Use these links to rapidly review the documentINDEX TO FINANCIAL STATEMENTS

---

---

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

---

FORM 10-K/A
(Amendment No. 1)

(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)

---

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.

Explanatory Note:This Form 10-K/A is being filed to amend Item 8 to correct a typographical error in footnote 4 of the Consolidated
Financial Statements. During the conversion process from Word format to Edgar format, the headings in footnote 4 were transposed. These headings have been corrected in this Form 10-K/A. There
have been no changes to the financial data.

---

---

---



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

---



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

---



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

---

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

---



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

---

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 |  | Charged to Costs and Expenses |       | Write-offs |   | Balance at
End of
Period
|------------------------------------- |  | ------------------------------ | ------ | ---------------- | - | ---------------- |  | ----------------------------- | ----- | ---------- | - | ------------------------
|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

---

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

---

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 |                         

46

---



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: April 9, 2002 |  |                         

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of April 9, 2002 by the following persons on behalf of the Registrant and
in the capacities indicated.

|SIGNATURE                                            |  | CAPACITY IN WHICH SIGNED                                                                         
|---------------------------------------------------- |  | -------------------------------------------------------------------------------------------------
|                                                     |  |                                                                                                  
|/s/THOMAS C. WALKER*Thomas 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 LOWENSTEIN*David Lowenstein                 |  | Director and Founder                                                                             
|/s/JOE A. ROSE*Joe A. Rose                           |  | Director, Executive Vice President and Chief Operating Officer                                   
|/s/BARRY L. EDWARDS*Barry L. Edwards                 |  | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
|/s/MICHAEL J. BRADLEY*Michael J. Bradley             |  | Director                                                                                         
|/s/DONALD F. MOOREHEAD, JR.*Donald F. Moorehead, Jr. |  | Director                                                                                         
|/s/HON. EDWARD M. ROWELL*Hon. Edward M. Rowell       |  | Director                                                                                         
|/s/JONATHAN B. SHAW*Jonathan B. Shaw                 |  | Director                                                                                         

|* | /s/ED H. BOWMAN, JR.                                    |  |  |  | 
|- | ------------------------------------------------------- |  |  |  | 
|  | Ed H. Bowman, Jr.
individually and by power of attorney |  |  |  | 

55

---