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SOURCECORP, Incorporated 2001 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

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

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

DELAWARE	75-2560895
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3232 MCKINNEY AVE., SUITE 1000, DALLAS, TEXAS	75204
(Address of principal executive offices)	(zip code)

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

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

TITLE OF EACH CLASS	NAME OF EACH EXCHANGE ON WHICH REGISTERED
None	None

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

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

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

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [    ]

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [X] No [    ]

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

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

DOCUMENTS INCORPORATED BY REFERENCE:

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

SOURCECORP, Incorporated

2001 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

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

PART I

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

ITEM 1. Business

General

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

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

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

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

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

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

Business Strategy

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

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

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

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

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

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

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

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

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

Acquisition and Divestiture Strategy

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

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

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

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

Services Offered

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

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

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

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

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

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

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

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

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

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

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

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

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

Sales and Marketing

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

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

Competition

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

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

Employees

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

Our Executive Officers

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

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

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

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

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

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

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

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

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

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

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

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

RISK FACTORS

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

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

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

Any future acquisitions will require financing

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

The price of our common stock may be volatile

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

We depend on certain client industries

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

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

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

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

We face intense competition

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

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

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

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

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

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

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

We depend on our personnel

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

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

We may be liable for breach of confidentiality

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

We may have business interruptions

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

Government regulations may hinder our ability to change prices

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

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

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

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

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

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

HIPPA regulations

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

We may have future goodwill impairments

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

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

Our financial covenants become more restrictive in the future

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

Future sales of our shares may adversely affect our stock price

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

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

We may have environmental liabilities in the future

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

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

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

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

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

ITEM 2. Properties

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

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

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

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

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

ITEM 3. Legal Proceedings

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

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

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

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PART II

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

Market Information

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

		High		Low
Fiscal Year 2000
	First Quarter	$	35.00	$	24.88
	Second Quarter	$	34.25	$	26.00
	Third Quarter	$	40.38	$	32.88
	Fourth Quarter	$	42.13	$	29.13
Fiscal Year 2001
	First Quarter	$	36.63	$	30.38
	Second Quarter	$	44.23	$	31.19
	Third Quarter	$	42.48	$	34.20
	Fourth Quarter	$	39.05	$	28.04
Fiscal Year 2002
	First Quarter (through February 28, 2002)	$	33.28	$	22.65

Holders

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

Dividends

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

ITEM 6. Selected Financial Data

Selected Financial Data

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

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

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

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

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

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

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

		1997		1998			1999		2000		2001
Statement of Operations Data:
Revenue		$	177,272	$	240,906		$	350,044	$	457,590	$	441,963
Cost of services			112,161		147,964			213,928		272,823		260,128
Special charges(7)			—		—			—		—		417
Depreciation			3,730		5,889			8,815		13,802		14,632
	Gross profit		61,381		87,053			127,301		170,965		166,786
Selling, general and administrative expenses(1)(2)			37,956		55,594			78,577		100,456		101,249
Gain on sale of assets of subsidiary, net(3)			—		(4,394	)		—		—		—
Special charges(7)			—		—			—		—		62,167
Amortization(4)			1,835		4,845			4,748		8,554		10,032
	Operating income (loss)(1)		21,590		31,008			43,976		61,955		(6,662	)
Interest and other (income) expense, net(5)(8)			1,176		990			3,975		8,927		9,363
Income (loss) before income taxes(1)(5)			20,414		30,018			40,001		53,028		(16,025	)
Provision for income taxes(6)			8,266		12,007			16,000		20,927		2,124
Net income (loss)(1)(5)(6)		$	12,148	$	18,011		$	24,001	$	32,101	$	(18,149	)
Net income (loss) per common share
	Basic(1)(5)(6)	$	1.01	$	1.35		$	1.70	$	2.10	$	(1.08	)
	Diluted(1)(5)(6)	$	1.00	$	1.31		$	1.60	$	2.00	$	(1.08	)
Weighted average common shares outstanding
	Basic		12,018		13,370			14,149		15,284		16,748
	Diluted		12,196		13,731			14,990		16,065		16,748
Balance Sheet Data:
Working capital		$	26,642	$	37,793		$	20,113	$	55,920	$	58,534
Total assets			139,106		206,970			369,355		454,709		463,071
Long-term obligations, net of current maturities			5,892		31,498			85,172		123,784		116,055
Stockholders' equity			107,564		138,735			175,009		253,392		271,173

(1)

Gives effect to certain compensation adjustments related to the difference between employment agreements and the compensation levels prior to the consummation of the Acquisitions for the years ended December 31, 1997 and 1998.

(2)

Selling, general and administrative expenses for the year ended December 31, 1998 include charges totaling $2.5 million relating to: (i) severance and other costs, $1.7 million; (ii) facilities closing costs, $0.5 million; and (iii) other write-downs and impairments, $0.3 million

(3)

Reports the gain on the sale of assets of Leonard Archives Acquisition Corp. ("Leonard") for the year ended December 31, 1998. The gain on the sale, net of other charges included in (2) and (4), was $145,000 before taxes.

(4)

Amortization for the year ended December 31, 1998 includes acceleration of goodwill amortization of $1.8 million.

(5)

Interest expense for the year ended December 31, 1997, includes the write-off of approximately $1.2 million ($0.7 million, net of taxes, and $0.07 per share) of unamortized debt issuance costs related to our Credit Agreement in place at the time.

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(6)

Gives effect to certain tax adjustments related to the taxation Pooled Companies as S corporations or sole proprietorships prior to the consummation of the Acquisitions and the tax impact of the compensation difference for the periods ended December 31, 1997 and 1998.

(7)

Reports the loss on sale of non-strategic operating units divested for the year ended December 31, 2001. The special charges include $55.4 million for the loss on sale of assets, $5.7 million for costs to exit non-strategic locations, and $1.5 million for one-time legal charges. See Note 3 of Notes to Consolidated Financial Statements.

(8)

Interest expense for the year ended December 31, 2001 includes $0.5 million for write-down of deferred financing costs due to refinancing long-term obligations.

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

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

Introduction

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

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

Significant Developments

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

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

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

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

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

Business Segments

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

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

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

Basis for Management Discussion and Analysis

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

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

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

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Results of Operations

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

		Year Ended December 31,
		1999		2000		2001
Revenue		100.0	%	100.0	%	100.0	%
Cost of services		61.1		59.6		58.9
Special charges		—		—		0.1
Depreciation		2.5		3.0		3.3
	Gross profit	36.4		37.4		37.7
Selling, general and administrative expenses		22.4		22.0		22.9
Special charges		—		—		14.1
Amortization		1.4		1.9		2.2
Operating income (loss)		12.6		13.5		(1.5	)
Interest and other expense, net		1.1		1.9		2.1
Income (loss) before income taxes		11.5		11.6		(3.6	)
Provision for income taxes		4.6		4.6		0.5
Net income (loss)		6.9	%	7.0	%	(4.1	)%

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

Revenue

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

Gross profit

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

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Selling, general and administrative expenses

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

Operating income (loss)

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

Interest and other expense

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

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

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

20

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

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

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

Revenue

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

Gross profit

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

Selling, general and administrative expenses

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

Operating income

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

21

Interest and other expense

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

Income before income taxes and pro forma net income

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

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

Fluctuations in Quarterly Results of Operations

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

Liquidity and Capital Resources

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

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

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

22

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

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

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

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

	Payments Due by Period (in thousands)
Contractual Obligation	Total		Less than 1 Year		1 to 3 Years		4 to 5 Years		After 5 Years
Long-Term Debt	$	116,379	$	324	$	114,254	$	247	$	1,554
Capital Lease Obligations		214		201		8		5
Operating Leases		52,778		14,881		22,061		9,767		6,069
Total Contractual Cash Obligations	$	169,371	$	15,406	$	136,323	$	10,019	$	7,623

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

Critical Accounting Policies

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

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

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

23

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

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

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

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

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

24

ITEM 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

SOURCECORP, INCORPORATED AND SUBSIDIARIES

25

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of SOURCECORP, Incorporated:

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

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

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

ARTHUR ANDERSEN LLP

Dallas, Texas,
February 18, 2002

26

SOURCECORP, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

ASSETS

		December 31,
		2000			2001
CURRENT ASSETS:
Cash and cash equivalents		$	9,504		$	7,182
Accounts and notes receivable, less allowance for doubtful accounts of $14,111 and $19,888, respectively			93,583			88,547
Inventories			5,112			2,587
Deferred income taxes			3,935			9,805
Prepaid expenses and other current assets			6,747			6,412
	Total current assets		118,881			114,533
PROPERTY, PLANT AND EQUIPMENT, net of depreciation			50,341			41,942
GOODWILL AND OTHER INTANGIBLES, net of amortization of $19,241 and $22,356, respectively			278,709			298,519
OTHER NONCURRENT ASSETS			6,778			8,077
	Total assets	$	454,709		$	463,071
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		$	57,351		$	51,087
Current maturities of long-term obligations			851			324
Income taxes payable			4,759			4,588
	Total current liabilities		62,961			55,999
LONG-TERM OBLIGATIONS, net of current maturities			123,784			116,055
DEFERRED INCOME TAXES			3,541			1,839
OTHER LONG-TERM OBLIGATIONS			11,031			18,005
	Total liabilities		201,317			191,898
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued or outstanding			—			—
Common stock, $.01 par value, 26,000,000 shares authorized, 16,191,416 and 17,341,674 shares issued and outstanding at December 31, 2000 and 2001, respectively			162			174
Additional paid-in capital			166,608			204,086
Accumulated other comprehensive loss			—			(1,242	)
Retained earnings			87,286			69,137
			254,056			272,155
Less—Treasury stock, at cost, 42,605 and 56,028 shares at December 31, 2000 and 2001, respectively			(664	)		(982	)
	Total stockholders' equity		253,392			271,173
	Total liabilities and stockholders' equity	$	454,709		$	463,071

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

27

SOURCECORP, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

			Year Ended December 31,
			1999			2000			2001
REVENUE			$	350,044		$	457,590		$	441,963
COST OF SERVICES				213,928			272,823			260,128
SPECIAL CHARGES				—			—			417
DEPRECIATION				8,815			13,802			14,632
	Gross profit			127,301			170,965			166,786
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES				78,577			100,456			101,249
SPECIAL CHARGES				—			—			62,167
AMORTIZATION				4,748			8,554			10,032
	Operating income (loss)			43,976			61,955			(6,662	)
OTHER (INCOME) EXPENSE:
	Interest expense			4,246			9,961			9,329
	Interest income			(423	)		(489	)		(188	)
	Other (income) expense, net			152			(545	)		222
		Income (loss) before income taxes		40,001			53,028			(16,025	)
PROVISION FOR INCOME TAXES				16,000			20,927			2,124
NET INCOME (LOSS)			$	24,001		$	32,101		$	(18,149	)
NET INCOME (LOSS) PER COMMON SHARE
	BASIC		$	1.70		$	2.10		$	(1.08	)
	DILUTED		$	1.60		$	2.00		$	(1.08	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
	BASIC			14,149			15,284			16,748
	DILUTED			14,990			16,065			16,748

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

28

SOURCECORP, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In Thousands)

	Common Stock
				Treasury Stock			Additional Paid-in Capital			Other Comprehensive Loss			Retained Earnings			Total Stockholders' Equity			Comprehensive Income (loss)
	Shares	Amount
Balance, December 31, 1998	14,047	$	140	$	(501	)	$	107,912		$	—		$	31,184		$	138,735		$	—
Common stock issued in connection with acquisitions	280		3		—			7,204			—			—			7,207			—
Exercise of awards, net	255		3		—			5,954			—			—			5,957			—
S corporation to C corporation conversion for pooled company	—		—		—			(891	)		—			—			(891	)		—
Net income	—		—		—			—			—			24,001			24,001			24,001
Comprehensive net income	—		—		—			—			—			—			—		$	24,001
Balance, December 31, 1999	14,582		146		(501	)		120,179			—			55,185			175,009
Common stock issued in connection with acquisitions	778		8		—			25,523			—			—			25,531			—
Exercise of awards, net	832		8		—			20,906			—			—			20,914			—
Treasury stock	—		—		(163	)		—			—			—			(163	)		—
Net income	—		—		—			—			—			32,101			32,101			32,101
Comprehensive net income	—		—		—			—			—			—			—		$	32,101
Balance, December 31, 2000	16,191		162		(664	)		166,608			—			87,286			253,392
Common stock issued in connection with acquisitions	558		6		—			20,378			—			—			20,384			—
Exercise of awards, net	592		6		—			17,100			—			—			17,106			—
Treasury stock	—		—		(318	)		—			—			—			(318	)		—
Other comprehensive loss	—		—		—			—			(1,242	)		—			(1,242	)		(1,242	)
Net loss	—		—		—			—			—			(18,149	)		(18,149	)		(18,149	)
Comprehensive net (loss)	—		—		—			—			—			—			—		$	(19,391	)
Balance, December 31, 2001	17,342	$	174	$	(982	)	$	204,086		$	(1,242	)	$	69,137		$	271,173

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

29

SOURCECORP, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

			Year Ended December 31,
			1999			2000			2001
CASH FLOWS FROM OPERATING INCOME (LOSS):
Net income (loss)			$	24,001		$	32,101		$	(18,149	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization			13,563			22,356			24,664
	Non-cash loss from divestitures and closures			—			—			54,559
	Deferred tax provision (benefit)			(25	)		485			(7,572	)
Change in operating assets and liabilities:
	Accounts receivable and notes receivable			(12,436	)		(1,415	)		(2,718	)
	Prepaid expenses and other assets			(1,648	)		(5,361	)		(1,840	)
	Accounts payable and accrued liabilities			3,277			(2,282	)		5,060
		Net cash provided by operating activities		26,732			45,884			54,004
CASH FLOWS FROM INVESTING ACTIVITIES:
	Net proceeds received from sale of operating units			—			—			18,407
	Purchase of property, plant and equipment			(17,298	)		(13,109	)		(13,558	)
	Cash paid for acquisitions, net of cash acquired			(63,113	)		(86,026	)		(65,550	)
		Net cash used for investing activities		(80,411	)		(99,135	)		(60,701	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from common stock issuance, net of underwriting discounts and other costs			4,750			16,621			13,786
	Proceeds from long-term obligations			86,000			90,991			283,132
	Principal payments on long-term obligations			(41,938	)		(54,124	)		(291,083	)
	Cash paid for debt issuance costs			(329	)		(129	)		(1,460	)
		Net cash provided by financing activities		48,483			53,359			4,375
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS				(5,196	)		108			(2,322	)
CASH AND CASH EQUIVALENTS, beginning of period				14,592			9,396			9,504
CASH AND CASH EQUIVALENTS, end of period			$	9,396		$	9,504		$	7,182
SUPPLEMENTAL DATA:
	Cash paid for:
		Income taxes	$	14,959		$	20,732		$	5,656
		Interest	$	4,019		$	9,374		$	9,316
NONCASH FINANCING TRANSACTIONS:
	Debt assumed in acquisitions		$	9,154		$	4,025		$	—

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

30

SOURCECORP, INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation:

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

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

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

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

2. Summary of Significant Accounting Policies:

Cash and Cash Equivalents

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

Property, Plant and Equipment

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

Intangible Assets

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

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

Revenue Recognition

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

Income Taxes

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

Net Income (Loss) Per Share

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

Use of Estimates in Financial Statements

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

Consolidation

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

Fair Value of Financial Instruments

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

Recent Accounting Pronouncements

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

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

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

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

3. Special Charges

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

Net loss on sale of assets	$	(55.4	)
Costs to exit non-strategic activities/locations		(5.7	)
One-time legal charge		(1.5	)
Total special charges		(62.6	)
Write-down of deferred financing cost		(0.5	)
Total pre-tax charges	$	(63.1	)

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

	Special Charge December 31, 2001		Net Book Value of Assets Divested		Net Consideration		Cash Payments		Balance at December 31, 2001
Net loss on sale of assets	$	55.4	$	67.9	$	19.3	$	1.4	$	5.4
Costs to exit non-strategic activities/locations		5.7		5.1		0.4		0.6		0.4
One-time legal charge		1.5		—		—		1.5		—
	$	62.6	$	73.0	$	19.7	$	3.5	$	5.8

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

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

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

Net consideration	$	19.3
Net book value of assets and liabilities		(67.9	)
Selling and other expenses		(6.8	)
Net loss on sale of assets	$	(55.4	)

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

Long-lived asset impairment	$	(4.3	)
Contract termination cost and related commitments		(0.5	)
Excess and obsolete inventory		(0.4	)
Allowance for doubtful accounts		(0.5	)
Other		(0.4	)
Proceeds		0.4
Net loss	$	(5.7	)

4. Allowance for Doubtful Accounts and Notes Receivable:

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

	Balance at Beginning Of Period		Balance Acquired		Balance Divested		Write-offs		Balance at End of Period		Charged to Costs and Expenses
Twelve months ended December 31, 1999	$	4,705	$	1,660	$	—	$	6,325	$	3,855	$	8,835
Twelve months ended December 31, 2000	$	8,835	$	736	$	—	$	8,725	$	4,185	$	14,111
Twelve months ended December 31, 2001	$	14,111	$	296	$	1,257	$	11,980	$	5,242	$	19,888

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5. Property, Plant and Equipment:

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

		December 31,
	Estimated Useful Lives in Years
		2000		2001
Land	N/A	$	934	$	934
Buildings and improvements	7-18		3,604		3,809
Leasehold improvements	Life of lease		5,345		4,839
Vehicles	5-7		2,448		2,369
Machinery and equipment	5-15		45,464		34,245
Computer equipment and software	3-7		34,295		31,135
Furniture and fixtures	5-15		4,577		5,474
			96,667		82,805
Less—Accumulated depreciation			46,326		40,863
		$	50,341	$	41,942

6. Accounts Payable and Accrued Liabilities:

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

	December 31,
	2000		2001
Accounts payable and accrued liabilities	$	9,062	$	15,900
Accrued compensation and benefits		15,850		14,997
Customer deposits		4,625		5,254
Unearned revenue		12,260		3,241
Accrued liabilities from acquisitions		15,202		11,142
Accrued professional fees		352		553
	$	57,351	$	51,087

7. Business Combinations:

2001 Acquisitions

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

Consideration Paid	$	50,046
Estimated Fair Value of Identifiable Assets		13,869
Estimated Fair Value of Liabilities		5,685
Goodwill		41,862

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

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

2000 Acquisitions

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

Consideration Paid	$	56,196
Fair Value of Identifiable Assets		19,000
Fair Value of Liabilities		10,624
Goodwill		47,820

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

1999 Acquisitions

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

Consideration Paid	$	73,811
Fair Value of Identifiable Assets		34,069
Fair Value of Liabilities		30,603
Goodwill		70,345

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

Contingent Consideration

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

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

Pro Forma Financial Data

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

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

		Pro Forma Year Ended December 31,
		1999		2000		2001
		(Unaudited, in thousands, except per share data)
Revenue		$	440,788	$	513,236	$	448,456
Income (loss) before income taxes			51,417		60,402		(15,209	)
Net income (loss)			30,851		36,560		(17,643	)
Net income (loss) per common share:
	Basic	$	2.12	$	2.36	$	(1.05	)
	Diluted	$	2.01	$	2.24	$	(1.05	)
Weighted average common shares outstanding:
	Basic		14,518		15,508		16,785
	Diluted		15,359		16,289		16,785

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

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8. Long-term Obligations and Credit Facilities:

Long-term Obligations

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

	December 31,
	2000		2001
Line of credit, expiring April 2004, interest at prime rate plus applicable margin or LIBOR plus applicable margin (3.15% to 7.03% at December 31, 2001)	$	—	$	114,000
Line of credit, expiring March 2003, interest at prime or the Eurodollar rate plus 1.125% (7.19% to 7.94%) at December 31, 2000, paid April 2001		121,000		—
Industrial Revenue Bonds: Variable Rate (3.7% at December 31, 2000 and 2.0% at December 31, 2001) Demand/Fixed Rate Revenue Bonds, Prince George's County, Maryland; due beginning in 1996 through 2014 secured by all real estate equipment and other tangible property of a subsidiary of the Company		2,044		1,858
All other obligations		1,591		521
Total		124,635		116,379
Less—Current maturities of long-term obligations		851		324
Total long-term obligations	$	123,784	$	116,055

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

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

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

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

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

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

Maturities of Long-Term Obligations

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

Years Ending December 31,
2002	$	324
2003		132
2004		114,122
2005		123
2006		124
Thereafter		1,554
Total	$	116,379

9. Lease Commitments:

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

	Year Ended December 31, 2001
Years Ending December 31,	Capital Leases		Operating Leases
2002	$	201	$	14,881
2003		11		12,888
2004		8		9,173
2005		3		5,949
2006		2		3,818
Thereafter		—		6,069
Total minimum lease payments		225	$	52,778
Less—Amounts representing interest		11
Net minimum lease payments		214
Less—Current portion of obligations under capital leases		201
Long-term portion of obligations under capital leases	$	13

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

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10. Income Taxes:

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

		Year Ended December 31,
		1999			2000		2001
Federal—
	Current	$	13,301		$	18,476	$	409
	Deferred		(21	)		392		(1,421	)
State—
	Current		2,724			1,966		9,287
	Deferred		(4	)		93		(6,151	)
		$	16,000		$	20,927	$	2,124

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

			Year Ended December 31,
			1999			2000			2001
Tax at statutory rate			$	13,970		$	18,560		$	(5,531	)
	Add (deduct)—
		State income taxes		1,768			1,491			(134	)
		Nondeductible expenses		875			1,471			1,580
		Loss of S corporations		(599	)		(115	)		(202	)
		Nondeductible loss on divestiture		—			—			7,193
		Other		(14	)		(480	)		(782	)
			$	16,000		$	20,927		$	2,124

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

			December 31,
			2000			2001
Deferred income tax liabilities—
	Tax over book depreciation and amortization		$	5,487		$	4,540
	Cash to accrual differences, net			818			359
	Other, net			242			304
		Total deferred income tax liabilities		6,547			5,203
Deferred income tax assets—
	Allowance for doubtful accounts			5,223			7,438
	Accrued liabilities			883			3,402
	Other reserves, net			835			2,329
		Total deferred income tax assets		6,941			13,169
Total net deferred income tax (liabilities)/assets			$	394		$	7,966
Current portion of deferred income tax (liabilities)/assets			$	3,935		$	9,805
Long-term deferred tax assets/(liabilities)				(3,541	)		(1,839	)
			$	394		$	7,966

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11. Stockholders' Equity:

Stock Options and Warrants:

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

	December 31,
	1999		2000		2001
Net income (loss) under SFAS 123	$	20,914	$	28,970	$	(22,219	)
Diluted net income (loss) per common share under SFAS 123	$	1.40	$	1.80	$	(1.33	)
Actual net income (loss)	$	24,001	$	32,101	$	(18,149	)
Actual diluted net income (loss) per common share	$	1.60	$	2.00	$	(1.08	)

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

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

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

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

	Awards Outstanding
	Shares	Weighted Average Exercise Price
	(in thousands)
Balance, December 31, 1998	2,814	$	22.42
Granted	480	$	27.95
Exercised	255	$	18.62
Forfeited	209	$	23.69
Balance, December 31, 1999	2,830	$	23.60
Granted	756	$	29.37
Exercised	832	$	20.50
Forfeited	155	$	24.62
Balance, December 31, 2000	2,599	$	26.21
Granted	1,118	$	30.61
Exercised	592	$	22.56
Forfeited	185	$	29.06
Balance, December 31, 2001	2,940	$	28.52
Exercisable, December 31, 1999	1,278	$	20.74
Exercisable, December 31, 2000	1,127	$	23.50
Exercisable, December 31, 2001	1,315	$	26.54

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

		Awards Outstanding				Awards Exercisable
Range of Exercise Prices		Number Outstanding at 12/31/01	Weighted-Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable at 12/31/01	Weighted Average Exercise Price
$	13.00-$26.00	610,516	6.02	$	23.08	562,918	$	22.97
$	26.38-$30.00	911,148	7.31	$	27.63	485,846	$	27.53
$	30.13-$30.38	1,014,575	8.92	$	30.36	133,515	$	30.35
$	31.00-$37.25	403,620	8.37	$	34.14	132,399	$	34.29

Net Income (Loss) Per Share

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

	Year Ended December 31,
	1999	2000	2001
Basic weighted average common shares	14,149	15,284	16,748
Weighted average options and warrants	486	407	—
Other contingent consideration	355	374	—
Diluted weighted average common shares	14,990	16,065	16,748

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

12. Derivatives

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

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

13. Employee Benefit Plans:

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

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

14. Related Party Transactions:

Leasing Transactions

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

Notes Receivable

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

43

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

15. Commitments and Contingencies:

Litigation

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

Concentration of Credit Risk

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

16. Segment Reporting:

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

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

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

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

44

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

Year Ended December 31, 2001
	Information Management and Distribution		Healthcare, Regulatory and Legal Compliance		Total Ongoing Segments		Divestitures and Closures			Special Charges			Consolidated
Revenue	$	203,693	$	201,975	$	405,668	$	36,295		$	—		$	441,963
Depreciation and amortization		12,358		9,977		22,335		2,329			—			24,664
Operating income (loss)		25,905		33,198		59,103		(3,181	)		(62,584	)		(6,662	)
Interest expense		4,710		4,592		9,302		27			—			9,329
Income before income taxes		21,623		28,049		49,672		(3,113	)		(62,584	)		(16,025	)
Total assets		216,496		245,393		461,889		1,182			—			463,071

Year Ended December 31, 2000
	Information Management and Distribution		Healthcare, Regulatory and Legal Compliance		Total Ongoing Segments		Divestitures and Closures		Special Charges		Consolidated
Revenue	$	164,780	$	188,821	$	353,601	$	103,989	$	—	$	457,590
Depreciation and amortization		8,980		8,089		17,069		5,287		—		22,356
Operating income		18,231		41,162		59,393		2,562		—		61,955
Interest expense		4,651		5,192		9,843		118		—		9,961
Income before income taxes		15,428		34,701		50,129		2,899		—		53,028
Total assets		170,948		189,746		360,694		94,015		—		454,709

Year Ended December 31, 1999
	Information Management and Distribution		Healthcare, Regulatory and Legal Compliance		Total Ongoing Segments		Divestitures and Closures		Special Charges		Consolidated
Revenue	$	105,802	$	136,320	$	242,122	$	107,922	$	—	$	350,044
Depreciation and amortization		3,597		5,277		8,874		4,689		—		13,563
Operating income		17,307		21,087		38,394		5,582		—		43,976
Interest expense		1,858		2,188		4,046		200		—		4,246
Income before income taxes		15,490		19,025		34,515		5,486		—		40,001
Total assets		137,903		135,103		273,006		96,349		—		369,355

45

17. Quarterly Information (Unaudited):

		SOURCECORP, Incorporated
		2000 Quarter Ended								2001 Quarter Ended
		Mar 31		Jun 30		Sep 30		Dec 31		Mar 31		Jun 30			Sep 30		Dec 31
Total revenue		$	107,765	$	114,400	$	118,384	$	117,041	$	121,404	$	119,813		$	103,044	$	97,702
Gross profit			38,976		42,689		44,478		44,822		45,811		44,343			41,042		35,590
Income (loss) before income taxes			11,937		13,108		13,816		14,167		14,024		(56,319	)		19,295		6,975
Net income (loss)			7,162		7,865		8,290		8,784		8,695		(43,131	)		11,963		4,324
Net income (loss) per common share—
	Basic	$	0.49	$	0.52	$	0.54	$	0.55	$	0.54	$	(2.60	)	$	0.70	$	0.25
	Diluted	$	0.46	$	0.50	$	0.51	$	0.53	$	0.52	$	(2.60	)	$	0.67	$	0.25
Weighted average common shares outstanding—
	Basic		14,564		15,050		15,471		16,050		16,212		16,575			16,969		17,271
	Diluted		15,520		15,715		16,368		16,656		16,876		16,575			17,779		17,637

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

        None.

46

PART III

ITEM 10. Directors and Executive Officers of the Registrant

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

ITEM 11. Executive Compensation

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

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

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

ITEM 13. Certain Relationships and Related Transactions

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

47

PART IV

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

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

        (a)(1) Consolidated Financial Statements

        See Index to Consolidated Financial Statements on page 25.

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

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

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

48

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

49

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

50

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

51

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

52

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

53

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

*

Compensatory plan or arrangement.

        (b) Reports on Form 8-K:

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

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

54

SIGNATURES

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

	SOURCECORP, INCORPORATED
	By:	/s/  ED H. BOWMAN, JR., Ed H. Bowman, Jr., President and Chief Executive Officer
Date: March 28, 2002

POWER OF ATTORNEY

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

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

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

55

EX-10.87

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F.Y.I. INCORPORATED

NONQUALIFIED RETIREMENT PLAN
(AMENDED AND RESTATED AS OF JANUARY 1, 2000)

TABLE OF CONTENTS

		Page
ARTICLE I	PURPOSE	1
ARTICLE II	DEFINITIONS	1
ARTICLE III	ADMINISTRATION	3
ARTICLE IV	ELECTIONS	4
ARTICLE V	ESTABLISHMENT OF NONQUALIFIED DEFERRAL ACCOUNT	5
ARTICLE VI	ESTABLISHMENT OF COMPANY CONTRIBUTION ACCOUNT	5
ARTICLE VII	ADDITIONS TO ACCOUNT	5
ARTICLE VIII	COMMENCEMENT OF BENEFITS	6
ARTICLE IX	CLAIMS PROCEDURE	7
ARTICLE X	NONALIENATION OF BENEFITS	8
ARTICLE XI	TERMINATION OR AMENDMENT OF THE PLAN	8
ARTICLE XII	UNFUNDED PLAN	8
ARTICLE XIII	GENERAL PROVISIONS	9
ARTICLE XIV	ADOPTING EMPLOYER	10
EXHIBIT A	CHANGE IN CONTROL	12
EXHIBIT B	OPTIONAL FORMS OF BENEFIT	13

F.Y.I. INCORPORATED
NONQUALIFIED RETIREMENT PLAN
(AMENDED AND RESTATED AS OF JANUARY 1, 2000)

ARTICLE I
PURPOSE

        The purpose of the Plan is to provide a select group of management and highly compensated employees of the Employer with the opportunity to defer the receipt of all or a portion of their Compensation in accordance with the terms and conditions set forth herein. The Plan is hereby amended and restated as of the Restated Effective Date.

        The Plan is intended to be "a plan which is unfunded and maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2) and 301(a)(3) of ERISA and shall be interpreted and administered in a manner consistent with that intent.

ARTICLE II
DEFINITIONS

        For purposes of the Plan, the following terms shall have the following meanings:

        2.1  "Account" shall mean the Company Contribution Account and the Nonqualified Deferral Account.

        2.2  "Associated Company" shall mean such corporations and other entities (including, without limitation, partnerships and limited liability companies), presently or in the future existing, which are members of the controlled group which includes the Company or are under common control with the Company, as such terms are defined in Sections 414(b) and 414(c) of the Code, but only during such period as such corporations or entities are members of the controlled group which includes the Company or are under common control with the Company.

        2.3  "Beneficiary" shall mean, unless otherwise specified by the Participant in a written election filed with the Committee on a form acceptable to the Committee, a Participant's beneficiary or beneficiaries identified under the Savings Plan (if any). If no Beneficiary is designated, the Participant's Beneficiary shall be his or her spouse, or if the Participant is not married, the Participant's estate. Upon the acceptance by the Committee of a new Beneficiary designation, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary designation filed by the Participant and accepted by the Committee prior to his or her death.

        2.4  "Board" shall mean the Board of Directors of the Company.

        2.5  "Change in Control" shall have the meaning set forth in Exhibit A.

        2.6  "Code" shall mean the Internal Revenue Code of 1986, as amended. Any reference to any section of the Code shall also be a reference to any successor provision.

        2.7  "Committee" shall mean the advisory committee appointed by the Board to operate and administer the Plan on behalf of the Company in accordance with the provisions of Article III.

        2.8  "Company" shall mean F.Y.I. Incorporated or any company which is a successor a result of merger, consolidation, liquidation, transfer of substantially all of the assets or other reorganization.

        2.9  "Company Contribution" shall mean the amount contributed by the Employer under Section 6.1 hereof.

        2.10 "Company Contribution Account" shall mean the account to which a Participant's book entry contributions made pursuant to Article VI shall be credited.

        2.11 "Compensation" shall mean a Participant's gross compensation for services paid by the Employer to the Participant, including incentive compensation, bonus, noncash compensation, fringe benefits (cash and noncash), reimbursements or other expense allowances or any other additional compensation. Compensation shall not include, amounts reduced pursuant to a Participant's salary reduction agreement under Section 125 or Section 401(k) of the ode (if any) or a nonqualified elective deferred compensation arrangement or any other reductions for premium payments or offsets with regard to any health or welfare plan to the extent that in each such case the reduction is to base cash compensation.

        2.12 "Earnings" shall mean, for any Plan Year, earnings or losses on amounts in the account computed in accordance with Article VII hereof.

        2.13 "Effective Date" shall mean December 13, 1996.

        2.14 "Eligible Employee" shall mean an Employee who is a member of a select group of management or highly compensated employees and who is designated by the Committee as an Eligible Employee. Any Eligible Employee shall be eligible to become a Participant on the first Entry Date occurring on or after the date on which he or she becomes an Eligible Employee and shall continue to be eligible to participate in the Plan until he or she ceases to be an Eligible Employee, whether by reason of his or her Termination of Employment or by reason of the committee determination in its sole discretion that he or she should no longer be designated as Eligible Employee.

        2.15 "Employee" shall mean any person employed by the Employed

        2.16 "Employer" shall mean the Company and any Member Company.

        2.17 "Entry Date" shall mean the Restated Effective Date and the first day of each calendar quarter.

        2.18 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. Any reference to any section of ERISA shall also be a reference to any successor provision.

        2.19 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

        2.20 "Member Company" shall mean any Associated Company which shall, with the consent of the Board, adopt this Plan in accordance with the terms set forth herein.

        2.21 "Nonqualified Deferral Contribution" shall mean the amount of Compensation deferred by a Participant under Section 4.1 hereof.

        2.22 "Nonqualified Deferral Account" shall mean the account to which a Participant's book entry contributions made pursuant to Article IV hereof shall be credited.

        2.23 "Participant" shall mean any Eligible Employee who: (i) elects or has elected to defer his or her Compensation in accordance with the terms hereunder; and/or (ii) has a balance in his or her Account under the Plan. A Participant shall cease to be permitted to defer his or her Compensation with regard to a Plan Year if he or she is not' or ceases to be, an Eligible Employee with regard to the Plan.

        2.24 "Plan" shall mean F.Y.I. Incorporated Nonqualified Retirement Plan as adopted on the Effective Date and as amended and restated as of the Restated Effective Date and as amended from time to time thereafter.

        2.25 "Plan Year" shall mean the twelve (12) consecutive month period ending every December 31.

        2.26 "Restated Effective Date" shall mean January 1, 2000.

        2.27 "Salary Reduction Agreement" shall mean an agreement entered into between a Participant and the Employer on a form executed by the Participant to authorize the Employer to reduce the

2

Participant's Compensation and credit the amount of such reduction to the Plan. A Salary Reduction Agreement shall contain such provisions, consistent with the provisions of the Plan, as may be established from time to time by the Employer or the Committee. A new Salary Reduction Agreement must be made for each Plan Year.

        2.28 "Savings Plan" shall mean the F.Y.I. Incorporated 401(k) Savings Plan.

        2.29 "Termination of Employment" shall mean termination of employment as an employee of the Employer for any reason whatsoever, including but not limited to death, retirement, resignation, disability (as determined by the Committee), dismissal or the cessation of an entity as an Associated Company.

        2.30 "Trust" shall mean the trust find established pursuant to the Plan.

        2.31 "Trustee" shall mean the trustee named in the agreement establishing the Trust and such successor and/or additional trustees as may be named pursuant to the terms of the agreement establishing the Trust.

        2.32 "Valuation Date" shall mean the last day of each Plan Year and any other date at the Company, in its sole discretion, designates as a Valuation Date.

ARTICLE III
ADMINISTRATION

        3.1  The Committee. The Plan shall be administered by the Committee.

        3.2  Duties of the Committee. The Committee (or its delegate) shall have the exclusive right, power and authority to administer, apply and interpret the Plan and any other Plan documents and to decide any questions and settle all controversies and disputes that may se in connection with the operation or administration of the Plan. Without limiting the generality of the foregoing, the Committee shall have the sole and absolute discretionary authority: (i) to take all actions and make all decisions with respect to the eligibility for, and the amount of; benefits payable under the Plan; (ii) to formulate, interpret and apply rules, regulations and policies necessary to administer the Plan in accordance with its terms; (iii) to decide questions, including legal or factual questions, relating to the calculation and payment of benefits under the Plan; (iv) to resolve and/or clarify any ambiguities, inconsistencies and missions arising under the Plan or other Plan documents; and (v) to process and approve or deny benefit claims and rule on any benefit exclusions. All determinations made by the committee (or any delegate) with respect to any matter arising under the Plan and any other Plan documents including, without limitation, the interpretation and administration of the Plan shall be final, binding and conclusive on all parties.

        3.3  Advisors. The Company, the Board or the Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan, and the Committee may rely upon any advice or opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred or the engagement of such counsel, consultant or agent shall be paid by the Company. The Committee may also rely on information, and consider recommendations, provided by the Board or the executive officers of the Company.

        3.4  Action by Majority. Decisions of the Committee shall be made by a majority of its members attending a meeting at which a quorum is present (which meeting may be held telephonically), or by written action in accordance with applicable law.

        3.5  Liability of Committee Members. No member of the Committee and no officer, director or employee of the Employer shall be liable for any action or inaction with respect to his or her functions under the Plan unless such action or inaction is adjudged to be due to fraud. Further, no such person

3

shall be personally liable merely by virtue of any instrument executed by him or her or on his or her behalf in connection with the Plan.

        3.6  Indemnification of Committee Members. Each Employer shall indemnity, to the fill extent permitted by law and its Certificate of Incorporation and By-laws (but only to the extent not covered by insurance) its officers and directors (and any employee involved in carrying out the functions of the Employer under the Plan) and each member of the Committee against any expenses, including amounts paid in settlement of a liability, which are reasonably incurred in connection with any legal action to which such person is a party by reason of his or her duties or responsibilities with respect to the Plan (other than as a Participant).

        3.7  Securities Law Compliance. The Committee shall impose such rules designed to facilitate compliance with Federal and state securities laws, including to the extent applicable, the limitations of Section 4(2) and Rule 701 under the Securities Act of 1933, as amended, and shall have the authority to suspend the Plan and take any action necessary, including revoking a Participant's salary deferral elections, prospectively and/or retroactively, to ensure that the Plan complies with Federal and state securities laws.

ARTICLE IV
ELECTIONS

        4.1  Nonqualified Deferral Elections. An Eligible Employee may elect on a Salary Reduction Agreement to defer the receipt of all or a portion (in whole percentages) of his or her Compensation under the Plan.

        4.2  Timing and Manner of Election.

        (a)  Method of Election for Compensation. Any election to defer payment of an Eligible Employee's Compensation shall be made by the Eligible Employee in writing to the Committee on a Salary Reduction Agreement on or before the last day of the Plan Year preceding the Plan Year in which the Compensation is earned. Any such election to defer payment of an Eligible Employee's Compensation shall apply on a pro rata basis with respect to the entire amount of Compensation earned in or for such Plan Year, whenever payable, or on such other basis as may be agreed to by the Committee. With respect to a Participant's Compensation, any such election made by the last day of the preceding Plan Year shall become effective on the first day of the following Plan Yew. Except as provided in (c) below, an election with respect to a Participant's Compensation under this Article IV is irrevocable and is valid only for the Plan Year commencing immediately following the date of the election or, in the case of an Employee who first becomes an Eligible Employee during a Plan Year, for such Plan Year. If a new election is not made with respect to any subsequent Plan Year under Section 4.1, Compensation earned in such Plan Year shall not be deferred under the Plan.

        (b)  Mid-Year Participation. An individual who becomes an Eligible Employee after the date by which an election would otherwise be required to be made hereunder may elect to become a Participant (solely with respect to Compensation earned after the Salary eduction Agreement is executed and delivered to the Employer pursuant to the procedures established by the Committee) on the first Entry Date occurring after the date on which he or she comes an Eligible Employee, by making an election, in writing, on a form prescribed by the

        (c)  Change in Elections. Notwithstanding any election made pursuant to Section 42(a) above, a Participant may elect to change his or her election under Section 4.2(a) as of the June 1st of any Plan Year by completing a new Salary Reduction Agreement (solely with respect to Compensation earned after the Salary Reduction Agreement is executed and which is delivered to the Committee at least sixty (60) days prior to June 1st of the applicable Plan Year pursuant to the procedures established by

4

the Committee); provided, however, that any change in election made pursuant to this Section 4.2(c) shall not be applicable to any bonus paid or payable wing the Plan Year in which the election is made.

        4.3  Re-employment. If a Participant incurs a Termination of Employment and is subsequently reemployed, he or she shall become an Eligible Employee solely in accordance with the terms and provisions of the Plan.

        4.4  Change in Status. An election made pursuant to Section 4.1 by a Participant ho ceases to be an Eligible Employee but who does not incur a Termination of Employment shall cease to remain in effect and such Participant shall not be entitled to receive a distribution from the Plan solely as a result of such change in status.

ARTICLE V
ESTABLISHMENT OF NONQUALIFIED DEFERRAL ACCOUNT

        5.1  Book Entry of Deferrals. Nonqualified Deferral Contributions shall be credited a book entry to a Participant's Nonqualified Deferral Account in the name of the Participant not later than the date such amount would otherwise be payable to the Participant.

        5.2  Book Entry Earnings. Earnings shall be credited to a Participant's Nonqualified Deferral Account in accordance with the provisions of Article VII.

        5.3  Vesting. A Participant's Nonqualified Deferral Account shall be fully vested at all times, including Earnings thereon.

ARTICLE VI
ESTABLISHMENT OF COMPANY CONTRIBUTION ACCOUNT

        6.1  Company Contribution. In its sole discretion, the Employer may credit as a book entry to a Participant's Company Contribution Account in the name of the Participant, an amount determined by the Company in accordance with (a) and/or (b) below:

        (a)  A percentage of each Participant's Compensation for the Plan Year;

        (b)  A percentage of some or all of the Participant's Nonqualified Deferral Contributions for the Plan Year.

        6.2  Timing of Contribution. Company Contributions shall be made as soon as administratively feasible after declared by the Board of Directors of the Employer.

        6.3  Book Entry Earnings. Earnings shall be credited to a Participant's Company Contribution Account iii accordance with the provisions of Article VII.

        6.4  Vesting. Company Contributions allocated to a Participant's Company Contribution Account, including Earnings thereon, shall be vested in the manner determined by the Committee.

ARTICLE VII
ADDITIONS TO ACCOUNT

        7.1  Measuring Alternative. The measuring alternative used for the measurement of Earnings on the amounts in a Participants Account shall be selected by the Committee, unless the Committee decides in its sole discretion to allow each Participant to select in writing, on a form prescribed by the Committee, from among the various measuring alternatives offered by the Committee. In the event that various measuring alternatives are made available, each Participant may change the selection of his or her measuring alternative as of the beginning of any calendar quarter (or at such other times and in such manner as prescribed by the Committee, in its sole discretion), subject to such notice and other administrative procedures as may be established by the Committee. Notwithstanding anything herein to

5

the contrary, in no event shall the measuring alternative selected by the Committee (and not the Participant) be less than the prime rate of interest as reported in the Money Rates section of The Wall Street Journal as of the first business day of each quarter within a Plan Year.

        7.2  Crediting of Earnings. The Committee shall credit the Earnings computed under this Article VII to the balance in each Participant's Account as of each Valuation Date, at a rate equal to the performance of the measuring alternative selected by the Committee for the Plan Year (or such other applicable period) or, if the Committee allows each Participant to select from among various measuring alternatives, at a rate equal to the performance of the measuring alternative selected by the Participant for the Plan Year (or such other applicable period) to which such selection relates.

        7.3  Rules and Procedures. The Committee may, in its sole discretion, establish rules and procedures for the crediting of Earnings and the election of measuring alternatives pursuant to this Article VII.

ARTICLE VIII
COMMENCEMENT OF BENEFITS

        8.1  Payment of Benefits.

        (a)  Time of Payment. Except as otherwise provided in this Article VIII, a Participant's Account shall be paid to the Participant (or, in the case of the Participant's death, his or her Beneficiary) after a Participant's Termination of Employment. Notwithstanding any election made pursuant to paragraph (b) of this section, the Committee may accelerate the payment of any Account in its sole discretion. A Participant shall not be entitled to, and the Employer shall not be obligated to pay to such Participant, the whole or any part of the amounts deferred under the Plan, except as provided in the Plan.

        (b)  Standard Form of Payment on Termination of Employment. A Participant's Account shall be paid to the Participant in a single lump sum cash payment within five (5) days of the January 1st next following the date of a Participant's Termination of Employment.

        (c)  Payment Upon a Change in Control. Upon a Change in Control, each Participant shall receive his or her entire Account from the Plan (whether or not in pay status) in single lump sum cash payment as soon as administratively practicable following such Change Control, but in no even later than ten (10) days following the Change in Control.

        (d)  Options Forms of Benefit. Notwithstanding the foregoing, a Participant may elect, in a writing filed with the Committee, to have his or her Account paid in one of the optional forms of benefit (if any) set forth in Exhibit B hereto, provided that such election is made and filed with the Committee at least one (1) year prior to the Participant's Termination of Employment and, with regard to payments to be made following a Change in Control, prior to the me an agreement to effect a transaction described in paragraphs (a), (c) or (d) of Exhibit A is executed (the "Agreement Execution") by the Company and, except as determined by the committee in its sole discretion, at least three (3) months prior to the Change in Control. Such election may be revoked by the Participant by written notice filed with the Committee at least one (l) year prior to a Termination of Employment, and with regard to payments to be made after Change in Control, prior to the Agreement Execution and, unless otherwise determined by the amide in its sole discretion, at least three (3) months prior to the Change in Control. If a Participant experiences a Termination of Employment within one (1) year of making any election dower this paragraph or, with regard to payments to be made following a Change in Control, the election concerning Change in Control payments is made after the Agreement Execution or within three (3) months of the Change in Control (or such other time period as permitted by the Committee in its sole discretion), the Account shall be paid to a Participant without regard to such election.

6

        8.2  Hardship Distributions.

        (a)  Distribution on Account of Hardship. Upon the request of a Participant, the Committee, in its sole discretion, may approve an immediate lump sum cash distribution of all or part of a Participants Account due to the Participant's Hardship.

        (b)  Hardship. For the purposes of this Section 8.2, a Participant shall experience a "Hardship" if, and only if; such Participant experiences an immediate and heavy financial need and the withdrawal is necessary to pay for expenses directly resulting from an "Unforeseeable Emergency." Ah Unforeseeable Emergency is a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances constituting an Unforeseeable Emergency shall depend upon the facts of each case, but, in any event, shall not be made to the extent that such Hardship is or may be relieved: (i) through liquidation or compensation by insurance or otherwise; (ii) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or (iii) by cessation of deferrals under a cash-or-deferred arrangement maintained by the Participant's current employer.

        In addition to the requirements set forth in clauses (i), (ii) and (iii) above, as a recondition to a Hardship, a Participant must have obtained all distributions, other than hardship distributions of salary reduction contributions under a cash-or-deferred arrangement maintained by any employer pursuant to plan qualified under Section 401(a) of the Code which contains a cash-or-deferred arrangement, currently available under all plans maintained by any employee.

        (c)  Substantiation. A Participant must provide documentation to the amide reasonably substantiating his or her Hardship.

8.3

Book Entry Reductions. The Company shall make a book entry to a Participant's Account to reduce such Participant's Account in the amount of any payment from such Participant's Account.

ARTICLE IX
CLAIMS PROCEDURE

        Any claim by a Participant or Beneficiary ("Claimant") with respect to eligibility, participation, contributions, benefits or other aspects of the operation of the Plan shall be made in writing to the Committee or such other person designated by the Committee from time to time for such purpose. If the Committee believes that the claim should be denied, the Committee shall notify the Claimant in writing of the denial of the claim within ninety (90) days after receipt thereof (this period may be extended an additional ninety (90) days in special circumstances and, in such event, the Claimant shall be notified in writing of the extension). Such notice shall (i) set forth the specific reason or reasons for the denial making reference to the pertinent provisions of the Plan or of Plan documents on which the denial is based; (ii) describe any additional material or information necessary to perfect the claim, and explain why such material or information, if any, is necessary; and (iii) inform the Claimant of his or her right pursuant to this section to request review of the decision.

        A Claimant may appeal the denial of a claim by submitting a written request for review to the Committee, within sixty (60) days after the date on which such denial is received. Such period may be extended by the Committee for good cause shown. The claim will then be reviewed by the Committee. A Claimant or his or her duly authorized representative may discuss any issues relevant to the claim, may review pertinent documents and may submit issues and comments in writing. If the Committee deems it appropriate, it may hold a hearing as to a claim. fa hearing is held, the Claimant shall be entitled to be represented by counsel. The Committee hall decide whether or not to grant the claim

7

within sixty (60) days after receipt of the request for review, but this period may be extended by the Committee for up to an additional sixty (60) days in special circumstances. Written notice of any such special circumstances shall be sent to the Claimant. Any claim not decided upon in the required time period shall be deemed denied. All interpretations, determinations and decisions of the Committee with respect to any claim hall be made in its sole discretion based on the Plan and other relevant documents and shall be final, conclusive and binding on all persons.

        The Committee may at any time alter the claims procedure set forth above, provided that he revised claims procedure complies with ERISA and the regulations issued thereunder.

ARTICLE X
NON-ALIENATION OF BENEFITS

        A Participant's Account shall not be subject to alienation, transfer, assignment, garnishment, execution or levy of any kind, and any attempt to cause any benefits to be so subjected shall not be recognized.

ARTICLE XI
TERMINATION OR AMENDMENT OF THE PLAN

        Notwithstanding any other provision of the Plan, the Board (or a duly authorized committee thereof) may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan, or suspend or terminate it entirely, retroactively or otherwise; provided, however, that no amendment or termination shall reduce or terminate the then benefit of any Participant or Beneficiary. Upon an amendment or suspension, the Company shall not be required to distribute a Participant's Account prior to a Termination of Employment, but, in no event shall the measuring alternative be reduced with respect to amounts in a Participant's Account. In the event of a suspension of the Plan, the Company may distribute a Participant's Account prior to a Termination of Employment in a lump sum cash payment at the discretion of the Board or the Committee. In the event of a termination of the Plan, a Participant's Account shall be distributed in a lump sum cash payment, as soon as administratively practicable following such termination.

ARTICLE XII
UNFUNDED PLAN

        The Plan shall not be construed to require the Employer to hind any of the benefits payable under the Plan or to set aside or earmark any monies or other assets specifically for payments under the Plan. The Plan is intended to constitute an "unfunded" plan for incentive compensation and any amounts payable hereunder shall be paid by the Employer out of its general assets. Participants and their designated Beneficiaries shall not have any interest in any specific asset of the Employer as a result of the Plan. Nothing contained in the Plan and no action taken pursuant to the provisions of the Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship amongst any Employer, the Committee, and the Participants, their designated Beneficiaries or any other person. Any fluids which may be invested by an Employer under the provisions of the Plan shall continue for all purposes to be part of the general hinds of the applicable Employer and no person other than the applicable Employer shall by virtue of the provisions of the Plan have any interest in such hinds. With respect to any payments as to which a Participant has a fixed and vested interest but which are not yet made to a Participant;by the applicable Employer, nothing contained herein shall give any such Participant any rights that are greater than those of an unsecured general creditor of the applicable Employer. The Company shall establish a Trust intended to be a "rabbi trust" with the Trustee, pursuant to the terms and conditions as are set forth in the Trust agreement to be entered into between the Company and the Trustee.

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ARTICLE XIII
GENERAL PROVISIONS

        13.1 Withholding of Taxes. The Employer shall have the right to make such provisions as it deems necessary or appropriate to satisfy any obligations it may have to withhold Federal, state or local income or other taxes incurred by reason of payments pursuant to the Plan. In lieu thereof; the Employer shall have the right to withhold the amount of such taxes from any other sums due or to become due from the Employer to the Participant upon such terms and conditions as the Committee may prescribe.

        13.2 Other Plans. Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific eases.

        13.3 Other Benefits. No payment under the Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Employer nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation.

        13.4 No Right to Employment. Neither the Plan nor the deferral of any amount hereunder shall impose any obligations on the Employer to retain any Participant as an Employee or shall it impose on the part of any Participant any obligation to remain as an Employee of the Employer.

        13.5 Costs. The Company shall bear all expenses included in administering and operating the Plan and the Trust.

        13.6 Minors and Incompetents. In the event that the Committee funds that a Participant is unable to care for his or her affairs because of illness or accident, then benefits payable hereunder, unless claim has been made therefor by a duly appointed guardian, committee, or other legal representative, may be paid in such manner as the Committee shall determine, and the application thereof shall be a complete discharge of all liability for any payments or benefits to which such Participant was or would have been otherwise entitled under the Plan. Any payments to a minor from the Plan may be paid by the Committee in its sole and absolute discretion (i) directly to such minor; (ii) to the legal or natural guardian of such minor; or (iii) to any other person, whether or not appointed guardian of the minor, who shall have the are and custody of such minor. The receipt by such individual shall be a complete discharge of all liability under the Plan therefor.

        13.7 Assignment. The Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns and the Participants and their heirs, executors, administrators and legal representatives. In the event that the Company sells all or substantially all of the assets of its business, the acquiror of such assets shall assume the obligations hereunder and the Company shall be released from any liability imposed herein and shall have no obligation to provide any benefits payable hereunder.

        13.8 Top-Hat Status. The Plan is intended to constitute a "top-hat" pension plan under Sections 201(2) and 301(a)(3) of ERISA. To the extent necessary to comply with the top-hat requirements, the Committee may terminate an Eligible Employee as a Participant and may, in its sole discretion, distribute his or her Account

        13.9 Governing Law. Except to the extent preempted by ERISA or other Federal law, the Plan shall be governed by and construed in accordance with the laws of the State of Texas (regardless of the law that might otherwise govern under applicable Texas principles of conflict of laws).

        13.10 Severability of Provisions. If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof; and the Plan shall be construed and enforced as if such provisions had not been included.

9

        13.11 Construction. Wherever any words are used in the Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply.

        13.12 Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.

        13.13 Attorney's Fees. The Employer shall pay the reasonable attorney's fees incurred by any Eligible Employee in an action brought against the Employer to enforce the Eligible Employee's rights under the Plan, provided such fees shall only be payable in the event the Eligible Employee prevails in such action.

ARTICLE XIV
ADOPTING EMPLOYER

        14.1 Purpose of Article. The purpose of this Article is to describe the terms and conditions under which an Associated Company may adopt, and become a Member Company under, the Plan for the benefit of its Eligible Employees.

        14.2 Execution of Adoption Agreement. Any Associated Company may, with the written consent of the Board, become a Member Company under the Plan by adopting the Plan as a Member Company by resolution of its board of directors (or a duly authorized committee thereof) or by executing an Adoption Agreement under which:

        (a)  The Member Company shall agree to be bound by all the provisions of the Plan in the manner set forth herein and any amendments thereto.

        (b)  The Member Company shall agree to pay its share of the contributions to, and expenses of, the Plan as they may be determined from time to time in the manner specified herein.

        (c)  The Member Company shall agree to provide the Company, Committee and Trustee with full, complete, and timely information on all matters necessary to them in the operation of the Plan.

        14.3 Participation in the Plan.

        (a)  In the event of the adoption of the Plan by an Associated Company, the Associated Company shall become a Member Company and all the terms and conditions of the Plan as set forth hereunder shall apply to the participation under the Plan of such Associated Company and its employees in the manner as set forth herein for a Member Company and its employees; notwithstanding the above, the following rights are specifically reserved to the Company:

        (i)    The right to designate a Member Company as set forth herein;

        (ii)  The right to appoint the members of the Committee, as set forth herein, is specifically reserved to the Company so long as the Company participates under the Plan; provided that a Member Company may appoint an advisory committee of such composition and size as it may determine to advise the Committee on any matters affecting such Member Company or its employees who are Participants under the Plan. The Committee shall be entitled to rely upon any information furnished it by the Member Company or its employees who are Participants under the Plan. The Committee shall be entitled to rely upon any information furnished it by the Member Company appointing such advisory committee, but in no event shall the existence of such advisory committee modify or otherwise limit any of the powers or duties of the Committee under the Plan;

10

        (iii)  The right to direct, appoint, remove, approve the accounts of, or otherwise deal with the Trustee, as set forth herein, is specifically reserved to the Company so long as the Company participates under the Plan;

        (iv)  The right to amend the Plan, as set forth herein, is specifically reserved to the Company so long as the Company participates under the Plan; and any such amendment, unless otherwise specified herein, shall be filly binding with respect to such participation by any Member Company; provided that this reservation shall in no event be construed to prevent any Member Company from terminating at any time, in the manner set forth herein, its participation as a Member Company under the Plan. (b) In the operation of the Plan with respect to a Member Company, the term "Effective Date" shall mean such date specified in such Member Company's Adoption Agreement.

        (c)  A Member Company may specify in such Member Company's Adoption Agreement or the applicable provisions for recognition of service, as applicable, for such Member Company for eligibility, vesting and benefit purposes.

        14.4 Termination by a Member Company. Any Member Company may, by action of its board of directors or board of trustees (or a duly authorized committee thereof) in accordance with the by-laws of such Member Company, at any time elect to terminate its participation under the Plan in the manner set forth herein, or any Member Company may elect at any time by appropriate amendment or action affecting only its own status hereunder to disassociate itself from this Plan but to continue the Plan as it pertains to itself and its employees as an entity separate and distinct from this Plan. Termination of the participation of any Member Company, or disassociation, shall not affect the participation in the Plan of any other Member Company nor terminate the Plan with respect to them and their employees; provided that, if the Company shall terminate its participation in the Plan, or disassociate itself, then each remaining Member Company shall make such arrangements and take such action as may be necessary to assume the duties of the Company in providing for the operation and continued administration of the Plan as the same pertains to the Member Company.

        14.5 Member Company Plan Expenses. Each Member Company shall be liable for and shall pay at least annually to the Company its fair share of the expenses of operating the Plan, including its share of any Trustee's fees. The amount of such charges to each Member Company shall be determined by the Committee in its sole discretion; provided that, except with respect to charges incurred solely on account of a particular Member Company, a Member Company shall not be charged for a greater portion of any expenses of Plan operation than the ratio that the number of Members who are or were its employees bears to the total of all Members nor for a greater proportion of any Trustee's fees than the ratio that the portion of the Accounts pertaining to Participants who are or were its Employees bears to the total value of all Accounts.

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Exhibit A

Change in Control

A "Change in Control" shall be deemed to have occurred:

        (a)  upon any "person" as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of common stock of the Company), become the owner (as defined in Rule 13d-3 under the exchange Act), directly or indirectly; of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities;

        (b)  during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a), (c) or (d) of this section or a director whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election as previously so approved, cease for any reason to constitute at least a majority of the Board;

        (c)  upon the merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, at a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (other than those covered by the exceptions in (a) above) requires more than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities shall not constitute a Change in Control of the Company; or

        (d)  the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition of the Company of all or substantially all of the assets of the Company to a person or persons who beneficially own, directly or indirectly, at least fifty percent (50%) or more of the combined voting power of the outstanding voting securities of the Company at the time of the sale.

12

Exhibit B

Optional Forms of Benefit

A. Termination of Employment

A Participant may elect to receive his or her benefit under the Plan following a Termination of Employment in one of the following optional forms of benefit:

1.

A single lump sum cash payment as soon as practicable following a Participant's Termination of Employment but in no event later than thirty (30) days following a Participant's Termination of Employment.

2.

A single lump sum cash payment on the January 1st coinciding with or next following the first, second or third anniversary of the date of a Participant's Termination of Employment, as elected by the Participant.

3.

Equal annual cash installment payments commencing on the January 1st coinciding with or next-following a Participant's Termination of Employment for a period of either two (2), thee (3), four (4) or five (5) years.

B. Change in Control

A Participant may elect to receive his or her benefit under the Plan following a Change in Control in one of the following optional forms of benefit provided that the acquiror or successor assumes the obligations hereunder in accordance with the provisions of Section 13.7 of the Plan:

1.

A lump sum cash distribution equal to 50% of a Participants Account on (or as soon as administratively practicable following) the date of a Change in Control and the remaining 50% of a Participant's Account on the first, second or third anniversary of the date of a Change in Control, as elected by the Participant

2.

A lump sum cash payment on (or as soon as administratively practicable following) the earlier of(i) the second anniversary of the date of a Participant's Termination of Employment or (ii) the second anniversary of the date of a Change in Control.

3.

A single lump sum cash payment on the first, second or third anniversary of the date of a Change in Control, as elected by the Participant.

4.

A form of payment described in 1, 2 or 3 of subsection A above or Section 8.1(b) without regard to Section 8.1(c) of the Plan.

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TABLE OF CONTENTS
F.Y.I. INCORPORATED NONQUALIFIED RETIREMENT PLAN (AMENDED AND RESTATED AS OF JANUARY 1, 2000)
ARTICLE I PURPOSE
ARTICLE II DEFINITIONS
ARTICLE III ADMINISTRATION
ARTICLE IV ELECTIONS
ARTICLE V ESTABLISHMENT OF NONQUALIFIED DEFERRAL ACCOUNT
ARTICLE VI ESTABLISHMENT OF COMPANY CONTRIBUTION ACCOUNT
ARTICLE VII ADDITIONS TO ACCOUNT
ARTICLE VIII COMMENCEMENT OF BENEFITS
ARTICLE IX CLAIMS PROCEDURE
ARTICLE X NON-ALIENATION OF BENEFITS
ARTICLE XI TERMINATION OR AMENDMENT OF THE PLAN
ARTICLE XII UNFUNDED PLAN
ARTICLE XIII GENERAL PROVISIONS
ARTICLE XIV ADOPTING EMPLOYER
Exhibit A
Change in Control
Exhibit B
Optional Forms of Benefit
A. Termination of Employment
B. Change in Control

EX-21

Entity List March 21, 2002

Name

American Economics Group Acquisition Corp.

American Economics Group, Inc.

APS Services Acquisition Corp.

Associate Record Technician Services Acquisition Corp.

B&B (Baltimore-Washington) Acquisition Corp.

California Medical Record Service Acquisition Corp.

Copy Right Acquisition Corp.

Copy Right, Inc.

Creative Mailings, Inc.

Data Entry & Informational Services Acquisition Corp.

Data Entry & Informational Services, Inc.

Datacenter del Norte, S.A. de C.V. (Mexico)

Deliverex Acquisition Corp.

Digital Data Resources Acquisition Corp.

Digital Data Resources, Inc.

DISC Acquisition Corp.

Doctex Acquisition Corp.

DPAS Acquisition Corp.

Economic Research Services, Inc.

Edle Enterprises of Puerto Rico, Inc.

ELS Acquisition Corp.

Exigent Computer Group Acquisition Corp.

Exigent Computer Group, Inc.

FASTRIEVE, Inc.

Global Direct Acquisition Corp.

Global Direct, Inc.

Image Entry Acquisition Corp.

Image Entry Federal Systems, Inc.

Image Entry of Alabama, Inc.

Image Entry of Arkansas, Inc.

Image Entry of Indianapolis, Inc.

Image Entry of Owsley County, Inc.

Image Entry, Inc.

Imagent Acquisition Corp.

IMC Management, Inc.

IMC, L.P.

Information Management Services Acquisition Corp.

Information Management Services, Inc.

Input Management, Inc.

Input of Texas, L.P.

Investor Communications Services

Kinsella Communications Acquisition Corp.

LexiCode Acquisition Corp.

LexiCode Corporation

Lifo Management, Inc.

Lifo Systems, L.P.

Mailing & Marketing Acquisition Corp.

Mailing & Marketing, Inc.

Managed Care Professionals Acquisition Corp.

Managed Care Professionals, Inc.

MAVRICC Management Systems, Inc.

Micro Publication Systems, Inc.

Microfilm Distribution Services, Inc.

Entity List	March 21, 2002
Micromedia of New England Acquisition Corp.
MicroMedia of New England, Inc.
MMS Escrow and Transfer Agency, Inc.
NBDE Acquisition Corp.
Net Data Services, Ltd. (St. Vincent)
Newport Beach Data Entry, Inc.
Newport Beach Data Entry, LLC
Peninsula Record Management, Inc.
Permanent Records Management, Inc.
Permanent Records, L.P.
Pinnacle Management, Inc.
PLM Limited Partnership
PMI Imaging Systems Acquisition Corp.
Premier Acquisition Corp.
QCS Inet Acquisition Corp.
Quality Copy Acquisition Corp.
Quality Data Conversions Acquisition Corp.
Quality Data Conversions, Inc.
Recordex Acquisition Corp.
Researchers Acquisition Corp.
RTI Laser Print Services Acquisition Corp.
Rust Consulting Acquisition Corp.
Rust Consulting, Inc.
SOURCECORP BPS Inc.
SOURCECORP DMS Inc.
SOURCECORP HealthSERVE Radiology, Inc.
SOURCECORP HS Inc.
SOURCECORP Management, L.P.
SOURCECORP, Incorporated
SRCP Investments Holding, Inc.
SRCP Investments, Inc.
SRCP Management, Inc.
Stat Healthcare Consultants Acquisition Corp.
Stat Healthcare Consultants, Inc.
Synergen, LLC
TAPS Acquisition Corp.
The Rust Consulting Group, Inc.
United Information Services, Inc.
ZIA Information Analysis Group, Inc.
Zip Shred Canada Acquisition Corp.
Zipshred Inc.

2

EX-23.1

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EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

        As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated February 18, 2002, included in the company's previously filed Registration Statement File No. 333-92981 on Form S-4, and the Company's previously filed Registration Statement File Nos. 333-60768, 333-05493, 333-26785, 333-69811, 333-69813, 333-87279, and 333-35534 on Form S-8. It should be noted that we have not audited any financial statements of the company subsequent to December 31, 2001 or performed any procedures subsequent to the date of our report.

/s/ARTHUR ANDERSEN LLP

Dallas, Texas
March 25, 2002

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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

EX-99.1

Exhibit 99.1

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC, 20549

Ladies and Gentlemen:

        SOURCECORP, Incorporated, a Delaware corporation (the "Company"), has received a representation letter from Arthur Andersen LLP ("Arthur Andersen"), the Company's independent public accountant, in connection with the issuance of Arthur Andersen's audit report included within this filing on Form 10-K. In its letter, Arthur Andersen has represented to us that its audit of the consolidated balance sheet of the Company and its subsidiaries as of December 31, 2001, and the related consolidated statements of operations, stockholders', equity and cash flows for the year then ended, were subject to Arthur Andersen's quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagements were conducted in compliance with professional standards, that there was appropriate continuity of Arthur Andersen personnel working on the audits, and availability of national office consultation. Availability of personnel at foreign affiliates of Arthur Andersen is not relevant to this audit.

Very truly yours,

/s/ Barry L. Edwards

Executive Vice President and Chief Financial Officer