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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|- |  | -------------------------------------------------------------------------------------------



| |  | For the quarterly period ended June 30, 2003.
| |  | ---------------------------------------------



OR



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|- |  | --------------------------------------------------------------------------------------------



| |  | For the transition period from                      to
| |  | ------------------------------------------------------



Commission file number 0-27444



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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 AVENUE, SUITE 1000 DALLAS, TEXAS                 |  | 75204                               
|(Address of principal executive offices)                       |  | (Zip code)                          



REGISTRANTS
TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 740-6500



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 whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  x  No ̈



As of August 5, 2003, 16,167,088 shares of the registrants Common Stock, $.01 par value per share, were outstanding.



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SOURCECORP, INCORPORATED AND SUBSIDIARIES

FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2003



INDEX



|                                  | 
|--------------------------------- | 
|PART I.     FINANCIAL INFORMATION | 
|                                  | 
|Item 1                            | 
|                                  | 
|                                  | 
|                                  | 
|                                  | 
|                                  | 
|                                  | 
|                                  | 
|                                  | 
|                                  | 
|Item 2                            | 
|                                  | 
|Item 3                            | 
|                                  | 
|Item 4                            | 
|                                  | 
|PART II.     OTHER INFORMATION    | 
|                                  | 
|Item 1                            | 
|                                  | 
|Item 6                            | 
|                                  | 
|                                  | 
|                                  | 
|                                  | 



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PART I. FINANCIAL INFORMATION



|Item 1. |  | Financial Statements
|------- |  | --------------------



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SOURCECORP, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)



|                                                                                                                                                                                                   |  | December 31, 2002 |         |   | June 30, 2003 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ------------- | -
|                                                                                                                                                                                                   |  | (Unaudited)       |        
|ASSETS                                                                                                                                                                                             |  |                   |         |   |               |  
|CURRENT ASSETS:                                                                                                                                                                                    |  |                   |         |   |               |  
|Cash and cash equivalents                                                                                                                                                                          |  | $                 | 3,217   |   |               | $
|Accounts and notes receivable, less allowance for doubtful accounts of $12,441 and $10,053, respectively                                                                                           |  |                   | 78,834  |   |               |  
|Inventories                                                                                                                                                                                        |  |                   | 2,360   |   |               |  
|Deferred income taxes                                                                                                                                                                              |  |                   | 9,012   |   |               |  
|Prepaid expenses and other current assets                                                                                                                                                          |  |                   | 3,887   |   |               |  
|                                                                                                                                                                                                   |  |                   |         |   |               |  
|Total current assets                                                                                                                                                                               |  |                   | 97,310  |   |               |  
|                                                                                                                                                                                                   |  |                  
|PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $53,471 and $58,585, respectively                                                                                                |  |                   | 40,575  |   |               |  
|GOODWILL, net of amortization of $22,356                                                                                                                                                           |  |                   | 317,256 |   |               |  
|INTANGIBLES, net of amortization of $356 and $532, respectively                                                                                                                                    |  |                   | 4,084   |   |               |  
|OTHER NONCURRENT ASSETS                                                                                                                                                                            |  |                   | 8,382   |   |               |  
|                                                                                                                                                                                                   |  |                   |         |   |               |  
|Total assets                                                                                                                                                                                       |  | $                 | 467,607 |   |               | $
|                                                                                                                                                                                                   |  |                   |         |   |               |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                               |  |                   |         |   |               |  
|                                                                                                                                                                                                   |  |                  
|CURRENT LIABILITIES:                                                                                                                                                                               |  |                   |         |   |               |  
|Accounts payable and accrued liabilities                                                                                                                                                           |  | $                 | 58,029  |   |               | $
|Current maturities of long-term obligations                                                                                                                                                        |  |                   | 113     |   |               |  
|Income tax payable                                                                                                                                                                                 |  |                   | 180     |   |               |  
|                                                                                                                                                                                                   |  |                   |         |   |               |  
|Total current liabilities                                                                                                                                                                          |  |                   | 58,322  |   |               |  
|                                                                                                                                                                                                   |  |                  
|LONG-TERM OBLIGATIONS, net of current maturities                                                                                                                                                   |  |                   | 89,640  |   |               |  
|DEFERRED INCOME TAXES                                                                                                                                                                              |  |                   | 11,679  |   |               |  
|OTHER LONG-TERM OBLIGATIONS                                                                                                                                                                        |  |                   | 5,290   |   |               |  
|                                                                                                                                                                                                   |  |                   |         |   |               |  
|Total liabilities                                                                                                                                                                                  |  |                   | 164,931 |   |               |  
|                                                                                                                                                                                                   |  |                  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                      |  |                   |         |   |               |  
|                                                                                                                                                                                                   |  |                  
|STOCKHOLDERS EQUITY:                                                                                                                                                                              |  |                   |         |   |               |  
|Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued and outstanding                                                                                                     |  |                   |        |   |               |  
|Common stock, $.01 par value, 26,000,000 shares authorized, 17,420,595 and 16,223,116 shares issued and 17,364,567 and 16,167,088
outstanding at December 31, 2002 and June 30, 2003, respectively |  |                   | 175     |   |               |  
|Additional paid-in-capital                                                                                                                                                                         |  |                   | 206,843 |   |               |  
|Accumulated other comprehensive loss                                                                                                                                                               |  |                   | (329    | ) |               |  
|Retained earnings                                                                                                                                                                                  |  |                   | 96,969  |   |               |  
|                                                                                                                                                                                                   |  |                   |         |   |               |  
|                                                                                                                                                                                                   |  |                   | 303,658 |   |               |  
|LessTreasury stock, at cost, 56,028 shares                                                                                                                                                        |  |                   | (982    | ) |               |  
|LessDeferred compensation                                                                                                                                                                         |  |                   |        |   |               |  
|                                                                                                                                                                                                   |  |                   |         |   |               |  
|Total stockholders equity                                                                                                                                                                         |  |                   | 302,676 |   |               |  
|                                                                                                                                                                                                   |  |                   |         |   |               |  
|Total liabilities and stockholders equity                                                                                                                                                         |  | $                 | 467,607 |   |               | $
|                                                                                                                                                                                                   |  |                   |         |   |               |  



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



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SOURCECORP, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)



|                                             |  | Three Months Ended June 30, |         |   | Six Months Ended June 30, |  
|-------------------------------------------- |  | --------------------------- | ------- | - | ------------------------- | -
|                                             |  | 2002                        |         |   | 2003                      |  
|                                             |  | (Unaudited)                 |         |   | (Unaudited)               |  
|REVENUE                                      |  | $                           | 105,787 |   |                           | $
|                                             |  |                             |         |  
|COST OF SERVICES                             |  |                             | 63,332  |   |                           |  
|DEPRECIATION                                 |  |                             | 3,644   |   |                           |  
|                                             |  |                             |         |   |                           |  
|Gross profit                                 |  |                             | 38,811  |   |                           |  
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |  |                             | 24,754  |   |                           |  
|AMORTIZATION                                 |  |                             | 89      |   |                           |  
|                                             |  |                             |         |   |                           |  
|Operating income                             |  |                             | 13,968  |   |                           |  
|                                             |  |                             |         |  
|OTHER (INCOME) EXPENSE:                      |  |                             |         |   |                           |  
|Interest expense                             |  |                             | 1,541   |   |                           |  
|Interest income                              |  |                             | (23     | ) |                           |  
|Other (income) expense, net                  |  |                             | 345     |   |                           |  
|                                             |  |                             |         |   |                           |  
|Income before income taxes                   |  |                             | 12,105  |   |                           |  
|                                             |  |                             |         |  
|PROVISION FOR INCOME TAXES                   |  |                             | 4,600   |   |                           |  
|                                             |  |                             |         |   |                           |  
|NET INCOME                                   |  | $                           | 7,505   |   |                           | $
|                                             |  |                             |         |   |                           |  
|NET INCOME PER COMMON SHARE                  |  |                             |         |   |                           |  
|BASIC                                        |  | $                           | 0.43    |   |                           | $
|                                             |  |                             |         |   |                           |  
|DILUTED                                      |  | $                           | 0.42    |   |                           | $
|                                             |  |                             |         |   |                           |  
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING   |  |                             |         |   |                           |  
|BASIC                                        |  |                             | 17,304  |   |                           |  
|                                             |  |                             |         |   |                           |  
|DILUTED                                      |  |                             | 17,887  |   |                           |  
|                                             |  |                             |         |   |                           |  



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



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SOURCECORP, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)



|                                                                                         |  | Six Months Ended June 30, |         
|---------------------------------------------------------------------------------------- |  | ------------------------- | --------
|                                                                                         |  | 2002                      |         
|                                                                                         |  | (Unaudited)               |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                           |         
|Net income                                                                               |  | $                         | 13,508  
|Adjustments to reconcile net income to net cash provided by operating activities:        |  |                           |         
|Depreciation and amortization                                                            |  |                           | 7,272   
|Deferred tax provision                                                                   |  |                           | 3,390   
|Compensation expense on restricted stock grants                                          |  |                           |        
|Loss (gain) on sale of property, plant and equipment                                     |  |                           | 125     
|Change in operating assets and liabilities:                                              |  |                           |         
|Accounts and notes receivable                                                            |  |                           | (3,034  
|Inventories, prepaid expenses and other assets                                           |  |                           | 514     
|Accounts payable and accrued liabilities                                                 |  |                           | 1,701   
|                                                                                         |  |                           |         
|Net cash provided by operating activities                                                |  |                           | 23,476  
|                                                                                         |  |                          
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                           |         
|Proceeds from sale of property, plant and equipment                                      |  |                           |        
|Purchase of property, plant and equipment                                                |  |                           | (6,825  
|Net proceeds received from the sale of operating units in 2001                           |  |                           | 10      
|Cash paid for acquisitions, net of cash acquired                                         |  |                           | (16,311 
|                                                                                         |  |                           |         
|Net cash used for investing activities                                                   |  |                           | (23,126 
|                                                                                         |  |                          
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                           |         
|Proceeds from exercise of common stock options                                           |  |                           | 100     
|Cash paid for common stock repurchased                                                   |  |                           |        
|Proceeds from long-term obligations                                                      |  |                           | 155,847 
|Principal payments on long-term obligations                                              |  |                           | (159,421
|Cash paid for debt issuance costs                                                        |  |                           | (269    
|                                                                                         |  |                           |         
|Net cash used for financing activities                                                   |  |                           | (3,743  
|                                                                                         |  |                          
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                |  |                           | (3,393  
|                                                                                         |  |                          
|CASH AND CASH EQUIVALENTS,beginning of period                                            |  |                           | 7,182   
|                                                                                         |  |                           |         
|                                                                                         |  |                          
|CASH AND CASH EQUIVALENTS, end of period                                                 |  | $                         | 3,789   
|                                                                                         |  |                           |         
|SUPPLEMENTAL DATA:                                                                       |  |                           |         
|Cash paid for:                                                                           |  |                           |         
|Income taxes, net of income tax refunds                                                  |  | $                         | 6,317   
|Interest                                                                                 |  | $                         | 2,913   
|                                                                                         |  |                          
|NONCASH FINANCING TRANSACTIONS:                                                          |  |                           |         
|Common stock issued related to business combinations (14,368 and 0 shares, respectively) |  | $                         | 445     
|Assets acquired through financing and capital lease arrangements                         |  | $                         | 103     



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



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SOURCECORP,INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. Basis of Presentation



The accompanying condensed consolidated financial statements and related
notes to the condensed consolidated financial statements include the accounts of SOURCECORP, Incorporated and subsidiaries (collectively, the Company).



In the opinion of management, the accompanying condensed consolidated financial statements include all accounts and the
adjustments necessary to present fairly the Companys financial position at June 30, 2003, results of operations for the three and six months ended June 30, 2002 and 2003, and cash flows for the six months ended June 30, 2002 and 2003. All
significant intercompany transactions have been eliminated. Although management believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the Commission). These condensed
consolidated financial statements should be read in conjunction with the Companys consolidated financial statements and the related notes thereto in the Annual Report on Form 10-K filed with the Commission on March 31, 2003. The results of
operations for the three and six months ended June 30, 2002 and 2003 may not be indicative of the results for the full year.



The Company uses estimates and assumptions required for preparation of the financial statements. The estimates are primarily based on historical
experience and business knowledge and are revised as circumstances change. However, actual results could differ from the estimates.



2. New Accounting Standards



Recent Accounting Pronouncements



In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts
and for hedging activities under SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities and is effective for contracts entered into or modified after June 30, 2003. The Company adopted the provisions of SFAS No. 149 on
July 1, 2003 and such adoption did not have a material impact on the consolidated financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS
No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and is effective for financial instruments entered into or modified after May 31, 2003. The
provisions of SFAS No. 150, which the Company adopted on June 1, 2003, did not have a material impact on the consolidated financial statements.



3. Stockholders Equity and Stock-Based Compensation



Stock-Based Compensation



In 2002, the Board of Directors and Shareholders of the Company approved the SOURCECORP, Incorporated 2002 Long-Term Incentive Plan (the 2002
Plan), which replaced the 1995 Stock Option Plan, as amended (the 1995 Plan). The 2002 Plan provides for awards of options to purchase common stock and may include incentive stock options (ISOs) and/or non-qualified
stock options (NQSOs), stock appreciation rights, restricted stock, deferred stock, bonus stock and awards in lieu of cash obligations, dividend equivalents and other stock based awards.



The Board of Directors has appointed a committee (the Committee)
to administer the 2002 Plan. Persons eligible to receive awards under the plan include directors, officers, employees of the Company and its subsidiaries, and persons who provide consulting services to the Company deemed by the Committee to be of
substantial value to the Company, persons who have been offered employment by the Company or its subsidiaries, and persons employed by an entity that the Committee reasonably expects to become a subsidiary of the Company. Awards granted under the
2002 Plan may, at the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other award granted under the 2002 Plan or any other plan of the Company, any subsidiary or any business entity
to be acquired by the Company or one of its subsidiaries. The Committee determines vesting in awards granted under the 2002 Plan.



The Company applies Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees and related
interpretations in accounting for



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stock-based compensation and awards. Stock option and warrant awards are granted at the market price of the common stock
on the date of grant. Accordingly, no compensation expense has been recognized for stock options and warrants. Had compensation expense been determined based upon the fair value at grant dates for stock options and warrants consistent with the
method of SFAS No. 123, Accounting for Stock-Based Compensation, the Companys net income and earnings per share would have been as follows (in thousands, except per share data):



|                                                                                                                                   |  | Three MonthsEnded June 30, |        |   | Six Months Ended June 30, |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------- | -
|                                                                                                                                   |  | 2002                       |        |   | 2003                      |  
|Net income as reported                                                                                                             |  | $                          | 7,505  |   |                           | $
|Add: Deferred compensation expense included in reported net income, net of related tax effect                                      |  |                            |       |   |                           |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax
effect |  |                            | (1,013 | ) |                           |  
|                                                                                                                                   |  |                            |        |   |                           |  
|Proforma net income                                                                                                                |  | $                          | 6,492  |   |                           | $
|                                                                                                                                   |  |                            |        |   |                           |  
|Earnings per share:                                                                                                                |  |                            |        |   |                           |  
|                                                                                                                                   |  |                            |        |   |                           |  
|Reported basic earnings per share                                                                                                  |  | $                          | 0.43   |   |                           | $
|                                                                                                                                   |  |                            |        |   |                           |  
|Proforma basic earnings per share                                                                                                  |  | $                          | 0.38   |   |                           | $
|                                                                                                                                   |  |                            |        |   |                           |  
|                                                                                                                                   |  |                            |        |  
|Reported diluted earnings per share                                                                                                |  | $                          | 0.42   |   |                           | $
|                                                                                                                                   |  |                            |        |   |                           |  
|Proforma diluted earnings per share                                                                                                |  | $                          | 0.36   |   |                           | $
|                                                                                                                                   |  |                            |        |   |                           |  



The fair value of
stock options and warrants was estimated on the date of grant using the Black-Scholes option pricing model using the following assumptions:



|                                         |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|---------------------------------------- |  | --------------------------- |  | -------------------------
|                                         |  | 2002                        |  | 2003                     
|Weighted-average risk-free interest rate |  | 4.6%                        |  | 2.4%                     
|Weighted-average dividend yield          |  | 0.0%                        |  | 0.0%                     
|Weighted-average volatility              |  | 40.2%                       |  | 44.3%                    
|Weighted-average expected life           |  | 3.0 years                   |  | 3.1 years                



During the three
months ended June 30, 2003, the Company awarded 164,300 shares of restricted stock under the 2002 Plan. The restricted shares were issued at no cost to the recipients; therefore, the Company recorded deferred compensation of approximately $2.9
million based on the market value of the stock at the date of issuance. The deferred compensation charge will be amortized to expense over the vesting period of the restricted stock. The restricted shares vest over a three-year period ending July 1,
2006, with acceleration of the vesting period occurring if a certain stock price or performance target is achieved. For the three and six months ended June 30, 2003, approximately $0.1 million of deferred compensation was amortized to expense.



Net Income Per Share:



Basic and diluted net income per common 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):



|                                                                                  |  | Three Months Ended June 30, |  | Six Months EndedJune 30,
|--------------------------------------------------------------------------------- |  | --------------------------- |  | ------------------------
|                                                                                  |  | 2002                        |  | 2003                    
|Basic weighted average common shares                                              |  | 17,304                      |  | 16,319                  
|Weighted average options, warrants, restricted stock and contingent consideration |  | 583                         |  | 62                      
|                                                                                  |  |                             |  |                         
|Diluted weighted average common shares                                            |  | 17,887                      |  | 16,381                  
|                                                                                  |  |                             |  |                         



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At June 30, 2002 and 2003, approximately 2.3 million and 3.7 million, 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 to future earnings per share calculations.



4. Strategic Realignment Plan



During the second and third quarters of 2001, the Company completed a
strategic realignment plan, in which the Company identified certain non-strategic service offerings for divestiture or closure. During the six months ended June 30, 2003, the activity related to the realignment plan consisted primarily of
settlements of legal claims and lease payments. The following table reflects the realignment activity for the six months ended June 30, 2003 (in millions):



|                            |  | January 1, 2003 |     | Settlements |   |      | June 30, 2003
|--------------------------- |  | --------------- | --- | ----------- | - | ---- | -------------
|Realignment Costs Liability |  | $               | 1.5 |             | $ | (0.4 | )            
|                            |  |                 |     |             |   |      |              



The June 30, 2003
realignment costs liability balance consists primarily of accrued litigation and lease payments.



5. Business Combinations



Goodwill
and Intangibles



The changes by segment in the carrying
value of goodwill and the components of intangibles are as follows (in thousands):



Goodwill:



|                                                 |  | InformationManagement andDistribution |         | Healthcare, Regulatoryand LegalCompliance |   |         | Total
|------------------------------------------------ |  | ------------------------------------- | ------- | ----------------------------------------- | - | ------- | -----
|Net balance as of January 1, 2003                |  | $                                     | 186,378 |                                           | $ | 130,878 |      
|Additional accrued consideration and adjustments |  |                                       | 4,575   |                                           |   | (94     | )    
|                                                 |  |                                       |         |                                           |   |         |      
|Net balance as of June 30, 2003                  |  | $                                     | 190,953 |                                           | $ | 130,784 |      
|                                                 |  |                                       |         |                                           |   |         |      



Intangibles:



|                       |  | June 30, 2003       
|---------------------- |  | --------------------
|                       |  | Gross Carrying Value
|Customer Relationships |  | $                   
|Non Compete Agreements |  |                     
|                       |  |                     
|Total                  |  | $                   
|                       |  |                     



Aggregate amortization
expense related to intangibles for the six months ended June 30, 2003 was $0.2 million. Estimated amortization expense for the periods ending December 31, 2003 through December 31, 2006 is $0.4 million annually. Thereafter, annual amortization
expense is estimated to be $0.3 million through December 31, 2016.



Contingent Consideration



Certain of the
Companys acquisitions are subject to adjustments in overall consideration and recorded goodwill based primarily upon the achievement of specified revenue and/or earnings targets generally over one to three year periods. During the first six
months of 2003, the Company paid consideration of $3.0 million in cash in relation to contingent consideration agreements that have been finalized.



In certain agreements, the Company has the option of changing the payment mix to use cash versus common stock in satisfying the liability. Upon review of
current market conditions, the Company finds it favorable to satisfy its currently recorded contingent consideration liabilities in cash rather than common stock. Managements evaluation of the cumulative earnings of acquired companies through
June 30, 2003 indicates that certain acquired companies have met specified earnings targets beyond a reasonable doubt; therefore, during the six months ended June 30, 2003 the Company accrued additional net consideration of approximately $4.5
million, which resulted in an



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increase to goodwill. As of June 30, 2003, the Companys total liability related to contingent consideration
agreements of past acquisitions is $9.2 million, of which $8.9 million is reported in accounts payable and accrued liabilities and is expected to be settled in cash, and $0.3 million is reported in additional paid-in-capital and is expected to be
settled in common stock.



Not all of the periods applicable for
the contingent consideration targets have been completed and additional amounts may be payable in future periods under the terms of the agreements. If all contingent consideration targets under the current agreements were achieved, the maximum
contingent consideration to be paid would be $19.4 million. In accordance with the agreements, the Company has the option to satisfy $17.1 million of the $19.4 million potential liability in common stock. The contingent consideration payments would
be made as outlined in the agreements and paid over the next two years, with the final payment being made in 2005.



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6. Segment Reporting



The Company aggregates its service offerings and operations into two reportable segments: (i) Information Management and Distribution, and (ii)
Healthcare, Regulatory, and Legal Compliance. The Companys reportable segments are organized around customer types and service offerings possessing similar economic characteristics. Management evaluates segment performance based on revenue and
income before income taxes. All centrally incurred corporate costs are allocated to the segments based principally on operating income. The reporting segments follow the same accounting policies used for the Companys consolidated financial
statements as described in the summary of significant accounting policies.



The identified segments are as follows:



Information Management and Distribution. This segment includes operations 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 and in-bound mail room services.



Healthcare, Regulatory and Legal Compliance. This segment includes operations that provide the following services: fulfillment of requests for
medical records information; off-site active storage of a healthcare institutions medical records; online delivery of images of selected medical records; temporary staffing services; providing managed care compliance reviews; legal claims
administration; and professional economic research services and litigation support.



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



|                           |  | THREE MONTHS ENDED JUNE 30, 2003    
|-------------------------- |  | ------------------------------------
|                           |  | InformationManagementandDistribution
|Revenue                    |  | $                                   
|Income before income taxes |  |                                     
|                           | 
|                           |  | THREE MONTHS ENDED JUNE 30, 2002    
|                           |  | InformationManagementandDistribution
|Revenue                    |  | $                                   
|Income before income taxes |  |                                     
|                           | 
|                           |  | SIX MONTHS ENDED JUNE 30, 2003      
|                           |  | InformationManagementandDistribution
|Revenue                    |  | $                                   
|Income before income taxes |  |                                     
|                           | 
|                           |  | SIX MONTHS ENDED JUNE 30, 2002      
|                           |  | InformationManagementandDistribution
|Revenue                    |  | $                                   
|Income before income taxes |  |                                     



7. Other Comprehensive Income
(Loss)



SFAS No. 130, Reporting Comprehensive
Income, establishes standards for reporting and display of comprehensive income and its components in the financial statements. The objective of SFAS No. 130 is to report a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions with owners. Comprehensive income is the total of net income and all other non-owner changes within a companys equity.



Other comprehensive income (loss) is defined as the change in equity during a
period from transactions and other events, except those resulting from investments by and distributions to stockholders. The components of comprehensive income (loss) for the three and six months ended June 30, 2002 and 2003 are as follows (in
thousands):



|                                                                                                            |  | Three Months Ended June 30, |       | Six Months Ended June 30,
|----------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----- | -------------------------
|                                                                                                            |  | 2002                        |       | 2003                     
|Net income                                                                                                  |  | $                           | 7,505 |                          
|Other comprehensive income (loss):                                                                          |  |                             |       |                          
|Change in fair value of interest rate swap, net of tax effect of $(91), $0, $(220) and $(219), respectively |  |                             | 66    |                          
|                                                                                                            |  |                             |       |                          
|Total comprehensive income                                                                                  |  | $                           | 7,571 |                          
|                                                                                                            |  |                             |       |                          



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|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- |  | -------------------------------------------------------------------------------------



The following discussion should be read in conjunction with our financial statements and the related notes thereto appearing elsewhere in this Report on
Form 10-Q.



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: financial services, government, legal, healthcare and transportation. We acquired the seven Founding Companies (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 of our Company.



Since the
IPO, we have acquired 65 companies and divested 17 operating units by sales or closures. 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.



Basis for Management
Discussion and Analysis



Revenue is characterized as
either project or recurring. Project revenue consists of one-time projects in which the customer relationship is not guaranteed to continue after project completion. Project revenue margins are usually higher than our average margins and the volumes
of project business can be highly volatile from period to period. Recurring revenue is characterized by customer relationships that are generally for one year and may continue for longer. Recurring revenue is typically based on transaction volumes
sent to us by our customers and these volumes are generally not contractually guaranteed. Recurring revenue generally has lower margins than project revenue and is usually more predictable. The difference between project and recurring revenue is
relevant to the discussion of profitability and margins.



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 compensation and related benefits to sales and marketing,
executive management, accounting, human resources and other administrative employees; other sales and marketing costs; communications costs; insurance costs; and legal and accounting professional fees and expenses.



Business Segments



We aggregate our service offerings and operations into two reportable segments: (i) Information Management and Distribution,
and (ii) Healthcare, Regulatory, and Legal Compliance. Our reportable segments are organized around customer types and service offerings possessing similar economic characteristics. Management evaluates segment performance based on revenue and
income before income taxes. All centrally incurred corporate costs are allocated to the segments based principally on operating income. The reporting segments follow the same accounting policies used for our consolidated financial statements as
described in the summary of significant accounting policies.



The identified segments are as follows:



Information Management and Distribution. This segment includes operations 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 and in-bound mail room services. For the three months ended June 30, 2002 and 2003, revenue in the Information Management and Distribution segment consisted of
approximately $56.7 million and $54.7 million of recurring revenue, respectively, and approximately $7.6 million and $6.5 million of project revenue, respectively. For the six months ended June 30, 2002 and 2003, revenue in the Information
Management and Distribution segment consisted of approximately $113.7 million and $112.0 million of recurring revenue, respectively and approximately $15.0 million and $14.1 million of project revenue, respectively.



Healthcare, Regulatory and Legal Compliance. This segment includes
operations that provide the following services: fulfillment of requests for medical records information; off-site active storage of a healthcare institutions medical records; online delivery of images of selected medical records; temporary
staffing services; providing managed care compliance reviews; legal claims administration; and professional economic research services and litigation support. During the three months ended June 30, 2002 and



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2003, revenue in the Healthcare, Regulatory and Legal Compliance segment consisted of approximately $15.8 million and
$15.3 million of recurring revenue, respectively, and approximately $25.6 million and $25.3 million of project revenue, respectively. During the six months ended June 30, 2002 and 2003, revenue in the Healthcare, Regulatory and Legal Compliance
segment consisted of approximately $31.4 million and $31.0 million of recurring revenue, respectively, and approximately $49.0 million and $54.2 million of project revenue, respectively.



THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003



|                  |  | Three Months Ended June 30,
|----------------- |  | ---------------------------
|                  |  | 2002                       
|                  |  | ($000s)                   
|Revenue           |  | $                          
|Gross Profit      |  |                            
|SG&A              |  |                            
|Operating income  |  |                            
|Income before tax |  |                            
|Net income        |  |                            



Revenue



Our operations generated revenues of $101.8 million for the three months
ended June 30, 2003, a decrease of 3.8% compared to the same period in 2002. Project revenue accounted for $31.8 million or 31.2% of revenue in the current quarter and $33.2 million or 31.3% of revenue in the prior year quarter. (See
Managements Discussion and Analysis of Financial Condition and Results of OperationsBasis for Management Discussion and Analysis.)



Revenue within our Information Management and Distribution segment decreased 4.8% from $64.3 million for the three months ended June 30, 2002 to $61.2
million for the three months ended June 30, 2003. Project revenue accounted for 10.7% of segment revenue in the second quarter of 2003 compared to 11.8% for the same period in 2002. Segment revenues were lower during the quarter principally due to
decreased volumes within our direct mail services, which were down $3.0 million or 26.7% compared to the prior year quarter. The volume decline within direct mail is primarily the result of unfavorable economic conditions and a highly competitive
environment throughout the direct mail industry. Additionally, the segment experienced declines in volumes from certain government services customers equal to approximately $1.9 million. The City of New York Human Resources Administration
(HRA) contract was fully transitioned to a new vendor during the quarter. For the three months ended June 30, 2003, HRA contributed approximately $1.9 million in revenue compared to $3.0 million in the prior year. The remaining portion
of the decline relates primarily to lower volumes with a single federal government customer. These declines were partially offset by higher volumes equal to approximately $1.8 million from our financial services customers.



Revenue within our Healthcare, Regulatory and Legal Compliance segment
decreased 2.2% from $41.4 million for the three months ended June 30, 2002 to $40.5 million for the three months ended June 30, 2003. Project revenue accounted for 62.2% of segment revenue in the second quarter of 2003 and 61.7% for the same period
in 2002. The decline in segment revenue resulted primarily from lower volumes in our claims administration service offering, which was down approximately $1.4 million due primarily to two project delays during the current quarter, compared with two
projects in full production during the prior year quarter that have since been completed. Also contributing to the decline were lower volumes in our healthcare businesses equal to approximately $1.9 million, partially due to customer compliance
issues with the new HIPAA regulations governing the release of medical records that are expected to be short-term in nature. Increased volumes, equal to approximately $2.0 million, within our legal consulting service offering mitigated these
declines.



Gross profit



Gross profit declined 5.6% from $38.8 million for the three months ended
June 30, 2002 to $36.7 million for the three months ended June 30, 2003. The decrease in gross profit was primarily related to the decline in revenue discussed above, combined with an unusually large medical claims expense of approximately $1.1
million and higher facilities costs of approximately $0.2 million. These items were partially offset by lower bad debt expense of $1.1 million compared to the prior year due to increased collections of accounts receivable balances outstanding
greater than ninety days. Gross profit as a percentage of revenue decreased from 36.7% for the three months ended June 30, 2002 to 36.0% for the three months ended June 30, 2003.



Selling, general and administrative expenses



SG&A increased 7.0% from $24.8 million, or 23.4% of revenue, for the three months ended June 30, 2002 to $26.5 million,



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or 26.0% of revenue, for the three months ended June 30, 2003. This is primarily due to increased personnel costs related
to our strategic sales and technology initiatives and increased professional fees.



Operating income



Operating income decreased
27.8% from $14.0 million, or 13.2% of revenue, for the three months ended June 30, 2002 to $10.1 million, or 9.9% of revenue, for the three months ended June 30, 2003. The decline in operating income was largely attributable to the decline in
revenue combined with the unusually large medical claims expense and higher personnel related expenses discussed above.



Income before income taxes and net income



Income before income taxes decreased 22.1% from $12.1 million for the three months ended June 30, 2002 to $9.4 million for the three months ended June 30,
2003, largely attributable to the items discussed above. Partially offsetting the decline in income before income taxes was lower interest expense and a gain on the disposal of property plant and equipment. Interest expense for the three months
ended June 30, 2003 declined $0.5 million compared to the same period in 2002 primarily due to the expiration of the interest rate swap on March 31, 2003, lower debt levels and more favorable interest rates. During the three months ended June 30,
2003, a gain of approximately $0.3 million was realized related to the sale of property, plant and equipment.



Net income decreased 24.6% from $7.5 million for the three months ended June 30, 2002 to $5.7 million for the three months ended June 30, 2003 due to the
items discussed above. The effective tax rate of 38.0% and 40.0% for the three months ended June 30, 2002 and 2003, respectively, differs from the statutory federal rate of 35.0% principally due to state and local taxes. The effective tax rate has
changed between the years principally due to the income mix shifting to higher tax states.



SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003



|                  |  | Six Months Ended June 30,
|----------------- |  | -------------------------
|                  |  | 2002                     
|                  |  | ($000s)                 
|Revenue           |  | $                        
|Gross Profit      |  |                          
|SG&A              |  |                          
|Operating income  |  |                          
|Income before tax |  |                          
|Net income        |  |                          



Revenue



Our operations generated revenues of $211.3 million for the six months ended
June 30, 2003, an increase of 1.1% compared to the same period in 2002. Project revenue increased $4.4 million from the prior year, resulting in a revenue mix shift between our project and recurring revenue. Project revenue accounted for 32.3% of
total revenue in the current year compared to 30.6% in the prior year. (See Managements Discussion and Analysis of Financial Condition and Results of OperationsBasis for Management Discussion and Analysis.)



Revenue within our Information Management and Distribution segment decreased
2.0% from $128.7 million for the six months ended June 30, 2002 to $126.1 million for the six months ended June 30, 2003. Project revenue accounted for 11.2% of segment revenue in the current year compared to 11.7% for the same period of 2002.
Segment revenues were lower during the current year as a result of decreased volumes within our direct mail services, which were down $3.1 million or 14.7% compared to the prior year. The volume decline within direct mail is primarily the result of
unfavorable economic conditions and a highly competitive environment throughout the direct mail industry. Additionally, the segment experienced declines in volumes from certain of its government services customers equal to approximately $2.3
million. The City of New York Human Resources Administration (HRA) contract was fully transitioned to a new vendor during the second quarter of 2003. For the six months ended June 30, 2003, HRA contributed $5.2 million in revenue
compared to $6.1 million during the six months ended June 30, 2002. The remaining portion of the decline relates primarily to lower volumes with a single federal government customer. These declines were partially offset by higher volumes equal to
approximately $2.8 million from our financial services customers.



Revenue within our Healthcare, Regulatory and Legal Compliance segment increased 6.0% from $80.4 million for the six months ended June 30, 2002 to $85.2 million for the six months ended June 30, 2003. Project revenue accounted for 63.6% of
segment revenue for the six months ended June 30, 2003 compared to 60.9% for the same period in 2002. The increase in segment revenue was primarily a result of increased volumes equal to approximately $6.0 million within our legal consulting service
offering due to three significant projects in production during the first six months of 2003. Volumes within our claims administration service offering were essentially level with the prior year. Volumes in our healthcare service offering
experienced a decline equal to approximately $1.5 million due partially to customer compliance issues with the new HIPAA regulations governing the release of medical records that are expected to be short-term in nature.



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Gross profit



Gross profit increased 2.2% from $76.4 million for the six months ended June 30, 2002 to $78.1 million for the six months ended June 30, 2003. The
increase in gross profit was primarily the result of an increase in revenue, driven largely by increases in volumes within our legal consulting service offering, which typically produce higher margins. Also contributing to the higher gross profit
was lower bad debt expense of $1.8 million compared to the prior year due to increased collections of accounts receivable balances outstanding greater than ninety days. These items were partially offset by higher facilities costs of approximately
$0.5 million in the current year combined with an unusually large medical claims expense of approximately $1.1 million incurred during the second quarter of 2003. As a result, gross profit as a percentage of revenue increased from 36.6% for the six
months ended June 30, 2002 to 37.0% for the six months ended June 30, 2003.



Selling, general and administrative expenses



SG&A increased 3.7% from $51.0 million, or 24.4% of revenue, for the six months ended June 30, 2002 to $52.9 million, or 25.0% of revenue, for the six months ended June 30, 2003. This is primarily due to increased personnel costs
related to our strategic sales and technology initiatives and increased professional fees.



Operating income



Operating income decreased 0.8% from $25.2 million, or 12.1% of revenue, for the six months ended June 30, 2002 to $25.0 million, or 11.9% of revenue, for the six months ended June 30, 2003. The decline in operating income was the result of
the unusually large medical insurance claims expense, higher personnel related costs and professional fees partially offset by increased revenue.



Income before income taxes and net income



Income before income taxes increased 5.8% from $21.8 million for the six months ended June 30, 2002 to $23.1 million for the six months ended June 30,
2003 largely attributable to the items discussed above. Also contributing to the increase in income before taxes were lower interest expense, higher interest income and a gain on the sale of property plant and equipment. Interest expense for the six
months ended June 30, 2003 declined approximately $0.6 million compared to the same period in 2002 due primarily to the expiration of the interest rate swap on March 31, 2003, lower debt levels and more favorable interest rates. Interest income
increased $0.2 million during the current year due to the collection of a $2.3 million income tax receivable. During the six months ended June 30, 2003, a gain of approximately $0.3 million was realized related to the sale of property, plant and
equipment.



Net income increased 2.4% from $13.5 million for
the six months ended June 30, 2002 to $13.8 million for the six months ended June 30, 2003, largely attributable to the items discussed above. The effective tax rate of 38.0% and 40.0% for the six months ended June 30, 2002 and 2003, respectively,
differs from the statutory federal rate of 35.0% principally due to state and local taxes. The effective tax rate has changed between the years principally due to the income mix shifting to higher tax states.



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LIQUIDITY AND CAPITAL RESOURCES



At June 30, 2003, we had $20.4 million of working capital, including $2.7 million of cash. Working capital at December 31,
2002 was $39.0 million, including $3.2 million of cash. For the first six months of 2003, cash provided by operating activities was $40.2 million compared to $23.5 million for the same period in 2002. Significant collections of accounts receivable
balances and the receipt of $2.3 million of income tax refunds in the current year were key drivers for the increase in operating cash flow. Other factors contributing to the increased operating cash flow include lower tax payments compared to the
prior year due to effective tax planning combined with the early receipt of approximately $4.8 million in customer deposits in the second quarter of 2003 related to claims administration projects scheduled to begin in the third quarter of 2003. It
is expected that full year 2003 operating cash flow will be in the range of $60 million to $65 million.



For the six months ended June 30, 2003, investing activities consisted of additions to property, plant and equipment of $6.5 million, proceeds from sale
of property, plant and equipment of $0.4 million, and acquisition related payments of $3.0 million. Capital expenditures were primarily driven by technological investments within our information management service offering. Acquisition related
payments consist of cash payments of $3.0 million for contingent consideration agreements of past acquisitions. It is expected that we will pay an additional $8.9 million in cash for contingent consideration agreements during the remainder of 2003.



Net cash used by financing activities was $31.5 million for
the six months ended June 30, 2003. During 2003, we activated the $30.0 million stock repurchase program authorized by our Board of Directors in April 2001. During the six months ended June 30, 2003, we purchased 1,198,179 shares of our common stock
at a cost of approximately $18.1 million. These payments were offset by $112.0 million in proceeds from our line of credit, net of payments of $125.1 million. In addition, we paid $0.3 million in fees related to amending the terms of our credit
agreement and extending the credit facility for an additional year, which is discussed below.



In April 2001, we entered into our line of credit agreement with a group of banks led by Bank of America, SunTrust Bank and Wells Fargo Bank, as co-agents (the 2001 Credit Agreement). Under the agreement,
we can borrow up to $297.5 million through April 2, 2004. In 2002, member banks extended $290.0 million of the commitment through April 1, 2005. Effective April 3, 2003, member banks extended $230.0 million of the commitment for an additional year
to April 1, 2006. Our ability to borrow under the agreement is subject to 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.



Management believes that it
has sufficient liquidity from its cash flow and its revolving credit facility to meet ongoing business needs. However, our ability to borrow is contingent on certain leverage and fixed cost coverage ratios. After application of such ratios and our
total commercial commitments of $10.9 million for standby letters of credit and our current outstanding borrowings of $76.6 million, we had $77.9 million available to borrow under our 2001 Credit Agreement as of June 30, 2003. In September 2002, an
amendment was approved that extended the fixed cost coverage ratio requirement of 1.25 until January 1, 2004. This ratio was set to become more restrictive in the fourth quarter of 2002 by increasing to 1.50. Under the amended agreement, the fixed
cost ratio will remain at 1.25 until January 1, 2004 and will increase to 1.35 at all times thereafter. Effective March 26, 2003, an amendment was approved that allows for a reduction to the minimum net worth requirement for up to $30 million of
share repurchases. Additionally, depending on the mix of stock and cash used in our strategic acquisition program, 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 1,410,444 shares were available as of June 30, 2003. The shares available have not been reduced for any shares that may be issuable in the future to previous owners of acquired companies as
contingent consideration liabilities.



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Critical Accounting Policies



Managements Discussion and Analysis of Financial Condition and Results of Operations are based on the related
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the financial statements requires the use of estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses.



We have 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
our financial condition or results of operations under different conditions or using different assumptions. We apply a consistent methodology at the end of each quarter to determine our account balances that require judgmental analysis.



Allowance for Doubtful Accounts



The allowance for doubtful accounts is established and maintained based on
our estimate of accounts receivable collectibility. Management estimates collectibility by specifically analyzing accounts receivable and other historical factors that affect collections. 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 our
consolidated financial statements.



Goodwill and Intangible Assets



We adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, on January 1, 2002. Upon the adoption of SFAS No. 142, goodwill and other intangible assets that have indefinite useful lives are not amortized but rather
are tested at least annually for impairment. At January 1, 2002, we compared the fair values of the reporting units to their carrying values. In determining the fair values of the operating units, we used the discounted cash flow method and the
market value approach method. Since the fair value of each reporting unit exceeded the carrying value, no impairment was recorded at January 1, 2002. In October 2002, we performed the annual test for impairment using the discounted cash flow method
and the market value approach method. Since the fair value of each reporting unit exceeded the carrying value, no impairment was recorded.



Other intangible assets with definite lives will continue to be amortized over their useful lives. Impairment will be evaluated when events or changes in
circumstances indicate that the carrying value may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.



Long-Lived Asset Impairment



We adopted the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, on January 1, 2002. As required by SFAS
No. 144, management continually evaluates whether events and circumstances indicate that the carrying value of long-lived assets may not be recoverable. When events require, management makes the valuation by comparing the estimated undiscounted
future cash flows over the remaining life of the long-lived assets to the carrying amount of the asset 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 believes that during the six months ended June 30, 2003, no facts or circumstances existed that required evaluation of potential impairment.



Revenue Recognition



We recognize our revenue as it becomes realized or realizable and earned according to the criteria provided by Staff Accounting Bulletin 101, Revenue
Recognition in Financial Statements. Revenue recognition occurs once persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed or otherwise determinable, and collection is
reasonably assured. Our revenue-earnings activities possess both project and recurring customer relationships.



Project revenue includes one-time projects in which the customer relationship is not expected to continue after project completion. Project revenue is
typically based on time and material arrangements. Revenue recognition occurs at the contractual rates as the labor hours and direct expenses are incurred. Project revenue represented approximately 33% of total 2002 revenues and typically occurs
within our Healthcare, Regulatory, and Legal Compliance segment.



Recurring revenue is characterized by customer relationships that are generally for one year and may continue for longer. Recurring revenue is typically based on the transaction volumes provided by our customer at an agreed upon fixed rate
per unit. Our customers volumes are typically not contractual or otherwise guaranteed. Revenue recognition occurs once work is completed and delivery has occurred or services have been rendered. Recurring revenue represented the remaining 67%
of total 2002 revenues and typically occurs within our Information Management and Distribution segment.



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As a part of providing services to our customers, we incur incidental expenses commonly referred to as
out-of-pocket expenses. These expenses include items such as airfare, hotels, and mileage and are often reimbursable by our customers. When reimbursable, we record both revenue and direct cost of services in accordance with the
provisions of Emerging Issues Task Force (EITF) Issue 01-14, Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred.



Unearned income, included in accounts payable and accrued liabilities,
represents payments from our customers in advance of services being provided. Advanced payments are deferred as unearned income when received and recognized as revenue as services are rendered.



Self-Insurance Liabilities and Reserves



We are self-insured for workmens compensation liabilities and a
significant portion of our employee medical costs. We account for our self-insurance programs based on actuarial estimates of the amount of loss inherent in that periods claims, including losses for which claims have not been reported. These
loss estimates rely on actuarial observations of ultimate loss experience for similar historical events. We limit our risk by carrying stop-loss policies and aggregate claim limits for significant claims incurred for both workmens compensation
liabilities and medical costs.



Other Loss Contingencies



We record liabilities when it is probable that a liability has been incurred
and the amount of the loss is reasonably estimable in accordance with SFAS No. 5,Accounting for Contingencies. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision.
Contingent liabilities are often resolved over long periods of time. Estimating probable losses requires analysis of multiple forecasts that often depend on judgments about potential actions by third parties such as regulators.



Stock Based Compensation



We have elected to follow Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees. Under APB No. 25, compensation expense is recorded when the exercise price of employee stock options is less than the fair value of the underlying stock on the measurement
date. We have adopted the disclosure-only provisions of SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. See Note 3, Stockholders Equity and Stock-Based Compensation, of the Notes to Condensed
Consolidated Financial Statements.



Recent Accounting Pronouncements



In April 2003, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No, 133,Accounting for Derivative Instruments and Hedging Activities and is effective for
contracts entered into or modified after June 30, 2003. We adopted the provisions of SFAS No. 149 on July 1, 2003 and such adoption did not have a material impact on the consolidated financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and is
effective for financial instruments entered into or modified after May 31, 2003. The provisions of SFAS No. 150, which we adopted on June 1, 2003, did not have a material impact on the consolidated financial statements.



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RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS



This Report contains certain forward-looking statements such as our intentions, hopes, 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 1933, 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, of an adverse outcome in any given legal proceeding or claim, of the denial of insurance on a particular claim or of a party obligated to provide indemnification being financially
unable to do so, as well as such other risks set forth under the heading Risk Factors included in our most recent annual report on Form 10-K.



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. Further, we disclaim any obligation to update any such forward-looking statements, except as required
by law.



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|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk
|------- |  | ----------------------------------------------------------



We are subject to interest rate risk on our term loans, revolving credit facility and Industrial Revenue Bonds. Interest rates are fixed on the
capitalized lease obligations. We entered into an interest rate swap for a notional amount of $50 million to hedge, through March 31, 2003, our exposure to fluctuations in interest rates on $50 million of our revolving credit facility. We designated
the swap as a cash flow hedge. The interest rate swap expired on March 31, 2003 and was not replaced.



A 100 basis point increase in short-term interest rates would result in approximately $0.4 million of additional expense in 2003 based on our expected
average balance outstanding under the credit facility during 2003.



|Item 4. |  | Controls and Procedures
|------- |  | -----------------------



(a)
Evaluation of Disclosure Controls and Procedures



The
Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and procedures as of the end of the period covered by
this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures as of the end of the period covered by this report have been designed and are
functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms. The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.



(b) Change in Internal Control over Financial Reporting



No change in the Companys internal control over financial reporting occurred during the Companys most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION



|Item 1. |  | Legal Proceedings
|------- |  | -----------------



We are, from time to time, a party to litigation arising in the normal course of business. The following is a brief description of five of the legal matters that we are involved in. We do not believe these actions, nor any of the actions
that we are a party to, will have a material adverse effect on our business or financial condition, however in the event of an adverse outcome in one or more of our legal proceedings, operating results for a given quarter may be negatively impacted.



Roy Weatherford, et al vs. Franklin Bank and Franklin Bank vs. MAVRICC
Management Systems, Inc.



On February 24, 1992, MAVRICC
Management Systems, Inc. (one of our wholly-owned subsidiaries, the operating assets of which were divested by us as part of our 2001 strategic realignment plan) (MAVRICC) entered into an agreement with Franklin Bank, N.A. whereby
MAVRICC agreed to maintain records for individual IRAs and Keogh Plans and to perform certain activities (specifically described in the contract) necessary to assist Franklin Bank, N.A. in serving as a custodian for specific IRAs. On August 6, 2001,
Plaintiffs Roy Weatherford, Lois Weatherford, James L. Loper and Alma D. Owen initiated a class action lawsuit against Franklin Bank, N.A. in Tennessees Sumner County Circuit Court, Chancellory Division, alleging breach of fiduciary duty,
breach of contract, negligence and violation of the Consumer Protection Act. The Weatherford complaint seeks compensatory and punitive damages from Franklin Bank, N.A. On September 28, 2001, Franklin Bank, N.A. filed its Third-Party Complaint
against MAVRICC for indemnification, alleging that MAVRICC breached the agreement. On February 27, 2003, the parties to this action filed an agreed order of dismissal without prejudice, which the court entered on March 10, 2003. The order dismisses
both the complaint against Franklin Bank and Franklin Banks Third Party Complaint against MAVRICC; however, as the complaints are dismissed without prejudice, it is possible for such parties to later reassert such claims. We believe that if
such claims were reasserted, we would have meritorious defenses and would vigorously defend any such claims made against us in this matter.



Healthcare Marketing Associates, Inc. vs. Managed Care Professionals, Inc.



On February 9, 1995, prior to the acquisition by the Company, Managed Care Professionals, Inc. (one of our wholly-owned
subsidiaries) (MCP) entered into an Exclusive Marketing Agreement with Healthcare Marketing Associates, Inc. (HMA) whereby MCP granted to HMA the exclusive right to market, and HMA agreed to market exclusively for
MCP, the MCP products and services to health care providers in the United States for which MCP agreed to pay HMA a percentage (30%) of gross revenues paid to MCP by the provider (customer). The duration of the Agreement was for a period of five (5)
years and expired on February 9, 2000 (Termination Date). On April 27, 2001, HMA filed a lawsuit against MCP in the Circuit Court of the County of St. Louis, State of Missouri, alleging entitlement to commissions on revenues generated
from providers after the Termination Date who were initially brought to MCP prior to the Termination Date. On August 26, 2002, our motion for summary judgment was denied. In March 2003, this lawsuit was tried before a judge and at the conclusion of
the trial, the judge ruled in the plaintiffs favor in the amount of $1.782 million plus prejudgment interest, which equates to approximately $2.2 million in total as of March 5, 2003. The judgment amount plus prejudgment interest costs were
included in our 2002 results. We intend to appeal this ruling and have filed a notice of appeal in this matter. We believe we have meritorious points of error for appeal and intend to continue to vigorously defend the claims made against us in this
matter.



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##### Table of Contents

Various ROI Copy Charge Matters



From time to time, various of our subsidiaries that perform release of information (ROI) services become
defendants to putative class action lawsuits generally alleging that the charge for reproducing certain medical records is not in conformity with such plaintiffs reading of the applicable regulated charge. Such suits typically include multiple
ROI companies and hospitals as defendants and demand reimbursement for prior charges as well as for prospective pricing adjustments. We are currently a party to several such suits in various stages of development. We believe we have meritorious
defenses and intend to continue to vigorously defend any claims made against us in these matters.



Mattel v. SOURCECORP



On February 18, 2003, Mattel, Inc. filed suit against the Company in the Los Angeles County California Superior Court. In the suit, the plaintiff alleges that one of our subsidiaries is liable for the loss of various products and prototypes
allegedly stored at one of our subsidiarys box storage facilities under theories of breach of contract, breach of fiduciary duty, negligence, breach of implied covenants of good faith and fair dealing and/or conversion. The plaintiff has not
stated their damages, but alleges they are in excess of $2.5 million. We believe we have meritorious defenses and intend to vigorously defend any claims made against us in this matter.



Spohr, et. al. v. F.Y.I. Incorporated, et. al.



In June 2000, the Company filed an action styled F.Y.I. Incorporated v. Spohr, et. al. in Dallas, Texas, in which we
asserted claims for breach of contract, fraud, and negligent misrepresentation against the sellers of two related companies that we acquired in December 1998 (the Texas Action). The Texas Action was later removed to federal court and
ultimately dismissed on jurisdictional grounds. We reasserted these claims in two actions that were later consolidated; one styled F.Y.I. Incorporated v. Spohr, et. al. in Superior Court of the State of California in the County of Sacramento,
Case No. 01-AS-00721 (the Sacramento Action) and one styled Spohr, et. al. v. F.Y.I. Incorporated, et. al. in the Superior Court of the State of California in the County of San Francisco, Case No. 318703 (the San Francisco
Action). In the consolidated action, we additionally filed claims against the sellers accountants and the two sellers filed claims against us. Specifically, the sellers allege that our former subsidiary wrongfully failed and refused to
execute and deliver a requested estoppel certificate, and that the failure to provide such estoppel certificate harmed the landlord in that they were allegedly denied favorable terms on a refinancing of the property and were allegedly prevented from
completing a timely sale of the property. Sellers allege damages of approximately $1.5 million. We have asserted damages in excess of $8 million. We believe we have meritorious defenses to sellers claims and intend to vigorously defend
any claims made against us in this matter.



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##### Table of Contents

|Item 6. |  | Exhibits and Reports on Form 8-K
|------- |  | --------------------------------



(a) Exhibits



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

Employment Agreement dated May 21, 2003 by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P., and W. Bryan Hill10.2

Employment Agreement dated July 15, 2003 by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P., and Kerry D. Walbridge10.3

Amended and Restated Employment Agreement dated July 31, 2003 by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P., and Michael S. Rupe10.4

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)10.5

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)10.6

Second Amendment to Credit Agreement, dated as of September 27, 2002 between SOURCECORP, 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, 2002)10.7

Third Amendment to Credit Agreement, dated as of March 26, 2003 by and among SOURCECORP, Incorporated, Bank of America, N.A., and the other Agents and Lenders party hereto
(Incorporated by reference to Exhibit 10.1 to the Companys Form 10-Q filed May 13, 2003)10.8

Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of Bank of America, N.A. (Incorporated by reference to Exhibit 10.86 to the Companys Form 10-K filed March 31, 2003)10.9

Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of SunTrust Bank (Incorporated by reference to Exhibit 10.87 to the Companys Form 10-K filed March 31, 2003)10.10

Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of BNP Paribas (Incorporated by reference to Exhibit 10.88 to the Companys Form 10-K filed March 31, 2003)10.11

Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of First Union National Bank (Incorporated by reference to Exhibit 10.89 to the Companys Form 10-K filed March 31, 2003)10.12

Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of The Bank of Nova Scotia (Incorporated by reference to Exhibit 10.90 to the Companys Form 10-K filed March 31, 2003)




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10.13

Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of JPMorgan Chase Bank formerly known as The Chase Manhattan Bank (Incorporated by reference to Exhibit 10.91 to the Companys Form 10-K filed March 31, 2003)10.14

Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of Wachovia Bank, N.A. (Incorporated by reference to Exhibit 10.92 to the Companys Form 10-K filed March 31, 2003)10.15

Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of Washington Mutual Bank (Incorporated by reference to Exhibit 10.93 to the Companys Form 10-K filed March 31, 2003)10.16

Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of Wells Fargo Bank Texas, National Association (Incorporated by reference to Exhibit 10.94 to the Companys Form 10-K filed March 31, 2003)10.17

Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of Bank One, NA (Incorporated by reference to Exhibit 10.95 to the Companys Form 10-K filed March 31, 2003)10.18

Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of Texas Capital Bank, National Association (Incorporated by reference to Exhibit 10.96 to the Companys Form 10-K filed March 31, 2003)10.19

Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of Bank of America, N.A. (Incorporated by reference to Exhibit 10.7 to the Companys Form 10-Q filed May 13, 2003)10.20

Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of The Bank of Nova Scotia (Incorporated by reference to Exhibit 10.8 to the Companys Form 10-Q filed May 13, 2003)10.21

Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of Bank One, N.A. (Incorporated by reference to Exhibit 10.9 to the Companys Form 10-Q filed May 13, 2003)10.22

Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of BNP Paribas (Incorporated by reference to Exhibit 10.10 to the Companys Form 10-Q filed May 13, 2003)10.23

Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of JPMorgan Chase Bank (Incorporated by reference to Exhibit 10.11 to the Companys Form 10-Q filed May 13, 2003)10.24

Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of Suntrust Bank (Incorporated by reference to Exhibit 10.12 to the Companys Form 10-Q filed May 13, 2003)10.25

Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of Washington Mutual Bank (Incorporated by reference to Exhibit 10.13 to the Companys Form 10-Q filed May 13, 2003).10.26

Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 10.14 to the Companys Form 10-Q filed May 13, 2003)10.27

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)10.28

SOURCECORP, Incorporated 2002 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.4 to the Companys Form 10-Q filed August 14, 2002)31.1

Certification Pursuant to section 302 of Sarbanes-Oxley Act.31.2

Certification Pursuant to section 302 of Sarbanes-Oxley Act.32.1

Certification Pursuant to section 906 of Sarbanes-Oxley Act.




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32.2

Certification Pursuant to section 906 of Sarbanes-Oxley Act.




(b) Reports on Form 8-K



On May 7, 2003, the Company
filed a Current Report on Form 8-K with the Commission dated May 7, 2003, reporting, under Item 9 and Item 12 thereto, the filing of a press release to announce its financial results for the first quarter ended March 31, 2003.



On August 6, 2003, the Company filed a Current Report on Form 8-K with the
Commission date August 6, 2003, reporting, under Item 5 and Item 7 thereto, the filing of a press release to announce the departure of the Companys Chief Operating Officer and reporting, under Item 7 and Item 12 thereto, the filing of a press
release to announce its financial results for the second quarter ended June 30, 2003.



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SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.



|                      |  |  |  | SOURCECORP, INCORPORATED
|--------------------- |  |  |  | ------------------------
|                      |  |  | 
|Date: August 13, 2003 |  |  |  | By:                     
|                      |  |  |  |                         

|                      |  |  | 
|--------------------- |  |  | 
|Date: August 13, 2003 |  |  | 
|                      |  |  | 



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INDEX TO EXHIBITS



|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                            
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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          |  | Employment Agreement dated May 21, 2003 by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P., and W. Bryan Hill                                                                                                                                                                                        
|              | 
|10.2          |  | Employment Agreement dated July 15, 2003 by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P., and Kerry D. Walbridge                                                                                                                                                                                  
|              | 
|10.3          |  | Amended and Restated Employment Agreement dated July 31, 2003 by and between SOURCECORP, Incorporated, SOURCECORP Management, L.P., and Michael S. Rupe                                                                                                                                                                
|              | 
|10.4          |  | 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)                                                                                 
|              | 
|10.5          |  | 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)                                                               
|              | 
|10.6          |  | Second Amendment to Credit Agreement, dated as of September 27, 2002 between SOURCECORP, 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, 2002)                                                         
|              | 
|10.7          |  | Third Amendment to Credit Agreement, dated as of March 26, 2003 by and among SOURCECORP, Incorporated, Bank of America, N.A., and the other Agents and Lenders party hereto
(Incorporated by reference to Exhibit 10.1 to the Companys Form 10-Q filed May 13, 2003)                                                  
|              | 
|10.8          |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of Bank of America, N.A. (Incorporated by reference to Exhibit 10.86 to the Companys Form 10-K filed March 31, 2003)    
|              | 
|10.9          |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of SunTrust Bank (Incorporated by reference to Exhibit 10.87 to the Companys Form 10-K filed March 31, 2003)            
|              | 
|10.10         |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of BNP Paribas (Incorporated by reference to Exhibit 10.88 to the Companys Form 10-K filed March 31, 2003)              
|              | 
|10.11         |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of First Union National Bank (Incorporated by reference to Exhibit 10.89 to the Companys Form 10-K filed March 31, 2003)
|              | 
|10.12         |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of The Bank of Nova Scotia (Incorporated by reference to Exhibit 10.90 to the Companys Form 10-K filed March 31, 2003)  



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|10.13 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of JPMorgan Chase Bank formerly known as The Chase Manhattan Bank (Incorporated by reference to Exhibit 10.91 to the Companys Form 10-K filed March 31, 2003)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.14 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of Wachovia Bank, N.A. (Incorporated by reference to Exhibit 10.92 to the Companys Form 10-K filed March 31, 2003)                                           
|      | 
|10.15 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of Washington Mutual Bank (Incorporated by reference to Exhibit 10.93 to the Companys Form 10-K filed March 31, 2003)                                        
|      | 
|10.16 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of Wells Fargo Bank Texas, National Association (Incorporated by reference to Exhibit 10.94 to the Companys Form 10-K filed March 31, 2003)                  
|      | 
|10.17 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of Bank One, NA (Incorporated by reference to Exhibit 10.95 to the Companys Form 10-K filed March 31, 2003)                                                  
|      | 
|10.18 |  | Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed
on behalf of Texas Capital Bank, National Association (Incorporated by reference to Exhibit 10.96 to the Companys Form 10-K filed March 31, 2003)                      
|      | 
|10.19 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of Bank of America, N.A (Incorporated by reference to Exhibit 10.7 to the Companys Form 10-Q filed May 13, 2003)                                              
|      | 
|10.20 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of The Bank of Nova Scotia (Incorporated by reference to Exhibit 10.8 to the Companys Form 10-Q filed May 13, 2003)                                           
|      | 
|10.21 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of Bank One, N.A. (Incorporated by reference to Exhibit 10.9 to the Companys Form 10-Q filed May 13, 2003)                                                    
|      | 
|10.22 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of BNP Paribas (Incorporated by reference to Exhibit 10.10 to the Companys Form 10-Q filed May 13, 2003)                                                      
|      | 
|10.23 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of JPMorgan Chase Bank (Incorporated by reference to Exhibit 10.11 to the Companys Form 10-Q filed May 13, 2003)                                              
|      | 
|10.24 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of Suntrust Bank (Incorporated by reference to Exhibit 10.12 to the Companys Form 10-Q filed May 13, 2003)                                                    
|      | 
|10.25 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of Washington Mutual Bank (Incorporated by reference to Exhibit 10.13 to the Companys Form 10-Q filed May 13, 2003).                                          
|      | 
|10.26 |  | Extension Agreement, effective April 3, 2003 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A. and Bank of America Securities LLC, executed
on behalf of Wells Fargo Bank, N.A. (Incorporated by reference to Exhibit 10.14 to the Companys Form 10-Q filed May 13, 2003)                                           
|      | 
|10.27 |  | 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)                                                                                                                                                           
|      | 
|10.28 |  | SOURCECORP, Incorporated 2002 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.4 to the Companys Form 10-Q filed August 14, 2002)                                                                                                                                                                                                         
|      | 
|31.1  |  | Certification Pursuant to section 302 of Sarbanes-Oxley Act.                                                                                                                                                                                                                                                                                                
|      | 
|31.2  |  | Certification Pursuant to section 302 of Sarbanes-Oxley Act.                                                                                                                                                                                                                                                                                                
|      | 
|32.1  |  | Certification Pursuant to section 906 of Sarbanes-Oxley Act.                                                                                                                                                                                                                                                                                                



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|32.2 |  | Certification Pursuant to section 906 of Sarbanes-Oxley Act.
|---- |  | ------------------------------------------------------------



30