<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K
    (Mark One)

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year ended December 31, 2002
                                             -----------------
                                       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 No. 0-21639
                                               -------

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

Pennsylvania                                         23-2858652
-------------------------------                      -------------------
(State or other jurisdiction of                      (IRS Employer
 incorporation or organization)                      Identification No.)

507 Prudential Road, Horsham, Pennsylvania           19044
-------------------------------------------          ------------
 (Address of principal executive offices)            (Zip Code)

Registrant's telephone number, including area code (215) 441-3000
                                                   --------------
Securities registered pursuant to Section 12(b) of the Act:  None
                                                             ----
Securities registered pursuant to Section 12(g) of the Act:

                           Common stock, no par value
                           --------------------------
                                (Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).       Yes [X]     No [ ]

The aggregate market value of voting and nonvoting common equity held by
nonaffiliates was approximately $430,810,000(1).

<PAGE>

The number of shares of the registrant's common stock outstanding as of March
11, 2003 was 25,908,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant's Proxy Statement to be filed in connection
with its 2003 Annual Meeting of Shareholders are incorporated by reference into
Part III of this Report. Other documents incorporated by reference are listed in
the Exhibit Index.


                                _________________



(1) The aggregate market value of the voting and nonvoting common equity held by
nonaffiliates set forth equals the number of shares of the registrant's common
stock outstanding, reduced by the number of shares of common stock held by
officers, directors and shareholders owning 10 percent or more of the
registrant's common stock, multiplied by $22.09, the last reported sale price
for the registrant 's common stock on June 28, 2002, the last business day of
the registrant's most recently completed second fiscal quarter. The information
provided shall in no way be construed as an admission that any person whose
holdings are excluded from this figure is an affiliate of the registrant or that
such person is the beneficial owner of the shares reported as being held by
him/it, and any such inference is hereby disclaimed. The information provided
herein is included solely for record-keeping purposes of the Securities and
Exchange Commission.


<PAGE>


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                Page
                                                                                                ----
                                     PART I

<S>                 <C>                                                                          <C>
Item 1.       Business.                                                                           2
Item 2.       Properties.                                                                        23
Item 3.       Legal Proceedings.                                                                 23
Item 4.       Submission of Matters to a Vote of Security Holders.                               23
Item 4.1      Executive Officers of the Registrant who are not also Directors.                   24

                                     PART II

Item 5.       Market for Registrant's Common Equity and
                  Related Shareholder Matters.                                                   25
Item 6.       Selected Financial Data.                                                           26
Item 7.       Management's Discussion and Analysis of Financial
                  Condition and Results of Operations.                                           27
Item 7a       Quantitative and Qualitative Disclosures about Market Risk.                        44
Item 8.       Financial Statements and Supplementary Data.                                       44
Item 9.       Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure.                                                      44

                                    PART III

Item 10.      Directors and Executive Officers of the Registrant.                                45
Item 11.      Executive Compensation.                                                            45
Item 12.      Security Ownership of Certain Beneficial Owners and Management
                  and Related Shareholder Matters.                                               45
Item 13.      Certain Relationships and Related Transactions.                                    45
Item 14.      Controls and Procedures.                                                           45


                                     PART IV

Item 15.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K.                  47
              Signatures.                                                                        53
              Section 302 Certifications.                                                        54

              Index to Consolidated Financial Statements and Financial
                  Statement Schedule.                                                           F-1

</TABLE>

<PAGE>

     As used in this Annual Report on Form 10-K, unless the context otherwise
requires, "we," "us," "our," "Company" or "NCO" refers to NCO Group, Inc. and
its subsidiaries.

Forward-Looking Statements

     Certain statements included in this Annual Report on Form 10-K, including
without limitation statements in Item 1. "Business" and Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
statements 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 final outcome of
the environmental liability and the Company's litigation with its former
landlord, the effects of the terrorist attacks, war and the economy on the
Company's business, expected increases in operating efficiencies, anticipated
trends in the accounts receivable management industry, estimates of future cash
flows of purchased accounts receivable, estimates of goodwill impairments and
amortization expense of other intangible assets, 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 NCO Portfolio Management, Inc. ("NCO Portfolio"), 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 the environmental liability, risks relating to the Company's
litigation and regulatory investigations, risks related to past or possible
future terrorist attacks, risks related to the threat or outbreak of war or
hostilities, risks related to the current economic condition in the United
States, risks related to the Company's foreign operations, risks related to the
economy, and other risks described under Item 1. "Business - Investment
Considerations" or in the Company's other filings made from time to time with
the Securities and Exchange Commission, can cause actual results and
developments to be materially different from those expressed or implied by such
forward-looking statements.

     The Company disclaims any intent or obligation to publicly update or revise
any forward-looking statements, regardless of whether new information becomes
available, future developments occur or otherwise.

Restatement of Financial Statements

     On February 6, 2003, our independent auditors informed us that, based on
their further internal review and consultation, they no longer considered our
methodology for revenue recognition for a long-term guarantee contract
appropriate under revenue recognition guidelines. Further review by us with our
independent auditors led us to conclude that we should change our method of
revenue recognition for the contract. The change resulted in the deferral of the
recognition of revenue under the contract until such time as any contingencies
related to the realization of revenue have been resolved. Our financial
statements and the accompanying notes for the years ended December 31, 2000 and
2001, have been restated for a correction of an error due to this change.



                                      -1-
<PAGE>

                                     PART I

Item 1. Business.

General

     We believe we are the largest provider of outsourced accounts receivable
management and collection services in the world, serving a wide range of clients
in North America and abroad. Our extensive industry knowledge, technological
expertise, management depth, and long-standing client relationships enable us to
deliver customized solutions that improve our clients' accounts receivable
recovery rates, thus improving their financial performance. Our services are
provided through the utilization of sophisticated technologies including
advanced workstations, leading-edge client interface systems, and call
management systems composed of predictive dialers, automated call distribution
systems, digital switching and customized computer software. We have
approximately 9,300 employees who provide our services through the operation of
76 centers.

     Our website is www.ncogroup.com. We make available, free of charge, on our
website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and all amendments to those reports, filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably
practicable after such material is electronically filed with or furnished to the
SEC.

     In addition, we will provide, at no cost, paper or electronic copies of our
reports and other filings (excluding exhibits) made with the SEC. Requests
should be directed to:

         NCO Group, Inc.
         507 Prudential Road
         Horsham, PA  19044
         Attention:  Steven L. Winokur, Executive Vice President, Finance,
                     Chief Financial Officer and Treasurer

     The information on the website listed above, is not and should not be
considered part of this annual report on Form 10-K and is not incorporated by
reference in this document. This website is and is only intended to be an
inactive textual reference.

Industry Background

     Increasingly, companies are outsourcing many noncore functions to focus on
revenue-generating activities, reduce costs and improve productivity. In
particular, many large corporations are recognizing the advantages of
outsourcing accounts receivable management and collections. This trend is being
driven by a number of industry-specific factors:

o  First, the complexity of accounts receivable management and collection
   functions in certain industries has increased dramatically in recent years.
   For example, with the increasing popularity of health maintenance
   organizations, or HMOs, and preferred provider organizations, or PPOs,
   healthcare institutions now face the challenge of billing not only large
   insurance companies but also individuals who are required to pay small,
   one-time co-payments.


                                      -2-
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o  Second, the increasing complexity of the collection process that requires
   sophisticated call management and database systems for efficient collections.
o  Third, the trend in certain industries to outsource noncore functions, due to
   competitive pressures, changing regulations and/or required capital
   expenditures.
o  Fourth, the increased focus by credit grantors on early identification and
   intervention in pre-delinquent debt (i.e., debt with an average age of less
   than 90 days).

     We operate in a large industry with positive growth dynamics. Growth in our
industry is fundamentally driven by the continuing growth in consumer and
commercial debt. According to The Kaulkin Report, an industry publication,
overall consumer debt in 2000 exceeded $8.3 trillion. Approximately $135 billion
of delinquent consumer debt was estimated to have been placed for collection
with third-party collection agencies during 2000, nearly double the $73 billion
placed in 1990. The primary market sectors within our industry are financial
services, healthcare, and retail and commercial. Other important market sectors
include telecommunications, utilities, and government.

     The accounts receivable management and collection industry is highly
fragmented. Based on information obtained from the American Collectors
Association, there are approximately 6,500 accounts receivable management and
collection companies in the United States, the majority of which are small,
local businesses. We believe that many smaller competitors have insufficient
capital to expand and invest in technology and are unable to adequately meet the
geographic coverage and quality standards demanded by businesses seeking to
outsource their accounts receivable management function.

Strategy

     Our strategy is to maintain our market dominance as we become a global
provider of accounts receivable management and collection services. Our strategy
to achieve these objectives includes the following elements:

     Expand our relationships with clients - A significant amount of our growth
stems from the expansion of existing client relationships. These relationships
and the resulting opportunities continue to grow in scale, complexity and profit
potential. Over time, we believe these relationships should transition from the
operational delivery of services to the strategic development of long-term,
goal-oriented partnerships where we are sharing in the improved profitability
and operational efficiencies created for our clients.

     Enhance our operating margins - Until 2001, we focused primarily on
realizing efficiencies through the integration of acquired companies. Over the
next several years, we intend to continue to pursue the following initiatives to
increase profitability:

o  standardization of systems and practices;
o  consolidation of facilities;
o  automation of clerical functions;
o  use of statistical analysis to improve performance and reduce direct unit
   costs;
o  leveraging our purchasing power; and
o  leveraging foreign labor.



                                      -3-
<PAGE>


     Business Process Improvements - We continually develop and enhance our
technology and infrastructure with initiatives that improve the efficiency of
our operations and enhance client service. Examples of recent initiatives
include:

o  Online access for Attorney Network Services: We went "live" with our new
   Attorney Network System (E-Recoverease), which brings us online with over 70
   attorneys from across the United States. They are now able to receive,
   process, and return updates for all forwarded accounts using the latest web
   server technology.

o  Quality control over client data exchange: We have continued to develop a
   proprietary software product that tracks both the client inbound files and
   the client remittance files. The system now incorporates all the features for
   both quality and production control.

o  Enhanced technology for commercial collections: We completed a comprehensive
   re-engineering of the business processes for our commercial collections. This
   re-engineering, coupled with the introduction of redesigned proprietary
   software, will improve both sales and collections, as well as credit
   investigative reporting services.

o  Web enabled electronic bill payment for our clients and their customers: We
   have developed web-based platforms that process real-time credit card
   authorizations and electronic bank drafts that are then applied to customer
   accounts on the client's billing system. The system is available to the
   clients' employees inside their own call centers and to their customers for
   self service over the Internet.

o  Improved client host integration: We continue to see increased efficiency
   gains by integrating and automating client host connections and their
   associated workflows utilizing the NCO ACCESS Interface Manager. Our
   representatives are able to work on our systems and the client systems
   together from a single interface that is common across all call centers, yet
   customized to accommodate each client's workflow. This delivers benefits
   including a reduction in project ramp-up time, a reduction in training costs,
   and an overall increase in account representative productivity.

o  On-going business process reengineering: We continue to drive improved
   performance and reduced cost through our on-going focus on business process
   improvement. For instance, we are in the final stages of automating a
   clerical area that has historically managed our bankruptcy notification
   process. In the past this area manually processed over half a million paper
   bankruptcy notifications per year, all according to unique internal and
   external customer requirements. We took this from a paper-based process, with
   an average turn around time of weeks, to an entirely electronic process, with
   a turn around measured in hours.



                                      -4-
<PAGE>

o  Technology Support Center: We have just completed construction and
   integration of our Technology Support Center. This industry-leading IT
   Infrastructure monitoring and management system provides graphical displays
   and a notification system that rapidly alerts trained staff to potential
   business-impacting problems. In many cases, the staff is alerted before the
   end-user community is affected. This industry innovation allows us to combine
   the classic IT Help Desk and the 1st and 2nd levels of systems and network
   administration roles to provide maximized return on investment, increased
   quality of end-user support, and a single point of information coordination
   and dissemination to our end users, IT engineers, and business management.

     Expand internationally - We believe that business process outsourcing is
gaining widespread acceptance throughout Canada, Europe and Australasia. Our
international expansion strategy is designed to capitalize on each of these
markets in the near term, as well as continue to develop access to lower cost
foreign labor. We operate in Canada and the United Kingdom through wholly owned
subsidiaries and are one of the largest providers of consumer collection
services in both of these markets. We expect to further penetrate these markets
through increased sales of accounts receivable management and collection
services. Additionally, we expect to pursue direct investments, strategic
alliances and partnerships as well as further explore acquisitions in these
markets. For example, we formed a strategic alliance with MIRAE Credit
Information Services in 2001 to provide an entry into the Korean market. These
type of alliances enhance our service offerings as well as increase the
awareness of NCO as a global provider of accounts receivable management and
collection services.

     In addition to providing services to these core markets, we also provide
our domestic clients with a cost-effective option of using foreign labor markets
such as India to provide effective services. We currently have approximately 190
telephone representatives working in India for our U.S clients. We are in the
process of expanding our presence in India as well as exploring new
opportunities in other labor markets such as Australia, Central America and the
Caribbean.

     Increase purchases of delinquent accounts receivable through NCO Portfolio
- Since 1991, we have purchased, collected and managed portfolios of purchased
accounts receivable. These portfolios have consisted primarily of delinquent
accounts receivable. Due to the profitability of these purchases, we expanded
our presence in this marketplace in 1999 and determined that it would be
beneficial to further expand our presence, while at the same time limiting our
exposure to credit risk. Through the merger of our subsidiary NCO Portfolio with
Creditrust in February 2001, we have created one of the few publicly traded
companies purchasing delinquent accounts receivable. Under the terms of our
credit agreement, our investment in NCO Portfolio currently is limited to our
$25.0 million equity investment and a credit subfacility. The borrowing capacity
of the subfacility is subject to quarterly reductions and the borrowing capacity
was $40.0 million as of December 31, 2002. In order to take advantage of larger
purchase opportunities without increasing its exposure to individual portfolios,
NCO Portfolio entered into a four-year financing agreement with CFSC Capital
Corp. XXXIV ("Cargill") in August 2002. The agreement stipulates that all
purchases of accounts receivable by NCO Portfolio with a purchase price in
excess of $4.0 million, with limited exceptions, must be first offered to
Cargill for the opportunity to finance. Cargill, at its sole discretion, has the
right to refuse to finance any of the purchased accounts receivable. Borrowings
under this financing agreement are nonrecourse to us and NCO Portfolio but are
collateralized by the accounts receivable purchased through Cargill and
cross-collateralized with all other accounts receivable purchases financed by
Cargill.


                                      -5-
<PAGE>

     As of December 31, 2002, NCO Portfolio had an investment of $3.4 million
for its 50 percent ownership interest in a joint venture, InoVision-MEDCLR NCOP
Ventures, LLC ("Joint Venture") with IMNV Holdings, LLC ("Marlin"). The Joint
Venture was set up to purchase utility, medical and other various small balance
accounts receivable. The Joint Venture is accounted for using the equity method
of accounting. The Joint Venture has access to capital through a specialty
finance lender who, at its option, lends 90 percent of the value of the
purchased accounts receivable to the Joint Venture. The debt is
cross-collateralized by all portfolios in which the lender participates, and is
nonrecourse to NCO Portfolio.

     In the future, NCO Portfolio may develop additional growth opportunities
including partnerships with banks, commercial lenders, and other investors who
will provide additional funding sources for purchases of delinquent accounts
receivable. By utilizing such risk-sharing partnerships, NCO Portfolio will gain
access to capital while limiting both our and NCO Portfolio's exposure to credit
risk.

     Continue to explore strategic acquisition opportunities - During 2002, we
completed the acquisitions of Great Lakes Collection Bureau, Inc. and The
Revenue Maximization Group, Inc. The accounts receivable management and
collection industry is highly fragmented with over 6,500 participants in the
United States. The vast majority of these participants are small, local
businesses. Although our focus is on internal growth, we believe we will
continue to find attractive acquisition opportunities over time.

     HIPAA compliance - With the enactment of new standards for privacy, data
security, and administrative simplification under the Health Insurance
Portability and Accountability Act of 1996, referred to as HIPAA, we have
concluded an in-depth analysis to identify areas for further improvement in all
of our privacy compliance practices. In 2003, this will result in the
implementation of additional compliance training and awareness programs for our
healthcare service employees, as well as enhanced security at various
facilities. This investment in HIPAA compliance sets a high standard for "best
practices" that will be applied across all of our business lines to ensure the
protection and the confidentiality of our clients' data.


Services

     Accounts Receivable Management and Collection

     We provide a wide range of accounts receivable management and collection
services to our clients by utilizing an extensive technological infrastructure.
Although most of our accounts receivable management and collection services to
date have focused on the recovery of traditional delinquent accounts, we also
engage in the recovery of current accounts receivable and early stage
delinquencies (generally, accounts which are 90 days or less past due). We
generate approximately 70 percent of our revenue from the recovery of delinquent
accounts receivable on a contingency fee basis. In addition, we generate revenue
from fixed fees for certain accounts receivable management and collection and
other related services. We seek to be a low-cost provider and, as such, our
contingent fees typically range from 15 percent to 35 percent of the amounts
recovered on behalf of our clients. However, fees can range from six percent for
the management of accounts placed early in the accounts receivable cycle to 50
percent for accounts that have been serviced extensively by the client or by
third-party providers. Our average fee for contingency based revenue across all
industries, excluding the long-term guarantee contract, was approximately 19
percent during 2002, 2001 and 2000.


                                      -6-
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     Accounts receivable management and collection services typically include
the following activities:

     Engagement Planning. Our approach to accounts receivable management and
collection for each client is determined by a number of factors including
account size and demographics, the client's specific requirements and
management's estimate of the collectibility of the account. We have developed a
library of standard processes for accounts receivable management and collection,
which is based upon our accumulated experience. We integrate these processes
with our client's requirements to create a customized recovery solution. In many
instances, the approach will evolve and change as the relationship with the
client develops and both parties evaluate the most effective means of recovering
accounts receivable. Our standard approach, which may be tailored to the
specialized requirements of each client, defines and controls the steps that
will be undertaken by us on behalf of the client and the manner in which we will
report data to the client. Through our systematic approach to accounts
receivable management and collection, we remove most decision making from the
recovery staff and ensure uniform, cost-effective performance.

     Once the approach has been defined, we electronically or manually transfer
pertinent client data into our information system. When the client's records
have been established in our system, we begin the recovery process.

     Skip-tracing. In cases where the client's customer's telephone number or
address is unknown, we systematically search the U.S. Post Office National
Change of Address service, consumer databases, electronic telephone directories,
credit agency reports, tax assessor and voter registration records, motor
vehicle registrations, military records and other sources. The geographic
expansion of banks, credit card companies, national and regional
telecommunications companies, and managed healthcare providers, along with the
mobility of consumers, has increased the demand for locating the client's
customers. Once we have located the client's customer, the notification process
can begin.

     Account Notification. We initiate the recovery process by forwarding an
initial letter that is designed to seek payment of the amount due or open a
dialogue with client's customers who cannot afford to pay at the current time.
This letter also serves as an official notification to each client's customer of
his or her rights as required by the Federal Fair Debt Collection Practices Act.
We continue the recovery process with a series of mail and telephone
notifications. Telephone representatives remind the client's customer of their
obligation, inform them that their account has been placed for collection with
us and begin a dialogue to develop a payment program.

     Credit Reporting. At a client's request, we will electronically report
delinquent accounts to one or more of the national credit bureaus where it will
remain for a period of up to seven years. The possible denial of future credit
often motivates the resolution of past due accounts.

     Payment Process. After we receive payment from the client's customer, we
can either remit the amount received minus our fee to the client or remit the
entire amount received to the client and subsequently bill the client for our
services.

     Activity Reports. Clients are provided with a system-generated set of
standardized or customized reports that fully describe all account activity and
current status. These reports are typically generated monthly; however, the
information included in the report and the frequency that the reports are
generated can be modified to meet the needs of the client.



                                      -7-
<PAGE>

     Quality Tracking. We emphasize quality control throughout all phases of the
accounts receivable management and collection process. Some clients may specify
an enhanced level of supervisory review and others may request customized
quality reports. Large national credit grantors will typically have exacting
performance standards which require sophisticated capabilities such as
documented complaint tracking and specialized software to track quality metrics
to facilitate the comparison of our performance to that of our peers.

     Delinquency Management

     We provide pre-charge-off delinquency management services that enable
clients to manage their at-risk customers and quickly restore the relationships
to a current payment status. We mail reminder letters and make first-party calls
to the clients' customers, reminding them of the past due balance and
encouraging them to make immediate repayment using pay-by-phone direct debit
checks or, in certain cases, credit cards. Our services include responding to
inbound calls seven days a week. We apply our extensive database and predictive
modeling techniques to the customer's profile, assigning more intense efforts to
higher risk customers.

     Customer Service and Support

     We utilize our communications and information system infrastructure to
supplement or replace the customer service function of our clients. For example,
we are currently engaged by a large regional utility company to provide customer
service functions for a segment of the utility's customer base that is
delinquent. For other clients, we provide a wide range of specialized services
such as fraud prevention, over-limit calling, inbound calling for customer
credit application and approval processes, and general back-office support. We
can provide customer contact through inbound or outbound calling, or customized
web-enabled functions.

     Billing

     We complement existing service lines by offering adjunct billing services
to clients as an outsourcing option. Additionally, we can assist healthcare
clients in the billing and management of third-party insurance.

     Additional Services

     We selectively provide other related services that complement our
traditional accounts receivable management and collection business and leverage
our technological infrastructure. We believe that the following services will
provide additional growth opportunities for us:

     Attorney Network Services. We coordinate litigation undertaken on behalf of
our clients through a nationwide network of more than 150 law firms whose
attorneys specialize in collection litigation. Our collection support staff
manages the attorney relationships and facilitates the transfer of all necessary
documentation.

     NCOePayments. We can provide clients with a virtual 24-hour payment center
that is accessible by the use of telephones or the Internet.

     Credit and Investigative Reporting Service. We develop the information
needed to profile commercial debtors and make decisions affecting extensions of
credit.



                                      -8-
<PAGE>

     NCO Benefit Systems.  We administer compliant COBRA administration
services for human resources departments.

Technology and Infrastructure

     We have made a substantial investment in our information systems such as
"thin client" network computing devices, predictive dialers, automated call
distribution systems, digital switching and customized computer software,
including the NCO ACCESS Interface Manager. As a result, we believe we are able
to address accounts receivable management and collection activities more
reliably and more efficiently than our competitors. Our Information Technology
staff is comprised of approximately 200 employees led by a Chief Information
Officer. We provide our services through the operation of 76 centers that are
electronically linked through an international wide area network, with the
exception of our two United Kingdom centers.

     We maintain disaster recovery contingency plans and have implemented
procedures to protect against the loss of data resulting from power outages,
fire and other casualties. We have implemented a security system to protect the
integrity and confidentiality of our computer systems and data and maintain
comprehensive business interruption and critical systems insurance on our
telecommunications and computer systems. Our systems also permit network access
to enable clients to electronically communicate with us and monitor operational
activity on a real-time basis.

     Our call centers utilize predictive dialers with over 4,650 stations to
address our low balance, high-volume accounts. These systems scan our databases,
simultaneously initiate calls on all available telephone lines and determine if
a live connection is made. Upon determining that a live connection has been
made, the computer immediately switches the call to an available representative
and instantaneously displays the associated account record on the
representative's workstation. Calls that reach other signals, such as a busy
signal, telephone company intercept or no answer, are tagged for statistical
analysis and placed in priority recall queues or multiple-pass calling cycles.
The system also automates virtually all record keeping and follow-up activities
including letter and report generation. Our automated method of operations
dramatically improves the productivity of our collection staff.

Sales and Marketing

     Our sales force is organized at the corporate level to address clients by
need, based upon their respective complexity, geography and industry. We utilize
a focused and professional direct selling effort in which sales representatives
personally cultivate relationships with prospective and existing clients. Our
direct sales force consists of approximately 70 people, and for the commercial
sector, approximately 270 telephone sales representatives. Each sales
representative is charged with identifying leads, qualifying prospects and
closing sales. When appropriate, our operating personnel will join in the sales
effort to provide detailed information and advice regarding our operational
capabilities. We supplement our direct sales effort with print media and
attendance at trade shows.

     Many of our prospective clients issue a request for proposal as part of the
contract award process. We have a staff of technical writers for the purpose of
preparing detailed, professional responses to requests for proposals.



                                      -9-
<PAGE>

Quality Assurance and Client Service

     Our reputation for quality service is critical to acquiring and retaining
clients. Therefore, we and our clients monitor our representatives for strict
compliance with the clients' specifications and our policies. We regularly
measure the quality of our services by capturing and reviewing such information
as the amount of time spent talking with clients' customers, level of customer
complaints and operating performance. In order to provide ongoing improvement to
our telephone representatives' performance and to ensure compliance with our
policies and standards, quality assurance personnel monitor each telephone
representative on a frequent basis and provide ongoing training to the
representative based on this review. Our information systems enable us to
provide clients with reports on a real-time basis as to the status of their
accounts and clients can choose to network with our computer system to access
such information directly.

     We maintain a client service department to promptly address client issues
and questions and alert senior executives of potential problems that require
their attention. In addition to addressing specific issues, a team of client
service representatives will contact clients on a regular basis in order to
establish a close rapport, determine clients' overall level of satisfaction and
identify practical methods of improving their satisfaction.

Client Relationships

     Our client base currently includes over 50,000 companies in the financial
services, healthcare, retail and commercial, utilities, education,
telecommunications and government sectors. Our 10 largest clients in 2002
accounted for approximately 31 percent of our revenue. In 2002, no client
accounted for more than 8 percent of total revenue. In 2002, we derived 39.2
percent of our revenue, excluding purchased accounts receivable, from financial
services (which included the banking and insurance sectors), 24.5 percent from
healthcare organizations, 18.1 percent from retail and commercial entities, 6.2
percent from utilities, 5.7 percent from telecommunications companies, 4.6
percent from educational organizations, and 1.7 percent from government
entities.

     We enter into contracts with most of our clients that define, among other
things, fee arrangements, scope of services and termination provisions. Clients
may usually terminate such contracts on 30 or 60 days notice. In the event of
termination, however, clients typically do not withdraw accounts referred to us
prior to the date of termination, thus providing us with an ongoing stream of
revenue from such accounts, which diminish over time. Under the terms of our
contracts, clients are not required to place accounts with us but do so on a
discretionary basis.

     We have a long-term guarantee contract with a large client to provide
collection services. We receive a base service fee based on collections. We also
earn a bonus to the extent collections are in excess of the guarantees. We are
required to pay the client if collections do not reach the guarantees but we are
entitled to recoup at least 90 percent of any such guarantee payments from
subsequent collections.

Personnel and Training

     Our success in recruiting, hiring and training a large number of employees
is critical to our ability to provide high quality accounts receivable
management and collection, customer support and teleservices programs to our
clients. We seek to hire personnel with previous experience in accounts
receivable management and collections or as telephone representatives. We
generally offer internal promotion opportunities and competitive compensation
and benefits.

     All our collection personnel receive comprehensive training that consists
of a combination of classroom and practical experience. Prior to customer
contact, new employees receive one week of training in our operating systems,
procedures and telephone techniques and instruction in applicable federal and
state regulatory requirements. Our personnel also receive a wide variety of
continuing professional education consisting of both classroom and role-playing
sessions.


                                      -10-
<PAGE>

     As of December 31, 2002, we had a total of approximately 8,500 full-time
employees and 800 part-time employees, of which 7,600 are telephone
representatives. As of December 31, 2002, we also utilized 190 telephone
representatives through a subcontractor in India. Our employees are not
represented by a labor union. We believe that our relations with our employees
are good.

Competition

     The accounts receivable management and collection industry is highly
competitive. We compete with a large number of providers, including large
national corporations such as Outsourcing Solutions, Inc., IntelliRisk
Management Corporation, Risk Management Alternatives, Inc., and GC Services LP,
as well as many regional and local firms. Some of our competitors may offer more
diversified services and/or operate in broader geographic areas than we do. In
addition, many companies perform the accounts receivable management and
collection services offered by us in-house. Moreover, many larger clients retain
multiple accounts receivable management and collection providers, which exposes
us to continuous competition in order to remain a preferred vendor. We believe
that the primary competitive factors in obtaining and retaining clients are the
ability to provide customized solutions to a client's requirements, personalized
service, sophisticated call and information systems, and price.

Regulation

     The accounts receivable management and collection industry in the United
States is regulated both at the federal and state level. The Federal Fair Debt
Collection Practices Act regulates any person who regularly collects or attempts
to collect, directly or indirectly, consumer debts owed or asserted to be owed
to another person. The Fair Debt Collection Practices Act establishes specific
guidelines and procedures that debt collectors must follow in communicating with
consumer debtors, including the time, place and manner of such communications.
Further, it prohibits harassment or abuse by debt collectors, including the
threat of violence or criminal prosecution, obscene language or repeated
telephone calls made with the intent to abuse or harass. The Fair Debt
Collection Practices Act also places restrictions on communications with
individuals other than consumer debtors in connection with the collection of any
consumer debt and sets forth specific procedures to be followed when
communicating with such third parties for purposes of obtaining location
information about the consumer. Additionally, the Fair Debt Collection Practices
Act contains various notice and disclosure requirements and prohibits unfair or
misleading representations by debt collectors. We are also subject to the Fair
Credit Reporting Act, which regulates the consumer credit reporting industry and
which may impose liability on us to the extent that the adverse credit
information reported on a consumer to a credit bureau is false or inaccurate.
The Federal Trade Commission has the authority to investigate consumer
complaints against debt collection companies and to recommend enforcement
actions and seek monetary penalties. The accounts receivable management and
collection business is also subject to state regulation. Some states require
that we be licensed as a debt collection company. We believe that we currently
hold applicable licenses from all states where required.

     We provide services to healthcare clients that will be required to comply
with the new standards for privacy, transaction and code sets and data security
under the Health Insurance Portability and Accountability Act of 1996, referred
to as HIPAA. There are three compliance dates under HIPAA: (i) April 2003, for
the new HIPAA privacy standards; (ii) October 2003, for the new HIPAA
transaction and code set standards; and (iii) April 2005 for the new HIPAA
security standards. In connection with our agreements with these clients, we
will be required to agree to maintain the confidentiality of the health
information we receive from them. We have concluded a review of our operating
policies and procedures to identify areas for strengthening compliance with the
new privacy requirements. In 2003, this will result in the implementation of
additional compliance training and awareness programs for our healthcare service
employees. While the code set requirements will affect our clients, we do not
expect that they will have any material effect on our business. We have
implemented a plan to enhance security at all relevant levels, which is expected
to meet or exceed the standards in advance of the deadline.


                                      -11-
<PAGE>

     The collection of accounts receivable by collection agencies in Canada is
regulated at the provincial and territorial level in substantially the same
fashion as is accomplished by federal and state laws in the United States. The
manner in which we conduct the business of collecting accounts is subject, in
all provinces and territories, to established rules of common law or civil law
and statute. Such laws establish rules and procedures governing the tracing,
contacting and dealing with debtors in relation to the collection of outstanding
accounts. These rules and procedures prohibit debt collectors from engaging in
intimidating, misleading and fraudulent behavior when attempting to recover
outstanding debts. In Canada, our collection operations are subject to licensing
requirements and periodic audits by government agencies and other regulatory
bodies. Generally, such licenses are subject to annual renewal. We believe that
we hold all necessary licenses in those provinces and territories that require
them.

     If we engage in other teleservice activities in Canada, there are several
provincial and territorial consumer protection laws that have more general
application. This legislation defines and prohibits unfair practices by
telemarketers, such as the use of undue pressure and the use of false,
misleading or deceptive consumer representations.

     In addition, the accounts receivable management and collection industry is
regulated in the United Kingdom, including a licensing requirement. If we expand
our international operations, we may become subject to additional government
control and regulation in other countries, which may be more onerous than those
in the United States.

     Several of the industries served by us are also subject to varying degrees
of government regulation. Although compliance with these regulations is
generally the responsibility of our clients, we could be subject to various
enforcement or private actions for our failure or the failure of our clients to
comply with such regulations.

     We devote significant and continuous efforts, through training of personnel
and monitoring of compliance, to ensure that we comply with all federal and
state regulatory requirements. We believe that we are in material compliance
with all such regulatory requirements.

Segment and Geographical Financial Information

     See note 21 in our Notes to Consolidated Financial Statements for
disclosure of financial information regarding our segments and geographic areas.


                                      -12-
<PAGE>

History of Acquisitions

     The following is a summary of the acquisitions we completed since 1994
(dollars in thousands):

<TABLE>
<CAPTION>
                                                                                                   Revenue for the
                                         Date                                   Value of          Fiscal Year Prior
                                       Acquired       Business               Purchase Price         to Acquisition
                                      ----------- -----------------        -------------------    -------------------

<S>                                    <C>            <C>                         <C>                    <C>
The Revenue Maximization               12/9/02    A/R Management                $ 17,500(1)            $24,648
  Group, Inc.

Great Lakes Collection Bureau, Inc.    8/19/02    A/R Management and            $ 33,000(2)            $52,250
                                                  Purchased A/R

Creditrust Corporation                 2/20/01    Purchased A/R                 $ 25,000(3)            $36,491

Compass International Services         8/20/99    A/R Management and             104,100               105,800(4)
  Corporation                                     Telemarketing

Co-Source Corporation                  5/21/99    A/R Management                 124,600                61,100

JDR Holdings, Inc.                     3/31/99    A/R Management and             103,100                51,000
                                                  Telemarketing

Medaphis Services Corporation         11/30/98    A/R Management                 117,500                96,700

MedSource, Inc.                         7/1/98    A/R Management                  35,700(5)             22,700

FCA International Ltd.                  5/5/98    A/R Management                  69,900                62,800

The Response Center                     2/6/98    Market Research                 15,000                 8,000

Collections Division of American        1/1/98    A/R Management                   1,700                 1,700
  Financial Enterprises, Inc.

ADVANTAGE Financial                    10/1/97    A/R Management                   5,000                 5,100
  Services, Inc.

Credit Acceptance Corporation          10/1/97    A/R Management                   1,800                 2,300

Collections Division of CRW             2/2/97    A/R Management                  12,800                25,900
  Financial, Inc.

CMS A/R Services                       1/31/97    A/R Management                   5,100                 6,800

Tele-Research Center, Inc.             1/30/97    Market Research and              2,200                 1,800
                                                  Telemarketing

Goodyear & Associates, Inc.            1/22/97    A/R Management                   5,400                 5,500

Management Adjustment                   9/5/96    A/R Management                   9,000                13,500
  Bureau, Inc.

Collections Division of Trans           1/3/96    A/R Management                   4,800                 7,000
  Union Corporation

Eastern Business Services, Inc.         8/1/95    A/R Management                   2,000                 2,000

B. Richard Miller, Inc.                4/29/94    A/R Management                   1,400                 1,300

</TABLE>
(1)    Includes $889,000 of debt repaid by us.
(2)    NCO Group, Inc. acquired the net assets and the results of operations
       for $10.1 million,  and NCO Portfolio  Management,  Inc.
       acquired the purchased accounts receivable for $22.9 million.
(3)    We merged our subsidiary NCO Portfolio Management,  Inc. with
       Creditrust  Corporation.  We own approximately 63 percent of the
       post-merger company.
(4)    Pro Forma Revenue - Assumes the acquisitions  completed by Compass
       International  Services Corporation in 1998 and the sale of
       its Print and Mail Division were all completed on January 1, 1998.
(5)    Includes $17.3 million of debt repaid by us.


                                      -13-
<PAGE>

Investment Considerations

     You should carefully consider the risks described below. If any of the
risks actually occur, our business, financial condition or results of future
operations could be materially adversely affected. This Annual Report on Form
10-K contains forward-looking statements that involve risk and uncertainties.
Our actual results could differ materially from those anticipated in the
forward-looking statements as a result of many factors, including the risks
faced by us described below and elsewhere in this Annual Report on Form 10-K.

     Decrease in our collections due to the current economic condition may have
an adverse effect on our operating results, revenue and stock price.

     Due to the current economic condition in the United States, which has led
to increasing rates of unemployment and personal bankruptcy filings, the ability
of consumers to pay their debts has significantly decreased. Defaulted consumer
loans that we service or purchase are generally unsecured, and we may often be
unable to collect these loans in case of the personal bankruptcy of a consumer.
Because of increased unemployment rates and bankruptcy filings, our collections
may significantly decline, which may adversely impact our results of operations,
revenue and stock price.

     Terrorist attacks, war and threats of attacks and war may adversely impact
our results of operations, revenue and stock price.

     Terrorist attacks, war and threats of attacks and war may adversely impact
our results of operations, revenue and stock price. Recent terrorist attacks in
the United States, as well as future events occurring in response or in
connection to them, including, without limitation, future terrorist attacks
against U.S. targets and threats of war or actual conflicts involving the United
States or its allies, may adversely impact our operations, including affecting
our ability to collect our clients' accounts receivable. More generally, any of
these events could cause consumer confidence and spending to decrease or result
in increased volatility in the economy. They could also result in the deepening
of the economic recession in the United States. Any of these occurrences could
have a material adverse effect on our operating results, collections and
revenue, and may result in the volatility of the market price for our common
stock.

     Our business is dependent on our ability to grow internally.

     Our business is dependent on our ability to grow internally, which is
dependent upon (1) our ability to retain existing clients and expand our
existing client relationships and (2) our ability to attract new clients.

     Our ability to retain existing clients and expand those relationships is
subject to a number of risks, including the risk that:

o we fail to maintain the quality of services we provide to our clients;
o we fail to maintain the level of attention expected by our clients; and
o we fail to successfully leverage our existing client relationships to sell
  additional services.


                                      -14-
<PAGE>

     Our ability to attract new clients is subject to a number of risks,
including:

o  the market acceptance of our service offerings;
o  the quality and effectiveness of our sales force; and
o  the competitive factors within the accounts receivable management and
   collection industry.

     If our efforts to retain and expand our client relationships and to attract
new clients do not prove effective, it could have a materially adverse effect on
our business, results of operations and financial condition.

     If we are not able to respond to technological changes in
telecommunications and computer systems in a timely manner, we may not be able
to remain competitive.

     Our success depends in large part on our sophisticated telecommunications
and computer systems. We use these systems to identify and contact large numbers
of debtors and to record the results of our collection efforts. If we are not
able to respond to technological changes in telecommunications and computer
systems in a timely manner, we may not be able to remain competitive. We have
made a significant investment in technology to remain competitive and we
anticipate that it will be necessary to continue to do so in the future.
Computer and telecommunications technologies are changing rapidly and are
characterized by short product life cycles, so that we must anticipate
technological developments. If we are not successful in anticipating, managing,
or adopting technological changes on a timely basis or if we do not have the
capital resources available to invest in new technologies, our business would be
materially adversely affected.

     We are highly dependent on our telecommunications and computer systems.

     As noted above, our business is highly dependent on our telecommunications
and computer systems. These systems could be interrupted by terrorist acts,
natural disasters, power losses, or similar events. Our business also is
materially dependent on services provided by various local and long distance
telephone companies. If our equipment or systems cease to work or become
unavailable, or if there is any significant interruption in telephone services,
we may be prevented from providing services. Because we generally recognize
income only as accounts are collected, any failure or interruption of services
would mean that we would continue to incur payroll and other expenses without
any corresponding income.

     We currently utilize two computer hardware systems and are in the process
of transitioning to one system. If we do not succeed in that transition, our
business may be materially adversely affected.

     We compete with a large number of providers in the accounts receivable
management and collection industry. This competition could have a materially
adverse effect on our future financial results.

                                      -15-
<PAGE>

     We compete with a large number of companies in providing accounts
receivable management and collection services. We compete with other sizable
corporations in the United States and abroad such as Outsourcing Solutions,
Inc., IntelliRisk Management Corporation, Risk Management Alternatives, Inc.,
and GC Services LP, as well as many regional and local firms. We may lose
business to competitors that offer more diversified services and/or operate in
broader geographic areas than we do. We may also lose business to regional or
local firms who are able to use their proximity to or contacts at local clients
as a marketing advantage. In addition, many companies perform the accounts
receivable management and collection services offered by us in-house. Many
larger clients retain multiple accounts receivable management and collection
providers, which exposes us to continuous competition in order to remain a
preferred provider. Because of this competition, in the future we may have to
reduce our collection fees to remain competitive and this competition could have
a materially adverse effect on our future financial results.

     Many of our clients are concentrated in the financial services, healthcare,
and retail and commercial sectors. If any of these sectors performs poorly or if
there are any adverse trends in these sectors it could materially adversely
affect us.

     For the year ended December 31, 2002, we derived approximately 39.2 percent
of our revenue, excluding purchased accounts receivable, from clients in the
financial services sector, approximately 24.5 percent of our revenue from
clients in the healthcare sector and approximately 18.1 percent of our revenue
from clients in the retail and commercial sectors. If any of these sectors
performs poorly, clients in these sectors may have fewer or smaller accounts to
refer to us, or they may elect to perform accounts receivable management and
collection services in-house. If there are any trends in any of these sectors to
reduce or eliminate the use of third-party accounts receivable management and
collection services, the volume of referrals to us could decrease.

     We operate in Canada and the United Kingdom, and various factors relating
to our international operations could affect our results of operations.

          We operate in Canada and the United Kingdom. Approximately 5.1% of our
revenues are derived from Canada and the United Kingdom. Political or economic
instability in Canada or the United Kingdom could have an adverse impact on our
results of operations due to diminished revenues in these countries. Our future
revenues, costs of operations and profit results could be affected by a number
of factors related to our international operations, including changes in foreign
currency exchange rates, changes in economic conditions from country to country,
changes in a country's political condition, trade protection measures, licensing
and other legal requirements and local tax issues. Unanticipated currency
fluctuations in the Canadian Dollar, British Pound or Euro could lead to lower
reported consolidated revenues due to the translation of these currencies into
U.S. dollars when we consolidate our revenues.

     Most of our contracts do not require clients to place accounts with us,
they may be terminated on 30 or 60 days notice, and they are on a contingent fee
basis. We cannot guarantee that existing clients will continue to use our
services at historical levels, if at all.

     Under the terms of most of our contracts, clients are not required to give
accounts to us for collection and usually have the right to terminate our
services on 30 or 60 days notice. Accordingly, we cannot guarantee that existing
clients will continue to use our services at historical levels, if at all. In
addition, most of these contracts provide that we are entitled to be paid only
when we collect accounts. Under applicable accounting principles, therefore, we
can recognize revenues only as accounts are recovered.


                                      -16-
<PAGE>
     We are subject to risks as a result of our investment in NCO Portfolio.

     We are subject to risks as a result of our investment in NCO Portfolio,
including:

o  The operations of NCO Portfolio could divert management's attention from our
   daily operations, particularly that of Michael J. Barrist, our Chairman,
   President and Chief Executive Officer, who is also serving in the same
   capacities for NCO Portfolio, and otherwise require the use of other of our
   management, operational and financial resources.

o  Our investment in NCO Portfolio currently is limited to our $25.0 million
   equity investment and a $40.0 million credit subfacility. If NCO Portfolio
   defaults on that credit, it would be a default under our credit agreement
   with our lenders, or if the value of our investment is impaired, it would
   have a material adverse effect on us.

     NCO Portfolio has additional business risks that may have an adverse effect
on our combined financial results.

     NCO Portfolio is subject to additional business-related risks common to the
purchase and management of defaulted consumer accounts receivable business. The
results of NCO Portfolio will be consolidated into our results. To the extent
that those risks have an adverse effect on NCO Portfolio, they will have an
adverse effect on our combined financial results. Some of those risks are:

o  Collections may not be sufficient to recover the cost of investments in
   purchased accounts receivable and support operations - NCO Portfolio
   purchases past due accounts receivable generated primarily by consumer credit
   transactions. These are obligations that the individual consumer has failed
   to pay when due. The accounts receivable are purchased from consumer
   creditors such as banks, finance companies, retail merchants, hospitals,
   utilities, and other consumer-oriented companies. Substantially all of the
   accounts receivable consist of account balances that the credit grantor has
   made numerous attempts to collect, has subsequently deemed uncollectable, and
   charged off its books. After purchase, collections on accounts receivable
   could be reduced by consumer bankruptcy filings, which have been on the rise.
   The accounts receivable are purchased at a significant discount, typically
   less than 10 percent of face value, to the amount the customer owes and,
   although we estimate that the recoveries on the accounts receivable will be
   in excess of the amount paid for the accounts receivable, actual recoveries
   on the accounts receivable will vary and may be less than the amount
   expected, or even the purchase price paid for such accounts. The timing or
   amounts to be collected on those accounts receivable cannot be assured. If
   cash flows from operations are less than anticipated as a result of our
   inability to collect NCO Portfolio's accounts receivable, NCO Portfolio will
   not be able to purchase new accounts receivable after it has exhausted the
   availability under the subfacility, and its future growth and profitability
   will be materially adversely affected. There can be no assurance that NCO
   Portfolio's operating performance will be sufficient to service debt on the
   subfacility or finance the purchase of new accounts receivable.

 o Use of estimates in reporting results - NCO Portfolio's revenue is recognized
   based on estimates of future collections on portfolios of accounts receivable
   purchased. Although estimates are based on analytics, the actual amount
   collected on portfolios and the timing of those collections will differ from
   NCO Portfolio's estimates. If collections on portfolios are materially less
   than estimated, NCO Portfolio will be required to record impairment expenses
   that will reduce earnings and could materially adversely affect earnings,
   financial condition, and creditworthiness.

                                      -17-
<PAGE>

o  Possible shortage of available accounts receivable for purchase at favorable
   prices - The availability of portfolios of past due consumer accounts
   receivable for purchase at favorable prices depends on a number of factors
   outside of NCO Portfolio's control, including the continuation of the current
   growth trend in consumer debt and competitive factors affecting potential
   purchasers and sellers of portfolios of accounts receivable. The growth in
   consumer debt may also be affected by changes in credit grantors'
   underwriting criteria and regulations governing consumer lending. Any slowing
   of the consumer debt growth trend could result in less credit being extended
   by credit grantors. Consequently, fewer delinquent accounts receivable could
   be available at prices that NCO Portfolio finds attractive. If competitors
   raise the prices they are willing to pay for portfolios of accounts
   receivable above those NCO Portfolio wishes to pay, NCO Portfolio may be
   unable to buy the type and quantity of past due accounts receivable at prices
   consistent with its historic return targets. In addition, NCO Portfolio may
   overpay for portfolios of delinquent accounts receivable, which may have a
   materially adverse effect on our combined financial results.

o  NCO Portfolio may be unable to compete with other purchasers of past due
   accounts receivable, which may have an adverse effect on our financial
   results. NCO Portfolio faces bidding competition in its acquisitions of
   portfolios of past due consumer accounts receivable. Some of its existing
   competitors and potential new competitors may have greater financial and
   other resources that allow them to offer higher prices for the accounts
   receivable portfolios. New purchasers of such portfolios entering the market
   also cause upward price pressures. NCO Portfolio may not have the resources
   or ability to compete successfully with its existing and potential new
   competitors. To remain competitive, NCO Portfolio may have to increase its
   bidding prices, which may have an adverse impact on our combined financial
   results.

     Our success depends on our senior management team and if we are not able to
retain them, it could have a materially adverse effect on us.

     We are highly dependent upon the continued services and experience of our
senior management team, including Michael J. Barrist, our Chairman, President
and Chief Executive Officer. NCO depends on the services of Mr. Barrist and the
other members of our senior management team to, among other things, continue the
development and implementation of our growth strategies, and maintain and
develop our client relationships.

     We may seek to make strategic acquisitions of companies. Acquisitions
involve additional risks that may adversely affect us.

     We may be unable to make acquisitions because suitable companies in the
accounts receivable management and collection business are not available at
favorable prices due to increased competition for these companies.

     We may have to borrow money, incur liabilities, or sell stock to pay for
future acquisitions and we may not be able to do so at all or on terms favorable
to us. Additional borrowings and liabilities may have a materially adverse
effect on our liquidity and capital resources. If we issue stock for all or a
portion of the purchase price for future acquisitions, our shareholders'
ownership interest may be diluted. If the price of our common stock decreases or
potential sellers are not willing to accept our common stock as payment for the
sale of their businesses, we may be required to use more of our cash resources,
if available, in order to continue our acquisition program.

                                      -18-
<PAGE>

     Completing acquisitions involves a number of risks, including diverting
management's attention from our daily operations and other additional
management, operational and financial resources. We might not be able to
successfully integrate future acquisitions into our business or operate the
acquired businesses profitably, and we may be subject to unanticipated problems
and liabilities of acquired companies.

     We are dependent on our employees and a higher turnover rate would
materially adversely affect us.

     We are dependent on our ability to attract, hire and retain qualified
employees. The accounts receivable management and collection industry
experiences a high employee turnover rate. Many of our employees receive modest
hourly wages and some of these employees are employed on a part-time basis. A
higher turnover rate among our employees would increase our recruiting and
training costs and could materially adversely impact the quality of services we
provide to our clients. If we were unable to recruit and retain a sufficient
number of employees, we would be forced to limit our growth or possibly curtail
our operations. Growth in our business will require us to recruit and train
qualified personnel at an accelerated rate from time to time. We cannot assure
you that we will be able to continue to hire, train and retain a sufficient
number of qualified employees. Any increase in hourly wages, costs of employee
benefits or employment taxes also could materially adversely affect us.

     If we fail to comply with government regulation of the collections
industry, it could result in the suspension or termination of our ability to
conduct business.

     The collections industry is regulated under various U.S. federal and state,
Canadian and United Kingdom laws and regulations. Many states, as well as Canada
and the United Kingdom, require that we be licensed as a debt collection
company. The Federal Trade Commission has the authority to investigate consumer
complaints against debt collection companies and to recommend enforcement
actions and seek monetary penalties. If we fail to comply with applicable laws
and regulations, it could result in the suspension or termination of our ability
to conduct collections, which would have a materially adverse effect on us. In
addition, new federal, state or foreign laws or regulations, or changes in the
ways these rules or laws are interpreted or enforced, could limit our activities
in the future or significantly increase the cost of regulatory compliance. If we
expand our international operations, we may become subject to additional
government controls and regulations in other countries, which may be stricter or
more burdensome than those in the United States.

     Several of the industries we serve are also subject to varying degrees of
government regulation. Although our clients are generally responsible for
complying with these regulations, we could be subject to various enforcement or
private actions for our failure, or the failure of our clients, to comply with
these regulations.


                                      -19-
<PAGE>

     We may experience variations from quarter to quarter in operating results
and net income that could adversely affect the price of our common stock.

     Factors that could cause quarterly fluctuations include, among other
things, the following:

o   the timing of our clients' accounts receivable management and collection
    programs and the commencement of new contracts and termination of existing
    contracts;
o   the timing and amount of collections on purchased accounts receivable;
o   customer contracts that require us to incur costs in periods prior to
    recognizing revenue under those contracts;
o   the effects of a change of business mix on profit margins;
o   the timing of additional selling, general and administrative expenses to
    support new business;
o   the costs and timing of completion and integration of acquisitions; and
o   that our business tends to be slower in the third and fourth quarters of the
    year due to the summer and holiday seasons.

     If we do not achieve the results projected in our public forecasts, it
could have a materially adverse effect on the market price of our common stock.

     We have publicly announced our investor guidance concerning our expected
results of operations for the first quarter of 2003 and in total for the year
2003. Our investor guidance contains forward-looking statements and may be
affected by various factors discussed in "Investment Considerations" and
elsewhere in this Annual Report on Form 10-K that may cause actual results to
differ materially from the results discussed in the investor guidance. Our
investor guidance reflects numerous assumptions, including our anticipated
future performance, general business and economic conditions and other matters,
some of which are beyond our control. In addition, unanticipated events and
circumstances may affect our actual financial results. Our investor guidance is
not a guarantee of future performance and the actual results throughout the
periods covered by the investor guidance may vary from the projected results. If
we do not achieve the results projected in our investor guidance, it could have
a materially adverse effect on the market price of our common stock.

     Goodwill represented 54.4 percent of our total assets at December 31, 2002.
Effective January 1, 2002, we adopted Statement of Financial Accounting Standard
No. 142, "Goodwill and Other Intangibles." If the goodwill is deemed to be
impaired under SFAS 142, we may need to take a charge to earnings to write-down
the goodwill to its fair value.

     Our balance sheet includes "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.


                                      -20-
<PAGE>

     Effective January 1, 2002, we adopted Statement of Financial Accounting
Standard No. 142, "Goodwill and Other Intangibles." SFAS 142 concluded that
purchased goodwill will not be amortized but will be reviewed for impairment at
least annually when certain events indicate that the goodwill of a reporting
unit is impaired. The impairment test uses 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. We make significant
assumptions to estimate the future revenue and cash flows used to determine the
fair value of our reporting units. If the expected revenue and cash flows are
not realized or if a sustained significant depression in our market
capitalization indicates that our assumptions are not accurately estimating our
fair value, impairment losses may be recorded in the future. We anticipate that
the annual impairment analysis will be completed on October 1st of each year.

     As of December 31, 2002, our balance sheet included goodwill that
represented 54.4 percent of total assets and 120.7 percent of shareholders'
equity. If the goodwill is deemed to be impaired under SFAS 142, we may need to
take a charge to earnings to write-down the goodwill to its fair value and this
could have a materially adverse effect on the market price of our common stock.

     Investors should be aware that our earnings for periods beginning after
December 31, 2001 will not include charges for the amortization of goodwill and
should consider this when comparing such earnings with historical earnings for
periods ended on or before December 31, 2001, which included goodwill
amortization charges.

     Our stock price has been and is likely to continue to be volatile, which
may make it difficult for shareholders to resell common stock when they want to
and at prices they find attractive.

     The trading price of our common stock has been and is likely to be highly
volatile. Our stock price could be subject to wide fluctuations in response to a
variety of factors, including the following:

o   announcements of fluctuations in our or our competitors' operating results;
o   the timing and announcement of acquisitions by us or our competitors;
o   changes in our publicly available guidance of future results of operations;
o   government regulatory action;
o   changes in estimates or recommendations by securities analysts;
o   adverse or unfavorable publicity about our services or us;
o   the commencement of material litigation, or an unfavorable verdict, against
    us;
o   terrorist attacks, war and threats of attacks and war;
o   additions or departures of key personnel; and
o   sales of common stock.

     In addition, the stock market in recent years has experienced significant
price and volume fluctuations and a significant cumulative decline in recent
months. Such volatility and decline have affected many companies irrespective
of, or disproportionately to, the operating performance of these companies.
These broad fluctuations may materially adversely affect the market price of our
common stock.

                                      -21-
<PAGE>

     Most of our outstanding shares are available for resale in the public
market without restriction. The sale of a large number of these shares could
adversely affect our stock price and could impair our ability to raise capital
through the sale of equity securities or make acquisitions for stock.

     Sales of our common stock could adversely affect the market price of our
common stock and could impair our future ability to raise capital through the
sale of equity securities or make acquisitions for stock. As of March 11, 2003,
there were 25,908,000 shares of our common stock outstanding. Most of these
shares are available for resale in the public market without restriction, except
for shares held by our affiliates. Generally, our affiliates may either sell
their shares under a registration statement or in compliance with the volume
limitations and other requirements imposed by Rule 144 adopted by the SEC.

     In addition, as of March 11, 2003, we had the authority to issue up to
approximately 4,334,000 shares of our common stock under our stock option plans.
We also had outstanding notes convertible into an aggregate of 3,797,000 shares
of our common stock at a conversion price of $32.92 per share. Additionally, we
had outstanding warrants to purchase approximately 22,000 shares of our common
stock.

     "Anti-takeover" provisions may make it more difficult for a third party to
acquire control of us, even if the change in control would be beneficial to
shareholders.

     We are a Pennsylvania corporation. Anti-takeover provisions in Pennsylvania
law and our charter and bylaws could make it more difficult for a third party to
acquire control of us. These provisions could adversely affect the market price
of our common stock and could reduce the amount that shareholders might receive
if we are sold. For example, our charter provides that our board of directors
may issue preferred stock without shareholder approval. In addition, our bylaws
provide for a classified board, with each board member serving a staggered
three-year term. Directors may be removed only for cause and only with the
approval of the holders of at least 65 percent of our common stock.





                                      -22-
<PAGE>

Item 2.  Properties.

     We currently lease 66 offices in the United States, including our corporate
headquarters, seven offices in Canada, two offices in the United Kingdom, and
one office in Puerto Rico. The leases of these facilities expire between 2003
and 2016, and most contain renewal options.

     In March 2002, we moved our corporate headquarters to 507 Prudential Road,
Horsham, PA 19044.

     We believe that our facilities are adequate for our current operations, but
additional facilities may be required to support growth. We believe that
suitable additional or alternative space will be available as needed on
commercially reasonable terms.

Item 3. Legal Proceedings.

     In June 2001, the first floor of our Fort Washington, PA, headquarters was
severely damaged by a flood caused by remnants of Tropical Storm Allison. During
the third quarter of 2001, we decided to relocate our corporate headquarters to
Horsham, PA. We have filed a lawsuit against the landlord of the Fort Washington
facilities to terminate the leases. Due to the uncertainty of the outcome of the
lawsuit, we recorded the full amount of rent due under the remaining terms of
the leases during the third quarter of 2001.

     AssetCare, Inc., our subsidiary acquired as part of the Medaphis Services
Corporation acquisition, was 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 site next to Humboldt Bay in
California. The subsidiary was identified as a successor-in-interest to a former
scrap recycler who conducted limited operations at the site. The subsidiary was
also named in a civil proceeding brought by one of the owners of the site as a
party that is responsible for the costs that will be incurred by the owner for
complying with the terms of the order. AssetCare agreed to pay $1,410,000 to
settle the claims in the litigation with the owner in exchange for a full
release from the owner. Subsequently, we reached an agreement with the former
owner of Medaphis Services Corporation pursuant to which they agreed to
partially reimburse us for our indemnification claims under the acquisition
agreement. Notwithstanding the settlement with the owner, AssetCare, Inc. is
still a party to the California administrative order.

     We are involved in legal proceedings and regulatory investigations from
time to time in the ordinary course of our business. Management believes that
none of these legal proceedings or regulatory investigations will have a
materially adverse effect on our financial condition or results of operations.

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

     None.


                                      -23-
<PAGE>



Item 4.1   Executive Officers of the Registrant who are not Directors.
<TABLE>
<CAPTION>

                      Name                               Age                           Position
--------------------------------------------------     --------     ------------------------------------------------
<S>                                                      <C>           <C>
Stephen W. Elliott.....................                  41         Executive Vice President, Information
                                                                    Technology and Chief Information Officer
Joshua Gindin, Esq.....................                  46         Executive Vice President and General Counsel
Steven Leckerman.......................                  50         Executive Vice President, U.S. Operations
Paul E. Weitzel, Jr....................                  44         Executive Vice President, Corporate
                                                                    Development and International Operations
Steven L. Winokur......................                  43         Executive Vice President, Finance; Chief
                                                                    Financial Officer; and Treasurer
</TABLE>

     Stephen W. Elliott - Mr. Elliott joined us in 1996 as Senior Vice
President, Technology and Chief Information Officer after having provided
consulting services to us for the year prior to his arrival. Mr. Elliott became
an Executive Vice President in February 1999. Prior to joining us, Mr. Elliott
was employed by Electronic Data Systems, a computer services company, for almost
10 years, most recently as Senior Account Manager.

     Joshua Gindin, Esq. - Mr. Gindin joined us in May 1998. Prior to joining
us, Mr. Gindin was a partner in the law firm of Kessler & Gindin, which had
served as our legal counsel since 1986.

     Steven Leckerman - Mr. Leckerman joined us in 1995 as Senior Vice
President, Collection Operations, and became Executive Vice President, U.S.
Operations in January 2001. From 1982 to 1995, Mr. Leckerman was employed by
Allied Bond Corporation, a collection company that was a division of Union
Corporation, where he served as manager of dialer and special projects.

     Paul E. Weitzel, Jr. - Mr. Weitzel joined us through the acquisition of
MedSource, Inc. in July 1998. Prior to joining us, Mr. Weitzel was Chairman and
Chief Executive Officer of MedSource, Inc. from 1997 through the acquisition.
Prior to joining MedSource, Inc., Mr. Weitzel was with MedQuist, Inc., a medical
transcription company, for four years, most recently as President and Chief
Executive Officer. Mr. Weitzel is a Certified Public Accountant.

     Steven L. Winokur - Mr. Winokur joined us in December 1995. Prior to that,
Mr. Winokur acted as a part-time consultant to us since 1986. From February 1992
to December 1995, Mr. Winokur was the principal of Winokur & Associates, a
certified public accounting firm. From March 1981 to February 1992, Mr. Winokur
was with Gross & Company, a certified public accounting firm, where he most
recently served as Administrative Partner. Mr. Winokur is a Certified Public
Accountant.


                                      -24-
<PAGE>


                                     PART II


Item 5.  Market for Registrant's Common Equity and
         Related Shareholder Matters.

     Our common stock is listed on the Nasdaq National Market under the symbol
"NCOG." The following table sets forth, for the fiscal quarters indicated, the
high and low sale prices for our common stock, as reported by Nasdaq.

                                                         High           Low
                                                       --------       -------
2001
           First Quarter                                $ 35.50       $ 25.19
           Second Quarter                                 33.10         22.56
           Third Quarter                                  30.62         11.00
           Fourth Quarter                                 24.50         13.35

2002
           First Quarter                                $ 29.75       $ 18.30
           Second Quarter                                 29.19         20.61
           Third Quarter                                  22.55         11.33
           Fourth Quarter                                 16.80         10.56

    On March 11, 2003, the last reported sale price of our common stock as
reported on The Nasdaq National Market was $13.17 per share. On March 11, 2003,
there were approximately 83 holders of record of our common stock.

Dividend Policy

     We have never declared or paid cash dividends on our common stock, and we
do not anticipate paying cash dividends on our common stock in the foreseeable
future. In addition, our credit agreement prohibits us from paying cash
dividends without the lender's prior consent. We currently intend to retain
future earnings to finance our operations and fund the growth of our business.
Any payment of future dividends will be at the discretion of our board of
directors and will depend upon, among other things, our earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions
with respect to the payment of dividends and other factors that our board of
directors deems relevant.

Equity Compensation Plan

     See Part III, Item 12 of this Annual Report on Form 10-K for disclosure
regarding our equity compensation plans.


                                      -25-
<PAGE>


Item 6. Selected Financial Data.

                           SELECTED FINANCIAL DATA (1)(2)
                  (Amounts in thousands, except per share data)
<TABLE>
<CAPTION>


                                                                               For the years ended December 31,
                                                          --------------------------------------------------------------------------
                                                             1998           1999            2000            2001           2002
                                                          -----------    ------------    ------------    -----------    ------------
                                                                                          (Restated)      (Restated)
<S>                                                          <C>             <C>             <C>            <C>             <C>
Statement of Income Data:
Revenue                                                    $ 209,947       $ 460,311       $ 587,452      $ 683,873       $ 703,450
Operating costs and expenses:
     Payroll and related expenses                            106,787         237,709         293,292        350,634         335,405
     Selling, general and administrative expenses             61,607         128,177         179,924        237,690         249,672
     Depreciation and amortization expense                     8,615          21,805          32,360         38,205          27,324
     Nonrecurring acquisition costs                                -           4,601               -              -               -
                                                         -----------    ------------    ------------    -----------    ------------
Income from operations                                        32,938          68,019          81,876         57,344          91,049
Other income (expense)                                        (1,794)        (16,899)        (22,126)       (23,335)        (17,970)
                                                         -----------    ------------    ------------    -----------    ------------
Income before provision for income taxes                      31,144          51,120          59,750         34,009          73,079
Income tax expense                                            12,881          22,821          24,572         14,661          27,702
                                                         -----------    ------------    ------------    -----------    ------------
Income from continuing operations before
  minority interest                                           18,263          28,299          35,178         19,348          45,377
Minority interest                                                  -               -               -         (4,310)         (3,218)
                                                         -----------    ------------    ------------    -----------    ------------
Income from continuing operations                             18,263          28,299          35,178         15,038          42,159
Accretion of preferred stock to redemption value              (1,604)           (377)              -              -               -
                                                         -----------    ------------    ------------    -----------    ------------
Income from continuing operations applicable
  to common shareholders                                      16,659          27,922          35,178         15,038          42,159
Discontinued operations, net of taxes:
     Income (loss) from discontinued operations                   82           1,067            (975)             -               -
     Loss on disposal of discontinued operations                   -               -         (23,179)             -               -
                                                         -----------    ------------    ------------    -----------    ------------
Net income applicable to common shareholders                $ 16,741        $ 28,989        $ 11,024       $ 15,038        $ 42,159
                                                         ===========    ============    ============    ===========    ============

Income from continuing operations applicable to common
 shareholders per share:
     Basic                                                    $ 0.91          $ 1.22          $ 1.38         $ 0.58          $ 1.63
                                                         ===========    ============    ============    ===========    ============
     Diluted                                                  $ 0.84          $ 1.17          $ 1.36         $ 0.58          $ 1.54
                                                         ===========    ============    ============    ===========    ============

Net income applicable to common shareholders per share:
     Basic                                                    $ 0.91          $ 1.27          $ 0.43         $ 0.58          $ 1.63
                                                         ===========    ============    ============    ===========    ============
     Diluted                                                  $ 0.85          $ 1.22          $ 0.43         $ 0.58          $ 1.54
                                                         ===========    ============    ============    ===========    ============

Weighted average shares outstanding:
     Basic                                                    18,324          22,873          25,587         25,773          25,890
                                                         ===========    ============    ============    ===========    ============
     Diluted                                                  19,758          23,799          25,842         26,091          29,829
                                                         ===========    ============    ============    ===========    ============


                                                                                         December 31,
                                                          --------------------------------------------------------------------------
                                                             1998           1999            2000            2001           2002
                                                         -----------    ------------    ------------    -----------    ------------
                                                                                         (Restated)      (Restated)
Balance Sheet Data:
Cash and cash equivalents                                   $ 22,528        $ 50,513        $ 13,490       $ 32,161        $ 25,159
Working capital                                               31,517          65,937          76,824         97,478         105,984
Net assets of discontinued operations                         27,740          41,492               -              -               -
Total assets                                                 410,992         791,692         781,257        928,864         966,281
Long-term debt, net of current portion                       143,831         323,949         303,920        357,868         334,423
Minority interest                                                  -               -               -         21,213          24,427
Redeemable preferred stock                                    11,882               -               -              -               -
Shareholders' equity                                         199,465         364,888         375,464        392,302         435,762

</TABLE>

(1)  Gives effect to the restatement of our historical financial statements for
     a correction of an error due to the change in accounting method for the
     revenue recognition of a long-term guarantee contract for the years ended
     December 31, 2000 and 2001.
(2)  The years ended December 31, 1998, 1999, 2000, and 2001, included goodwill
     amortization expense, net of tax, of $4.0 million, $11.2 million, $11.8
     million, and $11.9 million, respectively. In accordance with the adoption
     of FASB 142, we stopped amortizing goodwill on January 1, 2002. This data
     should be read in conjunction with the consolidated financial statements,
     including the accompanying notes, included elsewhere in this report on Form
     10-K.


                                      -26-
<PAGE>


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

     Overview

     We believe we are the largest outsourced accounts receivable management and
collection company in the world, serving a wide range of clients in North
America and abroad. We generate approximately 70 percent of our revenue from the
recovery of delinquent accounts receivable on a contingency fee basis. Our
contingency fees typically range from 15 percent to 35 percent of the amount
recovered on behalf of our clients. However, fees can range from 6 percent for
the management of accounts placed early in the accounts receivable cycle to 50
percent for accounts that have been serviced extensively by the client or by
third-party providers. Our average fee for contingency based revenue across all
industries, excluding the long-term guarantee contract, was approximately 19
percent during 2002, 2001 and 2000. In addition, we generate revenue from fixed
fee services for certain accounts receivable management and collection services.
Generally, revenue is earned and recognized upon collection of accounts
receivable for contingency fee services and as work is performed for fixed fee
services. We enter into contracts with most of our clients that define, among
other things, fee arrangements, scope of services, and termination provisions.
Clients typically have the right to terminate their contracts on 30 or 60 days'
notice.

     Our operating costs consist principally of payroll and related costs;
selling, general and administrative costs; and depreciation and amortization.
Payroll and related expenses consist of wages and salaries, commissions,
bonuses, and benefits for all of our employees, including management and
administrative personnel. Selling, general and administrative expenses include
telephone, postage and mailing costs, and other collection costs, as well as
expenses that directly support operations including facility costs, equipment
maintenance, sales and marketing, data processing, professional fees, and other
management costs.

     We have grown rapidly, through both internal growth as well as
acquisitions. During 2002, we completed two acquisitions, Great Lakes Collection
Bureau, Inc., referred to as Great Lakes, in August 2002 and The Revenue
Maximization Group Inc., referred to as RevGro, in December 2002. All of our
acquisitions, except the acquisition in 1999 of JDR Holdings, Inc., referred to
as JDR, have been accounted for under the purchase method of accounting with the
results of the acquired companies included in our operating results beginning on
the date of acquisition. JDR was accounted for under the pooling-of-interests
method of accounting.

     On April 14, 2000, our Board of Directors approved a plan to divest our
Market Strategy division. The Market Strategy division provided market research
and telemarketing services, and was divested as part of our strategic plan to
increase long-term shareholder value by focusing on our core accounts receivable
management and collection services business. The Market Strategy division's
operations for all periods presented prior to April 14, 2000, have been
presented separately as income or loss from discontinued operations in our
consolidated statements of income. We completed the divestiture in October 2000,
and recorded a loss of $23.2 million. This loss reflects the difference between
the net assets and the proceeds from the divestiture as well as the operating
losses from April 14, 2000, through the completion of the divestiture.

     During 2000, the continued integration of our infrastructure facilitated
the reduction of our operating divisions from three to two. Effective October 1,
2000, the new operating divisions were U.S. Operations (formerly Accounts
Receivable Management Services and Technology-Based Outsourcing) and
International Operations. Each of these divisions maintains industry-specific
functional groups.

                                      -27-
<PAGE>

     In February 2001, the Portfolio Management division was created after we
completed the merger of our subsidiary, NCO Portfolio Management, Inc., referred
to as NCO Portfolio, with Creditrust Corporation, referred to as Creditrust. As
a result of the merger, referred to as the Creditrust Merger, our results of
operations are more significantly impacted by purchases of and collections on
delinquent accounts receivable. NCO Portfolio recognizes revenue based on
estimates of future portfolio collections and the timing of these collections.
On a periodic basis, NCO Portfolio reviews and adjusts the amount and timing of
expected future collections, based on the performance of the portfolio to date.
We own approximately 63 percent of NCO Portfolio after the Creditrust Merger.
The results of NCO Portfolio are consolidated into our results, with a charge
for minority interest and elimination of significant intercompany transactions.

     Restatement of Financial Statements

     On February 6, 2003, our independent auditors informed us that, based on
their further internal review and consultation, they no longer considered our
methodology for revenue recognition for a long-term guarantee contract
appropriate under revenue recognition guidelines. Further review by us with our
independent auditors led us to conclude that we should change our method of
revenue recognition for the contract. The change resulted in the deferral of the
recognition of revenue under the contract until such time as any contingencies
related to the realization of revenue have been resolved. Our financial
statements and the accompanying notes for the years ended December 31, 2000 and
2001, have been restated for a correction of an error due to this change.

     Critical Accounting Policies

General

     The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and the accompanying notes. Actual results could differ
from those estimates. We believe the following accounting policies include the
estimates that are the most critical and could have the most potential impact on
our results of operations. For a discussion of these and other accounting
policies, see note 2 in our Notes to Consolidated Financial Statements.

Goodwill

     Our balance sheet includes amounts designated as "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.

     As of December 31, 2002, our balance sheet included goodwill that
represented 54.4 percent of total assets and 120.7 percent of shareholders'
equity.

                                      -28-
<PAGE>

     Effective January 1, 2002, we adopted Statement of Financial Accounting
Standard No. 142, "Goodwill and Other Intangibles," referred to as SFAS 142. As
a result of adopting SFAS 142, we no longer amortize goodwill. Goodwill must be
tested at least annually for impairment, including an initial test that was
completed in connection with the adoption of SFAS 142. The test for impairment
uses 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. We make significant assumptions to estimate the future
revenue and cash flows used to determine the fair value of our reporting units.
If the expected revenue and cash flows are not realized or if a sustained
significant depression in our market capitalization indicates that our
assumptions are not accurately estimating our fair value, impairment losses may
be recorded in the future. We did not incur any impairment charges in connection
with the adoption of SFAS 142 or the annual impairment test performed on October
1, 2002, and we do not believe that goodwill was impaired as of December 31,
2002. We anticipate that the annual impairment analysis will be completed on
October 1st of each year.

Revenue Recognition for a Long-Term Guarantee Contract

     We have a long-term guarantee contract with a large client to provide
collection services. We receive a base service fee based on collections. We also
earn a bonus to the extent collections are in excess of the guarantees. We are
required to pay the client if collections do not reach the guarantees but we are
entitled to recoup at least 90 percent of any such guarantee payments from
subsequent collections.

     In accordance with the provision of Staff Accounting Bulletin No. 101
"Revenue Recognition in Financial Statements," we defer all of the base service
fees until the collections exceed the collection guarantees. At the end of each
reporting period, we assess the need to record an additional liability if
deferred fees are less than the estimated guarantee payments, if any, due to the
client. There was no additional liability recorded as of December 31, 2001 and
2002.

Revenue Recognition for Purchased Accounts Receivable

     In the ordinary course of accounting for purchased accounts receivable,
estimates have been made by management as to the amount of future cash flows
expected from each portfolio. The estimated future cash flow of each portfolio
is used to compute the internal rate of return, referred to as IRR, for each
portfolio. The IRR is used to allocate collections between revenue and
amortization of the carrying values of the purchased accounts receivable.

     On an ongoing basis, we compare the historical trends of each portfolio to
projected collections. Projected collections are then increased, within preset
limits, or decreased based on the actual cumulative performance of each
portfolio. We review each portfolio's adjusted projected collections to
determine if further downward adjustment is warranted. Management regularly
reviews the trends in collection patterns and uses its best efforts to improve
under-performing portfolios. However, actual results will differ from these
estimates and a material change in these estimates could occur within one
reporting period. For the year ended December 31, 2001, differences between
actual and estimated collections on existing portfolios as of the beginning of
2001 resulted in a reduction in net income and earnings per share of $980,000
and $0.04 per diluted share, respectively. For the year ended December 31, 2002,
differences between actual and estimated collections on existing portfolios as
of the beginning of 2002 resulted in a reduction in net income and earnings per
share of $2.6 million and $0.10 per diluted share, respectively.

Bad  Debts

     We maintain an allowance for doubtful accounts for estimated losses
resulting from the nonpayment of our trade accounts receivable. If our estimate
is not sufficient to cover actual losses, we would be required to take
additional charges to our earnings.

                                      -29-
<PAGE>

Deferred Taxes

     Income taxes or tax benefits have been provided in the results of
operations based on the statutory federal and state rates of 37.5 percent of
pre-tax income for NCO Portfolio. For financial reporting purposes, revenue is
recognized over the life of the portfolio. Because the portfolios of purchased
accounts receivable are comprised of distressed debt and collection results are
not guaranteed until received, for tax purposes, any gain on a particular
portfolio is deferred until the full cost of the portfolio is recovered (cost
recovery method). Temporary differences arise due to the differences in revenue
recognition methods. Permanent differences between the statutory tax rates and
actual rates are minimal. Temporary differences arising from the recognition of
revenue on purchased accounts receivable have resulted in deferred tax
liabilities. Assumed utilization of net operating losses acquired in the
Creditrust Merger has resulted in deferred tax assets. Our deferred tax
liabilities grew significantly through 2002 as a result of the increase in
purchased accounts receivable, providing us with additional liquidity. As of
December 31, 2002, NCO Portfolio's net deferred tax liability of $4.3 million
was the result of the combination of deferred tax assets generated principally
by the assumed utilization of net operating loss carryforwards from the
Creditrust Merger, offset by the deferred tax liabilities arising from book tax
differences on purchased accounts receivable, including the purchased accounts
receivable acquired in the Creditrust Merger. The utilization of net operating
loss carryforwards is an estimate based on a number of factors beyond our
control, including the level of taxable income available from successful
operations in the future. The utilization of net operating losses acquired in
the Creditrust Merger has been further impacted by federal tax law provisions
that limit the amount of net operating loss carryforwards that can be utilized
subsequent to a change in control.

     Results of Operations

     The following table sets forth selected historical income statement data
(amounts in thousands):
<TABLE>
<CAPTION>

                                                            For the years ended December 31,
                                       -----------------------------------------------------------------------
                                              2000 (1)                   2001 (1)                   2002
                                       ---------------------      ---------------------      -----------------
                                         Amount        Ratio       Amount        Ratio       Amount      Ratio
                                       ---------      ------      --------       -----       ------      -----
                                       (Restated)                (Restated)

<S>                                     <C>           <C>         <C>           <C>        <C>            <C>
Revenue                                 $587,452      100.0%      $683,873      100.0%     $703,450       100.0%

Payroll and related expenses             293,292       50.0        350,634       51.3       335,405        47.7
Selling, general and administrative
  expenses                               179,924       30.6        237,690       34.7       249,672        35.5
Depreciation and amortization             32,360        5.5         38,205        5.6        27,324         3.9
                                       ---------     ------      ---------      -----      --------       -----

Income from operations                    81,876       13.9         57,344        8.4        91,049        12.9

Other expense                             22,126        3.7         23,335        3.4        17,970         2.5
Income tax expense                        24,572        4.2         14,661        2.1        27,702         3.9
Minority interest                              -          -          4,310        0.7         3,218         0.5
                                       ---------     ------      ---------      -----      --------       -----

Income from continuing operations       $ 35,178        6.0%      $ 15,038        2.2%     $ 42,159         6.0%
                                       =========     ======   ============      =====      ========       =====
</TABLE>

(1) Gives effect to the restatement of our historical financial statements for
    the correction of an error due to a change in method of revenue recognition
    for a long-term guarantee contract for the years ended December 31, 2000 and
    2001.


                                      -30-
<PAGE>

Year ended December 31, 2002, Compared to Year ended December 31, 2001
(Restated)

     Revenue. Revenue increased $19.6 million, or 2.9 percent, to $703.5 million
for the year ended December 31, 2002, from $683.9 million for the comparable
period in 2001. U.S. Operations, Portfolio Management, and International
Operations accounted for $639.5 million, $63.4 million, and $47.6 million,
respectively, of the 2002 revenue. U.S. Operations' revenue included $35.5
million of revenue earned on services performed for Portfolio Management that
was eliminated upon consolidation. International Operations' revenue included
$11.5 million of revenue earned on services performed for the U.S. Operations
that was eliminated upon consolidation.

     U.S. Operation's revenue increased $23.8 million, or 3.9 percent, to $639.5
million in 2002, from $615.7 million in 2001. The increase in our U.S.
Operations division's revenue was attributable to the recognition of deferred
revenues from the long-term guarantee contract, an increase in collection
services provided to Portfolio Management, the addition of new clients, and the
growth in business from existing clients. These increases were partially offset
by lower revenues due to further weakening of consumer payment patterns during
2002.

     Portfolio Management's revenue increased $450,000, or 0.7 percent, to $63.4
million in 2002, from $62.9 million in 2001. Portfolio Management's collections
increased $17.7 million, or 17.0 percent, to $121.8 million in 2002, from $104.1
million in 2001. Portfolio Management's revenue represented 52 percent of
collections in 2002, as compared to 60 percent of collections in 2001. Although
collections increased, revenue only increased slightly due to the decrease in
the revenue recognition rate. Revenue as a percentage of collections declined
principally due to changes in the total composition of purchased accounts
receivable in 2001 versus 2002. Purchased accounts receivable acquired in, and
subsequent to, the Creditrust Merger were acquired at a lower internal rate of
return, referred to as IRR, compared to accounts receivable purchased prior to
the Creditrust Merger. Purchases of accounts receivable made in the second half
of 2001 and in 2002 have returns that have been targeted lower at the time of
acquisition due to reduced collection estimates due to the tougher economic
climate. In addition, the overall percentage was also lowered due to a slow down
in collections on existing portfolios as a result of the softening economic
climate in the last quarter of 2001 and in 2002. Additionally, included in
collections for 2002, was approximately $1.7 million received as a partial
payment on the sale of certain accounts to a leading credit card issuer. These
additional proceeds included in collections had a marginal impact on revenue as
the rate at which revenue is recognized period-to-period is not affected at the
same rate as changes in collections due to the effective interest method of
computing revenue. Additionally, portfolios with $5.8 million in carrying value,
or 3.9 percent of purchased accounts receivable, as of December 31, 2002, have
been impaired and placed on cost recovery status. Accordingly, no revenue will
be recorded on these portfolios after their impairment until their carrying
value has been fully recovered, resulting in a lower percentage of revenue to
collections. However, during the third quarter of 2002, Portfolio Management
concluded a contract re-negotiation with the seller of several existing
portfolios resulting in a $4.0 million cash price reduction on purchases from
2000 and 2001. The renegotiation included a purchase price adjustment, as well
as a reimbursement for estimated lost earnings. The $4.0 million proceeds were
recorded as an adjustment to purchase price of the affected portfolios during
the third quarter of 2002. On several previously impaired portfolios, the cash
price reduction reduced the carrying value of such portfolios, resulting in the
carrying value of certain of the portfolios becoming fully recovered. Included
in revenue for 2002, was $803,000 that resulted from the contract price
reduction of these fully recovered portfolios.

                                      -31-
<PAGE>

     International Operations' revenue increased $9.8 million, or 26.0 percent,
to $47.6 million in 2002, from $37.8 million in 2001. The increase in our
International Operations division's revenue was primarily attributable to new
services provided for our U.S. Operations, the addition of new clients, and
growth in business from existing clients.

     Payroll and related expenses. Payroll and related expenses decreased $15.2
million to $335.4 million in 2002, from $350.6 million in 2001, and decreased as
a percentage of revenue to 47.7 percent from 51.3 percent.

     U.S Operations' payroll and related expenses decreased $15.5 million to
$317.0 million in 2002, from $332.5 million in 2001, and decreased as a
percentage of revenue to 49.6 percent from 54.0 percent. The higher level of
payroll as a percentage of revenue in 2001 was primarily attributable to $10.0
million of one-time charges incurred by U.S. Operations during the second
quarter of 2001. These charges related to a comprehensive streamlining of the
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
the decrease as a percentage of revenue was also attributable to incurring costs
in 2001 related to the long-term guarantee contract but deferring the revenue
until 2002 and subsequent years. In addition, we continued to focus on managing
our staffing levels to our business volumes, despite the difficult collection
environment.

     Portfolio Management's payroll and related expenses decreased $92,000 to
$1.5 million in 2002, from $1.6 million in 2001, and decreased as a percentage
of revenue to 2.4 percent from 2.6 percent. Portfolio Management outsources all
of the collection services to U.S. Operations and, therefore, has a relatively
small fixed payroll cost structure.

     International Operations' payroll and related expenses increased $6.7
million to $28.4 million in 2002, from $21.7 million in 2001, and increased as a
percentage of revenue to 59.6 percent from 57.4 percent. The increase as a
percentage of revenue was primarily attributable to the increase in outsourcing
services provided to U.S. Operations and other clients because those services
typically have a higher payroll cost structure than the remainder of
International Operations' business. This increase was partially offset by
$736,000 of one-time charges incurred by International Operations during the
second quarter of 2001. These charges related to a comprehensive streamlining of
its expense structure. 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 $12.0 million to $249.7 million in 2002, from
$237.7 million in 2001, and increased as a percentage of revenue to 35.5 percent
from 34.8 percent. The increase as a percentage of revenue was primarily
attributable to reduced collectibility within our contingency revenue stream due
to the effects of the difficult collection environment. In order to mitigate the
effects of the decreased collectibility while maintaining performance for our
clients, we had to increase spending for direct costs of collections. These
costs included telephone, letter writing and postage, third-party servicing
fees, credit reporting, skip-tracing, and legal and forwarding fees. The
increase as a percentage of revenue was partially offset by $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. Additionally, a portion of
the increase was offset by $1.8 million of one-time charges incurred during the
second quarter of 2001 related to a comprehensive streamlining of our 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.

                                      -32-
<PAGE>

     Depreciation and amortization. Depreciation and amortization decreased to
$27.3 million in 2002, from $38.2 million in 2001. This decrease was the result
of the adoption of Statement of Financial Accounting Standard No. 142, "Goodwill
and Other Intangibles" ("SFAS 142") on January 1, 2002. SFAS 142 eliminated the
amortization of goodwill, which was $15.7 million in 2001. Partially offsetting
the $15.7 million decrease was additional depreciation resulting from normal
capital expenditures made in the ordinary course of business during 2001 and
2002. These capital expenditures included purchases associated with our planned
migration towards a single, integrated information technology platform, the
relocation of our corporate headquarters to Horsham, Pennsylvania, and the
acquisition of predictive dialers and other equipment required to expand our
infrastructure to handle future growth. The decrease was also partially offset
by the amortization of the customer lists acquired in the Great Lakes and RevGro
acquisitions.

     Other income (expense). Interest and investment income decreased $405,000
to $3.2 million for 2002, compared to $3.6 million in 2001. This decrease was
primarily attributable to lower interest rates earned on operating cash, funds
held in trust on behalf of clients, and notes receivable. Interest expense
decreased to $21.0 million for 2002, from $27.0 million for 2001. This decrease
was primarily attributable to lower interest rates and lower principal balances
as a result of debt repayments made during 2001 and 2002. The decrease was
partially offset by a full year of interest from Portfolio Management's $36.3
million of borrowings made in connection with the Creditrust merger in February
2001 and its subsequent borrowings used to purchase accounts receivable
portfolios, including $20.6 million of borrowings to purchase Great Lakes'
accounts receivable portfolios. In addition, a portion of the decrease was
offset by a full year of interest expense from securitized debt that was assumed
as part of the Creditrust Merger. During 2002, we recorded net other expenses of
$216,000. This was the net effect of a $1.3 million insurance gain, a $1.3
million net expense from the settlement of an environmental liability, and a
$250,000 write-down of an investment. The gain resulted from the settlement of
the insurance claim related to the June 2001 flood of the Fort Washington
facilities. The insurance gain was principally due to greater than estimated
insurance proceeds. The expense from the environmental liability was the result
of contamination that allegedly occurred in the pre-acquisition operations of a
company acquired by a subsidiary of Medaphis Services Corporation. We acquired
Medaphis Services Corporation in November 1998. These operations were unrelated
to the accounts receivable outsourcing business.

     Income tax expense. Income tax expense for 2002 increased to $27.7 million
from $14.7 million for 2001, but the effective tax rate decreased to 37.9
percent of income before income tax expense from 43.1 percent for 2001. The
decrease in the effective tax rate was primarily attributable to the elimination
of the amortization of nondeductible goodwill related to certain acquisitions.
The goodwill amortization was eliminated upon the adoption of SFAS 142 on
January 1, 2002.



                                      -33-
<PAGE>

Year ended December 31, 2001 (Restated), Compared to Year ended
December 31, 2000 (Restated)

     Revenue. Revenue increased $96.4 million, or 16.4 percent, to $683.9
million for the year ended December 31, 2001, from $587.5 million for the
comparable period in 2000. Our U.S. Operations, Portfolio Management, and
International Operations divisions represented $615.7 million, $62.9 million,
and $37.8 million, respectively, of the 2001 revenue. The U.S. Operations'
revenue included $27.4 million of revenue earned on services performed for the
Portfolio Management division that was eliminated upon consolidation. The
International Operations' revenue included $5.1 million of revenue earned on
services performed for the U.S. Operations division that was eliminated upon
consolidation. Our U.S. Operations, Portfolio Management, and International
Operations divisions represented $548.3 million, $13.2 million and $31.7
million, respectively, of the revenue for 2000. The U.S. Operations' revenue
included $5.7 million of revenue earned on services performed for the Portfolio
Management division that was eliminated upon consolidation.

     U.S. Operation's revenue increased $67.4 million, or 12.3 percent, to
$615.7 million in 2001, from $548.3 million in 2000. The increase in our U.S.
Operations division's revenue was attributable to the addition of new clients
and the growth in business from existing clients.

     Portfolio Management's revenue increased $49.7 million, or 378.5 percent,
to $62.9 million in 2001, from $13.2 million in 2000. This increase in the
Portfolio Management's revenue was partially attributable to an increase in
purchases of accounts receivable. The remainder of the increase was attributable
to purchased accounts receivable obtained from the Creditrust Merger in February
2001.

     International Operation's revenue increased $6.1 million, or 19.2 percent,
to $37.8 million in 2001, from $31.7 million in 2000. This increase in our
International Operations division's revenue was primarily attributable to new
services provided for our U.S. Operations, the addition of new clients, and
growth in business from existing clients.

     Payroll and related expenses. Payroll and related expenses increased $57.3
million to $350.6 million in 2001, from $293.3 million in 2000, and increased as
a percentage of revenue to 51.3 percent from 49.9 percent.

     The payroll and related expenses of our U.S Operations division increased
$56.8 million to $332.5 million in 2001, from $275.7 million in 2000, and
increased as a percentage of revenue to 54.0 percent from 50.3 percent. A
portion of the increase in the percentage of revenue was attributable to $10.0
million of one-time charges incurred during the second quarter of 2001 related
to a comprehensive streamlining of the 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. During 2001, we experienced reduced collectibility within our
contingent revenue stream due to the difficult collection environment.
Accordingly, in order to mitigate the effects of the decreased collectibility
while maintaining performance for our clients, we increased payroll costs. The
effects of the difficult collection environment were exacerbated by diminished
consumer payment patterns following the September 11, 2001, terrorist attacks.
This increase in payroll costs did not translate into a significant increase in
the percentage of payroll and related expenses to revenue due to 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.

                                      -34-
<PAGE>

     The payroll and related expenses of our Portfolio Management division
increased $1.3 million to $1.6 million in 2001, from $327,000 in 2000, and
increased as a percentage of revenue to 2.6 percent from 2.5 percent. Our
Portfolio Management division outsources all of the collection services to our
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 Creditrust Merger, our Portfolio Management division required additional
employees to operate NCO Portfolio as a separate public company.

     The payroll and related expenses of our International Operations division
increased $4.5 million to $21.7 million in 2001, from $17.2 million in 2000, and
increased as a percentage of revenue to 57.4 percent from 54.4 percent. The
increase in the percentage of revenue was attributable to $736,000 of one-time
charges incurred during the second quarter of 2001 related to a comprehensive
streamlining of the 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 $57.8 million to $237.7 million in 2001, from
$179.9 million in 2000, and increased as a percentage of revenue to 34.8 percent
from 30.6 percent. A portion of the overall increase as a percentage of revenue
was the result of $13.0 million of one-time charges incurred during the second
and third quarters of 2001. Approximately $11.2 million of these one-time
charges were incurred in connection with the June 2001 flood of our Fort
Washington, Pennsylvania, corporate headquarters and the resultant decision to
relocate the corporate headquarters to Horsham, Pennsylvania. The remaining $1.8
million of one-time charges related to a comprehensive streamlining of our
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. The increase
as a percentage of revenue was also the result of the reduced collectibility
within our contingent revenue stream due to a difficult collection environment.
Accordingly, in order to mitigate the effects of the decreased collectibility
while maintaining performance for our clients, we had to increase spending for
direct costs of collection. These costs included telephone, letter writing and
postage, third party servicing fees, credit reporting, skip-tracing, and legal
and forwarding fees. The effects of the difficult collection environment were
exacerbated by diminished consumer payment patterns following the terrorist
attacks on September 11, 2001.

     Depreciation and amortization. Depreciation and amortization increased to
$38.2 million in 2001, from $32.4 million 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 predictive dialers and other equipment required to
expand our infrastructure to handle future growth and our planned migration
toward a single, integrated information technology platform.


                                      -35-
<PAGE>

     Other income (expense). Interest and investment income increased $1.1
million to $3.6 million for 2001, compared to $2.5 million for 2000. This
increase was primarily attributable to interest income from the notes receivable
received in connection with the divestiture of the Market Strategy division in
October 2000. Interest expense increased to $27.0 million for 2001, from $25.9
million for 2000. This increase was partially attributable to the Portfolio
Management division borrowing $36.3 million in connection with the February 2001
Creditrust Merger and 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 Merger. A
portion of these increases was offset by a decrease in interest rates and debt
repayments made during 2000 and 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 percent Convertible Subordinated Notes due in 2006. The net proceeds of
$121.3 million were used to repay debt under the revolving credit agreement.
During 2000, we received 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 2001 decreased to $14.7 million,
or 43.1 percent of income before income tax expense, from $24.6 million, or 41.1
percent of income before income tax expense, for 2000. The effective tax rates
were relatively comparable, despite the one-time charges incurred during the
second and third quarters of 2001. The one-time charges lowered pretax income
and increased the impact of the nondeductible goodwill related to certain
acquisitions. The effect of the one-time charges was partially offset by the
expansion of the Portfolio Management division, which has a lower effective tax
rate than the remainder of our business. 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 net loss from
operations of $975,000 for the period from January 1, 2000, to April 14, 2000.
For the year ended December 31, 2000, we recorded a $23.2 million net loss on
the disposal of the Market Strategy division. The loss on disposal included the
operations for the period from April 14, 2000, to completion of the divestiture.
We completed the divestiture of the Market Strategy division on October 26,
2000.




                                      -36-
<PAGE>

     Quarterly Results of Operations (Unaudited)

     The following table sets forth selected financial data for the calendar
quarters of 2000, 2001 and 2002, as restated for the change in accounting method
for the revenue recognition for a long-term contract. This quarterly information
is unaudited, but has been prepared on a basis consistent with our audited
financial statements presented elsewhere herein and, in management's opinion,
includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information for the quarters presented.
The operating results for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>

                                                         For the Quarters Ended March 31,
                            -------------------------------------------------------------------------------------
                                       2000                         2001                          2002
                            --------------------------    ------------------------    ---------------------------
                                 As                            As                           As
                             Previously                    Previously                   Previously
                              Reported       Restated       Reported      Restated       Reported       Restated
                            ------------   -----------   -------------   ----------   -------------   -----------
                                                 (Amounts in thousands, except per share data)
<S>                             <C>           <C>              <C>          <C>          <C>           <C>
Revenue                         $143,998      $142,353         $171,029     $165,718     $178,907      $188,007
Income from operations            24,249        22,604           28,040       22,729       25,488        34,588
Income from continuing
  operations                      11,393        10,415           12,277        9,015       11,805        17,447
Loss from discontinued
  operations, net of taxes        21,718        21,718                -            -            -             -

Net income (loss)                (10,325)      (11,303)          12,277        9,015       11,805        17,447

Income from continuing
  operations per share:
    Basic                       $   0.45      $   0.41         $   0.48     $   0.35     $   0.46      $   0.68
    Diluted                     $   0.44      $   0.40         $   0.47     $   0.34     $   0.43      $   0.61


Net income (loss) per share:
    Basic                       $  (0.40)     $  (0.44)        $   0.48     $   0.35     $   0.46      $   0.68
    Diluted                     $  (0.40)     $  (0.44)        $   0.47     $   0.34     $   0.43      $   0.61

</TABLE>
<TABLE>
<CAPTION>

                                                          For the Quarters Ended June 30,
                            --------------------------------------------------------------------------------------
                                        2000                       2001(1)                       2002
                            ---------------------------    ------------------------   ----------------------------
                                 As                            As                          As
                             Previously                    Previously                  Previously
                              Reported       Restated       Reported      Restated      Reported       Restated
                            ------------   ------------   ------------   ----------   ------------   -----------
                                                   (Amounts in thousands, except per share data)
<S>                             <C>            <C>            <C>          <C>            <C>            <C>
Revenue                         $ 154,048      $ 148,799      $ 183,275    $ 179,563      $ 177,678      $ 175,099
Income from operations             26,098         20,849         16,013       12,301         26,334         23,755
Income from continuing
  operations                       11,623          8,501          4,449        2,169         13,308         11,709
Loss from discontinued
  operations, net of taxes             71             71              -            -              -              -


Net income                         11,552          8,430          4,449        2,169         13,308         11,709

Income from continuing
  operations per share:
    Basic                       $    0.45      $    0.33      $    0.17    $    0.84      $    0.51      $    0.45
    Diluted                     $    0.45      $    0.33      $    0.17    $    0.83      $    0.48      $    0.42


Net income per share:
    Basic                       $    0.45      $    0.33      $    0.17    $    0.84      $    0.51      $    0.45
    Diluted                     $    0.45      $    0.33      $    0.17    $    0.83      $    0.48      $    0.42


</TABLE>

                                      -37-
<PAGE>

<TABLE>
<CAPTION>

                                                       For the Quarters Ended September 30,
                               -------------------------------------------------------------------------------------
                                         2000                        2001(2)                         2002
                               --------------------------   --------------------------    --------------------------
                                    As                            As                           As
                                Previously                    Previously                   Previously
                                 Reported      Restated        Reported       Restated      Reported       Restated
                               ------------   -----------   -------------   -----------   ------------   -----------
                                                   (Amounts in thousands, except per share data)
<S>                             <C>           <C>             <C>          <C>             <C>            <C>
Revenue                         $ 153,858     $ 147,741       $ 174,347    $ 170,191       $ 170,542      $ 168,119
Income from operations             25,835        19,718          10,241        6,085          18,431         16,008
Income (loss) from
  continuing operations            11,547         7,909             952       (1,601)          7,701          6,199
Loss from discontinued
  operations, net of taxes          2,365         2,365               -            -               -              -
Net income (loss)                   9,182         5,544             952       (1,601)          7,701          6,199

Income (loss) from continuing
  operations per share:
    Basic                       $    0.45     $    0.31       $    0.04    $   (0.06)      $    0.30      $    0.24
    Diluted                     $    0.45     $    0.31       $    0.04    $   (0.06)      $    0.29      $    0.24

Net income (loss) per share:
    Basic                       $    0.36     $    0.22       $    0.04    $   (0.06)      $    0.30      $    0.24
    Diluted                     $    0.36     $    0.22       $    0.04    $   (0.06)      $    0.29      $    0.24

</TABLE>

<TABLE>
<CAPTION>
                                              For the Quarters Ended December 31,
                                 ----------------------------------------------------------------------
                                              2000                      2001                   2002
                                ---------------------------   --------------------------   ------------
                                      As                            As
                                  Previously                    Previously
                                   Reported       Restated       Reported     Restated
                                ------------   ------------   ------------   ----------
                                           (Amounts in thousands, except per share data)
<S>                             <C>            <C>            <C>          <C>            <C>
Revenue                         $ 153,980      $ 148,559      $ 172,855    $ 168,401      $ 172,225
Income from operations             24,126         18,705         20,683       16,229         16,698
Net income                         11,577          8,353          8,191        5,455          6,804

Net income per share:
    Basic                       $    0.45      $    0.33      $    0.32    $    0.21      $    0.26
    Diluted                     $    0.45      $    0.32      $    0.31    $    0.21      $    0.26

</TABLE>

(1) Includes $12.5 million of one-time charges related to a comprehensive
    streamlining of our expense structure.
(2) Includes $11.2 million of one-time charges related to the June 2001 flood of
    our Fort Washington, PA corporate headquarters and the resultant decision to
    relocate the corporate headquarters to Horsham, PA.

     We have experienced and expect to continue to experience quarterly
variations in operating results as a result of many factors, including:

-   the timing of our clients' accounts receivable management and collection
    programs and the commencement of new contracts and termination of existing
    contracts;
-   the timing and amount of collections on purchased accounts receivable;
-   customer contracts that require us to incur costs in periods prior to
    recognizing revenue under those contracts;
-   the effect of a change of business mix on profit margins;
-   the timing of additional selling, general and administrative expenses to
    support new business;
-   the costs and timing of completion and integration of acquisitions; and
-   that our business tends to be slower in the third and fourth quarters of the
    year due to the summer and holiday seasons.

                                      -38-
<PAGE>

     Additionally, our planned operating expenditures are based on revenue
forecasts, and, if revenue is below expectations in any given quarter, operating
results would likely be materially adversely affected.

     Liquidity and Capital Resources

     Historically, our primary sources of cash have been bank borrowings, equity
and debt offerings, and cash flows from operations. Cash has been used for
acquisitions, repayments of bank borrowings, purchases of equipment, purchases
of accounts receivable, and working capital to support our growth.

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

     The cash flow from our contingency collection business and our purchased
portfolio business is dependent upon our ability to collect from consumers and
businesses. Many factors, including the economy and our ability to hire and
retain qualified collectors and managers, are essential to our ability to
generate cash flows. Fluctuations in these trends that cause a negative impact
on our business could have a material impact on our expected future cash flows.

     Cash Flows from Operating Activities. Cash provided by operating activities
was $64.0 million in 2002, compared to $85.9 million in 2001. The decrease in
cash provided by operations was primarily attributable to a $17.6 million
decrease in accounts payable and accrued expenses as compared to a $13.0 million
increase for the same period in the prior year. The increase in 2001 was
primarily attributable to the accruals made in connection with the $23.8 million
of one-time charges incurred during the second and third quarter of 2001. The
payment of many of these accruals occurred during 2002, including the
termination liability from our prior healthcare plan. Of the $27.1 million
increase in net income, $15.5 million represented the increase after the
elimination of goodwill amortization. This increase in net income, net of
goodwill amortization, also partially offset the decrease.

     Cash provided by operating activities was $85.9 million in 2001, compared
to $52.3 million 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 smaller decrease in income taxes payable. The smaller increase
in accounts receivable was attributable to a reallocation of internal resources
to focus on the collection of client accounts receivable. The smaller decrease
in income taxes payable was the result of tax payments made during the first
nine months of 2000 and the implementation of certain tax savings initiatives
during the fourth quarter of 2000.


                                      -39-
<PAGE>

     Cash Flows from Investing Activities. Cash used in investing activities was
$64.0 million in 2002, compared to $51.5 million in 2001. Purchases of accounts
receivables in 2002 was $70.7 million, including the $22.9 million purchase of
the Great Lakes portfolio, as compared to $50.6 million in 2001, and collections
applied to principal of purchased accounts receivable was $55.2 million as
compared to $35.3 million. The increase in collections applied to principal was
due to collections from accounts receivables purchased during 2002 and 2001, and
a year of collections from the accounts receivables purchased as part of the
February 2001, Creditrust Merger. Net cash paid during 2002 in connection with
the acquisition of Great Lakes in August 2002 and RevGro in December 2002, was
$28.0 million, as compared to $11.1 million of net cash paid during 2001, in
connection with the Creditrust Merger.

     Cash used in investing activities was $51.5 million in 2001, compared to
$69.6 million in 2000. The decrease was due primarily to an increase in
collections applied to the principal of purchased accounts receivable. This
decrease was partially offset by an increase in the purchase of delinquent
accounts receivable.

     Purchases of property and equipment were $27.3 million, $27.9 million, and
$31.0 million in 2002, 2001, and 2000, respectively.

     Cash Flows from Financing Activities. Cash used in financing activities was
$7.4 million in 2002, compared to $15.5 million in 2001. The cash used in
financing activities during 2002 resulted from repayments of borrowings under
our revolving credit facility and repayments of securitized debt assumed as part
of the Creditrust Merger. These repayments were partially offset by the
borrowings under the revolving credit facility to fund the acquisitions of Great
Lakes' collection operations and RevGro, and purchases of accounts receivables
by NCO Portfolio. In addition, NCO Portfolio borrowed $20.6 million from CFSC
Capital Corp. XXXIV to purchase Great Lakes' accounts receivable portfolio. The
cash used in financing activities during 2001 related to the net borrowings
under the revolving credit facility made in connection with the Creditrust
Merger that were used to repay the acquired notes payable, finance purchased
accounts receivable, and other acquisition related liabilities.

     Cash used in financing activities was $15.5 million in 2001, compared to
$19.8 million in 2000. During 2001, we received cash from borrowings under the
revolving credit facility made in connection with the Creditrust Merger that was
used to repay the acquired notes payable, finance purchased accounts receivable,
and repay other acquisition related liabilities. Additionally, we received
$121.3 million of net proceeds from the issuance of convertible notes. These net
proceeds were used for the repayment of borrowings under the revolving credit
facility. We also used cash to repay a portion of our borrowings under the
revolving credit facility and to repay a portion of the securitized debt assumed
as part of the Creditrust Merger.

     Credit Facility. We have a credit agreement with Citizens Bank of
Pennsylvania, formerly Mellon Bank, N.A., referred to as Citizens Bank, for
itself and as administrative agent for other participating lenders, structured
as a revolving credit facility. The balance under the revolving credit facility
will become due on May 20, 2004, the maturity date. The borrowing capacity of
the revolving credit facility is subject to quarterly reductions of $5.2 million
until the maturity date, and 50 percent of the net proceeds received from any
offering of debt or equity. As of December 31, 2002, the maximum borrowing
capacity and the availability under the revolving credit facility were $246.7
million and $51.2 million, respectively.


                                      -40-
<PAGE>

     At our option, the borrowings bear interest at a rate equal to either
Citizens Bank's prime rate plus a margin of 0.25 percent to 0.50 percent, which
is determined quarterly based upon our consolidated funded debt to earnings
before interest, taxes, depreciation, and amortization, also referred to as
EBITDA, ratio (Citizens Bank's prime rate was 4.25 percent at December 31,
2002), or the London InterBank Offered Rate, also referred to as LIBOR, plus a
margin of 1.25 percent to 2.25 percent depending on our consolidated funded debt
to EBITDA ratio (LIBOR was 1.38 percent at December 31, 2002). We are charged a
fee on the unused portion of the credit facility ranging from 0.13 percent to
0.38 percent depending on our consolidated funded debt to EBITDA ratio.

     In connection with the Creditrust merger, the revolving credit facility was
amended to provide NCO Portfolio with a revolving line of credit in the form of
a subfacility under the existing revolving credit facility. The borrowing
capacity of the subfacility is subject to quarterly reductions of $3.75 million
until the earlier of May 20, 2004, the maturity date, or the date at which the
subfacility is reduced to $25 million. NCO Portfolio's borrowings bear interest
at a rate equal to NCO's interest rate under the revolving credit facility plus
1.00 percent. As of December 31, 2002, there was $3.1 million available to NCO
Portfolio under the subfacility.

     During February 2002, we entered into two interest rate swap agreements,
which qualified as cash flow hedges, to fix LIBOR at 2.8225 percent on an
original aggregate notional amount of $102 million of the variable-rate debt
outstanding under the revolving credit facility. The aggregate notional amount
of the interest rate swap agreements is subject to quarterly reductions that
will reduce the aggregate notional amount to $62 million by maturity in
September 2003. As of December 31, 2002, a notional amount of $83.3 million was
covered by the interest rate swap agreements.

     Borrowings under the revolving credit facility are collateralized by
substantially all of our assets, including the common stock of NCO Portfolio
that we own, and certain assets of NCO Portfolio. The balance under the
revolving credit facility will 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. As of December 31, 2002, we were
in compliance with all required financial covenants.

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

     Nonrecourse Debt. In August 2002, NCO Portfolio entered into a four-year
financing agreement with CFSC Capital Corp. XXXIV, referred to as Cargill, to
provide financing for larger purchases of accounts receivable at 90 percent of
the purchase price, unless otherwise negotiated. Cargill, at their sole
discretion, has the right to finance any purchase of $4.0 million or more.
Cargill may or may not choose to finance a transaction. This agreement gives NCO
Portfolio the financing to purchase larger portfolios that they may not
otherwise be able to purchase, and has no minimum or maximum credit
authorization. Borrowings carry interest at the prime rate plus 3.25 percent
(prime rate was 4.25 percent at December 31, 2002) and are nonrecourse to NCO
Portfolio and NCO Group, except for the assets financed through Cargill. Debt
service payments equal total collections less servicing fees and expenses until
each individual borrowing is fully repaid and NCO Portfolio's original
investment is returned, including interest. Thereafter, Cargill is paid a
residual 40 percent of collections, less servicing costs, unless otherwise
negotiated. Individual loans are required to be repaid based on collection, but
not more than two years from the date of borrowing. Total debt outstanding under
this facility as of December 31, 2002, was $17.6 million. As of December 31,
2002, NCO Portfolio was in compliance with all of the financial covenants.

                                      -41-
<PAGE>

     Contractual Obligations. The following summarizes the our contractual
obligations as of December 31, 2002 (amounts in thousands). For a detailed
discussion of these contractual obligations, see notes 10, 11 and 20 in our
Notes to Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                          Payments Due by Period
                                 ---------------------------------------------------------------------
                                                Less than 1   1 to 3 Years   3 to 5 Years  More than 5
                                     Total          Year                                      Years
                                 ------------   -----------   ------------   -----------   -----------
<S>                               <C>            <C>           <C>                          <C>
Revolving credit loan             $ 193,180      $ 11,880      $ 181,300           -        $ -
Convertible notes                   125,000            -             -         125,000            -
Securitized debt                     35,523         9,689         25,834          -               -
Nonrecourse debt                     17,632        15,368          2,264          -               -
Capital leases and other              2,935         2,910             15            10            -
Operating leases                    151,953        25,483         45,089        33,886        47,495
Forward-flow agreement                9,000         9,000              -           -              -
                                 ----------     ---------      ---------      --------     ---------
Total contractual obligations     $ 535,223      $ 74,330      $ 254,502     $ 158,896      $ 47,495
                                 ==========     =========      =========     =========     =========
</TABLE>


     Off-Balance Sheet Arrangements

     NCO Portfolio owns a 100 percent retained residual interest in an
investment in securitization, Creditrust SPV 98-2, LLC, which was acquired as
part of the Creditrust Merger. This transaction qualified for gain on sale
accounting when the purchased accounts receivable were originally securitized by
Creditrust. This securitization issued a nonrecourse note that is due the
earlier of January 2004 or satisfaction of the note from collections, carries an
interest rate of 8.61 percent, and had a balance of $5.5 million and $2.4
million as of December 31, 2001 and 2002, respectively. The retained interest
represents the present value of the residual interest in the securitization
using discounted future cash flows after the securitization note is fully repaid
plus a cash reserve. As of December 31, 2001 and 2002, the investment in
securitization was $7.3 million and $7.5 million, respectively, composed of $4.0
million and $4.2 million, respectively, in present value of discounted residual
cash flows plus $3.3 million in cash reserves. NCO Portfolio's maximum exposure
to loss as a result of its involvement with this investment in securitization
would be limited to the carrying value of the investment in the securitization.
The investment accrues noncash income at a rate of 8 percent per annum on the
residual cash flow component only. The income earned increases the investment
balance until the securitization note has been repaid, after which the
collections are split between income and amortization of the investment in
securitization based on the discounted cash flows. We recorded $162,000 and
$211,000 of income on this investment for the year ended December 31, 2002 and
for the period from February 21, 2001, to December 31, 2001, respectively. The
off-balance sheet cash reserves of $3.3 million plus the first $1.3 million in
residual cash collections received after the securitization note has been repaid
have been pledged as collateral against another securitized note.

                                      -42-
<PAGE>


     NCO Portfolio has a 50 percent ownership interest in a joint venture,
InoVision-MEDCLR- NCOP Ventures, LLC, referred to as the Joint Venture, with
IMNV Holdings, LLC, referred to as IMNV. The Joint Venture was set up in 2001 to
purchase utility, medical and various other small-balance accounts receivable
and is accounted for using the equity method of accounting. Included in "other
assets" on the Balance Sheets was NCO Portfolio's investment in the Joint
Venture of $574,000 and $3.4 million as of December 31, 2001 and 2002,
respectively. Included in the Statements of Income, as "interest and investment
income," was $118,000 and $762,000 for the years ended December 31, 2001 and
2002, respectively, representing NCO Portfolio's 50 percent share of operating
income from this unconsolidated subsidiary. The Joint Venture has access to
capital from Cargill, who, at its option, lends 90 percent of the value of the
purchased accounts receivable to the Joint Venture. Borrowings carry interest at
the prime rate plus 4.25 percent (prime rate was 4.25 percent at December 31,
2002). Debt service payments equal total collections less servicing fees and
expenses until each individual borrowing is fully repaid and the Joint Venture's
original investment is returned, including interest. Thereafter, Cargill is paid
a residual 40 percent of collections, less servicing costs. Individual loans are
required to be repaid based on collections, but not more than two years from the
date of borrowing. The debt is cross-collateralized by all portfolios in which
the lender participates, and is nonrecourse to NCO Portfolio and NCO Group.

     Market Risk

     We are 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 material
change in these rates could adversely affect our operating results and cash
flows. A 25 basis-point increase in interest rates could increase our annual
interest expense by $250,000 for each $100 million of variable debt outstanding
for the entire year. A 10 percent change in the foreign currency exchange rates
is not expected to have a material impact on our business. We employ risk
management strategies that may include the use of derivatives such as interest
rate swap agreements, interest rate ceilings and floors, and foreign currency
forwards and options to manage these exposures.

     Impact of Recently Issued and Proposed Accounting Pronouncements

     During 2001, the Accounting Staff Executive Committee approved an exposure
draft on Accounting for Certain Purchased Loans or Debt Securities (formerly
known as Discounts Related to Credit Quality) (Exposure Draft-December 1998).
The proposal would apply to all companies that acquire loans for which it is
probable at the acquisition date that all contractual amounts due under the
acquired loans will not be collected. The proposal addresses accounting for
differences between contractual and expected future cash flows from an
investor's initial investment in certain loans when such differences are
attributable, in part, to credit quality. The scope also includes such loans
acquired in purchased business combinations. If adopted, the proposed Statement
of Position, referred to as SOP, would supersede Practice Bulletin 6,
Amortization of Discounts on Certain Acquired Loans. In June 2001, the Financial
Accounting Standards Board, referred to as FASB, cleared the SOP for issuance
subject to minor editorial changes and planed to issue a final SOP in early
2002. The SOP has not yet been issued. The proposed SOP would limit the revenue
that may be accrued to the excess of the estimate of expected future cash flows
over a portfolio's initial cost of accounts receivable acquired. The proposed
SOP would require that the excess of the contractual cash flows over expected
future cash flows not be recognized as an adjustment of revenue, expense or on
the balance sheet. The proposed SOP would freeze the internal rate of return,
referred to as IRR, originally estimated when the accounts receivable are
purchased for subsequent impairment testing. Rather than lower the estimated IRR
if the original collection estimates are not received, the carrying value of a
portfolio would be written down to maintain the original IRR. Increases in
expected future cash flows would be recognized prospectively through adjustment
of the IRR over a portfolio's remaining life. The exposure draft provides that
previously issued annual financial statements would not need to be restated.
Until final issuance of this SOP, we cannot ascertain its effect on our
reporting.

                                      -43-
<PAGE>

     In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the
disclosures required by guarantors in their interim and annual financial
statements. FIN 45 also requires a guarantor to recognize a liability at the
date of inception for the fair value of the obligation it assumes under the
guarantee. The disclosure requirements are effective for periods ending after
December 15, 2002. The initial recognition and measurement provisions apply on a
prospective basis to guarantees issued or modified after December 31, 2002. We
adopted the disclosure requirements of FIN 45, and are in the process of
determining the effect of the adoption of the recognition and measurement
provisions of FIN 45 will have on our financial position and results of
operations.

     In January 2003, the FASB issued Interpretation No. 46 ("FIN" 46),
"Consolidation of Variable Interest Entities". The objective of FIN 46 is to
improve financial reporting by companies involved with variable interest
entities. FIN 46 defines variable interest entities and requires that variable
interest entities be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
is entitled to receive a majority of the entity's residual returns or both. The
disclosure requirements are effective for periods ending after December 15,
2002. The consolidation requirements apply immediately to variable interest
entities created after January 31, 2003, and apply to existing variable interest
entities in the first fiscal year or interim period beginning after June 15,
2003. We adopted the disclosure requirements of FIN 46, and do not believe the
adoption of FIN 46 will have a material impact on our financial position and
results of operations.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk.

     Included in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, of this Report on Form 10-K.

Item 8. Financial Statements and Supplementary Data.

     The financial statements, financial statement schedules and related
documents that are filed with this Report are listed in Item 15(a) of this
Report on Form 10-K and begin on page F-1, and the quarterly financial
information is included in Item 7.

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

     None.



                                      -44-
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

     Incorporated by reference from the Company's Proxy Statement relating to
the 2003 Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K, except information concerning certain executive
officers of the Company which is set forth in Section 4.1 of this Annual Report
on Form 10-K.

Item 11. Executive Compensation.

     Incorporated by reference from the Company's Proxy Statement relating to
the 2003 Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
         Related Shareholder Matters.

     Incorporated by reference from the Company's Proxy Statement relating to
the 2003 Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K.

Item 13. Certain Relationships and Related Transactions.

     Incorporated by reference from the Company's Proxy Statement relating to
the 2003 Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K.

Item 14. Controls and Procedures.

     Quarterly evaluation of our Disclosure Controls and Internal Controls.
Within the 90 days prior to the date of this Annual Report on Form 10-K, we
evaluated the effectiveness of the design and operation of our "disclosure
controls and procedures" ("Disclosure Controls"). This evaluation ("Controls
Evaluation") was done under the supervision and with the participation of
management, including the Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO").

     Limitations on the Effectiveness of Controls. Our management, including the
CEO and CFO, does not expect that our Disclosure Controls or our "internal
controls and procedures for financial reporting" ("Internal Controls") will
prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.



                                      -45-
<PAGE>

     Conclusions. Based upon the Controls Evaluation, the CEO and CFO have
concluded that, to the best of their knowledge and subject to the limitations
noted above, the Disclosure Controls are effective to timely alert management to
material information relating to us during the period when our periodic reports
are being prepared.

     In accordance with SEC requirements, the CEO and CFO note that, to the best
of their knowledge, since the date of the Controls Evaluation to the date of
this Annual Report, there have been no significant changes in Internal Controls
or in other factors that could significantly affect Internal Controls, including
any corrective actions with regard to significant deficiencies and material
weaknesses.



                                      -46-
<PAGE>


                                     PART IV

Item 15. Exhibits, Financial Statements and Reports on Form 8-K.

                  (a). Documents filed as part of this report:

     1. List of Consolidated Financial Statements. The consolidated financial
statements and the accompanying notes of NCO Group, Inc., have been included in
this Report on Form 10-K beginning on page F-1. Our previously issued financial
statements for the years ended December 31, 2000 and 2001, have been restated
for a correction of an error due to a change in accounting method for a
long-term guarantee contract. This restatement is more fully discussed in our
Notes to Consolidated Financial Statements.

     Report of Independent Auditors
     Consolidated Balance Sheets as of December 31, 2001 and 2002
     Consolidated Statements of Income for each of the three years
        in the period ended December 31, 2002
     Consolidated Statements of Shareholders' Equity for each of the
        three years in the period ended December 31, 2002
     Consolidated Statements of Cash Flows for each of the three years
        in the period ended December 31, 2002
     Notes to Consolidated Financial Statements
     Consolidating Statement of Income for the
        year ended December 31, 2002 (Unaudited)

     2. List of Financial Statement Schedules. The following financial statement
schedule of NCO Group, Inc., has been included in this Report on Form 10-K
beginning on page S-1:

     II - Valuation and Qualifying Accounts

     All other financial statement schedules are omitted because the required
information is not present or not present in amounts sufficient to require
submission of the schedule or because the information required is included in
the respective financial statements or notes thereto contained herein.

     3. List of Exhibits filed in accordance with Item 601 of Regulation S-K.
The following exhibits are incorporated by reference in, or filed with, this
Report on Form 10-K. Management contracts and compensatory plans, contracts and
arrangements are indicated by "*":

                                      -47-
<PAGE>

<TABLE>
<CAPTION>

     Exhibit No.                                                Description
--------------------     ----------------------------------------------------------------------------------------
      <S>                    <C>
        2.1(8)           Second Amended and Restated Agreement and Plan of Merger dated September 20, 2000, by
                         and among Creditrust Corporation, and NCO Group, Inc. and its wholly owned subsidiaries,
                         NCO Portfolio Funding, Inc. and NCO Financial Systems, Inc. NCO will furnish to the
                         Securities and Exchange Commission a copy of any omitted schedules upon request.

        2.2(13)          Asset Acquisition Agreement dated August 19, 2002, among Great Lakes Collection Bureau,
                         Inc., General Electric Capital Corporation, NCO Group, Inc. and Great lakes Acquisition
                         Corporation. NCO will furnish to the Securities and Exchange Commission a copy of any
                         omitted schedules upon request.

        3.1(1)           The Company's Amended and Restated Articles of Incorporation.

        3.2(3)           Amendment to Amended and Restated Articles of Incorporation.

        3.3(11)          Amendment to Amended and Restated Articles of Incorporation.

        3.4(1)           The Company's Amended and Restated Bylaws.

        4.1(1)           Specimen of Common Stock Certificate.

        4.2(5)           Form of warrant to purchase NCO Group, Inc. common stock.

        4.3(10)          Purchase Agreement dated as of March 29, 2001, between NCO Group, Inc. and Deutsche Bank
                         Alex. Brown Inc.

        4.4(10)          Indenture dated as of April 4, 2001, between NCO Group, Inc. and Bankers Trust Company,
                         as Trustee

        4.5(10)          Registration Rights Agreement dated as of April 4, 2001, between NCO Group, Inc. and
                         Deutsche Bank Alex. Brown Inc.

        4.6(10)          Global Note dated April 4, 2001 of NCO Group, Inc.

       *10.1(1)          Employment Agreement, dated September 1, 1996, between the Company and Michael J.
                         Barrist.

       *10.2(6)          Addendum, dated January 1, 1999, to the Employment Agreement, dated September 1, 1996,
                         between the Company and Michael J. Barrist.

       *10.3(1)          Employment Agreement, dated September 1, 1996, between the Company and Steven L.
                         Winokur.

       *10.4(6)          Addendum, dated January 1, 1999, to the Employment Agreement, dated September 1, 1996,
                         between the Company and Steven L. Winokur.

       *10.5(9)          Employment Agreement, dated June 5, 1998, between the Company and Joshua Gindin.

       *10.6(9)          Addendum, dated January 1, 1999, to the Employment Agreement, dated June 5, 1998,
                         between the Company and Joshua Gindin.

       *10.7(7)          Employment Agreement, dated May 2, 1998, between the Company and Paul E. Weitzel, Jr.

       *10.8(7)          Addendum, dated January 1, 1999, to the Employment Agreement, dated May 2, 1998, between
                         the Company and Paul E. Weitzel, Jr.

       *10.9(1)          Amended and Restated 1995 Stock Option Plan.

</TABLE>


                                      -48-
<PAGE>

<TABLE>
<CAPTION>

     Exhibit No.                                                Description
--------------------     ----------------------------------------------------------------------------------------
      <S>                    <C>
       *10.10(4)         1996 Stock Option Plan, as amended.

       *10.11(4)         1996 Non-Employee Director Stock Option Plan, as amended.

        10.12(1)         Distribution and Tax Indemnification Agreement

        10.13(1)         Irrevocable Proxy Agreement by and between Michael J. Barrist and Annette H. Barrist.

        10.14(2)         Nontransferable Common Stock Purchase Warrant dated February 2, 1997, issued to CRW
                         Financial, Inc.

        10.15(2)         Registration Rights Agreement dated February 2, 1997, between NCO and CRW Financial, Inc.

        10.16(7)         Fifth Amended and Restated Credit Agreement dated as of December 31, 1999, by and among
                         NCO Group, Inc., as Borrower, Mellon Bank, N.A., as Administrative Agent and a Lender,
                         and the Financial Institutions identified therein as Lenders and such other Agents as
                         may be appointed from time to time. NCO will furnish to the Securities and Exchange
                         Commission a copy of any omitted schedules upon request.

        10.17(3)         Executive Salary Continuation Agreement.

        10.18(6)         Transfer Agreement dated January 26, 1998, among NCO, CRW Financial, Inc. and Swiss Bank
                         Corporation.

        10.19(9)         First Amendment, dated March 24, 2000, to the Fifth Amended and Restated Credit Agreement dated
                         as of December 31, 1999, by and among NCO Group, Inc., as Borrower, Mellon Bank, N.A., as
                         Administrative Agent and a Lender, and the Financial Institutions identified therein as Lenders
                         and such other Agents as may be appointed from time to time. NCO will furnish to the Securities
                         and Exchange Commission a copy of any omitted schedules upon request.

       10.20(9)          Second Amendment and Waiver, dated October 26, 2000, to the Fifth Amended and Restated Credit
                         Agreement dated as of December 31, 1999, by and among NCO Group, Inc., as Borrower, Mellon
                         Bank, N.A., as Administrative Agent and a Lender, and the Financial Institutions identified
                         therein as Lenders and such other Agents as may be appointed from time to time. NCO will
                         furnish to the Securities and Exchange Commission a copy of any omitted schedules upon request.

       10.21(9)          Third Amendment, dated December 15, 2000, to the Fifth Amended and Restated Credit Agreement
                         dated as of December 31, 1999, by and among NCO Group, Inc., as Borrower, Mellon Bank, N.A., as
                         Administrative Agent and a Lender, and the Financial Institutions identified therein as Lenders
                         and such other Agents as may be appointed from time to time. NCO will furnish to the Securities
                         and Exchange Commission a copy of any omitted schedules upon request.


</TABLE>



                                      -49-
<PAGE>

<TABLE>
<CAPTION>

     Exhibit No.                                                Description
--------------------     ----------------------------------------------------------------------------------------
      <S>                    <C>
       10.22(9)          Fourth Amendment, dated January 23, 2001, to the Fifth Amended and Restated Credit Agreement
                         dated as of December 31, 1999 by and among NCO Group, Inc., as Borrower, Mellon Bank, N.A., as
                         Administrative Agent and a Lender, and the Financial Institutions identified therein as Lenders
                         and such other Agents as may be appointed from time to time. NCO will furnish to the Securities
                         and Exchange Commission a copy of any omitted schedules upon request.

       10.23(9)          Fifth Amendment, dated February 20, 2001, to the Fifth Amended and Restated Credit Agreement
                         dated as of December 31, 1999 by and among NCO Group, Inc., as Borrower, Mellon Bank, N.A., as
                         Administrative Agent and a Lender, and the Financial Institutions identified therein as Lenders
                         and such other Agents as may be appointed from time to time. NCO will furnish to the Securities
                         and Exchange Commission a copy of any omitted schedules upon request.

       10.24(9)          Credit Agreement, dated as of February 20, 2001, by and between NCO Portfolio Management, Inc.,
                         as Borrower, and NCO Group, Inc., as Lender.

       10.25(9)          Note Receivable, dated October 27, 2000, from Creative Marketing Strategies, Inc. for the
                         original principal amount of $6.0 million, as payment of the purchase price for the acquisition
                         of certain assets of NCO Teleservices, Inc.

       10.26(9)          Note Receivable, dated October 26, 2000, from TRC Holdings, Inc. for the principal amount of
                         $11.25 million, as payment of the purchase price for the acquisition of certain assets of NCO
                         Teleservices, Inc.

      *10.27(12)         Employment Agreement, dated January 31, 2002, between the Company and Stephen W. Elliott.

      *10.28(12)         Employment Agreement, dated November 21, 2001, between the Company and Steven Leckerman.

       10.29(12)         Sixth Amendment, dated March 14, 2001, to the Fifth Amended and Restated Credit Agreement dated
                         as of December 31, 1999 by and among NCO Group, Inc., as Borrower, Mellon Bank, N.A., as
                         Administrative Agent and a Lender, and the Financial Institutions identified therein as Lenders
                         and such other Agents as may be appointed from time to time. NCO will furnish to the Securities
                         and Exchange Commission a copy of any omitted schedules upon request.

       10.30(12)         Seventh Amendment, dated September 24, 2001, to the Fifth Amended and Restated Credit Agreement
                         dated as of December 31, 1999 by and among NCO Group, Inc., as Borrower, Mellon Bank, N.A., as
                         Administrative Agent and a Lender, and the Financial Institutions identified therein as Lenders
                         and such other Agents as may be appointed from time to time. NCO will furnish to the Securities
                         and Exchange Commission a copy of any omitted schedules upon request.

</TABLE>

                                      -50-
<PAGE>
<TABLE>
<CAPTION>

     Exhibit No.                                                Description
--------------------     ----------------------------------------------------------------------------------------
      <S>                    <C>


       10.31(14)         Ninth Amendment and Consent, dated October 31, 2002, to the Fifth Amended and Restated Credit
                         Agreement dated as of December 31, 1999 by and among NCO Group, Inc., as Borrower, Citizens
                         Bank of Pennsylvania (successor to Mellon Bank, N.A.), as Administrative Agent and a Lender,
                         and the Financial Institutions identified therein as Lenders and such other Agents as may be
                         appointed from time to time. NCO will furnish to the Securities and Exchange Commission a copy
                         of any omitted schedules upon request.

        21.1             Subsidiaries of the Registrant.

        23.1             Consent of Ernst & Young LLP.

        99.1             Chief Executive Officer Section 906 Certification of Financial Statements

        99.2             Chief Financial Officer Section 906 Certification of Financial Statements

</TABLE>

------------------

(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-11745), as amended, filed with the Securities and
Exchange Commission on September 11, 1996.

(2) Incorporated by reference to the Company's Current Report on Form 8-K/A
(File No. 0-21639) filed with the Securities and Exchange Commission on February
18, 1997.

(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 (File No. 0-21639), filed with the Securities
and Exchange Commission on May 4, 1998.

(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998 (File No. 0-21639), filed with the Securities
and Exchange Commission on August 14, 1998.

(5) Incorporated by reference to the Company's Current Report on Form 8-K/A
(File No. 0-21639) filed with the Securities and Exchange Commission on August
4, 1999.

(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 (File No. 0-21639), as amended, filed
with the Securities and Exchange Commission on March 31, 1999.


(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999 (File No. 0-21639), as amended, filed
with the Securities and Exchange Commission on March 27, 2000.

(8) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-21639) filed with the Securities and Exchange Commission on March 5, 2001.

(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000 (File No. 0-21639), as amended, filed
with the Securities and Exchange Commission on March 16, 2001.



                                      -51-
<PAGE>

(10) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001.

(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2001.

(12) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 (File No. 0-21639), filed with the
Securities and Exchange Commission on March 19, 2002.

(13) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-21639) filed with the Securities and Exchange Commission on September 3,
2002.

(14) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2002.

            (b). Reports on Form 8-K

<TABLE>
<CAPTION>

Date of Report   Item Reported
--------------    ----------------
<C>                  <C>
12/13/02         Item 7 and Item 9 - Press release for the acquisition of
                                     The Revenue Maximization Group Inc.
11/18/02         Item 7 and Item 9 - Press release and conference call transcript from the
                                     earnings release for the third quarter of 2002
11/4/02          Item 2 and Item 7 - Disclosures and financial statements to Great Lakes
                                     Collection Bureau, Inc. acquisition

</TABLE>







                                      -52-
<PAGE>



                                                    SIGNATURES


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

                                            NCO GROUP, INC.

    Date:  March 13, 2003                   By: /s/ Michael J. Barrist
                                               --------------------------------
                                            Michael J. Barrist, Chairman of the
                                            Board, President and Chief
                                            Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

          SIGNATURE                                       TITLE(S)                                DATE
          ---------                                       --------                                ----
<S>                                                        <C>                                  <C>
/s/ Michael J. Barrist                      Chairman of the Board, President and Chief       March 13, 2003
-------------------------                   Executive Officer (principal executive
Michael J. Barrist                          officer)


/s/ Steven L. Winokur                       Executive Vice President, Finance; Chief         March 13, 2003
-------------------------                   Financial Officer; and Treasurer (principal
Steven L. Winokur                           financial and accounting officer)


/s/ William C. Dunkelberg                   Director                                         March 13, 2003
-------------------------
William  C. Dunkelberg

/s/ Charles C. Piola, Jr.                   Director                                         March 13, 2003
-------------------------
Charles C. Piola, Jr.

/s/ Leo J. Pound                            Director                                         March 13, 2003
-------------------------
Leo J. Pound

/s/ Eric S. Siegel                          Director                                         March 13, 2003
-------------------------
Eric S. Siegel

/s/ Allen F. Wise                           Director                                         March 13, 2003
-------------------------
Allen F. Wise

</TABLE>



                                      -53-
<PAGE>

                                  CERTIFICATION

I, Michael J. Barrist, Chief Executive Officer of NCO Group, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of NCO Group, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
     a. Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
     b. Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
     c. Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date.

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
     a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
     b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 13, 2003

/s/ MICHAEL J. BARRIST

Michael J. Barrist
Chief Executive Officer (Principal Executive Officer)

                                      -54-
<PAGE>

                                  CERTIFICATION

I, Steven L. Winokur, Chief Financial Officer of NCO Group, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of NCO Group, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
     a. Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
     b. Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
     c. Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date.

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
     a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
     b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 13, 2003

/s/ STEVEN L. WINOKUR

Steven L. Winokur
Chief Financial Officer (Principal Financial and Accounting Officer)


                                      -55-
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>

<S>                                                                                                             <C>
Financial Statements:

Report of Independent Auditors..................................................................................F-2

Consolidated Balance Sheets as of December 31, 2001 and 2002(1) ................................................F-3

Consolidated Statements of Income for each of the three years
     in the period ended December 31, 2002(1)...................................................................F-4

Consolidated Statements of Shareholders' Equity for each of the
     three years in the period ended December 31, 2002(1).......................................................F-5

Consolidated Statements of Cash Flows for each of the three years
     in the period ended December 31, 2002(1)...................................................................F-6

Notes to Consolidated Financial Statements(1)...................................................................F-7

Consolidating Statement of Income for
    the year ended December 31, 2002 (Unaudited)...............................................................F-31

Financial Statement Schedule:

For the years ended December 31, 2000, 2001 and 2002:

    II - Valuation and Qualifying Accounts......................................................................S-1
</TABLE>

(1) The Company's previously issued financial statements for the years ended
December 31, 2000 and 2001, have been restated for a correction of an error due
to a change in accounting method for a long-term guarantee contract. This
restatement is more fully discussed in the Notes to Consolidated Financial
Statements.














                                      F-1
<PAGE>


                         Report of Independent Auditors


To the Board of Directors and
Shareholders of NCO Group, Inc.


We have audited the accompanying consolidated balance sheets of NCO Group, Inc.
as of December 31, 2001 and 2002, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 2002. Our audits also included the consolidated
financial statement schedule listed in the Index at Item 15(a). These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of NCO
Group, Inc. at December 31, 2001 and 2002, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, in 2002 NCO
Group, Inc. adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," which resulted in NCO Group, Inc.
changing its method of accounting for goodwill and its related amortization.

As discussed in Note 3 to the consolidated financial statements, the
accompanying consolidated financial statements for the years ended December 31,
2000 and 2001 have been restated for the correction of an error.


                                                           /s/ Ernst & Young LLP

Philadelphia, Pennsylvania
February 11, 2003





                                      F-2
<PAGE>

Part 1 - Financial Information
Item 1 - Financial Statements


                                 NCO GROUP, INC.
                           Consolidated Balance Sheets
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                                              December 31,
                                                                                                      ------------------------------
                                               ASSETS                                                   2001                2002
                                                                                                      ----------         -----------
                                                                                                      (Restated)
<S>                                                                                                     <C>                <C>
Current assets:
     Cash and cash equivalents                                                                          $ 32,161           $ 25,159
     Restricted cash                                                                                       1,125                900
     Accounts receivable, trade, net of allowance for
          doubtful accounts of $5,311 and $7,285, respectively                                            86,811             86,857
     Purchased accounts receivable, current portion                                                       47,341             60,693
     Deferred income taxes                                                                                18,090             16,389
     Bonus receivable, current portion                                                                         -             15,584
     Prepaid expenses and other current assets                                                            14,784              9,644
                                                                                                       ---------           --------
          Total current assets                                                                           200,312            215,226

Funds held on behalf of clients

Property and equipment, net                                                                               71,457             79,603

Other assets:
     Goodwill                                                                                            514,161            525,784
     Other intangibles, net of accumulated amortization                                                    7,929             14,069
     Purchased accounts receivable, net of current portion                                                92,660             91,755
     Bonus receivable, net of current portion                                                              4,329                408
     Other assets                                                                                         38,016             39,436
                                                                                                       ---------           --------
           Total other assets                                                                            657,095            671,452
                                                                                                       ---------           --------
Total assets                                                                                           $ 928,864          $ 966,281
                                                                                                       =========          =========


                                LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Long-term debt, current portion                                                                    $ 21,922           $ 39,847
     Income taxes payable                                                                                    176              2,222
     Accounts payable                                                                                     12,164              8,285
     Accrued expenses                                                                                     37,169             31,426
     Accrued compensation and related expenses                                                            16,785             15,374
     Deferred revenue, current portion                                                                    14,618             12,088
                                                                                                       ---------           --------
          Total current liabilities                                                                      102,834            109,242

Funds held on behalf of clients

Long-term liabilities:
     Long-term debt, net of current portion                                                              357,868            334,423
     Deferred revenue, net of current portion                                                             11,745             11,678
     Deferred income taxes                                                                                38,337             48,605
     Other long-term liabilities                                                                           4,565              2,144

Minority interest                                                                                         21,213             24,427

Shareholders' equity:
     Preferred stock, no par value, 5,000 shares authorized,
         no shares issued and outstanding                                                                      -                  -
     Common stock,  no par value, 50,000 shares authorized,
         25,816 and 25,908 shares issued and outstanding, respectively                                   320,993            321,824
     Other comprehensive loss                                                                             (4,346)            (3,876)
     Retained earnings                                                                                    75,655            117,814
                                                                                                       ---------           --------
           Total shareholders' equity                                                                    392,302            435,762
                                                                                                       ---------           --------
Total liabilities and shareholders' equity                                                             $ 928,864          $ 966,281
                                                                                                       =========          =========
</TABLE>

                             See accompanying notes

                                      F-3
<PAGE>

                                 NCO GROUP, INC.
                        Consolidated Statements of Income
                  (Amounts in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                                           For the Years Ended December 31,
                                                                                  --------------------------------------------------
                                                                                     2000                2001               2002
                                                                                  ----------           ----------        -----------
                                                                                  (Restated)           (Restated)
<S>                                                                                <C>                 <C>                <C>
Revenue                                                                            $ 587,452           $ 683,873          $ 703,450

Operating costs and expenses:
     Payroll and related expenses                                                    293,292             350,634            335,405
     Selling, general and administrative expenses                                    179,924             237,690            249,672
     Depreciation and amortization expense                                            32,360              38,205             27,324
                                                                                   ---------           ---------          ---------
          Total operating costs and expenses                                         505,576             626,529            612,401
                                                                                   ---------           ---------          ---------
Income from operations                                                                81,876              57,344             91,049

Other income (expense):
     Interest and investment income                                                    2,503               3,627              3,222
     Interest expense                                                                (25,942)            (26,962)           (20,976)
     Other income (expense)                                                            1,313                   -               (216)
                                                                                   ---------           ---------          ---------
          Total other income (expense)                                               (22,126)            (23,335)           (17,970)
                                                                                   ---------           ---------          ---------
Income before income tax expense                                                      59,750              34,009             73,079

Income tax expense                                                                    24,572              14,661             27,702
                                                                                   ---------           ---------          ---------

Income from continuing operations before minority interest                            35,178              19,348             45,377

Minority interest                                                                          -              (4,310)            (3,218)
                                                                                   ---------           ---------          ---------

Income from continuing operations                                                     35,178              15,038             42,159

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

Net income                                                                          $ 11,024            $ 15,038           $ 42,159
                                                                                   =========           =========          =========

Income from continuing operations per share:
     Basic                                                                            $ 1.38              $ 0.58             $ 1.63
     Diluted                                                                          $ 1.36              $ 0.58             $ 1.54

Net income per share:
     Basic                                                                            $ 0.43              $ 0.58             $ 1.63
     Diluted                                                                          $ 0.43              $ 0.58             $ 1.54

Weighted average shares outstanding:
     Basic                                                                            25,587              25,773             25,890
     Diluted                                                                          25,842              26,091             29,829


</TABLE>
                             See accompanying notes

                                      F-4
<PAGE>



                                 NCO GROUP, INC.

                 Consolidated Statements of Shareholders' Equity
              For the Years Ended December 31, 2000, 2001 and 2002
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                     Common Stock
                                              -------------------------         Other
                                                Number of                    Comprehensive    Retained   Comprehensive
                                                 Shares         Amount       Income (Loss)    Earnings   Income (Loss)     Total
                                              -------------     -------      -------------   ----------  -------------   ---------
<S>                                                <C>          <C>                <C>         <C>           <C>              <C>
 Balance, January 1, 2000                         25,533       $ 314,601          $ 694       $ 49,593                   $ 364,888
 Issuance of common stock                             94           1,771              -              -                       1,771
 Comprehensive income, net of tax:
   Net income (restated)                               -               -              -         11,024     $ 11,024         11,024
   Other comprehensive income (loss):
     Foreign currency translation adjustment           -               -         (2,219)             -       (2,219)        (2,219)
                                                                                                           --------
       Total comprehensive income (loss)                                                                   $  8,805
                                                --------        --------        -------       --------     ========       --------
 Balance, December 31, 2000 (restated)            25,627         316,372         (1,525)        60,617                     375,464

 Issuance of common stock                            189           4,621              -              -                       4,621
 Comprehensive income, net of tax:
   Net income (restated)                               -               -              -         15,038     $ 15,038         15,038
   Other comprehensive income (loss):
     Foreign currency translation adjustment           -               -         (2,821)             -       (2,821)        (2,821)
                                                                                                           --------
       Total comprehensive income (loss)                                                                   $ 12,217
                                                --------        --------        -------       --------     ========       --------
 Balance, December 31, 2001 (restated)            25,816         320,993         (4,346)        75,655                     392,302

 Issuance of common stock                             92             831              -              -                         831
 Comprehensive income, net of tax:
   Net income                                          -               -              -         42,159     $ 42,159         42,159
   Other comprehensive income (loss):
     Foreign currency translation adjustment           -               -            930              -          930            930
     Unrealized loss on interest rate swap             -               -           (460)             -         (460)          (460)
                                                                                                           --------
       Total comprehensive income (loss)                                                                   $ 42,629
                                                --------        --------        -------       --------     ========       --------
 Balance, December 31, 2002                       25,908       $ 321,824       $ (3,876)     $ 117,814                   $ 435,762
                                                ========       =========       ========      =========                   =========

</TABLE>
                             See accompanying notes

                                      F-5

<PAGE>

                                 NCO GROUP, INC
                      Consolidated Statements of Cash Flows
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                               For the Years Ended December 31,
                                                                             -------------------------------------------------------
                                                                                   2000                2001               2002
                                                                             ----------------    ----------------   ----------------
                                                                                (Restated)          (Restated)
<S>                                                                                 <C>                 <C>                <C>
     Cash flows from operating activities:
       Income from continuing operations                                            $ 35,178            $ 15,038           $ 42,159
       Adjustments to reconcile income from continuing operations
         to net cash provided by continuing operating activities:
           Depreciation                                                               15,180              20,142             24,162
           Amortization of intangibles                                                17,180              18,063              3,162
           Net loss on property and equipment disposed of in connection
             with the flood/corporate headquarters relocation                              -                 827                  -
           Provision for doubtful accounts                                             5,906               4,250              8,293
           Impairment of purchased accounts receivable                                     -               2,738              1,999
           Gain on insurance proceeds from property and equipment                          -                   -               (847)
           Write-down of investment                                                        -                   -                250
           Minority interest                                                               -               4,310              3,218
           Changes in operating assets and liabilities, net of acquisitions:
               Restricted cash                                                             -               2,555                225
               Accounts receivable, trade                                            (24,299)             (3,494)            (2,368)
               Deferred income taxes                                                   8,010               3,833             12,572
               Bonus receivable                                                         (667)             (3,662)           (11,663)
               Other assets                                                           (5,293)             (3,935)             3,360
               Accounts payable and accrued expenses                                     469              13,028            (17,626)
               Income taxes payable                                                   (9,568)               (252)             2,127
               Deferred revenue                                                       14,210              12,153             (2,597)
               Other long-term liabilities                                            (6,511)                256             (2,421)
                                                                                  ----------          ----------          ---------
                  Net cash provided by continuing operating activities                49,795              85,850             64,005

               Net cash provided by discontinued operating activities                  2,487                   -                  -
                                                                                  ----------          ----------          ---------
                  Net cash provided by operating activities                           52,282              85,850             64,005

     Cash flows from investing activities:
       Purchases of accounts receivable                                              (32,961)            (50,621)           (70,654)
       Collections applied to principal of purchased accounts receivable               5,084              35,284             55,154
       Purchase price adjustment applied to principal of
         purchased accounts receivable                                                     -                   -              3,197
       Purchases of property and equipment                                           (31,042)            (27,940)           (27,331)
       Proceeds from notes receivable                                                      -                   -              1,000
       Insurance proceeds from involuntary conversion of
         property and equipment                                                            -                 560              2,633
       Investment in consolidated subsidiary by minority interest                          -               2,320                  -
       Net cash paid for acquisitions and related costs                              (10,665)            (11,077)           (27,966)
                                                                                  ----------          ----------          ---------
                  Net cash used in investing activities                              (69,584)            (51,474)           (63,967)

     Cash flows from financing activities:
       Borrowings under notes payable                                                      -                   -             24,477
       Repayment of notes payable                                                     (1,934)            (21,869)           (18,606)
       Repayment of acquired notes payable                                                 -             (20,084)                 -
       Borrowings under revolving credit agreement                                         -              65,230             34,170
       Repayment of borrowings under revolving credit agreement                      (19,000)           (162,350)           (47,620)
       Payment of fees to acquire debt                                                     -              (5,138)              (552)
       Proceeds from issuance of convertible debt                                          -             125,000                  -
       Issuance of common stock, net                                                   1,175               3,721                747
                                                                                  ----------          ----------          ---------
                  Net cash used in financing activities                              (19,759)            (15,490)            (7,384)

     Effect of exchange rate on cash                                                      38                (215)               344
                                                                                  ----------          ----------          ---------

     Net increase (decrease) in cash and cash equivalents                            (37,023)             18,671             (7,002)

     Cash and cash equivalents at beginning of the period                             50,513              13,490             32,161
                                                                                  ----------          ----------          ---------

     Cash and cash equivalents at end of the period                                 $ 13,490            $ 32,161           $ 25,159
                                                                                  ==========          ==========          =========

</TABLE>

                             See accompanying notes

                                      F-6



<PAGE>


                                 NCO GROUP, INC.
                   Notes to Consolidated Financial Statements

     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 63
     percent of NCO Portfolio Management, Inc., a separate public company that
     purchases and manages past due consumer accounts receivable from consumer
     creditors such as banks, finance companies, retail merchants, and other
     consumer oriented companies. The Company's client base includes companies
     in the financial services, healthcare, retail and commercial, utilities,
     education, telecommunications, and government sectors. These clients are
     primarily located throughout the United States of America, Canada, the
     United Kingdom, and Puerto Rico.

     2. Accounting Policies:

        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.
     The Company does not control InoVision-MEDCLR-NCOP Ventures, LLC and
     Creditrust SPV98-2, LLC (see note 23) and, accordingly, their financial
     condition and results of operations are not consolidated with the Company's
     financial statements.

        Revenue Recognition:

     Contingency Fees:

     Contingency fee revenue is recognized upon collection of funds on behalf of
     clients.

     Contractual Services:

     Fees for contractual services are recognized as services are performed and
     accepted by the client.

     Long-Term Guarantee Contract:

     The Company has a long-term guarantee contract with a large client to
     provide collection services. The Company receives a base service fee based
     on collections. The Company also earns a bonus to the extent collections
     are in excess of the guarantees. The Company is required to pay the client
     if collections do not reach the guarantees but the Company is entitled to
     recoup at least 90 percent of any such guarantee payments from subsequent
     collections.

     In accordance with the provision of Staff Accounting Bulletin No. 101
     "Revenue Recognition in Financial Statements," The Company defers all of
     the base service fees until the collections exceed the collection
     guarantees. At the end of each reporting period, the Company assesses the
     need to record an additional liability if deferred fees are less than the
     estimated guarantee payments, if any, due to the client. There was no
     additional liability recorded as of December 31, 2001 and 2002.

     Purchased Accounts Receivable:

     The Company accounts for its investment in purchased accounts receivable on
     an accrual basis under the guidance of American Institute of Certified
     Public Accountants' Practice Bulletin 6, "Amortization of Discounts on
     Certain Acquired Loans," using unique and exclusive portfolios. Portfolios
     are established with accounts having similar attributes. Typically, each
     portfolio consists of an individual acquisition of accounts that are
     initially recorded at cost, which includes external costs of acquiring
     portfolios. Once a portfolio is acquired, the accounts in the portfolio are
     not changed. Proceeds from the sale of accounts and return of accounts
     within a portfolio are accounted for as collections in that portfolio. The
     discount between the cost of each portfolio and the face value of the
     portfolio is not recorded since the Company expects to collect a relatively
     small percentage of each portfolio's face value.


                                      F-7
<PAGE>

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

     2.  Accounting Policies (continued):

     Purchased Accounts Receivable (continued):

     Collections on the portfolios are allocated to revenue and principal
     reduction based on the estimated internal rate of return ("IRR") for each
     portfolio. The IRR for each portfolio is derived based on the expected
     monthly collections over the estimated economic life of each portfolio
     (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 applying each portfolio's effective
     IRR for the quarter to its carrying value. To the extent collections exceed
     the revenue, the carrying value is reduced and the reduction is recorded as
     collections are applied to principal. Because the IRR reflects collections
     for the entire economic life of the portfolio, 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
     portfolio may be increased by the difference between the revenue accrual
     and collections.

     To the extent actual collections differ from estimated projections, the
     Company prospectively adjusts the IRR. If the carrying value of a
     particular portfolio exceeds its expected future collections, a charge to
     income would be recognized in the amount of such impairment. Additional
     impairments on each quarter's previously impaired portfolios may occur if
     the current estimated future cash flow projection, after being adjusted
     prospectively for actual collection results, is less than the current
     carrying value recorded. After the impairment of a portfolio, all
     collections are recorded as a return of capital and no income is recorded
     on that portfolio until the full carrying value of the portfolio has been
     recovered. Once the full cost of the carrying value has been recovered, all
     collections will be recorded as revenue. The estimated IRR for each
     portfolio is based on estimates of future collections, and actual
     collections will vary from current estimates. The difference could be
     material.

        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
     the Company's credit risk and maintains a reserve for potential collection
     losses when such losses are deemed to be probable. The Company generally
     does not require collateral and it does not charge finance fees on
     outstanding trade receivables. 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. Trade accounts
     receivable are written off to the allowance for doubtful accounts when
     collection appears highly unlikely.

        Cash and Cash Equivalents:

     The Company considers all highly liquid investments purchased with an
     initial maturity of three months or less to be cash equivalents. These
     financial instruments potentially subject the Company to concentrations of
     credit risk. The Company minimizes this risk by dealing with major
     financial institutions that have high credit ratings.




                                      F-8
<PAGE>



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

     2. Accounting Policies (continued):

        Investments in Debt and Equity Securities:

     The Company accounts for investments, such as the investment in
     securitization, Creditrust SPV 98-2, LLC, in accordance with Statement of
     Financial Accounting Standards No. 115, "Accounting for Certain Investments
     in Debt and Equity Securities." As such, investments are recorded as either
     trading, available for sale, or held to maturity based on management's
     intent relative to those securities. The Company records its investment in
     securitization as an available for sale debt security. Such a security is
     recorded at fair value, and the unrealized gains or losses, net of the
     related tax effects, are not reflected in earnings but are recorded as
     other comprehensive income in the consolidated statement of shareholders'
     equity until realized. A decline in the value of an available for sale
     security below cost that is deemed other than temporary is charged to
     income as an impairment and results in the establishment of a new cost
     basis for the security.

     The investment in securitization is included in other assets and represents
     the residual interest in a securitized pool of purchased accounts
     receivable acquired in connection with the merger of Creditrust Corporation
     ("Creditrust") into NCO Portfolio Management, Inc. ("NCO Portfolio") (see
     note 5). The investment in securitization accrues interest at an effective
     yield (IRR), which is estimated based on the expected monthly collections
     over the estimated economic life of the investment (approximately five
     years). Cost approximated fair value of this investment as of December 31,
     2001 and 2002 (see note 23).

        Property and Equipment:

     Property and equipment is stated at cost, less accumulated depreciation.
     Depreciation is provided over the estimated useful life of each class of
     assets using the straight-line method. Expenditures for maintenance and
     repairs are charged to expense as incurred. Renewals and betterments are
     capitalized. When property is sold or retired, the cost and related
     accumulated depreciation are removed from the balance sheet, and any gain
     or loss on the transaction is included in the statement of income.

     The Company reviews long-lived assets and certain identifiable intangibles
     for impairment, based on the estimated undiscounted future cash flows,
     whenever events or changes in circumstances indicate that the carrying
     amount of the asset may not be recoverable.

        Intangibles:

     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. Effective January 1, 2002, the Company
     adopted Statement of Financial Accounting Standard No. 142, "Goodwill and
     Other Intangibles" ("SFAS 142") (see note 9).

     Other intangible assets consist primarily of customer lists and deferred
     financing costs, which relate to debt issuance costs incurred. Customer
     lists are amortized over five years and deferred financing costs are
     amortized over the term of the debt (see note 9).

        Interest Rate Hedges:

     The Company accounts for its interest rate swap agreements as either assets
     or liabilities on the balance sheet measured at fair value. Changes in the
     fair value of the interest rate swap agreements will be recorded separately
     in shareholders' equity as "other comprehensive income (loss)" since the
     interest rate swap agreements were designated and qualified as cash flow
     hedges. As of December 31, 2002, "other comprehensive income (loss)"
     included a loss of $460,000, net of a tax benefit of $248,000. The Company
     determined that the interest rate swap agreements qualified as effective
     cash flow hedges because the interest payment dates, the underlying index
     (the London InterBank Offered Rate or "LIBOR"), and the notional amounts
     coincide with LIBOR contracts from the revolving credit facility. If the
     interest rate swap agreements no longer qualify as cash flow hedges, the
     change in the fair value will be recorded in current earnings.


                                      F-9
<PAGE>


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

     2. Accounting Policies (continued):

        Stock Options:

     The Company accounts for stock option grants in accordance with APB Opinion
     25, "Accounting for Stock Issued to Employees" ("APB 25") and related
     interpretations. Under APB 25, because the exercise price of the stock
     options equaled the fair value of the underlying common stock on the date
     of grant, no compensation cost was recognized. In accordance with SFAS 123,
     "Accounting for Stock-Based Compensation," the Company does not recognize
     compensation cost based on the fair value of the options granted at grant
     date. If the Company had elected to recognize compensation cost based on
     the fair value of the options granted at grant date, net income and net
     income per share would have been reduced to the pro forma amounts indicated
     in the following table (amounts in thousands, except per share amounts)
     (see note 15):
<TABLE>
<CAPTION>
                                                                    For the Years Ended December 31,
                                                                ------------------------------------------
                                                                   2000            2001           2002
                                                                ------------    -----------    -----------

<S>                                                                <C>            <C>            <C>
           Net income - as reported                                $ 11,024       $ 15,038       $ 42,159
           Pro forma compensation cost, net of taxes                  4,203          5,011          5,417
                                                                 ----------      ---------      ---------

           Net income - pro forma                                   $ 6,821       $ 10,027       $ 36,742
                                                                 ==========      =========      =========

           Net income per share - as reported:
               Basic                                                 $ 0.43         $ 0.58         $ 1.63
               Diluted                                               $ 0.43         $ 0.58         $ 1.54

           Net income per share - pro forma:
               Basic                                                 $ 0.27         $ 0.39         $ 1.42
               Diluted                                               $ 0.26         $ 0.38         $ 1.36
</TABLE>

     The estimated weighted average, grant-date fair values of the options
     granted during the years ended December 31, 2000, 2001 and 2002 were
     $10.52, $10.37 and $8.40, respectively. All options granted were at the
     market price of the stock on the grant date. For valuation purposes, the
     Company utilized the Black-Scholes option-pricing model using the following
     assumptions on a weighted average basis:

                                            For the Years Ended December 31,
                                          ------------------------------------
                                             2000         2001         2002
                                          ----------   ----------   ----------

           Risk-free interest rate           5.93%        4.42%        3.18%
           Expected life in years             3.25         4.33         5.00
           Volatility factor                 52.88%       58.95%       56.59%
           Dividend yield                     None         None         None
           Forfeiture rate                   5.00%        5.00%        5.00%

         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.

     Prior to the adoption of SFAS 142 on January 1, 2002, income taxes were
     computed after giving effect to the nondeductible portion of goodwill
     expenses attributable to certain acquisitions.

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



                                      F-10
<PAGE>


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

      2. Accounting Policies (continued):

        Foreign Currency Translation:

     The Company has foreign subsidiaries whose local currency has been
     determined to be the functional currency. For these foreign subsidiaries,
     the assets and liabilities have been translated using the current exchange
     rates, and the income and expenses have been translated using historical
     exchange rates. The adjustments resulting from translation have been
     recorded separately in shareholders' equity as "other comprehensive income
     (loss)" and are not included in determining consolidated net income. As of
     December 31, 2001 and 2002, other comprehensive income (loss) included $4.3
     million and $3.4 million, respectively, of cumulative losses from foreign
     currency translation.

        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 amounts reported in the
     financial statements and the accompanying notes. Actual results could
     differ from those estimates.

     In the ordinary course of accounting for a long-term guarantee contract,
     estimates are made by management as to the payments due to the client.
     Actual results could differ from those estimates and a material change
     could occur within one reporting period.

     In the ordinary course of accounting for purchased accounts receivable,
     estimates are made by management as to the amount and timing of future cash
     flows expected from each portfolio. The estimated future cash flow of each
     portfolio is used to compute the IRR for the portfolio. The IRR is used to
     allocate collections between revenue and principal reduction of the
     carrying values of the purchased accounts receivable.

     On an ongoing basis, the Company compares the historical trends of each
     portfolio to projected collections. Projected collections are then
     increased, within preset limits, or decreased based on the actual
     cumulative performance of each portfolio. Management reviews each
     portfolio's adjusted projected collections to determine if further downward
     adjustment is warranted. Management regularly reviews the trends in
     collection patterns and uses its best efforts to improve under-performing
     portfolios. However, actual results will differ from these estimates and a
     material change in these estimates could occur within one reporting period
     (see note 6).

     3. Restated Financial Statements:

     On February 6, 2003, the Company's independent auditors informed the
     Company that, based on their further internal review and consultation, they
     no longer considered the methodology for revenue recognition for a
     long-term guarantee contract appropriate under revenue recognition
     guidelines. Previously, revenue under the contract was recorded based upon
     the collection of funds on behalf of clients at the anticipated average fee
     over the life of the contract. Further review by the Company with its
     independent auditors led the Company to conclude that it should change its
     method of revenue recognition for the contract. The change resulted in the
     deferral of the recognition of revenue under the contract until such time
     as any contingencies related to the realization of revenue have been
     resolved. The financial statements and the accompanying notes of the
     Company for the years ended December 31, 2000 and 2001, have been restated
     for a correction of an error due to this change.



                                      F-11
<PAGE>



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

     3.  Restated Financial Statements (continued):

     The following table presents the impact of the restatement on the
     consolidated financial statements (amounts in thousands, except per share
     amounts):
<TABLE>
<CAPTION>

                                                        As of and for the Years Ended December 31,
                                               -------------------------------- -----------------------------
                                                           2000                             2001
                                               -----------------------------    -----------------------------
                                                    As                               As
                                                Previously           As          Previously           As
                                                 Reported         Restated        Reported         Restated
                                                ----------        --------      -----------      ------------
<S>                                               <C>             <C>              <C>             <C>
           Selected balance sheet data:

           Total current assets                   $ 128,534       $ 125,118        $ 202,802       $ 200,312
           Noncurrent assets                        655,472         656,139          728,223         728,552
           Total current liabilities                 48,802          48,294           90,429         102,834
           Noncurrent liabilities                   348,778         357,499          405,288         412,515
           Retained earnings                         71,579          60,617           97,448          75,655

           Selected income statement data:

           Revenue                                $ 605,884       $ 587,452        $ 701,506       $ 683,873
           Income before income tax
             expense                                 78,182          59,750           51,642          34,009
           Income tax expense                        32,042          24,572           21,463          14,661
           Net income                                21,986          11,024           25,869          15,038
           Net income per share:
             Basic                                   $ 0.86          $ 0.43           $ 1.00          $ 0.58
             Diluted                                 $ 0.85          $ 0.43           $ 0.99          $ 0.58

</TABLE>
     4. 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 noncore components of the March 1999 acquisition of JDR 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. In consideration for the purchased assets of the
     telemarketing business, the Company received a $6.0 million note.

     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.



                                      F-12
<PAGE>


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

     4.  Discontinued Operations (continued):

     The following summary of the Market Strategy division's operations prior to
     the Measurement Date for the year ended December 31, 2000 has been
     presented net in the Company's consolidated statements of operations
     (amounts in thousands):

                                                            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 taxes                           $ (975)
                                                        ========

     During the year ended December 31, 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 reflects the difference between the net assets of the Market
     Strategy division and the proceeds from the divestiture as well as the
     operating losses from the Measurement Date through the completion of the
     divestiture in October 2000. Included in this loss was a write-off of $29.9
     million of goodwill. Also included in this loss was an extraordinary item
     of $6.3 million (net of taxes of $42,000), or $0.24 per share on a diluted
     basis, from the loss on the disposal of the portion of the telemarketing
     business that was acquired with JDR. The purchase of JDR was accounted for
     as a pooling-of-interests transaction, and the Company had no plans or
     intentions to dispose of JDR's telemarketing business at the time of the
     acquisition.

     For the period in 2000 before the Measurement Date, the loss from
     discontinued operations, net of taxes, included an allocation of interest
     expense of $441,000. For the period in 2000 from the Measurement Date
     through the divestiture date, the loss on the disposal of discontinued
     operations included an allocation of interest expense of $706,000. The
     interest expense was allocated to the Market Strategy division based on the
     expected proceeds.

     5.  Business Combinations:

     The following acquisitions have been accounted for under the purchase
     method of accounting. As part of the purchase accounting, the Company
     recorded accruals for acquisition related expenses. These accruals included
     professional fees related to the acquisition and termination costs related
     to certain redundant personnel immediately eliminated at the time of the
     acquisitions.

     On February 20, 2001, the Company merged NCO Portfolio Management, Inc.
     ("NCO Portfolio"), its wholly owned subsidiary, with Creditrust Corporation
     ("Creditrust") to form a new public entity (Nasdaq: NCPM) focused on the
     purchase of accounts receivable (the "Creditrust Merger"). After the
     Creditrust Merger, the Company owned approximately 63 percent 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. As part of the Creditrust Merger,
     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 Creditrust
     Merger, 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 subfacility under its existing credit facility.
     Initially, NCO Portfolio borrowed $36.3 million to fund the Creditrust
     Merger.


                                      F-13
<PAGE>



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

     5.  Business Combinations (continued):

     On August 19, 2002, the Company acquired certain assets and related
     operations, excluding the purchased accounts receivable portfolio, and
     assumed certain liabilities of Great Lakes Collection Bureau, Inc. ("Great
     Lakes"), a subsidiary of GE Capital Corporation ("GE Capital"), for $10.1
     million in cash. The Company funded the purchase with borrowings under its
     revolving credit agreement. NCO Portfolio acquired the purchased accounts
     receivable portfolio of Great Lakes for $22.9 million. NCO Portfolio funded
     the purchase with $2.3 million of existing cash and $20.6 million of
     nonrecourse financing provided by CFSC Capital Corp. XXXIV (see note 10).
     This nonrecourse financing is collateralized by the Great Lakes purchased
     accounts receivable portfolio. As part of the acquisition, the Company and
     GE Capital signed a multi-year agreement under which the Company will
     provide services to GE Capital. The Company allocated $4.1 million of the
     purchase price to the customer list and recognized goodwill of $2.1
     million. All of the goodwill is deductible for tax purposes. Because the
     closing balance sheet has not been finalized, the allocation of the fair
     market value to the acquired assets and liabilities of Great Lakes was
     based on preliminary estimates and may be subject to change. As a result of
     the acquisition, the Company expects to expand its current customer base,
     strengthen its relationship with certain existing customers and reduce the
     cost of providing services to the acquired customers through economies of
     scale. Therefore, the Company believes the allocation of a portion of the
     purchase price to goodwill is appropriate. The following is a preliminary
     allocation of the net purchased assets of Great Lakes, excluding the
     purchased accounts receivable portfolio (amounts in thousands):

                                                 As of
                                            August 19, 2002
                                         --------------------

           Current assets                              $ 2,480
           Property and equipment                        4,316
           Goodwill                                      2,053
           Client list                                   4,063
           Total assets                                 12,912
           Current liabilities                           2,313

     On December 9, 2002, the Company acquired all of the stock of The Revenue
     Maximization Group, Inc. ("RevGro") for $17.5 million in cash, including
     the repayment of $889,000 of RevGro's pre-acquisition debt. The Company
     funded the purchase with $16.8 million of borrowings under its revolving
     credit agreement and existing cash. The Company allocated $4.7 million of
     the purchase price to the customer list and recognized goodwill of $9.3
     million. None of the goodwill is deductible for tax purposes. Because the
     closing balance sheet has not been finalized, the allocation of the fair
     market value to the acquired assets and liabilities of RevGro was based on
     preliminary estimates and may be subject to change. As a result of the
     acquisition, the Company expects to expand its current customer base,
     strengthen its relationship with certain existing customers and reduce the
     cost of providing services to the acquired customers through economies of
     scale. Therefore, the Company believes the allocation of a portion of the
     purchase price to goodwill is appropriate. The following is a preliminary
     allocation of the net purchased assets of RevGro (amounts in thousands):

                                                As of
                                           December 9, 2002
                                        ---------------------

           Current assets                              $ 7,026
           Property and equipment                          485
           Goodwill                                      9,339
           Client list                                   4,698
           Total assets                                 21,585
           Current liabilities                           4,090



                                      F-14
<PAGE>




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

     5.  Business Combinations (continued):

     The following summarizes the unaudited pro forma results of operations for
     the years ended December 31, 2001 and 2002, assuming the acquisitions of
     RevGro and Great Lakes, and the Creditrust Merger had occurred as of the
     beginning of the respective years. 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, except per share data):
<TABLE>
<CAPTION>

                                                                   2001           2002
                                                               ------------   ------------
                                                                       (Unaudited)
<S>                                                             <C>             <C>
           Revenue                                              $ 764,351       $ 754,766
           Net (loss) income                                     $ (3,580)       $ 38,463
           Net (loss) income per share:
               Basic                                              $ (0.14)         $ 1.49
               Diluted                                            $ (0.14)         $ 1.41
</TABLE>

     6.  Purchased Accounts Receivable:

     The Company's Portfolio Management and International Operations divisions
     purchase defaulted consumer accounts receivable at a discount from the
     actual principal balance. As of December 31, 2002, the carrying values of
     Portfolio Management's and International Operations' purchased accounts
     receivable were $149.0 million and $3.4 million, respectively. The
     following summarizes the change in purchased accounts receivable (amounts
     in thousands):
<TABLE>
<CAPTION>

                                                                        For the Years Ended December 31,
                                                                   ----------------------------------------
                                                                       2000          2001           2002
                                                                   -----------   -----------    -----------

<S>                                                                  <C>            <C>           <C>
           Balance, at beginning of period                           $  6,719       $ 34,475      $ 140,001
           Purchased accounts receivable acquired from
             Creditrust                                                  -            93,518            -
           Purchases of accounts receivable                            32,961         50,621         72,680
           Collections on purchased accounts receivable              (20,495)        (99,868)      (120,513)
           Purchase price adjustment                                     -                 -         (4,000)
           Revenue recognized                                          15,411         64,065         66,162
           Impairment of purchased accounts receivable                   -            (2,738)        (1,999)
           Foreign currency translation adjustment                       (121)           (72)           117
                                                                   ----------     ----------     ----------
                                                                            -              -              -
           Balance, at end of period                                 $ 34,475      $ 140,001      $ 152,448
                                                                   ==========     ==========     ==========
</TABLE>

     During the years ended December 31, 2001 and 2002, impairments of $2.7
     million and $2.0 million, respectively, were recorded as a charge to income
     on portfolios where the carrying values exceeded the expected future cash
     flows. No income will be recorded on these portfolios until the carrying
     values have been fully recovered. As of December 31, 2001 and 2002, the
     combined carrying values on all impaired portfolios aggregated $5.8 million
     and $6.1 million, respectively, or 4.2 percent and 4.0 percent of total
     purchased accounts receivable, respectively, representing their net
     realizable value. No impairments were recorded during the year ended
     December 31, 2000.


                                      F-15
<PAGE>


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

     6.  Purchased Accounts Receivable (continued):

     Included in collections for the year ended December 31, 2002, was $3.7
     million in proceeds from the sale of accounts. During the year ended
     December 31, 2002, NCO Portfolio concluded a contract renegotiation with
     the seller of several existing portfolios resulting in a $4.0 million cash
     price reduction on several purchases from 2000 and 2001. The $4.0 million
     proceeds were recorded as a reduction to purchase price of the affected
     portfolios during 2002. On several previously impaired portfolios, the cash
     price reduction reduced the carrying value of such portfolios, resulting in
     the carrying value of certain of the portfolios becoming fully recovered.
     Included in revenue for the year ended December 31, 2002, was $803,000 from
     these fully recovered portfolios. Revenue of approximately $354,000 was
     recorded during the year ended December 31, 2002, on several nonimpaired
     portfolios due to the improved IRRs as a result of the cash price
     reduction.

     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
     $56.8 million and $60.2 million at December 31, 2001 and 2002,
     respectively, have been shown net of their offsetting liability for
     financial statement presentation.

     8.  Property and Equipment:

     Property and equipment, at cost, consisted of the following (amounts in
     thousands):

<TABLE>
<CAPTION>

                                                                                 December 31,
                                                    Estimated       ------------------------------------
                                                   Useful Life           2001                2002
                                                  --------------    ----------------    ----------------

<S>                                                  <C>                   <C>                 <C>
           Computer equipment                        5 years               $ 75,086            $ 87,470
           Computer software developed
             for internal use                        5 years                 24,734              33,542
           Furniture and fixtures                 5 to 10 years              13,032              17,576
           Leasehold improvements                 5 to 15 years               6,027              12,829
                                                                          ---------            --------
                                                                            118,879             151,417

           Less accumulated depreciation                                     47,422              71,814
                                                                          ---------            --------

                                                                           $ 71,457            $ 79,603
                                                                          =========            ========

</TABLE>

     Depreciation charged to operations amounted to $15.2 million, $20.1 million
     and $24.2 million for the years ended December 31, 2000, 2001 and 2002,
     respectively.

     9. Intangible Assets:

        Goodwill:

     Effective January 1, 2002, the Company adopted Statement of Financial
     Accounting Standard No. 142, "Goodwill and Other Intangibles" ("SFAS 142").
     As a result of adopting SFAS 142, the Company no longer amortizes goodwill.
     Goodwill must be tested at least annually for impairment, including an
     initial test that was completed in connection with the adoption of SFAS
     142. The test for impairment uses 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. Fair value
     estimates are based upon the discounted value of estimated cash flows. The
     Company did not incur any impairment charges in connection with the
     adoption of SFAS 142 or the annual impairment test performed on October 1,
     2002, and does not believe that goodwill is impaired as of December 31,
     2002. The annual impairment analysis is anticipated to be completed on
     October 1st of each year.


                                      F-16
<PAGE>



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

     9.  Intangible Assets (continued):

         Goodwill (continued):

     SFAS 142 requires goodwill to be allocated and tested at the reporting unit
     level. The Company's reporting units under SFAS 142 are U.S. Operations,
     Portfolio Management and International Operations. Portfolio Management
     does not have any goodwill. The U.S. Operations and International
     Operations had the following goodwill (amounts in thousands):

                                                          December 31,
                                                -------------------------------
                                                    2001                2002
                                                -----------          ---------

           U.S. Operations                        $ 484,182          $ 495,575
           International Operations                  29,979             30,209
                                                 ----------          ---------
                                                  $ 514,161          $ 525,784
                                                 ==========          =========

     The change in U.S. Operations' goodwill balance from 2001 to 2002 was due
     to the acquisitions of Great Lakes and RevGro during 2002 (see note 5). The
     change in International Operations' goodwill balance from 2001 to 2002 was
     due to changes in the exchange rates used for the foreign currency
     translation.

     The following presents the results of operations as if SFAS 142 had been
     adopted as of the beginning of the respective periods (dollars in
     thousands):

<TABLE>
<CAPTION>
                                                          For the Years Ended December 31,
                                            --------------------------------------------------------------
                                                        2000                             2001
                                            -----------------------------    -----------------------------
                                                              Diluted                          Diluted
                                                              Earnings                      Earnings Per
                                              Amount         Per Share         Amount           Share
                                            -----------     -------------    -----------    --------------

<S>                                           <C>                 <C>          <C>                 <C>
           Net income, as reported            $ 11,024            $ 0.43       $ 15,038            $ 0.58
           Add back of goodwill
             amortization, net of tax           11,781              0.45         11,894              0.44
                                            ----------       -----------     ----------      ------------

           Adjusted net income                $ 22,805            $ 0.88       $ 26,932            $ 1.02
                                             ==========      ===========     ==========      ============
</TABLE>

        Other Intangible Assets:

     The Company's adoption of SFAS 142 had no effect on its other intangible
     assets. Other intangible assets consist primarily of customer lists and
     deferred financing costs. The following represents the other intangible
     assets (amounts in thousands):
<TABLE>
<CAPTION>
                                                                    December 31,
                                          ------------------------------------------------------------------
                                                       2001                               2002
                                          -------------------------------    -------------------------------
                                            Gross                              Gross
                                           Carrying         Accumulated       Carrying         Accumulated
                                            Amount        Amortization         Amount        Amortization
                                          -----------    ----------------    -----------    ----------------

<S>                                         <C>                  <C>           <C>                  <C>
           Deferred financing costs         $ 11,881             $ 4,320       $ 12,422             $ 6,969
           Customer lists                          -                   -          8,761                 357

           Other intangible assets               900                 532            900                 688
                                           ---------           ---------       --------            --------

           Total                            $ 12,781             $ 4,852       $ 22,083             $ 8,014
                                           =========           =========       ========            ========

</TABLE>



                                      F-17
<PAGE>


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

     9. Intangible Assets (continued):

         Other Intangible Assets (continued):

     The Company recorded amortization expense for all other intangible assets
     of $1.5 million, $2.4 million and $3.2 million during the years ended
     December 31, 2000, 2001 and 2002, respectively. The following represents
     the Company's expected amortization expense from these other intangible
     assets over the next five years (amounts in thousands):

           2003                         $ 4,744
           2004                           3,422
           2005                           2,539
           2006                           1,969
           2007                           1,395

     10. Long-Term Debt:

     Long-term debt consisted of the following (amounts in thousands):

                                                         December 31,
                                                ----------------------------
                                                   2001               2002
                                                ----------         ---------

           Revolving credit loan                 $ 206,630          $ 193,180
           Convertible notes                       125,000            125,000
           Securitized debt                         45,379             35,523
           Nonrecourse debt                              -             17,632
           Capital leases and other                  2,781              2,935
           Less current portion                    (21,922)           (39,847)
                                                 ---------          ---------
                                                 $ 357,868          $ 334,423
                                                 =========          =========

     The following summarizes the Company's required debt payments, excluding
     the convertible notes (amounts in thousands):

             2003                       $    39,847
             2004                           202,135
             2005                             7,278
             2006                                 9
             2007                                 1

         Revolving Credit Facility:

     The Company has a credit agreement with Citizens Bank of Pennsylvania,
     formerly Mellon Bank, N.A., ("Citizens Bank"), for itself and as
     administrative agent for other participating lenders, structured as a
     revolving credit facility. The balance under the revolving credit facility
     will become due on May 20, 2004 (the "Maturity Date"). The borrowing
     capacity of the revolving credit facility is subject to quarterly
     reductions of $5.2 million until the Maturity Date, and 50 percent of the
     net proceeds received from any offering of debt or equity.

     At the option of NCO, the borrowings bear interest at a rate equal to
     either Citizens Bank's prime rate plus a margin of 0.25 percent to 0.50
     percent, which is determined quarterly based upon the Company's
     consolidated funded debt to earnings before interest, taxes, depreciation,
     and amortization ("EBITDA") ratio (Citizens Bank's prime rate was 4.25
     percent at December 31, 2002), or the London InterBank Offered Rate
     ("LIBOR") plus a margin of 1.25 percent to 2.25 percent depending on the
     Company's consolidated funded debt to EBITDA ratio (LIBOR was 1.38 percent
     at December 31, 2002). The Company is charged a fee on the unused portion
     of the credit facility ranging from 0.13 percent to 0.38 percent depending
     on the Company's consolidated funded debt to EBITDA ratio.

                                      F-18
<PAGE>



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

     10. Long-Term Debt (continued):

         Revolving Credit Facility (continued):

     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 revolving line of credit in the form of a subfacility
     under its existing credit facility. The borrowing capacity of the
     subfacility is subject to quarterly reductions of $3.75 million until the
     earlier of the Maturity Date or the date at which the subfacility is
     reduced to $25 million. NCO Portfolio's borrowings bear interest at a rate
     equal to NCO's interest rate under the revolving credit facility plus 1.00
     percent.

     Borrowings under the revolving credit facility are collateralized by
     substantially all the assets of the Company, including the common stock of
     NCO Portfolio, and certain assets of NCO Portfolio. 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. As of
     December 31, 2002, the Company was in compliance with all required
     financial covenants.

     The following summarizes the availability under the revolving credit
     facility (amounts in thousands):

<TABLE>
<CAPTION>

                                                                     December 31, 2002
                                                  --------------------------------------------------------
                                                    NCO Group         NCO Portfolio          Combined
                                                  --------------    ------------------    ----------------

<S>                                                   <C>                    <C>                <C>
           Maximum capacity                           $ 206,725              $ 40,000           $ 246,725
           Less:
             Outstanding borrowings                     156,300                36,880             193,180
             Unused letters of credit                     2,316                     -               2,316
                                                     ----------              --------            --------

           Available                                  $  48,109              $  3,120            $ 51,229
                                                     ==========              ========            ========
</TABLE>

        Convertible Notes:

     In April 2001, the Company completed the sale of $125.0 million aggregate
     principal amount of 4.75 percent Convertible Subordinated Notes due April
     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 will be required to repay the $125.0 million of aggregate principal
     if the Notes are not converted prior to their maturity in April 2006. 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 percent of the net proceeds from the Notes
     permanently reduced the maximum borrowings available under the revolving
     credit facility.

         Securitized Debt:

     NCO Portfolio assumed four securitized notes in connection with the
     Creditrust Merger, one of which is included in an unconsolidated
     subsidiary, Creditrust SPV 98-2, LLC (see note 23). The remaining three
     notes are reflected in long-term debt. These notes were originally
     established to fund the purchase of accounts receivable. Each of the notes
     payable is nonrecourse to the Company and NCO Portfolio, is secured by a
     portfolio of purchased accounts receivable, and is bound by an indenture
     and servicing agreement. Pursuant to the Creditrust Merger, the trustee
     appointed NCO as the successor servicer for each portfolio of purchased
     accounts receivable within these securitized notes. When the notes payable
     were established, a separate nonrecourse special purpose finance subsidiary
     was created to house the assets and issue the debt. These are term notes
     without the ability to re-borrow. Monthly principal payments on the notes
     equal all collections after servicing fees, collection costs, interest
     expense and administrative fees.


                                      F-19
<PAGE>




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

     10. Long-Term Debt (continued):

         Securitized Debt (continued):

     The first securitized note was established in September 1998 through a
     special purpose finance subsidiary. This note carries a floating interest
     rate of LIBOR plus 0.65 percent per annum, and the final due date of all
     payments under the facility is the earlier of March 2005, or satisfaction
     of the note from collections. A $900,000 liquidity reserve is included in
     restricted cash as of December 31, 2001 and 2002, and is restricted as to
     use until the facility is retired. Interest expense, trustee fees and
     guarantee fees aggregated $945,000 and $621,000 for period from February
     21, 2001, to December 31, 2001, and for the year ended December 31, 2002,
     respectively. As of December 31, 2001 and 2002, the amount outstanding on
     the facility was $17.8 million and $15.4 million, respectively. The note
     issuer 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, Creditrust SPV 98-2, LLC, are posted as
     additional collateral for this facility (see note 23).

     The second securitized note was established in August 1999 through a
     special purpose finance subsidiary. This note carries interest at 9.43
     percent per annum, with a final payment date of the earlier of August 2004,
     or satisfaction of the note from collections. In May 2002, the note was
     paid off, and the $225,000 liquidity reserve was returned to NCO Portfolio.
     Interest expense, trustee fees and guarantee fees aggregated $691,000 and
     $56,000 for the period from February 21, 2001 to December 31, 2001, and the
     year ended December 31, 2002, respectively.

     The third securitized note was established in August 1999 through a special
     purpose finance subsidiary. This note carries interest at 15.00 percent per
     annum, with a final payment date of the earlier of December 2004, or
     satisfaction of the note from collections. Interest expense and trustee
     fees aggregated $3.3 million and $3.3 million for the period from February
     21, 2001, to December 31, 2001, and for the year ended December 31, 2002.
     As of December 31, 2001 and 2002, the amount outstanding on the facility
     was $23.8 million and $20.1 million.

         Nonrecourse Debt:

     In August 2002, NCO Portfolio entered into a four-year exclusivity
     agreement with CFSC Capital Corp. XXXIV ("Cargill"). The agreement
     stipulates that all purchases of accounts receivable by NCO Portfolio with
     a purchase price in excess of $4 million, with limited exceptions, must be
     first offered to Cargill for financing at its discretion. The agreement has
     no minimum or maximum credit authorization. NCO Portfolio may terminate the
     agreement at any time after two years for a cost of $125,000 per month for
     each month of the remaining four years, payable monthly. If Cargill chooses
     to participate in the financing of a portfolio of accounts receivable, the
     financing will be at 90 percent of the purchase price, unless otherwise
     negotiated, with floating interest at the prime rate plus 3.25 percent
     (prime rate was 4.25 percent at December 31, 2002). Each borrowing is due
     two years after the loan is made. Debt service payments equal collections
     less servicing fees and interest expense. As additional interest, Cargill
     will receive 40 percent of the residual cash flow, unless otherwise
     negotiated, which is defined as all cash collections after servicing fees,
     floating rate interest, repayment of the note and the initial investment by
     NCO Portfolio, including imputed interest. Borrowings under this financing
     agreement are nonrecourse to NCO Portfolio and NCO, except for the assets
     within the special purpose entities established in connection with the
     financing agreement. This loan agreement contains a collections performance
     requirement, among other covenants, that, if not met, provides for
     cross-collateralization with any other Cargill financed portfolios, in
     addition to other remedies. As of December 31, 2002, NCO Portfolio was in
     compliance with all required covenants.



                                      F-20
<PAGE>



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

     10. Long-Term Debt (continued):

         Other:

     At December 31, 2002, the Company had unused letters of credit of $2.3
     million.

     The Company leases certain equipment under agreements that are classified
     as capital leases. The equipment leases have original terms ranging from 23
     to 60 months and have purchase options at the end of the original lease
     term.

     11. Operating Leases:

     The Company leases certain equipment and real estate facilities under
     noncancelable operating leases. These leases expire between 2003 and 2016,
     and most contain renewal options. The following represents the future
     minimum payments, by year and in the aggregate, under noncancelable
     operating leases with initial or remaining terms of one year or more
     (amounts in thousands). The following future minimum payments do not
     include the leases from the Company's former Fort Washington locations (see
     notes 20 and 22).

           2003                                          $ 25,483
           2004                                            22,346
           2005                                            22,743
           2006                                            18,510
           2007                                            15,376
           Thereafter                                      47,495
                                                         --------
                                                         $151,953
                                                         ========

     Rent expense was $17.8 million, $19.5 million and $20.9 million for the
     years ended December 31, 2000, 2001 and 2002, respectively. The total
     amount of base rent payments is being charged to expense on the
     straight-line method over the term of the lease.

     12. Income Taxes:

     Income tax expense consisted of the following components (amounts in
     thousands):

<TABLE>
<CAPTION>

                                                     For the Years Ended December 31,
                                               --------------------------------------------
                                                   2000            2001            2002
                                               ------------    ------------    ------------
<S>                                              <C>             <C>                <C>
           Currently payable:
             Federal                             $  16,280       $ 10,809           $ 9,235
             State                                   1,613          1,047             1,789
             Foreign                                 1,269            376             1,329

           Deferred:
             Federal                                 6,277          1,600
                                                                                     14,218
             State                                    (214)
                                                                     (239)            1,131
             Foreign                                  (653)         1,068                 -
                                                 ----------      --------          --------
           Income tax expense                    $   24,572      $ 14,661           $27,702
                                                 ==========      ========          ========

</TABLE>

                                      F-21
<PAGE>
                                 NCO GROUP, INC.
             Notes to Consolidated Financial Statements (continued)

     12. Income Taxes (continued):

     Deferred tax assets (liabilities) consisted of the following (amounts in
     thousands):

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                         -------------------------------
                                                                             2001             2002
                                                                         -------------    --------------
<S>                                                                        <C>                 <C>
           Deferred tax assets:
             Net operating loss carryforwards                              $   39,380          $ 41,056
             Deferred contractual revenue                                      14,272            13,598
             Accrued expenses                                                   8,697             8,054
                                                                           ----------          --------

           Total deferred tax assets                                           62,349            62,708

           Valuation allowance                                                  5,014             6,347
                                                                           ----------          --------

           Net deferred tax assets                                             57,335            56,361
                                                                           ----------          --------

           Deferred tax liabilities:
             Amortization                                                      32,060            39,074
             Depreciation                                                      12,400            12,210
             Undistributed earnings of unconsolidated subsidiary                2,832             1,876
             Purchased accounts receivable                                     30,290            35,417
                                                                           ----------          --------
           Total deferred tax liabilities                                      77,582            88,577
                                                                           ----------          --------

           Net deferred tax liabilities                                     $ (20,247)        $ (32,216)
                                                                           ==========         =========
</TABLE>

     The Company had federal, state, and foreign net operating loss
     carryforwards in the amount of $186.8 million, subject to certain
     limitations, available at December 31, 2002, which will expire during the
     years 2003 through 2021. Of this amount, $100.4 million existed as of the
     date of the Creditrust Merger. Due to the Creditrust ownership change in
     2001, the use of the net operating loss carryforwards could be
     substantially curtailed by Section 382 of the Internal Revenue Code. The
     annual use of the net operating loss carryforwards is limited under this
     section and such limitation is dependent on: (i) the fair market value of
     Creditrust at the time of the ownership change; and (ii) the net unrealized
     built-in gains of Creditrust at the time of the ownership change, which are
     recognized within five years of the Creditrust Merger date. Based on an
     analysis performed by the Company, it is anticipated that $81.8 million of
     the Creditrust net operating loss will be available for utilization after
     Section 382 limitations. Accordingly, a deferred tax asset based on this
     amount was recorded at the date of the Creditrust Merger being available to
     offset future reversing temporary differences and future taxable income. At
     year-end, this deferred tax asset was expected to be fully utilized to
     offset future reversing temporary differences, primarily relating to
     purchased accounts receivable.

     A reconciliation of the U.S. statutory income tax rate to the effective
     rate was as follows:

<TABLE>
<CAPTION>
                                                                   For the Years Ended December 31,
                                                                  ----------------------------------
                                                                   2000           2001         2002
                                                                   -----         -----         -----
<S>                                                                <C>           <C>           <C>
           U.S. statutory income tax rate                          35.0%         35.0%         35.0%
           Nondeductible goodwill and other expenses                4.7           8.2           0.2
           State taxes, net of federal                              1.6           1.3           2.8
           Benefit from foreign net operating losses               (1.4)            -             -
           Other, net                                               1.2          (1.4)         (0.1)
                                                                   ----          ----          ----

           Effective tax rate                                      41.1%         43.1%         37.9%
                                                                   ====          ====          =====

</TABLE>

                                      F-22
<PAGE>

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

     13.  Shareholders' Equity:

         Common Stock Warrants

     In February 1997, the Company issued warrants to purchase 375,000 shares of
     NCO common stock, at $18.42 per share, in connection with the acquisition
     of certain assets and the assumption of certain liabilities of the
     Collections Division of CRW Financial, Inc. In January 2002, all of these
     warrants were exercised. The holders of the warrants elected to use the
     option of forfeiting a portion of their warrants to cover the exercise
     price, which resulted in the net issuance of 55,000 shares of NCO common
     stock.

     In May 1999, the Company issued warrants to purchase 250,000 shares of NCO
     common stock, at $32.97 per share, in connection with the acquisition of
     Co-Source. During 1999, warrants to issue 228,000 shares of NCO common
     stock were exercised. The holders of the warrants elected to use the option
     of forfeiting a portion of their warrants to cover the exercise price.
     These exercises resulted in the net issuance of 67,000 shares of NCO common
     stock. Warrants to purchase 22,000 shares of NCO common stock were
     outstanding as of December 31, 2002. These warrants expire in May 2009.

     14.  Earnings Per Share:

     Basic earnings per share ("EPS") was computed by dividing the income from
     continuing operations and the net income for the years ended December 31,
     2000, 2001 and 2002, by the weighted average number of common shares
     outstanding. Diluted EPS was computed by dividing the adjusted income from
     continuing operations and the adjusted net income for the years ended
     December 31, 2000, 2001 and 2002, by the weighted average number of common
     shares outstanding plus all common equivalent shares. Income from
     continuing operations and net income are adjusted to add-back convertible
     interest expense, net of taxes, if the convertible debt is dilutive. The
     2.8 million shares from the convertible debt were not included in the
     diluted share count for 2001 because they were antidilutive. The
     convertible interest, net of tax, included in the diluted EPS calculation
     for the year ended December 31, 2000, was $3.7 million. Outstanding
     options, warrants, and convertible securities have been utilized in
     calculating diluted amounts per share only when their effect would be
     dilutive.

     The reconciliation of basic to diluted weighted average shares outstanding
     was as follows (amounts in thousands):

<TABLE>
<CAPTION>

                                                     For the Years Ended December 31,
                                                 --------------------------------------
                                                     2000           2001         2002
                                                     -----          ----         ----

<S>                                                   <C>          <C>          <C>
             Basic                                    25,587       25,773       25,890

             Dilutive effect of convertible debt           -            -        3,797
             Dilutive effect of warrants                  88           88            -
             Dilutive effect of options                  167          230          142
                                                      ------       ------       ------

             Diluted                                  25,842       26,091       29,829
                                                     =======       ======       ======
</TABLE>

     15. Stock Options:

     In June 1995, the Company adopted the 1995 Stock Option Plan (the "1995
     Plan"). In September 1996, the Company adopted the 1996 Stock Option Plan
     (the "1996 Plan") and the 1996 Non-Employee Director Stock Option Plan (the
     "Director Plan"). The 1995 Plan and 1996 Plan, as amended, authorized
     333,000 and 4.7 million shares, respectively, of incentive or nonqualified
     stock options. The Director Plan, as amended, authorized 150,000 shares.
     The vesting periods for the outstanding options under the 1995 Plan, the
     1996 Plan, and the Director Plan are three years, three years and one year,
     respectively. The options expire no later than 10 years from the date of
     grant.

                                      F-23
<PAGE>

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

     15. Stock Options (continued):

     A summary of stock option activity for all of the plans was as follows
     (amounts in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                                         Weighted
                                                                                          Average
                                                                        Number of     Exercise Price
                                                                         Options         Per Share
                                                                      -------------   ----------------

<S>                                                                       <C>                    <C>
             Outstanding at January 1, 2000                                                   $ 28.27
                                                                         2,611
               Granted                                                   1,082                  24.52
               Exercised                                                   (94)                 12.58
               Forfeited                                                  (259)                 33.39
                                                                        ------                -------
             Outstanding at December 31, 2000                                                   27.10
                                                                         3,340
               Granted                                                   1,116                  20.22
               Exercised                                                  (189)                 19.76
               Forfeited                                                  (269)                 28.88
                                                                        ------                -------
             Outstanding at December 31, 2001                                                   25.41
                                                                         3,998
               Granted                                                     504                  16.01
               Exercised                                                   (37)                 20.47
               Forfeited                                                  (271)                 26.52
               Expired                                                     (23)                 27.25
                                                                        ------                -------
             Outstanding at December 31, 2002                            4,171                $ 24.23
                                                                        ======                =======
</TABLE>

     The following table summarizes information about stock options outstanding
     as of December 31, 2002 (shares in thousands):

<TABLE>
<CAPTION>

                                       Stock Options Outstanding                 Stock Options Exercisable
                            -------------------------------------------------   -----------------------------
                                              Weighted           Weighted                        Weighted
           Range of                           Average            Average                         Average
       Exercise Prices        Shares       Remaining Life     Exercise Price      Shares      Exercise Price
     ---------------------  ------------  -----------------   ---------------   -----------   ---------------

     <S>         <C>               <C>      <C>                     <C>               <C>           <C>
     $ 8.67   to  $19.42            701      8.49 years              $ 15.78           204           $ 15.17
     $20.05   to  $24.75          1,347      8.02 years                20.67           671             21.29
     $25.00   to  $28.75            896      7.81 years                25.33           595             25.32
     $29.19   to  $33.38          1,090      6.71 years                30.65         1,089             30.65
     $36.88   to  $61.09            137      5.44 years                44.14           137             44.14
                                 ------      ----------              -------         -----           -------
                                  4,171      7.63 years              $ 24.23         2,696           $ 26.66
                                 ======      ==========              =======         =====           =======
</TABLE>

     16. Derivative Financial Instruments:

     The Company selectively uses derivative financial instruments to manage
     interest costs and minimize currency exchange risk. The Company does not
     hold derivatives for trading purposes. While these derivative financial
     instruments are subject to fluctuations in value, these fluctuations are
     generally offset by the value of the underlying exposures being hedged. The
     Company minimizes the risk of credit loss by entering into these agreements
     with major financial institutions that have high credit ratings.

         Interest Rate Hedge:

     As of December 31, 2002, the Company was party to two interest rate swap
     agreements, which qualified as cash flow hedges, to fix LIBOR at 2.8225
     percent on an aggregate amount of $83.3 million of the variable-rate debt
     outstanding under the revolving credit facility. The aggregate notional
     amount of the interest rate swap agreements is subject to quarterly
     reductions that will reduce the aggregate notional amount to $62 million by
     maturity in September 2003.

                                      F-24
<PAGE>


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

     17.  Fair Value of Financial Instruments:

     The following methods and assumptions were used to estimate the fair value
     of each class of financial instrument for which it is practicable to
     estimate that value:

         Cash and Cash Equivalents, Trade Accounts Receivable, and Accounts
     Payable:

     The carrying amount reported in the balance sheets approximates fair value
     because of the short maturity of these instruments.

         Purchased Accounts Receivable:

     The Company records purchased accounts receivable at cost, which is
     discounted from the contractual receivable balance. The Company recorded
     the accounts receivable acquired as part of Creditrust at fair value. The
     carrying value of purchased accounts receivable, which is estimated based
     upon future cash flows, approximates fair value at December 31, 2001 and
     2002.

         Investment in Securitization:

     Upon completion of the merger with Creditrust, NCO Portfolio recorded the
     investment in securitization acquired from Creditrust at fair value. As of
     December 31, 2001 and 2002, the carrying value approximated fair value.

         Notes Receivable:

     The carrying amount reported in the balance sheets approximates market
     rates for notes with similar terms and maturities, and, accordingly, the
     carrying amount approximates fair value.

         Interest Rate Hedge:

     The carrying amount reported in the balance sheets is adjusted each quarter
     to its estimated fair value based upon quotes from the market makers of
     this instrument.

         Long-Term Debt:

     The stated interest rates of the Company's nonconvertible debt approximate
     market rates for debt with similar terms and maturities, and, accordingly,
     the carrying amounts approximate fair value. The estimated fair value of
     the Company's convertible debt was $113.9 million and $106.2 million as of
     December 31, 2001 and 2002, respectively, based on the closing market price
     for the convertible securities on December 31, 2001 and 2002, respectively.

     18.  Supplemental Cash Flow Information:

     The following are supplemental disclosures of cash flow information
     (amounts in thousands):

<TABLE>
<CAPTION>
                                                                      For the Years Ended December 31,
                                                                 --------------------------------------------
                                                                    2000            2001            2002
                                                                 -----------     ------------    ------------

<S>                                                                 <C>             <C>              <C>
     Cash paid for interest                                         $24,038         $ 25,257         $22,426
     Cash paid for income taxes                                      18,569           11,410          13,393
     Noncash investing and financing activities:
         Fair value of assets acquired                                    -          123,978          32,807
         Liabilities assumed from acquisitions                            -          109,394           6,428
         Notes received as consideration for the
           divestiture of the Market Strategy Division               18,250                -               -
         Deferred portion of purchased accounts receivable                -                -           2,026
         Warrants exercised                                               -                -             875

</TABLE>

                                      F-25
<PAGE>



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

     19.  Employee Benefit Plans:

     The Company has a savings plan under Section 401(k) of the Internal Revenue
     Code (the "Plan") for its U.S. Operations and Portfolio Management
     divisions. The Plan allows all eligible employees to defer up to 15 percent
     of their income on a pretax basis through contributions to the Plan,
     subject to limitations under Section 401(k) of the Internal Revenue Code.
     The Company will provide a matching contribution of 25 percent of the first
     6 percent of an employee's contribution. The Company also has similar type
     plans for its International Operations. The charges to operations for the
     matching contributions were $1.7 million, $1.9 million and $2.0 million for
     2000, 2001 and 2002, respectively.

     20.  Commitments and Contingencies:

         Forward-Flow Agreement:

     NCO Portfolio currently has a fixed price, three-month renewable agreement
     ("forward-flow") with a major financial institution that obligates NCO
     Portfolio to purchase, on a monthly basis, portfolios of charged-off
     receivables meeting certain criteria. As of December 31, 2002, NCO
     Portfolio was obligated to purchase accounts receivable to a maximum of
     $1.8 million per month through May 2003. A portion of the purchase price is
     deferred for 12 months, including a nominal rate of interest. The Company
     has guaranteed the obligations of NCO Portfolio under the forward-flow
     agreement.

         Litigation:

     The Company is party, from time to time, to various legal proceedings and
     regulatory investigations incidental to its business. The Company
     continually monitors these legal proceedings and regulatory investigations
     to determine the impact and any required accruals.

     In June 2001, the 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
     relocate its corporate headquarters to Horsham, PA. The Company has filed a
     lawsuit against the landlord of the Fort Washington facilities to terminate
     the leases. Due to the uncertainty of the outcome of the lawsuit, the
     Company recorded the full amount of rent due under the remaining terms of
     the leases during the third quarter of 2001.

     In the opinion of management no other legal proceedings or regulatory
     investigations, individually or in the aggregate, will have a materially
     adverse effect on the financial position, results of operations, cash
     flows, or liquidity of the Company.

     21.  Segment Reporting:

     The Company's business consists of three operating divisions: U.S.
     Operations, Portfolio Management and International Operations. The
     accounting policies of the segments are the same as those described in note
     2, "Accounting Policies."

     U.S Operations provides accounts receivable management services to consumer
     and commercial accounts for all market sectors including financial
     services, healthcare, retail and commercial, utilities, education,
     telecommunications, and government. The U.S. Operations serve 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 accounts receivable and customer
     relationship management solutions to all market sectors. U.S. Operations
     had total assets, net of any intercompany balances, of $730.3 million and
     $744.3 million at December 31, 2001 and 2002, respectively. U.S. Operations
     provides accounts receivable management services to Portfolio Management.
     U.S. Operations recorded revenue of $5.7 million, $27.4 million and $35.5
     million for these services for the years ended December 31, 2000, 2001 and
     2002, respectively. The accounting policies used to record the revenue from
     Portfolio Management are the same as those described in note 2, "Accounting
     Policies."


                                      F-26
<PAGE>



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

     21.  Segment Reporting (continued):

     Portfolio Management purchases and manages defaulted consumer accounts
     receivable from consumer creditors such as banks, finance companies, retail
     merchants, and other consumer oriented companies. Portfolio Management had
     total assets, net of any intercompany balances, of $153.7 million and
     $167.8 million at December 31, 2001 and 2002, respectively.

     International Operations provides accounts receivable management services
     across Canada and the United Kingdom. International Operations had total
     assets, net of any intercompany balances, of $44.9 million and $50.2
     million at December 31, 2001 and 2002, respectively. International
     Operations provides accounts receivable management services to U.S.
     Operations. International Operations recorded revenue of $5.1 million and
     $11.5 million for these services for the years ended December 31, 2001 and
     2002, respectively. The accounting policies used to record the revenue from
     U.S. Operations are the same as those described in note 2, "Accounting
     Policies."

     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. 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 generally accepted accounting principles.

<TABLE>
<CAPTION>

                                                          For the Year Ended December 31, 2000
                                                                (amounts in thousands)
                                         -------------------------------------------------------------------
                                                            Payroll and          Selling,
                                                              Related          General and
                                            Revenue           Expenses       Admin. Expenses        EBITDA
                                         ------------       -----------      ---------------       --------

<S>                                        <C>                <C>                <C>               <C>
     U.S. Operations                       $ 548,337          $ 275,718          $ 170,532         $ 102,087
     Portfolio Management                     13,151                327              5,853             6,971
     International Operations                 31,705             17,247              9,280             5,178
     Eliminations                             (5,741)                 -             (5,741)                -
                                          ----------         ----------         ----------         ---------
     Total                                 $ 587,452          $ 293,292          $ 179,924         $ 114,236
                                          ==========          =========          =========         =========

                                                      For the Year Ended December 31, 2001
                                                             (amounts in thousands)
                                         -------------------------------------------------------------------
                                                            Payroll and          Selling,
                                                              Related          General and
                                            Revenue           Expenses       Admin. Expenses        EBITDA
                                         ------------       -----------      ---------------       --------

     U.S. Operations                       $ 615,743          $ 332,456          $ 221,995          $ 61,292
     Portfolio Management                     62,929              1,624             32,437            28,868
     International Operations                 37,803             21,685             10,729             5,389
     Eliminations                           (32,602)            (5,131)           (27,471)                 -
                                          ----------         ----------         ----------         ---------

     Total                                 $ 683,873          $ 350,634          $ 237,690          $ 95,549
                                          ==========          =========          =========         =========

                                                         For the year ended December 31, 2002
                                                                (amounts in thousands)
                                         -------------------------------------------------------------------
                                                            Payroll and          Selling,
                                                              Related          General and
                                            Revenue           Expenses       Admin. Expenses        EBITDA
                                         ------------       -----------      ---------------       --------

     U.S. Operations                       $ 639,497          $ 316,992          $ 231,986          $ 90,519
     Portfolio Management                     63,379              1,532             40,263            21,584
     International Operations                 47,636             28,409             12,957             6,270
     Eliminations                            (47,062)           (11,528)           (35,534)                -
                                          ----------         ----------         ----------         ---------

     Total                                 $ 703,450          $ 335,405          $ 249,672         $ 118,373
                                          ==========          =========          =========         =========
</TABLE>


                                      F-27
<PAGE>


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

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

     In June of 2001, the 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
     relocate its corporate headquarters to Horsham, PA. The Company has filed a
     lawsuit against the landlord of the Fort Washington facilities to terminate
     the leases. 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. During 2002, the
     Company received insurance proceeds in excess of its original estimate,
     which resulted in a gain of approximately $1.3 million. This gain was
     included in the Statement of Income in "other income (expense)."

     23.  Investments in Unconsolidated Subsidiaries:

     NCO Portfolio owns a 100 percent retained residual interest in an
     investment in securitization, Creditrust SPV 98-2, LLC, which was acquired
     as part of the Creditrust Merger (see note 5). This transaction qualified
     for gain on sale accounting when the purchased accounts receivable were
     originally securitized by Creditrust. This securitization issued a
     nonrecourse note that is due the earlier of January 2004 or satisfaction of
     the note from collections, carries an interest rate of 8.61 percent, and
     had a balance of $5.5 million and $2.4 million as of December 31, 2001 and
     2002, respectively. The retained interest represents the present value of
     the residual interest in the securitization using discounted future cash
     flows after the securitization note is fully repaid, plus a cash reserve.
     As of December 31, 2001 and 2002, the investment in securitization was $7.3
     million and $7.5 million, respectively, composed of $4.0 million and $4.2
     million, respectively, in present value of discounted residual cash flows
     plus $3.3 million in cash reserves for each year. NCO Portfolio's maximum
     exposure to loss as a result of its involvement with this investment in
     securitization would be limited to the carrying value of the investment in
     the securitization. The investment accrues noncash income at a rate of 8
     percent per annum on the residual cash flow component only. The income
     earned increases the investment balance until the securitization note has
     been repaid, after which collections are split between income and
     amortization of the investment in securitization based on the discounted
     cash flows. The Company recorded $211,000 and $162,000 of income on this
     investment for the period from February 21, 2001 to December 31, 2001, and
     for the year ended December 31, 2002, respectively. The off-balance sheet
     cash reserves of $3.3 million, plus the first $1.3 million in residual cash
     collections received after the securitization note has been repaid, have
     been pledged as collateral against another securitized note (see note 10).
     The Company performs collection services for Creditrust SPV 98-2, LLC and
     recorded service fee revenue of $1.9 million and $1.8 million for the years
     ended December 31, 2001 and 2002, respectively.










                                      F-28
<PAGE>


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

     23.  Investments in Unconsolidated Subsidiaries (continued):

     NCO Portfolio has a 50 percent ownership interest in a joint venture,
     InoVision-MEDCLR-NCOP Ventures, LLC ("Joint Venture"), with IMNV Holdings,
     LLC ("IMNV"). The Joint Venture was established in 2001 to purchase
     utility, medical and other various small balance accounts receivable and is
     accounted for using the equity method of accounting. Included in "other
     assets" on the Balance Sheets was NCO Portfolio's investment in the Joint
     Venture of $574,000 and $3.4 million as of December 31, 2001 and 2002,
     respectively. Included in the Statements of Income, in "interest and
     investment income," was $118,000 and $762,000 for the years ended December
     31, 2001 and 2002, respectively, representing the Company's 50 percent
     share of operating income from this unconsolidated subsidiary. The Company
     performs collection services for the joint venture and recorded service fee
     revenue of $547,000 and $4.7 million for the years ended December 31, 2001
     and 2002, respectively. The Joint Venture has access to capital through a
     lender who, at its option, lends 90 percent of the value of the purchased
     accounts receivable to the Joint Venture. Borrowings carry interest at the
     prime rate plus 4.25 percent (prime rate was 4.25 percent at December 31,
     2002). Debt service payments equal total collections less servicing fees
     and expenses until each individual borrowing is fully repaid and the Joint
     Venture's original investment is returned, including interest. Thereafter,
     Cargill is paid a residual 40 percent of collections, less servicing costs.
     Individual loans are required to be repaid based on collections, but not
     more than two years from the date of borrowing. The debt is
     cross-collateralized by all portfolios in which the lender participates,
     and is nonrecourse to NCO Portfolio. The following table summarizes the
     financial information of the Joint Venture (amounts in thousands):

                                                  As of and for the Years
                                                     Ended December 31,
                                               -----------------------------
                                                 2001                2002
                                               --------            ---------
                Total assets                    $ 5,581            $ 11,638
                Total liabilities                 4,455               4,944
                Revenue                           1,061               9,832
                Operating income                    236               1,524

     24. Related Party Transactions:

     The Company uses an airplane that is partly owned by Michael J. Barrist,
     Chairman, President, and Chief Executive Officer of NCO. During 2000, 2001
     and most of 2002, the Company paid the total monthly management fee
     associated with the airplane and its share of out-of-pocket costs to a
     third-party management company for its use of the airplane. The third-party
     management company is not affiliated with Mr. Barrist. Effective November
     2002, the Company changed its arrangement with Mr. Barrist. The Company now
     reimburses Mr. Barrist for the use of the plane based on a per-hour rate.
     The per-hour rate consists of actual operating costs plus the hourly cost
     equivalent for the monthly management fee and depreciation. The Company
     paid costs of $368,000, $363,000 and $478,000 for the years ended December
     31, 2000, 2001 and 2002, respectively.

     The Company is party to certain split-dollar life insurance policies, which
     were purchased in 1997. These policies separately insure: (i) the joint
     lives of Michael J. Barrist and his spouse; and (ii) the joint lives of
     Charles C. Piola, Jr. and his spouse. Under the terms of the split-dollar
     agreement, the Company paid the premiums for certain survivorship life
     insurance policies on the lives of Mr. and Mrs. Barrist and Mr. and Mrs.
     Charles C. Piola, Jr. with an aggregate face value of $50.0 million and
     $30.0 million, respectively, only to the extent that the premiums are in
     excess of the cost of the term insurance coverage. While the proceeds of
     the policies are payable to the beneficiaries designated by the respective
     executives, the Company has an interest in the insurance benefits equal to
     the cumulative amount of premiums it has paid and is not responsible to pay
     any premiums in excess of the cash surrender value of the respective
     policies. In November 2002, it was determined that the Company would
     suspend payment of premiums for these policies. Subsequently, the Company
     has decided to terminate the split-dollar agreements. In conjunction with
     this termination, the Company will transfer the existing policies to the
     insured, and will be reimbursed for all premiums paid on theses policies.
     During December 2002, the Company inadvertently paid $138,000 of premiums
     that were reimbursed by Mr. Barrist and Mr. Piola in January 2003.


                                      F-29
<PAGE>


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

     25. Recently Issued and Proposed Accounting Pronouncements:

     During 2001, the Accounting Staff Executive Committee approved an exposure
     draft on Accounting for Certain Purchased Loans or Debt Securities
     (formerly known as Discounts Related to Credit Quality) (Exposure
     Draft-December 1998). The proposal would apply to all companies that
     acquire loans for which it is probable at the acquisition date that all
     contractual amounts due under the acquired loans will not be collected. The
     proposal addresses accounting for differences between contractual and
     expected future cash flows from an investor's initial investment in certain
     loans when such differences are attributable, in part, to credit quality.
     The scope also includes such loans acquired in purchased business
     combinations. If adopted, the proposed SOP would supersede Practice
     Bulletin 6, Amortization of Discounts on Certain Acquired Loans. In June
     2001, the Financial Accounting Standards Board ("FASB") cleared the SOP for
     issuance subject to minor editorial changes and planned to issue a final
     SOP in early 2002. The SOP has not yet been issued. The proposed SOP would
     limit the revenue that may be accrued to the excess of the estimate of
     expected future cash flows over a portfolio's initial cost of accounts
     receivable acquired. The proposed SOP would require that the excess of the
     contractual cash flows over expected future cash flows not be recognized as
     an adjustment of revenue, expense or on the balance sheet. The proposed SOP
     would freeze the internal rate of return, referred to as IRR, originally
     estimated when the accounts receivable are purchased for subsequent
     impairment testing. Rather than lower the estimated IRR if the original
     collection estimates are not received, the carrying value of a portfolio
     would be written down to maintain the original IRR. Increases in expected
     future cash flows would be recognized prospectively through adjustment of
     the IRR over a portfolio's remaining life. The exposure draft provides that
     previously issued annual financial statements would not need to be
     restated. Until final issuance of this SOP, the Company cannot ascertain
     the effects on its reporting.

     In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
     "Guarantor's Accounting and Disclosure Requirements for Guarantees,
     Including Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates
     on the disclosures required by guarantors in their interim and annual
     financial statements. FIN 45 also requires a guarantor to recognize a
     liability at the date of inception for the fair value of the obligation it
     assumes under the guarantee. The disclosure requirements are effective for
     periods ending after December 15, 2002. The initial recognition and
     measurement provisions apply on a prospective basis to guarantees issued or
     modified after December 31, 2002. The Company has adopted the disclosure
     requirements of FIN 45, and is in the process of determining the effect of
     the adoption of the recognition and measurement provisions of FIN 45 will
     have on its financial position and results of operations.

     In January 2003, the FASB issued Interpretation No. 46 ("FIN" 46),
     "Consolidation of Variable Interest Entities". The objective of FIN 46 is
     to improve financial reporting by companies involved with variable interest
     entities. FIN 46 defines variable interest entities and requires that
     variable interest entities be consolidated by a company if that company is
     subject to a majority of the risk of loss from the variable interest
     entity's activities or is entitled to receive a majority of the entity's
     residual returns or both. The disclosure requirements are effective for
     periods ending after December 15, 2002. The consolidation requirements
     apply immediately to variable interest entities created after January 31,
     2003, and apply to existing variable interest entities in the first fiscal
     year or interim period beginning after June 15, 2003. The Company adopted
     the disclosure requirements of FIN 46, and does not believe the adoption of
     FIN 46 will have a material impact on its financial position and results of
     operations.


                                      F-30
<PAGE>


                      NCO GROUP, INC.
             Consolidating Statement of Income
                        (Unaudited)
                  (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                               For the Year Ended December 31, 2002
                                                               --------------------------------------------------------------------
                                                                                                    Intercompany
                                                                 NCO Group      NCO Portfolio       Eliminations      Consolidated
                                                               -----------      --------------      -------------     ------------

<S>                                                              <C>                <C>               <C>              <C>
Revenue                                                          $ 675,605          $ 63,379          $ (35,534)       $ 703,450

Operating costs and expenses:
      Payroll and related expenses                                 333,873             1,532                             335,405
      Selling, general and administrative expenses                 244,943            40,263            (35,534)         249,672
      Depreciation and amortization expense                         27,004               320                              27,324
                                                               -----------        ----------         ----------       ----------
                                                                   605,820            42,115            (35,534)         612,401
                                                               -----------        ----------         ----------       ----------
                                                                    69,785            21,264                  -           91,049

Other income (expense):
      Interest and investment income                                 2,643             1,024               (445)           3,222
      Interest expense                                             (13,182)           (8,224)               430          (20,976)
      Other income (expense)                                          (216)                -                                (216)
                                                               -----------        ----------         ----------       ----------
                                                                   (10,755)           (7,200)               (15)         (17,970)
                                                               -----------        ----------         ----------       ----------
Income before income tax expense                                    59,030            14,064                (15)          73,079

Income tax expense                                                  22,433             5,269                              27,702
                                                               -----------        ----------         ----------       ----------

Income from operations before minority interest                     36,597             8,795                (15)          45,377

Minority interest (1)                                                    -               (15)            (3,203)          (3,218)
                                                               -----------        ----------         ----------       ----------

Net income                                                        $ 36,597           $ 8,780           $ (3,218)        $ 42,159
                                                               ===========        ==========         ==========       ==========
</TABLE>

(1) NCO Group owns 63% percent of the outstanding common stock of NCO Portfolio
    Management, Inc.



                                      F-31
<PAGE>


                                 NCO GROUP, INC.
                 Schedule II - Valuation and Qualifying Accounts


<TABLE>
<CAPTION>
                                                           Additions
                                                    ------------------------
                                      Balance at    Charged to   Charged to                     Balance at
                                       beginning     costs and     other                          end of
                                         Year        Expenses     accounts    Deductions (1)       year
                                      ------------  ------------ -----------  ---------------  -------------

     Year ended December 31, 2000:

        <S>                           <C>            <C>            <C>            <C>             <C>
     Allowance for doubtful
      accounts                      $ 5,391,000   $ 5,906,000    $     -      $ (4,217,000)   $ 7,080,000


     Year ended December 31, 2001:

     Allowance for doubtful
      accounts                      $ 7,080,000   $ 4,250,000    $     -     $ (6,019,000)    $ 5,311,000


     Year ended December 31, 2002:

     Allowance for doubtful
      accounts                      $ 5,311,000   $ 8,293,000    $     -     $ (6,319,000)    $ 7,285,000


</TABLE>

(1) Uncollectable accounts written off, net of recoveries.





                                       S-1