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

 

 

FORM 10-Q

 

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2003
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
	For the transition period from                     to

 

Commission file number 0-27444

 

 

SOURCECORP, INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

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 ý  No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  ý  No  o

 

As of November 5, 2003, 16,093,556 shares of the registrant’s Common Stock, $.01 par value per share, were outstanding.

 

 

SOURCECORP, INCORPORATED AND SUBSIDIARIES
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2003

 

INDEX

 

PART I.     FINANCIAL INFORMATION
Item 1	Condensed Financial Statements
	Condensed Consolidated Balance Sheets — December 31, 2002 and September 30, 2003 (unaudited)
	Condensed Consolidated Statements of Operations — Three and nine months ended September 30, 2002 and 2003 (unaudited)
	Condensed Consolidated Statements of Cash Flows — Nine months ended September 30, 2002 and 2003 (unaudited)
	Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3	Quantitative and Qualitative Disclosures about Market Risk
Item 4	Controls and Procedures
PART II.     OTHER INFORMATION
Item 1	Legal Proceedings
Item 6	Exhibits and Reports on Form 8-K
	SIGNATURES
	Index to Exhibits

 

2

 

PART I. FINANCIAL INFORMATION

 

Item 1.                   Financial Statements

 

SOURCECORP, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

 

		December 31, 2002			September 30, 2003
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	3,217		$	618
Accounts and notes receivable, less allowance for doubtful accounts of $12,441 and $9,521, respectively		78,834			68,696
Inventories		2,360			2,674
Deferred income taxes		9,012			6,648
Prepaid expenses and other current assets		3,887			3,342
Total current assets		97,310			81,978
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $53,471 and $61,806 respectively		40,575			41,355
GOODWILL, net of amortization of $22,356		317,256			322,995
INTANGIBLES, net of amortization of $356 and $621, respectively		4,084			3,819
OTHER NONCURRENT ASSETS		8,382			9,672
Total assets		$	467,607		$	459,819
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		$	58,029		$	55,851
Current maturities of long-term obligations		113			184
Income tax payable		180			4,892
Total current liabilities		58,322			60,927
LONG-TERM OBLIGATIONS, net of current maturities		89,640			71,480
DEFERRED INCOME TAXES		11,679			15,492
OTHER LONG-TERM OBLIGATIONS		5,290			6,990
Total liabilities		164,931			154,889
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $.01 par value, 26,000,000 shares authorized, 17,420,595 and 16,217,084 shares issued and 17,364,567 and 16,161,056 outstanding at December 31, 2002 and September 30, 2003, respectively		175			163
Additional paid-in-capital		206,843			195,192
Accumulated other comprehensive loss		(329		)	—
Retained earnings		96,969			113,149
		303,658			308,504
Less—Treasury stock, at cost, 56,028 shares		(982		)	(982		)
Less—Deferred compensation		—			(2,592		)
Total stockholders’ equity		302,676			304,930
Total liabilities and stockholders’ equity		$	467,607		$	459,819

 

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

 

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SOURCECORP, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2002			2003			2002			2003
		(Unaudited)						(Unaudited)
REVENUE		$	107,465		$	100,926		$	316,536		$	312,221
COST OF SERVICES		64,683			59,657			190,216			185,816
DEPRECIATION		3,578			3,607			10,672			10,610
Gross profit		39,204			37,662			115,648			115,795
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		25,154			26,098			76,182			79,010
AMORTIZATION		89			89			267			266
Operating income		13,961			11,475			39,199			36,519
OTHER (INCOME) EXPENSE:
Interest expense		1,555			441			4,592			2,856
Interest income		(28		)	(5		)	(79		)	(280		)
Other (income) expense, net		75			119			539			(36		)
Income before income taxes		12,359			10,920			34,147			33,979
PROVISION FOR INCOME TAXES		4,696			4,368			12,976			13,592
NET INCOME		$	7,663		$	6,552		$	21,171		$	20,387
NET INCOME PER COMMON SHARE
BASIC		$	0.44		$	0.40		$	1.22		$	1.23
DILUTED		$	0.44		$	0.40		$	1.20		$	1.22
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC		17,358			16,188			17,319			16,571
DILUTED		17,369			16,355			17,688			16,654

 

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

 

4

 

SOURCECORP, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

 

		Nine Months Ended September 30,
		2002			2003
		(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	21,171		$	20,387
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,939			10,876
Deferred tax provision		6,512			6,177
Compensation expense on restricted stock grants		—			358
Loss (gain) on sale of property, plant and equipment		242			(361		)
Change in operating assets and liabilities:
Accounts and notes receivable		1,714			10,138
Inventories, prepaid expenses and other assets		1,032			957
Accounts payable and accrued liabilities		1,425			5,132
Net cash provided by operating activities		43,035			53,664
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment		—			439
Purchase of property, plant and equipment		(8,912		)	(9,902		)
Net proceeds received from the sale of operating units in 2001		10			—
Cash paid for acquisitions, net of cash acquired		(19,151		)	(9,980		)
Net cash used for investing activities		(28,053		)	(19,443		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options		108			173
Cash paid for common stock repurchased		—			(18,557		)
Proceeds from long-term obligations		233,047			167,617
Principal payments on long-term obligations		(249,014		)	(185,748		)
Cash paid for debt issuance costs		(329		)	(305		)
Net cash used for financing activities		(16,188		)	(36,820		)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,206		)	(2,599		)
CASH AND CASH EQUIVALENTS, beginning of period		7,182			3,217
CASH AND CASH EQUIVALENTS, end of period		$	5,976		$	618
SUPPLEMENTAL DATA:
Cash paid for:
Income taxes, net of income tax refunds		$	11,007		$	2,601
Interest		$	4,595		$	2,839
NONCASH FINANCING TRANSACTIONS:
Common stock issued related to business combinations (114,112 and 20,268 shares, respectively)		$	3,335		$	283
Assets acquired through financing and capital lease arrangements		$	125		$	40

 

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

 

5

 

SOURCECORP, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

1. Basis of Presentation

 

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

 

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

 

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

 

2. New Accounting Standards

 

Recent Accounting Pronouncements

 

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

 

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

 

3. Stockholders’ Equity and Stock-Based Compensation

 

Stock-Based Compensation

 

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

 

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

 

6

 

The Company applies Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees and related interpretations in accounting for stock-based compensation and awards. Stock option and warrant awards are granted at the market price of the common stock on the date of grant. Accordingly, no compensation expense has been recognized for stock options and warrants. Had compensation expense been determined based upon the fair value at grant dates for stock options and warrants consistent with the method of SFAS No. 123, Accounting for Stock-Based Compensation, the Company’s net income and earnings per share would have been as follows (in thousands, except per share data):

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2002			2003			2002			2003
Net income as reported		$	7,663		$	6,552		$	21,171		$	20,387
Add: Deferred compensation expense included in reported net income, net of related tax effect		—			160			—			215
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax effect		(1,030		)	(627		)	(2,948		)	(2,364		)
Proforma net income		$	6,633		$	6,085		$	18,223		$	18,238
Earnings per share:
Reported basic earnings per share		$	0.44		$	0.40		$	1.22		$	1.23
Proforma basic earnings per share		$	0.38		$	0.38		$	1.05		$	1.10
Reported diluted earnings per share		$	0.44		$	0.40		$	1.20		$	1.22
Proforma diluted earnings per share		$	0.38		$	0.37		$	1.03		$	1.10

 

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

 

		Three Months Ended September 30,		Nine Months Ended September 30,
		2002		2002		2003
Weighted-average risk-free interest rate		3.2%		4.5	%	2.4	%
Weighted-average dividend yield		0.0%		0.0	%	0.0	%
Weighted-average volatility		42.3%		40.1	%	44.3	%
Weighted-average expected life		3.0 years		3.0 years		3.1 years

 

The Company issued no stock options or warrants during the three-month period ended September 30, 2003.

 

During the three months ended June 30, 2003, the Company awarded 164,300 shares of restricted stock under the 2002 Plan. The restricted shares were issued at no cost to the recipients; therefore, the Company recorded deferred compensation of approximately $2.9 million based on the market value of the stock at the date of issuance. The deferred compensation charge will be amortized to expense over the vesting period of the restricted stock. The restricted shares vest over a three-year period ending July 1, 2006, with acceleration of the vesting period occurring if a certain stock price or performance target is achieved. For the three and nine months ended September 30, 2003, approximately $0.3 and $0.4 million, respectively of deferred compensation was amortized to expense.

 

Common Stock Repurchase Program

 

During 2003, the Company activated the $30.0 million stock repurchase program authorized by the Board of Directors in April 2001.  During the nine months ended September 30, 2003, the Company purchased 1,216,979 shares of its common stock at a cost of approximately $18.6 million.  The repurchased shares were recorded in the accompanying balance sheet as a reduction to common stock, additional paid-in-capital, and retained earnings.  These shares have been retired and returned to the status of authorized but unissued shares of the Company.

 

Net Income Per Share:

 

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

 

		Three Months Ended September 30,				Nine Months Ended September 30,
		2002		2003		2002		2003
Basic weighted average common shares		17,358		16,188		17,319		16,571
Weighted average options, warrants, restricted stock and contingent consideration		11		167		369		83
Diluted weighted average common shares		17,369		16,355		17,688		16,654

 

At September 30, 2002 and 2003, approximately 3.6 million and 2.9 million, respectively, of common stock equivalents were not included in the diluted earnings per share calculation because they were anti-dilutive. These common stock equivalents may be dilutive to future earnings per share calculations.

 

7

 

4. Strategic Realignment Plan

 

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

 

		January 1, 2003			Settlements			September 30, 2003
Realignment Costs Liability		$	1.5		$	(1.5	)	$	—

 

5. Business Combinations

 

Goodwill and Intangibles

 

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

 

Goodwill:

 

		Information Management and Distribution			Healthcare, Regulatory and Legal Compliance			Total
Net balance as of January 1, 2003		$	186,378		$	130,878		$	317,256
Additional accrued consideration and adjustments		5,833			(94		)	5,739
Net balance as of September 30, 2003		$	192,211		$	130,784		$	322,995

 

Intangibles:

 

		September 30, 2003
		Gross Carrying Value			Accumulated Amortization			Net Intangibles
Customer Relationships		$	4,000		$	(467	)	$	3,533
Non Compete Agreements		440			(154		)	286
Total		$	4,440		$	(621	)	$	3,819

 

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

 

Contingent Consideration

 

Certain of the Company’s acquisitions are subject to adjustments in overall consideration and recorded goodwill based primarily upon the achievement of specified revenue and/or earnings targets and the settlement of certain representations and warranties stipulated in the purchase agreements, generally over one to three year periods. During the first nine months of 2003, the Company paid consideration of $11.0 million in cash and 20,268 shares of common stock at an average price of $13.96 per share in relation to contingent consideration agreements that have been finalized.  During the three months ended September 30, 2003, the company received a reimbursement of approximately $1.0 million of purchase price related to a past acquisition in the Information Management and Distribution segment, which was recorded as a reduction to goodwill.

 

In certain agreements, the Company has the option of changing the payment mix to use cash versus common stock in satisfying the liability. Upon review of current market conditions, the Company finds it favorable to satisfy its currently recorded contingent consideration liabilities in cash rather than common stock. Management’s evaluation of the cumulative earnings of acquired companies through September 30, 2003 indicates that certain acquired companies have met specified earnings targets beyond a reasonable doubt; therefore, during the nine months ended September 30, 2003 the Company accrued additional net consideration of approximately $6.8 million, which resulted in an increase to goodwill. As of September 30, 2003, the Company’s total current liability related to contingent consideration agreements of past acquisitions is $3.3 million, which is reported in accounts payable and accrued liabilities and is expected to be settled in cash.

 

Not all of the periods applicable for the contingent consideration targets have been completed and additional amounts may be payable in future periods under the terms of the agreements. If all contingent consideration targets under the current agreements were achieved, the maximum contingent consideration to be paid would be $17.2 million. In accordance with the agreements, the Company has the option to satisfy $12.7 million of the $17.2 million potential liability in common stock. The contingent consideration payments would be made as outlined in the agreements and paid over the next two years, with the final payment being made in 2005.

 

8

 

6. Segment Reporting

 

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

 

The identified segments are as follows:

 

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

 

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

 

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

 

		THREE MONTHS ENDED SEPTEMBER 30, 2003
		Information Management and Distribution			Healthcare, Regulatory and Legal Compliance			Consolidated
Revenue		$	57,431		$	43,495		$	100,926
Income before income taxes		4,939			5,981			10,920
		THREE MONTHS ENDED SEPTEMBER 30, 2002
		Information Management and Distribution			Healthcare, Regulatory and Legal Compliance			Consolidated
Revenue		$	62,072		$	45,393		$	107,465
Income before income taxes		5,930			6,429			12,359
		NINE MONTHS ENDED SEPTEMBER 30, 2003
		Information Management and Distribution			Healthcare, Regulatory and Legal Compliance			Consolidated
Revenue		$	183,485		$	128,736		$	312,221
Income before income taxes		17,512			16,467			33,979
		NINE MONTHS ENDED SEPTEMBER 30, 2002
		Information Management and Distribution			Healthcare, Regulatory and Legal Compliance			Consolidated
Revenue		$	190,732		$	125,804		$	316,536
Income before income taxes		19,727			14,420			34,147

 

7. Other Comprehensive Income (Loss)

 

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

 

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

 

9

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2002			2003			2002			2003
Net income		$	7,663		$	6,552		$	21,171		$	20,387
Other comprehensive income (loss):
Change in fair value of interest rate swap, net of tax effect of $(121), $0, $(341) and $(219), respectively		252			—			612			329
Total comprehensive income		$	7,915		$	6,552		$	21,783		$	20,716

 

10

 

Item 2.                   Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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

 

Introduction

 

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

 

Since the IPO, we have acquired 65 companies and divested 17 operating units by sales or closures. We evaluate candidates for acquisition and periodically for divestiture as a part of our strategic plan of providing customers a single solution for business process outsourcing. The criteria for evaluation include geographic need, additional technology, market growth potential, industry expertise, service expansion to broaden service offerings, expansion of our customer base, revenue and earnings growth potential, and expected sources and uses of capital.

 

Basis for Management Discussion and Analysis

 

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

 

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

 

Selling, general and administrative expenses (“SG&A”) consist primarily of compensation and related benefits to sales and marketing, executive management, accounting, human resources and other administrative employees; other sales and marketing costs; communications costs; insurance costs; and legal and accounting professional fees and expenses.

 

Business Segments

 

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

 

The identified segments are as follows:

 

Information Management and Distribution. This segment includes operations that provide the following services: electronic imaging; analog services; data capture and database management; internet repository services; and print and mail services, including statement processing, direct mail and fulfillment services and in-bound mail room services. For the three months ended September 30, 2002 and 2003, revenue in the Information Management and Distribution segment consisted of approximately $54.9 million and $52.6 million of recurring revenue, respectively, and approximately $7.2 million and $4.8 million of project revenue, respectively. For the nine months ended September 30, 2002 and 2003, revenue in the Information Management and Distribution segment consisted of approximately $168.5 million and $164.5 million of recurring revenue, respectively and approximately $22.2 million and $19.0 million of project revenue, respectively.

 

Healthcare, Regulatory and Legal Compliance. This segment includes operations that provide the following services: fulfillment of requests for medical records information; off-site active storage of a healthcare institutions’ medical records; online delivery of images of selected medical records; temporary staffing services; providing managed care compliance reviews; medical record coding; legal claims administration; and professional economic research services and litigation support. During the three months ended September 30, 2002 and 2003, revenue in the Healthcare, Regulatory and Legal Compliance segment consisted of

 

11

 

approximately $16.4 million and $15.3 million of recurring revenue, respectively, and approximately $29.0 million and $28.2 million of project revenue, respectively. During the nine months ended September 30, 2002 and 2003, revenue in the Healthcare, Regulatory and Legal Compliance segment consisted of approximately $47.8 million and $46.4 million of recurring revenue, respectively, and approximately $78.0 million and $82.3 million of project revenue, respectively.

 

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

 

		Three Months Ended September 30,
		2002					2003
		($000’s)			% of Revenue		($000’s)			% of Revenue
Revenue		$	107,465		100.0	%	$	100,926		100.0	%
Gross Profit		39,204			36.5	%	37,662			37.3	%
SG&A		25,154			23.4	%	26,098			25.9	%
Operating income		13,961			13.0	%	11,475			11.4	%
Income before tax		12,359			11.5	%	10,920			10.8	%
Net income		7,663			7.1	%	6,552			6.5	%

 

Revenue

 

Our operations generated revenues of $100.9 million for the three months ended September 30, 2003, a decrease of 6.1% compared to the same period in 2002. Project revenue accounted for $33.0 million or 32.7% of revenue in the current quarter compared to $36.2 million or 33.6% of revenue in the prior year quarter. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Basis for Management Discussion and Analysis.”)

 

Revenue within our Information Management and Distribution segment decreased 7.5% from $62.1 million for the three months ended September 30, 2002 to $57.4 million for the three months ended September 30, 2003.  Project revenue accounted for 8.4% of segment revenue in the third quarter of 2003 compared to 11.6% for the same period in 2002.  Segment revenues were lower during the quarter principally due to declines in volumes related to our government services business of approximately $4.7 million.  The City of New York Human Resources Administration (“HRA”) fully transitioned to a new vendor during the second quarter of 2003.  During the third quarter of 2002, HRA contributed approximately $3.1 million in revenue.  The remaining portion of the decline within our government services business is primarily the result of lower volumes with a single federal government customer.  Additionally, the segment experienced declines in volumes within our direct mail service offering, which was down $2.9 million or 26.7% compared to the prior year quarter, due to unfavorable economic conditions and a highly competitive environment throughout the direct mail industry.  These declines were partially offset by higher transaction volumes from our financial services customers combined with increased volumes within our statement processing service offering.

 

Revenue within our Healthcare, Regulatory and Legal Compliance segment decreased 4.2% from $45.4 million for the three months ended September 30, 2002 to $43.5 million for the three months ended September 30, 2003. Project revenue accounted for 64.7% of segment revenue in the second quarter of 2003 and 63.8% for the same period in 2002.  The decline in segment revenue resulted primarily from decreases in revenue within our healthcare businesses of approximately $1.6 million due to the planned attrition of lower margin customers combined with lower volumes from our medical records coding business.  During the third quarter of 2003, our legal consulting and claims administration service offerings produced strong volumes, essentially level with the third quarter of 2002.

 

Gross profit

 

Gross profit declined 3.9% from $39.2 million for the three months ended September 30, 2002 to $37.7 million for the three months ended September 30, 2003. The decrease in gross profit was primarily related to the decline in revenue discussed above.  Gross profit as a percentage of revenue increased from 36.5% for the three months ended September 30, 2002 to 37.3% for the three months ended September 30, 2003 primarily due to productivity improvements from the deployment of high-speed scanners in addition to expense control and reduction initiatives implemented within the Information Management and Distribution segment.  Also contributing to the improvement of gross profit as a percentage of revenue was lower bad debt expense of approximately $0.5 million compared to the prior year as a result of increased collections of account receivable balances outstanding greater than ninety days.

 

Selling, general and administrative expenses

 

SG&A increased 3.8% from $25.2 million, or 23.4% of revenue, for the three months ended September 30, 2002 to $26.1 million, or 25.9% of revenue, for the three months ended September 30, 2003. This is primarily due to increased personnel costs related to our strategic sales and technology initiatives within our Information Management service offering aimed at generating revenue growth and improved operational efficiencies.

 

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Operating income

 

Operating income decreased 17.8% from $14.0 million, or 13.0% of revenue, for the three months ended September 30, 2002 to $11.5 million, or 11.4% of revenue, for the three months ended September 30, 2003. The decline in operating income was largely attributable to the decline in revenue and increased SG&A expenses discussed above.

 

Income before income taxes and net income

 

Income before income taxes decreased 11.6% from $12.4 million for the three months ended September 30, 2002 to $10.9 million for the three months ended September 30, 2003, largely attributable to the items discussed above. Partially offsetting the decline in income before income taxes was lower interest expense.  Interest expense for the three months ended September 30, 2003 declined $1.1 million compared to the same period in 2002 primarily due to the expiration of the interest rate swap on March 31, 2003, lower debt levels and more favorable interest rates.

 

Net income decreased 14.5% from $7.7 million for the three months ended September 30, 2002 to $6.6 million for the three months ended September 30, 2003 due to the items discussed above. The effective tax rate of 38.0% and 40.0% for the three months ended September 30, 2002 and 2003, respectively, differs from the statutory federal rate of 35.0% principally due to state and local taxes. The effective tax rate has changed between the years principally due to the income mix shifting to higher tax states.

 

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2003

 

		Nine Months Ended September 30,
		2002					2003
		($000’s)			% of Revenue		($000’s)			% of Revenue
Revenue		$	316,536		100.0	%	$	312,221		100.0	%
Gross Profit		115,648			36.5	%	115,795			37.1	%
SG&A		76,182			24.1	%	79,010			25.3	%
Operating income		39,199			12.4	%	36,519			11.7	%
Income before tax		34,147			10.8	%	33,979			10.9	%
Net income		21,171			6.7	%	20,387			6.5	%

 

Revenue

 

Our operations generated revenues of $312.2 million for the nine months ended September 30, 2003, a decrease of 1.4% compared to the same period in 2002.  Project revenue increased $1.1 million from the prior year, resulting in a slight shift in revenue mix between our project and recurring revenue.  Project revenue accounted for 32.5% of total revenue in the current year compared to 31.6% in the prior year. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Basis for Management Discussion and Analysis.”)

 

Revenue within our Information Management and Distribution segment decreased 3.8% from $190.7 million for the nine months ended September 30, 2002 to $183.5 million for the nine months ended September 30, 2003. Project revenue accounted for 10.3% of segment revenue in the current year compared to 11.6% for the same period of 2002. Segment revenues were lower during the current year principally as a result of declining volumes within our direct mail service offering, which was down $6.0 million or 18.8% compared to the prior year, due to unfavorable economic conditions and a highly competitive environment throughout the direct mail industry. Additionally, the segment experienced declines in volumes related to our government services business of approximately $6.4 million. The City of New York Human Resources Administration (“HRA”) contract was fully transitioned to a new vendor during the second quarter of 2003. For the nine months ended September 30, 2003, HRA contributed $5.3 million in revenue compared to $9.2 million during the nine months ended September 30, 2002. The remaining portion of the decline within our government services business is primarily the result of lower volumes with a single federal government customer. These declines were partially offset by increased volumes from our financial services customers combined with increased volumes within our statement processing service offering.

 

Revenue within our Healthcare, Regulatory and Legal Compliance segment increased 2.3% from $125.8 million for the nine months ended September 30, 2002 to $128.7 million for the nine months ended September 30, 2003. Project revenue accounted for 64.0% of segment revenue for the nine months ended September 30, 2003 compared to 62.0% for the same period in 2002. The increase in segment revenue was primarily a result of increased volumes of approximately $6.2 million within our legal consulting service offering due to three significant projects in production during the first six months of 2003. Volumes within our claims administration service offering were essentially level with the prior year. Revenue in our healthcare businesses declined approximately $3.1 million primarily as a result of planned customer attrition of lower margin customers combined with lower volumes from our medical records coding business.

 

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Gross profit

 

Gross profit increased 0.1% from $115.6 million for the nine months ended September 30, 2002 to $115.8 million for the nine months ended September 30, 2003. The increase in gross profit was primarily the result of increased volumes within our legal consulting service offering, which typically produces higher margins.  Also contributing to the improved gross margin was lower bad debt expense of approximately $2.3 million compared to last year due to increased collections of accounts receivable balances outstanding greater than ninety days.  These items were partially offset by an overall decline in revenue combined with an unusually large medical claims expense of approximately $1.1 million incurred during the second quarter of 2002.  As a result, gross profit as a percentage of revenue increased from 36.5% for the nine months ended September 30, 2002 to 37.1% for the six months ended September 30, 2003.

 

Selling, general and administrative expenses

 

SG&A increased 3.7% from $76.2 million, or 24.1% of revenue, for the nine months ended September 30, 2002 to $79.0 million, or 25.3% of revenue, for the nine months ended September 30, 2003. This is primarily due to increased personnel costs related to our strategic sales and technology initiatives within our Information Management service offering aimed at generating revenue growth and improved operational efficiencies combined with increased professional fees.

 

Operating income

 

Operating income decreased 6.8% from $39.2 million, or 12.4% of revenue, for the nine months ended September 30, 2002 to $36.5 million, or 11.7% of revenue, for the nine months ended September 30, 2003. The decline in operating income was largely attributable to the decline in revenue, increased medical claims expense and increased SG&A expenses, as discussed above.

 

Income before income taxes and net income

 

Income before income taxes decreased 0.5% from $34.1 million for the nine months ended September 30, 2002 to $34.0 million for the nine months ended September 30, 2003.  The decline in income before taxes was largely attributed to the items discussed above, offset by a net decrease in interest and other income and expense items.  Interest expense for the nine months ended September 30, 2003 declined approximately $1.7 million compared to the same period in 2002 due primarily to the expiration of the interest rate swap on March 31, 2003, lower debt levels and more favorable interest rates.  Interest income increased $0.2 million during the current year due to the collection of a $2.3 million income tax receivable during the first quarter of 2003.  During the nine months ended September 30, 2003, gains of approximately $0.4 million were realized related to the sale of property, plant and equipment.

 

Net income decreased 3.7% from $21.2 million for the nine months ended September 30, 2002 to $20.4 million for the nine months ended September 30, 2003, largely attributable to the items discussed above. The effective tax rate of 38.0% and 40.0% for the nine months ended September 30, 2002 and 2003, respectively, differs from the statutory federal rate of 35.0% principally due to state and local taxes. The effective tax rate has changed between the years principally due to the income mix shifting to higher tax states.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At September 30, 2003, we had $21.1 million of working capital, including $0.6 million of cash. Working capital at December 31, 2002 was $39.0 million, including $3.2 million of cash. For the first nine months of 2003, cash provided by operating activities was $53.7 million compared to $43.0 million for the same period in 2002. Significant collections of accounts receivable balances and the receipt of $2.3 million of income tax refunds in the current year were key drivers for the increase in operating cash flow. Other factors contributing to the increased operating cash flow include the timing of income tax payments combined with lower interest payments as a result of more favorable interest rates and lower debt levels compared to the prior year.

 

For the nine months ended September 30, 2003, investing activities consisted of acquisitions of property, plant and equipment of $9.9 million, proceeds from sale of property, plant and equipment of $0.4 million, and net acquisition related payments of $10.0 million. Capital expenditures were primarily driven by technological investments within our information management service offering. Acquisition related payments consist of cash payments of $11.0 million in relation to contingent consideration agreements that have been finalized, offset by the reimbursement of approximately $1.0 million of purchase price related to a past acquisition in the Information Management and Distribution segment. It is expected that we will pay an additional $0.3 million in cash for contingent consideration agreements during the remainder of 2003.

 

Net cash used for financing activities was $36.8 million for the nine months ended September 30, 2003. During 2003, we activated the $30.0 million stock repurchase program authorized by our Board of Directors in April 2001. During the nine months ended September 30, 2003, we purchased 1,216,979 shares of our common stock at a cost of approximately $18.6 million.  Since September 30, 2003 (through November 5, 2003), we have purchased an additional 90,000 shares at a cost of approximately $2.1 million.  These payments were offset by $167.6 million in proceeds from our line of credit, net of payments of $185.7 million. In addition, we paid $0.3 million in fees related to amending the terms of our credit agreement and extending the credit facility for an additional year, which is discussed below.

 

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In April 2001, we entered into our line of credit agreement with a group of banks led by Bank of America, SunTrust Bank and Wells Fargo Bank, as co-agents (the “2001 Credit Agreement”). Under the agreement, we can borrow up to $297.5 million through April 2, 2004. In 2002, member banks extended $290.0 million of the commitment through April 1, 2005. Effective April 3, 2003, member banks extended $230.0 million of the commitment for an additional year to April 1, 2006. Our ability to borrow under the agreement is subject to customary borrowing capacity requirements. Meeting these requirements is highly dependent upon maintaining a minimum level of operating results and the continued demand for our services among other factors.

 

Management believes that it has sufficient liquidity from its cash flow and its revolving credit facility to meet ongoing business needs. However, our ability to borrow is contingent on certain leverage and fixed cost coverage ratios. After application of such ratios and our total commercial commitments of $10.9 million for standby letters of credit and our current outstanding borrowings of $71.7 million, we had $76.6 million available to borrow under our 2001 Credit Agreement as of September 30, 2003.  In September 2002, an amendment was approved that extended the fixed cost coverage ratio requirement of 1.25 until January 1, 2004. This ratio was set to become more restrictive in the fourth quarter of 2002 by increasing to 1.50. Under the amended agreement, the fixed cost ratio will remain at 1.25 until January 1, 2004 and will increase to 1.35 at all times thereafter. Effective March 26, 2003, an amendment was approved that allows for a reduction to the minimum net worth requirement for up to $30 million of share repurchases. Additionally, depending on the mix of stock and cash used in our strategic acquisition program, if any, we may need to seek further financing through the public or private sale of equity or debt securities. There can be no assurance we could secure such financing if and when it is needed or on terms we deem acceptable.

 

In January 2000, we registered on Form S-4 (Registration No. 333-92981) 3,012,217 shares of common stock for issuance in connection with our acquisition program (the “Acquisition Shelf”), of which 1,390,176 shares were available as of September 30, 2003. The shares available have not been reduced for any shares that may be issuable in the future to previous owners of acquired companies as contingent consideration liabilities.

 

Critical Accounting Policies

 

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

 

We have identified the following critical accounting policies that, as a result of the judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved, could result in material changes to our financial condition or results of operations under different conditions or using different assumptions. We apply a consistent methodology at the end of each quarter to determine our account balances that require judgmental analysis.

 

Allowance for Doubtful Accounts

 

The allowance for doubtful accounts is established and maintained based on our estimate of accounts receivable collectibility. Management estimates collectibility by specifically analyzing accounts receivable and other historical factors that affect collections. Such factors include the historical trends of write-offs and recovery of previously written-off accounts, the financial strength of the customer and projected economic and market conditions. The evaluation of these factors involves subjective judgments and changes in these factors may significantly impact our consolidated financial statements.

 

Goodwill and Intangible Assets

 

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

 

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

 

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Long-Lived Asset Impairment

 

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

 

Revenue Recognition

 

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

 

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

 

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

 

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

 

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

 

Self-Insurance Liabilities and Reserves

 

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

 

Other Loss Contingencies

 

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

 

Stock Based Compensation

 

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

 

Recent Accounting Pronouncements

 

In April 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and

 

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clarifies financial accounting/ and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No, 133, Accounting for Derivative Instruments and Hedging Activities and is effective for contracts entered into or modified after June 30, 2003. We adopted the provisions of SFAS No. 149 on July 1, 2003 and such adoption did not have a material impact on the consolidated financial statements.

 

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

 

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS

 

This Report contains certain forward-looking statements such as our intentions, hopes, beliefs, expectations, strategies, predictions or any other variation thereof or comparable phraseology of our future activities or other future events or conditions within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including, without limitation, the risk of integrating our operating companies, of managing our rapid growth, of the timing and magnitude of technological advances, of the occurrences of future events that could diminish our customers’ needs for our services, of a change in the degree to which companies continue to outsource business processes, of an adverse outcome in any given legal proceeding or claim, of the denial of insurance on a particular claim or of a party obligated to provide indemnification being financially unable to do so, as well as such other risks set forth under the heading Risk Factors included in our most recent annual report on Form 10-K.

 

Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Further, we disclaim any obligation to update any such forward-looking statements, except as required by law.

 

Item 3.                   Quantitative and Qualitative Disclosures about Market Risk

 

We are subject to interest rate risk on our term loans, revolving credit facility and Industrial Revenue Bonds. A 100 basis point increase in short-term interest rates would result in approximately $0.2 million of additional expense in 2003 based on our expected average balance outstanding under the credit facility during 2003. Interest rates are fixed on the capitalized lease obligations.

 

We entered into an interest rate swap for a notional amount of $50 million to hedge, through March 31, 2003, our exposure to fluctuations in interest rates on $50 million of our revolving credit facility. We designated the swap as a cash flow hedge. The interest rate swap expired on March 31, 2003 and was not replaced.

 

Item 4.                   Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

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

 

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(b) Change in Internal Control over Financial Reporting

 

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

 

PART II. OTHER INFORMATION

 

Item 1.                   Legal Proceedings

 

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

 

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

 

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

 

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

 

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

 

Various ROI Copy Charge Matters

 

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

 

Mattel v. SOURCECORP

 

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

 

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

 

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

 

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Item 6.                   Exhibits and Reports on Form 8-K

 

(a) Exhibits

 

3.1		Restated Certificate of Incorporation of SOURCECORP, Incorporated (Incorporated by reference to Exhibit 99.3 to Amendment No. 1 to the Company’s Registration Statement on Form 8-A filed on February 15, 2002)
3.2		Amended and Restated By-Laws of SOURCECORP, Incorporated (Incorporated by reference to Exhibit 99.4 to Amendment No. 1 to the Company’s Registration Statement on Form 8-A filed on February 15, 2002)
4		Specimen certificate for the Common Stock, par value $.01 per share, of the Registrant. (Incorporated by reference to Exhibit 99.1 to Amendment No. 1 to the Company’s Registration Statement on Form 8-A filed on February 15, 2002)
10.1		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)
10.2		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)
10.3		Second Amendment to Credit Agreement, dated as of September 27, 2002 between SOURCECORP, Incorporated, Bank of America, N.A., and the other signatories thereto (Incorporated by reference to Exhibit 10.1 on the Company’s Form 10-Q filed November 14, 2002)
10.4		Third Amendment to Credit Agreement, dated as of March 26, 2003 by and among SOURCECORP, Incorporated, Bank of America, N.A., and the other Agents and Lenders party hereto (Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed May 13, 2003)
10.5		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Bank of America, N.A. (Incorporated by reference to Exhibit 10.86 to the Company’s Form 10-K filed March 31, 2003)
10.6		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of SunTrust Bank (Incorporated by reference to Exhibit 10.87 to the Company’s Form 10-K filed March 31, 2003)
10.7		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of BNP Paribas (Incorporated by reference to Exhibit 10.88 to the Company’s Form 10-K filed March 31, 2003)
10.8		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of First Union National Bank (Incorporated by reference to Exhibit 10.89 to the Company’s Form 10-K filed March 31, 2003)
10.9		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of The Bank of Nova Scotia (Incorporated by reference to Exhibit 10.90 to the Company’s Form 10-K filed March 31, 2003)
10.10		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of JPMorgan Chase Bank formerly known as The Chase Manhattan Bank (Incorporated by reference to Exhibit 10.91 to the Company’s Form 10-K filed March 31, 2003)
10.11		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Wachovia Bank, N.A. (Incorporated by reference to Exhibit 10.92 to the Company’s Form 10-K filed March 31, 2003)
10.12		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Washington Mutual Bank (Incorporated by reference to Exhibit 10.93 to the Company’s Form 10-K filed March 31, 2003)
10.13		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Wells Fargo Bank Texas, National Association (Incorporated by reference to Exhibit 10.94 to the Company’s Form 10-K filed March 31, 2003)
10.14		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Bank One, NA (Incorporated by reference to Exhibit 10.95 to the Company’s Form 10-K filed March 31, 2003)

 

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

 

(b) Reports on Form 8-K

 

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

 

On November 5, 2003, the Company filed a Current Report on Form 8-K with the Commission dated November 5, 2003, reporting under Item 7 and Item 12 thereto, the filing of a press release to announce its financial results for the third quarter ended September 30, 2003.

 

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SIGNATURES

 

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

 

	SOURCECORP, INCORPORATED
Date: November 13, 2003	By:		/s/ ED H. BOWMAN, JR.
		Ed H. Bowman, Jr. Chief Executive Officer and President
Date: November 13, 2003	By:		/s/ BARRY L. EDWARDS
		Barry L. Edwards Executive Vice President and Chief Financial Officer  (Principal Financial and Accounting Officer)

 

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INDEX TO EXHIBITS

 

Exhibit Number		Description
3.1		Restated Certificate of Incorporation of SOURCECORP, Incorporated (Incorporated by reference to Exhibit 99.3 to Amendment No. 1 to the Company’s Registration Statement on Form 8-A filed on February 15, 2002)
3.2		Amended and Restated By-Laws of SOURCECORP, Incorporated (Incorporated by reference to Exhibit 99.4 to Amendment No. 1 to the Company’s Registration Statement on Form 8-A filed on February 15, 2002)
4		Specimen certificate for the Common Stock, par value $.01 per share, of the Registrant. (Incorporated by reference to Exhibit 99.1 to Amendment No. 1 to the Company’s Registration Statement on Form 8-A filed on February 15, 2002)
10.1		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)
10.2		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)
10.3		Second Amendment to Credit Agreement, dated as of September 27, 2002 between SOURCECORP, Incorporated, Bank of America, N.A., and the other signatories thereto (Incorporated by reference to Exhibit 10.1 on the Company’s Form 10-Q filed November 14, 2002)
10.4		Third Amendment to Credit Agreement, dated as of March 26, 2003 by and among SOURCECORP, Incorporated, Bank of America, N.A., and the other Agents and Lenders party hereto (Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed May 13, 2003)
10.5		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Bank of America, N.A. (Incorporated by reference to Exhibit 10.86 to the Company’s Form 10-K filed March 31, 2003)
10.6		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of SunTrust Bank (Incorporated by reference to Exhibit 10.87 to the Company’s Form 10-K filed March 31, 2003)
10.7		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of BNP Paribas (Incorporated by reference to Exhibit 10.88 to the Company’s Form 10-K filed March 31, 2003)
10.8		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of First Union National Bank (Incorporated by reference to Exhibit 10.89 to the Company’s Form 10-K filed March 31, 2003)
10.9		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of The Bank of Nova Scotia (Incorporated by reference to Exhibit 10.90 to the Company’s Form 10-K filed March 31, 2003)
10.10		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of JPMorgan Chase Bank formerly known as The Chase Manhattan Bank (Incorporated by reference to Exhibit 10.91 to the Company’s Form 10-K filed March 31, 2003)
10.11		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Wachovia Bank, N.A. (Incorporated by reference to Exhibit 10.92 to the Company’s Form 10-K filed March 31, 2003)
10.12		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Washington Mutual Bank (Incorporated by reference to Exhibit 10.93 to the Company’s Form 10-K filed March 31, 2003)
10.13		Extension Agreement, effective April 3, 2002 among SOURCECORP, Incorporated, each of the Lenders party thereto, Bank of America, N.A., and Banc of America Securities LLC, executed on behalf of Wells Fargo Bank Texas, National Association (Incorporated by reference to Exhibit 10.94 to the Company’s Form 10-K filed March 31, 2003)

 

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

 

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