<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

/X/  Quarterly report pursuant to Section 13 or 15(d) of
     the Securities Exchange Act of 1934

     For the quarterly period ended September 30, 2001, or

/ /  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 0-21639
--------------------------------------------------------------------------------

                                 NCO GROUP, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                                  PENNSYLVANIA
--------------------------------------------------------------------------------
         (State or other jurisdiction of incorporation or organization)

             515 Pennsylvania Avenue, Fort Washington, Pennsylvania
--------------------------------------------------------------------------------
                    (Address of principal executive offices)

                                   23-2858652
--------------------------------------------------------------------------------
                      (IRS Employer Identification Number)

                                      19034
--------------------------------------------------------------------------------
                                   (Zip Code)

                                  215-793-9300
--------------------------------------------------------------------------------
               (Registrant's telephone number including area code)

                                 Not Applicable
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         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, and (2) has been subject to such filing
requirements for the past 90 days.
                                     Yes X   No
                                        ---     ---

         The number of shares outstanding of each of the issuer's classes of
common stock was 25,811,338 shares common stock, no par value, outstanding as of
November 13, 2001.

<PAGE>
                                 NCO GROUP, INC.
                                      INDEX
<TABLE>
<CAPTION>
                                                                                       PAGE

<S>                                                                                   <C>
PART I - FINANCIAL INFORMATION

     Item 1   CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

              Consolidated Balance Sheets -
                  December 31, 2000 and September 30, 2001                              1

              Consolidated Statements of Income -
                  Three months and nine months ended September 30, 2000 and 2001        2

              Consolidated Statements of Cash Flows -
                  Nine months ended September 30, 2000 and 2001                         3

              Notes to Consolidated Financial Statements                                4

     Item 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS                          14

     Item 3   QUANTITATIVE AND QUALITATIVE DISCLOSURES
                ABOUT MARKET RISK                                                      21

PART II - OTHER INFORMATION                                                            22

     Item 1.  Legal Proceedings
     Item 2.  Changes in Securities
     Item 3.  Defaults Upon Senior Securities
     Item 4.  Submission of Matters to a Vote of Shareholders
     Item 5.  Other Information
     Item 6.  Exhibits and Reports on Form 8-K

</TABLE>

<PAGE>
Part 1 - Financial Information
Item 1 - Financial Statements

                                 NCO GROUP, INC.
                           Consolidated Balance Sheets
                             (Amounts in thousands)
<TABLE>
<CAPTION>
                                                                                                September 30,
                                                                              December 31,           2001
                                               ASSETS                             2000           (Unaudited)
                                                                               ---------          ---------
<S>                                                                            <C>                <C>
Current assets:
     Cash and cash equivalents                                                 $  13,490          $  27,693
     Restricted cash                                                                --                1,125
     Accounts receivable, trade, net of allowance for
          doubtful accounts of $7,080 and $6,478, respectively                    93,971            103,577
     Purchased accounts receivable, current portion                               10,861             45,765
     Deferred income taxes                                                         2,287              5,751
     Other current assets                                                          7,925             13,598
                                                                               ---------          ---------
          Total current assets                                                   128,534            197,509

Funds held on behalf of clients

Property and equipment, net                                                       66,401             69,324

Other assets:
     Intangibles, net of accumulated amortization                                536,750            526,895
     Purchased accounts receivable, net of current portion                        23,614             98,104
     Notes receivable                                                             18,250             18,250
     Other assets                                                                 10,457             19,720
                                                                               ---------          ---------
           Total other assets                                                    589,071            662,969
                                                                               ---------          ---------
Total assets                                                                   $ 784,006          $ 929,802
                                                                               =========          =========

                                LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Long-term debt, current portion                                           $     642          $  23,954
     Corporate taxes payable                                                       1,328                782
     Accounts payable                                                             12,360             11,711
     Accrued expenses                                                             19,168             41,504
     Accrued compensation and related expenses                                    15,304             17,647
                                                                               ---------          ---------
          Total current liabilities                                               48,802             95,598

Funds held on behalf of clients

Long-term liabilities:
     Long-term debt, net of current portion                                      303,920            366,061
     Deferred income taxes                                                        40,549             36,440
     Other long-term liabilities                                                   4,309              5,471

Minority interest                                                                   --               19,924

Shareholders' equity:
     Preferred stock, no par value, 5,000 shares authorized,
         no shares issued and outstanding                                           --                 --
     Common stock,  no par value, 37,500 and 50,000 shares authorized,
         25,627 and 25,811 shares issued and outstanding, respectively           316,372            320,918
     Other comprehensive loss                                                     (1,525)            (3,867)
     Retained earnings                                                            71,579             89,257
                                                                               ---------          ---------
           Total shareholders' equity                                            386,426            406,308
                                                                               ---------          ---------
Total liabilities and shareholders' equity                                     $ 784,006          $ 929,802
                                                                               =========          =========
</TABLE>
                            See accompanying notes.

                                      -1-
<PAGE>

                                 NCO GROUP, INC.
                        Consolidated Statements of Income
                                   (Unaudited)
                  (Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
                                                         For the Three Months          For the Nine Months
                                                          Ended September 30,           Ended September 30,
                                                       ------------------------      ------------------------
                                                          2000           2001           2000           2001
                                                       ---------      ---------      ---------      ---------
<S>                                                    <C>            <C>            <C>            <C>
Revenue                                                $ 153,858      $ 174,347      $ 451,904      $ 528,651

Operating costs and expenses:
     Payroll and related expenses                         74,892         85,305        219,380        267,692
     Selling, general, and administrative expenses        44,878         69,027        132,571        178,314
     Depreciation and amortization expense                 8,253          9,774         23,771         28,351
                                                       ---------      ---------      ---------      ---------
          Total operating costs and expenses             128,023        164,106        375,722        474,357
                                                       ---------      ---------      ---------      ---------

Income from operations                                    25,835         10,241         76,182         54,294

Other income (expense):
     Interest and investment income                          609            763          1,575          2,567
     Interest expense                                     (6,450)        (6,627)       (19,265)       (21,343)
     Other income                                           --             --            1,313           --
                                                       ---------      ---------      ---------      ---------
          Total other income (expense)                    (5,841)        (5,864)       (16,377)       (18,776)
                                                       ---------      ---------      ---------      ---------

Income before income tax expense                          19,994          4,377         59,805         35,518

Income tax expense                                         8,447          2,435         25,242         14,820
                                                       ---------      ---------      ---------      ---------

Income from continuing operations before
  minority interest                                       11,547          1,942         34,563         20,698

Minority interest                                           --             (990)          --           (3,020)
                                                       ---------      ---------      ---------      ---------

Income from continuing operations                         11,547            952         34,563         17,678

Discontinued operations, net of income taxes:
     Loss from discontinued operations                      --             --             (975)          --
     Loss on disposal of discontinued operations          (2,365)          --          (23,179)          --
                                                       ---------      ---------      ---------      ---------

Net income                                             $   9,182      $     952      $  10,409      $  17,678
                                                       =========      =========      =========      =========

Income from continuing operations per share:
     Basic                                             $    0.45      $    0.04      $    1.35      $    0.69
     Diluted                                           $    0.45      $    0.04      $    1.34      $    0.67

Net income per share:
     Basic                                             $    0.36      $    0.04      $    0.41      $    0.69
     Diluted                                           $    0.36      $    0.04      $    0.40      $    0.67

Weighted average shares outstanding:
     Basic                                                25,610         25,811         25,576         25,760
     Diluted                                              25,704         25,957         25,826         28,651
</TABLE>
                            See accompanying notes.

                                      -2-
<PAGE>
                                 NCO GROUP, INC
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                             (Amounts in thousands)
<TABLE>
<CAPTION>
                                                                                            For the Nine Months
                                                                                            Ended September 30,
                                                                                    --------------------------------
                                                                                       2000                  2001
                                                                                    ---------              ---------
<S>                                                                                 <C>                    <C>
Cash flows from operating activities:
  Income from continuing operations                                                 $  34,563              $  17,678
  Adjustments to reconcile income from continuing operations to
    net cash provided by continuing operating activities:
      Depreciation                                                                     10,924                 14,882
      Amortization of intangibles                                                      12,847                 13,469
      Net loss on property and equipment disposed of in connection
        with the flood/corporate headquarters relocation                                 --                      827
      Provision for doubtful accounts                                                   3,421                  2,585
      Impairment of purchased accounts receivable                                        --                    1,785
      Minority interest                                                                  --                    3,020
      Changes in operating assets and liabilities, net of acquisitions:
          Restricted cash                                                                --                    2,555
          Accounts receivable, trade                                                  (25,419)               (12,374)
          Deferred income taxes                                                        10,703                  4,408
          Other assets                                                                 (8,215)                (6,935)
          Accounts payable and accrued expenses                                         3,909                 17,854
          Corporate taxes payable                                                      (8,260)                   369
          Other long-term liabilities                                                  (4,404)                 1,162
                                                                                    ---------              ---------
             Net cash provided by continuing operating activities                      30,069                 61,285

          Net cash provided by discontinued
            operating activities                                                        1,597                   --
                                                                                    ---------              ---------
             Net cash provided by operating activities                                 31,666                 61,285

Cash flows from investing activities:
  Acquisition of purchased accounts receivable                                        (20,901)               (39,533)
  Collections applied to principal of purchased accounts receivable                     2,633                 26,775
  Purchase of property and equipment                                                  (24,348)               (20,513)
  Insurance proceeds from involuntary conversion of
    property and equipment                                                               --                      560
  Investment in consolidated subsidiary by minority interest                             --                    2,320
  Net cash paid for pre-acquisition liabilities and
    acquisition related costs                                                         (10,000)               (11,077)
                                                                                    ---------              ---------
             Net cash used in investing activities                                    (52,616)               (41,468)

Cash flows from financing activities:
  Repayment of notes payable                                                           (1,635)               (16,782)
  Repayment of acquired notes payable                                                    --                  (20,084)
  Borrowings under revolving credit agreement                                            --                   65,230
  Repayment of borrowings under revolving credit agreement                            (15,000)              (157,350)
  Payment of fees to acquire new debt                                                    --                   (5,127)
  Proceeds from issuance of convertible debt                                             --                  125,000
  Issuance of common stock, net                                                         1,013                  3,652
                                                                                    ---------              ---------
             Net cash used in financing activities                                    (15,622)                (5,461)

Effect of exchange rate on cash                                                           (90)                  (153)
                                                                                    ---------              ---------

Net (decrease) increase in cash and cash equivalents                                  (36,662)                14,203

Cash and cash equivalents at beginning of period                                       50,513                 13,490
                                                                                    ---------              ---------

Cash and cash equivalents at end of period                                          $  13,851              $  27,693
                                                                                    =========              =========
</TABLE>
                            See accompanying notes.

                                      -3-
<PAGE>


                                 NCO GROUP, INC.
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.   Nature of Operations:

NCO Group, Inc. (the "Company" or "NCO") is a leading provider of accounts
receivable management and collection services. The Company also owns
approximately 63% of NCO Portfolio Management, Inc., a separate public company
that purchases and manages accounts receivable. The Company's client base
includes companies in the financial services, healthcare, retail, commercial,
education, utilities, government and telecommunications sectors. These clients
are primarily located throughout the United States of America, Canada, the
United Kingdom, and Puerto Rico.

2.   Accounting Policies:

     Interim Financial Information:

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three-month and nine-month periods
ended September 30, 2001, are not necessarily indicative of the results that may
be expected for the year ending December 31, 2001, or for any other interim
period. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 16, 2001.

     Principles of Consolidation:

The consolidated financial statements include the accounts of the Company and
all affiliated subsidiaries and entities controlled by the Company. All
significant intercompany accounts and transactions have been eliminated.

     Contingency Fees and Contractual Services:

The Company generates revenue from contingent fees and contractual services.
Contingent fee revenue is recognized upon collection of funds on behalf of
clients. Contractual services revenue is recognized as services are performed
and accepted by the client.

     Purchased Accounts Receivable:

The Company accounts for its investment in purchased accounts receivable on an
accrual basis under the guidance of Practice Bulletin 6, "Amortization of
Discounts on Certain Acquired Loans," using unique and exclusive static pools.
Static pools are established with accounts having similar attributes. Typically,
each pool consists of an individual acquisition of accounts. Once a static pool
is established, the accounts in the pool are not changed.


                                      -4-
<PAGE>

2.   Accounting Policies (continued):

     Purchased Accounts Receivable (continued):

Each static pool is initially recorded at cost. Collections on the pools are
allocated to revenue and principal reduction based on the estimated internal
rate of return for each pool. The internal rate of return for each static pool
is estimated based on the expected monthly collections over the estimated
economic life of each pool (generally five years, based on the Company's
collection experience), compared to the original purchase price. Revenue on
purchased accounts receivable is recorded monthly based on each static pool's
effective internal rate of return applied to each static pool's monthly opening
carrying value. To the extent collections exceed the revenue, the carrying value
is reduced and the reduction is recorded as collections applied to principal.
Because the internal rate of return reflects collections for the entire economic
life of the static pool and those collections are not constant, lower collection
rates, typically in the early months of ownership, can result in a situation
where the actual collections are less than the revenue accrual. In this
situation, the carrying value of the pool may be accreted for the difference
between the revenue accrual and the carrying value.

To the extent the estimated future cash flow increases or decreases from the
expected level of collections, the Company adjusts the yield (the internal rate
of return) accordingly. To the extent that the carrying amount of a particular
static pool exceeds its expected future cash flows, a charge to earnings would
be recognized in the amount of such impairment. After the impairment of a static
pool, no income is recorded on that static pool and collections are recorded as
a return of capital. The estimated yield for each static pool is based on
estimates of future cash flows from collections, and actual cash flows may vary
from current estimates. The difference could be material.

Proceeds from the sale of accounts within a static pool are accounted for as
collections in that static pool. Collections on replacement accounts received
from the originator of the loans are included as collections in the
corresponding static pools. The discount between the cost of each static pool
and the face value of the static pool is not recorded since the Company expects
to collect a relatively small percentage of each static pool's face value.

     Credit Policy:

The Company has two types of arrangements under which it collects its contingent
fee revenue. For certain clients, the Company remits funds collected on behalf
of the client net of the related contingent fees while, for other clients, the
Company remits gross funds collected on behalf of clients and bills the client
separately for its contingent fees. Management carefully monitors its client
relationships in order to minimize its credit risk and generally does not
require collateral. In many cases, in the event of collection delays from
clients, management may, at its discretion, change from the gross remittance
method to the net remittance method.

     Intangibles:

Intangibles consist primarily of goodwill and deferred financing costs.

Goodwill represents the excess of purchase price over the fair market value of
the net assets of the acquired businesses based on their respective fair values
at the date of acquisition. Goodwill is amortized on a straight-line basis over
15 to 40 years. The Company reviews the recoverability of its goodwill whenever
events or circumstances indicate that the carrying amount of the goodwill may
not be recoverable. If such circumstances arise, the Company would use an
estimate of the undiscounted value of expected future operating cash flows to
determine whether the goodwill is recoverable.

Deferred financing costs relate to debt issuance costs incurred, which are
capitalized and amortized over the term of the debt.


                                      -5-
<PAGE>

2.   Accounting Policies (continued):

     Income Taxes:

The Company accounts for income taxes using an asset and liability approach. The
asset and liability approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities.

Income taxes were computed after giving effect to the nondeductible portion of
goodwill expenses attributable to certain acquisitions.

The static pools of purchased accounts receivable are comprised of distressed
debt. Collection results are not guaranteed until received; accordingly, for tax
purposes, any gain on a particular static pool is deferred until the full cost
of its acquisition is recovered. Revenue for financial reporting purposes is
recognized ratably over the life of the static pool. Deferred tax liabilities
arise from income tax deferrals created during the early stages of the static
pool. These deferrals reverse after the cost basis of the static pool is
recovered. The creation of new tax deferrals from future purchases of static
pools are expected to offset the reversal of the deferrals from static pools
where the collections have become fully taxable.

     Use of Estimates:

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and 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.

Significant estimates have been made by management with respect to the amount of
future cash flows of purchased accounts receivable. The estimated future cash
flows of the portfolios are used to recognize revenue and amortize the carrying
values of the purchased accounts receivable. Actual results could differ from
these estimates, making it reasonably possible that a change in these estimates
could occur within one year. On a quarterly basis, management reviews the
estimate of future collections, and it is reasonably possible that its
assessment may change based on actual results and other factors. The change
could be material.

3.   Discontinued Operations:

On April 14, 2000 (the "Measurement Date"), the Company's Board of Directors
approved a plan to divest the Company's Market Strategy division as part of its
strategic plan to increase long-term shareholder value and focus on its core
business of accounts receivable management services. The Market Strategy
division provided market research and telemarketing services. The market
research assets were acquired through the January 1997 acquisition of the
Tele-Research Center, Inc. and the February 1998 acquisition of The Response
Center. The telemarketing assets were acquired as non-core components of the
March 1999 acquisition of JDR Holdings, Inc., and the August 1999 acquisition of
Compass International Services Corporation. On October 26, 2000, TRC Holdings,
Inc. and Creative Marketing Strategies, Inc., both management-led groups,
acquired the assets of the market research and telemarketing businesses,
respectively.

In consideration for the purchased assets of the market research business, the
Company received a $12.25 million note. The note earns interest at a fixed rate
of 9% per year and the interest payments are due monthly. The entire principal
balance is due on December 31, 2002. In the event that the principal and the
remaining interest is not paid in full on December 31, 2002, the principal of
the note will be increased by a maximum of $2.0 million. The remaining principal
and interest will be due in equal monthly payments until December 31, 2005.

In consideration for the purchased assets of the telemarketing business, the
Company received a $6.0 million note. The note earns interest at a fixed rate of
9% per year and the interest payments are due monthly. Commencing on December 1,
2003, in addition to the interest payments, principal payments of $25,000 will
be due monthly until November 1, 2005. The remaining principal and interest will
become due in full on November 1, 2005.

                                      -6-
<PAGE>

3.   Discontinued Operations (continued):

In accordance with the Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the
consolidated financial statements and the accompanying notes of the Company have
been presented to reflect the Market Strategy division as discontinued
operations for all periods presented.

The following summary of the Market Strategy division's operations prior to the
Measurement Date have been presented net in the Company's consolidated statement
of income for the nine months ended September 30, 2000 (amounts in thousands):

                                                          Nine months ended
                                                         September 30, 2000
                                                        ----------------------

      Revenue                                              $ 7,802
                                                           =======
      Loss from discontinued operations
        before income tax benefit                          $(1,498)
      Income tax benefit                                      (523)
                                                           -------

      Loss from discontinued operations,
        net of income tax benefit                          $  (975)
                                                           =======

During the nine months ended September 30, 2000, the Company recorded a $23.2
million loss (net of a tax benefit of $4.3 million), or $0.90 loss per share on
a diluted basis, on the disposal of the Market Strategy division. This loss
reflected management's estimate of the difference between the net assets of the
Market Strategy division over the proceeds from the divestiture and the
estimated operating losses from the Measurement Date through the completion of
the divestiture.

4.   Acquisition:

In February 2001, the Company merged NCO Portfolio Management, Inc. ("NCO
Portfolio"), its wholly owned subsidiary, with Creditrust Corporation
("Creditrust") to form a new public entity focused on the purchase of accounts
receivable. After the merger, the Company owned approximately 63% of the
outstanding stock of NCO Portfolio, subject to certain adjustments. The
Company's contribution to the NCO Portfolio merger consisted of $25.0 million of
purchased accounts receivable, net of deferred tax liabilities. The purchase
price allocation of the fair market value to the acquired assets and liabilities
was based on preliminary estimates and may be subject to change. As part of the
acquisition, NCO Portfolio signed a ten-year service agreement that appointed
the Company as the sole provider of collection services to NCO Portfolio. The
Company has agreed to offer all of its future U.S. accounts receivable purchase
opportunities to NCO Portfolio. In connection with the acquisition, NCO Group
amended its credit agreement with Mellon Bank, N.A., for itself and as
administrative agent for other participating lenders, to make $50.0 million of
its credit facility available for the use of NCO Portfolio. Upon completion of
the acquisition, NCO Group borrowed $36.3 million for NCO Portfolio under this
credit facility.

The following summarizes the unaudited pro forma results of operations for the
nine months ended September 30, 2000 and 2001, assuming the Creditrust
acquisition occurred as of the beginning of the respective periods. The pro
forma information is provided for informational purposes only. It is based on
historical information, and does not necessarily reflect the actual results that
would have occurred, nor is it indicative of future results of operations of the
consolidated entities (amounts in thousands):

                                             For the nine months ended
                                                   September 30,
                                            -----------------------------

                                               2000              2001
                                            -------------   -------------
      Revenue                                 $ 487,259         $532,231

      Net (loss) income                       $ (27,217)        $  7,710
      (Loss) earnings per share - basic          $(1.06)           $0.30
      (Loss) earnings per share - diluted        $(1.06)           $0.29


                                      -7-
<PAGE>

5.   Comprehensive Income:

Comprehensive income consists of net income from operations, plus certain
changes in assets and liabilities that are not included in net income but are
reported as a separate component of shareholders' equity. The Company's
comprehensive income for the three months and nine months ended September 30,
2000 and 2001 was as follows (amounts in thousands):
<TABLE>
<CAPTION>
                                                    For the three months      For the nine months
                                                     ended September 30,      ended September 30,
                                                --------------------------    --------------------------
                                                  2000              2001        2000              2001
                                                --------          --------    --------          --------
<S>                                             <C>               <C>         <C>               <C>
Net income                                      $  9,182          $    952    $ 10,409          $ 17,678
Foreign currency translation adjustment             (944)           (1,911)     (1,583)           (2,342)
                                                --------          --------    --------          --------
Comprehensive income (loss)                     $  8,238          $   (959)   $  8,826          $ 15,336
                                                ========          ========    ========          ========
</TABLE>


6.   Purchased Accounts Receivable:

The Company purchases defaulted consumer receivables at a discount from the
actual principal balance. The following summarizes the change in purchased
accounts receivable for the year ended December 31, 2000 and for the nine months
ended September 30, 2001:

                                                    December 31,  September 30,
                                                        2000          2001
                                                     ---------     ---------
Balance, at beginning of period                      $   6,719     $  34,475


Purchased accounts receivable acquired
  from Creditrust                                         --          98,988

Purchases of accounts receivable                        32,961        39,533
Collections on purchased accounts receivable           (20,495)      (74,599)
Revenue recognized                                      15,411        47,304
Impairment of purchased accounts receivable               --          (1,784)
Foreign currency translation adjustment                   (121)          (48)
                                                     ---------     ---------
Balance, at end of period                            $  34,475     $ 143,869
                                                     =========     =========

To the extent that the carrying amount of a static pool exceeds its fair value,
an impairment would be recognized as a charge to earnings. After the impairment
of a static pool, no revenue is recognized on that static pool, and all
collections are treated as a return of capital. During the second and third
quarters of 2001, impairments of $463,000 and $1.3 million, respectively, were
recorded as the carrying value of six and ten static pools, respectively,
exceeded their fair value. No revenue will be recorded on these static pools
until their carrying amounts have been fully recovered. The combined carrying
amounts on these static pools after impairment totaled approximately $4.7
million as of September 30, 2001, representing their net realizable value.

7.   Funds Held on Behalf of Clients:

In the course of the Company's regular business activities as a provider of
accounts receivable management services, the Company receives clients' funds
arising from the collection of accounts placed with the Company. These funds are
placed in segregated cash accounts and are generally remitted to clients within
30 days. Funds held on behalf of clients of $54.1 million and $57.5 million at
December 31, 2000 and September 30, 2001, respectively, have been shown net of
their offsetting liability for financial statement presentation.

                                      -8-
<PAGE>



8.   Long-Term Debt:

Long-term debt consisted of the following at December 31, 2000 and September 30,
2001 (amounts in thousands):

                                                    December 31,  September 30,
                                                        2000           2001
                                                     ---------      ---------
Revolving credit loan                                $ 303,750      $ 211,630

Convertible debt                                          --          125,000

Securitized debt                                          --           49,940

Subordinated seller notes payable; interest rate
  of 7.16%, due May 2001                                   130           --
Capital leases                                             682          3,445
Less current portion                                      (642)       (23,954)
                                                     ---------      ---------
                                                     $ 303,920      $ 366,061
                                                     =========      =========
     Revolving Credit Facility

The Company has a credit agreement with Mellon Bank, N.A. ("Mellon Bank"), for
itself and as administrative agent for other participating lenders, that
originally provided for borrowings up to $350.0 million, structured as a
revolving credit facility. The borrowing capacity of the revolving credit
facility is subject to mandatory reductions including a quarterly reduction of
$6.3 million on March 31, 2001, subsequent quarterly reductions of $5.2 million
until maturity, and 50 percent of the net proceeds received from any offering of
debt or equity. As of September 30, 2001, the maximum borrowing capacity of the
revolving credit agreement was $272.7 million.

At the option of NCO, the borrowings bear interest at a rate equal to either
Mellon Bank's prime rate plus a margin of 0.25% to 0.50% that is determined
quarterly based upon the Company's consolidated funded debt to earnings before
interest, taxes, depreciation, and amortization ("EBITDA") ratio (Mellon Bank's
prime rate was 6.00% at September 30, 2001), or the London InterBank Offered
Rate ("LIBOR") plus a margin of 1.25% to 2.25% depending on the Company's
consolidated funded debt to EBITDA ratio (LIBOR was 2.64% at September 30,
2001). The Company is charged a fee on the unused portion of the credit facility
ranging from 0.13% to 0.38% depending on the Company's consolidated funded debt
to EBITDA ratio.

In connection with the merger of Creditrust into NCO Portfolio, the Company
amended its revolving credit facility to allow the Company to provide NCO
Portfolio with a $50 million revolving line of credit in the form of a
sub-facility under its existing credit facility. If the borrowing capacity of
the sub-facility has not been reduced to $25 million by March 31, 2002, then the
sub-facility will be subject to mandatory quarterly reductions including four
quarterly reductions beginning March 31, 2002 of $2.5 million and then quarterly
reductions $3.75 million, thereafter, until the earlier of maturity or until the
borrowing capacity has been reduced to $25 million. At the option of NCO, the
borrowings bear interest at a rate equal to either Mellon Bank's prime rate plus
a margin of 1.25% to 1.50% that is determined quarterly based upon the Company's
consolidated funded debt to EBITDA ratio, or LIBOR plus a margin of 2.25% to
3.25% depending on the Company's consolidated funded debt to EBITDA ratio. As of
September 30, 2001, NCO Portfolio had $47.1 million outstanding under the
sub-facility.

Borrowings are collateralized by substantially all the assets of the Company,
including the common stock of NCO Portfolio, and certain assets of NCO
Portfolio. The balance under the revolving credit facility shall become due on
May 20, 2004. The credit agreement contains certain financial covenants such as
maintaining net worth and funded debt to EBITDA requirements and includes
restrictions on, among other things, acquisitions and distributions to
shareholders.

     Convertible Debt

In April 2001, the Company completed the sale of $125.0 million aggregate
principal amount of 4.75% Convertible Subordinated Notes due 2006 ("Notes") in a
private placement pursuant to Rule 144A and Regulation S under the Securities
Act of 1933. The Notes are convertible into NCO common stock at an initial
conversion price of $32.92 per share. The Company used the $121.3 million of net
proceeds from this offering to repay debt under its revolving credit agreement.
In accordance with the terms of the credit agreement, 50% of the net proceeds
from the Notes permanently reduced the maximum borrowings available under the
revolving credit facility.

                                      -9-
<PAGE>
8.   Long-Term Debt (continued):

     Securitized Debt

NCO Portfolio has assumed three securitized notes payable in connection with the
acquisition of Creditrust. These notes payable were originally established to
fund the purchase of accounts receivable. Each of the notes payable is
non-recourse to the Company and NCO Portfolio, secured by a pool of purchased
accounts receivable, and is bound by an indenture and servicing agreement.
Pursuant to the acquisition, the trustee appointed NCO as the successor servicer
for each pool of purchased accounts receivable. When the notes payable were
established, a separate special purpose finance subsidiary was created to hold
the assets and debt.

The first securitized note ("Warehouse Facility") was established in September
1998 through Creditrust Funding I LLC, a special purpose finance subsidiary. The
Warehouse Facility carries a floating interest rate of LIBOR plus 0.65% per
annum, and the final due date of all payments under the facility is March 2005.
A $900,000 liquidity reserve is included in restricted cash as of September 30,
2001, and is restricted as to use until the facility is retired. Interest
expense, trustee fees and guarantee fees aggregated $266,000 and $739,000 for
the three months ended September 30, 2001 and the period from February 21, 2001
to September 30, 2001, respectively. As of September 30, 2001, the amount
outstanding on the facility was $18.5 million. The note issuer, Asset Guaranty
Insurance Company, has been guaranteed against loss by NCO Portfolio for up to
$4.5 million, which will be reduced if and when reserves and residual cash flows
from another securitization are posted as additional collateral for this
facility.

The second securitized note ("SPV99-1 Financing") was established in August 1999
through Creditrust SPV99-1, LLC, a special purpose finance subsidiary. SPV99-1
Financing carries interest at 9.43% per annum, with a final payment date of
August 2004. A $225,000 liquidity reserve is included in restricted cash as of
September 30, 2001, and is restricted as to use until the facility is retired.
Interest expense, trustee fees and guarantee fees aggregated $177,000 and
$575,000 for the three months ended September 30, 2001 and the period from
February 21, 2001 to September 30, 2001, respectively. As of September 30, 2001,
the amount outstanding on the facility was $6.5 million.

The third securitized note ("SPV99-2 Financing") was established in August 1999
through Creditrust SPV99-2, LLC, a special purpose finance subsidiary. SPV99-2
Financing carries interest at 15.00% per annum, with a final payment date of
December 2004. Interest expense, trustee fees and guarantee fees aggregated
$960,000 and $2.4 million for the three months ended September 30, 2001 and the
period from February 21, 2001 to September 30, 2001, respectively. As of
September 30, 2001, the amount outstanding on the facility was $25.0 million.

9.   Earnings Per Share:

Basic earnings per share ("EPS") were computed by dividing the income from
continuing operations and the net income for the three months and nine months
ended September 30, 2000 and 2001, by the weighted average number of common
shares outstanding. Diluted EPS were computed by dividing the income from
continuing operations and the net income for the three months and nine months
ended September 30, 2000 and 2001, by the weighted average number of common
shares outstanding plus all common equivalent shares. Outstanding options,
warrants and convertible securities have been utilized in calculating diluted
net income per share only when their effect would be dilutive. For the three
months ended September 30, 2001, the common stock to be issued assuming the
conversion of the 4.75% convertible notes issued in April 2001 was antidilutive
and, therefore, was excluded from computing diluted EPS.


                                      -10-
<PAGE>
9.   Earnings Per Share (continued):

The reconciliation of basic to diluted weighted average shares outstanding for
the three months and nine months ended September 30, 2000 and 2001 was as
follows (amounts in thousands):

<TABLE>
<CAPTION>
                                         For the three months ended    For the nine months ended
                                                 September 30,                September 30,
                                            ---------------------         ---------------------

                                             2000           2001           2000           2001
                                            ------         ------         ------         ------
<S>                                         <C>            <C>            <C>            <C>
Basic                                       25,610         25,811         25,576         25,760
Dilutive effect of convertible debt           --             --             --            2,476
Dilutive effect of options                      17             82             85            297
Dilutive effect of warrants                     77             64            165            118
                                            ------         ------         ------         ------

Diluted                                     25,704         25,957         25,826         28,651
                                            ======         ======         ======         ======
</TABLE>

10.  Interest Rate Collars:

As of December 31, 2000, the Company was party to three interest rate collar
agreements that consisted of LIBOR ceilings and floors that are based on
different notional amounts. The first interest rate collar agreement consisted
of a ceiling portion with a rate of 7.75%, covering a notional amount of $30.0
million, and a floor portion with a rate of 4.75%, covering a notional amount of
$15.0 million. This interest rate collar agreement expired in September of 2001.
The other two interest rate collar agreements consisted of a ceiling portion
with a rate of 7.50% and a floor portion with a rate of 5.50%, covering a total
notional amount of $120.0 million. These interest rate collar agreements expired
in October of 2001. The notional amounts of these interest rate collar
agreements are used to measure the interest to be paid or received and do not
represent the amount of exposure due to credit loss. The net cash amounts paid
or received on the interest rate collar agreements are accrued and recognized as
an adjustment to interest expense. The fair value of the interest rate collar
instruments was determined to be immaterial at December 31, 2000.

11.  Supplemental Cash Flow Information:

The following are supplemental disclosures of cash flow information for the nine
months ended September 30, 2000 and 2001 (amounts in thousands):

                                                            2000        2001
                                                         ----------  ----------
         Non-cash investing and financing activities:
              Fair value of assets acquired                $ -        $123,491
              Liabilities assumed from acquisitions          -         108,908

12.  Segment Reporting:

During the first nine months of 2000, the Company was organized into operating
divisions that were focused on the operational delivery of services. The
Company's focus on the operational delivery of services allowed it to take
advantage of significant cross-selling opportunities and enhance the level of
service provided to its clients. The operating divisions during the first nine
months of 2000 included Accounts Receivable Management Services,
Technology-Based Outsourcing, and International Operations. During 2000, the
continued integration of the Company's infrastructure facilitated the further
reduction of the operating divisions from three to two. Effective October 1,
2000, the new operating divisions included U.S. Operations (formerly Accounts
Receivable Management Services and Technology-Based Outsourcing) and
International Operations. Each of these divisions will maintain industry
specific functional groups including healthcare, commercial, banking, retail,

                                      -11-
<PAGE>

12.  Segment Reporting (continued):

education, utilities, telecommunications, and government. The Company created
the Portfolio Management division as a result of the February 2001 acquisition
of Creditrust. Prior to the acquisition, NCO's portfolio business was part of
the U.S. Operations division. The segment information for the three months and
nine months ended September 30, 2000, has been restated to reflect the three
continuing operating segments.

The accounting policies of the segments are the same as those described in Note
2, "Accounting Policies."

The U.S Operations division provides accounts receivable management services to
consumer and commercial accounts for all market segments, serving clients of all
sizes in local, regional and national markets. In addition to traditional
accounts receivable collections, these services include developing the client
relationship beyond bad debt recovery and delinquency management, delivering
cost-effective receivables and customer relationship management solutions to all
market segments, serving clients of all sizes in local, regional and national
markets. The U.S. Operations division is the exclusive provider of accounts
receivable management services to the Portfolio Management division. U.S.
Operations had total assets, net of any intercompany balances, of $704.5 million
and $727.9 million at December 31, 2000 and September 30, 2001, respectively.

The Portfolio Management division purchases and manages defaulted consumer
receivables from credit grantors, including banks, finance companies, retail
merchants and other service providers. Portfolio Management had total assets,
net of any intercompany balances, of $32.1 million and $154.7 million at
December 31, 2000 and September 30, 2001, respectively.

The International Operations division provides accounts receivable management
services across Canada and the United Kingdom. U.S. Operations uses
International Operations as a sub-contractor to perform accounts receivable
management services to some of its clients. International Operations had total
assets, net of any intercompany balances, of $47.4 million and $47.2 million at
December 31, 2000 and September 30, 2001, respectively.

The following tables represent the revenue, payroll and related expenses,
selling, general, and administrative expenses, and earnings before interest,
taxes, depreciation, and amortization ("EBITDA") for each segment for the three
months and nine months ended September 30, 2000 and 2001. EBITDA is used by the
Company's management to measure the segments' operating performance and is not
intended to report the segments' operating results in conformity with accounting
principles generally accepted in the United States (amounts in thousands).
<TABLE>
<CAPTION>
                                            For the three months ended September 30, 2000
                                 ------------------------------------------------------------------
                                                   Payroll and     Selling, General
                                                     Related           and Admin.
                                  Revenue            Expenses           Expenses            EBITDA
                                 ---------          ---------          ---------          ---------
<S>                              <C>                <C>               <C>                <C>
U.S. Operations                  $ 143,550          $  70,542         $  42,505          $  30,503
Portfolio Management                 3,985                 74             1,818              2,093
International Operations             8,106              4,276             2,338              1,492
Eliminations                        (1,783)              --              (1,783)              --
                                 ---------          ---------         ---------          ---------
Total                            $ 153,858          $  74,892         $  44,878          $  34,088
                                 =========          =========         =========          =========


                                             For the three months ended September 30, 2001
                                  -----------------------------------------------------------------
                                                   Payroll and     Selling, General
                                                     Related           and Admin.
                                  Revenue            Expenses           Expenses            EBITDA
                                 ---------          ---------          ---------          ---------
U.S. Operations                  $ 157,337          $  80,810          $  64,713          $  11,814
Portfolio Management                16,189                525              9,080              6,584
International Operations             9,724              5,526              2,581              1,617
Eliminations                        (8,903)            (1,556)            (7,347)              --
                                 ---------          ---------          ---------          ---------
Total                            $ 174,347          $  85,305          $  69,027          $  20,015
                                 =========          =========          =========          =========
</TABLE>
                                      -12-
<PAGE>

12.  Segment Reporting (continued):
<TABLE>
<CAPTION>
                                              For the nine months ended September 30, 2000
                                 ------------------------------------------------------------------
                                                   Payroll and     Selling, General
                                                     Related           and Admin.
                                  Revenue            Expenses           Expenses            EBITDA
                                 ---------          ---------          ---------          ---------
<S>                              <C>                <C>               <C>                <C>
U.S. Operations                  $ 424,073          $ 206,373         $ 125,471          $  92,229
Portfolio Management                 7,712                222             3,359              4,131
International Operations            23,421             12,785             7,043              3,593
Eliminations                        (3,302)              --              (3,302)              --
                                 ---------          ---------         ---------          ---------
Total                            $ 451,904          $ 219,380         $ 132,571          $  99,953
                                 =========          =========         =========          =========


                                             For the nine months ended September 30, 2001
                                 ------------------------------------------------------------------
                                                   Payroll and     Selling, General
                                                     Related           and Admin.
                                  Revenue            Expenses           Expenses            EBITDA
                                 ---------          ---------          ---------          ---------
U.S. Operations                  $ 477,951          $ 253,432          $ 166,991          $  57,528
Portfolio Management                46,723              1,333             23,984             21,406
International Operations            27,768             16,325              7,732              3,711
Eliminations                       (23,791)            (3,398)           (20,393)              --
                                 ---------          ---------          ---------          ---------
Total                            $ 528,651          $ 267,692          $ 178,314          $  82,645
                                 =========          =========          =========          =========
</TABLE>

13. Net Loss Due to Flood and Relocation of Corporate Headquarters:

In June of 2001, the entire first floor of the Company's Fort Washington, PA
headquarters was severely damaged by a flood caused by remnants of tropical
storm Allison. During the third quarter of 2001, the Company decided to abandon
the Fort Washington facilities and move its corporate headquarters to Horsham,
PA. The Company has currently filed a lawsuit against its landlord to terminate
the leases for the Fort Washington facilities. Due to the uncertainty of the
outcome of the lawsuit, the Company has recorded the full amount of rent due
under the remaining terms of the leases during the third quarter of 2001. The
Company has also recorded other expenses and expected insurance proceeds during
the third quarter of 2001 in connection with the flood and the relocation of the
corporate headquarters. The net effect of the charges and the gain from the
insurance proceeds included in selling, general, and administrative expenses
during the third quarter of 2001 was $11.2 million.


                                      -13-
<PAGE>

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

     Certain statements included in this Report on Form 10-Q, other than
historical facts, are forward-looking statements (as such term is defined in the
Securities Exchange Act of 1934, and the regulations thereunder) which are
intended to be covered by the safe harbors created thereby. Forward-looking
statements include, without limitation, statements as to the Company's expected
future results of operations, the Company's growth strategy, the Company's
internet and e-commerce strategy, the effects of the terrorist attacks and the
economy on the Company's business, expected increases in operating efficiencies,
anticipated trends in the accounts receivable management industry, estimate of
future cash flows of purchased accounts receivable, the effects of legal or
governmental proceedings, the effects of changes in accounting pronouncements
and statements as to trends or the Company's or management's beliefs,
expectations and opinions. Forward-looking statements are subject to risks and
uncertainties and may be affected by various factors that may cause actual
results to differ materially from those in the forward-looking statements. In
addition to the factors discussed in this report, certain risks, uncertainties
and other factors, including, without limitation, the risk that the Company will
not be able to achieve expected future results of operations, the risk that the
Company will not be able to implement its growth strategy as and when planned,
risks associated with the recent expansion of NCO Portfolio Management, Inc.,
risks associated with growth and future acquisitions, the risk that the Company
will not be able to realize operating efficiencies in the integration of its
acquisitions, fluctuations in quarterly operating results, risks relating to the
timing of contracts, risks related to purchased accounts receivable, risks
associated with technology, the internet and the Company's e-commerce strategy,
risks related to past or possible future terrorist attacks, risks related to the
economy, and other risks detailed from time to time in the Company's filings
with the Securities and Exchange Commission, including the Company's Annual
Report on Form 10-K, filed March 16, 2001, can cause actual results and
developments to be materially different from those expressed or implied by such
forward-looking statements.

     A copy of the Annual Report on Form 10-K can be obtained, without charge
except for exhibits, by written request to Steven L. Winokur, Executive Vice
President, Finance/CFO, NCO Group, Inc., 515 Pennsylvania Avenue, Fort
Washington, PA 19034.

     Three Months Ended September 30, 2001, Compared to Three Months Ended
     September 30, 2000

     Revenue. Revenue increased $20.4 million, or 13.3%, to $174.3 million for
the three months ended September 30, 2001, from $153.9 million for the
comparable period in 2000. The U.S. Operations, Portfolio Management, and
International Operations divisions accounted for $157.3 million, $16.2 million,
and $9.7 million, respectively, of the revenue for the three months ended
September 30, 2001. The U.S. Operations' revenue included $7.3 million of
revenue earned on services performed for the Portfolio Management division that
was eliminated upon consolidation. The International Operations' revenue
included $1.6 million of revenue earned on services performed for the U.S.
Operations division that was eliminated upon consolidation.

     U.S. Operations' revenue increased $13.7 million, or 9.6%, to $157.3
million for the three months ended September 30, 2001, from $143.6 million for
the comparable period in 2000. This increase in the U.S. Operations' revenue was
attributable to the addition of new clients and the growth in business from
existing clients. However, the growth in revenue was hindered by the loss of
revenue from client-mandated calling restrictions and lower collections due to
diminished consumer payments following the September 11, 2001 terrorist attacks.

     Portfolio Management's revenue increased $12.2 million, or 306.4%, to $16.2
million for the three months ended September 30, 2001, from $4.0 million for the
comparable period in 2000. This increase in the Portfolio Management's revenue
was primarily attributable to the acquisition of Creditrust in February 2001.
The remainder of the increase was attributable to an increase in acquisitions of
purchased accounts receivable. However, the growth in revenue was hindered by
lower than projected collections due to diminished consumer payments following
the September 11, 2001 terrorist attacks.


                                      -14-
<PAGE>

     International Operations' revenue increased $1.6 million, or 20.0%, to $9.7
million for the three months ended September 30, 2001, from $8.1 million for the
comparable period in 2000. This increase in the International Operations'
revenue was primarily attributable to new services provided for U.S. Operations.

     Payroll and related expenses. Payroll and related expenses increased $10.4
million to $85.3 million for the three months ended September 30, 2001, from
$74.9 million for the comparable period in 2000, and increased as a percentage
of revenue to 48.9% from 48.7%.

     The payroll and related expenses of the U.S Operations division increased
$10.3 million to $80.8 million for the three months ended September 30, 2001,
from $70.5 million for the comparable period in 2000, and increased as a
percentage of revenue to 51.4% from 49.1%. The increase as a percentage of
revenue was primarily the result of reduced collectibility within the U.S.
Operations' contingent revenue stream due to the effects of the difficult
collection environment. Accordingly, in order to mitigate the effects of the
decreased collectibility while maintaining its performance for its clients, the
U.S. Operations had to increase spending for payroll costs. The effects of the
difficult collection environment were amplified by diminished consumer payment
patterns following the September 11, 2001 terrorist attacks.

     The payroll and related expenses of the Portfolio Management division
increased $451,000 to $525,000 for the three months ended September 30, 2001,
from $74,000 for the comparable period in 2000, and increased as a percentage of
revenue to 3.2% from 1.9%. The Portfolio Management division outsources all of
its collection services to the U.S. Operations division and, therefore, has a
relatively small fixed payroll cost structure. However, due to the expansion of
this division and the February 2001 acquisition of Creditrust, the Portfolio
Management division required additional employees to operate NCO Portfolio
Management, Inc. as a separate public company.

     The payroll and related expenses of the International Operations division
increased $1.2 million to $5.5 million for the three months ended September 30,
2001, from $4.3 million for the comparable period in 2000, and increased as a
percentage of revenue to 56.8% from 52.8%. A portion of the increase as a
percentage of revenue was the result of upfront costs related to new projects
started in the third quarter of 2001. The increase was also attributable to the
increase in outsourcing services since these services typically have a higher
payroll cost structure than the remainder of the International Operations'
business.

     Selling, general and administrative expenses. Selling, general and
administrative expenses increased $24.1 million to $69.0 million for the three
months ended September 30, 2001, from $44.9 million for the comparable period in
2000, and increased as a percentage of revenue to 39.6% from 29.2%. The increase
as a percentage of revenue was primarily attributable to the $11.2 million of
one-time charges incurred during the third quarter of 2001. These one-time
charges were incurred in connection with the June 2001 flood of the Company's
Fort Washington, PA corporate headquarters and the resultant decision to
relocate the corporate headquarters to Horsham, PA. The remainder of the
increase was attributable to reduced collectibility within the Company's
contingent revenue stream due to the effects of the difficult collection
environment. Accordingly, in order to mitigate the effects of the decreased
collectibility while maintaining its performance for its clients, the Company
had to increase spending for direct costs of collections. The effects of the
difficult collection environment were amplified by diminished consumer payment
patterns following the September 11, 2001 terrorist attacks. These costs
included telephone, letter writing and postage, third party servicing fees,
credit reporting, skiptracing, and legal and forwarding fees.

     Depreciation and amortization. Depreciation and amortization increased to
$9.8 million for the three months ended September 30, 2001 from $8.3 million for
the comparable period in 2000. This increase consisted of depreciation resulting
from normal capital expenditures made in the ordinary course of business during
2000 and 2001. These capital expenditures included purchases associated with our
planned migration towards a single, integrated information technology platform,
and predictive dialers and other equipment required to expand our infrastructure
to handle future growth.

     Other income (expense). Interest and investment income increased $154,000
to $763,000 for the three months ended September 30, 2001 over the comparable
period in 2000. This increase was primarily attributable to increases in
operating cash and funds held on behalf of clients. Interest expense increased
to $6.6 million for the three months ended September 30, 2001, from $6.5 million
for the comparable period in 2000. This increase was partially attributable to
the Portfolio Management division borrowing $36.3 million in connection with the
February 2001 acquisition of Creditrust Corporation ("Creditrust") and its


                                      -15-
<PAGE>

subsequent borrowings used to purchase accounts receivable portfolios. In
addition, a portion of the increase was attributable to interest from
securitized debt that was assumed as part of the Creditrust acquisition. A
portion of these increases was offset by a decrease in interest rates and debt
repayments made during 2000 and the first nine months of 2001. In addition, a
portion of these increases was offset by the April 2001 sale of $125.0 million
aggregate principal amount of 4.75% Convertible Subordinated Notes due 2006. The
net proceeds of $121.3 million were used to repay debt under the revolving
credit agreement.

     Income tax expense. Income tax expense for the three months ended September
30, 2001 decreased to $2.4 million, or 55.6% of income before income tax
expense, from $8.4 million, or 42.2% of income before income tax expense, for
the comparable period in 2000. The Company's original 2001 tax planning strategy
was based upon an annual effective tax rate of approximately 40%. As a result,
the effective tax rate for the six months ended June 30, 2001 was estimated
using an effective tax rate of 40%. The Company's year-to-date earnings as of
September 30, 2001 were much lower than anticipated and the effective tax rate
was adjusted in the third quarter of 2001 to an amount sufficient to bring the
tax rate for the first half of the year in line with the estimate of the
Company's new effective tax rate for 2001 as of the end of the third quarter.
The Company currently estimates that its effective tax rate for 2001 will be
approximately 42% to 43%. However, this estimate is extremely sensitive to even
small changes in the company's earnings outlook for the year and the rate would
change rapidly if the earnings outlook changes.

     Discontinued operations. On April 14, 2000 (the "Measurement Date"), the
Company's Board of Directors approved a plan to divest the Company's Market
Strategy division as part of its strategic plan to increase long-term
shareholder value and focus on its core business of accounts receivable
management services. An estimate of the operations of the Market Strategy
division for the period from the Measurement Date to the expected completion of
the divestiture were recorded during the first quarter of 2000 as part of the
loss on the disposal of the Market Strategy division. The Company recorded an
additional loss $2.4 million during the third quarter of 2000. This additional
loss was primarily attributable to lower than expected operating results from
the Market Strategy division during the third quarter of 2000. The Company
completed the divestiture of the Market Strategy division on October 26, 2000.

     Nine months Ended September 30, 2001, Compared to Nine months Ended
     September 30, 2000

     Revenue. Revenue increased $76.8 million, or 17.0%, to $528.7 million for
the nine months ended September 30, 2001, from $451.9 million for the comparable
period in 2000. The U.S. Operations, Portfolio Management, and International
Operations divisions accounted for $478.0 million, $46.7 million, and $27.8
million, respectively, of the revenue for the nine months ended September 30,
2001. The U.S. Operations' revenue included $20.4 million of revenue earned on
services performed for the Portfolio Management division that was eliminated
upon consolidation. The International Operations' revenue included $3.4 million
of revenue earned on services performed for the U.S. Operations division that
was eliminated upon consolidation.

     U.S. Operations' revenue increased $53.9 million, or 12.7%, to $478.0
million for the nine months ended September 30, 2001, from $424.1 million for
the comparable period in 2000. This increase in the U.S. Operations' revenue was
attributable to the addition of new clients and the growth in business from
existing clients.

     Portfolio Management's revenue increased $39.0 million, or 505.9%, to $46.7
million for the nine months ended September 30, 2001, from $7.7 million for the
comparable period in 2000. This increase in the Portfolio Management's revenue
was partially attributable to an increase in acquisitions of purchased accounts
receivable. The remainder of the increase was attributable to the acquisition of
Creditrust in February 2001.

     International Operations' revenue increased $4.4 million, or 18.6%, to
$27.8 million for the nine months ended September 30, 2001, from $23.4 million
for the comparable period in 2000. A portion of this increase in the
International Operations' revenue was attributable to new services provided for
U.S. Operations. Additionally, a portion of the increase was attributable to the
addition of new clients and growth in business from existing clients.

     Payroll and related expenses. Payroll and related expenses increased $48.3
million to $267.7 million for the nine months ended September 30, 2001, from
$219.4 million for the comparable period in 2000, and increased as a percentage
of revenue to 50.6% from 48.5%. A portion of the overall increase as a


                                      -16-
<PAGE>

percentage of revenue was the result of reduced collectibility within the
Company's contingent revenue stream due to the difficult collection environment.
Accordingly, in order to mitigate the effects of the decreased collectibility
while maintaining its performance for its clients, the Company had to increase
spending for payroll costs. The effects of the difficult collection environment
were amplified by diminished consumer payment patterns following the September
11, 2001 terrorist attacks. In addition, the Company incurred $10.7 million of
one-time charges during the second quarter of 2001 related to a comprehensive
streamlining of its expense structure designed to counteract the effects of
operating in a more difficult collection environment. These costs primarily
consisted of the elimination or acceleration of certain contractual employment
obligations, severance costs related to terminated employees, and costs related
to a decision to change the structure of our healthcare benefit programs from a
large, singular benefit platform to individual plans across the country. A
portion of these increases was offset by an increase in productivity that was
achieved through the expansion of predictive dialing equipment and the result of
spreading the fixed portion of the payroll cost structure over a larger revenue
base. In addition, a portion of these increases was offset by the increase in
the size of the Portfolio Management division, which has a lower payroll cost
structure than the remainder of the Company.

     The payroll and related expenses of the U.S. Operations division increased
$47.1 million to $253.4 million for the nine months ended September 30, 2001,
from $206.4 million for the comparable period in 2000, and increased as a
percentage of revenue to 53.0% from 48.7%. A portion of the overall increase as
a percentage of revenue was the result of reduced collectibility within the U.S
Operations' contingent revenue stream due to the difficult collection
environment. Accordingly, in order to mitigate the effects of the decreased
collectibility while maintaining its performance for its clients, the U.S.
Operations had to increase spending for payroll costs. The effects of the
difficult collection environment were amplified by diminished consumer payment
patterns following the September 11, 2001 terrorist attacks. In addition, the
U.S. Operations incurred $10.0 million of one-time charges during the second
quarter of 2001 related to a comprehensive streamlining of its expense structure
designed to counteract the effects of operating in a more difficult collection
environment. These costs primarily consisted of the elimination or acceleration
of certain contractual employment obligations, severance costs related to
terminated employees, and costs related to a decision to change the structure of
our healthcare benefit programs from a large, singular benefit platform to
individual plans across the country. A portion of these increases was offset by
an increase in productivity that was achieved through the expansion of
predictive dialing equipment and the result of spreading the fixed portion of
the payroll cost structure over a larger revenue base.

     The payroll and related expenses of the Portfolio Management division
increased $1.1 million to $1.3 million for the nine months ended September 30,
2001, from $222,000 for the comparable period in 2000, but remained constant as
a percentage of revenue at 2.9%. The Portfolio Management division outsources
all of its collection services to the U.S. Operations division and, therefore,
has a relatively small fixed payroll cost structure.

     The payroll and related expenses of the International Operations division
increased $3.5 million to $16.3 million for the nine months ended September 30,
2001, from $12.8 million for the comparable period in 2000, and increased as a
percentage of revenue to 58.8% from 54.6%. A portion of the increase as a
percentage of revenue was the result of upfront costs related to new projects
started in the second and third quarter of 2001. The increase was also
attributable to the increase in outsourcing services since these services
typically have a higher payroll cost structure than the remainder of the
International Operations' business. In addition, the increase was attributable
to the $736,000 of the one-time charges incurred during the second quarter of
2001 related to a comprehensive streamlining of its expense structure designed
to counteract the effects of operating in a more difficult collection
environment. These costs primarily consisted of the elimination or acceleration
of certain contractual employment obligations and, severance costs related to
terminated employees.

     Selling, general and administrative expenses. Selling, general and
administrative expenses increased $45.7 million to $178.3 million for the nine
months ended September 30, 2001, from $132.6 million for the comparable period
in 2000, and increased as a percentage of revenue to 33.7% from 29.3%. A portion
of the overall increase as a percentage of revenue was the result of $11.2
million of one-time charges incurred during the third quarter of 2001. These
one-time charges were incurred in connection with the June 2001 flood of the
Company's Fort Washington, PA corporate headquarters and the resultant decision
to relocate the corporate headquarters to Horsham, PA. The increase was also
attributable to the reduced collectibility within the Company's contingent
revenue stream due to a difficult collection environment. Accordingly, in order
to mitigate the effects of the decreased collectibility while maintaining its
performance for its clients, the Company had to increase spending for direct
costs of collection. These costs included telephone, letter writing and postage,
third party servicing fees, credit reporting, skiptracing, and legal and
forwarding fees. The effects of the difficult collection environment were


                                      -17-
<PAGE>

amplified by diminished consumer payment patterns following the September 11,
2001 terrorist attacks. In addition, the Company incurred $1.8 million of
one-time charges during the second quarter of 2001 related to a comprehensive
streamlining of its expense structure designed to counteract the effects of
operating in a more difficult collection environment. These costs primarily
related to real estate obligations for closed facilities and equipment rental
obligations.

     Depreciation and amortization. Depreciation and amortization increased
to $28.4 million for the nine months ended September 30, 2001 from $23.8 million
for the comparable period in 2000. This increase consisted of depreciation
resulting from normal capital expenditures made in the ordinary course of
business during 2000 and 2001. These capital expenditures included purchases
associated with our planned migration towards a single, integrated information
technology platform, and predictive dialers and other equipment required to
expand our infrastructure to handle future growth.

     Other income (expense). Interest and investment income increased
$992,000 to $2.6 million for the nine months ended September 30, 2001 over the
comparable period in 2000. This increase was primarily attributable to increases
in operating cash and funds held on behalf of clients, and the implementation of
our new cash investment strategy. Interest expense increased to $21.3 million
for the nine months ended September 30, 2001, from $19.3 million for the
comparable period in 2000. This increase was partially attributable to the
Portfolio Management division borrowing $36.3 million in connection with the
February 2001 acquisition of Creditrust Corporation ("Creditrust") and its
subsequent borrowings used to purchase accounts receivable portfolios. In
addition, a portion of the increase was attributable to interest from
securitized debt that was assumed as part of the Creditrust acquisition. A
portion of these increases was offset by a decrease in interest rates and debt
repayments made during 2000 and the first nine months of 2001. In addition, a
portion of these increases was offset by the April 2001 sale of $125.0 million
aggregate principal amount of 4.75% Convertible Subordinated Notes due 2006. The
net proceeds of $121.3 million were used to repay debt under the revolving
credit agreement. During the nine months ended September 30, 2000, the Company
recorded insurance proceeds of approximately $1.3 million for flood and
telephone outages experienced in the fourth quarter of 1999.

     Income tax expense. Income tax expense for the nine months ended September
30, 2001 decreased to $14.8 million, or 41.7% of income before income tax
expense, from $25.2 million, or 42.2% of income before income tax expense, for
the comparable period in 2000. The effective tax rates were comparable despite
the one-time charges incurred during the second and third quarter of 2001. This
was partially attributable to the expansion of the Portfolio Management
division, which has a lower effective tax rate than the remainder of the Company
and helped to mitigate the impact of the one-time charges. In addition, the
impact of the one-time charges was also mitigated by the implementation of
certain tax savings initiatives during the fourth quarter of 2000.

     Discontinued operations. The Market Strategy division had a loss from
operations of $975,000 for the period from January 1, 2000 to the Measurement
Date. For the nine months ended September 30, 2000, the Company recorded a $23.2
million loss on the disposal of the Market Strategy division. The loss on
disposal included the operations for the period from the Measurement Date to the
completion of the divestiture. The Company completed the divestiture of the
Market Strategy division on October 26, 2000.

     Liquidity and Capital Resources

     Historically, the Company's primary sources of cash have been bank
borrowings, public offerings, and cash flows from operations. Cash has been used
for acquisitions, repayments of bank borrowings, purchases of equipment,
purchases of receivables, and working capital to support the Company's growth.

     Cash Flows from Operating Activities. Cash provided by operating activities
was $61.3 million for the nine months ended September 30, 2001, compared to
$31.7 million for the comparable period in 2000. The increase in cash provided
by operations was primarily attributable to the net effect of the one-time
charges incurred during the second and third quarters of 2001, a smaller
increase in accounts receivable, and a small increase in corporate taxes payable
compared to a decrease in the comparable period of 2000. The increase in
corporate taxes payable compared to the decrease was the result of tax payments
during the first nine months of 2000 and the implementation of certain tax
savings initiatives

                                      -18-
<PAGE>

during the fourth quarter of 2000. The increase in cash provided by operating
activities was also attributable to an increase in depreciation expense, and the
restricted cash and minority interest resulting from the Creditrust acquisition.

     Cash Flows from Investing Activities. Cash used in investing activities was
$41.5 million for the nine months ended September 30, 2001, compared to $52.6
million for the comparable period in 2000. The decrease was due primarily to an
increase in collections applied to the principal of purchased accounts
receivable and a decrease in the purchase of property and equipment. These
decreases were partially offset by an increase in the purchase of delinquent
receivables.

     Capital expenditures were $20.5 million for the nine months ended September
30, 2001, compared to $24.3 million for the same period in 2000.

     Cash Flows from Financing Activities. Cash used in financing activities was
$5.5 million for the nine months ended September 30, 2001, compared to $15.6
million for the same period in 2000. During the nine months ended September 30,
2001, the Company received cash from borrowings under the revolving credit
facility made in connection with the Creditrust acquisition that were used to
repay the acquired notes payable, finance purchased accounts receivable, and
repay other acquisition related liabilities. Additionally, the Company received
$121.3 million of net proceeds from the issuance of convertible debt. These net
proceeds were used for the repayment of borrowings under the revolving credit
agreement. The Company also used cash to repay a portion of its borrowings under
the revolving credit facility and to repay a portion of the securitized debt
assumed as part of the Creditrust acquisition.

     Credit Facility. The Company has a credit agreement with Mellon Bank, N.A.
("Mellon Bank"), for itself and as administrative agent for other participating
lenders, that originally provided for borrowings up to $350.0 million,
structured as a revolving credit facility. The borrowing capacity of the
revolving credit facility is subject to mandatory reductions including quarterly
reductions beginning on March 31, 2001 and 50 percent of the net proceeds
received from any offering of debt or equity. The first quarterly reduction on
March 31, 2001 was $6.25 million and all subsequent reductions will be $5.2
million. As of September 30, 2001, the maximum borrowing capacity of the
revolving credit agreement was $272.7 million.

     At the Company's option, the borrowings bear interest at a rate equal to
either Mellon Bank's prime rate plus a margin of 0.25% to 0.50% that is
determined quarterly based upon the Company's consolidated funded debt to
earnings before interest, taxes, depreciation, and amortization, also referred
to as EBITDA, ratio (Mellon Bank's prime rate was 6.00% at September 30, 2001),
or the London InterBank Offered Rate, also referred to as LIBOR, plus a margin
of 1.25% to 2.25% depending on the Company's consolidated funded debt to EBITDA
ratio (LIBOR was 2.64% at September 30, 2001). As of September 30, 2001, there
was $61.1 million available on the revolving credit facility.

     In connection with the merger of Creditrust into NCO Portfolio, the Company
amended its revolving credit facility to allow the Company to provide NCO
Portfolio with a $50 million revolving line of credit in the form of a
sub-facility under its existing credit facility. If the borrowing capacity of
the sub-facility has not been reduced to $25 million by March 31, 2002, then the
sub-facility will be subject to mandatory quarterly reductions including four
quarterly reductions beginning March 31, 2002 of $2.5 million and then quarterly
reductions $3.75 million, thereafter, until the earlier of maturity or until the
borrowing capacity has been reduced to $25 million. At the option of NCO, the
borrowings bear interest at a rate equal to either Mellon Bank's prime rate plus
a margin of 1.25% to 1.50% that is determined quarterly based upon the Company's
consolidated funded debt to EBITDA ratio, or LIBOR plus a margin of 2.25% to
3.25% depending on the Company's consolidated funded debt to EBITDA ratio. As of
September 30, 2001, there was $2.9 million available on the NCO Portfolio
sub-facility.

     Borrowings under the credit facility with Mellon Bank are collateralized by
substantially all the assets of the Company, including the common stock of NCO
Portfolio, and certain assets of NCO Portfolio. The balance under the revolving
credit facility shall become due on May 20, 2004. The credit agreement contains
certain financial covenants such as maintaining net worth and funded debt to
EBITDA requirements and includes restrictions on, among other things,
acquisitions and distributions to shareholders.

     In April 2001, the Company completed the sale of $125.0 million aggregate
principal amount of 4.75% Convertible Subordinated Notes due 2006 ("Notes") in a
private placement pursuant to Rule 144A and Regulation S under the Securities


                                      -19-
<PAGE>


Act of 1933. The Notes are convertible into NCO common stock at an initial
conversion price of $32.92 per share. The Company used the $121.3 million of net
proceeds from this offering to repay debt under its revolving credit agreement.
In accordance with the terms of the credit agreement, 50% of the net proceeds
from the Notes permanently reduced the maximum borrowings available under the
revolving credit facility.

     Management believes that funds generated from operations, together with
existing cash and available borrowings under the credit agreement will be
sufficient to finance current operations, planned capital expenditure
requirements, and internal growth at least through the next twelve months.
However, additional debt or equity financing could be required if any other
significant acquisitions for cash are made during that period.

     Stock Repurchase Plan

     In September 2001, the Company's Board of Directors and its lendor group
have authorized the repurchase of up to $15.0 million of its currently issued
common stock, subject to a limit of one million shares. The share purchases may
be made from time to time, depending on market conditions. Shares may be
purchased either in the open market or through privately negotiated
transactions. The repurchase program does not obligate the Company to acquire
any specific number of shares and may be discontinued at any time. As of
September 30, 2001, the Company had not repurchased any shares under the Stock
Repurchase Plan.

     Market Risk

     The Company is exposed to various types of market risk in the normal course
of business, including the impact of interest rate changes, foreign currency
exchange rate fluctuations, and changes in corporate tax rates. A 25 basis-point
increase in interest rates could increase annual interest expense by $250,000
for each $100 million of variable debt outstanding for the entire year. The
Company employs risk management strategies that may include the use of
derivatives such as interest rate swap agreements, interest rate collar
agreements, and foreign currency forwards and options to manage these exposures.
The fair value of the interest rate collar agreements was determined to be
immaterial at December 31, 2000 and September 30, 2001. One of the Company's
interest rate collar agreements expired during September 2001. The remaining two
interest collar agreements expired during October 2001.

     Goodwill

     The Company's balance sheet includes amounts designated as "intangibles",
which are predominantly comprised of "goodwill'. Goodwill represents the excess
of purchase price over the fair market value of the net assets of the acquired
businesses, based on their respective fair values at the date of acquisition.
Accounting principles generally accepted in the United States require that this
and all other intangible assets be amortized over the period benefited.
Management has determined that period to be from 15 to 40 years based on the
attributes of each acquisition.

     As of September 30, 2001, the Company's balance sheet included goodwill
that represented approximately 55.8% of total assets and 127.6% of shareholders'
equity.

     If management has incorrectly overestimated the length of the amortization
period for goodwill, earnings reported in periods immediately following the
acquisition would be overstated. In later years, NCO would be burdened by a
continuing charge against earnings without the associated benefit to income
valued by management in arriving at the consideration paid for the business.
Earnings in later years also could be significantly affected if management
determined then that the remaining balance of goodwill was impaired. Management
has concluded that the anticipated future cash flows associated with intangible
assets recognized in the acquisitions will continue indefinitely, and there is
no persuasive evidence that any material portion will dissipate over a period
shorter than the respective amortization period.

     Recent Accounting Pronouncement:

     In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No.'s 141 and 142, "Business Combinations" and "Goodwill and Other Intangibles."
FASB 141 requires all business combinations initiated after September 30, 2001
to be accounted for using the purchase method. FASB 142 concluded that purchased
goodwill would not be amortized but would be reviewed for impairment when
certain events indicate that the goodwill of a reporting unit is impaired. The
impairment test will use a fair-value based approach, whereby if the implied
fair value of a reporting unit's goodwill is less than its carrying amount,
goodwill would be considered impaired. FASB 142 does not require that goodwill
be tested for impairment upon adoption unless an indicator of impairment exists
at that date. However, it would require that a benchmark assessment be performed
for all existing reporting units within nine months of the date of adoption. The
new goodwill model would applies not only to goodwill arising from acquisitions
completed after the effective date, but also to goodwill previously recorded.
The Company will adopt FASB 142 in the first quarter of 2002. The Company is in
the process of determining the impact of these pronouncements on its financial
position and results of operations.



                                      -20-
<PAGE>


Item 3
           Quantitative and Qualitative Disclosures about Market Risk

     Included in Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations, of this Report on Form 10-Q.





                                      -21-

<PAGE>

Part II.  Other Information


Item 1.  Legal Proceedings

         The discussions concerning the Company's litigation with the landlord
     of its Fort Washington facilities contained in "Management's Discussion and
     Analysis of Financial Condition and Results of Operations" are incorporated
     herein by reference.

         AssetCare, Inc., a subsidiary of the Company acquired as part of
     Medaphis Services Corporation, has been identified in an administrative
     order issued by the State of California as a party that is partially
     responsible for cleanup costs associated with a former scrap recycling
     facility next to Humboldt Bay in California. The subsidiary was identified
     as a successor-in-interest to a former operator of the facility. The
     subsidiary has also been named in a civil proceeding brought by the owner
     of the property as a party that is responsible for the costs that will be
     incurred by the owner for complying with the terms of the order. Although
     the Company is still investigating these claims and cannot predict the
     outcome of the proceedings or quantify the ultimate liability of the
     subsidiary in light of the early stage of the litigation, based upon: (i)
     the fact that the former operator conducted scrap recycling operations for
     a four-year period during the 100-year operational history of the site; and
     (ii) the existence of indemnification and contribution claims against other
     entities, any costs incurred or assessed against the subsidiary are not
     expected to have a materially adverse effect on the financial condition or
     results of operations of the Company. The subsidiary intends to vigorously
     defend these matters.

         The Company is involved in legal proceedings from time to time in the
     ordinary course of its business. Management believes that none of these
     legal proceedings will have a materially adverse effect on the financial
     condition or results of operations of the Company.

Item 2.  Changes in Securities

     None - not applicable

Item 3.  Defaults Upon Senior Securities

     None - not applicable

Item 4.  Submission of Matters to a Vote of Shareholders

     None - not applicable

Item 5.  Other Information

     None - not applicable

Item 6.  Exhibits and Reports on Form 8-K

     (a)      Exhibits

              99.1     Consolidating Schedule

     (b)      Reports on Form 8-K

              Date of Report     Item Reported
              --------------     -------------

              10/1/01            Item 5 - Press release commenting on
                                          preliminary results for the third
                                          quarter of 2001

              11/14/01           Item 5 - Press release and conference call
                                          transcript from the earnings release
                                          for the third quarter of 2001





                                      -22-
<PAGE>


                                   Signatures

Pursuant to the requirement 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.



Date: November 14, 2001                  By: /s/ Michael J. Barrist
                                             ----------------------
                                             Michael J. Barrist
                                             Chairman of the Board, President
                                             and Chief Executive Officer
                                             (principal executive officer)



Date: November 14, 2001                  By: /s/ Steven L. Winokur
                                             ---------------------
                                             Steven L. Winokur
                                             Executive Vice President, Finance,
                                             Chief Financial Officer and
                                             Treasurer