PRGX Global, Inc.
Annual Report 2015

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549________________________________________FORM 10-K ________________________________________(Mark One)ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number 0-28000 PRGX 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 30339-5986Suite 100 (Zip Code)Atlanta, Georgia (Address of principal executive offices) Registrant’s telephone number, including area code: (770) 779-3900Securities registered pursuant to Section 12(b) of the Act:Title of each className of each exchange on which registeredCommon Stock, No Par ValueThe NASDAQ Stock Market LLC (The Nasdaq Global Select Market)Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct. Yes ¨ No ýIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ýNote – 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 theirobligations under 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 1934during the 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 requirementsfor the past 90 days. Yes ý No ¨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 bestof the 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. ýIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File requiredto be 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 ý No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):¨ Large accelerated filerýAccelerated filer¨Non-accelerated filer¨Smaller reporting companyIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ýThe aggregate market value, as of June 30, 2015, of common shares of the registrant held by non-affiliates of the registrant was approximately $103.3million, based upon the last sales price reported that date on The Nasdaq Global Select Market of $4.39 per share. (Aggregate market value is estimated solely forthe 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 at March 6, 2016 were 22,235,310.Documents Incorporated by ReferencePart III: Portions of Registrant’s Proxy Statement relating to the Company’s 2016 Annual Meeting of Shareholders. Table of ContentsPRGX GLOBAL, INC.FORM 10-KDecember 31, 2015INDEX Page No.Part I Item 1. Business1Item 1A. Risk Factors9Item 1B. Unresolved Staff Comments15Item 2. Properties15Item 3. Legal Proceedings15Item 4. Mine Safety Disclosures15 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities16Item 6. Selected Financial Data18Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations20Item 7A. Quantitative and Qualitative Disclosures About Market Risk36Item 8. Financial Statements and Supplementary Data37Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure76Item 9A. Controls and Procedures76Item 9B. Other Information77Part III Item 10. Directors, Executive Officers and Corporate Governance78Item 11. Executive Compensation78Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stock Matters79Item 13. Certain Relationships and Related Transactions, and Director Independence80Item 14. Principal Accountant Fees and Services80Part IV Item 15. Exhibits, Financial Statement Schedules81Signatures86Table of ContentsCautionary Statement Regarding Forward-Looking StatementsThe 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 growthstrategy;•our continued dependence on our largest clients for significantrevenue;•the use of internal recovery audit groups by our clients, reducing the amount of recoveries available tous;•commoditization of our services and the effects of ratereductions;•the significant control that our clients have over assertion or acceptance of recovery audit claims against their suppliers and the correspondingimpact on our revenue;•changes to Medicare and Medicaid recovery audit contractor (“RAC”) programs administered by the Centers for Medicare and MedicaidServices (“CMS”) and other government agencies, and our role in the national Medicare RAC program, the results of operations of which arereported in our discontinued operations;•revenue that does not meet expectations or justify costsincurred;•our ability to develop material sources of new revenue in addition to revenue from our core accounts payable recovery auditservices;•changes in the market for ourservices;•client and vendor bankruptcies and financialdifficulties;•our ability to retain and attract qualified personnel and effectively manage our globalworkforce;•our inability to protect and maintain the competitive advantage of our proprietary technology and intellectual propertyrights;•our reliance on operations outside the U.S. for a significant portion of ourrevenue;•our ability to effectively manage foreign currencyfluctuations;•the highly competitive environments in which our recovery audit services and Adjacent Services businesses operate and the resulting pricingpressure on those businesses;•our ability to integrate recent and futureacquisitions;•our ability to realize operational cost savings and the transformation severance and related expenses we may incur to generate thesesavings;•uncertainty in the global creditmarkets;•our ability to maintain compliance with the financial and non-financial covenants in our financingarrangements;•our tax positions and other factors that could affect our effective income tax rate or our ability to use our existing deferred taxassets;•our ability to operate in compliance with changing data privacyrequirements;•a cyber-security incident involving the misappropriation, loss or unauthorized disclosure or use of client data or other confidential information ofour clients;•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 nocontrol.iTable of ContentsAny 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.iiTable of ContentsPART IITEM 1. BusinessPRGX Global, Inc., together with its subsidiaries, is a global leader in recovery audit and spend analytics services based in the United States of America(“U.S.”) and serves clients in more than 30 countries. PRGX Global, Inc. was incorporated in the State of Georgia in 1996. At the heart of our client servicesportfolio is the core capability of mining client data to deliver “actionable insights.” Actionable insights allow our clients to improve their financial performance byreducing costs, improving business processes and increasing profitability.The vast majority of our revenue comes from “recovery audit,” a service based on the mining of a tremendous amount of our clients’ purchasing data, lookingfor overpayments to their third-party suppliers. PRGX is the world's leading provider of accounts payable recovery audit services principally to large businessesand government agencies with high volumes of transactions and complex pricing arrangements with vendors. We provide services to 75% of the top 20 globalretailers and earn the largest portion of our revenue from our retail clients. Recovery audit in the retail industry is a mature service offering and we have beenserving a number of our clients for decades. Pricing of merchandise for resale in the retail industry is extremely complex due to the high volume of promotions,allowances and rebates provided by suppliers. The second largest portion of our business is referred to within the recovery audit business as “commercial.”Commercial recovery auditing is the delivery of recovery audit services to industries other than retail, such as automotive and industrial manufacturing, oil andgas, financial services, mining and transportation. Recovery audit in the industries represented within commercial is typically less mature in terms of complexity ofvendor pricing, scope of purchase transactions made available for audit and depth of audit programs within individual companies. “Contract compliance” auditingis a specific type of recovery auditing which is more heavily utilized by commercial clients and is expected to be a growing part of our business. This serviceoffering focuses on auditing supplier billings against large and complex service, construction and licensing contracts, and is particularly relevant to oil and gas,mining, technology, media and brand dependent manufacturing companies. As the leader in the recovery audit industry we continue to innovate throughtechnological advances innovations and expanded service offerings, including spend analytics and supplier information management services. These services targetclient functional and process areas where we have established expertise, enabling us to provide services to finance, merchandising and procurement executives toimprove working capital, optimize purchasing leverage in vendor pricing negotiations, improve insight into product margin and true cost of goods for resale,identify and manage risks associated with vendor compliance, improve quality of vendor master data and improve visibility and diagnostics of direct and indirectspend. These service offerings are increasingly important to our business and are applicable to clients in both retail and commercial industries.PRGX is unique in that we are a global recovery audit services provider, serving clients in over 30 countries across a multitude of industries. We conduct ouroperations through three reportable segments: Recovery Audit Services - Americas, Recovery Audit Services - Europe/Asia-Pacific and Adjacent Services. TheRecovery Audit Services - Americas segment represents recovery audit services we provide in the U.S., Canada and Latin America and is our largest segment interms of clients served and revenue generated. The Recovery Audit Services - Europe/Asia-Pacific segment represents recovery audit services we provide inEurope, Asia and the Pacific region and is responsible for a significant portion of our revenue. Our Adjacent Services offerings are generally provided to clients ona global basis. We report the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three reportablesegments in Corporate Support. For additional financial information relating to our reporting segments, see Note 2 - Operating Segments and Related Informationof our Consolidated Financial Statements included in Item 8 of this Form 10-K.As of December 31, 2015, the Company discontinued its Healthcare Claims Recovery Audit ("HCRA") business. PRGX entered into agreements with thirdparties to fulfill its Medicare RAC program subcontract obligations to audit Medicare payments and provide support for claims appeals and assigned its remainingMedicaid contract to another party. The Company will continue to incur certain expenses while the current Medicare RAC contracts are still in effect.1Table of ContentsThe Recovery Audit Industry and PRGXMany businesses and government agencies generate substantial volumes of payment transactions involving multiple vendors, numerous discounts andallowances, fluctuating prices and complex pricing arrangements or rate structures. Although these entities correctly process the vast majority of paymenttransactions, errors occur in a small percentage of transactions. These errors include, but are not limited to, missed or inaccurate discounts, allowances and rebates,vendor pricing errors, erroneous coding and duplicate payments. Many factors contribute to the errors, including communication failures between the purchasingand accounts payable departments, complex pricing arrangements or rate structures, personnel turnover and changes in information and accounting systems. In theaggregate, these transaction errors can represent meaningful amounts of reduced cash flow and lost profits for these entities. Recovery auditing is a business servicefocused on finding overpayments created by these errors. These audits typically entail comprehensive and customized data acquisition from the client, frequentlyincluding purchasing, receiving, point-of-sale, pricing and deal documentation, emails, and payment data.PRGX, like most companies in the recovery audit services industry, generates the majority of its revenue through contingent fee arrangements, sharing a pre-determined percentage of successful claims or “recoveries” generated from an audit. There are certain recovery audit services or types of audits that are billed as afixed fee or on a time and materials basis, but the vast majority of our revenue is generated through contingent fee contracts.Recovery audit clients generally recover claims by either (a) taking credits against outstanding payables or future purchases from the involved vendors orservice providers, or (b) receiving refund checks directly from those vendors or service providers. Industry practice generally dictates the manner in which a clientreceives the benefit for a recovery audit claim. In many cases, we must satisfy client-specific procedural guidelines before we can submit recovery audit claims forclient approval.Contracts with recovery audit clients generally vary in length from one year to three years, with some being evergreen. Most of our recovery audit contractsprovide that the client may terminate the contract without cause prior to the completion of the term of the agreement by providing relatively short prior writtennotice of termination.As businesses have evolved, PRGX and the recovery audit industry have evolved with them, innovating processes, error identification tools, and claim typesto maximize recoveries. The following are a number of factors 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 theInternet - to exchange inventory and sales data, transmit purchase orders, submit invoices, forward shipping and receiving information and remit payments. Thesesystems capture more detailed data and enable the cost effective review of more transactions by recovery auditors.•Increased Role of Email Documentation in Client Transaction Data. Clients and vendors increasingly document transaction terms in emailcorrespondence that is not integrated into their financial systems and increases opportunities for errors. To efficiently identify these errors, recovery audit firmsmust use sophisticated technology-based tools that are able to ingest and search through massive volumes of emails to identify potential errors that then areinvestigated by the auditors. A comprehensive recovery audit requires the effective use of technology-based email search tools and techniques.•Increasing Number of Auditable Claim Categories. Traditionally, the recovery audit industry identified simple, or “disbursement,” claim types such asthe duplicate payment of invoices. Enhancements to accounts payable software, particularly large enterprise software solutions used by many large companies,have reduced the extent to which these companies make simple disbursement errors. However, the introduction of creative vendor discount programs, complexpricing arrangements and activity-based incentives has led to an increase in auditable transactions and potential sources of error. These transactions arecomplicated to audit, as the underlying transaction data is difficult to access and recognizing mistakes is complex. Recovery audit firms such as PRGX withsignificant industry-specific expertise and sophisticated technology are best equipped to audit these complicated claim categories.•Globalization. As the operations of business enterprises become increasingly multi-national, they often seek service providers with a global reach.Sophistication in systems and processes varies markedly across the global network of suppliers which further drives the need for our services. PRGX serves clientsin more than 30 countries and we believe we are the recovery audit service provider best suited to deliver multi-national audits.•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 trade promotion withinretail, there are significant opportunities for mistakes and, therefore, auditable claims.•Technology Platform. The ability to efficiently and cost effectively ingest large volumes of structured and unstructured data is critical to providing best inclass recovery audit services. We believe we have developed the most sophisticated and2Table of Contentshighest performing large data processing infrastructure system in our industry. This system is based on the Hadoop open source technology standard and allows usto effectively process and manage our clients’ data. We are achieving significant acceleration in data processing speeds for both structured and unstructured datasets, which supports our efforts to accelerate audit results and transform our core audit processes.We expect the evolution of the recovery audit industry to continue. In particular, we expect that the industry will continue to move towards the electroniccapture and presentation of data, more automated, centralized processing and auditing closer to the time of the payment transaction.Adjacent ServicesOur Adjacent Services business targets client functional and process areas where we have established expertise, enabling us to provide services to finance,merchandising and procurement executives to improve working capital, optimize purchasing leverage in vendor pricing negotiations, improve insight into productmargin and true cost of goods for resale, identify and manage risks associated with vendor compliance, improve quality of vendor master data and improvevisibility and diagnostics of direct and indirect spend. Our Adjacent Services also include our global Supplier Information Management ("SIM") services offering,as well as the CIPS Sustainability Index ("CSI") offered in the United Kingdom through our strategic alliance with the Chartered Institute of Purchasing & Supply("CIPS"). As our clients’ data volumes and complexity levels continue to grow, we are using our deep data management experience to develop new actionableinsight solutions, compliance related tools, custom analytics and data transformation services. Taken together, our deep understanding of our clients’ procure-to-pay data and our technology-based solutions provide multiple routes to help our clients achieve greater profitability.ClientsPRGX provides its services principally to large businesses and government agencies having a tremendous volume of payment transactions and complexprocurement environments. Retailers continue to constitute the largest part of our client and revenue base. Our five largest clients contributed approximately 34.5%of our revenue in 2015, 32.2% in 2014 and 30.4% in 2013. No client has accounted for 10% or more of our total revenue in the past three years.Some organizations (primarily 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, capabilities and focused technologies. In the U.S., Canada, the United Kingdom, France, Mexico, Brazil, and Australia, large retailersroutinely engage independent recovery audit firms as a standard business practice. It is typical in the retail industry for large firms to engage a primary audit firm atone contingency fee rate and a secondary firm to audit behind the primary at a higher rate. Our commercial recovery audit clients are typically Fortune 1000companies with multi-billion dollars of purchase transactions to be audited. These clients range from large multi-national manufacturing and oil and gascompanies, to large regional or national financial services institutions to global high tech software organizations. The audit specialty practice of contractcompliance is applicable across most of our clients, but is particularly relevant to large "resource" companies (including oil and gas and mining) and industrialmanufacturing and brand-dependent service and manufacturing companies.3Table of ContentsThe PRGX StrategyPRGX is a global leader in recovery audit and spend analytics services. We provide recovery audit, procure-to-pay performance improvement, spendanalytics and risk management services principally to large businesses and government agencies having a tremendous volume of payment transactions andcomplex procurement environments. We plan to achieve higher profitability and growth through the following strategy:1.Deliver value, operational efficiency and innovative services to our customers;2.Differentiate our service offerings and capabilities;3.Expand into new high potential industry verticals; and4.Attract and develop highly qualified and motivated professionals with deep industry knowledge and technical skills.Deliver value, operational efficiency and innovative services to our customersOur value delivery, operational efficiency and service innovation efforts start with a solid foundation of technology infrastructure and lean process design.We are consolidating our clients’ data into a centralized, high performance technology infrastructure, deploying global best practices and rolling out world classand proprietary audit tools to drive deeper recoveries and enable next generation audit concepts. We expect to achieve our objectives through process redesigncoupled with investing in new infrastructure and aggressively rolling out new technologies across our global audits. These investments in infrastructure andprocesses are fundamental to optimization and efficiency. They also serve as the foundation for service innovation efforts in our core recovery audit business andin Adjacent Services.Differentiate our service offerings and capabilitiesWe plan to differentiate our service offerings and capabilities through meaningful and sustainable innovation such as:•Audit acceleration. Our clients are constantly seeking to accelerate the audit process to deliver audit results closer to the time of the transaction to increaserecovery yields, provide a greater opportunity to address process errors, and reduce supplier abrasion. We believe that our deep and broad businessprocess experience across thousands of audits, together with new technology initiatives will put us in a unique position to achieve superior accelerationresults for our clients.•Global audit programs. Our global programs take advantage of our operations that span over 30 countries to provide true global audit capabilities to multi-national companies. This unique perspective gives our clients visibility to their business practice variations around the world and creates value for ourclients by allowing them to see their data in new ways.•Adjacent Services. Our Adjacent Services offerings, including spend analytics and SIM services, target client functional and process areas where we haveestablished expertise, enabling us to provide services to finance, merchandising and procurement executives. These services will assist our clients inimproving many aspects of their businesses, including working capital, purchasing leverage, product margin, vendor compliance and risk management,vendor master data and diagnostics of direct and indirect spend.Expand into new high potential industry verticalsOur plans include continuing to build our commercial recovery audit practice, which serves industries outside of retail and healthcare, in order to reduce ourindustry concentration. We have organized the commercial recovery audit practice into industry verticals such as oil and gas, financial services and manufacturingand are building focused practice areas with targeted service offerings for each industry.Attract and develop highly qualified and motivated professionals with deep industry and technical skillsWe are building a culture of results-oriented performance where professionals can share ideas and work together to capture, understand, and deploy the verybest practices consistently across every client globally.In line with our focus on delivering value and operating efficiently, we have identified and are executing on these near-term initiatives:•Continue our focus on consistent delivery excellence through standard processes, methodologies and tools across all of our geographicterritories;•Accelerate the implementation of our global shared service delivery model centered on our regional and global shared servicecenters;•Leverage state of the market technologies to drive faster processing and deeper analytics with the massive amount of data we receive from our clients.Technologies enabling large data manipulation and unstructured data analysis are4Table of Contentsevolving at a very rapid rate. We plan to remain at the forefront of these technologies and maintain the most secure and trusted infrastructure environmentin our industry; and•Further develop and sell our Adjacent Servicesofferings.5Table of ContentsTechnologyPRGX uses advanced, proprietary information systems and processes and a large-scale technology infrastructure to conduct its audits of clients’ paymenttransactions. The ability to efficiently and cost effectively ingest large volumes of structured and unstructured data is critical to providing best in class recoveryaudit and spend analytics services. We believe we have developed the most sophisticated and highest performing large data processing infrastructure system in therecovery audit industry. This system is based on the Hadoop open source technology standard and allows us to effectively process and manage our clients’ data.We are achieving significant acceleration in data processing speeds for both structured and unstructured data sets, which supports our efforts to accelerate auditresults, transform core audit processes and deliver actionable spend analytics insights.We believe that our proprietary technology and processes serve as important competitive advantages over both our principal competitors and our clients’ in-house internal recovery audit functions. To sustain these competitive advantages, we continually invest in technology initiatives to deliver innovative solutions thatimprove both the effectiveness and efficiency of our services.We focus our data acquisition, data processing and data management methodologies on maximizing efficiencies and productivity and maintaining the higheststandards of transaction auditing and spend analytics accuracy. At the beginning of a typical recovery audit or spend analytics engagement, we use a dedicated staffof data acquisition specialists and proprietary tools to acquire a wide array of transaction data from the client for the time period under review. We typicallyreceive this data by secured electronic transmissions, digital media or paper. For paper-based data, we use a custom, proprietary imaging technology to scan thepaper into electronic format. Upon receipt of the data, we secure, catalog, back up and convert it into standard, readable formats using third party and proprietarytools.Our technology professionals clean and map massive volumes of structured and unstructured client data, primarily using high performance database andstorage technologies, into standardized layouts at one of our data processing facilities. We also generate statistical reports to verify the completeness and accuracyof the data.We then process the data using proprietary algorithms (business rules) leveraging over thirty years’ experience to help uncover patterns or potential problemsin 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, filter and search the data to validate and identify actual transaction errors. We also maintain a secure database of audit information with the ability to query onmultiple variables, including claim categories, industry codes, vendors and audit years, to facilitate the identification of additional recovery opportunities andprovide recommendations for process improvements to clients.Once we identify and validate transaction errors, we present the information to clients for approval and submission to vendors as “claims.” We offer aproprietary web-based claim presentation and collaboration tool 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 the client 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.CompetitionAccounts Payable Recovery Audit ServicesWe believe that the principal providers of domestic and international accounts payable recovery audit services in major markets worldwide consist of PRGX,two substantial competitors, and numerous other smaller competitors. The smaller recovery audit firms generally do not possess multi-country service capabilitiesand do not have the centralized resources or broad client base required to support the technology investments necessary to provide comprehensive recovery auditservices for large, complex accounts payable systems. These smaller firms, therefore, are less equipped to audit large, data-intensive purchasing and accountspayable systems. In addition, many of these firms have limited resources and may lack the experience and knowledge of national promotions, seasonal allowancesand current recovery audit practices. As a result, we believe that compared to most other firms providing accounts payable recovery audit services, PRGX hascompetitive advantages based on its domestic and international presence, well-trained and experienced professionals, and advanced 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 store sectors) have developedan internal 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 have6Table of Contentsobserved that virtually all large retail clients retain at least one (primary), and frequently two (primary and secondary), external recovery audit firms to captureerrors 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 two companies other than PRGX offer 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, including one of our two substantial competitors, that offer a hybrid of audit software tools and training for use by internal audit departments, orgeneral accounts payable process improvement enablers; and•Firms with specialized skills focused on recovery audit services for discrete sectors such as sales and use tax, telecom, freight or realestate.Other Providers of Recovery Audit Services. The major international accounting firms provide recovery audit services; however, we believe their practicestend to be primarily focused on tax-related services.Adjacent ServicesOur Adjacent Services business faces competition from regional and local consulting firms; privately and publicly held global and national firms; large, well-known ERP software vendors; procurement-specific software providers and smaller, very specialized analytics providers. These businesses generally compete onthe basis of the breadth, quality and cost of the services and products provided to clients. We believe that we differentiate ourselves from our competitors throughour in-depth knowledge of our clients’ purchasing processes, systems and data, along with our direct channel to our existing clients.Hiring, Training and Compensation of PersonnelMany of our auditors and other professionals formerly held finance-related management positions in the industries we serve. Training primarily is providedin the field by our experienced professionals enabling newly hired personnel to develop and refine their skills and improve productivity. We also use various othertraining materials such as process manuals and documented policies and procedures to supplement the field training provided by our experienced professionals. Weperiodically upgrade our training programs based on feedback from auditors and changing industry protocols. Many of our professionals participate in one of ourincentive compensation plans that link their compensation to the financial performance of their service offering(s).Proprietary RightsFrom time to time, we develop new software and methodologies that replace or enhance existing proprietary software and methodologies. We rely primarilyon trade secret and copyright protection for our proprietary software and other proprietary information. We capitalize the costs incurred for the development ofcomputer software that will be sold, leased, or otherwise marketed or that will be used in our operations beginning when technological feasibility has beenestablished. We consider the costs associated with developing or replacing methodologies to be research and development costs and expense them as incurred.Research and development costs, including the amortization of amounts previously capitalized, were approximately $3.0 million in 2015, $3.1 million in 2014 and$6.0 million in 2013.We own or have rights to various trademarks, trade names and copyrights, including U.S. and foreign registered trademarks and trade names and U.S.registered copyrights, that are valuable assets and important to our business. We monitor the status of our copyright and trademark registrations to maintain them inforce and renew them as appropriate. The duration of our active trademark registrations varies based upon the relevant statutes in the applicable jurisdiction, butgenerally endure for as long as they are used. The duration of our active copyright registrations similarly varies based on the relevant statutes in the applicablejurisdiction, but generally endure for the full statutory period. Our trademarks and trade names are of significant importance and include, but are not limited to, thefollowing: PRGX®, Discover Your Hidden Profits®, SureF!nd®, Four Way Match®, Thrive in the Data™, PRG-Schultz™, imDex™, Profit Discovery™, GET™; PRGX APTrax™, PRGX AuditTrax™, PRGX ClaimTrax™, PRGX MailTrax™, PRGX MerchTrax™, and PRGX SpendTrax™.7Table of ContentsRegulationVarious aspects of our business, including, without limitation, our data flows and our data acquisition, processing and reporting protocols, are subject toextensive and frequently changing governmental regulation in both the U.S. and internationally. These regulations include extensive data protection and privacyrequirements. In the U.S., we are subject to the provisions of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) with respect to ourdiscontinued HCRA business. Internationally, we must comply with the European Data Protection Directive that various members of the European Union haveimplemented, as well as with data protection laws that exist in many of the other countries where we serve clients. Failure to comply with such regulations may,depending on the nature of the noncompliance, result in the termination or loss of contracts, the imposition of contractual damages, civil sanctions, damage to ourreputation or in certain circumstances, criminal penalties.EmployeesAs of January 31, 2016, PRGX had approximately 1,460 employees, of whom approximately 550 were in the U.S. The majority of our employees areinvolved in our recovery audit business.WebsitePRGX 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 onForm 8-K and all amendments to those reports. PRGX makes all filings with the Securities and Exchange Commission ("SEC") available on its website no laterthan the close of business on the date the filing was made. In addition, investors can access our filings with the Securities and Exchange Commission atwww.sec.gov.We also post certain corporate governance materials, including our Board of Directors committee charters and our Code of Conduct and Code of Ethics ForSenior Financial Officers, on our website under the heading “Corporate Governance” on the “Investors” page. From time to time, we may update the corporategovernance materials on our website as necessary to comply with rules issued by the SEC or NASDAQ, or as desirable to further the continued effective andefficient governance of our company.8Table of ContentsITEM 1A. Risk FactorsRevenue from our accounts payable recovery audit business generally has declined in the past several years. We must successfully execute our growth strategyin order to increase our revenue, 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 an internal staff that audits 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, our dependency on clientapproval of identified claims, and loss of clients and reduced audit scope at existing clients from time to time, without improved audit execution, rate stabilizationand acquisition of new clients, we believe that our accounts payable recovery audit business will experience revenue declines and may incur losses.We depend on our largest clients for significant revenue, so losing a major client could adversely affect our revenue and liquidity.We generate a significant portion of our revenue from our largest clients. Our five largest clients collectively accounted for 34.5% of our annual revenue in2015, 32.2% in 2014 and 30.4% in 2013. No client has accounted for 10% or more of our total revenue in the past three years. If we lose any of our major clients,our results of operations and liquidity could be materially and adversely affected.Although we continually seek to diversify our client base, we may be unable to offset the effects of an adverse change in one of our key client relationships.For example, if our existing clients elect not to renew their contracts with us at the expiration of the current terms of those contracts, or reduce the services theypurchase thereunder, our recurring revenue base will be reduced, which could have a material adverse effect on our business, financial position, results ofoperations, and cash flows. In addition, we could lose clients if they cancel their agreements with us, if we fail to win a competitive bid at the time of contractrenewal, if the financial condition of any of our clients deteriorates or if our clients are acquired by, or acquire, companies with which we do not have contracts,any of which could materially and adversely affect our business, financial position, results of operations, and cash flows.Our strategy may not be successful.As discussed in Item 1 “The PRGX Strategy,” our objectives are to achieve higher profitability and growth by delivering value, operational efficiency andinnovative services, differentiating our service offerings and capabilities, expanding into new industry verticals and attracting and developing highly qualifiedprofessionals. These efforts are ongoing, and the results of our efforts will not be known until sometime in the future. Successful execution of our strategy requiressustained management focus, innovation, organization and coordination over time, as well as success in building relationships with third parties. If we are unableto execute our strategy successfully, our business, financial position, results of operations and cash flows could be adversely affected. In addition, execution of ourstrategy will require material investments and additional costs that may not yield incremental revenue and improved financial performance as planned.Our acquisitions, investments, partnerships and strategic alliances may require significant resources and/or result in significant unanticipated losses, costs orliabilities.Acquisitions have contributed to our revenue. Although we cannot predict our rate of growth as the result of acquisitions with complete accuracy, we believethat additional acquisitions, investments and strategic alliances will be important to our growth strategy.We may finance future acquisitions by issuing additional equity and/or debt. The issuance of additional equity in connection with any such transaction couldbe substantially dilutive to existing shareholders. The issuance of additional debt could increase our leverage substantially. In addition, announcement orimplementation of future transactions by us or others could have a material effect on the price of our common stock. We could face financial risks associated withincurring significant debt. Additional debt may reduce our liquidity, curtail our access to financing markets, impact our standing with credit agencies and increasethe cash flow required for debt service. Any incremental debt incurred to finance an acquisition could also place significant constraints on the operation of ourbusiness.Furthermore, any future acquisitions of businesses or facilities could entail a number of additional risks, including:•problems with effective integration of acquired operations;•the inability to maintain key pre-acquisition business relationships;•increased operating costs;•the diversion of our management team from our other operations;•problems with regulatory agencies;9Table of Contents•exposure to unanticipated liabilities;•difficulties in realizing projected efficiencies, synergies and cost savings; and•changes in our credit rating and financing costs.The 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 that may limit our ability to take certain actions and require usto comply with specified financial ratios and other performance covenants. No assurance can be provided that we will not violate the covenants of our securedcredit facility in the future. If we are unable to comply with our financial covenants in the future, our lenders could pursue their contractual remedies under thecredit facility, including requiring the immediate repayment in full of all amounts outstanding, if any. Additionally, we cannot be certain that, if the lendersdemanded immediate 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 debt we may have outstanding will depend upon our future operating performance, which is subject to general economicand competitive conditions and to financial, business and other factors, many of which we cannot control. If the cash flow from our operating activities isinsufficient to make these payments, we may take actions such as delaying or reducing capital expenditures, attempting to restructure or refinance our debt, sellingassets or operations or seeking additional equity capital. Some or all of these actions may not be sufficient to allow us to service our debt obligations and we couldbe required to file for bankruptcy. Further, we may be unable to take any of these actions on satisfactory terms, in a timely manner or at all. In addition, our creditagreements may limit our ability to take several of these actions. Our failure to generate sufficient funds to pay our debts or to undertake any of these actionssuccessfully could materially and adversely affect our business, financial position, results of operations and cash flows.We have incurred and will continue to incur significant costs in connection with our discontinued HCRA services business.As of December 31, 2015, we discontinued the HCRA services business, but will continue to incur significant costs as it winds down. There are complexregulations governing many healthcare payments and recoupments, including a multi-layered scheme for provider appeals of overpayment determinations underthe Medicare RAC program. These regulations, the terms of the Company’s contracts and the complexity of Medicare and other healthcare data, systems andprocesses, generally make it more difficult and costly to exit this portion of our business. Finally, any appeals settlement(s) which require(s) us to repay asignificant portion of our historical fees could materially and adversely impact our results of operations and cash flow.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, andother proprietary 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. registered copyrights on certain of our proprietary technology and certainU.S. and foreign registered trademarks, we may be unable to obtain similar protection on our other intellectual property. In addition, our foreign registeredtrademarks may not receive 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,clients and 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 sensitive proprietary information will not be improperly accessed or thatour competitors will not independently develop technologies that are substantially equivalent or superior to our technology. Moreover, although we are not awareof any infringement of our services and products on the intellectual property rights of others, we also are subject to the risk that someone else will assert a claimagainst us in the future for violating their intellectual property rights.Cyber-security incidents, including data security breaches or computer viruses, could harm our business by disrupting our delivery of services, damaging ourreputation or exposing us to liability.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, the deletion or modification of records or could cause interruptions in ouroperations. These cyber-security risks increase when we transmit information from one location to another, including transmissions over the Internet or otherelectronic networks. Despite implemented security measures, our facilities, systems and procedures, and those of our third-party service providers, may bevulnerable to security breaches, acts of vandalism, software viruses, misplaced or lost data, programming and/or human10Table of Contentserrors or other similar events which may disrupt our delivery of services or expose the confidential information of our clients and others. Any security breachinvolving the misappropriation, loss or other unauthorized disclosure 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 a negative impact on our reputation, (iii) expose us to liability to our clients, third parties orgovernment authorities, and (iv) cause our present and potential clients to choose another service provider. Any of these developments could have a materialadverse effect on our business, results of operations, financial position, and cash flows.Operational failures in our data processing facilities could harm our business and reputation.An interruption of data processing services, including an interruption caused by damage or destruction of facilities or a failure of data processing equipment,could result in a loss of clients, difficulties in obtaining new clients and a reduction in revenue. In addition, we also may be liable to third parties or our clientsbecause of such interruption. These risks would increase with longer service interruptions. Despite any disaster recovery and business continuity plans andprecautions we have implemented (including insurance) to protect against the effects of service delivery interruptions, such interruptions could result in a materialadverse effect on our business, results of operations, financial position, and cash flows.Our investment of substantial capital in information technology systems, and a failure to successfully implement such systems could adversely affect ourbusiness.We have invested and continue to invest substantial amounts in the development and implementation of information technology systems. Althoughinvestments are carefully planned, there can be no assurance that such systems will justify the related investments. If we fail to realize the benefits expected fromour information technology system investments, or if we fail to do so within the envisioned time frame, it could have an adverse effect on our results of operations,financial position, and cash flows.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. Bankruptcyfilings by our large clients or the significant vendors who supply them or unexpectedly large vendor claim chargebacks lodged against one or more of our largerclients could have a materially adverse effect on our financial condition, results of operations, and cash flows. Similarly, our inability to collect our accountsreceivable due to other financial difficulties of one or more of our large clients could adversely affect our financial position, results of operations, and cash flows.Economic conditions which adversely impact our clients and their vendors in the retail industry in the United Kingdom and Europe may continue to have anegative impact on our revenue. Specifically, client liquidity and the liquidity of client vendors can have a significant impact on claim production, the claimapproval 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 failure to retain the services of key members of our management team and highly skilled personnel could adversely impact our operations and financialperformance.Our future success depends largely on the efforts and skills of our management team, including our executive officers and other key employees. As such, wehave entered into employment agreements with key members of our management team. While these employment agreements include limits on the ability of keyemployees to directly compete with us in the future, nothing prevents them from leaving our company. We also do not maintain “key person” life insurancepolicies on any of our executive officers or other key employees. Thus, we may have to incur costs to replace such employees if we were to lose their services, andour ability to execute our business strategy could be impaired if we are unable to replace such employees in a timely manner.In addition, it is especially challenging to attract and retain highly qualified skilled auditors and other professionals in an industry where competition forskilled personnel is intense. Accordingly, our future performance also depends, in part, on the ability of our management team to work together effectively,manage our workforce, and retain highly qualified personnel.We rely on operations outside the U.S. for a significant portion of our revenue and are increasingly dependent on operations outside the U.S. for supportingour operations globally.Operations outside the U.S. generated 41.8% of our annual revenue in 2015, 45.0% in 2014 and 44.5% in 2013. These international operations are subject tonumerous risks, including:•greater exposure to the possibility of economic instability, the disruption of operations from labor and political disturbances, expropriation orwar in the international markets we serve;11Table of Contents•difficulties in staffing and managing foreign operations and in collecting accountsreceivable;•fluctuations in currency exchange rates, particularly weaknesses in the British pound, the euro, the Canadian dollar, the Mexican peso, theBrazilian real, the Australian dollar, the Indian rupee and other currencies of countries in which we transact business, which could result incurrency translations that materially reduce our revenue and earnings;•costs associated with adapting our services to our foreign clients’needs;•unexpected changes in regulatory requirements andlaws;•expenses and legal restrictions associated with transferring earnings from our foreign subsidiaries tous;•difficulties in complying with a variety of foreign laws and regulations, such as those relating to data content retention, privacy and employment,as well as U.S. laws affecting operations outside of the United States;•business interruptions due to widespread disease, actual or potential terrorist activities, or othercatastrophes;•reduced or limited protection of our intellectual propertyrights;•longer accounts receivable cycles;and•competition with large or state-owned enterprises or regulations that effectively limit our operations and favor localcompetitors.Because we expect a significant portion of our revenue 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 position, results ofoperations, and cash flows.In 2015, our European operations accounted for 21.0% of our consolidated revenue. There have been continuing concerns and uncertainties regarding thestability of certain European economies. A continued decline in the economic conditions in Europe may materially and adversely affect our operations both inEurope and on a consolidated basis.Furthermore, in 2010 we began transitioning certain of our core data processing and other functions to locations outside the U.S., including India, whereapproximately 20% of our employees were located on December 31, 2015. While our operations in India have been key to serving clients more efficiently andcost-effectively under our improved service delivery model, India has from time to time experienced instances of civil unrest and hostilities with neighboringcountries. Geopolitical conflicts, military activity, terrorist attacks, or other political uncertainties in the future could adversely affect the Indian economy bydisrupting communications and making business operations and travel more difficult, which may have a material adverse effect on our ability to deliver servicesfrom India. Disruption of our Indian operations could materially and adversely affect our profitability and our ability to execute our growth strategy.Our business operates in highly competitive environments and is subject to pricing pressure.The environments in which our business operates are highly competitive, with numerous other recovery audit firms and other service providers. In addition,many of our recovery audit clients have developed their own internal recovery audit capabilities. As a result of competition among the providers of these servicesand the availability of certain recovery audit services from clients’ internal audit departments, our business is subject to intense rate pressure. Our AdjacentServices business also has numerous competitors varying in size, market strength and specialization, many of whom have established and well-known franchisesand brands. Intense price competition faced by all of our service lines could negatively impact our profit margins and have a potential adverse effect on ourbusiness, financial position, results of operations, and cash flows.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 provide that the client may terminate the contract without cause prior to the end of the term of the agreement by providing uswith relatively short prior written notice of the termination. As a result, the existence of contractual relationships with our clients is not an assurance that we willcontinue to provide services for our clients through the entire term of their respective agreements. If clients representing a significant portion of our revenueterminated their agreements unexpectedly, we may not, in the short-term, be able to replace the revenue and income from such contracts and this would have amaterial adverse effect on our business, financial condition, results of operations and cash flows. In addition, client contract terminations also could harm ourreputation within the industry which could negatively impact our ability to obtain new clients.Our charges to earnings resulting from acquisition, restructuring and integration costs may materially adversely affect the market value of our common stock.We account for the completion of our acquisitions using the purchase method of accounting. We allocate the total estimated purchase prices to net tangibleassets, amortizable intangible assets and indefinite-lived intangible assets, and based12Table of Contentson their fair values as of the date of completion of the acquisitions, record the excess of the purchase price over those fair values as goodwill. Our financial results,including earnings per share, could be adversely affected by a number of financial adjustments required in purchase accounting including the following:•we will incur additional amortization expense over the estimated useful lives of certain of the intangible assets acquired in connection withacquisitions during such estimated useful lives;•we will incur additional depreciation expense as a result of recording purchased tangible assets; and•to the extent the value of goodwill or intangible assets becomes impaired, we may be required to incur material charges relating to theimpairment of those assets.Our failure to comply with applicable governmental privacy laws and regulations in the U.S. and internationally could substantially impact our business,operations, financial position, and cash flows.We are subject to extensive and evolving federal, state and foreign privacy laws and regulations. Changes in privacy laws or regulations or newinterpretations of existing laws or regulations could have a substantial effect on our operating methods and costs. Failure to comply with such regulations couldresult in the termination or loss of contracts, the imposition of contractual damages, civil sanctions, damage to the Company’s reputation, or in certaincircumstances, criminal penalties, any of which could have a material adverse effect on our results of operations, financial position, cash flows, business andprospects. Determining compliance with such regulations is complicated by the fact that many of these laws and regulations have not been fully interpreted bygoverning regulatory authorities or the courts, and many of the provisions of such laws and regulations are open to a wide range of interpretations. There can be noassurance that we are or have been in compliance with all applicable existing laws and regulations or that we will be able to comply with new laws or regulations.With respect to trans-border data flows from the European Economic Area, or EEA, we have historically relied on the U.S.-European Union and theU.S.-Swiss Safe Harbor Frameworks, as agreed to by the U.S. Department of Commerce and the European Union (“EU”) and Switzerland, respectively, as a meansto legally transfer European personal information from Europe to the United States. However, on October 6, 2015, the European Court of Justice (“ECJ”)invalidated the U.S.-EU Safe Harbor framework and the Swiss data protection authorities later invalidated the U.S.-Swiss Safe Harbor framework. As a result, wehave begun to undertake efforts to conform transfers of personal information from the EEA based on current regulatory obligations, the guidance of data protectionauthorities and evolving best practices. Despite these efforts, we may be unsuccessful in establishing conforming means of transferring such data from the EEA.The legitimacy of these alternate means are subject to differing interpretations among various European jurisdictions and, as such, we may experience hesitancy,reluctance, or refusal by European or multi-national clients to use our services due to the potential risk exposure they may face as a result of the ECJ ruling and thecurrent data protection obligations imposed on them by certain data protection authorities. Furthermore, the ECJ’s decision may result in different European dataprotection regulators applying differing standards for the transfer of personal data, which could result in increased regulation, cost of compliance and limitations ondata transfers for us and our clients. These developments could harm our business, financial condition and results of operations.Recently, it was announced that negotiators from Europe and the United States reached an agreement on a successor to the Safe Harbor framework thatwill be referred to as the EU-U.S. Privacy Shield. However, it is likely to be months before all of the details regarding the Privacy Shield program are finalized anda procedure is introduced to allow interested companies to participate in the program. While the details regarding the Privacy Shield program continue to befinalized, we will continue to face uncertainty as to whether our efforts to comply with our obligations under European privacy laws will be sufficient.Noncompliance or alleged noncompliance with European privacy laws could result in fines and other penalties and could have a negative effect on our existingbusiness and on our ability to attract and retain new customers.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 exchangeoffer, the Company experienced an ownership change as defined under Section 382 of the Internal Revenue Code (“IRC”). This ownership change resulted in anannual IRC Section 382 limitation that limits the use of certain tax attribute carry-forwards. Of the $91.1 million of U.S. federal net loss carry-forwards available tothe Company, $13.8 million of the loss carry-forwards are subject to an annual usage limitation of $1.4 million. The Company has reviewed subsequent potentialownership changes as defined under IRC Section 382 and has determined that on August 4, 2008, the Company experienced an additional ownership change. Thissubsequent ownership change did not decrease the original limitation nor did it impact the Company’s financial position, results of operations, or cash flows.However, future ownership changes may result in additional limitations and the loss of portions of these carry-forwards and may significantly increase ourprojected future tax liability.Certain 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.13Table of ContentsFor 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.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.We may have exposure to additional income tax liabilities or additional costs if the U.S. government changes certain U.S. tax rules or other laws applicable toU.S. corporations doing business in foreign jurisdictions.We are a U.S. corporation that conducts business both in the U.S. and in foreign jurisdictions. From time to time, proposals for changes to tax and other lawsare made that may negatively impact U.S. corporations doing business in foreign jurisdictions, including proposals for comprehensive tax reform. While the scopeof future changes remains unclear, proposed changes might include limiting the ability of U.S. corporations to deduct certain expenses attributable to offshoreearnings, modifying the foreign tax credit rules and taxing currently certain transfers of intangible assets offshore or imposing other economic disincentives todoing business outside of the U.S. The enactment of some or all of these proposals could increase the Company’s effective tax rate or otherwise adversely affectour profitability.Future impairment of goodwill, other intangible assets and long-lived assets would reduce our future earnings.As of December 31, 2015, the Company’s goodwill and other intangible assets totaled $18.5 million. We must perform periodic assessments to determinewhether some portion, or all, of our goodwill, intangible assets and other long-lived assets are impaired. We recorded an impairment charge of $4.2 million in2013 relating to certain internally developed software assets. Future impairment testing could result in a determination that our goodwill, other intangible assets orour other long-lived assets have been impaired. Future adverse changes in the business environment or in our ability to perform audits successfully and competeeffectively in our markets or the discontinuation of our use of certain of our intangible or other long-lived assets could result in impairment which could materiallyadversely impact future earnings.Claims under our self-insurance program may differ from our estimates, which could materially impact our results of operations.We use a combination of insurance and self-insurance plans to provide for the potential liabilities for healthcare benefits for our employees. We estimate theliabilities associated with the risks that we retain by considering historical claims experience, demographic factors, severity factors and other actuarialassumptions. Our results could be materially impacted by claims and other expenses related to such plans if future occurrences and claims differ from theseassumptions and historical trends.Our articles of incorporation, bylaws 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 approvedby our 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 forcause;•specified requirements for calling special meetings ofshareholders;•the ability of the Board of Directors to consider the interests of various constituencies, including our employees, clients and creditors and thelocal community, 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,without any further vote or action by our shareholders.14Table of ContentsOur stock price has been and may continue to be volatile.Our common stock is currently traded on The Nasdaq Global Select Market. The trading price of our common stock has been and may continue to be subjectto large fluctuations. For example, for the year ended December 31, 2015, our stock traded as high as $5.77 per share and as low as $3.35 per share. Our stockprice may increase 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 ourcompany;•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 movementsmay adversely affect the price of our common stock, regardless of our operating performance.ITEM 1B. Unresolved Staff CommentsNone.ITEM 2. PropertiesOur principal executive offices are located in approximately 58,000 square feet of office space in Atlanta, Georgia. We have subleased approximately 3,000square feet of our principal executive office space to independent third parties. In January 2014, we amended the lease for our principal executive offices to extendthe term through December 31, 2021, reduce the lease payment for 2014, and reduce the space under lease to approximately 58,000 square feet effective January1, 2015. This space is used by our Recovery Audit Services - Americas and Adjacent Services segments and is the primary location of our Corporate Supportpersonnel. Our various operating units lease numerous other parcels of operating space elsewhere in the U.S. and in the various other countries in which wecurrently 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. SeeContractual Obligations and Other Commitments in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in PartII, Item 7 of this Form 10-K and Note 6 of “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Form 10-K for a discussion of costs wemay incur in the future to the extent we (i) reduce our office space capacity or (ii) commit to, or occupy, new properties in the locations in which we operate.ITEM 3. Legal ProceedingsWe are party to a variety of legal proceedings arising in the normal course of business. While the results of these proceedings cannot be predicted withcertainty, management believes that the final outcome of these proceedings will not have a material adverse effect on our financial position, results of operations orcash flows.ITEM 4. Mine Safety DisclosuresNot applicable.15Table of ContentsPART IIITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock is traded under the symbol “PRGX” on The Nasdaq Global Select Market (Nasdaq). The Company has not paid cash dividends on itscommon stock since it became a public company in 1996 and does not intend to pay cash dividends in the foreseeable future. Moreover, restrictive covenantsincluded in our secured credit facility specifically prohibit payment of cash dividends. As of March 4, 2016, there were 126 holders of record of our common stockand management believes there were approximately 2,700 beneficial holders. The following table sets forth, for the quarters indicated, the range of high and lowsales prices for the Company’s common stock as reported by Nasdaq during 2015 and 2014.2015 Calendar Quarter High Low1st Quarter $5.77 $3.842nd Quarter 4.99 3.653rd Quarter 4.51 3.354th Quarter 4.42 3.50 2014 Calendar Quarter High Low1st Quarter $7.42 $5.822nd Quarter 6.90 5.953rd Quarter 6.89 5.504th Quarter 6.05 3.97Issuer Purchases of Equity SecuritiesA summary of our repurchases of our common stock during the fourth quarter ended December 31, 2015 is set forth below. 2015 Total Numberof SharesPurchased (a) Average PricePaid per Share Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs (b) Maximum ApproximateDollar Value of Sharesthat May Yet BePurchased Under thePlans or Programs (millions of dollars)October 1 - October 31 12,360 $4.01 12,000 $—November 1 - November 30 12,400 $3.81 12,400 $—December 1 - December 31 181,949 $3.93 181,949 $— 206,709 $3.93 206,349 $9.2 (a)The shares purchased during the quarter include shares surrendered by employees to satisfy tax withholding obligations upon vesting of restricted stock and sharespurchased as part of the Company's stock repurchase program.(b)On February 21, 2014, our Board of Directors authorized a stock repurchase program under which we could repurchase up to $10.0 million of our common stock fromtime to time through March 31, 2015. On March 25, 2014, our Board of Directors authorized a $10.0 million increase to the stock repurchase program, bringing the totalamount of its common stock that the Company could repurchase under the program to $20.0 million. On October 24, 2014, our Board of Directors authorized a $20.0million increase to the stock repurchase program, increasing the total share repurchase program to $40.0 million, and extended the duration of the program to December31, 2015. During October 2015, our Board of Directors authorized an additional $10.0 million increase in the program, increasing the total repurchase program to $50.0million, and extended the duration of the program to December 31, 2016. From the February 2014 announcement of the Company's current stock repurchase programthrough December 31, 2015, the Company repurchased a total of 7.8 million shares under this program for an aggregate purchase price of $40.8 million. The timing andamount of future repurchases, if any, will depend upon the Company’s stock price, the amount of the Company's available cash, regulatory requirements, and othercorporate considerations. The Company may initiate, suspend or discontinue purchases under the stock repurchase program at any time.16Table of ContentsPerformance GraphSet 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, 2010 and shows total return on investment for the period beginning December 31, 2010 through December 31, 2015,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 12/10 12/11 12/12 12/13 12/14 12/15PRGX Global, Inc. 100.00 94.00 101.90 106.16 90.36 58.77NASDAQ Composite 100.00 100.53 116.92 166.19 188.78 199.95RDG Technology Composite 100.00 100.56 115.30 152.75 177.73 181.3217Table of ContentsITEM 6. Selected Financial DataThe following table sets forth selected financial data from continuing operations for the Company as of and for each of the five years in the period endedDecember 31, 2015. The following data reflects the business acquisitions that we have completed through December 31, 2015. We have included the results ofoperations for these acquired businesses in our results of operations since the date of their acquisitions. We have derived this historical consolidated financial datafrom our Consolidated Financial Statements and Notes thereto, which have been audited by our Independent Registered Public Accounting Firm. TheConsolidated Balance Sheets as of December 31, 2015 and 2014, and the related Consolidated Statements of Operations, Comprehensive Income (Loss),Shareholders’ Equity and Cash Flows for each of the years in the three-year period ended December 31, 2015 and the report of the Independent Registered PublicAccounting Firm thereon are included in Item 8 of this Form 10-K.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.” Certain reclassifications have been made to the prior periods to conform to the current period presentation. Years Ended December 31, (1) 2015 2014 2013 2012 2011Statements of Operations Data: (In thousands, except per share data)Revenue, net $138,302 $161,552 $178,268 $190,411 $195,077Operating expenses: Cost of revenue 93,169 110,890 112,853 123,157 130,015Selling, general and administrative expenses 32,284 38,581 46,143 46,601 44,933Depreciation of property and equipment 5,317 6,025 6,783 5,743 4,546Amortization of intangible assets 2,458 3,531 4,997 7,224 4,991Impairment charges — — 2,773 — —Total operating expenses 133,228 159,027 173,549 182,725 184,485Operating income from continuing operations 5,074 2,525 4,719 7,686 10,592Foreign currency transaction (gains) losses on short-term intercompany balances 2,165 2,003 (13) (377) 417Interest expense (income), net (190) (77) (77) 966 1,616Other loss 1,191 57 — — —Income from continuing operations beforeincome taxes 1,908 542 4,809 7,097 8,559Income tax expense (2) 369 3,241 2,755 1,297 1,292Net income (loss) from continuing operations $1,539 $(2,699) $2,054 $5,800 $7,267Basic earnings (loss) from continuing operations percommon share $0.06 $(0.09) $0.07 $0.23 $0.30Diluted earnings (loss) from continuing operations percommon share $0.06 $(0.09) $0.07 $0.23 $0.2918Table of Contents December 31, 2015 2014 2013 2012 2011Balance Sheet Data: (3) (In thousands)Cash and cash equivalents $15,122 $25,735 $43,700 $37,806 $20,337Working capital 21,641 36,006 50,506 37,445 16,319Total assets 80,391 102,782 132,829 143,586 126,413Long-term debt, excluding current installments — — — 3,000 6,000Total shareholders' equity $52,415 $70,986 $93,828 $84,652 $59,090(1)Data for all years prior to 2015 has been restated in order to reflect only continuing operations.(2)The taxes recorded for 2014 were primarily related to the recording of a valuation allowance on the future use of net losses in our UK operations. The high effective taxrate relative to the U.S. federal statutory rate in 2013 is due to taxes on income of foreign subsidiaries with no benefit recognized for losses incurred in the U.S. due tothe Company having a deferred tax asset valuation allowance. The low effective tax rate in 2012 is attributable to recognition of certain previously unrecognized taxbenefits. See Note 1 (i) and Note 7 of “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K.(3)Data in this table reflects the balance sheet amounts for both continuing and discontinued operations.19Table of ContentsITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsIntroductionPRGX Global, Inc. is a global leader in recovery audit and spend analytics services. We conduct our operations through three reportable segments: RecoveryAudit Services – Americas, Recovery Audit Services – Europe/Asia-Pacific and Adjacent Services. The Recovery Audit Services – Americas segment representsrecovery audit services we provide in the U.S., Canada and Latin America. The Recovery Audit Services – Europe/Asia-Pacific segment represents recovery auditservices we provide in Europe, Asia and the Pacific region. The Adjacent Services segment includes spend analytics (data transformation and cost harmonization),SIM, and CSI. We include the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three reportablesegments in Corporate Support. Recovery auditing is a business service focused on finding overpayments created by errors in payment transactions, such as missedor inaccurate discounts, allowances and rebates, vendor pricing errors, erroneous coding and duplicate payments. Generally, we earn our recovery audit revenue byidentifying overpayments made by our clients, assisting our clients in recovering the overpayments from their vendors, and collecting a specified percentage of therecoveries from our clients as our fee. The fee percentage we earn is based on specific contracts with our clients that generally also specify: (a) time periodscovered by the audit; (b) the nature and extent of services we are to provide; and (c) the client’s responsibilities to assist and cooperate with us. Clients generallyrecover claims by either taking credits against outstanding payables or future purchases from the relevant vendors, or receiving refund checks directly from thosevendors. The manner in which a claim is recovered by a client is often dictated by industry practice. In addition, many clients establish client-specific proceduralguidelines that we must satisfy prior to submitting claims for client approval. Our recovery audit business also includes contract compliance services which focuson auditing supplier billings against large and complex services, construction and licensing contracts. Such services include verification of the accuracy of thirdparty reporting, appropriateness of allocations and other charges in cost or revenue sharing types of arrangements, adherence to contract covenants and other riskmitigation requirements and numerous other reviews and procedures to assist our clients with proper monitoring and enforcement of the obligations of theircontractors. For some services we provide, such as certain of our services in our Adjacent Services segment, we earn our compensation in the form of a fixed fee, afee per hour, or a fee per other unit of service.We earn the vast majority of our recovery audit revenue from clients in the retail industry due to many factors, including the high volume of transactions andthe complicated pricing and allowance programs typical in this industry. Changes in consumer spending associated with economic fluctuations generally impactour recovery audit revenue to a lesser degree than they affect individual retailers due to several factors, including:•Diverse client base – our clients include a diverse mix of discounters, grocery, pharmacy, department and other stores that tend to be impacted tovarying degrees by general economic fluctuations, and even in opposite directions from each other depending on their position in the market andtheir market segment;•Motivation – when our clients experience a downturn, they frequently are more motivated to use our services to recover prior overpayments to makeup for relatively weaker financial performance in their own business operations;•Nature of claims – the relationship between the dollar amount of recovery audit claims identified and client purchases is non-linear. Claim volumesare generally impacted by purchase volumes, but a number of other factors may have an even more significant impact on claim volumes, includingnew items being purchased, changes in discount, rebate, marketing allowance and similar programs offered by vendors and changes in a client’s or avendor’s information processing systems; and•Timing – the client purchase data on which we perform our recovery audit services is historical data that typically reflects transactions between ourclients and their vendors that took place 3 to 15 months prior to the data being provided to us for audit. As a result, we generally experience adelayed impact from economic changes that varies by client and the impact may be positive or negative depending on the individual clients’circumstances.While the net impact of the economic environment on our recovery audit revenue is difficult to determine or predict, we believe that for the foreseeablefuture, our revenue will remain at a level that will not have a significant adverse impact on our liquidity, and we have taken steps to mitigate the adverse impact ofan economic downturn on our revenue and overall financial health. These steps include devoting substantial efforts to develop an improved service delivery modelto enable us to more cost effectively serve our clients. Further, we continue to pursue our ongoing growth strategy to expand our business beyond our corerecovery audit services to retailers by growing the portion of our business that provides recovery audit services to enterprises other than retailers, such as ourofferings to commercial clients; contract compliance service offerings; expansion into new industry verticals, such as oil and gas; and growth within our AdjacentServices segment.As our clients’ data volumes and complexity levels continue to grow, we are using our deep data management experience to develop new actionable insightsolutions, as well as to develop custom analytics and data transformation services. Taken20Table of Contentstogether, our deep understanding of our clients’ procure-to-pay data and our technology-based solutions provide multiple routes to help our clients achieve greaterprofitability. Our Adjacent Services business targets client functional and process areas where we have established expertise, enabling us to provide services tofinance, merchandising and procurement executives to improve working capital, optimize purchasing leverage in vendor pricing negotiations, improve insight intoproduct margin and true cost of goods for resale, identify and manage risks associated with vendor compliance, improve quality of vendor master data and improvevisibility and diagnostics of direct and indirect spend. Our Adjacent Services include our global SIM services offering, as well as CSI.Discontinued OperationsAs of December 31, 2015, the Company discontinued its HCRA business. PRGX entered into agreements with third parties to fulfill its Medicare RACprogram subcontract obligations to audit Medicare payments and provide support for claims appeals and assigned its remaining Medicaid contract to another party.The Company will continue to incur certain expenses while the current Medicare RAC contracts are still in effect. The discussions and financial results in Item 7have been adjusted to reflect the discontinued business.Non-GAAP Financial MeasuresEBIT, EBITDA and Adjusted EBITDA are all “non-GAAP financial measures” presented as supplemental measures of the Company’s performance. Theyare not presented in accordance with accounting principles generally accepted in the United States, or GAAP. The Company believes these measures provideadditional meaningful information in evaluating its performance over time, and that the rating agencies and a number of lenders use EBITDA and similar measuresfor similar purposes. In addition, a measure similar to Adjusted EBITDA is used in the restrictive covenants contained in the Company’s secured credit facility.However, EBIT, EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysisof the Company’s results as reported under GAAP. In addition, in evaluating EBIT, EBITDA and Adjusted EBITDA, you should be aware that, as describedabove, the adjustments may vary from period to period and in the future the Company will incur expenses such as those used in calculating these measures. TheCompany’s presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items.21Table of ContentsResults of Operations from Continuing OperationsThe following table sets forth the percentage of revenue represented by certain items in our Consolidated Statements of Operations from continuingoperations for the periods indicated: Years Ended December 31, 2015 2014 2013Revenue, net 100.0 % 100.0 % 100.0 %Operating expenses: Cost of revenue 67.4 68.6 63.3Selling, general and administrative expenses 23.3 23.9 25.9Depreciation of property and equipment 3.8 3.7 3.8Amortization of intangible assets 1.8 2.2 2.7Impairment charges — (0.1) 1.6Total operating expenses 96.3 98.3 97.3Operating income from continuing operations 3.7 1.7 2.7 Foreign currency transaction (gains) losses on short-term intercompany balances 1.6 1.2 —Interest expense, net (0.1) — —Income (loss) before income taxes from continuing operations 2.2 0.5 2.7Income tax expense 0.3 2.0 1.5 Net income (loss) from continuing operations 1.9 % (1.5)% 1.2 %Year Ended December 31, 2015 Compared to Prior Years from Continuing OperationsRevenue. Revenue was as follows (in thousands): Years Ended December 31, 2015 2014 2013Recovery Audit Services – Americas $97,009 $106,533 $118,649Recovery Audit Services – Europe/Asia-Pacific 36,264 44,319 46,436Adjacent Services 5,029 10,700 13,183Total $138,302 $161,552 $178,268Total revenue decreased by $23.3 million, or 14.4%, in 2015, and decreased $16.7 million, or 9.4%, in 2014. Below is a discussion of our revenue for ourthree reportable segments.Recovery Audit Services – Americas revenue decreased by 8.9% in 2015 and decreased by 10.2% in 2014. We experience changes in our reported revenuebased on the 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 Americanegatively impacted reported revenue in both 2015 and 2014. On a constant dollar basis, adjusted for changes in foreign exchange (“FX”) rates, 2015 revenuedecreased by 5.4% compared to a decrease of 8.9% as reported, and 2014 revenue decreased by 8.6% compared to a decrease of 10.2% as reported.The changes in our Recovery Audit Services – Americas revenue in 2015 and 2014 were due to a number of factors in addition to changes in FX rates.Revenue increased 5.3% in 2015 and 2.7% in 2014 due to revenue from new clients. Revenue from existing clients decreased 13.8% in 2015 and 12.9% in 2014.The revenue decreases in both 2015 and 2014 were due primarily to lower revenue from a significant retail client that has increased its internal resources and isidentifying more claims itself, scope restrictions at another significant client, and lower contingency fee rates at a few clients.Recovery Audit Services – Europe/Asia-Pacific revenue decreased by 18.2% in 2015 and decreased by 4.6% in 2014. The changes in the strength of the U.S.dollar relative to foreign currencies in Europe, Asia and the Pacific region negatively impacted reported revenue in 2015, but positively impacted reported revenuein 2014. On a constant dollar basis, adjusted for22Table of Contentschanges in FX rates, 2015 revenue decreased by 7.6% compared to a decrease of 18.2% as reported, and 2014 revenue decreased by 5.3% compared to a decreaseof 4.6% as reported. Revenue increased 3.5% in 2015 and 3.5% in 2014 due to new clients. Revenue from existing clients decreased 21.7% in 2015 and decreased7.9% in 2014. The 2015 revenue decrease is due primarily to lower revenue from various retail clients in Europe as a result of UK grocery specific regulatoryenforcement activities resulting in tighter restrictions on the age of transactions being audited and claim deduction policies and practices. Revenue in 2015 was alsoadversely impacted by scope restrictions and lower contingency fee rates at a few clients. Partially offsetting these declines was an increase in revenue in the Asia-Pacific region. The 2014 revenue decrease is due primarily to lower revenue from various retail clients in Europe as a result of scope restrictions and lowercontingency fee rates at a few clients, partially offset by an increase in revenue in the Asia-Pacific region.In our Adjacent Services segment, during 2015 we were able to dispose of or wind down service offerings which were unprofitable and did not fit our long-term strategy. Adjacent Services revenue decreased by 53.0% in 2015 and decreased by 18.8% in 2014. After eliminating revenue from the Chicago, Illinois-basedconsulting practice that was sold during the fourth quarter of 2014, the 2015 revenue decreased from 2014 by approximately 20%. This remaining decrease inrevenue primarily resulted from a slower than planned ramp up of our spend analytics business during the second half of 2015, partially offset by an increase inour SIM revenue. The decline in revenue from 2013 to 2014 is primarily due to a weak backlog of projects at the beginning of each year as well as our strategicdecision to wind-down certain service offerings and refocus on other growth opportunities in this segment that are more closely aligned with the recovery auditbusiness.Cost of Revenue (“COR”). COR consists principally of commissions and other forms of variable compensation we pay to our auditors based primarily on thelevel of overpayment recoveries and/or profit margins derived therefrom, fixed auditor salaries, compensation paid to various types of hourly support staff andsalaries for operational and client service managers for our recovery audit services and our Adjacent Services businesses. COR also includes other direct andindirect costs incurred by these personnel, including office rent, travel and entertainment, telephone, utilities, maintenance and supplies and clerical assistance. Asignificant number of the components comprising COR are variable and will increase or decrease with increases or decreases in revenue.COR was as follows (in thousands): Years Ended December 31, 2015 2014 2013Recovery Audit Services – Americas $60,214 $68,163 $65,977Recovery Audit Services – Europe/Asia-Pacific 25,424 31,103 34,945Adjacent Services 7,531 11,624 11,931Total $93,169 $110,890 $112,853COR as a percentage of revenue for Recovery Audit Services – Americas was 62.1% in 2015, 64.0% in 2014 and 55.6% in 2013. We continue to invest inour various growth and other strategic initiatives, and include portions of these costs in Recovery Audit Services – Americas COR each year. The reduction inCOR expenses as a percentage of revenue for 2015 compared to 2014 is due to cost reductions implemented in late 2014 and early 2015, the continued focus onstrengthening our operational processes, as well as a $0.7 million reduction in transformation expenses when compared to 2014. The increase in COR expenses asa percentage of revenue for 2014 compared to 2013 is due to costs not decreasing in proportion to decreases in revenue, and the cost of personnel we added toextend our service offerings into new areas, such as contract compliance, and to expand into new industry verticals. In addition, there was an increase of $0.8million in transformation expenses in 2014 compared to 2013. These transformation expenses were generated mainly in the fourth quarter of 2014.COR as a percentage of revenue for Recovery Audit Services – Europe/Asia-Pacific was 70.1% in 2015, 70.2% in 2014 and 75.3% in 2013. COR decreased18.3% in 2015 compared to 2014 and 11.0% in 2014 compared to 2013. The 2015 and 2014 decreases are due mainly to reductions in compensation-related coststhat vary with revenue. In addition, our continuing efforts to increase revenue and centralize and standardize the recovery audit processes in this segment enabledus to lower our COR as a percentage of revenue in this segment in 2015 and 2014.The higher COR as a percentage of revenue for Recovery Audit Services – Europe/Asia-Pacific (70.1% for 2015) compared to Recovery Audit Services –Americas (62.1% for 2015) 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 average revenue per client than those served by theRecovery Audit Services – Americas segment.23Table of ContentsAdjacent Services COR relates primarily to our continued investments in service delivery, which consist mainly of fixed personnel costs. Due to the natureof these costs and the reduced Adjacent Services revenue, COR as a percentage of revenue increased to 149.8% in 2015 from 108.6% in 2014 and 90.5% in 2013.Selling, General and Administrative Expenses (“SG&A”). SG&A expenses for all segments other than Corporate Support include the expenses of sales andmarketing activities, information technology services and allocated corporate data center costs, human resources, legal, accounting, administration, foreigncurrency transaction gains and losses other than those relating to short-term intercompany balances and gains and losses on asset disposals. Corporate SupportSG&A represents the unallocated portion of SG&A expenses which are not specifically attributable to our segment activities and include the expenses ofinformation 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, 2015 2014 2013Recovery Audit Services – Americas $7,685 $10,211 $14,140Recovery Audit Services – Europe/Asia-Pacific 5,487 6,829 5,884Adjacent Services 662 2,124 3,312Subtotal for reportable segments 13,834 19,164 23,336Corporate Support 18,450 19,417 22,807Total $32,284 $38,581 $46,143Recovery Audit Services – Americas SG&A decreased 24.7% in 2015 compared to 2014 and decreased 27.8% in 2014 compared to 2013. The decrease in2015 is due primarily to lower personnel costs. The decrease in 2014 is due primarily to lower personnel costs and contingent consideration recorded in 2013 forthe Business Strategy, Inc. acquisition that did not reoccur during 2014.Recovery Audit Services – Europe/Asia-Pacific SG&A decreased 19.7% in 2015 compared to 2014 after increasing 16.1% in 2014 compared to 2013. Thedecrease in 2015 is due mainly to lower transformation and facilities costs. The 2014 increase resulted primarily from increased transformation costs in 2014, thereversal of bad debt provisions in 2013 and fair value adjustments recorded in 2013 to reduce the acquisition-related contingent consideration for a prior yearbusiness acquisition.Adjacent Services SG&A decreased 68.8% in 2015 compared to 2014 and 35.9% in 2014 compared to 2013. The 2015 decrease resulted primarily fromreduced transformation and facilities costs. The 2014 decrease resulted primarily from personnel reductions that were made in response to the decline in revenueand the strategic decision to dispose of our Chicago, Illinois-based consulting business during the fourth quarter of 2014.Corporate Support SG&A includes stock-based compensation charges of $3.9 million in 2015, $4.5 million in 2014 and $6.3 million in 2013. Excludingstock-based compensation charges, Corporate Support SG&A decreased 2.4% in 2015 compared to 2014 and 9.9% in 2014 compared to 2013. The decrease in 2015compared to 2014 reflects our focus on controlling our expenses. The decrease in 2014 compared to 2013 relates primarily to severance costs recorded in 2013 thatwere associated with the departure of the Company's former President and CEO.Depreciation of Property and Equipment. Depreciation of property and equipment was as follows (in thousands): Years Ended December 31, 2015 2014 2013Recovery Audit Services – Americas $4,036 $4,711 $5,617Recovery Audit Services – Europe/Asia-Pacific 647 592 514Adjacent Services 634 722 652Total $5,317$6,025 $6,78324Table of ContentsDepreciation expense declined in 2015 and 2014 primarily as a result of the impairment charges recorded in the fourth quarter of 2013, which reduced thefuture depreciation to be recorded.Amortization of Intangible Assets. Amortization of intangible assets was as follows (in thousands): Years Ended December 31, 2015 2014 2013Recovery Audit Services – Americas $1,728 $2,002 $2,792Recovery Audit Services – Europe/Asia-Pacific 600 1,195 1,508Adjacent Services 130 334 697Total $2,458 $3,531 $4,997Generally, we amortize the customer relationship and trademark intangible assets we record in connection with an acquisition on an accelerated basis oversix years or longer, and we amortize non-compete agreements and trade names on a straight-line basis over five years or less. This methodology results in higheramortization immediately following an acquisition, and declining expense in subsequent periods. Our most recent acquisitions include the SIM services businessacquired from Global Edge, LLC and certain affiliated companies (collectively, "Global Edge") in December 2015, Business Strategy, Inc. and substantially all theassets of an affiliated company (collectively, "BSI") in Recovery Audit Services – Americas in December 2011, the associate migrations in Recovery AuditServices – Europe / Asia-Pacific in 2011 and 2012, and Etesius Limited and TJG Holdings LLC in Adjacent Services in 2010. Amortization expense declined inour recovery audit segments in 2015 and 2014 compared to the prior year as we did not complete a material acquisition in these segments in either year. Similarly,Adjacent Services amortization declined in both 2015 and 2014 compared to the prior year as we have not completed a significant acquisition in this segment since2010. We anticipate that, unless we complete additional significant acquisitions in any of our reportable segments in 2016, amortization expense will continue todecrease in 2016.Impairment Charges. Impairment charges were as follows (in thousands): Years Ended December 31, 2015 2014 2013Recovery Audit Services – Americas $— $— $2,702Recovery Audit Services – Europe/Asia-Pacific — — —Adjacent Services — — 71Total $— $— $2,773The impairment charges in the Recovery Audit Services - Americas segment in 2013 relate to certain capitalized software development costs associated withour improved service delivery model. Much of the development efforts in this area were beneficial, but certain aspects of the development did not yield the benefitsanticipated. We continue to develop this service delivery model, but have changed our focus in certain areas and no longer expect to receive future economicbenefit from certain costs and recorded an impairment charge in the fourth quarter of 2013.Foreign Currency Transaction (Gains) Losses on Short-Term Intercompany Balances. Foreign currency transaction gains and losses on short-termintercompany balances result from fluctuations in the exchange rates between foreign currencies and the U.S. dollar and the impact of these fluctuations, primarilyon balances payable by our foreign subsidiaries to their U.S. parent. Substantial changes from period to period in foreign currency exchange rates may significantlyimpact the amount of such gains and losses. The strengthening of the U.S. dollar relative to other currencies results in recorded losses on short-term intercompanybalances receivable from our foreign subsidiaries while the relative weakening of the U.S. dollar results in recorded gains.The U.S. dollar generally strengthened relative to the local currencies of certain of our foreign subsidiaries in 2015 and 2014 resulting in our recording netforeign currency losses on short-term intercompany balances of $2.2 million and $2.0 million respectively. We recorded gains on short-term intercompanybalances of less than $0.1 million in 2013.Net Interest Expense (Income). Net interest income was $0.2 million in 2015 and $0.1 million in each of 2014 and 2013 due to reductions in interest accrualson uncertain tax positions.25Table of ContentsIncome Tax Expense. Our reported effective tax rates on earnings approximated 19.3% in 2015, 598.0% in 2014, and 57.3% in 2013. Reported income taxexpense in each year primarily results from taxes on the income of foreign subsidiaries. We have recorded a deferred tax asset valuation allowance that effectivelyeliminates income tax expense or benefit relating to our U.S. operations. The tax rate for 2015 reflects the impact of recognizing benefit for certain deferred taxassets in Australia. The tax rate for 2014 reflects the impact of the recording of a valuation allowance against certain deferred tax assets in the United Kingdom.The tax rate in 2013 is due to the Company's U.S. operations incurring a loss due in part to the impairment charges noted above, while certain foreign subsidiariesgenerated greater taxable income in 2013. The effective tax rates noted above exclude discontinued operations in the current and prior years.Together with the reversal of interest expense accruals described above, the total net reduction to our reserves for uncertain tax positions based on changes inaccruals was $0.2 million in 2015, $0.1 million in 2014, and $1.4 million in 2013. These reserves decreased in 2013 by an additional $1.3 million due to paymentswe made to various taxing authorities. We initially established these reserves based on estimates we made in prior years of the potential liability we may incurshould certain domestic and foreign tax jurisdictions perform audits of our books and records and determine that we owe additional taxes, for which they may alsoassess penalty and interest amounts. We increased the reserves for additional estimated interest in subsequent years to reflect the additional time from when theestimated potential taxes may have been due. In 2013, we adjusted our estimates based primarily on completing voluntary disclosure processes with a number ofstates. Under these voluntary disclosure agreements, we agreed to file required returns for specified periods, and received waivers of the requirement to file otherreturns as well as limitations on the taxes and other amounts required to be paid in connection with such filings.As of the end of the past three years, management determined that based on all available evidence, deferred tax asset valuation allowances of $45.6 millionin 2015, $52.0 million in 2014 and $48.5 million in 2013 were appropriate. We recorded an increase in the valuation allowance of $2.3 million in 2014 as a resultof placing a valuation allowance against deferred tax assets in the United Kingdom.As of December 31, 2015, we had approximately $91.1 million of U.S. federal loss carry-forwards available to reduce future U.S. federal taxable income. TheU.S. federal loss carry-forwards expire through 2034. As of December 31, 2015, we had approximately $139.2 million of state loss carry-forwards available toreduce future state taxable income. The state loss carry-forwards expire to varying degrees between 2020 and 2034 and are subject to certain limitations. The stateloss carry-forwards at December 31, 2015, reflect adjustments for prior period write-downs associated with ownership changes for state purposes.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 and also resulted in the write-off of certaindeferred tax assets and the related valuation allowances that the Company recorded in 2006. Of the $91.1 million of U.S. federal loss carry-forwards available tothe Company, $13.8 million of the loss carry-forwards are subject to an annual usage limitation of $1.4 million. The Company has reviewed subsequent potentialownership changes as defined under Section 382 and has determined that on August 4, 2008, the Company experienced an additional ownership change. Thissubsequent ownership change did not decrease the original limitation nor did it impact the Company’s financial position, results of operations, or cash flows.Adjusted EBITDA. We evaluate the performance of our operating segments based upon revenue and measures of profit or loss we refer to as EBITDA andAdjusted EBITDA. We define Adjusted EBITDA as earnings from continuing operations before interest and taxes (“EBIT”), adjusted for depreciation andamortization (“EBITDA”), and then adjusted for unusual and other significant items that management views as distorting the operating results of the varioussegments from period to period. Such adjustments include restructuring charges, stock-based compensation, bargain purchase gains, acquisition-related chargesand benefits (acquisition transaction costs, acquisition obligations classified as compensation, and fair value adjustments to acquisition-related contingentconsideration), tangible and intangible asset impairment charges, certain litigation costs and litigation settlements, severance charges and foreign currencytransaction gains and losses on short-term intercompany balances viewed by management as individually or collectively significant.26Table of ContentsReconciliations of consolidated net loss to each of EBIT, EBITDA and Adjusted EBITDA for the periods included in this report are as follows (inthousands): Years Ended December 31, 2015 2014 2013Net loss $(3,226) $(7,526) $(186)Income tax expense 369 3,241 2,755Interest income, net (190) (77) (77)EBIT (3,047) (4,362) 2,492Depreciation of property and equipment 5,352 6,216 8,231Amortization of intangible assets 2,458 3,531 4,997EBITDA 4,763 5,385 15,720Impairment charges — — 4,207Foreign currency transaction (gains) losses on short-term intercompany balances 2,165 2,003 (13)Acquisition-related charges — 249 602Transformation severance and related expenses 2,299 4,050 2,544Other loss 1,191 57 —Stock-based compensation 3,926 4,532 6,294Adjusted EBITDA $14,344 $16,276 $29,354Acquisition-related charges included: acquisition obligations classified as compensation of $0.2 million in both 2014 and 2013; and a fair value adjustment toacquisition-related contingent consideration of $0.4 million in 2013. We made the final payments for the related acquisitions in the third quarter of 2014.Transformation severance and related expenses decreased $1.8 million or 43.2% in 2015 compared to 2014 due to reduced restructuring activities in 2015.These costs increased $1.5 million, or 59.2%, in 2014 compared to 2013 due to severance and related costs associated with reductions in staff and lease expenseacross all segments in order to reduce our cost structure.Stock-based compensation decreased $0.6 million, or 13.4%, in 2015 compared to 2014 and decreased by $1.8 million, or 28.0%, in 2014 compared to 2013.The reduced expenses in 2015 compared to 2014 were due primarily to the completion of the expense recognition period for prior year grants that exceeded therecognized expense for new grants in 2015. The reduced expenses in 2014 compared to 2013 were due primarily to the acceleration of vesting of outstandingawards for certain executives in connection with their separation from the Company in the prior periods as well as the relatively lower fair value of options andstock awards granted as part of the annual equity grant to employees in 2014.We include a detailed calculation of Adjusted EBITDA by segment in Note 2 of “Notes to Consolidated Financial Statements” included in Item 8 of thisForm 10-K. A summary of Adjusted EBITDA by segment for the years ended December 31, 2015, 2014, and 2013 was as follows (in thousands): Years Ended December 31, 2015 2014 2013Recovery Audit Services – Americas $29,431 $29,507 $39,954Recovery Audit Services – Europe/Asia-Pacific 5,942 7,672 5,842Adjacent Services (3,134) (2,381) (1,792)Subtotal for reportable segments 32,239 34,798 44,004Corporate Support (14,215) (14,296) (15,379)Total for continuing operations $18,024 $20,502 $28,625Recovery Audit Services – Americas Adjusted EBITDA decreased by $0.1 million, or 0.3%, in 2015 compared to 2014 and decreased $10.4 million, or26.1%, in 2014 compared to 2013. The 2014 decrease resulted from reductions in revenue that exceeded the reductions in COR and SG&A expenses for the year.27Table of ContentsRecovery Audit Services – Europe/Asia-Pacific Adjusted EBITDA decreased by $1.7 million, or 22.5%, in 2015 compared to 2014 and increased $1.8million, or 31.3%, in 2014 compared to 2013. The decrease in 2015 is due to lower revenue partially offset by lower COR and SG&A expenses. The increase in2014 is due to reductions in COR and SG&A that exceeded the revenue reductions for the year.Adjacent Services Adjusted EBITDA declined 31.6% to a loss of $(3.1) million in 2015 compared to 2014, and declined 32.8% to a loss of $(2.4) million in2014 compared to 2013. These declines are due to revenue in each period declining at a faster rate than COR and SG&A expenses.Corporate Support Adjusted EBITDA improved by $0.1 million, or 0.6%, in 2015 compared to 2014 and improved by $1.1 million, or 7.0%, in 2014compared to 2013. The improvement in 2014 is due mainly to a reduction in transformation-related expense.Liquidity and Capital ResourcesAs of December 31, 2015, we had $15.1 million in cash and cash equivalents and no borrowings under the revolver portion of our credit facility. As ofDecember 31, 2015, the revolver had $20.0 million of availability for borrowings and the Company was in compliance with the covenants in its SunTrust creditfacility. We amended the SunTrust credit facility in January 2014 and again in December 2014 as further described in Secured Credit Facility below.The $15.1 million in cash and cash equivalents includes $4.7 million held in the U.S., $2.8 million held in Canada, and $7.6 million held in other foreignjurisdictions, primarily in the United Kingdom, Australia, India, and Brazil. Certain foreign jurisdictions restrict the amount of cash that can be transferred to theU.S. or impose taxes and penalties on such transfers of cash. To the extent we have excess cash in foreign locations that could be used in, or is needed by, ouroperations in the U.S., we may incur significant penalties and/or taxes to repatriate these funds. Generally, we have not provided deferred taxes on the undistributedearnings of international subsidiaries as we consider these earnings to be permanently reinvested. However, we do not consider the earnings of our Canadiansubsidiary to be permanently invested, and have provided deferred taxes relating to the potential repatriation of the funds held in Canada.Operating Activities. Net cash provided by operating activities was $13.5 million in 2015, $10.0 million in 2014 and $18.4 million in 2013. These amountsconsist of two components, specifically, net income (loss) adjusted for certain non-cash items (such as depreciation, amortization, stock-based compensationexpense, impairment charges, and deferred income taxes) and changes in assets and liabilities, primarily working capital, as follows (in thousands): Years Ended December 31, 2015 2014 2013Net income (loss) $(3,226) $(7,526) $(186)Adjustments for certain non-cash items 15,112 16,443 23,909 11,886 8,917 23,723Changes in operating assets and liabilities 1,567 1,130 (5,299)Net cash provided by operating activities $13,453 $10,047 $18,424The increase in net cash provided by operating activities in 2015 compared to 2014 is primarily attributable to the improvement in working capital resultingfrom a decrease of $5.6 million in accounts receivable partially offset by a $3.7 million decrease in accounts payable, accrued payroll and other accrued expenses.The decrease in net cash provided by operating activities in 2014 compared to 2013 is primarily attributable to the decrease in operating income excluding non-cashexpenses. Operating income excluding non-cash expenses (depreciation, amortization and impairment charges) was $10.5 million in 2014 compared to 2013 whichis mainly attributable to the $31.0 million decrease in revenue partially offset by an $18.6 million decrease in COR and SG&A expenses and $2.0 million offoreign currency losses. This use of cash from operations was partially offset by a $0.4 million reduction in our working capital. Receivables and current assetbalances were reduced $2.5 million in 2014 compared to 2013 primarily due to lower revenue and the collection of Medicare RAC program receivables. Inaddition, our accrued liabilities decreased by approximately $2.9 million in 2014 compared to 2013. The reduced receivable collections in 2014 compared to 2013were more than offset by smaller reductions in accrued liability balances, particularly compensation related accruals.We include an itemization of these changes in our Consolidated Statements of Cash Flows included in Part II, Item 8 of this Form 10-K.28Table of ContentsNo client has accounted for 10% or more of our annual revenue in any of the past three years. The loss of any one of our major clients would negativelyimpact our operating cash flows and would potentially have a material adverse impact on the Company’s liquidity.Investing Activities. Net cash used for capital expenditures was $4.5 million in 2015, $4.7 million in 2014 and $7.9 million in 2013. These capitalexpenditures primarily related to investments we made to upgrade our information technology infrastructure, develop our proprietary audit tools and developsoftware relating to Adjacent Services.Capital expenditures are discretionary and we currently expect to continue to make capital expenditures to enhance our information technology infrastructureand proprietary audit tools in 2016. Should we experience changes in our operating results, we may alter our capital expenditure plans.Business Acquisitions and DivestituresWe made several business acquisitions over the past few years, each of which is discussed more fully in Note 12 – Business Acquisitions and Divestitures in“Notes to Consolidated Financial Statements” in Part II, Item 8 of this Form 10-K. Following is a summary of recent business acquisition and divestiture activitiesimpacting our liquidity and capital resources in the past three years.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 potentially was due based on the operating results generated bythe acquired business over a four year period from the date of acquisition. From the acquisition date to December 31, 2013, we paid £1.1 million ($1.7 million) ofthe earn-out and recorded accretion and other adjustments of the liability that resulted in a net decrease of $0.4 million. There were no remaining amounts payablerelating to this acquisition as of December 31, 2013.In February 2010, we acquired all of the issued and outstanding capital stock of Etesius Limited, a privately-held European provider of purchasing andpayables technologies and spend analytics based in Chelmsford, United Kingdom for a purchase price valued at $3.1 million. The purchase price included an initialcash payment 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 deferredpayments of $1.2 million over four years from the date of the acquisition. We also were potentially required to make additional payments of up to $3.8 million overa four-year period if the financial performance of this service line met certain targets. These payments would be to Etesius employees that we hired in connectionwith the acquisition. We were not obligated to make the deferred and earn-out payments to these employees if they resigned or were terminated under certaincircumstances. We therefore recognized the accrual of the deferred payments as compensation expense. From the acquisition date to December 31, 2014, we paid$1.4 million of deferred payments and variable consideration. This amount included the final $0.7 million of deferred payments paid in February 2014 and thefinal payment of $0.2 million of variable consideration paid in August 2014.In November 2010, we acquired the business and certain assets of TJG Holdings LLC (“TJG”), a privately-held provider of finance and procurementoperations improvement services based in Chicago, Illinois for a purchase price valued at $3.7 million. The purchase price included an initial cash payment of $2.3million that we paid in November 2010. Additional payments of up to a maximum of $1.9 million potentially were due to the sellers in four semi-annual paymentsif certain performance targets were met. We recorded $1.4 million as the estimated fair value of these payments at the acquisition date. From the acquisition date toDecember 31, 2013, we paid $1.9 million of the earn-out and recorded accretion and other adjustments of the liability of $0.5 million. There were no remainingamounts payable relating to this acquisition as of December 31, 2013.In December 2011, we acquired BSI, based in Grand Rapids, Michigan, for a purchase price valued at $11.9 million. BSI was a provider of recovery auditand related procure-to-pay process improvement services for commercial clients, and a provider of customized software solutions and outsourcing solutions toimprove back office payment processes. The purchase price included an initial cash payment of $2.8 million and 640,614 shares of our common stock having avalue of $3.7 million. An additional payment of approximately $0.7 million was made in the first half of 2012 for working capital received in excess of a specifiedminimum level. Additional variable consideration of up to $5.5 million, payable via a combination of cash and shares of our common stock, potentially was duebased on the performance of the acquired businesses over a two year period from the date of acquisition. We also could have been required to pay additionalconsideration of up to $8.0 million, payable in cash over a period of two years, based on certain net cash fee receipts from a particular recovery audit claim at aspecific client. We recorded an additional $4.9 million payable at the acquisition date based on management’s estimate of the fair value of the variableconsideration payable. From the acquisition date to December 31, 2014, we paid $6.3 million of the earn-out liability29Table of Contentsconsisting of cash payments of $3.6 million and 404,775 shares of our common stock having a value of $2.7 million. We also recorded accretion and otheradjustments of the earn-out liability of $1.4 million. There was no remaining earn-out payable as of December 31, 2014.We also acquired the assets of several third-party audit firms to which we had subcontracted a portion of our audit services in our Recovery Audit Services –Europe/Asia-Pacific segment. These 2012 associate migrations included CRC Management Consultants LLP (“CRC”) in January 2012 for a purchase price valuedat $1.0 million; QFS Ltd (“QFS”) in June 2012 for a purchase price valued at $0.4 million; and Nordic Profit Provider AB (“NPP”) in November 2012 for apurchase price valued at $0.1 million.In December 2015, we acquired the SIM business from Global Edge for a purchase price valued at $0.7 million. The Global Edge SIM platform includesvendor master file cleanse, regulatory and sanction checks, supplier onboarding, vendor authentication and risk management services. By leveraging the GlobalEdge platform, we expect to provide greater value to companies who are increasingly challenged to manage supplier information and compliance risks. Thepurchase price included an initial cash payment of $0.5 million and additional variable cash consideration based on the performance of the acquired businessesover a two year period from the date of acquisition valued at $0.2 million.We did not complete a business acquisition in the years ended December 31, 2014 and 2013.In October 2014, we divested certain assets within our Adjacent Services segment that were related to our Chicago, Illinois-based consulting business. Theseassets, related to the assets previously acquired in November 2010 from TJG Holdings LLC, were sold to Salo, LLC, a Minnesota limited liability company. Wereceived an initial cash payment of $1.1 million in connection with the closing of the transaction and recognized a loss on the sale of less than $0.1 million, whichwe recognized in Other loss in the Consolidated Statements of Operations. We have also received payment for working capital transferred to the buyer. In addition,we received $0.7 million in earn-out payments based on certain revenue recognized by the buyer in relation to the acquired business during the year following theclosing date of the divestiture.In August 2015, we divested certain assets from a document service offering purchased as part of the BSI acquisition in 2011.We did not receive any initialcash payments at closing of the transaction and recognized a non-cash loss on the sale of $1.6 million, which we recognized in Other loss in the ConsolidatedStatements of Operations. We may receive certain earn-out consideration based on a percentage of 2016 revenue recognized by the buyer from the clientstransferred in connection with the disposition. The revenue sharing percentage ranges from 10% to 30% based on the type of solution or service delivered.Financing Activities. Net cash used in financing activities was $18.4 million in 2015, $22.7 million in 2014 and $4.6 million in 2013. The net cash used infinancing activities in 2015 and 2014 included $18.1 million and $22.7 million, respectively, for the repurchase of common stock (see Stock Repurchase Programbelow). We made a mandatory payment of $3.0 million on our term loan in 2013 and an additional final payment of $3.0 million in December 2013 that was notdue until January 2014. The net cash used in financing activities in 2013 included $4.1 million of net proceeds we received from the exercise of the overallotmentoption for an additional 685,375 shares by the underwriters of our December 2012 public offering (see Common Stock Offering below).Secured Credit FacilityOn January 19, 2010, we entered into a four-year revolving credit and term loan agreement with SunTrust Bank (“SunTrust”). The SunTrust credit facilityinitially consisted of a $15.0 million committed revolving credit facility and a $15.0 million term loan. The SunTrust credit facility is guaranteed by the Companyand its domestic subsidiaries and is secured by substantially all of our assets. Borrowing availability under the SunTrust revolver at December 31, 2015 was $20.0million. We had no borrowings outstanding under the SunTrust revolver as of December 31, 2015. The SunTrust term loan required quarterly principal paymentsof $0.8 million from March 2010 through December 2013, and a final principal payment of $3.0 million in January 2014 that we paid in December 2013.On January 17, 2014, we entered into an amendment of the SunTrust credit facility that increased the committed credit facility from $15.0 million to $25.0million, lowered the applicable margin to a fixed rate of 1.75%, eliminated the provision limiting availability under the credit facility based on eligible accountsreceivable, increased our stock repurchase program limit, and extended the scheduled maturity of the credit facility to January 16, 2015 (subject to earliertermination as provided therein). We must pay a commitment fee of 0.5% per annum, payable quarterly, on the unused portion of the $25.0 million credit facility.On December 23, 2014, we entered into an amendment of the SunTrust credit facility that reduced the committed revolving credit facility from $25.0 millionto $20.0 million. The credit facility bears interest at a rate per annum comprised of a specified index rate based on one-month LIBOR, plus an applicable margin(1.75% per annum). The index rate is determined30Table of Contentsas of the first business day of each calendar month. With the provision of a fixed applicable margin of 1.75% per the amendment of the SunTrust credit facility, theinterest rate that would have applied at December 31, 2015 had any borrowings been outstanding was approximately 1.99%. The credit facility includes twofinancial covenants (a maximum leverage ratio and a minimum fixed charge coverage ratio) that apply only if we have borrowings under the credit facility thatarise or remain outstanding during the final 30 calendar days of any fiscal quarter. These financial covenants also will be tested, on a modified pro forma basis, inconnection with each new borrowing under the credit facility. This amendment also extends the scheduled maturity of the revolving credit facility to December 23,2017 and lowered the commitment fee to 0.25% per annum, payable quarterly, on the unused portion of the 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 or declare or pay dividends on its capital stock. The financial covenants included in the SunTrustcredit facility, among other things, limit the amount of capital expenditures the Company can make, set forth maximum leverage and net funded debt ratios for theCompany and a minimum fixed charge coverage ratio, and also require the Company to maintain minimum consolidated earnings before interest, taxes,depreciation and amortization. In addition, the SunTrust credit facility includes customary events of default. As of December 31, 2015, we had no outstandingborrowings under the SunTrust credit facility. The Company was in compliance with the covenants in its SunTrust credit facility as of December 31, 2015.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.Common Stock OfferingOn December 11, 2012, we closed our public offering of 6,249,234 shares of our common stock, which consisted of 2,500,000 shares sold by us and3,749,234 shares sold by certain selling shareholders, at a price to the public of $6.39 per share. The net proceeds to us from the public offering, after deductingunderwriting discounts and commissions and offering expenses, were $14.7 million. The net proceeds from the public offering were used for working capital andgeneral corporate purposes. We did not receive any proceeds from the sale of shares by the selling shareholders. In addition, the underwriters elected to exercise anoverallotment option for an additional 687,385 shares, and we completed the sale of these additional shares on January 8, 2013. The net proceeds to us from theexercise of the overallotment option, after deducting underwriting discounts and commission and offering expenses, were $4.1 million.Stock Repurchase ProgramOn February 21, 2014, our Board of Directors authorized a stock repurchase program under which we could repurchase up to $10.0 million of our commonstock from time to time through March 31, 2015. On March 25, 2014, our Board of Directors authorized a $10.0 million increase to the stock repurchaseprogram, bringing the total amount of common stock that we could repurchase under the program to $20.0 million. On October 24, 2014, our Board of Directorsauthorized a $20.0 million increase to the stock repurchase program, increasing the total stock repurchase program to $40.0 million, and extended the duration ofthe program to December 31, 2015. During October 2015, our Board of Directors authorized an additional $10.0 million increase to the stock repurchaseprogram, increasing the total stock repurchase program to $50.0 million, and extended the duration of the program to December 31, 2016. We repurchased4,118,386 shares of our common stock during the year ended December 31, 2015 for $18.1 million. From the February 2014 announcement of the Company’scurrent stock repurchase program through December 31, 2015, the Company has repurchased 7.8 million shares, or 25.8%, of its common stock outstanding onthe date of the original announcement of the program, for an aggregate cost of $40.9 million. These shares were retired and accounted for as a reduction toShareholders' equity in the Consolidated Balance Sheet. Direct costs incurred to acquire the shares are included in the total cost of the shares.The timing and amount of future repurchases, if any, will depend upon the Company’s stock price, the amount of the Company’s available cash, regulatoryrequirements, and other corporate considerations. The Company may initiate, suspend or discontinue purchases under the stock repurchase program at any time.31Table of ContentsContractual Obligations and Other CommitmentsAs discussed in “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K, the Company has certain contractual obligations andother commitments. A summary of those commitments as of December 31, 2015 is as follows: Payments Due by Period (in thousands)Contractual obligations Total LessThan1 Year 1-3 Years 3-5Years MoreThan5 YearsInterest and commitment fee on Secured Credit Facility (1) $99 $50 $49 $— $—Operating lease obligations 14,630 3,883 5,190 3,903 1,654Payments to Messrs. Cook and Toma (2) 701 62 130 138 371Severance 1,645 1,645 — — —Total $17,075 $5,640 $5,369 $4,041 $2,025(1)Represents the estimated commitment fee and interest due on the Secured Credit Facility using the interest rate as of December 31, 2015 and assuming no borrowingson the revolver. See Note 5 of the Notes to Consolidated Financial Statements for additional information regarding the Secured Credit Facility.(2)Represents estimated reimbursements payable for healthcare costs incurred by these former executives.2006 Management Incentive PlanAt 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”). At Performance Unit settlement dates, participants are issuedthat number of shares of Company common stock equal to 60% of the number of Performance Units being settled, and are paid in cash an amount equal to 40% ofthe fair market value of that number of shares of common stock equal to the number of Performance Units being settled. Prior to 2012, Performance Units wereonly granted in 2006 and 2007, and the last of such units were settled in May 2011.On June 19, 2012, seven senior officers of the Company were granted 154,264 Performance Units under the 2006 MIP, comprising all remaining availableawards under the plan. The awards had an aggregate grant date fair value of $1.2 million and vest ratably over three years.All Performance Units were settled prior to December 31, 2015. We recognized compensation expense of less than $0.1 million in 2015, and $0.2 million in2014 and $0.5 million in 2013 related to these 2006 MIP Performance Unit awards. We determined the amount of compensation expense recognized on theassumption that none of the Performance Unit awards would be forfeited and recorded actual forfeitures as incurred.Cash payments relating to MIP awards were less than $0.1 million in 2015 and $0.1 million in 2014. There was no cash payment in 2013 for the MIP awards.Off-Balance Sheet ArrangementsAs of December 31, 2015, the Company did not have any material off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of the SEC’s RegulationS-K.Critical Accounting PoliciesWe describe our significant accounting policies in Note 1 of “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K. Certain ofour accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significantjudgment by management. As a result, they are subject to an inherent degree of uncertainty. We consider accounting policies that involve the use of estimates thatmeet both of the following criteria to be “critical” accounting policies. First, the accounting estimate requires us to make assumptions about matters that are highlyuncertain at the time that the accounting estimate is made. Second, alternative estimates in the current period, or changes in the estimate that are reasonably likelyin future periods, would have a material impact on the presentation of our financial condition, changes in financial condition or results of operations.32Table of ContentsIn 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, revenue 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 revenue for a contractually specified percentage of amounts recovered when we have determined that ourclients have received economic value (generally through credits taken against existing accounts payable due to the involved vendors or refund checksreceived from those vendors), and when we have met the following criteria: (a) persuasive evidence of an arrangement exists; (b) services have beenrendered; (c) the fee billed to the client is fixed or determinable; and (d) collectability is reasonably assured.Additionally, for purposes of determining appropriate timing of recognition and for internal control purposes, we rely on customary business practices andprocesses for documenting that the criteria described in (a) through (d) above have been met. Such customary business practices and processes may varysignificantly by client. On occasion, it is possible that a transaction has met all of the revenue recognition criteria described above but we do not recognizerevenue, unless we can otherwise determine that criteria (a) through (d) above have been met, because our customary business practices and processesspecific to that client have not been completed. The determination that we have met each of the aforementioned criteria, particularly the determination ofthe timing of economic benefit received by the client and the determination that collectability is reasonably assured, requires the application of significantjudgment by management and a misapplication of this judgment could result in inappropriate recognition of revenue.•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. These 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 the original invoice, or a year after completion of the audit period), we invoice the unbilled receivableamount. Notwithstanding the deferred due date, our clients acknowledge 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.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 revenue. We satisfy 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 revenue.•Goodwill, Other Intangible Assets, Long-lived Assets, and Impairment Charges. Goodwill represents the excess of the purchase price over the estimatedfair market value of net identifiable assets of acquired businesses. Intangible assets are assets that lack physical substance. We evaluate the recoverabilityof goodwill and other intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other, in the fourth quarter of each year or sooner ifevents or changes in circumstances indicate that the carrying amount may exceed its fair value. This evaluation includes a preliminary assessment ofqualitative factors to determine if it is necessary to perform a two-step impairment testing process. The first step identifies potential impairments bycomparing the fair value of the reporting unit with its carrying value, including goodwill. If the calculated fair value of a reporting unit exceeds thecarrying value, goodwill is not impaired, and the second step is not necessary. If the carrying value of a reporting unit exceeds the fair value, the secondstep calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying value. If the fair value is less than thecarrying value, we would record an impairment charge.We are not required to calculate the fair value of our reporting units that hold goodwill unless we determine that it is more likely than not that the fairvalue of these reporting units is less than their carrying values. In this analysis, we consider a number of factors, including changes in our legal, businessand regulatory climates, changes in competition or key personnel, macroeconomic factors impacting our company or our clients, our recent financialperformance and expectations of future performance and other pertinent factors. Based on these analyses, we determined that it was not33Table of Contentsnecessary for us to perform the two-step process. We last used independent business valuation professionals to estimate fair value in the fourth quarter of2010 and determined that fair value exceeded carrying value for all relevant reporting units. No impairment charges were necessary based on our internalcalculations in the three years ended December 31, 2015.We review the carrying value of long-lived assets such as property and equipment for impairment when events and circumstances indicate that thecarrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In caseswhere undiscounted expected future cash flows are less than the carrying value, we will recognize an impairment loss equal to the amount by which thecarrying value exceeds the fair value of the asset. No impairment charges were necessary in the three years ended December 31, 2015 with the exceptionof impairment charges in 2013 for software development costs. In 2013, we recorded impairment charges of $4.2 million related to certain internallydeveloped software assets. These charges primarily resulted from our decision to withdraw from the Medicare RAC program rebid process and fromplanned changes to the Company's recovery audit delivery processes.•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 our Consolidated Statements ofOperations. We establish valuation allowances to reduce net deferred tax assets to the amounts that we believe are more likely than not to be realized. Weadjust these valuation allowances in light of changing facts and circumstances. Deferred tax liabilities generally represent tax expense recognized in ourconsolidated financial statements for which payment has been deferred, or expense for which a deduction has already been taken on our tax returns buthas not yet been 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 be realized.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporarydifferences are deductible. In determining the amount of valuation allowance to record, we consider all available positive and negative evidence affectingspecific deferred tax assets, including our past and anticipated future performance, the reversal of deferred tax liabilities, the length of carry-back andcarry-forward periods, and the implementation of tax planning strategies. Objective positive evidence is necessary to support a conclusion that a valuationallowance is not needed for all or a portion of deferred tax assets when significant negative evidence exists. Cumulative tax losses in recent years are themost 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 income before income taxes. A number of years may elapse before a particular tax position isaudited and finally resolved or before a tax assessment is raised. The number of years subject to tax assessments varies by tax jurisdictions.•Stock-Based Compensation. We account for awards of equity instruments issued to employees and directors under the fair value method of accountingand recognize such amounts in our Consolidated Statements of Operations. We measure compensation cost for all stock-based awards at fair value on thedate of grant and recognize compensation expense using the straight-line method over the service period over which we expect the awards to vest. Werecognize compensation costs for awards with performance conditions based on the probable outcome of the performance conditions. We accruecompensation cost if we believe it is probable that the performance condition(s) will be achieved and do not accrue compensation cost if we believe it isnot probable that the performance condition(s) will be achieved. In the event that it becomes probable that performance condition(s) will no longer beachieved, we reverse all of the previously recognized compensation expense in the period such a determination is made.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, which we calculate based on the historical volatility of our common stock.We use a34Table of Contentsrisk-free interest rate, based on the U.S. Treasury instruments in effect at the time of the grant, for the period comparable to the expected term of theoption. Given our limited history with stock option grants and exercises, we use the “simplified” method in estimating the expected term, the period oftime that options granted are expected to be outstanding, for our grants.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.New Accounting StandardsFor information related to new and recently adopted accounting standards, see Note 1 – Summary of Significant Accounting Policies and Basis ofPresentation, in “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.35Table of ContentsItem 7A. Quantitative and Qualitative Disclosures About Market RiskForeign Currency Market Risk. Our reporting currency is the U.S. dollar, although we transact business in various foreign locations and currencies. As aresult, our financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in theforeign markets 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 theother countries in which we operate. When the U.S. dollar strengthens against other currencies, the value of foreign functional currency revenue decreases. Whenthe U.S. dollar weakens, the value of the foreign functional currency revenue increases. Overall, we are a net receiver of currencies other than the U.S. dollar and,as such, benefit from a weaker dollar. We therefore are adversely affected by a stronger dollar relative to major currencies worldwide. In 2015, we recognized $8.4million of operating income from operations located outside the U.S., virtually all of which was originally accounted for 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 $0.8 million. We currently do not have any arrangements in place 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 amounts outstanding under our revolving credit facility, if any. We had $20.0million of borrowing availability under our revolving credit facility as of December 31, 2015, but had no amounts drawn under the revolving credit facility as ofthat date. Interest on the amended credit facility is payable monthly and accrues at an index rate using the one-month LIBOR rate plus an applicable margin of1.75%. Assuming full utilization of the credit facility, a hypothetical 100 basis point change in interest rates would result in an approximate $0.2 million change inannual pre-tax income.36Table of ContentsITEM 8. Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No.Report of Independent Registered Public Accounting Firm38Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 201339Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014 and 201339Consolidated Balance Sheets as of December 31, 2015 and 201441Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2015, 2014 and 201342Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 201343Notes to Consolidated Financial Statements4437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, 2015 and 2014 and therelated consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the three years in the period endedDecember 31, 2015. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanyingindex. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements and schedule 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, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31,2015, 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, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) and our report dated March 15, 2016 expressed an unqualified opinion thereon./s/ BDO USA, LLPAtlanta, GeorgiaMarch 15, 201638Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data) Years Ended December 31, 2015 2014 2013Revenue, net $138,302 $161,552 $178,268Operating expenses: Cost of revenue 93,169 110,890 112,853Selling, general and administrative expenses 32,284 38,581 46,143Depreciation of property and equipment 5,317 6,025 6,783Amortization of intangible assets 2,458 3,531 4,997Impairment charges — — 2,773Total operating expenses 133,228 159,027 173,549Operating income from continuing operations 5,074 2,525 4,719 Foreign currency transaction (gains) losses on short-term intercompany balances 2,165 2,003 (13)Interest expense (71) (351) (138)Interest income 261 428 215Other loss 1,191 57 —Income from continuing operations before income taxes 1,908 542 4,809Income tax expense (Note 7) 369 3,241 2,755Net income (loss) from continuing operations $1,539 $(2,699) $2,054 Discontinued operations: Loss from discontinued operations (4,765) (4,827) (2,240)Income tax expense (benefit) — — —Net loss from discontinued operations (4,765) (4,827) (2,240) Net loss $(3,226) $(7,526) $(186) Basic earnings (loss) per common share (Note 3): Basic earnings (loss) from continuing operations $0.06 $(0.09) $0.07Basic loss from discontinued operations (0.18) (0.17) (0.08)Total basic earnings (loss) per common share $(0.12) $(0.26) $(0.01) Diluted earnings (loss) per common share (Note 3): Diluted earnings (loss) from continuing operations $0.06 $(0.09) $0.07Diluted loss from discontinued operations (0.18) (0.17) (0.08)Total diluted loss per common share $(0.12) $(0.26) $(0.01) Weighted-average common shares outstanding (Note 3): Basic 25,868 28,707 29,169Diluted 25,904 28,707 29,62839Table of ContentsCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands) Years Ended December 31, 2015 2014 2011Net loss $(3,226) $(7,526) $(186)Foreign currency translation adjustments (769) (551) (1,414)Comprehensive loss $(3,995) $(8,077) $(1,600)See accompanying Notes to Consolidated Financial Statements.40Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data) December 31, 2015 2014ASSETSCurrent assets: Cash and cash equivalents $15,122 $25,735Restricted cash 48 53Receivables: Contract receivables, less allowances of $930 in 2015 and $2,243 in 2014: Billed 26,576 32,373Unbilled 1,967 2,809 28,543 35,182 Employee advances and miscellaneous receivables, less allowances of $681 in 2015 and $692 in 2014 1,740 1,993Total receivables 30,283 37,175Prepaid expenses and other current assets 2,323 3,416Deferred income taxes (Note 7) — 5Total current assets 47,776 66,384 Property and equipment: Computer and other equipment 29,671 28,864Furniture and fixtures 2,842 2,926Leasehold improvements 3,446 3,450Software 23,788 20,934 59,747 56,174Less accumulated depreciation and amortization (48,167) (43,954)Property and equipment, net 11,580 12,220 Goodwill (Note 4) 11,810 13,036Intangible assets, less accumulated amortization of $35,708 in 2015 and $33,973 in 2014 6,684 9,439Unbilled receivables 656 1,196Deferred loan costs, net of accumulated amortization (Note 5) 80 —Deferred income taxes (Note 7) 1,361 36Other assets 444 471Total assets $80,391 $102,782 LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities: Accounts payable and accrued expenses $5,966 $7,397Accrued payroll and related expenses 11,278 15,415Refund liabilities 7,887 5,393Deferred revenue 965 2,173Business acquisition obligations (Note 12) 39 —Total current liabilities 26,135 30,378 Refund liabilities 752 857Other long-term liabilities 1,089 561Total liabilities 27,976 31,796 Commitments and contingencies (Notes 5, 6, 9 and 10) Shareholders’ equity (Notes 9 and 11): Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares; 22,681,656 sharesissued and outstanding at December 31, 2015 and 26,762,861 shares issued and outstanding at December31, 2014 227 268Additional paid-in capital 575,532 590,067Accumulated deficit (524,138) (520,912)Accumulated other comprehensive income 794 1,563Total shareholders’ equity 52,415 70,986Total liabilities and shareholders’ equity $80,391 $102,782See accompanying Notes to Consolidated Financial Statements.41Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYYears Ended December 31, 2015, 2014 and 2013(In thousands, except share data) Common Stock AdditionalPaid-InCapital AccumulatedDeficit Accumulated OtherComprehensiveIncome TotalShareholders'Equity Shares Amount Balance at December 31, 2012 27,893,132 $279 $594,045 $(513,200) $3,528 $84,652Net loss — — — (186) — (186)Foreign currency translation adjustments — — — — (1,414) (1,414)Issuances of common stock: Restricted share awards 665,629 7 (7) — — —Shares issued for acquisition 217,155 2 1,470 — — 1,472Shares issued for stock offering 687,385 7 4,111 — — 4,118Restricted shares remitted by employees for taxes (259,116) (3) (1,754) — — (1,757)Stock option exercises 202,159 2 914 — — 9162006 MIP Performance Unit settlements 52,912 1 (1) — — —Forfeited restricted share awards (91,817) (1) 1 — — —Stock-based compensation expense — — 6,027 — — 6,027Balance at December 31, 2013 29,367,439 294 604,806 (513,386) 2,114 93,828Net loss — — — (7,526) — (7,526)Foreign currency translation adjustments — — — — (551) (551)Issuances of common stock: Restricted share awards 220,442 2 (2) — — —Shares issued for acquisition 187,620 2 1,277 — — 1,279Restricted shares remitted by employees for taxes (72,834) (1) (567) — — (568)Stock option exercises 716,780 7 2,816 — — 2,8232006 MIP Performance Unit settlements 16,526 1 (1) — — —Forfeited restricted share awards (67,970) (1) 1 — — —Repurchases of common stock (3,605,142) (36) (22,649) — — (22,685)Stock-based compensation expense — — 4,386 — — 4,386Balance at December 31, 2014 26,762,861 268 590,067 (520,912) 1,563 70,986Net loss — — — (3,226) — (3,226)Foreign currency translation adjustments — — — — (769) (769)Issuances of common stock: Restricted share awards 23,200 — — — — —Restricted shares remitted by employees for taxes (17,147) — (312) — — (312)Stock option exercises 29,128 — 91 — — 912006 MIP Performance Unit settlements 9,918 — — — — —Forfeited restricted share awards (7,918) — — — — —Repurchases of common stock (4,118,386) (41) (18,030) — — (18,071)Stock-based compensation expense — — 3,716 — — 3,716Balance at December 31, 2015 22,681,656 $227 $575,532 $(524,138) $794 $52,415See accompanying Notes to Consolidated Financial Statements.42Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Years Ended December 31, 2015 2014 2013Cash flows from operating activities: Net loss $(3,226) $(7,526) $(186)Adjustments to reconcile net loss to net cash provided by operating activities: Impairment charges — — 4,207Depreciation and amortization 7,810 9,747 13,228Amortization of deferred loan costs 20 104 193Stock-based compensation expense 3,926 4,532 6,294Foreign currency transaction (gains) losses on short-term intercompany balances 2,165 2,003 (13)Deferred income taxes (1,112) 1,566 (23)Other loss from sale of assets 1,191 57 —Changes in operating assets and liabilities, net of business acquisitions: Restricted cash 5 4 8Billed receivables 4,331 (6,351) 4,206Unbilled receivables 1,305 7,278 2,609Prepaid expenses and other current assets 705 1,575 (1,326)Other assets — 5 17Accounts payable and accrued expenses (1,949) (3,432) (3,512)Accrued payroll and related expenses (3,595) 536 (5,720)Refund liabilities 2,389 (1,297) (591)Deferred revenue (784) 720 (72)Noncurrent compensation obligations — 414 329Other long-term liabilities 272 112 (1,224)Net cash provided by operating activities 13,453 10,047 18,424Cash flows from investing activities: Business acquisition, net of cash acquired (520) — —Business divestiture 783 1,100 —Purchases of property and equipment, net of disposal proceeds (4,482) (4,709) (6,875)Net cash used in investing activities (4,219) (3,609) (6,875)Cash flows from financing activities: Repayments of long-term debt — — (6,000)Payments for deferred loan costs (100) (104) —Payments of deferred acquisition consideration — (2,208) (1,902)Net proceeds from issuance of common stock — — 4,118Repurchase of common stock (18,071) (22,685) —Restricted stock repurchased from employees for withholding taxes (312) (568) (1,757)Proceeds from option exercises 91 2,823 916Net cash used in financing activities (18,392) (22,742) (4,625)Effect of exchange rates on cash and cash equivalents (1,455) (1,661) (1,030)Net (decrease) increase in cash and cash equivalents (10,613) (17,965) 5,894Cash and cash equivalents at beginning of period 25,735 43,700 37,806Cash and cash equivalents at end of period $15,122 $25,735 $43,700 Supplemental disclosure of cash flow information: Cash paid during the period for interest $63 $132 $567Cash paid during the period for income taxes, net of refunds received $1,085 $3,892 $3,245See accompanying Notes to Consolidated Financial Statements.43Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION(a) Description of Business and Basis of PresentationDescription of BusinessThe principal business of PRGX Global, Inc. and subsidiaries is providing recovery audit services to large businesses and government agencies havingnumerous payment transactions. PRGX also provides services adjacent to recovery audit services, including data transformation, data analytics and associatedadvisory services, to a similar client base. These businesses include, but are not limited to:•retailers such as discount, department, specialty, grocery and drug stores, and wholesalers who sell to theseretailers;•business enterprises other than retailers such as manufacturers, financial services firms, and pharmaceutical companies;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 over 30 countries across a multitude of industries.Basis of PresentationDuring the fourth quarter of 2015 we discontinued the Healthcare Claims Recovery Audit ("HCRA") business. The results of our continuing anddiscontinued operations for the years ended December 31, 2015, 2014 and 2013 are presented in accordance with ASC 205-20, Presentation of FinancialStatements - Discontinued Operations.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.Certain reclassifications have been made to the 2013 financial statements to conform to the presentations adopted in 2014.Beginning with the second quarter of 2014, we reclassified certain information technology expenses within our Recovery Audit Services — Americas segmentfrom Selling, General and Administrative expenses to Cost of Revenue to better reflect the nature of the work performed. We have revised the presentation of ourSelling, General and Administrative expenses and Cost of Revenue for all relevant prior periods.Beginning with the first quarter of 2014, we present the former New Services segment as two separate segments: Adjacent Services, which was formerlyreferred to as Profit Optimization services, and Healthcare Claims Recovery Audit Services. We have revised the presentation of our operating segments andrelated information in Note 2 - Operating Segments and Related Information. Also beginning with the first quarter of 2014, we reclassified certain expenses withinthe Recovery Audit Services — Europe/Asia-Pacific segment from Cost of Revenue to Selling, General and Administrative expenses to better reflect costsassociated with new business development efforts.Beginning with the third quarter of 2013, we present fair value adjustments to acquisition-related contingent consideration as an adjustment to our segmentmeasure earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") as presented in Note 2 - Operating Segments and RelatedInformation. We now include these fair value adjustments in the Adjusted EBITDA calculation in the "Acquisition-related charges (benefits)" line, which werenamed from "Acquisition transaction costs and acquisition obligations classified as compensation." Accordingly, we have revised the presentation of ourAdjusted EBITDA calculation for all relevant prior periods.Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure ofcontingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”).Actual results could differ from those estimates.(b) Revenue Recognition, Billed and Unbilled Receivables, and Refund LiabilitiesWe base our revenue 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 specified percentageof the amounts recovered by the client resulting from overpayment claims identified. Clients generally recover claims either by taking credits against outstandingpayables or future purchases from the involved vendors, or receiving refund checks directly from those vendors. The manner in which a claim is44Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)recovered 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 afixed fee, a fee per hour, or a fee per other unit of service.We generally recognize revenue for a contractually specified percentage of amounts recovered when we have determined that our clients have receivedeconomic value (generally through credits taken against existing accounts payable due to the involved vendors or refund checks received from those vendors) andwhen 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 fixedor determinable; and (d) collectability is reasonably assured. In certain limited circumstances, we will invoice a client prior to meeting all four of these criteria; insuch cases, we defer the revenue until we meet all of the criteria. Additionally, for purposes of determining appropriate timing of recognition and for internalcontrol purposes, we rely on customary business practices and processes for documenting that we have met the criteria described in (a) through (d) above. Suchcustomary business practices and processes may vary significantly by client. On occasion, it is possible that a transaction has met all of the revenue recognitioncriteria described above but we do not recognize revenue, unless we can otherwise determine that criteria (a) through (d) above have been met, because ourcustomary business practices and processes specific to that client have not been completed.Historically, there has been a certain amount of revenue with respect to which, even though we had met the requirements of our revenue recognition policy,our clients’ vendors ultimately have rejected the claims underlying the revenue. In that case, our clients may request a refund or offset of such amount even thoughwe may have collected fees. We record any such refunds as a reduction of revenue. We provide refund liabilities for these reductions in the economic valuepreviously received by our clients with respect to vendor claims we identified and for which we previously have recognized revenue. We compute an estimate ofour refund liabilities at any given time based on actual historical refund data.Billed receivables are stated at the amount we plan to collect and do not bear interest. We make ongoing estimates relating to the collectibility of our billedreceivables and maintain a reserve for estimated losses resulting from the inability of our clients to meet their financial obligations to us. This reserve is primarilybased on the level of past-due accounts based on the contractual terms of the receivables, our history of write-offs, and our relationships with, and the economicstatus of, our clients.Unbilled receivables relate to claims for which clients have received economic value but for which we contractually have agreed not to submit an invoice tothe clients at such time. 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 yearafter original invoice, and at other times a year after completion of the audit period), we invoice the unbilled receivable amount. Notwithstanding the deferred duedate, our clients acknowledge that we have earned this unbilled receivable at the time of the original invoice, but have agreed to defer billing the client for therelated services.We record periodic changes in unbilled receivables and refund liabilities as adjustments to revenue.We derive a relatively small portion of revenue on a “fee-for-service” basis whereby billing is based upon a fixed fee, a fee per hour, or a fee per other unit ofservice. We recognize revenue 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 EquivalentsCash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less from date of purchase. Weplace our temporary cash investments with high credit quality financial institutions. At times, certain investments may be in excess of the Federal DepositInsurance Corporation (“FDIC”) insurance limit or otherwise may not be covered by FDIC insurance. Some of our cash and cash equivalents are held at banks injurisdictions outside the U.S. that have restrictions on transferring such assets outside of these countries on a temporary or permanent basis. Such restricted netassets are not significant in comparison to our consolidated net assets.The $15.1 million in cash and cash equivalents as of December 31, 2015 includes $4.7 million held in the U.S., $2.8 million held in Canada, and $7.6 millionheld in other foreign jurisdictions, primarily in the United Kingdom, Australia, India, and Brazil. Our cash and cash equivalents included short-term investments ofapproximately $4.5 million as of December 31, 2015 and $12.2 million as of December 31, 2014, of which approximately $3.2 million and $2.5 million,respectively, were held at banks outside of the United States, primarily in Brazil and Canada.45Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(d) Fair Value of Financial InstrumentsWe state cash equivalents at cost, which approximates fair market value. The carrying values for receivables from clients, unbilled receivables, accountspayable, deferred revenue 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 repaid the remaining balance of our bank debt in December 2013, and had no debt outstanding as of December 31, 2015 and 2014. We record bank debt,if any, as the unpaid balance as of the period end date based on the effective borrowing rate and repayment terms when originated. The bank debt that we repaidwas subject to variable rate terms, and we believe that the fair value was approximately equal to the carrying value. We considered the factors used in determiningthe fair value of this debt to be Level 3 inputs (significant unobservable inputs).We had no business acquisition obligations as of December 31, 2015 and 2014. Our business acquisition obligations represent the fair value of deferredconsideration and earn-out payments estimated to be due as of the date for which we recorded these amounts. We determine the estimated fair values based on ourprojections of future revenue and profits or other factors used in the calculation of the ultimate payment to be made. The discount rate that we use to value theliability is based on specific business risk, cost of capital, and other factors. We consider these factors to be Level 3 inputs (significant unobservable inputs).We state certain assets at fair value on a nonrecurring basis as required by accounting principles generally accepted in the United States of America.Generally, these assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. We recorded an impairment charge in 2013 (see (f)Software Development Costs) whereby the fair value of the assets was derived using Level 3 inputs (significant unobservable inputs).(e) Property and EquipmentWe report property and equipment at cost or estimated fair value at acquisition date and depreciate them over their estimated useful lives using the straight-line method. Our useful lives for fixed assets are three years for computer laptops, four years for desktops, five years for IT server, storage and network equipment,five years for furniture and fixtures and three years for purchased software. We amortize leasehold improvements using the straight-line method over the shorter ofthe lease term or ten years. Depreciation expense from continuing operations was $5.3 million in 2015, $6.0 million in 2014 and $6.8 million in 2013.We review the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset maynot be 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. Noimpairment charges were necessary in the three years ended December 31, 2015 with the exception of charges for software development costs noted below.(f) Software Development CostsWe capitalize a portion of the costs we incur related 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 clients.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.We recorded an impairment charge of $2.8 million in 2013 relating to internally developed software assets. No impairment charges were necessary in 2015or 2014. The impairment charges in 2013 included $2.7 million in the Recovery Audit Services - Americas segment relating to certain capitalized softwaredevelopment costs associated with certain proprietary audit tools. Much of the development efforts in this area were beneficial, but certain aspects of thedevelopment did not yield the benefits anticipated. We continue to develop this business model, but have changed our focus in certain areas and no longer expect toreceive future economic benefit from certain costs and therefore recorded an impairment charge in the fourth quarter of 2013 representing the net book value ofthese capitalized costs. The remaining $0.1 million of impairment charges from 2013 were in the Adjacent Services segment and related to certain capitalizedsoftware development costs associated with certain advisory and analytics tools. Since the perceived future benefit of such tools was less than the carrying46Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)value of such tools, we recorded an impairment charge in the fourth quarter of 2013 representing the net book value of such tools.We consider software development activities to be research and development costs and expense them as incurred. However, we capitalize the costs incurredfor the development of computer software that will be sold, leased, or otherwise marketed or that will be used in our operations beginning when technologicalfeasibility has been established. Research and development costs from continuing operations, including the amortization of amounts previously capitalized, were$3.0 million in 2015, $3.1 million in 2014 and $4.0 million in 2013.(g) Goodwill and Intangible AssetsGoodwill represents the excess of the purchase price over the estimated fair market value of net identifiable assets of acquired businesses. We evaluate therecoverability of goodwill and other intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other, in the fourth quarter of each year or sooner ifevents or changes in circumstances indicate that the carrying amount may exceed its fair value. This evaluation includes a preliminary assessment of qualitativefactors to determine if it is necessary to perform a two-step impairment testing process. The first step identifies potential impairments by comparing the fair valueof the reporting unit with its carrying value, including goodwill. 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 carrying value of a reporting unit exceeds the fair value, the second step calculates the possible impairment loss bycomparing the implied fair value of goodwill with the carrying value. If the fair value is less than the carrying value, we would record an impairment charge.We are not required to calculate the fair value of our reporting units that hold goodwill unless we determine that it is more likely than not that the fair valueof these reporting units is less than their carrying values. In this analysis, we consider a number of factors, including changes in our legal, business and regulatoryclimates, changes in competition or key personnel, macroeconomic factors impacting our company or our clients, our recent financial performance andexpectations of future performance and other pertinent factors. Based on these analyses, we determined that it was not necessary for us to perform the two-stepprocess. We last used independent business valuation professionals to estimate fair value in the fourth quarter of 2010 and determined that fair value exceededcarrying value for all relevant reporting units. No impairment charges were necessary based on our internal assessments in the three years ended December 31,2015.(h) Direct Expenses and Deferred CostsWe typically expense direct expenses that we incur during the course of recovery audit and delivery of Adjacent Services offerings as incurred. For certainimplementation and set-up costs associated with our “fee for service” revenue that we earn over an extended period of time, we defer the related direct andincremental costs and recognize them as expenses over the life of the underlying contract.(i) Income TaxesWe account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributableto differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax creditcarry forwards. 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 torecover or settle 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 thatincludes the enactment 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.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differencesare deductible. 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.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 GAAP for guidance on derecognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition. In accordance with FASB ASC 740, our policy for recording interest and penalties associated with tax positions is to recordsuch items as a47Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)component of income before income taxes. A number of years may elapse before a particular tax position is audited and finally resolved or when a tax assessmentis raised. The number of years subject to tax assessments also varies by tax jurisdictions.(j) Foreign CurrencyWe 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 translatethe assets and liabilities denominated in foreign currencies into U.S. dollars at the current rates of exchange at the balance sheet date. We include the translationgains and losses as a separate component of shareholders’ equity and in the determination of comprehensive income (loss). We translate revenue and expenses inforeign currencies at the weighted average exchange rates for the period. We separately state the foreign currency transaction gains and losses on short-termintercompany balances in the Consolidated Statements of Operations. We include all other realized and unrealized foreign currency transaction gains (losses) in“Selling, general and administrative expenses.”(k) Earnings (Loss) Per Common ShareWe compute basic earnings (loss) per common share by dividing net income (loss) available to common shareholders by the weighted-average number ofshares of common stock outstanding during the period. We compute diluted earnings (loss) per common share by dividing net income (loss) available to commonshareholders by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, (2) the dilutive effect of the assumedexercise of stock options using the treasury stock method, and (3) the dilutive effect of other potentially dilutive securities. We exclude the potential dilutive effectof stock options and convertible instruments from the determination of diluted earnings (loss) per common share if the effect of including them would beantidilutive.(l) Stock-Based CompensationWe account for awards of equity instruments issued to employees and directors under the fair value method of accounting and recognize such amounts in ourConsolidated Statements of Operations. We measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensationexpense in our Consolidated Statements of Operations using the straight-line method over the service period over which we expect the awards to vest. Werecognize compensation costs for awards with performance conditions based on the probable outcome of the performance conditions. We accrue compensation costif we believe it is probable that the performance condition(s) will be achieved and do not accrue compensation cost if we believe it is not probable that theperformance condition(s) will be achieved. In the event that it becomes probable that performance condition(s) will no longer be achieved, we reverse all of thepreviously recognized compensation expense in the period such a determination is made.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, which we calculate based on the historical volatility of our common stock. We use a risk-free interestrate, based on the U.S. Treasury instruments in effect at the time of the grant, for the period comparable to the expected term of the option. We use the “simplified”method in estimating the expected term, the period of time that options granted are expected to be outstanding, for our grants.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 awards to fairvalue at each balance sheet date until the award is settled. We measure equity-classified awards at their grant date fair value and do not subsequently remeasurethem. We have classified our share-based payments which are settled in our common stock as equity-classified awards and our share-based payments that aresettled in cash as liability-classified awards. Compensation costs related to equity-classified awards generally are equal to the fair value of the award at grant-dateamortized over the 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 sheetdate multiplied by 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 (Loss) and Accumulated Other Comprehensive IncomeConsolidated comprehensive income (loss) consists of consolidated net income (loss) and foreign currency translation adjustments. We present thecalculation of consolidated comprehensive income (loss) in the accompanying Consolidated Statements of Comprehensive Income (Loss). No amounts have beenreclassified out of Accumulated Other Comprehensive Income during the periods presented in our consolidated financial statements.(n) Segment Reporting48Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)We report our operating segment information in three segments: Recovery Audit Services – Americas; Recovery Audit Services – Europe/Asia-Pacific andAdjacent Services. We include the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to our three operatingsegments in Corporate Support. Our business segments reflect the internal reporting that our Chief Executive Officer, who is our chief operating decision maker,uses for the purpose of making decisions about allocating resources and assessing performance. Our management, including our Chief Executive Officer, uses whatwe internally refer to as “Adjusted EBITDA” as the primary measure of profit or loss for purposes of assessing the operating performance of all operatingsegments. We define Adjusted EBITDA as earnings from continuing operations before interest, taxes, depreciation and amortization (“EBITDA”) as adjusted forunusual and other 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 2 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.(o) New Accounting StandardsA summary of the new accounting standards issued by the Financial Accounting Standards Board (“FASB”) and included in the Accounting StandardsCodification (“ASC”) that apply to us is set forth below.FASB ASC Update No. 2016-02 - In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842). The standard requires therecognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. Leases will be classified as either finance or operating, withclassification affecting the pattern of expense recognition. The standard requires lessors to classify leases as either sales-type, finance or operating. A sales-typelease occurs if the lessor transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed withoutthe transfer of control, the lease is treated as a financing lease. If the lessor does not convey risks and rewards or control, an operating lease results. The standardwill become effective for the Company beginning January 1, 2019. The Company is currently assessing the impact adoption of this standard will have on itsconsolidated results of operations, financial condition, cash flows, and financial statement disclosures.FASB ASC Update No. 2015-17 - In November 2015, the FASB issued Accounting Standards Update 2015-17, Income Taxes (Topic740). The amendmentsin this update require an entity to classify deferred income tax liabilities and assets into noncurrent amounts in a classified statement of financial position. Theimpacts of these amendments is effective for fiscal periods that begin after December 15, 2016. We adopted the provisions of this update as of the end of 2015 andwill apply the changes prospectively.FASB ASC Update No. 2015-15. In August 2015, the FASB issued Accounting Standards Update No. 2015-15, Interest - Imputations of Interest (Subtopic835-30). The amendments in this update clarify the stance by the SEC allowing an entity to defer and present debt issuance costs for a line-of-credit arrangementas an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are anyoutstanding borrowings on the line-of-credit arrangement. We are currently evaluating the impact of ASU 2015-15 on our consolidated financial statements.FASB ASC Update No. 2015-05. In April 2015, the FASB issued Accounting Standards Update 2015-05, Goodwill and Other - Internal-Use Software(Subtopic 350-40). The amendments in this update provide guidance about whether a cloud computing arrangement includes a software license. Specifically theamendment states that if a cloud computing arrangement includes a software license, then the customer should account for the software license element of thearrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer shouldaccount for the arrangement as a service contract. The amendments in this update are effective for those annual periods beginning after December 15, 2015. We arecurrently evaluating the impact of ASU 2015-05 on our consolidated financial statements.FASB ASC Update No. 2015-03. In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Subtopic835-30) (“ASU 2015-03”). ASU 2015-03 simplifies presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liabilitybe presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective forannual periods49Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)beginning after December 15, 2015 with early adoption permitted. The guidance also requires retrospective application to all prior periods presented. We arecurrently evaluating the impact of ASU 2015-03 on our consolidated financial statements.FASB ASC Update No. 2015-02. In February 2015, the FASB issued Accounting Standards Update 2015-02, Consolidation (Topic 810). The amendments inthis update revise the consolidation model for all entities. Specifically the amendments:1.Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIE's) or voting interestentities;2.Eliminate the presumption that a general partner should consolidate a limitedpartnership;3.Affect the consolidation analysis of reporting entities that are involved with VIE's, particularly those that have fee arrangements and related partyrelationships;4.Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate inaccordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.The amendments in this update are effective for fiscal years beginning after December 15, 2015. We are currently evaluating the impact of ASU 2015-02 on ourconsolidated financial statements.FASB ASC Update No. 2015-01. In January 2015, the FASB issued Accounting Standards Update 2015-01, Income Statement - Extraordinary andUnusual Items (Subtopic 225-20). This update eliminates the concept of extraordinary items and their use in financial statements and corresponding disclosure. Theamendments in this update are effective for fiscal years beginning after December 15, 2015. We are currently evaluating the impact of ASU 2015-01 on ourconsolidated financial statements.FASB ASC Update No. 2014-15. In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 provides guidance on management's responsibility to evaluate whether there is substantialdoubt about an entity’s ability to continue as a going concern and related disclosure requirements. ASU 2014-15 is effective for annual periods beginning afterDecember 15, 2016 with early adoption permitted. We do not expect the adoption of ASU 2014-15 to have a material impact on our consolidated financialstatements.FASB ASC Update No. 2014-09. In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic606) (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and requires an entity to recognizerevenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the transferring entity expects to be entitledto in exchange for those goods or services. ASU 2014-09 allows for adoption using either of two methods; retrospectively to each prior reporting period presentedor retrospectively with the cumulative effect of application recognized at the date of initial adoption. It is effective for annual periods beginning after December15, 2017. Early adoption is not permitted. We are currently undergoing an evaluation of the impact of ASU 2014-09 on our consolidated financial statements.FASB ASC Update No. 2014-08. In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic205) and Property, Plant, and Equipment (Topic 360)—Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU2014-08”). ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations andcertain other disposals that do not meet the definition of a discontinued operation. ASU 2014-08 is effective for annual periods beginning on or after December 15,2014 with early adoption permitted for transactions that have not been disclosed in previously issued financial statements. We adopted ASU 2014-08 in the thirdquarter of 2014. The impact of ASU 2014-08 on the Company's financial statements with respect to any future transaction will be dependent on whether any suchtransaction falls within the scope of the new guidance.(2) OPERATING SEGMENTS AND RELATED INFORMATIONWe conduct our operations through three reportable segments:Recovery Audit Services – Americas represents recovery audit services (other than HCRA services) provided in the United States of America (“U.S.”),Canada and Latin America.Recovery Audit Services – Europe/Asia-Pacific represents recovery audit services provided in Europe, Asia and the Pacific region.50Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Adjacent Services (formerly known as Profit Optimization services) represents data transformation, data analytics and associated advisory services.We include the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three reportable segments inCorporate Support.During the fourth quarter of 2015, PRGX entered into agreements with third parties to fulfill its Medicare recovery audit contractor ("RAC") programsubcontract obligations to audit Medicare payments and provide support for claims appeals and assigned its remaining Medicaid contract to another party. TheCompany will continue to incur certain expenses while the current Medicare RAC contracts are still in effect. As part of discontinuing the HCRA business, theCompany increased its accrual for outstanding Medicare RAC appeals liability by approximately $2.1 million. As a result, the HCRA services business has beenreported as Discontinued Operations in accordance with US GAAP.Discontinued operations information for the years ended December 31, 2015 and 2014 and 2013 (in thousands) is as follows: Results of Discontinued Operations (in thousands) 201520142013Revenue, net1,2662,64016,948Cost of sales4,7435,06913,249Selling, general and administrative expense1,2532,2073,057Depreciation and amortization351911,448Impairment charges——1,434Pretax loss from discontinued operations(4,765)(4,827)(2,240)Income tax expense———Net loss from discontinued operations(4,765)(4,827)(2,240)We evaluate the performance of our reportable segments based upon revenue and measures of profit or loss we refer to as EBITDA and AdjustedEBITDA. We define Adjusted EBITDA as earnings from continuing operations before interest and taxes (“EBIT”), adjusted for depreciation and amortization(“EBITDA”), and then further adjusted for unusual and other significant items that management views as distorting the operating results of the various segmentsfrom period to period. Such adjustments include restructuring charges, stock-based compensation, bargain purchase gains, acquisition-related charges and benefits(acquisition transaction costs, acquisition obligations classified as compensation, and fair value adjustments to acquisition-related contingent consideration),tangible and intangible asset impairment charges, certain litigation costs and litigation settlements, certain severance charges and foreign currency transaction gainsand losses on short-term intercompany balances viewed by management as individually or collectively significant. We do not have any inter-segment revenue.51Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Segment information for the years ended December 31, 2015 and 2014 and 2013 (in thousands) is as follows: RecoveryAuditServices –Americas Recovery AuditServices –Europe/Asia-Pacific AdjacentServices CorporateSupport Total2015 Revenue, net $97,009 $36,264 $5,029 $— $138,302 Net income from continuing operations $1,539Income tax expense 369Interest income, net (190)EBIT $22,539 $2,573 $(5,131) $(18,263) 1,718Depreciation of property and equipment 4,036 647 634 — 5,317Amortization of intangible assets 1,728 600 130 — 2,458EBITDA 28,303 3,820 (4,367) (18,263) 9,493Foreign currency transaction (gains) losses on short-termintercompany balances 807 1,533 12 (187) 2,165Acquisition-related charges — — — — —Transformation severance and related expenses 322 589 30 308 1,249Other loss — — 1,191 — 1,191Stock-based compensation — — — 3,926 3,926Adjusted EBITDA $29,432 $5,942 $(3,134) $(14,216) $18,024 Capital expenditures $3,669 $543 $270 $— 4,482 Allocated assets $44,588 $13,922 $1,030 $— $59,540 Unallocated assets: Cash and cash equivalents — — — 15,122 15,122Restricted cash — — — 48 48Deferred loan costs — — — 80 80Deferred income taxes — — — 1,361 1,361Prepaid expenses and other assets — — — 2,465 2,465Discontinued operations — — — 1,775 1,775Total assets $44,588 $13,922 $1,030 $20,851 $80,39152Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) RecoveryAuditServices –Americas Recovery AuditServices –Europe/Asia-Pacific AdjacentServices CorporateSupport Total2014 Revenue, net $106,533 $44,319 $10,700 $— $161,552 Net loss from continuing operations $(2,699)Income tax expense 3,241Interest income, net (77)EBIT $21,066 $2,772 $(4,161) $(19,212) 465Depreciation of property and equipment 4,711 592 722 — 6,025Amortization of intangible assets 2,002 1,195 334 — 3,531EBITDA 27,779 4,559 (3,105) (19,212) 10,021Foreign currency transaction (gains) losses on short-termintercompany balances 380 1,828 — (205) 2,003Acquisition-related charges (benefits) — — 249 — 249Transformation severance and related expenses 1,348 1,285 418 589 3,640Other loss — — 57 — 57Stock-based compensation — — — 4,532 4,532Adjusted EBITDA $29,507 $7,672 $(2,381) $(14,296) $20,502 Capital expenditures $3,930 $651 $123 $— $4,704 Allocated assets $50,252 $18,556 $4,596 $— $73,404 Unallocated assets: Cash and cash equivalents — — — 25,735 25,735Restricted cash — — — 53 53Deferred income taxes — — — 41 41Prepaid expenses and other assets — — — 2,729 2,729Discontinued operations — — — 820 820Total assets $50,252 $18,556 $4,596 $29,378 $102,78253Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) RecoveryAuditServices –Americas Recovery AuditServices –Europe/Asia-Pacific AdjacentServices CorporateSupport Total2013 Revenue, net $118,649 $46,436 $13,183 $— $178,268 Net income from continuing operations $2,054Income tax expense 2,755Interest expense, net (77)EBIT $27,094 $3,901 $(3,480) $(22,783) 4,732Depreciation of property and equipment 5,617 514 652 — 6,783Amortization of intangible assets 2,792 1,508 697 — 4,997EBITDA 35,503 5,923 (2,131) (22,783) 16,512Impairment charges 2,702 — 71 — 2,773Foreign currency transaction (gains) losses on short-termintercompany balances 327 (316) — (24) (13)Acquisition-related charges (benefits) 1,315 (900) 187 — 602Transformation severance and related expenses 107 1,135 81 1,134 2,457Stock-based compensation — — — 6,294 6,294Adjusted EBITDA $39,954 $5,842 $(1,792) $(15,379) $28,625 Capital expenditures $5,292 $781 $376 $— $6,449Allocated assets $55,978 $16,706 $4,993 $— $77,677Unallocated assets: Cash and cash equivalents — — — 43,700 43,700Restricted cash — — — 57 57Deferred income taxes — — — 1,708 1,708Prepaid expenses and other assets — — — 2,254 2,254Discontinued operations — — — 7,433 7,433Total assets $55,978 $16,706 $4,993 $55,152 $132,82954Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The following table presents revenue by country based on the location of clients served (in thousands): Years Ended December 31, 2015 2014 2013United States $80,484 $88,859 $98,871United Kingdom 19,540 23,817 24,639Canada 12,388 15,851 19,584France 6,186 8,508 10,225Australia 6,111 5,762 4,461Mexico 4,340 4,653 4,482Brazil 1,223 3,050 5,090New Zealand 596 1,353 976Spain 1,019 1,275 844Thailand 933 986 971Hong Kong 864 903 851Colombia 610 841 752Other 4,008 5,694 6,522 $138,302 $161,552 $178,268The following table presents long-lived assets by country based on the location of the asset (in thousands): December 31, 2015 2014 United States $26,281 $29,392 United Kingdom 2,939 4,416 All Other 1,297 1,359 $30,517 $35,167 No client accounted for 10% or more of total revenue in 2015, 2014, or 2013.(3) EARNINGS (LOSS) PER COMMON SHAREThe following tables set forth the computations of basic and diluted earnings (loss) per common share (in thousands, except per share data): Years Ended December 31,Basic earnings (loss) per common share: 2015 2014 2013Numerator: Net income (loss) from continuing operations $1,539 $(2,699) $2,054Net loss from discontinued operations (4,765) (4,827) (2,240) Denominator: Weighted-average common shares outstanding 25,868 28,707 29,169 Basic earnings (loss) per common share from continuing operations $0.06 $(0.09) $0.07Basic loss per common share from discontinued operations $(0.18) $(0.17) $(0.08)55Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Years Ended December 31,Diluted earnings (loss) per common share: 2015 2014 2013Numerator: Net income (loss) from continuing operations $1,539 $(2,699) $2,054Net loss from discontinued operations (4,765) (4,827) (2,240) Denominator: Weighted-average common shares outstanding 25,868 28,707 29,169 Incremental shares from stock-based compensation plans 36 — 459Denominator for diluted earnings per common share 25,904 28,707 29,628 Diluted earnings (loss) per common share from continuing operations $0.06 $(0.09) $0.07Diluted loss per common share from discontinued operations $(0.18) $(0.17) $(0.08)Weighted-average shares outstanding excludes antidilutive shares underlying options that totaled 3.3 million, 3.3 million, and 3.0 million shares,respectively, from the computation of diluted earnings (loss) per common share for the years ended December 31, 2015, 2014, and 2013. Weighted-average sharesoutstanding excludes antidilutive Performance Units issuable under the Company's 2006 Management Incentive Plan that totaled less than 0.1 million shares fromthe computation of diluted earnings (loss) per common share for the years ended December 31, 2014 and 2013. The number of common shares we used in thebasic and diluted earnings (loss) per common share computations include nonvested restricted shares of 2.7 million, 0.5 million, and 0.7 million for the years endedDecember 31, 2015, 2014, and 2013, respectively, and nonvested restricted share units that we consider to be participating securities of 0.1 million for the yearended December 31, 2015 and 0.1 million for the years ended December 31, 2014 and 2013.56Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(4) GOODWILL AND INTANGIBLE ASSETS(a) GoodwillWe 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 - Americassegment includes accumulated impairment losses of $359.9 million recorded in 2002 and 2005.Goodwill by reportable segments during 2015 and 2014 was as follows (in thousands): RecoveryAuditServices –Americas Recovery AuditServices –Europe/Asia-Pacific AdjacentServices TotalBalance, January 1, 2014 $12,177 $913 $596 $13,686Goodwill disposed in connection with business divestiture — — (596) (596)Foreign currency translation — (54) — (54)Balance, December 31, 2014 12,177 859 — 13,036Goodwill disposed in connection with business divestiture (1,422) — — (1,422)Goodwill recorded in connection with business combinations — — 242 242Foreign currency translation — (46) — (46)Balance, December 31, 2015 $10,755 $813 $242 $11,810We initially recorded goodwill of $7.8 million in our Recovery Audit Services – Americas segment in conjunction with our December 2011 acquisition ofBusiness Strategy, Inc. and substantially all the assets of an affiliated company (collectively, “BSI”) (see Note 12 below). We recorded purchase price adjustmentsin 2012 of $0.2 million that reduced the BSI goodwill to $7.6 million and recorded this change retroactively to 2011 bringing the total goodwill for this segment to$12.2 million as of December 31, 2013. We also recorded additions to goodwill of $0.7 million in our Recovery Audit Services – Europe/Asia-Pacific segment in2012 relating to our acquisitions in 2012 of two third-party audit firms to which we had subcontracted a portion of our audit services (“associate migrations”)bringing the total goodwill for this segment to $0.9 million as of December 31, 2013. During 2015, we recorded goodwill of 0.2 million in our Adjacent Servicessegment relating to the acquisition of the Supplier Information Management ("SIM") business from Global Edge.In October 2014, we divested certain previously acquired assets within our Adjacent Services segment that were related to our Chicago, Illinois-basedconsulting business (see Note 12 below). The goodwill from the 2010 purchase of TJG Holdings LLC was disposed of as a result of this divestiture. During August2015, we divested certain assets from a document service offering within our Recovery Audit Services - Americas segment and disposed of (1.4) million ofassociated goodwill.(b) Intangible AssetsIntangible assets consist principally of amounts we assigned to customer relationships, trademarks, non-compete agreements and trade names in conjunctionwith business acquisitions. Changes in gross carrying amounts for intangible assets in 2015 related primarily to the divestiture of certain assets from a documentservice offering ("SDS assets"). Changes in gross carrying amounts for intangible assets in 2014 related primarily to the divestiture of certain previously acquiredassets within our Adjacent Services segment that were related to our Chicago, Illinois-based consulting business ("TJG assets"). There were no changes in grosscarrying amounts for intangible assets in 2013, outside of foreign currency adjustments. Note 12 – Business Acquisitions and Divestitures below includes a moredetailed description of the divestiture in 2014 and recent acquisitions. Certain of our intangible assets associated with acquisitions of assets or businesses by ourforeign subsidiaries are denominated in the local currency of such subsidiary and therefore are subject to foreign currency ("FX") adjustments. We present theamounts for these transactions in United States dollars utilizing foreign currency exchange rates as of the respective balance sheet dates.Amortization expense relating to intangible assets, other than acquired work in process, was $2.5 million in 2015, $3.5 million in 2014 and $4.8 million in2013. As of December 31, 2015 and based on our current amortization methods, we project amortization expense relating to intangible assets for the next fiveyears will be $1.5 million in 2016, $1.2 million in 2017, $1.1 million in 2018, $1.0 million in 2019 and $0.9 million in 2020. We generally use acceleratedamortization methods for customer relationships and trade names, and straight-line amortization for non-compete agreements.57Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)58Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Changes in noncurrent intangible assets during 2015 and 2014 were as follows (in thousands): CustomerRelationships Trademarks Non-competeAgreements TradeNames TotalGross carrying amount: Balance, January 1, 2014 $39,815 $1,090 $2,529 $2,865 $46,299Disposition of TJG assets (829) — (808) (665) (2,302)FX adjustments and other (490) (31) (64) — (585)Balance, December 31, 2014 38,496 1,059 1,657 2,200 43,412Disposition of SDS assets (291) (101) (126) — (518)FX adjustments and other (421) (27) (54) — (502)Balance, December 31, 2015 $37,784 $931 $1,477 $2,200 $42,392Accumulated amortization: Balance, January 1, 2014 $(27,168) $(700) $(2,142) $(2,707) $(32,717)Amortization expense (3,122) (197) (137) (75) (3,531)Disposition of TJG assets 371 — 808 582 1,761FX adjustments and other 423 28 63 — 514Balance, December 31, 2014 (29,496) (869) (1,408) (2,200) (33,973)Amortization expense (2,211) (125) (122) — (2,458)Disposition of SDS assets 64 87 95 — 246FX adjustments and other 397 26 54 — 477Balance, December 31, 2015 $(31,246) $(881) $(1,381) $(2,200) $(35,708)Net carrying amount: Balance, December 31, 2014 $9,000 $190 $249 $— $9,439Balance, December 31, 2015 $6,538 $50 $96 $— $6,684Estimated useful life (years) 6-20 years 6 years 1-5 years 4-5 years (5) DEBTOn January 19, 2010, we entered into a four-year revolving credit and term loan agreement with SunTrust Bank (“SunTrust”). The SunTrust credit facilityinitially consisted of a $15.0 million committed revolving credit facility and a $15.0 million term loan. The SunTrust term loan required quarterly principalpayments of $0.8 million beginning in March 2010, and a final principal payment of $3.0 million due in January 2014 that we paid in December 2013. There havebeen no borrowings under the revolving credit portion of the SunTrust credit facility. The SunTrust credit facility is guaranteed by the Company and all of itsmaterial domestic subsidiaries and secured by substantially all of the assets of the Company.Prior to the January 2014 amendment to the SunTrust credit facility described below, amounts available under the SunTrust revolver were based on eligibleaccounts receivable and other factors. Interest on both the revolver and term loan was payable monthly and accrued at an index rate using the one-month LIBORrate, plus an applicable margin as determined by the loan agreement. The applicable interest rate margin varied from 2.25% per annum to 3.5% per annum,dependent on our consolidated leverage ratio, and was determined in accordance with a pricing grid under the SunTrust loan agreement. The applicable margin was2.25% and the interest rate was approximately 2.43% at December 31, 2013. We also paid a commitment fee of 0.5% per annum, payable quarterly, on the unusedportion of the $15.0 million SunTrust revolving credit facility. The weighted-average interest rate on term loan balances outstanding under the SunTrust creditfacility during 2013, including fees, was 4.1%. We made mandatory principal payments on the SunTrust term loan totaling $3.0 million and the final principalpayment of $3.0 million during the year ended December 31, 2013.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 or declare or pay dividends on its capital stock. The financial covenants included in the SunTrustcredit facility, among59Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)other things, limit the amount of capital expenditures the Company can make, set forth maximum leverage and net funded debt ratios for the Company and aminimum fixed charge coverage ratio, and also require the Company to maintain minimum consolidated earnings before interest, taxes, depreciation andamortization. In addition, the SunTrust credit facility includes customary events of default.On January 17, 2014, we entered into an amendment of the SunTrust credit facility that increased the committed revolving credit facility from $15.0 millionto $25.0 million, lowered the applicable margin to a fixed rate of 1.75%, eliminated the provision limiting availability under the revolving credit facility based oneligible accounts receivable and extended the scheduled maturity of the revolving credit facility to January 16, 2015 (subject to earlier termination as providedtherein). We also paid a commitment fee of 0.5% per annum, payable quarterly, on the unused portion of the SunTrust revolving credit facility through theamendment date below.On December 23, 2014, we entered into an amendment of the SunTrust credit facility that reduced the committed revolving credit facility from $25.0 millionto $20.0 million. The credit facility bears interest at a rate per annum comprised of a specified index rate based on one-month LIBOR, plus an applicable margin(1.75% per annum). The index rate is determined as of the first business day of each calendar month. With the provision of a fixed applicable margin of 1.75% perthe amendment of the SunTrust credit facility, the interest rate that would have applied at December 31, 2015, had any borrowings been outstanding, wasapproximately 1.99%. The credit facility includes two financial covenants (a maximum leverage ratio and a minimum fixed charge coverage ratio) that apply onlyif we have borrowings under the credit facility that arise or remain outstanding during the final 30 calendar days of any fiscal quarter. These financial covenantsalso will be tested, on a modified pro forma basis, in connection with each new borrowing under the credit facility. This amendment also extended the scheduledmaturity of the revolving credit facility to December 23, 2017 and lowered the commitment fee to 0.25% per annum, payable quarterly, on the unused portion ofthe revolving credit facility. The weighted-average interest rate for the commitment fee due on the revolving credit facility was 0.25% in 2015 and 0.5% in 2014.As of December 31, 2015, we had no outstanding borrowings under the SunTrust credit facility. The Company was in compliance with the covenants in itsSunTrust credit facility as of December 31, 2015.Future Minimum PaymentsThere were no future minimum principal payments of debt as of December 31, 2015 and 2014.(6) LEASE COMMITMENTSPRGX is committed under noncancelable lease arrangements for facilities and equipment. Rent expense, excluding costs associated with the termination ofnoncancelable lease arrangements, was $4.6 million in 2015, $6.0 million in 2014 and $6.3 million in 2013.In January 2014, we amended the lease for our principal executive offices to extend the term through December 31, 2021, reduce the lease payment for 2014,and reduce the space under lease from approximately 132,000 square feet to approximately 58,000 square feet effective January 1, 2015. As of December 31,2015, we had no subleased property. Starting in February 2016 we subleased approximately 3,000 square feet.We have entered into several operating lease agreements that contain provisions for future rent increases, free rent periods or periods in which rent paymentsare reduced (abated). We charge the total amount of rental payments due over the lease term to rent expense on the straight-line, undiscounted method over thelease terms.60Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Future minimum lease payments under noncancelable operating leases including the amended lease for our principal executive offices, are as follows (inthousands):Year Ending December 31, Amount2016 $3,8832017 2,9902018 2,2002019 2,0582020 1,845Thereafter 1,654Total payments $14,630(7) INCOME TAXESIncome (loss) before income taxes from continuing operations relate to the following jurisdictions (in thousands): Years Ended December 31, 2015 2014 2013United States $(244) $(3,369) $(3,217)Foreign 2,152 3,911 8,026 $1,908 $542 $4,809The provision for income taxes for continuing operations consists of the following (in thousands): Years Ended December 31, 2015 2014 2013Current: Federal $— $— $—State (13) (11) (452)Foreign 1,494 1,686 3,230 1,481 1,675 2,778Deferred: Federal — — —State — — —Foreign (1,112) 1,566 (23) (1,112) 1,566 (23)Total $369 $3,241 $2,75561Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The significant differences between the U.S. federal statutory tax rate of 34% and the Company’s effective income tax expense for earnings (in thousands)are as follows: Years Ended December 31, 2015 2014 2013Statutory federal income tax rate $649 $184 $1,635State income taxes, net of federal effect (240) (189) (657)Deferred tax true-up 8,078 — —Change in deferred tax asset valuation allowance (6,729) 2,094 (904)Foreign taxes in excess of U.S. statutory rate (223) 714 1,784Compensation deduction limitation (1,201) 381 820Other, net 35 57 77Total $369 $3,241 $2,755The reconciliations shown above reflect changes to prior period schedules as a result of the reporting of discontinued operations for those periods.Additionally, it has been determined that permanent adjustments for compensation deduction limitations were inappropriately applied in 2014 and 2013. Thiscorrection is reflected as a credit in the rate reconciliation for 2015. There was an offsetting increase in the valuation allowance for the 2015 deduction recorded.The tax effects of temporary differences and carry-forwards that give rise to deferred tax assets and liabilities consist of the following (in thousands): Years Ended December 31, 2015 2014Deferred income tax assets: Accounts payable and accrued expenses $954 $1,712Accrued payroll and related expenses 1,713 2,530Stock-based compensation expense 2,668 10,226Depreciation of property and equipment 3,061 5,480Capitalized software 94 —Non-compete agreements — 1Unbilled receivables and refund liabilities 2,029 904Operating loss carry-forwards of foreign subsidiary 3,275 1,920Federal operating loss carry-forwards 31,884 30,669State operating loss carry-forwards 4,038 2,671Other 883 1,930Gross deferred tax assets 50,599 58,043Less valuation allowance 45,565 52,002Gross deferred tax assets net of valuation allowance 5,034 6,041Deferred income tax liabilities: Intangible assets 2,775 3,049Capitalized software — 1,834Other 898 1,117Gross deferred tax liabilities 3,673 6,000Net deferred tax assets $1,361 $41During 2015, the Company undertook a detailed review of the Company's deferred taxes and it was determined that some reclassifications and adjustmentswere needed. All adjustments were offset by changes to the Company's valuation allowance and have been reflected in the 2015 year end balances noted above.62Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Our reported effective tax rates on income approximated 19.3% in 2015, 598.0% in 2014, and 57.3% in 2013. Reported income tax expense in each yearprimarily results from taxes on the income of foreign subsidiaries. The effective tax rates generally differ from the expected tax rate primarily due to theCompany’s deferred tax asset valuation allowance on the domestic earnings and taxes on income of foreign subsidiaries.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.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differencesare deductible. 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. Since this evaluation requires consideration of future events, significant judgment is required in making the evaluation, and our conclusion could bematerially different should certain of our expectations not be met.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, 2015, management determined that based on all available evidence, a valuation allowance was required for all U.S. deferredtax assets due to losses incurred for income tax reporting purposes for the past several years. We recorded a valuation allowance of $45.6 million as of December31, 2015, representing a change of $6.4 million from the valuation allowance of $52.0 million recorded as of December 31, 2014.In 2015, management determined that a valuation allowance was no longer required against the deferred tax assets of one of its foreign subsidiaries. As ofDecember 31, 2015, we had gross deferred tax assets of $1.5 million relating to this subsidiary. The benefit of these deferred tax assets is reflected as a credit totax expense during the year ended December 31, 2015.As of December 31, 2015, we had approximately $91.1 million of U.S. federal loss carry-forwards available to reduce future U.S. federal taxable income. TheU.S. federal loss carry-forwards expire through 2034. As of December 31, 2015, we had approximately $139.2 million of state loss carry-forwards available toreduce future state taxable income. The state loss carry-forwards expire to varying degrees between 2020 and 2034 and are subject to certain limitations. The stateloss carry-forwards at December 31, 2015, reflect adjustments for prior period write-downs associated with ownership changes for state tax purposes.Generally, we have not provided deferred taxes on the undistributed earnings of international subsidiaries as we consider these earnings to be permanentlyreinvested. As it relates to the earnings of our Canadian and Brazilian subsidiaries, we assert that we are not permanently reinvested. We provided additionaldeferred taxes of $0.3 million in 2015, $0.2 million in 2014, and $0.4 million in 2013 representing the estimated withholding tax liability due if such amounts arerepatriated. We did not provide additional incremental U.S. income tax expense on these amounts as the Canadian subsidiary is classified as a branch for U.S.income tax purposes and our Brazilian subsidiary did not have undistributed earnings during the year.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 and also resulted in the write-off of certaindeferred tax assets and the related valuation allowances that the Company recorded in 2006. Of the $91.1 million of U.S. federal loss carry-forwards available tothe Company, $13.8 million of the loss carry-forwards are subject to an annual usage limitation of $1.4 million. The Company has reviewed subsequent potentialownership changes as defined under IRC Section 382 and has determined that on August 4, 2008, the Company experienced an additional ownership change. Thissubsequent ownership change did not decrease the original limitation nor did it impact the Company’s financial position, results of operations, or cash flows.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 ofincome before income taxes. A number of years may elapse before a particular tax position is audited and finally resolved or when a tax assessment is raised. Thenumber of years subject to tax assessments also varies by tax jurisdictions. As a part of an ongoing Canadian tax audit, we continue to defend our tax positionrelated to the valuation of an intercompany transaction. While we have established accruals for this matter, an assessment by the Canadian Revenue Authority mayexceed such amounts.A reconciliation of our beginning and ending amount of unrecognized tax benefits and related accrued interest thereon is as follows:63Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Unrecognized TaxBenefits Accrued Interest andPenaltiesBalance at January 1, 2013 $2,197 $1,460 Additions based on tax positions related to the current year — — Additions based on tax positions related to the prior years — 119Decrease based on payments made during the year (932) (385) Decreases based on tax positions related to the prior years $(541) $(934)Balance at December 31, 2013 $724 $260 Additions based on tax positions related to the current year — — Additions based on tax positions related to the prior years — 33 Decreases based on payments made during the year — — Decreases based on tax positions related to the prior years (47) (73)Balance at December 31, 2014 $677 $220 Additions based on tax positions related to the current year — — Additions based on tax positions related to the prior years — 24 Decreases based on payments made during the year — — Decreases based on tax positions related to the prior years (142) (42)Balance at December 31, 2015 $535 $202The decreases in the unrecognized tax benefits and the related accrued interest and penalties in 2015 and 2014 occurred for several reasons, including theexpiration of the statute of limitations for certain of these taxes in several states and in two foreign jurisdictions, completion of an audit by a foreign jurisdictionthat resulted in a lower tax assessment than we had estimated, and the imposition of limitations on our potential liability resulting from our participation involuntary disclosure agreement processes with several states. Due to the complexity of the tax rules underlying these unrecognized tax benefits, and the uncleartiming of tax audits, tax agency determinations, and other events, we cannot establish reasonably reliable estimates for the periods in which the cash settlement ofthese liabilities will occur.We file U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. As of December 31, 2015, the 2012 through 2014 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 to2012 may also subject returns for those years to examination.(8) EMPLOYEE BENEFIT PLANSWe maintain a defined contribution retirement plan (the "Plan") in accordance with Section 401(k) of the Internal Revenue Code, which allows eligibleparticipating employees to defer receipt of up to 50% of their annual compensation and contribute such amount to one or more investment funds. We matchemployee contributions in a discretionary amount to be determined by management and approved by the Board of Directors each plan year up to the lesser of 6%of an employee’s annual compensation or $3,000 per participant. We also may make additional discretionary contributions to the Plan as determined bymanagement and approved by the Board of Directors each plan year. Company matching funds and discretionary contributions vest 100% after three years ofservice for participants who either had attained three or more years of service or were hired on or after January 1, 2012. For all other participants, companymatching funds and discretionary contributions vest at the rate of 20% after two years of service and 100% after three years of service. We amended the Plan in2013 to add Roth 401(k) plan features that allow participating employees to make post-tax contributions in addition to, or in lieu of, the pre-tax contributionsallowed under the Plan. Company matching funds are made on a pre-tax basis for both pre-tax and post-tax employee contributions, and are subject to the abovelimitations based on the aggregate pre-tax and post-tax contribution by the participant. The Company contributed to the Plan approximately $0.8 million in 2015,$1.0 million in 2014 and $1.1 million in 2013.64Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(9) CAPITAL STRUCTUREEffective July 31, 2000, the Board of Directors amended the Company’s Articles of Incorporation to establish a new series of stock, which is designated asparticipating preferred stock. The Company’s remaining, undesignated preferred stock may be issued at any time or from time to time in one or more series withsuch designations, powers, preferences, rights, qualifications, limitations and restrictions (including dividend, conversion and voting rights) as may be determinedby the Board of Directors, without any further votes or action by the shareholders. As of December 31, 2015 and 2014, the Company had no preferred stockoutstanding.On December 11, 2012, we closed a public offering of 6,249,234 shares of our common stock, which consisted of 2,500,000 shares sold by us and 3,749,234shares sold by certain selling shareholders, at a price to the public of $6.39 per share. The net proceeds to us from the public offering, after deducting underwritingdiscounts and commissions and offering expenses, were $14.7 million. We did not receive any proceeds from the sale of shares by the selling shareholders. Inaddition, the underwriters elected to exercise an overallotment option for an additional 687,385 shares, and completed the additional sale on January 8, 2013. Thenet proceeds to us from the overallotment, after deducting underwriting discounts and commission and offering expenses, were $4.1 million.In partial satisfaction of a business acquisition obligation, we issued 187,620 shares of our common stock having a value of $1.3 million in the year endedDecember 31, 2014 and 217,155 shares of our common stock having a value of $1.5 million in the year ended December 31, 2013.On February 21, 2014, our Board of Directors authorized a stock repurchase program under which we could repurchase up to $10.0 million of our commonstock from time to time through March 31, 2015. On March 25, 2014, our Board of Directors authorized a $10.0 million increase to the stock repurchase program,bringing the total amount of its common stock that the Company could repurchase under the program to $20.0 million. On October 24, 2014, our Board ofDirectors authorized a $20.0 million increase to the stock repurchase program, increasing the total share repurchase program to $40.0 million, and extended theduration of the program to December 31, 2015. In October 2015, our Board of Directors authorized an additional $10.0 million increase to the stock repurchaseprogram, increasing the total share repurchase program to $50.0 million, and extended the duration of the program to December 31, 2016. We repurchased4,118,386 shares of our common stock during the year ended December 31, 2015 for $18.1 million. We repurchased 3,605,142 shares of our common stock duringthe year ended December 31, 2014 for $22.7 million.Pursuant to exercises of outstanding stock options, we issued 29,128 shares of our common stock having a value of $91,000 in the year ended December 31,2015 and 716,780 shares of our common stock having a value of $2.8 million in the year ended December 31, 2014. Stock option exercises during the year endedDecember 31, 2014 primarily consisted of exercises by former executive officers of the Company.(10) COMMITMENTS AND CONTINGENCIESLegal ProceedingsWe are party to a variety of legal proceedings arising in the normal course of business. While the results of these proceedings cannot be predicted withcertainty, management believes that the final outcome of these proceedings will not have a material adverse effect on our financial position, results of operations orcash flows.65Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(11) STOCK-BASED COMPENSATIONThe Company currently has two stock-based compensation plans under which awards have been granted: (1) the 2006 Management Incentive Plan (“2006MIP”); and (2) the 2008 Equity Incentive Plan (“2008 EIP”) (collectively, the “Plans”). The Company generally issues authorized but previously unissued sharesto satisfy stock option exercises, grants of restricted stock awards and vesting of restricted stock units and settlements of 2006 MIP Performance Units.2008 EIP AwardsDuring the first quarter of 2008, the Board of Directors of the Company adopted the 2008 EIP, which was approved by the shareholders at the annualmeeting of the shareholders on May 29, 2008. The 2008 EIP authorizes the grant of incentive and non-qualified stock options, stock appreciation rights, restrictedstock, restricted stock units and other incentive awards. Two million shares of the Company’s common stock initially were reserved for issuance under the 2008EIP pursuant to award grants to key employees, directors and service providers. The options granted pursuant to the 2008 EIP generally 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, 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 provides that restricted stock awards and other full value awards will count as 1.41 shares against the available pool ofshares under the plan.An amendment to the 2008 EIP was adopted by the Company’s Board of Directors in April 2012 and approved at the Company’s annual meeting ofshareholders held on June 19, 2012. This amendment increased the number of shares reserved for issuance under the 2008 EIP by 2,200,000 shares to a total of7,600,000 shares.An amendment to the 2008 EIP was adopted by the Company's Board of Directors in April 2014 and approved at the Company’s annual meeting ofshareholders held on June 24, 2014. This amendment increased the number of shares reserved for issuance under the 2008 EIP by 3,000,000 shares to a total of10,600,000 shares. Any shares issued in connection with an award against this 3,000,000 share pool will count against the available pool of shares on a one-to-onebasis. As of December 31, 2015, there were approximately 1.1 million shares available for future grants under the 2008 EIP.66Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Stock options granted under the 2008 EIP generally vest in equal annual increments over the vesting period, which typically is three years for employees andone year for directors. The following table summarizes stock option grants during the years ended December 31, 2015, 2014, and 2013:GranteeType # ofOptionsGranted Vesting Period WeightedAverageExercise Price WeightedAverage GrantDate Fair Value2015 Director group 249,273 1 year or less $4.49 $2.44Employee group 17,092 3 $3.99 $1.33Employee inducement (1) 135,000 3 years $5.51 $1.42 2014 Director group 51,276 1 year or less $6.45 $1.89Employee group (2) 1,480,000 3 years $6.99 $1.81Employee inducement (3) 270,000 3 years $6.64 $1.71 2013 Director group 75,490 1 year or less $5.67 $2.00Director group 17,092 3 years $6.83 $3.76Employee group 549,875 3 years $5.75 $2.48Employee inducement (4) 20,000 3 years $7.14 $3.81 (1)The Company granted non-qualified stock options outside its existing stock-based compensation plans in the first nine months of 2015 to three employees in connection with theemployees joining the Company.(2)The weighted average exercise price for these options is calculated based on an exercise price of $6.36 for the options that vest on June 27, 2015, $6.99 for the options that vest onJune 27, 2016 and $7.63 for the options that vest on June 27, 2017.(3)The Company granted non-qualified stock options outside its existing stock-based compensation plans in the third quarter of 2014 to two executives in connection with the executivesjoining the Company.(4)The Company granted non-qualified performance-based stock options outside its existing stock-based compensation plans in the first quarter of 2013 to one employee in connectionwith the employee joining the Company.Nonvested stock awards, including both restricted stock and restricted stock units, generally are nontransferable until vesting and the holders are entitled toreceive dividends with respect to the nonvested shares. Prior to vesting, the grantees of restricted stock are entitled to vote the shares, but the grantees of restrictedstock units are not entitled to vote the shares. Generally, nonvested stock awards vest in equal annual increments over the vesting period, which typically is threeyears for employees and one year for directors.67Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The following table summarizes nonvested stock awards granted during the years ended December 31, 2015, 2014 and 2013:GranteeType # of SharesGranted Vesting Period WeightedAverage GrantDate Fair Value2015 Director group 4,273 1 year or less $4.02Director group 17,092 3 years $3.99Employee group (1) 2,493,333 2 years $3.99Employee inducement (2) 10,000 3 years $5.29 2014 Director group 51,276 1 year or less $6.45Employee group 120,000 3 years $6.36Employee inducement (3) 70,000 3 years $6.04 2013 Director group 75,490 1 year or less $5.67Director group 17,092 3 years $6.83Employee group 599,875 3 years $5.82Employee inducement (4) 20,000 3 years $7.14 (1)The Company granted nonvested performance-based stock awards (restricted stock units) in the first quarter of 2015 to eight executive officers totaling 1,325,000 units. During thethird and fourth quarter of 2015, the Company issued 1,168,333 units to key employees.(2)The Company granted nonvested stock awards (restricted stock) outside its existing stock-based compensation plans in the first quarter of 2015 to two employees in connection withthe employees joining the Company.(3)The Company granted nonvested stock awards (restricted stock) outside its existing stock-based compensation plans in the third quarter of 2014 to two executives inconnection with the executives joining the Company.(4)The Company granted nonvested performance-based stock awards (restricted stock) outside its existing stock-based compensation plans in the first quarter of 2013 to one employee inconnection with the employee joining the Company.Performance-Based Restricted Stock UnitsOn March 30, 2015, eight executive officers of the Company were granted 1,325,000 performance-based restricted stock units (“PBUs”) under the 2008EIP. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to 50% of the number of PBUs being settled and the payment ofcash in an amount equal to 50% of the fair market value of that number of shares of common stock equal to the number of PBUs being settled. The PBUs vest andbecome payable based on the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December 31, 2016. At the threshold performance level, 35% of the PBUs will become vested and payable; at the targetperformance level, 100% of the PBUs will become vested and payable; and at the maximum performance level, 200% of the PBUs will become vested andpayable. If performance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will be based on straight lineinterpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 200% of the PBUs and no PBUs shallbecome vested and payable if performance does not equal or exceed the threshold performance level).On September 28, 2015, certain employees of the Company were granted 1,123,333 PBUs under the 2008 EIP. On December 14, 2015, certain employeesof the Company were granted an additional 45,000 PBUs under the 2008 EIP. Upon vesting, the PBUs will be settled by the issuance of Company common stockequal to 25% of the number of PBUs being settled and the payment of cash in an amount equal to 75% of the fair market value of that number of shares ofcommon stock equal to the number of PBUs being settled. The PBUs vest and become payable based on the cumulative adjusted EBITDA that the Company(excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December 31, 2016. At the thresholdperformance level, 35% of the PBUs will become vested and payable and at the target performance level, 100% of the PBUs will become vested and payable. Ifperformance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will be based on straight line interpolationbetween such stated performance levels (although the PBUs may not become vested and payable for more than 100% of the PBUs and no PBUs shall becomevested and payable if performance does not equal or exceed the threshold performance level).68Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)During 2015, the PBUs were expensed at the target performance level based on management's estimates. During the fourth quarter of 2015, it wasdetermined it was "not probable" that the threshold performance level would be achieved by the vesting period ending December 31, 2016 and the Companyreversed approximately $0.8 million of expense incurred in the second quarter and $0.6 million of expense incurred in third quarter, a total of $1.4 million for theyear ended December 31, 2015.69Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)A summary of option activity as of December 31, 2015, and changes during the year then ended is presented below:Options Shares Weighted-AverageExercisePrice(Per Share) Weighted-AverageRemainingContractualTerm AggregateIntrinsicValue($ 000’s)Outstanding at January 1, 2015 3,325,103 $6.66 4.67 years $711Granted 401,365 4.81 Exercised (29,128) 3.13 $40Forfeited (179,281) 6.40 Expired (180,275) 9.63 Outstanding at December 31, 2015 3,337,784 $6.36 4.68 years $70Exercisable at December 31, 2015 1,432,579 $8.09 3.49 years $70The weighted-average grant date fair value of options granted was $2.32 per share in 2015, $1.80 per share in 2014 and $2.50 per share in 2013. The total intrinsicvalue of options exercised was $40 thousand in 2015, $1.7 million in 2014 and $0.4 million in 2013.70Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)For time-vested option grants that resulted in compensation expense recognition, we used the following assumptions in our Black-Scholes valuation models: Years Ended December 31, 2015 2014 2013Risk-free interest rates 0.80% - 1.59% 0.88% - 1.79% 0.37% - 1.55%Dividend yields —% —% —%Volatility factor of expected market price .323 - .733 .370 - .390 .446 - .675Weighted-average expected term of option 3.1 - 5 years 3.5 - 4.5 years 3.7 - 5 yearsForfeiture rate —% —% —%A summary of nonvested stock awards (restricted stock and restricted stock units) activity as of December 31, 2015 and changes during the year then endedis presented below:Nonvested Stock Shares WeightedAverage GrantDate Fair Value(Per Share)Nonvested at January 1, 2015 627,848 $6.40Granted 2,564,698 4.00Vested (275,053) 6.45Forfeited (95,451) 4.14Nonvested at December 31, 2015 2,822,042 $4.30The weighted-average grant date fair value of nonvested stock awards (restricted stock and restricted stock units) granted was $4.00 per share in 2015, $6.29per share in 2014 and $5.86 per share in 2013. The total vest date fair value of stock awards vested during the year was $1.2 million in 2015, $2.3 million in 2014and $4.6 million in 2013.2006 MIP Performance UnitsAt 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, participants were issued that number of shares ofCompany common stock equal to 60% of the number of Performance Units being settled, and were paid in cash an amount equal to 40% of the fair market value ofthat number of shares of common stock equal to the number of Performance Units being settled. Prior to 2012, Performance Units were only granted in 2006 and2007, and the last of such units were settled in May 2011.On June 19, 2012, seven senior officers of the Company were granted 154,264 Performance Units under the 2006 MIP, comprising all remaining availableawards under the 2006 MIP. The awards had an aggregate grant date fair value of $1.2 million and vest ratably over three years. Upon vesting, the PerformanceUnits were settled by the issuance of Company common stock equal to 60% of the number of Performance Units being settled and the payment of cash in anamount 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.During the year ended December 31, 2015, an aggregate of 16,530 Performance Units were settled, which resulted in the issuance of 9,918 shares ofcommon stock and cash payments totaling less than $0.1 million. During the year ended December 31, 2014, an aggregate of 27,546 Performance Units weresettled, which resulted in the issuance of 16,526 shares of common stock and cash payments totaling $0.1 million. Since the June 19, 2012 grant date to December31, 2014, an aggregate of 137,740 Performance Units were settled by three current executive officers and three former executive officers, and 16,524 PerformanceUnits were forfeited by one former executive officer. Such settlements resulted in the issuance of 79,356 shares of common stock and cash payments totaling $0.3million. As of December 31, 2015, no Performance Units were outstanding. There was no settlement of Performance Units during 2012.We recognized compensation expense of less than $0.1 million in 2015, $0.2 million in 2014 and less than $0.5 million in 2013 related to these 2006 MIPPerformance Unit awards. We determined the amount of compensation expense recognized on the assumption that none of the Performance Unit awards would beforfeited and recorded actual forfeitures as incurred.71Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Stock-based compensation charges aggregated $3.9 million in 2015 and $4.5 million in 2014 and $6.3 million in 2013. We include these charges in “Selling,general and administrative expenses” in the accompanying Consolidated Statements of Operations. At December 31, 2015, there was $1.9 million of unrecognizedstock-based compensation expense related to stock options, restricted stock awards, restricted stock unit awards, and Performance Unit awards which we expect torecognize over a weighted-average period of 2.0 years.(12) BUSINESS ACQUISITIONS AND DIVESTITURESWe completed several acquisitions and divestitures in recent years that we describe below. Generally, we acquire businesses that we believe will provide astrategic fit for our existing operations, cost savings and revenue synergies, or enable us to expand our capabilities in our Adjacent Services segment. We divestassets or businesses that we no longer find strategically aligned with our service offerings.We allocate the total purchase price in a business acquisition to the fair value of identified assets acquired and liabilities assumed based on the fair values atthe acquisition date, and record amounts exceeding the fair values as goodwill. If the fair value of the assets acquired exceeds the purchase price, we record thisexcess as a gain on bargain purchase. We determine the estimated fair values of intangible assets acquired using our estimates of future discounted cash flows to begenerated by the acquired business over the estimated duration of those cash flows. We base the estimated cash flows on our projections of future revenue, cost ofrevenue, capital expenditures, working capital needs and tax rates. We estimate the duration of the cash flows based on the projected useful life of the assets andbusiness acquired. We determine the discount rate based on specific business risk, cost of capital and other factors.Etesius LimitedIn February 2010, the Company’s UK subsidiary acquired all the issued and outstanding capital stock of Etesius Limited (“Etesius”), a privately-heldEuropean provider of purchasing and payables technologies and spend analytics based in Chelmsford, United Kingdom. We have included the results of operationsof Etesius in our Adjacent Services segment results of operations since the acquisition date as we acquired Etesius with the intention of expanding our capabilitiesin this segment.The financial terms of the Etesius share purchase agreement (“SPA”) required an initial payment to the Etesius shareholders of $2.8 million and a $0.3million payment for obligations on behalf of Etesius shareholders which resulted in a total estimated purchase price value of approximately $3.1 million.The SPA required deferred payments of $1.2 million over four years from the date of the SPA to certain selling shareholders who are now our employees.The SPA also provided 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 were not obligated to make the deferred and earn-out payments upon the termination of employment of these employees under certain circumstances, we recognized these payments as compensation expense asearned. From the acquisition date to December 31, 2014, we paid $1.4 million of deferred payments and variable consideration. This amount consisted of the final$0.7 million of deferred payments paid in February 2014 and $0.2 million of variable consideration paid in August 2014. We currently estimate that we will notpay any additional variable consideration relating to these provisions resulting in no remaining amounts payable relating to this acquisition as of December 31,2015 and 2014.TJG Holdings LLCIn November 2010, we acquired the business and certain assets of TJG Holdings LLC (“TJG”), a privately-held provider of finance and procurementoperations improvement services based in Chicago, Illinois. We have included the results of operations of TJG in our Adjacent Services segment results ofoperations since the acquisition date. We acquired TJG with the intention of expanding our financial advisory services business. We recorded goodwill inconnection with this acquisition, representing the value of the assembled workforce, including a management team with deep industry knowledge. This goodwillwas deductible for tax purposes until our divestiture of certain assets from this acquisition in October 2014 (see Divestitures below).The financial terms of the TJG Asset Purchase Agreement required an initial payment to the TJG owners of $2.3 million. Additional variable consideration(“earn-out”) could be earned based on the operating results generated by the acquired business over the two years subsequent to the acquisition, up to a maximumof $1.9 million. 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 future discounted cash flows to be generated by the acquired business over a two year period. We determined the discount ratebased on specific business risk, cost of capital and other factors. The total estimated purchase price was valued at approximately $3.7 million. From the acquisitiondate to December 31, 2013, we paid $1.9 million of the earn-72Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)out and recorded accretion and other adjustments of the liability of $0.5 million, resulting in no remaining earn-out payable as of December 31, 2013.Associate MigrationsDuring 2012, we acquired the assets of several third-party audit firms to which we had subcontracted a portion of our audit services in our Recovery AuditServices – Europe/Asia-Pacific segment. We refer to the subcontractors as associates, and to the acquisitions as associate migrations. In an associate migration, wegenerally transfer all of the employees of the associate entity to PRGX, and continue to service the related clients with the same personnel as were providingservices prior to the associate migration. We completed the associate migrations with the intention of providing more standardization and centralization of ouraudit procedures, thereby increasing client service while also decreasing costs. Generally, revenue remains unchanged as a result of an associate migration, andexpenses change from a fixed percentage of revenue to a variable amount based on actual employee and related costs. The 2012 associate migrations included CRCManagement Consultants LLP (“CRC”) in January 2012 for a purchase price valued at $1.0 million; QFS Ltd (“QFS”) in June 2012 for a purchase price valued at$0.4 million; and Nordic Profit Provider AB (“NPP”) in November 2012 for a purchase price valued at $0.1 million. The allocation of the aggregate fair values of the assets acquired and purchase price for these associate migrations in 2012 is summarized as follows (inthousands): Fair values of net assets acquired: Equipment $10Intangible assets, primarily non-compete agreements 171Working capital, including work in progress 666Goodwill 695Fair value of net assets acquired $1,542Fair value of purchase price $1,542Business Strategy, Inc.In December 2011, we acquired BSI, based in Grand Rapids, Michigan, for a purchase price valued at $11.9 million. BSI was a provider of recovery auditand related procure-to-pay process improvement services for commercial clients, and a provider of customized software solutions and outsourcing solutions toimprove back office payment processes. We have included the results of operations of Business Strategy, Inc. in our Recovery Audit Services – Americas segmentand the results of operations of the affiliated company in our Adjacent Services segment results of operations since the acquisition date. These amounts aggregated$0.8 million of revenue and $0.1 million of net income in 2011 and $10.9 million of revenue and $1.5 million of net income in 2012. We acquired BSI with theintention of expanding our commercial recovery audit capabilities and to expand the services we offer to our clients.The purchase price included an initial cash payment of $2.8 million and 640,614 shares of our common stock having a value of $3.7 million. An additionalpayment of approximately $0.7 million was due and paid in the first half of 2012 for working capital received in excess of a specified minimum level. We weresubject to additional variable consideration of up to $5.5 million, payable via a combination of cash and shares of our common stock, based on the performance ofthe acquired businesses over a two-year period from the date of acquisition. We were also subject to additional consideration of up to $8.0 million, payable in cashover a period of two years, based on certain net cash fee receipts from a particular recovery audit claim at a specific client. We recorded an additional $4.9 millionpayable as of the acquisition date based on management’s estimate of the fair value of the variable consideration payable. We adjusted the $12.2 million initialestimates of the fair value of the assets and liabilities in 2012, resulting in reductions to goodwill of $0.2 million, and the fair value of the purchase price of $0.2million, and recorded this change retroactively to 2011. The final goodwill amount of $7.6 million includes $1.5 million that is deductible for income tax purposes.73Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The final allocation of the fair values of the assets acquired and purchase price is summarized as follows (in thousands):Fair values of net assets acquired: Final AllocationEquipment $70Intangible assets, primarily customer relationships 4,041Working capital, including work in progress 1,967Deferred tax liabilities (1,736)Goodwill 7,577Fair value of net assets acquired $11,919Fair value of purchase price $11,919From the acquisition date to December 31, 2014, we paid $6.3 million of the earn-out liability consisting of cash payments of $3.6 million and 404,775shares of our common stock having a value of $2.7 million. We also recorded accretion and other adjustments of the earn-out liability of $1.4 million, resulting inno remaining earn-out payable as of December 31, 2014.The following unaudited pro forma condensed financial information presents the combined results of operations of the Company, BSI, CRC, QFS, and NPPas if the acquisitions had occurred as of January 1, 2011. The unaudited pro forma financial information is not indicative of, nor does it purport to project, thefuture financial position or operating results of the Company. Pro forma adjustments included in these amounts consist primarily of amortization expenseassociated with the intangible assets recorded in the allocation of the purchase price. The unaudited pro forma financial information excludes acquisition andintegration costs and does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisition.Unaudited pro forma condensed financial information, excluding divestitures, is as follows (in thousands): Years Ended December 31, 2012 2011Revenue $208,503 $210,073Net income (loss) $5,913 $4,341Global EdgeIn December 2015, we acquired the Supplier Information Management business from Global Edge for a purchase price valued at $0.7 million. The GlobalEDGE SIM platform includes vendor master file cleanse, regulatory and sanction checks, supplier onboarding, vendor authentication and risk managementservices. The purchase price included an initial cash payment of $0.5 million and additional variable cash consideration based on the performance of the acquiredbusinesses over a two year period from the date of acquisition valued at $0.2 million.DivestituresIn October 2014, we divested certain assets within our Adjacent Services segment that were related to our Chicago, Illinois-based consulting business. Theseassets, previously acquired in November 2010 from TJG Holdings LLC, were sold to Salo, LLC, a Minnesota limited liability company. We received an initialcash payment of $1.1 million in connection with the closing of the transaction and recognized a loss on the sale of less than $0.1 million, which we recognized inOther loss in the Consolidated Statements of Operations. We have also received payment for working capital transferred to the buyer. In addition, we received $0.8million in earn-out payments based on certain revenue recognized by the buyer in relation to the acquired business during the year following the closing date of thedivestiture.In August 2015, we divested certain assets from a document service offering purchased as part of the Business Strategy, Inc. acquisition in 2011.We did notreceive any initial cash payments at closing of the transaction and recognized a loss on the sale of $1.6 million, which we recognized in Other loss in theConsolidated Statements of Operations. We may receive a portion of revenue recognized by the buyer for the period from January 1, 2016 to December 31, 2016that is based on a percentage of revenue from the clients transferred in connection with the disposition. The revenue sharing percentage ranges from 10%to 30% based on the type of solution or service to be performed.74Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(13) QUARTERLY RESULTS (UNAUDITED)The following tables set forth certain unaudited condensed consolidated quarterly financial data for each of the last eight quarters during our fiscal yearsended December 31, 2015 and 2014. We have derived the information from unaudited Condensed Consolidated Financial Statements that, in the opinion ofmanagement, reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such quarterly information. Theoperating results for any quarter are not necessarily indicative of the results to be expected for any future period. The quarterly results are updated for continuingoperations. 2015 Quarter Ended 2014 Quarter Ended Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 (In thousands, except per share data)Revenue, net $32,985 $36,995 $33,365 $34,957 $36,783 $41,692 $42,844 $40,233Operating expenses: Cost of revenue 23,167 24,111 23,507 22,384 26,452 28,596 27,966 27,876Selling, general and administrativeexpenses 7,944 9,185 8,284 6,871 9,352 10,484 9,952 8,793Depreciation of property and equipment 1,279 1,294 1,255 1,489 1,562 1,552 1,406 1,505Amortization of intangible assets 746 754 517 441 903 902 895 831Total operating expenses 33,136 35,344 33,563 31,185 38,269 41,534 40,219 39,005Operating income (loss) from continuingoperations (151) 1,651 (198) 3,772 (1,486) 158 2,625 1,228Foreign currency transaction (gains) losseson short-term intercompany balances 1,692 (416) 654 235 15 (163) 1,221 930Interest expense (income), net (42) (53) (8) (87) 54 (43) (44) (44)Other (income) loss — — 1,612 (421) — — — 57Income (loss) from continuing operationsbefore income taxes (1,801) 2,120 (2,456) 4,045 (1,555) 364 1,448 285Income tax expense 455 296 421 (803) 113 186 554 2,388Net income (loss) from continuingoperations (2,256) 1,824 (2,877) 4,848 (1,668) 178 894 (2,103) Basic earnings (loss) per common sharefrom continuing operations (1) $(0.09) $0.07 $(0.11) $0.19 $(0.06) $0.01 $0.03 $(0.08) Diluted earnings (loss) per common sharefrom continuing operations (1) $(0.09) $0.07 $(0.11) $0.19 $(0.06) $0.01 $0.03 $(0.08)(1)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 2015, we released a valuation allowance of $1.5 million against the net deferred tax assets of one of our foreign subsidiaries, whichreduced our income tax expense for the period.In the fourth quarter of 2014, we recorded a valuation allowance of $2.3 million against the net deferred tax assets of one of our foreign subsidiaries, whichincreased our income tax expense for the period.(14) SUBSEQUENT EVENTSThe Company has evaluated subsequent events through the date of issuance of the Company's Audited Consolidated Financial Statements and determinedthat no subsequent events occurred that would require accrual or additional disclosure.75Table of ContentsITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.ITEM 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresThe 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 Act Rule13a-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 concluded thatthe Company’s disclosure controls and procedures are effective as of December 31, 2015.Changes in internal controls over financial reportingDuring the fourth quarter of 2015, internal controls were designed and implemented to enhance the planning and review of tax provisions and positions by anadditional member of the accounting department other than the preparer and reviewer in order to prevent and detect potential errors. These changes materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting. These controls have been tested and we found them to beeffective as key controls had been designed and documented during the fourth quarter of 2015.Management’s Annual Report on Internal Control Over Financial ReportingThe 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 (2013 Framework)in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment,management concluded that, as of December 31, 2015, the Company’s internal control over financial reporting is effective. The Company’s internal control overfinancial reporting as of December 31, 2015 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report whichis included herein, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31,2015.Management’s report shall not be deemed filed for purposes of Section 18 of the Exchange Act.76Table of ContentsReport 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, 2015, based on criteriaestablished in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSOcriteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Item 9A, “Management’s Annual Report on Internal Control Over Financial Reporting”.Our responsibility 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 the assessed risk. Our audit also included performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides a reasonable 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, 2015,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, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows foreach of the three years in the period ended December 31, 2015 and our report dated March 15, 2016 expressed an unqualified opinion thereon./s/ BDO USA, LLPAtlanta, GeorgiaMarch 15, 2016ITEM 9B. Other InformationNone.77Table of ContentsPART IIIITEM 10. Directors, Executive Officers and Corporate GovernanceExcept 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 2016 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 CompensationThe 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.78Table of ContentsITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersExcept 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 PlansThe Company currently has two shareholder approved stock-based compensation plans under which equity awards have been granted: (1) the 2006Management Incentive Plan (“2006 MIP”), and (2) the 2008 Equity Incentive Plan (“2008 EIP”).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 varied), participants were paid in commonstock and in cash. Participants received 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. There areno shares remaining available for awards under the 2006 MIP.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 annualmeeting of the shareholders on May 29, 2008. The 2008 EIP authorizes the grant of incentive and non-qualified stock options, stock appreciation rights, restrictedstock, restricted stock units and other incentive awards. Pursuant to amendments to the 2008 EIP that were approved by the Company's Board of Directors and theCompany's shareholders in 2010, 2012 and 2014, 10,600,000 shares are reserved for issuance under the 2008 EIP pursuant to award grants to key employees,directors and service providers.The following table presents certain information with respect to compensation plans under which equity securities of the registrant were authorized forissuance as of December 31, 2015:Plan category Number of securities to beissued upon exercise ofoutstanding options,warrants and rights Weighted-average exerciseprice of outstandingoptions, warrants andrights Number of securitiesremaining available for futureissuance under equitycompensation plans (excludingsecurities reflected in column(a)) (a) (b) (c)Equity compensation plans approved by security holders: 2008 Equity Incentive Plan 2,937,784 6.36 1,115,830Equity compensation plans not approved by security holders (1),(2), (3) 400,000 6.34 —Total 3,337,784 $6.36 1,115,830(1)Inducement Option Grant – during the first and second quarters of 2015, in connection with senior personnel joining the Company, the Company made inducementgrants outside its existing stock-based compensation plans. These employees received options to purchase 110,000 shares of the common stock of the Company.(2)Inducement Option Grant – during the third quarter of 2014, in connection with two executives joining the Company, the Company made inducement grants outside itsexisting stock-based compensation plans to the executives. The executives received options to purchase 270,000 shares of the common stock of the Company.(3)Inducement Option Grant – during the first quarter of 2013, in connection with an employee joining the Company, the Company made an inducement grant outside itsexisting stock-based compensation plans to the employee. The employee received an option to purchase 20,000 shares of the common stock of the Company. Vesting ofthe grant is subject to certain performance requirements.79Table of ContentsITEM 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by Item 13 of this Form 10-K is incorporated by reference to the information contained in the sections captioned “Informationabout the Board of Directors and Committees of the Board of Directors”, “Executive Compensation – Employment Agreements” and “Certain Transactions” of theProxy Statement.ITEM 14. Principal Accountant Fees and ServicesThe information required by Item 14 of this Form 10-K is incorporated by reference to the information contained in the sections captioned “PrincipalAccountant Fees and Services” of the Proxy Statement.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 42. Page No.Report of Independent Registered Public Accounting Firm38Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 201339Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014 and 201339Consolidated Balance Sheets as of December 31, 2015 and 201441Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2015, 2014 and 201342Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 201343Notes to Consolidated Financial Statements44(2) Financial Statement Schedule:Schedule II - Valuation and Qualifying Accounts85(3) ExhibitsExhibitNumber Description2.1 Share Purchase Agreement dated February 28, 2010 by and between PRGX U.K. Limited and Sajid Ghani and Others (incorporated byreference to Exhibit 2.1 to the Registrant’s Form 10-K filed on March 29, 2010). 2.2 Acquisition Agreement dated December 1, 2011, among PRGX Global, Inc., PRGX Commercial LLC, Business Strategy, Inc., StrategicDocument Solutions, LLC, DD&C Investments, L.L.C., Charles Fayon, Daniel Geelhoed and Dennis VanDyke. (incorporated by referenceto Exhibit 2.1 to the Registrant’s Form 8-K filed on December 2, 2011). 3.1 Restated Articles of Incorporation of the Registrant, as amended and corrected through August 11, 2006 (restated solely for the purpose offiling with 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 effective January 20, 2010 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-Kfiled on January 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 December11, 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 December31, 2001). 4.2 See Restated Articles of Incorporation and Bylaws of the Registrant, filed as Exhibits 3.1 and 3.2, respectively. +10.1 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). 10.2 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). 10.3 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). 81Table of Contents10.4 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). 10.5 Third Amendment of Lease, entered into as of January 8, 2014, by and between Galleria 600, LLC and the Company (incorporated byreference to Exhibit 10.1 to the Registrant’s Form 8-K filed on January 14, 2014). +10.6 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). +10.7 Form of Performance Unit Agreement under 2006 Amended and Restated Management Incentive Plan (incorporated by reference to Exhibit10.2 to the Registrant’s Form 8-K filed on June 22, 2012). +10.8 PRGX Global, Inc. 2008 Equity Incentive Plan, as Amended and Restated Effective April 25, 2014 (incorporated by reference to Exhibit10.1 to the Registrant’s Form 8-K filed on June 30, 2014). +10.9 Form of Restricted Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-Kfiled on June 4, 2008). +10.10 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). +10.11 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). +10.12 Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on January 14, 2009). +10.13 Form of Performance-Based Restricted Stock Unit Agreement for Employees (incorporated by reference to Exhibit 10.1 to the Registrant’sForm 8-K filed on April 1, 2015). 10.14 Amended & Restated Revolving Credit Agreement dated as of December 23, 2014, among PRGX Global, Inc. and PRGX USA, Inc., asborrowers, the lenders from time to time party thereto and SunTrust Bank, as administrative agent and issuing bank (incorporated byreference to Exhibit 10.1 to the Registrant’s Form 8-K filed on December 30, 2014). 10.15 Subsidiary Guaranty Agreement dated as of January 19, 2010 by and among PRGX Global, Inc. (formerly PRG-Schultz International, Inc),and PRGX USA, Inc. (formerly PRG-Schultz USA, Inc.), as borrowers, each of the subsidiaries of PRGX Global, Inc. listed on Schedule Ithereto, as guarantors, and SunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-Kfiled on January 25, 2010). 10.16 Security Agreement dated January 19, 2010 among 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 10.3 to the Registrant’s Form 8-K filed on January 25,2010). 10.17 Equity Pledge Agreement dated as of January 19, 2010, made by PRGX Global, Inc. (formerly PRG-Schultz International, Inc), PRGXUSA, Inc. (formerly PRG-Schultz USA, Inc.), and the other direct and indirect subsidiaries of PRGX Global, Inc. signatory thereto, asgrantors, in favor of SunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 8-K filed onJanuary 25, 2010). 10.18 Loan Documents Modification Agreement dated June 21, 2010, by and among the Borrowers, the Guarantors and the Lender (incorporatedby reference to Exhibit 10.29.4 to the Registrant’s Form 10-K filed on March 15, 2012). 10.19 Second Loan Documents Modification Agreement dated September 30, 2010, by and among the Borrowers and the Lender (incorporated byreference to Exhibit 10.1 to the Registrant’s Form 8-K filed on October 1, 2010). 10.20 Third Loan Documents Modification Agreement dated October 17, 2011, by and among the Borrowers and the Lender (incorporated byreference to Exhibit 10.29.6 to the Registrant’s Form 10-K filed on March 15, 2012) 10.21 Fourth Loan Documents Modification Agreement, entered into as of January 17, 2014, by and among the Borrowers, the Guarantors and theLender (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on January 24, 2014). 82Table of Contents10.22 Fifth Loan Documents Modification Agreement and Waiver, entered into as of May 8, 2014, by and among the Borrowers, the Guarantorsand the Lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed on May 12, 2014). 10.23 Sixth Loan Documents Modification Agreement and Waiver, entered into as of August 7, 2014, by and among the Borrowers, theGuarantors and the Lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed on August 7, 2014). 10.24 Seventh Loan Documents Modification Agreement, entered into as of October 23, 2014, by and among the Borrowers, the Guarantors andthe Lender (incorporated by reference to Exhibit 10.29 to the Registrant's Form 10-K filed on March 13, 2015). 10.25 Eighth Loan Documents Modification Agreement, entered into as of December 23, 2014, by and among the Borrowers, the Guarantors andthe Lender (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on December 30, 2014). 10.26 PRGX Global, Inc. Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.2 to the Registrant’sForm 8-K filed on June 30, 2014). 10.27 Form of PRGX Global, Inc. Restricted Stock Unit Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.3 to theRegistrant’s Form 8-K filed on June 30, 2014). 10.28 Employment Agreement between the Registrant and Victor A. Allums dated November 28, 2008 (incorporated by reference to Exhibit10.31 to the Registrant’s Form 10-K filed on March 29, 2010). 10.29 Employment Agreement between the Registrant and Puneet Pamnani dated February 8, 2012 (incorporated by reference to Exhibit 10.35 tothe Registrant’s Form 10-K filed on March 15, 2012). 10.30 Employment Agreement between the Registrant and Tushar Sachdev dated June 18, 2013 (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 10-Q filed on August 6, 2013). +10.31 Separation Agreement between the Registrant and Romil Bahl dated December 5, 2013 (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on December 11, 2013). +10.32 Employment Agreement between the Registrant and Ronald E. Stewart dated December 13, 2013 (incorporated by reference to Exhibit 10.1to the Registrant’s Form 8-K filed on December 19, 2013). +10.33 Employment Agreement between the Registrant and Michael Cochrane dated April 24, 2014 (incorporated by reference to Exhibit 10.1 tothe Registrant’s Form 8-K filed on April 29, 2014). +10.34 Separation Agreement between the Registrant and James R. Shand dated August 14, 2014 (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on August 20, 2014). +10.35 Separation Agreement between the Registrant and Robert B. Lee dated September 11, 2014 (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on September 11, 2014). +10.36 Employment Agreement between the Registrant and Peter Limeri dated September 11, 2014 (incorporated by reference to Exhibit 10.1 tothe Registrant’s Form 8-K filed on November 21, 2014). +10.37 Separation Agreement between the Registrant and Catherine Lee dated September 25, 2015 (incorporated by reference to Exhibit 10.1 toRegistrant's Form 10-Q filed on November 6, 2015). +10.38 Separation Agreement between the Registrant and Michael W. Reene dated January 22, 2016. 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, LLP. 31.1 Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the year ended December 31, 2015. 31.2 Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the year ended December 31, 2015. 32.1 Certification of the Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for the year ended December31, 2015. 83Table of Contents101 The following financial information from the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015,formatted in Extensible Business Reporting Language (“XBRL”): (i) Consolidated Statements of Operations, (ii) Consolidated Statementsof Comprehensive Income (Loss), (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Shareholders' Equity, (v) ConsolidatedStatements of Cash Flows and (vi) Notes to Consolidated Financial Statements. + Designates management contract or compensatory plan or arrangement.84Table of ContentsSCHEDULE II - VALUATION AND QUALIFYING ACCOUNTSFOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013(In thousands) Additions Deductions Description Balance atBeginningof Year Charge(Credit) toCosts andExpenses Credit tothe respectivereceivable (1) Balance atEnd ofYear2015 Allowance for doubtful accounts receivable $2,243 (1,311) (2) $930Allowance for doubtful employee advances and miscellaneousreceivables $692 1,294 (1,305) $681Deferred tax valuation allowance (2) $52,002 (6,437) — $45,5652014 Allowance for doubtful accounts receivable $1,996 253 (6) $2,243Allowance for doubtful employee advances and miscellaneousreceivables $402 1,125 (835) $692Deferred tax valuation allowance $48,453 3,549 — $52,0022013 Allowance for doubtful accounts receivable $1,693 303 — $1,996Allowance for doubtful employee advances and miscellaneousreceivables $538 1,176 (1,312) $402Deferred tax valuation allowance $48,489 (36) — $48,453-----------------------------(1)Write-offs net of recoveries.(2)The change in the current year valuation allowance is due mainly to a $1.5 million release of the valuation allowance on a foreign subsidiary and adjustments requiredto deferred taxes after a review of the balances was performed.85Table of ContentsSIGNATURESPursuant 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 itsbehalf by the undersigned, thereunto duly authorized. PRGX GLOBAL, INC. By: /s/ RONALD E. STEWART Ronald E. Stewart President, Chief Executive Officer, Director(Principal Executive Officer) Date: March 15, 2016Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated.Signature Title Date /s/ RONALD E. STEWART President, Chief Executive Officer and Director March 15, 2016Ronald E. Stewart (Principal Executive Officer) /s/ PETER LIMERI Chief Financial Officer and Treasurer March 15, 2016Peter Limeri (Principal Financial Officer) /s/ BRADLEY T. WHITE Controller March 15, 2016Bradley T. White (Principal Accounting Officer) /s/ DAVID A. COLE Director March 15, 2016David A. Cole /s/ PATRICK G. DILLS Director March 15, 2016Patrick G. Dills /s/ WILLIAM F. KIMBLE Director March 15, 2016William F. Kimble /s/ MYLLE H. MANGUM Director March 15, 2016Mylle H. Mangum /s/ GREGORY J. OWENS Director March 15, 2016Gregory J. Owens /s/ JOSEPH E. WHITTERS Chairman of the Board March 15, 2016Joseph E. Whitters 86SEPARATION AGREEMENTTHIS SEPARATION AGREEMENT (this “Agreement”) is made and entered into this 22nd day of January, 2016, by andbetween MICHAEL REENE (“Executive”) and PRGX GLOBAL, INC., a Georgia corporation (“Company”). Executive andCompany are sometimes hereinafter referred to together as the “Parties” and individually as a “Party.”BACKGROUND:A. Executive is employed as the Senior Vice President - Growth & Market Development of Company pursuant to anemployment agreement between Executive and Company effective as of September 11, 2014 (“Employment Agreement”).B. Executive and Company now mutually desire to (i) provide for the end Executive’s employment and (ii) terminate theEmployment Agreement effective as of the date hereof.C. Company and Executive wish to avoid any disputes which could arise under the Employment Agreement and havetherefore compromised any claims or rights they have or may have under the Employment Agreement by agreeing to the terms ofthis Agreement.NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises, the mutual promises, covenants andagreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are herebyacknowledged, the parties hereto hereby agree as follows:1.Termination of Employment. The Parties agree that (a) the Employment Agreement is hereby terminated as ofthe date hereof, (b) Executive’s employment with Company shall terminate effective January 25, 2016 (“Termination Date”)(although Company reserves the right to elect to pay Executive his base salary and Company’s contribution to the cost ofExecutive’s welfare benefits through the Termination Date, in accordance with the established payroll practices of Company, but noless frequently than monthly, and remove him from active service), and (c) all benefits, privileges and authorities related toExecutive’s employment with Company shall hereby cease, except as otherwise specifically set forth in this Agreement.2. No Admission. The Parties agree that their entry into this Agreement is not and shall not be construed to be an admissionof liability or wrongdoing on the part of either Party.3. Future Cooperation. Executive agrees that, notwithstanding the termination of Executive’s employment, Executiveupon reasonable notice will make himself available to Company or its designated representatives for the purposes of: (a) providinginformation regarding the projects and files on which Executive worked for the purpose of transitioning such projects; and (b)providing information regarding any other matter, file, project and/or client with whom Executive was involved while employed byCompany.14. Consideration.(a) In consideration for Executive’s agreement to terminate the Employment Agreement, to fully release Companyfrom any and all Claims as described below, and to perform the other duties and obligations of Executive contained herein,Company will, subject to ordinary and lawful deductions and Sections 4(b) and (c) below:(i) Pay severance to Executive in the form of salary continuation for the twelve (12) months immediatelyfollowing the Termination Date (“Severance Period”). Such payments shall be made in accordance with Company’s standardpay practices in an amount equal to Ten thousand nine hundred thirty and 77/100 dollars ($10,930.77) per bi-weekly payperiod during the Severance Period, except that no payments shall be made during the period that begins immediately afterthe Termination Date and ends on the earlier of (i) Executive’s death or (ii) six months after the Termination Date. Thepayments that would otherwise have been made in such period shall be accumulated and paid in a lump sum on the first bi-weekly pay period after the end of such period.(ii) Continue after the Termination Date any health care (medical, dental and vision) plan coverage, otherthan under a flexible spending account, provided to Executive and Executive’s spouse and dependents at the TerminationDate for the Severance Period, on a monthly or more frequent basis, on the same basis and at the same cost to Executive asavailable to similarly-situated active employees during such Severance Period, provided that such continued coverage shallterminate in the event Executive becomes eligible for any such coverage under another employer’s plans.(iii) Pay, at the time Executive's annual bonus for such year otherwise would have been paid had Executivecontinued employment, (A) for 2015, an amount equal to Executive's actual earned full-year bonus, and (B) for 2016, anamount equal to Executive's actual earned full-year bonus, pro-rated based on the number of days Executive was employedin such year on and before the Termination Date. Payment of any bonus for 2015 and any pro-rated bonus for 2016 will bedependent upon the Company’s achievement of certain financial performance goals established by the CompensationCommittee for the applicable year in the same manner as are applicable to similarly-situated executives of Company whoparticipate in the annual bonus plans.(iv) Vest, effective as of the date upon which the revocation period for the Release described in Section 4(b)below expires without Executive having elected to revoke the Release, (A) 60,000 of Executive’s outstanding unvestedoptions, with an exercise price of $6.64 per share, that were granted as of September 11, 2014, (B) 6,666 shares ofExecutive’s outstanding unvested restricted stock that were granted as of September 11, 2014, and (C) a prorated number ofExecutive’s outstanding unvested restricted stock units that were granted as of March 30, 2105 equal to the number of suchrestricted stock units multiplied by a fraction, the numerator of which is 383, and the denominator of which is (x) thenumber of days in the two-year period beginning with calendar year 2015 and ending with calendar year 2016 (the“Cumulative Performance Period”) if no Change in Control2(as defined in the restricted stock units award agreement) occurs prior to the end of the Cumulative Performance Period or(y) the number of days in the Cumulative Performance Period until the Change in Control occurs if a Change in Controloccurs prior to the end of the Cumulative Performance Period. Such prorated number of Executive’s restricted stock unitsshall remain outstanding and be eligible to become payable in accordance with the terms of such restricted stock units,except Executive shall not be entitled to receive any dividend equivalents with respect to such prorated number ofExecutive’s restricted stock units after the date Executive’s employment with the Company terminates. Additionally, all ofExecutive’s outstanding vested stock options shall remain outstanding until the earlier of (i) one year after the TerminationDate or (ii) the original expiration date of the options (disregarding any earlier expiration date provided for in any otheragreement, including without limitation any related grant agreement, based solely on the termination of Executive’semployment). All of Executive’s outstanding stock options, restricted stock and restricted stock units that are not otherwisevested as set forth herein shall expire and be forfeited as of the Termination Date without any payment therefor.(v) Payment of one year of outplacement services from Executrak or an outplacement service provider ofExecutive's choice, limited to $20,000 in total. This outplacement services benefit will be forfeited if Executive does notbegin using such services within 60 days after the Termination Date.(b) Notwithstanding anything else contained herein to the contrary, no payments shall be made or benefits deliveredunder this Agreement (other than payments required to be made by Company pursuant to Section 5 below) unless, within thirty (30)days after the Termination Date: (i) Executive has signed and delivered to Company a Release in the form attached hereto as ExhibitA (the “Release”); and (ii) the applicable revocation period under the Release has expired without Executive having elected torevoke the Release. Executive agrees and acknowledges that Executive would not be entitled to such consideration absent executionof the Release and expiration of the applicable revocation period without Executive having revoked the Release. Any payments tobe made, or benefits to be delivered, under this Agreement (other than the payments required to be made by Company pursuant toSection 5 below and the vesting of outstanding unvested options, restricted stock and restricted stock units as set forth in Section4(a)(iv) above) within the thirty (30) days after the Termination Date shall be accumulated and paid in a lump sum, or as to benefitscontinued at Executive’s expense subject to reimbursement, reimbursement shall be made, on the first bi-weekly pay periodoccurring more than thirty (30) days after the Termination Date, provided Executive delivers the signed Release to Company andthe revocation period thereunder expires without Executive having elected to revoke the Release.(c) As a further condition to receipt of the payments and benefits in Section 4(a) above, Executive also waives anyand all rights to any other amounts payable to him upon the termination of his employment relationship with Company, other thanthose specifically set forth in this Agreement, including without limitation any severance, notice rights, payments, benefits and otheramounts to which Executive may be entitled under the laws of any jurisdiction and/or his Employment Agreement, and Executiveagrees not to pursue or claim any of such payments, benefits or rights.3 5. Other Benefits.Nothing in this Agreement or the Release shall:(a) alter or reduce any vested, accrued benefits (if any) Executive may be entitled to receive under any401(k) plan established by Company;(b) affect Executive’s right (if any) to elect and (subject to Section 4(a)(ii) above) pay for continuation ofExecutive’s health insurance coverage under Company’s health plans pursuant to the Consolidated Omnibus BudgetReconciliation Act of 1985 (C.O.B.R.A.), as amended;(c) affect Executive’s right (if any) to receive (i) any base salary that has accrued through the TerminationDate and is unpaid, (ii) any reimbursable expenses that Executive has incurred before the Termination Date but are unpaid(subject to Company’s expense reimbursement policy) and (iii) any unused paid time off days to which Executive will beentitled to payment, all of which shall be paid as soon as administratively practicable (and in any event within thirty (30)days) after the Termination Date; or(d) affect Executive’s right to continue to receive his base salary and benefits through the Termination Date,as in effect as of the date hereof, which base salary and benefits will continue through the Termination Date, except withrespect to any changes in benefits that are applicable generally to the other executives of Company.6. Confidentiality of Agreement Terms. Except as otherwise expressly provided in this Section 6, Executive agrees thatthis Agreement and the terms, conditions and amount of consideration set forth in this Agreement are and shall be deemed to beconfidential and hereafter shall not be disclosed by Executive to any other person or entity. The only disclosures excepted by thisparagraph are (a) as may be required by law; (b) Executive may tell prospective employers the dates of Executive’s employment,positions held, evaluations received, Executive’s duties and responsibilities and salary history with Company; (c) Executive maydisclose the terms and conditions of this Agreement to Executive’s attorneys and tax advisers; and (d) Executive may disclose theterms of this Agreement to Executive’s spouse, if any; provided, however, that any spouse, attorney or tax adviser learning about theterms of this Agreement must be informed about this confidentiality provision, and Executive will be responsible for any breachesof this confidentiality provision by his spouse, attorneys or tax advisers to the same extent as if Executive had directly breached thisAgreement.7. Restrictive Covenants.(a) Definitions. For purposes of this Agreement, the following terms shall have the following respective meanings:4(i) “Business of Company” means services to (A) identify clients’ erroneous or improper payments tovendors and assist clients in the recovery of monies owed to clients as a result of overpayments and overlooked discounts,rebates, allowances and credits, (B) identify and assist clients in recovering amounts owed to them by other third parties,including amounts owed to clients due to non-compliance with applicable contracts, course of dealing or usual andcustomary terms, (C) assist clients in efforts to organize, manage and analyze their purchasing and payment data, and (D)assist clients in analyzing and managing vendor-related risks.(ii) “Confidential Information” means any information about Company or its subsidiaries and theiremployees, customers and/or suppliers which is not generally known outside of Company, which Executive learned inconnection with Executive's employment with Company, and which would be useful to competitors or the disclosure ofwhich would be damaging to Company or any subsidiary of Company. Confidential Information includes, but is not limitedto: (A) business and employment policies, marketing methods and the targets of those methods, finances, business plans,promotional materials and price lists; (B) the terms upon which Company or any subsidiary of Company obtains productsfrom its suppliers and sells services and products to customers; (C) the nature, origin, composition and development ofCompany's or any subsidiary’s services and products; and (D) the manner in which Company or any subsidiary of Companyprovides products and services to its customers.(iii) “Material Contact” means contact in person, by telephone, or by paper or electronic correspondence infurtherance of the Business of Company.(iv) “Restricted Territory” means, and is limited to, the geographic area described in Exhibit B attachedhereto. Executive acknowledges and agrees that this is a portion of the area in which Company and its subsidiaries doesbusiness at the time of the execution of this Agreement, and in which Executive had responsibility on behalf of Company.(v) “Trade Secrets” means Confidential Information of Company and its subsidiaries which meets thedefinition of a trade secret under applicable law.(b) Confidentiality. Executive agrees that Executive will not, directly or indirectly, use, copy, disclose, distribute orotherwise make use of on his own behalf or on behalf of any other person or entity (i) any Confidential Information for a period offive (5) years after the Termination Date or (ii) any Trade Secret at any time such information constitutes a trade secret underapplicable law.(c) Non-Competition. Executive agrees that for a period of two (2) years following the Termination Date,Executive will not, either for himself or on behalf of any other person or entity, compete with the Business of Company within theRestricted Territory by performing activities which are the same as or similar to those performed by Executive for Company orCompany’s subsidiaries.5(d) Non-Solicitation of Customers. Executive agrees that for a period of two (2) years following the TerminationDate, Executive shall not, directly or indirectly, solicit any actual or prospective customers of Company or any subsidiary withwhom Executive had Material Contact, for the purpose of selling any products or services which compete with the Business ofCompany.(e) Non-Recruitment of Employees or Contractors. Executive agrees that for a period of two (2) years following theTermination Date, Executive will not, directly or indirectly, solicit or attempt to solicit any employee or contractor of Company orany subsidiary with whom Executive had Material Contact, to terminate or lessen such employment or contract.(f) Acknowledgments. Executive hereby acknowledges and agrees that the covenants contained in (b) through (e)of this Section 7 hereof are reasonable as to time, scope and territory given Company’s and Company’s subsidiaries’ need to protecttheir business, customer relationships, personnel, Trade Secrets and Confidential Information. For purposes of the covenantscontained in (b) through (e) of this Section 7, Company shall refer also to Company's subsidiaries as applicable. In the event anycovenant or other provision in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable byreason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive inany other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/orover the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as towhich it may be enforceable, all as determined by such court in such action, and the invalidity of any one or more of the covenantsor other provisions in this Agreement shall not cause or render any other covenants or provisions in this Agreement invalid orvoidable. Executive acknowledges and represents that Executive has substantial experience and knowledge such that Executive canreadily obtain subsequent employment which does not violate this Agreement.(g) Specific Performance. Executive acknowledges and agrees that any breach of the provisions of this Section 7 byhim will cause irreparable damage to Company or Company’s subsidiaries, the exact amount of which will be difficult to determine,and that the remedies at law for any such breach will be inadequate. Accordingly, Executive agrees that, in addition to any otherremedy that may be available at law, in equity, or hereunder, Company shall be entitled to specific performance and injunctiverelief, without posting bond or other security, to enforce or prevent any violation of any of the provisions of this Section 7 byExecutive. Additionally, notwithstanding the obligations within Section 11 of this Agreement regarding the exclusive jurisdiction ofthe United States District Court for the Northern District of Georgia and the State and Superior Courts of Cobb County, Georgiapertaining to actions arising out of this Agreement, and in addition to Company’s right to seek injunctive relief in any state or federalcourt located in Cobb County, Georgia, the Parties hereby acknowledge and agree that Company may seek specific performanceand injunctive relief in any jurisdiction, court or forum applicable to Executive’s then current residency in order to prevent or torestrain any breach by Executive, or any and all of Executive’s partners, co-venturers, employers, employees, or agents, actingdirectly or indirectly on behalf of or with Executive, of any of the provisions of the restrictive covenants contained in this Section 7.68. Return of all Property and Information of Company. Executive agrees to return all property of the Company and itssubsidiaries within seven (7) days following the execution of this Agreement. Such property includes, but is not limited to, theoriginal and any copy (regardless of the manner in which it is recorded) of all information provided by Company or any subsidiarythereof to Executive or which Executive has developed or collected in the scope of Executive’s employment related to Company andits subsidiaries or affiliates as well as all Company or subsidiary-issued equipment, supplies, accessories, vehicles, keys,instruments, tools, devices, computers, cell phones, pagers, materials, documents, plans, records, notebooks, drawings, or papers.Upon request by Company, Executive shall certify in writing that Executive has complied with this provision, and has deleted allinformation of Company and its subsidiaries from any computers or other electronic storage devices owned by Executive. Executivemay only retain information relating to Executive’s benefit plans and compensation to the extent needed to prepare Executive’s taxreturns.9. No Harassing or Disparaging Conduct. Executive further agrees and promises that Executive will not engage in, orinduce other persons or entities to engage in, any harassing or disparaging conduct or negative or derogatory statements directed ator about Company or its subsidiaries or affiliates, the activities of Company or its subsidiaries or affiliates, or the Releasees at anytime in the future. Notwithstanding the foregoing, this Section 9 may not be used to penalize Executive for providing truthfultestimony under oath in a judicial or administrative proceeding or complying with an order of a court or government agency ofcompetent jurisdiction.10. References. Following the Termination Date, Executive agrees to direct any third party seeking an employmentreference to the Company’s Senior Vice President-Human Resources and Company agrees to give any potential employers whoinquire about Executive’s work history at Company a neutral reference consisting of Employee’s dates of employment, title andcompensation. The Company will not be responsible with respect to any references which are directed by Executive to anyone otherthan the Company’s Senior Vice President-Human Resources.11. Construction of Agreement and Venue for Disputes. This Agreement shall be deemed to have been jointly drafted bythe Parties and shall not be construed against either Party. This Agreement shall be governed by the law of the State of Georgia, andthe Parties agree that any actions arising out of or relating to this Agreement or Executive’s employment with Company must bebrought exclusively in either the United States District Court for the Northern District of Georgia, or the State or Superior Courts ofCobb County, Georgia. Notwithstanding the pendency of any proceeding, either Party shall be entitled to injunctive relief in a stateor federal court located in Cobb County, Georgia upon a showing of irreparable injury. The Parties consent to personal jurisdictionand venue solely within these forums and solely in Cobb County, Georgia and waive all otherwise possible objections thereto. Theprevailing Party shall be entitled to recover its costs and attorneys fees from the non-prevailing Party in any such proceeding no laterthan 90 days following the settlement or final resolution of any such proceeding. The existence of any claim or cause of action byExecutive against Company or Company’s subsidiaries or affiliates, including any dispute relating to the termination of Executive’semployment or under this Agreement, shall not constitute a defense to enforcement of said covenants by injunction.712. Severability. If any provision of this Agreement shall be held void, voidable, invalid or inoperative, no other provisionof this Agreement shall be affected as a result thereof, and accordingly, the remaining provisions of this Agreement shall remain infull force and effect as though such void, voidable, invalid or inoperative provision had not been contained herein.13. No Reliance Upon Other Statements. This Agreement is entered into without reliance upon any statement orrepresentation of any Party hereto or any Party hereby released other than the statements and representations contained in writing inthis Agreement (including all Exhibits hereto).14. Entire Agreement. This Agreement, including all Exhibits hereto (which are incorporated herein by this reference),contains the entire agreement and understanding concerning the subject matter hereof between the Parties hereto. No waiver,termination or discharge of this Agreement, or any of the terms or provisions hereof, shall be binding upon either Party hereto unlessconfirmed in writing. This Agreement may not be modified or amended, except by a writing executed by both Parties hereto. Nowaiver by either Party hereto of any term or provision of this Agreement or of any default hereunder shall affect such Party’s rightsthereafter to enforce such term or provision or to exercise any right or remedy in the event of any other default, whether or notsimilar.15. Further Assurance. Upon the reasonable request of the other Party, each Party hereto agrees to take any and allactions, including, without limitation, the execution of certificates, documents or instruments, necessary or appropriate to give effectto the terms and conditions set forth in this Agreement.16. No Assignment. Neither Party may assign this Agreement, in whole or in part, without the prior written consent of theother Party, and any attempted assignment not in accordance herewith shall be null and void and of no force or effect.17. Binding Effect. This Agreement shall be binding on and inure to the benefit of the Parties and their respective heirs,representatives, successors and permitted assigns.18. Indemnification. Company understands and agrees that any indemnification obligations under its governing documentsor the indemnification agreement between Company and Executive with respect to Executive’s service as an officer of Companyremain in effect and survive the termination of Executive’s employment under this Agreement as set forth in such governingdocuments or indemnification agreement.19. Nonqualified Deferred Compensation.(a) It is intended that any payment or benefit which is provided pursuant to or in connection with this Agreementwhich is considered to be deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the“Code”), shall be paid and provided in a manner, and at such time and form, as complies with the applicable requirements of Section409A of the Code to avoid the unfavorable tax consequences provided therein for non-compliance.8(b) Neither Company nor Executive shall take any action to accelerate or delay the payment of any monies and/orprovision of any benefits in any manner which would not be in compliance with Section 409A of the Code (including any transitionor grandfather rules thereunder).(c) Because Executive is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, anypayments to be made or benefits to be delivered in connection with Executive’s “Separation from Service” (as determined forpurposes of Section 409A of the Code) that constitute deferred compensation subject to Section 409A of the Code shall not be madeuntil the earlier of (i) Executive’s death or (ii) six months after Executive’s Separation from Service (the “409A Deferral Period”) asrequired by Section 409A of the Code. Payments otherwise due to be made in installments or periodically during the 409A DeferralPeriod shall be accumulated and paid in a lump sum as soon as the 409A Deferral Period ends, and the balance of the payment shallbe made as otherwise scheduled. Any such benefits subject to the rule may be provided under the 409A Deferral Period atExecutive’s expense, with Executive having a right to reimbursement from Company once the 409A Deferral Period ends, and thebalance of the benefits shall be provided as otherwise scheduled.(d) For purposes of this Agreement, all rights to payments and benefits hereunder shall be treated as rights toreceive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code.(e) Notwithstanding any other provision of this Agreement, neither Company nor its subsidiaries or affiliates shallbe liable to Executive if any payment or benefit which is to be provided pursuant to this Agreement and which is considered deferredcompensation subject to Section 409A of the Code otherwise fails to comply with, or be exempt from, the requirements of Section409A of the Code.[signatures on following page]9IN WITNESS WHEREOF, the Parties have executed, or caused their duly authorized representatives to execute, thisAgreement as of the day and year first above written.“Executive”/s/ Michael Reene Michael Reene“Company”PRGX GLOBAL, INC.By: /s/ Victor A. AllumsTitle: SVP & General Counsel10EXHIBIT 21.1PRGX GLOBAL, INC.SUBSIDIARIESAs of December 31, 2015CompanyJurisdiction of OrganizationPRGX USA, Inc.GeorgiaPRGX Asia, Inc.GeorgiaPRGX Australia, Inc.GeorgiaPRGX Belgium, Inc.GeorgiaPRGX Canada, LLCGeorgiaPRGX Commercial LLCGeorgiaPRGX 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, LLCGeorgiaPRGX India Private LimitedIndiaPRGX Holdings Mexico, S de RL de CVMexicoPRGX Servicios Mexico S de RL de CVMexicoPRGX de Mexico S de RL de CVMexicoPRGX Argentina S.A.ArgentinaPRGX Brasil Ltda.BrazilPRGX International PTE LimitedSingaporePRG-Schultz Suzhou' Co Ltd.ChinaPRGX Shanghai Company LimitedChinaPRGX CR s.r.o.Czech RepublicPRGFS, Inc.DelawarePRGX Texas, Inc.TexasMeridian Corporation LimitedJersey (Channel Islands)PRGX UK Holdings LtdUnited KingdomPRGX UK LtdUnited KingdomEtesius LimitedUnited KingdomPRGX Canada Corp.CanadaPRGX Deutschland GmbHGermanyPRGX Nederland B.V.NetherlandsPRGX Colombia Ltda.ColombiaPRGX Svenska ABSwedenPRG-Schultz Venezuela S. R. L.VenezuelaPRGX Polska Sp. z o.o.PolandPRGDS, LLCGeorgiaPRGTS, LLCGeorgia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, No. 333-171986, No. 333-185027 and No.333-208075) and Form S-8 (File No. 333-153837, No. 333-64125, No. 333-08707, No. 333-30885, No. 333-61578, No. 333-81168, No. 333-100817, No. 333-137438, No. 333-170809, No. 333-189010 and No. 333-204489) of PRGX Global, Inc. and subsidiaries of our reports dated March 15, 2016, relating to theconsolidated financial statements and financial statement schedule, and the effectiveness of PRGX Global, Inc. and subsidiaries' internal control over financialreporting, which appear in this Form 10-K./s/ BDO USA, LLPAtlanta, GeorgiaMarch 15, 2016EXHIBIT 31.1CERTIFICATIONI, Ronald E. Stewart, 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 thestatements made, 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 thefinancial condition, 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 ExchangeAct Rules 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 andhave:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; and(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the 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 recentfiscal quarter (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; and5. 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 (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely 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 controlover financial reporting. March 15, 2016 By: /s/ Ronald E. Stewart Ronald E. Stewart President, Chief Executive Officer, Director(Principal Executive Officer)EXHIBIT 31.2CERTIFICATIONI, Peter Limeri, 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 thestatements made, 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 thefinancial condition, 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 ExchangeAct Rules 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 andhave:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles; and(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the 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 recentfiscal quarter (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; and5. 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 (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely 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 controlover financial reporting. March 15, 2016 By: /s/ Peter Limeri Peter Limeri 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 2002In connection with the Annual Report of PRGX Global, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2015 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Ronald E. Stewart, President and Chief Executive Officer of the Company and I, PeterLimeri, 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 thebest of 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. March 15, 2016 By: /s/ Ronald E. Stewart Ronald E. Stewart President, Chief Executive Officer, Director(Principal Executive Officer) March 15, 2016 By: /s/ Peter Limeri Peter Limeri Chief Financial Officer and Treasurer(Principal Financial Officer)

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