##### 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 June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-28000
 
 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
 þ o
  o o þ
 o þ




---



##### 



PRG-SCHULTZ INTERNATIONAL, INC.
 FORM 10-Q
For the Quarter Ended June 30, 2007
 INDEX
 Page No.Part I.Financial InformationItem 1. Financial Statements
    
    
    1Condensed Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 2007 and 2006
    
    
    1Condensed Consolidated Balance Sheets as of June 30, 2007 and
December 31, 2006
    
    
    2Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2007 and 2006
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    25Part II.Other InformationItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    28Signatures
    
    
    30EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO




---



##### 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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    53,315
    
    
    $
    55,141
    
    
    $
    110,345
    
    
    $
    110,856Cost of revenues
    
    
    34,872
    
    
    
    39,943
    
    
    
    72,113
    
    
    
    79,723Gross margin
    
    
    18,443
    
    
    
    15,198
    
    
    
    38,232
    
    
    
    31,133Selling, general and administrative expenses
    
    
    14,486
    
    
    
    12,737
    
    
    
    28,168
    
    
    
    26,803Operational restructuring expense (Note I)
    
    
    
    
    
    
    1,580
    
    
    
    
    
    
    
    1,988Operating income
    
    
    3,957
    
    
    
    881
    
    
    
    10,064
    
    
    
    2,342Interest expense, net
    
    
    4,749
    
    
    
    4,292
    
    
    
    8,890
    
    
    
    6,859Loss on financial restructuring (Note H)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,129Earnings (loss) from continuing
operations before income taxes and
discontinued operations
    
    
    (792
    )
    
    
    (3,411
    )
    
    
    1,174
    
    
    
    (14,646
    )Income taxes
    
    
    344
    
    
    
    190
    
    
    
    875
    
    
    
    454Earnings (loss) from continuing
operations before discontinued
operations
    
    
    (1,136
    )
    
    
    (3,601
    )
    
    
    299
    
    
    
    (15,100
    )Discontinued operations (Note B):Earnings (loss) from discontinued
operations, net of income taxes
    
    
    19,687
    
    
    
    (44
    )
    
    
    19,775
    
    
    
    1,161Net earnings (loss)
    
    $
    18,551
    
    
    $
    (3,645
    )
    
    $
    20,074
    
    
    $
    (13,939
    )Basic and diluted earnings (loss) per
common share (Note C):Earnings (loss) from continuing
operations before discontinued
operations
    
    $
    (0.15
    )
    
    $
    (0.61
    )
    
    $
    0.00
    
    
    $
    (2.45
    )Discontinued operations
    
    
    2.17
    
    
    
    (0.01
    )
    
    
    2.26
    
    
    
    0.18Net earnings (loss)
    
    $
    2.02
    
    
    $
    (0.62
    )
    
    $
    2.26
    
    
    $
    (2.27
    )Weighted-average common shares outstanding
(Note C ):Basic
    
    
    9,093
    
    
    
    6,388
    
    
    
    8,733
    
    
    
    6,300Diluted
    
    
    9,093
    
    
    
    6,388
    
    
    
    8,733
    
    
    
    6,300
 See accompanying Notes to Condensed Consolidated Financial Statements.
 1




---



##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share data)
 June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents (Note G)
    
    $
    29,582
    
    
    $
    30,228Restricted cash
    
    
    175
    
    
    
    139Receivables:Contract receivables, less allowances of $1,157 in 2007 and $1,795 in 2006Billed
    
    
    29,192
    
    
    
    31,246Unbilled
    
    
    7,207
    
    
    
    8,45736,399
    
    
    
    39,703Employee advances and miscellaneous receivables, less allowances of $1,559 in 2007 and
$1,306 in 2006
    
    
    370
    
    
    
    2,534Total receivables
    
    
    36,769
    
    
    
    42,237Prepaid expenses and other current assets
    
    
    3,105
    
    
    
    1,953Deferred income taxes
    
    
    
    
    
    
    139Current assets of discontinued operations (Note B)
    
    
    2,031
    
    
    
    52,320Total current assets
    
    
    71,662
    
    
    
    127,016Property and equipment, at cost
    
    
    45,529
    
    
    
    52,990Less accumulated depreciation and amortization
    
    
    (37,996
    )
    
    
    (44,180
    )Property and equipment, net
    
    
    7,533
    
    
    
    8,810Goodwill
    
    
    4,600
    
    
    
    4,600Intangible assets, less accumulated amortization of $7,531 in 2007 and $6,838 in 2006
    
    
    22,369
    
    
    
    23,062Unbilled receivables
    
    
    2,329
    
    
    
    3,175Deferred income taxes
    
    
    210
    
    
    
    391Other assets
    
    
    5,730
    
    
    
    7,492Noncurrent assets of discontinued operations (Note B)
    
    
    
    
    
    
    4,121$
    114,433
    
    
    $
    178,667LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable and accrued expenses
    
    $
    19,149
    
    
    $
    17,959Accrued payroll and related expenses
    
    
    25,572
    
    
    
    37,224Refund liabilities
    
    
    9,717
    
    
    
    10,112Deferred revenue
    
    
    850
    
    
    
    545Current portions of debt obligations
    
    
    581
    
    
    
    750Current liabilities of discontinued operations (Note B)
    
    
    
    
    
    
    55,208Total current liabilities
    
    
    55,869
    
    
    
    121,798Senior notes, net of unamortized discount of $6,991 in 2007 and $7,659 in 2006 (Note H)
    
    
    44,464
    
    
    
    43,796Senior convertible notes, including unamortized premium of $4,409 in 2007 and
$5,519 in 2006 (Note H)
    
    
    60,491
    
    
    
    68,030Other debt obligations (Note H)
    
    
    719
    
    
    
    25,096Noncurrent compensation obligations
    
    
    8,824
    
    
    
    5,859Refund liabilities
    
    
    1,678
    
    
    
    1,659Other long-term liabilities
    
    
    5,458
    
    
    
    5,713Total liabilities
    
    
    177,503
    
    
    
    271,951Mandatorily redeemable participating preferred stock (Note H)
    
    
    8,254
    
    
    
    11,199Shareholders equity (deficit) (Notes D and H):Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares;
issued 10,542,887 in 2007 and 8,398,770 in 2006
    
    
    105
    
    
    
    84Additional paid-in capital
    
    
    525,939
    
    
    
    513,920Accumulated deficit
    
    
    (552,074
    )
    
    
    (571,818
    )Accumulated other comprehensive income
    
    
    3,416
    
    
    
    2,041Treasury stock, at cost; 576,453 shares in 2007 and 2006
    
    
    (48,710
    )
    
    
    (48,710
    )Total shareholders equity (deficit)
    
    
    (71,324
    )
    
    
    (104,483
    )Commitments and contingencies (Note I)
    
    $
    114,433
    
    
    $
    178,667
 See accompanying Notes to Condensed Consolidated Financial Statements.
 2




---



##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Six Months EndedJune 30,2007
    
    
    2006Cash flows from operating activities:Net earnings (loss)
    
    $
    20,074
    
    
    $
    (13,939
    )Earnings (loss) from discontinued operations
    
    
    19,775
    
    
    
    1,161Earnings (loss) from continuing operations
    
    
    299
    
    
    
    (15,100
    )Adjustments to reconcile earnings (loss) from continuing
operations to net cash provided by (used in) operating
activities:Loss on financial restructuring
    
    
    
    
    
    
    10,129Depreciation and amortization
    
    
    3,564
    
    
    
    5,339Amortization of debt discount, premium and deferred loan
costs
    
    
    2,003
    
    
    
    578Stock-based compensation costs
    
    
    5,429
    
    
    
    734(Gain) loss on sale of property, plant and equipment
    
    
    223
    
    
    
    (6
    )Deferred income taxes
    
    
    320
    
    
    
    181Changes in assets and liabilities:Restricted cash
    
    
    (34
    )
    
    
    (155
    )Billed receivables
    
    
    4,843
    
    
    
    11,071Unbilled receivables
    
    
    2,096
    
    
    
    682Prepaid expenses and other current assets
    
    
    (1,091
    )
    
    
    (198
    )Other assets
    
    
    116
    
    
    
    1,872Accounts payable and accrued expenses
    
    
    1,456
    
    
    
    237Accrued payroll and related expenses
    
    
    (11,980
    )
    
    
    (6,133
    )Refund liabilities
    
    
    (376
    )
    
    
    (1,304
    )Deferred revenue
    
    
    261
    
    
    
    (873
    )Noncurrent compensation obligations
    
    
    (437
    )
    
    
    (547
    )Other long-term liabilities
    
    
    (255
    )
    
    
    (165
    )Net cash provided by (used in) operating activities
    
    
    6,437
    
    
    
    6,342Cash flows from investing activities:Purchases of property and equipment, net of disposal proceeds
    
    
    (1,139
    )
    
    
    (408
    )Net cash used in investing activities
    
    
    (1,139
    )
    
    
    (408
    )Cash flows from financing activities:Net borrowings (repayments) of debt
    
    
    (25,148
    )
    
    
    8,200Issuance costs of preferred stock
    
    
    
    
    
    
    (1,281
    )Payments for deferred loan cost
    
    
    (221
    )
    
    
    (7,750
    )Net cash provided by (used in) financing activities
    
    
    (25,369
    )
    
    
    (831
    )Cash flows from discontinued operations:Operating cash flows
    
    
    (2,064
    )
    
    
    194Investing cash flows
    
    
    21,133
    
    
    
    529Net cash provided by (used in) discontinued
operations
    
    
    19,069
    
    
    
    723Effect of exchange rates on cash and cash equivalents
    
    
    356
    
    
    
    1,030Net change in cash and cash equivalents
    
    
    (646
    )
    
    
    6,856Cash and cash equivalents at beginning of period
    
    
    30,228
    
    
    
    8,361Cash and cash equivalents at end of period
    
    $
    29,582
    
    
    $
    15,217Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    7,670
    
    
    $
    310Cash paid during the period for income taxes, net of refunds
    
    $
    482
    
    
    $
    386
 See accompanying Notes to Condensed Consolidated Financial Statements.
 3




---



##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007 and 2006
(Unaudited)
 Note A  Basis of Presentation
     New Accounting Standards
 Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109
 Fair Value Measurements
 The Fair Value Option for Financial
Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115
 4




---



##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note B  Discontinued Operations
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,Components of discontinued operations:
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    7,505
    
    
    $
    10,844
    
    
    $
    17,386
    
    
    $
    21,416Operating income (loss)
    
    
    112
    
    
    
    344
    
    
    
    724
    
    
    
    1,450Gain (loss) on sale or disposal
    
    
    19,460
    
    
    
    (240
    )
    
    
    19,460
    
    
    
    24519,572
    
    
    
    104
    
    
    
    20,184
    
    
    
    1,695Income tax expense (benefit)
    
    
    (115
    )
    
    
    148
    
    
    
    409
    
    
    
    534Earnings (loss) from
discontinued operations
    
    $
    19,687
    
    
    $
    (44
    )
    
    $
    19,775
    
    
    $
    1,161
   As of December 31, 2006Current assets of discontinued operations:Cash and cash equivalents
    
    $
    4,785Restricted cash
    
    
    3,299Receivables
    
    
    1,218Prepaid expenses and other current assets
    
    
    714Funds held for client obligations
    
    
    42,304$
    52,320Noncurrent assets of discontinued operations:Property and equipment, net
    
    $
    1,593Other assets
    
    
    2,528$
    4,121Current liabilities of discontinued operations:Accounts payable and accrued expenses
    
    $
    5,717Accrued payroll and related expenses
    
    
    3,802Deferred revenue
    
    
    3,385Obligations for client payables
    
    
    42,304$
    55,208
 5




---



##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Note C  Earnings (Loss) Per Common Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator for basic and
diluted earnings (loss)
per common share:Earnings (loss) from
continuing operations
before discontinued
operations
    
    $
    (1,136
    )
    
    $
    (3,601
    )
    
    $
    299
    
    
    $
    (15,100
    )Preferred dividends
    
    
    (178
    )
    
    
    (321
    )
    
    
    (336
    )
    
    
    (370
    )Earnings (loss) for
purposes of
computing basic and
diluted earnings
(loss) per common
share from
continuing
operations
    
    
    (1,314
    )
    
    
    (3,922
    )
    
    
    (37
    )
    
    
    (15,470
    )Earnings (loss) from
discontinued operations
    
    
    19,687
    
    
    
    (44
    )
    
    
    19,775
    
    
    
    1,161Earnings (loss) for
purposes of
computing basic and
diluted net
earnings (loss) per
common share
    
    $
    18,373
    
    
    $
    (3,966
    )
    
    $
    19,738
    
    
    $
    14,309Denominator:Denominator for basic
earnings (loss) per common
share  weighted-average
shares outstanding
    
    
    9,093
    
    
    
    6,388
    
    
    
    8,733
    
    
    
    6,300Effect of dilutive securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted
earnings (loss) per common
share
    
    
    9,093
    
    
    
    6,388
    
    
    
    8,733
    
    
    
    6,300Basic and diluted earnings
(loss) per common share:Earnings (loss) from
continuing operations before
discontinued operations
    
    $
    (0.15
    )
    
    $
    (0.61
    )
    
    $
    0.00
    
    
    $
    (2.45
    )Discontinued operations
    
    
    2.17
    
    
    
    (0.01
    )
    
    
    2.26
    
    
    
    0.18Net earnings (loss)
    
    $
    2.02
    
    
    $
    (0.62
    )
    
    $
    2.26
    
    
    $
    (2.27
    )
 6




---



##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Note D  Stock-Based Compensation
     Note E - Operating Segments and Related Information
    7




---



##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  AccountsPayable
    
    
    CorporateServices
    
    
    Support
    
    
    TotalThree Months Ended June 30, 2007Revenues
    
    $
    53,315
    
    
    $
    
    
    
    $
    53,315EBITDA
    
    $
    12,858
    
    
    $
    (7,348
    )
    
    $
    5,510Stock-based compensation
    
    
    
    
    
    
    2,695
    
    
    
    2,695Adjusted EBITDA
    
    $
    12,858
    
    
    $
    (4,653
    )
    
    $
    8,205Three Months Ended June 30, 2006Revenues
    
    $
    55,141
    
    
    $
    
    
    
    $
    55,141EBITDA
    
    $
    9,659
    
    
    $
    (6,106
    )
    
    $
    3,553Severance and restructuring
expenses
    
    
    1,580
    
    
    
    
    
    
    
    1,580Stock-based compensation
    
    
    
    
    
    
    367
    
    
    
    367Adjusted EBITDA
    
    $
    11,239
    
    
    $
    (5,739
    )
    
    $
    5,500Six Months Ended June 30, 2007Revenues
    
    $
    110,345
    
    
    $
    
    
    
    $
    110,345EBITDA
    
    $
    28,231
    
    
    $
    (14,603
    )
    
    $
    13,628Stock-based compensation
    
    
    
    
    
    
    5,429
    
    
    
    5,429Adjusted EBITDA
    
    $
    28,231
    
    
    $
    (9,174
    )
    
    $
    19,057Six Months Ended June 30, 2006Revenues
    
    $
    110,856
    
    
    $
    
    
    
    $
    110,856EBITDA
    
    $
    19,222
    
    
    $
    (11,541
    )
    
    $
    7,681Severance and restructuring
expenses
    
    
    1,457
    
    
    
    531
    
    
    
    1,988Stock-based compensation
    
    
    
    
    
    
    734
    
    
    
    734Adjusted EBITDA
    
    $
    20,679
    
    
    $
    (10,276
    )
    
    $
    10,403
 8




---



##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Earnings (loss) from continuing
operations
before discontinued operations
    
    $
    (1,136
    )
    
    $
    (3,601
    )
    
    $
    299
    
    
    $
    (15,100
    )Income taxes
    
    
    344
    
    
    
    190
    
    
    
    875
    
    
    
    454Interest, net
    
    
    4,749
    
    
    
    4,292
    
    
    
    8,890
    
    
    
    6,859Loss on financial restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,129Depreciation and amortization
    
    
    1,553
    
    
    
    2,672
    
    
    
    3,564
    
    
    
    5,339EBITDA
    
    
    5,510
    
    
    
    3,553
    
    
    
    13,628
    
    
    
    7,681Severance and restructuring
charges
    
    
    
    
    
    
    1,580
    
    
    
    
    
    
    
    1,988Stock-based compensation
    
    
    2,695
    
    
    
    367
    
    
    
    5,429
    
    
    
    734Adjusted EBITDA
    
    $
    8,205
    
    
    $
    5,500
    
    
    $
    19,057
    
    
    $
    10,403
  Note F  Comprehensive Income
 Reporting Comprehensive Income
 Note G - Cash Equivalents
   Note H - Financial Restructuring
  9




---



##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
       Note I - Commitments and Contingencies
 Legal Proceedings
   10




---



##### Table of Contents



PRG-SCHULTZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Retirement Obligations
  Operational Restructuring Obligations
   11




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
     Revenue Recognition 
   12




---



##### Table of Contents



Critical Accounting Policies
  New Accounting Standards
 Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109
 13




---



##### Table of Contents



Fair Value Measurements
 The Fair Value Option for Financial Assets
and Financial Liabilities  Including an amendment of FASB Statement No. 115
 14




---



##### Table of Contents



Results of Operations
  Three Months
    
    Six MonthsEnded
    
    EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    65.4
    
    
    
    72.4
    
    
    
    65.4
    
    
    
    71.9Gross margin
    
    
    34.6
    
    
    
    27.6
    
    
    
    34.6
    
    
    
    28.1Selling, general and administrative expenses
    
    
    27.2
    
    
    
    23.1
    
    
    
    25.5
    
    
    
    24.2Operational restructuring expenses
    
    
    
    
    
    
    2.9
    
    
    
    
    
    
    
    1.8Operating income
    
    
    7.4
    
    
    
    1.6
    
    
    
    9.1
    
    
    
    2.1Interest expense, net
    
    
    8.9
    
    
    
    7.8
    
    
    
    8.0
    
    
    
    6.2Loss on financial restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.1Earnings (loss) from continuing
operations before income taxes and
discontinued operations
    
    
    (1.5
    )
    
    
    (6.2
    )
    
    
    1.1
    
    
    
    (13.2
    )Income taxes
    
    
    0.6
    
    
    
    0.3
    
    
    
    0.8
    
    
    
    0.4Earnings (loss) from continuing
operations before discontinued
operations
    
    
    (2.1
    )
    
    
    (6.5
    )
    
    
    0.3
    
    
    
    (13.6
    )Earnings (loss) from discontinued operations
    
    
    36.9
    
    
    
    (0.1
    )
    
    
    17.9
    
    
    
    1.0Net earnings (loss)
    
    
    34.8
    %
    
    
    (6.6
    )%
    
    
    18.2
    %
    
    
    (12.6
    )%
  Three and Six Months Ended June 30, 2007 Compared to the Corresponding Periods of the Prior Year
 Accounts Payable Services
 Revenue
 Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Domestic Accounts Payable Services revenues
    
    $
    32.7
    
    
    $
    35.6
    
    
    $
    69.7
    
    
    $
    70.3International Accounts Payable Services revenues
    
    
    20.6
    
    
    
    19.5
    
    
    
    40.6
    
    
    
    40.6Total Accounts Payable Services revenues
    
    $
    53.3
    
    
    $
    55.1
    
    
    $
    110.3
    
    
    $
    110.9
  16




---



##### Table of Contents



Cost of Revenues ( ).
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Domestic Accounts Payable Services COR
    
    $
    19.0
    
    
    $
    23.4
    
    
    $
    40.8
    
    
    $
    46.9International Accounts Payable Services COR
    
    
    15.9
    
    
    
    16.5
    
    
    
    31.3
    
    
    
    32.8Total Accounts Payable Services COR
    
    $
    34.9
    
    
    $
    39.9
    
    
    $
    72.1
    
    
    $
    79.7
  Selling, General, and Administrative Expenses .
 17




---



##### Table of Contents



Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Domestic Accounts Payable Services SG&A
    
    $
    4.9
    
    
    $
    5.0
    
    
    $
    8.5
    
    
    $
    10.9International Accounts Payable Services SG&A
    
    
    2.3
    
    
    
    1.7
    
    
    
    5.1
    
    
    
    5.0Total Accounts Payable Services SG&A
    
    $
    7.2
    
    
    $
    6.7
    
    
    $
    13.6
    
    
    $
    15.9
  Corporate Support
  Three Months
    
    Six MonthsEnded
    
    EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Corporate Support SG&A
    
    $
    7.3
    
    
    $
    6.0
    
    
    $
    14.6
    
    
    $
    10.9
  18




---



##### Table of Contents



Operational Restructuring Expense
   Three Months
    
    Six MonthsEnded
    
    EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Restructuring expense
    
    
    
    
    
    $
    1.6
    
    
    
    
    
    
    $
    2.0
  Financial Restructuring
     19




---



##### Table of Contents



Discontinued Operations
       Other Items
 Interest Expense.
 20




---



##### Table of Contents



Income Tax Expense.
 Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109
 Liquidity and Capital Resources
    21




---



##### Table of Contents



.
  Off Balance Sheet Arrangements
  Executive Severance Payments
  Bankruptcy Litigation
  22




---



##### Table of Contents



Limitation on Tax Loss and Credit Carryforwards
  Forward Looking Statements
   23




---



##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Market Risk.
 Interest Rate Risk
 Derivative Instruments.
 Stock-Based Compensation.
 24




---



##### Table of Contents



Item 4. Controls and Procedures
   25




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Our ability to significantly grow our Medicare recovery audit services is largely dependent on our
participation in the expansion of recovery auditing of Medicare spending to all 50 states as
mandated by legislation passed in late 2006.
   Our failure to comply with applicable laws and regulations could substantially impact our business,
operations and financial condition.
  26




---



##### Table of Contents



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
  27




---



##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description2.1
    
    Sale of Shares Agreement, dated as of May 30, 2007, by and
among PRG-Schultz International, Inc., Meridian Corporation
Limited and Averio Holdings Limited (incorporated by
reference to Exhibit 2.1 to the Registrants Report on Form
8-K filed on June 5, 2007).3.1
    
    Restated Articles of Incorporation of the Registrant, as
amended and restated 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
    
    Restated Bylaws of the Registrant (incorporated by
reference to Exhibit 3.2 to the Registrants Form 10-Q for
the quarter ended September 30, 2005).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 Report on Form 10-K for the year ended
December 31, 2005).4.4
    
    Indenture dated November 26, 2001 by and between Registrant
and Sun Trust Bank (incorporated by reference to Exhibit
4.3 to 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).
 28




---



##### Table of Contents



ExhibitNumber
    
    Description4.6
    
    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).10.1
    
    Non-Competition Agreement, dated as of May 30, 2007, by and between
PRG-Schultz International, Inc. and Averio Holdings Limited
(incorporated by reference to Exhibit 10.1 to the Registrants Report
on Form 8-K filed on June 5, 2007).10.2
    
    Non-Competition Agreement, dated as of May 30, 2007, by and between
Averio Holdings Limited and PRG-Schultz International, Inc.
(incorporated by reference to Exhibit 10.2 to the Registrants Report
on Form 8-K filed on June 5, 2007).31.1
    
    Certification of the Chief Executive Officer, pursuant to Rule
13a-14(a) or 15d-14(a), for the quarter ended June 30, 2007.31.2
    
    Certification of the Chief Financial Officer, pursuant to Rule
13a-14(a) or 15d-14(a), for the quarter ended June 30, 2007.32.1
    
    Certification of the Chief Executive Officer and Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended
June 30, 2007.
 29




---



##### Table of Contents



SIGNATURES
  PRG-SCHULTZ INTERNATIONAL, INC.August 13, 2007
    
    By:
    
    /s/ James B. McCurryJames B. McCurryPresident, Chairman of the Board andChief  Executive Officer(Principal Executive Officer)August 13, 2007
    
    By:
    
    /s/ PETER LIMERIPeter LimeriChief Financial Officer and Treasurer(Principal Financial Officer)
 30