Use these links to rapidly review the documentSOURCECORP, Incorporated 2001 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS INDEX TO FINANCIAL STATEMENTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

(Mark One)

|ý                                              | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934    
|---------------------------------------------- | ----------------------------------------------------------------------------------------
|For the fiscal year ended December 31, 2001
OR
|o                                              | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
 to            
|Commission file number 0-27444                

SOURCECORP, Incorporated(Exact name of Registrant as specified in its charter)

DELAWARE

75-2560895(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)3232 MCKINNEY AVE., SUITE 1000, DALLAS, TEXAS

75204(Address of principal executive offices)

(zip code)


(214) 740-6500Registrant's telephone number,
(including area code)

Securities
registered pursuant to Section 12(b) of the Act:

TITLE OF EACH CLASS

NAME OF EACH EXCHANGE
ON WHICH REGISTEREDNone

None


Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $.01 PER SHARE(Title of Class)

F.Y.I.
INCORPORATED
(Former name or former address if changed since last report)

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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during 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
requirements for the past 90 days. Yes [X] 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 best of
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
Form 10-K. Yes [X] No [    ]

The
aggregate market value of voting stock held by non-affiliates of the Registrant as of February 28, 2002 was $409,702,943 based on the last sale price of $23.70 of
the Registrant's Common Stock, $.01 par value per share, on the Nasdaq National Market on February 28, 2002.

As
of February 28, 2002, 17,356,042 shares of the Registrant's Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions
of the Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year
ended December 31, 2001 are incorporated by reference into Part III of this Form 10-K.

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SOURCECORP, Incorporated    2001 FORM 10-K ANNUAL REPORT    TABLE OF CONTENTS



|         |  |                                                                                      
|-------- |  | -------------------------------------------------------------------------------------
|         |  |                                                                                      
|PART I  
|         |  |                                                                                      
|Item 1.  |  | Business                                                                             
|Item 2.  |  | Properties                                                                           
|Item 3.  |  | Legal Proceedings                                                                    
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                  
|PART II 
|Item 5.  |  | Market for Registrant's Common Equity and Related Stockholder Matters                
|Item 6.  |  | Selected Financial Data                                                              
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                           
|Item 8.  |  | Financial Statements and Supplementary Data                                          
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                   
|Item 11. |  | Executive Compensation                                                               
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                       
|Item 13. |  | Certain Relationships and Related Transactions                                       
|PART IV 
|Item 14. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                     

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PART I

This Report contains certain forward-looking statements such as our intentions, beliefs, expectations, strategies, predictions or any other variation thereof or
comparable phraseology of our future activities or other future events or conditions within the meaning of Section 27A of the Securities Act of 1993, as amended (the "Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward-looking statements
involve risks and uncertainty, including, without limitation, the risk of integrating our operating companies, of managing our rapid growth, of the timing and magnitude of technological advances, of
the occurrences of future events that could diminish our customers' needs for our services, of a change in the degree to which companies continue to outsource business processes, as well as such other
risks set forth under the heading Risk Factors included in this report. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this Report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and
plans will be achieved.

ITEM 1.Business

General

SOURCECORP, Incorporated is a national provider of business process outsourcing solutions. We offer clients in information-intensive industriessuch
as financial services, government, legal, healthcare and transportationthe solutions to manage their information and document intensive business processes, enabling these organizations to
concentrate on their core competencies.

As
a national, single-source provider, we operate 94 facilities nationwide with over 9,000            employees providing services in 44 states, Washington, D.C., Puerto Rico and
Mexico.

We
serve a diverse and high-profile client base, delivering the resources of a strong national company through relationships, on which clients have come to rely. Since
multiple document and information
management functions can be outsourced to us, companies no longer have to deal with a multitude of vendors.

We
believe an estimated four trillion documents are generated annually in the United States. A significant portion of the processing, management and storage of the information from these
documents and related records is outsourced to small service companies serving local markets. Further, we believe that the business process outsourcing solutions market is growing due to several
factors, including: (i) government regulations that require lengthy document retention periods and rapid accessibility for many types of records; (ii) continuing advancements in
computer, networking, facsimile, printing and other technologies that have greatly facilitated the production and wide distribution of documents; (iii) the increasing litigiousness of society,
necessitating access to relevant documents and records for extended periods; and (iv) increased customer expectations of low cost access to records on short notice and, in many instances, at
disparate locations.

Our
target clients have information-intensive business processes involving large volumes of documents and information that require specialized processing, storage, frequent access and
distribution. We believe that these clients will continue to increase their outsourcing of document and information management needs in order to maintain their focus on core operating competencies and
revenue generating activities; reduce fixed costs, including labor and equipment costs; and gain access to new technologies without incurring the expense and risk of near-term obsolescence
of technologies.

Effective,
February 14, 2002, we changed our name to SOURCECORP, Incorporated.

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Business Strategy

Our goal is to become a leading national provider of business process outsourcing solutions to information and document intensive industries, including: financial
services, government, legal, healthcare and transportation. In order to achieve this goal, we have implemented the following focused business strategy, which we believe will attract and retain
clients:

Economies and Efficiencies.We intend to deliver better, faster and more cost effective services than our competitors and our
customers can provide for themselves.

Scope and Scale.We plan to continue to establish a range of business processing outsourcing operations to meet the diverse
needs of customers by expanding existing businesses and selected strategic acquisitions. We intend to continue to handle large volume engagements associated with information-intensive processes.

Flexible Service Delivery.We intend to continue to provide outsourced service facilities, on-site facility
management and dedicated customer operations.

Information and Technology Lifecycles.We intend to continue to be involved during the stages of the information lifecycle
from data capture, conversion and storage to analysis and output processing. In addition, we intend to further develop processing capabilities and expect to continue to be involved in the technology
lifecycles from paper to electronic, making use of web-based and other technologies.

Capitalize on Cross-Selling Opportunities.We intend to capitalize on cross-selling opportunities in two primary ways. First,
we intend to continue to sell our existing clients additional business process outsourcing solutions provided by our other businesses. Second, we intend to use our knowledge with respect to specific
industry segments to sell such services to new clients.

Achieve Cost Savings through Consolidation and Economies of Scale.We believe that we will continue to achieve savings by
continuing to combine a number of general and administrative functions at the corporate level, such as accounting, tax, human resources and legal, by reducing or eliminating redundant functions and
facilities, and by implementing corporate purchasing programs. For example, we have implemented an insurance plan, employee benefits programs and purchasing plans.

Internet.We intend to continue to utilize web-based technologies. Our plans include
business-to-business e-commerce enabler products to provide critical back office functions. Our e-business strategy revolves around three areas:
(i) order entry and status; (ii) web conversion services; and (iii) web storage and retrieval.

Operate With Business Segments and Local Management.We have placed all of our operations into two reportable segments. These
segments are organized around operating units focused on providing common services to common customer bases and achieving synergies and cross-selling opportunities. At the same time, we have made and
are continuing to make a significant effort toward integrating our segments into a national operating company platform that has the capability of penetrating larger accounts. We believe that the
experienced local management teams of our operating units have a valuable understanding of their respective markets and businesses and can capitalize on existing client relationships. Multiple
business segments are led by Division Presidents, each of which has broad based management experience. Division Presidents report to our Chief Operating Officer.

Acquisition and Divestiture Strategy

We have transitioned to an operating company supported by a strategic acquisition program. Since our inception, we have acquired 71 and divested 17 companies up
to December 31, 2001. Of these acquisitions, 85% were completed in our first four years as we established a geographic footprint to enable us to provide services nationally. Periodically, we
evaluate candidates for acquisition and evaluate our

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operating units for possible divestiture as a part of our strategic plan of providing customers a single solution for business process outsourcing. Accordingly, we screen companies in conjunction
with our operating management team to acquire those candidates that meet certain strategic requirements. These criteria include service expansion to broaden service offerings, additional technology,
added management strength, industry expertise, expansion of our customer base and geographic need.

We
believe that we will continue to be a successful acquirer of other business process outsourcing solution companies due to our strategy of retaining selected owners and management of
acquired companies, our access to capital and our ability to offer sellers cash for their business as well as an ongoing equity stake in our company. Nevertheless, there are numerous risks associated
with our acquisition program. See "Risk Factors."

During
2001, we completed our strategic realignment plan to better position the Company to pursue business process outsourcing. As part of this plan, we identified certain
non-strategic operating units for divestiture or closure, and accordingly, developed and committed to a divestiture plan. The non-strategic operating units were evaluated based
on criteria such as market growth potential, current operating performance, revenue and earnings growth potential, and expected sources and uses of capital. In June 2001, we completed the sale
of five automated litigation support companies, two legal copy companies, two records acquisition companies and a commercial systems integration consulting services company. During the third quarter,
we completed the sale of three print-on-demand companies, the sale of an investors' services company and the closure of a systems integration company. These divested units
collectively accounted for approximately 23% of 2000 revenues and 4% of 2000 operating income.

Services Offered

We provide a variety of business process outsourcing solutions and draw upon our available services to develop solutions for our clients based on their specific
needs. As a result of the Business Process Outsourcing realignment discussed above, we realigned our operating units into the following segments: Information Management and Distribution; and
Healthcare, Regulatory and Legal Compliance. See Note 16 of Notes to Consolidated Financial Statements of SOURCECORP and subsidiaries for the last three years' financial results under these
divisions.

Information Management and Distribution.We offer business process solutions including electronic imaging, analog services,
data capture and database management, internet repository services, print and mail services, including statement processing, direct mail and fulfillment services.

Electronic
Imaging Services involve the conversion of paper or microfilm documents into digitized information through optical scanners. Information can be stored as a digitized image or
converted to code through optical character recognition (OCR). Conversion to code provides additional processing capabilities, such as manipulation of data. In both cases, the digitized information
can be stored on magnetic medium, such as a computer diskette, optical laser discs, or compact discs. Electronic imaging is generally used because of the storage media's high speed of retrieval, its
multiple indexing and text search formatting capabilities and its ability to be used to distribute output to multiple locations. Additionally, images may be stored and accessed via
web-based repositories. Electronic imaging services are typically billed on a job-by-job basis, based on the number of images and complexity of the storage
retrieval applications.

Data
Capture and Database Management Services involve data capture (manually or through scanning or other electronic media), data consolidation and elimination, storage, maintenance,
formatting and report creation. Data capture includes the conversion of text and handwritten paper media as well as images into digital files. We now compete on a national basis, as opposed to
individual operating companies, with over 325 scanners and 34 high-volume centers across the country. An advantage of digital files is the ability to manipulate large amounts of data
quickly and efficiently. In some cases, database services include statistical analysis of data.

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Internet
Repository Services adds electronic object storage and Internet-based retrieval capabilities to complement our document capture and conversion services. Through this combination
of technology and services, customers can look to us for secure and timely access to digital documents.

Full-Service
Printing and Statement Processing Services provide customers with rapid, reliable and cost-effective methods for making large-scale distributions of
items such as corporate advertising, political campaign literature, consumer notices and annual reports for its customers. Our service also includes the ability to deliver efficient postal routing to
fulfill consumer requests for specific information. In addition, we have the ability to send blast e-mail services, including high-level graphics and sound, to supplement our
existing services.

Healthcare, Regulatory and Legal Compliance.Our services include medical records release, off-site active
storage of a healthcare institutions' medical records, online delivery of images of selected medical records, document and data conversion services for healthcare institutions, temporary staffing
services, providing attending physicians' statements for life and health insurance underwriting, managed care compliance reviews, legal claims administration, and professional services related to
trial support services.

Our
services include medical records release services (i.e., processing a request for a patient's medical records from a physician, insurance company, attorney, healthcare institution or
individual). The medical records release service provider initially verifies that the release is properly authorized, coordinates the retrieval of the record, determines the relevant parts of the
record to be copied and delivers the copied records (or portions thereof) to the requesting party. Medical records release services are provided on-site and off-site pursuant
to contracts with hospitals, other large healthcare institutions and insurance companies. The medical records release service provider bills the recipient directly and sometimes pays a fee to the
hospital.

Additional
services include archival records storage and management, document and data conversion, archiving and imaging services to hospital radiology departments, temporary staffing
services for hospital information management departments, coding and abstracting of medical records, and managed care payment compliance reviews.

We
also provide services for retrieval of attending physician statements (APS) for life and health insurance underwriting, which includes the capability of receiving internet requests.
Additionally, services are offered to state governments to generate digital images of medical record information and facilitate image processing for several state agencies.

Our
record management services consist primarily of active or open shelf storage. Active or open shelf storage services involve the storage, processing (i.e., indexing and formatting),
retrieval, delivery and return to storage of documents in a rapid time frame. Many of these services are provided electronically. Service fees generally include a monthly fee based on activity levels
and volumes stored, with extra billing for specialized requests. To a smaller extent, we store inactive documents.

Legal
Claims Administration Services include the compiling of databases, mail campaigns and call centers. We identify and notify members of class action lawsuits or other groups, answer
questions, track and record contact with class action or other group members, process claims and distribute settlement funds. This specialized service gives us the ability to extend relationships
beyond legal settlements.

Professional
Services include high level consulting services ranging from fair lending, labor discrimination and forensic analysis to trial support for law firms and corporations.

Sales and Marketing

We have a broad customer base. No customer accounted for more than 3% of revenue for the year ended December 31, 2001. Historically, our sales efforts have
been implemented on a location-by-location basis and typically have been coordinated through sales personnel as part of the local management's

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responsibilities. Our existing local sales efforts are carried out through local sales representatives. We continue to strive to increase our client base by attracting clients away from small, single
business operators as a result of our ability to offer a broader range of solutions for our clients' needs. In addition, we intend to continue to focus on increasing revenue from our existing clients
by cross-selling our services and broadening our product offerings. We will continue to augment local sales and marketing efforts through the implementation of a regional and national sales/account
program.

Competition

The business process outsourcing solution businesses in which we compete and expect to compete are highly competitive. A significant source of competition is the
in-house document handling capability of our target client base. There can be no assurance that these businesses will outsource more of their document management needs or that they will
not bring in-house services that they currently outsource. In addition, certain of our competitors are larger businesses and have greater financial resources than we do. Certain of these
competitors operate in broader geographic areas than we do, and others may choose to enter our areas of operation in the future. In addition, we intend to continue to enter new geographic areas
through internal growth and acquisition and expect to encounter significant competition from established competitors in each of such areas. As a result of this highly competitive environment, we may
lose clients or have difficulty in acquiring new customers and new companies and our results of operations may be adversely affected.

We
believe that the principal competitive factors in business process outsourcing solution services include accuracy, reliability and security of service, client segment specific
knowledge and price. We compete primarily on the basis of quality of service and client segment specific knowledge as well as our ability to handle large volumes and projects, and believe that we
compete favorably with respect to these factors.

Employees

As of December 31, 2001, we had over 6,500 full-time and over 2,500 part-time employees. As of such date, we had 64 employees
represented by labor unions. We consider our relations with our employees to be good.

Our Executive Officers

The following table sets forth certain information concerning each of our executive officers:

|NAME               |  | AGE |  | POSITION                                                      
|------------------ |  | --- |  | --------------------------------------------------------------
|Thomas C. Walker   |  | 69  |  | Chairman of the Board and Chief Development Officer           
|Ed H. Bowman, Jr.  |  | 55  |  | President, Chief Executive Officer and Director               
|Barry L. Edwards   |  | 54  |  | Executive Vice President and Chief Financial Officer          
|Joe A. Rose        |  | 51  |  | Executive Vice President, Chief Operating Officer and Director
|David M. Byerley   |  | 40  |  | Senior Vice PresidentCorporate Development                   
|Charles S. Gilbert |  | 35  |  | Senior Vice President, General Counsel and Secretary          
|Michael S. Rupe    |  | 51  |  | President-Direct Mail and Statement Solutions Division        
|Kerry Walbridge    |  | 50  |  | President-Business Process Solutions Division                 
|Ronald Zazworsky   |  | 57  |  | President-HealthSERVE Division                                
|W. Bryan Hill      |  | 35  |  | Vice President and Chief Accounting Officer                   

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Thomas
C. Walker has been our Chairman of the Board since our inception in September 1994 and has been our Chief Development Officer since November 1995. From
September 1994 until November 1995, Mr. Walker held the positions of President and Chief Executive Officer. From August 1991 to December 1994, Mr. Walker was
Vice President, Corporate Development, of Laidlaw Waste Systems, Inc., a subsidiary of Laidlaw, Inc., a waste management company, where he was responsible for its acquisition and
divestiture program in the United States and Mexico. Mr. Walker has been responsible for the acquisition or divestiture of several hundred businesses over a 30-year period.
Mr. Walker holds a B.S. degree in Industrial Engineering from Lafayette College.

Ed
H. Bowman, Jr. has been our President and Chief Executive Officer and a Director since November 1995. From 1993 to 1995, Mr. Bowman was Executive Vice President and
Chief Operating Officer of the Health Systems Group for First Data Corporation, a financial services company. Mr. Bowman was responsible for the day-to-day operations of
research and development, marketing and customer service. From 1983 to 1993, Mr. Bowman served in a number of executive positions with a leading healthcare information systems company;
responsibilities included VPInternational, VPMarketing, Senior VPCustomer Services, Group Senior VPResearch and Development, and last serving as
Executive Vice President and Chief Operating Officer with responsibility for domestic operations. Prior to 1983, Mr. Bowman was with Andersen Consulting (currently known as Accenture), where he
was elected a Partner. Mr. Bowman became a C.P.A. in 1973 and holds an M.S. degree from Georgia Institute of Technology and a B.B.A. from Georgia State University. Mr. Bowman is an
investor and former board member of several early-stage, privately held high technology companies and has served on the Board of the Advanced Technology Development Center at Georgia Tech.
Mr. Bowman currently serves on the Advisory Board to the President of Georgia Tech and on the Advisory Board of the Robinson School of Business at Georgia State University.

Barry
L. Edwards has been an Executive Vice President and our Chief Financial Officer since August 2000. From November 1994 to March 2000, Mr. Edwards was
Executive Vice President and Chief Financial Officer for AMRESCO, a nationwide financial services company. From December 1978 to November 1994, Mr. Edwards was Vice President and
Treasurer of Liberty Corporation, an insurance and broadcasting holding company based in Greenville, South Carolina. Mr. Edwards received a B.S. degree in Finance and Economics from Lehigh
University in 1969, and an M.B.A degree from the University of Virginia Darden School of Business in 1972. Mr. Edwards is a board member for Ryan's Family Steakhouses and Robert Harris Homes.

Joe
A. Rose has been our Chief Operating Officer since January 2000 and a Director since March 2000. From August 1999 through December 1999, Mr. Rose
was an Executive Vice President. From June 1997 through August 1999, Mr. Rose was a Senior Vice President. From May 1995 through January 1997, Mr. Rose was
President and CEO of FormMaker Software, Inc., a document technology company which merged with Image Sciences Corp. to form DocuCorp International. From May 1993 through May 1995,
Mr. Rose was Corporate Vice President of John H. Harland Company, a financial services company, and President and CEO of its subsidiary, Formation Technology, Inc. From July 1988
through May 1993, Mr. Rose served as Executive Vice President of National Data Corporation, where he was responsible for the credit card and cash management divisions. Mr. Rose
began his information services career at EDS in sales. Mr. Rose holds a B.A. degree from Texas Tech University.

David
M. Byerley has been our Senior Vice PresidentCorporate Development since November 1998. From August 1996 until October 1998, Mr. Byerley
was Executive Vice President of IKON's Business Information Services Division. From February 1995 until August 1996, Mr. Byerley was Senior Vice President of Product Development
and Marketing with Dataplex Corporation, a wholly-owned subsidiary of Affiliated Computer Services. From August 1994 until February 1995, Mr. Byerley was employed by Eastman
Kodak. Mr. Byerley holds a B.S. degree from Dickinson College, an M.S. degree from Temple University, and a J.D. from Temple University Law School.

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Charles
S. Gilbert has been a Senior Vice President, Secretary and General Counsel since January 2001, a Vice President, Secretary and General Counsel since August 2000,
our Secretary and acting General Counsel since July 2000 and corporate counsel since April 2000. From 1991 until joining us he practiced law in the corporate securities section of
Jackson Walker LLP, Dallas, where he was elected partner. Mr. Gilbert holds a B.S. degree in Physics from The University of Texas and a J.D. from The University of Texas School of Law.

Michael
S. Rupe has been a Division President since September 2000. From March 1998 through August 2000, Mr. Rupe served as President and Chief Executive
Officer of Solomon Software, Inc., an accounting and business software company that was sold to Great Plains Software in June 2000. From March 1997 to February 1998,
Mr. Rupe served as Executive Vice President and Chief Financial Officer of Solomon Software, Inc. From August 1995 through February 1997, Mr. Rupe was Senior Vice
President of Finance and Administration at FormMaker Software, Inc., a document technology company, which merged with Image Sciences Corp. to form DocuCorp International. Mr. Rupe holds
a B.S. degree in Accounting from the University of Kentucky.

Kerry
Walbridge has been a Division President since March 2001. From April 2000 to December 2000, Mr. Walbridge was President and CEO of eMake Corporation, a
first-to-market provider of web hosted ERP software solutions and electronic supply chain services to the manufacturing market. From August 1998 to April 2000,
Mr. Walbridge was Senior Vice President Sales and Marketing for Outsourcing Solutions, Inc. the nations largest provider of accounts receivable management services. From
November 1991 to June 1993 and from June 1996 to August 1998, Mr. Walbridge was a Division Vice President for EDS and from October 1989 to
November 1991 Mr. Walbridge was a Division Vice President for McDonnell Douglas Systems Integration. Mr. Walbridge holds a B.S. degree in Business from St. Louis University.

Ronald
Zazworsky has been a Division President since November 2000. From October 1997 until November 2000, Mr. Zazworsky was our Senior Vice
PresidentHealthSERVE. From February 1994 until July 1997, Mr. Zazworsky was Senior Vice President at Medaphis Corporation. From April 1992 to
February 1994, Mr. Zazworsky was President and CEO at Habersham Banking Solutions, Inc. Prior to 1992, Mr. Zazworsky was employed at HBO as Regional Vice President for
eight years. Previously, Mr. Zazworsky held various sales, marketing, and management positions at IBM. Mr. Zazworsky holds a B.A. degree from Gettysburg College and a M.B.A. degree from
Emory University.

W.
Bryan Hill has been a Vice President and our Chief Accounting Officer since November 2001. From August 2000 to October 2001, Mr. Hill served with us as a
Director of Accounting. From July 1996 until joining us, Mr. Hill was Senior Vice President of Accounting and Finance with FirstPlus Consumer Finance. Previously, Mr. Hill held
various accounting and finance positions with Associates First Capital for over seven years with Director of Corporate Finance being his last position. Mr. Hill holds a B.B.A. degree in
Accounting from Texas Christian University and has been a C.P.A and a C.M.A from 1996 and 2000, respectively.

RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING AN INVESTMENT DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION
OR RESULTS OF OPERATIONS COULD BE HURT, THE PRICE OF OUR SECURITIES COULD DECLINE, WE MAY NOT BE ABLE TO REPAY OUR DEBT SECURITIES, IF ANY, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. YOU SHOULD
ALSO REFER TO THE OTHER INFORMATION CONTAINED IN THIS REPORT AND INCORPORATED IN THIS REPORT BY REFERENCE, INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED
NOTES.

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We may not be able to continue to effectively integrate all of our operating companies

Our growth and future financial performance depend on our ability to continue to integrate all of our operating companies. A number of our operating companies
offer different services, use different capabilities and technologies and target different geographic markets and client segments. These differences increase the risk in successfully completing the
integration of our operating companies. Any difficulties we encounter in the integration process could adversely affect us and we can not assure you that our operating results will match or exceed the
combined individual operating results achieved by our operating companies prior to their acquisition.

Any future acquisitions will require financing

We currently intend to finance any future acquisitions by using cash and our common stock for all or a portion of the consideration to be paid. In the event that
our common stock does not maintain sufficient value, or potential acquisition candidates are unwilling to accept our common stock as consideration for the sale of their businesses, we may be required
to use more cash, if available, in order to consummate acquisitions. If we do not have sufficient cash, our growth through acquisitions could be limited unless we are able to obtain capital through
additional debt or equity financings. Under our line of credit with Bank of America, SunTrust and Wells Fargo, we and our subsidiaries could borrow, on a revolving credit basis, loans in an aggregate
outstanding principal amount of $297.5 million for working capital, general corporate purposes and acquisitions, subject to certain restrictions in our line of credit. As of December 31,
2001, the availability under the line of credit was approximately $115.8 million. We cannot assure you, however, that funds available under our line of credit will be sufficient for our needs.

The price of our common stock may be volatile

The price of our common stock may be volatile. Our quarterly results of operations may vary materially as a result of the gain or loss of material client
relationships and variations in the prices charged by us for our services. In addition, since a significant portion of our revenue is generated on a project-by-project basis,
the timing or completion of material projects could result in fluctuations in our results of operations for particular quarterly periods. Fluctuations in operating results may adversely affect the
market price of our common stock. The market price for our common stock may also fluctuate in response to material announcements by us or our significant clients or competitors, changes in economic or
other conditions impacting our targeted client segments or changes in general economic conditions. Further, the securities markets have experienced significant price and volume fluctuations from time
to time that have often been unrelated or disproportionate to the operating performance of particular companies. These broad fluctuations may adversely affect the market price of our common stock.

We depend on certain client industries

We derive our revenue primarily from document and information intensive industries. Fundamental changes in the business practices of any of these client
industries, whether due to regulatory, technological, the internet or other developments, could cause a material reduction in demand by our clients for the services offered by us. Any reduction in
demand could have a material adverse effect on our results of operations. The business process outsourcing service industry is characterized by technological change, evolving client needs and emerging
technical standards. Although we believe that we will be able to continue to offer services based on new technologies, we cannot assure you that we will be able to obtain any of these technologies,
that we will be able to effectively implement these technologies on a cost-effective or timely basis or that such technologies will not render obsolete our role as a third party provider
of business process outsourcing services.

Our
success depends substantially upon retaining our significant clients. Generally, we may lose clients due to a merger or acquisition, business failure, contract expiration, conversion
to a competitor or

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conversion to an in-house system. We cannot guarantee that we will be able to retain long-term relationships or secure renewals of short-term relationships with
our significant clients in the future.

We
incur a high level of fixed costs related to certain of our business process outsourcing clients. These fixed costs result from significant investments, including computer hardware
platforms, computer software, facilities, and client service infrastructure. The loss of any one of our significant clients could leave us with a significantly higher level of fixed costs than is
necessary to serve our remaining clients, thereby reducing our profitability.

We face intense competition

The business process outsourcing services industry is highly competitive. We cannot guarantee that we will be able to compete successfully in the future. A
significant source of competition is the in-house document handling capability of our targeted client base. We cannot assure you that these businesses will outsource more of their document
and information management needs or that such businesses will not bring in-house, services that they currently outsource. In addition, certain of our competitors are larger businesses and
have greater financial resources than we do. Certain of these competitors operate in broader geographic areas than we do, and others may choose to enter our areas of operation in the future. In
addition, we intend to enter new geographic areas through internal growth and acquisitions and expect to encounter significant competition from established competitors in each new area. Some of our
competitors have a greater international presence than us and offer a broader range of services in certain segments. As a result of this highly competitive environment, we may lose clients or have
difficulty in acquiring new clients and new companies, and our results of operations may be adversely affected. In addition, we may be forced to lower our pricing, or, if demand for our services
decreases our business, financial condition and results of operations could be materially and adversely affected.

We have significant investments in some client contracts, which expose us to the risk of these clients' financial conditions

We must make capital investments in order to attract and retain large outsourcing agreements. We sometimes must purchase assets such as computing equipment and
software, assume financial obligations such as computer lease and software maintenance obligations or property leases, incur capital expenditures or incur expenses necessary to provide outsourcing
services to a client. If any of these agreements were to terminate, we might not be able to realize a return on the assets and investments acquired or financial obligations assumed.

Meeting changes in technology could be expensive and, if we do not keep up with these changes, we could lose existing clients and be unable to attract new clients

The markets for our business process outsourcing services are subject to rapid technological changes and rapid changes in client requirements. To compete, we
commit substantial resources to operating multiple hardware platforms, to customizing third-party software programs and to training client personnel and our personnel in the use of new technologies.
Future hardware, software and other products may be able to manipulate large amounts of documents and information more cost effectively than existing products that we use. Information processing is
shifting toward client-server and web-based systems, in which individual computers or groups of personal computers and mid-range systems replace older systems. This trend could
adversely affect our business and financial results and result in us losing clients and being unable to attract new clients. We have committed substantial resources to developing outsourcing solutions
for these distributed computing environments. We cannot guarantee that we will be successful in customizing products and services that incorporate new technology on a timely basis. We also cannot
guarantee that we will continue to be able to deliver the services and products demanded by the marketplace. Technology costs have also dropped significantly in recent years due in large part to
hardware technology advances.

9

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Intellectual property infringement claims could require us to incur substantial costs to defend the claims, change our services, purchase new licenses or redesign our use of
challenged technology

We
do not own the majority of the software that we use to run our business; instead we license this software from a number of vendors. If these vendors assert claims that we or our
clients are infringing on their software or related intellectual property, we could incur substantial costs to defend these claims. In addition, if any vendors' infringement claims are ultimately
successful, our vendors could require us: (i) to cease selling or using products or services that incorporate the challenged software or technology; (ii) to obtain a license or
additional licenses from our vendors; or (iii) to redesign our products and services which rely on the challenged software or technology. We are not currently involved in any material
intellectual property litigation, but could be in the future to protect our trade secrets, trademarks or know-how, or to defend ourselves or our clients against alleged infringement
claims.

We depend on our personnel

Our operations depend on the continued efforts of our executive officers and on senior management of our operating companies. Also, we will likely depend on the
senior management of businesses acquired in the future. If any of these people are unable or unwilling to continue in their present role, or if we are unable to attract and retain additional managers
and skilled employees, our business could be adversely affected. We do not currently have key person life insurance covering any of our executive officers.

Our
success depends, to a significant extent, upon our ability to attract, retain and motivate highly skilled and qualified personnel. If we fail to attract, train, and retain sufficient
numbers of these technically-skilled people, our business, financial condition, and results of operations could be materially and adversely affected. Competition for personnel is intense in the
document and information services industry, and recruiting and training personnel require substantial resources. We must continue to grow internally by hiring and training technically-skilled people
in order to perform services under our existing and future contracts. Our business also experiences significant turnover of technically-skilled people.

We may be liable for breach of confidentiality

A substantial portion of our business involves the handling of documents containing confidential and other sensitive information. Although we have established
procedures intended to prevent any unauthorized disclosure of confidential information and, in some cases, have contractually limited our potential liability for unauthorized disclosure of such
information, we cannot assure you that unauthorized disclosures will not result in material liability to us.

We may have business interruptions

Certain of our operations are performed at a single location and are dependent on continuous computer, electrical, and telephone service. As a result, any
disruption of our day-to-day operations could have a material adverse effect upon us. We cannot assure you that a fire, flood, earthquake, terrorist activities, power loss,
telephone service loss, problems caused by computer or technology issues or other events affecting one or more of our facilities would not disable these services. Any significant damage to any
facility or other failure that causes significant interruptions in our operations may not be covered by insurance. Any uninsured or underinsured loss could have a material adverse effect on our
business, financial condition or results of operations.

Government regulations may hinder our ability to change prices

In our medical records release of information business, there is state legislation from time to time aimed at fixing the price that can be charged for copying and
distributing medical records information. Depending on the severity of such pricing legislation, there can be significant pressure on the profit

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margins associated with providing medical records release services. Today, some form of pricing legislation exists in many states in the United States.

Our contracts contain termination provisions and pricing risks that create uncertain revenue streams and could decrease our revenues and profitability

Some of our contracts with clients permit termination in the event our performance is not consistent with service levels specified in those contracts. Some of our
government and other clients can terminate their contracts for any reason or no reason. In addition, public sector contracts are subject to detailed regulatory requirements and public policies, as
well as to funding priorities. Our clients' ability to terminate contracts creates an uncertain revenue stream. If clients are not satisfied with our level of performance, our reputation in the
industry may suffer, which could also materially and adversely affect our business, financial condition, and results of operations. Some of our contracts contain pricing provisions that require the
client to pay a set fee for our services regardless of whether our costs to perform these services exceed the amount of the set fee. Many of our document and information outsourcing contracts provide
for credits for our clients if we fail to achieve specific contract standards. Some of our contracts contain re-pricing provisions that can result in reductions of our fees for performing
our services. In these situations, we could incur significant unforeseen costs or financial penalties in performing the contract.

Our profitability may be affected by changes in our business mix between project and recurring service offerings

Project revenue includes services that have a measurable project life and it's unlikely for the same customer to repeat the specific project. Conversely,
recurring revenue reflects services provided where the relationship with the customer and the nature of the work performed provides an expectation for the customer's continued use of the same or
similar service. For example, our claims administration business is predominantly project oriented while our data capture and data conversion business is primarily recurring in nature.
Project-oriented revenue tends to possess a higher gross margin than recurring oriented revenue. To the extent our business mix shifts from project-oriented to recurring service offerings, our gross
margins may decline.

HIPPA regulations

As a result of statutory authority granted pursuant to the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), the United States Department of
Health and Human Services has recently issued regulations regarding the use and disclosure of personal health information by health care providers, health plans, and certain other "covered entities"
operating in the health care industry. The HIPAA regulations require covered entities to take steps to maintain the privacy and security of personal health information. While we are not a "covered
entity" directly governed by these regulations, many of our customers are covered entities under the HIPAA regulations, and these customers are required to adjust their business arrangements to comply
with HIPAA. These customers will be required to enter into "business associate arrangements" with us that conform to the requirements of HIPAA. The requirements of HIPAA, and the costs of complying
with HIPAA, may adversely affect the business operations of these customers, which could have a negative impact on our business operations. Furthermore, the requirements of the "business associate
arrangements," and the
changes we will have to make in our operations to comply with such agreements, will increase our costs of operations. To the extent we are unable to comply with the provisions of such agreements, we
could lose the business generated by those clients or could be subject to damages for violation of its business associate agreements with those clients.

We may have future goodwill impairments

Upon the adoption of Statement of Financial Accounting Standards No. 142, goodwill and intangible assets that have indefinite useful lives will not be
amortized but rather will be tested at least annually for

11

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impairment. The impairment test will include calculating the fair value of future discounted cash flows. An impairment of goodwill occurs when the carrying value of the reportable unit measured is
greater than the fair value of the discounted cash flow. If economic events occur that lower our expectations of the future cash flows, the fair market calculation for a particular reporting unit may
decline, which may result in a goodwill impairment. In the event of such an impairment, a charge would be recorded in the period that the impairment occurred.

Our financial covenants become more restrictive in the future

Under our line of credit agreement, we are subject to certain reporting requirements and financial covenants, including requirements that we maintain minimum
levels of net worth, a maximum ratio of funded debt to EBITDA and other financial ratios. Certain of these covenants become more restrictive over time. While we are currently in compliance with such
covenants, an erosion of our business could place the Company out of compliance in the future. Potential remedies for the lenders include declaring all outstanding amounts immediately payable,
terminating commitments and enforcing any liens; however, in the event of any future noncompliance the Company may seek a waiver from such lenders.

Future sales of our shares may adversely affect our stock price

The market price of our common stock could be adversely affected by the sale of substantial amounts of our common stock in the public market. In addition, many
shares are subject to contractual restrictions on resale over some period of time.

If
a significant number of shares of our common stock become freely tradable at approximately the same time and a large number of shares are sold by stockholders in the market as soon as
their shares became freely transferable, the price of our common stock could be adversely affected.

We may have environmental liabilities in the future

We are subject to regulations and ordinances that govern activities or operations that may have adverse environmental effects, such as discharges to air and
water. We are not aware of any environmental conditions relating to present or past waste generation at or from these facilities that would be likely to have a material adverse effect on our business,
financial condition or results of operations. However, we cannot assure you that environmental liabilities in the future will not have a material adverse effect on our business, financial condition or
results of operations.

Our Board of Directors may be able to delay or prevent takeovers

Our Board of Directors is empowered to issue preferred stock without stockholder action. The existence of this "blank-check" preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a tender offer, merger, proxy contest or otherwise.

Other risks, unknown or immaterial today, may become known or material in the future

We have attempted to identify certain material risk factors currently affecting us. However, additional risks that we do not yet know of, that are not described
herein, or that we currently think are immaterial, may occur or become material. These risks could impair our business operations or adversely affect revenues or profitability.

ITEM 2.Properties

As of December 31, 2001, we operated 94 facilities in 26 states. Except for the three facilities we own, (which are located in Upper Marlboro, Maryland,
Tallahassee, Florida, and Georgiana, Alabama) all of these facilities were leased and were principally used for operations and general administrative functions.

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As of December 31, 2001, such leased facilities consisted of approximately 1,757,000 square feet. See Note 9 of Notes to Consolidated Financial Statements for further information
relating to these leases.

As
of December 31, 2001, we also operated over 1,900 on-site facilities at customer locations in an additional 18 states, primarily in connection with our SOURCECORP
HealthSERVE segment, and from time to time at many other client locations for specific projects.

In
order to secure our obligations under our current line of credit, we granted to Bank of America, SunTrust Bank and Wells Fargo Bank, as co-agents for our lenders, a
security interest in the capital stock of our material subsidiaries and, in the event we exceed a designated leverage ratio, a lien on substantially all of our properties and other assets. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources."

We
believe that our properties are generally well maintained, in good condition and adequate for our present needs. Furthermore, we believe that suitable additional or replacement space
will be available when required.

ITEM 3.Legal Proceedings

We are, from time to time, a party to litigation arising in the normal course of business. We believe that none of these actions will have a material adverse
effect on our business, financial condition or results of operations.

ITEM 4.Submission of Matters to a Vote of Security Holders

During the fourth quarter of the year ended December 31, 2001, no matters were submitted to a vote of the security holders.

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PART II

ITEM 5.Market for Registrant's Common Equity and Related Stockholder Matters

Market Information

Our common stock trades on The Nasdaq Stock Market under the symbol "SRCP" (formerly "FYII"). The following table sets forth, for our fiscal periods indicated,
the range of high and low last reported sale prices for our common stock.

|                 |                                           | High |   | Low  
|---------------- | ----------------------------------------- | ---- | - | -----
|Fiscal Year 2000 |                                           |      |   |      
|                 | First Quarter                             |      | $ | 35.00
|                 | Second Quarter                            |      | $ | 34.25
|                 | Third Quarter                             |      | $ | 40.38
|                 | Fourth Quarter                            |      | $ | 42.13
|Fiscal Year 2001 |                                           |      |   |      
|                 | First Quarter                             |      | $ | 36.63
|                 | Second Quarter                            |      | $ | 44.23
|                 | Third Quarter                             |      | $ | 42.48
|                 | Fourth Quarter                            |      | $ | 39.05
|Fiscal Year 2002 |                                           |      |   |      
|                 | First Quarter (through February 28, 2002) |      | $ | 33.28

Holders

On February 28, 2002, the last reported sale price of our common stock on the Nasdaq Stock Market was $23.70 per share. At February 28, 2002, there
were 96 holders of record of our common stock and 17,356,042 shares outstanding.

Dividends

We have not declared any cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future and
intend to retain our earnings, if any, to finance the expansion of our business and for general corporate purposes. Any payment of future dividends will be at the discretion of our Board of Directors
and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions and other factors that our Board of Directors deems
relevant.

ITEM 6.Selected Financial Data

Selected Financial Data

We were founded in September 1994, and we effectively began our operations on January 26, 1996, following the completion of our initial public
offering ("IPO"). We acquired, simultaneously with and as a condition to the closing of the IPO, seven Founding Companies (the "Founding Companies"). The Founding Companies have been accounted for in
accordance with generally accepted accounting principles ("GAAP") as a combination of the Founding Companies at historical cost. For accounting purposes and for the purposes of the presentation of the
financial data herein, January 31, 1996, has been used as the effective date of the Acquisitions.

Since
the IPO, and through December 31, 2001, we acquired nine companies in transactions that were accounted for as poolings-of-interests: (i) The
Rust Consulting Group, Inc. ("Rust") in December 1996; (ii) MAVRICC Management Systems, Inc. and a related company, MMS Escrow and Transfer Agency, Inc.

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(collectively, "MAVRICC") in March 1997; (iii) Input of Texas, Inc. ("Input") in March 1997; (iv) Micro Publishing Systems ("MPS") in December 1997;
(v) Lifo Systems, Inc. ("Lifo") in February 1998; (vi) Creative Mailings, Inc. ("CMI") in September 1998; (vii) Economic Research Services, Inc.
("ERS") in October 1998; (viii) TCH Mailhouse, Inc. and G&W Enterprise, Inc. (collectively, "TCH") in December 1998; and (ix) Advanced Digital
Graphics, Inc. ("ADG") in December 1998 (collectively, the "Pooled Companies"). Our consolidated financial statements for all periods presented have been restated to include the accounts
of MAVRICC, Input, CMI, and ERS. Our consolidated financial statements were not restated for the Rust, MPS, Lifo, TCH and ADG acquisitions for the periods prior to January 1, 1998 due to their
individual financial immateriality. We and the Pooled Companies were not under common control or management during the periods prior to their respective mergers. Our results of operations for the
periods presented may not be indicative of the results in the future because of (i) the impact of acquisitions recorded as purchases, whose results are only included subsequent to the purchase
date; (ii) the impact of acquisitions recorded as poolings-of-interests, whose predecessor companies were not under common control or management; and (iii) the
impact of divestitures.

Subsequent
to the IPO and through December 31, 2001, we acquired 55 additional companies in transactions accounted for as purchases and have divested 17 operating units by sale or
closure. Our results of operations include the results of these acquisitions from the date of their respective acquisitions and the results of the divestitures up to the effective date.

Our
Selected Financial Data for the years ended December 31, 1997, 1998, 1999, 2000 and 2001, have been derived from our consolidated financial statements, which have been audited
by Arthur Andersen LLP. Our Selected Financial Data are based on available information and certain assumptions described in the footnotes set forth below, all of which we believe are reasonable.

Our
Selected Financial Data provided below should be read in conjunction with our historical consolidated financial statements, including the related notes thereto, and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations" that appear elsewhere in this report.

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Selected Financial Data  (In thousands, except per share data)

|                                                   |                            | 1997 |         | 1998   |   | 1999    |        | 2000 |         | 2001    |  
|-------------------------------------------------- | -------------------------- | ---- | ------- | ------ | - | ------- | ------ | ---- | ------- | ------- | -
|Statement of Operations Data:                      |                            |      |         |        |   |         |        |      |         |         |  
|Revenue                                            |                            | $    | 177,272 |        | $ | 240,906 |        | $    | 350,044 |         | $
|Cost of services                                   |                            |      | 112,161 |        |   | 147,964 |        |      | 213,928 |         |  
|Special charges(7)                                 |                            |      |        |        |   |        |        |      |        |         |  
|Depreciation                                       |                            |      | 3,730   |        |   | 5,889   |        |      | 8,815   |         |  
|                                                   |                            |      |         |        |   |         |        |      |         |         |  
|                                                   | Gross profit               |      |         | 61,381 |   |         | 87,053 |      |         | 127,301 |  
|Selling, general and administrative expenses(1)(2) |                            |      | 37,956  |        |   | 55,594  |        |      | 78,577  |         |  
|Gain on sale of assets of subsidiary, net(3)       |                            |      |        |        |   | (4,394  | )      |      |        |         |  
|Special charges(7)                                 |                            |      |        |        |   |        |        |      |        |         |  
|Amortization(4)                                    |                            |      | 1,835   |        |   | 4,845   |        |      | 4,748   |         |  
|                                                   |                            |      |         |        |   |         |        |      |         |         |  
|                                                   | Operating income (loss)(1) |      |         | 21,590 |   |         | 31,008 |      |         | 43,976  |  
|Interest and other (income) expense, net(5)(8)     |                            |      | 1,176   |        |   | 990     |        |      | 3,975   |         |  
|                                                   |                            |      |         |        |   |         |        |      |         |         |  
|Income (loss) before income taxes(1)(5)            |                            |      | 20,414  |        |   | 30,018  |        |      | 40,001  |         |  
|Provision for income taxes(6)                      |                            |      | 8,266   |        |   | 12,007  |        |      | 16,000  |         |  
|                                                   |                            |      |         |        |   |         |        |      |         |         |  
|Net income (loss)(1)(5)(6)                         |                            | $    | 12,148  |        | $ | 18,011  |        | $    | 24,001  |         | $
|                                                   |                            |      |         |        |   |         |        |      |         |         |  
|Net income (loss) per common share                 |                            |      |         |        |   |         |        |      |         |         |  
|                                                   | Basic(1)(5)(6)             |      | $       | 1.01   |   | $       | 1.35   |      | $       | 1.70    |  
|                                                   | Diluted(1)(5)(6)           |      | $       | 1.00   |   | $       | 1.31   |      | $       | 1.60    |  
|Weighted average common shares outstanding         |                            |      |         |        |   |         |        |      |         |         |  
|                                                   | Basic                      |      |         | 12,018 |   |         | 13,370 |      |         | 14,149  |  
|                                                   | Diluted                    |      |         | 12,196 |   |         | 13,731 |      |         | 14,990  |  
|Balance Sheet Data:                                |                            |      |         |        |   |         |        |      |         |         |  
|Working capital                                    |                            | $    | 26,642  |        | $ | 37,793  |        | $    | 20,113  |         | $
|Total assets                                       |                            |      | 139,106 |        |   | 206,970 |        |      | 369,355 |         |  
|Long-term obligations, net of current maturities   |                            |      | 5,892   |        |   | 31,498  |        |      | 85,172  |         |  
|Stockholders' equity                               |                            |      | 107,564 |        |   | 138,735 |        |      | 175,009 |         |  

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ITEM 7.Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated financial statements and the related notes thereto and "Item 6. Selected Financial
Data" appearing elsewhere in this Report.
Additional information concerning factors that could cause results to differ materially from those in the forward-looking statements is contained under "Item 1. BusinessRisk Factors."

Introduction

We were founded in September 1994, to create a national, single source provider of document and information outsourcing solutions to document and
information intensive industries, including: healthcare, law, banking, insurance, retailing, high tech manufacturing and government. We acquired the Founding Companies simultaneously with the closing
of our initial public offering (the "IPO") on January 26, 1996, and effectively began operations at that time. The consideration for the Founding Companies consisted of a combination of cash
and common stock (the "Common Stock") of our Company.

Since
our inception, we have acquired 71 and divested 17 companies. We evaluate candidates for acquisition and periodically for divestiture as a part of our strategic plan of providing
customers a single solution for business process outsourcing. The criteria for evaluation include geographic need, additional technology, market growth potential, industry expertise, service expansion
to broaden service offerings, expansion of our customer base, revenue and earnings growth potential, and expected sources and uses of capital.

Significant Developments

During the second and third quarters, we completed several steps involved with our strategic realignment plan. We completed a strategic review of our operations
and determined markets that we intended to concentrate on for future growth. Additionally, we identified certain non-strategic operating units for divestiture or closure, and accordingly,
developed and committed to a divestiture plan. The divested operating units were evaluated based on criteria such as market growth potential, current operating performance, revenue and earning growth
potential, and expected sources and uses of capital. This plan resulted in divestitures comprising approximately 23% of 2000 revenues and 4% of 2000 operating income.

During
2001, we completed the sale or closure of 15 operating units pursuant to the divesture plan. These units related to the following services: (i) automated litigation
support; (ii) high-speed, multiple-set reproduction of documents; (iii) records acquisition in the form of subpoena of business documents and service of process;
(iv) commercial system integration services; and (v) investor services.

We
sold these units for $19.7 million of net consideration and collected $18.4 million of this consideration by December 31, 2001. The remaining $1.3 million
of net consideration is expected to be collected by June 2002.

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The
proceeds from these divestitures were used to pay down amounts outstanding under our credit facility and should provide $0.6 million in annualized interest expense savings
(using the company's incremental borrowing rate as of December 31, 2001). The full effect of the interest expense benefit should begin during the third quarter of fiscal 2002 once the full
amounts of proceeds are collected.

These
divested units had a net book value of $73.0 million. Additionally, we recorded liabilities of $9.3 million for exiting costs, personnel costs and various selling
expenses. As of December 31, 2001, $3.5 million of these costs had been paid, with the remaining $5.8 million to be paid by June 2003. See Note 3 of the Notes to the
Consolidated Financial Statements.

Business Segments

After the effect of the divestitures and closures, the Company reduced the number of segments from four to two to reflect the go-forward segment
focus. The identified segments are as follows:

Information Management and Distribution.This segment includes companies that provide the following services: electronic
imaging; analog services; data capture and database management; internet repository services; and print and mail services, including statement processing, direct mail and fulfillment services.

Healthcare, Regulatory and Legal Compliance.This segment includes companies that provide the following services: medical
records release; off-site active storage of a healthcare institutions' medical records; online delivery of images of selected medical records; document and data conversion services for
healthcare institutions; temporary staffing services; providing attending physicians' statements for life and health insurance underwriting; managed care compliance reviews; legal claims
administration; and professional services related to trial support services.

Basis for Management Discussion and Analysis

Cost of services consists primarily of compensation and benefits to employees providing goods and services to our clients, occupancy costs, equipment costs and
supplies. Our cost of services also includes the cost of products sold for micrographics supplies and equipment, computer hardware and software and business imaging supplies and equipment.

Selling,
general and administrative expenses ("SG&A") consist primarily of: (i) compensation and related benefits to sales and marketing, executive management, accounting, human
resources and other administrative employees; (ii) other sales and marketing costs; (iii) communications costs; (iv) insurance costs; and (v) legal and accounting
professional fees and expenses.

The
2001 results include pre-tax special charges totaling $62.6 million due to the divestiture of non-strategic operating companies, closures of two
non-strategic business units, and one-time legal charges. Also, the Company recognized charges of approximately $0.5 million for the write-down of deferred
debt costs due to refinancing long-term obligations. Additionally, included as a reduction to revenue, was $1.0 million of bad debt expense related specifically to a single project
within the Healthcare, Regulatory and Legal Compliance Segment.

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Results of Operations

The following table sets forth certain items as shown in "Item 6. Selected Financial Data" expressed as a percentage of total revenue for the periods indicated:

|                                             |              | Year Ended December 31, |     
|-------------------------------------------- | ------------ | ----------------------- | ----
|
|Revenue                                      |              | 100.0                   | %   
|Cost of services                             |              | 61.1                    |     
|Special charges                              |              |                        |     
|Depreciation                                 |              | 2.5                     |     
|                                             |              |                         |     
|                                             | Gross profit |                         | 36.4
|Selling, general and administrative expenses |              | 22.4                    |     
|Special charges                              |              |                        |     
|Amortization                                 |              | 1.4                     |     
|                                             |              |                         |     
|Operating income (loss)                      |              | 12.6                    |     
|Interest and other expense, net              |              | 1.1                     |     
|                                             |              |                         |     
|Income (loss) before income taxes            |              | 11.5                    |     
|Provision for income taxes                   |              | 4.6                     |     
|                                             |              |                         |     
|Net income (loss)                            |              | 6.9                     | %   
|                                             |              |                         |     

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenue

Revenue decreased 3.4%, from $457.6 million for the year ended December 31, 2000 to $442.0 million for the year ended December 31,
2001. However, excluding the results of the divested operating units from 2000 and 2001 and $1.0 million of bad debt expense related specifically to a single project within Healthcare,
Regulatory and Legal Compliance Segment, revenue from ongoing operations increased 15.0% from $353.6 million for the year ended December 31, 2000 to $406.7 million for the year
ended
December 31, 2001. Factors contributing to this growth were improved volumes in our Data Capture and Conversion businesses and acquisition related revenues. This growth was partially offset by
lower volumes in our Direct Mail businesses as customers moderated their promotional activities in a sluggish economy. Revenues in our project-oriented Claims Administration businesses were negatively
impacted in the fourth quarter of 2001 due to delays in new projects as well as reduced volumes on existing projects.

Gross profit

Gross profit decreased 2.4% from $171.0 million for the year ended December 31, 2000 to $166.8 million for the year ended December 31,
2001. This decrease was primarily due to the effect of the divestiture of 15 operating units in 2001. Excluding the results of the divested operating units from 2000 and 2001 and $1.0 million
of bad debt expense related specifically to a single project within Healthcare, Regulatory and Legal Compliance Segment, gross profit from ongoing operations increased 13.5% from $141.4 million
for the year ended December 31, 2000 to $160.4 million for the year ended December 31, 2001. This increase was primarily due to the increases in revenue discussed above. Excluding
the results of the divested operating units from 2000 and 2001, gross profit as a percentage of revenue decreased from 40.0% for the year ended December 31, 2000 to 39.5% for the year ended
December 31, 2001. Key drivers for the decline were revenue and margin pressures within Direct Mail as well as margin declines in our Healthcare companies, and a higher concentration of
recurring revenue. See Risk Factors for further explanation of revenue mix and gross profit margins.

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Selling, general and administrative expenses

SG&A increased 0.8% from $100.5 million, or 22.0% of revenue, for the year ended December 31, 2000 to $101.2 million, or 22.9% of revenue,
for the year ended December 31, 2001. Excluding the results of the divested operating units from 2000 and 2001 and $1.0 million of bad debt expense related specifically to a single
project within Healthcare, Regulatory and Legal Compliance Segment, SG&A from ongoing operations increased 21.0% from $75.3 million for the year ended December 31, 2000, to
$91.1 million for the year ended December 31, 2001. Excluding the results of the divested operating units, SG&A as percentage of ongoing revenue increased from 21.3% in 2000 to 22.4% in
2001. This increase was primarily due to: (i) SG&A from acquisitions in 2000 and 2001; (ii) infrastructure investments related to the centralization of certain accounting, management and
human resource functions to more effectively manage our businesses; and (iii) additional outside consulting fees, primarily valuation and state tax planning, to minimize the Company's overall
tax burden and improve operating cash flow.

Operating income (loss)

Operating income (loss) decreased 110.8% from $62.0 million, or 13.5% of revenue, for the year ended December 31, 2000 to $(6.7) million, or (1.5) %
of revenue, for the year ended December 31, 2001. Excluding the results of the divested operating units from 2000 and 2001 and $1.0 million of bad debt expense related specifically to a
single project within Healthcare, Regulatory and Legal Compliance Segment, operating income from ongoing operations increased 1.2% from $59.4 million for the year ended December 31, 2000
to $60.1 million for the year ended December 31, 2001. Strong growth from 2000 and 2001 acquisitions and in our Data Capture and Conversion businesses was essentially offset by declines
in our Direct Mail, Healthcare and Regulatory and Legal Compliance businesses. Consequently, operating margins from ongoing operations decreased from 16.8% in 2000 to 14.8% in 2001. The decrease in
operating margins was primarily due to factors discussed above related to gross profits and SG&A as well as an increase in goodwill amortization expense as a percentage of revenue due to acquisition
related payments.

Interest and other expense

Interest and other expense increased 4.9% from $8.9 million for the year ended December 31, 2000 to $9.4 million for the year ended
December 31, 2001. Excluding the results of the divested operating units from 2000 and 2001, the $1.0 million of bad debt expense related specifically to a single project within
Healthcare, Regulatory and Legal Compliance Segment and the write-down of deferred debt costs, interest and other expense from ongoing operations decreased 3.4% from $9.3 million
for the year ended December 31, 2000 to $9.0 million for the year ended December 31, 2001. This decrease was due to lower balances on long-term obligations and lower
interest rates. The average interest rate on borrowings decreased from 7.6% in 2000 to 6.8% in 2001. The interest rate on borrowings is predominantly variable in nature with the exception of the
interest rate hedge which was placed in effect during December of 2000 fixing the interest cost for $50 million of long-term obligations through March 2003 (See Item 7A.
Quantitative and Qualitative Disclosures About Market Risk). However, interest rate risk exists for the remaining $64 million of long-term obligations at December 31, 2001.
Increases in short-term rates would have the effect of increasing interest expense and lowering operating results.

Income (Loss) before income taxes and net income (loss)

Income (loss) before income taxes decreased 130.2% from $53.0 million for the year ended December 31, 2000, to $(16.0) million for the year ended
December 31, 2001 and net income decreased 156.5% from $32.1 million for the year ended December 31, 2000, to $(18.1) million for the year ended December 31, 2001.
Excluding the results of the divested operating units from 2000 and 2001, the $1.0 million of bad debt expense related specifically to a single project within Healthcare, Regulatory and Legal
Compliance Segment and the write-down of deferred debt costs, income before income taxes

20

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increased 2.0% from $50.1 million for the year ended December 31, 2000 to $51.2 million for the year ended December 31, 2001 and net income increased 4.4% from
$30.4 million for the year ended December 31, 2000 to $31.7 million for the year ended December 31, 2001. These increases are attributable to the factors discussed above.

The
provision for income taxes was $20.9 million for the year ended December 31, 2000 and $2.1 million for the year ended December 31, 2001. Excluding the
results of the divested operating units from 2000 and 2001, the $1.0 million of bad debt expense related specifically to a single project within Healthcare, Regulatory and Legal Compliance
Segment, the write-down of deferred debt costs and the tax benefit received from the loss on sale of the divested operating units from 2000 and 2001 results, the provision for income taxes
was $19.7 million for the year ended December 31, 2000 and $19.5 million for the year ended December 31, 2001. Excluding the results of the divested operating units from
2000 and 2001, the $1.0 million of bad debt expense related specifically to a single project within Healthcare, Regulatory and Legal Compliance Segment, the write-down of deferred
debt costs and the tax benefit received from the loss on sale of the divested operating units from 2000 and 2001 results, the effective tax rate of 39.5% and 38.0% for the years ended
December 31, 2000 and 2001, respectively, differs from the statutory federal rate of 35.0% principally due to state and local taxes and non-deductible goodwill expenses.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Revenue

Revenue increased 30.7%, from $350.0 million for the year ended December 31, 1999 to $457.6 million for the year ended December 31,
2000. This increase was largely due to: (i) revenue from the acquisitions completed subsequent to December 31, 1999; (ii) full-year revenue from 1999 acquisitions; and
(iii) internal growth of 10.1% in revenue. Internal growth was primarily attributable to: (i) an increase in government services imaging revenue; (ii) an increase in litigation
consulting; (iii) an increase in the government services revenue in California; and (iv) an increase in healthcare records release services revenue and conversion revenue due to
expansion into additional healthcare institutions throughout the markets that we serve.

Gross profit

Gross profit increased 34.3% from $127.3 million for the year ended December 31, 1999 to $171.0 million for the year ended
December 31, 2000, largely due to the increases in revenue discussed above. Gross profit as a percentage of revenue increased from 36.4% for the year ended December 31, 1999 to 37.4% for
the year ended December 31, 2000, primarily due to higher gross profit margins experienced in our litigation consulting and class-action claims administration companies.

Selling, general and administrative expenses

SG&A increased 27.8% from $78.6 million, or 22.4% of revenue, for the year ended December 31, 1999 to $100.5 million, or 22.0% of revenue,
for the year ended December 31, 2000, primarily due to SG&A associated with the acquisitions subsequent to December 31, 1999. This decrease as a percentage of revenue was a result of
management emphasis on cost controls. This decrease in SG&A was partially offset by increased SG&A as a percentage of revenue in our government services companies.

Operating income

Operating income increased 40.9% from $44.0 million, or 12.6% of revenue, for the year ended December 31, 1999 to $62.0 million, or 13.5% of
revenue, for the year ended December 31, 2000, largely attributable to the factors discussed above.

21

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Interest and other expense

Interest and other expense increased 124.6% from $4.0 million for the year ended December 31, 1999 to $8.9 million for the year ended
December 31, 2000, primarily due to increased borrowings due to cash paid for acquisitions in 2000 and contingent consideration paid for acquisitions acquired before December 31, 1999.
The average interest rate on borrowings increased from 6.4% in 1999 to 7.6% in 2000.

Income before income taxes and pro forma net income

Income before income taxes increased 32.6% from $40.0 million for the year ended December 31, 1999, to $53.0 million for the year ended
December 31, 2000, and net income increased 33.7% from $24.0 million for the year ended December 31, 1999, to $32.1 million for the year ended December 31, 2000,
largely attributable to the factors discussed above.

The
provision for income taxes was $16.0 million for the year ended December 31, 1999 and $20.9 million for the year ended December 31, 2000. The effective
tax rate of 40.0% and 39.5% for the years ended
December 31, 1999 and 2000, respectively, differs from the statutory federal rate of 35.0% principally due to state and local taxes and non-deductible goodwill expenses.

Fluctuations in Quarterly Results of Operations

Revenue from our services shows no significant seasonal variations. However, service revenue can vary from period to period due to the impact of specific
projects. Quarterly results may also vary as a result of the timing of acquisitions and the timing and magnitude of costs related to such acquisitions.

Liquidity and Capital Resources

At December 31, 2001, we had $58.5 million of working capital and $7.2 million of cash. Cash flows provided by operating activities for the
year ended December 31, 2001 were $54.0 million. Net cash provided by operating activities for the year ended December 31, 2001 was primarily impacted by cash savings from tax
planning and strong cash flow from recent acquisitions. Net cash used in investing activities was $60.7 million for the year ended December 31, 2001, and consisted primarily of payments
of $65.6 million for acquisitions, net of cash acquired, and the purchase of property, plant and equipment. These outflows were offset by the net proceeds received from the sale of operating
units. Net proceeds from sale of operating units were used for payment on the credit facility resulting in net cash provided by financing activities was $4.4 million. Net payments on the credit
facility were $7.0 million for the year.

At
December 31, 2000, we had $55.9 million of working capital and $9.5 million of cash. Cash flows provided by operating activities for the year ended
December 31, 2000 were $45.9 million. Net cash provided by operating activities for the year ended December 31, 2000 was primarily impacted by an increase in earnings. This
increase was offset in part by an increase in accounts receivable and prepaid expenses, which were attributable to the increase in revenue for the year. Net cash used in investing activities was
$99.1 million for the year ended December 31, 2000, and consisted primarily of payments of $86.0 million for acquisitions, net of cash acquired, and the purchase of property,
plant and equipment. Net cash provided by financing activities was $53.4 million, as we utilized our credit facility to fund our acquisition program. Net borrowings on the credit facility were
$39.0 million for the year.

At
December 31, 1999, we had $20.1 million of working capital and $9.4 million of cash. Cash flows provided by operating activities for the year ended
December 31, 1999 were $26.7 million. Net cash provided by operating activities for the year ended December 31, 1999 was primarily impacted by an increase in earnings and an
increase in accounts payable and accrued liabilities. These increases were offset in part by an increase in accounts receivable, which was attributable to the increase in revenue for the year. Net
cash used in investing activities was $80.4 million for the year ended December 31, 1999, and consisted primarily of payments of $63.1 million for acquisitions, net of cash
acquired, and the purchase of

22

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property, plant and equipment. Net cash provided by financing activities was $48.5 million, as we utilized our credit facility to fund our acquisition program. Net borrowings on the credit
facility were $54.0 million for the year.

In
April 2001, we entered into our line of credit agreement with Bank of America, SunTrust Bank and Wells Fargo Bank, as co-agents (the "2001 Credit Agreement"). Under
this agreement, we can from time to time borrow up to $297.5 million over a three year period, subject to certain customary borrowing capacity requirements. Meeting these requirements is highly
dependent upon maintaining a minimum level of operating results and the continued demand for our services among other factors. Additionally, depending on the mix of stock and cash used in acquisitions
if any, we may need to seek further financing through the public or private sale of equity or debt securities. There can be no assurance we could secure such financing if and when it is needed or on
terms we deem acceptable.

In
January 2000, we registered on Form S-4 (Registration No. 333-92981) 3,012,217 shares of common stock for issuance in connection with our
acquisition program (the "Acquisition Shelf"), of which 1,524,556 shares were available as of December 31, 2001.

The
following table summarizes our total contractual cash obligations as of December 31, 2001.

|                                   |  | Payments Due by Period (in thousands)
|---------------------------------- |  | -------------------------------------
|
|Long-Term Debt                     |  | $                                    
|Capital Lease Obligations          |  |                                      
|Operating Leases                   |  |                                      
|                                   |  |                                      
|Total Contractual Cash Obligations |  | $                                    
|                                   |  |                                      

We
have total commercial commitments for $8.7 million for standby letters of credit as of December 31, 2001. We have a letter of credit for $2.1 million to serve as
guarantee for periodic principal and interest payments related to the debt. We have a $5.0 million letter of credit to serve as a guarantee for performance under a contract with New York State
Workers Compensation Board. Additionally, we have a $1.6 million letter of credit to serve as security for the Company's workmen's compensation program.

Critical Accounting Policies

The Company has identified the following critical accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the
underlying accounting standards and operations involved, could result in material changes to its financial condition or results of operations under different conditions or using different assumptions.

Allowance for Doubtful Accounts.The allowance for doubtful accounts is generally established during the period in which
revenues are recognized and is maintained at a level deemed appropriate by management based on historical and other factors that affect collectibility. Such factors include the historical trends of
write offs and recovery of previously written off accounts, the financial strength of the customer and projected economic and market conditions. The evaluation of these factors involves subjective
judgments and changes in these factors may significantly impact the Consolidated Financial Statements. Different assumptions or changes in economic circumstances could result in additional changes to
the allowance for doubtful accounts. See Notes 2 and 4 of the Notes to Consolidated Financial Statements.

Asset Impairment.Management continually evaluates whether events and circumstances indicate that the remaining estimated
useful life of intangible assets might warrant revisions or that the remaining balance of intangibles or other long-lived assets may not be recoverable. To make this evaluation,

23

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management compares the estimated undiscounted future cash flows over the remaining life of the intangibles or other long-lived assets to the carrying amount of the assets being
evaluated. An
impairment loss is recognized to the extent the carrying amount of assets being evaluated exceeds the expected future undiscounted cash flow. Management utilizes estimates to determine the future cash
flows of the reporting units. These estimates include growth rates, capital needs, and projected earning margins among other factors. At a minimum, we perform intangible asset impairment analysis on
an annual basis. Estimates utilized in future calculations could differ from the estimates used in the current period. Future years' estimates that are unfavorable compared to current estimates could
cause an impairment of intangible assets in the given year. Further information is provided in Note 2 of the Notes to Consolidated Financial Statements.

At
January 1, 2002, we will adopt Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." This statement states that goodwill and
intangible assets have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. The impairment test is based on fair value rather than undiscounted
cash flows. Additionally, goodwill and intangible assets will be tested at a reporting group level rather than the individual operating unit level.

Special Charges.Special charges relate to the net costs incurred to divest and close certain non-strategic
operating units. As part of the special charge, management estimated the net consideration to be received, and the costs to divest these units. Included in the cost are certain loss contingencies that
are recorded as liabilities because the loss was probable and the amount was reasonably estimable. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires
analysis of multiple factors that often depend on judgments about potential actions by third parties such as lessors. Also see Note 3 of the Notes to the Consolidated Financial Statements,
which discusses the divestitures in more detail.

ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to interest rate risk on its term loans and revolving credit facility. Interest rates are fixed on the indenture and capitalized lease
obligations. In December 2000, in order to mitigate interest rate risk, the Company entered into an interest rate hedge agreement in the amount of $50 million, whereby the Company fixed
the interest rate through March 2003 on the amount of the hedge agreement at 5.775% plus the applicable floating spread.

24

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ITEM 8.Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS



|                                               
|-----------------------------------------------
|SOURCECORP, INCORPORATED AND SUBSIDIARIES      
|Report of Independent Public Accountants       
|Consolidated Balance Sheets                    
|Consolidated Statements of Operations          
|Consolidated Statements of Stockholders' Equity
|Consolidated Statements of Cash Flows          
|Notes to Consolidated Financial Statements     

25

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of SOURCECORP, Incorporated:

We
have audited the accompanying consolidated balance sheets of SOURCECORP, Incorporated (a Delaware corporation) and subsidiaries (the "Company") as of December 31, 2000 and
2001, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SOURCECORP, Incorporated and subsidiaries as of
December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.

ARTHUR
ANDERSEN LLP

Dallas,
Texas,
February 18, 2002

26

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SOURCECORP, INCORPORATED AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (In Thousands, Except Share Data)        ASSETS

|                                                                                                                                                                |                                            | December 31, |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------ | -------
|
|CURRENT ASSETS:                                                                                                                                                 |                                            |              |        
|Cash and cash equivalents                                                                                                                                       |                                            | $            | 9,504  
|Accounts and notes receivable, less allowance for doubtful accounts of $14,111 and $19,888, respectively                                                        |                                            |              | 93,583 
|Inventories                                                                                                                                                     |                                            |              | 5,112  
|Deferred income taxes                                                                                                                                           |                                            |              | 3,935  
|Prepaid expenses and other current assets                                                                                                                       |                                            |              | 6,747  
|                                                                                                                                                                |                                            |              |        
|                                                                                                                                                                | Total current assets                       |              |        
|PROPERTY, PLANT AND EQUIPMENT, net of depreciation                                                                                                              |                                            |              | 50,341 
|GOODWILL AND OTHER INTANGIBLES, net of amortization of $19,241 and $22,356, respectively                                                                        |                                            |              | 278,709
|OTHER NONCURRENT ASSETS                                                                                                                                         |                                            |              | 6,778  
|                                                                                                                                                                |                                            |              |        
|                                                                                                                                                                | Total assets                               |              | $      
|                                                                                                                                                                |                                            |              |        
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                            |                                           
|CURRENT LIABILITIES:                                                                                                                                            |                                            |              |        
|Accounts payable and accrued liabilities                                                                                                                        |                                            | $            | 57,351 
|Current maturities of long-term obligations                                                                                                                     |                                            |              | 851    
|Income taxes payable                                                                                                                                            |                                            |              | 4,759  
|                                                                                                                                                                |                                            |              |        
|                                                                                                                                                                | Total current liabilities                  |              |        
|LONG-TERM OBLIGATIONS, net of current maturities                                                                                                                |                                            |              | 123,784
|DEFERRED INCOME TAXES                                                                                                                                           |                                            |              | 3,541  
|OTHER LONG-TERM OBLIGATIONS                                                                                                                                     |                                            |              | 11,031 
|                                                                                                                                                                |                                            |              |        
|                                                                                                                                                                | Total liabilities                          |              |        
|                                                                                                                                                                |                                            |              |        
|COMMITMENTS AND CONTINGENCIES                                                                                                                                   |                                            |              |        
|STOCKHOLDERS' EQUITY:                                                                                                                                           |                                            |              |        
|Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued or outstanding                                                                   |                                            |              |       
|Common stock, $.01 par value, 26,000,000 shares authorized, 16,191,416 and 17,341,674 shares issued and outstanding at December 31, 2000 and 2001, respectively |                                            |              | 162    
|Additional paid-in capital                                                                                                                                      |                                            |              | 166,608
|Accumulated other comprehensive loss                                                                                                                            |                                            |              |       
|Retained earnings                                                                                                                                               |                                            |              | 87,286 
|                                                                                                                                                                |                                            |              |        
|                                                                                                                                                                |                                            |              | 254,056
|LessTreasury stock, at cost, 42,605 and 56,028 shares at December 31, 2000 and 2001, respectively                                                              |                                            |              | (664   
|                                                                                                                                                                |                                            |              |        
|                                                                                                                                                                | Total stockholders' equity                 |              |        
|                                                                                                                                                                |                                            |              |        
|                                                                                                                                                                | Total liabilities and stockholders' equity |              | $      
|                                                                                                                                                                |                                            |              |        

The accompanying notes are an integral part of these consolidated financial statements.

27

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SOURCECORP, INCORPORATED AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        (In Thousands, Except Per Share Data)

|                                             |                             | Year Ended December 31,           |        
|-------------------------------------------- | --------------------------- | --------------------------------- | -------
|
|REVENUE                                      |                             | $                                 | 350,044
|COST OF SERVICES                             |                             |                                   | 213,928
|SPECIAL CHARGES                              |                             |                                   |       
|DEPRECIATION                                 |                             |                                   | 8,815  
|                                             |                             |                                   |        
|                                             | Gross profit                |                                   |        
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |                             |                                   | 78,577 
|SPECIAL CHARGES                              |                             |                                   |       
|AMORTIZATION                                 |                             |                                   | 4,748  
|                                             |                             |                                   |        
|                                             | Operating income (loss)     |                                   |        
|OTHER (INCOME) EXPENSE:                      |                             |                                   |        
|                                             | Interest expense            |                                   |        
|                                             | Interest income             |                                   |        
|                                             | Other (income) expense, net |                                   |        
|                                             |                             |                                   |        
|                                             |                             | Income (loss) before income taxes |        
|PROVISION FOR INCOME TAXES                   |                             |                                   | 16,000 
|                                             |                             |                                   |        
|NET INCOME (LOSS)                            |                             | $                                 | 24,001 
|                                             |                             |                                   |        
|NET INCOME (LOSS) PER COMMON SHARE           |                             |                                   |        
|                                             | BASIC                       |                                   | $      
|                                             |                             |                                   |        
|                                             | DILUTED                     |                                   | $      
|                                             |                             |                                   |        
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING   |                             |                                   |        
|                                             | BASIC                       |                                   |        
|                                             |                             |                                   |        
|                                             | DILUTED                     |                                   |        
|                                             |                             |                                   |        

The
accompanying notes are an integral part of these consolidated financial statements.

28

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SOURCECORP, INCORPORATED AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        (In Thousands)

|                                                             |  | Common Stock |  |   |     |  |   |      |   |   |         |   |   |        |  
|------------------------------------------------------------ |  | ------------ |  | - | --- |  | - | ---- | - | - | ------- | - | - | ------ | -
|
|
|Balance, December 31, 1998                                   |  | 14,047       |  | $ | 140 |  | $ | (501 | ) | $ | 107,912 |   | $ |       |  
|Common stock issued in connection with acquisitions          |  | 280          |  |   | 3   |  |   |     |   |   | 7,204   |   |   |       |  
|Exercise of awards, net                                      |  | 255          |  |   | 3   |  |   |     |   |   | 5,954   |   |   |       |  
|S corporation to C corporation conversion for pooled company |  |             |  |   |    |  |   |     |   |   | (891    | ) |   |       |  
|Net income                                                   |  |             |  |   |    |  |   |     |   |   |        |   |   |       |  
|                                                             |  |              |  |   |     |  |   |      |   |   |         |   |   |        |  
|Comprehensive net income                                     |  |             |  |   |    |  |   |     |   |   |        |   |   |       |  
|                                                             |  |              |  |   |     |  |   |      |   |   |         |   |   |        |  
|Balance, December 31, 1999                                   |  | 14,582       |  |   | 146 |  |   | (501 | ) |   | 120,179 |   |   |       |  
|Common stock issued in connection with acquisitions          |  | 778          |  |   | 8   |  |   |     |   |   | 25,523  |   |   |       |  
|Exercise of awards, net                                      |  | 832          |  |   | 8   |  |   |     |   |   | 20,906  |   |   |       |  
|Treasury stock                                               |  |             |  |   |    |  |   | (163 | ) |   |        |   |   |       |  
|Net income                                                   |  |             |  |   |    |  |   |     |   |   |        |   |   |       |  
|                                                             |  |              |  |   |     |  |   |      |   |   |         |   |   |        |  
|Comprehensive net income                                     |  |             |  |   |    |  |   |     |   |   |        |   |   |       |  
|                                                             |  |              |  |   |     |  |   |      |   |   |         |   |   |        |  
|Balance, December 31, 2000                                   |  | 16,191       |  |   | 162 |  |   | (664 | ) |   | 166,608 |   |   |       |  
|Common stock issued in connection with acquisitions          |  | 558          |  |   | 6   |  |   |     |   |   | 20,378  |   |   |       |  
|Exercise of awards, net                                      |  | 592          |  |   | 6   |  |   |     |   |   | 17,100  |   |   |       |  
|Treasury stock                                               |  |             |  |   |    |  |   | (318 | ) |   |        |   |   |       |  
|Other comprehensive loss                                     |  |             |  |   |    |  |   |     |   |   |        |   |   | (1,242 | )
|Net loss                                                     |  |             |  |   |    |  |   |     |   |   |        |   |   |       |  
|                                                             |  |              |  |   |     |  |   |      |   |   |         |   |   |        |  
|Comprehensive net (loss)                                     |  |             |  |   |    |  |   |     |   |   |        |   |   |       |  
|                                                             |  |              |  |   |     |  |   |      |   |   |         |   |   |        |  
|Balance, December 31, 2001                                   |  | 17,342       |  | $ | 174 |  | $ | (982 | ) | $ | 204,086 |   | $ | (1,242 | )
|                                                             |  |              |  |   |     |  |   |      |   |   |         |   |   |        |  

The accompanying notes are an integral part of these consolidated financial statements.

29

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SOURCECORP, INCORPORATED AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In Thousands)

|                                                                                         |                                                                                    | Year Ended December 31,                   |       
|---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ----------------------------------------- | ------
|
|CASH FLOWS FROM OPERATING INCOME (LOSS):                                                 |                                                                                    |                                           |       
|Net income (loss)                                                                        |                                                                                    | $                                         | 24,001
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                                                    |                                           |       
|                                                                                         | Depreciation and amortization                                                      |                                           |       
|                                                                                         | Non-cash loss from divestitures and closures                                       |                                           |       
|                                                                                         | Deferred tax provision (benefit)                                                   |                                           |       
|Change in operating assets and liabilities:                                              |                                                                                    |                                           |       
|                                                                                         | Accounts receivable and notes receivable                                           |                                           |       
|                                                                                         | Prepaid expenses and other assets                                                  |                                           |       
|                                                                                         | Accounts payable and accrued liabilities                                           |                                           |       
|                                                                                         |                                                                                    |                                           |       
|                                                                                         |                                                                                    | Net cash provided by operating activities |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |                                                                                    |                                           |       
|                                                                                         | Net proceeds received from sale of operating units                                 |                                           |       
|                                                                                         | Purchase of property, plant and equipment                                          |                                           |       
|                                                                                         | Cash paid for acquisitions, net of cash acquired                                   |                                           |       
|                                                                                         |                                                                                    |                                           |       
|                                                                                         |                                                                                    | Net cash used for investing activities    |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |                                                                                    |                                           |       
|                                                                                         | Proceeds from common stock issuance, net of underwriting discounts and other costs |                                           |       
|                                                                                         | Proceeds from long-term obligations                                                |                                           |       
|                                                                                         | Principal payments on long-term obligations                                        |                                           |       
|                                                                                         | Cash paid for debt issuance costs                                                  |                                           |       
|                                                                                         |                                                                                    |                                           |       
|                                                                                         |                                                                                    | Net cash provided by financing activities |       
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                     |                                                                                    |                                           | (5,196
|CASH AND CASH EQUIVALENTS, beginning of period                                           |                                                                                    |                                           | 14,592
|                                                                                         |                                                                                    |                                           |       
|CASH AND CASH EQUIVALENTS, end of period                                                 |                                                                                    | $                                         | 9,396 
|                                                                                         |                                                                                    |                                           |       
|SUPPLEMENTAL DATA:                                                                       |                                                                                    |                                           |       
|                                                                                         | Cash paid for:                                                                     |                                           |       
|                                                                                         |                                                                                    | Income taxes                              |       
|                                                                                         |                                                                                    | Interest                                  |       
|NONCASH FINANCING TRANSACTIONS:                                                          |                                                                                    |                                           |       
|                                                                                         | Debt assumed in acquisitions                                                       |                                           | $     

The
accompanying notes are an integral part of these consolidated financial statements.

30

---



SOURCECORP, INCORPORATED AND SUBSIDIARIES    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation:

SOURCECORP, Incorporated (the "Company") was founded in September 1994, to create a national, single source provider of document and information
outsourcing solutions to document and information intensive industries, including: financial services, government, legal, healthcare and transportation. The Company acquired seven document management
services businesses (the "Founding Companies") simultaneously with the closing of the initial public offering (the "IPO") on January 26, 1996, and effectively began operations at that time. The
consideration for the Founding Companies consisted of a combination of cash and common stock (the "Common Stock") of the Company.

Since
the IPO, the Company has acquired nine companies in transactions that were accounted for as poolings-of-interests: (i) The Rust Consulting
Group, Inc. ("Rust") in December 1996; (ii) MAVRICC Management Systems, Inc. and a related company, MMS Escrow and Transfer Agency, Inc. (collectively, "MAVRICC") in
March 1997; (iii) Input of Texas, Inc. ("Input") in March 1997; (iv) Micro Publishing Systems, Inc. ("MPS") in December 1997; (v) Lifo
Systems, Inc. ("Lifo") in February 1998; (vi) Creative Mailings, Inc. ("CMI") in September 1998; (vii) Economic Research Services ("ERS") in
October 1998; (viii) TCH Mailhouse, Inc. and G&W Enterprise, Inc. (collectively, "TCH"); in December 1998; and (ix) Advanced Digital Graphics, Inc.
("ADG") in December 1998 (collectively, the "Pooled Companies"). The Pooled Companies and the Company were not under common control or management during the periods prior to their respective
mergers.

Subsequent
to the IPO and through December 31, 2001, the Company has acquired 55 additional companies in transactions accounted for as purchases and has divested of 17 operating
units by sales or closure. The results of operations include the results of these acquisitions from the date of their respective acquisitions.

Effective
February 14, 2002, the Company changed its name from F.Y.I. Incorporated to SOURCECORP, Incorporated.

2. Summary of Significant Accounting Policies:

Cash and Cash Equivalents

The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents are carried at cost,
which approximates market value.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are depreciated over the lesser of the estimated useful life or the term of the lease.

Intangible Assets

Intangibles consist primarily of goodwill. Based on the historical profitability of the purchased companies and trends in the legal, healthcare and other
industries regarding the outsourcing of document management functions in the foreseeable future, goodwill has been amortized over periods not to exceed 30 years. Management continually
evaluates whether events and circumstances indicate that the remaining estimated useful life of intangible assets might warrant revisions or that the remaining balance of intangibles or other
long-lived assets may not be recoverable. To make this evaluation, management compares the estimated undiscounted future cash flows over the remaining life of the intangibles or other

31

---

long-lived assets to the carrying amount of the assets being evaluated. If the expected future cash flows do not exceed the carrying amount of the assets being evaluated, an impairment
loss is recognized based on the excess of the carrying amount of the impaired assets over their fair value. No impairments were recorded in 1999 and 2000. See Note 3 regarding the divestitures
and closures of certain non-strategic operating units for 2001 impairments.

Revenue Recognition

Revenue is recognized when the services are rendered, or products are delivered to the customer. Unearned revenue represents certain services which are billed in
advance of performing the services.

Income Taxes

Income taxes are accounted for using the asset and liability method pursuant to Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes." Deferred taxes are recognized for tax consequences of temporary differences by applying enacted statutory tax rates applicable in future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.

Net Income (Loss) Per Share

Basic net income (loss) per share has been computed by dividing income (loss) by the weighted average number of common shares outstanding for the period. Diluted
net income (loss) per share has been computed by dividing income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period.

Use of Estimates in Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions
that affect the reported amounts of certain assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Consolidation

The accompanying consolidated financial statements and related notes to consolidated financial statements include the accounts of SOURCECORP, Incorporated and our
subsidiaries. All significant intercompany balances and transactions have been eliminated.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts and notes receivable, net, accounts payable and accrued liabilities approximate fair value due to the
short maturities of these instruments. The carrying amount of long-term debt approximates fair value due to interest rates that approximate current market rates for instruments of similar
size and duration.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001, thereby eliminating the
pooling-of-interests method of accounting. SFAS No. 141 also addresses the recognition and measurement of goodwill and other intangible assets acquired in a business
combination.

32

---

The adoption of SFAS No. 141 by the Company on July 1, 2001, did not have a significant effect on the Company's financial statements.

The
Company will adopt the provisions of SFAS No. 142 on January 1, 2002. Upon the adoption of SFAS No. 142, goodwill and intangible assets that have indefinite
useful lives will not be amortized but rather will be tested at least annually for impairment. Goodwill amortization was approximately $10.0 million for 2001, $5.2 million of which was
deductible for tax purposes. The Company will complete its assessment of goodwill impairment by June 30, 2002. While the assessment has not been completed, the Company does not anticipate a
material impairment of goodwill as of January 1, 2002, as a result of adopting the provisions of SFAS 142.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The statement retains the previously existing accounting requirements related
to the recognition and measurement of the impairment of long-lived assets to be held and used while expanding the measurement requirements of long-lived assets to be disposed
of by sale to include discontinued operations. It also expands the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been
disposed of or is classified as held for sale. The Company will implement SFAS No. 144 on January 1, 2002, and does not expect this statement to have a significant effect on the
Company's financial statements.

3. Special Charges

During the second and third quarters of 2001, the Company completed its strategic realignment plan. As part of this plan, the Company identified certain
non-strategic operating units for divestiture or closure, and accordingly, developed and committed to a divestiture plan. The non-strategic operating units were evaluated based
on criteria such as market growth potential, current operating performance, revenue and earning growth potential, and expected sources and uses of capital. In June 2001, the Company completed
the sale of five automated litigation support companies, two legal copy companies, two records acquisition companies and its commercial systems integration consulting services company. During the
third quarter, the Company completed the sale of three print-on-demand companies, the sale of its investors' services company, and the closure of a systems integration company.
As a result of the divestiture plan and the completed divestitures and closures, the Company recorded $62.6 million of pre-tax special charges. Additionally, in the second quarter,
the Company recorded a $0.5 million charge to write-off deferred debt costs due to the refinancing of long-term obligations, which is included in interest expense. The
following details the components of such charges (in millions):

Net loss on sale of assets

$
(55.4
)Costs to exit non-strategic activities/locations


(5.7
)One-time legal charge


(1.5
)Total special charges


(62.6
)Write-down of deferred financing cost


(0.5
)Total pre-tax charges

$
(63.1
)


33

---

The
following table reflects the components of the special charge liability (included in accounts payable and accrued liabilities) as of December 31, 2001 (in millions):

Special Charge
December 31, 2001

Net Book Value of Assets Divested

Net Consideration

Cash
Payments

Balance at
December 31, 2001Net loss on sale of assets

$
55.4

$
67.9

$
19.3

$
1.4

$
5.4Costs to exit non-strategic activities/locations


5.7


5.1


0.4


0.6


0.4One-time legal charge


1.5








1.5


$
62.6

$
73.0

$
19.7

$
3.5

$
5.8


The
Company has collected $18.4 million of the net proceeds as of December 31, 2001. The remaining consideration is expected to be collected by June 2002.

As
a part of the $62.6 million special charge, $9.3 million was accrued for legal claims, contract termination costs and various selling expenses. During 2001,
$3.5 million of these costs have been paid with the remaining $5.8 million to be paid by June 2003.

The
net loss on the completed divestitures (the "Divestitures") and the related net book value of the assets sold are summarized as follows (in millions):

Net consideration

$
19.3Net book value of assets and liabilities


(67.9
)Selling and other expenses


(6.8
)Net loss on sale of assets

$
(55.4
)


During
the second quarter, the Company developed plans to exit certain non-strategic activities/locations. Management completed these closures by September 30, 2001.
The components of the charges related to these activities are summarized below (in millions):

Long-lived asset impairment

$
(4.3
)Contract termination cost and related commitments


(0.5
)Excess and obsolete inventory


(0.4
)Allowance for doubtful accounts


(0.5
)Other


(0.4
)Proceeds


0.4Net loss

$
(5.7
)


4. Allowance for Doubtful Accounts and Notes Receivable:

The activity in the allowance for doubtful accounts and notes receivable is as follows (in thousands):

|                                      |  | Balance at
Beginning
Of Period |        | Balance
Acquired |   | Balance
Divested |  | Write-offs |       | Balance at
End of
Period |   | Charged to Costs and Expenses
|------------------------------------- |  | ------------------------------ | ------ | ---------------- | - | ---------------- |  | ---------- | ----- | ------------------------ | - | -----------------------------
|Twelve months ended December 31, 1999 |  | $                              | 4,705  |                  | $ | 1,660            |  | $          |      |                          | $ | 6,325                        
|                                      |  |                                |        |                  |   |                  |  |            |       |                          |   |                              
|Twelve months ended December 31, 2000 |  | $                              | 8,835  |                  | $ | 736              |  | $          |      |                          | $ | 8,725                        
|                                      |  |                                |        |                  |   |                  |  |            |       |                          |   |                              
|Twelve months ended December 31, 2001 |  | $                              | 14,111 |                  | $ | 296              |  | $          | 1,257 |                          | $ | 11,980                       
|                                      |  |                                |        |                  |   |                  |  |            |       |                          |   |                              

34

---

5. Property, Plant and Equipment:

Property, plant and equipment consist of the following (in thousands):

December 31,Estimated
Useful Lives
in Years2000

2001Land

N/A

$
934

$
934Buildings and improvements

7-18


3,604


3,809Leasehold improvements

Life of lease


5,345


4,839Vehicles

5-7


2,448


2,369Machinery and equipment

5-15


45,464


34,245Computer equipment and software

3-7


34,295


31,135Furniture and fixtures

5-15


4,577


5,47496,667


82,805LessAccumulated depreciation




46,326


40,863$
50,341

$
41,942


6. Accounts Payable and Accrued Liabilities:

Accounts payable and accrued liabilities consist of the following (in thousands):

December 31,2000

2001Accounts payable and accrued liabilities

$
9,062

$
15,900Accrued compensation and benefits


15,850


14,997Customer deposits


4,625


5,254Unearned revenue


12,260


3,241Accrued liabilities from acquisitions


15,202


11,142Accrued professional fees


352


553$
57,351

$
51,087


7. Business Combinations:

2001 Acquisitions

During the first six months of 2001, the Company acquired five businesses, which were accounted for as purchases (the "2001 Acquisitions"). These acquisitions
were (i) STAT Healthcare Consultants, Inc.; (ii) Micromedia of New England, Inc.; (iii) Image Entry Inc., Image Entry of Owsley County Inc., Image
Entry of Indianapolis Inc., Image Entry Federal Systems Inc., Image Entry of Arkansas Inc., and Image Entry of Alabama Inc (collectively "Image Entry"); (iv) Kinsella
Communications, Ltd.; and (v) Digital Data Resources, Inc. The aggregate consideration paid for the Purchased Companies consisted of $44.4 million in cash and 180,714
shares of common stock. The preliminary allocation of the purchase price is set forth below (in thousands):

Consideration Paid

$
50,046Estimated Fair Value of Identifiable Assets


13,869Estimated Fair Value of Liabilities


5,685Goodwill


41,862


35

---

The
weighted average fair market value of the shares of common stock used in calculating the consideration paid for the 2001 Acquisitions was $31.47 per share, which represented a 10%
discount from the average trading price of the common stock based on the length and type of restrictions in the purchase agreements.

The
estimated fair market values reflected above are based on preliminary estimates and assumptions and are subject to revision. In management's opinion, the preliminary allocations are
not expected to be materially different from the final allocations.

2000 Acquisitions

During 2000, the Company acquired five businesses, which were accounted for as purchases (the "2000 Acquisitions"). These acquisitions were (i) Mailing and
Marketing, Inc.; (ii) Global Direct, Inc.; (iii) Pinnacle Legal Copies, Inc. and PLCI, Inc.; (iv) Lexicode Corporation; and (v) RTI Laser Print
Services, Inc. The aggregate consideration paid for the Purchased Companies consisted of $51.0 million in cash and 205,350 shares of common stock. The allocation of the purchase price is
set forth below (in thousands):

Consideration Paid

$
56,196Fair Value of Identifiable Assets


19,000Fair Value of Liabilities


10,624Goodwill


47,820


The
weighted average fair market value of the shares of common stock used in calculating the consideration paid for the 2000 Acquisitions was $25.44 per share, which represents an 18%
discount from the average trading price of the common stock based on the length and type of restrictions in the purchase agreements.

1999 Acquisitions

During 1999, the Company acquired 12 businesses, all of which were accounted for as purchases. These acquisitions were (i) Northern Minnesota Medical
Records Services, Inc.; (ii) PMI Imaging Systems, Inc.; (iii) Quality Data Conversions, Inc.; (iv) MSI Imaging Solutions, Inc.; (v) Information
Management Services, Inc.; (vi) Managed Care Professionals, Inc.; (vii) American Economics Group, Inc.; (viii) Data Entry and Informational
Services, Inc.; (ix) Rust Consulting, Inc.; (x) Newport Beach Data Entry, Inc.; (xi) Copy Right, Inc.; and (xii) Exigent Computer
Group, Inc. (the "1999 Acquisitions"). The aggregate
consideration paid for the acquisitions consisted of $66.8 million in cash and 255,626 shares of common stock. The allocation of the purchase price is set forth below (in thousands):

Consideration Paid

$
73,811Fair Value of Identifiable Assets


34,069Fair Value of Liabilities


30,603Goodwill


70,345


The
weighted average fair market value of the shares of common stock used in calculating the consideration paid was $25.28 per share, which represents a 20% discount from the average
trading price of the common stock based on the length and type of restrictions in the purchase agreements.

Contingent Consideration

Certain of the Company's acquisitions are subject to adjustments in their overall consideration based upon the achievement of specified earning targets over one
to three year periods. During 2001, the Company paid consideration of $20.6 million in cash and issued 389,674 shares of common stock at an

36

---

average price of $39.20 per share in relation to contingent consideration agreements that have been settled. Based upon the evaluation of cumulative earnings through December 31, 2001, against
the specified earnings targets, the Company accrued aggregate contingent consideration of approximately $15.4 million, of which $10.0 million is classified as accounts payable and
accrued liabilities and will be settled in cash and $5.4 million is classified as other long-term obligations and will be settled in common stock. All of the periods applicable for
the earnout targets have not been completed, and additional amounts may be payable in future periods under the terms of the agreements.

Pro Forma Financial Data

Accounting Principles Board Opinion ("APB") No. 16, Business Combinations, requires disclosure of supplemental information for acquisitions accounted for
by the purchase method. This supplemental disclosure should detail pro forma results of operations as if each year's acquisitions had occurred at the beginning of each respective year and at the
beginning of the preceding year.

Set
forth below are unaudited pro forma financial data for the years ended December 31, 1999, 2000 and 2001. The unaudited pro forma data gives effect to: (i) the 1999,
2000 and 2001 Acquisitions as if they would have occurred on January 1, 1999, January 1, 1999 and January 1, 2000, respectively; and (ii) compensation adjustments for all
acquisitions.

Pro Forma Year Ended December 31,1999

2000

2001(Unaudited, in thousands, except per share data)Revenue

$
440,788

$
513,236

$
448,456Income (loss) before income taxes


51,417


60,402


(15,209
)Net income (loss)


30,851


36,560


(17,643
)Net income (loss) per common share:Basic

$
2.12

$
2.36

$
(1.05
)Diluted

$
2.01

$
2.24

$
(1.05
)Weighted average common shares outstanding:Basic


14,518


15,508


16,785Diluted


15,359


16,289


16,785


The
pro forma information is provided for informational purposes only and does not purport to present our results of operations had the transactions assumed therein occurred on or as of
the dates indicated, nor are they necessarily indicative of the results of operations which may be achieved in the future. Also, the pro forma information includes the operations of the divested
operating units described in Note 3. See Note 16 for 1999, 2000 and 2001 information without the divested operating units.

37

---

8. Long-term Obligations and Credit Facilities:

Long-term Obligations

Long-term obligations consist of the following (in thousands):

December 31,2000

2001Line of credit, expiring April 2004, interest at prime rate plus applicable margin or LIBOR plus applicable margin (3.15% to 7.03% at December 31, 2001)

$


$
114,000Line of credit, expiring March 2003, interest at prime or the Eurodollar rate plus 1.125% (7.19% to 7.94%) at December 31, 2000, paid April 2001


121,000


Industrial Revenue Bonds: Variable Rate (3.7% at December 31, 2000 and 2.0% at December 31, 2001) Demand/Fixed Rate Revenue Bonds, Prince George's County, Maryland; due beginning in 1996 through 2014 secured by all real
estate equipment and other tangible property of a subsidiary of the Company


2,044


1,858All other obligations


1,591


521Total


124,635


116,379LessCurrent maturities of long-term obligations


851


324Total long-term obligations

$
123,784

$
116,055


In
April 2001, the Company entered into a line of credit with Bank of America, SunTrust Bank and Wells Fargo Bank, as co-agents (the "2001 Credit Agreement") and
terminated the previous line of credit agreement. Under the 2001 Credit Agreement, the Company may borrow on a revolving credit basis loans in an aggregate outstanding principal amount up to
$297.5 million, subject to certain customary borrowing capacity requirements. The 2001 Credit Agreement is secured by the stock of the Company's material subsidiaries, and in the event the
Company exceeds a designated leverage ratio, by the assets of the Company and subsidiaries. The availability under the 2001 Credit Agreement as of December 31, 2001, was $115.8 million.

The
commitment to fund revolving credit loans under the 2001 Credit Agreement expires April 3, 2004. The annual interest rate applicable to borrowings under this facility is, at
the Company's option, (i) grid pricing ranging from 0.0% to 0.5% plus the prime rate based on the ratio of funded debt to EBITDA (as defined in the credit agreement) or (ii) grid pricing
ranging from 1.125% to 2.0% plus LIBOR based on the ratio of funded debt to EBITDA. The 2001 Credit Agreement requires mandatory prepayments in certain circumstances, such as asset dispositions. The
outstanding principal balance of revolving credit loans is due and payable on April 3, 2004.

The
Company has outstanding an irrevocable letter of credit in the amount of approximately $2.1 million to serve as guarantee for periodic principal and interest payments related
to the Industrial Revenue Bonds. In January 1998, the Company entered into a letter of credit in the amount of $10.0 million to serve as a guarantee for performance under a contract with
New York State Workers Compensation Board. In April 1999, the amount of the letter of credit was reduced to $5.0 million. Additionally, in November 2000, the Company entered into
a letter of credit in the amount of $1.6 million to serve as security for the Company's workmen's compensation program.

The
weighted average interest rate on long-term obligations at December 31, 2000 and 2001 was 7.6% and 6.8%, respectively. The 2001 Credit Agreement contains certain
reporting requirements and financial covenants, including requirements that we maintain minimum levels of net worth, a maximum ratio of

38

---

funded debt to EBITDA and other financial ratios. As of December 31, 2001, we are in compliance with all loan covenants.

In
December 2000, in order to mitigate interest rate risk, the Company entered into an interest rate hedge agreement in the amount of $50.0 million, whereby the Company has
fixed the interest rate through March 2003 on the amount of the hedge agreement at 5.775% plus the applicable floating spread. See Note 12 regarding the interest rate hedge.

Maturities of Long-Term Obligations

As of December 31, 2001, maturities of long-term obligations are as follows (in thousands):

Years Ending December 31,2002

$
3242003


1322004


114,1222005


1232006


124Thereafter


1,554Total

$
116,379


9. Lease Commitments:

Our operating companies lease various office buildings, machinery, equipment and vehicles. Future minimum lease payments under capital leases, included in
long-term obligations, and noncancelable operating leases are as follows (in thousands):

Year Ended
December 31, 2001Years Ending December 31,

Capital
Leases

Operating
Leases2002

$
201

$
14,8812003


11


12,8882004


8


9,1732005


3


5,9492006


2


3,818Thereafter





6,069Total minimum lease payments


225

$
52,778LessAmounts representing interest


11Net minimum lease payments


214LessCurrent portion of obligations under capital leases


201Long-term portion of obligations under capital leases

$
13


Rent
expense for all operating leases for the years ended December 31, 1999, 2000 and 2001 was approximately $15.1 million, $20.7 million, and $23.0 million,
respectively.

39

---

10. Income Taxes:

The provision for federal and state income taxes consists of the following (in thousands):

Year Ended December 31,1999

2000

2001FederalCurrent

$
13,301

$
18,476

$
409Deferred


(21
)

392


(1,421
)StateCurrent


2,724


1,966


9,287Deferred


(4
)

93


(6,151
)$
16,000

$
20,927

$
2,124


The
differences in income taxes provided and the amounts determined by applying the federal statutory tax rate to income before income taxes result from the following (in thousands):

Year Ended December 31,1999

2000

2001Tax at statutory rate

$
13,970

$
18,560

$
(5,531
)Add (deduct)State income taxes


1,768


1,491


(134
)Nondeductible expenses


875


1,471


1,580Loss of S corporations


(599
)

(115
)

(202
)Nondeductible loss on divestiture








7,193Other


(14
)

(480
)

(782
)$
16,000

$
20,927

$
2,124


The
components of deferred income tax liabilities and assets are as follows (in thousands):

December 31,2000

2001Deferred income tax liabilitiesTax over book depreciation and amortization

$
5,487

$
4,540Cash to accrual differences, net


818


359Other, net


242


304Total deferred income tax liabilities


6,547


5,203Deferred income tax assetsAllowance for doubtful accounts


5,223


7,438Accrued liabilities


883


3,402Other reserves, net


835


2,329Total deferred income tax assets


6,941


13,169Total net deferred income tax (liabilities)/assets

$
394

$
7,966Current portion of deferred income tax (liabilities)/assets

$
3,935

$
9,805Long-term deferred tax assets/(liabilities)


(3,541
)

(1,839
)$
394

$
7,966


40

---

11. Stockholders' Equity:

Stock Options and Warrants:

At December 31, 2001, the Company had one stock-based compensation plan, the 1995 Stock Option Plan, as amended (the "Plan"), which is described below. The
Company has issued warrants (the "Warrants") to certain key employees and employees of our subsidiaries. The Company refers to these options and warrants collectively as "Awards." The Company applies
APB Opinion 25 and related interpretations in accounting for awards. Awards are granted at the market price of the common stock on the date of grant. Accordingly, no compensation cost has been
recognized for the awards. Had compensation cost been determined based upon the fair value at grant dates for these awards consistent with the method of SFAS No. 123, "Accounting for Stock
Based Compensation," our net income and earnings per share would have been as follows (in thousands, except for per share data):

December 31,1999

2000

2001Net income (loss) under SFAS 123

$
20,914

$
28,970

$
(22,219
)Diluted net income (loss) per common share under SFAS 123

$
1.40

$
1.80

$
(1.33
)Actual net income (loss)

$
24,001

$
32,101

$
(18,149
)Actual diluted net income (loss) per common share

$
1.60

$
2.00

$
(1.08
)


The
fair value of the Awards was estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions for 1999: risk free interest rate ranging
from 4.5% to
6.1%, no dividend yield, average expected life of three years, and volatility of 35%. The following assumptions were used for 2000: risk free interest rate ranging from 5.0% to 6.8%, no dividend
yield, average expected life of three years, and volatility of 40%. The following assumptions were used for 2001: risk free interest rate ranging from 3.6% to 5.0%, no dividend yield, average expected
life of three years, and volatility of 40%. The weighted average Black-Scholes value of Awards granted during 1999, 2000 and 2001 was $7.58, $11.17, and $12.40, respectively.

The
Plan provides awards of options to purchase common stock and may include incentive stock options ("ISOs") and/or non-qualified stock options. The Plan also provides for
automatic option grants to directors who are not otherwise employed by us or our subsidiaries. Upon commencement of service (or upon agreeing to serve in the case of the initial
non-employee directors), a non-employee director will receive a non-qualified option to purchase 10,000 shares of common stock, and continuing
non-employee directors will receive annual options to purchase 5,000 shares of common stock. Options granted to non-employee directors become exercisable one-third
on the date of grant and one-third on each of the next two anniversaries of the date of grant. Non-employee directors' options have a term of five years from the date of grant.

The
maximum number of shares of common stock that may be subject to outstanding options under the Plan, determined immediately after the grant of any option, is the greater of 650,000
shares or 16% of the aggregate number of shares of our common stock outstanding; provided, however, that options to purchase no more than 650,000 shares of common stock may be granted as ISOs. At
December 31, 2000 and 2001, approximately 1,046,000 and 1,099,000 shares, respectively, were available for issuance.

41

---

The
Company had 2,939,859 Awards outstanding at December 31, 2001. These Awards, other than those granted to employee directors, have 10-year expirations.

Awards OutstandingShares

Weighted Average
Exercise Price(in thousands)Balance, December 31, 1998

2,814

$
22.42Granted

480

$
27.95Exercised

255

$
18.62Forfeited

209

$
23.69Balance, December 31, 1999

2,830

$
23.60Granted

756

$
29.37Exercised

832

$
20.50Forfeited

155

$
24.62Balance, December 31, 2000

2,599

$
26.21Granted

1,118

$
30.61Exercised

592

$
22.56Forfeited

185

$
29.06Balance, December 31, 2001

2,940

$
28.52Exercisable, December 31, 1999

1,278

$
20.74Exercisable, December 31, 2000

1,127

$
23.50Exercisable, December 31, 2001

1,315

$
26.54


The
following table summarizes information about Awards granted under the Plan that were outstanding at December 31, 2001:

Awards Outstanding

Awards ExercisableRange of
Exercise Prices

Number Outstanding at 12/31/01

Weighted-Average Remaining Contractual Life

Weighted Average Exercise Price

Number Exercisable at 12/31/01

Weighted Average Exercise Price$
13.00-$26.00

610,516

6.02

$
23.08

562,918

$
22.97$
26.38-$30.00

911,148

7.31

$
27.63

485,846

$
27.53$
30.13-$30.38

1,014,575

8.92

$
30.36

133,515

$
30.35$
31.00-$37.25

403,620

8.37

$
34.14

132,399

$
34.29


Net Income (Loss) Per Share

Basic and diluted net income (loss) per share were computed in accordance with SFAS No. 128, "Earnings Per Share." The differences between basic weighted
average common shares and diluted weighted average common shares and common stock equivalents are as follows (in thousands):

Year Ended December 31,1999

2000

2001Basic weighted average common shares

14,149

15,284

16,748Weighted average options and warrants

486

407

Other contingent consideration

355

374

Diluted weighted average common shares

14,990

16,065

16,748


42

---

At
December 31, 1999, 2000 and 2001, approximately 0, 88,000 and 654,000, respectively, of common stock equivalents were not included in the diluted earnings per share calculation
because they were anti-dilutive.    These common stock equivalents may be dilutive in future earnings per share calculations.

12. Derivatives

Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement requires that all derivative financial instruments be recognized as either assets or liabilities in the balance sheet and carried at fair value. Gains or losses on
derivatives designated as cash flow hedges are initially reported
as a component of other comprehensive income and later classified into earnings in the period in which the hedged item also affects earnings.

The
Company has entered into an interest rate swap for $50.0 million to hedge, through March 31, 2003, its exposure to fluctuations in interest rates on $50 million
of its debt. The swap has been designated by the Company as a cash flow hedge. As of December 31, 2001, the fair value of the interest rate swap was a liability of approximately
$2.0 million ($1.2 million, net of tax), which was recorded in the accompanying consolidated balance sheet in other long-term obligations with an offset recorded in equity as
accumulated other comprehensive loss. This swap has the effect of fixing the interest rate on $50 million of the Company's debt at 5.775% plus the applicable floating spread.

13. Employee Benefit Plans:

The Company established a defined contribution plan (the "401(k) plan") in January 1997. The 401(k) plan covers our employees and the employees of some of
our subsidiaries. The employees must be at least 21 years of age and are eligible for the plan on the first day of the quarter following 90 days of service. In addition, the Company
established a non-qualified plan in December 1996. The non-qualified compensation plan permits eligible officers and certain highly compensated employees to defer a
portion of their compensation. Contributions to both the 401(k) plan and the non-qualified compensation plan consist of employee pre-tax contributions determined as a
percentage of each participating employee's compensation. The Company may make contributions to either or both plans at the discretion of our Board of Directors. The Company has not made any
contributions to the 401(k) plan or the non-qualified compensation plan. The Company offers no post-employment or post-retirement benefits.

Certain
of the operating companies have separate qualified defined contribution employee benefit plans (the "Plans"), the majority of which allow for voluntary pre-tax
contributions by employees. The subsidiaries pay all general and administrative expenses of the Plans and, in some cases, the subsidiaries make matching and discretionary contributions to the Plans.
The subsidiaries offer no post-employment or post-retirement benefits. The expense incurred related to the Plans was approximately $887,000, $970,000, and $924,000 for the
years ended December 31, 1999, 2000 and 2001 respectively.

14. Related Party Transactions:

Leasing Transactions

Certain operating companies lease their operating facilities, along with certain equipment, from selling parties who remained as employees. These leases are for
various lengths and annual amounts. The rental expense for these operating leases for the years ended December 31, 1999, 2000 and 2001 was approximately $1,362,000, $1,113,000 and $1,356,000,
respectively.

Notes Receivable

In the acquisition of the Founding Companies, the Company acquired $642,000 of notes receivable from two Founding Company shareholders. When the Company began
operations, the shareholders

43

---

entered into new notes receivable with a stated interest rate (5%) and principal payment schedules. Principal and interest were paid in full by the shareholders in 2000.

15. Commitments and Contingencies:

Litigation

The Company is, from time to time, a party to litigation arising in the normal course of business. Management believes that none of these actions will have a
material adverse effect on the Company's business, financial condition or results of operations.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents and trade receivables.
The Company maintains cash and cash equivalents and certain other financial instruments at various major financial institutions across many geographic areas. Credit risk on trade receivables is
minimized as a result of the large number of entities comprising our client base and their dispersion across many industries and geographic areas.

16. Segment Reporting:

The Company is principally engaged in business process outsourcing services. The identified segments based on management responsibility are as follows:

Information
Management and Distribution. This segment includes companies that provide the following services: electronic imaging; analog services; data capture and database management;
internet repository services; and print and mail services, including statement processing, direct mail and fulfillment services.

Healthcare,
Regulatory and Legal Compliance. This segment includes companies that provide the following services: (i) processing a request for a patient's medical records;
(ii) off-site active storage of a healthcare institutions' medical records; (iii) online delivery of images of selected medical records; (iv) document and data
conversion services for healthcare institutions; (v) temporary staffing services; (vi) providing attending physicians' statements for life and health insurance underwriting;
(vii) managed care compliance reviews, (viii) legal claims administration, and (ix) professional services related to labor discrimination, forensic analysis, and other trial
support services.

The
Company has a broad client base. The Company had no customer with revenue greater than 3% of revenues for the year ended December 31, 2001.

44

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The
Company measures segment profit as earnings before taxes. Information on segments follows (in thousands):

|Year Ended December 31, 2001  | 
|----------------------------- | 
|
|Revenue                       | 
|Depreciation and amortization | 
|Operating income (loss)       | 
|Interest expense              | 
|Income before income taxes    | 
|Total assets                  | 

|Year Ended December 31, 2000 
|-----------------------------
|
|Revenue                      
|Depreciation and amortization
|Operating income             
|Interest expense             
|Income before income taxes   
|Total assets                 

|Year Ended December 31, 1999 
|-----------------------------
|
|Revenue                      
|Depreciation and amortization
|Operating income             
|Interest expense             
|Income before income taxes   
|Total assets                 

45

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17. Quarterly Information (Unaudited):

|                                            |         | SOURCECORP, Incorporated
|------------------------------------------- | ------- | ------------------------
|
|
|Total revenue                               |         | $                       
|Gross profit                                |         |                         
|Income (loss) before income taxes           |         |                         
|Net income (loss)                           |         |                         
|Net income (loss) per common share         |         |                         
|                                            | Basic   |                         
|                                            | Diluted |                         
|Weighted average common shares outstanding |         |                         
|                                            | Basic   |                         
|                                            | Diluted |                         

ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

46

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PART III

ITEM 10.Directors and Executive Officers of the Registrant

Information called for by Item 10 will be set forth under the caption "Election of Directors" in our 2002 Proxy Statement, which will be filed not later than
120 days after the end of our fiscal year ended December 31, 2001, and which is incorporated herein by this reference.

ITEM 11.Executive Compensation

Information called for by Item 11 will be set forth under the caption "Executive Compensation" in our 2002 Proxy Statement, which will be filed not later than
120 days after the end of our fiscal year ended December 31, 2001, and which is incorporated herein by this reference.

ITEM 12.Security Ownership of Certain Beneficial Owners and Management

Information called for by Item 12 will be set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in our 2002 Proxy
Statement, which will be filed not later than 120 days after the end of our fiscal year ended December 31, 2001, and which is incorporated herein by this reference.

ITEM 13.Certain Relationships and Related Transactions

Information called for by Item 13 will be set forth under the caption "Certain Relationships and Related Transactions" in our 2002 Proxy Statement, which will be
filed not later than 120 days after the end of our fiscal year ended December 31, 2001, and which is incorporated herein by this reference.

47

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PART IV

ITEM 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K

The following documents are being filed as part of this Report:

(a)(1)
Consolidated Financial Statements

See
Index to Consolidated Financial Statements on page 25.

All
other schedules are omitted because they are not applicable, not required or the required information is in the Financial Statements or the Notes thereto.

(a)(3)
The following Exhibits are filed as part of this Report as required by Item 601 of Regulation S-K. The Exhibits designated by an asterisk are management
contracts and compensatory plans and arrangements required to be filed as Exhibits to this Report.

|EXHIBIT NUMBER |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Stock Purchase Agreement dated as of March 31, 2001 by and among F.Y.I. Incorporated, Image Entry Acquisition Corp. Image Entry Inc., Image Entry of Owsley County Inc., Image Entry of
Indianapolis Inc., Image Entry Federal Systems Inc., Image Entry of Arkansas Inc. and Image Entry of Alabama Inc. and the Shareholders of Image Entry Inc., Image Entry of Owsley County Inc., Image Entry of
Indianapolis Inc., Image Entry Federal Systems Inc., Image Entry of Arkansas Inc. and Image Entry of Alabama Inc. (Incorporated by reference to Exhibit 2.20 to the Company's Current Report Form 8-K filed April 12,
2001)
|2.2            |  | Certificate of Ownership and Merger filed with the Secretary of State of Delaware effective February 14, 2002 merging SourceCorp Incorporated with and into the Registrant and changing the name of the Registrant
to SOURCECORP, Incorporated (incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K filed February 15, 2002)                                                                                                                                                                                                                                                                
|3.1            |  | Restated Certificate of Incorporation of SOURCECORP, Incorporated (Incorporated by reference to Exhibit 99.3 to Amendment No. 1 to the Company's Registration Statement on Form 8-A filed on
February 15, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                  
|3.2            |  | Amended and Restated By-Laws of SOURCECORP, Incorporated (Incorporated by reference to Exhibit 99.4 to Amendment No. 1 to the Company's Registration Statement on Form 8-A filed on February 15,
2002)                                                                                                                                                                                                                                                                                                                                                                                                                           
|4              |  | Specimen certificate for the Common Stock, par value $.01 per share, of the Registrant. (Incorporated by reference to Exhibit 99.1 to Amendment No. 1 to the Company's Registration Statement on
Form 8-A filed on February 15, 2002)                                                                                                                                                                                                                                                                                                                                                                                            
|10.1*          |  | F.Y.I. Incorporated 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12,
1996)                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.2           |  | Form of Indemnification Agreement between Registrant and each director (Incorporated by reference to Exhibit 10.8 to Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective
January 12, 1996)                                                                                                                                                                                                                                                                                                                                                                                                        
|10.3           |  | Agreement between New York State Workers' Compensation Board and QCSInet Acquisition Corp., dated January 21, 1998 (Incorporated by reference to Exhibit 10.38 to the Company's Form 8-K filed on
March 20, 1998)                                                                                                                                                                                                                                                                                                                                                                                                                
|10.4           |  | Warrant No. 6 issued to Mary D. Baker, dated October 27, 1998. (Incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-8 filed on December 29,
1998).                                                                                                                                                                                                                                                                                                                                                                                                                                     

48

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|10.5   |  | Warrant No. 7 issued to Sharon Kelly, dated October 27, 1998. (Incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-8 filed on December 29,
1998).      
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6   |  | Warrant No. 8 issued to C. Stuart Haworth, dated October 27, 1998. (Incorporated by reference to Exhibit 4.5 to the Registrant's Registration Statement on Form S-8 filed on December 29,
1998). 
|10.7   |  | Warrant No. 9 issued to Janet Thornton, dated October 27, 1998. (Incorporated by reference to Exhibit 4.6 to the Registrant's Registration Statement on Form S-8 filed on December 29,
1998).    
|10.8   |  | Warrant No. 10 issued to Stephen D. Swartz, dated October 27, 1998. (Incorporated by reference to Exhibit 4.7 to the Registrant's Registration Statement on Form S-8 filed on December 29,
1998).
|10.9   |  | Warrant No. 11 issued to Hossein Borhani, dated October 27, 1998. (Incorporated by reference to Exhibit 4.8 to the Registrant's Registration Statement on Form S-8 filed on December 29,
1998).  
|10.10  |  | Warrant No. 12 issued to George Desloge, dated October 27, 1998. (Incorporated by reference to Exhibit 4.9 to the Registrant's Registration Statement on Form S-8 filed on December 29,
1998).   
|10.11  |  | Warrant No. 13 issued to Paul White, dated October 27, 1998. (Incorporated by reference to Exhibit 4.10 to the Registrant's Registration Statement on Form S-8 filed on December 29,
1998).      
|10.12  |  | Warrant No. 14 issued to Kaye Hall, dated October 27, 1998. (Incorporated by reference to Exhibit 4.11 to the Registrant's Registration Statement on Form S-8 filed on December 29,
1998).       
|10.13* |  | Warrant No. 16 issued to Ronald Zazworsky, dated May 19, 1999. (Incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-8 filed on September 17,
1999).    
|10.14* |  | Warrant No. 17 issued to Joe A. Rose, dated May 19, 1999. (Incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-8 filed on September 17,
1999).         
|10.15  |  | Warrant No. 18 issued to Margot T. Lebenberg, dated May 19, 1999. (Incorporated by reference to Exhibit 4.6 to the Registrant's Registration Statement on Form S-8 filed on September 17,
1999). 
|10.16* |  | Warrant No. 21 issued to Thomas C. Walker, dated May 19, 1999. (Incorporated by reference to Exhibit 4.9 to the Registrant's Registration Statement on Form S-8 filed on September 17,
1999).    
|10.17* |  | Warrant No. 22 issued to Ed H. Bowman, Jr., dated May 19, 1999. (Incorporated by reference to Exhibit 4.10 to the Registrant's Registration Statement on Form S-8 filed on September 17,
1999).  
|10.18* |  | Special Warrant No. 24 issued to Joe A. Rose, dated May 19, 1999. (Incorporated by reference to Exhibit 4.11 to the Registrant's Registration Statement on Form S-8 filed on September 17,
1999).

49

---

|10.19  |  | Warrant No. 25 issued to Jeffrey T. Pelcher, dated January 12, 2000. (Incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.20  |  | Warrant No. 26 issued to Barrie Robertson, dated February 25, 2000. (Incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000). 
|10.21  |  | Warrant No. 27 issued to Barrie Robertson, dated February 25, 2000. (Incorporated by reference to Exhibit 4.5 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000). 
|10.22  |  | Warrant No. 28 issued to James Helm, dated February 25, 2000. (Incorporated by reference to Exhibit 4.6 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).       
|10.23  |  | Warrant No. 29 issued to James Helm, dated February 25, 2000. (Incorporated by reference to Exhibit 4.7 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).       
|10.24  |  | Warrant No. 30 issued to Margot T. Lebenberg, dated March 16, 2000. (Incorporated by reference to Exhibit 4.8 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000). 
|10.25* |  | Warrant No. 31 issued to Ronald Zazworsky, dated March 16, 2000. (Incorporated by reference to Exhibit 4.9 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).    
|10.26  |  | Warrant No. 32 issued to Timothy J. Barker, dated March 16, 2000. (Incorporated by reference to Exhibit 4.10 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).  
|10.27* |  | Warrant No. 33 issued to Joe A. Rose, dated March 16, 2000. (Incorporated by reference to Exhibit 4.11 to the Registrant's Registration Statement on Form S-8 filed on April 25, 2000).        
|10.28  |  | Warrant No. 34 issued to Joy Karns, dated February 25, 2000. (Incorporated by reference to Exhibit 4.12 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).       
|10.29  |  | Warrant No. 36 issued to Suzette Estaban, dated February 25, 2000. (Incorporated by reference to Exhibit 4.14 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000). 
|10.30  |  | Warrant No. 37 issued to Francis Esteban, dated February 25, 2000. (Incorporated by reference to Exhibit 4.15 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000). 
|10.31  |  | Warrant No. 38 issued to Ruben Luna, dated February 25, 2000. (Incorporated by reference to Exhibit 4.16 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).      
|10.32  |  | Warrant No. 39 issued to Maria Olvera, dated February 25, 2000. (Incorporated by reference to Exhibit 4.17 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).    
|10.33  |  | Warrant No. 40 issued to C. Stuart Haworth, dated March 16, 2000. (Incorporated by reference to Exhibit 4.18 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).  
|10.34* |  | Warrant No. 41 issued to David Byerley, dated March 16, 2000. (Incorporated by reference to Exhibit 4.19 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).      
|10.35  |  | Warrant No. 44 issued to David Delgado, dated March 16, 2000. (Incorporated by reference to Exhibit 4.22 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).      

50

---

|10.36  |  | Warrant No. 45 issued to Gene Marzano, dated March 16, 2000. (Incorporated by reference to Exhibit 4.22 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).       
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.37  |  | Warrant No. 46 issued to Joan G. Haworth, dated March 16, 2000. (Incorporated by reference to Exhibit 4.24 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).    
|10.38  |  | Warrant No. 47 issued to Charles T. Haworth, dated March 16, 2000. (Incorporated by reference to Exhibit 4.25 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000). 
|10.39  |  | Warrant No. 48 issued to David Delgado, dated March 16, 2000. (Incorporated by reference to Exhibit 4.26 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).      
|10.40  |  | Warrant No. 49 issued to Joan G. Haworth, dated March 16, 2000. (Incorporated by reference to Exhibit 4.27 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).    
|10.41  |  | Warrant No. 50 issued to Charles T. Haworth, dated March 16, 2000. (Incorporated by reference to Exhibit 4.28 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000). 
|10.42  |  | Warrant No. 51 issued to Michael Wickman, dated March 16, 2000. (Incorporated by reference to Exhibit 4.29 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).    
|10.43  |  | Warrant No. 52 issued to David Delgado, dated March 16, 2000. (Incorporated by reference to Exhibit 4.30 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).      
|10.44  |  | Warrant No. 53 issued to Leo Cooper, dated March 16, 2000. (Incorporated by reference to Exhibit 4.31 to the Registrant's Registration Statement on Form S-8 filed on April 25, 2000).         
|10.45  |  | Warrant No. 54 issued to C. Stuart Haworth, dated March 16, 2000. (Incorporated by reference to Exhibit 4.32 to the Registrant's Registration Statement on Form S-8 filed on April 25,
2000).  
|10.46* |  | Warrant No. WO57 issued to Thomas C. Walker, dated January 24, 2001. (Incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).  
|10.47* |  | Warrant No. WO58 issued to Ed H. Bowman, Jr., dated January 24, 2001. (Incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001). 
|10.48* |  | Warrant No. WO59 issued to Joe A. Rose, dated January 24, 2001. (Incorporated by reference to Exhibit 4.5 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).       
|10.49* |  | Warrant No. WO60 issued to Barry L. Edwards, dated January 24, 2001. (Incorporated by reference to Exhibit 4.6 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).  
|10.50* |  | Warrant No. WO61 issued to Charles S. Gilbert, dated January 24, 2001. (Incorporated by reference to Exhibit 4.7 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).
|10.51* |  | Warrant No. WO62 issued to Michael S. Rupe, dated January 24, 2001. (Incorporated by reference to Exhibit 4.8 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).   

51

---

|10.52* |  | Warrant No. WO63 issued to Ronald Zazworsky, dated January 24, 2001. (Incorporated by reference to Exhibit 4.9 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.53  |  | Warrant No. WO64 issued to Gary Patton, dated January 24, 2001. (Incorporated by reference to Exhibit 4.10 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).    
|10.54* |  | Warrant No. WO65 issued to David Byerley, dated January 24, 2001. (Incorporated by reference to Exhibit 4.11 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).  
|10.55  |  | Warrant No. WO66 issued to Mary Baker, dated January 24, 2001. (Incorporated by reference to Exhibit 4.12 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).     
|10.56  |  | Warrant No. WO67 issued to Hossein Borhani, dated January 24, 2001. (Incorporated by reference to Exhibit 4.13 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).
|10.57  |  | Warrant No. WO68 issued to Charles Haworth, dated January 24, 2001. (Incorporated by reference to Exhibit 4.14 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).
|10.58  |  | Warrant No. WO69 issued to Joan Haworth, dated January 24, 2001. (Incorporated by reference to Exhibit 4.15 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).   
|10.59  |  | Warrant No. WO70 issued to Stuart Haworth, dated January 24, 2001. (Incorporated by reference to Exhibit 4.16 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001). 
|10.60  |  | Warrant No. WO71 issued to Sharon Kelly, dated January 24, 2001. (Incorporated by reference to Exhibit 4.17 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).   
|10.61  |  | Warrant No. WO72 issued to Sam Kimelman, dated January 24, 2001. (Incorporated by reference to Exhibit 4.18 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).   
|10.62  |  | Warrant No. WO73 issued to Steve Swartz, dated January 24, 2001. (Incorporated by reference to Exhibit 4.19 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).   
|10.63  |  | Warrant No. WO74 issued to Janet Thornton, dated January 24, 2001. (Incorporated by reference to Exhibit 4.20 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001). 
|10.64  |  | Warrant No. WO75 issued to Paul White, dated January 24, 2001. (Incorporated by reference to Exhibit 4.21 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).     
|10.65  |  | Warrant No. WO76 issued to Holly Barnett, dated January 24, 2001. (Incorporated by reference to Exhibit 4.22 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).  
|10.66  |  | Warrant No. WO77 issued to Dennis Reinhold, dated January 24, 2001. (Incorporated by reference to Exhibit 4.23 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).

52

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|10.67  |  | Warrant No. WO78 issued to E. Leo Cooper, dated January 24, 2001. (Incorporated by reference to Exhibit 4.24 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).                                                              
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.68* |  | Warrant No. WO79 issued to Kerry D. Walbridge, dated March 22, 2001. (Incorporated by reference to Exhibit 4.25 to the Registrant's Registration Statement on Form S-8 filed on May 11,
2001).                                                           
|10.69* |  | Consulting Agreement between F.Y.I. Incorporated and David Lowenstein (Incorporated by reference to Exhibit 10.65 of the Company's Form 10-K filed on March 23, 2000)                                                                                    
|10.70* |  | Amended and Restated Employment Agreement between F.Y.I Incorporated and David Byerley (Incorporated by reference to Exhibit 10.70 of the Company's Form 10-K filed on March 23, 2000)                                                                   
|10.71* |  | Amended and Restated Employment Agreement, dated as of May 18, 2001 between F.Y.I. Incorporated and Barry L. Edwards (Incorporated by reference to Exhibit 10.84 on the Company's Form 10-Q filed
August 14, 2001)                                       
|10.72* |  | Amended and Restated Employment Agreement, dated as of May 18, 2001 between F.Y.I. Incorporated and Charles S. Gilbert (Incorporated by reference to Exhibit 10.85 on the Company's Form 10-Q filed
August 14, 2001)                                     
|10.73* |  | Amended and Restated Employment Agreement, dated as of May 18, 2001 between F.Y.I. Incorporated and Ed H. Bowman, Jr. (Incorporated by reference to Exhibit 10.86 on the Company's Form 10-Q filed
August 14, 2001)                                      
|10.74* |  | Amended and Restated Employment Agreement, dated as of May 18, 2001 between F.Y.I. Incorporated and Joe A. Rose (Incorporated by reference to Exhibit 10.87 on the Company's Form 10-Q filed
August 14, 2001)                                            
|10.75* |  | Employment Agreement, dated as of May 18, 2001 between F.Y.I. Incorporated and Kerry D. Walbridge (Incorporated by reference to Exhibit 10.88 on the Company's Form 10-Q filed August 14,
2001)                                                          
|10.76* |  | Amended and Restated Employment Agreement, dated as of May 18, 2001 between F.Y.I. Incorporated and Michael S. Rupe (Incorporated by reference to Exhibit 10.89 on the Company's Form 10-Q filed
August 14, 2001)                                        
|10.77* |  | Amended and Restated Employment Agreement, dated as of May 18, 2001 between F.Y.I. Incorporated and Ronald Zazworsky (Incorporated by reference to Exhibit 10.90 on the Company's Form 10-Q filed
August 14, 2001)                                       
|10.78* |  | Amended and Restated Employment Agreement, dated as of May 18, 2001 between F.Y.I. Incorporated and Thomas C. Walker (Incorporated by reference to Exhibit 10.91 on the Company's Form 10-Q filed
August 14, 2001)                                       
|10.79  |  | Credit Agreement, dated as of April 3, 2001, by and among F.Y.I. Incorporated, Bank of America, N.A., and the other signatories thereto. (Incorporated by reference to Exhibit 10.1 on the Company's
Form 10-Q filed November 14, 2001)                  
|10.80  |  | First Amendment to Credit Agreement, dated as of June 27, 2001, by and among F.Y.I. Incorporated, bank of America, N.A., and the other signatories thereto. (Incorporated by reference to Exhibit 10.92 on
the Company's Form 10-Q filed August 14, 2001)
|10.81  |  | Letter Agreement, dated August 10, 2001, by and among F.Y.I. Incorporated, Bank of America, N.A. and the other signatories thereto. (Incorporated by reference to Exhibit 10.3 on the Company's
Form 10-Q filed November 14, 2001)                       

53

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|10.82  |  | Master Guaranty Agreement, dated April 3, 2001, by and among certain subsidiaries of F.Y.I. Incorporated and Bank of America, N.A. (Incorporated by reference to Exhibit 10.4 on the Company's Form 10-Q
filed November 14, 2001)       
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.83  |  | Pledge Agreement, dated April 3, 2001, by and between F.Y.I. Incorporated and Bank of America, N.A. (Incorporated by reference to Exhibit 10.5 on the Company's Form 10-Q filed November 14,
2001)                                      
|10.84  |  | Master Pledge Agreement, dated April 3, 2001, by and among certain subsidiaries of F.Y.I. Incorporated and Bank of America, N.A. (Incorporated by reference to Exhibit 10.6 on the Company's Form 10-Q
filed November 14, 2001)         
|10.85  |  | ISDA Master Agreement and Schedule to ISDA Master Agreement dated as of December 20, 2000, between F.Y.I. Incorporated and SunTrust Bank. (Incorporated by reference to Exhibit 10.7 on the Company's
Form 10-Q filed November 14, 2001)
|10.86  |  | Confirmation of Interest Rate Transaction Letter Agreement dated December 21, 2000, between F.Y.I. Incorporated and SunTrust Bank. (Incorporated by reference to Exhibit 10.8 on the Company's Form 10-Q
filed November 14, 2001)       
|10.87* |  | F.Y.I. Incorporated Nonqualified Retirement Plan, Amended and Restated as of January 1,2000                                                                                                                                             
|21     |  | List of subsidiaries of SOURCECORP, Incorporated                                                                                                                                                                                        
|23.1   |  | Consent of Arthur Andersen LLP                                                                                                                                                                                                          
|24     |  | Power of Attorney (included with the signature page hereof)                                                                                                                                                                             
|99.1   |  | SOURCECORP, Incorporated letter to Securities and Exchange Commission regarding Arthur Andersen LLP representations                                                                                                                     

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(b)
Reports on Form 8-K:

During
the quarter ended December 31, 2001, the Company filed the following Current Report on Form 8-K:

On
November 14, 2001, the Company filed the Current Report on Form 8-K with the Commission dated November 14, 2001, reporting under Item 5 thereto, the
Company's press release relating to earnings for the Quarter ended September 30, 2001.

54

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                     |  | SOURCECORP, INCORPORATED
|-------------------- |  | ------------------------
|                     |  | By:                     
|Date: March 28, 2002 |  |                         

POWER OF ATTORNEY

Each person whose signature appears below hereby authorizes and constitutes Ed H. Bowman, Jr. and Charles S. Gilbert, and each of them singly, his true and lawful
attorneys-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign and file any and all
amendments to this report with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and he hereby ratifies and confirms all that said
attorneys-in-fact or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of March 28, 2002 by the following persons on behalf of the Registrant and in
the capacities indicated.

|SIGNATURE                                           |  | CAPACITY IN WHICH SIGNED                                                                         
|--------------------------------------------------- |  | -------------------------------------------------------------------------------------------------
|                                                    |  |                                                                                                  
|/s/THOMAS C. WALKERThomas C. Walker                 |  | Chairman of the Board and Chief Development Officer                                              
|/s/ED H. BOWMAN, JR.Ed H. Bowman, Jr.               |  | Director, President and Chief Executive Officer (Principal Executive Officer)                    
|/s/DAVID LOWENSTEINDavid Lowenstein                 |  | Director and Founder                                                                             
|/s/JOE A. ROSEJoe A. Rose                           |  | Director, Executive Vice President and Chief Operating Officer                                   
|/s/BARRY L. EDWARDSBarry L. Edwards                 |  | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
|/s/MICHAEL J. BRADLEYMichael J. Bradley             |  | Director                                                                                         
|/s/DONALD F. MOOREHEAD, JR.Donald F. Moorehead, Jr. |  | Director                                                                                         
|/s/HON. EDWARD M. ROWELLHon. Edward M. Rowell       |  | Director                                                                                         
|/s/JONATHAN B. SHAWJonathan B. Shaw                 |  | Director                                                                                         

55

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