3. Legal Proceedings
    
    
    16Item 4. Submission of Matters to a Vote of Security Holders
    
    
    16Part IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    17Item 6. Selected Financial Data
    
    
    19Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 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
    
    
    73Item 9A. Controls and Procedures
    
    
    73Item 9B. Other Information
    
    
    74Part IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    75Item 11. Executive Compensation
    
    
    75Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    76Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    76Item 14. Principal Accounting Fees and Services
    
    
    76Part IVItem 15. Exhibits, Financial Statement Schedules
    
    
    77Signatures
    
    
    81EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1




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PART I
 
 ITEM 1. Business
 Risk Factors
  
    
    retailers such as discount, department, specialty, grocery and drug stores, and
wholesalers who sell to these retailers;
    
    business enterprises other than retailers/wholesalers such as automobile and aerospace
manufacturers, financial services firms, pharmaceutical companies, and healthcare payors;
    
    federal and state government agencies such as the Centers for Medicare and Medicaid
Services (CMS).
    Note 5
 1




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The Recovery Audit Industry
     Data Capture and Availability.
 Increasing Number of Auditable Claim Categories.
 Globalization.
 Consolidation in the Retail Industry.
 2




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Significant Promotional Activity.
 Move Toward Standard Auditing Practices
  The PRG-Schultz Solution
    The PRG-Schultz Strategy
  Optimize the Core Accounts Payable Recovery Audit Business.
   3




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Develop New Services
  Pioneer Recovery Auditing into New Territories
 Managements Discussion and Analysis of
Financial Condition and Results of Operations
 PRG-Schultz Services
 Accounts Payable Services
   Retail/Wholesale
   Commercial
  4




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Government Agencies
  Managements Discussion
and Analysis of Financial Condition and Results of Operations
 New Services
  Client Contracts
  Technology
  5




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Auditor Hiring, Training and Compensation
  Clients
  6




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Sales and Marketing
  Proprietary Rights
  PRG-Schultz®, imDex®, AuditPro, SureF!nd Direct F!nd and claimDex.
 Competition
    Client Internal Recovery Audit Departments
 Other Recovery Audit Firms
 
    
    Full-service accounts payable recovery audit firms. The Company believes that only one
other company also offers a full suite of U.S. and international recovery audit services;
 7




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
    
    A large number of smaller accounts payable recovery firms which have a limited client
base and which use less sophisticated tools to mine disbursement claim categories at low
contingency rates. These firms are most common in the U.S. market. Competition in most
international markets, if any, typically comes from small niche providers;
    
    Firms that offer a hybrid of audit software tools and training for use by internal audit
departments, and/or general accounts payable process improvement enablers; and
    
    Firms with specialized skills focused on recovery audit services for discrete sectors
such as sales and use tax or real estate.
 Other Providers of Recovery Services
 Regulation
  Employees
  Website
 www.prgx.com
 8




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ITEM 1A. Risk Factors
 We have a history of losses and may not be able to improve our performance to achieve
profitability.
  We believe that our core accounts payable recovery audit business will continue to decline.
Therefore, we must continue to diligently manage our costs and successfully grow other business
lines in order to stabilize and increase our revenues and improve our profitability.
  We depend on our largest clients for significant revenues, so losing a major client could adversely
affect our revenues.
  Client and vendor bankruptcies and financial difficulties could reduce our earnings.
    9




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Our strategic business initiatives may not be successful.
  We have incurred significant costs in establishing the necessary resources to provide services for
Medicare audit recovery work and we will continue to incur significant costs as a subcontractor in
the national expansion of the Medicare recovery audit program. Furthermore, revenues from our
Medicare audit recovery work lag significantly behind these costs and may not justify the costs
incurred.
  Recovery auditing of Medicare spending is subject to a number of pressures and uncertainties that
could impact our future opportunities and revenues from this business.
  10




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Our participation in the national Medicare recovery audit program is as a subcontractor, and
consequently, is subject to being reduced or eliminated should the prime contractors with whom we
have contracted have their prime contracts with CMS terminated or should those contracts expire.
  We may be unable to protect and maintain the competitive advantage of our proprietary technology
and intellectual property rights.
   Our failure to retain the services of key members of management and highly skilled personnel could
adversely impact our continued success.
   We rely on international operations for a significant portion of our revenues.
  11




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
    
    political and economic instability in the international markets we serve;
    
    difficulties in staffing and managing foreign operations and in collecting accounts
receivable;
    
    fluctuations in currency exchange rates, particularly weaknesses in the British
pound, the euro, the Canadian dollar, the Mexican peso, and the Brazilian real and
other currencies of countries in which we transact business, which could result in
currency translations that materially reduce our revenues and earnings;
    
    costs associated with adapting our services to our foreign clients needs;
    
    unexpected changes in regulatory requirements and laws;
    
    expenses and legal restrictions associated with transferring earnings from our
foreign subsidiaries to us;
    
    burdens of complying with a wide variety of foreign laws and labor practices;
    
    business interruptions due to widespread disease, potential terrorist activities, or
other catastrophes;
    
    reduced or limited protection of our intellectual property rights; and
    
    longer accounts receivable cycles.
  The market for providing disbursement audit services to commercial clients is declining.
   Our accounts payable recovery audit services business is subject to price pressure.
  Generally our client contracts contain provisions under which the client may terminate the
agreement prior to the completion of the agreement.
  12




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Our failure to comply with applicable governmental privacy laws and regulations could substantially
impact our business, operations and financial condition.
  The ownership change that occurred as a result of our 2006 exchange offer limits our ability to use
our net operating losses.
  Certain of our tax positions may be subject to challenge by the Internal Revenue Service and other
tax authorities, and if successful, these challenges could increase our future tax liabilities and
expense.
     13




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Future impairment of goodwill, other intangible assets and long-lived assets would reduce our
future earnings.
 Goodwill and Other
Intangible Assets Accounting for the Impairment or Disposal of Long-Lived Assets
 We may not be able to continue to compete successfully with other businesses offering recovery
audit services, including the internal recovery audit departments of our clients.
  Our articles of incorporation, bylaws, shareholder rights plan and Georgia law may inhibit a change
of control that shareholders may favor.
  
    
    a classified Board of Directors;
    
    the requirement that our shareholders may only remove directors for cause;
    
    specified requirements for calling special meetings of shareholders; and
    
    the ability of the Board of Directors to consider the interests of various
constituencies, including our employees, clients and creditors and the local community,
in making decisions.
  The terms of our credit facility place restrictions on us, which create risks of default and reduce
our flexibility.
  14




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Our stock price has been and may continue to be volatile.
  
    
    future announcements concerning us, key clients or competitors;
    
    quarterly variations in operating results and liquidity;
    
    changes in financial estimates and recommendations by securities analysts;
    
    developments with respect to technology or litigation;
    
    the operating and stock price performance of other companies that investors may deem
comparable to our company;
    
    acquisitions and financings; and
    
    sales and purchases of blocks of stock by insiders.
  15




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ITEM 1B. Unresolved Staff Comments
  
 ITEM 2. Properties
  Note 9
 
 ITEM 3. Legal Proceedings
   
 ITEM 4. Submission of Matters to a Vote of Security Holders
  16




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PART II
 
 ITEM 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  2008 Calendar Quarter
    
    High
    
    Low1st Quarter
    
    $
    9.57
    
    
    $
    6.772nd Quarter
    
    
    10.72
    
    
    
    8.453rd Quarter
    
    
    12.30
    
    
    
    8.294th Quarter
    
    
    9.02
    
    
    
    3.22
 2007 Calendar Quarter
    
    High
    
    Low1st Quarter
    
    $
    16.87
    
    
    $
    7.902nd Quarter
    
    
    16.87
    
    
    
    12.943rd Quarter
    
    
    20.14
    
    
    
    11.584th Quarter
    
    
    17.29
    
    
    
    8.11
 Issuer Purchases of Equity Securities
  MaximumTotal
    
    ApproximateNumber of
    
    Dollar Value ofShares
    
    Shares thatPurchased as
    
    May Yet BePart of
    
    PurchasedTotal
    
    Average
    
    Publicly
    
    Under theNumber
    
    Price
    
    Announced
    
    Plans orof Shares
    
    Paid per
    
    Plans or
    
    Programs2008
    
    Purchased
    
    Share
    
    Programs
    
    $(000s)October 1  October
31
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4November 1
 November 30
    
    
    429,378
    
    
    $
    3.93
    
    
    
    429,378December 1
 December 31
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Total
    
    
    429,378
    
    
    $
    3.93
    
    
    
    429,378
    
    
    $
    8,313
 17




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Performance Graph
  COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 
   VALUE OF $100 INVESTED ON DECEMBER 31, 2003 AT:
 Cumulative Total Return12/03
    
    
    12/04
    
    
    12/05
    
    
    12/06
    
    
    12/07
    
    
    12/08PRG-Schultz International, Inc.
    
    
    
    100.00
    
    
    
    
    102.65
    
    
    
    
    12.45
    
    
    
    
    16.33
    
    
    
    
    17.49
    
    
    
    
    8.33NASDAQ Composite
    
    
    
    100.00
    
    
    
    
    110.06
    
    
    
    
    112.92
    
    
    
    
    126.61
    
    
    
    
    138.33
    
    
    
    
    80.65RDG Technology Composite
    
    
    
    100.00
    
    
    
    
    104.00
    
    
    
    
    106.32
    
    
    
    
    115.98
    
    
    
    
    132.44
    
    
    
    
    75.01
 18




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ITEM 6. Selected Financial Data
   Managements Discussion and Analysis of Financial
Condition and Results of Operations
 Years Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In thousands, except per share data)Statements of Operations Data:Revenues
    
    $
    195,706
    
    
    $
    227,369
    
    
    $
    225,898
    
    
    $
    251,527
    
    
    $
    309,234Cost of revenues
    
    
    125,901
    
    
    
    140,877
    
    
    
    161,827
    
    
    
    167,886
    
    
    
    192,915Gross margin
    
    
    69,805
    
    
    
    86,492
    
    
    
    64,071
    
    
    
    83,641
    
    
    
    116,319Selling, general and
administrative expenses (1)
    
    
    44,028
    
    
    
    67,063
    
    
    
    56,500
    
    
    
    104,760
    
    
    
    116,128Impairment charges (2)
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    170,375
    
    
    
    3⁄4Operational restructuring expense
    
    
    3⁄4
    
    
    
    1,644
    
    
    
    4,130
    
    
    
    11,167
    
    
    
    Operating income (loss)
    
    
    25,777
    
    
    
    17,785
    
    
    
    3,441
    
    
    
    (202,661
    )
    
    
    191Interest expense, net
    
    
    (3,245
    )
    
    
    (13,815
    )
    
    
    (16,311
    )
    
    
    (8,278
    )
    
    
    (8,637
    )Loss on debt extinguishment and
financial restructuring
    
    
    3⁄4
    
    
    
    (9,397
    )
    
    
    (10,047
    )
    
    
    3⁄4
    
    
    
    3⁄4Income (loss) from
continuing operations before
income taxes and
discontinued operations
    
    
    22,532
    
    
    
    (5,427
    )
    
    
    (22,917
    )
    
    
    (210,939
    )
    
    
    (8,446
    )Income tax expense (3)
    
    
    3,502
    
    
    
    1,658
    
    
    
    1,165
    
    
    
    63
    
    
    
    74,897Income (loss) from
continuing operations before
discontinued operations
    
    
    19,030
    
    
    
    (7,085
    )
    
    
    (24,082
    )
    
    
    (211,002
    )
    
    
    (83,343
    )Discontinued operations:Earnings from discontinued
operations, net of income
taxes
    
    
    3⁄4
    
    
    
    20,215
    
    
    
    2,983
    
    
    
    3,262
    
    
    
    11,860Net earnings (loss)
    
    $
    19,030
    
    
    $
    13,130
    
    
    $
    (21,099
    )
    
    $
    (207,740
    )
    
    $
    (71,483
    )Basic earnings (loss) per
common share:Earnings (loss) from
continuing
operations before
discontinued
operations
    
    $
    0.87
    
    
    $
    (0.62
    )
    
    $
    (3.77
    )
    
    $
    (34.03
    )
    
    $
    (13.49
    )Earnings from
discontinued operations
    
    
    3⁄4
    
    
    
    1.66
    
    
    
    0.45
    
    
    
    0.53
    
    
    
    1.92Net earnings (loss)
    
    $
    0.87
    
    
    $
    1.04
    
    
    $
    (3.32
    )
    
    $
    (33.50
    )
    
    $
    (11.57
    )Diluted earnings (loss)
per common share:Earnings (loss)
from continuing
operations before
discontinued
operations
    
    $
    0.83
    
    
    $
    (0.62
    )
    
    $
    (3.77
    )
    
    $
    (34.03
    )
    
    $
    (13.49
    )Earnings from discontinued
operations
    
    
    3⁄4
    
    
    
    1.66
    
    
    
    0.45
    
    
    
    0.53
    
    
    
    1.92Net earnings (loss)
    
    $
    0.83
    
    
    $
    1.04
    
    
    $
    (3.32
    )
    
    $
    (33.50
    )
    
    $
    (11.57
    )
 19




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December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(In thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    26,688
    
    
    $
    42,364
    
    
    $
    30,228
    
    
    $
    8,361
    
    
    $
    9,122Working capital
    
    
    10,512
    
    
    
    16,998
    
    
    
    5,218
    
    
    
    (9,123
    )
    
    
    5,882Total assets
    
    
    98,783
    
    
    
    122,438
    
    
    
    178,667
    
    
    
    162,062
    
    
    
    358,593Long-term debt, excluding
current installments
    
    
    14,331
    
    
    
    38,078
    
    
    
    136,922
    
    
    
    140,401
    
    
    
    123,286Redeemable preferred stock
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    11,199
    
    
    
    3⁄4
    
    
    
    3⁄4Total shareholders equity (deficit)
    
    $
    22,710
    
    
    $
    2,349
    
    
    $
    (104,483
    )
    
    $
    (102,365
    )
    
    $
    103,584
 
 (1)
    
    The Company adopted the provisions of SFAS 123(R) in 2006 and recognized $2.2 million,
$21.0 million and $6.4 million of stock-based compensation charges during the years ended
December 31, 2008, 2007 and 2006, respectively. See Note 1(l)and Note 14of Notes to
Consolidated Financial Statements included in Item 8 of this Form 10-K.(2)
    
    During 2005, the Company recognized impairment charges related to goodwill and intangible
assets. See Note 1(g)and Note 7of Notes to Consolidated Financial Statements included in
Item 8 of this Form 10-K.(3)
    
    During 2004, the Company recognized an increase in the valuation allowance against its
remaining net deferred tax assets. Lower effective tax rates in 2008, 2007, 2006 and 2005 are
primarily attributable to non-recognition of loss carry-forward benefits. See Note 1(i)and
Note 10of Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. 20




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ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
     21




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Results of Operations
  Years Ended December 31,2008
    
    2007
    
    2006Statements of Operations Data:Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    64.3
    
    
    
    62.0
    
    
    
    71.7Gross margin
    
    
    35.7
    
    
    
    38.0
    
    
    
    28.3Selling, general and administrative expenses
    
    
    22.5
    
    
    
    29.5
    
    
    
    25.0Operational restructuring expenses
    
    
    
    
    
    
    0.7
    
    
    
    1.8Operating income
    
    
    13.2
    
    
    
    7.8
    
    
    
    1.5Interest expense, net
    
    
    1.7
    
    
    
    6.1
    
    
    
    7.2Loss on debt extinguishment and financial restructuring
    
    
    3⁄4
    
    
    
    4.1
    
    
    
    4.4Earnings (loss) from continuing operations before
income taxes and discontinued operations
    
    
    11.5
    
    
    
    (2.4
    )
    
    
    (10.1
    )Income tax expense
    
    
    1.8
    
    
    
    0.7
    
    
    
    0.5Earnings (loss) from continuing operations before
discontinued operations
    
    
    9.7
    
    
    
    (3.1
    )
    
    
    (10.6
    )Discontinued operations:Earnings from discontinued operations and
disposals, net of income taxes
    
    
    3⁄4
    
    
    
    8.9
    
    
    
    1.3Net earnings (loss)
    
    
    9.7
    %
    
    
    5.8
    %
    
    
    (9.3
    )%
 Domestic and International Accounts Payable Services
 Revenues.
 2008
    
    
    2007
    
    
    2006Domestic Accounts Payable Services revenues
    
    $
    111.9
    
    
    $
    140.4
    
    
    $
    140.4International Accounts Payable Services revenues
    
    
    83.8
    
    
    
    87.0
    
    
    
    85.5Total Accounts Payable Services revenues
    
    $
    195.7
    
    
    $
    227.4
    
    
    $
    225.9
    22




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Cost of Revenues (COR).
  2008
    
    
    2007
    
    
    2006Domestic Accounts Payable Services COR
    
    $
    66.5
    
    
    $
    75.4
    
    
    $
    95.3International Accounts Payable Services COR
    
    
    59.4
    
    
    
    65.5
    
    
    
    66.5Total Accounts Payable Services COR
    
    $
    125.9
    
    
    $
    140.9
    
    
    $
    161.8
 23




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Selling, General and Administrative Expenses (SG&A).
  2008
    
    
    2007
    
    
    2006Domestic Accounts Payable Services SG&A
    
    $
    15.7
    
    
    $
    18.9
    
    
    $
    20.7International Accounts Payable Services SG&A
    
    
    11.3
    
    
    
    10.0
    
    
    
    10.2Total Accounts Payable Services SG&A
    
    $
    27.0
    
    
    $
    28.9
    
    
    $
    30.9
   24




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Corporate Support
 SG&A.
  2008
    
    
    2007
    
    
    2006Selling, general and administrative expenses
    
    $
    17.0
    
    
    $
    38.2
    
    
    $
    25.6
 2006 Management Incentive Plan
  Operational Restructuring Expense
  25




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2008
    
    
    2007
    
    
    2006Operational restructuring expense
    
    $
    3⁄4
    
    
    $
    1.6
    
    
    $
    4.1
   Interest Expense and Income
 Liquidity and Capital
Resources  Financing Activities and Interest Expense
 Loss on Debt Extinguishment and Financial Restructuring
 Liquidity and Capital Resources  Financing Activities and Interest Expense
 Income Tax Expense
    26




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Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109
 Discontinued Operations
      27




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##### Table of Contents



Quarterly Results
  2008 Quarter Ended
    
    
    2007 Quarter EndedMar. 31
    
    
    June 30
    
    
    Sept. 30
    
    
    Dec. 31
    
    
    Mar. 31
    
    
    June 30
    
    
    Sept. 30
    
    
    Dec. 31(In thousands, except per share data)Revenues
    
    $
    48,263
    
    
    $
    49,648
    
    
    $
    49,182
    
    
    $
    48,613
    
    
    $
    57,030
    
    
    $
    53,315
    
    
    $
    53,207
    
    
    $
    63,817Cost of revenues
    
    
    30,252
    
    
    
    32,941
    
    
    
    31,169
    
    
    
    31,539
    
    
    
    37,241
    
    
    
    34,872
    
    
    
    33,511
    
    
    
    35,253Gross margin
    
    
    18,011
    
    
    
    16,707
    
    
    
    18,013
    
    
    
    17,074
    
    
    
    19,789
    
    
    
    18,443
    
    
    
    19,696
    
    
    
    28,564Selling, general and
administrative expenses
    
    
    12,843
    
    
    
    11,024
    
    
    
    12,139
    
    
    
    8,022
    
    
    
    13,682
    
    
    
    14,486
    
    
    
    17,562
    
    
    
    21,333Operational restructuring expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,644
    
    
    
    Operating income
    
    
    5,168
    
    
    
    5,683
    
    
    
    5,874
    
    
    
    9,052
    
    
    
    6,107
    
    
    
    3,957
    
    
    
    490
    
    
    
    7,231Interest expense, net
    
    
    (991
    )
    
    
    (765
    )
    
    
    (789
    )
    
    
    (700
    )
    
    
    (4,141
    )
    
    
    (4,749
    )
    
    
    (3,133
    )
    
    
    (1,792
    )Loss on debt extinguishment and 
financial restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,397
    )Earnings (loss) from continuing
operations before income taxes
and discontinued operations
    
    
    4,177
    
    
    
    4,918
    
    
    
    5,085
    
    
    
    8,352
    
    
    
    1,966
    
    
    
    (792
    )
    
    
    (2,643
    )
    
    
    (3,958
    )Income tax expense
    
    
    593
    
    
    
    400
    
    
    
    879
    
    
    
    1,630
    
    
    
    531
    
    
    
    344
    
    
    
    337
    
    
    
    446Earnings (loss) from continuing
operations before discontinued
operations
    
    
    3,584
    
    
    
    4,518
    
    
    
    4,206
    
    
    
    6,722
    
    
    
    1,435
    
    
    
    (1,136
    )
    
    
    (2,980
    )
    
    
    (4,404
    )Discontinued operations:Earnings (loss) from
discontinued operations and
disposals, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88
    
    
    
    19,687
    
    
    
    (11
    )
    
    
    451Net earnings (loss)
    
    $
    3,584
    
    
    $
    4,518
    
    
    $
    4,206
    
    
    $
    6,722
    
    
    $
    1,523
    
    
    $
    18,551
    
    
    $
    (2,991
    )
    
    $
    (3,953
    )Basic earnings (loss) per share:Earnings (loss) from
continuing operations before
discontinued operations
    
    $
    0.17
    
    
    $
    0.21
    
    
    $
    0.19
    
    
    $
    0.30
    
    
    $
    0.15
    
    
    $
    (0.15
    )
    
    $
    (0.31
    )
    
    $
    (0.21
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    2.17
    
    
    
    (0.00
    )
    
    
    0.02Net earnings (loss)
    
    $
    0.17
    
    
    $
    0.21
    
    
    $
    0.19
    
    
    $
    0.30
    
    
    $
    0.16
    
    
    $
    2.02
    
    
    $
    (0.31
    )
    
    $
    (0.19
    )Diluted earnings (loss) per share:Earnings (loss) from
continuing operations before
discontinued operations
    
    $
    0.16
    
    
    $
    0.20
    
    
    $
    0.18
    
    
    $
    0.29
    
    
    $
    0.12
    
    
    $
    (0.15
    )
    
    $
    (0.31
    )
    
    $
    (0.21
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    2.17
    
    
    
    (0.00
    )
    
    
    0.02Net earnings (loss)
    
    $
    0.16
    
    
    $
    0.20
    
    
    $
    0.18
    
    
    $
    0.29
    
    
    $
    0.13
    
    
    $
    2.02
    
    
    $
    (0.31
    )
    
    $
    (0.19
    )
 28




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##### Table of Contents



Liquidity and Capital Resources
  Operating Activities.
  Investing Activities and Depreciation Expense.
  Financing Activities and Interest Expense.
 2007 Financial Restructuring
   29




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2006 Financial Restructuring
     Secured Credit
Facility
 Discontinued Operations.
 30




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##### Table of Contents



Other Matters. .
 Stock Repurchase Program
  31




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Contractual Obligations and Other Commitments
  Payments Due by Period (in thousands)Less
    
    
    
    
    
    
    
    
    
    
    MoreThan
    
    
    1-3
    
    
    3-5
    
    
    ThanContractual obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsLong-term debt obligations (1)
    
    $
    19,070
    
    
    $
    5,000
    
    
    $
    14,070
    
    
    $

    
    
    $
Operating lease obligations
    
    
    36,578
    
    
    
    7,020
    
    
    
    12,063
    
    
    
    11,817
    
    
    
    5,678Capital lease obligations (2)
    
    
    636
    
    
    
    363
    
    
    
    273
    
    
    

    
    
    
Cash portions of stock-based compensation (3)
    
    
    2,885
    
    
    
    1,849
    
    
    
    1,036
    
    
    

    
    
    
Payments to Messrs. Cook and Toma (4)
    
    
    3,704
    
    
    
    1,533
    
    
    
    1,217
    
    
    
    124
    
    
    
    830Severance
    
    
    1,668
    
    
    
    1,668
    
    
    

    
    
    

    
    
    
Total
    
    $
    64,541
    
    
    $
    17,433
    
    
    $
    28,659
    
    
    $
    11,941
    
    
    $
    6,508
 
 (1)
    
    Excludes variable rate interest (minimum 9.75% per annum) payable monthly.(2)
    
    Includes interest imputed at 11.3%.(3)
    
    Represents the portions of Performance Units outstanding under the 2006 MIP payable in cash.
Amounts presented are based on
the market price of the Companys common stock at December 31, 2008. Actual payments are due to
be made on April 30 of each year and will be based on the market price of the Companys common
stock at the settlement dates  see 2006 Management Incentive Plan below.(4)
    
    In connection with the Companys 2006 financial restructuring, required payments to Messrs.
Cook and Toma were revised  see Executive Severance Payments below. Secured Credit Facility
      32




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##### Table of Contents



2006 Management Incentive Plan
    Executive Severance Payments
  Off Balance Sheet Arrangements
  33




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##### Table of Contents



Critical Accounting Policies
 Note 1
   
    
    Revenue Recognition.The Company recognizes revenue on the accrual basis except with
respect to certain International Accounts Payable Services units where revenue is
recognized on the cash basis in accordance with guidance issued by the Securities and
Exchange Commission in Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition.
Revenue is generally recognized for a contractually specified percentage of amounts
recovered when it has been determined that our clients have received economic value
(generally through credits taken against existing accounts payable due to the involved
vendors or refund checks received from those vendors), and when the following criteria are
met: (a) persuasive evidence of an arrangement exists; (b) services have been rendered; (c)
the fee billed to the client is fixed or determinable; and (d) collectibility is reasonably
assured. Additionally, for purposes of determining appropriate timing of recognition and
for internal control purposes, the Company relies on customary business practices and
processes for documenting that the criteria described in (a) through (d) above have been
met. Such customary business practices and processes may vary significantly by client. On
occasion, it is possible that a transaction has met all of the revenue recognition criteria
described above but revenue is not recognized, unless management can otherwise determine
that criteria (a) through (d) above have been met, because the Companys customary business
practices and processes specific to that client have not been completed. The determination
that each of the aforementioned criteria has been met, particularly the determination of
the timing of economic benefit received by the client and the determination that
collectibility is reasonably assured, requires the application of significant judgment by
management and a misapplication of this judgment could result in inappropriate recognition
of revenue.
    
    Unbilled Receivables & Refund Liabilities. Unbilled receivables are usually contractual
and relate to claims for which our client has received economic value. Unbilled receivables
arise when a portion of the Companys fee is deferred at the time of the initial invoice.
At a later date (which can be up to a year after the original invoice, or a year after
completion of the audit period), the unbilled receivable amount is invoiced.
Notwithstanding the deferred due date, the Company and the client acknowledge that this
unbilled receivable has been earned at the time of the original invoice, it just has a
deferred due date.
 34




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##### Table of Contents



Refund liabilities result from reductions in the economic value previously received by the
Companys clients with respect to vendor claims identified by the Company and for which the
Company has previously recognized revenue. Such refund liabilities are recognized by either
offsets to amounts otherwise due from clients or by cash refunds to clients. The Company
computes the estimate of its refund liabilities at any given time based on actual historical
refund data.Periodic changes in unbilled receivables and refund liabilities are recorded as adjustments
to revenue.During the first quarter of 2008, management revised its estimate of expected refund rates
in its Domestic Accounts Payable Services segment. Such change in estimate resulted from a
decline in actual Domestic Accounts Payable Services refund rates observed during 2007. The
impact of this change in estimate resulted in a $0.8 million increase in first quarter 2008
income from continuing operations. During the fourth quarter of 2008, management changed its
method of estimating the refund liability related to its International Accounts Payable
Services segment to be more consistent with the methodology used in the Domestic Accounts
Payable Services segment. The impact of the change in estimate resulted in a $0.9 million
decrease in fourth quarter 2008 income from continuing operations. The combined impact of
the 2008 refund liability estimate changes was to decrease income from continuing operations
by $0.1 million, or less than $0.01 per basic and diluted share. Management does not expect
that these changes in estimate will have a material impact on future period results.
    
    Goodwill and Other Intangible Assets. During each of the fourth quarters of 2008, 2007
and 2006, the Company completed the required annual impairment testing of goodwill and
other intangible assets in accordance with Statement of Financial Accounting Standards
(SFAS) No. 142. As a result of this testing, the Company concluded that there was no
impairment of goodwill and other intangible assets.During the third quarter of 2007, management re-evaluated its policy related to the
amortization of its customer relationships intangible asset. The customer relationships
intangible asset had been amortized since its acquisition in 2002 using the straight-line
method over a twenty year expected life. Managements re-evaluation concluded that the
original twenty year life continued to be a reasonable expectation. However, because of the
expectation that revenues and profits from these customers will likely decline in future
years, management concluded that an accelerated method of amortization of the customer
relationships intangible asset would be more appropriate. The accelerated method results in
amortization of the net unamortized June 30, 2007 balance over the remaining 14.5 year life
at a rate that declines at approximately 8% per year. The Company adopted the new method in
the third quarter of 2007 and the resulting change in amortization is being accounted for on
a prospective basis in accordance with SFAS No. 142. Amortization expense in 2007 increased
by $0.5 million as a result of this change in method.
    
    Income Taxes.The Companys effective tax rate is based on historical and anticipated
future taxable income, statutory tax rates and tax planning opportunities available to the
Company in the various jurisdictions in which it operates. Significant judgment is required
in determining the effective tax rate and in evaluating the Companys tax positions. Tax
regulations require items to be included in the tax returns at different times than the
items are reflected in the financial statements. As a result, the Companys effective tax
rate reflected in its Consolidated Financial Statements included in Item 8 of this Form
10-K is different than that reported in its tax returns. Some of these differences are
permanent, such as expenses that are not deductible on the Companys tax returns, and some
are temporary differences, such as depreciation expense. Temporary differences create
deferred tax assets and liabilities. Deferred tax assets generally represent items that can
be used as a tax deduction or credit in the Companys tax returns in future years for which
it has already recorded the tax benefit in the statement of operations. The Company
establishes valuation allowances to reduce net deferred tax assets to the amounts that it
believes are more likely than not to be realized. These valuation allowances are adjusted
in light of changing facts and circumstances. Deferred tax liabilities generally represent
tax expense recognized in the Companys consolidated financial statements for which payment
has been deferred, or expense for which a deduction has already been taken on the Companys
tax returns but has not yet been recognized as an expense in its consolidated financial
statements.SFAS No. 109, Accounting for Income Taxes, requires that deferred tax assets be reduced by
a valuation allowance if it is more likely than not that some portion or all of a deferred
tax asset will not be realized.
 35




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##### Table of Contents



The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences are deductible. In
making this determination, management considers all available positive and negative evidence
affecting specific deferred tax assets, including the Companys past and anticipated future
performance, the reversal of deferred tax liabilities, the length of carry-back and
carry-forward periods, and the implementation of tax planning strategies.Objective positive evidence is necessary to support a conclusion that a valuation allowance
is not needed for all or a portion of deferred tax assets when significant negative evidence
exists. Cumulative losses in recent years are the most compelling form of negative evidence
considered by management in this determination.Financial Accounting Standards Board (FASB) Interpretation No. 48 Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109(FIN No. 48)
prescribes a more-likely-than-not recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The Interpretation also offers guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and
transition. In accordance with FIN No. 48, paragraph 19, the Companys policy for recording
interest and penalties associated with tax positions is to record such items as a component
of income before taxes. As a result of the implementation of FIN No. 48 in 2007, the
Company recognized a $0.3 million increase in liability for unrecognized tax benefits, which
was accounted for as an increase to the January 1, 2007 accumulated deficit balance.
    
    Stock-Based Compensation.The Company accounts for stock-based compensation in accordance
with the requirements of SFAS No. 123(R), Share-Based Payment(SFAS No. 123(R)). SFAS
No. 123(R) requires that companies account for awards of equity instruments issued to
employees under the fair value method of accounting and recognize such amounts in their
statements of operations. Under SFAS No. 123(R), the Company is required to measure
compensation cost for all stock-based awards at fair value on the date of grant and recognize
compensation expense in its consolidated statements of operations over the service period over
which the awards are expected to vest. The Company recognizes compensation expense over the
indicated vesting periods using the straight-line method.The fair value of all time-vested options is estimated as of the date of grant using the
Black-Scholes option valuation model. The Black-Scholes option valuation model was developed
for use in estimating the fair value of traded options that have no vesting restrictions and
are fully transferable. The fair value of market condition options (also known as
path-dependent options) may be estimated as of their date of grant using more complex option
valuation models such as binomial lattice and Monte Carlo simulations. The Company chose to
use the Monte Carlo simulation method for its valuations of market condition options. Option
valuation models require the input of highly subjective assumptions, including the expected
stock price volatility. Because the Companys employee stock options have characteristics
significantly different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, it is managements opinion
that existing models do not necessarily provide a reliable single measure of the fair value
of the Companys employee stock options.The Company estimates the fair value of awards of restricted shares and nonvested shares, as
defined in SFAS 123(R), as being equal to the market value of the common stock on the date
of the award. Also, under SFAS 123(R), companies must classify their share-based payments as
either liability-classified awards or as equity-classified awards. Liability-classified
awards are remeasured to fair value at each balance sheet date until the award is settled.
Equity-classified awards are measured at grant date fair value and are not subsequently
remeasured. The Company has classified its share-based payments which are settled in Company
common stock as equity-classified awards and its share-based payments that are settled in
cash as liability-classified awards. Compensation costs related to equity-classified awards
are generally equal to the fair value of the award at grant-date amortized over the vesting
period of the award. The liability for liability-classified awards is generally equal to the
fair value of the award as of the balance sheet date times the percentage vested at the
time. The change in the liability amount from one balance sheet date to another is charged
(or credited) to compensation cost.During the years ended December 31, 2008, 2007 and 2006, stock-based compensation charges
aggregated $2.2 million, $21.0 million and $6.4 million, respectively. Stock-based
compensation is discussed in more
 36




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##### Table of Contents



detail in Note1(l) and Note 14of Notes to Consolidated Financial Statements included in
Item 8 of this Form 10-K.
 New Accounting Standards
 SFAS No. 141(R) . Business Combinations
 SFAS No. 157 . Fair Value Measurements
     Accounting for Leases,
  SFAS No. 159 . The Fair Value Option
for Financial Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115
 SFAS No. 160 . Noncontrolling
Interests in Consolidated Financial Statements
 37




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##### Table of Contents



SFAS No. 161 Disclosures about
Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133 Accounting
for Derivative Instruments and Hedging Activities
 FSP APB 14-1 . Accounting
for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial
Cash Settlement)
 38




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##### Table of Contents



ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Market Risk.
 Interest Rate Risk
 Stock-Based Compensation.
 39




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##### Table of Contents



ITEM 8. Financial Statements and Supplementary Data
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageNumberReport of Independent Registered Public Accounting Firm
    
    
    41Consolidated Statements of Operations for the Years ended December 31, 2008, 2007 and 2006
    
    
    42Consolidated Balance Sheets as of December 31, 2008 and 2007
    
    
    43Consolidated Statements of Shareholders Equity (Deficit) for the Years ended December
31, 2008, 2007 and 2006
    
    
    44Consolidated Statements of Cash Flows for the Years ended December 31, 2008, 2007 and 2006
    
    
    45Notes to Consolidated Financial Statements
    
    
    46
 40




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
   ,
  Income Taxes, Accounting for Uncertainty
in Income Taxes  an Interpretation of FASB Statement No. 109
 Internal Control -
Integrated Framework
 Atlanta, Georgia
    
    /s/ BDO Seidman, LLPMarch 13, 2009
 41




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Revenues
    
    $
    195,706
    
    
    $
    227,369
    
    
    $
    225,898Cost of revenues
    
    
    125,901
    
    
    
    140,877
    
    
    
    161,827Gross margin
    
    
    69,805
    
    
    
    86,492
    
    
    
    64,071Selling, general and administrative expenses
    
    
    44,028
    
    
    
    67,063
    
    
    
    56,500Operational restructuring expense (Note 16) )
    
    

    
    
    
    1,644
    
    
    
    4,130Operating income
    
    
    25,777
    
    
    
    17,785
    
    
    
    3,441Interest expense
    
    
    (4,090
    )
    
    
    (15,071
    )
    
    
    (17,145
    )Interest income
    
    
    845
    
    
    
    1,256
    
    
    
    834Loss on debt extinguishment and financial restructuring (Note 8)
    
    

    
    
    
    (9,397
    )
    
    
    (10,047
    )Earnings (loss) from continuing operations before income
taxes and discontinued operations
    
    
    22,532
    
    
    
    (5,427
    )
    
    
    (22,917
    )Income tax expense (Note 10)
    
    
    3,502
    
    
    
    1,658
    
    
    
    1,165Earnings (loss) from continuing operations before
discontinued operations
    
    
    19,030
    
    
    
    (7,085
    )
    
    
    (24,082
    )Discontinued operations (Note 2):Earnings from discontinued operations, net of income tax
expense of $408 in 2007 and $854 in 2006
    
    

    
    
    
    347
    
    
    
    2,691Net gains on sales of discontinued operations
    
    

    
    
    
    19,868
    
    
    
    292Earnings from discontinued operations
    
    

    
    
    
    20,215
    
    
    
    2,983Net earnings (loss)
    
    $
    19,030
    
    
    $
    13,130
    
    
    $
    (21,099
    )Basic earnings (loss) per common share (Note 6):Earnings (loss) from continuing operations before
discontinued operations
    
    $
    0.87
    
    
    $
    (0.62
    )
    
    $
    (3.77
    )Earnings from discontinued operations
    
    

    
    
    
    1.66
    
    
    
    0.45Net earnings (loss)
    
    $
    0.87
    
    
    $
    1.04
    
    
    $
    (3.32
    )Diluted earnings (loss) per common share (Note 6):Earnings (loss) from continuing operations before
discontinued operations
    
    $
    0.83
    
    
    $
    (0.62
    )
    
    $
    (3.77
    )Earnings from discontinued operations
    
    

    
    
    
    1.66
    
    
    
    0.45Net earnings (loss)
    
    $
    0.83
    
    
    $
    1.04
    
    
    $
    (3.32
    )Weighted-average common shares outstanding (Note 6):Basic
    
    
    21,829
    
    
    
    12,204
    
    
    
    6,616Diluted
    
    
    23,008
    
    
    
    12,204
    
    
    
    6,616
 See accompanying Notes to Consolidated Financial Statements.
 42




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 December 31,2008
    
    
    2007ASSETS (Note 8)Current assets:Cash and cash equivalents
    
    $
    26,688
    
    
    $
    42,364Restricted cash
    
    
    61
    
    
    
Receivables:Contract receivables, less allowances of $921 in 2008 and $826 in 2007:Billed
    
    
    28,143
    
    
    
    30,251Unbilled
    
    
    5,568
    
    
    
    6,44033,711
    
    
    
    36,691Employee advances and miscellaneous receivables, less allowances of $311 in 2008 and
$1,831 in 2007
    
    
    285
    
    
    
    1,118Total receivables
    
    
    33,996
    
    
    
    37,809Prepaid expenses and other current assets
    
    
    2,264
    
    
    
    2,676Deferred income taxes (Note 10)
    
    

    
    
    
    64Total current assets
    
    
    63,009
    
    
    
    82,913Property and equipment:Computer and other equipment
    
    
    24,164
    
    
    
    34,174Furniture and fixtures
    
    
    2,885
    
    
    
    3,010Leasehold improvements
    
    
    2,992
    
    
    
    3,96430,041
    
    
    
    41,148Less accumulated depreciation and amortization
    
    
    (22,140
    )
    
    
    (33,113
    )Property and equipment, net
    
    
    7,901
    
    
    
    8,035Goodwill (Note 7)
    
    
    4,600
    
    
    
    4,600Intangible assets, less accumulated amortization of $10,932 in 2008 and $8,728 in 2007 (Note 7)
    
    
    18,968
    
    
    
    21,172Unbilled receivables
    
    
    1,789
    
    
    
    2,072Deferred loan costs, net of accumulated amortization (Note 8)
    
    
    2,170
    
    
    
    2,897Deferred income taxes (Note 10)
    
    

    
    
    
    279Other assets
    
    
    346
    
    
    
    470$
    98,783
    
    
    $
    122,438LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    16,275
    
    
    $
    16,117Accrued payroll and related expenses
    
    
    22,536
    
    
    
    31,435Refund liabilities
    
    
    7,870
    
    
    
    9,897Deferred revenue
    
    
    502
    
    
    
    620Current portions of debt and capital lease obligations (Note 8)
    
    
    5,314
    
    
    
    7,846Total current liabilities
    
    
    52,497
    
    
    
    65,915Long-term debt and capital lease obligations(Note 8)
    
    
    14,331
    
    
    
    38,078Deferred income taxes (Note 10)
    
    
    234
    
    
    
Noncurrent compensation obligations (Note 13(b))
    
    
    2,849
    
    
    
    8,548Refund liabilities
    
    
    897
    
    
    
    1,676Other long-term liabilities
    
    
    5,265
    
    
    
    5,872Total liabilities
    
    
    76,073
    
    
    
    120,089Commitments and contingencies (Notes 3, 8, 9, 12 and 13)Shareholders equity (Notes 8, 12 and 14):Common stock,
no par value; $.01 stated value per share. Authorized 50,000,000
shares; 21,789,645 shares issued and outstanding
 in 2008 and 22,100,090 shares issued and 21,523,637 shares outstanding in 2007
    
    
    218
    
    
    
    221Additional paid-in capital
    
    
    559,359
    
    
    
    605,592Accumulated deficit
    
    
    (539,988
    )
    
    
    (559,018
    )Accumulated other comprehensive income
    
    
    3,121
    
    
    
    4,264Treasury stock at cost, 576,453 shares in 2007
    
    

    
    
    
    (48,710
    )Total shareholders equity
    
    
    22,710
    
    
    
    2,349$
    98,783
    
    
    $
    122,438
 See accompanying Notes to Consolidated Financial Statements.
 43




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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)
Years Ended December 31, 2008, 2007 and 2006
(In thousands, except share data)
 Accumulated
    
    
    
    
    
    
    UnamortizedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Portion of
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Treasury
    
    
    Compensation
    
    
    Shareholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Stock
    
    
    Expense
    
    
    Equity (Deficit)
    
    
    Income (Loss)Balance at December 31, 2005
    
    
    6,787,683
    
    
    $
    68
    
    
    $
    494,826
    
    
    $
    (550,719
    )
    
    $
    2,400
    
    
    $
    (48,710
    )
    
    $
    (230
    )
    
    $
    (102,365
    )Reclassification of unamortized portion of
compensation expense
    
    
    
    
    
    
    
    
    
    
    (230
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230
    
    
    
    Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,099
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,099
    )
    
    $
    (21,099
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    (359
    )
    
    

    
    
    

    
    
    
    (359
    )
    
    
    (359
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (21,458
    )Excess of fair value over redemption value of
preferred stock issued
    
    
    
    
    
    
    
    
    
    
    11,995
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    11,995Issuance costs of preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,281
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    (1,281
    )Issuances of common stock:Conversions of Series A preferred stock
    
    
    1,614,995
    
    
    
    16
    
    
    
    4,571
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,587Fractional
shares issued pursuant to reverse split
    
    
    92
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted share forfeitures
    
    
    (4,000
    )
    
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated dividends on preferred stock
    
    

    
    
    

    
    
    
    (895
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (895
    )Stock-based compensation expense
    
    

    
    
    

    
    
    
    4,934
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,934Balance at December 31, 2006
    
    
    8,398,770
    
    
    
    84
    
    
    
    513,920
    
    
    
    (571,818
    )
    
    
    2,041
    
    
    
    (48,710
    )
    
    

    
    
    
    (104,483
    )FIN No. 48 tax liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (330
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (330
    )Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,130
    
    
    $
    13,130Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    2,223
    
    
    

    
    
    

    
    
    
    2,223
    
    
    
    2,223Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,353Issuances of common stock:Conversions of Series A preferred stock
    
    
    4,098,541
    
    
    
    41
    
    
    
    11,601
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,642Conversions of convertible senior notes
    
    
    9,593,779
    
    
    
    96
    
    
    
    65,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,200Stock option exercises
    
    
    9,000
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    57Issuance costs of common stock
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    (72
    )Accumulated dividends on preferred stock
    
    

    
    
    

    
    
    
    (487
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (487
    )Stock-based compensation expense
    
    

    
    
    

    
    
    
    15,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,469Balance at December 31, 2007
    
    
    22,100,090
    
    
    
    221
    
    
    
    605,592
    
    
    
    (559,018
    )
    
    
    4,264
    
    
    
    (48,710
    )
    
    

    
    
    
    2,349Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,030
    
    
    $
    19,030Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    (1,143
    )
    
    

    
    
    

    
    
    
    (1,143
    )
    
    
    (1,143
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    17,887Issuances of common stock:Restricted share awards
    
    
    399,507
    
    
    
    4
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2006 MIP Performance Unit settlements
    
    
    295,879
    
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,687
    )
    
    
    
    
    
    
    (1,687
    )Retirement of treasury stock
    
    
    (1,005,831
    )
    
    
    (10
    )
    
    
    (50,387
    )
    
    
    
    
    
    
    
    
    
    
    50,397
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    

    
    
    

    
    
    
    4,161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,161Balance at December 31, 2008
    
    
    21,789,645
    
    
    $
    218
    
    
    $
    559,359
    
    
    $
    (539,988
    )
    
    $
    3,121
    
    
    $
    
    
    
    $

    
    
    $
    22,710
 See accompanying Notes to Consolidated Financial Statements.
 44




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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net earnings (loss)
    
    $
    19,030
    
    
    $
    13,130
    
    
    $
    (21,099
    )Earnings from discontinued operations
    
    
    3⁄4
    
    
    
    20,215
    
    
    
    2,983Earnings (loss) from continuing operations
    
    
    19,030
    
    
    
    (7,085
    )
    
    
    (24,082
    )Adjustments to reconcile earnings (loss) from continuing
operations to net cash provided by operating activities:Loss on debt extinguishment and financial restructuring
    
    
    3⁄4
    
    
    
    9,397
    
    
    
    10,047Impairment charges included in operational restructuring
    
    
    3⁄4
    
    
    
    344
    
    
    
    546Depreciation and amortization
    
    
    5,194
    
    
    
    6,769
    
    
    
    10,114Amortization of debt discount, premium and deferred loan costs
    
    
    786
    
    
    
    3,257
    
    
    
    1,858Stock-based compensation expense
    
    
    2,207
    
    
    
    20,956
    
    
    
    6,436Loss on disposals of property, plant and equipment, net
    
    
    101
    
    
    
    298
    
    
    
    28Deferred income taxes
    
    
    577
    
    
    
    187
    
    
    
    67Changes in assets and liabilities:Restricted cash
    
    
    (61
    )
    
    
    139
    
    
    
    335Billed receivables
    
    
    423
    
    
    
    3,495
    
    
    
    13,152Unbilled receivables
    
    
    1,155
    
    
    
    3,120
    
    
    
    765Prepaid expenses and other current assets
    
    
    186
    
    
    
    (651
    )
    
    
    818Other assets
    
    
    3
    
    
    
    343
    
    
    
    382Accounts payable and accrued expenses
    
    
    1,634
    
    
    
    (1,047
    )
    
    
    4,687Accrued payroll and related expenses
    
    
    (7,561
    )
    
    
    (6,425
    )
    
    
    (4,262
    )Refund liabilities
    
    
    (2,806
    )
    
    
    (198
    )
    
    
    (1,755
    )Deferred revenue
    
    
    (63
    )
    
    
    22
    
    
    
    (1,330
    )Noncurrent compensation obligations
    
    
    (3,508
    )
    
    
    (2,798
    )
    
    
    2,969Other long-term liabilities
    
    
    (607
    )
    
    
    165
    
    
    
    521Net cash provided by operating activities
    
    
    16,690
    
    
    
    30,288
    
    
    
    21,296Cash flows from investing activities:Purchases of property and equipment, net of disposal proceeds
    
    
    (3,298
    )
    
    
    (4,002
    )
    
    
    (1,316
    )Net cash used in investing activities
    
    
    (3,298
    )
    
    
    (4,002
    )
    
    
    (1,316
    )Cash flows from financing activities:Payments on senior and convertible notes
    
    
    3⁄4
    
    
    
    (52,637
    )
    
    
    (905
    )Repayments of debt
    
    
    (26,279
    )
    
    
    (25,524
    )
    
    
    (16,800
    )Term loan borrowings
    
    
    3⁄4
    
    
    
    45,000
    
    
    
    25,000Payments for deferred loan costs
    
    
    (59
    )
    
    
    (2,999
    )
    
    
    (6,197
    )Repurchases of common stock
    
    
    (1,687
    )
    
    
    3⁄4
    
    
    
    3⁄4Net proceeds from common stock issuances
    
    
    3⁄4
    
    
    
    57
    
    
    
    3⁄4Preferred stock redemptions
    
    
    3⁄4
    
    
    
    (44
    )
    
    
    3⁄4Issuance costs on common and preferred stock
    
    
    3⁄4
    
    
    
    (72
    )
    
    
    (1,281
    )Net cash used in financing activities
    
    
    (28,025
    )
    
    
    (36,219
    )
    
    
    (183
    )Cash flows from discontinued operations:Operating cash flows
    
    
    
    
    
    
    (2,044
    )
    
    
    1,503Investing cash flows
    
    
    3⁄4
    
    
    
    23,151
    
    
    
    (71
    )Net cash provided by discontinued operations
    
    
    3⁄4
    
    
    
    21,107
    
    
    
    1,432Effect of exchange rates on cash and cash equivalents
    
    
    (1,043
    )
    
    
    962
    
    
    
    638Net change in cash and cash equivalents
    
    
    (15,676
    )
    
    
    12,136
    
    
    
    21,867Cash and cash equivalents at beginning of year
    
    
    42,364
    
    
    
    30,228
    
    
    
    8,361Cash and cash equivalents at end of year
    
    $
    26,688
    
    
    $
    42,364
    
    
    $
    30,228Supplemental disclosure of cash flow information:Cash paid during the year for interest
    
    $
    3,191
    
    
    $
    14,388
    
    
    $
    5,701Cash paid during the year for income taxes, net of refunds received
    
    $
    2,475
    
    
    $
    1,029
    
    
    $
    1,513
 See accompanying Notes to Consolidated Financial Statements.
 45




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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (a) Description of Business and Basis of Presentation
 Description of Business
  
    
    retailers such as discount, department, specialty, grocery and drug stores, and
wholesalers who sell to these retailers;
    
    business enterprises other than retailers/wholesalers such as automobile and aerospace
manufacturers, financial services firms, pharmaceutical companies, and healthcare payors;
    
    federal and state government agencies such as the Centers for Medicare and Medicaid
Services (CMS).
  Basis of Presentation
 (see Note 2).
  (b) Reverse Stock Split
  (c) Revenue Recognition
  46




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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       (d) Cash and Cash Equivalents
   47




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (e) Property and Equipment
  Accounting for the Impairment or Disposal of
Long-Lived Assets
 (f) Internally Developed Software
 Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use
  (g) Goodwill and Other Intangible Assets
 Goodwill and Other Intangible Assets
   48




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (h) Direct Expenses
  (i) Income Taxes
  Accounting for Income Taxes
 Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109
 (j) Foreign Currency
  (k) Earnings Per Common Share
 49




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Earnings Per Share 
 (l) Stock-Based Compensation
 Share-Based Payment
   2008
    
    2007
    
    2006Risk-free interest rates
    
    2.37% - 3.08%
    
    4.05% - 4.17%
    
    
    4.6
    %Dividend yields
    
    
    
    
    
    Volatility factor of expected market price
    
    .876 - .919
    
    .856 - .889
    
    
    .842Weighted-average expected term of option
    
    4  4.5 years
    
    4  4.5 years
    
    5 years
  50




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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (m) Comprehensive Income (Loss)
 Reporting Comprehensive Income 
 (n) Segment Reporting
 Disclosures about Segments of an Enterprise and Related Information
 Note 5
 (o) New Accounting Standards
 SFAS No. 141(R). Business
Combinations
 SFAS No. 157. Fair Value Measurements
   51




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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Accounting for Leases,
  SFAS No. 159. The Fair Value Option for
Financial Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115
 SFAS No. 160. Noncontrolling Interests in
Consolidated Financial Statements
 SFAS No. 161 Disclosures about Derivative
Instruments and Hedging Activities  an amendment of FASB Statement No. 133 Accounting for
Derivative Instruments and Hedging Activities
 52




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FSP APB 14-1. Accounting for
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement)
 (2) DISCONTINUED OPERATIONS
     Years Ended December 31,2008
    
    
    2007
    
    
    2006Business sold:Logistics Management Services
    
    $
    
    
    
    $
    
    
    
    $
    289Channel Revenue
    
    
    
    
    
    
    
    
    
    
    316Airline
    
    
    
    
    
    
    
    
    
    
    (313
    )Meridian
    
    
    
    
    
    
    19,868
    
    
    
    $
    
    
    
    $
    19,868
    
    
    $
    292
  Years Ended December 31,2008
    
    
    2007
    
    
    2006Revenues
    
    $
    
    
    
    $
    17,386
    
    
    $
    41,619Operating income
    
    $
    
    
    
    $
    755
    
    
    $
    3,545
  53




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (3) RELATED PARTY TRANSACTIONS
  (4) MAJOR CLIENTS
  (5) OPERATING SEGMENTS AND RELATED INFORMATION
  54




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Domestic
    
    
    InternationalAccounts
    
    
    AccountsPayable
    
    
    Payable
    
    
    CorporateServices
    
    
    Services
    
    
    Support
    
    
    Total2008Revenues
    
    $
    111,954
    
    
    $
    83,752
    
    
    $
    
    
    
    $
    195,706EBITDA
    
    $
    34,265
    
    
    $
    13,689
    
    
    $
    (16,983
    )
    
    $
    30,971Foreign currency losses on
intercompany balances
    
    
    
    
    
    
    3,283
    
    
    
    
    
    
    
    3,283Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    2,207
    
    
    
    2,207Adjusted EBITDA
    
    $
    34,265
    
    
    $
    16,972
    
    
    $
    (14,776
    )
    
    $
    36,4612007Revenues
    
    $
    140,385
    
    
    $
    86,984
    
    
    $
    
    
    
    $
    227,369EBITDA
    
    $
    51,827
    
    
    $
    12,525
    
    
    $
    (39,798
    )
    
    $
    24,554Operational restructuring expense
    
    
    
    
    
    
    
    
    
    
    1,644
    
    
    
    1,644Foreign currency gains on
intercompany balances
    
    
    
    
    
    
    (1,152
    )
    
    
    
    
    
    
    (1,152
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    20,956
    
    
    
    20,956Adjusted EBITDA
    
    $
    51,827
    
    
    $
    11,373
    
    
    $
    (17,198
    )
    
    $
    46,0022006Revenues
    
    $
    140,415
    
    
    $
    85,483
    
    
    $
    
    
    
    $
    225,898EBITDA
    
    $
    32,150
    
    
    $
    9,440
    
    
    $
    (28,035
    )
    
    $
    13,555Operational restructuring expenses
    
    
    3,404
    
    
    
    2,187
    
    
    
    2,449
    
    
    
    8,040Foreign currency gains on
intercompany balances
    
    
    
    
    
    
    (706
    )
    
    
    
    
    
    
    (706
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    6,436
    
    
    
    6,436Adjusted EBITDA
    
    $
    35,554
    
    
    $
    10,921
    
    
    $
    (19,150
    )
    
    $
    27,325
 55




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2008
    
    
    2007
    
    
    2006Gain (loss) from continuing operations
before discontinued operations
    
    $
    19,030
    
    
    $
    (7,085
    )
    
    $
    (24,082
    )Income taxes
    
    
    3,502
    
    
    
    1,658
    
    
    
    1,165Interest, net
    
    
    3,245
    
    
    
    13,815
    
    
    
    16,311Loss on financial restructuring
    
    
    
    
    
    
    9,397
    
    
    
    10,047Depreciation and amortization
    
    
    5,194
    
    
    
    6,769
    
    
    
    10,114EBITDA
    
    
    30,971
    
    
    
    24,554
    
    
    
    13,555Operational restructuring expense
    
    
    
    
    
    
    1,644
    
    
    
    8,040Foreign currency (gains) losses on
intercompany balances
    
    
    3,283
    
    
    
    (1,152
    )
    
    
    (706
    )Stock-based compensation
    
    
    2,207
    
    
    
    20,956
    
    
    
    6,436Adjusted EBITDA
    
    $
    36,461
    
    
    $
    46,002
    
    
    $
    27,325
  2008
    
    
    2007Domestic Accounts Payable Services
    
    $
    46,509
    
    
    $
    54,274International Accounts Payable Services
    
    
    18,955
    
    
    
    18,296Corporate Support
    
    
    
    
    
    
    Total allocated assets
    
    
    65,464
    
    
    
    72,570Unallocated assets:Cash and cash equivalents
    
    
    26,688
    
    
    
    42,364Restricted cash
    
    
    61
    
    
    
    Deferred loan costs
    
    
    2,170
    
    
    
    2,897Deferred income taxes
    
    
    
    
    
    
    343Prepaid expenses and other assets
    
    
    4,400
    
    
    
    4,264Total assets
    
    $
    98,783
    
    
    $
    122,438
   2008
    
    
    2007
    
    
    2006United States
    
    $
    111,954
    
    
    $
    140,388
    
    
    $
    140,415United Kingdom
    
    
    26,556
    
    
    
    30,548
    
    
    
    30,578Canada
    
    
    21,099
    
    
    
    18,707
    
    
    
    16,650France
    
    
    11,438
    
    
    
    12,084
    
    
    
    12,717Mexico
    
    
    4,697
    
    
    
    5,225
    
    
    
    4,581Spain
    
    
    3,319
    
    
    
    3,270
    
    
    
    2,453Brazil
    
    
    3,339
    
    
    
    3,211
    
    
    
    3,790Germany
    
    
    2,445
    
    
    
    2,459
    
    
    
    2,399Australia
    
    
    1,113
    
    
    
    2,428
    
    
    
    1,553Sweden
    
    
    2,459
    
    
    
    1,806
    
    
    
    1,524Belgium
    
    
    885
    
    
    
    1,089
    
    
    
    1,119Other
    
    
    6,402
    
    
    
    6,154
    
    
    
    8,119$
    195,706
    
    
    $
    227,369
    
    
    $
    225,898
 56




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2008
    
    
    2007United States
    
    $
    32,424
    
    
    $
    35,339United Kingdom
    
    
    554
    
    
    
    670All Other
    
    
    1,007
    
    
    
    1,165$
    33,985
    
    
    $
    37,174
 (6) EARNINGS (LOSS) PER COMMON SHARE
  2008
    
    
    2007
    
    
    2006Basic earnings (loss) per common share:Numerator for earnings (loss) per
common share calculations:Earnings (loss) from continuing
operations before discontinued
operations
    
    $
    19,030
    
    
    $
    (7,085
    )
    
    $
    (24,082
    )Preferred dividends
    
    
    
    
    
    
    (487
    )
    
    
    (895
    )Earnings (loss) for purposes
of computing basic earnings
(loss) per common share from
continuing operations
    
    
    19,030
    
    
    
    (7,572
    )
    
    
    (24,977
    )Earnings from discontinued operations
    
    
    
    
    
    
    20,215
    
    
    
    2,983Earnings (loss) for purposes
of computing basic net
earnings (loss) per common
share
    
    $
    19,030
    
    
    $
    12,643
    
    
    $
    (21,994
    )Denominator:Denominator for basic earnings (loss)
per common share:Weighted-average
common shares outstanding
    
    
    21,829
    
    
    
    12,204
    
    
    
    6,616Basic earnings (loss) per common share:Earnings (loss) from continuing
operations before discontinued
operations
    
    $
    0.87
    
    
    $
    (0.62
    )
    
    $
    (3.77
    )Earnings from discontinued operations
    
    
    
    
    
    
    1.66
    
    
    
    0.45Net earnings (loss)
    
    $
    0.87
    
    
    $
    1.04
    
    
    $
    (3.32
    )
 57




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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2008
    
    
    2007
    
    
    2006Diluted earnings (loss) per common share:Numerator for earnings (loss) per common share
calculations:Earnings (loss) from continuing operations before
discontinued operations
    
    $
    19,030
    
    
    $
    (7,085
    )
    
    $
    (24,082
    )Preferred dividends
    
    
    
    
    
    
    (487
    )
    
    
    (895
    )Earnings (loss) for purposes of computing diluted
earnings (loss) per common share from continuing
operations
    
    
    19,030
    
    
    
    (7,572
    )
    
    
    (24,977
    )Earnings from discontinued operations
    
    
    
    
    
    
    20,215
    
    
    
    2,983Earnings (loss) for purposes of computing diluted
net earnings (loss) per common share
    
    $
    19,030
    
    
    $
    12,643
    
    
    $
    (21,994
    )Denominator:Denominator for basic earnings (loss) per common share:Weighted-average common shares outstanding
    
    
    21,829
    
    
    
    12,204
    
    
    
    6,616Incremental shares from stock-based compensation plans
    
    
    1,179
    
    
    
    
    
    
    
    Denominator for diluted earnings (loss) per common share
    
    
    23,008
    
    
    
    12,204
    
    
    
    6,616Diluted earnings (loss) per common share:Earnings (loss) from continuing operations before
discontinued operations
    
    $
    0.83
    
    
    $
    (0.62
    )
    
    $
    (3.77
    )Earnings from discontinued operations
    
    
    
    
    
    
    1.66
    
    
    
    0.45Net earnings (loss)
    
    $
    0.83
    
    
    $
    1.04
    
    
    $
    (3.32
    )
 (Note 14)
  58




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (7) GOODWILL AND OTHER INTANGIBLE ASSETS
 (a) Goodwill
 Goodwill and Other Intangible Assets
   (b) Other Intangible Assets
  Estimated
    
    
    December 31,
    
    
    December 31,Useful Life
    
    
    2008
    
    
    2007Amortized intangible assets:Customer relationships:
    
    20 yearsGross carrying amount
    
    
    
    
    
    $
    27,700
    
    
    $
    27,700Accumulated amortization
    
    
    
    
    
    
    (10,932
    )
    
    
    (8,728
    )Net carrying amount
    
    
    
    
    
    
    16,768
    
    
    
    18,972Unamortized intangible assets:Trade name
    
    Indefinite
    
    
    2,200
    
    
    
    2,200Total intangible assets
    
    
    
    
    
    $
    18,968
    
    
    $
    21,172
    59




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (8) DEBT, CAPITAL LEASES AND MANDATORILY REDEEMABLE PARTICIPATING PREFERRED STOCK
 2006 Financial Restructuring
   10% Senior
    
    
    9% Series A11% Senior
    
    
    Convertible
    
    
    PreferredNotes
    
    
    Notes
    
    
    StockImputed borrowing rates used for valuation
    
    
    16
    %
    
    
    17
    %
    
    
    18
    %Fair values of cash flows based on imputed rates
    
    $
    42,795
    
    
    $
    42,891
    
    
    $
    10,109Fair values of conversion features
    
    
    
    
    
    
    21,993
    
    
    
    16,777Total estimated fair value
    
    
    42,795
    
    
    
    64,884
    
    
    
    26,886Face value of instruments issued
    
    
    51,455
    
    
    
    59,566
    
    
    
    14,891Excess of face value over fair value
    
    $
    8,660Excess of fair value over face value
    
    
    
    
    
    $
    5,318
    
    
    $
    11,995
    60




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2007 Repayments, Conversions, Redemptions and New Credit Facility
      10% Senior11% Senior
    
    
    ConvertibleNotes
    
    
    NotesInitial carrying value  estimated fair value
at date of issuance  March 17, 2006
    
    $
    42,795
    
    
    $
    64,884Fair value of additional notes issued September
15, 2006 as paid-in-kind interest payment
(Face value of $2,945)
    
    
    
    
    
    
    3,869Amortization of discount (premium)
    
    
    1,001
    
    
    
    (723
    )Carrying value December 31, 2006
    
    $
    43,796
    
    
    $
    68,030Amortization of discount (premium)
    
    
    1,016
    
    
    
    (853
    )Carrying value of notes converted into common
stock prior to redemption (Face value of
$62,360)
    
    
    
    
    
    
    (67,015
    )Carrying value of notes redeemed in October 2007
    
    
    (44,812
    )
    
    
    (162
    )Balance December 31, 2007
    
    $
    
    
    
    $
    
  61




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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 9% Series APreferred StockInitial carrying value  liquidation value at date of issuance
 March 17, 2006
    
    $
    14,891Liquidation value of preferred shares converted to common shares
    
    
    (4,587
    )Accumulated dividends (accrual basis)
    
    
    895Liquidation value December 31, 2006 (accrual basis)
    
    $
    11,199Accumulated dividends (accrual basis)
    
    
    487Liquidation value of preferred shares converted to common
shares prior to redemption
    
    
    (11,642
    )Liquidation value of preferred shares redeemed in October 2007
    
    
    (44
    )Balance December 31, 2007
    
    $
    
  2008 Repayments
   Capital Lease Obligation
  62




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Future Minimum Payments
  Year Ending December 31,2009
    
    $
    5,3142010
    
    
    5,2612011
    
    
    9,0702012
    
    
    2013
    
    
    Thereafter
    
    
    $
    19,645
 (9) LEASE COMMITMENTS
  Accounting for Costs Associated with Exit or Disposal Activities
 Accounting for Operating Leases with Scheduled
Rent Increases,
   Operating
    
    
    CapitalYear Ending December 31,
    
    Leases
    
    
    Leases2009
    
    $
    7,020
    
    
    $
    3632010
    
    
    6,183
    
    
    
    2732011
    
    
    5,880
    
    
    
    2012
    
    
    5,926
    
    
    
    2013
    
    
    5,891
    
    
    
    Thereafter
    
    
    5,678
    
    
    
    Total payments
    
    $
    36,578
    
    
    
    636Less amounts representing interest
    
    
    
    
    
    61Principal balance at December 31, 2008
    
    
    
    
    $
    575
 63




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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (10) INCOME TAXES
  2008
    
    
    2007
    
    
    2006Earnings (loss) from continuing operations
    
    $
    3,502
    
    
    $
    1,658
    
    
    $
    1,165Earnings (loss) from discontinued operations
    
    
    
    
    
    
    408
    
    
    
    854Effect of cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    (1
    )$
    3,502
    
    
    $
    2,066
    
    
    $
    2,018
  2008
    
    
    2007
    
    
    2006United States
    
    $
    18,300
    
    
    $
    (9,775
    )
    
    $
    (20,247
    )Foreign
    
    
    4,232
    
    
    
    4,348
    
    
    
    (2,670
    )$
    22,532
    
    
    $
    (5,427
    )
    
    $
    (22,917
    )
  2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    (130
    )
    
    $
    130
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    3,055
    
    
    
    1,341
    
    
    
    1,0982,925
    
    
    
    1,471
    
    
    
    1,098Deferred:Federal
    
    
    130
    
    
    
    (130
    )
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    447
    
    
    
    317
    
    
    
    67577
    
    
    
    187
    
    
    
    67Total
    
    $
    3,502
    
    
    $
    1,658
    
    
    $
    1,165
 64




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2008
    
    
    2007
    
    
    2006Statutory federal income tax rate
    
    $
    7,886
    
    
    $
    (1,899
    )
    
    $
    (8,021
    )State income taxes, net of federal benefit
    
    
    362
    
    
    
    (571
    )
    
    
    (853
    )Change in deferred tax asset valuation allowance
    
    
    (13,058
    )
    
    
    239
    
    
    
    (60,126
    )IRC Sec. 382 limitation impacts
    
    
    
    
    
    
    
    
    
    
    62,797Foreign loss carry-forward adjustment
    
    
    5,115
    
    
    
    
    
    
    
    Loss on extinguishment of debt
    
    
    
    
    
    
    2,325
    
    
    
    3,516Foreign taxes
    
    
    1,930
    
    
    
    1,207
    
    
    
    821Other, net
    
    
    1,267
    
    
    
    357
    
    
    
    3,031$
    3,502
    
    
    $
    1,658
    
    
    $
    1,165
  2008
    
    
    2007Deferred income tax assets:Accounts payable and accrued expenses
    
    $
    2,582
    
    
    $
    2,908Accrued payroll and related expenses
    
    
    2,967
    
    
    
    6,962Stock  based compensation
    
    
    9,507
    
    
    
    9,899Depreciation
    
    
    2,744
    
    
    
    3,165Noncompete agreements
    
    
    341
    
    
    
    560Unbilled receivables and refund liabilities
    
    
    1,147
    
    
    
    2,244Foreign operating loss carryforward of foreign subsidiary
    
    
    2,842
    
    
    
    10,116Federal operating loss carryforward
    
    
    14,981
    
    
    
    11,830Intangible assets
    
    
    29,103
    
    
    
    34,816State operating loss carryforwards
    
    
    2,665
    
    
    
    2,042Other
    
    
    4,134
    
    
    
    5,280Gross deferred tax assets
    
    
    73,013
    
    
    
    89,822Less valuation allowance
    
    
    64,307
    
    
    
    79,805Gross deferred tax assets net of valuation allowance
    
    
    8,706
    
    
    
    10,017Deferred income tax liabilities:Intangible assets
    
    
    7,293
    
    
    
    8,150Capitalized software
    
    
    1,204
    
    
    
    1,166Other
    
    
    443
    
    
    
    358Gross deferred tax liabilities
    
    
    8,940
    
    
    
    9,674Net deferred
tax assets (liabilities)
    
    $
    (234
    )
    
    $
    343
   65




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109
  Liability forUnrecognizedTax BenefitsBalance at January 1, 2007
    
    $
    1,8342007 Reductions for Tax Positions
    
    
    2007 Additions for Tax Positions
    
    
    Balance at January 1, 2008
    
    
    1,8342008 Reductions for Tax Positions
    
    
    2008 Additions for Tax Positions
    
    
    Balance at December 31, 2008
    
    $
    1,834
   66




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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (11) EMPLOYEE BENEFIT PLANS
   (12) SHAREHOLDER RIGHTS PLAN
   (13) COMMITMENTS AND CONTINGENCIES
 (a) Legal Proceedings
  67




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   (b) Retirement Obligations
  (14) STOCK-BASED COMPENSATION
     68




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         69




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Weighted-
    
    
    Weighted-Average
    
    
    Average
    
    
    AggregateExercise
    
    
    Remaining
    
    
    IntrinsicPrice
    
    
    Contractual
    
    
    ValueOptions
    
    Shares
    
    
    (Per Share)
    
    
    Term
    
    

($
000s)Outstanding at January 1, 2008
    
    
    977,456
    
    
    $
    21.17Granted
    
    
    271,595
    
    
    
    9.59Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (161,565
    )
    
    
    29.14Expired
    
    
    (26,890
    )
    
    
    90.10Outstanding at December 31, 2008
    
    
    1,060,596
    
    
    $
    17.39
    
    
    5.15 years
    
    $
    Exercisable at December 31, 2008
    
    
    477,990
    
    
    $
    24.72
    
    
    4.09 years
    
    $
    
      70




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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   (15) FAIR VALUE OF FINANCIAL INSTRUMENTS
    (16) WORKFORCE REDUCTION AND RESTRUCTURING
 Employers Accounting for Postemployment Benefits, Employers Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits
 71




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Domestic
    
    
    InternationalAccounts
    
    
    AccountsPayable
    
    
    Payable
    
    
    Corporate
    
    
    RestructuringServices
    
    
    Services
    
    
    Support
    
    
    LiabilitiesBalance as of December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,8332006 Accruals:Severance and related
    
    $
    484
    
    
    $
    1,197
    
    
    $
    531
    
    
    
    2,212Lease termination costs
    
    
    
    
    
    
    
    
    
    
    1,372
    
    
    
    1,372Non cash impairment charges
    
    
    
    
    
    
    
    
    
    
    546
    
    
    
    2006 Payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,751
    )2006 Allocations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,262Balance as of December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,9282007 Accruals:Lease termination costs
    
    
    
    
    
    
    
    
    
    
    1,300
    
    
    
    1,300Non cash impairment charges
    
    
    
    
    
    
    
    
    
    
    344
    
    
    
    2007 Payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,671
    )2007 Allocations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    872Balance as of December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,4292008 Payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (427
    )Balance as of December 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,002
 Accounting for Operating Leases with Scheduled Rent Increases.
 72




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ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 ITEM 9A. CONTROLS AND PROCEDURES
     
 Internal Control  Integrated
Framework
  73




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##### Table of Contents



.
  Atlanta, Georgia
    
    /s/ BDO Seidman, LLPMarch 13, 2009
 
 ITEM 9B. Other Information.
  74




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PART III
 
 ITEM 10. Directors, Executive Officers and Corporate Governance
  www.prgx.com
 
 ITEM 11. Executive Compensation
  75




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ITEM 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  Securities Authorized for Issuance Under Equity Compensation Plans
  Equity Compensation Plan Information
 Weighted-average exercise
    
    
    Number of securities remainingNumber of securities to
be issued
    
    
    price of outstanding
    
    
    available for future issuance underupon exercise of outstanding
    
    
    options, warrants and
    
    
    equity compensation plans (excludingPlan category
    
    options, warrants and rights
    
    
    rights (1)
    
    
    securities reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation plans
approved by security
holders:Stock Incentive Plan
    
    
    742,149
    
    
    $
    18.13
    
    
    
    2008 Equity Incentive Plan
    
    
    775,676
    
    
    
    9.59
    
    
    
    1,224,324Share awards (2)
    
    
    1,060,634
    
    
    
    
    
    
    
    77,794Equity compensation plans
not approved by security
holders (3)
    
    
    50,000
    
    
    
    2.80
    
    
    
    Total
    
    
    2,628,459
    
    
    $
    17.39
    
    
    
    1,302,118
 
 (1)
    
    Excludes impact of restricted stock and share awards which is $0.00 per share.(2)
    
    Amounts presented represent 60% of Performance Unit awards under the Companys 2006
Management Incentive Plan. Performance Unit awards are required to be settled 60% in common
stock and 40% in cash.(3)
    
    Inducement Option Grant 
 ITEM 13. Certain Relationships and Related Transactions, and Director Independence
 -
 
 ITEM 14. Principal Accounting Fees and Services
  76




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PART IV
 
 ITEM 15. Exhibits, Financial Statement Schedules
  (1)
    
    Consolidated Financial Statements:For the following consolidated financial information included herein, see Index on Page 45.
 PageReport of Independent Registered Public Accounting Firm
    
    
    41Consolidated Statements of Operations for the Years ended December
31, 2008, 2007 and 2006
    
    
    42Consolidated Balance Sheets as of December 31, 2008 and 2007
    
    
    43Consolidated Statements of Shareholders Equity (Deficit) for the
Years ended December 31, 2008, 2007 and 2006
    
    
    44Consolidated Statements of Cash Flows for the Years ended December
31, 2008, 2007 and 2006
    
    
    45Notes to Consolidated Financial Statements
    
    
    46(2) Financial Statement Schedule:Schedule II  Valuation and Qualifying Accounts
    
    
    S-1(3) Exhibits
 ExhibitNumber
    
    Description3.1
    
    Restated Articles of Incorporation of the Registrant, as amended
and corrected through August 11, 2006 (restated solely for the
purpose of filing with the Commission) (incorporated by reference
to Exhibit 3.1 to the Registrants Report on Form 8-K filed on
August 17, 2006).3.2
    
    Amended and Restated Bylaws of the Registrant (incorporated by
reference to Exhibit 3.1 to the Registrants Form 8-K filed on
December 11, 2007).4.1
    
    Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Registrants Form 10-K for the year ended
December 31, 2001).4.2
    
    See Restated Articles of Incorporation and Bylaws of the
Registrant, filed as Exhibits 3.1 and 3.2, respectively.4.3
    
    Shareholder Protection Rights Agreement, dated as of August 9,
2000, between the Registrant and Rights Agent, effective May 1,
2002 (incorporated by reference to Exhibit 4.3 to the
Registrants Form 10-Q for the quarterly period ended June 30,
2002).4.3.1
    
    First Amendment to Shareholder Protection Rights Agreement, dated
as of March 12, 2002, between the Registrant and Rights Agent
(incorporated by reference to Exhibit 4.3 to the Registrants
Form 10-Q for the quarterly period ended September 30, 2002).4.3.2
    
    Second Amendment to Shareholder Protection Rights Agreement,
dated as of August 16, 2002, between the Registrant and Rights
Agent (incorporated by reference to Exhibit 4.3 to the
Registrants Form 10-Q for the quarterly period ended September
30, 2002).4.3.3
    
    Third Amendment to Shareholder Protection Rights Agreement, dated
as of November 7, 2006, between the Registrant and Rights Agent
(incorporated by reference to Exhibit 4.1 to the Registrants
Form 8-K filed on November 14, 2005).4.3.4
    
    Fourth Amendment to Shareholder Protection Rights Agreement,
dated as of November 14, 2006, between the Registrant and Rights
Agent (incorporated by reference to Exhibit 4.1 to the
Registrants Form 8-K filed on November 30, 2005).4.3.5
    
    Fifth Amendment to Shareholder Protection Rights Agreement, dated
as of March 9, 2006, between the Registrant and Rights Agent
(incorporated by reference to Exhibit 4.9 to the Registrants
Form 10-K for the year ended December 31, 2005).
 77




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##### Table of Contents



ExhibitNumber
    
    Description4.3.6
    
    Sixth Amendment to Shareholder Protection Rights Agreement, dated
as of September 17, 2007, between the Registrant and Rights Agent
(incorporated by reference to Exhibit 4.1 to the Registrants
Form 8-K filed on September 21, 2007).4.4
    
    Indenture dated as of March 17, 2006 governing 10% Senior
Convertible Notes due 2011, with Form of Note appended
(incorporated by reference to Exhibit 4.1 to the Registrants
Form 8-K filed on March 23, 2006).4.4.1
    
    Supplemental Indenture to 10% Senior Convertible Notes Indenture
dated September 4, 2007 (incorporated by reference to Exhibit
10.2 to the Registrants Form 8-K filed on September 5, 2007).4.5
    
    Indenture dated as of March 17, 2006 governing 11% Senior Notes
due 2011, with Form of Note appended (incorporated by reference
to Exhibit 4.2 to the Registrants Form 8-K filed on March 23,
2006).4.5.1
    
    Supplemental Indenture to 11% Senior Notes Indenture dated
September 4, 2007 (incorporated by reference to Exhibit 10.1 to
the Registrants Form 8-K filed on September 5, 2007).+10.1
    
    1996 Stock Option Plan, dated as of January 25, 1996, together
with Forms of Non-qualified Stock Option Agreement (incorporated
by reference to Exhibit 10.2 to the Registrants March 26, 1996
Registration Statement No. 333-1086 on Form S-1).+10.2
    
    Form of Indemnification Agreement between the Registrant and
Directors and certain officers, including named executive
officers, of the Registrant (incorporated by reference to Exhibit
10.4 to the Registrants Form 10-K for the year ended December
31, 2003).+10.3
    
    Form of the Registrants Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.2 to the Registrants
Form 10-Q for the quarterly period ended June 30, 2001).10.4
    
    Noncompetition, Nonsolicitation and Confidentiality Agreement
among The Profit Recovery Group International, Inc., Howard
Schultz & Associates International, Inc., Howard Schultz, Andrew
Schultz and certain trusts, dated January 24, 2002 (incorporated
by reference to Exhibit 10.34 to the Registrants Form 10-K for
the year ended December 31, 2001).10.5
    
    Office Lease Agreement between Galleria 600, LLC and PRG-Schultz
International, Inc. (incorporated by reference to Exhibit 10.43
to the Registrants Form 10-K for the year ended December 31,
2001).10.5.1
    
    First Amendment to Office Lease Agreement between Galleria 600,
LLC and PRG-Schultz International, Inc. (incorporated by
reference to Exhibit 10.65 to the Registrants Form 10-K for the
year ended December 31, 2002).+10. 6
    
    Amended Stock Incentive Plan (incorporated by reference to
Exhibit 10.3 to the Registrants Form 10-Q for the quarterly
period ended June 30, 2002).+10.7
    
    Amended HSA-Texas Stock Option Plan (incorporated by reference to
Exhibit 10.4 to the Registrants Form 10-Q for the quarterly
period ended June 30, 2002).10.8
    
    Investor Rights Agreement, dated as of August 27, 2002, among
PRG-Schultz International, Inc., Berkshire Fund V, LP, Berkshire
Investors LLC and Blum Strategic Partners II, L.P. (incorporated
by reference to Exhibit 10.7 to the Registrants Form 10-Q for
the quarterly period ended September 30, 2002).10.8.1
    
    Amendment to Investor Rights Agreement dated March 28, 2006
(incorporated by reference to Exhibit 10.8 to the Registrants
Form 10-Q for the quarter ended March 31, 2006).+10.9
    
    Form of Non-employee Director Option Agreement (incorporated by
reference to Exhibit 99.1 to the Registrants Report on Form 8-K
filed on February 11, 2005).+10.10
    
    Amended and Restated Employment Agreement between Registrant and
Mr. James B. McCurry, dated as of December 17, 2007 (incorporated
by reference to Exhibit 10.1 to the Registrants Form 8-K filed
on December 19, 2007).+10.10.1
    
    Release Agreement dated December 1, 2008 between the Registrant
and Mr. McCurry (incorporated by reference to Exhibit 10.1 to the
Registrants Form 8-K filed on December 4, 2008).10.11
    
    Separation and Release Agreement between Registrant and Mr. John
M. Cook, dated as of August 2, 2005 (incorporated by reference to
Exhibit 99.1 to Registrants Form 8-K filed on August 8, 2005).10.11.1
    
    First Amendment to Separation and Release Agreement with John M.
Cook dated March 16, 2006 (incorporated by reference to Exhibit
99.1 to the registrants Form 8-K filed on March 22, 2006).10.12
    
    Separation and Release Agreement between Registrant and Mr. John
M. Toma, dated as of August 2, 2005 (incorporated by reference to
Exhibit 99.2 to Registrants Form 8-K filed on August 8, 2005).
 78




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##### Table of Contents



ExhibitNumber
    
    Description10.12.1
    
    First Amendment to Separation and Release Agreement with John M.
Toma dated March 16, 2006 (incorporated by reference to Exhibit
99.2 to the registrants Form 8-K filed on March 22, 2006).+10.13
    
    Employment Agreement between the Registrant and Peter Limeri
entered into on November 28, 2008 (incorporated by reference to
Exhibit 10.2 to the Registrants Form 8-K filed on December 4,
2008).10.14
    
    Amended and Restated Standstill Agreement, dated as of July 16,
2007, between Registrant and Blum Capital Partners, L.P. and
certain of its affiliates (incorporated by reference to Exhibit
10.1 to the Registrants Form 8-K filed on July 16, 2007).10.15
    
    Restructuring Support Agreement dated December 23, 2005
(incorporated by reference to Exhibit 10.66 to the Registrants
Form 10-K for the year ended December 31, 2005).10.15.1
    
    Amended and Restated Restructuring Support Agreement
(incorporated by reference to Exhibit 10.1 to the Registrants
Form 10-Q for the quarter ended March 31, 2006).+10.16
    
    Employment Agreement between the Registrant and Larry Robinson
dated November 28, 2008 (incorporated by reference to Exhibit
10.3 to the Registrants Form 8-K filed on December 4, 2008).+10.17
    
    Employment Agreement between the Registrant and Brad Roos dated
November 28, 2008 (incorporated by reference to Exhibit 10.4 to
the Registrants Form 8-K filed on December 4, 2008).+10.18
    
    Expatriate Assignment Agreement with Brad Roos (incorporated by
reference to Exhibit 10.1 to the Registrants Form 8-K filed on
February 14, 2008).10.19
    
    Registration Rights Agreement dated March 17, 2006 (incorporated
by reference to Exhibit 10.2 to the Registrants Form 10-Q for
the quarter ended March 31, 2006).10.20
    
    Amended and Restated Financing Agreement dated September 17, 2007
(incorporated by reference to Exhibit 10.1 to the Registrants
Form 8-K filed on September 21, 2007).10.20.1
    
    Amendment Number One to Amended and Restated Financing Agreement
(incorporated by reference to Exhibit 10.1 to the Registrants
Form 8-K filed on April 3, 2008).10.21
    
    Security Agreement dated March 17, 2006 (incorporated by
reference to Exhibit 10.4 to the Registrants Form 10-Q for the
quarter ended March 31, 2006).+10.22
    
    Amended and Restated 2006 Management Incentive Plan (incorporated
by reference to Exhibit 10.1 to the Registrants Form 10-Q for
the quarter ended September 30, 2006).+10.22.1
    
    Form of Performance Unit Agreement under 2006 Amended and
Restated Management Incentive Plan (incorporated by reference to
Exhibit 10.2 to the Registrants Form 10-Q for the quarter ended
September 30, 2006).+10.22.2
    
    Form of Amendment to Performance Unit Agreement (incorporated by
reference to Exhibit 10.1 to the Registrants Form 8-K filed on
December 11, 2007).+10.23
    
    Employment Agreement with Norman Lee White dated June 19, 2006
(incorporated by reference to Exhibit 10.1 to the Registrants
Report on Form 8-K filed on June 20, 2006).+10.23.1
    
    Separation Agreement dated November 30, 2008 between PRG-Schultz
USA and Mr. White (incorporated by reference to Exhibit 10.5 to
the Registrants Form 8-K filed on December 4, 2008).+10.24
    
    Form of Non-Employee Director Stock Option Agreement
(incorporated by reference to Exhibit 10.1 to the Registrants
Report on Form 8-K filed on September 18, 2007).10.25
    
    Option Termination Agreement with James B. McCurry dated
September 29, 2006 (incorporated by reference to Exhibit 10.1 to
the Registrants Report on Form 8-K filed on October 5, 2006).+*10.26
    
    2007 Performance Bonus Plan (incorporated by reference to Exhibit
10.1 to the Registrants Report on Form 10-Q for the quarter
ended March 31, 2007).+*10.27
    
    2008 PRG-Schultz Performance Bonus Plan (incorporated by
reference to Exhibit 10.1 to the Registrants Report on Form 10-Q
for the quarter ended March 31, 2008).+10.28
    
    PRG-Schultz International, Inc. 2008 Equity Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Registrants
Form 8-K filed on June 4, 2008).+10.28.1
    
    Form of Restricted Stock Agreement for Non-Employee Directors
(incorporated by reference to Exhibit 10.2 to the Registrants
Form 8-K filed on June 4, 2008).+10.28.2
    
    Form of Non-Qualified Stock Option Agreement for Non-Employee
Directors (incorporated by reference to Exhibit 10.3 to the
Registrants Form 8-K filed on June 4, 2008).
 79




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ExhibitNumber
    
    Description+10.29
    
    Employment Agreement dated January 8, 2009, by and between Mr.
Romil Bahl and the Registrant (incorporated by reference to
Exhibit 10.1 to the Registrants Report on Form 8-K filed on
January 14, 2009).+10.29.1
    
    Form of Nonqualified Stock Option Agreement (incorporated by
reference to Exhibit 10.2 to the Registrants Report on Form 8-K
filed on January 14, 2009).+10.29.2
    
    Form of Restricted Stock Agreement (incorporated by reference to
Exhibit 10.3 to the Registrants Report on Form 8-K filed on
January 14, 2009).14.1
    
    Code of Ethics for Senior Financial Officers (incorporated by
reference to Exhibit 14.1 to the Registrants Form 10-K for the
year ended December 31, 2003).21.1
    
    Subsidiaries of the Registrant.23.1
    
    Consent of BDO Seidman, LLP31.1
    
    Certification of the Chief Executive Officer, pursuant to Rule
13a-14(a) or 15d-14(a), for the year ended December 31, 2008.31.2
    
    Certification of the Chief Financial Officer, pursuant to Rule
13a-14(a) or 15d-14(a), for the year ended December 31, 2008.32.1
    
    Certification of the Chief Executive Officer and Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, for the year ended
December 31, 2008.
 
 *
    
    Confidential treatment, pursuant to 17 CFR §§ 200.80 and 240.24b-2, has been granted
regarding certain portions of the indicated Exhibit, which portions have been filed
separately with the Commission.+
    
    Designates management contract or compensatory plan or arrangement. 80




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SIGNATURES
  PRG-SCHULTZ INTERNATIONAL, INC.By:
    /s/  ROMIL BAHLRomil BahlPresident, Chief Executive Officer, Director
(Principal Executive Officer)Date:
    March 13, 2009  Signature
    
    Title
    
    Date/s/ ROMIL BAHL
Romil Bahl
    
    President, Chief Executive Officer 
and
Director
(Principal Executive Officer)
    
    March 13, 2009/s/ PETER LIMERI
Peter Limeri
    
    Chief Financial Officer and Treasurer (Principal
Financial Officer)
    
    March 13, 2009/s/ ROBERT B. LEE
Robert B. Lee
    
    Controller (Principal
Accounting Officer)
    
    March 13, 2009/s/ DAVID A. COLE
David A. Cole
    
    Director
    
    March 13, 2009/s/ PATRICK G. DILLS
Patrick G. Dills
    
    Chairman of the Board
    
    March 13, 2009/s/ N. COLIN LIND
N. Colin Lind
    
    Director
    
    March 13, 2009/s/ PHILIP J. MAZZILLI, JR.
Philip J. Mazzilli, Jr.
    
    Director
    
    March 13, 2009/s/ STEVEN P. ROSENBERG
Steven P. Rosenberg
    
    Director
    
    March 13, 2009
 81




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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In thousands)
 Additions
    
    DeductionsChargeBalance at
    
    (Credit) to
    
    Credit to
    
    Balance atBeginning
    
    Costs and
    
    the respective
    
    End ofDescription
    
    of Year
    
    Expenses
    
    receivable (1)
    
    Year2008Allowance for doubtful accounts receivable
    
    $
    826
    
    
    
    319
    
    
    
    (224
    )
    
    $
    921Allowance for doubtful employee advances
and miscellaneous receivables
    
    $
    1,831
    
    
    
    
    
    
    
    (1,520
    )
    
    $
    311Deferred tax valuation allowance
    
    $
    79,805
    
    
    
    (15,720
    )
    
    
    
    
    
    $
    64,0852007Allowance for doubtful accounts receivable
    
    $
    1,795
    
    
    
    (961
    )
    
    
    (8
    )
    
    $
    826Allowance for doubtful employee advances
and miscellaneous receivables
    
    $
    1,306
    
    
    
    525
    
    
    
    
    
    
    $
    1,831Deferred tax valuation allowance
    
    $
    79,240
    
    
    
    565
    
    
    
    
    
    
    $
    79,8052006Allowance for doubtful accounts receivable
    
    $
    2,638
    
    
    
    (590
    )
    
    
    (253
    )
    
    $
    1,795Allowance for doubtful employee advances
and miscellaneous receivables
    
    $
    2,974
    
    
    
    460
    
    
    
    (2,128
    )
    
    $
    1,306Deferred tax valuation allowance
    
    $
    139,312
    
    
    
    (60,072
    )
    
    
    
    
    
    $
    79,240
 
 (1)
    
    Write-offs, net of recoveries S-1




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