##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-28000
 
 PRGX Global, 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
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



PRGX GLOBAL, INC.
 FORM 10-Q
For the Quarter Ended September 30, 2010
 INDEX
 Page No.Part I.Financial InformationItem 1. Financial Statements
    
    
    1Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2010 and 2009 (Unaudited)
    
    
    1Condensed Consolidated Balance Sheets as of September 30, 2010
(Unaudited) and December 31, 2009
    
    
    2Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2010 and 2009 (Unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    26Part II.Other InformationItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
    
    
    27Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. [Reserved]
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    28Signatures
    
    
    29EX-31.1EX-31.2EX-32.1




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PRGX GLOBAL, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    46,900
    
    
    $
    45,321
    
    
    $
    133,736
    
    
    $
    130,044Cost of revenues
    
    
    31,952
    
    
    
    28,974
    
    
    
    93,163
    
    
    
    83,715Gross margin
    
    
    14,948
    
    
    
    16,347
    
    
    
    40,573
    
    
    
    46,329Selling, general and administrative expenses
    
    
    10,895
    
    
    
    11,001
    
    
    
    36,820
    
    
    
    31,497Operating income
    
    
    4,053
    
    
    
    5,346
    
    
    
    3,753
    
    
    
    14,832Gain on bargain purchase, net
    
    
    
    
    
    
    2,388
    
    
    
    
    
    
    
    2,388Income before interest and income taxes
    
    
    4,053
    
    
    
    7,734
    
    
    
    3,753
    
    
    
    17,220Interest expense, net
    
    
    315
    
    
    
    728
    
    
    
    2,351
    
    
    
    2,154Earnings before income taxes
    
    
    3,738
    
    
    
    7,006
    
    
    
    1,402
    
    
    
    15,066Income taxes
    
    
    1,177
    
    
    
    605
    
    
    
    2,241
    
    
    
    1,767Net earnings (loss)
    
    $
    2,561
    
    
    $
    6,401
    
    
    $
    (839
    )
    
    $
    13,299Basic earnings (loss) per common share (Note B)
    
    $
    0.11
    
    
    $
    0.27
    
    
    $
    (0.04
    )
    
    $
    0.59Diluted earnings (loss) per common share (Note B)
    
    $
    0.11
    
    
    $
    0.27
    
    
    $
    (0.04
    )
    
    $
    0.57Weighted-average common shares outstanding (Note B):Basic
    
    
    24,218
    
    
    
    23,404
    
    
    
    23,798
    
    
    
    22,735Diluted
    
    
    24,388
    
    
    
    23,833
    
    
    
    23,798
    
    
    
    23,453
 See accompanying Notes to Condensed Consolidated Financial Statements.
 1




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PRGX GLOBAL, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 September 30,2010
    
    
    December 31,(Unaudited)
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents (Notes F and I)
    
    $
    20,244
    
    
    $
    33,026Restricted cash
    
    
    120
    
    
    
    256Receivables:Contract receivables, less allowances of $552 in 2010 and $1,032 in 2009:Billed
    
    
    26,150
    
    
    
    28,034Unbilled
    
    
    4,635
    
    
    
    4,48130,785
    
    
    
    32,515Employee advances and miscellaneous receivables, less allowances of $274 in 2010
and $351 in 2009
    
    
    737
    
    
    
    276Total receivables
    
    
    31,522
    
    
    
    32,791Prepaid expenses and other current assets
    
    
    3,535
    
    
    
    2,335Total current assets
    
    
    55,421
    
    
    
    68,408Property and equipment, at cost
    
    
    41,480
    
    
    
    34,446Less accumulated depreciation and amortization
    
    
    (26,280
    )
    
    
    (24,443
    )Property and equipment, net
    
    
    15,200
    
    
    
    10,003Goodwill (Note I)
    
    
    4,600
    
    
    
    4,600Intangible assets, less accumulated amortization of $16,513 in 2010 and $13,573 in 2009
(Note I)
    
    
    22,671
    
    
    
    24,104Unbilled receivables
    
    
    1,460
    
    
    
    1,410Other assets
    
    
    891
    
    
    
    1,988$
    100,243
    
    
    $
    110,513LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    12,460
    
    
    $
    15,707Accrued payroll and related expenses
    
    
    14,370
    
    
    
    19,884Refund liabilities
    
    
    7,251
    
    
    
    7,467Deferred revenue
    
    
    1,440
    
    
    
    916Current portions of debt and capital lease obligations (Note G)
    
    
    3,000
    
    
    
    3,260Business acquisition obligations
    
    
    598
    
    
    
    2,695Total current liabilities
    
    
    39,119
    
    
    
    49,929Long-term debt and capital lease obligations (Note G)
    
    
    9,750
    
    
    
    11,070Deferred income taxes
    
    
    951
    
    
    
    Noncurrent compensation obligations
    
    
    165
    
    
    
    978Refund liabilities
    
    
    732
    
    
    
    733Other long-term liabilities
    
    
    5,824
    
    
    
    6,364Total liabilities
    
    
    56,541
    
    
    
    69,074Commitments and contingencies (Note H)Shareholders equity (Note B):Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares;
23,880,086 shares issued and outstanding as of September 30, 2010 and 23,272,892
shares
issued and outstanding as of December 31, 2009
    
    
    239
    
    
    
    233Additional paid-in capital
    
    
    565,374
    
    
    
    562,563Accumulated deficit
    
    
    (525,500
    )
    
    
    (524,661
    )Accumulated other comprehensive income
    
    
    3,589
    
    
    
    3,304Total shareholders equity
    
    
    43,702
    
    
    
    41,439$
    100,243
    
    
    $
    110,513
 See accompanying Notes to Condensed Consolidated Financial Statements.
 2




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PRGX GLOBAL, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Nine Months EndedSeptember 30,2010
    
    
    2009Cash flows from operating activities:Net earnings (loss)
    
    $
    (839
    )
    
    $
    13,299Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:Gain on bargain purchase, net
    
    
    
    
    
    
    (2,388
    )Depreciation and amortization
    
    
    6,602
    
    
    
    4,342Amortization of deferred loan costs (Note G)
    
    
    1,493
    
    
    
    591Stock-based compensation expense
    
    
    3,047
    
    
    
    2,500Loss on sale of property and equipment
    
    
    2
    
    
    
    92Deferred income taxes
    
    
    (332
    )
    
    
    (226
    )Changes in assets and liabilities:Restricted cash
    
    
    137
    
    
    
    (256
    )Billed receivables
    
    
    1,897
    
    
    
    1,712Unbilled receivables
    
    
    (204
    )
    
    
    1,191Prepaid expenses and other current assets
    
    
    (876
    )
    
    
    329Other assets
    
    
    35
    
    
    
    55Accounts payable and accrued expenses
    
    
    (3,679
    )
    
    
    (7,112
    )Accrued payroll and related expenses
    
    
    (5,322
    )
    
    
    (4,701
    )Refund liabilities
    
    
    (217
    )
    
    
    (840
    )Deferred revenue
    
    
    (90
    )
    
    
    915Noncurrent compensation obligations
    
    
    (813
    )
    
    
    (1,363
    )Other long-term liabilities
    
    
    (673
    )
    
    
    (500
    )Net cash provided by operating activities
    
    
    168
    
    
    
    7,640Cash flows from investing activities:Business acquisitions
    
    
    (5,315
    )
    
    
    (2,029
    )Purchases of property and equipment, net of disposal proceeds
    
    
    (5,249
    )
    
    
    (2,065
    )Net cash used in investing activities
    
    
    (10,564
    )
    
    
    (4,094
    )Cash flows from financing activities:Repayment of former credit facility (Note G)
    
    
    (14,154
    )
    
    
    (3,983
    )Repayments of debt
    
    
    (2,426
    )
    
    
    Proceeds from term loan (Note G)
    
    
    15,000
    
    
    
    Repurchases of common stock
    
    
    
    
    
    
    (246
    )Restricted stock remitted by employees for taxes
    
    
    (205
    )
    
    
    (50
    )Proceeds from option exercises
    
    
    57
    
    
    
    26Payments for deferred loan costs
    
    
    (666
    )
    
    
    Net cash used in financing activities
    
    
    (2,394
    )
    
    
    (4,253
    )Effect of exchange rates on cash and cash equivalents
    
    
    8
    
    
    
    1,348Net change in cash and cash equivalents
    
    
    (12,782
    )
    
    
    641Cash and cash equivalents at beginning of period
    
    
    33,026
    
    
    
    26,688Cash and cash equivalents at end of period
    
    $
    20,244
    
    
    $
    27,329Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    479
    
    
    $
    1,517Cash paid during the period for income taxes, net of refunds
    
    $
    1,662
    
    
    $
    3,434Liabilities assumed in a business acquisition (Note J)
    
    $
    197
    
    
    $
    4,210
 See accompanying Notes to Condensed Consolidated Financial Statements.
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PRGX
GLOBAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note A  Basis of Presentation
     New Accounting Standards
 FASB ASC 985-605. Revenue
Arrangements with Multiple Deliverables Issue 08-1 Software-Revenue Recognition
 FASB ASC Update No. 2010-26. Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
 4




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PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note B  Earnings Per Common Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Basic earnings (loss) per common share:Numerator for earnings (loss) per common share calculations:Net earnings (loss)
    
    $
    2,561
    
    
    $
    6,401
    
    
    $
    (839
    )
    
    $
    13,299Denominator:Denominator for basic earnings (loss) per common share
 weighted-average common shares outstanding during
the period
    
    
    24,218
    
    
    
    23,404
    
    
    
    23,798
    
    
    
    22,735Basic earnings (loss) per common share
    
    $
    0.11
    
    
    $
    0.27
    
    
    $
    (0.04
    )
    
    $
    0.59
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Diluted earnings (loss) per common share:Numerator for earnings (loss) per common share calculations:Net earnings (loss)
    
    $
    2,561
    
    
    $
    6,401
    
    
    $
    (839
    )
    
    $
    13,299Denominator:Denominator for basic earnings (loss) per common share
 weighted-average common shares outstanding during
the period
    
    
    24,218
    
    
    
    23,404
    
    
    
    23,798
    
    
    
    22,735Incremental shares from stock-based compensation plans
    
    
    170
    
    
    
    429
    
    
    
    
    
    
    
    718Denominator for diluted earnings (loss) per common share
    
    
    24,388
    
    
    
    23,833
    
    
    
    23,798
    
    
    
    23,453Diluted earnings (loss) per common share
    
    $
    0.11
    
    
    $
    0.27
    
    
    $
    (0.04
    )
    
    $
    0.57
  Note C  Stock-Based Compensation
  5




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PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   # of
    
    
    
    
    
    
    WeightedOptions
    
    
    Vesting
    
    
    Average
    
    
    Grant DateGranted
    
    
    Period
    
    
    Exercise Price
    
    
    Fair Value201051,276
    
    
    1 year (1)
    
    $
    4.20
    
    
    $
    129,6048,546
    
    
    3 years (2)
    
    
    5.39
    
    
    
    34,146624,010
    
    
    3 years (3)
    
    
    4.07
    
    
    
    1,646,4182009296,296
    
    
    4 years (4)
    
    
    3.57
    
    
    
    763,52942,730
    
    
    1 year (5)
    
    
    2.82
    
    
    
    88,011493,255
    
    
    3 years (3)
    
    
    2.83
    
    
    
    1,029,807
 
 (1)
    
    Non-qualified stock options were granted under the 2008 EIP to the Companys non-employee
directors. The options vest in full upon the earlier of (i) June 23, 2011, and (ii) the date of,
and immediately prior to, the Companys 2011 annual meeting of shareholders, provided the director
has been continuously serving as a member of the Board from the date of grant until the earlier of
such dates. Unvested options are forfeited when a director leaves the Board. 42,730 of these
options expire on June 22, 2017, except that vested options held by a director who leaves the Board
before a change of control will terminate three years after termination of Board service, if such
date occurs before June 22, 2017. The remaining 8,546 options expire on September 7, 2017, except
that vested options held by a director who leaves the Board before a change of control will
terminate three years after termination of Board service, if such date occurs before September 7,
2017.(2)
    
    Non-qualified stock options were granted under the 2008 EIP to a new non-employee director. The
options vest in full upon the earlier of (i) June 23, 2013, and (ii) the date of, and immediately
prior to, the Companys 2013 annual meeting of shareholders, provided the director has been
continuously serving as a member of the Board from the date of grant until the earlier of such
dates. Unvested options are forfeited when a director leaves the Board. The options expire on
September 7, 2017, except that vested options held by a director who leaves the Board before a
change of control will terminate three years after termination of Board service, if such date
occurs before September 7, 2017.(3)
    
    Non-qualified stock options were granted to certain executive and non-executive employees of
the Company pursuant to the 2008 EIP. The options vest in three equal annual installments beginning
on the first anniversary of the grant date.(4)
    
    During the first quarter of 2009, in connection with his joining the Company as its President
and Chief Executive Officer, the Company made inducement grants outside its existing stock-based
compensation plans to Mr. Romil Bahl. Mr. Bahl received an option to purchase 296,296 shares of
the common stock of the Company. Mr. Bahls options were granted in two tranches, the first of
which consists of 111,111 shares that vest in four equal annual installments beginning in January
2010. The second tranche consists of 185,185 shares and vests 50% on each of the second and fourth
anniversaries of the grant date.(5)
    
    Non-qualified stock options were granted under the 2008 EIP to the Companys non-employee
directors. The options vested in full on May 26, 2010. The options expire on May 25, 2016, except
that vested options held by a director who leaves the Board before a change of control will
terminate three years after termination of Board service, if such date occurs before May 25, 2016. 6




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PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  # ofShares
    
    
    Vesting
    
    
    Grant DateGranted
    
    
    Period
    
    
    Fair Value201051,276
    
    
    1 year (1)
    
    $
    215,2748,546
    
    
    3 years (2)
    
    
    46,063600,010
    
    
    3 years (3)
    
    
    2,410,9652009344,445
    
    
    4 years (4)
    
    
    1,229,66942,730
    
    
    1 year (5)
    
    
    120,49920,000
    
    
    3 years (6)
    
    
    57,400510,332
    
    
    3 years (3)
    
    
    1,467,836
 
 (1)
    
    Nonvested stock awards (restricted stock) were granted to the Companys non-employee
directors pursuant to the 2008 EIP. The shares of restricted stock will vest upon the earlier of
(i) June 23, 2011, and (ii) the date of, and immediately prior to, the Companys 2011 annual
meeting of shareholders, provided the director has been continuously serving as a member of the
Board from the date of grant until the earlier of such dates. Unvested shares of restricted stock
will be forfeited when a director leaves the Board. The shares are generally nontransferable until
vesting. During the vesting period, the grantees of the restricted stock will be entitled to
receive dividends with respect to the nonvested shares and to vote the shares.(2)
    
    Nonvested stock awards (restricted stock) were granted to a new non-employee director pursuant
to the 2008 EIP. The shares of restricted stock will vest upon the earlier of (i) June 23, 2013,
and (ii) the date of, and immediately prior to, the Companys 2013 annual meeting of shareholders,
provided the director has been continuously serving as a member of the Board from the date of grant
until the earlier of such dates. Unvested shares of restricted stock will be forfeited when the
director leaves the Board. The shares are generally nontransferable until vesting. During the
vesting period, the grantee of the restricted stock will be entitled to receive dividends with
respect to the nonvested shares and to vote the shares.(3)
    
    Nonvested stock awards (restricted stock and restricted stock units) were granted to certain
executive and non-executive employees of the Company pursuant to the Companys 2008 EIP. The shares
of restricted stock and the restricted stock units vest in three equal annual installments
beginning on the first anniversary of the grant date. During the vesting period, the restricted
stock grantees will be entitled to receive dividends, if any, with respect to the nonvested shares
and to vote the shares. During the vesting period, grantees of restricted stock units will be
entitled to receive dividends, if any, with respect to the nonvested shares, but will not be
entitled to vote the shares underlying the units.(4)
    
    During the first quarter of 2009, in connection with his joining the Company as its President
and Chief Executive Officer, the Company made inducement grants outside its existing stock-based
compensation plans to Mr. Romil Bahl. Mr. Bahl received nonvested stock awards (restricted stock)
representing 344,445 shares of the Companys common stock. Mr. Bahls nonvested stock awards were
granted in two tranches, the first of which consists of 233,334 shares that vest in four equal
annual installments beginning in January 2010. The second tranche consists of 111,111 shares and
vests 50% on each of the second and fourth anniversaries of the grant date. During the vesting
period, Mr. Bahl will be entitled to receive dividends with respect to the nonvested shares, if
any, and to vote the shares.(5)
    
    Nonvested stock awards (restricted stock) were granted to the Companys non-employee directors
pursuant to the 2008 EIP. The shares of restricted stock vested in full on May 26, 2010.(6)
    
    Nonvested stock awards (restricted stock) were granted to an employee of the Company pursuant
to the Companys 2008 EIP. The shares of restricted stock vest 50% on each of the first and third
anniversaries of the grant date. During the vesting period, the restricted stock grantee will be
entitled to receive dividends, if any, with respect to the nonvested shares and to vote the shares. 7




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PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2006 MIP Performance Units
     Note D - Operating Segments and Related Information
  Recovery Audit Services  Americas
  Recovery Audit Services  Europe/Asia-Pacific
  New Services
  Corporate Support
   8




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PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Recovery
    
    
    Recovery AuditAudit
    
    
    Services Services-
    
    
    Europe/Asia -
    
    
    New
    
    
    CorporateAmericas
    
    
    Pacific
    
    
    Services
    
    
    Support
    
    
    TotalThree Months Ended September 30, 2010Revenues
    
    $
    29,740
    
    
    $
    14,824
    
    
    $
    2,336
    
    
    $
    
    
    
    $
    46,900EBITDA
    
    $
    8,262
    
    
    $
    3,762
    
    
    $
    (1,637
    )
    
    $
    (4,043
    )
    
    $
    6,344Foreign currency (gains) losses
on intercompany balances
    
    
    (44
    )
    
    
    (1,223
    )
    
    
    (7
    )
    
    
    
    
    
    
    (1,274
    )Acquisition obligations classified
as compensation
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    106Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,170
    
    
    
    1,170Adjusted EBITDA
    
    $
    8,218
    
    
    $
    2,645
    
    
    $
    (1,644
    )
    
    $
    (2,873
    )
    
    $
    6,346Three Months Ended September 30, 2009Revenues
    
    $
    31,794
    
    
    $
    12,236
    
    
    $
    1,291
    
    
    $
    
    
    
    $
    45,321EBITDA
    
    $
    10,912
    
    
    $
    4,581
    
    
    $
    (1,131
    )
    
    $
    (4,994
    )
    
    $
    9,368Foreign currency (gains) losses on
intercompany balances
    
    
    (2
    )
    
    
    (676
    )
    
    
    
    
    
    
    
    
    
    
    (678
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,496
    
    
    
    1,496Gain on bargain purchase, net
    
    
    
    
    
    
    (2,388
    )
    
    
    
    
    
    
    
    
    
    
    (2,388
    )Adjusted EBITDA
    
    $
    10,910
    
    
    $
    1,517
    
    
    $
    (1,131
    )
    
    $
    (3,498
    )
    
    $
    7,798
 9




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##### Table of Contents



PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Recovery
    
    
    Recovery AuditAudit
    
    
    ServicesServices-
    
    
    Europe/Asia -
    
    
    New
    
    
    CorporateAmericas
    
    
    Pacific
    
    
    Services
    
    
    Support
    
    
    TotalNine Months Ended September 30, 2010Revenues
    
    $
    84,582
    
    
    $
    42,564
    
    
    $
    6,590
    
    
    $
    
    
    
    $
    133,736EBITDA
    
    $
    21,788
    
    
    $
    6,110
    
    
    $
    (4,503
    )
    
    $
    (13,040
    )
    
    $
    10,355Foreign currency (gains) losses
on intercompany balances
    
    
    27
    
    
    
    416
    
    
    
    (5
    )
    
    
    
    
    
    
    438Acquisition obligations
classified as compensation
    
    
    
    
    
    
    265
    
    
    
    
    
    
    
    
    
    
    
    265Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,047
    
    
    
    3,047Adjusted EBITDA
    
    $
    21,815
    
    
    $
    6,791
    
    
    $
    (4,508
    )
    
    $
    (9,993
    )
    
    $
    14,105Nine Months Ended September 30, 2009Revenues
    
    $
    92,004
    
    
    $
    34,195
    
    
    $
    3,845
    
    
    $
    
    
    
    $
    130,044EBITDA
    
    $
    31,811
    
    
    $
    6,773
    
    
    $
    (2,566
    )
    
    $
    (14,456
    )
    
    $
    21,562Foreign currency (gains) losses
on intercompany balances
    
    
    (329
    )
    
    
    (1,423
    )
    
    
    
    
    
    
    
    
    
    
    (1,752
    )Litigation settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    650
    
    
    
    650Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500
    
    
    
    2,500Gain on bargain purchase, net
    
    
    
    
    
    
    (2,388
    )
    
    
    
    
    
    
    
    
    
    
    (2,388
    )Adjusted EBITDA
    
    $
    31,482
    
    
    $
    2,962
    
    
    $
    (2,566
    )
    
    $
    (11,306
    )
    
    $
    20,572
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net earnings (loss)
    
    $
    2,561
    
    
    $
    6,401
    
    
    $
    (839
    )
    
    $
    13,299Income taxes
    
    
    1,177
    
    
    
    605
    
    
    
    2,241
    
    
    
    1,767Interest, net
    
    
    315
    
    
    
    728
    
    
    
    2,351
    
    
    
    2,154Depreciation and amortization
    
    
    2,291
    
    
    
    1,634
    
    
    
    6,602
    
    
    
    4,342EBITDA
    
    
    6,344
    
    
    
    9,368
    
    
    
    10,355
    
    
    
    21,562Foreign currency (gains) losses on
intercompany balances
    
    
    (1,274
    )
    
    
    (678
    )
    
    
    438
    
    
    
    (1,752
    )Litigation settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    650Acquisition obligations classified as
compensation
    
    
    106
    
    
    
    
    
    
    
    265
    
    
    
    Stock-based compensation
    
    
    1,170
    
    
    
    1,496
    
    
    
    3,047
    
    
    
    2,500Gain on bargain purchase, net
    
    
    
    
    
    
    (2,388
    )
    
    
    
    
    
    
    (2,388
    )Adjusted EBITDA
    
    $
    6,346
    
    
    $
    7,798
    
    
    $
    14,105
    
    
    $
    20,572
 Note E  Comprehensive Income
 Comprehensive Income
 10




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PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Note F - Cash Equivalents
   Note G - Long Term Debt
     11




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PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Note H - Commitments and Contingencies
 Legal Proceedings
  Note I - Fair Value Measurements
 Fair Value Measurements and
Disclosures
  Fair Value Measurements at Reporting DateUsingQuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableReporting
    
    
    Assets
    
    
    Inputs
    
    
    InputsValue
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)As of September 30, 2010Assets:Cash and cash equivalents
    
    $
    20,244
    
    
    $
    20,244
    
    
    $
    
    
    
    $
    Liabilities:Business acquisition
obligations
    
    $
    2,717
    
    
    $
    
    
    
    $
    
    
    
    $
    2,717As of December 31, 2009Assets:Cash and cash equivalents
    
    $
    33,026
    
    
    $
    33,026
    
    
    $
    
    
    
    $
    Liabilities:Business acquisition
obligations
    
    $
    4,369
    
    
    $
    
    
    
    $
    
    
    
    $
    4,369
  12




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PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Note J - Business Acquisitions
 Etesius Limited
     Fair values of net assets acquired:Equipment
    
    $
    18Software
    
    
    3,207Intangible assets, primarily customer relationships
    
    
    1,565Deferred tax liabilities
    
    
    (1,168
    )Working capital
    
    
    (489
    )Fair value of net assets acquired
    
    $
    3,133Fair value of purchase price
    
    $
    3,133
  13




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PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 First Audit Partners LLP
    Fair values of assets acquired:Equipment
    
    $
    56Current assets, primarily work in progress
    
    
    741Intangible assets, primarily customer relationships
    
    
    7,8308,627Fair value of purchase price
    
    
    5,839Gain on bargain purchase
    
    
    2,788Transaction costs
    
    
    (400
    )Gain on bargain purchase, net
    
    $
    2,388
  Note K  Subsequent Events
   14




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PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  15




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
      16




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17




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Results of Operations
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    68.1
    
    
    
    63.9
    
    
    
    69.7
    
    
    
    64.4Gross margin
    
    
    31.9
    
    
    
    36.1
    
    
    
    30.3
    
    
    
    35.6Selling, general and administrative expenses
    
    
    23.2
    
    
    
    24.3
    
    
    
    27.5
    
    
    
    24.2Operating income
    
    
    8.7
    
    
    
    11.8
    
    
    
    2.8
    
    
    
    11.4Gain on bargain purchase, net
    
    
    
    
    
    
    5.3
    
    
    
    
    
    
    
    1.8Interest expense, net
    
    
    0.7
    
    
    
    1.6
    
    
    
    1.8
    
    
    
    1.7Earnings before income taxes
    
    
    8.0
    
    
    
    15.5
    
    
    
    1.0
    
    
    
    11.5Income taxes
    
    
    2.5
    
    
    
    1.3
    
    
    
    1.6
    
    
    
    1.4Net earnings (loss)
    
    
    5.5
    %
    
    
    14.2
    %
    
    
    (0.6
    %)
    
    
    10.1
    %
 Three and Nine Months Ended September 30, 2010 Compared to the Corresponding Periods of the Prior Year
 Revenues.
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Recovery Audit Services  Americas
    
    $
    29.8
    
    
    $
    31.8
    
    
    $
    84.6
    
    
    $
    92.0Recovery Audit Services  Europe/Asia-Pacific
    
    
    14.8
    
    
    
    12.2
    
    
    
    42.5
    
    
    
    34.2New Services
    
    
    2.3
    
    
    
    1.3
    
    
    
    6.6
    
    
    
    3.8Total
    
    $
    46.9
    
    
    $
    45.3
    
    
    $
    133.7
    
    
    $
    130.0
    18




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Cost of Revenues (COR).
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Recovery Audit Services  Americas
    
    $
    17.6
    
    
    $
    17.0
    
    
    $
    51.3
    
    
    $
    50.9Recovery Audit Services  Europe/Asia-Pacific
    
    
    11.2
    
    
    
    9.7
    
    
    
    32.7
    
    
    
    27.0New Services
    
    
    3.2
    
    
    
    2.3
    
    
    
    9.2
    
    
    
    5.8Total
    
    $
    32.0
    
    
    $
    29.0
    
    
    $
    93.2
    
    
    $
    83.7
     19




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##### Table of Contents



Selling, General and Administrative Expenses (SG&A).
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Recovery Audit Services  Americas
    
    $
    5.4
    
    
    $
    5.0
    
    
    $
    16.0
    
    
    $
    12.9Recovery Audit Services  Europe/Asia-Pacific
    
    
    0.3
    
    
    
    0.8
    
    
    
    5.0
    
    
    
    3.2New Services
    
    
    1.2
    
    
    
    0.2
    
    
    
    2.8
    
    
    
    0.9Total
    
    $
    6.9
    
    
    $
    6.0
    
    
    $
    23.8
    
    
    $
    17.0
    See Note J -
Business Acquisition)
 20




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##### Table of Contents



Corporate Support
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Selling, general and administrative expenses
    
    $
    4.0
    
    
    $
    5.0
    
    
    $
    13.0
    
    
    $
    14.5
   Other Items
 Interest Expense.
 Income Tax Expense.
 21




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##### Table of Contents



Liquidity and Capital Resources
   Operating Activities.
 Investing Activities and Depreciation and Amortization Expense.
  Note J Business Acquisitions
 Financing Activities and Interest Expense.
 New Credit Facility
  22




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Stock Repurchase Program
  2006 Management Incentive Plan
  23




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##### Table of Contents



Off Balance Sheet Arrangements
  Critical Accounting Policies
  Forward-Looking Statements
   24




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Market Risk.
 Interest Rate Risk
 25




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##### Table of Contents



Item 4. Controls and Procedures
   26




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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
   Maximum ApproximateTotal Number of
    
    
    Dollar Value ofShares Purchased as
    
    
    Shares that May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    the Plans or2010
    
    Shares Purchased (a)
    
    
    per Share
    
    
    Programs
    
    
    Programs(millions of dollars)July 1 
July 31
    
    
    1,763
    
    
    $
    5.49
    
    
    
    
    
    
    $
    August 1 
August 31
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    September 1 
September 30
    
    
    6,036
    
    
    $
    5.50
    
    
    
    
    
    
    $
    7,799
    
    
    $
    5.50
    
    
    
    
 
 (a)
    
    All shares reported during the quarter were surrendered by employees to satisfy tax
withholding obligations upon vesting of restricted stock. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. [Reserved]
 
 Item 5. Other Information
  27




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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).3.1.1
    
    Articles of Amendment to the Registrant dated January 20, 2010
(incorporated by reference to Exhibit 3.1 to the Registrants
Form 8-K filed on January 15, 2010).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).4.3.7
    
    Seventh Amendment to Shareholder Protection Rights Agreement,
dated as of August 9, 2010, between the Registrant and Rights
Agent (incorporated by reference to Exhibit 4.1 to the
Registrants Form 8-K filed on August 9, 2010).10.1
    
    Second Loan Documents Modification Agreement, dated September 30,
2010, by and among the Registrant, PRGX USA, Inc. and SunTrust
Bank (incorporated by reference to Exhibit 10.1 to the
Registrants Form 8-K filed on October 1, 2010).10.2
    
    Separation Agreement dated August 3, 2010, by and between Mr.
Larry Robinson and the Registrant (incorporated by reference to
Exhibit 10.1 to the Registrants Form 8-K filed on August 9,
2010).31.1
    
    Certification of the Chief Executive Officer, pursuant to Rule
13a-14(a) or 15d-14(a), for the quarter ended September 30, 2010.31.2
    
    Certification of the Chief Financial Officer, pursuant to Rule
13a-14(a) or 15d-14(a), for the quarter ended September 30, 2010.32.1
    
    Certification of the Chief Executive Officer and Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, for the quarter
ended September 30, 2010.
 28




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##### Table of Contents



SIGNATURES
  PRGX GLOBAL, INC.November 15, 2010
    By:
    /s/ Romil BahlRomil BahlPresident, Chief Executive Officer, Director(Principal Executive Officer) November 15, 2010
    By:
    /s/ Robert B. LeeRobert B. LeeChief Financial Officer, Treasurer and
Controller
(Principal Financial and Accounting
Officer) 29