##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 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(State or other jurisdiction of 
incorporation or organization)
    
    58-2213805(I.R.S. Employer
Identification No.)600 Galleria Parkway 
Suite 100
Atlanta, Georgia(Address of principal executive offices)
    
    30339-5986(Zip Code)
 Registrant s telephone number, including area code: (770) 779-3900
 þ o
  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




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##### 



PRG-SCHULTZ INTERNATIONAL, INC.
 FORM 10-Q
For the Quarter Ended September 30, 2008
 INDEX
 Page No.Part I.
    
    Financial InformationItem 1.
    
    Financial Statements
    
    
    1Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007
    
    
    1Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4.
    
    Controls and Procedures
    
    
    24Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    25Item 1A.
    
    Risk Factors
    
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3.
    
    Defaults Upon Senior Securities
    
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 5.
    
    Other Information
    
    
    25Item 6.
    
    Exhibits
    
    
    26Signatures
    
    
    
    
    
    
    27EX-31.1EX-31.2EX-32.1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    49,182
    
    
    $
    53,207
    
    
    $
    147,093
    
    
    $
    163,552Cost of revenues
    
    
    31,169
    
    
    
    33,511
    
    
    
    94,362
    
    
    
    105,624Gross margin
    
    
    18,013
    
    
    
    19,696
    
    
    
    52,731
    
    
    
    57,928Selling, general and administrative expenses
    
    
    12,139
    
    
    
    17,562
    
    
    
    36,006
    
    
    
    45,730Operational restructuring expense (Note I)
    
    
    
    
    
    
    1,644
    
    
    
    
    
    
    
    1,644Operating income
    
    
    5,874
    
    
    
    490
    
    
    
    16,725
    
    
    
    10,554Interest expense, net
    
    
    789
    
    
    
    3,133
    
    
    
    2,545
    
    
    
    12,023Earnings (loss) from continuing operations
before income taxes and discontinued operations
    
    
    5,085
    
    
    
    (2,643
    )
    
    
    14,180
    
    
    
    (1,469
    )Income taxes
    
    
    879
    
    
    
    337
    
    
    
    1,872
    
    
    
    1,212Earnings (loss) from continuing operations
before discontinued operations
    
    
    4,206
    
    
    
    (2,980
    )
    
    
    12,308
    
    
    
    (2,681
    )Discontinued operations (Note B):Earnings (loss) from discontinued operations,
net of income taxes
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    19,764Net earnings (loss)
    
    $
    4,206
    
    
    $
    (2,991
    )
    
    $
    12,308
    
    
    $
    17,083Basic earnings (loss) per common share (Note C):Earnings (loss) from continuing operations
before discontinued operations
    
    $
    0.19
    
    
    $
    (0.31
    )
    
    $
    0.57
    
    
    $
    (0.34
    )Earnings (loss) from discontinued operations
    
    
    
    
    
    
    (0.00
    )
    
    
    
    
    
    
    2.14Net earnings
    
    $
    0.19
    
    
    $
    (0.31
    )
    
    $
    0.57
    
    
    $
    1.80Diluted earnings (loss) per common share (Note C):Earnings (loss) from continuing operations
before discontinued operations
    
    $
    0.18
    
    
    $
    (0.31
    )
    
    $
    0.54
    
    
    $
    (0.34
    )Earnings (loss) from discontinued operations
    
    
    
    
    
    
    (0.00
    )
    
    
    
    
    
    
    2.14Net earnings
    
    $
    0.18
    
    
    $
    (0.31
    )
    
    $
    0.54
    
    
    $
    1.80Weighted average common shares outstanding (Note C):Basic
    
    
    21,919
    
    
    
    10,275
    
    
    
    21,726
    
    
    
    9,247Diluted
    
    
    23,002
    
    
    
    10,275
    
    
    
    22,942
    
    
    
    9,247
 See accompanying Notes to Condensed Consolidated Financial Statements.
 1




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 September 30,2008
    
    
    December 31,(Unaudited)
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents (Note G)
    
    $
    22,788
    
    
    $
    42,364Restricted cash
    
    
    251
    
    
    
    Receivables:Contract receivables, less allowances of $690 in 2008 and $826 in 2007Billed
    
    
    25,961
    
    
    
    30,251Unbilled
    
    
    6,067
    
    
    
    6,44032,028
    
    
    
    36,691Employee advances and miscellaneous receivables, less allowances of $1,897 in 2008
and $1,831 in 2007
    
    
    500
    
    
    
    1,118Total receivables
    
    
    32,528
    
    
    
    37,809Prepaid expenses and other current assets
    
    
    2,296
    
    
    
    2,676Deferred income taxes
    
    
    
    
    
    
    64Total current assets
    
    
    57,863
    
    
    
    82,913Property and equipment, at cost
    
    
    41,343
    
    
    
    41,148Less accumulated depreciation and amortization
    
    
    (33,549
    )
    
    
    (33,113
    )Property and equipment, net
    
    
    7,794
    
    
    
    8,035Goodwill
    
    
    4,600
    
    
    
    4,600Intangible assets, less accumulated amortization of $10,381 in 2008 and $8,728 in 2007
    
    
    19,519
    
    
    
    21,172Unbilled receivables
    
    
    1,953
    
    
    
    2,072Deferred income taxes
    
    
    234
    
    
    
    279Other assets
    
    
    2,759
    
    
    
    3,367$
    94,722
    
    
    $
    122,438LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    13,013
    
    
    $
    16,117Accrued payroll and related expenses
    
    
    24,281
    
    
    
    31,435Refund liabilities
    
    
    6,834
    
    
    
    9,897Deferred revenue
    
    
    417
    
    
    
    620Current portions of debt obligations
    
    
    5,306
    
    
    
    7,846Total current liabilities
    
    
    49,851
    
    
    
    65,915Long term debt (Note H)
    
    
    15,662
    
    
    
    38,078Noncurrent compensation obligations
    
    
    5,186
    
    
    
    8,548Refund liabilities
    
    
    895
    
    
    
    1,676Other long-term liabilities
    
    
    5,264
    
    
    
    5,872Total liabilities
    
    
    76,858
    
    
    
    120,089Shareholders equity (Notes D and H):Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares;
issued 22,795,476 in 2008 and 22,100,090 in 2007
    
    
    228
    
    
    
    221Additional paid-in capital
    
    
    609,110
    
    
    
    605,592Accumulated deficit
    
    
    (546,710
    )
    
    
    (559,018
    )Accumulated other comprehensive income
    
    
    3,946
    
    
    
    4,264Treasury stock, at cost; 576,453 shares in 2008 and 2007
    
    
    (48,710
    )
    
    
    (48,710
    )Total shareholders equity
    
    
    17,864
    
    
    
    2,349Commitments and contingencies (Note I)
    
    $
    94,722
    
    
    $
    122,438
 See accompanying Notes to Condensed Consolidated Financial Statements.
 2




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
(In thousands)
 Nine Months EndedSeptember 30,2008
    
    
    2007Cash flows from operating activities:Net earnings
    
    $
    12,308
    
    
    $
    17,083Earnings from discontinued operations
    
    
    
    
    
    
    19,764Earnings (loss) from continuing operations
    
    
    12,308
    
    
    
    (2,681
    )Adjustments to reconcile earnings (loss) from continuing operations
to net cash provided by operating activities:Depreciation and amortization
    
    
    3,897
    
    
    
    5,263Amortization of debt discount, premium and deferred loan costs
    
    
    588
    
    
    
    2,451Stock-based compensation costs
    
    
    4,961
    
    
    
    12,315Loss on sale of property, plant and equipment
    
    
    84
    
    
    
    595Deferred income taxes
    
    
    109
    
    
    
    Changes in assets and liabilities:Restricted cash
    
    
    (262
    )
    
    
    (103
    )Billed receivables
    
    
    4,022
    
    
    
    1,666Unbilled receivables
    
    
    492
    
    
    
    2,233Prepaid expenses and other current assets
    
    
    279
    
    
    
    (911
    )Other assets
    
    
    24
    
    
    
    368Accounts payable and accrued expenses
    
    
    (2,498
    )
    
    
    (3,218
    )Accrued payroll and related expenses
    
    
    (6,864
    )
    
    
    (10,307
    )Refund liabilities
    
    
    (3,844
    )
    
    
    (545
    )Deferred revenue
    
    
    (197
    )
    
    
    213Noncurrent compensation obligations
    
    
    (4,561
    )
    
    
    (773
    )Other long-term liabilities
    
    
    (608
    )
    
    
    332Net cash provided by operating activities
    
    
    7,930
    
    
    
    6,898Cash flows from investing activities:Purchases of property and equipment, net of disposal proceeds
    
    
    (2,211
    )
    
    
    (2,172
    )Net cash used in investing activities
    
    
    (2,211
    )
    
    
    (2,172
    )Cash flows from financing activities:Net repayments of debt
    
    
    (24,956
    )
    
    
    (25,324
    )Issuance costs of common and preferred stock
    
    
    
    
    
    
    (15
    )Net proceeds from common stock issuances, including option exercises
    
    
    
    
    
    
    57Payments for deferred loan costs
    
    
    (59
    )
    
    
    (1,787
    )Net cash used in financing activities
    
    
    (25,015
    )
    
    
    (27,069
    )Cash flows from discontinued operations:Operating cash flows
    
    
    
    
    
    
    (2,189
    )Investing cash flows
    
    
    
    
    
    
    21,133Net cash provided by discontinued operations
    
    
    
    
    
    
    18,944Effect of exchange rates on cash and cash equivalents
    
    
    (280
    )
    
    
    928Net change in cash and cash equivalents
    
    
    (19,576
    )
    
    
    (2,471
    )Cash and cash equivalents at beginning of period
    
    
    42,364
    
    
    
    30,228Cash and cash equivalents at end of period
    
    $
    22,788
    
    
    $
    27,757Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    2,564
    
    
    $
    13,319Cash paid during the period for income taxes, net of refunds
    
    $
    1,918
    
    
    $
    672
 See accompanying Notes to Condensed Consolidated Financial Statements.
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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008 and 2007
(Unaudited)
 Note A  Basis of Presentation
     New Accounting Standards
 Fair Value Measurements
     Accounting for Leases,
 4




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  The Fair Value Option for Financial Assets
and Financial Liabilities  Including an amendment of FASB Statement No. 115
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements
 Note B  Discontinued Operations
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    17,386Operating income (loss)
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    713Gain on sale or disposal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,460
    
    
    
    (11
    )
    
    
    
    
    
    
    20,173Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    409Earnings (loss) from discontinued operations
    
    $
    
    
    
    $
    (11
    )
    
    $
    
    
    
    $
    19,764
  5




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  
 Note C  Earnings (Loss) Per Common Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Basic earnings (loss) per common share:
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator for earnings (loss) per common share calculations:Earnings (loss) from continuing operations before
discontinued operations
    
    $
    4,206
    
    
    $
    (2,980
    )
    
    $
    12,308
    
    
    $
    (2,681
    )Preferred dividends
    
    
    
    
    
    
    (151
    )
    
    
    
    
    
    
    (487
    )Earnings (loss) for purposes of computing basic
earnings per common share from continuing
operations
    
    
    4,206
    
    
    
    (3,131
    )
    
    
    12,308
    
    
    
    (3,168
    )Earnings (loss) from discontinued operations
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    19,764Earnings (loss) for purposes of computing basic
net earnings per common share
    
    $
    4,206
    
    
    $
    (3,142
    )
    
    $
    12,308
    
    
    $
    16,596Denominator:Denominator for basic earnings (loss) per common share
Weighted average common shares outstanding during the
period
    
    
    21,919
    
    
    
    10,275
    
    
    
    21,726
    
    
    
    9,247Basic earnings (loss) per common share:Earnings (loss) from continuing operations before
discontinued operations
    
    $
    0.19
    
    
    $
    (0.31
    )
    
    $
    0.57
    
    
    $
    (0.34
    )Earnings (loss) from discontinued operations
    
    
    
    
    
    
    (0.00
    )
    
    
    
    
    
    
    2.14Net earnings (loss)
    
    $
    0.19
    
    
    $
    (0.31
    )
    
    $
    0.57
    
    
    $
    1.80
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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Diluted earnings (loss) per common share:
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator for earnings (loss) per common share calculations:Earnings (loss) from continuing operations before
discontinued operations
    
    $
    4,206
    
    
    $
    (2,980
    )
    
    $
    12,308
    
    
    $
    (2,681
    )Preferred dividends
    
    
    
    
    
    
    (151
    )
    
    
    
    
    
    
    (487
    )Earnings (loss) for purposes of computing diluted
earnings (loss) per common share from continuing
operations
    
    
    4,206
    
    
    
    (3,131
    )
    
    
    12,308
    
    
    
    (3,168
    )Earnings (loss) from discontinued operations
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    19,764Earnings (loss) for purposes of computing diluted
net earnings (loss) per common share
    
    $
    4,206
    
    
    $
    (3,142
    )
    
    $
    12,308
    
    
    $
    16,596Denominator:Denominator for basic earnings (loss) per common share
weighted-average common shares outstanding during the
period
    
    
    21,919
    
    
    
    10,275
    
    
    
    21,726
    
    
    
    9,247Incremental shares from stock-based compensation plans
    
    
    1,083
    
    
    
    
    
    
    
    1,216
    
    
    
    Denominator for diluted earnings (loss) per common share
    
    
    23,002
    
    
    
    10,275
    
    
    
    22,942
    
    
    
    9,247Diluted earnings (loss) per common share:Earnings (loss) from continuing operations before
discontinued operations
    
    $
    0.18
    
    
    $
    (0.31
    )
    
    $
    0.54
    
    
    $
    (0.34
    )Earnings (loss) from discontinued operations
    
    
    
    
    
    
    (0.00
    )
    
    
    
    
    
    
    2.14Net earnings (loss)
    
    $
    0.18
    
    
    $
    (0.31
    )
    
    $
    0.54
    
    
    $
    1.80
  Note D  Stock-Based Compensation
   7




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
         8




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Note E   Operating Segments and Related Information
  Domestic Accounts Payable Services
  International Accounts Payable Services
  Corporate Support
  9




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Domestic
    
    
    InternationalAccounts
    
    
    AccountsPayable
    
    
    Payable
    
    
    CorporateServices
    
    
    Services
    
    
    Support
    
    
    TotalThree Months Ended September 30, 2008Revenues
    
    $
    27,853
    
    
    $
    21,329
    
    
    $
    
    
    
    $
    49,182EBITDA
    
    $
    8,167
    
    
    $
    2,850
    
    
    $
    (3,962
    )
    
    $
    7,055Foreign currency (gains) losses on
intercompany balances
    
    
    
    
    
    
    1,801
    
    
    
    
    
    
    
    1,801Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    377
    
    
    
    377Adjusted EBITDA
    
    $
    8,167
    
    
    $
    4,651
    
    
    $
    (3,585
    )
    
    $
    9,233Three Months Ended September 30, 2007Revenues
    
    $
    32,853
    
    
    $
    20,354
    
    
    $
    
    
    
    $
    53,207EBITDA
    
    $
    12,209
    
    
    $
    2,211
    
    
    $
    (12,231
    )
    
    $
    2,189Operational restructuring expense
    
    
    
    
    
    
    
    
    
    
    1,644
    
    
    
    1,644Foreign currency (gains) losses on
intercompany balances
    
    
    
    
    
    
    (505
    )
    
    
    
    
    
    
    (505
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    6,886
    
    
    
    6,886Adjusted EBITDA
    
    $
    12,209
    
    
    $
    1,706
    
    
    $
    (3,701
    )
    
    $
    10,214Nine Months Ended September 30, 2008Revenues
    
    $
    84,347
    
    
    $
    62,746
    
    
    $
    
    
    
    $
    147,093EBITDA
    
    $
    26,310
    
    
    $
    9,752
    
    
    $
    (15,440
    )
    
    $
    20,622Foreign currency (gains) losses on
intercompany balances
    
    
    
    
    
    
    1,335
    
    
    
    
    
    
    
    1,335Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    4,961
    
    
    
    4,961Adjusted EBITDA
    
    $
    26,310
    
    
    $
    11,087
    
    
    $
    (10,479
    )
    
    $
    26,918Nine Months Ended September 30, 2007Revenues
    
    $
    102,552
    
    
    $
    61,000
    
    
    $
    
    
    
    $
    163,552EBITDA
    
    $
    35,488
    
    
    $
    7,163
    
    
    $
    (26,834
    )
    
    $
    15,817Operational restructuring expense
    
    
    
    
    
    
    
    
    
    
    1,644
    
    
    
    1,644Foreign currency (gains) losses on
intercompany balances
    
    
    
    
    
    
    (1,085
    )
    
    
    
    
    
    
    (1,085
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    12,315
    
    
    
    12,315Adjusted EBITDA
    
    $
    35,488
    
    
    $
    6,078
    
    
    $
    (12,875
    )
    
    $
    28,691
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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Earnings (loss) from continuing operations
before discontinued operations
    
    $
    4,206
    
    
    $
    (2,980
    )
    
    $
    12,308
    
    
    $
    (2,681
    )Income taxes
    
    
    879
    
    
    
    337
    
    
    
    1,872
    
    
    
    1,212Interest, net
    
    
    789
    
    
    
    3,133
    
    
    
    2,545
    
    
    
    12,023Depreciation and amortization
    
    
    1,181
    
    
    
    1,699
    
    
    
    3,897
    
    
    
    5,263EBITDA
    
    
    7,055
    
    
    
    2,189
    
    
    
    20,622
    
    
    
    15,817Operational restructuring expense
    
    
    
    
    
    
    1,644
    
    
    
    
    
    
    
    1,644Foreign currency (gains) losses on
intercompany balances
    
    
    1,801
    
    
    
    (505
    )
    
    
    1,335
    
    
    
    (1,085
    )Stock-based compensation
    
    
    377
    
    
    
    6,886
    
    
    
    4,961
    
    
    
    12,315Adjusted EBITDA
    
    $
    9,233
    
    
    $
    10,214
    
    
    $
    26,918
    
    
    $
    28,691
  Note F  Comprehensive Income
 Reporting Comprehensive Income
 Note G  Cash Equivalents
   Note H  Long Term Debt
  11




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##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
      Note I  Commitments and Contingencies
 Legal Proceedings
   12




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PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Retirement Obligations
  Operational Restructuring Obligations
 Accounting for Costs Associated with Exit or
Disposal Activities.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
    Medicare
    14




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Critical Accounting Policies
   New Accounting Standards
 Fair Value Measurements
     Accounting for Leases,
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##### Table of Contents



The Fair Value Option for Financial Assets
and Financial Liabilities  Including an amendment of FASB Statement No. 115
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements
 Results of Operations
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    63.4
    
    
    
    63.0
    
    
    
    64.1
    
    
    
    64.6Gross margin
    
    
    36.6
    
    
    
    37.0
    
    
    
    35.9
    
    
    
    35.4Selling, general and administrative expenses
    
    
    24.7
    
    
    
    33.0
    
    
    
    24.5
    
    
    
    28.0Operational restructuring expenses
    
    
    
    
    
    
    3.1
    
    
    
    
    
    
    
    1.0Operating income
    
    
    11.9
    
    
    
    0.9
    
    
    
    11.4
    
    
    
    6.4Interest expense, net
    
    
    1.6
    
    
    
    5.9
    
    
    
    1.7
    
    
    
    7.3Earnings (loss) from continuing
operations before income taxes and
discontinued operations
    
    
    10.3
    
    
    
    (5.0
    )
    
    
    9.7
    
    
    
    (0.9
    )
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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Income taxes
    
    
    1.8
    
    
    
    0.6
    
    
    
    1.3
    
    
    
    0.7Earnings (loss) from continuing
operations before discontinued
operations
    
    
    8.5
    
    
    
    (5.6
    )
    
    
    8.4
    
    
    
    (1.6
    )Earnings from discontinued operations
    
    
    
    
    
    
    (0.0
    )
    
    
    
    
    
    
    12.1Net earnings
    
    
    8.5
    %
    
    
    (5.6
    )%
    
    
    8.4
    %
    
    
    10.5
    %
  Three and Nine Months Ended September 30, 2008 Compared to the Corresponding Periods of the Prior Year
 Accounts Payable Services
 Revenue
 Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Domestic Accounts Payable Services revenues
    
    $
    27.9
    
    
    $
    32.9
    
    
    $
    84.3
    
    
    $
    102.6International Accounts Payable Services revenues
    
    
    21.3
    
    
    
    20.3
    
    
    
    62.8
    
    
    
    61.0Total Accounts Payable Services revenues
    
    $
    49.2
    
    
    $
    53.2
    
    
    $
    147.1
    
    
    $
    163.6
   17




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##### Table of Contents



Cost of Revenues ( ).
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Domestic Accounts Payable Services COR
    
    $
    16.8
    
    
    $
    17.6
    
    
    $
    49.3
    
    
    $
    58.4International Accounts Payable Services COR
    
    
    14.3
    
    
    
    15.9
    
    
    
    45.1
    
    
    
    47.2Total Accounts Payable Services COR
    
    $
    31.1
    
    
    $
    33.5
    
    
    $
    94.4
    
    
    $
    105.6
   Selling, General, and Administrative Expenses .
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Domestic Accounts Payable Services SG&A
    
    $
    3.9
    
    
    $
    4.5
    
    
    $
    12.2
    
    
    $
    13.0International Accounts Payable Services SG&A
    
    
    4.3
    
    
    
    2.4
    
    
    
    8.4
    
    
    
    7.5Total Accounts Payable Services SG&A
    
    $
    8.2
    
    
    $
    6.9
    
    
    $
    20.6
    
    
    $
    20.5
  18




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##### Table of Contents



Corporate Support
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Corporate Support SG&A
    
    $
    4.0
    
    
    $
    10.6
    
    
    $
    15.4
    
    
    $
    25.2
  Discontinued Operations
  
 Other Items
 Interest Expense.
 19




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##### Table of Contents



Income Tax Expense.
 Liquidity and Capital Resources
    .
 Executive Severance Payments
  Bankruptcy Litigation
 20




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##### Table of Contents



Secured Credit Facility
    Stock Repurchase Program
  2006 Management Incentive Plan
  21




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##### Table of Contents



Off Balance Sheet Arrangements
  Forward Looking Statements
   22




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Market Risk.
 Interest Rate Risk
 Stock-Based Compensation.
 23




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##### Table of Contents



Item 4. Controls and Procedures
   24




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  25




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##### Table of Contents



Item 6. 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).4.3.6
    
    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 November 26, 2001 by and between Registrant and
Sun Trust Bank (incorporated by reference to Exhibit 4.3 to the
Registrants Registration Statement No. 333-76018 on Form S-3
filed December 27, 2001).4.5
    
    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).4.5.1
    
    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).4.6
    
    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).4.6.1
    
    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).31.1
    
    Certification of the Chief Executive Officer, pursuant to Rule
13a-14(a) or 15d-14(a), for the quarter ended September 30, 2008.31.2
    
    Certification of the Chief Financial Officer, pursuant to Rule
13a-14(a) or 15d-14(a), for the quarter ended September 30, 2008.32.1
    
    Certification of the Chief Executive Officer and Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended
September 30, 2008.
 26




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SIGNATURES
  PRG-SCHULTZ INTERNATIONAL, INC.November 6, 2008
    By:
    /s/ James B. McCurryJames B. McCurryPresident, Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)November 6, 2008
    By:
    /s/ Peter LimeriPeter LimeriChief Financial Officer and Treasurer
(Principal Financial Officer) 27