<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, 2001

                                       or

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

            For the transition period from ___________ to ___________

                           Commission File 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 Identification No.)
Incorporation or Organization)

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

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           25,874,000
      --------------------------           -----------------------------
      (Title of Class)                     (Number of Shares Outstanding
                                           as of March 18, 2002)


Indicate by check mark whether the Registrant (i) 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 (ii) 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 the 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. [ ]

The aggregate market value of voting stock held by non-affiliates of the
Registrant is approximately $529,637,000(1)


<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Company's Proxy Statement to be filed in connection with
its 2002 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 stock set forth equals the number
of shares of the Company's common stock outstanding, reduced by the amount of
common stock held by officers, directors and shareholders owning 10% or more of
the Company's common stock, multiplied by $27.370, the last reported sale price
for the Company's common stock on March 18, 2002. The information provided shall
in no way be construed as an admission that any officer, director or 10%
shareholder in the Company may be deemed an affiliate of the Company or that he
is the beneficial owner of the shares reported as being held by him, 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.                                                                           1
Item 2.       Properties.                                                                        19
Item 3.       Legal Proceedings.                                                                 20
Item 4.       Submission of Matters to a Vote of Security Holders.                               20
Item 4.1      Executive Officers of the Registrant who are not also Directors.                   20

                                     PART II

Item 5.       Market for Registrant's Common Stock and                                           22
              Related Shareholder Matters.
Item 6.       Selected Financial Data.                                                           23
Item 7.       Management's Discussion and Analysis of Financial                                  24
                  Condition and Results of Operations.
Item 7a       Quantitative and Qualitative Disclosures about Market Risk.                        38
Item 8.       Financial Statements and Supplementary Data.                                       38
Item 9.       Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosures.                                                     38

                                    PART III

Item 10.      Directors and Executive Officers of the Registrant.                                39
Item 11.      Executive Compensation.                                                            39
Item 12.      Security Ownership of Certain Beneficial Owners and Management.                    39
Item 13.      Certain Relationships and Related Transactions.                                    39

                                     PART IV

Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K.                  40
              Signatures.                                                                        46

              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 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations," other than historical facts,
are forward-looking statements (as such term is defined in the Securities
Exchange Act of 1934, and the regulations thereunder), which are intended to be
covered by the safe harbors created thereby. Forward-looking statements include,
without limitation, statements as to the Company's expected future results of
operations, the Company's growth strategy, the Company's internet and e-commerce
strategy, the effects of the terrorist attacks and the economy on the Company's
business, expected increases in operating efficiencies, anticipated trends in
the accounts receivable management industry, estimates of future cash flows of
purchased accounts receivable, the effects of legal or governmental proceedings,
the effects of changes in accounting pronouncements and statements as to trends
or the Company's or management's beliefs, expectations and opinions.
Forward-looking statements are subject to risks and uncertainties and may be
affected by various factors that may cause actual results to differ materially
from those in the forward-looking statements. In addition to the factors
discussed in this report, certain risks, uncertainties and other factors,
including, without limitation, the risk that the Company will not be able to
achieve expected future results of operations, the risk that the Company will
not be able to implement its growth strategy as and when planned, risks
associated with the recent expansion of NCO Portfolio Management, Inc. ("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 past or possible future terrorist attacks,
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.


                                     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 comprised of predictive dialers, automated call distribution
systems, digital switching and customized computer software. We have
approximately 9,000 employees who provide our services through the operation of
80 centers.


                                      -1-
<PAGE>


Industry Background

     Increasingly, companies are outsourcing many non-core 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 collection. 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.
     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 non-core
          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 according to The Kaulkin Report. 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:



                                      -2-
<PAGE>



     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 1999, 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; and
     o    leveraging our purchasing power.

     Enhance our technology capabilities - We will continue to enhance our
technology platform as well as continue to update and modernize our equipment,
including the workstations and predictive dialers used by account
representatives. In addition, we will continue to update and refine our NCO
ACCESS(TM) interface, which translates client account information into a
standard presentation format that provides our account representatives with a
common visual interface that links directly into disparate client host systems.

     The Internet offers the potential for significant operational benefits.
There are a variety of cost-reducing applications available, such as improved
data exchange capabilities and the replacement of direct mail with e-mail. We
are creating client-specific web pages that will facilitate reporting of
payments and account activity, online tracking of collection results, and online
statistical modeling.

     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 monitor all developing
opportunities to determine the timing of entry into new markets. 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 strategic
alliances with Receivables Management Group Pty Ltd. in 2000 and MIRARE Credit
Information Services in 2001 to provide an entree into the Australasian and
Korean markets, respectively. These alliances enhance our service offerings as
well as increase the awareness of NCO as a global provider of accounts
receivable management and collection services.

     We also provide our domestic clients with a cost-effective option of using
foreign labor markets such as India to provide effective services at a reduced
price. We currently have approximately 150 telephone representatives working in
India for our U.S clients. We expect to expand our presence in India as well as
explore new opportunities in other labor markets such as Australia.


                                      -3-
<PAGE>


     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 only 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 $50.0 million credit sub-facility. During
2001, NCO Portfolio invested $574,000 for a 50% 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% of the value of the purchased accounts receivable to the Joint Venture. The
debt is cross-collateralized by all static pools in which the lender
participates, and is non-recourse 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, we will gain access to capital while limiting both our and
NCO Portfolio's exposure to credit risk.

     Continue to explore strategic acquisition opportunities - 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.

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 do
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 60% 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% to 35% of the amounts recovered on
behalf of our clients. However, fees can range from 6% for the management of
accounts placed early in the accounts receivable cycle to 50% for accounts that
have been serviced extensively by the client or by third-party providers. Our
average fee across all industries was approximately 19% during 2001, as
compared to 19% during 2000.


                                      -4-
<PAGE>



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

     Management 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.

     Skiptracing. In cases where the 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 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 customers who cannot afford to pay at the current time. This
letter also serves as an official notification to each 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 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 denial of future credit often
motivates the payment of all past due accounts.

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



                                      -5-
<PAGE>


     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.

     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.


                                      -6-
<PAGE>

     NCO ePayments. We can provide clients with a virtual 24-hour payment center
that is accessible by the use of telephones, personal computers or the Internet.

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

     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 product. 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 systems also permit
network access to enable clients to electronically communicate with us and
monitor operational activity on a real-time basis. We provide our services
through the operation of 80 centers that are electronically linked through an
international wide area network, with the exception of our two United Kingdom
centers.

     We also utilize a custom-developed NCO ACCESS interface product that
leverages industry standard visual basic and thin client server technology in
order to facilitate the critical process of "real-time" translation of account
data from our clients' host systems to our system. The NCO ACCESS interface
product set allows rapid ramp up of new client projects and the ability to work
online with client host systems while completely integrating and leveraging the
power of our base accounts receivable management software infrastructure.
Additionally, this technology allows sophisticated reporting capabilities that
are not always available on clients' host systems. The NCO ACCESS interface
product translates client account information into a standard presentation
format that provides our account representatives with a common visual interface
that links directly into disparate client host systems. Key benefits of the NCO
ACCESS interface include dramatic reduction in project ramp-up time, reduction
in training costs, and an overall increase in account representative
productivity.

     Our call centers utilize predictive dialers with over 4,200 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.

     Our MIS staff is comprised of approximately 240 employees led by a Chief
Information Officer. 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.


                                      -7-
<PAGE>


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
sales effort consists of an approximately 60-person direct sales force, and for
the commercial sector, approximately 330 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.

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 2001
accounted for approximately 28% of our revenue. In 2001, no client accounted for
more than 6% of total revenue. In 2001, we derived 34.4% of our revenue,
excluding purchased accounts receivable, from financial services (which included
the banking and insurance sectors), 25.5% from healthcare organizations, 21.3%
from retail and commercial entities, 6.4% from utilities, 5.6% from educational
organizations, 5.1% from telecommunications companies, and 1.7% from government
entities.



                                      -8-
<PAGE>



     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.

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 collection or as telephone representatives. We
generally offer competitive compensation and benefits and offer internal
promotion opportunities.

     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.

     As of December 31, 2001, we had a total of approximately 8,100 full-time
employees and 900 part-time employees, of which 7,400 are telephone
representatives. None of our employees are 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 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.



                                      -9-
<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 carry on 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 of 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 a variety of
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 are in compliance with all
federal and state regulatory requirements. We believe that we are in material
compliance with all such regulatory requirements.



                                      -10-
<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>
Creditrust Corporation               2/20/01    Purchased A/R               $      25,000 (1)   $      36,491

Compass International Services       8/20/99    A/R Management and                104,100             105,800 (2)
  Corporation                                   Telemarketing

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

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

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

MedSource, Inc.                       7/1/98    Healthcare A/R                     35,700 (3)          22,700
                                                Management

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)  We merged our subsidiary NCO Portfolio Management, Inc. with
          Creditrust Corporation. We own approximately 63% of the post-merger
          company.

     (2)  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.

     (3)  Includes $17.3 million of debt repaid by us.



                                      -11-
<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.

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

     Terrorist attacks and threats of war may negatively 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 United States
targets and threats of war or actual conflicts involving the United States or
its allies, may 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.

     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.



                                      -12-
<PAGE>


     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 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 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 three 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.

     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.


                                      -13-
<PAGE>



     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, 2001, we derived approximately 34.4% of our
revenue, excluding purchased accounts receivable, from clients in the financial
services sector, approximately 25.5% of our revenue from clients in the
healthcare sector and approximately 21.3% 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.

     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.

     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 $50.0 million credit sub-facility. 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 will have 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:



                                      -14-
<PAGE>

o  Collections may not be sufficient to recover the cost of investments in
   purchased accounts receivable and support operations - NCO Portfolio
   purchases delinquent 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 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 uncollectible, 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 to the amount the
   customer owes and, although the belief is 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 may vary and may be less than
   the amount expected. 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 sub-facility,
   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 sub-facility 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 static pools of accounts
   receivable purchased. Although estimates are based on statistical analysis,
   the actual amount collected on these static pools and the timing of those
   collections may differ materially from NCO Portfolio's estimates. If
   collections on static pools 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.
o  Possible shortage of accounts receivable for purchase at favorable prices -
   The availability of portfolios of delinquent 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 delinquent 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  Government regulation of NCO Portfolio operations - Federal and state
   consumer protection and related laws and regulations govern the relationship
   of a customer and a creditor. Significant laws include the Fair Debt
   Collection Practices Act, the Federal Truth-In-Lending Act, the Fair Credit
   Billing Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act
   and the Electronic Funds Transfer Act, and various federal regulations that
   relate to these acts, as well as comparable statutes in the states where
   account debtors reside or where credit grantors are located. Some of these
   laws may apply to NCO Portfolio's activities. If credit grantors who sell
   accounts receivable to NCO Portfolio fail to comply with these laws, NCO
   Portfolio's ability to collect on those accounts receivable could be limited
   regardless of any act or omission on its part. NCO Portfolio's failure to
   comply with these laws may also limit its ability to collect on the accounts
   receivable.


                                      -15-
<PAGE>


     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 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 or 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.

     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 United States 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.



                                      -16-
<PAGE>


     Several of the industries served by us 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 a variety of
enforcement or private actions for our failure, or the failure of our clients,
to comply with these regulations.

     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 and second quarters of 2002. Our investor
guidance contains forward-looking statements and may be affected by various
factors discussed in "Risk Factors" 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.



                                      -17-
<PAGE>


     Goodwill represented 55.3% of our total assets at December 31, 2001.
Effective January 1, 2002, we were required to adopt the Financial Accounting
Standards Board's ("FASB") SFAS No. 142, "Goodwill and Other Intangibles." If
the goodwill is deemed to be impaired under FASB 142, we may need to take a
charge to earnings to write-down the goodwill to its fair value.

     Our balance sheet includes amounts designated as intangibles, which
predominantly consist of "goodwill." Goodwill represents the excess of purchase
price over the fair market value of the net assets of the acquired businesses
based on their respective fair values at the date of acquisition.

     Effective January 1, 2002, we were required to adopt the Financial
Accounting Standards Board's ("FASB") SFAS No. 142, "Goodwill and Other
Intangibles." FASB 142 concluded that purchased goodwill will not be amortized
but will be reviewed for impairment when certain events indicate that the
goodwill of a reporting unit is impaired. The impairment test will use a
fair-value based approach, whereby if the implied fair value of a reporting
unit's goodwill is less than its carrying amount, goodwill would be considered
impaired.

     As of December 31, 2001, our balance sheet included goodwill that
represented 55.3% of total assets and 124.3% of shareholders' equity. If the
goodwill is deemed to be impaired under FASB 142, we may need to take a charge
to earnings to write-down the goodwill to its fair value.

     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 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 us or our services;
     o    the commencement of material litigation, or an unfavorable verdict,
          against us;
     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.


                                      -18-
<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 18, 2002,
there were 25,874,000 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 18, 2002, we had the authority to issue up to
approximately 4,730,000 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% of our common stock.

Item 2.  Properties.

     We currently lease 77 offices throughout North America, two offices in the
United Kingdom and one office in Puerto Rico. The leases of these facilities
expire between 2002 and 2016, and most contain renewal options.

     Effective March 11, 2002, we relocated 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.


                                      -19-
<PAGE>


Item 3.           Legal Proceedings.

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

     AssetCare, Inc., our subsidiary acquired as part of Medaphis Services
Corporation, has been identified in an administrative order issued by the State
of California as a party that is partially responsible for cleanup costs and
natural resource damages 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 has also been 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. Although we are still investigating these claims and cannot predict the
outcome of the proceedings or quantify the ultimate liability of the subsidiary
in light of the early stage of the litigation, based upon: (i) the fact that the
former scrap recycler conducted scrap recycling operations for a four-year
period during the 100-year operational history of the site; and (ii) the
possibility of indemnification and contribution claims against other entities,
any costs incurred or assessed against the subsidiary are not expected to have a
materially adverse effect on our financial condition or results of operations.
The subsidiary intends to vigorously defend these matters.

     We are involved in other legal proceedings from time to time in the
ordinary course of our business. Our management believes that none of these
legal proceedings 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.

Item 4.1          Executive Officers of the Registrant who are not Directors.

<TABLE>
<CAPTION>

                      Name                               Age                           Position
--------------------------------------------------     --------     ------------------------------------------------
<S>                                                    <C>          <C>
Stephen W. Elliott.....................                  40         Executive Vice President, Information
                                                                    Technology and Chief Information Officer

Joshua Gindin, Esq.....................                  45         Executive Vice President and General Counsel

Steven Leckerman.......................                  49         Executive Vice President, U.S. Operations

Paul E. Weitzel, Jr....................                  43         Executive Vice President, Corporate
                                                                    Development and International Operations

Steven L. Winokur......................                  42         Executive Vice President, Finance; Chief
                                                                    Financial Officer; and Treasurer
</TABLE>


                                      -20-
<PAGE>



     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 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 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. since 1997. 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.


                                      -21-
<PAGE>


                                     PART II


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

     The Company's 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 closing sale prices for the common stock, as
reported by Nasdaq.


                                                 High          Low
                                                 ----          ---

2000
           First Quarter                       $ 31.94       $ 18.13
           Second Quarter                        34.38         21.06
           Third Quarter                         27.00         11.88
           Fourth Quarter                        30.94         12.69

2001
           First Quarter                       $ 34.48       $ 25.56
           Second Quarter                        32.70         23.25
           Third Quarter                         29.73         12.02
           Fourth Quarter                        24.50         13.45


    On March 18, 2002, the last reported sale price of our common stock as
reported on The Nasdaq National Market was $27.37 per share. On March 18, 2002,
there were approximately 70 holders of record of our common stock.

Dividend Policy

     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.


                                      -22-
<PAGE>

Item 6.     Selected Financial Data.

                           SELECTED FINANCIAL DATA (1)
                  (Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                          For the years ended December 31,
                                                    --------------------------------------------------------------------------
                                                       1997           1998            1999            2000           2001
                                                    -----------    ------------    ------------    -----------    ------------
<S>                                                   <C>            <C>             <C>            <C>             <C>
Statement of Income Data:
Revenue                                               $ 99,720       $ 209,947       $ 460,311      $ 605,884       $ 701,506
Operating costs and expenses:
     Payroll and related expenses                       51,493         106,787         237,709        293,292         350,634
     Selling, general and administrative expenses       34,379          61,607         128,177        179,924         237,690
     Depreciation and amortization expense               4,052           8,615          21,805         32,360          38,205
     Nonrecurring acquisition costs                          -               -           4,601              -               -
                                                    -----------    ------------    ------------    -----------    ------------
Income from operations                                   9,796          32,938          68,019        100,308          74,977
Other income (expense)                                    (419)         (1,794)        (16,899)       (22,126)        (23,335)
                                                    -----------    ------------    ------------    -----------    ------------
Income before provision for income taxes                 9,377          31,144          51,120         78,182          51,642
Income tax expense                                       4,638          12,881          22,821         32,042          21,463
                                                    -----------    ------------    ------------    -----------    ------------
Income from continuing operations before
  minority interest                                      4,739          18,263          28,299         46,140          30,179
Minority interest                                            -               -               -              -          (4,310)
                                                    -----------    ------------    ------------    -----------    ------------
Income from continuing operations                        4,739          18,263          28,299         46,140          25,869
Accretion of preferred stock to redemption value        (1,617)         (1,604)           (377)             -               -
                                                    -----------    ------------    ------------    -----------    ------------
Income from continuing operations applicable
  to common shareholders                                 3,122          16,659          27,922         46,140          25,869
Discontinued operations, net of taxes:
     (Loss) income from discontinued operations           (148)             82           1,067           (975)              -
     Loss on disposal of discontinued operations             -               -               -        (23,179)              -
                                                    -----------    ------------    ------------    -----------    ------------
Net income applicable to common shareholders           $ 2,974        $ 16,741        $ 28,989       $ 21,986        $ 25,869
                                                    ===========    ============    ============    ===========    ============

Income from continuing operations applicable
  to common shareholders per share:
     Basic                                              $ 0.23          $ 0.91          $ 1.22         $ 1.80          $ 1.00
                                                    ===========    ============    ============    ===========    ============
     Diluted                                            $ 0.21          $ 0.84          $ 1.17         $ 1.79          $ 0.99
                                                    ===========    ============    ============    ===========    ============

Net income applicable to common shareholders per share:
     Basic                                              $ 0.22          $ 0.91          $ 1.27         $ 0.86          $ 1.00
                                                    ===========    ============    ============    ===========    ============
     Diluted                                            $ 0.20          $ 0.85          $ 1.22         $ 0.85          $ 0.99
                                                    ===========    ============    ============    ===========    ============

Weighted average shares outstanding:
     Basic                                              13,736          18,324          22,873         25,587          25,773
                                                    ===========    ============    ============    ===========    ============
     Diluted                                            14,808          19,758          23,799         25,842          28,897
                                                    ===========    ============    ============    ===========    ============

Other Financial Data:
EBITDA (2)                                            $ 13,848        $ 41,553        $ 89,824      $ 132,668       $ 113,182

<CAPTION>
                                                                                      December 31,
                                                    --------------------------------------------------------------------------
                                                       1997           1998            1999            2000           2001
                                                    -----------    ------------    ------------    -----------    ------------
<S>                                                   <C>             <C>             <C>            <C>             <C>
Balance Sheet Data:
Cash and cash equivalents                             $ 30,194        $ 22,528        $ 50,513       $ 13,490        $ 32,161
Working capital                                         37,825          31,517          65,937         79,732         112,373
Net assets of discontinued operations                    9,484          27,740          41,492              -               -
Total assets                                           129,301         410,992         791,692        784,006         931,025
Long-term debt, net of current portion                  14,940         143,831         323,949        303,920         357,868
Minority interest                                            -               -               -              -          21,213
Redeemable preferred stock                               6,522          11,882               -              -               -
Shareholders' equity                                    94,336         199,465         364,888        386,426         414,095
</TABLE>

(1)  Gives effect to the restatement of our historical financial statements for:
     (i) the acquisition of JDR Holdings, Inc. using the pooling-of-interests
     method of accounting; and (ii) the treatment of the Market Strategy
     division as discontinued operations. 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.

(2)  Earnings before interest, taxes, depreciation, and amortization, referred
     to as EBITDA, is used by management to measure results of operations and is
     not intended to report results of operations in conformity with generally
     accepted accounting principles.


                                      -23-
<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 60% of our revenue from the
recovery of delinquent accounts receivable on a contingency fee basis. Our
contingency fees typically range from 15% to 35% of the amount recovered on
behalf of our clients. However, fees can range from 6% for the management of
accounts placed early in the accounts receivable cycle to 50% for accounts that
have been serviced extensively by the client or by third-party providers. Our
average fee across all industries was approximately 19% during 2001, as compared
to 19% during 2000. In addition, we generate revenue from fixed fee services for
certain accounts receivable management and collection services. 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 facilities 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. To date, 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 included U.S. Operations (formerly Accounts
Receivable Management Services and Technology-Based Outsourcing) and
International Operations. Each of these divisions maintains industry specific
functional groups. Management's discussion of operating results has been
adjusted for this change.


                                      -24-
<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% 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.

     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.

     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 static pool. The estimated future cash flow of each static
pool is used to compute the internal rate of return, referred to as IRR, for
each static pool. The IRR is used to allocate cash flow between revenue and
amortization of the carrying values of the purchased accounts receivable.

     On an ongoing basis, we compare the historical trends of each static pool
to projected collections. The future projections are then increased or
decreased, within parameters, in accordance with the historical trend. The
results are further reviewed by management with a view towards specifically
addressing any particular static pool's performance. Actual results will differ
from these estimates and a material change in these estimates could occur within
one year.

     Total cash flow for the year ended December 31, 2001 was unaffected by the
change in future estimates. The result of the change in future estimates was a
reduction in revenue and an increase in the amount of collections applied to the
principal of purchased accounts receivable. The differences between actual and
estimated collections on existing static pools as of the beginning of 2001
resulted in a reduction in net income and earnings per share $980,000 and $0.04
per diluted share, respectively for the year ended December 31, 2001.

     Bad Debts

     We maintain an allowance for doubtful accounts for estimated losses
resulting from the non-payment 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.


                                      -25-
<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% of pre-tax
income for NCO Portfolio. For financial reporting purposes, revenue is
recognized over the life of the static pool. Because the static pools 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 static pool is deferred until the full cost of the static pool is
recovered (cost recovery method). Temporary differences arise because revenue is
recognized on the cost recovery method for income tax purposes. Permanent
differences between the statutory rates and actual rates are minimal. Temporary
differences in 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 2001 as a result of the
increase in purchased accounts receivable, providing us with additional
liquidity. As of December 31, 2001, NCO Portfolio's net deferred tax asset of $1
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 have been
further impacted by Tax Law provisions that limit the amount of net operating
loss carryforwards that can be utilized subsequent to a change in control such
as the Creditrust Merger.

         Results of Operations

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


<TABLE>
<CAPTION>
                                                       For the years ended December 31,
                                  --------------------------------------------------------------------------
                                          1999 (1)                   2000                      2001
                                  -----------------------   ----------------------   -----------------------
                                     Amount        Ratio       Amount       Ratio       Amount       Ratio
                                  ------------   --------   -----------   --------   -----------   ---------
<S>                               <C>            <C>        <C>           <C>        <C>           <C>
Revenue                                $460,311      100.0%     $605,884      100.0%     $701,506       100.0%

Payroll and related expenses            237,709       51.6       293,292       48.4       350,634        50.0
Selling, general, and
administrative
  expenses                              128,177       27.9       179,924       29.7       237,690        33.9
Nonrecurring acquisition costs            4,601        1.0             -         -              -         -
                                     ----------   --------      --------    -------     ---------     -------

EBITDA (2)                               89,824       19.5       132,668       21.9       113,182        16.1

Depreciation and amortization            21,805        4.7        32,360        5.3        38,205         5.4
Other expense                            16,899        3.7        22,126        3.7        23,335         3.3
Income tax expense                       22,821        5.0        32,042        5.3        21,463         3.1
Minority interest                            -          -              -         -          4,310         0.6
                                     ----------   --------      --------    -------     ---------     -------

Income from continuing operations      $ 28,299        6.1%     $ 46,140        7.6%     $ 25,869         3.7%
                                     ==========    =======      ========    =======     =========     =======
</TABLE>

(1)  Gives effect to the restatement of our historical financial statements for
     the treatment of the Market Strategy division as discontinued operations.
     We divested our Market Strategy division in October 2000.

(2)  Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
     is used by management to measure results of operations and is not intended
     to report results of operations in conformity with generally accepted
     accounting principles.


                                      -26-
<PAGE>


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

     Revenue. Revenue increased $95.6 million, or 15.8%, to $701.5 million for
the year ended December 31, 2001, from $605.9 million for the comparable period
in 2000. Our U.S. Operations, Portfolio Management, and International Operations
divisions represented $633.4 million, $62.9 million, and $37.8 million,
respectively, of the 2001 revenue. The U.S. Operations' revenue included $27.5
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 $566.8 million, $13.2 million and $31.7 million, respectively, of
the revenue for 2000. The U.S. Operations' revenue included $5.8 million of
revenue earned on services performed for the Portfolio Management division that
was eliminated upon consolidation.

     U.S. Operation's revenue increased $66.6 million, or 11.8%, to $633.4
million in 2001, from $566.8 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%, 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%, 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 for the year ended December 31, 2001, from $293.3
million for the comparable period in 2000, and increased as a percentage of
revenue to 50.0% from 48.4%. The majority of the increase in the percentage of
revenue was attributable to $10.7 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 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 program. Excluding the
one-time charges, payroll and related expenses as a percentage of revenue was
48.5% for 2001. 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 exasperated by diminished
consumer payment patterns following the September 11, 2001 terrorist attacks.
The increase in payroll costs, excluding one-time charges, 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. In addition, a
portion of these increases was offset by the increase in the size of our
Portfolio Management division, which has a lower payroll cost structure than the
remainder of our business.



                                      -27-
<PAGE>


     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 52.5% from 48.6%. 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. Excluding the one-time charges, payroll and related expenses as a
percentage of revenue was 50.9% for 2001. 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 exasperated by diminished consumer payment patterns following the September
11, 2001, terrorist attacks. The increase in payroll costs, excluding one-time
charges, 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.

     The increase as a percentage of revenue, excluding the one-time charges,
was primarily the result of reduced collectibility within our U.S. Operations
division's 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
spending for payroll costs. The effects of the difficult collection environment
were exasperated by diminished consumer payment patterns following the September
11, 2001 terrorist attacks. A portion of these increases was offset by an
increase in productivity that was achieved through the expansion of predictive
dialing equipment and the result of spreading the fixed portion of the payroll
cost structure over a larger revenue base.

     The payroll and related expenses of 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% from 2.5%. 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% from 54.4%. The increase in the
percentage of revenue was attributable to the $736,000 of the 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. Selling, general and administrative expenses increased
as a percentage of revenue to 33.9% in 2001 from 29.7% in 2000. 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, PA, corporate
headquarters and the resultant decision to relocate the corporate headquarters
to Horsham, PA. 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. Excluding the one-time charges, selling, general, and
administrative expenses as a percentage of revenue was 32.0% for 2001. The
increase as a percentage of revenue, excluding the one-time charges, was
primarily 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, skiptracing, and legal and
forwarding fees. The effects of the difficult collection environment were
exasperated by diminished consumer payment patterns following the September 11,
2001, terrorist attacks.

                                      -28-
<PAGE>

     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
towards a single, integrated information technology platform.

     Other income (expense). Interest and investment income increased $1.1
million to $3.6 million for 2001 compared to 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%
Convertible Subordinated Notes due 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 $21.5 million,
or 41.6% of income before income tax expense, from $32.0 million, or 41.0% 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.


                                      -29-
<PAGE>


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

     Revenue. Revenue increased $145.6 million, or 31.6%, to $605.9 million in
2000, from $460.3 million in 1999. Our U.S. Operations, Portfolio Management,
and International Operations divisions represented $566.8 million, $13.2 million
and $31.7 million, respectively, of the revenue for 2000. The U.S. Operations'
revenue included $5.8 million of revenue earned on services performed for the
Portfolio Management division that was eliminated upon consolidation. Our U.S.
Operations, Portfolio Management, and International Operations divisions
represented $428.3 million, $2.0 million and $31.0 million, respectively, of the
revenue for 1999. The U.S. Operations' revenue included $981,000 of revenue
earned on services performed for the Portfolio Management division that was
eliminated upon consolidation.

     U.S. Operation's revenue increased $138.5 million, or 32.3%, to $566.8
million in 2000, from $428.3 million in 1999. A full year of revenue from the
acquisitions of Compass International Services Corporation, referred to as
Compass, on August 20, 1999 and Co-Source Corporation, referred to as Co-Source,
on May 21, 1999 represented $42.5 million and $33.5 million of this increase,
respectively. The remainder of 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 $11.2 million, or 571.3%, to $13.2
million in 2000, from $2.0 million in 1999. This increase in the Portfolio
Management's revenue was attributable to an increase in purchases of accounts
receivable.

     International Operation's revenue increased $665,000, or 2.1%, to $31.7
million in 2000, from $31.0 million in 1999. This increase in our International
Operations division's revenue was primarily attributable to the addition of new
clients and growth in business from existing clients. However, the growth was
limited due to the effects of a weak Canadian economy.

     Payroll and related expenses. Payroll and related expenses increased $55.6
million to $293.3 million in 2000, from $237.7 million in 1999, but decreased as
a percentage of revenue to 48.4% from 51.6%.

     The payroll and related expenses of our U.S Operations division increased
$55.8 million to $275.7 million in 2000, from $219.9 million in 1999, but
decreased as a percentage of revenue to 48.6% from 51.4%. This decrease as a
percentage of revenue was partially attributable to the continuing process of
rationalizing staff levels in both our U.S. Operations division's acquired and
existing businesses, as well as an increase in productivity that was achieved
through the expansion of our use of predictive dialing equipment. The remaining
portion of the percentage decrease was the result of spreading the fixed portion
of our payroll cost structure over a larger revenue base.

     The payroll and related expenses of our Portfolio Management division
increased $147,000 to $327,000 in 2000, from $180,000 in 1999, but decreased as
a percentage of revenue to 2.5% from 9.2%. The Portfolio Management division
outsources all of its collection services to the U.S. Operations division and,
therefore, has a relatively small fixed payroll cost structure. The decrease in
the percentage of revenue was attributable to spreading the fixed payroll costs
over a larger revenue base.

     The payroll and related expenses of our International Operations division
decreased $352,000 to $17.2 million in 2000, from $17.6 million in 1999, and
decreased as a percentage of revenue to 54.4% from 56.7%. This decrease as a
percentage of revenue was partially attributable to the reduction of redundant
information technology staff upon the completion of an internal systems
migration. In addition, a portion of the decrease was attributable to the
continuing process of rationalizing staff levels, as well as an increase in
productivity that was achieved through the expansion of our use of predictive
dialing equipment.


                                      -30-
<PAGE>

     Selling, general and administrative expenses. Selling, general and
administrative expenses increased $51.7 million to $179.9 million in 2000 from
$128.2 million in 1999. Selling, general and administrative expenses increased
as a percentage of revenue to 29.7% in 2000 from 27.9% in 1999. The increase as
a percentage of revenue was primarily attributable to increased information
technology costs associated with the expansion of our use of predictive dialing
equipment. However, increased productivity more than offset the increase in
selling, general, and administrative expenses through a reduction in payroll and
related expenses. The remaining increase was primarily attributable to start-up
costs incurred as a result of new client relationships, further integration of
information technology infrastructure and increased collection costs attributed
to certain adverse changes in the payment patterns of consumers which made
collections more difficult in the second half of 2000.

     Depreciation and amortization. Depreciation and amortization increased to
$32.4 million in 2000 from $21.8 million in 1999. Of this increase, $3.0 million
was attributable to a full year of depreciation related to the Compass
acquisition and $1.6 million was attributable to a full year of depreciation
related to the Co-Source acquisition. The remaining $6.0 million increase
consisted of depreciation resulting from normal capital expenditures made in the
ordinary course of business during 2000. These capital expenditures included
purchases associated with our planned migration towards a single, integrated
information technology platform, and predictive dialers and other equipment
required to expand our infrastructure to handle future growth.

     Non-recurring acquisition costs. In the first quarter of 1999, we incurred
$4.6 million of nonrecurring acquisition costs in connection with the
acquisition of JDR. These costs consisted primarily of investment banking fees,
legal and accounting fees, and printing costs.

     Other income (expense). Interest and investment income increased $1.1
million to $2.5 million for 2000 over the comparable period in 1999. This
increase was primarily attributable to an increase in funds held on behalf of
clients and the implementation of our new cash investment strategy. Interest
expense increased to $25.9 million for the year ended December 31, 2000, from
$18.3 million for the comparable period in 1999. The increase was primarily
attributable to our financing the May 1999 Co-Source acquisition with borrowings
of $122.7 million under the revolving credit facility. Additionally, a portion
of the increase was attributable to borrowings under the revolving credit
facility of $29.5 million that were used to repay debt that was assumed as a
result of the August 1999 acquisition of Compass. The remainder of the increase
was attributable to an increase in interest rates that was partially offset by
repayments of debt made during 2000. In addition, we received insurance proceeds
of approximately $1.3 million during 2000 for flood and telephone outages
experienced in the fourth quarter of 1999.

     Income tax expense. Income tax expense for 2000 increased to $32.0 million,
or 41.0% of income before income tax expense, from $22.8 million, or 44.6% of
income before income tax expense, for 1999. The decrease in the effective tax
rate was primarily attributable to the nondeductible portion of the $4.6 million
of nonrecurring acquisition costs incurred during the first quarter of 1999 in
connection with the JDR acquisition. A portion of the decrease was attributable
to higher revenues diluting the impact of the nondeductible goodwill related to
certain acquisitions. In addition, as the result of tax savings initiatives
implemented during 2000, we were able to utilize, on a one-time basis,
previously generated tax benefits of $850,000.



                                      -31-
<PAGE>


     Accretion of preferred stock to redemption value. The accretion of
preferred stock to redemption value relates to JDR's preferred stock that was
outstanding prior to its conversion into our common stock on March 31, 1999.
This non-cash accretion represents the periodic amortization of the difference
between the original carrying amount and the mandatory redemption amount.

     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, as
compared to net income of $1.1 million for the year ended December 31, 1999. 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.

     Quarterly Results of Operations (Unaudited)

     The following table sets forth selected historical financial data for the
calendar quarters of 2000 and 2001. 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>
                                                                      2000 Quarters Ended
                                                    ------------------------------------------------------
                                                      Mar. 31       June 30       Sept. 30       Dec. 31
                                                    -----------   -----------   -----------    -----------
                                                         (Amounts in thousands, except per share data)
<S>                                                  <C>             <C>           <C>            <C>
Revenue                                              $  143,998      $ 154,048     $ 153,858      $ 153,980
Income from operations                                   24,249         26,098        25,835         24,126
Income from continuing operations                        11,393         11,623        11,547         11,577
Loss from discontinued operations, net of taxes          21,718             71         2,365            -
Net (loss) income                                       (10,325)        11,552         9,182         11,577

Income from continuing operations per share:
    Basic                                                $ 0.45         $ 0.45        $ 0.45         $ 0.45
    Diluted                                              $ 0.44         $ 0.45        $ 0.45         $ 0.45

Net (loss) income per share:
    Basic                                               $ (0.40)        $ 0.45        $ 0.36         $ 0.45
    Diluted                                             $ (0.40)        $ 0.45        $ 0.36         $ 0.45


<CAPTION>
                                                                      2001 Quarters Ended
                                                    ------------------------------------------------------
                                                      Mar. 31       June 30       Sept. 30       Dec. 31
                                                    -----------   -----------   -----------    -----------
                                                         (Amounts in thousands, except per share data)
<S>                                                    <C>           <C>           <C>            <C>
Revenue                                                $ 171,029     $ 183,275     $ 174,347      $ 172,855
Income from operations                                    28,040        16,013        10,241         20,683
Net income                                                12,277         4,449           952          8,191

Net income per share:
    Basic                                                $ 0.48         $ 0.17        $ 0.04         $ 0.32
    Diluted                                              $ 0.47         $ 0.17        $ 0.04         $ 0.31

</TABLE>


                                      -32-
<PAGE>


     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.

     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, public
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 $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.

     Cash provided by operating activities was $52.3 million in 2000, compared
to $47.7 million in 1999. The increase in cash provided by operations was
primarily due to the increase in income from continuing operations to $46.1
million in 2000 from $28.3 million in 1999 and the increase in non-cash charges,
depreciation and amortization, to $32.4 million in 2000 from $21.8 million in
1999. A portion of these increases was offset by the $14.8 million increase in
accounts receivable and the $8.2 million decrease in other long-term
liabilities.


                                      -33-
<PAGE>


     Cash Flows from Investing Activities. 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.

     Cash used in investing activities was $69.6 million in 2000, compared to
$170.0 million in 1999. The decrease was due primarily to cash paid in 1999 to
acquire Co-Source and Compass. We financed these acquisitions with borrowings
under our revolving credit agreement. This increase was partially offset by a
$25.3 million increase in the purchase of delinquent accounts receivable.

     Capital expenditures were $27.9 million, $31.0 million, and $29.6 million
in 2001, 2000, and 1999, respectively.

     Cash Flows from Financing Activities. 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 were 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.

     Cash used in financing activities was $19.8 million in 2000, compared to
cash provided by financing activities of $149.7 million in 1999. During 2000, we
did not have any significant sources of cash from financing activities and we
repaid $19.0 million of borrowings under our revolving credit agreement. During
1999, our primary source of cash from financing activities was borrowings under
the revolving credit facility that were used to repay the existing debt under
the JDR credit facility and to finance the acquisition of Co-Source.

     Credit Facility. We have 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, that originally provided
for borrowings up to $350 million, structured as a revolving credit facility.
The balance under the revolving credit facility shall become due on May 20, 2004
(the "Maturity Date"). The borrowing capacity of the revolving credit facility
is subject to mandatory reductions including a quarterly reduction of $6.3
million on March 31, 2001, subsequent quarterly reductions of $5.2 million until
the Maturity Date, and 50 percent of the net proceeds received from any offering
of debt or equity. As of December 31, 2001, there was $58.3 million available
under the revolving credit facility.

     At our option, the borrowings bear interest at a rate equal to either
Citizens Bank's prime rate plus a margin of 0.25% to 0.50%, 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 4.75% at December 31, 2001), or the London
InterBank Offered Rate, also referred to as LIBOR, plus a margin of 1.25% to
2.25% depending on our consolidated funded debt to EBITDA ratio (LIBOR was 1.88%
at December 31, 2001).

     In connection with the Creditrust Merger, we amended our revolving credit
facility to allow us to provide NCO Portfolio with a $50 million revolving line
of credit in the form of a sub-facility under our existing revolving credit
facility. The borrowing capacity of the sub-facility is subject to mandatory
reductions including four quarterly reductions of $2.5 million beginning March
31, 2002 through December 31, 2002. Effective March 31, 2003, quarterly
reductions of $3.75 million are required until the earlier of the Maturity Date
or the date at which the sub-facility is reduced to $25 million. At our option,
the borrowings bear interest at a rate equal to either Citizens Bank's prime
rate plus a margin of 1.25% to 1.50% that is determined quarterly based upon our
consolidated funded debt to EBITDA ratio, or LIBOR plus a margin of 2.25% to
3.25% depending on our consolidated funded debt to EBITDA ratio. As of December
31, 2001, there was $2.9 million available under the NCO Portfolio sub-facility.


                                      -34-
<PAGE>


     During February 2002, we entered into interest rate swap agreements to
reduce the impact of changes in LIBOR on a portion of the debt borrowed from our
revolving credit facility. The interest rate swap agreements fixed LIBOR at a
rate of 2.82%. The initial notional amount of the interest rate swap agreements
is $102.0 million. The notional amount of the interest rate swap agreements is
subject to scheduled quarterly reductions. The interest rate swap agreements
expire in September 2003.

     Borrowings under the revolving credit facility are collateralized by
substantially all of our assets, including the common stock of NCO Portfolio,
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, 2001, 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% Convertible Subordinated Notes due 2006
("Notes") in a private placement pursuant to Rule 144A and Regulation S under
the Securities Act of 1933. The Notes are convertible into 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% of the net
proceeds from the Notes permanently reduced the maximum borrowings available
under the revolving credit facility.

     Off-Balance Sheet Arrangements

     NCO Portfolio owns a 100% retained residual interest in an investment in
securitization, Creditrust SPV 98-2, LLC, which was acquired as part of the
merger with Creditrust. This transaction qualified for gain on sale accounting
when the purchased accounts receivable were originally securitized. This
securitization issued a note that is due in January 2004 and had a balance of
$5.5 million as of December 31, 2001. 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, the investment in securitization was $7.3
million, comprised of $4.0 million in present value of discounted residual cash
flows plus $3.3 million in cash reserves. The investment accrues non-cash income
at a rate of 8% 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. NCO
Portfolio recorded $211,000 of income on this investment for the period from
February 21, 2001 to December 31, 2001. The 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.

     NCO Portfolio has a 50% 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
various other small balance accounts receivable and is accounted for using the
equity method of accounting. As of December 31, 2001, both Joint Venture members
have each invested $574,000 for the purchase of accounts receivable. Included in
the Statement of Income, in "other income," was $118,000 representing NCO
Portfolio's 50% share of operating income from this unconsolidated subsidiary
for the year ended December 31, 2001. The Joint Venture has access to capital
through a specialty finance lender who, at its option, lends 90% of the value of
the purchased accounts receivable to the Joint Venture. The debt is
cross-collateralized by all static pools in which the lender participates, and
is non-recourse to NCO Portfolio.


                                      -35-
<PAGE>


     Stock Repurchase Plan

     In September 2001, our Board of Directors and our lender group authorized
the repurchase of up to $15.0 million of our currently issued common stock,
subject to a limit of one million shares. The share purchases may be made from
time to time, depending on market conditions, until March 31, 2002. Shares may
be purchased either in the open market or through privately negotiated
transactions. The repurchase program did not obligate us to acquire any specific
number of shares and could be discontinued at any time. As of December 31, 2001,
we had not repurchased any shares under the stock repurchase plan.

     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. 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.

     Goodwill

     Our balance sheet includes amounts designated as intangibles, which
predominantly consist of "goodwill." Goodwill represents the excess of purchase
price over the fair market value of the net assets of the acquired businesses
based on their respective fair values at the date of acquisition.

     Effective January 1, 2002, we are required to adopt the Financial
Accounting Standards Board's ("FASB") SFAS No. 142, "Goodwill and Other
Intangibles. "FASB 142 concluded that purchased goodwill would not be amortized
but would be reviewed for impairment when certain events indicate that the
goodwill of a reporting unit is impaired. The impairment test will use a
fair-value based approach, whereby if the implied fair value of a reporting
unit's goodwill is less than its carrying amount, goodwill would be considered
impaired.

     As of December 31, 2001, our balance sheet included goodwill that
represented 55.3% of total assets and 124.3% of shareholders' equity. During the
year ended December 31, 2001, our statement of income included $15.7 million of
goodwill amortization charges that will not be incurred after the adoption of
FASB 142 on January 1, 2002. If the goodwill is deemed to be impaired under FASB
142, we may need to take a charge to earnings to write-down the goodwill to its
fair value.

                                      -36-
<PAGE>



     Impact of Recently Issued and Proposed Accounting Pronouncements

     In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No.s 141 and 142, "Business Combinations" and "Goodwill and Other Intangibles."
FASB 141 requires all business combinations initiated after July 1, 2001, to be
accounted for using the purchase method. FASB 142 concluded that purchased
goodwill would not be amortized but would be reviewed for impairment when
certain events indicate that the goodwill of a reporting unit is impaired. The
impairment test will use a fair-value based approach, whereby if the implied
fair value of a reporting unit's goodwill is less than its carrying amount,
goodwill would be considered impaired. FASB 142 does not require that goodwill
be tested for impairment upon adoption unless an indicator of impairment exists
at that date. However, it would require that a benchmark assessment be performed
for all existing reporting units within six months of the date of adoption. The
new goodwill model applies not only to goodwill arising from acquisitions
completed after the effective date, but also to goodwill previously recorded. We
adopted FASB 142 in the first quarter of 2002. We are in the process of
determining the impact of these pronouncements on our financial position and
results of operations.

     During 2001, the Accounting Staff Executive Committee approved an exposure
draft on a proposed Statement of Position, "Accounting for Discounts Related to
Credit Quality" ("SOP"). The proposed SOP would limit the revenue that may be
accrued to the excess of the estimate of expected future cash flows over a
static pool'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 ("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 static pool 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
static pool'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.


                                      -37-

<PAGE>

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 14(a) of this
Report on Form 10-K and begin on page F-1.

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

     Previously reported.


                                      -38-
<PAGE>

                                    PART III

Item 10.      Directors and Executive Officers of the Registrant.

     Incorporated by reference from the Company's Proxy Statement relating to
the 2002 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 2002 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.

     Incorporated by reference from the Company's Proxy Statement relating to
the 2002 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 2002 Annual Meeting of Shareholders to be filed in accordance with General
Instruction G(3) to Form 10-K.



                                      -39-
<PAGE>

                                     PART IV

Item 14.      Exhibits, Financial Statements and Reports on Form 8-K.

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

         1. List of Consolidated Financial Statements. The following
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:

     Report of Independent Auditors
     Report of Independent Accountants
     Consolidated Balance Sheets as of December 31, 2000 and 2001
     Consolidated Statements of Income for each of the three years
        in the period ended December 31, 2001
     Consolidated Statements of Redeemable Preferred Stock and Shareholders'
        Equity for each of the three years in the period ended December 31, 2001
     Consolidated Statements of Cash Flows for each of the three years
        in the period ended December 31, 2001
     Notes to Consolidated Financial Statements
     Consolidating Statement of Income for the year ended December 31, 2001
        (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 "*":



                                      -40-
<PAGE>

<TABLE>
<CAPTION>
     Exhibit No.                                                Description
--------------------     ----------------------------------------------------------------------------------------
<S>                      <C>
        2.1(5)           Agreement and Plan of Reorganization, dated November 2, 1998, among JDR Holdings, Inc.,
                         NCO Group, Inc., and JDR Acquisition Inc. NCO will furnish to the Securities and
                         Exchange Commission a copy of any omitted schedules upon request.
        2.2(5)           Agreement and Plan of Merger, dated November 2, 1998, among JDR Holdings, Inc., NCO
                         Group, Inc. and JDR Acquisition Inc. NCO will furnish to the Securities and Exchange
                         Commission a copy of any omitted schedules upon request.
        2.3(7)           Stock Purchase Agreement dated April 17, 1999, among Co-Source Corporation, its
                         shareholders and option holders, H.I.G.-DCI Investments, L.P. and NCO Group,
                         Inc. NCO will furnish to the Securities and Exchange Commission a copy of any omitted
                         schedules upon request.
        2.4(8)           Agreement and Plan of Merger dated May 12, 1999, by and among Compass International
                         Services Corporation, NCO Group, Inc. and Cardinal Acquisition Corporation. NCO will
                         furnish to the Securities and Exchange Commission a copy of any omitted schedules upon
                         request.
        2.5(13)          Asset Purchase Agreement dated October 26, 2000, among TRC Holdings, Inc., and NCO
                         Group, Inc. and its wholly owned subsidiary, NCO Teleservices, Inc. NCO will furnish to
                         the Securities and Exchange Commission a copy of any omitted schedules upon request.
        2.6(13)          Asset Purchase Agreement dated September 29, 2000, among Creative Marketing Strategies,
                         Inc. and NCO Group, Inc. and its wholly owned subsidiary, NCO Teleservices, Inc. NCO
                         will furnish to the Securities and Exchange Commission a copy of any omitted schedules
                         upon request.
        2.7(12)          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.
        3.1(1)           The Company's amended and restated Articles of Incorporation.
        3.2(2)           Amendment to Amended and Restated Articles of Incorporation.
        3.3(15)          Amendment to Amended and Restated Articles of Incorporation.
        3.4(4)           The Company's amended and restated Bylaws.
        4.1(1)           Specimen of Common Stock Certificate.
        4.2(7)           Form of warrant to purchase NCO Group, Inc. common stock.
        4.3(14)          Purchase Agreement dated as of March 29, 2001, between NCO Group, Inc. and Deutsche Bank
                         Alex. Brown Inc.
        4.4(14)          Indenture dated as of April 4, 2001, between NCO Group, Inc. and Bankers Trust Company,
                         as Trustee
        4.5(14)          Registration Rights Agreement dated as of April 4, 2001, between NCO Group, Inc. and
                         Deutsche Bank Alex. Brown Inc.
        4.6(14)          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.
</TABLE>


                                      -41-
<PAGE>

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

       *10.2(9)          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(9)          Addendum, dated January 1, 1999, to the Employment Agreement, dated September 1, 1996,
                         between the Company and Steven L. Winokur.
       *10.5(13)         Employment Agreement, dated June 5, 1998, between the Company and Joshua Gindin.
       *10.6(13)         Addendum, dated January 1, 1999, to the Employment Agreement, dated June 5, 1998,
                         between the Company and Joshua Gindin.
       *10.7(11)         Employment Agreement, dated May 2, 1998, between the Company and Paul E. Weitzel, Jr.
       *10.8(11)         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.
       *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(11)         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(9)          Transfer Agreement dated January 26, 1998, among NCO, CRW Financial, Inc. and Swiss Bank
                         Corporation.
      *10.19(6)          Compass International Services Corporation Employee Incentive Compensation Plan
      *10.20(10)         JDR 1997 Option Plan

</TABLE>


                                      -42-
<PAGE>

<TABLE>
<CAPTION>
     Exhibit No.                        Description
--------------------     -------------------------------------------------------
<S>                      <C>
       10.21(13)         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.
       10.22(13)         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.
       10.23(13)         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.
       10.24(13)         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.
       10.25(13)         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.
       10.26(13)         Credit Agreement, dated as of February 20, 2001, by and
                         between NCO Portfolio Management, Inc., as Borrower,
                         and NCO Group, Inc., as Lender.
       10.27(13)         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.
       10.28(13)         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.
</TABLE>


                                      -43-

<PAGE>

<TABLE>
<CAPTION>
     Exhibit No.                        Description
--------------------     -------------------------------------------------------
<S>                      <C>
       *10.29            Employment Agreement, dated January 31, 2002, between
                         the Company and Stephen W. Elliott.
       *10.30            Employment Agreement, dated November 21, 2001, between
                         the Company and Steven Leckerman.
        10.31            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.
        10.32            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.
        21.1             Subsidiaries of the Registrant.
        23.1             Consent of Ernst & Young LLP.
        23.2             Consent of PricewaterhouseCoopers LLP.
</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 Registration Statement on Form
      S-4 (Registration No. 333-73087), as amended, filed with the Securities
      and Exchange Commission on February 26, 1998.


                                      -44-
<PAGE>


(6)   Incorporated by reference to Compass International Service Corporation's
      Registration Statement on Form S-1 (Registration No. 333-50021), as
      amended, filed with the Securities and Exchange Commission on April 13,
      1998.

(7)   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.

(8)   Incorporated by reference to the Company's Proxy/Registration Statement on
      Form-S-4 (Registration No. 333-83229) filed with the Securities and
      Exchange Commission on July 20, 1999.

(9)   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.

(10)  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
      April 15, 1999.

(11)  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.

(12)  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.

(13)  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.

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

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


         (b). Reports on Form 8-K

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

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

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



                                      -45-
<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 19, 2002              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 in the capacities and on the date indicated.

<TABLE>
<CAPTION>

              SIGNATURE                                       TITLE(S)                                DATE
              ---------                                       --------                                ----
<S>                                         <C>                                              <C>
/s/ Michael J. Barrist                      Chairman of the Board, President and Chief       March 19, 2002
-------------------------------             Executive Officer (principal executive
Michael J. Barrist                          officer)

/s/ Steven L. Winokur                       Executive Vice President, Finance; Chief         March 19, 2002
-------------------------------             Financial Officer; and Treasurer (principal
Steven L. Winokur                           financial and accounting officer)

/s/ William C. Dunkelberg                   Director                                         March 19, 2002
-------------------------------
William C. Dunkelberg

/s/ Charles C. Piola, Jr.                   Director                                         March 19, 2002
-------------------------------
Charles C. Piola, Jr.

/s/ Leo J. Pound                            Director                                         March 19, 2002
-------------------------------
Leo J. Pound

/s/ Eric S. Siegel                          Director                                         March 19, 2002
-------------------------------
Eric S. Siegel

/s/ Allen F. Wise                           Director                                         March 19, 2002
-------------------------------
Allen F. Wise

/s/ Stuart Wolf                             Director                                         March 19, 2002
-------------------------------
Stuart Wolf

</TABLE>



                                      -46-
<PAGE>


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE


Financial Statements:

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

Report of Independent Accountants............................................F-3

Consolidated Balance Sheets as of December 31, 2000 and 2001 ................F-4

Consolidated Statements of Income for each of the three years
     in the period ended December 31, 2001...................................F-5

Consolidated Statements of Redeemable Preferred Stock and
     Shareholders' Equity for each of the three years
     in the period ended December 31, 2001...................................F-6

Consolidated Statements of Cash Flows for each of the three years
     in the period ended December 31, 2001...................................F-7

Notes to Consolidated Financial Statements...................................F-8

Consolidating Statement of Income for the year ended
     December 31, 2001 (Unaudited)..........................................F-29

Financial Statement Schedule:

For the years ended December 31, 1999, 2000 and 2001:

    II - Valuation and Qualifying Accounts...................................S-1


                                      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, 2000 and 2001, and the related consolidated statements of
income, redeemable preferred stock and shareholders' equity, and cash flows for
each of the two years in the period ended December 31, 2001. Our audits also
included the financial statement schedule for the years ended December 31, 2000
and 2001 listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NCO Group, Inc. at
December 31, 2000 and 2001, and the consolidated results of its operations and
its cash flows for each of the two years in the period ended December 31, 2001,
in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule for the
years ended December 31, 2000 and 2001, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

We also audited the reclassification of the 1999 consolidated statements of
income and cash flows as a result of the discontinued operations described in
Note 3. In our opinion, the reclassification adjustments are appropriate and
have been properly applied.


                                        /s/ Ernst & Young LLP

Philadelphia, Pennsylvania
February 12, 2002




                                      F-2
<PAGE>


                        Report of Independent Accountants


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

In our opinion the consolidated statements of income, redeemable preferred stock
and shareholders' equity and of cash flows present fairly, in all material
respects, the results of the operations and cash flows of NCO Group, Inc. and
its subsidiaries for the year ended December 31, 1999 prior to their restatement
for discontinued operations (and, therefore, are not presented herein) in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, Schedule II - Valuation and Qualifying
Accounts (the financial statement schedule) presents fairly, in all material
respects, the information set forth therein for the year ended December 31, 1999
prior to its restatement for discontinued operations (and, therefore, is not
presented herein) when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule (prior to their restatement) based on our audits. The consolidated
financial statements and financial statement schedule give retroactive effect to
the merger of JDR Holdings, Inc. on March 31, 1999 in a transaction accounted
for as a pooling of interests, as described in Note 4 to the consolidated
financial statements. We conducted our audits of these statements (prior to
restatement) in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Philadelphia, PA
February 16, 2000




                                      F-3
<PAGE>

Part 1 - Financial Information
Item 1 - Financial Statements

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

<TABLE>
<CAPTION>
                                                                               December 31,
                                                                         ----------------------
                       ASSETS                                               2000         2001
                                                                         ---------    ---------
<S>                                                                      <C>          <C>
Current assets:
     Cash and cash equivalents                                           $  13,490    $  32,161
     Restricted cash                                                          --          1,125
     Accounts receivable, trade, net of allowance for
          doubtful accounts of $7,080 and $5,311, respectively              93,971       99,055
     Purchased accounts receivable, current portion                         10,861       47,341
     Deferred income taxes                                                   2,287        8,336
     Other current assets                                                    7,925       14,784
                                                                         ---------    ---------
          Total current assets                                             128,534      202,802

Funds held on behalf of clients

Property and equipment, net                                                 66,401       71,457

Other assets:
     Intangibles, net of accumulated amortization                          536,750      522,090
     Purchased accounts receivable, net of current portion                  23,614       92,660
     Notes receivable                                                       18,250       18,250
     Other assets                                                           10,457       23,766
                                                                         ---------    ---------
           Total other assets                                              589,071      656,766
                                                                         ---------    ---------
Total assets                                                             $ 784,006    $ 931,025
                                                                         =========    =========

              LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Long-term debt, current portion                                     $     642    $  21,922
     Income taxes payable                                                    1,328          176
     Accounts payable                                                       12,360       12,164
     Accrued expenses                                                       19,168       39,382
     Accrued compensation and related expenses                              15,304       16,785
                                                                         ---------    ---------
          Total current liabilities                                         48,802       90,429

Funds held on behalf of clients

Long-term liabilities:
     Long-term debt, net of current portion                                303,920      357,868
     Deferred income taxes                                                  40,549       42,855
     Other long-term liabilities                                             4,309        4,565

Minority interest                                                             --         21,213

Shareholders' equity:
     Preferred stock, no par value, 5,000 shares authorized,
         no shares issued and outstanding                                     --           --
     Common stock,  no par value, 37,500 and 50,000 shares authorized,
         25,627 and 25,816 shares issued and outstanding, respectively     316,372      320,993
     Other comprehensive loss                                               (1,525)      (4,346)
     Retained earnings                                                      71,579       97,448
                                                                         ---------    ---------
           Total shareholders' equity                                      386,426      414,095
                                                                         ---------    ---------
Total liabilities and shareholders' equity                               $ 784,006    $ 931,025
                                                                         =========    =========
</TABLE>

                            See accompanying notes.

                                      F-4
<PAGE>

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


<TABLE>
<CAPTION>

                                                               For the Years Ended December 31,
                                                             -----------------------------------
                                                               1999         2000         2001
                                                             ---------    ---------    ---------
<S>                                                          <C>          <C>          <C>
Revenue                                                      $ 460,311    $ 605,884    $ 701,506

Operating costs and expenses:
     Payroll and related expenses                              237,709      293,292      350,634
     Selling, general, and administrative expenses             128,177      179,924      237,690
     Depreciation and amortization expense                      21,805       32,360       38,205
     Nonrecurring acquisition costs                              4,601         --           --
                                                             ---------    ---------    ---------
          Total operating costs and expenses                   392,292      505,576      626,529
                                                             ---------    ---------    ---------
Income from operations                                          68,019      100,308       74,977

Other income (expense):
     Interest and investment income                              1,363        2,503        3,627
     Interest expense                                          (18,262)     (25,942)     (26,962)
     Other income                                                 --          1,313         --
                                                             ---------    ---------    ---------
          Total other income (expense)                         (16,899)     (22,126)     (23,335)
                                                             ---------    ---------    ---------
Income before income tax expense                                51,120       78,182       51,642

Income tax expense                                              22,821       32,042       21,463
                                                             ---------    ---------    ---------

Income from continuing operations before minority interest      28,299       46,140       30,179

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

Income from continuing operations                               28,299       46,140       25,869

Accretion of preferred stock to redemption value                  (377)        --           --
                                                             ---------    ---------    ---------

Income from continuing operations applicable to
  common shareholders                                           27,922       46,140       25,869

Discontinued operations, net of income taxes:
     Income (loss) from discontinued operations                  1,067         (975)        --
     Loss on disposal of discontinued operations                  --        (23,179)        --
                                                             ---------    ---------    ---------

Net income applicable to common shareholders                 $  28,989    $  21,986    $  25,869
                                                             =========    =========    =========

Income from continuing operations applicable to
  common shareholders per share:
     Basic                                                   $    1.22    $    1.80    $    1.00
     Diluted                                                 $    1.17    $    1.79    $    0.99

Net income applicable to common shareholders per share:
     Basic                                                   $    1.27    $    0.86    $    1.00
     Diluted                                                 $    1.22    $    0.85    $    0.99

Weighted average shares outstanding:
     Basic                                                      22,873       25,587       25,773
     Diluted                                                    23,799       25,842       28,897
</TABLE>

                            See accompanying notes.

                                      F-5
<PAGE>

                                 NCO GROUP, INC.
              Consolidated Statements of Redeemable Preferred Stock
                            and Shareholders' Equity
              For the Years Ended December 31, 1999, 2000 and 2001
                             (Amounts in thousands)
<TABLE>
<CAPTION>
                                                                                          Shareholders' Equity
                                                                                       ---------------------------
                                                       Redeemable Preferred Stock            Preferred Stock
                                                     -------------------------------   ---------------------------
                                                        Number of                        Number of
                                                         Shares           Amount           Shares        Amount
                                                     ---------------  --------------   --------------  -----------
<S>                                                  <C>              <C>              <C>             <C>
 Balance, January 1, 1999                                       785       $  11,882              149      $ 1,853

 Issuance of common stock                                         -               -                -            -
 Issuance of warrants in conjunction with
   acquisitions                                                   -               -                -            -
 Accretion of preferred to redemption value                      93             349               15           28
 Exchange of redeemable preferred stock
   for common stock                                            (878)        (12,231)               -            -
 Exchange of convertible preferred stock
   for common stock                                               -               -             (164)      (1,881)
 Retirement of treasury stock                                     -               -                -            -
 Comprehensive income, net of tax:
   Net income                                                     -               -                -            -
   Other comprehensive income:
     Foreign currency translation adjustment                      -               -                -            -

       Total comprehensive income
                                                     ---------------  --------------   --------------  -----------

 Balance, December 31, 1999                                       -               -                -            -

 Issuance of common stock                                         -               -                -            -
 Comprehensive income, net of tax:
   Net income                                                     -               -                -            -
   Other comprehensive income:
     Foreign currency translation adjustment                      -               -                -            -

       Total comprehensive income
                                                     ---------------  --------------   --------------  -----------

 Balance, December 31, 2000                                       -               -                -            -

 Issuance of common stock                                         -               -                -            -
 Comprehensive income, net of tax:
   Net income                                                     -               -                -            -
   Other comprehensive income:
     Foreign currency translation adjustment                      -               -                -            -

       Total comprehensive income
                                                     ---------------  --------------   --------------  -----------

Balance, December 31, 2001                                        -       $       -                -      $     -
                                                     ===============  ==============   ==============  ===========

<CAPTION>
                                                                                    Shareholders' Equity
                                                     ----------------------------------------------------------------------
                                                              Common Stock                       Treasury Stock
                                                      --------------------------------   ----------------------------------
                                                        Number of                           Number of
                                                          Shares           Amount             Shares            Amount
                                                      --------------  ----------------   ----------------  ----------------
<S>                                                   <C>             <C>                <C>               <C>
 Balance, January 1, 1999                                    19,744         $ 183,285                356          $ (4,108)

 Issuance of common stock                                     4,747           119,387                  -                 -
 Issuance of warrants in conjunction with
   acquisitions                                                   -             1,925                  -                 -
 Accretion of preferred to redemption value                       -                 -                  -                 -
 Exchange of redeemable preferred stock
   for common stock                                             878            12,231                  -                 -
 Exchange of convertible preferred stock
   for common stock                                             164             1,881                  -                 -
 Retirement of treasury stock                                     -            (4,108)              (356)            4,108
 Comprehensive income, net of tax:
   Net income                                                     -                 -                  -                 -
   Other comprehensive income:
     Foreign currency translation adjustment                      -                 -                  -                 -

       Total comprehensive income
                                                      --------------  ----------------   ----------------  ----------------

 Balance, December 31, 1999                                  25,533           314,601                  -                 -

 Issuance of common stock                                        94             1,771                  -                 -
 Comprehensive income, net of tax:
   Net income                                                     -                 -                  -                 -
   Other comprehensive income:
     Foreign currency translation adjustment                      -                 -                  -                 -

       Total comprehensive income
                                                      --------------  ----------------   ----------------  ----------------

 Balance, December 31, 2000                                  25,627           316,372                  -                 -

 Issuance of common stock                                       189             4,621                  -                 -
 Comprehensive income, net of tax:
   Net income                                                     -                 -                  -                 -
   Other comprehensive income:
     Foreign currency translation adjustment                      -                 -                  -                 -

       Total comprehensive income
                                                      --------------  ----------------   ----------------  ----------------

Balance, December 31, 2001                                    25,816        $ 320,993                  -          $      -
                                                      ==============  =================  ================  ================

</TABLE>

<PAGE>

[RESTUBBED TABLE]
<TABLE>
<CAPTION>

                                                                                  Shareholders' Equity
                                                      -------------------------------------------------------------------------
                                                             Other
                                                         Comprehensive       Retained        Comprehensive
                                                         Income (Loss)       Earnings           Income               Total
                                                      -------------------  -------------  -------------------   ---------------
<S>                                                   <C>                  <C>            <C>                   <C>
 Balance, January 1, 1999                                       $ (2,169)      $ 20,604                              $ 199,465

 Issuance of common stock                                              -              -                                119,387
 Issuance of warrants in conjunction with
   acquisitions                                                        -              -                                  1,925
 Accretion of preferred to redemption value                            -           (377)                                  (349)
 Exchange of redeemable preferred stock
   for common stock                                                    -              -                                 12,231
 Exchange of convertible preferred stock
   for common stock                                                    -              -                                      -
 Retirement of treasury stock                                          -              -                                      -
 Comprehensive income, net of tax:
   Net income                                                          -         29,366             $ 29,366            29,366
   Other comprehensive income:
     Foreign currency translation adjustment                       2,863              -                2,863             2,863
                                                                                          -------------------
       Total comprehensive income                                                                   $ 32,229
                                                      -------------------  -------------  ===================   ---------------

 Balance, December 31, 1999                                          694         49,593                                364,888

 Issuance of common stock                                              -              -                                  1,771
 Comprehensive income, net of tax:
   Net income                                                          -         21,986             $ 21,986            21,986
   Other comprehensive income:
     Foreign currency translation adjustment                      (2,219)             -               (2,219)           (2,219)
                                                                                          -------------------
       Total comprehensive income                                                                   $ 19,767
                                                      -------------------  -------------  ===================   ---------------

 Balance, December 31, 2000                                       (1,525)        71,579                                386,426

 Issuance of common stock                                              -              -                                  4,621
 Comprehensive income, net of tax:
   Net income                                                          -         25,869             $ 25,869            25,869
   Other comprehensive income:
     Foreign currency translation adjustment                      (2,821)             -               (2,821)           (2,821)
                                                                                          -------------------
       Total comprehensive income                                                                   $ 23,048
                                                      -------------------  -------------  ===================   ---------------

Balance, December 31, 2001                                      $  (4,346)     $ 97,448                              $ 414,095
                                                      ===================  =============                        ===============


</TABLE>


                            See accompanying notes.




                                       F-6

<PAGE>


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

<TABLE>
<CAPTION>

                                                                                            For the Years Ended December 31,
                                                                          --------------------------------------------------------
                                                                               1999                2000                2001
                                                                          -----------------   ----------------    ----------------
<S>                                                                      <C>                 <C>                 <C>
Cash flows from operating activities:
  Income from continuing operations                                             $ 28,299           $ 46,140            $ 25,869
  Adjustments to reconcile income from continuing operations
    to net cash provided by continuing operating activities:
      Depreciation                                                                 8,342             15,180              20,142
      Amortization of intangibles                                                 13,463             17,180              18,063
      Net loss on property and equipment disposed of in connection
        with the flood/corporate headquarters relocation                               -                  -                 827
      Write-off of deferred financing costs                                          353                  -                   -
      Provision for doubtful accounts                                              2,553              5,906               4,250
      Impairment of purchased accounts receivable                                      -                  -               2,738
      Minority interest                                                                -                  -               4,310
      Compensation expense on stock options granted                                   34                  -                   -
      Changes in operating assets and liabilities, net of acquisitions:
          Restricted cash                                                              -                  -               2,555
          Accounts receivable, trade                                             (14,906)           (29,696)            (10,341)
          Deferred income taxes                                                   16,980             15,480              10,635
          Other assets                                                            (1,496)            (5,293)             (7,935)
          Accounts payable and accrued expenses                                   (6,067)               977              14,733
          Income taxes payable                                                    (1,644)            (9,568)               (252)
          Other long-term liabilities                                              1,711             (6,511)                256
                                                                        -----------------   ----------------    ----------------
             Net cash provided by continuing operating activities                 47,622             49,795              85,850

          Net cash provided by discontinued operating activities                     120              2,487                   -
                                                                        -----------------   ----------------    ----------------
             Net cash provided by operating activities                            47,742             52,282              85,850

Cash flows from investing activities:
  Purchases of accounts receivable                                                (7,660)           (32,961)            (50,621)
  Collections applied to principal of purchased accounts receivable                2,538              5,084              35,284
  Purchases of property and equipment                                            (29,631)           (31,042)            (27,940)
  Insurance proceeds from involuntary conversion of
    property and equipment                                                             -                  -                 560
  Investment in consolidated subsidiary by minority interest                           -                  -               2,320
  Net cash paid for pre-acquisition liabilities and
    acquisition related costs                                                   (135,237)           (10,665)            (11,077)
                                                                        -----------------   ----------------    ----------------
             Net cash used in investing activities                              (169,990)           (69,584)            (51,474)

Cash flows from financing activities:
  Repayment of notes payable                                                      (1,574)            (1,934)            (21,869)
  Repayment of acquired notes payable                                            (42,000)                 -             (20,084)
  Borrowings under revolving credit agreement                                    190,715                  -              65,230
  Repayment of borrowings under revolving credit agreement                        (4,000)           (19,000)           (162,350)
  Payment of fees to acquire debt                                                 (3,565)                 -              (5,138)
  Proceeds from issuance of convertible debt                                           -                  -             125,000
  Issuance of common stock, net                                                   10,079              1,175               3,721
                                                                        -----------------   ----------------    ----------------
             Net cash provided by (used in) financing activities                 149,655            (19,759)            (15,490)

Effect of exchange rate on cash                                                      578                 38                (215)
                                                                        -----------------   ----------------    ----------------

Net increase (decrease) in cash and cash equivalents                              27,985            (37,023)             18,671

Cash and cash equivalents at beginning of the period                              22,528             50,513              13,490
                                                                        -----------------   ----------------    ----------------

Cash and cash equivalents at end of the period                                  $ 50,513           $ 13,490            $ 32,161
                                                                        =================   ================    ================
</TABLE>



                            See accompanying notes.


                                      F-7
<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
     approximately 63% of NCO Portfolio Management, Inc., a separate public
     company that purchases and manages accounts receivable. The Company's
     client base includes companies in the financial services, healthcare,
     retail 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.
     Two entities that the Company does not control are InoVision-MEDCLR NCOP
     Ventures, LLC and Creditrust SPV98-2, LLC (see note 21).

         Contingency Fees and Contractual Services:

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

         Purchased Accounts Receivable:

     The Company accounts for its investment in purchased accounts receivable on
     an accrual basis under the guidance of Practice Bulletin 6, "Amortization
     of Discounts on Certain Acquired Loans," using unique and exclusive static
     pools. Static pools are established with accounts having similar
     attributes. Typically, each static pool consists of an individual
     acquisition of accounts. Once a static pool is established, the accounts in
     the static pool are not changed. Proceeds from the sale of accounts within
     a static pool are accounted for as collections in that static pool.
     Collections on replacement accounts received from the originator of the
     loans are included as collections in the corresponding static pools. The
     discount between the cost of each static pool and the face value of the
     static pool is not recorded since the Company expects to collect a
     relatively small percentage of each static pool's face value.

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


                                      F-8
<PAGE>

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

     2.  Accounting policies (continued):

         Purchased Accounts Receivable (continued):

     To the extent the estimated future cash flow increases or decreases from
     the expected level of collections, the Company prospectively adjusts the
     IRR accordingly. If the carrying value of a particular static pool exceeds
     its expected future cash flows, a charge to income would be recognized in
     the amount of such impairment. Additional impairments on previously
     impaired static pools may occur if the current estimated future cash flow
     projection, after being adjusted prospectively for actual collection
     results, is less than the carrying value recorded. After the impairment of
     a static pool, no income is recorded on that static pool and collections
     are recorded as a return of capital until the full carrying value of the
     static pool has been recovered. The estimated yield for each static pool is
     based on estimates of future cash flows from collections, and actual cash
     flows 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 its credit
     risk and generally does not require collateral. In many cases, in the event
     of collection delays from clients, management may, at its discretion,
     change from the gross remittance method to the net remittance method.

         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.

         Investments in Debt and Equity Securities:

     The Company accounts for investments, such as the investment in
     securitization, Creditrust SPV 98-2, LLC (see note 21), in accordance with
     Statement of Financial Accounting Standards (SFAS) 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 unrealized gain or
     loss, net of the related tax effect, is not reflected in earnings but is
     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"). The
     investment in securitization accrues interest at an effective IRR, which is
     estimated based on the expected monthly collections over the estimated
     economic life of the investment (approximately five years). Cost
     approximated the fair value of this investment as of December 31, 2001.



                                      F-9
<PAGE>

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

     2.  Accounting policies (continued):

         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.

     Effective January 1, 1999, the Company adopted Statement of Position 98-1,
     "Accounting for the Costs of Computer Software Developed or Obtained for
     Internal Use" ("SOP 98-1"). SOP 98-1 identified the characteristics of
     internal use software and established guidelines for identifying which
     costs must be expensed as incurred and which costs must be capitalized.

     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:

     Intangibles consist primarily of goodwill and deferred financing costs.

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

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

     Accumulated amortization at December 31, 2000 and 2001 totaled $39.8
     million and $57.2 million, respectively.

         Income Taxes:

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

     Income taxes were computed after giving effect to the nondeductible portion
     of goodwill expenses attributable to certain acquisitions and, in 1999,
     nonrecurring acquisition costs attributable to the acquisition of JDR
     Holdings, Inc. ("JDR") on March 31, 1999.

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


                                      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
     and are not included in determining consolidated net income.

         Use of Estimates:

     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.

     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 static pool. The estimated future cash flow of
     each static pool is used to compute the IRR for the static pool. The IRR is
     used to allocate cash flow between revenue and amortization of the carrying
     values of the purchased accounts receivable.

     On an ongoing basis, we compare the historical trends of each static pool
     to projected collections. The future projections are then increased or
     decreased, within parameters, in accordance with the historical trend. The
     results are further reviewed by management with a view towards specifically
     addressing any particular static pool's performance. Actual results will
     differ from these estimates and a material change in these estimates could
     occur within one year.

         Reclassifications:

     Certain amounts for the year ended December 31, 1999 have been reclassified
     for comparative purposes.

     3.  Discontinued operations:

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

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

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


                                      F-11
<PAGE>

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

     3.  Discontinued operations (continued):

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

     The following summary of the Market Strategy division's operations prior to
     the Measurement Date for the years ended December 31, 1999 and 2000 have
     been presented net in the Company's consolidated statements of operations
     (amounts in thousands):

                                                          1999         2000
                                                       -----------  ------------

          Revenue                                        $32,043        $7,802
                                                       ===========  ============

          Income (loss) from discontinued operations
            before income tax expense (benefit)           $1,940      $(1,498)
          Income tax expense (benefit)                       873         (523)
                                                       -----------  ------------

          Income (loss) from discontinued operations,
            net of income taxes                           $1,067       $ (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 year ended December 31, 1999 and for the period in 2000 before the
     Measurement Date, the income (loss) from discontinued operations, net of
     taxes, included an allocation of interest expense of $1.1 million and
     $441,000, respectively. 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.

     4.  Acquisitions:

         Pooling-of-Interests Transaction:

     On March 31, 1999, the Company acquired all of the outstanding shares of
     JDR for approximately 3.4 million shares of NCO common stock. The
     transaction was accounted for as a pooling-of-interests and a tax-free
     reorganization. Accordingly, the historical financial information of the
     Company has been restated to include the historical information of JDR.

     During the year ended December 31, 1999, the Company incurred $4.6 million
     of nonrecurring acquisition costs in connection with the JDR acquisition.
     These costs consisted primarily of investment banking fees, legal and
     accounting fees, and printing costs.



                                      F-12
<PAGE>
                                 NCO GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)

     4.  Acquisitions (continued):

         Purchase Transactions:

     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, termination costs related to
     certain redundant personnel immediately eliminated at the time of the
     acquisitions, and certain future rental obligations attributable to
     facilities which were closed at the time of the acquisitions.

     On May 21, 1999, the Company acquired all of the outstanding stock of
     Co-Source Corporation ("Co-Source") for approximately $122.7 million in
     cash plus a warrant to purchase 250,000 shares of NCO common stock. The
     purchase price was valued at approximately $124.6 million. The Company
     recognized goodwill of $128.6 million and is amortizing the goodwill on a
     straight-line basis over 40 years.

     On August 20, 1999, the Company acquired all of the outstanding shares of
     Compass International Services Corporation ("Compass") for approximately
     3.3 million shares of NCO common stock. In connection with the acquisition,
     the Company assumed outstanding stock options to purchase approximately
     200,000 shares of NCO common stock. The purchase price was valued at
     approximately $104.1 million. The Company recognized goodwill of $139.1
     million and is amortizing the goodwill on a straight-line basis over 40
     years.

     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 focused on the purchase of
     accounts receivable (the "Creditrust Merger"). After the Creditrust Merger,
     the Company owned approximately 63% of the outstanding stock of NCO
     Portfolio, subject to certain adjustments. The Company's contribution to
     the NCO Portfolio merger consisted of $25.0 million of purchased accounts
     receivable. 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 sub-facility
     under its existing credit facility. Initially, NCO Portfolio borrowed $36.3
     million to fund the Creditrust Merger.

     The following summarizes the unaudited pro forma results of operations for
     the years ended December 31, 2000 and 2001, assuming 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>
                                                                 2000             2001
                                                             ------------   ---------------
                                                              (Unaudited)     (Unaudited)

<S>                                                              <C>               <C>
           Revenue                                               $ 648,033         $ 705,086
           Income from continuing operations applicable
             to common shareholders                               $ 21,819          $ 19,542
           Income from continuing operations applicable
             to common shareholders per share:
               Basic                                                $ 0.21            $ 0.76
               Diluted                                              $ 0.20            $ 0.75
</TABLE>
                                      F-13
<PAGE>
                                 NCO GROUP, INC.
             Notes to Consolidated Financial Statements (Continued)

     5.  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, 2001, the carrying value of
     the Portfolio Management division's and International Operations division's
     purchased accounts receivable was $136.3 million and $3.8 million,
     respectively. The following summarizes the change in purchased accounts
     receivable for the years ended December 31, 1999, 2000, and 2001:
<TABLE>
<CAPTION>
                                                                     1999           2000             2001
                                                                 -------------  -------------  -------------
<S>                                                              <C>            <C>            <C>
           Balance, at beginning of period                           $  1,597      $   6,719      $  34,475

           Purchased accounts receivable acquired from
             Creditrust                                                  -              -            93,518
           Purchases of accounts receivable                             7,660         32,961         50,621
           Collections on purchased accounts receivable                (5,967)       (20,495)       (99,868)
           Revenue recognized                                           3,419         15,411         64,065
           Impairment of purchased accounts receivable                   -              -            (2,738)
           Foreign currency translation adjustment                         10           (121)           (72)
                                                                 -------------  -------------  -------------
                                                                         -              -              -
           Balance, at end of period                                 $  6,719      $  34,475      $ 140,001
                                                                 =============  =============  =============
</TABLE>

     During the year ended December 31, 2001, an impairment of $2.7 million was
     recorded as a charge to income on static pools where the carrying amounts
     exceeded the expected future cash flows. No revenue will be recorded on
     these static pools until the carrying values have been fully recovered. The
     combined carrying values on these static pools, after impairment,
     aggregated $5.8 million as of December 31, 2001, representing their net
     realizable value. No impairments were recorded during the years ended
     December 31, 1999 and 2000.

     6.  Funds held on behalf of clients:

     In the course of the Company's regular business activities as a provider of
     accounts receivable management services, the Company receives clients'
     funds arising from the collection of accounts placed with the Company.
     These funds are placed in segregated cash accounts and are generally
     remitted to clients within 30 days. Funds held on behalf of clients of
     $54.1 million and $56.8 million at December 31, 2000 and 2001,
     respectively, have been shown net of their offsetting liability for
     financial statement presentation.

     7.  Property and equipment:

     Property and equipment, at cost, consisted of the following at December 31,
     2000 and 2001 (amounts in thousands):
<TABLE>
<CAPTION>
                                                    Estimated
                                                   Useful Life           2000                2001
                                                  --------------    ----------------    ----------------
<S>                                               <C>               <C>                 <C>
           Computer equipment                        5 years               $ 60,049            $ 75,086
           Computer software developed
             for internal use                        5 years                 18,040              24,734
           Furniture and fixtures                 5 to 10 years              10,638              13,032
           Leasehold improvements                 5 to 15 years               7,226               6,027
                                                                    ----------------    ----------------
                                                                             95,953             118,879

           Less accumulated depreciation                                     29,552              47,422
                                                                    ----------------    ----------------

                                                                           $ 66,401            $ 71,457
                                                                    ================    ================
</TABLE>
     Depreciation charged to operations amounted to $8.3 million, $15.2 million,
     and $20.1 million for the years ended December 31, 1999, 2000, and 2001,
     respectively.

                                      F-14
<PAGE>

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

     8.  Long-term debt:
                                                              -

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

<TABLE>
<CAPTION>
                                                             2000               2001
                                                         --------------     --------------
<S>                                                      <C>                <C>
           Revolving credit loan                             $ 303,750          $ 206,630
           Convertible notes                                       -              125,000
           Securitized debt                                        -               45,379
           Subordinated seller notes payable;
             interest rate of 7.16%, due May 2001                  130                -
           Capital leases                                          682              2,781
           Less current portion                                   (642)           (21,922)
                                                         --------------     --------------

                                                             $ 303,920          $ 357,868
                                                         ==============     ==============
</TABLE>


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

             2002                                     $     21,922
             2003                                           28,476
             2004                                          189,562
             2005                                           14,830

         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, that originally
     provided for borrowings up to $350 million, structured as a revolving
     credit facility. The balance under the revolving credit facility shall
     become due on May 20, 2004 (the "Maturity Date"). The borrowing capacity of
     the revolving credit facility is subject to mandatory reductions including
     a quarterly reduction of $6.3 million on March 31, 2001, subsequent
     quarterly reductions of $5.2 million until 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% to 0.50%, 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 4.75% at December 31, 2001), or the
     London InterBank Offered Rate ("LIBOR") plus a margin of 1.25% to 2.25%
     depending on the Company's consolidated funded debt to EBITDA ratio (LIBOR
     was 1.88% at December 31, 2001). The Company is charged a fee on the unused
     portion of the credit facility ranging from 0.13% to 0.38% depending on the
     Company's consolidated funded debt to EBITDA ratio.

     In connection with the merger of Creditrust into NCO Portfolio, the Company
     amended its revolving credit facility to allow the Company to provide NCO
     Portfolio with a $50 million revolving line of credit in the form of a
     sub-facility under its existing credit facility. The borrowing capacity of
     the sub-facility is subject to mandatory reductions including four
     quarterly reductions of $2.5 million beginning March 31, 2002 through
     December 31, 2002. Effective March 31, 2003, quarterly reductions of $3.75
     million are required until the earlier of the Maturity Date or the date at
     which the sub-facility is reduced to $25 million. At the option of NCO, the
     borrowings bear interest at a rate equal to either Citizens Bank's prime
     rate plus a margin of 1.25% to 1.50% that is determined quarterly based
     upon the Company's consolidated funded debt to EBITDA ratio, or LIBOR plus
     a margin of 2.25% to 3.25% depending on the Company's consolidated funded
     debt to EBITDA ratio.


                                      F-15
<PAGE>

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

     8.  Long-term debt (continued):

         Revolving Credit Facility (continued):

     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, 2001, the Company was in compliance with all required
     financial covenants.

     The following summarizes the availability under the revolving credit
     facility as of December 31, 2001 (amounts in thousands):

<TABLE>
<CAPTION>
                                                    NCO Group         NCO Portfolio          Combined
                                                  --------------    ------------------    ----------------
<S>                                               <C>               <C>                   <C>
           Maximum capacity                           $ 217,525              $ 50,000           $ 267,525
           Less:
             Outstanding borrowings                     159,500                47,130             206,630
             Unused letters of credit                     2,554                    -                2,554
                                                  --------------    ------------------    ----------------

           Available                                   $ 55,471               $ 2,870            $ 58,341
                                                  ==============    ==================    ================
</TABLE>


         Convertible Notes:

     In April 2001, the Company completed the sale of $125.0 million aggregate
     principal amount of 4.75% 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% of the net proceeds from the Notes permanently reduced the
     maximum borrowings available under the revolving credit facility.

         Securitized Debt:

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

     The first securitized note ("Warehouse Facility") was established in
     September 1998 through Creditrust Funding I LLC, a special purpose finance
     subsidiary. The Warehouse Facility carries a floating interest rate of
     LIBOR plus 0.65% per annum, and the final due date of all payments under
     the facility is March 2005. A $900,000 liquidity reserve is included in
     restricted cash as of December 31, 2001, and is restricted as to use until
     the facility is retired. Interest expense, trustee fees and guarantee fees
     aggregated $945,000 for period from February 21, 2001 to December 31, 2001,
     respectively. As of December 31, 2001, the amount outstanding on the
     facility was $17.8 million. The note issuer, Radian Group, Inc., formerly
     Asset Guaranty Insurance Company, has been guaranteed against loss by NCO
     Portfolio for up to $4.5 million, which will be reduced if and when
     reserves and residual cash flows from another securitization, Creditrust
     SPV 98-2, LLC, are posted as additional collateral for this facility (see
     note 21).


                                      F-16
<PAGE>

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

     8.  Long-term debt (continued):

         Securitized Debt (continued):

     The second securitized note ("SPV99-1 Financing") was established in August
     1999 through Creditrust SPV99-1, LLC, a special purpose finance subsidiary.
     SPV99-1 Financing carries interest at 9.43% per annum, with a final payment
     date of August 2004. A $225,000 liquidity reserve is included in restricted
     cash as of December 31, 2001, and is restricted as to use until the
     facility is retired. Interest expense and trustee fees aggregated $691,000
     for the period from February 21, 2001 to December 31, 2001, respectively.
     As of December 31, 2001, the amount outstanding on the facility was $3.8
     million.

     The third securitized note ("SPV99-2 Financing") was established in August
     1999 through Creditrust SPV99-2, LLC, a special purpose finance subsidiary.
     SPV99-2 Financing carries interest at 15.00% per annum, with a final
     payment date of December 2004. Interest expense and trustee fees aggregated
     $3.3 million for the period from February 21, 2001 to December 31, 2001,
     respectively. As of December 31, 2001, the amount outstanding on the
     facility was $23.8 million.

         Other:

     At December 31, 2001, the Company had unused letters of credit of $2.6
     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.

     9.  Operating leases:

     The Company leases certain equipment and real estate facilities under
     non-cancelable operating leases. The following represents the future
     minimum payments, by year and in the aggregate, under non-cancelable
     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 18 and 20).

           2002                                          $ 21,455
           2003                                            16,711
           2004                                            14,532
           2005                                            13,311
           2006                                            12,136
           Thereafter                                      43,482
                                                      ------------

                                                        $ 121,627
                                                      ============

     Rent expense was $14.3 million, $17.8 million, and $19.5 million for the
     years ended December 31, 1999, 2000, and 2001, respectively. The total
     amount of base rent payments is being charged to expense on the
     straight-line method over the term of the lease.



                                      F-17
<PAGE>

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

     10. Income taxes:

     Income tax expense consisted of the following components for the years
     ended December 31, 1999, 2000, and 2001 (amounts in thousands):


<TABLE>
<CAPTION>
                                                  1999            2000            2001
                                               ------------    ------------    ------------
<S>                                            <C>             <C>             <C>
           Currently payable:
             Federal                               $ 9,158     $    16,280        $ 10,809
             State                                     548           1,613           1,047
             Foreign                                   500           1,269             376

           Deferred:
             Federal                                10,314          12,180           7,432
             State                                   2,301           1,353             731
             Foreign                                   -              (653)          1,068
                                               ------------    ------------    ------------

           Income tax expense                     $ 22,821      $   32,042        $ 21,463
                                               ============    ============    ============
</TABLE>


     Deferred tax assets (liabilities) consisted of the following at December
     31, 2000 and 2001 (amounts in thousands):


<TABLE>
<CAPTION>
                                                                             2000             2001
                                                                         -------------    --------------
<S>                                                                      <C>              <C>
           Deferred tax assets:
             Net operating loss carryforwards                              $    5,279        $  39,380
             Accrued expenses                                                   3,751            8,697
                                                                         -------------    --------------
           Total deferred tax assets                                            9,030           48,077

           Valuation allowance                                                  3,673            5,014
                                                                         -------------    --------------

           Net deferred tax assets                                              5,357           43,063
                                                                         -------------    --------------

           Deferred tax liabilities:
             Amortization                                                      29,576           32,060
             Depreciation                                                       9,103           12,400
             Undistributed earnings of unconsolidated subsidiary                 -               2,832
             Purchased accounts receivable                                      4,940           30,290
                                                                         -------------    --------------
           Total deferred tax liabilities                                     43,619            77,582
                                                                         -------------    --------------
           Net deferred tax liabilities                                    $ (38,262)        $ (34,519)
                                                                         =============    ==============
</TABLE>


     The Company had federal, state, and foreign net operating loss
     carryforwards in the amount of $175.3 million, subject to certain
     limitations, available at December 31, 2001, which will expire during the
     years 2004 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
     expected to be 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. Based on operations for the year, the deferred tax
     asset was increased by the tax loss recognized by NCO Portfolio for 2001.
     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.


                                      F-18
<PAGE>

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

     10. Income taxes (continued):

     A reconciliation of the U.S. statutory income tax rate to the effective
     rate for the years ended December 31, 1999, 2000, and 2001 was as follows:

<TABLE>
<CAPTION>
                                                                  1999         2000         2001
                                                                ---------    ---------    ---------
<S>                                                             <C>          <C>          <C>
           U.S. statutory income tax rate                          35.0%        35.0%        35.0%
           Nondeductible goodwill and other expenses                5.6          3.6          5.4
           State taxes, net of federal                              4.0          2.5          2.1
           Benefit from foreign net operating losses                 -          (1.1)          -
           Other, net                                                -           1.0         (0.9)
                                                                ---------    ---------    ---------

           Effective tax rate                                      44.6%        41.0%        41.6%
                                                                =========    =========    =========
</TABLE>

     11. Redeemable preferred stock and shareholders' equity:

         Redeemable Preferred Stock

     All of JDR's Redeemable Series A Preferred stock, Convertible Series A
     Preferred stock and Convertible Series B Preferred stock was exchanged for
     NCO common stock on March 31, 1999.

         Preferred Stock

     All of JDR's Series C Preferred stock was converted into NCO common stock
     on March 31, 1999.

         Nonvoting Common Stock

     All of JDR's nonvoting common stock was exchanged for NCO common stock on
     March 31, 1999.

         Treasury Stock

     All of JDR's treasury shares were retired on March 31, 1999.

         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. All of these warrants were
     outstanding as of December 31, 2001. In January 2002, all of the 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. These
     exercises resulted in the net issuance of 55,000 shares of NCO common
     stock.

     In May 1997, JDR issued warrants to purchase 621,000 shares of nonvoting
     common stock at a nominal value in connection with the sale of capital
     stock and JDR's credit facility. All of the warrants were exercised and
     exchanged for NCO common stock on March 31, 1999.

     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, 2001. These warrants expire in May 2009.


                                      F-19
<PAGE>

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

     12.  Earnings per share:

     Basic earnings per share ("EPS") was computed by dividing the income from
     continuing operations applicable to common shareholders and the net income
     applicable to common shareholders for the years ended December 31, 1999,
     2000, and 2001, by the weighted average number of common shares
     outstanding. Diluted EPS was computed by dividing the income from
     continuing operations applicable to common shareholders and the net income
     applicable to common shareholders for the years ended December 31, 1999,
     2000, and 2001, by the weighted average number of common shares outstanding
     plus all common equivalent shares. Outstanding options, warrants, and
     convertible securities have been utilized in calculating diluted amounts
     per share only when their effect would be dilutive.

     The reconciliation of basic to diluted weighted average shares outstanding
     for the years ended December 31, 1999, 2000, and 2001 was as follows
     (amounts in thousands):

<TABLE>
<CAPTION>
                                                    1999          2000         2001
                                                 ------------  -----------  -----------
<S>                                              <C>           <C>          <C>
             Basic                                    22,873       25,587       25,773

             Dilutive effect of convertible debt          -            -         2,806
             Dilutive effect of warrants                 206           88           88
             Dilutive effect of options                  712          167          230
             Other                                         8           -            -
                                                 ------------  -----------  -----------

             Diluted                                  23,799       25,842       28,897
                                                 ============  ===========  ===========
</TABLE>


     13. 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 non-qualified
     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.

     In June 1997, JDR established the JDR Holdings, Inc. 1997 Stock Option Plan
     (the "JDR Plan") and reserved 69,000 shares of common stock. All options
     that were issued and outstanding under the JDR Plan as of March 31, 1999
     became fully vested as a result of the acquisition of JDR by NCO. The
     options expire no later than 10 years from the date of grant.

     On August 20, 1999, as part of the acquisition of Compass, NCO assumed the
     Compass Employee Incentive Compensation Plan (the "Compass Plan"). The
     Compass Plan authorized up to 475,000 shares of non-qualified stock
     options. The vesting periods for the outstanding options under the Compass
     Plan are one to three years. The options expire no later than 10 years from
     the date of grant.



                                      F-20
<PAGE>

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

     13. Stock options (continued):

     A summary of stock option activity of the 1995 Plan, the 1996 Plan, the
     Director Plan, the JDR Plan and the Compass Plan is as follows (amounts in
     thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                         Weighted Avg.
                                                          Number of     Exercise Price
                                                           Options         Per Share
                                                       -------------   ----------------
<S>                                                    <C>             <C>
         Outstanding at January 1, 1999                     1,579         $   21.44
           Granted                                          1,497             32.58
           Exercised                                         (441)            16.89
           Forfeited                                          (24)            26.76
                                                           ------         ---------
         Outstanding at December 31, 1999                   2,611             28.27
           Granted                                          1,082             24.52
           Exercised                                          (94)            12.58
           Forfeited                                         (259)            33.39
                                                           ------         ---------
         Outstanding at December 31, 2000                   3,340             27.10
           Granted                                          1,116             20.22
           Exercised                                         (189)            19.76
           Forfeited                                         (269)            28.88
                                                           ------         ---------
         Outstanding at December 31, 2001                   3,998         $   25.41
                                                           ======         =========

         Stock options exercisable at December 31, 2001     1,932         $   27.69
                                                           ======         =========
</TABLE>


     The following table summarizes information about stock options outstanding
     as of December 31, 2001 (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>
     $  8.67  to  $19.42            260      5.96 years              $ 15.70           217           $ 15.36
     $20.05   to  $24.75          1,427      9.01 years                20.67           363             22.43
     $25.00   to  $28.75            929      8.80 years                25.30           314             25.38
     $29.19   to  $33.38          1,212      7.71 years                30.68           880             30.89
     $36.88   to  $61.09            170      6.56 years                43.06           158             43.43
                            ------------  -----------------   ---------------   -----------   ---------------
                                  3,998      8.26 years              $ 25.41         1,932           $ 27.69
                            ============  =================   ===============   ===========   ===============
</TABLE>

                                      F-21
<PAGE>

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

     13. Stock options (continued):

     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 FASB 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 applicable
     to common shareholders and net income applicable to common shareholders per
     share for the years ended December 31, 1999, 2000, and 2001 would have been
     reduced to the unaudited, pro forma amounts indicated in the following
     table (amounts in thousands, except per share amounts):


<TABLE>
<CAPTION>
                                                          1999            2000           2001
                                                       ------------    -----------    ------------
<S>                                                    <C>             <C>            <C>
           Net income applicable to common
             shareholders - pro forma                     $ 26,673       $ 17,783        $ 20,858

           Net income applicable to common
             shareholders per share - pro forma:
               Basic                                        $ 1.17         $ 0.70          $ 0.81
               Diluted                                      $ 1.12         $ 0.69          $ 0.80
</TABLE>


     The estimated weighted average, grant-date fair values of the options
     granted during the years ended December 31, 1999, 2000, and 2002 were
     $12.43, $10.52, and $10.37, 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 for the years ended December 31, 1999, 2000, and 2001 on a
     weighted average basis:

                                           1999           2000          2001
                                        ----------     ----------    ----------

           Risk-free interest rate          5.73%          5.93%         4.42%
           Expected life in years           3.25           3.25          4.33
           Volatility factor               44.04%         52.88%        58.95%
           Dividend yield                    None           None          None
           Forfeiture rate                  5.00%          5.00%         5.00%


     14. 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 Collars:

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



                                      F-22
<PAGE>

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

     15. 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:

     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, 2000 and
     2001.

         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, 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.

         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 as of December 31, 2001
     based on the closing market price for the convertible securities on
     December 31, 2001.

     16.  Supplemental cash flow information:

     The following are supplemental disclosures of cash flow information for the
     years ended December 31, 1999, 2000, and 2001 (amounts in thousands):

<TABLE>
<CAPTION>
                                                                   1999           2000             2001
                                                                -----------    ------------     ------------
<S>                                                             <C>            <C>              <C>
      Cash paid for interest                                       $19,975         $24,038          $25,257
      Cash paid for income taxes                                     7,923          18,569           11,410
      Non-cash investing and financing activities:
          Notes received as consideration for the
            divestiture of the Market Strategy Division                -            18,250              -
          Fair value of assets acquired                             28,368             -            123,978
          Liabilities assumed from acquisitions                     53,713             -            109,394
          Convertible note payable, converted to
            common stock                                               900             -                -
          Common stock issued for acquisitions                                         -                -
                                                                   101,526
          Common stock options issued for acquisitions                                 -                -
                                                                     2,562
          Redemption of redeemable preferred stock
            for common stock                                        12,231             -                -
          Warrants issued                                            1,925             -                -
          Warrants exercised                                         6,332             -                -
</TABLE>


                                      F-23
<PAGE>

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

     17. Employee benefit plans:

     The Company has a savings plan under Section 401(k) of the Internal Revenue
     Code (the "Plan"). The Plan allows all eligible employees to defer up to
     15% 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% of the first 6% of
     an employee's contribution. The charges to operations for the matching
     contributions were $1.4 million, $1.7 million and $1.9 million, for 1999,
     2000, and 2001, respectively.

     18. Commitments and contingencies:

         Forward-Flow Agreement

     NCO Portfolio currently has a "forward-flow" agreement with a major
     financial institution, which obligates NCO Portfolio to purchase, on a
     monthly basis, portfolios of charged-off accounts receivable meeting
     certain criteria. As of December 31, 2001, NCO Portfolio is obligated to
     purchase accounts receivable to a maximum of $1.8 million per month from
     January 2002 through May 2002.

         Litigation

     The Company is party, from time to time, to various legal proceedings
     incidental to its business.

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

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

     19. Segment reporting:

     During the first nine months of 2000, the Company was organized into
     operating divisions that were focused on the operational delivery of
     services. The Company's focus on the operational delivery of services
     allowed it to take advantage of significant cross-selling opportunities and
     enhance the level of service provided to its clients. The operating
     divisions during the first nine months of 2000 included Accounts Receivable
     Management Services, Technology-Based Outsourcing, and International
     Operations. During 2000, the continued integration of the Company's
     infrastructure facilitated the further reduction of the operating divisions
     from three to two. Effective October 1, 2000, the new operating divisions
     included U.S. Operations (formerly Accounts Receivable Management Services
     and Technology-Based Outsourcing) and International Operations. Each of
     these divisions will maintain industry specific functional groups including
     financial services, healthcare, retail and commercial, utilities,
     education, telecommunications, and government. The Company created the
     Portfolio Management division as a result of the February 2001 Creditrust
     Merger. Prior to the acquisition, NCO's portfolio business was part of the
     U.S. Operations division.

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



                                      F-24
<PAGE>

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

     19.  Segment reporting (continued):

     The U.S Operations division 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, serving clients of
     all sizes in local, regional and national markets. The U.S. Operations
     division had total assets, net of any intercompany balances, of $704.5
     million and $732.4 million at December 31, 2000 and 2001, respectively.

     The Portfolio Management division purchases and manages defaulted consumer
     accounts receivable from credit grantors, including banks, finance
     companies, retail merchants and other service providers. Portfolio
     Management had total assets, net of any intercompany balances, of $32.1
     million and $153.7 million at December 31, 2000 and 2001, respectively.

     The International Operations division provides accounts receivable
     management services across Canada and the United Kingdom. U.S. Operations
     uses International Operations as a subcontractor to perform accounts
     receivable management services to some of its clients. The International
     Operations division had total assets, net of any intercompany balances, of
     $47.4 million and $44.9 million at December 31, 2000 and 2001,
     respectively.

     The following tables represent the revenue, payroll and related expenses,
     selling, general and administrative expenses, and earnings before interest,
     taxes, depreciation, and amortization ("EBITDA") for each segment for the
     years ended December 31, 1999, 2000 and 2001. EBITDA is used by the
     Company's management to measure the segments' operating performance and is
     not intended to report the segments' operating results in conformity with
     generally accepted accounting principles.

<TABLE>
<CAPTION>
                                               For the year ended December 31, 1999
                                                       (Amounts in thousands)
                           -------------------------------------------------------------------------------
                                                                Selling,
                                             Payroll and      General and     Nonrecurring
                                               Related          Admin.        Acquisition
                              Revenue          Expenses        Expenses          Costs           EBITDA
                           -------------    -------------   -------------    -------------   -------------
<S>                         <C>               <C>            <C>               <C>            <C>
     U.S. Operations       $     428,293    $     219,930   $     119,489    $       --      $      88,874
     Portfolio Management          1,959              180           1,038            --                741
     International Operations     31,040           17,599           8,631            --              4,810
     Eliminations and other         (981)            --              (981)           4,601          (4,601)
                           -------------    -------------   -------------    -------------   -------------

     Total                 $     460,311    $     237,709   $     128,177    $       4,601   $      89,824
                           =============    =============   =============    =============   =============

<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                       $ 566,769          $ 275,718      $    170,532       $   120,519
     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                                 $ 605,884          $ 293,292      $    179,924       $   132,668
                                     ================  =================  =================   ===============
</TABLE>

                                      F-25
<PAGE>

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

     19. Segment reporting (continued):

<TABLE>
<CAPTION>
                                                      For the year ended December 31, 2001
                                                             (Amounts in thousands)
                                     ------------------------------------------------------------------------
                                                         Payroll and          Selling,
                                                       Related Expenses     General and
                                         Revenue                          Admin. Expenses         EBITDA
                                     ----------------  -----------------  -----------------   ---------------
<S>                                  <C>               <C>                <C>                 <C>
     U.S. Operations                       $ 633,376          $ 332,456          $ 221,995          $ 78,925
     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                                 $ 701,506          $ 350,634          $ 237,690         $ 113,182
                                     ================  =================  =================   ===============
</TABLE>


     20. 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
     abandon the Fort Washington facilities and move its corporate headquarters
     to Horsham, PA. The Company has currently filed a lawsuit against its
     landlord to terminate the leases for the Fort Washington facilities. Due to
     the uncertainty of the outcome of the lawsuit, the Company has recorded the
     full amount of rent due under the remaining terms of the leases during the
     third quarter of 2001. The Company has also recorded other expenses and
     expected insurance proceeds during the third quarter of 2001 in connection
     with the flood and the relocation of the corporate headquarters. The net
     effect of the charges and the gain from the insurance proceeds included in
     selling, general, and administrative expenses during the third quarter of
     2001 was $11.2 million.

     21. Investments in unconsolidated subsidiaries:

     NCO Portfolio owns a 100% 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 note that is due in January 2004
     and had a balance of $5.5 million as of December 31, 2001. 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, the
     investment in securitization was $7.3 million, comprised of $4.0 million in
     present value of discounted residual cash flows plus $3.3 million in cash
     reserves. The investment accrues non-cash income at a rate of 8% per annum
     on the residual cash flow component only. The income earned increases the
     investment balance until the securitization note has been repaid. After
     repayment of the note, collections are split between income and
     amortization of the investment in securitization based on the discounted
     cash flows. The Company recorded $211,000 in income on this investment
     during the year ended December 31, 2001. The 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
     the Warehouse Facility (see note 8).



                                      F-26
<PAGE>

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

     21. Investments in unconsolidated subsidiaries (continued):

     NCO Portfolio has a 50% ownership interest in a joint venture,
     InoVision-MEDCLR NCOP Ventures, LLC ("Joint Venture") with IMNV Holdings,
     LLC ("Marlin"). This Joint Venture was established to purchase utility,
     medical and other various small balance accounts receivable and is
     accounted for using the equity method of accounting. As of December 31,
     2001, NCO Portfolio and Marlin had each invested $574,000 in the Joint
     Venture for the purchase of accounts receivable. Included in the Statement
     of Income, in "other income," was $118,000 representing the Company's 50%
     share of operating income from this unconsolidated subsidiary for the year
     ended December 31, 2001. The Joint Venture has access to capital through a
     specialty finance lender who, at its option, lends 90% of the value of the
     purchased accounts receivable to the Joint Venture. The debt is
     cross-collateralized by all static pools in which the lender participates,
     and is non-recourse to NCO Portfolio. The following table summarizes the
     financial information of the Joint Venture as of and for the year ended
     December 31, 2001 (amounts in thousands):

           Total assets                     $ 5,581
           Total liabilities                  4,455
           Revenue                            1,061
           Operating income                     236

     22. Related party transactions:

     From time to time, the Company uses an airplane that is partly owned by
     Michael J. Barrist, Chairman, President, and Chief Executive Officer of
     NCO. The Company pays to a third party management company, which is not
     affiliated with Mr. Barrist, the monthly management fee and out-of-pocket
     costs for the Company's use of the airplane. The Company paid costs of
     $358,000, $368,000, and $363,000 for the years ended December 31, 1999,
     2000, and 2001, respectively.

     23. Subsequent event:

     During February 2002, the Company entered into two interest rate swap
     agreements to reduce the impact of changes in LIBOR on a portion of the
     debt borrowed under its revolving credit facility. The interest rate swap
     agreements fixed LIBOR at a rate of 2.82%. The total initial notional
     amount of the interest rate swap agreements was $102.0 million. The
     notional amount of the interest rate swap agreements is subject to
     scheduled quarterly reductions. The interest rate swap agreements expire in
     September 2003.

     24. Recent accounting pronouncements:

     In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
     No.s 141 and 142, "Business Combinations" and "Goodwill and Other
     Intangibles." FASB 141 requires all business combinations initiated after
     July 1, 2001, to be accounted for using the purchase method. FASB 142
     concluded that purchased goodwill would not be amortized but would be
     reviewed for impairment when certain events indicate that the goodwill of a
     reporting unit is impaired. The impairment test will use a fair-value based
     approach, whereby if the implied fair value of a reporting unit's goodwill
     is less than its carrying amount, goodwill would be considered impaired.
     FASB 142 does not require that goodwill be tested for impairment upon
     adoption unless an indicator of impairment exists at that date. However, it
     would require that a benchmark assessment be performed for all existing
     reporting units within six months of the date of adoption. The new goodwill
     model applies not only to goodwill arising from acquisitions completed
     after the effective date, but also to goodwill previously recorded. The
     Company adopted FASB 142 in the first quarter of 2002 and is in the process
     of determining the impact of these pronouncements on its financial position
     and results of operations.



                                      F-27
<PAGE>

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

     24. Recent accounting pronouncements (continued):

     During 2001, the Accounting Staff Executive Committee approved an exposure
     draft on a proposed Statement of Position, "Accounting for Discounts
     Related to Credit Quality" ("SOP"). The proposed SOP would limit the
     revenue that may be accrued to the excess of the estimate of expected
     future cash flows over the static pool'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 ("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 static pool 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 static
     pool'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.



                                      F-28

<PAGE>

                                 NCO GROUP, INC.
                       Consolidating Statement of Income
                                  (Unaudited)
                  (in thousands, except for per share amounts)

<TABLE>
<CAPTION>
                                                             For the Year Ended December 31, 2001
                                                      --------------------------------------------------
                                                                      NCO     Intercompany
                                                      NCO Group    Portfolio  Eliminations  Consolidated
                                                      ---------    ---------  ------------  ------------
<S>                                                   <C>          <C>          <C>          <C>
Revenue                                               $ 666,048    $  62,929    $ (27,471)   $ 701,506

Operating costs and expenses:
      Payroll and related expenses                      349,010        1,624                   350,634
      Selling, general, and administrative expenses     232,724       32,437      (27,471)     237,690
      Depreciation and amortization expense              37,955          250                    38,205
                                                      ---------    ---------    ---------    ---------
                                                        619,689       34,311      (27,471)     626,529
                                                      ---------    ---------    ---------    ---------
                                                         46,359       28,618         --         74,977

Other income (expense):
      Interest and investment income                      3,859          531         (763)       3,627
      Interest expense                                  (19,495)      (8,230)         763      (26,962)
                                                      ---------    ---------    ---------    ---------
                                                        (15,636)      (7,699)        --        (23,335)
                                                      ---------    ---------    ---------    ---------
Income before income tax expense                         30,723       20,919         --         51,642

Income tax expense                                       13,618        7,845                    21,463
                                                      ---------    ---------    ---------    ---------

Income from operations before minority interest          17,105       13,074         --         30,179

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

Net income                                            $  17,105    $  13,074    $  (4,310)   $  25,869
                                                      =========    =========    =========    =========

</TABLE>

                                      F-29

<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 (1)   Deductions (2)       year
                                      -----------  ----------- -------------  ---------------  -------------
<S>                                   <C>          <C>         <C>            <C>              <C>
     Year ended December 31, 1999:

       Allowance for doubtful
         accounts                     $3,619,000   $2,553,000    $  900,000    $ (1,681,000)    $ 5,391,000

     Year ended December 31, 2000:

       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
</TABLE>


     (1) Allowance for doubtful accounts of acquired companies.
     (2) Uncollectible accounts written off, net of recoveries.


                                      S-1