Strategic Initiatives Yield Positive Progress

The financial performance of PRG-Schultz in 2004 reflected the significant progress we are making as we reposition the Company to resume its growth and generate improved returns for shareholders. Over the past year, we have been working to implement a set of strategic initiatives aimed at evolving our service model. Our goals in this effort are to better align our cost structure and service delivery process with today’s competitive environment and the needs of our clients, and to capitalize on revenue opportunities in international markets, new claims categories, and new business development.

The best indicator of our progress on the cost front came in the fourth quarter of the year, when we reported a 60 percent cost of revenue for the three-month period, the best performance since the completion of our merger with Howard Schultz & Associates three years ago. This cost performance results from implementing best practices and consistent audit methodologies across the U.S. business, as well as putting in place a centralized, process-driven approach to auditing many claims types.

New Clients Build Top-Line Momentum

On the revenue front, the second half of 2004 began to show the results of the concentrated effort we placed on sales over the past year. During this period, we added 44 new international clients, which will provide a solid base for growth in 2005. A recent contract with the State of Arizona, which includes our first audit of Medicaid claims, demonstrates the new opportunities for audit recovery services that exist in the United States. We also are introducing new service offerings. These include a freight rate audit program, an alliance with national, state and local tax consulting firms to capture state and local taxes and a third-party pharmacy payment review. All are fully applicable to our existing client base, and we are actively seeking to broaden the scope of our audits with existing clients to include these offerings. Finally, one of the largest grocery companies in the U.S. has awarded us a multi-year contract to manage credit card signature receipts, a new service we are offering to our retail clients. Simply put, we are leaving no stone unturned in the pursuit of new revenue, and I believe that our hard work will pay off in 2005.

A Solid Financial Platform For Growth

The Company is in great shape to fund new business initiatives. We generated $23.3 million in EBITDA (earnings before interest, taxes, depreciation and amortization), which was after a reduction of $12.4 million in costs associated with our investments in the strategic initiatives in the U.S. For a presentation of our net loss calculated in accordance with generally accepted accounting principles and the reconciliation of the net loss to EBITDA, see the table below. Net cash provided by operating activities in 2004 was approximately $10 million. In November, we signed a new credit facility with Bank of America that extends through May 2006, providing for up to $30 million of credit that is currently capped at $25 million. At March 10, 2005, approximately $14 million was available under the facility.

From a strategic, operational and financial perspective, 2004 was a transitional year for PRG-Schultz, and we moved every aspect of our Company in the right direction. We are excited about our progress and look forward to updating you throughout 2005, as we continue to work to improve the Company’s operating and financial fundamentals.

James E. Moylan, Jr.
Executive Vice President – Finance,
Chief Financial Officer and Treasurer
March 24, 2005

Reconciliation of Net Loss to EBITDA
(Unaudited)

(Amounts in thousands)	Twelve Months Ended December 31, 2004
Net loss	$(71,483)
Adjust for: Earnings (loss) from discontinued operations	5,177
Earnings (loss) from continuing operations	(76,660)
Adjust for: Income taxes	75,344
Interest	8,549
Depreciation and amortization	16,091
Impairment charges	–
EBITDA	$ 23,324

EBITDA is considered a ‘non-GAAP’ financial measure within the meaning of Regulation G and may not be similar to EBITDA measures employed by other companies. EBITDA is presented solely as a supplemental disclosure because management believes it to be an effective measure of the operating performance of the Company’s core business activities. EBITDA is not provided as a measure of liquidity and should not be viewed as such. EBITDA should not be considered in isolation of, or as a substitute for, other measures for determining operating performance that are calculated in accordance with GAAP. This table provides a reconciliation of net loss to EBITDA in accordance with Securities and Exchange Commission guidance.

Statements made in this document which look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These risk factors are detailed in our Securities and Exchange Commission filings, including the Company’s 10-K, included with this document. The Company disclaims any obligation or duty to update or modify these forward-looking statements.