PRGX Global, Inc.
Annual Report 2010

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K(Mark One) þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the fiscal year ended December 31, 2010OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934For the transition period from to Commission File Number 0-28000PRGX Global, Inc.(Exact name of registrant as specified in its charter) Georgia 58-2213805(State or other jurisdiction of (I.R.S. Employerincorporation or organization) Identification No.) 600 Galleria Parkway Suite 100 Atlanta, Georgia 30339-5986(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (770) 779-3900Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, No Par Value The NASDAQ Stock Market LLC (The Nasdaq Global Market)Preferred Stock Purchase Rights The NASDAQ Stock Market LLC (The Nasdaq Global Market)Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligationsunder those Sections. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes þ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best ofthe registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form10-K. þ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes o No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check One):o Large accelerated filer þ Accelerated filer o Non-accelerated filer (Do not check if a smaller reporting company)o Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ The aggregate market value, as of June 30, 2010, of common shares of the registrant held by non-affiliates of the registrant was approximately $80.1 million,based upon the last sales price reported that date on The Nasdaq Global Market of $4.15 per share. (Aggregate market value is estimated solely for the purposes ofthis report and shall not be construed as an admission for the purposes of determining affiliate status.) Common shares of the registrant outstanding as of March 1, 2011 were 23,992,854.Documents Incorporated by Reference Part III: Portions of Registrant’s Proxy Statement relating to the Company’s 2011 Annual Meeting of Shareholders.  PRGX Global, Inc.FORM 10-KDecember 31, 2010 PagePart I Item 1. Business 1 Item 1A. Risk Factors 10 Item 1B. Unresolved Staff Comments 17 Item 2. Properties 17 Item 3. Legal Proceedings 17 Item 4. [Reserved] 17 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 18 Item 6. Selected Financial Data 20 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 35 Item 8. Financial Statements and Supplementary Data 36 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 68 Item 9A. Controls and Procedures 68 Item 9B. Other Information 69 Part III Item 10. Directors, Executive Officers and Corporate Governance 70 Item 11. Executive Compensation 70 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 71 Item 13. Certain Relationships and Related Transactions, and Director Independence 72 Item 14. Principal Accountants’ Fees and Services 72 Part IV Item 15. Exhibits, Financial Statement Schedules 73 Signatures 78 EX-10.33 EX-21.1 EX-23.1 EX-31.1 EX-31.2 EX-32.1 Table of ContentsCautionary Statement Regarding Forward-Looking Statements The following discussion includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are at times identified by words such as “plans,” “intends,” “expects,” or “anticipates” and words of similar effect and include statementsregarding the Company’s financial and operating plans and goals. These forward-looking statements include any statements that cannot be assessed until theoccurrence of a future event or events. Except as otherwise indicated or unless the context otherwise requires, “PRGX,” “we,” “us,” “our” and the “Company”refer to PRGX Global, Inc. and its subsidiaries. These forward-looking statements are subject to risks, uncertainties and other factors, including but not limited to those discussed herein and below underItem 1A “Risk Factors.” Many of these risks are outside of our control and could cause actual results to differ materially from the results discussed in the forward-looking statements. Factors that could lead to material changes in our performance may include, but are not limited to: • our ability to successfully execute our recovery audit growth strategy; • our continued dependence on our largest clients for significant revenues; • changes to Medicare and Medicaid recovery audit contractor (“RAC”) programs and the impact of our incurring significant costs as a subcontractor inthe national Medicare RAC program and otherwise in connection with our healthcare claims recovery audit business; • revenues that do not meet expectations or justify costs incurred; • our ability to develop material sources of new revenue in addition to revenues from our core accounts payable recovery audit services; • changes to revenues from our Medicare audit recovery work due to a number of pressures and uncertainties affecting Medicare spending generallyand over which we have little or no control; • changes in the market for our services; • client and vendor bankruptcies and financial difficulties; • our ability to retain and attract qualified personnel; • our inability to protect and maintain the competitive advantage of our proprietary technology and intellectual property rights; • our reliance on operations outside the U.S. for a significant portion of our revenues; • the highly competitive environments in which our recovery audit services, business analytics and advisory services businesses operate and theresulting pricing pressure on those businesses; • our ability to integrate recent and future acquisitions; • uncertainty in the credit markets; • our ability to maintain compliance with our financial covenants; • effects of changes in accounting policies, standards, guidelines or principles; or • terrorist acts, acts of war and other factors over which we have little or no control. Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we undertake no obligation toupdate any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipatedevents. New factors emerge from time to time and it is not possible for management to predict all such factors.iTable of ContentsPART IITEM 1. Business PRGX Global, Inc., together with its subsidiaries, is an analytics — powered information and professional services firm based in the United States of America(“U.S.”). PRGX Global, Inc. was incorporated in the State of Georgia in 1996. At the heart of our client services portfolio is the core capability of mining clientdata to deliver “actionable insights.” Actionable insights allow our clients to improve their financial performance by reducing costs, improving business processesand increasing profitability. In 2010, we rebranded the Company as “PRGX” and adopted the tag line of “Discover Your Hidden Profits.” We currently provide services to clients in 28 countries, and conduct our operations through three reportable operating segments: Recovery Audit Services —Americas, Recovery Audit Services — Europe/Asia-Pacific and New Services. The Recovery Audit Services — Americas segment represents recovery auditservices (other than healthcare claims recovery audit services) we provide in the U.S., Canada and Latin America. The Recovery Audit Services — Europe/Asia-Pacific segment represents recovery audit services (other than healthcare claims recovery audit services) we provide in Europe, Asia and the Pacific region. TheNew Services segment represents healthcare claims recovery audit services and our business analytics and advisory services. We include the unallocated portion ofcorporate selling, general and administrative expenses not specifically attributable to the three operating segments in “Corporate Support.” Our core business is “recovery audit,” a service based on the mining of a tremendous amount of our clients’ purchasing data, looking for overpayments to theirthird party suppliers. Most of our large retail clients in mature geographic markets employ their own internal staff to audit and recover overpayments to suppliers,engaging us as a supplement to this internal function. For other clients, including some large and mid-size retailers and our “commercial” (non-retail) clients, weserve as the complete outsourced provider of this standard function. We process over 1.5 million client files each year, including purchase orders, receipt andshipment data, invoices, payables data and point of sales data, and at any point in time, have over 4 petabytes of client data available for analysis. Our healthcare claims recovery audit services involve the identification of overpayments and underpayments made to healthcare providers, such as hospitalsand physicians’ practices. We identify such improper payments by using various methods, including proprietary methods which are comparable to the proprietarytechniques we developed through many years of performing other types of recovery audits involving massive volumes of transaction data. Auditing medical claimsdata requires in-depth expertise in healthcare procedures and billing processes, requiring a staff of healthcare professionals, including doctors and nurses. Our business analytics and advisory services target client functional and process areas where we have established expertise, enabling us to provide services tosenior finance executives to optimize working capital, reduce enterprise costs, transform the finance function and improve corporate performance. Recovery auditservices operate in a mindset of continuous improvement, i.e., reporting on the over-payment “categories” and their root causes. Our advisory services teams arewell positioned to help clients resolve many of the root causes of errors identified as part of our recovery audit services. Our analytics services teams enhance ourclient value propositions relating to spend analytics and sourcing/procurement excellence. We use the data from our clients to create spend reporting at the lineitem level of detail, a capability that many of our clients do not possess in-house. This information enables us to assist clients with supplier rationalization,collaborative purchasing, strategic sourcing and procurement transformation, all of which can dramatically enhance the clients’ bottom lines. We provide certain of our insights through web — based technologies using the “SAAS” (software as a service) delivery model. Our SAAS model uses amonthly license fee allowing customers to tailor service levels such as frequency of data refresh and scope of reporting outputs. Our range of software basedsolutions extends to fraud and compliance reporting, control monitoring and contract management. As our clients’ data volume and complexity continues to grow,we are utilizing our deep data management experience to incubate new actionable insight solutions in retail and healthcare, as well as to develop custom analyticsservices. Taken together, our software capability and solutions provide multiple routes to helping our clients “discover hidden profits.”1Table of ContentsThe PRGX Strategy and Client Value Propositions During 2009, our executive management team performed an extensive review of our competitive advantages and marketplace opportunities and developed arevised business strategy for growth. The five components of this growth strategy are: 1. grow the accounts payable recovery audit business; 2. trail blaze accountability in healthcare; 3. expand data mining for profitability; 4. broaden our services footprint; and 5. build a strong team with a high-performance culture. These elements of our growth strategy represent our plans to reinvigorate our core business while significantly expanding the services portfolio. The go-to-market strategy is built on a competency foundation that includes data mining, audit/forensics capabilities, finance and procure-to-pay business process expertise,and a proprietary business intelligence platform. We now refer to these as our core capabilities of “Audit, Analytics and Advice.” We believe that we can combinethese core capabilities effectively to discover and deliver hidden profits for our clients, enabling the creation of a new service category in the professional servicesmarketplace: Profit Discovery. We have identified five major routes to discover profits for clients, each of which we refer to as a Client Value Proposition, or “CVP.” These CVPs representour services portfolio, and we discuss them within the descriptions of the various planks of our growth strategy below.Grow the Accounts Payable Recovery Audit Business The “Grow the Accounts Payable Recovery Audit Business” component of our business strategy is focused on expanding our traditional stronghold in recoveryaudit in the retail industry, along with a renewed focus on profitably delivering recovery audit services to non-retail (or what we internally refer to as“commercial”) clients. In order to facilitate growth in the accounts payable recovery audit market, we have reintroduced a dedicated sales force. In addition, we have increased ourfocus on the quality of our client relationships and management of our existing client accounts. We also have established alliance agreements with several thirdparty service providers to allow us to offer our clients a comprehensive suite of recovery audit services beyond accounts payable to include tax, real estate, andtelecommunications audits. The new service offerings made possible by these alliance partners broaden the scope of audits with existing clients and we expectthem to help us establish new client relationships and business opportunities around the globe. With a keen focus on business development and audit strategy, weare optimistic about building this core part of our business. Next Generation Recovery Audit, one of our five Customer Value Propositions, aims to build on these improvements by delivering a better recovery auditservice to our clients. We are completing the development of our next-generation recovery audit business model and expect to roll it out to client teams in 2011.Through this model, we are introducing innovation in best practices for recovery audit, increasing the quality and consistency of service and implementingsophisticated central data storage, audit technologies and tools. We believe these improvements will also enable us to lower our cost of delivering these services. Key to serving clients more efficiently and cost effectively under our next generation recovery audit model is success in our offshoring initiative. In 2010, weestablished our operations in Pune, India and now have approximately 70 employees in India, providing business analytics, information technology and othersupport services to our client teams in other parts of the world. By lowering our cost of delivery, we believe we can significantly expand the addressable targetmarket for our recovery audit services. Historically, much of our recovery audit focus has been on clients in the retail / wholesale industry due to the scale offeredby these clients. With the improvements in our service delivery model that we are building into Next Generation Recovery Audit, we believe we can compete moreeffectively in our core retail market, and also can profitably expand our service offerings to industries such as manufacturing, energy, financial institutions andtransportation and logistics. In anticipation of these improvements, we again have created a dedicated sales team for the commercial recovery audit market,enabling the aggressive pursuit of this client base.2Table of ContentsTrail Blaze Accountability in Healthcare The primary focus of our Healthcare Claims Recovery Audit services to date has been the auditing of Medicare spending as part of the legislatively mandatedMedicare recovery audit contractor (“RAC”) program of the Centers for Medicare and Medicaid Services (“CMS”), the federal agency that administers theMedicare program. From March 2005 through March 2008, we were one of three recovery audit contractors that participated in CMS’s demonstration MedicareRAC project. Under the demonstration project, we were responsible for auditing Medicare spending in the State of California. Two other contractors wereresponsible for auditing Medicare spending in Florida and New York. Under CMS’s national Medicare RAC program, the auditing under which is still rampingup, we are operating as a subcontractor in three of the national Medicare RAC program’s four geographic regions. The principal services we provide as part of theMedicare RAC program involve the identification of overpayments and underpayments made by Medicare to healthcare providers, such as hospitals andphysicians’ practices. We identify such improper payments by using various methods, including proprietary methods that are comparable to the proprietarytechniques we developed through many years of performing other types of recovery audits involving massive volumes of transaction data. Our second Customer Value Proposition, Healthcare Claims Recovery Audit, drives our growth strategy in healthcare — to execute with excellence our rolein the Medicare RAC program, and leverage our healthcare services infrastructure to expand recovery audit services to other healthcare payers. We have investedheavily in the infrastructure and tools required to execute our Medicare RAC program subcontracts and believe much of this infrastructure can be applied to auditmedical claims paid by other healthcare payers. As a result of “health care reform” in the U.S., as reflected in the Patient Protection and Affordable Care Act which became law in 2010, recovery auditing ofmedical claims is now mandated for state Medicaid programs. As the opportunities to serve these state Medicaid programs emerge, we are focusing our efforts onopportunities where our capabilities are a good match for the way a state’s Medicaid program is run and the scope of the program. With these filters in place, wehave already selectively competed in a few state Medicaid procurements and, although the final contract is not yet in place, we were recently notified that we havebeen awarded the Medicaid RAC contract for the state of Mississippi. In addition to audits of medical claims under the Medicare and Medicaid programs, we believe that private payers, including health insurance companies,represent a significant opportunity for our recovery audit services, and that we are well positioned to further grow our healthcare claims recovery audit business byfocusing on the private payer market. We expect our developing sales capability to help us capitalize on the numerous opportunities for sales of healthcare claimsrecovery auditing across the entire spectrum of healthcare claims payers, including government entities, private payers, and self-insured employers.Expand Data Mining for Profitability In 2010, we launched an integrated value proposition across drivers of client profitability other than the recovery of overpayments. We are enhancing our clientvalue proposition around spend analytics and sourcing/procurement excellence. Our third CVP, Spend Optimization, expands on the information we alreadyprovide to our clients in this area. We analyze the line item detail we generate to enable our clients to manage their businesses better by better bundling their spenddollars, better sourcing their direct and indirect goods globally, better negotiating terms with their suppliers and vendors, and better organizing their procurementorganizations and implementing better internal processes and controls. Our fourth CVP, Fraud & Compliance, leverages the unique insights we gain from working closely with our clients in finance, audit and loss prevention andthe sophisticated proprietary audit tools we use to mine clients’ data to discover where there is a risk of fraud or abuse. Through these services, we help clientsprotect their organization’s assets, and our reports document and record their proactive efforts to develop an effective fraud management program that anticipates,prevents, detects and remedies fraud and abuse. We have invested in enhancements to our fraud analytics tool kit and in a client services leader and are now in aposition to provide a broad range of fraud and compliance services.3Table of ContentsExpand Our Services Footprint Senior executives of complex organizations regularly require external help to identify and maximize profit improvement opportunities. Our advisory servicescombine data analytics with deep functional expertise and a practical hands-on approach to help these client executives improve their operating margins. Profit Performance Optimization, our fifth CVP, leverages these capabilities and our long-standing client relationships by providing services to supportsenior finance executives, including working capital optimization, corporate performance management, enterprise cost reduction and finance transformation. Weare designing these new services to improve the profitability of our clients’ procure-to-pay cycle and merchandise optimization.Build a Strong Team with a High-Performance Culture The final element of our strategy is to become a magnet for global talent and expertise relevant to our service lines and operations. As part of our overalltransformation, we are working to build a culture of results-oriented performance and collaboration, and an environment that promotes innovation and knowledgesharing. This transformation is crucial to ensure that we capture, understand, and deploy the very best practices consistently across every client globally. Inaddition, we intend to maintain our increased focus on recruiting. The success of our growth strategy is predicated on finding and putting in place client-facingpersonnel who can identify the levers to add to clients’ profitability and effectively position all of our service offerings.Summary After our current President and Chief Executive Officer joined the recovery audit firm then known as PRG-Schultz International, Inc. in the first quarter of2009 our management team set out to reinvigorate our core recovery audit business and offer a broader suite of services to our clients. In the two years since thattime, we have reinvested in our core recovery audit services by adding a shared services center, re-implementing a sales force, establishing offshore servicecapabilities, completing strategic acquisitions and developing our Next Generation Recovery Audit business model. We also envisioned a broader valueproposition and brand promise beyond recovery audit, and confirmed this vision in the first quarter of 2010 by changing our name to PRGX Global, Inc.,rebranding the Company as “PRGX” and adopting the tag line of “Discover Your Hidden Profits”. In 2010, PRGX began generating healthcare claims recovery audit revenues under the Medicare RAC program. We also announced our expansion into dataanalytics and senior-level advisory services in response to suggestions by our existing clients, and we completed strategic acquisitions of companies that providepurchasing and payables technologies, spend analytics and finance and procurement operations improvement services. With the innovations in our recovery auditservices and the introduction of these adjacent services, PRGX is well positioned to expand our recovery audit services beyond our core retail / wholesale clientsand to provide our new adjacent services to even more industry segments. Collectively, these changes reflect our transformation from essentially a one product, one industry provider to an analytics — powered information andprofessional services firm. We believe that Profit Discovery, our combination of audit, analytics and advisory capabilities, represents a new category of businessservices that will enable us to provide greater value to our existing clients and to expand our reach into new clients and industries.The Recovery Audit Industry and PRGX Businesses and government agencies with substantial volumes of payment transactions involving multiple vendors, numerous discounts and allowances,fluctuating prices and complex pricing arrangements or rate structures find it difficult to process every payment correctly. Although these entities correctly processthe vast majority of payment transactions, errors occur in a small percentage of transactions. These errors include, but are not limited to, missed or inaccuratediscounts, allowances and rebates, vendor pricing errors, erroneous coding and duplicate payments. In the aggregate, these transaction errors can representsignificant amounts of reduced cash flow and lost profits for these entities. Many factors contribute to the errors, including communication failures between thepurchasing and accounts payable departments, complex pricing arrangements or rate structures, personnel turnover and changes in information and accountingsystems. Recovery auditing is a business service focused on finding overpayments created by these errors. We are the leading worldwide provider of recovery auditservices, principally to large businesses and government agencies4Table of Contentshaving numerous payment transactions and complex purchasing/payment environments. These businesses and agencies include: • retailers such as discount, department, specialty, grocery and drug stores, and wholesalers who sell to these retailers; • business enterprises other than retailers/wholesalers such as manufacturers, financial services firms, and pharmaceutical companies; • healthcare payers, both private sector health insurance companies and state and federal government payers such as the CMS; and • federal and state government agencies other than government healthcare payers. Under virtually all of our recovery audit contracts, we receive a contractual percentage of overpayments and other savings that we identify and that our clientsrecover or realize. We generate the substantial majority of our revenues from accounts payable recovery audit services that we provide to retail/wholesale clients.These audit services typically recur annually and are the most extensive of our recovery audit services, focusing on numerous recovery categories related toprocurement and payment activities, as well as client/vendor promotions and allowances. These audits typically entail comprehensive and customized dataacquisition from the client, frequently including purchasing, receiving, point-of-sale, pricing and deal documentation, emails, and payment data. Recovery auditsfor larger retail/wholesale clients often require year-round on-site work by multi-auditor teams. In addition to these retail/wholesale clients, we also provide recovery audit services to other organizations that we refer to as our commercial clients. Services tothese types of clients to date have historically tended to be either periodic (typically, every two to three years) or rotational in nature with different divisions of agiven client being audited in pre-arranged periodic sequences, and are typically relatively short in duration. Accordingly, the revenues we derive from a givencommercial client may change markedly from year to year. The recovery audit services we provide to our retail/wholesale and commercial clients involve the identification of overpayments relating to purchases. We alsoprovide recovery audit services relating to healthcare claims which involve the identification of overpayments and underpayments made by healthcare payers tohealthcare providers, such as hospitals and physicians’ practices. Auditing medical claims data requires in-depth expertise in healthcare procedures and billingprocesses. Due to the different expertise necessary to provide healthcare claims recovery audit services, we include the results of our operations in this area in ourNew Services segment rather than in one of our two recovery audit services segments. Some organizations (including some large retailers) maintain internal recovery audit departments to recover certain types of payment errors and identifyopportunities to reduce costs. Despite having such internal resources, many companies also retain independent recovery audit firms, such as PRGX, due to theirspecialized knowledge and focused technologies. In the U.S., Canada, the United Kingdom and France, large retailers routinely engage independent recovery auditfirms as a standard business practice. In other countries, large retailers and many other types of businesses also engage independent recovery audit firms. As businesses have evolved, PRGX and the recovery audit industry have evolved with them, innovating processes, error identification tools, and claim types tomaximize recoveries. The following are a number of factors significantly impacting the recovery audit industry: • Data Capture and Availability. Businesses increasingly are using technology to manage complex procurement and accounts payable systems and realizegreater operating efficiencies. Many businesses worldwide communicate with vendors electronically — whether by Electronic Data Interchange (“EDI”)or the Internet — to exchange inventory and sales data, transmit purchase orders, submit invoices, forward shipping and receiving information and remitpayments. These systems capture more detailed data and enable the cost effective review of more transactions by recovery auditors. • Increasing Number of Auditable Claim Categories. Traditionally, the recovery audit industry identified simple, or “disbursement,” claim types such asthe duplicate payment of invoices. Enhancements to5Table of Contents accounts payable software, particularly large enterprise software solutions used by many large companies, have reduced the extent to which thesecompanies make simple disbursement errors. However, the introduction of creative vendor discount programs, complex pricing arrangements andactivity-based incentives has led to an increase in auditable transactions and potential sources of error. These transactions are complicated to audit as theunderlying transaction data is difficult to access and recognizing mistakes is complex. Recovery audit firms such as PRGX with significant industry-specific expertise and sophisticated technology are best equipped to audit these complicated, or “contract compliance,” claim categories. • Globalization. As the operations of major retailers and other business enterprises become increasingly global, they often seek service providers with aglobal reach. • Consolidation in the Retail Industry. Retailer consolidation continues in both the U.S. and internationally. As retailers grow larger, vendors become morereliant on a smaller number of retailer customers and, as a result, the balance of power favors retailers rather than their vendors. This dynamic creates anenvironment that allows retailers to assert overpayment claims more easily. • Significant Promotional Activity. Trade promotion spending is substantial within the retail trade and significant sums are being spent in categories withnumerous transactions and a high potential for errors, such as scan downs, or discounts at the point of sale. Because of the high volume of tradepromotion within retail, there are significant opportunities for mistakes and, therefore, auditable claims. • Move Toward Standard Auditing Practices. Increasingly, vendors to our clients are insisting on the satisfaction of certain conditions, such as clearer post-audit procedures, better documentation and electronic communication of claims, before accepting the validity of a claim. We expect the evolution of the recovery audit industry to continue. In particular, we expect that the industry will continue to move towards the electronic captureand presentation of data, more automated, centralized processing and faster approvals and deductions of claims.Clients PRGX provides its services principally to large and mid-sized businesses and government agencies having numerous payment transactions and complexprocurement environments. Retailers/wholesalers continue to constitute the largest part of our client and revenue base. Our five largest clients contributedapproximately 31.3% of our revenues in 2010, 29.9% in 2009 and 30.4% in 2008. Wal-Mart Stores Inc. (and its affiliated companies) accounted for approximately12.1% of our revenues in 2010, 12.3% in 2009 and 11.2% in 2008.Client Contracts PRGX typically provides services to its clients under terms of a contract. Our compensation under recovery audit service contracts generally is stated as astipulated percentage of improper payments or other savings recovered for or realized by clients. Recovery audit clients generally recover claims by either(a) taking credits against outstanding payables or future purchases from the involved vendors / service providers, or (b) receiving refund checks directly from thosevendors / service providers. Industry practice generally dictates the manner in which a client receives a recovery audit claim. In many cases, we must satisfy client-specific procedural guidelines before we can submit recovery audit claims for client approval. For services such as advisory services, client contracts often providefor compensation to us in the form of a flat fee, or fee rate per hour, or a fee per other unit of service. Most of our contracts contain provisions that permit the client to terminate the contract without cause prior to the completion of the term of the agreement byproviding us with relatively short prior written notice of the termination. In addition to being subject to termination for material default, our Medicare RACprogram subcontracts are subject to termination or partial termination for convenience to the extent all or any portion of the work covered by the associatedMedicare RAC prime contract is eliminated by CMS, or to the extent our performance of the subcontract results in an organizational conflict of interest that is notmitigated or able to be mitigated after joint consultation among CMS, the Medicare RAC prime contractor and PRGX.6Table of ContentsTechnology PRGX uses advanced, proprietary information systems and processes and a large-scale technology infrastructure to conduct its audits of clients’ paymenttransactions. Because of the ever increasing volume and complexity of the transactions of our clients, we believe that our proprietary technology and processesserve as important competitive advantages over both our principal competitors and our clients’ in-house internal recovery audit functions. To sustain thesecompetitive advantages, we continually invest in technology initiatives for the purpose of sustaining and improving our advantages in delivering innovativesolutions that improve both the effectiveness and efficiency of our services. We aim our data acquisition, data processing and data management methodologies at maximizing efficiencies and productivity and maintaining the higheststandards of transaction auditing accuracy. At the beginning of a typical recovery audit engagement, we utilize a dedicated staff of data acquisition specialists andproprietary tools to acquire a wide array of transaction data from the client for the time period under review. We typically receive this data by secured electronictransmissions, magnetic media or paper. For paper-based data, we use a custom, proprietary imaging technology to scan the paper into electronic format. Uponreceipt of the data, we secure, catalogue, back up and convert it into standard, readable formats using third party and proprietary tools. Our technology professionals clean and map massive volumes of client data, primarily using high performance database and storage technologies, intostandardized layouts at one of our data processing facilities. We also generate statistical reports to verify the completeness and accuracy of the data. We then process the data using algorithms (business rules) leveraging over thirty years’ experience to help uncover patterns or potential problems in clients’various transactional streams. We deliver this data with a high probability of transaction errors to our auditors who, using our proprietary audit software, sort, filterand search the data to validate and identify actual transaction errors. We also maintain a secure database of audit information with the ability to query on multiplevariables, including claim categories, industry codes, vendors and audit years, to facilitate the identification of additional recovery opportunities and providerecommendations for process improvements to clients. Once we validate the errors, we present the information to clients for approval and submission to vendors as “claims.” We offer a web-based claim presentationand collaboration tool, which leverages its proprietary imaging technology to help the client view, approve and submit claims to vendors. In providing our spend analytics services, we use proprietary algorithms and technologies to clean and classify a client’s vendor spend data down to the lineitem level. We then are able to present this information to clients as a multi-dimensional data cube over a web-based interface. We believe these proprietaryalgorithms and technologies provide us with a competitive advantage over many of our competitors.Auditor Hiring, Training and Compensation Many of our auditors and specialists formerly held finance-related management positions in the industries we serve. Training provided in the field by ourexperienced auditors enables newly hired auditors to develop and refine their auditing skills and improve productivity. Additionally, we provide training forauditors utilizing self-paced media such as specialized computer-based training modules. We periodically upgrade our training programs based on feedback fromauditors and changing industry protocols. Many of our auditors and specialists participate in one of our incentive compensation plans that link compensation of theauditor or specialist to audit performance.Proprietary Rights From time to time, we develop new software and methodologies that replace or enhance existing proprietary software and methodologies. We rely primarily ontrade secret and copyright protection for our proprietary software and other proprietary information. We own or have rights to various copyrights, trademarks andtrade names used in our business. Our trademarks and trade names include, but are not limited to the following: PRGX®, Discover Your Hidden Profits®, PRG-Schultz®, imDex®, AuditPro™, SureF!nd™ , DirectF!nd™, claimDex™, PRGX APTrax™, PRGX ClaimTrax™, PRGX DealTrax™, and PRGX SpendTrax™.7Table of ContentsCompetitionAccounts Payable Recovery Audit We believe that the domestic and international recovery audit industry for accounts payable services in major markets worldwide is comprised of PRGX, onesmaller but substantial competitor, and numerous other smaller competitors. We believe that most of the smaller recovery audit firms do not possess multi-countryservice capabilities and do not have the centralized resources or broad client base required to support the technology investments necessary to providecomprehensive recovery audit services for large, complex accounts payable systems. These smaller firms generally are less equipped to audit large, data intensivepurchasing and accounts payable systems. In addition, many of these firms have limited resources, and may lack the experience and the knowledge of nationalpromotions, seasonal allowances and current recovery audit practices. As a result, we believe that compared to most other firms providing accounts payablerecovery audit services, PRGX has competitive advantages based on its national and international presence, well-trained and experienced professionals, andadvanced technology. While we believe that PRGX has the greatest depth and breadth of audit expertise, data and technology capabilities, scale and global presence in the industry,we face competition from the following:Client Internal Recovery Audit Departments. A number of large retailers (particularly those in the discount, grocery and drug sectors) have developed aninternal recovery audit process to review transactions prior to turning them over to external recovery audit firms. Regardless of the level of recoveries made byinternal recovery audit departments, we have observed that virtually all large retail clients retain at least one (primary), and sometimes two (primary andsecondary), external recovery audit firms to capture errors not identified by their internal recovery audit departments.Other Accounts Payable Recovery Audit Firms. The competitive landscape in the recovery audit industry is comprised of: • Full-service accounts payable recovery audit firms. We believe that only one company other than PRGX offers a full suite of U.S. and internationalrecovery audit services; • A large number of smaller accounts payable recovery firms which have a limited client base and which use less sophisticated tools to mine disbursementclaim categories at low contingency rates. These firms are most common in the U.S. market. Competition in most international markets, if any, typicallycomes from small niche providers; • Firms that offer a hybrid of audit software tools and training for use by internal audit departments, and/or general accounts payable process improvementenablers; and • Firms with specialized skills focused on recovery audit services for discrete sectors such as sales and use tax or real estate.Other Providers of Recovery Audit Services. The major international accounting firms provide recovery audit services; however, we believe their practices tendto be primarily focused on tax-related services.Healthcare Claims Recovery Audit Services A number of national and regional private payers have developed their own post payment recovery audit capabilities. Nevertheless, these private payerstypically also retain or engage one or more third party post payment audit service providers. The competitive landscape in the healthcare claims recovery auditincludes: • Firms that provide recovery audit services across multiple industries including healthcare; • Firms that provide healthcare IT solutions and services to both the government and private payers; and • Firms that contract with federal and state governments’ integrity programs.8Table of ContentsBusiness Analytics Services Our business analytics services compete with a variety of providers ranging from large, well known ERP software vendors, procurement specific softwareproviders and smaller, very specialized analytics providers. In addition, in certain instances we compete against consulting firms that develop custom analyticstools on behalf of their clients.Advisory Services Our advisory services business faces competition from regional and local consulting firms as well as from privately and publicly held worldwide and nationalfirms, many of whom have established and well known franchises and brands. These businesses compete generally on the basis of the range, quality and cost of theservices and products provided to clients. We believe that we differentiate ourselves from our competitors by virtue of synergies with our analytics capabilities andour direct channel to existing accounts payable recovery audit clients.Regulation Various aspects of our business, including, without limitation, our data acquisition, processing and reporting protocols, are subject to extensive and frequentlychanging governmental regulation in both the U.S. and internationally. These regulations include extensive data protection and privacy requirements. In the U.S.,we are subject to the provisions of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) with respect to our healthcare claims recovery auditwork. Internationally, we must comply with the European Data Protection Directive that various members of the European Union have implemented. Failure tocomply with such regulations may, depending on the nature of the noncompliance, result in the termination or loss of contracts, the imposition of contractualdamages, civil sanctions, damage to our reputation or in certain circumstances, criminal penalties.Employees As of January 31, 2011, PRGX had approximately 1,500 employees, of whom approximately 700 were located in the U.S. The majority of our employees areinvolved in the audit function. None of our employees are covered by a collective bargaining agreement and we believe our employee relations are satisfactory.Website PRGX makes available free of charge on its website, www.prgx.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form8-K and all amendments to those reports. PRGX makes all filings with the Securities and Exchange Commission available on its website no later than the close ofbusiness on the date the filing was made. In addition, investors can access our filings with the Securities and Exchange Commission at www.sec.gov.9Table of ContentsITEM 1A. Risk FactorsRevenues from our accounts payable recovery audit business have declined over the last several years. We must successfully execute our recovery auditgrowth strategy in order to increase our revenues, and must lower our cost of delivery in order to maintain profitability. Over time, our clients tend to resolve recurring transaction processing deficiencies. In addition, many of our clients have internal staffs that audit thetransactions before we do. As the skills, experience and resources of our clients’ internal recovery audit staffs improve, they will identify many overpaymentsthemselves and reduce some of our audit recovery opportunities. Based on these and other factors, including competitive rate pressures and loss of clients fromtime to time, without improved audit execution and acquisition of new clients, we believe that our accounts payable recovery audit business will experiencerevenue declines and may incur losses.We depend on our largest clients for significant revenues, so losing a major client could adversely affect our revenues and liquidity. We generate a significant portion of our revenues from our largest clients. Our five largest clients collectively accounted for approximately 31.3% of our annualrevenues in 2010, 29.9% in 2009 and 30.4% in 2008. Wal-Mart Stores Inc. (and its affiliated companies) accounted for approximately 12.1% of our total revenuesin 2010, 12.3% in 2009 and 11.2% in 2008. If we lose any of our major clients, our results of operations and liquidity could be materially and adversely affected.Client and vendor bankruptcies and financial difficulties could reduce our earnings. Our clients generally operate in intensely competitive environments and, accordingly, bankruptcy filings by our clients are not uncommon. Bankruptcy filingsby our large clients or the significant vendors who supply them or unexpectedly large vendor claim chargebacks lodged against one or more of our larger clientscould have a materially adverse effect on our financial condition and results of operations. Similarly, our inability to collect our accounts receivable due to otherfinancial difficulties of one or more of our large clients could adversely affect our financial condition and results of operations. Recent economic conditions which have adversely impacted the U.S. retail industry may continue to have a negative impact on our revenues. Since we auditour clients’ purchases on an average of 12-18 months in arrears, we cannot yet determine if we have experienced the full impact of the recent economic downturnon our business and revenues. Although retail industry economic conditions have improved from recent levels, our revenues may continue to be impactednegatively by the general retail environment. Specifically, client liquidity and the liquidity of client vendors can have a significant impact on claim production, theclaim approval process, and the ability of clients to offset or otherwise make recoveries from their vendors. If a client files for bankruptcy, we could be subject to an action to recover certain payments received in the 90 days prior to the bankruptcy filing known as“preference payments.” If we are unsuccessful in defending against such claims, we would be required to make unbudgeted cash payments which could strain ourfinancial liquidity and our earnings would be reduced.Our growth strategy may not be successful. As discussed in Item 1 “The PRGX Strategy,” our objectives are to build on our position as the leading worldwide provider of recovery audit services and todevelop and grow our business analytics and advisory services businesses. Our strategic plan to achieve these objectives focuses on efforts designed to maintainour dedicated focus on clients and rekindle our growth. These efforts are ongoing and the results of the strategy and implementation will not be known untilsometime in the future. Successful execution of our strategy requires sustained management focus, organization and coordination over time, as well as success inbuilding relationships with third parties. If we are unable to implement our strategy successfully, our results of operations and cash flows could be adverselyaffected. In addition, implementation of our strategy will require material investments and cost increases which may not yield incremental revenues and improvedfinancial performance as planned.10Table of ContentsThe terms of our credit facility place restrictions on us, which create risks of default and reduce our flexibility. Our current credit facility contains a number of affirmative, negative, and financial covenants which limit our ability to take certain actions and require us tocomply with specified financial ratios and other performance covenants. No assurance can be provided that we will not violate the covenants of our secured creditfacility in the future. If we are unable to comply with our financial covenants in the future, our lenders could pursue their contractual remedies under the creditfacility, including requiring the immediate repayment in full of all amounts outstanding, if any. Additionally, we cannot be certain that, if the lenders demandedimmediate repayment of any amounts outstanding, we would be able to secure adequate or timely replacement financing on acceptable terms or at all. Our ability to make payments due on our debt will depend upon our future operating performance, which is subject to general economic and competitiveconditions and to financial, business and other factors, many of which we cannot control. If the cash flow from our operating activities is insufficient to make thesepayments, we may take actions such as delaying or reducing capital expenditures, attempting to restructure or refinance our debt, selling assets or operations orseeking additional equity capital. Some or all of these actions may not be sufficient to allow us to service our debt obligations and we could be required to file forbankruptcy. Further, we may be unable to take any of these actions on satisfactory terms, in a timely manner or at all. In addition, our credit agreements may limitour ability to take several of these actions. Our failure to generate sufficient funds to pay our debts or to undertake any of these actions successfully couldmaterially adversely affect our business, results of operations and financial condition.We have incurred and will continue to incur significant costs in establishing the necessary resources to provide services for Medicare, Medicaid and otherhealthcare claims audit recovery work. Furthermore, revenues from our Medicare, Medicaid and other healthcare claims audit recovery work lag significantlybehind these costs and may not justify the costs incurred. We have expended substantial resources in connection with preparing for and providing healthcare claims recovery audit services, including those under CMS’sMedicare RAC program. We continue to incur significant costs relating to our healthcare claims recovery audit services business, including our participation as asubcontractor in the national Medicare RAC program. We incurred an operating loss of approximately $4.8 million, $4.0 million and $5.6 million during the yearsended December 31, 2010, 2009 and 2008, respectively, in connection with our healthcare claims recovery audit work. In addition, as a result of the complexregulations governing many healthcare payments and recoupments, including a multi-layered scheme for provider appeals of overpayment determinations underthe Medicare RAC program, the terms of the Company’s Medicare RAC subcontracts and the complexity of Medicare and other healthcare data, systems andprocesses, generally, it is more difficult and takes longer to achieve recoveries from healthcare claims recovery auditing than in other areas of our recovery auditbusiness.Recovery auditing of Medicare and Medicaid spending is subject to a number of pressures and uncertainties that could impact our future opportunities andrevenues from this business. As contrasted with recovery auditing for our retail/wholesale and commercial clients, recovery auditing of Medicare and Medicaid spending is legislativelymandated and is subject to, among other things, the efforts of healthcare providers and provider associations, including political pressures, to end or severely limitthe Medicare and Medicaid recovery audit programs. We expect these efforts and political pressures to be ongoing throughout the life of these programs. During2007, for example, a number of significant developments resulted from these efforts. In October 2007, CMS implemented a temporary “pause” in our review underthe Medicare RAC demonstration program of certain payments made to rehabilitation hospitals. Further, on November 8, 2007, legislation was introduced inCongress proposing a one year halt to CMS’s Medicare RAC demonstration program and calling for an assessment of the program by the U.S. GovernmentAccountability Office. Although the referenced legislation was not passed, and the national Medicare RAC program is in place, similar legislative efforts to delayor eliminate RAC programs could emerge at any time and management is unable to assess the prospects for the success of any such efforts. If federally mandatedrecovery audit programs are significantly limited or delayed, subjected to burdensome or commercially challenging requirements, terms and/or conditions, oraltogether terminated, our future revenues, operating results and financial condition could be materially adversely impacted.11Table of ContentsOur participation in the Medicare recovery audit program is as a subcontractor, and consequently, is subject to being reduced or eliminated should the primecontractors with whom we have contracted have their prime contracts with CMS terminated or should those contracts expire. Under CMS’s Medicare recovery audit contractor program, we are participating as a subcontractor in three of the program’s four geographic regions.Accordingly, we have entered into three separate contracts with the prime contractors and are not directly contracting with CMS. Under these circumstances, wegenerally bear the risk that the prime contractors will not meet their performance obligations to CMS under the prime contract, that the prime contractors will notpay us amounts due under the subcontracts and that the prime contractors will seek to minimize our role in the Medicare RAC program. The failure of a primecontractor to perform its obligations to CMS could result in the termination of the associated contract with CMS which would, in turn, result in the termination ofour subcontract. Additionally, CMS could choose not to exercise its option to extend its contract with any of the prime contractors at the end of any one-year term,which would also, in turn, result in our subcontract with that prime contractor expiring. The termination or expiration of these subcontracts or the failure of theprime contractors to make required payments to us could have a material adverse effect on our business, financial condition and results of operations.We may be unable to protect and maintain the competitive advantage of our proprietary technology and intellectual property rights. Our operations could be materially and adversely affected if we are not able to protect our proprietary software, audit techniques and methodologies, and otherproprietary intellectual property rights. We rely on a combination of trade secret and copyright laws, nondisclosure and other contractual arrangements andtechnical measures to protect our proprietary rights. Although we presently hold U.S. and foreign registered trademarks and U.S. registered copyrights on certain ofour proprietary technology, we may be unable to obtain similar protection on our other intellectual property. In addition, our foreign registered trademarks may notreceive the same enforcement protection as our U.S. registered trademarks. Additionally, to protect our confidential and trade secret information, we generally enter into nondisclosure agreements with our employees, consultants, clientsand potential clients. We also limit access to, and distribution of, our proprietary information. Nevertheless, we may be unable to deter misappropriation orunauthorized dissemination of our proprietary information, detect unauthorized use and take appropriate steps to enforce our intellectual property rights. In spite ofthe level of care taken to protect our intellectual property, there is no guarantee that our competitors will not independently develop technologies that aresubstantially equivalent or superior to our technology. Moreover, although we are not aware of any infringement of our services and products on the intellectualproperty rights of others, we also are subject to the risk that someone else will assert a claim against us in the future for violating their intellectual property rights.Data security breaches or computer viruses could harm our business by disrupting our delivery of services, damaging our reputation or exposing us toliability. We receive, process, store and transmit, often electronically, the confidential data of our clients and others. Unauthorized access to our computer systems orstored data could result in the theft or improper disclosure of confidential information or the deletion or modification of records or could cause interruptions in ouroperations. These security risks increase when we transmit information from one location to another, including transmissions over the Internet or other electronicnetworks. Despite implemented security measures, our facilities, systems and procedures, and those of our third-party service providers, may be vulnerable tosecurity breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events which may disrupt ourdelivery of services or expose the confidential information of our clients and others. Any security breach involving the misappropriation, loss or other unauthorizeddisclosure or use of confidential information of our clients or others, whether by us or a third party, could (i) subject us to civil and criminal penalties, (ii) have anegative impact on our reputation, (iii) expose us to liability to our clients, third parties or government authorities, and (iv) cause our present and potential clientsto choose another service provider. Any of these developments could have a material adverse effect on our business, results of operations and financial condition.Operational failures in our data processing facilities could harm our business and reputation.12Table of Contents An interruption of data processing services caused by damage or destruction of our facilities or a failure of our data processing equipment could result in a lossof clients, difficulties in obtaining new clients and a reduction in revenue. In addition, we also may be liable to third parties or our clients because of suchinterruption. These risks increase with longer service interruptions. Despite any disaster recovery and business continuity plans and precautions we haveimplemented (including insurance) to protect against the effects of service delivery interruptions, such interruptions could result in a material adverse effect on ourbusiness, results of operations and financial condition.Our failure to retain the services of key members of management and highly skilled personnel could adversely impact our operations and financialperformance. Our future success depends largely on the efforts and skills of our executive officers and key employees. As such, we have entered into employment agreementswith key members of management. While these employment agreements include limits on the ability of key employees to directly compete with us in the future,nothing prevents them from leaving our company. In addition, it is especially challenging to attract and retain highly qualified skilled auditors and other professionals in an industry where competition for skilledpersonnel is intense. Accordingly, our future performance also depends, in part, on the ability of our management team to work together effectively, manage ourworkforce, and retain highly qualified personnel.We rely on operations outside the U.S. for a significant portion of our revenues and are increasingly dependent on operations outside the U.S. for supportingour operations globally. Operations outside the U.S. generated approximately 49.7% of our annual revenues in 2010, 45.9% in 2009 and 42.8% in 2008. These international operationsare subject to numerous risks, including: • greater exposure to the possibility of economic instability, the disruption of operations from labor and political disturbances, expropriation or war inthe international markets we serve; • difficulties in staffing and managing foreign operations and in collecting accounts receivable; • fluctuations in currency exchange rates, particularly weaknesses in the British pound, the euro, the Canadian dollar, the Mexican peso, and theBrazilian real and other currencies of countries in which we transact business, which could result in currency translations that materially reduce ourrevenues and earnings; • costs associated with adapting our services to our foreign clients’ needs; • unexpected changes in regulatory requirements and laws; • expenses and legal restrictions associated with transferring earnings from our foreign subsidiaries to us; • difficulties complying with a variety of foreign laws and regulations, such as those relating to data content retention, privacy and employee welfare; • business interruptions due to widespread disease, potential terrorist activities, or other catastrophes; • reduced or limited protection of our intellectual property rights; • longer accounts receivable cycles; and • competition with large or state-owned enterprises and/or regulations that effectively limit our operations and favor local competitors. Because we expect a significant portion of our revenues to continue to come from operations outside the U.S., and expect to continue transitioning certain ofour operations to locations outside the U.S., the occurrence of any of these events could materially and adversely affect our business, financial condition and resultsof operations. Furthermore, in 2010 we began transitioning certain of our core data processing and other functions to locations outside the U.S, including India, where 5% ofour employees were located at December 31, 2010. India has from time to time experienced instances of civil unrest and hostilities with Pakistan. In recent years,there have been military confrontations between India and Pakistan in the region of Kashmir and along the India-Pakistan border as well as terrorist activity inseveral major Indian cities. Although the relations between the two countries generally have been improving, military activity or terrorist attacks in the future couldadversely affect the Indian economy by13Table of Contentsdisrupting communications and making travel more difficult, which may have a material adverse effect on our ability to deliver services from India. Disruption inour Indian operations could adversely affect our profitability and our ability to execute our growth strategy.Our recovery audit services, business analytics and advisory services businesses operate in highly competitive environments and are subject to pricingpressure. The recovery audit business is highly competitive, with numerous other recovery audit firms and other providers of recovery audit services. In addition, many ofour clients have developed their own internal recovery audit capabilities. As a result of competition among the providers of recovery audit services and theavailability of certain recovery audit services from clients’ internal audit departments, our recovery audit services business is subject to intense price pressure. Suchprice pressure could cause our profit margins to decline and have a material adverse effect on our business, financial condition, and results of operations. Our business analytics and advisory services businesses also have numerous competitors varying in size, market strength and specialization. These businessesface fierce competition, in some cases, from firms who have established and well known franchises and brands. Frequently, these businesses must compete notonly on service quality and expertise, but also on price. Intense price competition faced by these service lines could negatively impact our profit margins and have apotential adverse effect on our business, financial condition and results of operations.Our client contracts generally contain provisions under which the client may terminate our services prior to the completion of the agreement. Many of our client contracts contain provisions that would permit the client to terminate the contract without cause prior to the completion of the term of theagreement by providing us with relatively short prior written notice of the termination. As a result, the existence of contractual relationships with our clients is notan assurance that we will continue to provide services for our clients through the entire terms of their respective agreements. If clients representing a significantportion of our revenues terminated their agreements unexpectedly, we may not, in the short-term, be able to replace the revenues and earnings from such contractsand this would have a material adverse effect on our operations and financial results. In addition, client contract terminations also could harm our reputation withinthe industry which could negatively impact our ability to obtain new clients.Our failure to comply with applicable governmental privacy laws and regulations could substantially impact our business, operations and financial condition. We are subject to extensive and evolving federal, state and foreign privacy laws and regulations. Changes in privacy laws or regulations or new interpretationsof existing laws or regulations could have a substantial effect on our operating methods and costs. Failure to comply with such regulations could result in thetermination or loss of contracts, the imposition of contractual damages, civil sanctions, damage to the Company’s reputation, or in certain circumstances, criminalpenalties, any of which could have a material adverse effect on our results of operations, financial condition, business and prospects. Determining compliance withsuch regulations is complicated by the fact that many of these laws and regulations have not been fully interpreted by governing regulatory authorities or the courtsand many of the provisions of such laws and regulations are open to a wide range of interpretations. There can be no assurance that we are or have been incompliance with all applicable existing laws and regulations or that we will be able to comply with new laws or regulations.The ownership change that occurred as a result of our 2006 exchange offer limits our ability to use our net operating losses. We have substantial tax loss and credit carry-forwards for U.S. federal income tax purposes. On March 17, 2006, as a result of the closing of its exchange offer,the Company experienced an ownership change as defined under Section 382 of the Internal Revenue Code (“IRC”). This ownership change resulted in an annualIRC Section 382 limitation that limits the use of certain tax attribute carry-forwards. Of the $59.6 million of U.S. federal net loss carry-forwards available to theCompany, $20.6 million of the loss carry-forwards are subject to an annual usage limitation of $1.4 million. We believe that such limitations and the loss of thesecarry-forwards may significantly increase our projected future tax liability.14Table of ContentsCertain of our tax positions may be subject to challenge by the Internal Revenue Service and other tax authorities, and if successful, these challenges couldincrease our future tax liabilities and expense. For U.S. federal income tax purposes, as well as local country tax purposes in the jurisdictions where we operate, from time to time we take positions underprovisions of applicable tax law that are subject to varying interpretations. Certain of our tax positions may be subject to challenge by the applicable taxingauthorities, including, in the U.S., the Internal Revenue Service. If our tax positions are successfully challenged, our future tax liabilities and expense couldsignificantly increase. For example, during 2008, the Company acceded to a position taken by the taxing authorities in the United Kingdom (“UK”) regarding the denial of certaingoodwill deductions taken on UK tax returns for 2003 through 2005. As a result, we reduced our foreign net operating loss carry-forwards by approximately$17.0 million based on December 31, 2008 foreign exchange rates. Accordingly, we wrote off deferred tax assets of $5.1 million. While we believe that our tax positions are proper based on applicable law and we believe that it is more likely than not that we would prevail with respect tochallenges to these positions, we can make no assurances that we would prevail if our positions are challenged or that business economics would justify themounting of a legal defense against such challenges. If our tax positions are successfully challenged by the U.S. or non-U.S. taxing authorities, it could increaseour future tax liabilities and expense and have a material adverse impact on our financial position, results of operations and cash flows.Future impairment of goodwill, other intangible assets and long-lived assets would reduce our future earnings. As of December 31, 2010, the Company’s goodwill and other intangible assets totaled $29.1 million. We must perform annual assessments to determinewhether some portion, or all, of our goodwill, intangible assets and other long-term assets are impaired. Future annual impairment testing could result in adetermination that our goodwill, other intangible assets or our long-lived assets have been impaired. Future adverse changes in the business environment or in ourability to perform audits successfully and compete effectively in our markets or the discontinuation of our use of certain of our intangible or other long-lived assetscould result in impairment which could materially adversely impact future earnings.Our articles of incorporation, bylaws, shareholder rights plan and Georgia law may inhibit a change of control that shareholders may favor. Our articles of incorporation, bylaws and Georgia law contain provisions that may delay, deter or inhibit a future acquisition of PRGX that is not approved byour Board of Directors. This could occur even if our shareholders receive attractive offers for their shares or if a substantial number, or even a majority, of ourshareholders believe the takeover is in their best interest. These provisions are intended to encourage any person interested in acquiring us to negotiate with andobtain the approval of our Board of Directors in connection with the transaction. Provisions that could delay, deter or inhibit a future acquisition include thefollowing: • a classified Board of Directors; • the requirement that our shareholders may only remove directors for cause; • specified requirements for calling special meetings of shareholders; • the ability of the Board of Directors to consider the interests of various constituencies, including our employees, clients and creditors and the localcommunity, in making decisions; and • the ability of the Board of Directors to issue shares of preferred stock with such designations, powers, preferences and rights as it determines, withoutany further vote or action by our shareholders. In addition, we have in place a “poison pill” shareholders’ rights plan that could trigger a dilutive issuance of common stock upon substantial purchases of ourcommon stock by a third party that are not approved by the Board of Directors. These provisions also could discourage bids for our shares of common stock at apremium and could have a material adverse effect on the market price of our common stock.Our stock price has been and may continue to be volatile.15Table of Contents Our common stock is currently traded on The Nasdaq Global Market. The trading price of our common stock has been and may continue to be subject to largefluctuations. For example, for the year ended December 31, 2010, our stock traded as high as $6.93 per share and as low as $3.60 per share. Our stock price mayincrease or decrease in response to a number of events and factors, including: • future announcements concerning us, key clients or competitors; • quarterly variations in operating results and liquidity; • changes in financial estimates and recommendations by securities analysts; • developments with respect to technology or litigation; • changes in applicable laws and regulations; • the operating and stock price performance of other companies that investors may deem comparable to our company; • acquisitions and financings; and • sales and purchases of our stock by insiders. Fluctuations in the stock market, generally, also impact the volatility of our stock price. Finally, general economic conditions and stock market movements mayadversely affect the price of our common stock, regardless of our operating performance.16Table of ContentsITEM 1B. Unresolved Staff Comments None.ITEM 2. Properties Our principal executive offices are located in approximately 132,000 square feet of office space in Atlanta, Georgia. We lease this space under an agreementexpiring on December 31, 2014. We have subleased approximately 58,000 square feet of our principal executive office space to independent third parties. Ourvarious operating units lease numerous other parcels of operating space in the various countries in which we currently conduct our business. Excluding the lease for our principal executive offices, the majority of our real property leases are individually less than five years in duration. See Note 8 of“Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K.ITEM 3. Legal Proceedings In the normal course of business, we are involved in and subject to claims, contractual disputes and other uncertainties. Management, after reviewing with legalcounsel all of these actions and proceedings, believes that the aggregate losses, if any, will not have a material adverse effect on the Company’s financial positionor results of operations.ITEM 4. [Reserved]17Table of ContentsPART IIITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded under the symbol “PRGX” on The Nasdaq Global Market (Nasdaq). The Company has not paid cash dividends on its commonstock since it became a public company in 1996 and does not intend to pay cash dividends in the foreseeable future. Moreover, restrictive covenants included in oursecured credit facility specifically prohibit payment of cash dividends and limits the amount of our common stock that we may repurchase to $1.0 million on anannual basis. As of March 1, 2011, there were 201 holders of record of our common stock and management believes there were in excess of 2,500 beneficialholders. The following table sets forth, for the quarters indicated, the range of high and low sales prices for the Company’s common stock as reported by Nasdaqduring 2010 and 2009. 2010 Calendar Quarter High Low1st Quarter $6.27 $5.01 2nd Quarter 6.93 3.60 3rd Quarter 5.75 4.00 4th Quarter 6.53 5.65 2009 Calendar Quarter High Low1st Quarter $4.91 $2.74 2nd Quarter 4.04 2.48 3rd Quarter 6.01 2.60 4th Quarter 6.98 4.50 Issuer Purchases of Equity Securities A summary of our repurchases of our common stock during the fourth quarter ended December 31, 2010 is set forth below. Total Number of Maximum Total Shares Purchased Approximate Dollar Number of Average as Part of Value of Shares that Shares Price Publicly May Yet Be Purchased Paid per Announced Plans Purchased Under the2010 (a) Share or Programs Plans or Programs (millions of dollars)October 1 — October 31 1,081 $5.92 — $ — November 1 — November 30 — $— — $— December 1 — December 31 — $— — $— 1,081 $5.92 — (a) All shares reported during the quarter were surrendered by employees to satisfy tax withholding obligations upon vesting of restricted stock.18Table of ContentsPerformance Graph Set forth below is a line graph presentation comparing the cumulative shareholder return on our common stock, on an indexed basis, against cumulative totalreturns of The Nasdaq Composite Index and the RDG Technology Composite Index. The graph assumes that the value of the investment in the common stock ineach index was $100 on December 31, 2005 and shows total return on investment for the period beginning December 31, 2005 through December 31, 2010,assuming reinvestment of any dividends. Notwithstanding anything to the contrary set forth in any of the Company’s filings under the Securities Act of 1933 or theSecurities Exchange Act of 1934 that might incorporate future filings, including this Annual Report on Form 10-K, in whole or in part, the Performance Graphpresented below shall not be incorporated by reference into any such filings.Cumulative Total Return 12/05 12/06 12/07 12/08 12/09 12/10PRGX Global, Inc. 100.00 131.15 140.49 66.89 96.89 103.77 NASDAQ Composite 100.00 111.23 124.24 73.47 106.76 125.43 RDG Technology Composite 100.00 109.07 125.31 71.12 114.36 129.26 19Table of ContentsITEM 6. Selected Financial Data The following table sets forth selected consolidated financial data for the Company as of and for the five years ended December 31, 2010. We have derived thishistorical consolidated financial data from our Consolidated Financial Statements and Notes thereto, which have been audited by our Independent RegisteredPublic Accounting Firm. The Consolidated Balance Sheets as of December 31, 2010 and 2009, and the related Consolidated Statements of Operations,Shareholders’ Equity and Cash Flows for each of the years in the three-year period ended December 31, 2010 and the report of the Independent Registered PublicAccounting Firm thereon are included in Item 8 of this Form 10-K. We have reclassified the Consolidated Financial Statements to reflect Meridian, Communications Services, Channel Revenue, Airline, and the recovery auditservices business units in Japan and South Africa as discontinued operations for all periods presented. We have restated all per share data to give effect to the one-for-ten reverse stock split which became effective August 14, 2006. The data presented below should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-Kand other financial information appearing elsewhere in this Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.” Years Ended December 31, 2010 2009 2008 2007 2006 (In thousands, except per share data) Statements of Operations Data: Revenues $184,081 $179,583 $195,706 $227,369 $225,898 Cost of revenues 127,179 116,718 125,901 140,877 161,827 Gross margin 56,902 62,865 69,805 86,492 64,071 Selling, general and administrative expenses 49,081 43,873 44,028 67,063 56,500 Operational restructuring expense — — — 1,644 4,130 Operating income 7,821 18,992 25,777 17,785 3,441 Gain on bargain purchase, net (1) — 2,388 — — — Interest expense, net 1,305 3,025 3,245 13,815 16,311 Loss on debt extinguishment and financial restructuring 1,381 — — 9,397 10,047 Income (loss) from continuing operations before incometaxes 5,135 18,355 22,532 (5,427) (22,917)Income tax expense (2) 1,882 3,028 3,502 1,658 1,165 Income (loss) from continuing operations 3,253 15,327 19,030 (7,085) (24,082)Discontinued operations: Earnings from discontinued operations, net of income taxes — — — 20,215 2,983 Net earnings (loss) $3,253 $15,327 $19,030 $13,130 $(21,099) Basic earnings (loss) per common share: Earnings (loss) from continuing operations $0.14 $0.67 $0.87 $(0.62) $(3.77)Earnings from discontinued operations — — — 1.66 0.45 Net earnings (loss) $0.14 $0.67 $0.87 $1.04 $(3.32) Diluted earnings (loss) per common share: Earnings (loss) from continuing operations $0.13 $0.65 $0.83 $(0.62) $(3.77)Earnings from discontinued operations — — — 1.66 0.45 Net earnings (loss) $0.13 $0.65 $0.83 $1.04 $(3.32)20Table of Contents December 31, 2010 2009 2008 2007 2006 (In thousands)Balance Sheet Data: Cash and cash equivalents $18,448 $33,026 $26,688 $42,364 $30,228 Working capital 17,678 18,479 10,512 16,998 5,218 Total assets 106,321 110,513 98,783 122,438 178,667 Long-term debt, excluding current installments 9,000 11,070 14,331 38,078 136,922 Redeemable preferred stock — — — — 11,199 Total shareholders’ equity (deficit) $48,843 $41,439 $22,710 $2,349 $(104,483) (1) In July 2009, we acquired the business and certain assets of First Audit Partners LLP. The excess of the fair value of assets acquired over the purchase priceresulted in a gain on bargain purchase. See Note 14 of “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K. (2) Low effective tax rates in 2009 and 2008 are primarily attributable to reductions in the deferred tax asset valuation allowance. Low effective tax rates in2007 and 2006 are primarily attributable to the non-recognition of loss carry-forward benefits. See Note 1 (i) and Note 9 of “Notes to Consolidated FinancialStatements” included in Item 8 of this Form 10-K.21Table of ContentsITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsIntroduction We conduct our operations through three reportable operating segments: Recovery Audit Services — Americas, Recovery Audit Services — Europe/Asia-Pacific and New Services. The Recovery Audit Services — Americas segment represents recovery audit services (other than healthcare claims recovery auditservices) we provide in the U.S., Canada and Latin America. The Recovery Audit Services — Europe/Asia-Pacific segment represents recovery audit services(other than healthcare claims recovery audit services) we provide in Europe, Asia and the Pacific region. The New Services segment includes business analyticsand advisory services as well as healthcare claims recovery audit services. We include the unallocated portion of corporate selling, general and administrativeexpenses not specifically attributable to the three operating segments in Corporate Support. Our revenues are based on specific contracts with our clients. Such contracts for recovery audit services, the services from which most of our revenues arecurrently derived, generally specify: (a) time periods covered by the audit; (b) the nature and extent of services to be provided by PRGX; (c) the client’s duties inassisting and cooperating with PRGX; and (d) fees payable to us, generally expressed as a specified percentage of the amounts recovered by the client resultingfrom overpayment claims identified. Clients generally recover claims by either taking credits against outstanding payables or future purchases from the involvedvendors, or receiving refund checks directly from those vendors. The manner in which a claim is recovered by a client is often dictated by industry practice. Inaddition, many clients establish client-specific procedural guidelines that we must satisfy prior to submitting claims for client approval. For some services weprovide, such as advisory services, we earn our compensation in the form of a flat fee, a fee per hour, or a fee per other unit of service. The vast majority of our recovery audit revenues are from clients in the retail industry, which we believe has been impacted significantly by the recent globaleconomic downturn. The decrease in consumer spending associated with the economic downturn has resulted in many of our clients reducing their purchases fromvendors, which makes it more difficult for those clients to offset recovery claims that we discover against current vendor invoices. In addition, many client vendorsare experiencing their own financial issues, and the liquidity of these vendors also can negatively impact the claims recovery process. Because the vast majority ofour current business is based on such recoveries, these factors may negatively impact our revenues in future periods. Client bankruptcy or insolvency proceedingsalso could adversely impact our future revenues. Despite the impact of the recent economic downturn on consumer spending and retailers’ purchases from their vendors, the effect on our financial resultsgenerally has been delayed, as we did not begin to experience any material negative effects from the downturn until the first half of 2009. One factor insulating ussomewhat from an economic downturn is that our clients frequently are more motivated to use our services to recover prior overpayments to make up for relativelyweaker financial performance in their own business operations. Also, the client purchase data on which we perform our recovery audit services is historical data,the age of which varies from client to client. Such data typically reflects transactions between our clients and their vendors that took place 3 to 15 months prior tothe data being provided to us for audit. The fact that our audits typically lag current client spending by up to 15 months also delayed somewhat the correspondingadverse impact of the recent economic downturn on our revenues. Given this time lag, we expect that PRGX will not begin to recognize increased revenues from recovery auditing in the retail industry as a result of improvingeconomic conditions until well after the positive effects of such improved conditions have been realized by our clients. While the net impact of the recenteconomic downturn on our recovery audit revenues is difficult to determine or predict, we believe that for the foreseeable future, our revenues will remain at alevel that will not have a significant adverse impact on our liquidity, and we have taken steps to mitigate any adverse impact of the economic downturn on ourrevenues and overall financial health. These steps include limiting salary increases for our employees and devoting substantial efforts in the development of alower cost of delivery service model to enable us to more cost effectively serve our clients. Further, we are working diligently to expand our business beyond ourcore recovery audit services to retailers, such as our efforts to expand our business analytics and advisory services businesses. The investments we are making inconnection with these initiatives have had a significant negative impact on our recent reported financial results, particularly our results for the year endedDecember 31, 2010. Another example of an area in which we continue to devote considerable effort to expand our business beyond our core accounts payable retail recoveryauditing is our work in the healthcare industry. Our results in 2006 and22Table of Contents2007, and to a significantly lesser extent in 2008, were affected by our involvement in the Medicare recovery audit contractor (“RAC”) demonstration program ofthe Centers for Medicare and Medicaid Services (“CMS”), the federal agency that administers the Medicare program. The Medicare RAC demonstration programwas designed by CMS to recover Medicare overpayments and identify Medicare underpayments through the use of recovery auditing. CMS awarded the Companya contract to audit Medicare spending in the State of California in 2005 as part of the Medicare RAC demonstration program. Our Medicare RAC demonstrationprogram contract expired in March 2008. In late 2006, legislation was enacted that mandated that recovery auditing of Medicare spending be extended beyond the March 2008 end of the Medicare RACdemonstration program and that CMS enter into additional contracts with recovery audit contractors to expand recovery auditing of Medicare spending to all 50states by January 1, 2010. In February 2009, we announced that we had entered into subcontracts with three of the four national Medicare RAC program contractawardees. CMS is responsible for implementation and administration of the overall national Medicare RAC program, and our future revenues from our MedicareRAC program subcontracts are heavily dependent on CMS’s implementation schedule and priorities, both of which are beyond our control. Revenues from theMedicare RAC program subcontracts showed significant signs of improvement in the third quarter of 2010 and while the magnitude and timing of additionalMedicare RAC program revenues are difficult to predict, we expect revenues from Medicare auditing to increase steadily through the first half of 2011. Inpreparation for our work as a Medicare RAC subcontractor, we have incurred costs primarily relating to staffing and upgrading our technology systems. Weincurred operating losses of approximately $4.8 million in 2010 and $4.0 million in 2009 related to this effort. We also are pursuing potential opportunitiesresulting from more recent federal legislation that requires Medicaid RAC programs to be implemented in all 50 states. We expect that most states will undertake acompetitive bidding process for their Medicaid RAC programs. We recently were awarded our first state Medicaid RAC contract — by the state of Mississippi, butthe amount and timing of future revenues from our auditing of Medicaid claims, including those from the Mississippi award, cannot be determined.23Table of Contents Results of Operations The following table sets forth the percentage of revenues represented by certain items in our Consolidated Statements of Operations for the periods indicated: Years Ended December 31, 2010 2009 2008Statements of Operations Data: Revenues 100.0% 100.0% 100.0%Cost of revenues 69.1 65.0 64.3 Gross margin 30.9 35.0 35.7 Selling, general and administrative expenses 26.7 24.4 22.5 Operating income 4.2 10.6 13.2 Gain on bargain purchase, net — 1.3 — Interest expense, net 0.7 1.7 1.7 Loss on debt extinguishment 0.7 — — Earnings before income taxes 2.8 10.2 11.5 Income tax expense 1.0 1.7 1.8 Net earnings 1.8% 8.5% 9.7% Revenues. Revenues were as follows (in thousands): Years Ended December 31, 2010 2009 2008 Recovery Audit Services — Americas $115,156 $121,561 $138,168 Recovery Audit Services — Europe/Asia-Pacific 57,590 52,489 53,600 New Services 11,335 5,533 3,938 Total $184,081 $179,583 $195,706 Total revenues increased in 2010 by $4.5 million, or 2.5%, after decreasing by $16.1 million, or 8.2%, in 2009. Recovery Audit Services — Americas revenues decreased by 5.3% in 2010 and by 12.0% in 2009. We experience changes in our reported revenues based onthe strength of the U.S. dollar relative to foreign currencies. Changes in the value of the U.S. dollar relative to currencies in Canada and Latin America positivelyimpacted reported revenues in 2010 and negatively impacted reported revenues in 2009. On a constant dollar basis, adjusted for changes in foreign exchange(“FX”) rates, 2010 revenues decreased by 7.5% compared to a decrease of 5.3% as reported, and 2009 revenues decreased by 10.4% compared to a decrease of12.0% as reported. The decreases in our Recovery Audit Services — Americas revenues are due to a number of factors. The vast majority of our Recovery Audit Services —Americas revenues are from the retail industry, and our operations are subject to the economic pressures the retail industry has faced over the past few years. Therecent unfavorable economic conditions that adversely impacted the U.S. retail industry also negatively impacted our revenues. The liquidity of our clients’vendors can negatively impact claim production, the claim approval process and the ability of our clients to offset or otherwise obtain recoveries from theirvendors. We also experienced competitive rate pressures, served fewer clients, and were impacted by our clients developing and strengthening their own internalaudit capabilities as a substitute for our services. Many clients have improved their procurement processes and are generating fewer recurring transaction errors,although we somewhat offset these changes with our use of best practices and innovation to identify additional audit claim categories and recovery opportunities. We expect that competitive pressures and other factors described above will continue to have a negative impact on our revenues in this segment in 2011 andbeyond. To address these issues, offset their impact and generate growth in this segment, we adopted several strategies as discussed previously (see “The PRGXStrategy” in “Item 1. Business” above). We reinstituted a sales function in 2010, resulting in an increase in our client count during the24Table of Contentsyear. We continue to develop our Next Generation Recovery Audit platform that we designed to make our recovery audit process more cost efficient and effective.We concluded successful pilots of this technology early in 2011, and expect to expand its use throughout the coming year. We also are providing greater value toour existing and potential clients by offering adjacent services in the procure-to-pay value chain and to the CFO suite, and by capitalizing on our existing datamining and related competencies. While we are encouraged by some of our recent successes, we can provide no assurances that we will be able to build on them inthe future or that we will generate sufficient incremental revenues to offset the declining revenue trend that we have experienced in this segment for several years.In addition, we have invested heavily in the pursuit of these opportunities and will continue to invest in them. We believe that without such investments, a reversalof the declining revenue trend for Recovery Audit Services — Americas is not likely. We intend to execute our strategic initiatives to pursue these opportunities. Recovery Audit Services — Europe/Asia-Pacific revenues increased by 9.7% in 2010 and decreased by 2.1% in 2009. The strengthening of the U.S. dollarrelative to foreign currencies in Europe, Asia and Australia adversely impacted reported revenues in both periods. On a constant dollar basis, adjusted for changesin foreign exchange (“FX”) rates, 2010 revenues increased by 12.8% compared to an increase of 9.7% as reported, and 2009 revenues increased by 8.5% comparedto a decrease of 2.1% as reported. These increases on a constant dollar basis are attributable to revenues from the July 2009 acquisition of First Audit Partners LLP(“FAP”), and to incremental revenues from existing and new clients. As in our Recovery Audit Services — Americas segment, we experience competitive andother pressures in this segment, but to a lesser degree due to the smaller number of competitors with global capabilities. We intend to execute the same strategicinitiatives for this segment as we are in the Recovery Audit Services — Americas segment. New Services revenues increased by 104.9% in 2010 and increased by 40.5% in 2009. During 2010 and 2009, New Services revenues were primarily from ouradvisory services. In 2010, we also generated revenues from business analytics services and during the second half of 2010 from our participation as asubcontractor in three of the Medicare RAC program’s four geographic regions. We expect New Services revenues to continue to increase in 2011 due to increasesin revenues from advisory services and business analytics. We also expect future revenue growth from our participation as a subcontractor in three of the MedicareRAC program’s four geographic regions and from state Medicaid RAC audits. We were awarded our first state Medicaid RAC contract early in 2011 and arecontinuing to evaluate and bid for additional state Medicaid RAC opportunities that we believe are a good match for us based on the way the state’s Medicaidprogram is run and the scope of the program. While the magnitude and timing of additional Medicare and Medicaid RAC program revenues are difficult to predict,we expect revenues from our healthcare claims auditing to increase steadily through at least the first half of 2011. Cost of Revenues (“COR”). COR consists principally of commissions and other forms of variable compensation we pay to our auditors based primarily uponthe level of overpayment recoveries and/or profit margins derived therefrom, fixed auditor salaries, compensation paid to various types of hourly support staff, andsalaried operational and client service managers for our recovery audit, business analytics and advisory services businesses. COR also includes other direct andindirect costs incurred by these personnel, including office rent, travel and entertainment, telephone, utilities, maintenance and supplies, clerical assistance, anddepreciation. A significant portion of the components comprising COR is variable and will increase or decrease with increases or decreases in revenues. COR expenses were as follows (in thousands): Years Ended December 31, 2010 2009 2008 Recovery Audit Services — Americas $68,570 $68,002 $76,272 Recovery Audit Services — Europe/Asia-Pacific 44,420 40,317 41,362 New Services 14,189 8,399 8,267 Total $127,179 $116,718 $125,901 COR as a percentage of revenues for Recovery Audit Services — Americas was 59.5% in 2010, 55.9% in 2009 and 55.2% in 2008. This equates to grossmargin percentages of 40.5% in 2010, 44.1% in 2009 and 44.8% in 2008. The declines in gross margins in both 2010 and 2009 are partially attributable to therevenue declines without corresponding reductions in COR. Additionally, we are making investments in our various growth and other strategic initiatives, and haveincluded significant portions of these costs in Recovery Audit Services — Americas COR.25Table of Contents COR as a percentage of revenues for Recovery Audit Services — Europe/Asia-Pacific was 77.1% in 2010, 76.8% in 2009 and 77.2% in 2008. This equates togross margin percentages of 22.9% in 2010, 23.2% in 2009 and 22.8% in 2008. The slight decline in gross margin in 2010 primarily resulted from deferredconsideration attributable to the February 2010 acquisition of Etesius Limited (“Etesius”). The slight improvement in gross margin in 2009 primarily resulted fromdecreased commissions paid to third parties in Europe. The higher COR as a percentage of revenues for Recovery Audit Services — Europe/Asia-Pacific (77.1% for 2010) compared to Recovery Audit Services —Americas (59.5% for 2010) is due primarily to differences in service delivery models, scale and geographic fragmentation. The Recovery Audit Services —Europe/Asia-Pacific segment generally serves fewer clients in each geographic market and generates lower revenues per client than those served by the Company’sRecovery Audit Services — Americas segment. New Services COR relates primarily to costs of advisory services and costs associated with the Medicare RAC program subcontracts. New Services CORexceeded New Services revenues by $2.9 million in 2010, $2.9 million in 2009 and $4.3 million in 2008 due primarily to our investments in the Medicare RACprogram as well as our investments in our advisory services and business analytics capabilities. We expect to continue to experience COR in excess of revenues inthe New Services segment for at least the first half of 2011. Selling, General and Administrative Expenses (“SG&A”). SG&A expenses of the Recovery Audit and New Services segments include the expenses of salesand marketing activities, information technology services and allocated corporate data center costs, human resources, legal, accounting, administration, foreigncurrency transaction gains and losses, gains and losses on asset disposals, depreciation of property and equipment and amortization of intangibles related to theRecovery Audit and New Services segments. Corporate Support SG&A represents the unallocated portion of SG&A expenses which are not specificallyattributable to our segment activities and include the expenses of information technology services, the corporate data center, human resources, legal, accounting,treasury, administration and stock-based compensation charges. SG&A expenses were as follows (in thousands): Years Ended December 31, 2010 2009 2008 Recovery Audit Services — Americas $21,524 $17,647 $16,771 Recovery Audit Services — Europe/Asia-Pacific 6,693 5,319 8,383 New Services 3,950 1,151 1,893 Subtotal for segments 32,167 24,117 27,047 Corporate support 16,914 19,756 16,981 Total $49,081 $43,873 $44,028 SG&A in each of our segments and in corporate support includes foreign currency transaction gains and losses, including the gains and losses related tointercompany balances. Gains and losses result from the re-translation of the foreign subsidiaries’ balances payable to the U.S. parent from their local currency totheir U.S. dollar equivalent. Substantial changes from period to period in FX rates may significantly impact the amount of such gains and losses. Recovery Audit Services — Americas SG&A increased 22.0% in 2010 and 5.2% in 2009. These increases resulted primarily from costs incurred in connectionwith our execution of our growth strategies. The greater increase in 2010 was primarily a result of costs we incurred to build our sales and business developmentcapabilities, combined with higher depreciation expense resulting from investments we made to upgrade our information technology infrastructure. Recovery Audit Services — Europe/Asia-Pacific SG&A included an FX loss of $0.4 million in 2010, an FX gain of $1.2 million in 2009 and an FX loss of$3.5 million in 2008, all related to intercompany balances. Recovery Audit Services — Europe/Asia-Pacific SG&A excluding the FX gains and losses related tointercompany balances decreased 3.8% in 2010 and increased 33.2% in 2009. The 2010 decrease was attributable to relatively lower severance costs and incentivecompensation accruals, partially offset by the inclusion of a full year of amortization and depreciation costs resulting from our July 2009 acquisition of FAP (seeNote 14 — Business Acquisition in “Notes to Consolidated Financial Statements” in Part II, Item 8 of this Form 10-K). The 2009 increase was attributable to non-intercompany FX losses, severance costs and amortization expense associated with the acquisition of FAP.26Table of Contents New Services SG&A increased 243.2% in 2010 and decreased 39.2% in 2009. The increase in 2010 was attributable to the additional operating costs of Etesiuswhich we acquired in February 2010 (See Note 14 — Business Acquisition in “Notes to Consolidated Financial Statements” in Part II, Item 8 of this Form 10-K),as well as higher costs relating to our performance of the Medicare RAC program subcontracts and additional sales and business development personnel. NewServices SG&A was higher in 2008 than in 2009 due to expenses associated with winding down the Medicare RAC demonstration program and the efforts weexpended in bidding for a Medicare RAC program contract and securing the Medicare RAC program subcontracts with three of the four national Medicare RACprogram contract awardees. Corporate Support SG&A includes stock-based compensation charges of $4.0 million in 2010, $3.3 million in 2009 and $2.2 million in 2008. Excluding stock-based compensation charges, Corporate Support SG&A decreased 21.2% in 2010 and increased 11.1% in 2009. The 2010 decrease is attributable to lower 2010professional fees and a litigation settlement accrual and severance charges in 2009 for which there are no comparable costs in 2010, as well as decreased incentivecompensation accruals in 2010. The increase in these costs for 2009 compared to 2008 is attributable to the litigation costs and severance charges, and increasedcompensation and recruiting costs associated with hiring a new chief executive officer. Interest Expense, net and Loss on Extinguishment of Debt Net interest expense was $1.3 million in 2010, $3.0 million in 2009 and $3.2 million in 2008. We also recorded a $1.4 million loss on extinguishment of debt in2010. In January 2010, we entered into a new credit facility with SunTrust Bank and repaid our prior term loan from Ableco LLC in full (see “New CreditFacility” below for additional information regarding this transaction). The loss on extinguishment of debt consists of the unamortized deferred loan costs associatedwith the prior credit facility. The interest rate on the new credit facility is based on the one-month LIBOR rate, plus an applicable margin of from 2.25% to 3.5%per annum. The interest rate in effect at December 31, 2010 under the new credit facility was approximately 2.76%, while the prior credit facility bore a minimuminterest rate of 9.75%. The decrease in interest expense in 2010 resulted from the lower interest rate on the debt and from lower amortization of loan originationfees under the new credit facility. The decrease in interest expense in 2009 relates to lower average debt outstanding in 2009. Income Tax Expense Our reported effective tax rates on earnings approximated 36.7% in 2010, 16.5% in 2009 and 15.5% in 2008. Reported income tax expense in each yearprimarily results from taxes on the income of foreign subsidiaries. The effective tax rates generally are less than the expected tax rate primarily due to reductionsof the Company’s deferred tax asset valuation allowance. The higher tax rate in 2010 is due to earnings before income taxes from our foreign subsidiariesrepresenting a higher percentage of total earnings before income taxes than in the prior years, partially offset by a reduction in the deferred tax asset valuationallowance that resulted from additional deferred tax liabilities that we recorded relating to a 2010 business acquisition. As of the end of the past three years, management determined that based on all available evidence, deferred tax asset valuation allowances of $54.8 million in2010, $58.3 million in 2009 and $64.3 million in 2008 were appropriate. The reduction in each of the three years was due primarily to lower net deferred tax assetsfor which we recorded a portion of the valuation allowance. We expensed or impaired a significant amount of intangible assets in previous years for financialreporting purposes. For income tax reporting purposes, we continue to amortize these intangible assets over their tax lives, generally 15 years. The excess of taxamortization over amortization for financial reporting purposes is reducing the related deferred tax asset each year, resulting in lower deferred tax assets and alower related valuation allowance, although increases in our net operating losses have partially offset this impact in recent years. This reduction in deferred taxassets related to intangible assets was $6.1 million in 2010, $5.3 million in 2009 and $5.7 million in 2008, and we currently project this effect to continue through2013. As of December 31, 2010, we had approximately $59.6 million of U.S. federal loss carry-forwards available to reduce future U.S. federal taxable income. Thefederal loss carry-forwards expire through 2030. As of December 31, 2010, we had approximately $80.0 million of state loss carry-forwards available to reducefuture state taxable income. The state loss carry-forwards expire to varying degrees between 2015 and 2030 and are subject to certain limitations.27Table of Contents On March 17, 2006, the Company experienced an ownership change as defined under Section 382 of the Internal Revenue Code (“IRC”). This ownershipchange resulted in an annual IRC Section 382 limitation that limits the use of certain tax attribute carry-forwards. Of the $59.6 million of U.S. federal loss carry-forwards available to the Company, $20.6 million of the loss carry-forwards are subject to an annual usage limitation of $1.4 million.Liquidity and Capital Resources As of December 31, 2010, we had $18.4 million in cash and cash equivalents and no borrowings under the revolver portion of our credit facility. The revolverhad approximately $8.9 million of calculated availability for borrowings at the end of 2010. We believe that the recent global economic downturn contributed to a decrease in the revenues that we otherwise would have earned in recent periods. Thisdecrease has not resulted in the need for us to draw down on our revolving credit facility to fund our operations and has not materially adversely impacted ouroverall liquidity position. However, if revenues were to decline significantly, it could have an adverse impact on our liquidity. The Company was in compliancewith the covenants in its SunTrust credit facility as of December 31, 2010. Operating Activities. Net cash provided by operating activities was $3.5 million in 2010, $18.2 million in 2009 and $16.7 million in 2008. These amountsconsist of two components, specifically, net earnings adjusted for certain non-cash items (such as depreciation, amortization and stock-based compensationexpense) and changes in working capital. The decrease in cash provided by operating activities in 2010 was due to a $6.5 million reduction in net earnings adjustedfor non-cash items and an $8.2 million decrease in working capital. The decline in net earnings adjusted for non-cash items was due to lower net earnings resultingfrom the factors discussed previously, partially offset by higher non-cash charges. The greater use of cash for working capital needs resulted from an increase inreceivables primarily relating to the Medicare RAC program, a decrease in incentive compensation accruals in 2010 due to lower payments expected under ourmanagement incentive plans, and deferral of costs associated with the Medicare RAC program. We include an itemization of these changes in our ConsolidatedStatements of Cash Flows included in Part II, Item 8 of this Form 10-K. The $1.5 million increase in cash provided by operating activities in 2009 was due to a $6.6 million lower use of cash for working capital, partially offset bylower net earnings. The working capital improvement was due to significant payments for long term compensation and severance liabilities in 2008 combined witha greater decrease in the refund liability in 2008. These improvements in cash flow in 2009 were partially offset by significant payments for foreign income taxes, alegal settlement, and other accrued liabilities in 2009. We incurred operating losses of approximately $4.8 million in 2010, $4.0 million in 2009 and $5.6 million in 2008 related to the Medicare RAC program.During 2010, contract receivables increased by $1.2 million and other current assets increased $1.3 million relating to our deferral of certain costs associated withthis program. Together, these items had a significant negative impact on our net cash provided by operating activities. We also incurred capital expendituresassociated with this program. We expect to continue to incur losses, increase receivables and other current assets and incur capital expenditures relating to thisprogram in 2011. We have one customer, Wal-Mart Stores Inc., that has accounted for 10% or more of our annual revenues in each of the past three years. The loss of thiscustomer would negatively impact our operating cash flows and would potentially have a material adverse impact on the Company’s liquidity. Investing Activities and Depreciation and Amortization Expense. Depreciation and amortization expense was $8.9 million in 2010, $6.1 million in 2009 and$5.2 million in 2008. Net cash used for property and equipment capital expenditures was $6.9 million in 2010, $5.5 million in 2009 and $3.3 million in 2008.These capital expenditures primarily related to investments we made to upgrade our information technology infrastructure, develop our next-generation recoveryaudit business model and to prepare for participation in the Medicare RAC program. Capital expenditures are discretionary and we currently expect future capital expenditures to continue at current levels over the next several quarters as wecontinue to enhance our healthcare audit systems. Our investments in software development and infrastructure costs related to Medicare RAC program were$0.8 million in 2010, $1.0 million in 2009 and $0.6 million in 2008. We may alter our capital expenditure plans should we experience changes in our operatingresults which cause us to adjust our operating plans.28Table of Contents Business Acquisitions We made several business acquisitions during 2010 and 2009, each of which is discussed more fully in Note 14 — Business Acquisitions in “Notes toConsolidated Financial Statements” in Part II, Item 8 of this Form 10-K. A summary of these activities follows. In July 2009, we acquired the business and certain assets of First Audit Partners LLP (“FAP”), a privately-held European provider of recovery audit servicesbased in Cambridge, United Kingdom, for a purchase price valued at $5.8 million. The purchase price included an initial cash payment of $1.6 million that we paidin July 2009. We made the first of two deferred payments required as part of the FAP acquisition in January 2010 in the amount of £0.5 million ($0.8 million) andthe second payment of £0.8 million ($1.3 million) in July 2010. Additional variable consideration may be due based on the operating results generated by theacquired business over a four year period from the date of acquisition. We currently estimate the fair value of variable consideration to be $2.0 million. In February 2010, we acquired all of the issued and outstanding capital stock of Etesius Limited, a privately-held European provider of purchasing and payablestechnologies and spend analytics based in Chelmsford, United Kingdom for a purchase price valued at $3.1 million. The purchase price included an initial cashpayment of $2.8 million and a $0.3 million payment for obligations on behalf of Etesius shareholders that we paid in February 2010 as well as deferred paymentsof $1.2 million over four years from the date of the acquisition. We also may be required to make additional payments of up to $3.8 million over a four-year periodif the financial performance of this service line meets certain targets. These payments would be to Etesius employees that we hired in connection with theacquisition. We will not be obligated to make the deferred and earn-out payments to these employees if they resign or are terminated under certain circumstances,and therefore are recognizing the accrual of these payments as compensation expense. In November 2010, we acquired the business and certain assets of TJG Holdings LLC (“TJG”), a privately-held provider of finance and procurement operationsimprovement services based in Chicago, Illinois for a purchase price valued at $3.7 million. The purchase price included an initial cash payment of $2.3 millionthat we paid in November 2010. Additional payments of up to a maximum of $1.9 million may be due to the sellers in four semi-annual payments if certainperformance targets are met. We recorded $1.4 million as the estimated fair value of these payments at the acquisition date. Financing Activities and Interest Expense. Net cash used in financing activities was $3.5 million in 2010, $5.7 million in 2009 and $28.0 million in 2008. Asdescribed in more detail below, we entered into a new credit facility in January 2010. We used the $15.0 million term loan proceeds to repay the remaining$14.1 million of outstanding principal under our prior term loan and to pay $0.5 million in loan costs incurred in connection with the new credit facility. During2010, we made mandatory principal payments totaling $3.0 million on the new credit facility and reduced our capital lease obligations by $0.3 million. During 2009, we made mandatory principal payments totaling $5.0 million on our then-existing term loan and reduced our capital lease obligations by$0.3 million. During 2008, we made principal payments under our then-existing term loan of $25.9 million. This amount included $10.9 million of mandatory principalpayments as well as a voluntary prepayment of $15.0 million. We also reduced our capital lease obligations by $0.3 million during 2008. In December 2008, werepurchased 429,378 shares of our outstanding common stock for $1.7 million. New Credit Facility On January 19, 2010, we entered into a four-year revolving credit and term loan agreement with SunTrust Bank (“SunTrust”). We used substantially all thefunds from the SunTrust term loan to repay in full the $14.1 million outstanding under our then-existing Ableco LLC term loan. The SunTrust credit facilityconsists of a $15.0 million committed revolving credit facility and a $15.0 million term loan. The SunTrust credit facility is guaranteed by the Company and itsdomestic subsidiaries and is secured by substantially all of our assets. Amounts available for borrowing under the SunTrust revolver are based on our eligibleaccounts receivable and other factors. Borrowing29Table of Contentsavailability under the SunTrust revolver at December 31, 2010 was $8.9 million. We had no borrowings outstanding under the SunTrust revolver as ofDecember 31, 2010. The SunTrust term loan requires quarterly principal payments of $0.8 million from March 2010 and through December 2013, and a final payment of$3.0 million in January 2014. The loan agreement requires mandatory prepayments with the net cash proceeds from certain asset sales, equity offerings andinsurance claims. The loan agreement also requires an additional annual prepayment based on excess cash flow (“ECF”) if our leverage ratio, as defined in theagreement, exceeds a certain threshold. The first of any such ECF payments would be payable in April 2011, but we currently estimate that our leverage ratio didnot exceed the threshold and we will not be required to make an ECF payment for 2010. Interest on both the revolver and term loan are payable monthly and accrued at an index rate based on the one-month LIBOR rate, plus an applicable margin asdetermined by the loan agreement. The applicable interest rate margin varies from 2.25% per annum to 3.5% per annum, depending on our consolidated leverageratio, and is determined in accordance with a pricing grid under the SunTrust loan agreement. The applicable margin was 2.5% and the interest rate wasapproximately 2.76% at December 31, 2010. We also must pay a commitment fee of 0.5% per annum, payable quarterly, on the unused portion of the$15.0 million SunTrust revolving credit facility. The SunTrust credit facility includes customary affirmative, negative, and financial covenants binding on the Company, including delivery of financialstatements and other reports, maintenance of existence, and transactions with affiliates. The negative covenants limit the ability of the Company, among otherthings, to incur debt, incur liens, make investments, sell assets, repurchase shares of its capital stock or declare or pay dividends on its capital stock. The financialcovenants included in the SunTrust credit facility, among other things, limit the amount of capital expenditures the Company can make, set forth maximumleverage and net funded debt ratios for the Company and a minimum fixed charge coverage ratio, and also require the Company to maintain minimum consolidatedearnings before interest, taxes, depreciation and amortization. In addition, the SunTrust credit facility includes customary events of default. In September 2010 we entered into an amendment of the SunTrust credit facility that lowered the required minimum adjusted EBITDA and fixed chargecoverage ratio through December 31, 2010. In October 2010 we entered into an interest rate swap agreement with SunTrust that limits our exposure to increases inthe one-month LIBOR rate. We believe that we will have sufficient borrowing capacity and cash generated from operations to fund our capital and operational needs for at least the nexttwelve months. Stock Repurchase Program In February 2008, our Board of Directors approved a stock repurchase program. Under the terms of the program, as extended by the Board of Directors, wemay repurchase up to $10 million of our common stock from time to time through March 31, 2011. The new credit facility permits us to repurchase up to$1.0 million of our common stock annually. We did not repurchase any shares of our common stock under this program in 2010. In 2009, we repurchased 78,754shares at an average price of $3.10 for a total purchase price of approximately $0.2 million. This equates to approximately 0.4% of the then outstanding shares. In2008, we repurchased 429,378 shares at an average price of $3.93 for a total purchase price of approximately $1.7 million. This equates to approximately 2.0% ofthe then outstanding shares.30Table of Contents Contractual Obligations and Other Commitments As discussed in “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K, the Company has certain contractual obligations and othercommitments. A summary of those commitments as of December 31, 2010 is as follows: Payments Due by Period (in thousands) Less More Than 3-5 Than Contractual obligations Total 1 Year 1-3 Years Years 5 Years Long-term debt obligations (1) $12,000 $3,000 $6,000 $3,000 $— Operating lease obligations 27,514 7,384 13,606 6,426 98 Cash portions of stock-based compensation (2) 114 114 — — — Purchase price payments to former FAP owners (3) 2,925 770 2,155 — — Payments to Messrs. Cook and Toma (4) 1,073 58 122 129 764 Purchase price payments to Etesius Limited shareholders (5) 1,200 100 400 700 — Purchase price payments to former TJG Holdings LLC owners(6) 1,900 584 1,240 76 — Severance 405 405 — — — Total $47,131 $12,415 $23,523 $10,331 $862 (1) Excludes variable rate interest (LIBOR plus 2.25% to 3.50% per annum) payable monthly. (2) Represents the portions of Performance Units outstanding under the 2006 Management Incentive Plan payable in cash. Amounts presented are based on themarket price of our common stock at December 31, 2010. The final payment is due to be made on April 30, 2011 and will be based on the market price ofour common stock on that date — see 2006 Management Incentive Plan below. (3) Represents deferred payments due under the FAP asset purchase agreement — see “Business Acquisitions” above. The amounts presented include variableconsideration which may be due based on cash flows generated by the acquired business over the next three years. The obligations are denominated inBritish pounds sterling. The U.S. dollar amounts above are based on December 31, 2010 foreign exchange rates. (4) Represents estimated reimbursements payable for healthcare costs incurred by these former executives. (5) Represents deferred payments due under the Etesius Limited share purchase agreement. The amounts presented do not include variable consideration whichmay be due based on the financial performance of certain service lines over the next four years. We currently estimate the fair value of variableconsideration to be insignificant. For more information, see “Business Acquisitions” above. (6) Represents deferred payments due under the TJG Holdings LLC asset purchase agreement. The amounts presented include an estimate of variableconsideration which may be due based on cash flows generated by the acquired business over the next two years. For more information, see “BusinessAcquisitions” above. 2006 Management Incentive Plan At the annual meeting of shareholders held on August 11, 2006, the shareholders of the Company approved a proposal granting authorization to issue up to2.1 million shares of our common stock under the 2006 Management Incentive Plan (“2006 MIP”). On September 29, 2006, an aggregate of 682,301 PerformanceUnits were awarded under the 2006 MIP to seven executive officers of the Company. The awards had an aggregate grant date fair value of $4.0 million. AtPerformance Unit settlement dates (which vary by participant), participants are issued that number of shares of Company common stock equal to 60% of thenumber of Performance Units being settled, and are paid in cash an amount equal to 40% of the fair market value of that number of shares of common stock equalto the number of Performance Units being settled. The awards were 50% vested at the award date and the remainder of the awards vested ratably overapproximately the following eighteen months with the awards fully vesting on March 17, 2008. On March 28, 2007, the Company granted 20,000 PerformanceUnits to an additional executive officer under the 2006 MIP. The award had a grant date fair value of $0.3 million and was scheduled to vest ratably over fouryears. The awards contain certain anti-dilution and change of control provisions. As a result, the number of Performance Units awarded were automaticallyadjusted on a pro-rata basis upon the conversion into common stock of the Company’s senior convertible notes and Series A convertible preferred stock. TheCompany granted an additional 1,436,484 Performance Units in 2007 and 122,073 Performance Units in 2006 with aggregate grant date fair values of$24.0 million in 2007 and $1.6 million in 2006 as a result of this automatic adjustment provision. All Performance Units must be settled before April 30, 2016. We recognized compensation expense (credit) of $0.1 million in 2010, $(0.2 million) in 2009 and$(0.4 million) in 2008 related to these 2006 MIP Performance Unit awards. The 2009 and 2008 compensation credits resulted from the remeasurement of theliability-classified portion31Table of Contentsof the awards to fair value based on the market price of our common stock. We determined the amount of compensation expense recognized on the assumption thatnone of the Performance Unit awards will be forfeited. Cash payments relating to these MIP awards were $0.6 million in 2010, $1.9 million in 2009 and $2.0 million in 2008. The final cash payments relating to theseMIP awards of approximately $0.1 million are due in April 2011. Off Balance Sheet Arrangements As of December 31, 2010, the Company did not have any material off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of the SEC’s Regulation S-K.Critical Accounting Policies We describe our significant accounting policies in Note 1 of “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K. However,certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application ofsignificant judgment by management. As a result, they are subject to an inherent degree of uncertainty. We consider accounting policies that involve the use ofestimates that meet both of the following criteria to be “critical” accounting policies. First, the accounting estimate requires us to make assumptions about mattersthat are highly uncertain at the time that the accounting estimate is made. Second, alternative estimates in the current period, or changes in the estimate that arereasonably likely in future periods, would have a material impact on the presentation of our financial condition, changes in financial condition or results ofoperations. In addition to estimates that meet the “critical” estimate criteria, we also make many other accounting estimates in preparing our consolidated financialstatements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses, as well asdisclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition,refund liabilities, accounts receivable allowance for doubtful accounts, goodwill and other intangible assets and income taxes. We base our estimates andjudgments on historical experience, information available prior to the issuance of the consolidated financial statements and on various other factors that we believeto be reasonable under the circumstances. This information forms the basis for making judgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Materially different results can occur as circumstances change and additional information becomes known, including changesin those estimates not deemed “critical”. We believe the following critical accounting policies, among others, involve our more significant estimates and judgments we used in the preparation of ourconsolidated financial statements. We have discussed the development and selection of accounting estimates, including those deemed “critical,” and the associateddisclosures in this Form 10-K with the audit committee of the Board of Directors. • Revenue Recognition. We generally recognize revenues on the accrual basis except with respect to an insignificant number of our international unitswhere we recognize revenues on the cash basis. We generally recognize revenues for a contractually specified percentage of amounts recovered when wehave determined that our clients have received economic value (generally through credits taken against existing accounts payable due to the involvedvendors or refund checks received from those vendors), and when we have met the following criteria: (a) persuasive evidence of an arrangement exists;(b) services have been rendered; (c) the fee billed to the client is fixed or determinable; and (d) collectability is reasonably assured. Additionally, forpurposes of determining appropriate timing of recognition and for internal control purposes, we rely on customary business practices and processes fordocumenting that the criteria described in (a) through (d) above have been met. Such customary business practices and processes may vary significantlyby client. On occasion, it is possible that a transaction has met all of the revenue recognition criteria described above but we do not recognize revenues,unless we can otherwise determine that criteria (a) through (d) above have been met, because our customary business practices and processes specific tothat client have not been completed. The determination that we have met each of the aforementioned criteria, particularly the determination of the timingof economic benefit received by the client and the determination that collectability is reasonably assured, requires the application of significant judgmentby management and a misapplication of this judgment could result in inappropriate recognition of revenues.32Table of Contents • Unbilled Receivables & Refund Liabilities. Unbilled receivables relate to claims for which our clients have received economic value but for which wecontractually have agreed not to invoice the clients. Unbilled receivables arise when a portion of our fee is deferred at the time of the initial invoice. At alater date (which can be up to a year after the original invoice, or a year after completion of the audit period), we invoice the unbilled receivable amount.Notwithstanding the deferred due date, our clients acknowledge that we have earned this unbilled receivable at the time of the original invoice, but haveagreed to defer billing the client for the related services. Refund liabilities result from reductions in the economic value previously received by our clients with respect to vendor claims identified by us and forwhich we previously have recognized revenues. We recognize such refund liabilities either by offsets to amounts otherwise due from clients or by cashrefunds to clients. We compute the estimate of our refund liabilities at any given time based on actual historical refund data. We record periodic changes in unbilled receivables and refund liabilities as adjustments to revenues. During the fourth quarter of 2010, we revised our estimate of expected refund rates of unbilled receivables in our Recovery Audit Services — Americasoperating segment. We obtained sufficient historical data on our realization of paybacks from unbilled receivables that enabled us to make this change toour method of calculating this estimate. The impact of this change resulted in a $0.2 million increase in fourth quarter 2010 net earnings, or less than$0.01 per basic and diluted share. We do not expect that this change in estimate will have a material impact on our net earnings in future periods. During the first quarter of 2008, we revised our estimate of expected refund rates in our Recovery Audit Services — Americas operating segment. Suchchange in estimate resulted from a decline in actual Recovery Audit Services — Americas refund rates observed during 2007. The impact of this changein estimate resulted in a $0.8 million increase in first quarter 2008 net earnings. During the fourth quarter of 2008, we changed our method of estimatingthe refund liability related to our Recovery Audit Services — Europe/Asia-Pacific segment to be more consistent with the methodology used in theRecovery Audit Services — Americas segment. This change in estimate resulted in a $0.9 million decrease in fourth quarter 2008 net earnings. Thecombined impact of the 2008 refund liability estimate changes was to decrease net earnings by $0.1 million, or less than $0.01 per basic and dilutedshare. • Goodwill and Other Intangible Assets. We assess the recoverability of our goodwill and other intangible assets during the fourth quarter of each year, orsooner if events or changes in circumstances indicate that the carrying amount may exceed its fair value. As a result of this testing, we concluded thatthere was no impairment of goodwill and other intangible assets in the past three years. In connection with the business acquisitions we completed in 2010, we recorded additional goodwill of $0.6 million and additional intangible assets of$3.9 million consisting primarily of customer relationships, non-compete agreements and trade names. We determined these amounts based on estimateswe made and on valuation reports we obtained from third parties. We generally use accelerated amortization methods for customer relationships andtrade names, and straight-line amortization for non-compete agreements. • Income Taxes. Our effective tax rate is based on historical and anticipated future taxable income, statutory tax rates and tax planning opportunitiesavailable to us in the various jurisdictions in which we operate. Significant judgment is required in determining the effective tax rate and in evaluating ourtax positions. Tax regulations require items to be included in the tax returns at different times than the items are reflected in the financial statements. As aresult, our effective tax rate reflected in our Consolidated Financial Statements included in Item 8 of this Form 10-K is different than that reported in ourtax returns. Some of these differences are permanent, such as expenses that are not deductible on our tax returns, and some are temporary differences,such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can beused as a tax deduction or credit in our tax returns in future years for which we have already recorded the tax benefit in the statement of operations. Weestablish valuation allowances to reduce net deferred tax assets to the amounts that we believe are more likely than not to be realized. We adjust thesevaluation allowances in light of changing facts and circumstances. Deferred tax liabilities generally represent tax expense recognized in our consolidated33Table of Contents financial statements for which payment has been deferred, or expense for which a deduction has already been taken on our tax returns but has not yetbeen recognized as an expense in our consolidated financial statements. We reduce our deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not berealized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which thosetemporary differences are deductible. In determining the amount of valuation allowance to record, we consider all available positive and negativeevidence affecting specific deferred tax assets, including our past and anticipated future performance, the reversal of deferred tax liabilities, the length ofcarry-back and carry-forward periods, and the implementation of tax planning strategies. Objective positive evidence is necessary to support a conclusionthat a valuation allowance is not needed for all or a portion of deferred tax assets when significant negative evidence exists. Cumulative tax losses inrecent years are the most compelling form of negative evidence we considered in this determination. We apply a “more-likely-than-not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. We refer to U.S. generally accepted accounting principles (“GAAP”) for guidance on derecognition,classification, interest and penalties, accounting in interim periods, disclosure, and transition. Our policy for recording interest and penalties associatedwith tax positions is to record such items as a component of earnings before income taxes. • Stock-Based Compensation. We account for awards of equity instruments issued to employees under the fair value method of accounting and recognizesuch amounts in our statements of operations. We measure compensation cost for all stock-based awards at fair value on the date of grant and recognizecompensation expense in our consolidated statements of operations using the straight-line method over the service period over which we expect theawards to vest. We estimate the fair value of all time-vested options as of the date of grant using the Black-Scholes option valuation model, which was developed for usein estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input ofhighly subjective assumptions, including the expected stock price volatility. We estimate the fair value of awards of restricted shares and nonvested shares as being equal to the market value of the common stock on the date of theaward. We classify our share-based payments as either liability-classified awards or as equity-classified awards. We remeasure liability-classified awardsto fair value at each balance sheet date until the award is settled. We measure equity-classified awards at their grant date fair value and do notsubsequently remeasure them. We have classified our share-based payments which are settled in our common stock as equity-classified awards and ourshare-based payments that are settled in cash as liability-classified awards. Compensation costs related to equity-classified awards generally are equal tothe grant-date fair value of the award amortized over the vesting period of the award. The liability for liability-classified awards generally is equal to thefair value of the award as of the balance sheet date multiplied by the percentage vested at the time. We charge (or credit) the change in the liabilityamount from one balance sheet date to another to compensation expense. Stock-based compensation expense was $4.0 million in 2010, $3.3 million in 2009 and $2.2 million in 2008. We discuss stock-based compensation inmore detail in Note 1(l) and Note 13 of “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K.New Accounting Standards Refer to Note 1 of “Notes to Consolidated Financial Statements” for a discussion of recent accounting standards and pronouncements.34Table of ContentsITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Foreign Currency Market Risk. Our reporting currency is the U.S. dollar although we transact business in various foreign locations and currencies. As a result,our financial results could be significantly affected by factors such as changes in foreign currency exchange rates, or weak economic conditions in the foreignmarkets in which we provide our services. Our operating results are exposed to changes in exchange rates between the U.S. dollar and the currencies of the othercountries in which we operate. When the U.S. dollar strengthens against other currencies, the value of foreign functional currency revenues decreases. When theU.S. dollar weakens, the value of the foreign functional currency revenues increases. Overall, we are a net receiver of currencies other than the U.S. dollar and, assuch, benefit from a weaker dollar. We therefore are adversely affected by a stronger dollar relative to major currencies worldwide. In 2010, we recognized $17.2million of operating income from operations located outside the U.S., virtually all of which we accounted for originally in currencies other than the U.S. dollar.Upon translation into U.S. dollars, such operating income would increase or decrease, assuming a hypothetical 10% change in weighted-average foreign currencyexchange rates against the U.S. dollar, by approximately $1.7 million. We do not have any arrangements in place currently to hedge our foreign currency risk. Interest Rate Risk. Our interest income and expense are sensitive to changes in the general level of U.S. interest rates. In this regard, changes in U.S. interestrates affect the interest earned on our cash equivalents as well as interest paid on our debt. We had $12.0 million outstanding under a term loan and $8.9 million ofcalculated borrowing availability under our revolving credit facility as of December 31, 2010, but had no amounts drawn under the revolving credit facility as ofthat date. Interest on both the revolver and the term loan are payable monthly and accrue at an index rate using the one-month LIBOR rate plus an applicablemargin as determined by the loan agreement. The applicable interest rate margin varies from 2.25% per annum to 3.5% per annum and was 2.76% atDecember 31, 2010. Assuming full utilization of the revolving credit facility, a hypothetical 100 basis point change in interest rates applicable to the revolverwould result in an approximate $0.1 million change in annual pre-tax income. A hypothetical 100 basis point change in interest rates applicable to the term loanwould result in an approximate $0.1 million change in annual pre-tax income. In order to mitigate some of this interest rate risk, we entered into an interest rate swap agreement with SunTrust Bank in October 2010 under which we payadditional interest on a notional amount of $3.8 million through December 31, 2013 to the extent that the one-month LIBOR rate is below 1.23%, and receivepayments from SunTrust Bank to the extent the index exceeds this level. The notional amount is equal to the final two payments due under the term loan inDecember 2013 and January 2014. Currently, LIBOR is below 1.23% and we are paying a minimal amount of additional interest under this agreement. ShouldLIBOR rates increase above the 1.23% level, we will incur additional interest expense on all of the amounts outstanding under our credit facility, but will offset aportion of this additional expense with the income we earn from the swap agreement.35Table of ContentsITEM 8. Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page NumberReport of Independent Registered Public Accounting Firm 37 Consolidated Statements of Operations for the Years ended December 31, 2010, 2009 and 2008 38 Consolidated Balance Sheets as of December 31, 2010 and 2009 39 Consolidated Statements of Shareholders’ Equity for the Years ended December 31, 2010, 2009 and 2008 40 Consolidated Statements of Cash Flows for the Years ended December 31, 2010, 2009 and 2008 41 Notes to Consolidated Financial Statements 42 36Table of ContentsReport of Independent Registered Public Accounting FirmBoard of Directors and ShareholdersPRGX Global, Inc.Atlanta, GeorgiaWe have audited the accompanying consolidated balance sheets of PRGX Global, Inc. and subsidiaries (the Company) as of December 31, 2010 and 2009 and therelated consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. Inconnection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanying index. These financialstatements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements andschedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis forour opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PRGX Global, Inc. andsubsidiaries at December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010,in conformity with accounting principles generally accepted in the United States of America.Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly,in all material respects, the information set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control overfinancial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO) and our report dated March 16, 2011 expressed an unqualified opinion thereon. Atlanta, Georgia /s/ BDO USA, LLPMarch 16, 2011 37Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data) Years Ended December 31, 2010 2009 2008 Revenues $184,081 $179,583 $195,706 Cost of revenues 127,179 116,718 125,901 Gross margin 56,902 62,865 69,805 Selling, general and administrative expenses 49,081 43,873 44,028 Operating income 7,821 18,992 25,777 Gain on bargain purchase, net (Note 14) — 2,388 — Interest expense (1,451) (3,229) (4,090)Interest income 146 204 845 Loss on debt extinguishment (Note 7) (1,381) — — Earnings before income taxes 5,135 18,355 22,532 Income tax expense (Note 9) 1,882 3,028 3,502 Net earnings $3,253 $15,327 $19,030 Basic earnings per common share (Note 5) $0.14 $0.67 $0.87 Diluted earnings per common share (Note 5) $0.13 $0.65 $0.83 Weighted-average common shares outstanding (Note 5): Basic 23,906 22,915 21,829 Diluted 24,144 23,560 23,008 See accompanying Notes to Consolidated Financial Statements.38Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data) December 31, 2010 2009 ASSETSCurrent assets: Cash and cash equivalents $18,448 $33,026 Restricted cash 64 256 Receivables: Contract receivables, less allowances of $591 in 2010 and $1,032 in 2009: Billed 31,144 28,034 Unbilled 4,749 4,481 35,893 32,515 Employee advances and miscellaneous receivables, less allowances of $669 in 2010 and $351 in 2009 827 276 Total receivables 36,720 32,791 Prepaid expenses and other current assets 3,586 2,306 Deferred income taxes (Note 9) 36 29 Total current assets 58,854 68,408 Property and equipment: Computer and other equipment 23,068 23,032 Furniture and fixtures 2,982 2,888 Leasehold improvements 3,073 2,975 Software 13,945 5,551 43,068 34,446 Less accumulated depreciation and amortization (27,373) (24,443)Property and equipment, net 15,695 10,003 Goodwill (Note 6) 5,196 4,600 Intangible assets, less accumulated amortization of $17,573 in 2010 and $13,573 in 2009 (Note 6) 23,855 24,104 Unbilled receivables 1,462 1,410 Deferred loan costs, net of accumulated amortization (Note 7) 558 1,431 Deferred income taxes (Note 9) 403 253 Other assets 298 304 $106,321 $110,513 LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities: Accounts payable and accrued expenses $14,365 $15,707 Accrued payroll and related expenses 13,871 19,884 Refund liabilities 7,179 7,467 Deferred revenues 1,381 916 Current portions of debt and capital lease obligations (Note 7) 3,000 3,260 Business acquisition obligations (Note 14) 1,380 2,695 Total current liabilities 41,176 49,929 Long-term debt and capital lease obligations (Note 7) 9,000 11,070 Noncurrent compensation obligations (Notes 2, 13 and 14) 271 978 Refund liabilities 982 733 Other long-term liabilities 6,049 6,364 Total liabilities 57,478 69,074 Commitments and contingencies (Notes 2, 7, 8, 11 and 12) Shareholders’ equity (Notes 11 and 13): Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares; 23,932,774 shares issued andoutstanding in 2010 and 23,272,892 shares issued and outstanding in 2009 239 233 Additional paid-in capital 566,328 562,563 Accumulated deficit (521,408) (524,661)Accumulated other comprehensive income 3,684 3,304 Total shareholders’ equity 48,843 41,439 $106,321 $110,513 See accompanying Notes to Consolidated Financial Statements.39Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYYears Ended December 31, 2010, 2009 and 2008(In thousands, except share data) Accumulated Additional Other Total Common Stock Paid-In Comprehensive Treasury Shareholders’ Comprehensive Shares Amount Capital Accumulated Deficit Income Stock Equity Income Balance at December 31,2007 22,100,090 $221 $605,592 $(559,018) $4,264 $(48,710) $2,349 Comprehensive income: Net earnings — — — 19,030 — — 19,030 $19,030 Foreign currencytranslationadjustments — — — — (1,143) — (1,143) (1,143)Comprehensiveincome $17,887 Issuances of commonstock: Restricted share awards 399,507 4 (4) — — — — 2006 MIP PerformanceUnit settlements 295,879 3 (3) — — — — Purchase of treasury stock — — — — — (1,687) (1,687) Retirement of treasurystock (1,005,831) (10) (50,387) — — 50,397 — Stock-based compensationexpense — — 4,161 — — — 4,161 Balance at December 31,2008 21,789,645 218 559,359 (539,988) 3,121 — 22,710 Comprehensive income: Net earnings — — — 15,327 — — 15,327 $15,327 Foreign currencytranslationadjustments — — — — 183 — 183 183 Comprehensiveincome $15,510 Issuances of commonstock: Restricted share awards 817,905 8 (8) — — — — Restricted sharesremitted byemployees for taxes (15,096) — (116) — — — (116) Stock option exercises 9,375 — 26 — — — 26 2006 MIP PerformanceUnit settlements 884,473 9 (9) — — — — Forfeited restricted shareawards (134,656) (1) 1 — — — — Purchase of treasury stock — — — — — (246) (246) Retirement of treasurystock (78,754) (1) (245) — — 246 — Stock-based compensationexpense — — 3,555 — — — 3,555 Balance at December 31,2009 23,272,892 233 562,563 (524,661) 3,304 — 41,439 Comprehensive income: Net earnings — — — 3,253 — — 3,253 $3,253 Foreign currencytranslationadjustments — — — — 380 — 380 380 Comprehensiveincome $3,633 Issuances of commonstock: Restricted share awards 560,460 6 (6) — — — — Restricted sharesremitted byemployees for taxes (28,547) — (214) — — — (214) Stock option exercises 38,633 — 109 — — — 109 2006 MIP PerformanceUnit settlements 134,490 1 (1) — — — — Forfeited restricted shareawards (45,154) (1) 1 — — — — Stock-based compensationexpense — — 3,876 — — — 3,876 Balance at December 31,2010 23,932,774 $239 $566,328 $(521,408) $3,684 $— $48,843 See accompanying Notes to Consolidated Financial Statements.40Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Years Ended December 31, 2010 2009 2008 Cash flows from operating activities: Net earnings $3,253 $15,327 $19,030 Adjustments to reconcile earnings from operations to net cash provided by operating activities: Gain on bargain purchase, net — (2,388) — Depreciation and amortization 8,908 6,140 5,194 Amortization of debt discount, premium and deferred loan costs 1,539 789 786 Stock-based compensation expense 3,980 3,345 2,207 Loss on disposals of property, plant and equipment, net 15 109 101 Deferred income taxes (1,354) (516) 577 Changes in operating assets and liabilities, net of business acquisitions: Restricted cash 193 (195) (61)Billed receivables (1,757) 1,092 423 Unbilled receivables (320) 1,466 1,155 Prepaid expenses and other current assets (1,274) 775 186 Other assets 56 55 3 Accounts payable and accrued expenses (2,107) (2,531) 1,634 Accrued payroll and related expenses (6,255) (3,163) (7,561)Refund liabilities (39) (567) (2,806)Deferred revenues (139) 405 (63)Noncurrent compensation obligations (707) (1,589) (3,508)Other long-term liabilities (523) (388) (607)Net cash provided by operating activities 3,469 18,166 16,690 Cash flows from investing activities: Business acquisitions (7,741) (2,029) — Purchases of property and equipment, net of disposal proceeds (6,934) (5,511) (3,298)Net cash used in investing activities (14,675) (7,540) (3,298)Cash flows from financing activities: Repayments of former credit facility (Note 7) (14,070) (5,315) (26,279)Repayments of long-term debt and capital lease obligations (3,260) — — Proceeds from term loan (Note 7) 15,000 — — Payments for deferred loan costs (666) (50) (59)Payments of deferred acquisition consideration (409) — — Repurchases of common stock — (246) (1,687)Restricted stock remitted by employees for taxes (214) (116) — Proceeds from stock option exercises 109 26 — Net cash used in financing activities (3,510) (5,701) (28,025) Effect of exchange rates on cash and cash equivalents 138 1,413 (1,043) Net change in cash and cash equivalents (14,578) 6,338 (15,676) Cash and cash equivalents at beginning of year 33,026 26,688 42,364 Cash and cash equivalents at end of year $18,448 $33,026 $26,688 Supplemental cash flow statement information: Cash paid during the year for interest $570 $1,939 $3,191 Cash paid during the year for income taxes, net of refunds received $2,743 $4,247 $2,475 Deferred and contingent business acquisition consideration (Note 14) $1,638 $4,210 $— See accompanying Notes to Consolidated Financial Statements.41Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business and Basis of Presentation Description of Business The principal business of PRGX Global, Inc. and subsidiaries is providing recovery audit services to large businesses and government agencies havingnumerous payment transactions. These businesses include, but are not limited to: • retailers such as discount, department, specialty, grocery and drug stores, and wholesalers who sell to these retailers; • business enterprises other than retailers/wholesalers such as manufacturers, financial services firms, and pharmaceutical companies; • healthcare payers, both private sector health insurance companies and state and federal government payers such as the Centers for Medicare and MedicaidServices (“CMS”); and • federal and state government agencies. Except as otherwise indicated or unless the context otherwise requires, “PRGX,” “we,” “us,” “our” and the “Company” refer to PRGX Global, Inc. and itssubsidiaries. PRGX currently provides services to clients in 28 countries. Basis of Presentation The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. All significant intercompanybalances and transactions have been eliminated in consolidation. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingentassets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). Actual resultscould differ from those estimates. (b) Revenue Recognition, Unbilled Receivables and Refund Liabilities We base our revenues on specific contracts with our clients. These contracts generally specify: (a) time periods covered by the audit; (b) nature and extent ofaudit services we are to provide; (c) the client’s duties in assisting and cooperating with us; and (d) fees payable to us, generally expressed as a specifiedpercentage of the amounts recovered by the client resulting from overpayment claims identified. Clients generally recover claims either by taking credits againstoutstanding payables or future purchases from the involved vendors, or receiving refund checks directly from those vendors. The manner in which a claim isrecovered by a client often is dictated by industry practice. In addition, many clients establish specific procedural guidelines that we must satisfy prior tosubmitting claims for client approval, and these guidelines are unique to each client. For some services we provide, we earn our compensation in the form of a flatfee, a fee per hour, or a fee per other unit of service. We generally recognize revenues on the accrual basis except with respect to an insignificant number of our international units where we recognize revenues onthe cash basis. We generally recognize revenues for a contractually specified percentage of amounts recovered when we have determined that our clients havereceived economic value (generally through credits taken against existing accounts payable due to the involved vendors or refund checks received from thosevendors) and when we have met the following criteria: (a) persuasive evidence of an arrangement exists; (b) services have been rendered; (c) the fee billed to theclient is fixed or determinable; and (d) collectability is reasonably assured. In certain limited circumstances, we will invoice a client prior to42Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSmeeting all four of these criteria; in such cases, we defer the revenues until we meet all of the criteria. Additionally, for purposes of determining appropriate timingof recognition and for internal control purposes, we rely on customary business practices and processes for documenting that we have met the criteria described in(a) through (d) above. Such customary business practices and processes may vary significantly by client. On occasion, it is possible that a transaction has met all ofthe revenue recognition criteria described above but we do not recognize revenues, unless we can otherwise determine that criteria (a) through (d) above have beenmet, because our customary business practices and processes specific to that client have not been completed. Historically, there has been a certain amount of revenues with respect to which, even though we had met the requirements of our revenue recognition policy, ourclients’ vendors ultimately have rejected the claims underlying the revenues. In that case, our clients may request a refund or offset of such amount even though wemay have collected fees. We record any such refunds as a reduction of revenues. We provide refund liabilities for these reductions in the economic value previouslyreceived by our clients with respect to vendor claims we identified and for which we previously have recognized revenues. We compute an estimate of our refundliabilities at any given time based on actual historical refund data. During the fourth quarter of 2010, we revised our estimate of expected refund rates of unbilled receivables in our Recovery Audit Services — Americasoperating segment. We obtained sufficient historical data on our realization of paybacks from unbilled receivables that enabled us to make this change to ourmethod of calculating this estimate. The impact of this change in estimate resulted in a $0.2 million increase in fourth quarter 2010 net earnings, or less than $0.01per basic and diluted share. We believe that this change represents an improvement in our method for determining this estimate. During the first quarter of 2008, we revised our estimate of expected refund rates in our Recovery Audit Services — Americas operating segment. Such changein estimate resulted from a decline in actual Recovery Audit Services — Americas refund rates observed during 2007. The impact of this change in estimateresulted in a $0.8 million increase in first quarter 2008 net earnings. During the fourth quarter of 2008, we changed our method of estimating the refund liabilityrelated to our Recovery Audit Services — Europe/Asia-Pacific segment to be more consistent with the methodology used in the Recovery Audit Services —Americas segment. This change in estimate resulted in a $0.9 million decrease in fourth quarter 2008 net earnings. The combined impact of the 2008 refundliability estimate changes was to decrease net earnings by $0.1 million, or less than $0.01 per basic and diluted share. Unbilled receivables relate to claims for which clients have received economic value but for which we contractually have agreed not to invoice the clients.Unbilled receivables arise when a portion of our fee is deferred at the time of the initial invoice. At a later date (which can be up to a year after original invoice,and at other times a year after completion of the audit period), we invoice the unbilled receivable amount. Notwithstanding the deferred due date, our clientsacknowledge that we have earned this unbilled receivable at the time of the original invoice, but have agreed to defer billing the client for the related services. We record periodic changes in unbilled receivables and refund liabilities as adjustments to revenues. We derive a relatively small portion of revenues on a “fee-for-service” basis whereby billing is based upon a flat fee, a fee per hour, or a fee per other unit ofservice. We recognize revenues for these types of services as we provide and invoice for them, and when criteria (a) through (d) as set forth above are met. (c) Cash and Cash Equivalents Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less. We place our temporary cashinvestments with high credit quality financial institutions. At times, certain investments may be in excess of the Federal Deposit Insurance Corporation insurancelimit. Our cash and cash equivalents included short-term investments of approximately $1.7 million in 2010 and $0.7 million in 2009 which were held at banks inBrazil.43Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (d) Fair Value of Financial Instruments We state cash and cash equivalents at cost, which approximates fair market value. The carrying values for receivables from clients, unbilled services, accountspayable, deferred revenues and other accrued liabilities reasonably approximate fair market value due to the nature of the financial instrument and the short termmaturity of these items. We recorded long-term debt and capital lease obligations of $12.0 million as of December 31, 2010 and $14.3 million as of December 31, 2009 at their unpaidbalances as of those dates based on their effective borrowing rates and repayment terms when originated. Substantially all of these balances include variableborrowing rates, and we believe that the fair values of such instruments are approximately equal to their carrying values as of those dates. We recorded lease obligations of $3.2 million as of December 31, 2010 and $3.6 million as of December 31, 2009 representing the fair value of future leasepayments for office space we no longer use, reduced by sublease rentals we expect to earn. We adjust the fair value of the remaining lease payments, net of subleaseincome, based on payments we make and sublease income we receive. We recorded business acquisition obligations of $3.8 million as of December 31, 2010 and $4.4 million as of December 31, 2009 representing the fair value ofdeferred consideration and earn-out payments estimated to be due as of those dates. We determine the estimated fair values based on our projections of futurerevenues or other factors used in the calculation of the ultimate payment to be made. We use the discount rate that we used to value the liability at the acquisitiondate, which we based on specific business risk, cost of capital, and other factors. We consider these factors to be Level 3 inputs (significant unobservable inputs). (e) Property and Equipment We report property and equipment at cost or estimated fair value at acquisition date and depreciate them over their estimated useful lives using the straight-linemethod. During the second quarter of 2010, we revised our estimate of the useful lives of certain fixed assets used for the purpose of calculating depreciationexpense based on a review of our planned fixed asset replacement cycle. Our revised useful lives for fixed assets are three years for computer laptops, four yearsfor desktops, five years for IT server, storage and network equipment, five years for furniture and fixtures and three years for purchased software. We continue toamortize leasehold improvements using the straight-line method over the shorter of the lease term or ten years. The impact of the change in estimate was areduction in depreciation expense of approximately $0.6 million in 2010. Depreciation expense was $4.9 million in 2010, $3.5 million in 2009 and $3.0 million in2008. We review the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may notbe recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cashflows are less than the carrying value, we will recognize an impairment loss equal to the amount by which the carrying value exceeds the fair value of the asset. (f) Software Development Costs We capitalize a portion of the costs we incur relating to our internal development of software that we use in our operations and amortize these costs using thestraight-line method over the expected useful lives of three to seven years. We also capitalize a portion of the costs we incur related to our internal development of software that we intend to market to others. We amortize these costsover the products’ estimated economic lives, which typically are three years, beginning when the underlying products are available for general release to customers.We review the carrying value of capitalized software development costs for impairment whenever events and circumstances indicate that the carrying value of theasset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expectedfuture cash flows are less than the carrying value, we will recognize an impairment loss equal to the amount by which the carrying value exceeds the fair value ofthe asset.44Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (g) Goodwill and Intangible Assets Goodwill represents the excess of the purchase price over the estimated fair market value of net assets of acquired businesses. We evaluate the recoverability ofgoodwill in the fourth quarter of each year or sooner if events or changes in circumstances indicate that the carrying amount may exceed its fair value. Thisevaluation has two steps. The first step identifies potential impairments by comparing the fair value of the reporting unit with its carrying value, includinggoodwill. If the calculated fair value of a reporting unit exceeds the carrying value, goodwill is not impaired, and the second step is not necessary. If the carryingvalue of a reporting unit exceeds the fair value, the second step calculates the possible impairment loss by comparing the implied fair value with the carrying value.If the fair value is less than the carrying value, we would record an impairment charge. We use independent business valuation professionals for the purpose ofestimating fair value. These analyses did not result in an impairment charge during the periods presented. Intangible assets include those with definite lives subject to amortization and those with indefinite lives. We currently do not have any intangible assets withindefinite lives. For intangible assets with definite lives, we perform tests for impairment if conditions exist that indicate the carrying value may not be recoverable,such as declines in sales, earnings or cash flows or material adverse changes in the business climate. We did not record any impairment charges relating to ourintangible assets with definite lives. (h) Direct Expenses and Deferred Costs We typically expense direct expenses that we incur during the course of recovery audit and delivery of advisory services as incurred. For certainimplementation and set-up costs associated with our “fee for service” revenues that we earn over an extended period of time, we defer the related costs andrecognize them as expenses over the life of the underlying contract. In addition, we incur significant personnel and other costs when performing recovery audit services to certain healthcare organizations. The process ofdocumenting that we have met our revenue recognition criteria as described in (b) Revenue Recognition, Unbilled Receivables and Refund Liabilities above isextensive and generally is completed from three months to a year after we substantially have completed our services. We defer these costs and recognize them asexpenses when we record the related revenues. As of December 31, 2010, we had deferred $1.3 million of these costs and reflected them as Prepaid expenses andother current assets in our consolidated balance sheet. (i) Income Taxes We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates we expect to apply to taxable income in the years in which we expect to recover orsettle those temporary differences. We recognize the effect on the deferred tax assets and liabilities of a change in tax rates in income in the period that includes theenactment date. We reduce our deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. Theultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences aredeductible. In determining the amount of valuation allowance to record, we consider all available positive and negative evidence affecting specific deferred taxassets, including our past and anticipated future performance, the reversal of deferred tax liabilities, the length of carry-back and carry-forward periods and theimplementation of tax planning strategies. Objective positive evidence is necessary to support a conclusion that a valuation allowance is not needed for all or aportion of deferred tax assets when significant negative evidence exists. Cumulative losses for tax reporting purposes in recent years are the most compelling formof negative evidence we considered in this determination.45Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS We apply a “more-likely-than-not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return. We refer to GAAP for guidance on derecognition, classification, interest and penalties, accounting in interim periods,disclosure, and transition. In accordance with FASB ASC 740, our policy for recording interest and penalties associated with tax positions is to record such itemsas a component of earnings before income taxes. (j) Foreign Currency We use the local currency as the functional currency in the majority of the countries in which we conduct business outside of the United States. We translate theassets and liabilities denominated in foreign currencies into U.S. dollars at the current rates of exchange at the balance sheet date. We include the translation gainsand losses as a separate component of shareholders’ equity and in the determination of comprehensive income. Comprehensive income included translation gains(losses) related to long-term intercompany balances of $(0.1 million) in 2010, $0.2 million in 2009 and $(0.7 million) in 2008. We translate revenues and expensesin foreign currencies at the weighted average exchange rates for the period. We include all realized and unrealized foreign currency transaction gains (losses) inselling, general and administrative expenses. Foreign currency transaction gains (losses) included in selling, general and administrative expenses were$(0.6 million) in 2010, $1.6 million in 2009 and $(1.5 million) in 2008. (k) Earnings Per Common Share We compute basic earnings per common share by dividing net earnings available to common shareholders by the weighted-average number of shares ofcommon stock outstanding during the period. We compute diluted earnings per common share by dividing net earnings available to common shareholders by thesum of (1) the weighted-average number of shares of common stock outstanding during the period, (2) the dilutive effect of the assumed exercise of stock optionsusing the treasury stock method, and (3) the dilutive effect of other potentially dilutive securities. We exclude the potential dilutive effect of stock options andconvertible instruments from the determination of diluted earnings per share if the effect of including them would be antidilutive. (l) Stock-Based Compensation We account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in our statements ofoperations. We measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidatedstatements of operations using the straight-line method over the service period over which we expect the awards to vest. We recognize compensation costs forawards with performance conditions based on the probable outcome of the performance conditions. We accrue compensation cost if we believe it is probable thatthe performance condition(s) will be achieved and do not accrue compensation cost if we believe it is not probable that the performance condition(s) will beachieved. We estimate the fair value of all time-vested options as of the date of grant using the Black-Scholes option valuation model, which was developed for use inestimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjectiveassumptions, including the expected stock price volatility. For time-vested option grants that resulted in compensation expense recognition, we used the followingassumptions in our Black-Scholes valuation models: Years Ended December 31, 2010 2009 2008 Risk-free interest rates 0.80% – 2.65% 1.60% – 2.71% 2.37% – 3.08%Dividend yields — — — Volatility factor of expected market price .795 – 1.036 .950 – 1.081 .876 – .919 Weighted-average expected term of option 3.9 – 4.9 years 4 – 5 years 4 – 4.5 years Forfeiture rate — — — 46Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS We estimate the fair value of awards of restricted shares and nonvested shares as being equal to the market value of the common stock on the date of the award.We classify our share-based payments as either liability-classified awards or as equity-classified awards. We remeasure liability-classified awards to fair value ateach balance sheet date until the award is settled. We measure equity-classified awards at their grant date fair value and do not subsequently remeasure them. Wehave classified our share-based payments which are settled in our common stock as equity-classified awards and our share-based payments that are settled in cashas liability-classified awards. Compensation costs related to equity-classified awards generally are equal to the fair value of the award at grant-date amortized overthe vesting period of the award. The liability for liability-classified awards generally is equal to the fair value of the award as of the balance sheet date multipliedby the percentage vested at the time. We record the change in the liability amount from one balance sheet date to another to compensation expense. (m) Comprehensive Income Consolidated comprehensive income consists of consolidated net earnings and foreign currency translation adjustments. We present the calculation ofconsolidated comprehensive income in the accompanying Consolidated Statements of Shareholders’ Equity. (n) Segment Reporting We report our operating segment information in three segments: Recovery Audit Services — Americas; Recovery Audit Services — Europe / Asia Pacific; andNew Services. We include the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to our three segments inCorporate Support. Our business segments reflect the internal reporting that our Chief Executive Officer, who is our chief operating decision maker, uses for thepurpose of making decisions about allocating resources and assessing performance. Our management, including our Chief Executive Officer, uses what weinternally refer to as “Adjusted EBITDA” as the primary measure of profit or loss for purposes of assessing the operating performance of all operating segments.We define Adjusted EBITDA as earnings from continuing operations before interest, taxes, depreciation and amortization (“EBITDA”) as adjusted for unusual andother significant items that management views as distorting the operating results of the various segments from period to period. EBITDA and Adjusted EBITDA are not financial measures determined in accordance with GAAP. Such non-GAAP financial measures do not measure theprofit or loss of the reportable segments in accordance with GAAP. Given that we use Adjusted EBITDA as our primary measure of segment performance, GAAPrules on segment reporting require that we include this non-GAAP measure in our discussion of our operating segments. We also must reconcile AdjustedEBITDA to our operating results presented on a GAAP basis. We provide this reconciliation in Note 4 to these consolidated financial statements along with otherinformation about our reportable segments. We do not intend the reconciling items to be, nor should they be, interpreted as non-recurring or extraordinary, or inany manner be deemed as adjustments made in accordance with GAAP. Because Adjusted EBITDA is not a financial measure determined in accordance withGAAP, it may not be comparable to other similarly titled measures of other companies. We revised our reportable operating segments during the fourth quarter of 2009 to reflect the current management and operational structure. See Note 4 below. (o) New Accounting Standards A summary of new accounting standards issued by the Financial Accounting Standards Board (“FASB”) and included in the Accounting Standards Codification(“ASC”) that apply to PRGX is as follows: FASB ASC 860. In June 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 166, “Accounting for Transfers of Financial Assets,an amendment of SFAS No. 140” ( currently included in the FASB ASC as FASB ASC 860), which eliminates the exceptions for qualifying special-purposeentities from the consolidation guidance in FASB ASC 860, changes the requirements for derecognizing financial assets, and requires additional disclosures inorder to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitizationtransactions, and an47Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSentity’s continuing involvement in and exposure to the risks related to transferred financial assets. This statement is effective for fiscal years beginning afterNovember 15, 2009 and for transfers occurring on or after the effective date. The adoption of FASB ASC 860 effective January 1, 2010 did not have a materialimpact on our consolidated results of operations, financial position or cash flows. FASB ASC 985-605. In September 2009, the Emerging Issues Task Force (“EITF”) reached final consensus on Issue 08-1, “Revenue Arrangements withMultiple Deliverables” (“Issue 08-1”), which updates FASB ASC 985-605 “Software-Revenue Recognition” and changes the accounting for certain revenuearrangements. The new requirements change the allocation methods used in determining how to account for multiple payment streams and will result in the abilityto separately account for more deliverables, and potentially less revenue deferrals. Additionally, Issue 08-1 requires enhanced disclosures in financial statements.Issue 08-1 is effective for revenue arrangements entered into or materially modified in fiscal years beginning after June 15, 2010 on a prospective basis, with earlyapplication permitted. We currently estimate that these new requirements will impact the way we account for certain new revenues we expect to generate primarilyin our New Services segment, but do not expect the adoption of FASB ASC 985-605 effective January 1, 2011 to have a material impact on our consolidatedresults of operations, financial position or cash flows. FASB ASC Update No. 2010-26. In October 2010, the FASB issued Accounting Standards Update No. 2010-26, Accounting for Costs Associated withAcquiring or Renewing Insurance Contracts (“ASU No. 2010-26”). ASU No. 2010-26 clarifies which costs relating to the acquisition of new or renewal insurancequalify for deferral (deferred acquisition costs), and which should be expensed as incurred. This guidance is effective for fiscal years, and interim periods withinthose fiscal years, beginning after December 15, 2011. We currently are evaluating the impact that the adoption of ASU No. 2010-26 will have on our consolidatedresults of operations, financial position or cash flows.(2) RETIREMENT OBLIGATIONS The July 31, 2005 retirements of the Company’s former Chairman, President and CEO, John M. Cook, and the Company’s former Vice Chairman, John M.Toma, resulted in an obligation to pay retirement benefits of approximately $7.6 million (present value basis) to be paid in monthly cash installments principallyover a three-year period, beginning February 1, 2006. On March 16, 2006, the parties amended the terms of the applicable severance agreements in conjunctionwith the Company’s financial restructuring. Pursuant to the terms of the severance agreements, as amended (1) the Company’s obligations to pay monthly cashinstallments to Mr. Cook and Mr. Toma were extended from 36 months to 58 months and from 24 months to 46 months, respectively; however, the total dollaramount of monthly cash payments to be made to each remained unchanged, and (2) we agreed to pay a fixed sum of $150,000 to defray the fees and expenses ofthe legal counsel and financial advisors to Messrs. Cook and Toma. We completed the final payments under these portions of the agreements in 2010. The severance agreements also provide for an annual reimbursement, beginning in February 2007, to Mr. Cook and Mr. Toma for the cost of health insurancefor themselves and their respective spouses (not to exceed $25,000 and $20,000, respectively, subject to adjustment based on changes in the Consumer PriceIndex), continuing until each reaches the age of 80. At December 31, 2010, we had accrued $0.8 million related to these health insurance obligations.(3) MAJOR CLIENTS Wal-Mart Stores Inc. (and its affiliated companies) accounted for approximately 12.1% of total revenues in 2010, 12.3% in 2009 and 11.2% in 2008. Werecorded these revenues primarily in the Recovery Audit Services — Americas Segment.(4) OPERATING SEGMENTS AND RELATED INFORMATION We conduct our operations through three reportable operating segments: Recovery Audit Services — Americas, Recovery Audit Services — Europe/Asia-Pacific and New Services. The Recovery Audit Services — Americas48Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSsegment includes recovery audit services (other than healthcare claims recovery audit services) we provide in the U.S., Canada and Latin America. The RecoveryAudit Services — Europe/Asia-Pacific segment includes recovery audit services (other than healthcare claims recovery audit services) we provide in Europe, Asiaand the Pacific region. The New Services segment includes business analytics and advisory services and recovery audit services we provide to organizations in thehealthcare industry. We include the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three operatingsegments in Corporate Support. We evaluate the performance of our operating segments based upon revenues and measures of profit or loss we refer to as EBITDA and Adjusted EBITDA. Wedefine Adjusted EBITDA as earnings from continuing operations before interest, taxes, depreciation and amortization (“EBITDA”) as adjusted for unusual andother significant items that management views as distorting the operating results of the various segments from period to period. Adjustments include restructuringcharges, stock-based compensation, bargain purchase gains, acquisition obligations classified as compensation, intangible asset impairment charges, litigationsettlements, severance charges and foreign currency gains and losses on intercompany balances viewed by management as individually or collectively significant.We do not have any inter-segment revenues. Segment information for the years ended December 31, 2010, 2009 and 2008 and segment asset information as ofDecember 31, 2010 and 2009 (in thousands) is as follows: Recovery Audit Recovery Audit Services — Services — New Corporate Americas Europe/Asia-Pacific Services Support Total 2010 Revenues $115,156 $57,590 $11,335 $— $184,081 Net earnings (loss) $25,190 $6,062 $(6,842) $(21,157) $3,253 Income taxes — — — 1,882 1,882 Interest, net (128) 416 38 979 1,305 Loss on debt extinguishment — — — 1,381 1,381 Depreciation and amortization expense 5,869 1,631 1,408 — 8,908 EBITDA 30,931 8,109 (5,396) (16,915) 16,729 Foreign currency gains on intercompany balances 33 391 (2) — 422 Acquisition obligations classified as compensation — 371 — — 371 Stock-based compensation — — — 3,980 3,980 Adjusted EBITDA $30,964 $8,871 $(5,398) $(12,935) $21,502 Capital expenditures $5,674 $329 $931 $— $6,934 Allocated assets $57,143 $17,698 $9,347 $— $84,188 Unallocated assets: Cash and cash equivalents — — — 18,448 18,448 Restricted cash — — — 64 64 Deferred loan costs — — — 558 558 Deferred income taxes — — — 439 439 Prepaid expenses and other assets — — — 2,624 2,624 Total assets $57,143 $17,698 $9,347 $22,133 $106,321 49Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Recovery Audit Recovery Audit Services — Services — New Corporate Americas Europe/Asia-Pacific Services Support Total 2009 Revenues $121,561 $52,489 $5,533 $— $179,583 Net earnings (loss) $36,013 $9,055 $(4,017) $(25,724) $15,327 Income taxes — — — 3,028 3,028 Interest, net (99) 184 — 2,940 3,025 Depreciation and amortization expense 4,798 911 431 — 6,140 EBITDA 40,712 10,150 (3,586) (19,756) 27,520 Foreign currency gains on intercompany balances (360) (1,235) — — (1,595)Litigation settlement — — — 650 650 Stock-based compensation — — — 3,345 3,345 Gain on bargain purchase, net — (2,388) — — (2,388)Adjusted EBITDA $40,352 $6,527 $(3,586) $(15,761) $27,532 Capital expenditures $4,281 $266 $964 $— $5,511 Allocated assets $47,263 $21,421 $2,814 $— $71,498 Unallocated assets: Cash and cash equivalents — — — 33,026 33,026 Restricted cash — — — 256 256 Deferred loan costs — — — 1,431 1,431 Deferred income taxes — — — 282 282 Prepaid expenses and other assets — — — 4,020 4,020 Total assets $47,263 $21,421 $2,814 $39,015 $110,513 2008 Revenues $138,168 $53,600 $3,938 $— $195,706 Net earnings (loss) $45,305 $3,900 $(6,222) $(23,953) $19,030 Income taxes — — — 3,502 3,502 Interest, net (178) (45) — 3,468 3,245 Depreciation and amortization expense 4,657 308 229 — 5,194 EBITDA 49,784 4,163 (5,993) (16,983) 30,971 Foreign currency (gains) losses on intercompanybalances (181) 3,464 — — 3,283 Stock-based compensation — — — 2,207 2,207 Adjusted EBITDA $49,603 $7,627 $(5,993) $(14,776) $36,461 Capital expenditures $2,441 $302 $555 $— $3,298 50Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table presents revenues by country based on the location of clients served (in thousands): Years Ended December 31, 2010 2009 2008 United States $92,574 $97,141 $111,954 United Kingdom 31,422 25,169 26,649 Canada 22,141 20,560 21,099 France 12,231 12,055 11,438 Brazil 5,128 4,320 3,339 Mexico 3,950 3,740 4,697 Belgium 2,705 2,186 885 Spain 2,065 2,547 3,319 Australia 1,690 1,424 1,113 Sweden 1,460 2,158 2,459 Ireland 1,024 225 — Germany 744 1,224 2,373 Other 6,947 6,834 6,381 $184,081 $179,583 $195,706 The following table presents long-lived assets by country based on the location of the asset (in thousands): December 31, 2010 2009 United States $34,273 $31,678 United Kingdom 10,295 7,701 All Other 1,034 1,063 $45,602 $40,442 (5) EARNINGS PER COMMON SHARE The following tables set forth the computations of basic and diluted earnings per common share (in thousands, except per share data). Years Ended December 31, 2010 2009 2008 Basic earnings per common share: Numerator: Net earnings $3,253 $15,327 $19,030 Denominator: Weighted-average common shares outstanding 23,906 22,915 21,829 Basic earnings per common share $0.14 $0.67 $0.87 Diluted earnings per common share: Numerator: Net earnings $3,253 $15,327 $19,030 Denominator: Weighted-average common shares outstanding 23,906 22,915 21,829 Incremental shares from stock-based compensation plans 238 645 1,179 Denominator for diluted earnings per common share 24,144 23,560 23,008 Diluted earnings per common share $0.13 $0.65 $0.83 51Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS We excluded options to purchase 1.7 million shares in 2010, 1.2 million shares in 2009 and 1.0 million shares in 2008 of common stock from the computationof diluted earnings per common share due to their antidilutive effect as the exercise prices of the options were greater than the average market price of the commonshares during the periods. The number of common shares we used in the earnings per common share computations include nonvested restricted shares of1.2 million in 2010, 1.0 million in 2009 and 0.4 million in 2008, and nonvested restricted share units that we consider to be participating securities of 0.3 million in2010, 0.2 million in 2009 and 0.1 million in 2008.(6) GOODWILL AND INTANGIBLE ASSETS (a) Goodwill We evaluate the recoverability of goodwill in the fourth quarter of each year or sooner if events or changes in circumstances indicate that the carrying amountmay exceed its fair value. These analyses did not result in an impairment charge during the periods presented. Goodwill in our Recovery Audit Services —Americas segment was $4.6 million at December 31, 2010 and 2009. This amount represents gross goodwill of $203.1 million less total accumulated impairmentlosses of $198.5 million recorded prior to 2009. In conjunction with our 2010 acquisition of TJG Holdings, LLC, we recorded goodwill of $0.6 million in our NewServices segment (see Note 14 — Business Acquisitions below). We did not record any changes in our reported goodwill balances in 2009. (b) Intangible Assets Intangible assets consist principally of amounts we assigned to customer relationships, trademarks, non-compete agreements and trade names in conjunctionwith business acquisitions. Substantially all of our intangible assets as of January 1, 2009 relate to our January 24, 2002 acquisition of the businesses of HowardSchultz & Associates International, Inc. and affiliates. Changes in intangible assets in 2010 and 2009 relate primarily to the acquisitions of First Audit PartnersLLP (“FAP”), Etesius Limited (“Etesius”) and TJG Holdings LLC (“TJG”) which we describe in more detail in Note 14 — Business Acquisitions below. Intangibleassets associated with the FAP and Etesius acquisitions are denominated in British pounds sterling and are subject to movements in foreign currency rates (“FXadjustments”). We present the amounts below in United States dollars utilizing foreign currency exchange rates as of December 31, 2010. As of January 21, 2010, the Company changed its trade name from PRG-Schultz International, Inc. to PRGX Global, Inc. and will use the previous trade nameonly in limited circumstances. We intend to maintain the legal rights to the former name but, for accounting purposes, have reclassified the intangible assetassociated with this trade name from an indefinite lived intangible asset to one with a definite life and began amortizing the trade name in January 2010. Amortization expense relating to intangible assets was $4.0 million in 2010, $2.6 million in 2009 and $2.2 million in 2008. Based on our current amortizationmethods, we project amortization expense for the next five years will be $4.4 million in 2011, $4.2 million in 2010, $4.0 million in 2013, $2.9 million in 2014 and$2.1 million in 2015.52Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Changes in intangible assets during 2010 and 2009 were as follows (in thousands): Customer Non-compete Relationships Trademarks agreements Trade Names Total Gross carrying amount: Balance, January 1, 2009 $27,700 $— $— $2,200 $29,900 Acquisition of FAP 6,525 527 778 — 7,830 FX adjustments (44) (4) (5) — (53)Balance, December 31, 2009 34,181 523 773 2,200 37,677 Acquisition of Etesius 1,565 — — — 1,565 Acquisition of TJG 829 — 808 665 2,302 FX adjustments and other (70) (18) (28) — (116)Balance, December 31, 2010 $36,505 $505 $1,553 $2,865 $41,428 Accumulated amortization: Balance, January 1, 2009 $(10,932) $— $— $— $(10,932)Amortization expense (2,517) (40) (78) — (2,635)FX adjustments and other (5) — (1) — (6)Balance, December 31, 2009 (13,454) (40) (79) — (13,573)Amortization expense (3,158) (83) (197) (567) (4,005)FX adjustments and other 3 — 2 — 5 Balance, December 31, 2010 $(16,609) $(123) $(274) $(567) $(17,573) Net carrying amount: Balance, December 31, 2009 $20,727 $483 $694 $2,200 $24,104 Balance, December 31, 2010 $19,896 $382 $1,279 $2,298 $23,855 Estimated useful life (years) 6-20 years 6 years 3-4.5 years 4-5 years (7) DEBT AND CAPITAL LEASES Long-term debt and capital lease obligations consisted of the following (in thousands): December 31, 2010 2009 SunTrust term loan due quarterly through January 2014 $12,000 $— Ableco term loan repaid in January 2010 — 14,070 Capital lease obligations — 260 12,000 14,330 Less current portion 3,000 3,260 $9,000 $11,070 On January 19, 2010, we entered into a four-year revolving credit and term loan agreement with SunTrust Bank (“SunTrust”). The SunTrust credit facilityconsists of a $15.0 million committed revolving credit facility and a $15.0 million term loan. The SunTrust credit facility is guaranteed by the Company and all ofits material domestic subsidiaries and secured by substantially all of the assets of the Company. Availability under the SunTrust revolver is based on eligibleaccounts receivable and other factors. As of December 31, 2010, we had no outstanding borrowings under the SunTrust revolver. The SunTrust term loan requires quarterly principal payments of $0.8 million each which commenced in March 2010, and a final principal payment of$3.0 million in January 2014. The loan agreement requires mandatory prepayments with the net cash proceeds from certain asset sales, equity offerings andinsurance proceeds received by the Company. The loan agreement also requires an annual additional prepayment contingently payable based on excess cash flow(“ECF”) if our leverage ratio as defined in the agreement exceeds a certain threshold. The first ECF payment will be due in April 2011 if required by thecalculation.53Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest on both the revolver and term loan are payable monthly and accrued at an index rate using the one-month LIBOR rate, plus an applicable margin asdetermined by the loan agreement. The applicable interest rate margin varies from 2.25% per annum to 3.5% per annum, dependent on our consolidated leverageratio, and is determined in accordance with a pricing grid under the SunTrust loan agreement. The applicable margin was 2.5% and the interest rate wasapproximately 2.76% at December 31, 2010. We also must pay a commitment fee of 0.5% per annum, payable quarterly, on the unused portion of the$15.0 million SunTrust revolving credit facility. The weighted-average interest rate on term loan balances outstanding under the SunTrust credit facility during2010, including fees, was 3.3%. The SunTrust credit facility includes customary affirmative, negative, and financial covenants binding on the Company, including delivery of financialstatements and other reports, maintenance of existence, and transactions with affiliates. The negative covenants limit the ability of the Company, among otherthings, to incur debt, incur liens, make investments, sell assets, repurchase shares of its capital stock or declare or pay dividends on its capital stock. The financialcovenants included in the SunTrust credit facility, among other things, limit the amount of capital expenditures the Company can make, set forth maximumleverage and net funded debt ratios for the Company and a minimum fixed charge coverage ratio, and also require the Company to maintain minimum consolidatedearnings before interest, taxes, depreciation and amortization. In addition, the SunTrust credit facility includes customary events of default. We used substantially all the funds from the SunTrust term loan to repay in full the principal of $14.1 million outstanding under a term loan with Ableco LLC(“Ableco”) (see “Ableco Credit Facility” below). In conjunction with terminating the Ableco credit facility, we recorded a loss on extinguishment of debt totaling$1.4 million consisting of unamortized deferred loan costs. In September 2010 we entered into an amendment of the SunTrust credit facility that lowered the required minimum adjusted EBITDA and fixed chargecoverage ratio through December 31, 2010. In October 2010 we entered into an interest rate swap agreement with SunTrust that limits our exposure to increases inthe one-month LIBOR rate. Ableco Credit Facility In September 2007, we entered into an Ableco credit facility that included a $20 million revolving credit facility and a $45 million term loan. During 2008, wemade principal payments under the Ableco term loan of $25.9 million. This amount included $10.9 million of mandatory payments, including contingent payments(see below), as well as a voluntary prepayment of $15.0 million that we made pursuant to an amendment of this credit facility that provided for the $15.0 millionpre-payment without penalty. The amendment also increased the initial borrowing capacity under the revolver portion of the facility by $10 million and reducedcertain components of the borrowing availability calculation over the term of the loan. The borrowing availability calculation was based on eligible accountsreceivable and other factors. During 2009, we paid the required quarterly payments and reduced the balance on the term loan by $5.0 million. In March 2009, we entered into the secondamendment of this credit facility that reduced certain of the debt covenant thresholds through March 10, 2010 and revised the borrowing availability calculationfor the remaining term of the credit facility. The Ableco term loan required quarterly principal payments of $1.25 million commencing in April 2008. The loan agreement also required an ECF paymentbased on an excess cash flow calculation as defined in the agreement. The balance remaining after the quarterly and ECF payments was due in September 2011.We made the first ECF payment in April 2008. We were not required to make an ECF payment in 2009 and we replaced the credit facility in January 2010 beforeany additional ECF payments were required. Interest was payable monthly and accrued at our option at either prime plus 2.0% or at LIBOR plus 4.75%, but undereither option could not have been less than 9.75%. Interest on outstanding balances under the revolving credit facility, if any, accrued at our option at either primeplus 0.25% or at LIBOR plus 2.25%. We also paid a commitment fee of 0.5% per annum, payable monthly, on the unused portion of the $22.5 million revolvingcredit facility. The weighted-average interest rates on term loan balances outstanding under the Ableco credit facility, including fees, were54Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS12.3% in 2010, 11.3% in 2009 and 10.9% in 2008. The Ableco credit facility was guaranteed by each of the Company’s direct and indirect domestic wholly ownedsubsidiaries and certain of its foreign subsidiaries and was secured by substantially all of the Company’s assets (including the stock of the Company’s domesticsubsidiaries and two-thirds of the stock of certain of the Company’s foreign subsidiaries). Future Minimum Payments Future minimum principal payments of long-term debt as of December 31, 2010 are as follows (in thousands): Year Ending December 31, 2011 $3,000 2012 3,000 2013 3,000 2014 3,000 2015 — Thereafter — $12,000 (8) LEASE COMMITMENTS PRGX is committed under noncancelable lease arrangements for facilities and equipment. Rent expense, excluding costs associated with the termination ofnoncancelable lease arrangements, was $6.2 million in 2010, $6.2 million in 2009 and $7.2 million in 2008. We have subleased approximately 58,000 square feet of our principal executive office space to independent third parties. The sublease rental income we earn isless than the lease payments we make. At December 31, 2010, our liabilities relating to these lease obligations were $3.2 million, of which we have included$0.9 million in accounts payable and accrued expenses and $2.3 million in other long-term liabilities in our consolidated balance sheet. We adjust the fair value ofthe remaining lease payments, net of sublease income, based on payments we make and sublease income we receive. We include accretion of this liability relatedto discounting in rent expense. We have entered into several operating lease agreements that contain provisions for future rent increases, free rent periods or periods in which rent payments arereduced (abated). We charge the total amount of rental payments due over the lease term to rent expense on the straight-line, undiscounted method over the leaseterms.Future minimum lease payments under noncancelable operating leases (both gross and net of any sublease income) are as follows (in thousands): Sub-lease Year Ending December 31, Gross Income Net 2011 $7,384 $(877) $6,507 2012 7,046 (829) 6,217 2013 6,560 (751) 5,809 2014 6,006 (751) 5,255 2015 420 — 420 Thereafter 98 — 98 Total payments $27,514 $(3,208) $24,306 55Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(9) INCOME TAXES Earnings before income taxes relate to the following jurisdictions (in thousands): Years Ended December 31, 2010 2009 2008 United States $(3,189) $4,369 $18,300 Foreign 8,324 13,986 4,232 $5,135 $18,355 $22,532 The provision for income taxes consists of the following (in thousands): Years Ended December 31, 2010 2009 2008 Current: Federal $— $40 $(130)State 30 85 — Foreign 3,206 3,419 3,055 3,236 3,544 2,925 Deferred: Federal (514) — 130 State — — — Foreign (840) (516) 447 (1,354) (516) 577 Total $1,882 $3,028 $3,502 The significant differences between the U.S. federal statutory tax rate and the Company’s effective income tax expense for earnings (in thousands) are asfollows: Years Ended December 31, 2010 2009 2008 Statutory federal income tax rate $1,746 $6,424 $7,886 State income taxes, net of federal benefit 577 90 362 Change in deferred tax asset valuation allowance (3,254) (6,093) (13,058)First Audit Partners acquisition — basis difference — 668 — Foreign loss carry-forward adjustment — — 5,115 Foreign taxes 2,407 586 1,930 Compensation deduction limitation 448 1,104 — Other, net (42) 249 1,267 $1,882 $3,028 $3,502 56Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences and carry-forwards that give rise to deferred tax assets and liabilities consist of the following (in thousands): December 31, 2010 2009 Deferred income tax assets: Accounts payable and accrued expenses $2,100 $2,165 Accrued payroll and related expenses 1,748 3,052 Stock-based compensation expense 8,314 8,060 Depreciation 4,074 3,482 Noncompete agreements 84 122 Unbilled receivables and refund liabilities 1,064 1,426 Foreign operating loss carry-forwards of foreign subsidiary 1,875 2,071 Federal operating loss carry-forwards 20,877 16,597 Intangible assets 17,686 23,832 State operating loss carry-forwards 2,321 2,624 Other 4,032 4,003 Gross deferred tax assets 64,175 67,434 Less valuation allowance 54,801 58,304 Gross deferred tax assets net of valuation allowance 9,374 9,130 Deferred income tax liabilities: Intangible assets 7,177 7,340 Capitalized software 1,106 1,206 Other 652 302 Gross deferred tax liabilities 8,935 8,848 Net deferred tax assets $439 $282 We reduce our deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. Theultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences aredeductible. In making this determination, we consider all available positive and negative evidence affecting specific deferred tax assets, including our past andanticipated future performance, the reversal of deferred tax liabilities, the length of carry-back and carry-forward periods and the implementation of tax planningstrategies. Objective positive evidence is necessary to support a conclusion that a valuation allowance is not needed for all or a portion of deferred tax assets whensignificant negative evidence exists. Cumulative tax losses in recent years are the most compelling form of negative evidence considered by management in thisdetermination. As of December 31, 2010, management has determined that based on all available evidence, a valuation allowance of $54.8 million is appropriate,representing a decrease of $3.5 million from the valuation allowance of $58.3 million recorded as of December 31, 2009. As of December 31, 2010, we had approximately $59.6 million of U.S. federal loss carry-forwards available to reduce future U.S. federal taxable income. Thefederal loss carry-forwards expire through 2030. As of December 31, 2010, we had approximately $80.0 million of state loss carry-forwards available to reducefuture state taxable income. The state loss carry-forwards expire to varying degrees between 2015 and 2030 and are subject to certain limitations. Generally, we have not provided deferred taxes on the undistributed earnings of international subsidiaries as we consider these earnings to be permanentlyreinvested. In 2010, we identified $6.8 million of foreign earnings that we anticipated we would repatriate, and we provided additional deferred taxes of$0.3 million in the current year relating to this potential repatriation. On March 17, 2006, the Company experienced an ownership change as defined under Section 382 of the Internal Revenue Code (“IRC”). This ownershipchange resulted in an annual IRC Section 382 limitation that limits the use of certain tax attribute carry-forwards. Of the $59.6 million of U.S. federal loss carry-forwards available to the Company, $20.6 million of the loss carry-forwards are subject to an annual usage limitation of $1.4 million.57Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 2008, the Company acceded to a position taken by the taxing authorities in the United Kingdom (“UK”) regarding the denial of certain goodwilldeductions taken on UK tax returns for 2003 through 2005. As a result, we reduced foreign net operating loss carry-forwards by approximately $17.0 million basedon December 31, 2008 foreign exchange rates and we wrote off deferred tax assets of $5.1 million. We offset this reduction in our deferred tax assets by acorresponding reduction in the previously established valuation allowance against these assets. We apply a “more-likely-than-not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return We refer to GAAP for guidance on derecognition, classification, interest and penalties, accounting in interim periods,disclosure, and transition. Our policy for recording potential interest and penalties associated with uncertain tax positions is to record such items as a component ofearnings before income taxes. We recorded unrecognized tax benefits of $2.1 million as of December 31, 2010, an increase of $0.3 million over the $1.8 million recorded at December 31,2009. We recorded accrued interest and penalties of $1.8 million as of December 31, 2010, an increase of $0.3 million over the $1.5 million recorded atDecember 31, 2009. We recognized interest expense of $0.3 million in 2010 and $0.3 million in 2009 related to the liability for unrecognized tax benefits. Due tothe complexity of the tax rules underlying these unrecognized tax benefits, and the unclear timing of tax audits, tax agency determinations, and other events, wecannot establish reasonably reliable estimates for the periods in which the cash settlement of these liabilities will occur. We file U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. As of December 31, 2010, the 2007 through 2010 taxyears generally remain subject to examination by federal and most state and foreign tax authorities. The use of net operating losses generated in tax years prior to2007 may also subject returns for those years to examination.(10) EMPLOYEE BENEFIT PLANS We maintain a defined contribution retirement plan in accordance with Section 401(k) of the Internal Revenue Code, which allows eligible participatingemployees to defer receipt of up to 50% of their annual compensation and contribute such amount to one or more investment funds. We match employeecontributions in a discretionary amount to be determined by management each plan year up to the lesser of 6% of an employee’s annual compensation or $3,000per participant. We also may make additional discretionary contributions to the Plan as determined by management each plan year. Company matching funds anddiscretionary contributions vest at the rate of 20% each year beginning after the participants’ first year of service. We contributed approximately $1.0 million in2010, $1.0 million in 2009 and $1.0 million in 2008.(11) SHAREHOLDER RIGHTS PLAN On August 1, 2000, the Board authorized a shareholder protection rights plan designed to protect Company shareholders from coercive or unfair takeovertechniques through the use of a Shareholder Protection Rights Agreement approved by the Board (the “Rights Plan”). The terms of the Rights Plan, as amended,provide for a dividend of one right (collectively, the “Rights”) to purchase a fraction of a share of participating preferred stock for each share owned. This dividendwas declared for each share of common stock outstanding at the close of business on August 14, 2000. The Rights, which expire on August 12, 2011, may beexercised only if certain conditions are met, such as the acquisition (or the announcement of a tender offer, the consummation of which would result in theacquisition) of 15% or more of our common stock by a person or affiliated group in a transaction that is not approved by the Board. Issuance of the Rights does notaffect our finances, interfere with our operations or business plans, or affect our earnings per share. The dividend was not taxable to the Company or itsshareholders and did not change the way in which the Company’s shares may be traded.58Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Effective July 31, 2000, in connection with the Rights Plan, the Board amended the Company’s Articles of Incorporation to establish a new series of stock,which is designated as participating preferred stock. The Company’s remaining, undesignated preferred stock may be issued at any time or from time to time inone or more series with such designations, powers, preferences, rights, qualifications, limitations and restrictions (including dividend, conversion and voting rights)as may be determined by the Board, without any further votes or action by the shareholders.(12) COMMITMENTS AND CONTINGENCIES Legal Proceedings On April 1, 2003, Fleming Companies (“Fleming”), one of the Company’s larger U.S. recovery audit services clients at the time, filed for Chapter 11bankruptcy reorganization. During the quarter ended March 31, 2003, the Company received approximately $5.6 million in payments on account from Fleming.On January 24, 2005, the Company received a demand from the Fleming Post Confirmation Trust (“PCT”), a trust which was created pursuant to Fleming’sChapter 11 reorganization plan to represent the client, for preference payments received by the Company. The demand stated that the PCT’s calculation of thepreference payments was approximately $2.9 million. The Company disputed the claim. Later in 2005, the PCT filed suit against the Company seeking to recoverapproximately $5.6 million in payments that were made to the Company by Fleming during the 90 days preceding Fleming’s bankruptcy filing, and that werealleged to be avoidable either as preferences or fraudulent transfers under the Bankruptcy Code. On July 29, 2009, the Company entered into a settlement agreement in connection with the PCT lawsuit. Under the terms of the settlement agreement, theCompany paid the PCT $1.7 million to resolve all claims made by the PCT in the litigation. In connection with the settlement, the Company also agreed to dismissall proofs of claim it may have against Fleming in connection with the bankruptcy. Selling, general and administrative expenses for the year ended December 31,2009 includes a charge of $0.7 million related to the settlement with the PCT for amounts not previously accrued. In the normal course of business, the Company is involved in and subject to other claims, disputes and uncertainties. Management, after reviewing with legalcounsel all of such matters, believes that the aggregate losses, if any, related to such matters will not have a material adverse effect on the Company’s financialposition or results of operations.59Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(13) STOCK-BASED COMPENSATION The Company currently has three stock-based compensation plans under which awards have been granted: (1) the Stock Incentive Plan (“SIP”), (2) the 2006Management Incentive Plan (“2006 MIP”), and (3) the 2008 Equity Incentive Plan (“2008 EIP”). The Company generally issues authorized but previouslyunissued shares to satisfy stock option exercises, grants of restricted stock awards and vesting of restricted stock units. The SIP, as amended, authorized the grant of options or other stock-based awards, with respect to up to 1,237,500 shares of the Company’s common stock tokey employees, directors, consultants and advisors. The majority of options granted pursuant to the SIP had five to seven year terms and vested and became fullyexercisable on a ratable basis over one to five years of continued employment or service. The SIP expired in June 2008. During the first quarter of 2008, the Board of Directors of the Company adopted the 2008 EIP, which was approved by the shareholders at the annual meetingof the shareholders on May 29, 2008. The 2008 EIP authorizes the grant of incentive and non-qualified stock options, stock appreciation rights, restricted stock,restricted stock units and other incentive awards. Two million shares of the Company’s common stock have been reserved for issuance under the 2008 EIPpursuant to award grants to key employees, directors and service providers. The options granted pursuant to the 2008 EIP have seven year terms. An amendment to the 2008 EIP was adopted by the Company’s Board of Directors in April 2010 and approved at the Company’s annual meeting ofshareholders held on June 15, 2010. This amendment, among other things, increases the number of shares reserved for issuance under the 2008 EIP by 3,400,000shares to a total of 5,400,000 shares and provides that restricted stock awards and other full value awards will count as 1.41 shares against the available pool ofshares under the plan. As of December 31, 2010, there were 2,127,037 shares available for future grants under the 2008 EIP. The following table summarizes stock option grants during the years ended December 31, 2010, 2009 and 2008: # of Weighted Options Vesting Average Grant Date Granted Period Exercise Price Fair Value2010 51,276 1 year (1) $4.20 $129,604 8,546 3 years (2) 5.39 34,146 649,010 3 years (3) 4.14 1,739,687 2009 296,296 4 years (4) $3.57 $763,529 42,730 1 year (5) 2.82 88,011 505,755 3 years (3) 2.92 1,088,334 2008 60,135 1 year (6) $9.87 $393,722 211,460 3 years (3) 9.51 1,338,330 (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 beencontinuously 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 leavesthe 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 controlwill terminate three years after termination of Board service, if such date occurs before June 22, 2017. The remaining 8,546 options expire on September 7,2017,60Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, ifsuch 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 amember 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 optionsexpire 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 aftertermination 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 inthree 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 inducementgrants outside its existing stock-based compensation plans to Mr. Romil Bahl. Mr. Bahl received an option to purchase 296,296 shares of the common stockof 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 installmentsbeginning 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. Theoptions 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 yearsafter termination of Board service, if such date occurs before May 25, 2016. (6) Non-qualified stock options were granted under the 2008 EIP to the Company’s non-employee directors. The options became fully vested on May 27, 2009,the date of the Company’s 2009 annual meeting of the shareholders. The following table summarizes nonvested stock awards (restricted stock and restricted stock units) grants during the years ended December 31, 2010, 2009and 2008: # of Shares Vesting Grant Date Granted Period Fair Value 2010 51,276 1 year (1) $215,274 8,546 3 years (2) 46,063 600,010 3 years (3) 2,410,965 2009 344,445 4 years (4) $1,229,669 42,730 1 year (5) 120,499 20,000 3 years (6) 57,400 522,832 3 years (3) 1,546,636 25,000 3 years (7) 168,500 2008 25,325 1 year (8) $249,958 171,323 3 years (3) 1,629,282 317,192 3 years (9) 3,016,496 61Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Nonvested stock awards (restricted stock) were granted to the Company’s non-employee directors pursuant to the 2008 EIP. The shares of restricted stockwill 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, providedthe 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 stockwill be forfeited when a director leaves the Board. The shares are generally nontransferable until vesting. During the vesting period, the grantees of therestricted 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 vestupon 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 thedirector 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 stockwill be forfeited when the director leaves the Board. The shares are generally nontransferable until vesting. During the vesting period, the grantee of therestricted 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 Companypursuant to the Company’s 2008 EIP. The shares of restricted stock and the restricted stock units vest in three equal annual installments beginning on thefirst anniversary of the grant date. During the vesting period, the restricted stock grantees will be entitled to receive dividends, if any, with respect to thenonvested shares and to vote the shares. During the vesting period, grantees of restricted stock units will be entitled to receive dividends, if any, with respectto 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 inducementgrants outside its existing stock-based compensation plans to Mr. Romil Bahl. Mr. Bahl received nonvested stock awards (restricted stock) representing344,445 shares of the Company’s common stock. Mr. Bahl’s nonvested stock awards were granted in two tranches, the first of which consists of 233,334shares 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 thesecond and fourth anniversaries of the grant date. During the vesting period, Mr. Bahl will be entitled to receive dividends with respect to the nonvestedshares, 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 stockvested 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 stockvest 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 receivedividends, if any, with respect to the nonvested shares and to vote the shares. (7) Nonvested stock awards (restricted stock units) granted to 3 employees of the Company pursuant to the Company’s 2008 EIP. The shares of restricted stockunits vest on the third anniversary of the grant date. 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. (8) Nonvested stock awards (restricted stock) were granted to the Company’s non-employee directors pursuant to the 2008 EIP. The shares of restricted stockvested on May 27, 2009. (9) Nonvested stock awards (restricted stock and restricted stock units) were granted to 68 executive and non-executive employees of the Company pursuant tothe Company’s 2008 EIP. These shares of restricted stock and restricted stock units will vest on December 31, 2011 provided that Company performancegoals outlined in the stock award agreements are met for the three-year period ending December 31, 2011. During the vesting period, the award recipients ofrestricted stock will be entitled to receive dividends with respect to the nonvested shares and to vote the shares. During the vesting period, award recipientsof restricted stock units will be entitled to receive dividends with respect to the nonvested shares, but will not be entitled to vote the shares underlying theunits.62Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of option activity as of December 31, 2010, and changes during the year then ended is presented below: Weighted- Weighted- Average Average Aggregate Exercise Remaining Intrinsic Price Contractual Value Options Shares (Per Share) Term ($000’s) Outstanding at January 1, 2010 1,740,569 $8.98 Granted 709,874 4.16 Exercised (38,633) 2.82 $98 Forfeited (43,440) 6.72 Expired (99,591) 33.47 Outstanding at December 31, 2010 2,268,779 $6.54 5.01 years $3,956 Exercisable at December 31, 2010 975,294 $9.97 3.80 years $745 The weighted-average grant date fair value of options granted was $2.69 per share in 2010, $2.31 per share in 2009 and $6.38 per share in 2008. A summary of nonvested stock awards (restricted stock and restricted stock units) activity as of December 31, 2010, and changes during the year then ended ispresented below: Weighted Average Grant Date Fair Value Nonvested Stock Shares (Per Share) Nonvested at January 1, 2010 1,230,718 $4.86 Granted 659,832 4.05 Vested (335,173) 3.86 Forfeited (66,346) 7.41 Nonvested at December 31, 2010 1,489,031 $4.61 The weighted-average grant date fair value of nonvested stock awards (restricted stock and restricted stock units) granted was $4.05 per share in 2010, $3.27per share in 2009 and $9.56 per share in 2008. The total vest date fair value of stock awards vested during the year was $1.5 million in 2010 and $0.5 million in2009. No stock awards vested in 2008.2006 MIP Performance Units At the annual meeting of shareholders held on August 11, 2006, the shareholders of the Company approved a proposal granting authorization to issue up to2.1 million shares of the Company’s common stock under the 2006 MIP. On September 29, 2006, an aggregate of 682,301 Performance Units were awarded underthe 2006 MIP to seven executive officers of the Company. The awards had an aggregate grant date fair value of $4.0 million. At Performance Unit settlement dates(which vary), participants are issued that number of shares of Company common stock equal to 60% of the number of Performance Units being settled, and arepaid in cash an amount equal to 40% of the fair market value of that number of shares of common stock equal to the number of Performance Units being settled.The awards were 50% vested at the award date and the remainder of the awards vests ratably over approximately the following eighteen months with the awardsfully vesting on March 17, 2008. The awards contain certain anti-dilution and change of control provisions. As a result, the number of Performance Units awardedwere automatically adjusted on a pro-rata basis upon the conversion into common stock of any of the Company’s senior convertible notes or Series A convertiblepreferred stock. During 2006, the Company granted an additional 122,073 Performance Units with aggregate grant date fair values of $1.6 million as a result ofthis automatic adjustment provision.63Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS On March 28, 2007, the Company granted 20,000 Performance Units to an additional executive officer under the 2006 MIP. The award had a grant date fairvalue of $0.3 million and was scheduled to vest ratably over four years. During 2007, the Company granted an additional 1,436,484 Performance Units to the eightexecutive officers with aggregate grant date fair values of $24.0 million as a result of the automatic adjustment provision related to the conversions of convertiblesecurities into common stock. All Performance Units must be settled before April 30, 2016. We recognized compensation expense (credit) of $0.1 million in 2010, $(0.2 million) in 2009 and$(0.4 million) in 2008 related to these 2006 MIP Performance Unit awards. The 2009 and 2008 compensation credits resulted from the remeasurement of theliability-classified portion of the awards to fair value based on the market price of our common stock. We determined the amount of compensation expenserecognized on the assumption that none of the Performance Unit awards would be forfeited. During 2010, three current and former executive officers settled an aggregate of 224,158 Performance Units under the 2006 MIP. These settlements resulted inthe issuance of 134,490 shares of common stock and cash payments totaling $0.6 million. As of December 31, 2010, a total of 44,831 Performance Units wereoutstanding and fully vested under the 2006 MIP. During 2009, eight current and former executive officers settled an aggregate of 1,474,129 Performance Units under the 2006 MIP. These settlements resultedin the issuance of 884,473 shares of common stock and cash payments totaling $1.9 million. During 2008, six executive officers settled an aggregate of 493,137 Performance Units under the 2006 MIP. These settlements resulted in the issuance of295,879 shares of common stock and cash payments totaling $2.0 million. Stock-based compensation charges aggregated $4.0 million in 2010, $3.3 million in 2009 and $2.2 million in 2008. We include these charges in selling, generaland administrative expenses in the accompanying Consolidated Statements of Operations. As of December 31, 2010, there was $6.3 million of unrecognized stock-based compensation expense related to stock options, nonvested stock and Performance Unit awards which we expect to be recognized over a weighted averageperiod of 2.02 years.(14) BUSINESS ACQUISTIONS We completed two acquisitions in 2010 and one acquisition in 2009 that we describe below. We did not complete any acquisitions in 2008. Generally, weacquire businesses that we believe will provide a strategic fit for our existing operations, cost savings and revenue synergies, or enable us to expand our capabilitiesin our New Services segment. We allocate the total purchase price in a business acquisition to the fair value of assets acquired and liabilities assumed based on the fair values at the acquisitiondate, and record amounts exceeding the fair values as goodwill. If the fair value of the assets acquired exceeds the purchase price, we record this excess as a gain onbargain purchase. We determine the estimated fair values of intangible assets acquired using our estimates of future discounted cash flows to be generated by theacquired business over the estimated duration of those cash flows. We base the estimated cash flows on our projections of future revenues, cost of revenues, capitalexpenditures, working capital needs and tax rates. We estimate the duration of the cash flows based on the projected useful life of the assets and business acquired.We determine the discount rate based on specific business risk, cost of capital and other factors. Etesius Limited In February 2010, the Company’s UK subsidiary acquired all the issued and outstanding capital stock of Etesius Limited (“Etesius”), a privately-held Europeanprovider of purchasing and payables technologies and spend analytics based in Chelmsford, United Kingdom. We have included the results of operations ofEtesius in our New Services segment results of operations since the acquisition date. We intend for Etesius to expand our capabilities in our business analytics andadvisory services businesses.64Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS The financial terms of the Etesius share purchase agreement (“SPA”) required an initial payment to the Etesius shareholders of $2.8 million and a $0.3 millionpayment for obligations on behalf of Etesius shareholders which resulted in a total estimated purchase price value of approximately $3.1 million. The SPA requires deferred payments of $1.2 million over four years from the date of the SPA to certain selling shareholders who are now our employees. TheSPA also provides for potential additional variable payments (“earn-out”) to these selling shareholders/employees over the same four-year period based on thefinancial performance of certain of the Company’s services lines, up to a maximum of $3.8 million. Because we will not be obligated to make the deferred andearn-out payments upon the termination of employment of these employees under certain circumstances, we will recognize these payments as compensationexpense if earned. The estimated fair values of the assets acquired and purchase price is summarized as follows (in thousands): Fair values of net assets acquired: Equipment $18 Software 3,100 Intangible assets, primarily customer relationships 1,565 Deferred tax liabilities (1,168)Working capital (382)Fair value of net assets acquired $3,133 Fair value of purchase price $3,133 TJG Holdings LLC In November 2010, we acquired the business and certain assets of TJG Holdings LLC (“TJG”), a privately-held provider of finance and procurement operationsimprovement services based in Chicago, Illinois. We have included the results of operations of TJG in our New Services segment results of operations since theacquisition date. We intend for the TJG acquisition to allow us to expand our business analytics and advisory services businesses. We recorded goodwill inconnection with this acquisition, representing the value of the assembled workforce, including a management team with deep industry knowledge. We expect thisgoodwill to be deductible for tax purposes. The financial terms of the TJG Asset Purchase Agreement (“APA”) required an initial payment to the TJG owners of $2.3 million. Additional variableconsideration (“earn-out”) may also be due based on the operating results generated by the acquired business over the next two years. We recorded an additional$1.4 million payable based on management’s estimate of the fair value of the earn-out liability. We calculated the earn-out liability based on estimated futurediscounted cash flows to be generated by the acquired business over a two year period. We determined the discount rate based on specific business risk, cost ofcapital and other factors. The total estimated purchase price was valued at approximately $3.7 million. The estimated fair values of the assets acquired and purchase price is summarized as follows (in thousands): Fair values of net assets acquired: Equipment $67 Intangible assets, primarily customer relationships 2,302 Working capital 762 Goodwill 596 Fair value of net assets acquired $3,727 Fair value of purchase price $3,727 First Audit Partners LLP On July 16, 2009, the Company’s UK subsidiary acquired the business and certain assets of First Audit Partners LLP (“FAP”), a privately-held Europeanprovider of recovery audit services based in Cambridge, United65Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSKingdom. We have integrated the business and assets of FAP into our Recovery Audit Services — Europe/Asia-Pacific operating segment and have included theresults of operations of FAP in this segment results of operations since the acquisition date. This acquisition enabled us to expand the growing list of majorEuropean retailers to whom we provide our services. The financial terms of the FAP APA are denominated in British pounds sterling; parenthetical references to U.S. dollar equivalents below are based on theforeign exchange rates as of the acquisition date. The APA required an initial payment to the FAP owners of £1.0 million ($1.6 million) and required additionaldeferred payments of £0.5 million ($0.8 million) in January 2010 and £0.8 million ($1.3 million) in July 2010. Additional variable consideration (“earn-out”) alsomay be due based on the operating results generated by the acquired business over the next four years. We recorded an additional £1.3 million ($2.1 million)payable based on management’s estimate of the fair value of the earn-out liability. We based this calculation on our estimate of the amount and timing of thevariable consideration to be earned over the four-year period using a discount rate that we determined based on specific business risk, cost of capital and otherfactors. We recorded a total estimated purchase price of approximately $5.8 million. The excess of fair values of assets acquired over the purchase price resulted ina gain on bargain purchase of $2.8 million. From the acquisition date to December 31, 2010, we paid £0.3 million ($0.4 million) of the earn-out and recordedaccretion and other adjustments of the liability of $0.4 million, resulting in an earn-out payable of $2.0 million as of December 31, 2010. The estimated fair values of the assets acquired and purchase price is summarized as follows (in thousands): Fair values of assets acquired: Equipment $56 Current assets, primarily work in progress 741 Intangible assets, primarily customer relationships 7,830 8,627 Fair value of purchase price 5,839 Gain on bargain purchase 2,788 Transaction costs (400) Gain on bargain purchase, net $2,388 66Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(15) QUARTERLY RESULTS The following tables set forth certain unaudited condensed quarterly financial data for each of the last eight quarters during our fiscal years ended December 31,2010 and 2009. We have derived the information from unaudited Condensed Consolidated Financial Statements that, in the opinion of management, reflect alladjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such quarterly information. The operating results for any quarterare not necessarily indicative of the results to be expected for any future period. 2010 Quarter Ended 2009 Quarter Ended Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 (In thousands, except per share data) Revenues $41,329 $45,507 $46,900 $50,345 $39,252 $45,471 $45,321 $49,539 Cost of revenues (1) 30,175 31,036 31,952 34,016 26,413 28,328 28,974 33,003 Gross margin 11,154 14,471 14,948 16,329 12,839 17,143 16,347 16,536 Selling, general andadministrative expenses (1) 12,388 13,537 10,895 12,261 9,723 10,773 11,001 12,376 Operating income (loss) (1,234) 934 4,053 4,068 3,116 6,370 5,346 4,160 Gain on bargain purchase, net — — — — — — 2,388 — Interest expense, net 384 271 315 335 699 727 728 871 Loss on debt extinguishment 1,381 — — — — — — — Earnings (loss) before incometaxes (2,999) 663 3,738 3,733 2,417 5,643 7,006 3,289 Income tax expense (benefit) 436 628 1,177 (359) 544 618 605 1,261 Net earnings (loss) $(3,435) $35 $2,561 $4,092 $1,873 $5,025 $6,401 $2,028 Basic earnings (loss) percommon share $(0.15) $0.00 $0.11 $0.17 $0.08 $0.22 $0.27 $0.09 Diluted earnings (loss) percommon share $(0.15) $0.00 $0.11 $0.17 $0.08 $0.21 $0.27 $0.08 (1) We have reclassified certain previously reported amounts for the first three quarters of 2010 to conform with classifications adopted in fourth quarter of2010. (2) We calculate each quarter as a discrete period; the sum of the four quarters may not equal the calculated full-year amount. In the fourth quarter of 2010, management determined that it was not probable that the Company would make a matching contribution to the definedcontribution retirement plan in 2011 for contributions made by employees in 2010. As a result, we reversed the amount recorded as of September 30, 2010 of$0.9 million in the fourth quarter of 2010. Also in the fourth quarter of 2010, management finalized the purchase accounting entries relating to the February 2010 acquisition of Etesius Limited. In thisprocess, we recorded a $1.2 million reduction in the deferred tax asset valuation allowance that resulted from the deferred tax liabilities that we recorded relating tothe acquisition. We recorded this amount as a reduction in our income tax expense in the fourth quarter of 2010. As we completed the acquisition in the firstquarter of 2010, we should have recorded this reduction in income tax expense in the first quarter of 2010. Had we recorded the adjustment in the first quarter of2010, our net loss would have been $2.2 million as compared to the reported net loss of $3.4 million. We do not believe that the delay in recording this non-cashitem is material to the users of our financial statements as it had no impact on our revenues, operating income, Adjusted EBITDA or cash flows, which we believeare the key metrics used by analysts, lenders and other users of our financial statements in evaluating the Company’s performance. Therefore, we do not consider itnecessary to restate the 2010 quarterly financial statements.67Table of ContentsITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure NoneITEM 9A. Controls and ProceduresEvaluation of Disclosure Controls and Procedures The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in the Exchange ActRule 13a-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures are effective as of December 31, 2010.Management’s Annual Report on Internal Control Over Financial Reporting The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in theExchange Act Rule 13a-15(f). Our internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of financialstatements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, haveinherent limitations and can provide only reasonable assurance that the objectives of the internal control system are met. Under the supervision and with theparticipation of the Company’s management, including the Company’s President and Chief Executive Officer along with the Company’s Chief Financial Officerand Treasurer, the Company conducted an assessment of the effectiveness of internal control over financial reporting based on the framework in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management concludedthat, as of December 31, 2010, the Company’s internal control over financial reporting is effective. The Company’s internal control over financial reporting as ofDecember 31, 2010 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report which is included herein,which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter thathas materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Management’s report shall not bedeemed filed for purposes of Section 18 of the Exchange Act.Report of Independent Registered Public Accounting FirmBoard of Directors and ShareholdersPRGX Global, Inc.Atlanta, GeorgiaWe have audited PRGX Global, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2010, based on criteriaestablished in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying Item 9A, “Management’s Annual Report on Internal Control Over Financial Reporting”. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the68Table of Contentsassessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.In our opinion, PRGX Global, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010,based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of theCompany as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the threeyears in the period ended December 31, 2010 and our report dated March 16, 2011 expressed an unqualified opinion thereon. Atlanta, GeorgiaMarch 16, 2011 /s/ BDO USA, LLP ITEM 9B. Other Information. None.69Table of ContentsPART IIIITEM 10. Directors, Executive Officers and Corporate Governance Except as set forth below, the information required by Item 10 of this Form 10-K is incorporated herein by reference to the information contained in thesections captioned “Proposal I: Election of Directors”, “Information about the Board of Directors and Committees of the Board of Directors”, “Executive Officers”and “Section 16(a) Beneficial Ownership Reporting Compliance” of our definitive proxy statement (the “Proxy Statement”) for the 2011 Annual Meeting ofStockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as amended(the “Exchange Act”). We have undertaken to provide to any person without charge, upon request, a copy of our code of ethics applicable to our chief executive officer and seniorfinancial officers. You may obtain a copy of this code of ethics free of charge from our website, www.prgx.com.ITEM 11. Executive Compensation The information required by Item 11 of this Form 10-K is incorporated by reference to the information contained in the sections captioned “ExecutiveCompensation”, “Information about the Board of Directors and Committees of the Board of Directors”, and “Report of the Compensation Committee” of the ProxyStatement.70Table of ContentsITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Except as set forth below, the information required by Item 12 of this Form 10-K is incorporated by reference to the information contained in the sectioncaptioned “Ownership of Directors, Principal Shareholders and Certain Executive Officers” of the Proxy Statement.Securities Authorized for Issuance Under Equity Compensation Plans The Company currently has three stock-based compensation plans under which awards have been granted: (1) the Stock Incentive Plan (“SIP”), (2) the 2006Management Incentive Plan (“2006 MIP”), and (3) the 2008 Equity Incentive Plan (“2008 EIP”). The SIP, as amended, authorized the grant of options or otherstock-based awards, with respect to up to 1,237,500 shares of the Company’s common stock to key employees, directors, consultants and advisors. The SIP expiredin June 2008. At the annual meeting of shareholders held on August 11, 2006, the shareholders of the Company approved a proposal granting authorization to issue up to2.1 million shares of the Company’s common stock under the 2006 MIP. At Performance Unit settlement dates (which vary), participants are paid in commonstock and in cash. Participants will receive a number of shares of Company common stock equal to 60% of the number of Performance Units being paid out, plus acash payment equal to 40% of the fair market value of that number of shares of common stock equal to the number of Performance Units being paid out. Theawards were 50% vested at the award date and the remainder of the awards vests ratably over approximately the following eighteen months. The awards containcertain anti-dilution and change of control provisions. Also, the number of Performance Units awarded were automatically adjusted on a pro-rata basis upon theconversion into common stock of any of the Company’s senior convertible notes or Series A convertible preferred stock. During the first quarter of 2008, the Board of Directors of the Company adopted the 2008 EIP, which was approved by the shareholders at the annual meetingof the shareholders on May 29, 2008. The 2008 EIP authorizes the grant of incentive and non-qualified stock options, stock appreciation rights, restricted stock,restricted stock units and other incentive awards. Two million shares of the Company’s common stock were reserved for issuance under the 2008 EIP pursuant toaward grants to key employees, directors and service providers. An amendment to the 2008 EIP was adopted by the Company’s Board of Directors in April 2010 and approved at the Company’s annual meeting ofshareholders held on June 15, 2010. The amendment, among other things, increased the number of shares reserved for issuance under the 2008 EIP by 3,400,000shares to a total of 5,400,000 shares and provided that restricted stock awards and other full value awards would count as 1.41 shares against the available pool ofshares under the plan. The following table presents certain information with respect to compensation plans under which equity securities of the registrant were authorized for issuanceas of December 31, 2010: Weighted-average exercise Number of securities remaining Number of securities to be issued price of outstanding available for future issuance under upon exercise of outstanding options, warrants and equity compensation plans (excluding Plan category options, warrants and rights rights securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders: Stock Incentive Plan 588,455 $12.69 — 2008 Equity Incentive Plan 2,586,947 4.57 2,127,037 Share awards (1) 26,898 — 77,794 Equity compensation plans not approved by securityholders (2) 582,408 3.57 — Total 3,784,708 $6.54 2,204,831 71Table of Contents (1) Amounts presented represent 60% of Performance Unit awards under the Company’s 2006 Management Incentive Plan. Performance Unit awards arerequired to be settled 60% in common stock and 40% in cash. (2) Inducement Option Grant — during the first quarter of 2009, in connection with his joining the Company as its President and Chief Executive Officer, theCompany made inducement grants outside its existing stock-based compensation plans to Mr. Romil Bahl. Mr. Bahl received an option to purchase 296,296shares of the common stock of the Company and nonvested stock awards (restricted stock) representing 344,445 shares of the Company’s common stock.Of those grants, 58,333 of restricted stock vested in 2010.ITEM 13. Certain Relationships and Related Transactions, and Director Independence The information required by Item 13 of this Form 10-K is incorporated by reference to the information contained in the sections captioned “Information aboutthe Board of Directors and Committees of the Board of Directors”, “Executive Compensation - Employment Agreements” and “Certain Transactions” of the ProxyStatement.ITEM 14. Principal Accountants’ Fees and Services The information required by Item 14 of this Form 10-K is incorporated by reference to the information contained in the sections captioned “PrincipalAccountants’ Fees and Services” of the Proxy Statement.72Table of ContentsPART IVITEM 15. Exhibits, Financial Statement Schedules (a) Documents filed as part of the report (1) Consolidated Financial Statements: For the following consolidated financial information included herein, see Index on Page 36. Page Report of Independent Registered Public Accounting Firm 37 Consolidated Statements of Operations for the Years ended December 31, 2010, 2009 and 2008 38 Consolidated Balance Sheets as of December 31, 2010 and 2009 39 Consolidated Statements of Shareholders’ Equity for the Years ended December 31, 2010, 2009 and 2008 40 Consolidated Statements of Cash Flows for the Years ended December 31, 2010, 2009 and 2008 41 Notes to Consolidated Financial Statements 42 (2) Financial Statement Schedule: Schedule II — Valuation and Qualifying Accounts S-1 (3) Exhibits Exhibit Number Description2.1 Share Purchase Agreement dated February 25, 2010 by and between PRGX U.K. Limited and Etesius Limited (incorporated by reference toExhibit 2.1 to the Registrant’s Form 10-K filed on March 29, 2010).3.1 Restated Articles of Incorporation of the Registrant, as amended and corrected through August 11, 2006 (restated solely for the purpose of filingwith the Commission) (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on August 17, 2006).3.1.1 Articles of Amendment of the Registrant dated January 20, 2010 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed onJanuary 25, 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).73Table of Contents Exhibit Number Description4.3.4 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 1996 Stock Option Plan, dated as of January 25, 1996, together with Forms of Non-qualified Stock Option Agreement (incorporated byreference to Exhibit 10.2 to the Registrant’s March 26, 1996 Registration Statement No. 333-1086 on Form S-1).+10.2 Form of Indemnification Agreement between the Registrant and Directors and certain officers, including named executive officers, of theRegistrant (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-K for the year ended December 31, 2003).+10.3 Form of the Registrant’s Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q forthe quarterly period ended June 30, 2001).10.4 Noncompetition, Nonsolicitation and Confidentiality Agreement among The Profit Recovery Group International, Inc., Howard Schultz &Associates International, Inc., Howard Schultz, Andrew Schultz and certain trusts, dated January 24, 2002 (incorporated by reference toExhibit 10.34 to the Registrant’s Form 10-K for the year ended December 31, 2001).10.5 Office Lease Agreement between Galleria 600, LLC and PRG-Schultz International, Inc. (incorporated by reference to Exhibit 10.43 to theRegistrant’s Form 10-K for the year ended December 31, 2001).10.5.1 First Amendment to Office Lease Agreement between Galleria 600, LLC and PRG-Schultz International, Inc. (incorporated by reference toExhibit 10.65 to the Registrant’s Form 10-K for the year ended December 31, 2002).+10. 6 Amended Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarterly period ended June 30,2002).+10.7 Amended HSA-Texas Stock Option Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q for the quarterly periodended June 30, 2002).10.8 Investor Rights Agreement, dated as of August 27, 2002, among PRG-Schultz International, Inc., Berkshire Fund V, LP, Berkshire InvestorsLLC and Blum Strategic Partners II, L.P. (incorporated by reference to Exhibit 10.7 to the Registrant’s Form 10-Q for the quarterly periodended September 30, 2002).10.8.1 Amendment to Investor Rights Agreement dated March 28, 2006 (incorporated by reference to Exhibit 10.8 to the Registrant’s Form 10-Q forthe quarter ended March 31, 2006).+10.9 Form of Non-employee Director Option Agreement (incorporated by reference to Exhibit 99.1 to the Registrant’s Report on Form 8-K filed onFebruary 11, 2005).+10.10 Amended and Restated Employment Agreement between Registrant and Mr. James B. McCurry, dated as of December 17, 2007 (incorporatedby reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on December 19, 2007).+10.10.1 Release Agreement dated December 1, 2008 between the Registrant and Mr. McCurry (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on December 4, 2008).+10.11 Separation and Release Agreement between Registrant and Mr. John M. Cook, dated as of August 2, 2005 (incorporated by reference toExhibit 99.1 to Registrant’s Form 8-K filed on August 8, 2005).+10.11.1 First Amendment to Separation and Release Agreement with John M. Cook dated March 16, 2006 (incorporated by reference to Exhibit 99.1 tothe registrant’s Form 8-K filed on March 22, 2006).74Table of Contents Exhibit Number Description+10.12 Separation and Release Agreement between Registrant and Mr. John M. Toma, dated as of August 2, 2005 (incorporated by reference toExhibit 99.2 to Registrant’s Form 8-K filed on August 8, 2005).+10.12.1 First Amendment to Separation and Release Agreement with John M. Toma dated March 16, 2006 (incorporated by reference to Exhibit 99.2 tothe registrant’s Form 8-K filed on March 22, 2006).+10.13 Employment Agreement between the Registrant and Peter Limeri entered into on November 28, 2008 (incorporated by reference toExhibit 10.2 to the Registrant’s Form 8-K filed on December 4, 2008).10.14 Amended and Restated Standstill Agreement, dated as of July 16, 2007, between Registrant and Blum Capital Partners, L.P. and certain of itsaffiliates (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on July 16, 2007).10.15 Restructuring Support Agreement dated December 23, 2005 (incorporated by reference to Exhibit 10.66 to the Registrant’s Form 10-K for theyear ended December 31, 2005).10.15.1 Amended and Restated Restructuring Support Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for thequarter ended March 31, 2006).+10.16 Employment Agreement between the Registrant and Larry Robinson dated November 28, 2008 (incorporated by reference to Exhibit 10.3 tothe Registrant’s Form 8-K filed on December 4, 2008).+10.16.1 Separation Agreement between the Registrant and Larry Robinson dated August 3, 2010 (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on August 9, 2010).+10.17 Employment Agreement between the Registrant and Brad Roos dated November 28, 2008 (incorporated by reference to Exhibit 10.4 to theRegistrant’s Form 8-K filed on December 4, 2008).+10.18 Expatriate Assignment Agreement with Brad Roos (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed onFebruary 14, 2008).+10.18.1 Separation Agreement between the Registrant and Brad Roos dated May 29, 2009 (incorporated by reference to Exhibit 10.2 to the Registrant’sForm 8-K filed on June 1, 2009).10.19 Registration Rights Agreement dated March 17, 2006 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarterended March 31, 2006).10.20 Amended and Restated Financing Agreement dated September 17, 2007 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-Kfiled on September 21, 2007).10.20.1 Amendment Number One to Amended and Restated Financing Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’sForm 8-K filed on April 3, 2008).10.20.2 Amendment Number Two to Amended and Restated Financing Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’sForm 8-K filed on April 3, 2009)10.21 Security Agreement dated March 17, 2006 (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q for the quarter endedMarch 31, 2006).+10.22 Amended and Restated 2006 Management Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for thequarter ended September 30, 2006).+10.22.1 Form of Performance Unit Agreement under 2006 Amended and Restated Management Incentive Plan (incorporated by reference toExhibit 10.2 to the Registrant’s Form 10-Q for the quarter ended September 30, 2006).+10.22.2 Form of Amendment to Performance Unit Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed onDecember 11, 2007).+10.23 Employment Agreement with Norman Lee White dated June 19, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant’s Report onForm 8-K filed on June 20, 2006).+10.23.1 Separation Agreement dated November 30, 2008 between PRG-Schultz USA and Mr. White (incorporated by reference to Exhibit 10.5 to theRegistrant’s Form 8-K filed on December 4, 2008).+10.24 Form of Non-Employee Director Stock Option Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed onSeptember 18, 2007).+10.25 2009 PRG-Schultz Performance Bonus Plan (incorporated by reference to Exhibit 10.25 to the Registrant’s Form 10-K filed on March 29,2010).75Table of Contents Exhibit Number Description+10.26 PRGX Global, Inc. 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on June 4, 2008).+10.26.1 Form of Restricted Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filedon June 4, 2008).+10.26.2 Form of Non-Qualified Stock Option Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.3 to the Registrant’sForm 8-K filed on June 4, 2008).+10.27 Employment Agreement dated January 8, 2009, by and between Mr. Romil Bahl and the Registrant (incorporated by reference to Exhibit 10.1to the Registrant’s Form 8-K filed on January 14, 2009).+10.27.1 Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on January 14,2009).+10.27.2 Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on January 14, 2009).+10.28 Employment Agreement dated May 26, 2009 by and between the Registrant and Robert B. Lee (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on June 1, 2009).10.29 Revolving Credit and Term Loan Agreement dated as of January 19, 2010, by and among PRGX Global, Inc. (formerly PRG-SchultzInternational, Inc), and PRGX USA, Inc. (formerly PRG-Schultz USA, Inc.), as co-borrowers, the lenders from time to time party thereto,SunTrust Bank, as issuing bank, and SunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.1 to the Registrant’sForm 8-K filed on January 25, 2010).10.29.1 Subsidiary Guaranty Agreement dated as of January 19, 2010 by and among PRGX Global, Inc. (formerly PRG-Schultz International, Inc), andPRGX USA, Inc. (formerly PRG-Schultz USA, Inc.), as borrowers, each of the subsidiaries of PRGX Global, Inc. listed on schedule I thereto,as guarantors, and SunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed onJanuary 25, 2010).10.29.2 Security Agreement dated January 19, 2010 among PRGX Global, Inc. (formerly PRG-Schultz International, Inc), PRGX USA, Inc. (formerlyPRG-Schultz USA, Inc.), and the other direct and indirect subsidiaries of PRGX Global, Inc. signatory thereto, as grantors, in favor ofSunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on January 25, 2010).10.29.3 Equity Pledge Agreement dated as of January 19, 2010, made by PRGX Global, Inc. (formerly PRG-Schultz International, Inc), PRGX USA,Inc. (formerly PRG-Schultz USA, Inc.), and the other direct and indirect subsidiaries of PRGX Global, Inc. signatory thereto, as grantors, infavor of SunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 8-K filed on January 25,2010).+10.30 Employment Agreement between the Registrant and Victor A. Allums dated November 28, 2008 (incorporated by reference to Exhibit 10.31 tothe Registrant’s Form 10-K filed on March 29, 2010).+10.31 Employment Agreement between the Registrant and Jennifer G. Moore dated November 28, 2008 (incorporated by reference to Exhibit 10.32to the Registrant’s Form 10-K filed on March 29, 2010).+10.31.1 Separation Agreement between the Registrant and Jennifer G. Moore dated October 26, 2009 (incorporated by reference to Exhibit 10.32.1 tothe Registrant’s Form 10-K filed on March 29, 2010).+10.32 Employment Agreement between the Registrant and James Shand dated March 12, 2009 (incorporated by reference to Exhibit 10.33 to theRegistrant’s Form 10-K filed on March 29, 2010).+10.33 Employment Agreement between the Registrant and Michael Noel dated September 30, 2009.14.1 Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.1 to the Registrant’s Form 10-K for the year endedDecember 31, 2003).21.1 Subsidiaries of the Registrant.23.1 Consent of BDO USA, LLP76Table of Contents Exhibit Number Description31.1 Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the year ended December 31, 2010.31.2 Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the year ended December 31, 2010.32.1 Certification of the Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for the year ended December 31,2010. + Designates management contract or compensatory plan or arrangement.77Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized. PRGX GLOBAL, INC. By: /s/ ROMIL BAHL Romil Bahl President, Chief Executive Officer,Director(Principal Executive Officer) Date: March 16, 2011 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant andin the capacities and on the dates indicated. Signature Title Date /s/ ROMIL BAHLRomil Bahl President, Chief Executive Officerand Director(Principal Executive Officer) March 16, 2011 /s/ ROBERT B. LEERobert B. Lee Chief Financial Officer and Treasurer (Principal Financial Officer) March 16, 2011 /s/ BRIAN D. LANEBrian D. Lane Controller (Principal Accounting Officer) March 16, 2011 /s/ PATRICK M. BYRNEPatrick M. Byrne Director March 16, 2011 /s/ DAVID A. COLEDavid A. Cole Director March 16, 2011 /s/ PATRICK G. DILLSPatrick G. Dills Chairman of the Board March 16, 2011 /s/ ARCHELLE GEORGIOU FELDSHONArchelle Georgiou Feldshon Director March 16, 2011 /s/ N. COLIN LINDN. Colin Lind Director March 16, 2011 /s/ PHILIP J. MAZZILLI, JR.Philip J. Mazzilli, Jr. Director March 16, 2011 /s/ STEVEN P. ROSENBERGSteven P. Rosenberg Director March 16, 201178Table of ContentsSCHEDULE II — VALUATION AND QUALIFYING ACCOUNTSFOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008(In thousands) Additions Deductions Charge Balance at (Credit) to Credit to Balance at Beginning Costs and the respective End ofDescription of Year Expenses receivable (1) Year2010 Allowance for doubtful accounts receivable $1,032 (360) (81) $591 Allowance for doubtful employee advances and miscellaneous receivables $351 559 (241) $669 Deferred tax valuation allowance $58,304 (3,503) — $54,801 2009 Allowance for doubtful accounts receivable $921 137 (26) $1,032 Allowance for doubtful employee advances and miscellaneous receivables $311 235 (195) $351 Deferred tax valuation allowance $64,307 (6,003) — $58,304 2008 Allowance for doubtful accounts receivable $826 319 (224) $921 Allowance for doubtful employee advances and miscellaneous receivables $1,831 — (1,520) $311 Deferred tax valuation allowance $79,805 (15,498) — $64,307 (1) Write-offs, net of recoveriesS-1Exhibit 10.33EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of September 30, 2009, to be effective October 19, 2009 (the“Effective Date”) by and between PRG-Schultz International, Inc., a Georgia corporation (the “Company”), and Michael Noel (the “Executive”).W I T N E S S E T H: WHEREAS, the Company considers the availability of the Executive’s services to be important to the management and conduct of the Company’s business anddesires to secure the availability of the Executive’s services; and WHEREAS, the Executive is willing to make the Executive’s services available to the Company on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth and intending to be legally bound,the Company and the Executive agree as follows: 1. Employment and Duties. (a) Position. The Company hereby employs the Executive, and the Executive hereby accepts such employment, as the Senior Vice President and ChiefInformation Officer of the Company, on the terms and subject to the conditions of this Agreement. The Executive agrees to perform such duties and responsibilitiesas are customarily performed by persons acting in such capacity or as are assigned to Executive from time to time by the Board of Directors of the Company or itsdesignees. The Executive acknowledges and agrees that from time to time the Company may assign Executive additional positions with the Company or theCompany’s subsidiaries, with such title, duties and responsibilities as shall be determined by the Company. The Executive agrees to serve in any and all suchpositions without additional compensation. The Executive will report directly to the Chief Executive Officer of the Company. (b) Duties. The Executive shall devote the Executive’s best efforts and full professional time and attention to the business and affairs of the Company and theCompany’s subsidiaries. During the Term, Executive shall not serve as a director or principal of any other company or charitable or civic organization without theprior written consent of the Board of Directors of the Company. The principal place(s) of employment of the Executive shall be the Company’s executive offices inAtlanta, Georgia subject to reasonable travel on the business of the Company or the Company’s subsidiaries. The Executive shall be expected to follow and bebound by the terms of the Company’s Code of Conduct and Code of Ethics for Senior Financial Officers and any other applicable policies as the Company fromtime to time may adopt. 2. Term. This Agreement is effective as of the Effective Date, and will continue through the first anniversary of the Effective Date, unless terminated orextended as hereinafter provided. This Agreement shall be extended for successive one-year periods following the original term (through each subsequentanniversary thereafter) unless any party notifies the other in writing at least 30 days prior to the end of the original term, or the end of any additional one-yearrenewal  term, that the Agreement shall not be extended beyond its then current term. The term of this Agreement, including any renewal term, is referred to herein as the“Term.” 3. Compensation. (a) Base Salary. The Company shall pay the Executive an annual base salary of $220,000. The annual base salary shall be paid to the Executive inaccordance with the established payroll practices of the Company (but no less frequently than monthly) subject to ordinary and lawful deductions. TheCompensation Committee of the Company will review the Executive’s base salary from time to time to consider whether any increase should be made. The basesalary during the Term will not be less than that in effect at any time during the Term. (b) Annual Bonus. During the Term, the Executive will be eligible to participate in an annual incentive bonus plan that will establish measurable criteria andincentive compensation levels payable to the Executive for performance in relation to defined targets established by the Compensation Committee of theCompany’s Board of Directors, after consultation with management, and consistent with the Company’s business plans and objectives. To the extent the targetedperformance levels are exceeded, the incentive bonus plan will provide a means by which the annual bonus will be increased. Similarly, the incentive plan willprovide a means by which the annual bonus will be decreased or eliminated if the targeted performance levels are not achieved. In connection with such annualincentive bonus plan, subject to the corresponding performance levels being achieved, the Executive shall be eligible for an annual target bonus equal to 50 percentof the Executive’s annual base salary and an annual maximum bonus equal to 100 percent of the Executive’s annual base salary. Any bonus payments duehereunder shall be payable to the Executive no later than the 15th day of the third month following the end of the applicable year to which the incentive bonusrelates. The Executive’s annual incentive bonus for calendar year 2009 shall be subject to pro-ration based on the number of days that Executive is actuallyemployed by the Company during 2009 (beginning with the Effective Date). (c) Stock Compensation. The Executive also shall be eligible to receive stock options, restricted stock, stock appreciation rights and/or other equity awardsunder the Company’s applicable equity plans on such basis as the Compensation Committee or the Board of Directors of the Company or their designees, as thecase may be, may determine on a basis not less favorable than that provided to the class of employees that includes the Executive. Except as specifically set forthabove, however, nothing herein shall require the Company to make any equity grants or other awards to the Executive in any specific year. 4 Indemnity. The Company and the Executive will enter into the Company’s standard indemnification agreement for executive officers. 5. Benefits. (a) Benefit Programs. The Executive shall be eligible to participate in any plans, programs or forms of compensation or benefits that the Company or theCompany’s subsidiaries provide to the class of employees that includes the Executive, on a basis not less favorable than that provided to such class of employees,including, without limitation, group medical, disability and life insurance, paid time-off, and retirement plan, subject to the terms and conditions of such plans,programs or forms of compensation or benefits.2 (b) Paid Time-Off. The Executive shall be entitled to five weeks of paid time-off, to be accrued and used in accordance with the normal Company paidtime-off policy. (c) Additional Terms, Compensation and Benefits. The additional terms, compensation and benefits, if any, listed on Exhibit A attached hereto, shall alsoapply to the Executive’s employment for the duration specified therein. 6. Reimbursement of Expenses. The Company shall reimburse the Executive, subject to presentation of adequate substantiation, including receipts, for thereasonable travel, entertainment, lodging and other business expenses incurred by the Executive in accordance with the Company’s expense reimbursement policyin effect at the time such expenses are incurred. In no event will such reimbursements, if any, be made later than the last day of the year following the year in whichthe Executive incurs the expense. 7. Termination of Employment. (a) Death or Incapacity. The Executive’s employment under this Agreement shall terminate automatically upon the Executive’s death. If the Companydetermines that the Incapacity, as hereinafter defined, of the Executive has occurred, it may terminate the Executive’s employment and this Agreement.“Incapacity” shall mean the inability of the Executive to perform the essential functions of the Executive’s job, with or without reasonable accommodation, for aperiod of 90 days in the aggregate in any rolling 180-day period. (b) Termination by Company For Cause. The Company may terminate the Executive’s employment during the Term of this Agreement for Cause. Forpurposes of this Agreement, “Cause” shall mean, as determined by the Board of Directors of the Company in good faith, the following: (i) the Executive’s willful misconduct or gross negligence in connection with the performance of the Executive’s duties which the Board of Directors ofthe Company believes does or is likely to result in material harm to the Company or any of its subsidiaries; (ii) the Executive’s misappropriation or embezzlement of funds or property of the Company or any of its subsidiaries; (iii) the Executive’s fraud or dishonesty with respect to the Company or any of its subsidiaries; (iv) the Executive’s conviction of, indictment for (or its procedural equivalent), or entering of a guilty plea or plea of no contest with respect to any felonyor any other crime involving moral turpitude or dishonesty; or (v) the Executive’s breach of a material term of this Agreement, or violation in any material respect of any code or standard of behavior generallyapplicable to officers of the Company (including, without, limitation the Company’s Code of Conduct, Code of Ethics for Senior Financial Officers and anyother applicable policies as the Company from time to time may adopt), after being advised in writing of such breach or violation and being given 30 days toremedy such breach or violation, to the extent that such breach or violation can be cured;3 (vi) the Executive’s breach of fiduciary duties owed to the Company or any of its subsidiaries; (vii) the Executive’s engagement in habitual insobriety or the use of illegal drugs or substances; or (viii) the Executive’s willful failure to cooperate, or willful failure to cause and direct persons under the Executive’s management or direction, oremployed by, or consultants or agents to, the Company or its subsidiaries to cooperate, with all corporate investigations or independent investigations by theBoard of Directors of the Company or its subsidiaries, all governmental investigations of the Company or its subsidiaries or orders involving the Executive, theCompany or the Company’s subsidiaries entered by a court of competent jurisdiction.Notwithstanding the above, and without limitation, the Executive shall not be deemed to have been terminated for Cause unless and until there has been deliveredto the Executive (i) a letter from the Board of Directors of the Company finding that the Executive has engaged in the conduct set forth in any of the precedingclauses and specifying the particulars thereof in detail and (ii) a copy of a resolution duly adopted by the affirmative vote of the majority of the members of theBoard of Directors of the Company who are not officers of the Company at a meeting of the Board of Directors called and held for such purpose or such otherappropriate written consent (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard beforethe Board of Directors of the Company), finding that the Executive has engaged in such conduct and specifying the particulars thereof in detail. (c) Termination by Executive for Good Reason. The Executive may terminate the Executive’s employment for Good Reason. For purposes of thisAgreement, “Good Reason” shall mean, without the Executive’s consent, the following: (i) any action taken by the Company which results in a material reduction in the Executive’s authority, duties or responsibilities (except that any change inthe foregoing that results solely from (A) the Company ceasing to be a publicly traded entity or from the Company becoming a wholly-owned subsidiary ofanother publicly traded entity or (B) any change in the geographic scope of the Executive’s authority, duties or responsibilities will not, in any event andstanding alone, constitute a substantial reduction in the Executive’s authority, duties or responsibilities), including any requirement that the Executive reportdirectly to anyone other than the Chief Executive Officer of the Company; (ii) the assignment to the Executive of duties that are materially inconsistent with Executive’s authority, duties or responsibilities; (iii) any material decrease in the Executive’s base salary or annual bonus opportunity or the benefits generally available to the class of employees thatincludes the Executive, except to the extent the Company has instituted a salary, bonus or benefits reduction generally applicable to all executives of theCompany other than in contemplation of or after a Change in Control;4 (iv) the relocation of the Executive to any primary place of employment other than as specified in Section 1(b) above which might require the Executiveto move the Executive’s residence which, for this purpose, means any reassignment to a place of employment 50 miles or more from the place (or, if applicable,all places) of employment set forth in Section 1(b), without the Executive’s express written consent to such relocation; provided, however, this subsection(iv) shall not apply in the case of business travel which requires the Executive to relocate temporarily for periods of 90 days or less; (v) the failure by the Company to pay to the Executive any portion of the Executive’s base salary, annual bonus or other benefits within 10 days after thedate the same is due; or (vi) any material failure by the Company to comply with the terms of this Agreement.Notwithstanding the above, and without limitation, “Good Reason” shall not include any resignation by the Executive where Cause for the Executive’s terminationby the Company exists and the Company then follows the procedures described above. The Executive must give the Company notice of any event or condition thatwould constitute “Good Reason” within 30 days of the event or condition which would constitute “Good Reason,” and upon the receipt of such notice theCompany shall have 30 days to remedy such event or condition. If such event or condition is not remedied within such 30-day period, any termination ofemployment by the Executive for “Good Reason” must occur within 30 days after the period for remedying such condition or event has expired. (d) Termination by Company Without Cause or by Executive Other than For Good Reason. The Company may terminate the Executive’s employmentduring the Term of this Agreement without Cause, and Executive may terminate the Executive’s employment for other than Good Reason, upon 30 days’ writtennotice. The Company may elect to pay the Executive during any applicable notice period (in accordance with the established payroll practices of the Company, noless frequently than monthly) and remove him from active service. (e) Termination by Executive on Failure to Renew. The Executive may terminate the Executive’s employment at any time on or before the expiration ofthe Term of the Agreement, if the Company notifies the Executive that the Term of the Agreement shall not be extended as provided in Section 2 above. 8. Obligations of the Company Upon Termination. (a) Without Cause; Good Reason; Non-Renewal (No Change in Control). If, during the Term, the Company terminates the Executive’s employmentwithout Cause in accordance with Section 7(d) hereof, the Executive terminates the Executive’s employment for Good Reason in accordance with Section 7(c)hereof, or the Executive terminates the Executive’s employment upon the Company’s failure to renew the Agreement in accordance with Section 7(e) hereof, otherthan within two years after a Change in Control, subject to Section 20 below, the Executive shall be entitled to receive: (i) payment of the Executive’s annual base salary in effect immediately preceding the date of the Executive’s termination of employment (or, if greater,the5 Executive’s annual base salary in effect immediately preceding any action by the Company described in Section 7(c)(iii) above for which the Executive hasterminated the Executive’s employment for Good Reason), for the period equal to the greater of one year or the sum of four weeks for each full year ofcontinuous service the Executive has with the Company and its subsidiaries at the time of termination of employment, beginning immediately followingtermination of employment (the “Severance Period”), payable in accordance with the established payroll practices of the Company (but no less frequently thanmonthly), beginning on the first payroll date following 30 days after termination of employment, with the Executive to receive at that time a lump sum paymentwith respect to any installments the Executive was entitled to receive during the first 30 days following termination of employment, and the remaining paymentsmade as if they had commenced immediately following termination of employment; (ii) payment of an amount equal to the Executive’s actual earned full-year bonus for the year in which the termination of Executive’s employment occurs,prorated based on the number of days the Executive was employed for the year, payable at the time the Executive’s annual bonus for the year otherwise wouldbe paid had the Executive continued employment; (iii) continuation after the date of termination of employment of any health care (medical, dental and vision) plan coverage, other than that under aflexible spending account, provided to the Executive and the Executive’s spouse and dependents at the date of termination for the Severance Period, on amonthly or more frequent basis, on the same basis and at the same cost to the Executive as available to similarly-situated active employees during suchSeverance Period, provided that such continued participation is possible under the general terms and provisions of such plans and programs and provided thatsuch continued coverage by the Company shall terminate in the event Executive becomes eligible for any such coverage under another employer’s plans. If theCompany reasonably determines that maintaining such coverage for the Executive or the Executive’s spouse or dependents is not feasible under the terms andprovisions of such plans and programs (or where such continuation would adversely affect the tax status of the plan pursuant to which the coverage isprovided), the Company shall pay the Executive cash equal to the estimated cost of the expected Company contribution therefor for such same period of time,with such payments to be made in accordance with the established payroll practices of the Company (not less frequently than monthly) for the period duringwhich such cash payments are to be provided; (iv) payment of any Accrued Obligations. For purposes of this Agreement, “Accrued Obligations” shall mean the sum of (A) the Executive’s annual basesalary through Executive’s termination of employment which remains unpaid, (B) the amount, if any, of any incentive or bonus compensation earned for anycompleted fiscal year of the Company which has not yet been paid, (C) any reimbursements for expenses incurred but not yet paid, and (D) any benefits orother amounts, including both cash and stock components, which pursuant to the terms of any plans, policies or programs have been earned or become payable,but which have not yet been paid to the Executive, including payment for any unused paid time-off (but not including amounts that previously had beendeferred at the Executive’s request, which amounts will be paid in accordance with the Executive’s existing directions). The Accrued Obligations will be paidto the Executive in a6 lump sum as soon as administratively feasible after the Executive’s termination of employment, which for purposes of any incentive or bonus compensationdescribed in (B) above shall mean at the same time such annual bonus would otherwise have been paid; (v) vesting in full of the Executive’s outstanding unvested options, restricted stock and other equity-based awards that would have vested based solely onthe continued employment of the Executive. Additionally, all of Executive’s outstanding stock options shall remain outstanding until the earlier of (i) one yearafter the date of termination of the Executive’s employment or (ii) the original expiration date of the options (disregarding any earlier expiration date providedfor in any other agreement, including without limitation any related grant agreement, based solely on the termination of the Executive’s employment); and (vi) payment of one year of outplacement services from Executrack or an outplacement service provider of the Executive’s choice, limited to $20,000 intotal. This outplacement services benefit will be forfeited if the Executive does not begin using such services within 60 days after the termination of theExecutive’s employment. (b) Without Cause; Good Reason; Non-Renewal (Change in Control). If, during the Term, the Company terminates the Executive’s employment withoutCause in accordance with Section 7(d) hereof, the Executive terminates the Executive’s employment for Good Reason in accordance with Section 7(c) hereof, orthe Executive terminates the Executive’s employment upon the Company’s failure to renew the Agreement in accordance with Section 7(e) hereof, within twoyears after a Change in Control, subject to Section 20 below, the Executive shall be entitled to receive: (i) payment of the Executive’s annual base salary in effect immediately preceding the date of the Executive’s termination of employment (or, if greater,the Executive’s annual base salary in effect immediately preceding any action by the Company described in Section 7(c)(iii) above for which the Executive hasterminated the Executive’s employment for Good Reason), for the period equal to the greater of 18 months or the sum of four weeks for each full year ofcontinuous service the Executive has with the Company and its subsidiaries at the time of termination of employment, beginning immediately followingtermination of employment (the “Change in Control Severance Period”), payable in accordance with the established payable practices of the Company (but noless frequently than monthly), beginning on the first payroll date following 30 days after termination of employment, with the Executive to receive at that time alump sum payment with respect to any installments the Executive was entitled to receive during the first 30 days following termination of employment; (ii) payment of an amount equal to the Executive’s actual earned full-year bonus for the year in which the termination of Executive’s employment occurs,prorated based on the number of days the Executive was employed for the year, payable at the time the Executive’s annual bonus for the year otherwise wouldbe paid had the Executive continued employment; (iii) continuation after the date of termination of employment of any health care (medical, dental and vision) plan coverage, other than that under aflexible7 spending account, provided to the Executive and the Executive’s spouse and dependents at the date of termination for the Change in Control Severance Period,on a monthly or more frequent basis, on the same basis and at the same cost to the Executive as available to similarly-situated active employees during suchChange in Control Severance Period, provided that such continued participation is possible under the general terms and provisions of such plans and programsand provided that such continued contribution by the Company shall terminate in the event Executive becomes eligible for any such coverage under anotheremployer’s plans. If the Company reasonably determines that maintaining such coverage for the Executive or the Executive’s spouse or dependents is notfeasible under the terms and provisions of such plans and programs (or where such continuation would adversely affect the tax status of the plan pursuant towhich the coverage is provided), the Company shall pay the Executive cash equal to the estimated cost of the expected Company contribution therefor for suchsame period of time, with such payments to be made in accordance with the established payroll practices of the Company (not less frequently than monthly) forthe period during which such cash payments are to be provided; (iv) payment of any Accrued Obligations in a lump sum as soon as administratively feasible after the Executive’s termination of employment, which forpurposes of any incentive or bonus compensation described in Section 8(a)(iv)(B) above shall mean at the same time such annual bonus would otherwise havebeen paid; (v) vesting in full of the Executive’s outstanding unvested options, restricted stock and other equity-based awards that would have vested based solely onthe continued employment of the Executive. Additionally, all of the Executive’s outstanding stock options shall remain outstanding until the earlier of (i) oneyear after the date of termination of the Executive’s employment or (ii) the original expiration date of the options (disregarding any earlier expiration dateprovided for in any other agreement, including without limitation any related grant agreement, based solely on the termination of the Executive’s employment);and (vi) payment of one year of outplacement services from Executrack or an outplacement service provider of the Executive’s choice, limited to $20,000 intotal. This outplacement services benefit will be forfeited if the Executive does not begin using such services within 60 days after the termination of theExecutive’s employment. (c) Death or Incapacity. If the Executive’s employment is terminated by reason of death or Incapacity in accordance with Section 7(a) hereof, the Executiveshall be entitled to receive: (i) payment of an amount equal to the actual full-year bonus earned for the year that includes Executive’s death or Incapacity, prorated based on thenumber of days the Executive is employed for the year, payable at the same time such annual bonus would otherwise have been paid had the Executivecontinued employment; and (ii) payment of any Accrued Obligations in a lump sum as soon as administratively feasible after the Executive’s termination of employment, which forpurposes of any incentive or bonus compensation described in Section 8(a)(iv)(B) above shall mean at the same time such annual bonus would otherwise havebeen paid.8 (d) Cause; Other Than for Good Reason. If the Company terminates the Executive’s employment for Cause in accordance with Section 7(b) hereof, or theExecutive terminates the Executive’s employment other than for Good Reason in accordance with Section 7(d) hereof, this Agreement shall terminate without anyfurther obligation to the Executive other than to pay the Accrued Obligations (except that any incentive or bonus compensation earned for any completed fiscalyear of the Company which has not yet been paid shall not be paid if the Company terminates the Executive’s employment for Cause in accordance with Section7(b) hereof) as soon as administratively feasible after the Executive’s termination of employment. (e) Release and Waiver. Notwithstanding any other provision of this Agreement, the Executive’s right to receive any payments or benefits underSections 8(a)(i), (ii), (iii), (v) and (vi) and 8(b)(i), (ii), (iii), (v) and (vi) of this Agreement upon the termination of the Executive’s employment by the Companywithout Cause, by the Executive for Good Reason, or by the Executive upon the Company’s failure to renew the Agreement is contingent upon and subject to theExecutive signing and delivering to the Company a separation agreement and complete general release of all claims in a form acceptable to Company, andallowing the applicable revocation period required by law to expire without revoking or causing revocation of same, within 30 days following the date oftermination of Executive’s employment. (f) Change in Control. For purposes of this Agreement, Change of Control means the occurrence of any of the following events: (i) The accumulation in any number of related or unrelated transactions by any person of beneficial ownership (as such term is used in Rule 13d-3,promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of 50 percent or more of the combined total voting power of theCompany’s voting stock; provided that for purposes of this subsection (a), a Change in Control will not be deemed to have incurred if the accumulation of50 percent or more of the voting power of the Company’s voting stock results from any acquisition of voting stock (i) by the Company, (ii) by any employeebenefit plan (or related trust) sponsored or maintained by the Company or any of the Company’s subsidiaries, or (iii) by any person pursuant to a merger,consolidation, reorganization or other transaction (a “Business Combination”) that would not cause a Change in Control under subsection (ii) below; or (ii) A consummation of a Business Combination, unless, immediately following that Business Combination, substantially all the persons who were thebeneficial owners of the voting stock of the Company immediately prior to that Business Combination beneficially own, directly or indirectly, at least50 percent of the combined voting power of the voting stock of the entity resulting from that Business Combination (including, without limitation, an entity thatas a result of that transaction owns the Company, or all or substantially all of the Company assets, either directly or through one or more subsidiaries) insubstantially the same proportions relative to each other as the ownership, immediately prior to that Business Combination, of the voting stock of the Company; (iii) A sale or other disposition of all or substantially all of the assets of the Company except pursuant to a Business Combination that would not cause aChange in Control under subsection (ii) above;9 (iv) At any time less than a majority of the members of the Board of Directors of the Company or any entity resulting from any Business Combination areIncumbent Board Members. (v) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combinationthat would not cause a Change in Control under subsection (ii) above; or (vi) Any other transaction or event that the Board of Directors of the Company identifies as a Change in Control for purposes of this Agreement. (vii) For purposes of this Agreement, an “Incumbent Board Member” shall mean any individual who either is (a) a member of the Company Board ofDirectors as of the Effective Date or (b) a member who becomes a member of the Company’s Board of Directors subsequent to the Effective Date of thisAgreement, whose election or nomination by the Company’s shareholders, was approved by a vote of at least a majority of the then Incumbent Board Members(either by specific vote or by approval of a proxy statement of the Company in which that person is named as a nominee for director, without objection to thatnomination), but excluding, for that purpose, any individual whose initial assumption of office occurs as a result of an actual or threatened election contest(within the meaning of Rule 14A-11 of the Exchange Act) with respect to the election or removal of directors or other actual threatened solicitation or proxiesor consents by or on behalf of the person other than a board of directors. For purposes of this Agreement, a person means any individual, corporation,partnership, limited liability company, joint venture, incorporated or unincorporated association, joint-stock company, trusts, unincorporated organization orany other entity of any kind. 9. Business Protection Agreements. (a) Definitions. For purposes of this Agreement, the following terms shall have the following meanings: (i) “Business of the Company” means services to (A) identify clients’ erroneous or improper payments, (B) assist clients in the recovery of monies owedto them as a result of overpayments and overlooked discounts, rebates, allowances and credits, and (C) assist clients in the improvement and execution of theirprocurement and payment processes. (ii) “Confidential Information” means any information about the Company or the Company’s subsidiaries and their employees, customers and/orsuppliers which is not generally known outside of the Company or the Company’s subsidiaries, which Executive learns of in connection with Executive’semployment with the Company, and which would be useful to competitors or the disclosure of which would be damaging to the Company or the Company’ssubsidiaries. Confidential Information includes, but is not limited to: (A) business and employment policies, marketing methods and the targets of thosemethods, finances, business plans, promotional materials and price lists; (B) the terms upon which the Company or the Company’s subsidiaries obtainsproducts from their suppliers and sells services and products to customers; (C) the nature, origin, composition10 and development of the Company or the Company’s subsidiaries’ services and products; and (D) the manner in which the Company or the Company’ssubsidiaries provide products and services to their customers. (iii) “Material Contact” means contact in person, by telephone, or by paper or electronic correspondence in furtherance of the Business of the Company. (iv) “Restricted Territory” means, and is limited to, the geographic area described in Exhibit B attached hereto. Executive acknowledges and agrees thatthis is the area in which the Company and its subsidiaries does business at the time of the execution of this Agreement, and in which the Executive will haveresponsibility, at a minimum, on behalf of the Company and the Company’s subsidiaries. Executive acknowledges and agrees that if the geographic area inwhich Executive has responsibility should change while employed under this Agreement, Executive will execute an amendment to the definition of “RestrictedTerritory” to reflect such change. This duty shall be part of the consideration provided by Executive for Executive’s employment hereunder. (v) “Trade Secrets” means the trade secrets of the Company or the Company’s subsidiaries as defined under applicable law. (b) Confidentiality. Executive agrees that the Executive will not (other than in the performance of Executive’s duties hereunder), directly or indirectly, use,copy, disclose or otherwise distribute to any other person or entity: (a) any Confidential Information during the period of time the Executive is employed by theCompany and for a period of five years thereafter; or (b) any Trade Secret at any time such information constitutes a trade secret under applicable law. Upon thetermination of Executive’s employment with the Company (or upon the earlier request of the Company), Executive shall promptly return to the Company alldocuments and items in the Executive’s possession or under the Executive’s control which contain any Confidential Information or Trade Secrets. (c) Non-Competition. Executive agrees that during the Executive’s employment with the Company and for a period of two years thereafter, Executive willnot, either for himself or on behalf of any other person or entity, compete with the Business of the Company within the Restricted Territory by performing activitieswhich are the same as or similar to those performed by Executive for the Company or the Company’s subsidiaries. (d) Non-Solicitation of Customers. Executive agrees that during Executive’s employment with the Company and for a period of two years thereafter,Executive shall not, directly or indirectly, solicit any actual or prospective customers of the Company or the Company’s subsidiaries with whom Executive hadMaterial Contact, for the purpose of selling any products or services which compete with the Business of the Company (e) Non-Recruitment of Employees or Contractors. Executive agrees that during the Executive’s employment with the Company and for a period of twoyears thereafter, Executive will not, directly or indirectly, solicit or attempt to solicit any employee or contractor of the Company or the Company’s subsidiarieswith whom Executive had Material Contact, to terminate or lessen such employment or contract.11 (f) Obligations of the Company. The Company agrees to provide Executive with Confidential Information in order to enable Executive to performExecutive’s duties hereunder. The covenants of Executive contained in the covenants of Confidentiality, Non-Competition, Non-Solicitation of Customers andNon-Recruitment of Employees or Contractors set forth in Subsections 9(b) — 9(e) above (“Protective Covenants”) are made by Executive in consideration for theCompany’s agreement to provide Confidential Information to Executive, and intended to protect Company’s Confidential Information and the investments theCompany makes in training Executive and developing customer goodwill. (g) Acknowledgments. Executive hereby acknowledges and agrees that the covenants contained in (b) through (e) of this Section 9 and Section 10 hereofare reasonable as to time, scope and territory given the Company and the Company’s subsidiaries’ need to protect their business, customer relationships, personnel,Trade Secrets and Confidential Information. Executive acknowledges and represents that Executive has substantial experience and knowledge such that Executivecan readily obtain subsequent employment which does not violate this Agreement. (h) Specific Performance. Executive acknowledges and agrees that any breach of any of the Protective Covenants or the provisions of Section 10 by himwill cause irreparable damage to the Company or the Company’s subsidiaries, the exact amount of which will be difficult to determine, and that the remedies atlaw for any such breach will be inadequate. Accordingly, Executive agrees that, in addition to any other remedy that may be available at law, in equity, orhereunder, the Company shall be entitled to specific performance and injunctive relief, without posting bond or other security, to enforce or prevent any violationof any of the Protective Covenants by him. 10. Ownership of Work Product. (a) Assignment of Inventions. Executive will make full written disclosure to the Company, and hold in trust for the sole right and benefit of the Company,and hereby assigns to the Company, or its designees, all of the Executive’s right, title, and interest in and to any and all inventions, original works of authorship,developments, concepts, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which the Executive may solely orjointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time the Executive is engagedas an employee of the Company (collectively referred to as “Inventions”) and which (i) are developed using the equipment, supplies, facilities or ConfidentialInformation or Trade Secrets of the Company or the Company’s subsidiaries, (ii) result from or are suggested by work performed by Executive for the Company orthe Company’s subsidiaries, or (iii) relate at the time of conception or reduction to practice to the business as conducted by the Company or the Company’ssubsidiaries, or to the actual or demonstrably anticipated research or development of the Company or the Company’s subsidiaries, will be the sole and exclusiveproperty of the Company or the Company’s subsidiaries, and Executive will and hereby does assign all of the Executive’s right, title and interest in such Inventionsto the Company and the Company’s subsidiaries. Executive further acknowledge that all original works of authorship which are made by him (solely or jointlywith others) within the scope of and during the period of the Executive’s employment arrangement with the Company and which are protectible by copyright are“works made for hire,” as that term is defined in the United States Copyright Act.12 (b) Patent and Copyright Registrations. Executive agrees to assist the Company and the Company’s subsidiaries, or their designees, at the Company or theCompany’s subsidiaries’ expense, in every proper way to secure the Company’s or the Company’s subsidiaries’ rights in the Inventions and any copyrights,patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company and the Company’ssubsidiaries of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instrumentswhich the Company or the Company’s subsidiaries shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to theCompany and its subsidiaries, and their successors, assigns, and nominees the sole and exclusive rights, title and interest in and to such Inventions, and anycopyrights, patents, mask work rights or other intellectual property rights relating thereto. Executive further agree that the Executive’s obligation to execute orcause to be executed, when it is in the Executive’s power to do so, any such instrument or papers shall continue after the termination of this Agreement. (c) Inventions Retained and Licensed. There are no inventions, original works of authorship, developments, improvements, and trade secrets which weremade by Executive prior to the Executive’s employment with the Company (collectively referred to as “Prior Inventions”), which belong to Executive, which relateto the Company’s or the Company’s subsidiaries’ proposed business, products or research and development, and which are not assigned to the Company or theCompany’s subsidiaries hereunder. (d) Return of Company Property and Information. The Executive agrees not to remove any property of the Company or the Company’s subsidiaries orinformation from the premises of the Company or the Company’s subsidiaries, except when authorized by the Company or the Company’s subsidiaries. Executiveagrees to return all such property and information within seven days following the cessation of Executive’s employment for any reason. Such property includes, butis not limited to, the original and any copy (regardless of the manner in which it is recorded) of all information provided by the Company or the Company’ssubsidiaries to the Executive or which the Executive has developed or collected in the scope of the Executive’s employment, as well as all issued equipment,supplies, accessories, vehicles, keys, instruments, tools, devices, computers, cell phones, materials, documents, plans, records, notebooks, drawings, or papers.Upon request by the Company, the Executive shall certify in writing that all copies of information subject to this Agreement located on the Executive’s computersor other electronic storage devices have been permanently deleted. Provided, however, the Executive may retain copies of documents relating to any employeebenefit plans applicable to the Executive and income records to the extent necessary for the Executive to prepare the Executive’s individual tax returns. 11. Mitigation. The Executive shall not be required to mitigate the amount of any payment the Company becomes obligated to make to the Executive inconnection with this Agreement, by seeking other employment or otherwise. Except as specifically provided above with respect to the health care continuationbenefit, the amount of any payment provided for in Section 8 shall not be reduced, offset or subject to recovery by the Company by reason of any compensationearned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise.13 12. Withholding of Taxes. The Company shall withhold from any amounts or benefits payable under this Agreement all federal, state, city or other taxes thatthe Company is required to withhold under any applicable law, regulation or ruling. 13. Modification and Severability. The terms of this Agreement shall be presumed to be enforceable, and any reading causing unenforceability shall yield to aconstruction permitting enforcement. If any single covenant or provision in this Agreement shall be found unenforceable, it shall be severed and the remainingcovenants and provisions enforced in accordance with the tenor of the Agreement. In the event a court should determine not to enforce a covenant as written due tooverbreadth, the parties specifically agree that said covenant shall be enforced to the maximum extent reasonable, whether said revisions be in time, territory,scope of prohibited activities, or other respects. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia. 15. Remedies and Forum. The parties agree that they will not file any action arising out of this Agreement other than in the United States District Court for theNorthern District of Georgia or the State or Superior Courts of Cobb County, Georgia. Notwithstanding the pendency of any proceeding, either party shall beentitled to injunctive relief in a state or federal court located in Cobb County, Georgia upon a showing of irreparable injury. The parties consent to personaljurisdiction and venue solely within these forums and solely in Cobb County, Georgia and waive all otherwise possible objections thereto. The prevailing partyshall be entitled to recover its costs and attorney’s fees from the non-prevailing party(ies) in any such proceeding no later than 90 days following the settlement orfinal resolution of any such proceeding. The existence of any claim or cause of action by the Executive against the Company or the Company’s subsidiaries,including any dispute relating to the termination of this Agreement, shall not constitute a defense to enforcement of said covenants by injunction. 16. Notices. All written notices required by this Agreement shall be deemed given when delivered personally or sent by registered or certified mail, returnreceipt requested, or by a nationally-recognized overnight delivery service to the parties at their addresses set forth on the signature page of this Agreement. Eachparty may, from time to time, designate a different address to which notices should be sent. 17. Amendment. This Agreement may not be varied, altered, modified or in any way amended except by an instrument in writing executed by the partieshereto or their legal representatives. 18. Binding Effect. This Agreement shall be binding on the Executive and the Company and their respective successors and assigns effective on the EffectiveDate. Executive consents to any assignment of this Agreement by the Company, so long as the Company will require any successor to all or substantially all of thebusiness and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Companywould be required to perform it if no such succession had taken place. If the Executive dies before receiving all payments due under this Agreement, unlessexpressly otherwise provided hereunder or in a separate plan, program, arrangement or agreement, any remaining payments due after the Executive’s death shallbe made to the Executive’s beneficiary designated in14 writing (provided such writing is executed and dated by the Executive and delivered to the Company in a form acceptable to the Company prior to the Executive’sdeath) and surviving the Executive or, if none, to the Executive’s estate. 19. No Construction Against Any Party. This Agreement is the product of informed negotiations between the Executive and the Company. If any part of thisAgreement is deemed to be unclear or ambiguous, it shall be construed as if it were drafted jointly by all parties. The Executive and the Company agree that noneof the parties were in a superior bargaining position regarding the substantive terms of this Agreement. 20. Deferred Compensation Omnibus Provision. Notwithstanding any other provision of this Agreement, it is intended that any payment or benefit which isprovided pursuant to or in connection with this Agreement which is considered to be deferred compensation subject to Section 409A of the Code shall be providedand paid in a manner, and at such time, including without limitation payment and provision of benefits only in connection with the occurrence of a permissiblepayment event contained in Section 409A (e.g. separation from service from the Company and its affiliates as defined for purposes of Section 409A of the Code),and in such form, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided therein for non-compliance. Notwithstanding any other provision of this Agreement, the Company’s Compensation Committee or Board of Directors is authorized to amend thisAgreement, to amend or void any election made by the Executive under this Agreement and/or to delay the payment of any monies and/or provision of any benefitsin such manner as may be determined by it to be necessary or appropriate to comply, or to evidence or further evidence required compliance, with Section 409A ofthe Code (including any transition or grandfather rules thereunder). For purposes of this Agreement, all rights to payments and benefits hereunder shall be treatedas rights to receive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code. If the Executive is a key employee (asdefined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company’s stock is publicly traded on an established securitiesmarket or otherwise, then payment of any amount or provision of any benefit under this Agreement which is considered deferred compensation subject toSection 409A of the Code shall be deferred for six (6) months after termination of Executive’s employment or, if earlier, Executive’s death, as required bySection 409A(a)(2)(B)(i) of the Code (the “409A Deferral Period”). In the event such payments are otherwise due to be made in installments or periodically duringthe 409A Deferral Period, the payments which would otherwise have been made in the 409A Deferral Period shall be accumulated and paid in a lump sum as soonas the 409A Deferral Period ends, and the balance of the payments shall be made as otherwise scheduled. In the event benefits are required to be deferred, any suchbenefit may be provided during the 409A Deferral Period at the Executive’s expense, with the Executive having a right to reimbursement from the Company oncethe 409A Deferral Period ends, and the balance of the benefits shall be provided as otherwise scheduled. For purposes of this Agreement, termination ofemployment shall mean a “separation from service” within the meaning of Section 409A of the Code where it is reasonably anticipated that no further serviceswould be performed after such date or that the level of bona fide services Executive would perform after that date (whether as an employee or independentcontractor) would permanently decrease to no more than 20 percent of the average level of bona fide services performed over the immediately preceding 36-monthperiod (or, if lesser, Executive’s period of service).15 21. Mandatory Reduction of Payments in Certain Events. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determinedthat any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms ofthis Agreement or otherwise) (a “Payment”) would be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 of the Code, then, prior to the makingof any Payment to Executive, a calculation shall be made comparing (i) the net benefit to Executive of the Payment after payment of the Excise Tax to (ii) the netbenefit to Executive if the Payment had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above isless than the amount calculated under (ii) above, then the Payment shall be limited to the extent necessary to avoid being subject to the Excise Tax (the “ReducedAmount”). In that event, cash payments shall be modified or reduced first and then any other benefits. The determination of whether an Excise Tax would beimposed, the amount of such Excise Tax, and the calculation of the amounts referred to in clauses (i) and (ii) of the foregoing sentence shall be made by anindependent accounting firm selected by Company and reasonably acceptable to the Executive, at the Company’s expense (the “Accounting Firm”), and theAccounting Firm shall provide detailed supporting calculations. Any determination by the Accounting Firm shall be binding upon the Company and Executive. Asa result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possiblethat Payments which Executive was entitled to, but did not receive pursuant to this Section 21, could have been made without the imposition of the Excise Tax(“Underpayment”). In such event, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall bepromptly paid by the Company to or for the benefit of the Executive. 22. Entire Agreement. Except as provided in the next sentence, this Agreement constitutes the entire agreement of the parties with respect to the mattersaddressed herein and it supersedes all other prior agreements and understandings, both written and oral, express or implied, with respect to the subject matter of thisAgreement. It is further specifically agreed and acknowledged that, except as provided herein, the Executive shall not be entitled to severance payments or benefitsunder any severance or similar plan, program, arrangement or agreement of or with the Company for any termination of employment occurring while thisAgreement is in effect.[Signatures are on the following page.]16 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written herein. PRG-SCHULTZ INTERNATIONAL, INC. By: /s/ Victor A. Allums Victor A. Allums Senior Vice President, Secretary andGeneral Counsel EXECUTIVE /s/ Michael Noel Michael Noel 8001 Indian Palms TrailMcKinney, Texas 75070 17 EXHIBIT AADDITIONAL TERMS, COMPENSATION AND BENEFITS1. One-Time Bonus. The Executive will be eligible to receive a one-time bonus in the aggregate amount of $60,000 (subject to applicable tax withholding)payable on or before December 31, 2009, subject to the Executive’s continued employment until such time, and provided that Executive commencesemployment with the Company on or before October 31, 2009. 2. Equity Compensation. The Company shall grant to the Executive on the Effective Date, as an initial equity award, a one time grant of 10,000 stock optionsand 10,000 shares of restricted stock. Such grants shall vest over three years (1/3 on each of the first, second and third anniversaries of the date of grant) andshall otherwise be made pursuant to grant agreements used in grants of equity to the Company’s other executives in May, 2009; provided that theaforementioned stock options shall have an exercise price equal to the closing price of the Company’s common stock on the Nasdaq Global Market on thegrant date. 3. Relocation Expenses. The Company shall provide the Executive with relocation benefits in accordance with the Company’s Relocation Guidelines inconnection with the Executive’s relocation to Atlanta, Georgia, limited to total reimbursements for relocation benefits of $50,000 (assuming reimbursements ofexpenses in the order they are incurred), unless otherwise approved in advance in writing by the Senior Vice President — Human Resources or Chief FinancialOfficer. The Company also shall pay to Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive afterdeduction of any federal, state, local, employment and other taxes (collectively “Taxes”) imposed upon the Gross-Up Payment equals any Taxes imposed uponthe taxable portion of any of Executive’s reimbursements for relocation benefits. The Gross-Up Payment is not subject to the $50,000 limit for reimbursementsof relocation benefits. The Executive agrees to relocate his primary residence to the Atlanta metropolitan area no later than June 30, 2010. All suchreimbursements and any related Gross-Up Payment will be made in 2010 regardless of when the Executive incurs the covered expenses or is subject to Taxeson any such payments.  EXHIBIT BRESTRICTED TERRITORYThe Atlanta-Sandy Springs-Marietta, GA Metropolitan Statistical Area. EXHIBIT 21.1PRGX GLOBAL, INC.SUBSIDIARIESAs of December 31, 2010 Company Jurisdiction of OrganizationPRGX USA, Inc. GeorgiaPRGX Asia, Inc. GeorgiaPRGX Australia, Inc. GeorgiaPRGX Belgium, Inc. GeorgiaPRGX Canada, LLC GeorgiaPRGX Costa Rica, Inc. GeorgiaPRGX New Zealand, Inc. GeorgiaPRGX Netherlands, Inc. GeorgiaPRGX Mexico, Inc. GeorgiaPRGX France, Inc. GeorgiaPRGX Germany, Inc. GeorgiaPRGX Acquisition, Corp. GeorgiaPRGX Switzerland, Inc. GeorgiaPRGX Italy, Inc. GeorgiaPRGX Spain, Inc. GeorgiaPRGX Portugal, Inc. GeorgiaPRG International, Inc. GeorgiaPRG USA, Inc. GeorgiaPRGX Scandinavia, Inc. GeorgiaPRGX Holdings, Inc. GeorgiaPRGX Puerto Rico, Inc. GeorgiaPRGX Chile, Inc. GeorgiaPRGX Europe, Inc. GeorgiaPRGX Brasil, LLC GeorgiaPRGX India Private Limited IndiaPRGX Holdings Mexico, S de RL de CV MexicoPRGX Servicios Mexico S de RL de CV MexicoPRGX de Mexico S de RL de CV MexicoPRGX Argentina S.A. ArgentinaProfit Recovery Brasil Ltda. BrazilPRG-Schultz International PTE LTD SingaporePRG-Schultz Suzhou’ Co Ltd. ChinaPRG-Schultz CR s.r.o. Czech RepublicPRGFS, Inc. DelawarePRGX Texas, Inc. TexasMeridian Corporation Limited Jersey (Channel Islands)PRGX UK Holdings Ltd United KingdomPRG-Schultz Ireland LTD IrelandPRGX UK Ltd United KingdomEtesius Limited United KingdomPRGX Canada Corp. Canada  Company Jurisdiction of OrganizationPRG-Schultz Deutschland GmbH GermanyPRGX Nederland B.V. NetherlandsPRG-Schultz Italia SRL ItalyPRG-Schultz Peru S.R.L. PeruPRG-Schultz Colombia Ltda. ColumbiaPRG-Schultz Svenska AB SwedenPRG-Schultz Venezuela S. R. L. VenezuelaPRG-Schultz Polska Sp. z o.o PolandHoward Schultz & Associates (Asia) Limited Hong KongHS&A International PTE LTD SingaporePRG-Schultz (Thailand) Limited ThailandHoward Schultz de Mexico, S.A. de C.V. MexicoPRGDS, LLC GeorgiaPRGTS, LLC Georgia EXHIBIT 23.1Consent of Independent Registered Public Accounting FirmPRGX Global, Inc.Atlanta, GeorgiaWe hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-134698 and No. 333-171986) and Form S-8 (FileNo. 333-153837, No. 333-64125, No. 333-08707, No. 333-30885, No. 333-61578, No. 333-81168, No. 333-100817, No. 333-137438 and No. 333-170809) ofPRGX Global, Inc. and subsidiaries of our reports dated March 16, 2011, relating to the consolidated financial statements and financial statement schedule, and theeffectiveness of PRGX Global, Inc. and subsidiaries’ internal control over financial reporting, which appear in this Form 10-K./s/ BDO USA, LLPAtlanta, GeorgiaMarch 16, 2011 EXHIBIT 31.1CERTIFICATIONI, Romil Bahl, certify that: 1. I have reviewed this Form 10-K of PRGX Global, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly duringthe period in which this report is being prepared; and (b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles; and (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. By: /s/ Romil Bahl Romil Bahl March 16, 2011 President, Chief Executive Officer, Director(Principal Executive Officer)  EXHIBIT 31.2CERTIFICATIONI, Robert B. Lee, certify that: 1. I have reviewed this Form 10-K of PRGX Global, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly duringthe period in which this report is being prepared; and (b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles; and (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. By: /s/ Robert B. Lee Robert B. Lee March 16, 2011 Chief Financial Officer and Treasurer (Principal Financial Officer)  EXHIBIT 32.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of PRGX Global, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2010 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Romil Bahl, President and Chief Executive Officer of the Company and I, Robert B.Lee, Chief Financial Officer and Treasurer, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the bestof the undersigned’s knowledge: (1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) theinformation contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Romil Bahl Romil Bahl March 16, 2011 President, Chief Executive Officer, Director (Principal Executive Officer) By: /s/ Robert B. Lee Robert B. Lee March 16, 2011 Chief Financial Officer and Treasurer (Principal Financial Officer) 

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