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, 2008
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, 2008, PRG-Schultz International, Inc.(“PRG” or the “Company”) issued a press release announcing its unaudited results for the quarter and nine months ended September 30, 2008, a copy of which is furnished herewith as Exhibit 99.1.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

     PRG previously announced that, James B. McCurry, Chairman, President and Chief Executive Officer of PRG, intended to resign from the Company prior to the end of the year. On October 29, 2008, PRG announced that Mr. McCurry has informed the Board of Directors of PRG that he will be resigning as of November 30, 2008 in order to assume a position as chief executive officer of a privately-held company. It is expected that, if a successor for Mr. McCurry is not in place by November 30, 2008, Patrick G. Dills, currently PRG’s Presiding Director, will serve as the Company’s interim chairman, president and chief executive officer until Mr. McCurry’s successor is hired.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits

     The following exhibits are filed herewith:

99.1 Press Release dated October 29, 2008.

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, 2008

EXHIBIT INDEX

Exhibit
Number	Description of Exhibits
99.1	Press Release dated October 29, 2008

EX-99.1

Exhibit 99.1

PRESS RELEASE

FOR IMMEDIATE RELEASE

PRG-Schultz Announces Third Quarter 2008 Financial Results

ATLANTA, October 29, 2008 — 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, 2008.

Highlights of Financial Results

• Net earnings for the 2008 third quarter were $4.2 million, or $0.19 per basic share and $0.18 per diluted share, compared to a net loss of $3.0 million, or $(0.31) per basic and diluted share for the same period in 2007. The third quarter 2008 net earnings included a $0.4 million charge for stock-based compensation and $1.8 million of foreign currency losses on intercompany balances. These intercompany balances, which have built up over time, result from transfer pricing charges to the Company’s foreign subsidiaries that occur as part of the Company’s tax strategy. 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 2007 third quarter 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 and $0.5 million of foreign currency gains on intercompany balances.

• Adjusted EBITDA for the 2008 third quarter was $9.2 million compared to $10.2 million of adjusted EBITDA for the same period in 2007. The 2008 third quarter adjusted EBITDA is earnings (loss) from continuing operations before interest, taxes, depreciation and amortization (EBITDA) excluding the $0.4 million charge for stock-based compensation and the $1.8 million of foreign currency losses on intercompany balances. The comparable adjusted EBITDA amount for the third quarter of 2007 excludes from EBITDA for such period the charge of $6.9 million related to stock-based compensation, the operational restructuring charge of $1.6 million and the $0.5 million of foreign currency gains on intercompany balances. (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 2008 was $49.2 million, a decrease of 7.6% compared to $53.2 million for the same period in 2007. Cost of Revenue and SG&A expenses combined were $43.3 million for the 2008 third quarter, down 15.2% compared to the same period in 2007.

• Net earnings for the first nine months of 2008 were $12.3 million, or $0.57 per basic share and $0.54 per diluted share, which included $5.0 million of stock-based

1

	compensation expense and $1.3 million of foreign currency losses on intercompany balances. This compares to net earnings of $17.1 million, or $1.80 per basic and diluted share for the same period in 2007, which included the previously reported 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, $12.3 million of stock-based compensation expense which was also mostly attributable to the issuance of additional performance units in accordance with the anti-dilution provisions of the Company’s 2006 Management Incentive Plan and $1.1 million of foreign currency gains on intercompany balances.
•	Adjusted EBITDA for the nine months ended September 30, 2008 was $26.9 million compared to $28.7 million of adjusted EBITDA for the same period in 2007. The 2008 nine-month adjusted EBITDA excludes the charge of $5.0 million for stock-based compensation and the $1.3 million of foreign currency losses on intercompany balances. The comparable adjusted EBITDA amount for the first nine months of 2007 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, the $12.3 million of stock-based compensation charges and the $1.1 million of foreign currency gains on intercompany balances.
•	Consolidated revenue in the first nine months of 2008 was $147.1 million compared to $163.6 million for the same period in 2007. Cost of Revenue and SG&A expenses combined were $130.4 million for the first nine months of 2008, down 13.9% compared to the same period in 2007.

Liquidity

At September 30, 2008 the Company had cash and cash equivalents of $22.8 million and had no borrowings against its revolving credit facility. Total debt outstanding at quarter-end was $20.9 million and included a $20.3 million outstanding balance on a variable rate term loan due 2011 and a $0.6 million capital lease obligation.

“We continue to experience improved performance in our core accounts payable recovery audit business,” said James B. McCurry, chairman, president and chief executive officer. “Year over year revenues from accounts payable recovery audit were up for the second quarter in a row, with both U.S. and international markets experiencing revenue increases for the third quarter.”

CEO Transition Plan

As disclosed in the company’s August 19, 2008 press release, Mr. McCurry advised the Board of Directors of his intention to resign from the Company. Mr. McCurry has subsequently informed the Board that he will be resigning as of November 30, 2008 in order to assume the position of chief executive officer of a privately-held company. Patrick G. Dills, currently the Company’s Presiding Director, will serve as the

2

Company’s interim chairman, president and chief executive officer until Mr. McCurry’s successor is hired.

“Once again the Board would like to thank Jim for his many contributions to PRG-Schultz,” said Dills, who also serves as the leader of the Board’s CEO search committee. “We look forward to bringing the search for the Company’s new CEO to a successful conclusion, hopefully in the very near future.”

Third Quarter Earnings Call

As previously announced, management will hold a conference call tomorrow morning at 8:30 AM (EDT) to discuss the Company’s third quarter 2008 financial results. To access the conference call, listeners in the U.S. and Canada should dial 800-599-9816 at least 5 minutes prior to the start of the conference. Listeners outside the U.S. and Canada should dial 617-847-8705. To be admitted to the call, listeners should use passcode 37620809. A replay of the call will be available approximately one hour after the conclusion of the live call, extending through November 30, 2008. To directly access the replay, dial 888-286-8010 (U.S. and Canada) or 617-801-6888 (outside the U.S. and Canada). The passcode for the replay is 40481581.

This teleconference will also be audiocast on the Internet at www.prgx.com (click on “(NASDAQ: PRGX)” under “Investor Relations”). A replay of the audiocast will be available at the same location on www.prgx.com beginning approximately one hour after the conclusion of the live audiocast, extending through November 30, 2008. 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 www.microsoft.com/windows/mediaplayer.

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. The Company believes these measures provide additional meaningful information in evaluating the Company’s performance over time, and that the rating agencies and a number of lenders use EBITDA and similar measures for similar purposes. In addition, a measure similar to adjusted EBITDA is used in the restrictive covenants contained in the Company’s secured credit facility. 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

3

addition, 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 to this press release provides a reconciliation of net earnings (loss) to each of EBITDA and adjusted EBITDA.

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, its performance in the accounts payable recovery audit business, and Mr. McCurry’s resignation and the status of the search for his successor. 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 locate a qualified successor to Mr. McCurry and retain existing personnel, revenues that do not meet expectations or justify costs incurred, the Company’s ability to develop material sources of revenue in addition to its core accounts payable services, changes in the market for the Company’s services, client bankruptcies, loss of major clients, the risk that the Company may not participate in the proposed national rollout of the Medicare recovery audit program or that the national rollout will be significantly delayed, and other risks generally applicable to the Company’s business. For a discussion of other risk factors that may impact the Company’s business, please see the Company’s filings with the Securities and Exchange Commission, including its Form 10-K filed on March 12, 2008. 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

4

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,
	2008		2007			2008		2007
Revenues	$	49,182	$	53,207		$	147,093	$	163,552
Cost of revenues		31,169		33,511			94,362		105,624
Gross margin		18,013		19,696			52,731		57,928
Selling, general and administrative expenses		12,139		17,562			36,006		45,730
Operational restucturing expense		—		1,644			—		1,644
Operating income		5,874		490			16,725		10,554
Interest expense, net		789		3,133			2,545		12,023
Earnings (loss) from continuing operations before income taxes and discontinued operations		5,085		(2,643	)		14,180		(1,469	)
Income taxes		879		337			1,872		1,212
Earnings (loss) from continuing operations before discontinued operations		4,206		(2,980	)		12,308		(2,681	)
Discontinued operations:
Operating income, net of taxes		—		(11	)		—		304
Gain (loss) on disposal		—		—			—		19,460
Earnings (loss) from discontinued operations, net of taxes		—		(11	)		—		19,764
Net earnings (loss)	$	4,206	$	(2,991	)	$	12,308	$	17,083
Basic earnings (loss) per common share:
Earnings (loss) from continuing operations	$	0.19	$	(0.31	)	$	0.57	$	(0.34	)
Earnings from discontinued operations		—		—			—		2.14
Net earnings (loss)	$	0.19	$	(0.31	)	$	0.57	$	1.80
Diluted earnings (loss) per common share:
Earnings (loss) from continuing operations	$	0.18	$	(0.31	)	$	0.54	$	(0.34	)
Earnings from discontinued operations		—		—			—		2.14
Net earnings (loss)	$	0.18	$	(0.31	)	$	0.54	$	1.80
Weighted average common shares outstanding:
Basic		21,919		10,275			21,726		9,247
Diluted		23,002		10,275			22,942		9,247

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

	September 30,			December 31,
	2008			2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	22,788		$	42,364
Restricted cash		251			—
Receivables:
Contract receivables		32,028			36,691
Employee advances and miscellaneous receivables		500			1,118
Total receivables		32,528			37,809
Prepaid expenses and other current assets		2,296			2,740
Total current assets		57,863			82,913
Property and equipment		7,794			8,035
Goodwill		4,600			4,600
Intangible assets		19,519			21,172
Other assets		4,946			5,718
Total assets	$	94,722		$	122,438
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portions of debt obligations	$	5,306		$	7,846
Accounts payable and accrued expenses		13,013			16,117
Accrued payroll and related expenses		24,281			31,435
Refund liabilities and deferred revenue		7,251			10,517
Total current liabilities		49,851			65,915
Debt obligations		15,662			38,078
Noncurrent compensation obligations		5,186			8,548
Other long-term liabilities		6,159			7,548
Total liabilities		76,858			120,089
Shareholders’ equity:
Common stock		228			221
Additional paid-in capital		609,110			605,592
Accumulated deficit		(546,710	)		(559,018	)
Accumulated other comprehensive income		3,946			4,264
Treasury stock at cost		(48,710	)		(48,710	)
Total shareholders’ equity		17,864			2,349
Total liabilities and shareholders’ equity	$	94,722		$	122,438

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,
	2008		2007			2008		2007
Reconciliation of net earnings (loss) to EBITDA and to Adjusted EBITDA:
Net earnings (loss)	$	4,206	$	(2,991	)	$	12,308	$	17,083
Adjust for:
Earnings (loss) from discontinued operations		—		(11	)		—		19,764
Earnings (loss) from continuing operations		4,206		(2,980	)		12,308		(2,681	)
Adjust for:
Income taxes		879		337			1,872		1,212
Interest		789		3,133			2,545		12,023
Depreciation and amortization		1,181		1,699			3,897		5,263
EBITDA		7,055		2,189			20,622		15,817
Operational restructuring expense		—		1,644			—		1,644
Foreign currency (gains) losses on intercompany balances		1,801		(505	)		1,335		(1,085	)
Stock-based compensation		377		6,886			4,961		12,315
Adjusted EBITDA	$	9,233	$	10,214		$	26,918	$	28,691

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. The Company believes these measures provide additional meaningful information in evaluating the Company’s performance over time, and that the rating agencies and a number of lenders use EBITDA and similar measures for similar purposes. In addition, a measure similar to adjusted EBITDA is used in the restrictive covenants contained in the Company’s secured credit facility. 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 addition, in evaluating EBITDA and adjusted EBITDA, you should be aware that 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,
	2008			2007			2008			2007
Cash flows from operating activities:
Net earnings (loss)	$	4,206		$	(2,991	)	$	12,308		$	17,083
Earnings (loss) from discontinued operations		—			(11	)		—			19,764
Earnings (loss) from continuing operations		4,206			(2,980	)		12,308			(2,681	)
Adjustments to reconcile earnings (loss) from continuing operations to net cash provided by operating activities:
Depreciation and amortization		1,181			1,699			3,897			5,263
Amortization of debt discounts and deferred costs		198			448			588			2,451
Stock-based compensation expense		377			6,886			4,961			12,315
(Increase) decrease in receivables		(4,161	)		(3,040	)		4,514			3,899
Increase (decrease) in accounts payable, accrued payroll and other accrued expenses		6,759			(3,218	)		(13,403	)		(13,857	)
Other, primarily changes in assets and liabilities		(3,069	)		666			(4,935	)		(492	)
Net cash provided by operating activities		5,491			461			7,930			6,898
Cash flows from investing activities — purchases of property and equipment, net of disposals		(1,109	)		(1,033	)		(2,211	)		(2,172	)
Net cash used in financing activities		(1,321	)		(1,700	)		(25,015	)		(27,069	)
Cash flows from discontinued operations		—			(125	)		—			18,944
Effect of exchange rates on cash and cash equivalents		(425	)		572			(280	)		928
Net increase (decrease) in cash and cash equivalents		2,636			(1,825	)		(19,576	)		(2,471	)
Cash and cash equivalents at beginning of period		20,152			29,582			42,364			30,228
Cash and cash equivalents at end of period	$	22,788		$	27,757		$	22,788		$	27,757