Introduction
The Company conducts its operations through two reportable operating segments
- Domestic Accounts Payable Services and International Accounts Payable Services. The Company includes the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the Accounts Payable Services segments in a category referred to as Corporate Support. The Domestic and International Accounts Payable Services segments principally consist of services that entail the review of client accounts payable disbursements to identify and recover overpayments. These operating segments include accounts payable services provided to retailers and wholesale distributors (the Company's historical client base) and accounts payable and other services provided to various other types of business entities and governmental agencies. The Company conducts business in North America, South America, Europe, Australia and Asia. The Company's revenues are based on specific contracts with its clients. Such contracts generally specify: (a) time periods covered by the audit; (b) the nature and extent of audit services to be provided by the Company; (c) the client's duties in assisting and cooperating with the Company; and (d) fees payable to the Company, generally expressed as a specified percentage of the amounts recovered by the client resulting from overpayment claims identified. Clients generally recover claims by either taking credits against outstanding payables or future purchases from the involved vendors, or receiving refund checks directly from those vendors. The manner in which a claim is recovered by a client is often dictated by industry practice. In addition, many clients establish client-specific procedural guidelines that the Company must satisfy prior to submitting claims for client approval. For some services provided by the Company, client contracts provide for compensation to the Company in the form of a flat fee, a fee per hour, or a fee per other unit of service. The vast majority of the Company's recovery audit clients are in the retail industry segment, which the Company believes has been significantly impacted by the recent global downturn. The decrease in consumer spending associated with the economic downturn has resulted in many of the Company's clients reducing their purchases from vendors, which makes it more difficult for those clients to offset recovery claims that the Company discovers against current vendor invoices. In addition, many client vendors are experiencing their own financial issues, and the liquidity of these vendors can also negatively impact the claims recovery process. Because the vast majority of the Company's current revenues are based on such recoveries, these factors may negatively impact the Company's revenues in future periods. In addition, management is also aware of an increased risk of retailer bankruptcies because of the current economic downturn. Client bankruptcy or insolvency proceedings could further adversely impact the Company's future revenues. The effect of the current global economic downturn on the Company's financial results has generally been delayed, as the Company did not begin to experience any material negative effects from the downturn until the first half of 2009. One factor insulating the Company somewhat from the economic downturn is that during this phase of an economic cycle, the Company's clients are frequently more motivated to use the Company's services to recover prior overpayments to make up for relatively weaker financial performance in their own business operations. Also, the client purchase data on which the Company performs its recovery audit services is historical data, the age of which varies from client to client; however, such data typically reflects transactions between the Company's clients and their vendors that generally took place 3 to 15 months prior to the data being provided to the Company for audit. The fact that the Company's audits typically lag current client spending by up to 15 months has also delayed somewhat the corresponding adverse impact of the current economic downturn on the Company's revenues. Given that the data on which the Company performs its recovery audit services is typically 3 to 15 months removed from the actual dates of transactions between the Company's clients and their vendors, the Company expects that it will not begin to recognize increased revenues from its clients in the retail industry as a result of improving economic conditions until well after the positive effects of such improved conditions have been realized by such clients. While the net impact of the global economic downturn on the Company's recovery audit revenues is difficult to precisely determine or predict, the Company believes that its revenues will remain at a level that will not have a significant adverse impact on the Company's liquidity, and management has taken steps to mitigate any adverse impact of the economic downturn on the Company's revenues and overall financial health. These steps include limiting salary increases for Company employees and devoting substantial efforts in the development of a "lower-cost-to-serve" service model to enable the Company to more cost effectively serve non-retail/commercial clients in an effort to reduce the Company's dependency on customers in the retail industry. Further, management is working diligently to expand the Company's business beyond its core recovery audit services to retailers, such as the Company's efforts to expand its consulting services business and provide other services leveraging its data mining and analytics competencies.

Another area in which the Company continues to devote considerable effort to expand its business beyond its core service of retail recovery auditing is the Company's work in the recovery audit contractor ("RAC") program of the Centers for Medicare and Medicaid Services ("CMS"), the federal agency that administers the Medicare program. The Company's results over the past several years (primarily 2006 and 2007) were affected by its involvement in CMS's demonstration RAC program. The demonstration RAC program was designed by CMS to recover Medicare overpayments and identify Medicare underpayments through the use of recovery auditing. CMS awarded the Company a contract to audit Medicare spending in the State of California in 2005 as part of the RAC demonstration program. As a result of the expiration of the Company's RAC demonstration program contract in March 2008, revenues from the auditing of Medicare payments in California made only a small contribution to the Company's overall revenues in the three and nine months ended September 30, 2008. Pursuant to the Company's agreement with CMS, there will be no additional revenues to the Company or repayments to CMS relating to the RAC demonstration program.
In late 2006, legislation was enacted that mandated that recovery auditing of Medicare be extended beyond the March 2008 end of the RAC demonstration program and that CMS enter into additional contracts with recovery audit contractors to expand recovery auditing of Medicare spending to all 50 states by January 1, 2010. On February 9, 2009, the Company announced that it had entered into subcontracts with three of the four national RAC program contract awardees. While the magnitude and exact timing of revenues from the Company's participation as a RAC subcontractor is difficult to predict, management currently does not expect to receive any meaningful revenues from its Medicare auditing work until the second half of 2010. In preparation for its work as a RAC subcontractor, the Company has incurred costs primarily relating to staffing and upgrading its technology systems.

   Results of Operations
   The following table sets forth the percentage of revenues represented by
certain items in the Company's Condensed Consolidated Statements of Operations
(Unaudited) for the periods indicated:

                                                     Three Months             Nine Months
                                                         Ended                   Ended
                                                     September 30,           September 30,
                                                   2009        2008        2009        2008
  Revenues                                         100.0 %     100.0 %     100.0 %     100.0 %
  Cost of revenues                                  62.8        63.4        63.6        64.1

  Gross margin                                      37.2        36.6        36.4        35.9

  Selling, general and administrative expenses      26.3        24.7        25.3        24.5

  Operating income                                  10.9        11.9        11.1        11.4

  Gain on bargain purchase                           6.2           -         2.1           -

  Income before interest and income taxes           17.1        11.9        13.2        11.4

  Interest expense, net                              1.6         1.6         1.6         1.7

  Earnings before income taxes                      15.5        10.3        11.6         9.7

  Income taxes                                       1.3         1.8         1.4         1.3


  Net earnings                                      14.2 %       8.5 %      10.2 %       8.4 %

Three and Nine Months Ended September 30, 2009 Compared to the Corresponding
Periods of the Prior Year
   Accounts Payable Services
   Revenues. Domestic and International Accounts Payable Services revenues for
the three and nine months ended September 30, 2009 and 2008 were as follows (in
millions):

                                                  Three Months            Nine Months
                                                     Ended                   Ended
                                                 September 30,           September 30,
                                                2009        2008       2009        2008
     Domestic Accounts Payable Services        $  24.4     $ 27.9     $  74.1     $  84.3
     International Accounts Payable Services      20.9       21.3        55.9        62.8

     Total Accounts Payable Services           $  45.3     $ 49.2     $ 130.0     $ 147.1

Total Accounts Payable Services revenues for the quarter ended September 30, 2009 decreased by $3.9 million, or 7.9%, compared to the quarter ended September 30, 2008. Total Accounts Payable Services revenues for the nine months ended September 30, 2009 decreased by $17.1 million, or 11.6%, compared to the prior period.
Domestic Accounts Payable Services revenues decreased by $3.4 million, or 12.3%, in the third quarter of 2009 compared to the third quarter of 2008. For the nine months ended September 30, 2009, revenues decreased by $10.2 million, or 12.1%, compared to the prior year period. Since the vast majority of the Company's recovery audit clients are in the retail industry segment, the Company's operations are subject to the economic pressures the retail industry faces. Unfavorable economic conditions which have adversely impacted the U.S. retail industry have negatively impacted the Company's revenues. Many of the Company's clients' purchases have declined, making it more difficult to offset recovery claims. In addition, the liquidity of the Company's clients' vendor partners can significantly impact claim production, the claim approval process and the ability of clients to offset or otherwise make recoveries from their vendors. Management believes that the year over year decreases in Domestic Accounts Payable Services revenues for the three and nine months ended September 30, 2009 are also related to several additional factors, including competitive rate pressures, the impact of the Company's clients developing and strengthening their own internal audit capabilities as a substitute for the Company's services and the impact of improved client processes and fewer recurring transaction errors. However, the impact of improved client processes and fewer

recurring transaction errors is offset somewhat by the Company's use of best practices and innovation to identify additional audit claim categories and recovery opportunities. Future revenues could be adversely impacted by an increase in retailer bankruptcies resulting from the current economic downturn. Finally, the first nine months of 2008 included a small amount of revenue earned from auditing Medicare payments in California under the CMS demonstration program and there were no such revenues in the first nine months of 2009.
Revenues in the International Accounts Payable Services segment for the three months ended September 30, 2009 decreased by $0.4 million, or 2.1%, compared to the same period in 2008. For the nine months ended September 30, 2009, revenues decreased by $6.8 million, or 10.9%, compared to the prior year period. Reported international revenues are impacted by the strength of the U.S. dollar relative to foreign currencies throughout the world. On a constant dollar basis, adjusted for changes in foreign exchange ("FX") rates, International Accounts Payable Services revenues increased by 6.2% during the third quarter of 2009 as compared to the third quarter of 2008 and increased by 5.2% during the first nine months of 2009 compared to the prior year period. These increases are principally attributable to revenue gains in Canada and Europe and were derived from both incremental revenues from existing clients and, to a lesser extent, revenues from new clients, including those served by the Company as a result of its acquisition of First Audit Partners LLP ("FAP") in July 2009.
Management believes there is opportunity to increase revenues in its core accounts payable services segments as a result of both market share growth and the growth of the addressable market for such services. Management also believes that the Company has growth opportunities related to the provision of adjacent services in the procure-to-pay value chain and to the CFO suite of its core client base, and from capitalizing on the Company's existing data mining and related competencies. Management believes that the pursuit of such opportunities will require investments and that without such investments, a reversal of the Company's overall declining revenue trend is not likely. Management intends to execute newly developed strategic initiatives to pursue these opportunities. No assurances can be provided, however, as to when any revenues from these opportunities will be recognized or the magnitude of any such revenues.
The Company also expects future revenues from its participation as a subcontractor in three of the Medicare RAC program's four geographic regions; however, the magnitude and timing of such revenues is difficult to predict. Management currently does not expect to receive any meaningful revenues from Medicare auditing until the second half of 2010.
Cost of Revenues ("COR"). COR consists principally of commissions and other forms of variable compensation paid or payable to the Company's auditors based primarily upon the level of overpayment recoveries and/or profit margins derived therefrom, fixed auditor salaries, compensation paid to various types of hourly support staff, and salaried operational and client service managers. Also included in COR are other direct and indirect costs incurred by these personnel, including office rent, travel and entertainment, telephone, utilities, maintenance and supplies, clerical assistance, and depreciation. A significant portion of the components comprising COR is variable and will increase or decrease with increases and decreases in revenues.
Accounts Payable Services COR for the three and nine months ended September 30, 2009 and 2008 were as follows (in millions):

                                                  Three Months           Nine Months
                                                     Ended                  Ended
                                                 September 30,          September 30,
                                                2009        2008       2009        2008
     Domestic Accounts Payable Services        $  14.6     $ 16.8     $  43.7     $ 49.3
     International Accounts Payable Services      13.9       14.3        39.0       45.1

     Total Accounts Payable Services           $  28.5     $ 31.1     $  82.7     $ 94.4

COR as a percentage of revenue for Domestic Accounts Payable Services was 59.8% and 60.3% for the three months ended September 30, 2009 and 2008, respectively. This equates to gross margin percentages of 40.2% and 39.7%, respectively, for the Domestic Accounts Payable Services segment for the quarters ended September 30, 2009 and 2008. For the nine months ended September 30, 2009 and 2008, COR as a percentage of revenue for Domestic Accounts Payable Services was 59.0% and 58.4%, respectively. This equates to gross margin percentages of 41.0% and 41.6%, respectively, for the Domestic Accounts Payable Services segment for the nine-month periods ended September 30, 2009 and 2008. The slight improvement in third quarter 2009 gross margin is primarily attributable to a reduction in spending in the Company's healthcare audit business compared to the third quarter of 2008.

COR as a percentage of revenue for International Accounts Payable Services was 66.6% and 67.0% for the three months ended September 30, 2009 and 2008, respectively. This equates to gross margin percentages of 33.4% and 33.0%, respectively. For the nine months ended September 30, 2009 and 2008 COR as a percentage of revenue for International Accounts Payable Services was 69.7% and 71.9%, respectively. This equates to gross margin percentages of 30.3% and 28.1%, respectively. COR as a percentage of revenue has historically, and continues to be, higher in the International Accounts Payable Services segment compared to the Domestic segment because of differences in the service delivery models which, in turn, are principally attributable to scale. The margin increases in the three-month and nine-month periods ended September 30, 2009 compared to the same periods in 2008 are largely due to a higher percentage of International Accounts Payable Services revenues coming from geographic territories that have historically experienced higher margins.
Selling, General and Administrative Expenses ("SG&A"). SG&A expenses of the Accounts Payable Services segments include the expenses of sales and marketing activities, information technology services and allocated corporate data center costs, human resources, legal, accounting, administration, foreign currency transaction gains and losses, gains and losses on assets disposals, depreciation of property and equipment and amortization of intangibles related to the Accounts Payable Services segments.
Accounts Payable Services SG&A for the three and nine months ended September 30, 2009 and 2008 were as follows (in millions):

                                                  Three Months           Nine Months
                                                     Ended                  Ended
                                                 September 30,          September 30,
                                                 2009       2008       2009        2008
     Domestic Accounts Payable Services        $    4.6     $ 3.9     $  12.5     $ 12.2
     International Accounts Payable Services        2.2       4.3         5.9        8.4

     Total Accounts Payable Services           $    6.8     $ 8.2     $  18.4     $ 20.6

Domestic Accounts Payable Services SG&A expenses for the third quarter of 2009 increased by $0.7 million, or 17.9%, and increased for the nine months ended September 30, 2009 by $0.3 million, or 2.5%, from the same periods in 2008. These increases are primarily attributable to costs associated with the development and early stage execution of new strategic initiatives as discussed above, such as development of a lower-cost-to-serve service model and development of services adjacent to its core recovery audit offering.
International Accounts Payable Services SG&A includes foreign currency transaction gains and losses, including the gains and losses related to intercompany balances. Gains and losses result from the re-translation of the foreign subsidiaries payable to the U.S. parent from their local currency to their U.S. dollar equivalent. Substantial changes from period to period in FX rates can significantly impact the amount of such gains and losses. During the three months ended September 30, 2009, the Company recognized $0.7 million of FX gains related to intercompany balances as compared to $1.8 million of FX losses for the same period in 2008. For the first nine months of 2009, the Company recognized $1.8 million of FX gains related to intercompany balances as compared to $1.3 million of FX losses for the same period in 2008.
International Accounts Payable Services SG&A, excluding the FX gains and losses related to intercompany balances, increased by $0.4 million for the three months ended September 30, 2009 compared to the same period in 2008. For the nine months ended September 30, 2009, International Accounts Payable Services SG&A excluding the FX gains and losses related to intercompany balances increased by $0.5 million compared to the same period in 2008. Most of such increase is attributable to amortization expense associated with the acquisition of the business and certain assets of FAP, which was completed in July 2009 (see Note J - Business Acquisition in Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q).
Corporate Support
Corporate Support SG&A represents the unallocated portion of SG&A expenses which are not specifically attributable to Domestic or International Accounts Payable Services and include the expenses of information technology services, the corporate data center, human resources, legal, accounting, treasury, administration, hedging activities and stock-based compensation charges.
Corporate Support SG&A totaled the following for the three and nine months ended September 30, 2009 and 2008 (in millions):

                                        Three Months           Nine Months
                                            Ended                 Ended
                                        September 30,         September 30,

Corporate Support SG&A increased by $1.0 million in the third quarter of 2009 and decreased by $0.9 million for the nine months ended September 30, 2009, when compared to the same periods of 2008. The third quarter of 2009 includes $1.5 million of stock-based compensation expense as compared to $0.4 million of stock-based compensation expense included in the third quarter of 2008. The first nine months of 2009 includes $2.5 million of stock-based compensation expense as compared to $5.0 million of stock-based compensation expense included in the same period in 2008. Excluding the stock-based compensation charges for both periods, Corporate Support SG&A decreased by $0.1 million in the third quarter of 2009 and increased by $1.5 million in the nine months ended September 30, 2009 as compared to the same periods in 2008. The increase for the 2009 nine-month period is attributable to a $0.7 million additional accrual for the settlement of the Fleming Post Confirmation Trust ("PCT") litigation (see Part II, Item 1 - Legal Proceedings), severance charges, and increased compensation and recruiting costs associated with hiring a new chief executive officer.
Other Items
Interest Expense. Net interest expense was $0.7 million and $0.8 million for the three months ended September 30, 2009 and 2008, respectively. Net interest expense was $2.2 million and $2.5 million for the nine months ended September 30, 2009 and 2008, respectively. The decrease in interest expense resulted from the $26.3 million of debt repayments made during 2008. Interest expense in the nine months ended September 30, 2009 primarily related to the term loan under the Company's credit facility, which had an outstanding balance of $15.4 million as of September 30, 2009.
Income Tax Expense. The Company's effective income tax expense rates as indicated in the accompanying Condensed Consolidated Financial Statements (Unaudited) do not reflect amounts that would normally be expected because of the Company's valuation allowance against its deferred tax assets. Reported income tax expense for the three-month and nine-month periods ended September 30, 2009 and 2008 primarily results from taxes on income of foreign subsidiaries.

Liquidity and Capital Resources
As of September 30, 2009, the Company had $27.3 million in cash and cash equivalents and no borrowings under the revolver portion of its credit facility. The revolver had approximately $16.8 million of calculated availability for borrowings.
While management believes that the recent global economic downturn has contributed to a decrease in the revenues that the Company would have otherwise earned in recent periods, this decrease has not resulted in the need for the Company to draw down on its revolving credit facility to fund its operations and has not materially adversely impacted the Company's overall liquidity position. In addition, the Company was in compliance with the covenants in its credit facility as of September 30, 2009 and expects to continue to be in compliance for the foreseeable future.
Operating Activities. Net cash provided by operating activities was $7.2 million and $7.9 million during the nine months ended September 30, 2009 and 2008, respectively. The changes in operating assets and liabilities resulted in operating cash flow of approximately $3.4 million more for the nine months ended September 30, 2009 compared to same period in 2008. This improvement was the result of significant payments for long term compensation and severance liabilities in 2008 combined with a significant decrease in the refund liability in 2008 compared to 2009. These improvements in cash flow in 2009 were offset by significant payments for foreign income taxes, the PCT legal settlement, and other accrued liabilities made during the nine months ended September 30, 2009. In addition to these payments, the Company significantly improved its accounts receivable collection efforts in 2008 resulting in a $4.0 million increase in operating cash flow. Such changes are itemized in the Company's Condensed Consolidated Statements of Cash Flows included in Part I, Item 1 of this Form 10-Q.
Investing Activities and Depreciation Expense. Depreciation and amortization expense for the nine months ended September 30, 2009 and 2008 amounted to $4.3 million and $3.9 million, respectively. Net cash used in investing activities was $3.7 million and $2.2 million during the nine months ended September 30, 2009 and 2008, respectively. In July 2009, the Company acquired the business and certain assets of FAP for a purchase price valued at $5.8 million. The purchase price included an initial cash payment of $1.6 million which was paid in July 2009. Purchases of property, plant and equipment during the first nine months of 2009 and 2008 primarily related to . . .