8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

October 29, 2007
Date of Report (Date of earliest event reported)

PRG-Schultz International, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Georgia
(State or Other Jurisdiction of Incorporation)

0-28000	58-2213805
(Commission File Number)	(IRS Employer Identification No.)

600 Galleria Parkway, Suite 100, Atlanta, Georgia	30339-5949
(Address of Principal Executive Offices)	(Zip Code)

770-779-3900
(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

     The following information is being furnished pursuant to Item 2.02 of Form 8-K. This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

     On October 29, 2007, PRG-Schultz International, Inc. issued a press release announcing its unaudited results for the quarter and nine months ended September 30, 2007, a copy of which is furnished herewith as Exhibit 99.1.

Item 9.01. Financial Statements and Exhibits

(d)	Exhibits
	The following exhibit is furnished herewith:
		99.1	Press Release dated October 29, 2007.

SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

PRG-Schultz International, Inc.
By:	/s/ Victor A. Allums
	Victor A. Allums
	Senior Vice President, Secretary and General Counsel

Dated: October 29, 2007

EXHIBIT INDEX

Exhibit
Number	Description of Exhibits
99.1	Press Release dated October 29, 2007.

EX-99.1

Exhibit 99.1

PRESS RELEASE

FOR IMMEDIATE RELEASE

PRG-Schultz Announces Third Quarter 2007 Financial Results

ATLANTA, October 29, 2007 — PRG-Schultz International, Inc. (Nasdaq: PRGX), the world’s largest recovery audit firm, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2007.

Highlights of Financial Results

• Net loss for the 2007 third quarter was $3.0 million or $(0.31) per basic and diluted share, compared to a net loss of $4.2 million, or $(0.69) per basic and diluted share for the same period in 2006. The third quarter 2007 net loss included a $6.9 million charge for stock-based compensation, most of which resulted from the issuance of additional performance units in accordance with the anti-dilution provisions of the Company’s 2006 Management Incentive Plan. The net loss also included an operational restructuring charge of $1.6 million related to the Company’s successful sub-leasing and exit of approximately 25% of its headquarters office space. The third quarter 2006 net loss included earnings from discontinued operations of $0.7 million, an operational restructuring charge of $0.2 million and a charge of $4.1 million for stock-based compensation.

• Adjusted EBITDA for the 2007 third quarter was $10.7 million compared to $7.2 million of adjusted EBITDA for the same period in 2006. The 2007 third quarter adjusted EBITDA is earnings (loss) from continuing operations before interest, taxes, depreciation and amortization (EBITDA) excluding the $1.6 million operational restructuring charge related to the exit of a portion of its headquarters office space and the $6.9 million charge for stock-based compensation. The comparable adjusted EBITDA amount for the third quarter of 2006 excludes from EBITDA for such period the charge of $4.1 million related to stock-based compensation and the operational restructuring charge of $0.2 million. (Schedule 3 attached to this press release provides a reconciliation of net earnings (loss) to each of EBITDA and adjusted EBITDA).

• Consolidated revenue for the third quarter of 2007 was $53.2 million, a decrease of 2.9% compared to $54.8 million for the same period in 2006. Cost of revenue and SG&A expenses combined were $51.1 million for the 2007 third quarter, down 5.7% compared to the same period in 2006.

• Net earnings for the first nine months of 2007 were $17.1 million or $1.80 per basic and diluted share, which included the previously announced gain on the sale of the Meridian business of $19.5 million, earnings from discontinued operations of $0.3 million, the $1.6 million lease exit restructuring charge and $12.3 million of stock-based compensation expense which was also mostly attributable to the anti-dilution provisions of the Company’s 2006 Management

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	Incentive Plan. This compares to a net loss of $18.2 million, or $(2.95) per basic and diluted share for the same period in 2006, which included earnings from discontinued operations of $1.9 million, a $10 million non-cash charge related to the Company’s March 2006 financial restructuring, a charge of $4.8 million related to stock-based compensation, and $2.1 million of operational restructuring charges.
•	Adjusted EBITDA for the nine months ended September 30, 2007 was $29.8 million compared to $17.6 million of adjusted EBITDA for the same period in 2006. The 2007 adjusted EBITDA excludes the $19.5 million gain on the sale of the Meridian business, earnings from discontinued operations of $0.3 million, the $1.6 million lease exit restructuring charge and the $12.3 million of stock-based compensation charges. The comparable adjusted EBITDA amount for the first nine months of 2006 excludes the earnings from discontinued operations of $1.9 million, the non-cash charge of $10 million related to the Company’s financial restructuring, the charge of $4.8 million related to stock-based compensation, and the operational restructuring charge of $2.1 million.
•	Consolidated revenue in the first nine months of 2007 was $163.6 million compared to $165.7 million for the same period in 2006. Cost of Revenue and SG&A expenses combined were $151.4 million for the first nine months of 2007, down 5.8% compared to the same period in 2006.

Liquidity

At September 30, 2007 the Company had cash and cash equivalents of $27.8 million and had no borrowings against its revolving credit facility. As recently announced, on October 4, 2007 the Company completed the redemption of its 11% Senior Notes and its 10% Senior Convertible Notes and on October 19, 2007 completed the redemption of its Series A Convertible Preferred Stock. As a result of the call for redemption, virtually all of the convertible securities were converted into shares of PRG-Schultz common stock.

Following the completion of the conversions and redemptions, the Company has approximately 21.5 million shares of common stock outstanding, a $45 million term loan due September 2011 and cash and cash equivalents exceeding $20 million.

“We are pleased to report another quarter of significant progress,” said James B. McCurry, chairman, president and chief executive officer. “We registered our seventh successive quarter of year-over-year increase in adjusted EBITDA, while continuing to build our capabilities in new areas of recovery audit, and in providing new services, beyond recovery audit, to our existing client base.”

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Third Quarter Earnings Call

As previously announced, management will hold a conference call at 8:30 AM (EDT) tomorrow to discuss its 2007 third quarter and year-to-date financial results. To access the conference call, listeners in the U.S. and Canada should dial 1-888-713-4213 at least 5 minutes prior to the start of the conference. Listeners outside the U.S. and Canada should dial 617-213-4865. To be admitted to the call, listeners should use passcode 93451143. A replay of the call will be available one hour after the conclusion of the live call, extending through November 30, 2007. To directly access the replay, dial 1-888-286-8010 (U.S. and Canada) or 617-801-6888 (outside the U.S. and Canada). The passcode for the replay is 96844003.

This teleconference will also be audiocast on the Internet at www.prgx.com (click on “(NASDAQ: PRGX)” under “Investor Relations”) or click PRGX Investor Relations. A replay of the audiocast will be available at the same location beginning one hour after the conclusion of the live audiocast, extending through November 30, 2007. Please note that the Internet audiocast is “listen-only.” Microsoft Windows Media Player is required to access the live audiocast and the replay and can be downloaded from http://www.microsoft.com/windows/windowsmedia/download

About PRG-Schultz International, Inc.

Headquartered in Atlanta, PRG-Schultz International, Inc. is the world’s leading recovery audit firm, providing clients throughout the world with insightful value to optimize and expertly manage their business transactions. Using proprietary software and expert audit methodologies, PRG industry specialists review client purchases and payment information to identify and recover overpayments.

Non-GAAP Financial Measures

EBITDA and adjusted EBITDA are both “non-GAAP financial measures” presented as supplemental measures of our performance. They are not presented in accordance with accounting principles generally accepted in the United States, or GAAP. Management uses these measures in evaluating the Company’s financial performance and believes that providing investors with this information provides greater transparency and insight into management’s assessment and analysis of that performance. Additionally, rating agencies and a number of lenders, including the Company’s secured lenders, use measures similar to EBITDA and adjusted EBITDA to assess the Company’s performance. However, EBITDA and adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. In evaluating EBITDA and adjusted EBITDA, you should be aware that, as described above, the adjustments may vary from period to period and in the future we will incur expenses such as those used in calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. Schedule 3 provides a reconciliation of net earnings (loss) to each of EBITDA and adjusted EBITDA.

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Forward Looking Statements

In addition to historical information, this press release includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include both implied and express statements regarding the Company’s financial condition and liquidity, the existence and continuation of the Company’s significant progress, the building of capabilities in new areas of recovery audit, and the Company’s progress in providing new services. Such forward looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to differ materially from the historical results or from any results expressed or implied by such forward-looking statements. Risks that could affect the Company’s future performance include the Company’s ability to attract and retain personnel, Medicare audit revenues that do not meet expectations or justify costs incurred, the Company’s ability to replace the declining revenues from its core accounts payable services, changes in the market for the Company’s services, client bankruptcies, loss of major clients, and other risks generally applicable to the Company’s business. For a discussion of other risk factors that may impact the Company’s business and the success of its restructuring plan, please see the Company’s filings with the Securities and Exchange Commission, including its Form 10-K filed on March 23, 2007. The Company disclaims any obligation or duty to update or modify these forward-looking statements.

Contact: PRG-Schultz International, Inc.
Peter Limeri
770-779-6464

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SCHEDULE 1
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2007			2006			2007			2006
Revenues	$	53,207		$	54,830		$	163,552		$	165,686
Cost of revenues		33,511			37,531			105,624			117,254
Gross margin		19,696			17,299			57,928			48,432
Selling, general and administrative expenses		17,562			16,605			45,730			43,408
Operational restructuring expenses		1,644			153			1,644			2,141
Operating income		490			541			10,554			2,883
Interest expense, net		3,133			5,278			12,023			12,137
Loss on financial restructuring		—			(82	)		—			10,047
Earnings (loss) from continuing operations before income taxes and discontinued operations		(2,643	)		(4,655	)		(1,469	)		(19,301	)
Income taxes		337			306			1,212			760
Earnings (loss) from continuing operations before discontinued operations		(2,980	)		(4,961	)		(2,681	)		(20,061	)
Discontinued operations:
Operating income, net of taxes		(11	)		727			304			1,643
Gain (loss) on disposal		—			—			19,460			245
Earnings (loss) from discontinued operations, net of taxes		(11	)		727			19,764			1,888
Net earnings (loss)	$	(2,991	)	$	(4,234	)	$	17,083		$	(18,173	)
Basic and diluted earnings (loss) per common share:
Earnings (loss) from continuing operations	$	(0.31	)	$	(0.80	)	$	(0.34	)	$	(3.24	)
Earnings (loss) from discontinued operations		—			0.11			2.14			0.29
Net earnings (loss)	$	(0.31	)	$	(0.69	)	$	1.80		$	(2.95	)
Weighted average common shares outstanding:
Basic		10,275			6,575			9,247			6,391
Diluted		10,275			6,575			9,247			6,391

Certain reclassifications have been made to the 2006 amounts to conform to the presentation in 2007.
These reclassifications include the presentation of the Meridian reporting segment as discontinued operations.

SCHEDULE 2
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)

	September 30,			December 31,
	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	27,757		$	30,228
Restricted cash		242			139
Receivables:
Contract receivables		39,993			39,703
Employee advances and miscellaneous receivables		355			2,534
Total receivables		40,348			42,237
Prepaid expenses and other current assets		3,007			2,092
Current assets of discontinued operations		2,152			52,320
Total current assets		73,506			127,016
Property and equipment		7,151			8,810
Goodwill		4,600			4,600
Intangible assets		21,770			23,062
Other assets		8,301			11,058
Noncurrent assets of discontinued operations		—			4,121
Total assets	$	115,328		$	178,667
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portions of debt obligations	$	477		$	750
Accounts payable and accrued expenses		14,183			17,959
Accrued payroll and related expenses		27,578			37,224
Refund liabilities and deferred revenue		10,437			10,657
Current liabilities of discontinued operations		—			55,208
Total current liabilities		52,675			121,798
Senior notes		44,812			43,796
Senior convertible notes		28,216			68,030
Other debt obligations		647			25,096
Noncurrent compensation obligations		10,704			5,859
Other long-term liabilities		7,643			7,372
Total liabilities		144,697			271,951
Mandatorily redeemable participating preferred stock		6,481			11,199
Shareholders’ equity (deficit):
Common stock		158			84
Additional paid-in capital		563,211			513,920
Accumulated deficit		(555,065	)		(571,818	)
Accumulated other comprehensive income		4,556			2,041
Treasury stock at cost		(48,710	)		(48,710	)
Total shareholders’ equity (deficit)		(35,850	)		(104,483	)
Total liabilities and shareholders’ equity (deficit)	$	115,328		$	178,667

2006 balances have been reclassified to present the assets and liabilities of the Meridian reporting
segment as those of discontinued operations. Meridian was sold in May 2007.

SCHEDULE 3
PRG-Schultz International, Inc. and Subsidiaries
Reconciliation of Net Earnings (Loss) to EBITDA and Adjusted EBITDA
(Amounts in thousands)
(Unaudited)

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2007			2006			2007			2006
Reconciliation of net earnings (loss) to EBITDA and to Adjusted EBITDA:
Net earnings (loss)	$	(2,991	)	$	(4,234	)	$	17,083		$	(18,173	)
Adjust for:
Earnings (loss) from discontinued operations		(11	)		727			19,764			1,888
Earnings (loss) from continuing operations		(2,980	)		(4,961	)		(2,681	)		(20,061	)
Adjust for:
Income taxes		337			306			1,212			760
Interest		3,133			5,278			12,023			12,137
Loss on financial restructuring		—			(82	)		—			10,047
Depreciation and amortization		1,699			2,394			5,263			7,733
EBITDA		2,189			2,935			15,817			10,616
Operational restructuring expenses		1,644			153			1,644			2,141
Stock-based compensation		6,886			4,101			12,315			4,835
Adjusted EBITDA	$	10,719		$	7,189		$	29,776		$	17,592

EBITDA and adjusted EBITDA are both “non-GAAP financial measures” presented as supplemental measures of our performance. They are not presented in accordance with accounting principles generally accepted in the United States, or GAAP. Management uses these measures in evaluating the Company’s financial performance and believes that providing investors with this information provides greater transparency and insight into management’s assessment and analysis of that performance. Additionally, rating agencies and a number of lenders, including the Company’s secured lenders, use measures similar to EBITDA and adjusted EBITDA to assess the Company’s performance. However, EBITDA and adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. In evaluating EBITDA and adjusted EBITDA, you should be aware that, as described above, the adjustments may vary from period to period and in the future we will incur expenses such as those used in calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

SCHEDULE 4
PRG-Schultz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2007			2006			2007			2006
Cash flows from operating activities:
Net earnings (loss)	$	(2,991	)	$	(4,234	)	$	17,083		$	(18,173	)
Earnings (loss) from discontinued operations		(11	)		727			19,764			1,888
Earnings (loss) from continuing operations		(2,980	)		(4,961	)		(2,681	)		(20,061	)
Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by (used in) operations:
Loss on financial restructuring		—			(82	)		—			10,047
Depreciation and amortization		1,699			2,394			5,263			7,733
Stock-based compensation expense		6,886			4,101			12,315			4,835
Amortization of debt discounts and deferred costs		448			552			2,451			1,130
(Increase) decrease in receivables		(3,040	)		(2,398	)		3,899			9,355
Increase (decrease) in accounts payable, accrued payroll and other accrued expenses		(3,218	)		990			(13,857	)		(7,083	)
Other, primarily changes in assets and liabilities		666			195			(492	)		1,177
Net cash provided by (used in) operating activities		461			791			6,898			7,133
Cash flows from investing activities — purchases of property and equipment, net of disposals		(1,033	)		(358	)		(2,172	)		(766	)
Net cash provided by (used in) financing activities		(1,700	)		—			(27,069	)		(831	)
Cash flows from discontinued operations		(125	)		(264	)		18,944			459
Effect of exchange rates on cash and cash equivalents		572			(103	)		928			927
Net increase (decrease) in cash and cash equivalents		(1,825	)		66			(2,471	)		6,922
Cash and cash equivalents at beginning of period		29,582			15,217			30,228			8,361
Cash and cash equivalents at end of period	$	27,757		$	15,283		$	27,757		$	15,283