10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

For the Fiscal Year ended December 31, 2005

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

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

Registrant’s telephone number, including area code (215) 441-3000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:Common stock, no par value

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes       No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes       No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes       No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer Accelerated filer Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes       No

The aggregate market value of voting and nonvoting common equity held by non-affiliates was approximately $638,918,772 ⁽¹⁾.

The number of shares of the registrant’s common stock outstanding as of March 14, 2006 was 32,300,989.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant’s Proxy Statement to be filed in connection with its 2006 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report; provided, however, that the Compensation Committee Report, the Audit Committee Report, the graph showing the performance of the Company’s stock and any other information in such Proxy Statement that is not required to be included in this Annual Report on Form 10-K, shall not be deemed to be incorporated herein or filed for the purposes of the Securities Act of 1933 or the Securities Exchange Act of 1934. Other documents incorporated by reference are listed in the Exhibit Index.

⁽¹⁾The aggregate market value of the voting and nonvoting common equity held by non-affiliates set forth equals the number of shares of the registrant’s common stock outstanding, reduced by the number of shares of common stock held by officers, directors and shareholders owning 10 percent or more of the registrant’s common stock, multiplied by $21.63, the last reported sale price for the registrant’s common stock on June 30, 2005, the last business day of the registrant’s most recently completed second fiscal quarter, as reported on the Nasdaq National Market. The information provided shall in no way be construed as an admission that any person whose holdings are excluded from this figure is an affiliate of the registrant or that such person is the beneficial owner of the shares reported as being held by such person, and any such inference is hereby disclaimed. The information provided herein is included solely for record-keeping purposes of the Securities and Exchange Commission.

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business.	2
Item 1A.	Risk Factors.	18
Item 1B.	Unresolved Staff Comments.	29
Item 2.	Properties.	29
Item 3.	Legal Proceedings.	29
Item 4.	Submission of Matters to a Vote of Security Holders.	30
Item 4.1.	Executive Officers and Key Employees of the Registrant who are not also Directors.	31
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities.	33
Item 6.	Selected Financial Data.	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	35
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk.	51
Item 8.	Financial Statements and Supplementary Data.	51
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	51
Item 9A.	Controls and Procedures.	52
Item 9B.	Other Information.	52
	PART III
Item 10.	Directors and Executive Officers of the Registrant.	53
Item 11.	Executive Compensation.	53
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.	53
Item 13.	Certain Relationships and Related Transactions.	54
Item 14.	Principal Accounting Fees and Services.	54
	PART IV
Item 15.	Exhibits and Financial Statement Schedules.	55
	Signatures.	62
	Index to Consolidated Financial Statements.	F-1

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

Forward-Looking Statements

Certain statements included in this Annual Report on Form 10-K, including without limitation statements in Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” other than statements of historical fact, 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, fluctuations in quarterly operating results, the integration of acquisitions, restructuring charges, the final outcome of the Company’s litigation with its former landlord, the effects of terrorist attacks, war and the economy on the Company’s business, expected increases in operating efficiencies, anticipated trends in the business process outsourcing industry, referred to as BPO, estimates of future cash flows and allowances for impairments of purchased accounts receivable, estimates of goodwill impairments and amortization expense of other intangible assets, the effects of legal proceedings, regulatory investigations and tax examinations, the effects of changes in accounting pronouncements, and statements as to trends or the Company’s or management’s beliefs, expectations and opinions. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” “would,” “should,” “guidance,” “potential,” “continue,” “project,” “forecast,” “confident,” and similar expressions are typically used to identify forward-looking statements. 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 growth and acquisitions, including the acquisition of the assets of Risk Management Alternatives Parent Corp., referred to as RMA, and all of RMA’s subsidiaries, and the acquisition of subsidiaries from Marlin Integrated Capital Holding Corporation, referred to as Marlin, 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 related to possible impairment of goodwill and other intangible assets, risks related to union organizing efforts at the Company’s facilities, risks associated with technology, risks related to the implementation of the Company’s Enterprise Resource Planning system, risks related to the final outcome of the Company’s litigation with its former landlord, risks related to the Company’s litigation, regulatory investigations and tax examinations, risks related to past or possible future terrorist attacks, risks related to the threat or outbreak of war or hostilities, risks related to the domestic and international economies, the risk that the Company will not be able to improve margins, risks related to the Company’s international operations, risks related to the availability of qualified employees, particularly in new or more cost-effective locations, risks related to currency fluctuations, risks related to reliance on independent telecommunications service providers, risks related to changes in government regulations affecting the teleservices and telecommunications industries, risks related to competition from other outside providers of BPO services and the in-house operations of existing and potential clients, and other risks described under Item 1A. “Risk Factors” or in the Company’s other filings made from time to time with the Securities and Exchange Commission, referred to as the SEC, can cause actual results and developments to be materially different from those expressed or implied by such forward-looking statements.

-1-

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

PART I

Item 1. Business.

General

NCO Group, Inc. is a holding company, formed in 1996 as a Pennsylvania corporation, and conducts substantially all of its business operations through its subsidiaries. NCO is a global provider of business process outsourcing services, referred to as BPO, primarily focused on accounts receivable management, referred to as ARM, and customer relationship management, referred to as CRM. Our portfolio of outsourcing solutions includes accounts receivable management, contact center support and back office support services for a diversified customer base. We support essential business functions across key portions of the customer life cycle including acquisition, growth, care, resolution and retention. Our extensive industry knowledge, technological expertise, management depth, and long-standing client relationships enable us to deliver customized solutions that help our clients reduce their operating costs, increase cash flow, and improve their customers’ experience. We provide our services through our customer-driven model that provides optimal performance, leading-edge technology, proven efficiency and quality, to a wide range of clients in North America and abroad. We have approximately 20,000 full and part-time employees who provide our services through our global network of 100 offices. We also purchase and manage past due consumer accounts receivable from consumer creditors such as banks, finance companies, retail merchants, utilities, healthcare companies, and other consumer-oriented companies.

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

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

NCO Group, Inc.

507 Prudential Road

Horsham, PA 19044

Attention: Investor Relations

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

Industry Background

Increasingly, companies are outsourcing many essential, non-core business functions to focus on revenue-generating activities and core competencies, reduce costs and improve productivity. In particular, many large corporations are recognizing the advantages of outsourcing accounts

-2-

receivable management and customer service and support. This trend is being driven by a number of industry-specific factors:

• First, companies are under greater pressure to streamline resources, cut costs and focus on core competencies.

• Second, the increasing complexity of collection and other customer service processes requires sophisticated call management and database systems for efficient operations.

• Third, many businesses lack the expertise, resources and infrastructure necessary to provide optimal customer support due to the growing scope and complexity of such activities.

• Fourth, the trend in certain industries to outsource essential, non-core functions due to competitive pressures, regulatory considerations and/or required capital expenditures.

We operate in a large industry with growth opportunities. Growth in the BPO industry has been driven by the increasing utilization of BPO services, the continuing growth in consumer and commercial debt, and an increased focus on building long-term customer relationships. IDC, a global market intelligence and advisory firm, expects such positive market dynamics to continue over the next year and expects the BPO industry to expand in the next five years, according to market analysis data published in 2005. The primary market sectors we support are financial services, telecommunications, healthcare, utilities, retail and commercial, transportation/logistics, education, technology and government.

The BPO industry remains highly fragmented, although consolidation is increasing. The top providers are large multinational companies, however, according to IDC, no single service provider has more than a seven percent share of the total market. 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 regulatory and quality standards demanded by businesses seeking to outsource their essential, non-core business functions.

Strategy

Our strategy is to continue to strengthen our position in the ARM and CRM marketplaces, and expand our service offerings to other contiguous BPO services.

Expand our relationships with clients – An integral component of our growth strategy is focused on the expansion of existing client relationships. These relationships and the resulting opportunities continue to grow in both scale and complexity. We believe these relationships will continue to transition from vendor relationships, focusing on the operational delivery of services, to strategic partnerships focused on long-term, goal-oriented delivery of services.

Enhance our operating margins – We intend to continue to pursue the following initiatives to increase profitability:

• restructuring of legacy ARM business;

• standardization of systems and practices;

• consolidation of facilities;

• automation of clerical functions;

• utilization of near shore and/or offshore labor;

• statistical analysis to improve performance and reduce operational expenses; and

• leveraging our global size and reach.

 

-3-

Business process improvements – We continually strive to develop and enhance our technology and infrastructure with initiatives that improve the efficiency of our operations and enhance client service. Examples of recent initiatives include:

• Pattern recognition system: In December 2005, we acquired a proprietary pattern recognition system designed to determine the patterns and profiles that precede customer decisions such as purchase or defection. Leveraging predictive analytic technologies increases the ability to predict customers’ behavior, thus improving the results of the outsourced solutions we provide to our clients as well as improving our purchased portfolio analytics.

• Enterprise resource planning system: In 2004, we began planning a multi-year implementation of an enterprise resource planning system, referred to as ERP. Key objectives were to transform key business platforms to enable improved operating efficiencies, integrated management information across the enterprise and leading practices in managing controls. In 2005, we successfully converted our financial, human resources and CRM platforms in accordance with such plan. In 2006, our plan is to continue with targeted and strategic initiatives that leverage the investments of 2005. This implementation will enable us to more efficiently manage the changing requirements of our industry and clients, and provide critical business information to more effectively operate our business.

• Enhanced data management and analytics:  We have implemented both client-specific and pooled segmentation models to better focus our collections efforts. These models, coupled with iterative segment-based treatment testing, provide benefits by reducing operational expense and increasing collection revenues.

• Online access for subcontractor agencies: Leveraging the technology used to service our Attorney Network System, which brings us online with over 100 law firms across the United States, we have expanded this system to also support the data exchange requirements with other agencies we utilize to service accounts. These agencies are now able to receive, process, and return updates using the latest web server technology.

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

• E-commerce initiatives: We have implemented e-commerce initiatives for specific client programs in key market sectors. Additionally, we are implementing technologies to allow communication with our clients’ customers through other web-based tools, including email response, interactive chat, and voice over Internet protocol technologies, as well as electronic bill presentment and payment. We have developed web-based platforms that process real-time credit card authorizations and electronic bank draft payments that are applied to customer accounts on our clients’ billing system. The system is available to the clients’ employees inside their own call centers and to their customers for self-service over the Internet.

• On-going business process reengineering: We continue to drive improved performance and reduced cost through our on-going focus on business process improvement. We implemented significant behind-the-scenes technology to streamline and improve all operations, including automated internal skip tracing, dedicated connectivity between facilities, automated mail extraction and payment posting equipment, and additional system storage capacity. We also implemented web-enabled reporting technology to replace the need for other forms of electronic reporting or hard copy reports.

-4-

• Technology support center: Our industry-leading Information Technology (“IT”) infrastructure monitoring and management system provides graphical displays and a notification system that rapidly alerts trained staff to potential business-impacting problems. In many cases, the staff is alerted before the end-user community is affected. This industry innovation allows us to combine the classic IT Help Desk and the first and second levels of systems and network administration roles to provide maximized return on investment, increased quality of end-user support, and a single point of information coordination and dissemination to our end users and business management.

• Enhanced data security: We continue to deploy both physical and system security enhancements to help ensure ongoing protection and privacy of NCO and client data as well as network and systems hardening. We incorporate state of the art password, access and authentication controls, and have empashized security awareness training programs.

Expand internationally – We believe that business process outsourcing is gaining widespread acceptance throughout Canada, Europe and Australasia. Our international expansion strategy is designed to capitalize on each of these markets in the near term, as well as continue to develop access to lower-cost foreign labor. Our subsidiary in Canada is one of the largest providers of BPO services in Canada. We also operate a significant operation in Europe. We expect to further penetrate these markets through increased sales of ARM and CRM services, as well as through the pursuit of accounts receivable purchase opportunities. Additionally, we expect to pursue direct investments, strategic alliances and partnerships as well as further explore acquisitions in these markets and other markets.

In addition to providing services to these core markets, we also provide our domestic clients with a cost-effective option of using such foreign labor markets as Canada, the Philippines, India, Panama and the Caribbean to provide effective services. We currently have approximately 6,100, 1,200, 700, 500 and 200 telephone representatives working in Canada, the Philippines, India, the Caribbean and Panama for our U.S. clients, respectively. We are in the process of expanding our presence in these markets as well as exploring new opportunities in other labor markets such as Eastern Europe, Central America and other parts of the Caribbean.

Purchase of delinquent accounts receivable – Since 1999, we have expanded our portfolio purchase platform. In 2005, we expanded our presence in the medical and utilities industries, as well as with telecom companies and credit card issuers. Purchases totaled $180.2 million for 2005, compared to $89.7 million in 2004 and $74.3 million in 2003. Our strategic plan focuses on sourcing opportunities for larger purchases, which we currently believe is a less competitive arena. In 2005, we were successful in executing our plan by acquiring several larger portfolios, including portfolios acquired through the acquisition of subsidiaries of Marlin Integrated Capital Holding Corporation, referred to as Marlin, for approximately $66 million, and the acquisition of Risk Management Alternatives Parent Corp., referred to as RMA, for approximately $51 million. These two purchases were our largest since entering the business.

The market for distressed consumer receivables continues to attract significant new capital. Over the last two years, established companies have completed initial public offerings, private and public competitors have announced new credit facilities to purchase portfolios, and several new entrants have emerged. The number of portfolios available for sale has increased as well, but we believe the demand outweighs the supply, and as a result, the purchase price for portfolios has been on the rise for some time. Our strategy of seeking sizable opportunities has met with success, and we will continue to pursue larger opportunities. We believe the combination of financial strength,

-5-

our sophisticated technology network, focus on compliance, and the scalability of our servicing platform gives us an advantage over our competition.

We also expect to see growth in international purchase opportunities. In December 2005, we entered into a fixed price, or “forward-flow”, agreement with a British arm of a large U.S. bank to purchase, on a monthly basis, portfolios of charged-off accounts receivable meeting certain criteria for a 12-month period. Since the acquisition of the minority interest in NCO Portfolio Management, Inc. in 2004, we have begun to unite our U.S.-based purchasing group with our international purchasing groups under one combined set of underwriting, purchasing and performance maximization teams.

While our principal portfolios continue to be larger credit card and similar U.S. based consumer receivables, our growth strategy includes the expansion into telecommunications, utilities, medical and other generally smaller balance receivables. Through our acquisition of the portfolio of purchased accounts receivable from Marlin for approximately $66 million, we became one of the largest buyers of medical and utility consumer debt.

Operationally, we have increased our focus on improving collections, reducing servicing costs and maximizing returns on our purchased portfolio investments. Through enhanced analysis of portfolio performance, we have been able to target more profitable segments within a portfolio. In 2005 we also began a process of identifying and selling older, unresolved accounts that we believe have a low probability of collection and/or can be sold currently for more than we can collect over time, net of servicing costs. These accounts have a low carrying value, and the sales price of the accounts is often higher than the present value of holding them. To date, we have not experienced any material adverse affect on the cash flows of the older portfolios as a result of this process.

Explore strategic acquisition opportunities – During 2005, we completed three acquisitions: Creative Marketing Strategies, referred to as CMS, in May 2005 for $5.9 milion, seven wholly owned subsidiaries of Marlin Integrated Capital Holding Corporation, referred to as Marlin, in September 2005 for $88.4 million, and substantially all of the operating assets, including purchased portfolio assets, of Risk Management Alternatives Parent Corp. and its subsidiaries, referred to as RMA, in September 2005 for $118.9 million.

The business process outsourcing industry is highly fragmented in the United States. The vast majority of these participants are small, local businesses. Although our current focus is on internal growth and the integration of the RMA and Marlin acquisitions, we believe we will continue to find attractive acquisition opportunities over time.

Services

We provide the following BPO services:

Accounts Receivable Management and Collection

We provide a wide range of ARM services to our clients by utilizing an extensive technological infrastructure. Although traditional ARM services have focused on the recovery of delinquent accounts, we also engage in the recovery of current accounts receivable and early stage delinquencies (generally, accounts that are 90 days or less past due). We generate approximately 65 percent of our ARM 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

-6-

such, our contingent fees typically range from 15 percent to 35 percent of the amounts recovered on behalf of our clients. Our average fee for contingency-based revenue across all industries, excluding our one long-term collection contract, was approximately 18 percent during 2005, and 19 percent during 2004 and 2003.

ARM services typically include the following activities:

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

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

Account Notification. We initiate the recovery process by forwarding a preliminary letter that is designed to seek payment of the amount due or open a dialogue with client’s customers. This letter also serves as an official notification to each client’s customer of his or her rights as required by the Federal Fair Debt Collection Practices Act. We continue the recovery process with a series of mail and telephone notifications. Telephone representatives remind the client’s customer of their obligation, inform them that their account has been placed for collection with us and begin a dialogue to develop a payment program.

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

First Party Early Stage Delinquency Calls. Although companies understand the importance of contacting customers early in the delinquency cycle, some do not possess the resources necessary to sustain consistent and cost-effective outbound telephone campaigns. We provide a customized, service approach to contact our clients’ customers and remind them of their obligation to pay their accounts.

We typically conduct reminder calls in the client’s name to recently past due customers and courtesy collection calls to more seriously delinquent customers. Our representatives leave courteous messages if telephone contact attempts are unsuccessful after the second day.

-7-

Third Party Collection Services. The most common challenges encountered by companies are how to prompt seriously delinquent customers to make payment before they are charged off as uncollectible or to collect the full balance after charge-off. Our third party collection services communicate a sense of urgency to seriously delinquent customers during these periods, reducing net charge-offs and the cost of collection.

Credit Reporting. Credit bureau reporting is used as a collection tool in accordance with NCO’s policy, federal statutes, and client guidelines. At a client’s request, we will electronically report delinquent accounts to one or more of the national credit bureaus where it will remain for a period of up to seven years. The possible denial of future credit often motivates the resolution of past due accounts.

Payment Processing. After we receive payment from the client’s customer, depending on the terms of our contract with the client, we can either remit the amount received minus our fee to the client or remit the entire amount received to the client and subsequently bill the client for our collection services.

Activity Reports. Clients are provided with a system-generated set of 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 financial services organizations 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.

Customer Relationship Management

Our CRM services allow our clients to strengthen their customer relationships by providing a high level of support to their customers and generate incremental sales by acquiring new customers. We design and implement customized outsourced customer care solutions including the following:

Customer Care and Retention. Our representatives specialize in developing and maintaining the relationships that our clients value. Customer care programs vary depending upon each client’s specific goals, but often include services such as customer development and outbound and inbound calling campaigns. Our representatives handle customer care inquiries such as billing questions, product and service inquiries, and complaint resolution. We also place calls on behalf of clients in welcoming new customers, retaining current customers, delivering notifications and conducting market research or satisfaction surveys. All programs include specialized training so every representative is a seamless extension of our clients’ businesses.

Customer Acquisition and Sales. We support inbound and outbound sales efforts by conducting customized programs designed to acquire new customers, renew current customers, and win back or win over targeted customers. We execute every phase of the sales order process, pre- and post-sale, from answering product related questions and making sales presentations to up selling, cross selling and order processing.

-8-

Product and Technical Support. In support of the increasing dependence of customers and businesses on technology, prompt and accurate responses to technology inquires, product-related support issues, and service related concerns has become a cornerstone to maintaining high customer satisfaction and achieving retention goals. Our product support services include help desk, troubleshooting, warranty, recall, and upgrade support. We strive for first call resolution and are committed to meeting client service level requirements. Our highly trained customer contact staff is knowledgeable in all components of technical support and help desk related service requirements, and is adept at troubleshooting, evaluation and escalation procedures and resolving complaints quickly and effectively to increase our clients’ customer retention and loyalty.

Interactive Voice Response. We use interactive voice response technology to cost-effectively facilitate customer care for our clients. Customers can efficiently obtain account balance information, transfer funds, place an order, check status of an order, pay a bill, or answer a survey. Incoming calls are routed to representatives through systematic call transfer protocols or as a result of a toll-free number being included on customer correspondence. The process is completely automated, and if the caller wants to speak to a representative they can choose to be connected to a live NCO customer service professional. This combination of live and recorded telephone interaction benefits the customer through efficient, 24-hour service, and decreased operating costs.

Email Management. The key to attracting and retaining customers is easy accessibility. Our email management services allow our clients’ customers to communicate with them whenever, day or night, 24 hours a day, seven days a week. Our response generation and intelligent routing provide an efficient means to respond to customer needs while increasing our clients’ operational effectiveness and decreasing their costs.

Web Chat. We have the ability to communicate with clients’ customers through our live Web chat service. Faster than email, our Web chat solution allows customers to interact with agents in real time. We can leverage our Web chat technology to provide customer care, answer product questions, or offer technical support.

In-Language Contact. Our global network of call centers support all major languages, including English, Spanish, French, Arabic, Korean, Hindi, Polish, Russian, Tagalog, and numerous Asian dialects. We have a wealth of experience supporting multilingual programs and can work with clients to meet any language requirement.

Facilities Management. Our Facilities Management Services allow us to take on operational responsibility for an existing call center facility when outsourcing to an alternate location is not in our clients’ best interests.

Pattern Recognition System. In December 2005, we acquired a proprietary pattern recognition system designed to enhance client results by determining the patterns and profiles that precede customer decisions such as purchase or defection. Leveraging predictive analytic technologies increases the ability to predict customers’ behavior thus improving the results of the outsourced solutions we provide to our clients.

Consulting Services. We offer ancillary consulting services to assist clients in areas from systems integration and applications development to script development and Do Not Call list management.

-9-

Portfolio Management

Our Portfolio Management business segment purchases, collects and manages portfolios of purchased accounts receivable. These portfolios have consisted primarily of delinquent accounts receivable. We are ranked among the top 10 debt purchasers, according to data gathered in June 2005 by The Nilson Report, an industry news source.

Additional Services

We selectively provide other related services that complement our traditional ARM and CRM businesses and leverage our technological infrastructure. We believe that the following services will provide additional growth opportunities for us:

Attorney Network Services. We coordinate and implement legal collection solutions undertaken on behalf of our clients through the management of nationwide legal resources specializing in collection litigation. Our collection support staff manages the attorney relationships and facilitates the transfer of all necessary documentation.

NCOePayments. We provide our clients’ customers with multiple secure payment options, accessible via the telephone and the Internet, 24 hours a day, 365 days a year. We also provide contact center solutions utilizing our extranet technology, allowing representatives to take payments directly from the customer.

Financial Investigative Services. We develop the information needed to profile commercial debtors and make decisions affecting extensions of credit. Our investigators uncover background and financial data using resources such as asset and liability searches, background investigations, and chain of title investigations.

Order Processing. We support every phase of order processing, including answering product-related questions and making sale presentations, up selling and cross selling, order entry, and providing post-sale support.

Back Office Support. We coordinate customizable back office solutions including: billing, payment processing, medical certification, bankruptcies, and accounting.

Technology and Infrastructure

We have implemented a scalable technical infrastructure that can flexibly support growing client volume while delivering the highest levels of service. Our customer contact centers feature state-of-the-art technologies, including predictive dialers, automated call distribution systems, digital switching, digital recording, workforce management systems and customized computer software, including the NCO ACCESS Interface Manager. This is a graphical user interface and computer desktop application we developed for use in large-scale outsourcing engagements that enables data integration, enhanced reporting, representative productivity, implementation speed, and security. As a result, we believe we are able to address outsourced business process activities more reliably and more efficiently than our competitors. Our IT staff is comprised of over 300

-10-

employees. We provide our services through the operation of 100 centers that are electronically linked through an international wide area network.

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 believe fast recovery and continuous operation are ensured with multiple redundancies, uninterruptible power supplies and contracted backup and recovery services. We have implemented a security system to protect the integrity and confidentiality of our computer systems and data, and we maintain comprehensive business interruption and critical systems insurance on our telecommunications and computer systems. Our systems also permit secure network access to enable clients to electronically communicate with us and monitor operational activity on a real-time basis. We employ a variety of measures including firewalls, encryption, data access, permissions, and site security to ensure data remains safe and secure.

Our ARM call centers utilize predictive dialers with a total of over 6,700 stations to address our low-balance, high-volume accounts, and our CRM centers utilize approximately 1,200 predictive dialer stations to conduct our clients’ outbound calling campaigns. 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 staff.

Quality Assurance and Client Service

Our reputation for quality service is critical to acquiring and retaining clients. Therefore, our representatives are supervised, by both NCO and our clients, for strict compliance with client specifications, our policies, and applicable laws and regulations. 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, as well as federal, state and local guidelines, quality assurance personnel supervise 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 contacts 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 active client base currently includes over 22,400 companies in the financial services, telecommunications, healthcare, utilities, transportation/logistics, education, retail and commercial, technology, and government sectors. Our 10 largest clients in 2005 accounted for approximately 37

-11-

percent of our consolidated revenue. In 2005, our largest client was Capital One Financial Corporation and it accounted for 10.7 percent of our consolidated revenue. No other client accounted for more than 10 percent of our consolidated revenue. While our CRM division relies on revenue from a few key clients, none of these clients represented more than 10 percent of our consolidated revenue. In 2005, we derived 39.3 percent of our revenue, excluding purchased accounts receivable, from financial services (which includes the banking and insurance sectors), 18.9 percent from telecommunications companies, 16.5 percent from healthcare organizations, 6.8 percent from utilities, 4.9 percent from transportation/logistics companies, 4.3 percent from retail and commercial entities, 4.2 percent from educational organizations, 4.2 percent from technology companies, and 0.9 percent from government entities.

We enter into ARM 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 diminishes over time. Under the terms of our contracts, clients are not required to place accounts with us but do so on a discretionary basis.

Our CRM contracts are generally for terms of up to three years. Contracts are typically terminable by either party upon 60 days notice; however, in some cases, particularly in our longer term inbound contracts which often require substantial capital expenditures on our part, a client may be required to pay us a termination fee in connection with an early termination of the contract.

In addition, certain inbound CRM contracts may contain minimum volume commitments requiring our clients to provide us with agreed-upon levels of calls during the terms of the contracts. Our fees for services rendered under these contracts are based on pre-determined contracted chargeable rates that may include a base rate per minute or per hour plus a higher rate or “bonus” rate if we meet pre-determined objective performance criteria, such as sales generated during a defined period, and may be reduced by any contractual monthly performance penalties to which the client may be entitled. Additionally, we may receive additional discretionary client determined bonuses based upon criteria established by our clients.

Some of our customer contracts provide for limited currency rate protection below certain pre-determined exchange rate levels and limited gain sharing above certain pre-determined exchange rate levels. Such contracts may mitigate certain currency risks, however, there can be no assurance that new contracts will be successfully negotiated with such provisions or that existing contract provisions will result in the reduction of currency risk for such contracts.

On occasion we enter into “forward-flow” agreements for the purchase of accounts receivable from consumer credit grantors. A forward-flow agreement is a commitment to purchase a defined volume of accounts from a seller for a designated period of time at a fixed price.

Personnel and Training

Our success in recruiting, hiring and training a large number of employees is critical to our ability to provide high quality BPO services programs to our clients. We seek to hire personnel with previous experience in the industry or with experience as telephone representatives. We generally offer internal promotion opportunities and competitive compensation and benefits.

All of our call center personnel receive comprehensive training that consists of three stages: Introduction Training, Behavioral Training and Functional Training. These programs are conducted

-12-

through a combination of classroom and role-playing sessions. 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 and on-going refresher training, as well as additional product training on an as-needed basis.

As of December 31, 2005, we had a total of approximately 18,200 full-time employees and 1,800 part-time employees, of which 17,000 are telephone representatives. We believe that our relations with our employees are good. In addition, as of December 31, 2005, we also utilized approximately 700, 200 and 100 telephone representatives through a subcontractor in India, Panama and Antigua, respectively. Typically our employees are not represented by a labor union; however, in February 2006, our employees in Surrey, British Columbia, Canada voted in favor of joining the B.C Government and Services Employees’ Union. We are currently working on reaching a collective agreement, which will only cover the Surrey call center. We are not aware of any union organizing efforts at any of our other facilities.

Sales and Marketing

Our sales force is organized into three functional groups to best match our sales professionals’ experience and expertise with the appropriate target market. This structure allows us to strategically allocate resources corresponding to potential revenue and partnership opportunities.

The largest group consists of approximately 120 telephone sales representatives who specialize in business-to-business BPO solutions for small to mid-sized companies.

Our core sales force, composed of approximately 50 sales professionals, is organized by industry vertical and geographical location to ensure the highest level of focus and service to potential and existing business partners. This group specializes in direct sales efforts aimed at delivering customized outsourced solutions primarily within the ARM market space.

Our Enterprise Team consists of six seasoned sales veterans who focus on forming and cultivating strategic, long-term partnerships with large, multinational firms in order to maximize outsourcing opportunities via our full suite of BPO services.

During the fourth quarter of 2004, we implemented the Client Relationship Management Module of our ERP. This module provides tools to support both Sales and Operations in the management of client relationships from initial identification of a prospect to the care and retention of long-term clients. The module is fully implemented on our IT Operating Platform, and will be deployed to NCO Sales staff during the first half of 2006. Sales staff will undergo in-house training, which was developed by the Company during 2005.

Our in-house marketing department provides innovative customer contact solutions and sales support by performing a wide range of personalized services such as customer database administration, advertising, marketing campaigns and direct mailings, collateral development, trade show and site visit management, market and competitive research, and more. We also maintain a dedicated team of skilled writers who prepare detailed, professional responses to formal requests for proposals and requests for information.

-13-

Competition

The BPO industry is highly competitive. We compete with a large number of ARM providers, including large national corporations such as GC Services LP, IntelliRisk Management Corporation, and Outsourcing Solutions, Inc., as well as many regional and local firms. We also compete with large customer care outsourcing providers such as Convergys Corporation, Precision Response Corporation, SITEL Corporation, TeleTech Holdings, Inc., and West Corporation. 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 BPO services offered by us in-house. Moreover, many larger clients retain multiple outsourcing 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 quality service, sophisticated call and information systems, and a competitive price.

Our Portfolio Management segment competes with other purchasers of delinquent consumer accounts receivable, such as Asset Acceptance Capital Corp., Asta Funding, Inc., Encore Capital Group, Inc. and Portfolio Recovery Associates, Inc. The purchased accounts receivable business has become increasingly competitive over the past few years, with several new companies entering the market. While the number of portfolios available for sale has increased somewhat, we believe the demand outweighs the supply, which has caused pricing to increase. Our competitors may have greater access to financing sources to purchase portfolios than we do, and may be able to outbid us on available portfolios. We believe the primary competitive factor in this business is the ability to purchase portfolios at reasonable prices.

Regulation

Accounts Receivable Management and Collection

The ARM industry in the United States is regulated both at the federal and state level. The Federal Fair Debt Collection Practices Act, referred to as the FDCPA, 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 FDCPA 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 FDCPA 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 FDCPA 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, referred to as the FTC, has the authority to investigate consumer complaints against debt collection companies and to recommend enforcement actions and seek monetary penalties. The ARM 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 state licenses from all states where required.

-14-

We provide services to healthcare clients that are considered “covered entities” under the Health Insurance Portability and Accountability Act of 1996, referred to as HIPAA. As covered entities, our clients must comply with the standards for privacy, transaction and code sets, and data security. Under HIPAA, we are considered a “business associate,” which requires that we protect the security and privacy of “protected health information” provided to us by our clients for the collection of payments for healthcare services. We believe that we operate in compliance with all applicable standards under HIPAA in all material respects.

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

In addition, the ARM industry is regulated in the United Kingdom and Europe, including licensing requirements. We believe we hold all necessary licenses required in the United Kingdom and Europe. If we expand our international operations, we may become subject to additional government control and regulation in other countries, which may be more onerous than those in the United States.

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

Customer Relationship Management

In the United States, there are two major federal laws that specifically address telemarketing, the Telephone Consumer Protection Act, referred to as TCPA, which authorized the Federal Communications Commission, referred to as the FCC, to adopt rules implementing the TCPA, and the Telemarketing and Consumer Fraud and Abuse Prevention Act, referred to as the Fraud Prevention Act, which authorized the FTC, to adopt the Telemarketing Sales Rule, referred to as the TSR. Over the past few years, the TSR has been amended to include several new restrictions on telemarketing activities. In addition, the states have various regulatory restrictions and requirements for telemarketing companies.

The TCPA places restrictions on unsolicited automated telephone calls to residential telephone subscribers by means of automatic telephone dialing systems, prerecorded or artificial voice messages and telephone fax machines. In addition, the regulations require CRM firms to develop a “do not call” list and to train their CRM personnel to comply with these restrictions. The TCPA creates a right of action for both consumers and state attorneys general. A court may award damages or impose penalties of $500 per violation, which may be trebled for willful or knowing violations. Currently, we train our service representatives to comply with the regulations of the TCPA. On March 11, 2003, the Do-Not-Call Implementation Act, referred to as the Do-Not-Call Act, was signed into law. The Do-Not-Call Act required the FCC to issue final rules under the

-15-

TCPA to maximize the consistency of the TCPA with the FTC’s December 18, 2002 amendments to the TSR, as discussed below. Accordingly, on July 3, 2003, the FCC issued rules regarding the national do-not-call registry, call abandonment and caller ID requirements.

The FTC regulates both general sales practices and telemarketing specifically and has broad authority to prohibit a variety of advertising or marketing practices that may constitute “unfair or deceptive acts or practices.” Pursuant to its general enforcement powers, the FTC can obtain a variety of types of equitable relief, including injunctions, refunds, disgorgement, the posting of bonds and bars from continuing to do business for a violation of the acts and regulations it enforces.

The FTC also administers the Fraud Prevention Act under which the FTC has issued the TSR prohibiting a variety of deceptive, unfair or abusive practices in direct telephone sales. Generally, these rules prohibit misrepresentations of the cost, quantity, terms, restrictions, performance or characteristics of products or services offered by telephone solicitation or of refund, cancellation or exchange policies. The rules also regulate the use of prize promotions in direct telephone sales to prevent deception and require that a telemarketer identify promptly and clearly the seller on whose behalf the CRM representative is calling, the purpose of the call, the nature of the goods or services offered and that no purchase or payment is necessary to win a prize. The regulations also require that providers of services maintain records on various aspects of their businesses.

On December 18, 2002, the FTC amended the TSR. The major change was the creation of a centralized national “do not call” registry. Federal enforcement of the National Do Not Call Registry began on October 1, 2003. A consumer who receives a telemarketing call despite being on the registry can file a complaint with the FTC, either online or by calling a toll free number. Violators could be fined up to $11,000 per incident. In addition, the amended TSR restricts call abandonment (with certain safe harbors) and unauthorized billing. Further, as of January 29, 2004, the amended TSR requires telemarketers to transmit their telephone numbers and, if possible, their names to consumers’ “caller id” services.

At the state level, most states have enacted consumer protection statutes prohibiting unfair or deceptive acts or practices as they relate to telemarketing sales. For example, telephone sales in certain states are not final until a written contract is delivered to and signed by the buyer, and such a contract often may be canceled within three business days. At least one state also prohibits parties conducting direct telephone sales from requesting credit card numbers in certain situations, and several other states require certain providers of such services to register annually, post bonds or submit sales scripts to the state’s attorney general. Under these general enabling statutes, depending on the willfulness and severity of the violation, penalties can include imprisonment, fines and a range of equitable remedies such as consumer redress or the posting of bonds before continuing in business.

Additionally, some states have enacted laws and others are considering enacting laws targeted at direct telephone sales practices. Some examples include laws regulating electronic monitoring of telephone calls and laws prohibiting any interference by direct telephone sales with “caller id” devices. Most of these statutes allow a private right of action for the recovery of damages or provide for enforcement by state agencies permitting the recovery of significant civil or criminal penalties, costs and attorneys’ fees. There can be no assurance that any such laws, if enacted, will not adversely affect or limit our current or future operations.

To date, 16 states have established statewide “do not call” lists. Twenty-five states have opted to use the FTC’s Do Not Call list as the official state list.

-16-

The industries we serve are also subject to government regulation, and, from time to time, bills are introduced in Congress, which, if enacted, could affect our operations. We, and our employees who sell insurance products, are required to be licensed by various state and provincial insurance commissions for the particular type of insurance product to be sold and are required to participate in regular continuing education programs.

Telecommunications is another industry we serve that is subject to government regulation. For example, “slamming” is the illegal practice of changing a consumer’s telephone service without permission. The FCC has promulgated regulations regarding slamming rules that apply solely to the telecommunications carrier and not the telemarketer or the independent party verifying the service change. However, some state slamming rules may extend liability for violations to agents and other representatives of telecommunications carriers, such as telemarketers.

Our representatives undergo an extensive training program, part of which is designed to educate them about applicable laws and regulations and to try to ensure their compliance with such laws and regulations. Also, we program our call management system to avoid initiating telephone calls during restricted hours or to individuals maintained on our “do not call” list.

In Canada, the Canadian Radio-Television and Telecommunications Commission, referred to as CRTC, enforces rules regarding unsolicited communications using automatic dialing and announcing devices, live voice and fax. Companies that violate any of the restrictions on unsolicited calls may have their telephone service terminated after two business days’ notice from the telephone company. Effective October 1, 2004, the CRTC was to require telemarketers to provide consumers with a unique registration number confirming a consumer’s do not call request; however, on September 28, 2005, the CRTC granted the request of the Canadian Marketing Association, referred to as CMA, for a stay of decision, pending its consideration of the CMA’s appeal.

In November 2005, a bill was announced to amend the Telecommunications Act, which would allow the creation of a Canadian National Do Not Call list where consumers could register once to stop all unwanted telemarketing calls. The CRTC stated that it would be counter-productive to establish a National Do Not Call registry without significant enforcement and administrative measures, which the current bill is lacking. Once revised to include these measures and if passed by Parliament, the CRTC will begin public consultations.

In 2001, the federal government of Canada enacted the Personal Information Protection and Electronic Documents Act, referred to as the Federal Act. Effective January 1, 2004, the Federal Act requires all commercial enterprises to obtain consent for the collection, use, and disclosure of an individual’s personal information. Failure to comply with the Federal Act could result in significant fines and penalties or possible damage awards for the tort of public humiliation. In addition to the foregoing sanctions, the Federal Act also contemplates that any finding of an improper use of personal information will be subject to public disclosure by the Privacy Commissioner. The Federal Act permits any Province of Canada to enact substantially similar legislation governing the subject matter of the Federal Act, in which case the legislation of the Province will override the provisions of the Federal Act. Our Canadian operations are located primarily in the Provinces of Ontario, British Columbia and New Brunswick. British Columbia has enacted legislation, referred to as the B.C. Act, governing the subject matter of the Federal Act. The federal government of Canada has not yet declared the B.C. Act substantially similar to the Federal Act. Until such time as the federal government of Canada makes such declaration, both the B.C. Act and the Federal Act will apply concurrently to our operations in British Columbia. Though

-17-

neither has yet enacted legislation that is substantially similar to the Federal Act, both Ontario and New Brunswick have indicated that they may enact legislation governing the subject matter of the Federal Act. Failure to comply with the Federal Act, the B.C. Act, as well as, any such future legislation enacted by Ontario, New Brunswick or any other provinces in which we operate, may have an adverse affect on, or limit our current or future, operations.

The Competition Act contains a number of provisions that regulate the conduct of telemarketers in Canada, in particular the manner in which outbound calls are to be conducted. Failure to comply with such legislation could adversely affect our business.

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

Segment and Geographical Financial Information

See note 20 in our Notes to Consolidated Financial Statements for disclosure of financial information regarding our segments and geographic areas.

Item 1A.      Risk Factors.

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.

Our business is dependent on our ability to grow internally.

Our business is dependent on our ability to grow internally, which is dependent upon:

• our ability to retain existing clients and expand our existing client relationships; and

• 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:

• we fail to maintain the quality of services we provide to our clients;

• we fail to maintain the level of attention expected by our clients;

• we fail to successfully leverage our existing client relationships to sell additional services; and

• we fail to maintain competitively priced services to our clients.

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

• the market acceptance of our service offerings;

• the quality and effectiveness of our sales force; and

• the competitive factors within the BPO industry.

 

-18-

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.

Implementation of our ERP system could cause business interruptions and negatively affect our profitability and cash flows.

In 2004, we began planning a multi-year implementation of an ERP system. The first phases of the implementation were rolled out in 2005, and we expect the implementation, as currently planned, will continue in several phases over the next few years. Implementation of ERP systems and the accompanying software carry risks such as cost overruns, project delays, business interruptions, and the diversion of management’s attention from operations. These risks could adversely affect us, and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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 record the results of our collection efforts, as well as to provide customer service to our clients’ customers. 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. Telecommunications and computer technologies are changing rapidly and are characterized by short product life cycles, so 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 could be materially adversely affected.

We are highly dependent on our telecommunications and computer systems.

As noted above, our business is highly dependent on our telecommunications and computer systems. These systems could be interrupted by terrorist acts, natural disasters, power losses, computer viruses, or similar events. Our business is also 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 revenue only as ARM accounts are collected and CRM services are provided, any failure or interruption of services would mean that we would continue to incur payroll and other expenses without any corresponding income.

An increase in communication rates or a significant interruption in communication service could harm our business.

Our ability to offer services at competitive rates is highly dependent upon the cost of communication services provided by various local and long distance telephone companies. Any change in the telecommunications market that would affect our ability to obtain favorable rates on communication services could harm our business. Moreover, any significant interruption in communication service or developments that could limit the ability of telephone companies to provide us with increased capacity in the future could harm existing operations and prospects for future growth.

-19-

We compete with a large number of providers in the ARM and CRM industries, and other purchasers of consumer debt. This competition could have a materially adverse effect on our future financial results.

We compete with a large number of companies in the industries in which we provide services. In the ARM industry, we compete with other sizable corporations in the United States and abroad such as GC Services LP, IntelliRisk Management Corporation, and Outsourcing Solutions, Inc., as well as many regional and local firms. In the CRM industry, we compete with large customer care outsourcing providers such as Convergys Corporation, Precision Response Corporation, SITEL Corporation, TeleTech Holdings, Inc., and West Corporation. 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 BPO services offered by us in-house. Many larger clients retain multiple BPO 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 fees to remain competitive and this competition could have a materially adverse effect on our future financial results.

Our Portfolio Management business competes with other purchasers of consumer delinquent accounts receivable, such as Asset Acceptance Capital Corp., Asta Funding, Inc., Encore Capital Group, Inc. and Portfolio Recovery Associates, Inc. The purchased accounts receivable business has become increasingly competitive over the past few years, with several new companies entering the market. While the number of portfolios available for sale have increased, we believe the demand outweighs the supply, which has caused pricing to increase. Our competitors may have greater access to credit to purchase portfolios than we do, and may be able to outbid us on available portfolios. In the future we may have to pay more for our portfolios, which could have an adverse impact on our financial results.

Many of our clients are concentrated in the financial services, telecommunications, and healthcare 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, 2005, we derived approximately 39.3 percent of our revenue, excluding purchased accounts receivable, from clients in the financial services sector, approximately 18.9 percent of our revenue from clients in the telecommunications industry, and approximately 16.5 percent of our revenue from clients in the healthcare sector. If any of these sectors performs poorly, clients in these sectors may do less business with us, or they may elect to perform the services provided by us in-house. If there are any trends in any of these sectors to reduce or eliminate the use of third-party BPO service providers, it could harm our business.

We have international operations and utilize foreign sources of labor, and various factors relating to our international operations, including fluctuations in currency exchange rates, could adversely affect our results of operations.

Approximately 4.4% of our 2005 revenues were derived from clients in Canada and the United Kingdom for ARM services. Political or economic instability in Canada or the United Kingdom could have an adverse impact on our results of operations due to diminished revenues in these countries. Our future revenue, costs of operations and profit results could also be affected by a number of other factors related to our international operations, including changes in economic

-20-

conditions from country to country, changes in a country’s political condition, trade protection measures, licensing and other legal requirements, and local tax issues. Unanticipated currency fluctuations in the Canadian Dollar, British Pound or Euro could lead to lower reported consolidated results of operations due to the translation of these currencies into U.S. dollars when we consolidate our financial results.

We provide ARM and CRM services to our U.S. clients utilizing foreign sources of labor through call centers in Canada, India, the Philippines, Barbados, Antigua, and Panama. Any political or economic instability in these countries could have an adverse impact on our results of operations. A decrease in the value of the U.S. dollar in relation to the currencies of the countries in which we operate could increase our cost of doing business in those countries. In addition, we expect to expand our operations into other countries and, accordingly, will face similar exchange rate risk with respect to the costs of doing business in such countries as a result of any decreases in the value of the U.S. dollar in relation to the currencies of such countries. There is no guarantee that we will be able to successfully hedge our foreign currency exposure in the future.

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. We depend on the services of Mr. Barrist and the other members of our senior management team to, among other things, continue the development and implementation of our growth strategies, and maintain and develop our client relationships.

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

From time to time, we may seek to make acquisitions of companies that provide BPO services. We may be unable to make acquisitions if suitable companies that provide BPO services are not available at favorable prices due to increased competition for these companies.

We may have to borrow money, incur liabilities, or sell or issue 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 strategy.

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.

-21-

We are dependent on our employees and a higher turnover rate would have a material adverse effect on us.

We are dependent on our ability to attract, hire and retain qualified employees. The BPO industry, by its nature, is labor intensive and 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 to meet the needs of our business or to support our growth. If we are unable to do so, our results of operations could be harmed. Any increase in hourly wages, costs of employee benefits or employment taxes could also have a materially adverse affect.

The employees at one of our offices voted to join a labor union, which could increase our costs and result in a loss of customers.

In February 2006, the employees at our call center in Surrey, British Columbia, Canada voted in favor of joining the B.C Government and Services Employees’ Union. This action, as well as that of any other employees who are successful in organizing a labor union at any of our locations, could further increase labor costs, decrease operating efficiency and productivity in the future, result in office closures, and result in a loss of customers. We are currently not aware of any other union organizing efforts at any of our other facilities.

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:

• the timing of our clients’ 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 effects of a change of business mix on profit margins;

• the timing of additional selling, general and administrative expenses to support new business;

• fluctuations in foreign currency exchange rates;

• the amount and timing of new business;

• the costs and timing of completion and integration of acquisitions; and

• that our ARM 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 routinely publicly announce investor guidance concerning our expected results of operations. 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.

-22-

Our investor guidance reflects numerous assumptions, including our anticipated future performance, general business and economic conditions and other matters, some of which are beyond our control. In addition, unanticipated events and circumstances may affect our actual financial results. Our investor guidance is not a guarantee of future performance and the actual results throughout the periods covered by the investor guidance may vary from the projected results. If we do not achieve the results projected in our investor guidance, it could have a materially adverse effect on the market price of our common stock.

Goodwill and other intangible assets represented 53.5 percent of our total assets at December 31, 2005. If the goodwill or the other intangible assets, primarily our customer relationships, are deemed to be impaired, we may need to take a charge to earnings to write-down the goodwill or other intangibles to its fair value.

Our balance sheet includes goodwill, which 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. Other intangibles are primarily composed of customer relationships, which represents the information and regular contact we have with our clients.

Goodwill is tested at least annually for impairment. The annual impairment test is completed as of October 1^st of each year. The test for impairment uses a fair value based approach, whereby if the implied fair value of a reporting unit’s goodwill is less than its carrying amount, goodwill would be considered impaired. We make significant assumptions to estimate the future revenue and cash flows used to determine the fair value of our reporting units. If the expected revenue and cash flows are not realized or if a sustained significant depression in our market capitalization indicates that our assumptions are not accurately estimating our fair value, impairment losses may be recorded in the future.

Our other intangibles, including customer relationships, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The loss of a larger client could require a review of the customer relationship for impairment. We made significant assumptions to estimate the future cash flows used to determine the fair value of the customer relationship. If we lost a significant customer relationship, the future cash flows expected to be generated by the customer relationship would be less then the carrying amount, and an impairment loss may be recorded.

As of December 31, 2005, our balance sheet included goodwill and other intangibles that represented 50.4 percent and 3.1 percent of total assets, respectively, and 90.1 percent and 5.6 percent of shareholders’ equity, respectively. If our goodwill or customer relationships are deemed to be impaired, we may need to take a charge to earnings to write-down the asset to its fair value and this could have a materially adverse effect on the market price of our common stock.

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

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

• announcements of fluctuations in our operating results or our competitors’ operating results;

• the timing and announcement of acquisitions by us or our competitors;

• changes in our publicly available guidance of future results of operations;

 

-23-

• government regulatory action;

• changes in estimates or recommendations by securities analysts;

• adverse or unfavorable publicity about us, our services, or our competitors;

• the commencement of material litigation, or an unfavorable verdict, against us;

• announcements of restatements of prior period financial results;

• terrorist attacks, war and threats of attacks and war;

• additions or departures of key personnel; and

• sales of common stock.

In addition, the stock market in recent years has experienced significant price and volume fluctuations. 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.

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 14, 2006, there were 32,300,989 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 sell their shares in compliance with the volume limitations and other requirements imposed by Rule 144 adopted by the SEC.

In addition, as of March 14, 2006, we had the authority to issue up to approximately 5,422,061 shares of our common stock under our stock option plans. We also had outstanding notes convertible into an aggregate of 3,797,084 shares of our common stock at a conversion price of $32.92 per share. Additionally, we had outstanding warrants to purchase approximately 21,762 shares of our common stock at $32.97 per share, and 322,946 warrants assumed in connection with the RMH acquisition at a weighted average price of $40.42 per share.

“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 under 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 up to 5,000,000 shares of preferred stock without shareholder approval. In addition, our bylaws provide for a classified board, with each board member serving a staggered three-year term. Directors may be removed only for cause and only with the approval of the holders of at least 65 percent of our common stock.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential shareholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common stock.

-24-

Beginning in early 2003, we began a process to document and evaluate our internal controls over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations, which require annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent auditors addressing these assessments. In this regard, we have dedicated internal resources, engaged outside consultants and adopted a detailed work plan to: (i) assess and document the adequacy of internal controls over financial reporting; (ii) take steps to improve control processes, where appropriate; (iii) validate through testing that controls are functioning as documented; and (iv) implement a continuous reporting and improvement process for internal control over financial reporting. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we fail to correct any issues in the design or operating effectiveness of internal controls over financial reporting or fail to prevent fraud, current and potential shareholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common stock.

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

Terrorist attacks in the United States and abroad, as well as war and threats of war or actual conflicts involving the United States or other countries in which we operate, may adversely impact our operations, including affecting our ability to collect our clients’ accounts receivable. More generally, any of these events could cause consumer confidence and spending to decrease. They could also result in an adverse effect on the economies of the United States and other countries in which we operate. Any of these occurrences could have a material adverse effect on our results of operations, collections and revenue, and may result in the volatility of the market price for our common stock.

Risks Related to our ARM Business

We are subject to business-related risks specific to the ARM business. Some of those risks are:

Decreases in our collections due to economic conditions in the United States may have an adverse effect on our results of operations, revenue and stock price.

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

Most of our ARM contracts do not require clients to place accounts with us, may be terminated on 30 or 60 days notice, and 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 ARM 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

-25-

when we collect accounts. Therefore, under applicable accounting principles, we can recognize revenues only upon the collection of funds on behalf of clients.

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

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

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

Risks Related to our CRM Business

We are subject to business-related risks specific to the CRM business. Some of those risks are:

Consumer resistance to outbound services could harm the CRM services industry.

As the CRM services industry continues to grow, the effectiveness of CRM services as a direct marketing tool may decrease as a result of consumer saturation and increased consumer resistance to customer acquisition activities, particularly direct sales. This could result in a decrease in the demand for our CRM services.

Government regulation of the CRM industry and the industries we serve may increase our costs and restrict the operation and growth of our CRM business.

The CRM services industry is subject to an increasing amount of regulation in the United States and Canada. In the United States, the FCC places restrictions on unsolicited automated telephone calls to residential telephone subscribers by means of automatic telephone dialing systems, prerecorded or artificial voice messages and telephone fax machines, and requires CRM firms to develop a “do not call” list and to train their CRM personnel to comply with these restrictions. The FTC regulates both general sales practices and telemarketing specifically and has broad authority to prohibit a variety of advertising or marketing practices that may constitute “unfair or deceptive acts or practices.” Most of the statutes and regulations in the United States allow a private right of action for the recovery of damages or provide for enforcement by the FTC, state attorneys general or state agencies permitting the recovery of significant civil or criminal penalties, costs and attorneys’ fees in the event that regulations are violated. The Canadian Radio-Television and Telecommunications Commission enforces rules regarding unsolicited communications using automatic dialing and announcing devices, live voice and fax. We cannot assure you that we will be in compliance with all applicable regulations at all times. We also

-26-

cannot assure you that new laws, if enacted, will not adversely affect or limit our current or future operations.

Several of the industries we serve, particularly the insurance, financial services and telecommunications industries, are subject to government regulation. We could be subject to a variety of private actions or regulatory enforcement for our failure or the failure of our clients to comply with these regulations. Our results of operations could be adversely impacted if the effect of government regulation of the industries we serve is to reduce the demand for our CRM services or expose us to potential liability. We, and our employees who sell insurance products, are required to be licensed by various state insurance commissions for the particular type of insurance product sold and to participate in regular continuing education programs. Our participation in these insurance programs requires us to comply with certain state regulations, changes in which could materially increase our operating costs associated with complying with these regulations.

The CRM division relies on a few key clients for a significant portion of its revenues. The loss of any of these clients or their failure to pay us could reduce revenues and adversely affect results of operations.

The CRM division is characterized by substantial revenues from a few key clients. While no individual CRM client represented more than 10 percent of our consolidated revenue, we are exposed to customer concentration within this division. Most of these clients are not contractually obligated to continue to use our services at historic levels or at all. If any of these clients were to significantly reduce the amount of service, fail to pay, or terminate the relationship altogether, our CRM business could be harmed.

A decrease in demand for CRM services in one or more of the industries to which we provide services could reduce revenues and adversely affect results of operations.

Our CRM business is concentrated in the telecommunications industry. During 2004, announcements were made by a number of telecommunications companies that they were significantly reducing their participation in consumer markets. As a result, there have been reductions of services performed for certain of our telecommunications clients. A further reduction of such services or the elimination of the use of outsourced CRM services in this or any other industry could harm our CRM business.

Risks Related to our Purchased Accounts Receivable Business

We are subject to business-related risks specific to the Purchased Accounts Receivable business. Some of those risks are:

Collections may not be sufficient to recover the cost of investments in purchased accounts receivable and support operations.

We purchase past due accounts receivable generated primarily by consumer credit transactions. These are obligations that the individual consumer has failed to pay when due. The accounts receivable are purchased from consumer creditors such as banks, finance companies, retail merchants, hospitals, utilities, and other consumer-oriented companies. Substantially all of the accounts receivable consist of account balances that the credit grantor has made numerous attempts to collect, has subsequently deemed uncollectible, and charged off. After purchase, collections on accounts receivable could be reduced by consumer bankruptcy filings, which have been increasing. The accounts receivable are purchased at a significant discount, typically less than

-27-

10% of face value, to the amount the customer owes and, although we estimate that the recoveries on the accounts receivable will be in excess of the amount paid for the accounts receivable, actual recoveries on the accounts receivable will vary and may be less than the amount expected, and may even be less than the purchase price paid for such accounts. The timing or amounts to be collected on those accounts receivable cannot be assured. If cash flows from operations are less than anticipated as a result of our inability to collect accounts receivable, we may not be able to purchase new accounts receivable and our future growth and profitability will be materially adversely affected. There can be no assurance that our operating performance will be sufficient to service our debt or finance the purchase of new accounts receivable.

We use estimates to report results. If collections on portfolios are materially less than expected, we may be required to record impairment expenses that could have a materially adverse effect on us.

Our revenue is recognized based on estimates of future collections on portfolios of accounts receivable purchased. Although these estimates are based on analytics, the actual amount collected on portfolios and the timing of those collections will differ from our estimates. If collections on portfolios are materially less than estimated, we may be required to record impairment expenses that could materially adversely affect our earnings, financial condition and creditworthiness.

We may be adversely affected by possible shortages of available accounts receivable for purchase at favorable prices.

The availability of portfolios of past due consumer accounts receivable for purchase at favorable prices depends on a number of factors outside of our 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 we find attractive. If competitors raise the prices they are willing to pay for portfolios of accounts receivable above those we wish to pay, we may be unable to buy the type and quantity of past due accounts receivable at prices consistent with our historic return targets. In addition, we may overpay for portfolios of delinquent accounts receivable, which may have a materially adverse effect on our financial results.

We may be unable to compete with other purchasers of past due accounts receivable, which may have an adverse effect on our combined financial results.

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

-28-

Item 1B. Unresolved Staff Comments.

We, like other issuers, from time to time receive written comments from the staff of the SEC regarding our periodic or current reports under the Exchange Act. There are no comments that remain unresolved that we received not less than 180 days before the end of our fiscal year to which this report relates.

Item 2. Properties.

We currently operate 78 offices in the United States, including our corporate headquarters, of which 72 are used for ARM operations and 6 are used for CRM operations. We also operate 15 offices in Canada, nine for ARM operations and six for CRM operations, three offices in the United Kingdom for ARM operations, two offices in Puerto Rico for ARM operations, one office in Barbados for both ARM and CRM operations, and one office in the Philippines for ARM and CRM operations. The leases of these facilities expire between 2006 and 2016, and most contain renewal options.

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

Item 3. Legal Proceedings.

Fort Washington Flood:

In June 2001, the first floor of our Fort Washington, Pennsylvania, headquarters was severely damaged by a flood caused by remnants of Tropical Storm Allison. As previously reported, during the third quarter of 2001, we decided to relocate our corporate headquarters to Horsham, Pennsylvania. We filed a lawsuit in the Court of Common Pleas, Montgomery County, Pennsylvania (Civil Action No. 01-15576) against the current landlord and the former landlord of the Fort Washington facilities to terminate the leases and to obtain other relief. The landlord and former landlord have filed counter-claims against us. Due to the uncertainty of the outcome of the lawsuit, we recorded the full amount of rent due under the remaining terms of the leases during the third quarter of 2001.

In April 2003, the former landlord defendants filed a joinder complaint against certain current and former officers and/or directors of the Company, to name such persons as additional defendants and alleging, among other things, that they breached their fiduciary duties to the Company.

In January 2004, the Court, in ruling on the preliminary objections, allowed the former landlord defendants’ suit to proceed against these individuals, but struck from the complaint the breach of fiduciary duty allegations asserting violations of duties owed by individual officers to the Company.

Securities and Exchange Commission:

In September 2005, we reached a final settlement with the SEC, concluding the SEC’s investigation of the Company and certain of its officers. Without admitting or denying any wrongdoing, we consented to the entry of an administrative order directing us to cease and desist from committing or causing violations of certain non-fraud provisions of the federal securities laws

-29-

relating to financial reporting and internal control requirements, now and in the future. We did not pay any civil monetary penalty in connection with the settlement. The investigation did not lead to any sanctions being levied against any of our officers.

In January 2005, we received notification from the Staff of the Securities and Exchange Commission, referred to as the Staff, informing us that it intended to issue a formal notification (commonly known as a “Wells notice”) to NCO and certain of its officers recommending that the Securities and Exchange Commission, referred to as the SEC, bring civil proceedings against NCO and such officers alleging violations of certain non-fraud provisions of the federal securities laws relating to financial reporting and internal control requirements. The potential violations related to our revenue recognition policy relating to a long-term collection contract, which we had previously corrected in 2003, and our revenue recognition policy regarding the timing of revenue recognized on certain cash receipts related to contingency revenues.

The notification from the Staff informed us that their interpretation of Staff Accounting Bulletin No. 104, referred to as SAB 104, was inconsistent with our long-standing policy with respect to the timing of revenue recognized on certain cash receipts related to contingency revenues. We previously recognized contingency fee revenue attributable to payments postmarked prior to the end of the period and received in the mail from the consumers on the first business day after such period as applicable to the prior reporting period. This revenue recognition policy had been in effect since prior to NCO becoming a public company and was consistently applied over time. We corrected our policy in order to recognize revenue when physically received. The impact of this correction was a $2.7 million reduction in revenues and a $947,000 reduction in net income, or $0.03 per diluted share, for the year ended December 31, 2004. No restatement of prior period financial statements was required for this correction, and it did not have a material impact on the comparability of operating results for the year ended December 31, 2005.

U.S. Department of Justice:

On February 24, 2006, the U.S. Department of Justice alleged certain civil damages of approximately $5.0 million. The alleged damages relate to a matter we reported to federal authorities and the client in 2003 involving three employees who engaged in unauthorized student loan consolidations in connection with a client contract. The responsible employees were terminated at that time in 2003. We do not agree with the allegations regarding damages and have and will continue to engage in discussions with the Department of Justice in an effort to amicably resolve the matter. We have been advised and expect that actual damages incurred as a result of this incident, if any, will be covered by insurance.

Other:

We are involved in other legal proceedings, regulatory investigations and tax examinations from time to time in the ordinary course of business. Management believes that none of these other legal proceedings, regulatory investigations, or tax examinations 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.

-30-

Item 4.1 Executive Officers and Key Employees of the Registrant who are not also Directors.

Name	Age	Position
Charles F. Burns	45	Executive Vice President, Business Process Outsourcing
Stephen W. Elliott	44	Executive Vice President, Information Technology and Chief Information Officer
Joshua Gindin, Esq.	49	Executive Vice President and General Counsel
Steven Leckerman	53	Executive Vice President and Chief Operating Officer – Accounts Receivable Management, North America
John R. Schwab	38	Senior Vice President, Finance and Chief Accounting Officer
Paul E. Weitzel, Jr.	47	Executive Vice President, Corporate Development and International Operations
Steven L. Winokur	46	Executive Vice President; Chief Financial Officer and Chief Operating Officer - Shared Services
Albert Zezulinski	58	Executive Vice President, Global Portfolio Operations

Charles F. Burns - Mr. Burns joined us in 2003 as Executive Vice President, Business Process Outsourcing. Mr. Burns has nearly 20 years of sales and consulting experience. Prior to joining us, Mr. Burns was a partner in BearingPoint, Inc., formerly KPMG Consulting, Inc., a business systems integrator and full-service consulting firm.

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

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

Steven Leckerman - Mr. Leckerman joined us in 1995 as Senior Vice President, Collection Operations, became Executive Vice President, U.S. Operations in January 2001, and in August 2003 became Executive Vice President and Chief Operating Officer – Accounts Receivable Management, North America. From 1982 to 1995, Mr. Leckerman was employed by Allied Bond Corporation, a collection company that was a division of TransUnion Corporation, where he served as manager of dialer and special projects.

-31-

John R. Schwab - Mr. Schwab joined us through the acquisition of RMH Teleservices, Inc. in April 2004, where he was the Chief Financial Officer since 2003. From 2000 to 2003, Mr. Schwab was employed by Inrange Technologies, Inc., a data storage networking company, most recently as the Chief Financial Officer. Prior to that, Mr. Schwab worked for Arthur Andersen for 11 years, most recently as Senior Manager in the Growth Company Practice. Mr. Schwab is a Certified Public Accountant.

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

Steven L. Winokur - Mr. Winokur joined us in December 1995 as Executive Vice President, Finance and Chief Financial Officer, and also became Chief Operating Officer - Shared Services in August 2003. 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.

Albert Zezulinski - Mr. Zezulinski joined us in January 2001 as Executive Vice President, Health Services, became Executive Vice President, Corporate and Government Affairs in May 2002, and in September 2005 became Executive Vice President, Global Portfolio Operations. Mr. Zezulinski has more than 30 years of consulting and healthcare experience. Prior to joining us, Mr. Zezulinski was the Director of Healthcare Financial Services for BDO Seidman, LLP, an international accounting and consulting firm.

-32-

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

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

		High		Low
2004
	First Quarter	$	24.86	$	20.75
	Second Quarter		26.69		22.51
	Third Quarter		26.97		24.19
	Fourth Quarter		27.70		24.19
2005
	First Quarter	$	25.34	$	18.79
	Second Quarter		22.62		16.89
	Third Quarter		24.31		20.18
	Fourth Quarter		20.50		15.28

On March 14, 2006, the last reported sale price of our common stock as reported on The Nasdaq National Market was $23.24 per share. On March 14, 2006, there were approximately 141 holders of record of our common stock.

Dividend Policy

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

Equity Compensation Plans

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

Sales of Unregistered Securities during 2005

None.

-33-

Item 6. Selected Financial Data.

SELECTED FINANCIAL DATA ⁽¹⁾

(Amounts in thousands, except per share data)

	For the years ended December 31,
	2005			2004			2003			2002			2001 (2)
Statement of Income Data:
Revenues:
Services	$	906,258		$	840,346		$	676,793		$	637,288		$	619,288
Portfolio		133,868			99,451			77,023			66,162			64,585
Portfolio sales		12,157			—			—			—			—
Total revenues		1,052,283			939,797			753,816			703,450			683,873
Operating costs and expenses:
Payroll and related expenses		528,932			472,915			350,369			335,405			350,634
Selling, general and administrative expenses		376,606			324,187			282,268			249,672			237,690
Restructuring charge		9,621			—			—			—			—
Depreciation and amortization expense		45,787			40,225			31,628			27,324			38,205
Income from operations		91,337			102,470			89,551			91,049			57,344
Other expense		19,423			17,612			17,943			17,970			23,335
Income before provision for income taxes		71,914			84,858			71,608			73,079			34,009
Income tax expense		26,182			32,389			26,732			27,702			14,661
Income before minority interest		45,732			52,469			44,876			45,377			19,348
Minority interest		(1,213	)		(606	)		(2,430	)		(3,218	)		(4,310	)
Net income	$	44,519		$	51,863		$	42,446		$	42,159		$	15,038
Net income per share:
Basic	$	1.39		$	1.71		$	1.64		$	1.63		$	0.58
Diluted	$	1.33		$	1.60		$	1.54		$	1.54		$	0.58
Weighted average shares outstanding:
Basic		32,125			30,397			25,934			25,890			25,773
Diluted		36,158			34,652			29,895			29,829			26,091
	December 31,
	2005			2004			2003			2002			2001
Balance Sheet Data:
Cash and cash equivalents	$	23,716		$	26,334		$	45,644		$	25,159		$	32,161
Working capital		171,587			73,547			106,409			107,731			97,478
Total assets		1,327,962			1,113,889			946,111			966,281			928,864
Long-term debt, net of current portion		321,834			186,339			248,964			334,423			357,868
Minority interest		34,643			—			26,848			24,427			21,213
Shareholders’ equity		743,114			695,601			490,417			435,762			392,302

⁽¹⁾ 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⁾ The year ended December 31, 2001, included goodwill amortization expense, net of tax, of $11.9 million. In accordance with the adoption of FASB 142, we stopped amortizing goodwill on January 1, 2002. The year ended December 31, 2001, included flood and restructuring related charges, net of tax, of $14.5 million.

-34-

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

Overview

We are a holding company and conduct substantially all of our business operations through our subsidiaries. We are a global provider of business process outsourcing services, referred to as BPO, primarily focused on accounts receivable management, referred to as ARM, and customer relationship management, referred to as CRM, serving a wide range of clients in North America and abroad through our global network of 100 offices. We also purchase and manage past due consumer accounts receivable from consumer creditors such as banks, finance companies, retail merchants, utilities, healthcare companies and other consumer-oriented companies.

We generate approximately 65 percent of our ARM revenue from the recovery of delinquent accounts receivable on a contingency fee basis. Our ARM contingency fees range from six percent for the management of accounts placed early in the accounts receivable cycle to 50 percent for accounts that have been serviced extensively by the client or by third-party providers. Our average fee for ARM contingency-based revenue across all industries was approximately 18 percent during 2005, and 19 percent during 2004 and 2003. In addition, we generate revenue from fixed fee services for certain ARM services. Generally, revenue is earned and recognized upon collection of accounts receivable for contingency fee services and as work is performed for fixed fee services. We enter into contracts with most of our clients that define, among other things, fee arrangements, scope of services, and termination provisions. Clients typically have the right to terminate their contracts on 30 or 60 days’ notice. Approximately 35 percent of our ARM revenue is generated from contractual collection services, where fees are based on a monthly rate or a per service charge, and other ARM services.

Approximately 73 percent of our CRM revenue is generated from inbound services, which consist primarily of customer service and technical support programs, and to a lesser extent acquisition and retention services. Inbound services involve the processing of incoming calls, often placed by our clients’ customers using toll-free numbers, to a customer service representative for service, order fulfillment or information. Outbound services, which consist of customer acquisition and customer retention services, represented approximately 27 percent of our CRM revenue.

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, outside collection attorneys and other third-party collection services providers, and other collection costs, as well as expenses that directly support operations, including facility costs, equipment maintenance, sales and marketing, data processing, professional fees, and other management costs.

We have grown rapidly, through both acquisitions as well as internal growth. During 2005, we completed three acquisitions: Creative Marketing Strategies, referred to as CMS, in May 2005 for $5.9 milion; seven wholly owned subsidiaries of Marlin Integrated Capital Holding Corporation, referred to as Marlin, in September 2005 for $88.4 million; and substantially all of the operating assets, including purchased portfolio assets, of Risk Management Alternatives Parent Corp. and its subsidiaries, referred to as RMA, in September 2005 for $118.9 million. During 2004, we completed two acquisitions: the minority interest of NCO Portfolio Management, Inc., referred to

-35-

as NCO Portfolio, in March 2004 for $39.8 million; and RMH Teleservices, Inc., referred to as RMH, in April 2004 for $88.8 million.

Our business currently consists of four operating divisions: ARM North America, CRM, Portfolio Management and ARM International.

Critical Accounting Policies and Estimates

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 and estimates that are the most critical and could have the most impact on our results of operations. For a discussion of these and other accounting policies, see note 2 in our Notes to Consolidated Financial Statements.

Goodwill and Other Intangible Assets

Our balance sheet includes amounts designated as “Goodwill” and “Other intangibles.” Goodwill represents the excess of purchase price over the fair market value of the net assets of the acquired businesses based on their respective fair values at the date of acquisition. Other intangible assets consist primarily of customer relationships.

As of December 31, 2005, our balance sheet included goodwill and other intangibles that represented 50.4 percent and 3.1 percent of total assets, respectively, and 90.1 percent and 5.6 percent of shareholders’ equity, respectively.

Goodwill is tested for impairment at least annually and as triggering events occur. The annual impairment test is completed as of October 1st of each year. The test for impairment is performed at the reporting unit level and involves a two-step approach, the first step identifies any potential impairment and the second step measures the amount of the impairment, if applicable. The first test for potential impairment uses a fair value based approach, whereby the implied fair value of a reporting unit’s goodwill is compared to its carrying amount, if the fair value is less than the carrying amount, the reporting unit’s goodwill would be considered impaired and we would be required to take a charge to earnings, which could be material. We did not record any impairment charges in connection with the annual impairment tests performed on October 1, 2005, 2004 and 2003, and we do not believe that goodwill was impaired as of December 31, 2005.

We make significant assumptions to estimate the future revenue and cash flows used to determine the fair value of our reporting units. These assumptions include future growth rates, discount factors, future tax rates, and other factors. If the expected revenue and cash flows are not realized, or if a sustained significant depression in our market capitalization indicates that our assumptions are not accurately estimating our fair value, impairment losses may be recorded in the future.

-36-

Revenue Recognition for Purchased Accounts Receivable

In the ordinary course of accounting for purchased accounts receivable, estimates have been made by management as to the amount of future cash flows expected from each portfolio. We have historical collection records for all of our purchased accounts receivable, as well as debtor records since our entrance into this business and for the acquired predecessor businesses since 1986, which provides us a reasonable basis for our judgment that it is probable that we will ultimately collect the recorded amount of our purchased accounts receivable plus a premium or yield. The historical collection amounts also provide a reasonable basis for determining the timing of the collections. We use all available information to forecast the cash flows of our purchased accounts receivable including, but not limited to, historical collections, payment patterns on similar purchases, credit scores of the underlying debtors, seller’s credit policies, and location of the debtor. The estimated future cash flow of each portfolio is used to compute the internal rate of return, referred to as the IRR, for each portfolio. The IRR is used to allocate collections between revenue and amortization of the carrying values of the purchased accounts receivable.

On January 1, 2005, we adopted AICPA Statement of Position 03-3 – Accounting for Certain Loans or Debt Securities Acquired in a Transfer, referred to as SOP 03-3. SOP 03-3 limits the revenue that may be accrued to the excess of the estimate of expected cash flows over a portfolio’s initial cost. SOP 03-3 does not allow the original estimate of the effective interest, or the IRR, to be lowered for revenue recognition or for subsequent testing for provision for impairments. If the original collection estimates are lowered, an allowance is established in the amount required to maintain the original IRR. If collection estimates are raised, increases are first used to recover any previously recorded allowances and then recognized prospectively through an increase in the IRR, which are realized over a portfolio’s remaining life. Any increase in the IRR must be used for subsequent revenue recognition and allowance testing.

If management came to a different conclusion as to the future estimated collections, it could have had a significant impact on the amount of revenue that was recorded from the purchased accounts receivable during the year ended December 31, 2005. For example, a five percent increase in the amount of future expected collections would have resulted in little or no change in net income for 2005, since increases in future expected collections are recognized over the portfolio’s remaining life, and only to the extent sufficient to recover any allowances or to increase to the expected IRR. A five percent decrease in the amount of future expected collections would have resulted in a decrease in net income of approximately $773,000, and no effect on net income per diluted share for 2005, since decreases in future expected collections are recognized in the current period.

Allowance for Doubtful Accounts

Allowances for doubtful accounts are estimated based on estimates of losses related to customer receivable balances. In establishing the appropriate provision for customer receivables balances, we make assumptions with respect to their future collectibility. Our assumptions are based on an individual assessment of a customer’s credit quality as well as subjective factors and trends, including the aging of receivable balances. Generally, these individual credit assessments occur at regular reviews during the life of the exposure and consider factors such as a customer’s ability to meet and sustain their financial commitments, a customer’s current financial condition and historical payment patterns. Once the appropriate considerations referred to above have been taken into account, a determination is made as to the probability of default. An appropriate provision is made, which takes into account the severity of the likely loss on the outstanding receivable balance. Our level of reserves for our customer accounts receivable fluctuates depending upon all of the factors mentioned above, in addition to any contractual rights that allow us to

-37-

reduce outstanding receivable balances through the application of future collections. If our estimate is not sufficient to cover actual losses, we would be required to take additional charges to our earnings.

Notes Receivable

As of December 31, 2005, our balance sheet included $11.2 million of notes receivable, recorded under current and long-term other assets, received in connection with the sale of certain businesses. We review the recoverability of these notes receivable on a quarterly basis to determine if an impairment charge is required. In completing our analysis, we make assumptions with respect to the future collectibility of the notes receivable. Our assumptions are based on assessments of the obligors’ financial condition and historical payment patterns, as well as subjective factors and trends, including financial projections. Once the appropriate considerations referred to above have been taken into account, a determination is made as to the probability of default. If we were to determine that a default in the note receivable is probable, an impairment charge would be recorded to reduce the notes receivable to its recoverable value. If our assessment of the recoverability of the notes receivable is incorrect, we may need to incur additional impairment charges in the future.

Income Taxes

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance, if it is more likely than not that some portion or all of the deferred tax asset will not be realized. Deferred taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries because such amounts are expected to be reinvested indefinitely.

Our balance sheet includes deferred tax assets of $8.9 and $10.7 million for the assumed utilization of federal net operating loss carryforwards acquired in the merger with Creditrust Corporation, referred to as Creditrust, and the RMH acquisition, respectively. We believe that we will be able to utilize the net operating loss carryforwards so we have not reduced the deferred tax asset by a valuation allowance. However, we have provided a $16.9 million valuation allowance against the deferred tax asset for state net operating loss carryforwards due to the uncertainty that they can be realized. 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. If we are unable to utilize the federal net operating loss carryforwards, it may result in incremental tax expense in future periods.

Our annual provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of judgment and are based on the latest information available at the time. We are subject to audit within the federal, state and international taxing jurisdictions, and these audits can involve complex issues that may require an extended period of time to resolve. We maintain reserves for estimated tax exposures, which are ultimately settled primarily through the settlement of audits within these tax jurisdictions, changes in applicable tax law, or other factors. We believe that an appropriate liability has been established for estimated purposes; however, actual results may differ from these estimates.

-38-

Results of Operations

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

	For the years ended December 31,
	2005				2004				2003
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Revenues	$	1,052,283	100.0	%	$	939,797	100.0	%	$	753,816	100.0	%
Payroll and related expenses		528,932	50.3			472,915	50.3			350,369	46.5
Selling, general and administrative expenses		376,606	35.8			324,187	34.5			282,268	37.4
Restructuring charge		9,621	0.9			—	—			—	—
Depreciation and amortization		45,787	4.3			40,225	4.3			31,628	4.2
Income from operations		91,337	8.7			102,470	10.9			89,551	11.9
Other expense		19,423	1.9			17,612	1.9			17,943	2.4
Income tax expense		26,182	2.5			32,389	3.4			26,732	3.6
Minority interest		1,213	0.1			606	0.1			2,430	0.3
Net income	$	44,519	4.2	%	$	51,863	5.5	%	$	42,446	5.6	%

Year ended December 31, 2005 Compared to Year ended December 31, 2004

Revenue. Revenue increased $112.5 million, or 12.0 percent, to $1,052.3 million for 2005, from $939.8 million in 2004. ARM North America, CRM, Portfolio Management, and ARM International accounted for $789.5 million, $190.4 million, $144.7 million, and $15.0 million, respectively, of the 2005 revenue. ARM North America’s revenue included $87.0 million of intercompany revenue earned on services performed for Portfolio Management that was eliminated upon consolidation. ARM International’s revenue included $272,000 of intercompany revenue earned on services performed for Portfolio Management that was eliminated upon consolidation.

ARM North America’s revenue increased $56.9 million, or 7.8 percent, to $789.5 million in 2005, from $732.6 million in 2004. The increase in ARM North America’s revenue was primarily attributable to the acquisition of RMA in September 2005 as well as an increase in fees from collection services performed for Portfolio Management. Included in ARM North America’s intercompany service fees for the year ended December 31, 2005, was $4.9 million of commissions from the sales of portions of older portfolios by Portfolio Management. The increase in revenue was offset in part by lower revenue due to a more difficult collection environment in the second half of the year, which we attribute mainly to the effects of increased fuel costs on debtor’s ability to pay on their accounts, and the inability to collect in the gulf coast region following Hurricanes Katrina and Rita.

CRM’s revenue increased $31.4 million, or 19.7 percent, to $190.4 million in 2005, from $159.0 million in 2004. The CRM division was formed in the second quarter of 2004 with the acquisition of RMH on April 2, 2004 and, accordingly, is only included in the results since that date. Partially offsetting the additional revenue in 2005 was the previously disclosed reduction in revenue from a key client where we ceased providing certain services when they decided to exit the consumer long-distance space due to a change in telecommunications laws.

-39-

Portfolio Management’s revenue increased $34.6 million, or 35.3 percent, to $132.6 million in 2005, from $98.0 million in 2004. Portfolio Management’s collections, excluding portfolio resales, increased $30.0 million, or 18.2 percent, to $194.6 million in 2005, from $164.6 million in 2004. Portfolio Management’s revenue represented 67 percent of collections, excluding portfolio resales, in 2005, as compared to 59 percent of collections, excluding portfolio resales, in 2004. Revenue increased primarily due to additional revenue from portfolio assets acquired as part of two business combinations in the third quarter of 2005. Also contributing to the increase was better than expected collections on older portfolios and higher collections on fully cost recovered portfolios. Because these portfolios are fully cost recovered, 100 percent of the collections are applied to revenue.

In 2005, Portfolio Management began an on-going process to identify and sell certain aged portfolios of accounts receivable that have a very low probability of payment and a low remaining carrying value. During 2005, Portfolio Management recorded $12.1 million of revenue in connection with these sales.

ARM International’s revenue increased $1.4 million, or 10.3 percent, to $15.0 million in 2005, from $13.6 million in 2004. The increase in ARM International’s revenue was primarily attributable to the acquisition of the international operations of RMA, in September 2005. This was partially offset by several delays by clients in the placement of accounts receivable and unfavorable changes in the foreign currency exchange rates used to translate ARM International’s results of operations into U.S. dollars.

Payroll and related expenses. Payroll and related expenses increased $56.0 million to $528.9 million in 2005, from $472.9 million in 2004, but remained flat as a percentage of revenue at 50.3 percent.

ARM North America’s payroll and related expenses increased $18.5 million to $367.7 million in 2005, from $349.2 million in 2004, but decreased as a percentage of revenue to 46.6 percent from 47.7 percent. The decrease in payroll and related expenses as a percentage of revenue was primarily due to continued diligence in monitoring staffing levels in line with current results, as well as the use of offshore labor, outside attorneys and other agencies. Included in ARM North America’s payroll and related expenses for 2005, were charges of $419,000 related to the integration of the RMA acquisition and $164,000 related to Hurricane Katrina.

CRM’s payroll and related expenses increased $32.2 million to $145.9 million in 2005, from $113.7 million in 2004, and increased as a percentage of revenue to 76.6 percent from 71.5 percent. The increase in payroll and related expenses as a percentage of revenue was primarily attributable to the upfront expense required to start up new clients, without yet generating enough offsetting revenue.

Portfolio Management’s payroll and related expenses increased $3.6 million to $5.7 million in 2005, from $2.1 million in 2004, and increased as a percentage of revenue to 4.0 percent from 2.1 percent. Portfolio Management outsources all of the collection services to ARM North America and, therefore, has a relatively small fixed payroll cost structure. The increase in payroll and related expenses as a percentage of revenue was due to an increase in the allocation of payroll and related expenses from corporate shared services.

ARM International’s payroll and related expenses increased $1.7 million to $9.6 million in 2005, from $7.9 million in 2004, and increased as a percentage of revenue to 64.0 percent from

-40-

58.2 percent. The increase as a percentage of revenue was attributable to the additional expense incurred in connection with the acquisition of RMA.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $52.4 million to $376.6 million in 2005, from $324.2 million in 2004, and increased as a percentage of revenue to 35.8 percent from 34.5 percent.

ARM North America’s selling, general and administrative expenses increased $40.6 million to $332.2 million in 2005, from $291.6 million in 2004, and increased as a percentage of revenue to 42.1 percent from 39.8 percent. The increase was due primarily to an increase in the use of outside collection attorneys and other third-party service providers. Included in ARM North America’s selling, general and administrative expenses for 2005, were charges of $1.4 million related to the integration of the RMA acquisition, and $306,000 related to Hurricane Katrina.

CRM’s selling, general and administrative expenses increased $8.8 million to $35.5 million in 2005, from $26.7 million in 2004, and increased as a percentage of revenue to 18.6 percent from 16.8 percent. The increase was primarily attributable to the start-up of new clients in this division. We incur the upfront expenses required to begin working for a new client, such as facilities and telephone expense, before we start generating the offsetting revenue.

Portfolio Management’s selling, general and administrative expenses increased $25.9 million to $91.5 million in 2005, from $65.6 million in 2004, and increased as a percentage of revenue, not including revenue from the sales of portfolios, to 69.0 percent from 66.9 percent. The increase was due primarily to increased servicing fees related to the acquisitions of Marlin and RMA.

ARM International’s selling, general and administrative expenses increased $1.0 million to $4.8 million in 2005, from $3.8 million in 2004, and increased as a percentage of revenue to 31.9 percent from 27.9 percent. The increase was primarily attributable additional expenses incurred in connection with the acquisition of the international operations of RMA.

Restructuring Charge. During 2005, we incurred restructuring charges of $9.6 million related to the restructuring of our legacy operations to streamline our cost structure, in conjuction with the acquisition of RMA. The charges consisted primarily of costs associated with the closing of redundant facilities and severance. We expect to record additional charges of approximately $10.0 million in the first half of 2006, which are expected to be recorded in the ARM North America and ARM International segments.

Depreciation and amortization. Depreciation and amortization increased to $45.8 million in 2005, from $40.2 million in 2004. This increase was primarily attributable to the amortization of the customer relationships acquired in connection with acquisitions in 2005 and the acquisition of RMH in April of 2004. The remainder of the increase was attributable to higher depreciation on additions to property and equipment during 2005 as well as the depreciation on the property and equipment acquired in the RMH and RMA acquisitions.

Other income (expense). Interest and investment income included investment income of $377,000 for 2005, as compared to $1.6 million for 2004, from the 50 percent ownership interest in a joint venture that we had with Marlin prior to the acquisition of the remaining 50 percent ownership in September 2005. The decrease from last year also reflects the joint venture’s lower revenue due to decreased purchases of accounts receivable during the second half of 2004 and into 2005, related to the winding down of the joint venture. Interest expense increased to $22.6 million for 2005, from $21.2 million for 2004. This increase was due to higher principal balances as a result of borrowings made against the senior credit facility for the acquisitions in September

-41-

2005, higher interest rates, and Portfolio Management’s additional nonrecourse borrowings to purchase accounts receivable. Other income (expense) for 2005 included $532,000 in recoveries of aged accounts receivable that had been written off by RMH prior to the acquisition and a $93,000 gain from our ownership interest in one of our insurance carriers that was sold, offset in part by a $595,000 write-down of an investment that has subsequently been sold for the adjusted carrying value. Other income (expense) for 2004 included $621,000 of proceeds from an insurance policy related to a deferred compensation plan assumed as part of the acquisition of FCA International Ltd. in May 1998, and $157,000 in losses on the disposal of fixed assets and other net assets.

Income taxes. The effective income tax rate decreased to 36.4 percent from 38.2 percent due mainly to losses in the CRM division as well as higher earnings from Portfolio Management, which is taxed at a lower rate than the ARM business.

Year ended December 31, 2004 Compared to Year ended December 31, 2003

Revenue. Revenue increased $186.0 million, or 24.7 percent, to $939.8 million for 2004, from $753.8 million in 2003. ARM North America, CRM, Portfolio Management, and ARM International accounted for $732.6 million, $159.0 million, $98.0 million, and $13.6 million, respectively, of the 2004 revenue. ARM North America’s revenue included $63.1 million of intercompany revenue earned on services performed for Portfolio Management that was eliminated upon consolidation. ARM International’s revenue included $398,000 of intercompany revenue earned on services performed for Portfolio Management that was eliminated upon consolidation. The CRM division was formed in the second quarter of 2004 with the acquisition of RMH on April 2, 2004, and, accordingly, is not included in the results for 2003.

ARM North America’s revenue increased $18.7 million, or 2.6 percent, to $732.6 million in 2004, from $713.9 million in 2003. The increase in ARM North America’s revenue was partially attributable to an increase in fees from collection services performed for Portfolio Management, growth in business from existing clients and the addition of new clients.

In January 2005, we received notification from the Staff of the SEC that their interpretation of Staff Accounting Bulletin No. 104, referred to as SAB 104, was inconsistent with our long-standing policy with respect to the timing of revenue recognized on certain cash receipts related to contingency revenues. We previously recognized contingency fee revenue attributable to payments postmarked prior to the end of the period and received in the mail from the consumers on the first business day after such period as applicable to the prior reporting period. This revenue recognition policy had been in effect since prior to NCO becoming a public company and was consistently applied over time. We corrected our policy in order to recognize revenue when physically received. The impact of this correction was a $2.7 million reduction in revenue and a $947,000 reduction in net income, or $0.03 per diluted share, for the year ended December 31, 2004. No restatement of prior period financial statements was required for this correction.

ARM North America’s revenue for 2004 and 2003 included revenue recorded from a long-term collection contract. The contract was amended so that we are required to pay the client the difference between the actual collections and guaranteed collections on May 31, 2004 and May 31, 2005, subject to limits of $6.0 million and $13.5 million, respectively. We defered all of the base service fees, subject to the limits, until the collections exceeded the collection guarantees. At the end of each reporting period, we assessed the need to record an additional liability if deferred fees were less than the estimated guarantee payments, if any, due to the client, subject to the limits. During 2004, ARM North America recognized $8.5 million of revenue that was deferred in

-42-

previous years, on a net basis, compared to $4.2 million in 2003. Included in the 2003 revenue from the long-term collection contract was a $6.9 million benefit from the amendment to the contract. Any guarantee at the settlement dates in excess of the limits will be deducted from future bonuses, if any, as they are earned. We are not responsible to pay the client if future bonuses are inadequate to cover the additional guarantee. Had we not renegotiated the contract, the net effect of the long-term collection contract for 2003 would have been a negative impact of $2.7 million due to additional deferred revenue as a result of an increase in placements. As of December 31, 2004 and 2003, we had deferred sufficient revenue to meet our maximum exposure at the respective settlement dates. Accordingly, there will be no further deferrals of revenue under this contract.

Portfolio Management’s revenue increased $22.5 million, or 29.9 percent, to $98.0 million in 2004, from $75.5 million in 2003. Portfolio Management’s collections increased $26.1 million, or 17.3 percent, to $177.2 million in 2004, from $151.1 million in 2003. Portfolio Management’s revenue represented 55 percent of collections in 2004, as compared to 50 percent of collections in 2003. Revenue increased due to the increase in collections resulting from a better collection environment, especially on certain large portfolios that continued to outperform expectations. In addition, the carrying amount of impaired portfolios decreased to $2.7 million, or 2.0 percent of total purchased accounts receivable as of December 31, 2004, from $15.4 million, or 10.3 percent as of December 31, 2003. No revenue was recorded on these portfolios since they were accounted for under the cost recovery method. Of the $2.7 million and $15.4 million of portfolios at December 31, 2004 and 2003, $2.1 million and $11.2 million, respectively, represented impaired portfolios, and $629,000 and $4.2 million, respectively, represented portfolios acquired in connection with the end of an on-balance sheet securitization. Additionally, included in collections for 2004 were $12.7 million of proceeds from the sale of portfolios and $5.2 million in proceeds from the dissolution and sale of an off-balance sheet securitization, compared to $7.6 million of proceeds from the sale of portfolios in 2003. However, proceeds from portfolio sales had a minimal impact on revenue since the majority of the proceeds were applied to the principal of purchased accounts receivable.

ARM International’s revenue decreased $395,000, or 2.8 percent, to $13.6 million in 2004, from $14.0 million in 2003. The decrease in ARM International’s revenue was primarily attributable to several delays by clients in the placement of accounts receivable during the third quarter of 2004, partially offset by favorable changes in the foreign currency exchange rates used to translate ARM International’s results of operations into U.S. dollars.

Payroll and related expenses. Payroll and related expenses increased $122.5 million to $472.9 million in 2004, from $350.4 million in 2003, and increased as a percentage of revenue to 50.3 percent from 46.5 percent. These increases were primarily attributable to the CRM division, which was formed with the acquisition of RMH on April 2, 2004. The CRM business has a more significant portion of their expense structure in payroll and related expenses as compared to the ARM business.

ARM North America’s payroll and related expenses increased $8.3 million to $349.4 million in 2004, from $341.1 million in 2003, and decreased slightly as a percentage of revenue to 47.7 percent from 47.8 percent. A portion of the decrease in payroll and related expenses as a percentage of revenue was attributable to the recognition of $8.5 million of previously deferred revenue, on a net basis, from the long-term collection contract that was recorded during 2004, as compared to $4.2 million of previously deferred revenue, on a net basis, that was recorded during 2003. Since the expenses associated with this revenue are expensed as incurred, the recognition of previously deferred revenue decreases the payroll and related expenses as a percentage of revenue. The decrease in payroll and related expenses as a percentage of revenue was also partially due to

-43-

the shift of more of our collection work to outside attorneys and other third-party service providers, and the continued rationalization of staff. This shift was associated with the continuing efforts to maximize collections for clients. The costs associated with the increase in the use of outside attorneys and other third-party service providers are included in selling, general and administrative expenses.

Portfolio Management’s payroll and related expenses increased $361,000 to $2.1 million in 2004, from $1.7 million in 2003, but decreased as a percentage of revenue to 2.1 percent from 2.3 percent. Portfolio Management outsources all of the collection services to ARM North America and, therefore, has a relatively small fixed payroll cost structure. The decrease in payroll and related expenses as a percentage of revenue was due to the absorption of the fixed payroll costs over a larger revenue base.

ARM International’s payroll and related expenses increased $340,000 to $7.9 million in 2004, from $7.6 million in 2003, and increased as a percentage of revenue to 58.2 percent from 54.1 percent. The increase as a percentage of revenue was attributable to the absorption of the fixed payroll expenses over a smaller revenue base.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $41.7 million to $324.0 million in 2004, from $282.3 million in 2003, but decreased as a percentage of revenue to 34.5 percent from 37.4 percent. The increase in selling, general and administrative expense in 2004 was due primarily to the CRM division, which was formed with the acquisition of RMH on April 2, 2004, as well as an increase in ARM North America due to a higher volume of business. The decrease in selling, general and administrative expenses as a percentage of revenue was partially attributable to the CRM division, which has a more significant portion of their expense structure in payroll and related expenses as compared to the ARM business. Partially offsetting the decrease as a percentage of revenue was an increase in the use of outside collection attorneys and other third-party service providers by ARM North America.

Depreciation and amortization. Depreciation and amortization increased to $40.2 million in 2004, from $31.6 million in 2003. This increase was primarily attributable to $5.8 million of additional depreciation resulting from the assets acquired in the RMH acquisition. The remainder of the increase was attributable to the amortization of the customer relationships acquired in the RMH acquisition.

Other income (expense). Interest and investment income included investment income of $1.6 million for 2004, as compared to $2.2 million for 2003, from our 50 percent ownership interest in a joint venture that we had with Marlin prior to the acquisition of the remaining 50 percent ownership in September 2005. Interest expense decreased to $21.2 million for 2004, from $23.0 million for 2003. This decrease was due to lower principal balances as a result of debt repayments made against the credit facility during 2004 and 2003. The decrease was partially offset by Portfolio Management’s additional nonrecourse borrowings to purchase accounts receivable. Other income (expense) for 2004 principally included $621,000 of proceeds from an insurance policy related to a deferred compensation plan assumed as part of the acquisition of FCA International Ltd. in May 1998, and $157,000 in losses on the disposal of fixed assets and other net assets. Other income for 2003 included: $476,000 of income from our ownership interest in one of our insurance carriers that was sold; $402,000 of proceeds from an insurance policy related to a deferred compensation plan assumed as part of the acquisition of FCA International Ltd. in May 1998; and $250,000 of income from a partial recovery from a third party of an environmental liability.

-44-

Income taxes. The effective income tax rate increased to 38.2 percent from 37.3 percent due mainly to changes in state and other income taxes offset by positive effects from two concluded IRS audits.

Liquidity and Capital Resources

Historically, our primary sources of cash have been cash flows from operations, bank borrowings, nonrecourse borrowings, and equity and debt offerings. 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 senior credit agreement and nonrecourse 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 significant acquisitions for cash during that period.

In June 2005, we amended and restated our senior credit facility, referred to as the Credit Facility, to increase our borrowing capacity. The amendment of this facility provides the availability to pay our convertible notes when they become due in April 2006. We are required to reserve sufficient capacity to repay the convertible notes until such time as the notes convert or are otherwise retired. In June 2005, we also entered into a new nonrecourse credit facility with a lender, and extended our existing exclusivity agreement with the lender through June 30, 2009, for larger purchases of accounts receivable portfolios.

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 $89.6 million in 2005, compared to $99.0 million in 2004. The decrease in cash provided by operating activities was due to an increase in trade accounts receivable of $18.5 million compared to a decrease of $2.7 million in the prior year, primarily related to increased billings to new clients. Also contributing to the decrease was a decrease in income taxes payable of $19.7 million compared to an increase of $545,000 for 2004, related to a lower tax rate due to losses in the CRM division and higher profits from Portfolio Management, which are taxed at a lower rate. These items were partially offset by an increase in accounts payable and accrued expenses of $5.4 million compared to a decrease of $17.8 million for 2004.

Cash provided by operating activities was $99.0 million in 2004, compared to $101.1 million in 2003. The slight decrease in cash provided by operating activities was due to an increase in other assets of $13.5 million compared to a decrease of $1.7 million for 2003, a decrease in accounts payable and accrued expenses of $17.8 million compared to a decrease of $6.6 million in the prior year, and a $10.2 million deposit we received in 2003 in connection with a long-term collection contract. These items were partially offset by increases in net income and noncash expenses, a transfer of $4.9 million out of restricted cash to repay a portion of the securitized nonrecourse debt in 2004 compared to a transfer of $4.9 million into restricted cash in 2003, and a $28.7 million increase in deferred income taxes compared to an $18.8 million increase in 2003.

-45-

Cash Flows from Investing Activities. Cash used in investing activities was $189.5 million in 2005, compared to $1.5 million in 2004. Prior to June 2005, cash flows from investing activities did not include Portfolio Management’s purchases of large accounts receivable portfolios financed through an agreement we have with a lender. The borrowings were noncash transactions since the lender sent payments directly to the seller of the accounts (see note 17 to our Notes to Consolidated Financial Statements). The increase in cash used in investing activities was primarily attributable to cash paid for acquisitions and acquisition related costs of $118.9 million and $88.4 million incurred in connection with the acquisitions of RMA and Marlin, respectively, and higher purchases of property and equipment in 2005, primarily in the CRM division due to the start-up of new clients. These increases were partially offset by the $32.5 million minority interest investment in the Marlin acquisition by our nonrecourse lender.

Cash used in investing activities was $1.5 million in 2004, compared to cash provided by investing activities of $10.0 million in 2003. Cash flows from investing activities do not include Portfolio Management’s purchases of large accounts receivable portfolios financed through an agreement we have with a lender. It is a noncash transaction since the lender sends payment directly to the seller of the accounts (see note 17 to our Notes to Consolidated Financial Statements). The increase in cash used in investing activities was primarily attributable to cash paid for acquisitions and acquisition related costs incurred in connection with the acquisitions of RMH and the minority interest of NCO Portfolio and higher purchases of property and equipment in 2004. These increases were offset in part by higher proceeds from sales and resales of purchased accounts receivable and lower purchases of accounts receivable, not financed through the previously mentioned agreement.

Cash Flows from Financing Activities. Cash provided by financing activities was $97.6 million in 2005, compared to cash used in financing activities of $119.5 million in 2004. Prior to June 2005, cash flows from financing activities did not include Portfolio Management’s borrowings under nonrecourse debt, used to purchase large accounts receivable portfolios financed through an agreement we have with a lender. These borrowings were noncash transactions since the lender sent payments directly to the seller of the accounts (see note 17 to our Notes to Consolidated Financial Statements). The increase in cash provided by financing activities during 2005 resulted from the borrowings of $155.5 million under the revolving credit agreement to fund the acquisitions of Marlin and RMA, as well as borrowings under nonrecourse debt for the acquisition of RMA’s purchase portfolio assets. The lower repayments of borrowings under the revolving credit agreement during 2005, compared to the prior year was due to the use of cash to pay for acquisitions and fund the growth in the CRM division.

Cash used in financing activities was $119.5 million in 2004, compared to $92.2 million in 2003. Cash flows from financing activities do not include Portfolio Management’s borrowings under nonrecourse debt, used to purchase large accounts receivable portfolios financed through an agreement we have with a lender. It is a noncash transaction since the lender sends payment directly to the seller of the accounts (see note 17 to our Notes to Consolidated Financial Statements). The increase in cash used in financing activities during 2004 resulted from the repayment of a note payable and capitalized leases assumed in connection with the RMH acquisition, higher repayments of borrowings under nonrecourse debt by Portfolio Management, and higher repayments of borrowings under our senior credit facility. These repayments were partially offset by higher proceeds from the exercise of stock options in 2004.

Senior Credit Facility. In June 2005, we amended and restated our Credit Facility with various participating lenders. The amended and restated Credit Facility is structured as a $300

-46-

million revolving credit facility with an option to increase our borrowing capacity to a maximum of $400 million, subject to obtaining commitments for such incremental capacity from existing or new lenders. The Credit Facility requires no minimum principal payments until June 18, 2010, the maturity date. At December 31, 2005, the balance outstanding on the Credit Facility was $170.5 million. The availability of the revolving credit facility is reduced by any unused letters of credit ($4.4 million at December 31, 2005). As of December 31, 2005, we had $125.1 million of remaining availability under the revolving credit facility; however, $125.0 million of this has been reserved to repay our convertible notes, which mature in April 2006.

Borrowings under the Credit Facility are collateralized by substantially all of our assets. The Credit Facility contains certain financial and other covenants, such as maintaining net worth and funded debt to earnings before interest, taxes, depreciation, and amortization, referred to as EBITDA, requirements, and includes restrictions on, among other things, acquisitions, the incurrence of additional debt, investments, disposition of assets, and transactions with affiliates. If an event of default, such as failure to comply with covenants or change of control, were to occur under the Credit Facility, the lenders would be entitled to declare all amounts outstanding under it immediately due and payable and foreclose on the pledged assets. As of December 31, 2005, we were in compliance with all required financial covenants and we were not aware of any events of default.

Convertible Notes. At December 31, 2005, we had $125.0 million aggregate principal amount of 4.75 percent convertible subordinated notes due April 15, 2006, referred to as the Notes. The Notes are convertible into our common stock at a conversion price of $32.92 per share. The Notes continue to be classified as a long-term liability on the balance sheet because we have the ability and intent to repay the Notes utilizing our Credit Facility.

Nonrecourse Credit Facility. On June 30, 2005 Portfolio Management amended and restated its credit facility with a lender and extended its existing exclusivity agreement with such lender through June 30, 2009. The new agreement provides that all purchases of accounts receivable by Portfolio Management with a purchase price in excess of $1.0 million are first offered to the lender for financing at its discretion. If the lender chooses to participate in the financing of a portfolio of accounts receivable, the financing may be structured, depending on the size and nature of the portfolio to be purchased, either as a borrowing arrangement similar to the original agreement, or under various equity sharing arrangements ranging from 25 percent to 50 percent equity provided by the lender. The lender will finance non-equity borrowings at 70 percent of the purchase price, unless otherwise negotiated, with floating interest at a rate equal to LIBOR plus 2.50 percent. As additional return, the lender receives 28 percent of the residual cash flow, unless otherwise negotiated, which is defined as all cash collections after servicing fees, floating rate interest, repayment of the note, and the initial investment by Portfolio Management, including interest. These borrowings are nonrecourse to us and are due two years from the date of each respective loan. We may terminate the agreement at any time after June 2007 for a cost of $250,000 for each remaining month under the new agreement. If the amendment is terminated, the original agreement remains in effect and all borrowings are subject to those terms. The previous financing arrangement as described below remains in effect for outstanding loans as of June 30, 2005. Total debt outstanding under this facility as of December 31, 2005, was $66.0 million, including $5.6 million of accrued residual interest. As of December 31, 2005, Portfolio Management was in compliance with all of the financial covenants.

Under the prior agreement, Portfolio Management had a four-year financing agreement with the lender that originally was to expire in August 2006, to provide financing for larger purchases of accounts receivable at 90 percent of the purchase price, unless otherwise negotiated. The lender, at

-47-

its sole discretion, had the right to finance any purchase of $4.0 million or more. This agreement had no minimum or maximum credit authorization. Borrowings carry interest at the prime rate plus 3.25 percent and are nonrecourse to us, except for the assets financed through the lender. Debt service payments equal total collections less servicing fees and expenses until each individual borrowing is fully repaid and Portfolio Management’s original investment is returned, including interest. Thereafter, the lender is paid a residual of 40 percent of collections, less servicing costs, unless otherwise negotiated. Individual loans are required to be repaid based on collections, but not more than two years from the date of borrowing. This loan agreement contains a collections performance requirement, among other covenants, that, if not met, provides for cross-collateralization with any other portfolios financed through the agreement, in addition to other remedies.

As part of the exclusivity agreement described above, Portfolio Management has a joint venture agreement with the lender to purchase larger portfolios through a newly created joint venture, whereby Portfolio Management owns 65 percent and the lender owns 35 percent of the joint venture. Each party will finance the joint venture based on predetermined percentages as negotiated for each portfolio purchase. Cash flows from the joint venture are based on the mix of partner loans and equity contributions to the joint venture. The equity share of the new agreement replaces the residual cash flows under the former agreement. The joint venture has been consolidated into our results and a minority interest has been recorded for the lender’s equity ownership. At December 31, 2005, we had $5.8 million of debt outstanding under the joint venture, which is included in the nonrecourse credit facility debt outstanding disclosed above.

Contractual Obligations. The following summarizes our contractual obligations as of December 31, 2005 (amounts in thousands). For a detailed discussion of these contractual obligations, see notes 10, 11 and 19 in our Notes to Consolidated Financial Statements.

	Payments Due by Period(1)
	Total		Less than 1 Year		1 to 3 Years		3 to 5 Years		More than 5 Years
Senior credit facility	$	170,500	$	—	$	—	$	170,500	$	—
Convertible notes (2)		125,000		125,000		—		—		—
Nonrecourse credit facility		65,995		40,635		25,360		—		—
Other long-term debt		5,938		4,964		538		247		189
Operating leases (3)		216,565		43,697		71,785		49,429		51,654
Purchase commitments		98,306		44,335		52,715		1,256		—
Forward flow agreements		95,973		39,205		31,116		25,652		—
Total contractual obligations	$	778,277	$	297,836	$	181,514	$	247,084	$	51,843

(1) Does not include deferred income taxes since the timing of payment is not certain (see note 12 in our Notes to Consolidated Financial Statements). Payments of debt do not include interest expense.

(2) Assumes that the convertible notes are not converted into common stock prior to the maturity date. We intend to repay the convertible notes using borrowings under our senior credit facility, for which payments are due in 2010.

(3) Does not include the leases from our former Fort Washington locations (see note 19 in our Notes to Consolidated Financial Statements).

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined by Regulation S-K 303(a)(4) of the Securities Exchange Act of 1934.

-48-

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. 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.

Foreign Currency Risk. Foreign currency exposures arise from transactions denominated in a currency other than the functional currency and from foreign denominated revenue and profit translated into U.S. dollars. The primary currencies to which we are exposed include the Canadian dollar, the British pound and the Philippine peso. Due to the growth of the Canadian operations, we currently use forward exchange contracts to limit potential losses in earnings or cash flows from adverse foreign currency exchange rate movements. These contracts are entered into to protect against the risk that the eventual cash flows resulting from such contracts will be adversely affected by changes in exchange rates. Our objective is to maintain economically balanced currency risk management strategies that provide adequate downside protection. During 2005, the U.S. dollar continued to weaken compared to the Canadian dollar. A five percent change in the Canadian exchange rate could have an annual impact of approximately $4.0 million on our business, excluding the impact of foreign currency hedges.

Interest Rate Risk. At December 31, 2005, we had $236.5 million in outstanding variable rate borrowings. A material change in interest 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 $125,000 for each $50 million of variable debt outstanding for the entire year.

Impact of Recently Issued and Proposed Accounting Pronouncements

FASB Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment.” In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” referred to as SFAS 123R, which is a revision of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” referred to as APB 25. SFAS 123R requires that the cost of all share-based payments to employees, including stock option grants, be recognized in the financial statements based on their fair values, as currently permitted but not required under SFAS 123. The standard applies to newly granted awards and previously granted awards that are not fully vested on the date of adoption. Companies must adopt SFAS 123R no later than the beginning of their next fiscal year that begins after June 15, 2005. Accordingly, we adopted the standard on January 1, 2006.

Under SFAS 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used when the standard is adopted. Transition methods allowed under the standard are modified retrospective adoption, in which prior periods may be restated either as of the beginning of the year of adoption or for all periods presented, or modified prospective adoption, which requires that compensation expense be recorded for all unvested stock options at the beginning of the first quarter of adoption of SFAS 123R. We have determined that we will use the modified prospective method of adoption.

Effective December 29, 2005, we accelerated the vesting of outstanding unvested stock options that have an exercise price equal to or greater than $17.25 per share, referred to as Eligible Options.

-49-

Any shares received upon the exercise of Eligible Options are restricted and may not be sold prior to the date on which the Eligible Options would have been exercisable under the original terms. As a result of the acceleration, options to purchase 944,308 shares of our common stock became immediately exercisable. All other terms and conditions applicable to the Eligible Options remain unchanged. All terms and conditions of all options that are not Eligible Options remain unchanged. The purpose of the acceleration was to eliminate future compensation expense associated with the Eligible Options of approximately $3.9 million, net of taxes, that would have otherwise been recognized upon our adoption of SFAS 123R on January 1, 2006.

Prior to our adoption of SFAS 123R on January 1, 2006, we accounted for stock option grants to employees under APB 25 using the intrinsic value method, as permitted by SFAS 123. Under APB 25, because the exercise price of the stock options equals the fair value of the underlying common stock on the date of grant, no compensation cost is recognized. We do not anticipate that the adoption of SFAS 123R will have a material impact on our cash flows or financial position, but it will reduce reported net income and earnings per share because under SFAS 123R we will be required to recognize compensation expense for stock options granted to employees. The impact of the adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future, stock price volatility, forfeitures and employee stock option exercise behavior. However, valuation of employee stock options under SFAS 123R is similar to SAFS 123, with minor exceptions. The impact on our results of operations and earnings per share had we adopted SFAS 123, is described in note 2 to our Notes to Consolidated Financial Statements.

SOP 03-3 Accounting for Certain Loans or Debt Securities Acquired in a Transfer. In October 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-03, “Accounting for Loans or Certain Securities Acquired in a Transfer,” referred to as SOP 03-3. SOP 03-3 addresses accounting for differences between contractual balances of an investor’s initial investment, or the face value, of certain acquired loans and the expected cash flows from those loans when such differences are attributable, in part, to credit quality. SOP 03-3 applies to our purchased accounts receivable portfolios and effective for portfolios acquired in fiscal years beginning after December 15, 2004, and amends Practice Bulletin No. 6, referred to as PB6, for portfolios acquired in fiscal years before the effective date.

Under SOP 03-3, if the collection estimates established when acquiring a portfolio are subsequently lowered, an allowance for impairment and a corresponding expense is established in the current period for the amount required to maintain the original internal rate of return, or “IRR,” expectations. Prior guidance required lowering the IRR for the remaining life of the portfolio. If collection estimates are raised, increases are first used to recover any previously recorded allowances and the remainder is recognized prospectively through an increase in the IRR. This updated IRR must be used for subsequent impairment testing.

We adopted SOP 03-3 on January 1, 2005, however previously issued annual financial statements were not restated and there is no prior period effect of these new provisions. Portfolios acquired prior to December 31, 2004 continue to be governed by PB6, as amended by SOP 03-3, which set the IRR at December 31, 2004 as the IRR to be used for impairment testing in the future and for recognizing revenue. Because any reductions in expectations are recognized as an expense in the current period and any increases in expectations are recognized over the remaining life of the portfolio, SOP 03-3 increases the probability that we will incur impairments in the future, and these impairments could be material.

-50-

FASB Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3.” In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3”, referred to as SFAS No. 154, which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principles. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. It does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of SFAS No. 154. We do not believe the adoption of SFAS No. 154 will have a material impact on our financial statements.

FASB Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140.” In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments,” referred to as SFAS No. 155. This statement amends SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 155 permits fair value remeasurement for hybrid financial instruments that contain embedded derivatives that would require separate accounting. In addition, the statement establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain embedded derivatives. SFAS No. 155 is effective for all financial instruments acquired or issued beginning after an entity’s fiscal year beginning on September 15, 2006 with earlier adoption permitted. Management is evaluating the statement and does not believe that it will have a material impact on our financial statements.

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

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

Item 8. Financial Statements and Supplementary Data.

The financial statements, financial statement schedules and related documents that are filed with this Report are listed in Item 15 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 Disclosure.

None.

-51-

Item 9A. Controls and Procedures.

Our management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of December 31, 2005. Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of the end of the period covered by the Report, our disclosure controls and procedures were effective in reaching a reasonable level of assurance that the (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communitcated to our management including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our chief executive officer and chief financial officer, also conducted an evaluation of our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), to determine whether any changes occurred during the quarter ended December 31, 2005, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there were no such changes during the quarter ended December 31, 2005.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all controls systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Management’s Report on Internal Control over Financial Reporting is included in Item 8, Financial Statements and Supplementary Data, of the Report on Form 10-K.

Item 9b. Other Information.

None.

-52-

PART III

Item 10. Directors and Executive Officers of the Registrant.

Incorporated by reference from the Company’s Proxy Statement relating to the 2006 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 that is set forth in Item 4.1 of this Annual Report on Form 10-K and the information set forth below.

Code of Ethics:

The Company has adopted a Code of Ethics and Conduct that applies to all of its directors and employees including, the Company’s principal executive officer, principal financial officer, principal accounting officer and all employees performing similar functions. The Company will provide a copy of the Code of Ethics and Conduct without charge upon written request directed to: Joshua Gindin, Esq., Corporate Secretary, NCO Group, Inc., 507 Prudential Road Horsham, Pennsylvania 19044. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any future amendments to a provision of its Code of Ethics and Conduct by posting such information on the Company’s website www.ncogroup.com.

Item 11. Executive Compensation.

Incorporated by reference from the Company’s Proxy Statement relating to the 2006 Annual Meeting of Shareholders to be filed in accordance with General Instruction G(3) to Form 10-K.

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

The following table details information regarding the Company’s existing equity compensation plans as of December 31, 2005:

	(a)	(b)		(c)
Plan Category(1)	Number of securities to be issued upon exercise of outstanding options, warrants and rights(2)	Weighted- average exercise price of outstanding options, warrants and rights(2)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	4,415,915	$	21.73	881,351
Equity compensation plans not approved by security holders	—		—	—
Total	4,415,915	$	21.73	881,351

(1) The table does not include information on stock options assumed by the Company through acquisitions. At December 31, 2005, 5,516 shares of Common Stock were issuable upon the exercise of options assumed in connection with the acquisition of JDR Holdings, Inc. The weighted average exercise price of these options was $51.95. At December 31, 2005, 103,219 shares of Common Stock were issuable upon the exercise of options assumed in connection with the acquisition of Compass International Services Corporation. The weighted average exercise price of these options was $44.99. At December 31, 2005, 108,828 shares of Common Stock were issuable upon the exercise of options assumed in connection with the acquisition of NCO Portfolio. The weighted average exercise price of these options was $18.74. At December 31, 2005, 31,964 shares of Common Stock were issuable upon the exercise of options assumed in connection with the acquisition of RMH Teleservices, Inc. The weighted average exercise price of these options was $25.87.

(2) Includes 278,783 shares issuable pursuant to restricted stock units. Because these awards are issuable without the payment of any cash consideration, these awards are excluded from the weighted average exercise price calculation in column (b).

 

-53-

Item 13. Certain Relationships and Related Transactions.

Incorporated by reference from the Company’s Proxy Statement relating to the 2006 Annual Meeting of Shareholders to be filed in accordance with General Instruction G(3) to Form 10-K.

Item 14. Principal Accounting Fees and Services.

Incorporated by reference from the Company’s Proxy Statement relating to the 2006 Annual Meeting of Shareholders to be filed in accordance with General Instruction G(3) to Form 10-K.

-54-

PART IV

Item 15. Exhibits and Financial Statement Schedules.

1. List of Consolidated Financial Statements. The consolidated financial statements and the accompanying notes of NCO Group, Inc., have been included in this Report on Form 10-K beginning on page F-1:

Management’s Report on Internal Control over Financial Reporting

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2005 and 2004

Consolidated Statements of Income for each of the three years

in the period ended December 31, 2005

Consolidated Statements of Shareholders’ Equity for each of the

three years in the period ended December 31, 2005

Consolidated Statements of Cash Flows for each of the three years

in the period ended December 31, 2005

Notes to Consolidated Financial Statements

2. All 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 warranties, representations and covenants contained in the agreements, documents and other instruments included or incorporated by reference herein or which appear as exhibits hereto should not be relied upon by buyers, sellers or holders of the company’s securities and are not intended as warranties, representations or covenants to any individual or entity except as specifically set forth in such agreements, documents and other instruments. 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 “*”:

Exhibit No.	Description
2.112	Agreement and Plan of Merger by and among NCO Group, Inc., NCOG Acquisition Corporation, and RMH Teleservices, Inc., dated as of November 18, 2003. NCO will furnish to the Securities and Exchange Commission a copy of any omitted schedules upon request.
2.214	First Amendment to the Agreement and Plan of Merger by and among NCO Group, Inc., NCOG Acquisition Corporation, and RMH Teleservices, Inc., dated as of January 22, 2004. NCO will furnish to the Securities and Exchange Commission a copy of any omitted schedules upon request.
2.315	Second Amendment to the Agreement and Plan of Merger by and among NCO Group, Inc., NCOG Acquisition Corporation, and RMH Teleservices, Inc., dated as of March 1, 2004. NCO will furnish to the Securities and Exchange Commission a copy of any omitted schedules upon request.

-55-

Exhibit No.	Description
2.413	Agreement and Plan of Merger by and among NCO Group, Inc., NCPM Acquisition Corporation, and NCO Portfolio Management, Inc., dated as of December 12, 2003. NCO will furnish to the Securities and Exchange Commission a copy of any omitted schedules upon request.
2.522	Purchase Agreement, dated as of July 6, 2005, by and among NCOP Capital Resource, LLC and Risk Management Alternatives Parent Corp. and Risk Management Alternatives Holdings, Inc., Risk Management Alternatives International Limited, Resource Recovery Consultants, Inc., RMA Intermediate Holdings Corporation, RMA Management Services, Inc., Risk Management Alternatives International Corp. Canada, National Revenue Corporation, Risk Management Alternatives, Inc., Risk Management Alternatives Portfolio Services, LLC, RMA Holdings LLC, Purchased Paper LLC and Risk Management Alternatives Solutions LLC (collectively, the “RMA Seller Parties”).
2.622	First Amendment and Acknowledgement to Purchase Agreement, by and among NCOP Capital Resource, LLC and RMA Seller Parties, dated as of August 23, 2005.
2.722	Second Amendment and Acknowledgement to Purchase Agreement, by and among NCOP Capital Resource, LLC and RMA Seller Parties, dated as of August 31, 2005.
2.823	Guarantee, dated as of July 6, 2005, by NCO Group, Inc. in favor of and for the benefit of Risk Management Alternatives Parent Corp.
3.11	The Company’s Amended and Restated Articles of Incorporation.
3.22	Amendment to Amended and Restated Articles of Incorporation.
3.39	Amendment to Amended and Restated Articles of Incorporation.
3.417	The Company’s Amended and Restated Bylaws.
4.11	Specimen of Common Stock Certificate.
4.24	Form of warrant to purchase NCO Group, Inc. common stock.
4.311	Form of warrant dated October 3, 2003 and executed by RMH Teleservices, Inc.
4.48	Purchase Agreement dated as of March 29, 2001, between NCO Group, Inc. and Deutsche Bank Alex. Brown Inc.
4.58	Indenture dated as of April 4, 2001, between NCO Group, Inc. and Bankers Trust Company, as Trustee
4.68	Registration Rights Agreement dated as of April 4, 2001, between NCO Group, Inc. and Deutsche Bank Alex. Brown Inc.
4.78	Global Note dated April 4, 2001 of NCO Group, Inc.

-56-

Exhibit No.	Description
*10.11	Employment Agreement, dated September 1, 1996, between the Company and Michael J. Barrist.
*10.25	Addendum, dated January 1, 1999, to the Employment Agreement, dated September 1, 1996, between the Company and Michael J. Barrist.
*10.31	Employment Agreement, dated September 1, 1996, between the Company and Steven L. Winokur.
*10.45	Addendum, dated January 1, 1999, to the Employment Agreement, dated September 1, 1996, between the Company and Steven L. Winokur.
*10.57	Employment Agreement, dated June 5, 1998, between the Company and Joshua Gindin.
*10.67	Addendum, dated January 1, 1999, to the Employment Agreement, dated June 5, 1998, between the Company and Joshua Gindin.
*10.76	Employment Agreement, dated May 2, 1998, between the Company and Paul E. Weitzel, Jr.
*10.86	Addendum, dated January 1, 1999, to the Employment Agreement, dated May 2, 1998, between the Company and Paul E. Weitzel, Jr.
*10.91	Amended and Restated 1995 Stock Option Plan.
*10.103	1996 Stock Option Plan, as amended.
*10.113	1996 Non-Employee Director Stock Option Plan, as amended.
*10.1217	2004 Equity Incentive Plan.
10.131	Irrevocable Proxy Agreement by and between Michael J. Barrist and Annette H. Barrist.
*10.142	Executive Salary Continuation Agreement.
*10.1510	Employment Agreement, dated January 31, 2002, between the Company and Stephen W. Elliott.
*10.1610	Employment Agreement, dated November 21, 2001, between the Company and Steven Leckerman.
*10.1716	Employment Agreement, dated July 7, 2003, between the Company and Charles F. Burns.
10.1816	Amended and Restated Note Receivable, dated April 1, 2002, from TRC Holdings, Inc. for the principal amount of $11.25 million, as payment of the purchase price for the acquisition of certain assets of NCO Teleservices, Inc.
*10.1916	Second Addendum, dated July 1, 2003, to the Employment Agreement, dated September 1, 1996, as amended, between the Company and Michael J. Barrist.

-57-

Exhibit No.	Description
*10.2016	Second Addendum, dated July 1, 2003, to the Employment Agreement, dated September 1, 1996, as amended, between the Company and Steven L. Winokur.
*10.2116	Second Addendum, dated July 1, 2003, to the Employment Agreement, dated June 5, 1998, as amended, between the Company and Joshua Gindin.
*10.2216	Second Addendum, dated July 1, 2003, to the Employment Agreement, dated May 2, 1998, as amended, between the Company and Paul E. Weitzel, Jr.
*10.2316	Employment Agreement, dated December 8, 2000, between the Company and Albert Zezulinski.
*10.2419	Addendum, dated January 1, 2005, to the Employment Agreement, dated December 8, 2000, between the Company and Albert Zezulinski.
*10.2518	Form of Restricted Stock Unit awarded to Directors under the 2004 Equity Incentive Plan.
*10.2619	Executive Deferred Compensation Plan Basic Document.
*10.2719	Executive Deferred Compensation Plan Adoption Agreement.
*10.2819	Rabbi Trust Agreement with Putnam Fiduciary Trust Company.
*10.2919	Form of Restricted Stock Unit Agreement Granted to Executive Officers in 2004.
*10.3019	Deferred Compensation Plan (applicable only to the Restricted Stock Unit Agreements).
*10.31	Summary of Director and Named Executive Officer Compensation Arrangements
10.3221	Seventh Amended and Restated Credit Agreement dated as of June 21, 2005 by and among NCO Group, Inc., as Borrower, Citizens Bank of Pennsylvania, as Administrative Agent and Issuer, and the Financial Institutions identified therein as Lenders and such other Co-Arrangers, Co-Documentation Agents, Co-Agents, and other Agents as may be appointed from time to time.
10.3325	Credit Agreement, dated as of November 26, 2002, by and among NCOP Capital, Inc. as Borrower and CFSC Capital Corp. XXXIV as Lender.
10.3423	Second Amendment to Credit Agreement, dated as of June 30, 2005, by and among NCOP Capital, Inc. as Borrower and CFSC Capital Corp. XXXIV as Lender.
10.3523	Amended and Restated Exclusivity Agreement, dated as of June 30, 2005, by and among CFSC Capital Corp. XXXIV and NCOP Lakes, Inc., NCO Financial Systems, Inc., NCO Portfolio Management, Inc., NCO Group, Inc., NCOP Capital, Inc., and NCOP Capital I, LLC. NCO will furnish to the Securities and Exchange Commission a copy of any omitted schedules upon request.
*10.3623	Form of Employee Incentive Stock Option Award pursuant to 2004 Equity Incentive Plan.

-58-

Exhibit No.	Description
*10.3723	Form of Director Stock Option Award pursuant to 2004 Equity Incentive Plan.
*10.3824	Addendum, effective as of November 1, 2005, to the Employment Agreement, dated November 21, 2001, between the Company and Steven Leckerman
*10.3926	Third Addendum, effective January 1, 2006, to the Employement Agreement, dated June 5, 1998, between the Company and Joshua Gindin.
*10.4026	Third Addendum, effective January 1, 2006, to the Employement Agreement, dated May 2, 1998, between the Company and Paul E. Weitzel, Jr.
*10.4126	Third Addendum, effective January 1, 2006, to the Employement Agreement, dated September 1, 1996, between the Company and Steven L Winokur.
10.42	Form of Employee Non-qualified Stock Option Award pursuant to 2004 Equity Incentive Plan.
10.43	Form of Restricted Stock Unit Award Granted to Executive Officers in 2005.
21.1	Subsidiaries of the Registrant.
23.1	Consent of Independent Registered Public Accounting Firm.
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification

______________

¹Incorporated by reference to the Company’s Amendment No. 1 to Form S-1 Registration Statement (Registration No. 333-11745), filed with the Securities and Exchange Commission on October 17, 1996.

²Incorporated 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.

³Incorporated 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.

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

⁵Incorporated 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.

⁶Incorporated 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.

-59-

⁷Incorporated 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.

⁸Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 (File No. 0-21639), filed with the Securities and Exchange Commission on May 15, 2001.

⁹Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (File No. 0-21639), filed with the Securities and Exchange Commission on August 14, 2001.

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

¹¹Incorporated by reference to Exhibit 10.3 to RMH Teleservices, Inc.’s Form 8-K (File No. 00-2133), filed with the Securities and Exchange Commission on October 9, 2003.

¹²Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 0-21639), filed with the Securities and Exchange Commission on November 20, 2003.

¹³Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 0-21639), filed with the Securities and Exchange Commission on December 16, 2003.

¹⁴Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 0-21639), filed with the Securities and Exchange Commission on January 23, 2004.

¹⁵Incorporated 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 3, 2004.

¹⁶Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 0-21639), filed with the Securities and Exchange Commission on March 15, 2004.

¹⁷Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (File No. 0-21639), filed with the Securities and Exchange Commission on August 9, 2004.

¹⁸Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 0-21639), filed with the Securities and Exchange Commission on November 9, 2004.

¹⁹Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 0-21639), filed with the Securities and Exchange Commission on January 6, 2005.

²⁰Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 0-21639), filed with the Securities and Exchange Commission on March 16, 2005.

-60-

²¹Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 0-21639), filed with the Securities and Exchange Commission on June 23, 2005.

²²Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 0-21639), filed with the Securities and Exchange Commission on September 16, 2005.

²³Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (File No. 0-21639), filed with the Securities and Exchange Commission on November 9, 2005.

²⁴Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 0-21639), filed with the Securities and Exchange Commission on November 14, 2005.

²⁵Incorporated by reference to Exhibit 10.48 to NCO Portfolio Management Inc.’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 0-32403), filed with the Securities and Exchange Commission on March 13, 2003.

²⁶Incorporated by reference to the Company’s Current Report on Form 8-K (File No. 0-21639), filed with the Securities and Exchange Commission on January 27, 2006.

-61-

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 16, 2006	By:	/s/ Michael J. Barrist
		Michael J. Barrist, Chairman of the Board, President and Chief Executive Officer

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

SIGNATURE	TITLE(S)	DATE
/s/ Michael J. Barrist	Chairman of the Board, President and Chief Executive Officer (principal executive officer)	March 16, 2006
Michael J. Barrist
/s/ Steven L. Winokur	Executive Vice President, Chief Financial Officer, Chief Operating Officer - Shared Services, and Treasurer (principal financial officer)	March 16, 2006
Steven L. Winokur
/s/ John R. Schwab	Senior Vice President, Finance and Chief Accounting Officer (principal accounting officer)	March 16, 2006
John R. Schwab
/s/ William C. Dunkelberg	Director	March 16, 2006
William C. Dunkelberg
/s/ Ronald J. Naples	Director	March 16, 2006
Ronald J. Naples
/s/ Leo J. Pound	Director	March 16, 2006
Leo J. Pound
/s/ Eric S. Siegel	Director	March 16, 2006
Eric S. Siegel
/s/ Allen F. Wise	Director	March 16, 2006
Allen F. Wise

-62-

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Management on Internal Control over Financial Reporting	F-2
Report of Independent Registered Public Accounting Firm on Financial Statements	F-3
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting	F-4
Consolidated Balance Sheets as of December 31, 2005 and 2004	F-6
Consolidated Statements of Income for each of the three years in the period ended December 31, 2005	F-7
Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2005	F-8
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2005	F-9
Notes to Consolidated Financial Statements	F-10

F-1

Report of Management on Internal Control over Financial Reporting

Management of NCO Group, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting has been designed under the supervision and with the participation of management including the Company’s chief executive officer and chief financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.

Our management, with the participation of our chief executive officer and chief financial officer, conducted an assessment as of December 31, 2005, of the effectiveness of the Company’s internal control over financial reporting, using the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that, as of December 31, 2005, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Ernst & Young LLP, an independent registered public accounting firm that audited the Company’s consolidated financial statements included in this Report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting which appears on page F-4.

In September 2005, we acquired substantially all of the operating assets, including purchased portfolio assets, of Risk Management Alternatives Parent Corp. (“RMA”). Management has excluded the internal controls over financial reporting associated with this acquisition from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. RMA represented approximately 11% of total assets and approximately 5% of revenues as of and for the year ended December 31, 2005.

Because of the inherent limitations in all controls systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been or will be detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

F-2

Report of Independent Registered Public Accounting Firm

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, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of NCO Group, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of NCO Group, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania

March 10, 2006

F-3

Report of Independent Registered Public Accounting Firm on

Internal Control over Financial Reporting

The Board of Directors and Shareholders of NCO Group, Inc.

We have audited management’s assessment, included in the accompanying Report of Management on Internal Control over Financial Reporting, that NCO Group, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). NCO Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Risk Management Alternatives Parent Corp. (“RMA”), which is included in the 2005 consolidated financial statements of NCO Group, Inc. and constituted 11% of total assets as of December 31, 2005 and 5% of revenues for the year then ended.

F-4

Our audit of internal control over financial reporting of NCO Group, Inc. also did not include an evaluation of the internal control over financial reporting of RMA.

In our opinion, management’s assessment that NCO Group, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, NCO Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005 of NCO Group, Inc. and our report dated March 10, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania

March 10, 2006

F-5

NCO GROUP, INC.

Consolidated Balance Sheets

(Amounts in thousands)

	December 31,
	2005			2004
ASSETS
Current assets:
Cash and cash equivalents	$	23,716		$	26,334
Restricted cash		—			900
Accounts receivable, trade, net of allowance for doubtful accounts of $8,079 and $7,878, respectively		143,019			104,699
Purchased accounts receivable, current portion, net of allowance for impairment of $1,192 at December 31, 2005		102,779			50,388
Deferred income taxes		10,918			18,911
Bonus receivable, current portion		—			10,325
Prepaid expenses and other current assets		42,854			37,359
Total current assets		323,286			248,916
Funds held on behalf of clients
Property and equipment, net		131,370			114,256
Other assets:
Goodwill		668,832			609,562
Other intangibles, net of accumulated amortization		41,695			21,943
Purchased accounts receivable, net of current portion		135,028			88,469
Bonus receivable, net of current portion		—			—
Deferred income taxes		4,737			—
Other assets		23,014			30,743
Total other assets		873,306			750,717
Total assets	$	1,327,962		$	1,113,889
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Long-term debt, current portion	$	45,600		$	64,684
Income taxes payable		4,531			11,946
Accounts payable		12,372			5,022
Accrued expenses		59,167			53,472
Accrued compensation and related expenses		26,120			21,424
Deferred revenue, current portion		3,909			18,821
Total current liabilities		151,699			175,369
Funds held on behalf of clients
Long-term liabilities:
Long-term debt, net of current portion		321,834			186,339
Deferred revenue, net of current portion		1,078			955
Deferred income taxes		57,709			36,174
Other long-term liabilities		17,885			19,451
Minority interest		34,643			—
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value, 5,000 shares authorized, no shares issued and outstanding		—			—
Common stock, no par value, 50,000 shares authorized, 32,176 and 32,078 shares issued and outstanding, respectively		477,238			473,410
Other comprehensive income		13,892			13,526
Deferred compensation		(4,658	)		(3,458	)
Retained earnings		256,642			212,123
Total shareholders’ equity		743,114			695,601
Total liabilities and shareholders’ equity	$	1,327,962		$	1,113,889

See accompanying notes.

F-6

NCO GROUP, INC.

Consolidated Statements of Income

(Amounts in thousands, except per share data)

	For the Years Ended December 31,
	2005			2004			2003
Revenues:
Services	$	906,258		$	840,346		$	676,793
Portfolio		133,868			99,451			77,023
Portfolio sales		12,157			—			—
Total revenues		1,052,283			939,797			753,816
Operating costs and expenses:
Payroll and related expenses		528,932			472,915			350,369
Selling, general and administrative expenses		376,606			324,187			282,268
Restructuring charge		9,621			—			—
Depreciation and amortization expense		45,787			40,225			31,628
Total operating costs and expenses		960,946			837,327			664,265
Income from operations		91,337			102,470			89,551
Other income (expense):
Interest and investment income		3,162			3,185			3,927
Interest expense		(22,615	)		(21,244	)		(22,998	)
Other income		30			447			1,128
Total other income (expense)		(19,423	)		(17,612	)		(17,943	)
Income before income tax expense		71,914			84,858			71,608
Income tax expense		26,182			32,389			26,732
Income before minority interest		45,732			52,469			44,876
Minority interest		(1,213	)		(606	)		(2,430	)
Net income	$	44,519		$	51,863		$	42,446
Net income per share:
Basic	$	1.39		$	1.71		$	1.64
Diluted	$	1.33		$	1.60		$	1.54
Weighted average shares outstanding:
Basic		32,125			30,397			25,934
Diluted		36,158			34,652			29,895

See accompanying notes.

F-7

NCO GROUP, INC.

Consolidated Statements of Shareholders’ Equity

(Amounts in thousands)

	Common Stock			Other Comprehensive Income (Loss)
	Number of Shares	Amount					Deferred Compensation			Retained Earnings		Comprehensive Income (Loss)			Total
Balance at January 1, 2003	25,908	$	321,824	$	(3,876	)		—		$	117,814				$	435,762
Issuance of common stock	80		1,687		—			—			—					1,687
Comprehensive income, net of tax:
Net income	—		—		—			—			42,446	$	42,446			42,446
Other comprehensive income (loss):
Foreign currency translation adjustment	—		—		10,062			—			—		10,062			10,062
Unrealized gain on interest rate swap	—		—		460			—			—		460			460
Total comprehensive income												$	52,968
Balance, December 31, 2003	25,988		323,511		6,646			—			160,260					490,417
Issuance of common stock in connection with acquisitions	5,184		128,699		—			—			—					128,699
Issuance of common stock in connection with stock option plans	890		16,763		—			—			—					16,763
Exercise of common stock warrants	16		296		—			—			—					296
Issuance of restricted stock	—		4,141		—			(4,141	)		—					—
Amortization of deferred compensation	—		—		—			683			—					683
Comprehensive income, net of tax:
Net income	—		—		—			—			51,863	$	51,863			51,863
Other comprehensive income (loss):
Foreign currency translation adjustment	—		—		6,593			—			—		6,593			6,593
Change in fair value of foreign currency cash flow hedge, net of taxes of $158	—		—		287			—			—		287			287
Total comprehensive income												$	58,743
Balance, December 31, 2004	32,078		473,410		13,526			(3,458	)		212,123					695,601
Issuance of common stock in connection with stock-based compensation plans	98		1,305		—			—			—					1,305
Issuance of restricted stock units	—		2,523		—			(2,523	)		—					—
Amortization of deferred compensation	—		—		—			1,323			—					1,323
Comprehensive income, net of tax:
Net income	—		—		—			—			44,519	$	44,519			44,519
Other comprehensive income (loss):
Foreign currency translation adjustment	—		—		376			—			—		376			376
Change in fair value of foreign currency cash flow hedges, net of taxes of $540	—		—		933			—			—		933			933
Net gains on foreign currency cash flow hedges reclassified into earnings, net of taxes of $538	—		—		(943	)		—			—		(943	)		(943	)
Total comprehensive income												$	44,885
Balance, December 31, 2005	32,176	$	477,238	$	13,892		$	(4,658	)	$	256,642				$	743,114

See accompanying notes.

F-8

NCO GROUP, INC.

Consolidated Statements of Cash Flows

(Amounts in thousands)

	For the Years Ended December 31,
	2005			2004			2003
Cash flows from operating activities:
Net income	$	44,519		$	51,863		$	42,446
Adjustments to reconcile income from operations to net cash provided by operating activities:
Depreciation		36,352			32,800			27,035
Amortization of intangibles		9,435			7,425			4,593
Amortization of deferred compensation		1,323			683			—
Amortization of deferred training asset		4,167			1,918			—
Provision for doubtful accounts		3,369			2,321			4,816
Allowance and impairment of purchased accounts receivable		1,240			948			1,751
Noncash interest		7,107			6,182			4,922
Gain on sale of purchased accounts receivable		(12,157	)		—			—
Loss on disposal of property, equipment and other net assets		888			157			386
Changes in non-operating income		(352	)		(1,591	)		(2,642	)
Minority interest		2,135			606			2,421
Changes in operating assets and liabilities, net of acquisitions:
Restricted cash		900			4,950			(4,950	)
Accounts receivable, trade		(18,475	)		(2,715	)		1,707
Deferred income taxes		24,917			28,675			18,816
Bonus receivable		10,325			(2,359	)		8,026
Other assets		3,225			(13,468	)		1,655
Accounts payable and accrued expenses		5,385			(17,845	)		(6,561	)
Income taxes payable		(19,719	)		545			(4,008	)
Deferred revenue		(14,789	)		(4,780	)		790
Other long-term liabilities		(245	)		2,704			(147	)
Net cash provided by operating activities		89,550			99,019			101,056
Cash flows from investing activities:
Purchases of accounts receivable - see note 17		(45,743	)		(43,549	)		(48,106	)
Collections applied to principal of purchased accounts receivable		69,565			70,898			72,850
Proceeds from sales and resales of purchased accounts receivable		15,880			15,863			4,536
Purchases of property and equipment		(43,499	)		(27,188	)		(20,498	)
Net distribution from joint venture		4,464			2,083			1,540
Proceeds from notes receivable		1,147			1,403			394
Proceeds from disposal of property, equipment and other net assets		—			1,013			—
Investment in subsidiary by minority interest		32,508			—			—
Net cash paid for acquisitions and related costs		(223,808	)		(21,981	)		(720	)
Net cash (used in) provided by investing activities		(189,486	)		(1,458	)		9,996
Cash flows from financing activities:
Repayment of notes payable		(46,754	)		(64,814	)		(30,947	)
Borrowings under notes payable		36,688			—			750
Repayment of borrowings under revolving credit agreement		(47,500	)		(70,000	)		(61,680	)
Borrowings under revolving credit agreement		155,500			—			1,000
Payment of fees to acquire debt		(1,494	)		(103	)		(2,899	)
Issuance of common stock, net of taxes		1,199			15,375			1,531
Net cash provided by (used in) financing activities		97,639			(119,542	)		(92,245	)
Effect of exchange rate on cash		(321	)		2,671			1,678
Net (decrease) increase in cash and cash equivalents		(2,618	)		(19,310	)		20,485
Cash and cash equivalents at beginning of the period		26,334			45,644			25,159
Cash and cash equivalents at end of the period	$	23,716		$	26,334		$	45,644

See accompanying notes.

F-9

NCO GROUP, INC.

Notes to Consolidated Financial Statements

1. Nature of Operations:

NCO Group, Inc. is a holding company and conducts substantially all of its business operations through its subsidiaries (collectively, “the Company” or “NCO”). NCO is a leading global provider of business process outsourcing solutions, primarily focused on accounts receivable management (“ARM”) and customer relationship management (“CRM”). NCO provides services to more than 22,400 active clients including many Fortune 500 companies, supporting a broad spectrum of industries, including financial services, telecommunications, healthcare, utilities, retail and commercial, transportation/logistics, education, technology and government services. These clients are primarily located throughout the United States, Canada, the United Kingdom, Europe, and Puerto Rico. The Company’s largest client during 2005 was Capital One Financial Corporation and it represented 10.7 percent of the Company’s 2005 consolidated revenue. The Company also purchases and manages past due consumer accounts receivable from consumer creditors such as banks, finance companies, retail merchants, utilities, healthcare companies, and other consumer-oriented companies.

The Company’s business consists of four operating divisions: ARM North America, CRM, Portfolio Management and ARM International.

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 intercompany accounts and transactions have been eliminated.

At December 31, 2005, the Company had a $9.7 million note receivable included in the balance sheet under current and long-term other assets from a company that was previously owned by the Company. Under FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities” (“FIN 46(R)”), the company that issued this note receivable is considered a variable interest entity. Based on its evaluation of this variable interest entity, the Company is not the primary beneficiary of the company; therefore, the Company has not consolidated this entity under FIN 46(R).

Revenue Recognition:

ARM Contingency Fees:

ARM contingency fee revenue is recognized upon physical receipt of funds by NCO or its client.

ARM Contractual Services:

Fees for ARM contractual services are recognized as services are performed and earned under service arrangements with clients where fees are fixed or determinable and collectibility is reasonably assured.

F-10

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

2. Accounting Policies (continued):

Revenue Recognition (continued):

Long-Term Collection Contract:

The Company has a long-term collection contract with a large client to provide collection services. Prior to May 31, 2005, the contract included guaranteed collections, subject to limits, for placements from January 1, 2000 through December 31, 2003. The Company also earned a bonus to the extent collections were in excess of the guarantees. The Company was required to pay the client, subject to limits, if collections did not reach the guarantees by the reconciliation dates. Any guarantees in excess of the limits were only satisfied with future collections. The Company is entitled to recoup at least 90 percent of any such guarantee payments from subsequent collections in excess of any remaining guarantees.

Prior to the final reconciliation date on May 31, 2005, the Company deferred all of the base service fees, subject to the limits, until the collections exceeded the collection guarantees. At the end of each reporting period, the Company assessed the need to record an additional liability if deferred fees were less than the estimated guarantee payments, if any, due to the client, subject to the limits. The last and final settlement date occurred on May 31, 2005. In September 2005, the Company paid the client $4.3 million, which represented the difference between actual collections and the guaranteed collections, subject to a limit of $13.5 million, less $9.2 million of prepayments from prior bonuses and recoveries. The Company continues to record revenue for the base service fee plus any bonus or recoupments in excess of any remaining guarantees.

CRM Hourly:

Revenue is recognized based on the billable hours of each CRM representative as defined in the client contract. The rate per billable hour charged is based on a predetermined contractual rate, as agreed in the underlying contract. The contractual rate can fluctuate based on certain pre-determined objective performance criteria related to quality and performance, reduced by any contractual performance penalties the client may be entitled to, both as measured on a monthly basis. The impact of the performance criteria and penalties on the rate per billable hour is continually updated as revenue is recognized.

CRM Performance Based:

Under performance-based arrangements, the Company is paid by its customers based on achievement of certain levels of sales or other client-determined criteria specified in the client contract. The Company recognizes performance-based revenue by measuring its actual results against the performance criteria specified in the contracts. Amounts collected from customers prior to the performance of services are recorded as deferred revenues.

Training Revenue:

In connection with the provisions of certain inbound and outbound CRM services, the Company incurs costs to train its CRM representatives. Training programs relate to both program start-up training in connection with new CRM programs (“Start-up Training”) and on-going training for updates of existing CRM programs (“On-going Training”). The Company bills some of its customers for the costs incurred under these training programs based on the terms in the contract. Training revenue is integral to the CRM revenue being generated over the course of a contract and cannot be separated as a discrete earnings process under SEC Staff Accounting Bulletin No. 104. Start-up Training and On-going Training revenues are initially deferred and recognized over the shorter of term of the customer contract, or the period to be benefited. Direct costs associated with providing Start-up Training and On-going Training, which consist of salary, benefit and travel costs, are also deferred and amortized over a time period consistent with the deferred training revenue. When a business relationship is terminated with one of the Company’s customers, the unamortized deferred training revenue and unamortized deferred direct costs associated with that customer are immediately recognized. At December 31, 2005, the balance of deferred training revenue was $5.0 million and deferred costs capitalized were $3.7 million.

F-11

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

2. Accounting Policies (continued):

Revenue Recognition (continued):

Purchased Accounts Receivable:

Prior to January 1, 2005, the Company accounted for its investment in purchased accounts receivable on an accrual basis under the guidance of American Institute of Certified Public Accountants (“AICPA”) Practice Bulletin No. 6, “Amortization of Discounts on Certain Acquired Loans,” (“PB6”). Effective January 1, 2005, the Company adopted AICPA Statement of Position 03-3, “Accounting for Loans or Certain Securities Acquired in a Transfer” (“SOP 03-3”). SOP 03-3 addresses accounting for differences between contractual versus expected cash flows over an investor’s initial investment in certain loans when such differences are attributable, at least in part, to credit quality. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 15, 2004, and amends PB6 for loans acquired in fiscal years before the effective date. Previously issued financial statements are not restated and there is no prior period effect of these new provisions.

The Company has maintained historical collection records for all of its purchased accounts receivable, as well as debtor records, since 1986, which provides a reasonable basis for the Company’s judgment that it is probable that it will ultimately collect the recorded amount of its purchased accounts receivable plus a premium or yield. The historical collection amounts also provide a reasonable basis for determining the timing of the collections. The Company uses all available information to forecast the cash flows of its purchased accounts receivable including, but not limited to, historical collections, payment patterns on similar purchases, credit scores of the underlying debtors, seller’s credit policies, and location of the debtor.

The Company acquires loans in groups or portfolios that are initially recorded at cost, which includes external costs of acquiring portfolios. Once a portfolio is acquired, the accounts in the portfolio are not changed, unless replaced, returned, or sold. All acquired loans have experienced deterioration of credit quality between origination and the Company’s acquisition of the loans, and the amount paid for a portfolio of loans reflects the Company’s determination that it is probable the Company will be unable to collect all amounts due according to each loan’s contractual terms. As such, the Company determines whether each portfolio of loans is to be accounted for individually or whether such loans will be aggregated based on common risk characteristics. The Company considers expected collections, and estimates the amount and timing of undiscounted expected principal, interest, and other cash flows (expected at acquisition) for each portfolio of loans and subsequently aggregated pools of loans. The Company determines nonaccretable difference, or the excess of the portfolio’s contractual principal over all cash flows expected at acquisition as an amount that should not be accreted. The remaining amount represents accretable yield, or the excess of the portfolio’s cash flows expected to be collected over the amount paid, and is accreted into earnings over the remaining life of the portfolio.

At acquisition, the Company derives an internal rate of return (“IRR”) based on the expected monthly collections over the estimated economic life of each portfolio of loans (typically up to seven years, based on the Company’s collection experience) compared to the original purchase price. Collections on the portfolios are allocated to revenue and principal reduction based on the estimated IRR for each portfolio of loans. Revenue on purchased accounts receivable is recorded monthly based on applying each portfolio’s effective IRR for the quarter to its carrying value. Over the life of a portfolio, the Company continues to estimate cash flows expected to be collected. The Company evaluates at the balance sheet date whether the present value of its portfolios determined using the effective interest rates has decreased, and if so, records an expense to establish a valuation allowance to maintain the original IRR established at acquisition. Any increase in actual or estimated cash flows expected to be collected is first used to reverse any existing valuation allowance for that portfolio, or aggregation of portfolios, and any remaining increases in cash flows are recognized prospectively through an increase in the IRR. The updated IRR then becomes the new benchmark for subsequent valuation allowance testing.

F-12

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

2. Accounting Policies (continued):

Revenue Recognition (continued):

Portfolio Sales:

The Company accounts for proceeds from sales of aged portfolios of purchased accounts receivable above the remaining carrying value under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” Revenue from these sales is recognized when the receivables are sold.

The Company applies a financial components approach. Generally, that approach focuses on control of each of the various retained or sold interests or liabilities in a given financial asset sale to conclude when a sale has actually occurred as compared to a mere financing, and the accounting for any related rights retained and/or duties committed to on an ongoing basis, including servicing. Under that approach, after a transfer of financial assets, an entity allocates a portion of its original cost of the assets to the assets sold in determining any gain or loss, and to any servicing assets it retains, such as servicing rights or rights to residual interests. Gain or loss is reported in the period of the transfer, and net of any liabilities it has incurred or will incur in the future. Assets retained are amortized over the appropriate useful life of the asset. If control has not been adequately transferred to the other party, the proceeds received are treated as financing and no gain or loss is recorded at the time of the transfer.

Credit Policy:

Management monitors its client relationships in order to minimize the Company’s credit risk and assesses the likelihood of collection based on a number of factors including the client’s collection history and credit-worthiness. The Company maintains a reserve for potential collection losses when such losses are deemed to be probable.

The Company has two types of arrangements under which it collects its ARM contingency fee revenue. For certain clients, the Company remits funds collected on behalf of the client net of the related contingency fees while, for other clients, the Company remits gross funds collected on behalf of clients and bills the client separately for its contingency fees.

The Company generally does not require collateral and it does not charge finance fees on outstanding trade receivables. In many cases, in the event of collection delays from ARM clients, management may, at its discretion, change from the gross remittance method to the net remittance method. The Company also maintains a reserve for deposits on debtor accounts that may ultimately prove to have insufficient funds. Trade accounts receivable are written off to the allowances when collection appears highly unlikely.

Cash and Cash Equivalents:

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

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.

Long-Lived Assets:

The Company periodically evaluates the net realizable value of long-lived assets, including property and equipment, internal use software, and certain identifiable intangible assets, 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.

F-13

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

2. Accounting Policies (continued):

Goodwill:

Goodwill represents the excess of purchase price over the fair market value of the net assets of acquired businesses based on their respective fair values at the date of acquisition. Goodwill is tested for impairment each year on October 1, and as triggering events occur. The goodwill impairment test is performed at the reporting unit level and involves a two-step approach: the first step identifies any potential impairment and the second step measures the amount of impairment, if applicable. The first test for potential impairment uses a fair-value based approach, whereby the implied fair value of a reporting unit’s goodwill is compared to its carrying amount; if the fair value is less than the carrying amount, the reporting unit’s goodwill would be considered impaired. Fair value estimates are based upon the discounted value of estimated cash flows. The Company has concluded that goodwill was not impaired as of December 31, 2005.

Other Intangible Assets:

Other intangible assets consist primarily of customer relationships that are amortized over five years using the straight-line method (note 8).

Stock Options:

The Company accounts for stock option grants in accordance with APB Opinion 25, “Accounting for Stock Issued to Employees,” (“APB 25”) and related interpretations. Under APB 25, because the exercise price of the stock options equaled the fair value of the underlying common stock on the date of grant, no compensation cost was recognized. In accordance with SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company does not recognize compensation cost based on the fair value of the options granted at grant date. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date, net income and net income per share would have been reduced to the pro forma amounts indicated in the following table (amounts in thousands, except per share amounts) (note 14):

	For the Years Ended December 31,
	2005		2004		2003
Net income – as reported	$	44,519	$	51,863	$	42,446
Pro forma compensation cost, net of taxes		6,631		3,292		4,372
Net income – pro forma	$	37,888	$	48,571	$	38,074
Net income per share – as reported:
Basic	$	1.39	$	1.71	$	1.64
Diluted	$	1.33	$	1.60	$	1.54
Net income per share – pro forma:
Basic	$	1.18	$	1.60	$	1.47
Diluted	$	1.15	$	1.51	$	1.40

Effective December 29, 2005, the Company accelerated the vesting of outstanding unvested options to purchase the Company’s common stock, which have an exercise price equal to or greater than $17.25 per share (“Eligible Options”). Any shares received upon the exercise of Eligible Options are restricted and may not be sold prior to the date on which the Eligible Options would have been exercisable under the original terms. As a result of the acceleration, options to purchase 944,308 shares of the Company’s common stock became immediately exercisable. All other terms and conditions applicable to the Eligible Options remain unchanged. All terms and conditions of all options that are not Eligible Options remain unchanged. The purpose of the acceleration of the Eligible Options was to eliminate future compensation expense that would have otherwise been recognized upon the Company’s adoption of SFAS 123R on January 1, 2006 (note 22). The proforma compensation cost, net of taxes, for 2005 in the table above includes $3.9 million for the effect of this acceleration.

F-14

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

2. Accounting Policies (continued):

Stock Options (continued):

During the years ended December 31, 2005 and 2004, compensation expense of $1.3 million and $683,000, respectively, was recorded for restricted stock units.

The estimated weighted average, grant-date fair values of the options granted during the years ended December 31, 2005, 2004 and 2003 were $7.72, $8.34 and $8.96, respectively. All options granted were at the market price of the stock on the grant date. For valuation purposes, the Company utilized the Black-Scholes option-pricing model using the following assumptions on a weighted average basis:

	For the Years Ended December 31,
	2005		2004		2003
Risk-free interest rate	3.82	%	3.53	%	3.72	%
Expected life in years	5.37		4.00		5.00
Volatility factor	37.02	%	36.91	%	47.92	%
Dividend yield	None		None		None
Forfeiture rate	5.10	%	5.00	%	5.00	%

Income Taxes:

The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”) which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. Deferred taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries because such amounts are expected to be reinvested indefinitely.

Foreign Currency Translation:

The Company has foreign subsidiaries whose local currency has been determined to be the functional currency for that subsidiary. The assets and liabilities of these foreign subsidiaries have been translated using the current exchange rates, and the income and expenses have been translated using average historical exchange rates. The adjustments resulting from translation have been recorded separately in shareholders’ equity as “Other comprehensive income (loss)” and are not included in determining consolidated net income. As of December 31, 2005 and 2004, “Other comprehensive income (loss)” included $13.6 million and $13.2 million, respectively, of cumulative income from foreign currency translation.

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

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

F-15

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

2. Accounting Policies (continued):

Use of Estimates (continued):

On an ongoing basis, the Company compares the historical trends of each portfolio to projected collections. Future projected collections are then increased or decreased based on the actual cumulative performance of each portfolio. Management reviews each portfolio’s adjusted projected collections to determine if further upward or downward adjustment is warranted. Management regularly reviews the trends in collection patterns and uses its reasonable best efforts to improve the collections of under-performing portfolios. However, actual results will differ from these estimates and a material change in these estimates could occur within one reporting period (note 5).

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. The Company accounts for its derivative financial instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) which requires companies to recognize all of their derivative instruments as either assets or liabilities in the balance sheet at fair value.

The Company is exposed to foreign currency fluctuations relating to its operations in Canada, the United Kingdom and the Philippines. In order to partially hedge cash flow exposure, the Company periodically enters into forward exchange contracts in order to minimize the impact of currency fluctuations on transactions and cash flows. These contracts are designated as cash flow hedges and recorded at their fair value on the accompanying balance sheets. Changes in the fair value of a cash flow hedge, to the extent that the hedge is effective, are recorded, net of tax, in other comprehensive income, until earnings are affected by the variability of the hedged cash flows. Cash flow hedge ineffectiveness, defined as the extent that the changes in fair value of the derivative exceed the variability of cash flows of the forecasted transaction, is recorded currently in the statement of income (note 15).

The Company has certain nonrecourse debt relating to its purchased accounts receivable operations that contain embedded derivative instruments. The embedded derivatives are not hedge instruments and, accordingly, changes in their estimated fair value are reported as other income (expense) in the accompanying statements of income. The embedded derivatives are included in long-term debt on the accompanying balance sheets because they are not separable from the notes payable and they have the same counterparty (note 10).

Reclassifications:

Certain amounts have been reclassified for comparative purposes.

F-16

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

3. Restructuring Charges:

During 2005, in conjunction with the integration of Risk Management Alternatives Parent Corp. (“RMA”) (note 4) and streamlining the cost structure of the Company’s legacy operations, the Company recorded restructuring charges of $9.6 million. These charges primarily related to the elimination of certain redundant facilities and severance costs. The Company also expects to take additional charges of approximately $10 million in the first half of 2006, which are expected to be recorded in the ARM North America and ARM International segments.

The following presents the activity in the accruals recorded for restructuring charges (amounts in thousands):

	Leases			Severance			Total
Balance at January 1, 2005	$	—		$	—		$	—
Accruals		7,020			2,601			9,621
Cash payments		(790	)		(1,010	)		(1,800	)
Leasehold improvement write-off		(1,905	)		—			(1,905	)
Balance at December 31, 2005	$	4,325		$	1,591		$	5,916

4. Business Combinations:

The following acquisitions have been accounted for under the purchase method of accounting. As part of the purchase accounting, the Company recorded accruals for acquisition-related expenses. These accruals included professional fees related to the acquisition, severance costs, lease costs and other acquisition-related expenses.

On March 26, 2004, the Company completed the merger of NCO Portfolio with a wholly owned subsidiary of the Company. The Company owned approximately 63.3 percent of the outstanding stock of NCO Portfolio prior to the merger and pursuant to the merger acquired all NCO Portfolio shares that it did not own in exchange for 1.8 million shares of NCO common stock valued at $39.8 million. The Company recorded goodwill of $15.9 million, most of which is not deductible for tax purposes.

On April 2, 2004, the Company completed the acquisition of RMH Teleservices, Inc. (“RMH”) a provider of CRM services. The Company issued 3.4 million shares of NCO common stock in exchange for all of the outstanding shares of RMH and assumed 339,000 warrants and 248,000 stock options. The total value of the consideration was $88.8 million. The Company also repaid $11.4 million of RMH’s pre-acquisition debt. The Company allocated $20.0 million of the purchase price to the customer relationships and recorded goodwill of $88.0 million, most of which is not deductible for tax purposes. In connection with the RMH acquisition, the Company recorded restructuring liabilities of $36.9 million under an exit plan the Company began to formulate prior to the acquisition date.

The following presents the activity in the accruals recorded for RMH acquisition related expenses (amounts in thousands):

	Severance			Leases			Other			Total
Balance at December 31, 2004	$	487		$	18,685		$	1,655		$	20,827
Cash payments		(487	)		(8,584	)		(1,340	)		(10,411	)
Accruals adjustment		—			(3,613	)		(207	)		(3,820	)
Foreign currency translation		—			169			—			169
Balance at December 31, 2005	$	—		$	6,657		$	108		$	6,765

The accrual adjustment of $3.8 million primarily relates to changes in certain lease assumptions regarding facilities leases, and was recorded as an adjustment to goodwill.

F-17

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

4. Business Combinations (continued):

On May 25, 2005, the Company acquired Creative Marketing Strategies (“CMS”), a provider of CRM services, for $5.9 million. The purchase price included the contribution of a note receivable for $5.2 million that the Company received in 2000 in consideration for assets sold to a management-led group as part of a divestiture. The Company allocated $6.0 million of the purchase price to the customer relationship and did not record goodwill. The allocation of the fair market value to the acquired assets and liabilities of CMS was based on preliminary estimates and may be subject to change.

On September 1, 2005, the Company acquired the stock of seven wholly owned subsidiaries of Marlin Integrated Capital Holding Corporation (“Marlin”), a company that specializes in purchasing accounts receivable in the healthcare and utility sectors, for $88.4 million in two transactions. The first transaction included the acquisition of a portfolio of purchased accounts receivable for $66.3 million. The second transaction included the acquisition of certain portfolio related assets for approximately $22.1 million. An additional $3.0 million payment was deferred pending the renewal of certain forward-flow agreements. One renewal occurred in December 2005, resulting in an additional payment of $1.5 million.

The acquisition of the purchased accounts receivable portfolio was structured as an equity sharing arrangement with the Company’s nonrecourse lender under the Company’s nonrecourse credit facility. The lender invested $32.0 million in the acquisition, representing a 50 percent interest in the purchased accounts receivable portfolio assets. The Company funded its 50 percent portion of the acquisition of the portfolio assets and the acquisition of all of the operating assets with financing from its senior credit facility. By design, the Company controls the primary activities of the entity and as such has recorded a minority interest on its balance sheet for the lender’s equity interest in the portfolio entity and has consolidated the results of operations of the portfolio entity and recorded the portion of the results of the portfolio entity it does not own as a minority interest, net of tax, on the statement of income.

The Company purchased the portfolio related assets with financing from its senior credit facility. In addition, the Company also granted an option to the nonrecourse lender to purchase up to 50 percent of the other non-portfolio assets and liabilities acquired from Marlin. The option was excercised on January 10, 2006. The transaction is expected to be completed in the first quarter of 2006, and the Company will receive $12.7 million for the 50 percent interest.

The Company allocated $5.0 million of the purchase price to the customer relationship and recorded goodwill of $17.6 million, which is deductible for tax purposes, based on preliminary estimates. We are in the process of obtaining a third party appraisal, which involves time needed for information gathering, verification and review. We do not expect to finalize the appraisal until the second quarter of 2006. From September 1, 2005, through December 31, 2005, the Company revised its allocation of the fair market value of the acquired assets and liabilities, which resulted in an increase in goodwill of $1.7 million. This increase was principally due to a $1.5 million deferred payment. As a result of the acquisition, the Company expects to expand its portfolio base and its presence in the healthcare and utility sectors, and reduce the cost of operations through economies of scale. Therefore, the Company believes the preliminary allocation of a portion of the purchase price to goodwill is appropriate.

The following is a preliminary allocation of the purchase price to the assets acquired and liabilities assumed (amounts in thousands):

Purchase price	$	88,374
Purchased accounts receivable		(66,276	)
Customer relationships		(5,000	)
Other assets		(4,249	)
Accrued expenses		4,782
Goodwill	$	17,631

F-18

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

4. Business Combinations (continued):

Prior to the acquisition, Portfolio Management had a 50 percent ownership interest in a joint venture, InoVision-MEDCLR NCOP Ventures, LLC (“the Joint Venture”) with IMNV Holdings, LLC (“IMNV”), one of the acquired subsidiaries of Marlin. The Joint Venture was established in 2001 to purchase utility, medical and various other small balance accounts receivable. In connection with the acquisition, the Joint Venture was terminated and the Company’s interest was included in the purchase accounting for the entity.

On September 12, 2005, the Company acquired substantially all of the operating assets, including purchased portfolio assets, of RMA, a provider of accounts receivable management services and purchaser of accounts receivable, for $118.9 million in cash and the assumption of certain liabilities, subject to certain post-closing adjustments. The Company funded the purchase principally with financing from its senior credit facility. The purchase price included approximately $51.0 million for RMA’s purchased portfolio assets, which was funded with $35.7 million of nonrecourse financing. In conjunction with the acquisition, on July 7, 2005, RMA and all of its domestic subsidiaries filed for protection under Chapter 11 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Northern District of Ohio Eastern Division. The transaction was consummated under Sections 363 and 365 of the bankruptcy code. The Company allocated $16.3 million of the purchase price to the customer relationship and recorded goodwill of $37.5 million, which is deductible for tax purposes, based on preliminary estimates. From September 12, 2005, through December 31, 2005, the Company revised its allocation of the fair market value of the acquired assets and liabilities, which resulted in a decrease in goodwill of $1.8 million. This decrease was principally due to a downward adjustment in the accruals for acquisition related expenses. The Company has not finalized its purchase accounting related to the RMA acquisition, and has used estimates in determining certain allocations including the value of customer relationships, property and equipment, and certain assumed liabilities. In connection with the RMA acquisition, the Company recorded restructuring liabilities of $8.7 million under an exit plan the Company began to formulate prior to the acquisition date. These liabilities principally relate to severance costs related to certain redundant personnel that were scheduled to be eliminated upon completion of the acquisition. As a result of the acquisition, the Company expects to expand its current customer base, strengthen its relationship with certain existing customers, expand its portfolio base, and reduce the cost of operations through economies of scale. Therefore, the Company believes the preliminary allocation of a portion of the purchase price to goodwill is appropriate.

The following is a preliminary allocation of the purchase price to the RMA assets acquired and liabilities assumed (amounts in thousands):

Purchase price	$	118,902
Transaction costs		3,143
Accounts receivable		(25,954	)
Purchased accounts receivable		(50,954	)
Customer relationships		(16,250	)
Property and equipment		(11,312	)
Deferred tax asset		(4,629	)
Other assets		(3,700	)
Accrued expenses and other liabilities		19,485
Accrued acquisition costs		8,747
Goodwill	$	37,478

F-19

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

4. Business Combinations (continued):

The following presents the activity in the accruals recorded for RMA acquisition related expenses (amounts in thousands):

	Severance			Leases			Other			Total
Balance at September 12, 2005	$	9,476		$	500		$	3		$	9,979
Cash payments		(5,243	)		(503	)		(3	)		(5,749	)
Accrual adjustments		(1,245	)		3			10			(1,232	)
Balance at December 31, 2005	$	2,988		$	—		$	10		$	2,998

The following summarizes the unaudited pro forma results of operations, assuming the NCO Portfolio, RMH and RMA acquisitions described above occurred as of the beginning of the respective periods. The pro forma information presented does not include the other acquisitions because they were not considered significant business combinations. 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):

	For the Years Ended December 31,
	2005		2004
Revenue	$	1,198,075	$	1,261,785
Net income	$	35,451	$	50,621
Earnings per share – basic	$	1.10	$	1.42
Earnings per share – diluted	$	1.06	$	1.33

5. Purchased Accounts Receivable:

Portfolio Management, ARM International and the Canadian division of ARM North America purchase defaulted consumer accounts receivable at a discount from the contractual principal balance. As of December 31, 2005, the carrying values of Portfolio Management’s, ARM International’s and ARM North America’s purchased accounts receivable were $235.4 million, $1.1 million and $1.3 million, respectively. The total outstanding balance due, representing the original undiscounted contractual amount less collections since acquisition, was $37.1 billion and $14.7 billion at December 31, 2005 and 2004, respectively.

F-20

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

5. Purchased Accounts Receivable (continued):

The following summarizes the change in purchased accounts receivable (amounts in thousands):

	For the Years Ended December 31,
	2005			2004			2003
Balance, at beginning of period	$	138,857		$	152,613		$	152,448
Purchases:
Portfolios acquired in business combinations		117,230			—			—
Cash purchases		45,743			46,837			54,133
Noncash purchases (note 17)		17,213			42,832			20,166
Collections		(200,703	)		(169,167	)		(149,585	)
Proceeds from portfolio sales and resales applied to carrying value		(3,723	)		(15,863	)		(4,536	)
Revenue recognized		131,138			98,269			76,735
Allowance and impairment		(1,240	)		(948	)		(1,751	)
Dissolution of securitization		(6,399	)		(13,673	)		—
Residual purchased accounts receivable from previously unconsolidated subsidiary		—			—			4,515
Fair value purchase accounting adjustment		—			(2,324	)		—
Foreign currency translation adjustment		(309	)		281			488
Balance, at end of period	$	237,807		$	138,857		$	152,613

In the ordinary course of purchasing portfolios of accounts receivable, Portfolio Management may sell accounts from an acquired portfolio shortly after they were purchased. The proceeds from these resales are essentially equal to, and applied against, the carrying value of the accounts. Therefore, there is no gain recorded on these resales. For the years ended December 31, 2005, 2004 and 2003, proceeds from portfolio resales were $2.4 million, $10.7 million and $4.5 million, respectively.

In 2005, Portfolio Management began an on-going process to identify and sell certain aged portfolios of accounts receivable that have a low probability of payment. These aged portfolios have a low remaining carrying value. Proceeds from sales above the remaining carrying value are recorded as revenue. During the year ended December 31, 2005, Portfolio Management sold aged portfolios of accounts receivable for $13.4 million with a carrying value of $1.3 million, and recorded revenue of $12.1 million.

In 2005, the Company received $1.9 million of proceeds from the dissolution, winding up and sale of a securitization established in August 1998. The finance subsidiary holding the receivables adopted a plan of liquidation and proceeded to liquidate the receivables on behalf of and in cooperation with the securitized note insurer. The notes matured in March 2005, at which time the notes were paid off by the note insurer and the insurer became the holder of the obligations. The securitized notes and note insurer obligations were nonrecouse to the Company. The proceeds of the sale were used to reduce the carrying value of the accounts receivable and pay down the related insurer obligations. The net effect on earnings of the winding up of the dissolution of the finance subsidiary was immaterial (note 10).

In 2004, the Company received $5.2 million of proceeds from the dissolution, winding up and sale of a securitization established in August 1999. The finance subsidiary holding the receivables adopted a plan of liquidation and proceeded to liquidate the receivables on behalf of and in cooperation with the securitized note holders prior to the December 31, 2004 maturity date of the notes. The securitized notes were nonrecourse to the Company. The proceeds of the sale were used to reduce the carrying value of the accounts receivable and pay down the related securitized note. The net effect on earnings of the winding up of the dissolution of the finance subsidiary was immaterial.

F-21

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

5. Purchased Accounts Receivable (continued):

The following presents the change in the allowance for impairment of purchased accounts receivable accounted for under SOP 03-3 (amounts in thousands):

	For the Year Ended December 31, 2005
Balance at beginning of period	$	—
Additions		1,598
Recoveries		(406	)
Balance at end of period	$	1,192

During the years ended December 31, 2005, 2004 and 2003 impairment charges of $48,000, $948,000 and $1.8 million, respectively, were recorded from portfolios accounted for under PB6 where the carrying values exceeded the expected future undiscounted cash flows on or before December 31, 2004.

Accretable yield represents the excess of the cash flows expected to be collected during the life of the portfolio over the initial investment in the portfolio. The following presents the change in accretable yield (amounts in thousands):

	For the Year Ended December 31,
	2005			2004
Balance at beginning of period	$	160,083		$	144,727
Additions		216,201			105,644
Accretion		(131,138	)		(98,269	)
Reclassifications from nonaccretable difference		44,058			7,941
Foreign currency translation adjustment		(269	)		40
Balance at end of period	$	288,935		$	160,083

During the years ended December 31, 2005 and 2004, the Company purchased accounts receivable with a cost of $180.2 million and $89.7 million, respectively, including portfolios acquired through business combinations, that had contractually required payments receivable at the date of acquisition of $22.6 billion and $2.7 billion, respectively, and expected cash flows at the date of acquisition of $396.4 million and $195.3 million, respectively.

6. Funds Held on Behalf of Clients:

In the course of the Company’s subsidiaries’ 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 $52.3 million and $54.3 million at December 31, 2005 and 2004, respectively, have been shown net of their offsetting liability for financial statement presentation.

F-22

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

7. Property and Equipment:

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

		December 31,
	Estimated Useful Life	2005			2004
Computer equipment	5 years	$	151,514		$	128,966
Computer software developed for internal use	5 years		68,154			52,081
Furniture and fixtures	5 to 10 years		32,168			28,368
Leasehold improvements	5 to 15 years		36,395			33,104
			288,231			242,519
Less accumulated depreciation			(156,861	)		(128,263	)
		$	131,370		$	114,256

8. Intangible Assets:

Goodwill:

SFAS 142 requires goodwill to be allocated and tested at the reporting unit level. The Company’s reporting units are ARM North America, CRM, Portfolio Management and ARM International, and had the following goodwill (amounts in thousands):

	December 31,
	2005		2004
ARM North America	$	539,733	$	499,980
CRM		89,799		88,027
Portfolio Management		33,572		15,941
ARM International		5,728		5,614
	$	668,832	$	609,562

The change in ARM North America’s goodwill balance was due principally to the acquisition of RMA (note 4). The changes in CRM’s and ARM International’s goodwill balances were due principally to the exchange rate used for foreign currency translation. The change in Portfolio Management’s goodwill balance was due to the acquisition of Marlin (note 4). The goodwill related to the two acquisitions in September 2005 is tentative and may change, including reclassifications to other reporting units.

Other Intangible Assets:

Other intangible assets consist primarily of customer relationships. The following represents the other intangible assets (amounts in thousands):

	December 31,
	2005				2004
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	$	55,917	$	14,614	$	28,761	$	6,856
Other intangible assets		1,297		905		975		937
Total	$	57,214	$	15,519	$	29,736	$	7,793

F-23

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

8. Intangible Assets (continued):

Other Intangible Assets (continued):

The Company recorded amortization expense for all other intangible assets of $9.4 million, $7.4 million and $4.6 million during the years ended December 31, 2005, 2004 and 2003, respectively. The following represents the Company’s expected amortization expense from these other intangible assets (amounts in thousands):

2006	$11,263
2007	10,911
2008	9,511
2009	6,511
2010	3,499

9. Accrued Expenses:

Accrued expenses consisted of the following (amounts in thousands):

	December 31,
	2005		2004
Accrued rent and other related expense associated with the flood of the Fort Washington locations	$	8,167	$	8,205
Accrued interest		6,185		5,371
Restructuring costs		5,752		—
Accrued acquisition costs		5,723		16,054
Accrued contract labor expenses		4,189		925
Other accrued expenses		29,151		22,917
	$	59,167	$	53,472

10. Long-Term Debt:

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

	December 31,
	2005			2004
Senior credit facility	$	170,500		$	62,500
Convertible notes		125,000			125,000
Nonrecourse credit facility		65,995			39,786
Securitized nonrecourse debt		—			8,158
Other		5,939			15,579
Less current portion		(45,600	)		(64,684	)
	$	321,834		$	186,339

The following summarizes the Company’s required debt payments (amounts in thousands). The payment for 2010 includes the convertible notes because the Company has the ability and intends to repay the convertible notes utilizing its senior credit facility, which matures in 2010, assuming that the convertible notes are not converted into common stock prior to their maturity date.

2006	$	45,600
2007		22,649
2008		3,249
2009		159
2010		295,588
Thereafter		189
	$	367,434

F-24

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

10. Long-Term Debt (continued):

Senior Credit Facility:

In June 2005, the Company amended and restated its senior credit facility (“the Credit Facility”) with various participating lenders. The amended and restated Credit Facility is structured as a $300 million revolving credit facility with an option to allow the Company to increase its borrowing capacity to a maximum of $400 million, subject to obtaining commitments for such incremental capacity from existing or new lenders. The Credit Facility requires no minimum principal payments until June 18, 2010, the maturity date. At December 31, 2005, the balance outstanding on the Credit Facility was $170.5 million. The availability of the Credit Facility is reduced by any unused letters of credit ($4.4 million at December 31, 2005). As of December 31, 2005, the Company had $125.1 million of remaining availability under the Credit Facility; however, $125.0 million of this has been reserved to repay the Company’s convertible notes, which mature in April 2006.

All borrowings bear interest at a rate equal to either, at the option of the Company, the prime rate (7.25 percent at December 31, 2005) or LIBOR (4.39 percent at December 31, 2005) plus a margin of 0.75 percent to 1.50 percent, which is determined quarterly based upon the Company’s consolidated funded debt to earnings before interest, taxes, depreciation, and amortization (“EBITDA”) ratio. The Company is charged a fee on the unused portion of the Credit Facility of 0.20 percent to 0.30 percent depending on the Company’s consolidated funded debt to EBITDA ratio. The effective interest rate on the Credit Facility was approximately 4.91 percent and 3.75 percent for the years ended December 31, 2005 and 2004, respectively.

Borrowings under the Credit Facility are collateralized by substantially all of the assets of the Company. The Credit Facility contains certain financial and other covenants such as maintaining net worth and funded debt to EBITDA requirements, and includes restrictions on, among other things, acquisitions, the incurrence of additional debt, investments, disposition of assets and transactions with affiliates. If an event of default, such as failure to comply with covenants, or change of control, were to occur under the Credit Facility, the lenders would be entitled to declare all amounts outstanding immediately due and payable and foreclose on the pledged assets. As of December 31, 2005, the Company was in compliance with all required financial covenants and the Company was not aware of any events of default.

Convertible Notes:

At December 31, 2005, the Company had $125.0 million aggregate principal amount of 4.75 percent Convertible Subordinated Notes due April 15, 2006 (“the Notes”). The Notes are convertible into NCO common stock at a conversion price of $32.92 per share. The Notes continue to be classified as a long-term liability on the balance sheet because the Company has the ability and intends to repay the Notes utilizing its senior credit facility, which matures in 2010.

Nonrecourse Credit Facility:

On June 30, 2005, Portfolio Management amended and restated its nonrecourse credit facility with a lender and extended its existing exclusivity agreement with such lender through June 30, 2009. The new agreement provides that all purchases of accounts receivable by Portfolio Management with a purchase price in excess of $1.0 million are first offered to the lender for financing at its discretion. If the lender chooses to participate in the financing of a portfolio of accounts receivable, the financing may be structured, depending on the size and nature of the portfolio to be purchased, either as a borrowing arrangement similar to the original agreement, or under various equity sharing arrangements ranging from 25 percent to 50 percent equity provided by the lender. The lender will finance non-equity borrowings at 70 percent of the purchase price, unless otherwise negotiated, with floating interest at a rate equal to LIBOR plus 2.50 percent. As additional return, the lender receives 28 percent of the residual cash flow, unless otherwise negotiated, which is defined as all cash collections after servicing fees, floating rate interest, repayment of the borrowing, and the initial investment by Portfolio Management, including interest. These borrowings are nonrecourse to the Company and are due two years from the date of each respective loan. The Company may terminate the agreement at any time after June 2007 for a cost of $250,000 for each remaining month under the agreement. The previous financing arrangement as described below remains in effect for outstanding loans as of June 30, 2005.

F-25

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

10. Long-Term Debt (continued):

Nonrecourse Credit Facility (continued):

Under the prior agreement, all purchases of accounts receivable by Portfolio Management with a purchase price in excess of $4.0 million must be first offered to the lender for financing at its discretion. The agreement had no minimum or maximum credit authorization. If the lender chose to participate in the financing of a portfolio of accounts receivable, the financing was at 90 percent of the purchase price, unless otherwise negotiated, with floating interest at the prime rate plus 3.25 percent. Each borrowing is due two years after the loan was made. Debt service payments equal collections less servicing fees and interest expense. As additional return, the lender receives 40 percent of the residual cash flow on loans made pursuant to the prior agreement, unless otherwise negotiated, which is defined as all cash collections after servicing fees, floating rate interest, repayment of the note, and the initial investment by Portfolio Management, including interest.

Borrowings under this financing agreement are nonrecourse to the Company, except for the assets within the entities established in connection with the financing agreement. This loan agreement contains a collections performance requirement, among other covenants, that, if not met, provides for cross-collateralization with any other portfolios financed through the agreement, in addition to other remedies.

Total debt outstanding under this facility was $66.0 million and $39.8 million as of December 31, 2005 and 2004, respectively, which both included $5.6 million of accrued residual interest. The effective interest rate on these loans, including the residual interest component, was approximately 20.4 percent and 32.1 percent for the years ended December 31, 2005 and 2004, respectively. As of December 31, 2005, Portfolio Management was in compliance with all required covenants.

Upon full satisfaction of the notes payable and the return of the initial investment by Portfolio Management, including interest, as it relates to each purchase of accounts receivable under the previous agreement, the Company is obligated to pay the lender a contingent payment amount equal to 40 percent of collections received, unless otherwise negotiated, net of servicing fees and other related charges. The contingent payment has been accounted for as an embedded derivative in accordance with SFAS 133. At issuance, the loan proceeds received were allocated to the note payable and the embedded derivative. The resulting original issue discount on the note payable is amortized to interest expense through maturity using the effective interest method. At December 31, 2005 and 2004, the estimated fair value of the embedded derivative was $5.6 million. The embedded derivative for each portfolio purchase is subject to market rate revaluation each period. Absent a readily available market for such embedded derivatives, the Company bases its revaluation on similar current period portfolio purchases’ underlying yields. During the year ended December 31, 2005, $56,000 was recorded as “other income” on the statement of income to reflect the revaluation of the embedded derivatives.

As part of the exclusivity agreement described above, Portfolio Management has a joint venture agreement (“the Agreement”) with the lender of the nonrecourse credit facility, whereby Portfolio Management owns 65 percent of the joint venture and is the managing member, and the lender owns the remaining 35 percent interest. Each party will finance the joint venture based on predetermined percentages as negotiated for each portfolio purchase. The Agreement was established to purchase accounts receivable at the discretion of Portfolio Management, and the joint venture is consolidated into Portfolio Management’s results of operations with a minority interest representing the lender’s equity ownership. At December 31, 2005, the Company had $5.8 million of debt outstanding under the joint venture, which is included in the nonrecourse credit facility debt outstanding disclosed above.

Securitized Nonrecourse Debt:

Portfolio Management had a securitized nonrecourse note payable that was originally established to fund the purchase of accounts receivable. The note payable was nonrecourse to the Company, was secured by a portfolio of purchased accounts receivable, and was bound by an indenture and servicing agreement. The Company was servicer for each portfolio of purchased accounts receivable within the securitized note. This was a term note without the ability to re-borrow. Monthly principal payments on the note equaled all collections after servicing fees, collection costs, interest expense, and administrative fees.

F-26

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

10. Long-Term Debt (continued):

Securitized Nonrecourse Debt (continued):

The securitized note was established in September 1998 through a finance subsidiary. This note carried a floating interest rate of LIBOR plus 0.65 percent. The note came due on March 10, 2005, and the liability was not satisfied from collections. The liquidity reserve of $900,000, included in restricted cash as of December 31, 2004, was used to pay down the note on the due date. Upon maturity of the note on March 10, 2005, the third party note insurer was obligated to satisfy the remaining unpaid balance of $7.0 million. At such time, the note insurer became the beneficiary of the note and obtained the rights to sell the underlying receivables. On December 16, 2005, a plan of dissolution of the special purpose entity holding the assets was adopted and the assets were sold. The proceeds of the sale were used to pay down the notes, and the remaining amount due on the notes was released by the note insurer in exchange for the sales proceeds (note 5).

11. Operating Leases:

The Company leases certain equipment and real estate facilities under noncancelable operating leases. These leases expire between 2006 and 2016, and most contain renewal options. The following represents the future minimum payments, by year and in the aggregate, under noncancelable operating leases with initial or remaining terms of one year or more. The following future minimum payments have been reduced by minimum sublease rentals of $3.0 million, due in the future under noncancelable subleases, and do not include the leases from the Company’s former Fort Washington locations (note 19) (amounts in thousands).

2006	$	43,697
2007		38,899
2008		32,886
2009		27,611
2010		21,818
Thereafter		51,654
	$	216,565

Rent expense was $35.0 million, $27.9 million and $23.7 million for the years ended December 31, 2005, 2004 and 2003, respectively. The total amount of base rent payments is being charged to expense on the straight-line method over the term of the lease.

12. Income Taxes:

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

	For the Years Ended December 31,
	2005			2004		2003
Currently payable:
Federal	$	(69	)	$	360	$	8,776
State		331			1,586		1,126
Foreign		1,003			1,768		3,548
Deferred:
Federal		22,801			25,470		12,222
State		1,417			1,194		1,066
Foreign		699			2,011		(6	)
Income tax expense	$	26,182		$	32,389	$	26,732

F-27

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

12. Income Taxes (continued):

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

	December 31,
	2005			2004
Deferred tax assets:
Net operating loss carryforwards	$	42,664		$	46,540
Deferred contractual revenue		446			9,042
Accrued acquisition costs		2,544			5,184
Accrued expenses		15,070			7,486
Total deferred tax assets		60,724			68,252
Valuation allowance		16,901			13,658
Net deferred tax assets		43,823			54,594
Deferred tax liabilities:
Amortization		37,352			32,317
Prepaid expenses		4,962			3,242
Depreciation		11,126			8,438
Purchased accounts receivable		32,437			27,860
Total deferred tax liabilities		85,877			71,857
Net deferred tax liabilities	$	(42,054	)	$	(17,263	)

The Company had $53.3 million of federal net operating loss carryforwards, subject to certain limitations, available at December 31, 2005, which will expire during 2006 through 2023. These federal net operating loss carryforwards primarily relate to net operating loss carryforwards that existed as of the date of the Creditrust Merger and the RMH acquisition. Due to the Creditrust ownership change in 2001 and the RMH ownership change in 2004, 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 respective fair market values of Creditrust and RMH at the time of the ownership change; and (ii) the respective net unrealized built-in gains of Creditrust at the time of the ownership change, which are recognized within five years of the Creditrust Merger date. Based on an analysis performed by the Company, it is anticipated that $20.6 million of the Creditrust and $30.6 million of the RMH net operating losses will be available for utilization after Section 382 limitations. Accordingly, a deferred tax asset was recorded, which is available to offset future reversing temporary differences and future taxable income. At year-end, these deferred tax assets were expected to be fully utilized to offset future reversing temporary differences, primarily relating to purchased accounts receivable regarding the Creditrust Merger and reversing temporary differences and income from operations regarding the RMH acquisition.

The Company had $12.5 million of Canadian net operating loss carryforwards available at December 31, 2005, which will expire in 2012. These net operating loss carryforwards relate to losses generated in the current year and the prior year from the Canadian subsidiary acquired in the RMH acquisition.

The Company has recorded state net operating loss carryforwards of $17.8 million at December 31, 2005. The deferred tax assets created by the state net operating loss carryforwards have been reduced by a $16.9 million valuation allowance due to the uncertainty that they can be realized. This represents an increase of $3.2 million from December 31, 2004, due to additional state net operating loss carryforwards generated in 2005.

F-28

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

12. Income Taxes (continued):

The portfolios of purchased accounts receivable are composed of distressed debt. Collection results are not guaranteed until received; accordingly, for tax purposes, any gain on a particular portfolio is deferred until the full cost of its acquisition is recovered. Revenue for financial reporting purposes is recognized ratably over the life of the portfolio. Deferred tax liabilities arise from deferrals created during the early stages of the portfolio. These deferrals reverse after the cost basis of the portfolio is recovered.

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

	For the Years Ended December 31,
	2005		2004		2003
U.S. statutory income tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal	1.3		2.3		2.1
Other, net	0.1		0.9		0.2
Effective tax rate	36.4	%	38.2	%	37.3	%

Income from operations for the years ended December 31, 2005, 2004 and 2003, included foreign subsidiary income of $5.9 million, $21.7 million and $9.8 million, respectively. The Company’s cumulative undistributed earnings of foreign subsidiaries of $26.4 million for the year ended December 31, 2005, are expected to be reinvested indefinitely, and accordingly no incremental U.S. or foreign withholding taxes have been recorded.

13. Common Stock and Earnings Per Share:

Common Stock Warrants

As of December 31, 2005, the Company had warrants outstanding to purchase 22,000 shares of NCO common stock at $32.97 per share. These warrants expire in May 2009.

In addition, as of December 31, 2005, the Company had warrants outstanding to purchase 323,000 shares of NCO common stock, which were assumed in connection with the RMH acquisition, at a weighted average price of $40.42 per share. 197,000 of these warrants expire in 2006 and 126,000 of these warrants expire in 2008.

Earnings Per Share:

Basic earnings per share (“EPS”) was computed by dividing net income by the weighted average number of common shares outstanding. Diluted EPS was computed by dividing the adjusted net income by the weighted average number of common shares outstanding plus all common share equivalents. Net income is adjusted to add-back interest expense on the convertible debt, net of taxes, if the convertible debt is dilutive. The interest expense on the convertible debt, net of taxes, included in the diluted EPS calculation was $3.7 million for the years ended December 31, 2005, 2004 and 2003. Outstanding options, warrants, and convertible securities have been utilized in calculating diluted amounts per share only when their effect would be dilutive.

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

	For the Years Ended December 31,
	2005	2004	2003
Basic	32,125	30,397	25,934
Dilutive effect of:
Convertible debt	3,797	3,797	3,797
Options and restricted stock units	135	377	164
Warrants	101	81	—
Diluted	36,158	34,652	29,895

F-29

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

14. Stock-Based Compensation:

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 the issuance of 333,000 and 5.2 million shares, respectively, pursuant to incentive or nonqualified stock options. The Director Plan, as amended, authorized the issuance of 150,000 shares pursuant to nonqualified options. In April 2004, the Company adopted the 2004 Equity Incentive Plan (the “2004 Plan”), and in May the NCO shareholders approved the 2004 Plan. Upon adoption of the 2004 Plan, no additional options could be granted under the 1995 Plan or the 1996 Plan. The 2004 Plan authorized the issuance of up to 2.0 million shares of common stock pursuant to a variety of awards including stock options, stock appreciation rights, and restricted and unrestricted stock awards. The vesting periods for the outstanding options under the 1995 Plan, the 1996 Plan, the 2004 Plan, and the Director Plan are three years, three years, three years and one year, respectively. The options expire no later than 10 years from the date of grant, except that options granted under the 1996 Plan after May 2003 expire no later than seven years from the date of grant.

On April 2, 2004, as part of the acquisition of RMH, NCO assumed the RMH 1996 Stock Incentive Plan (the “RMH Plan”). The RMH Plan authorized the issuance of up to 419,000 shares of common stock pursuant to a variety of awards including stock options, stock appreciation rights, and restricted and unrestricted stock grants. As of April 2, 2004, there were 248,000 options outstanding. No additional awards can be granted under the RMH Plan. All options that were issued and outstanding under the RMH Plan as of April 2, 2004, became fully vested as a result of the acquisition of RMH by NCO. The options expire no later than 10 years from the date of grant.

Effective December 29, 2005, the Company accelerated the vesting of outstanding unvested options to purchase the Company’s common stock, which have an exercise price equal to or greater than $17.25 per share (“Eligible Options”). Any shares received upon the exercise of Eligible Options are restricted and may not be sold prior to the date on which the Eligible Options would have been exercisable under the original terms. As a result of the acceleration, options to purchase 944,308 shares of the Company’s common stock became immediately exercisable. All other terms and conditions applicable to the Eligible Options remain unchanged. All terms and conditions of all options that are not Eligible Options remain unchanged. The purpose of the acceleration was to eliminate future compensation expense associated with the Eligible Options of approximately $3.9 million, net of taxes, that would have otherwise been recognized upon the Company’s adoption of SFAS 123R on January 1, 2006.

F-30

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

14. Stock-Based Compensation (continued):

Stock Options:

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

	Number of Options		Weighted Average Exercise Price Per Share
Outstanding at January 1, 2003	4,171		$	24.23
Granted	656			19.22
Exercised	(80	)		19.02
Forfeited	(270	)		25.81
Outstanding at December 31, 2003	4,477			23.50
Granted	256			24.53
Assumed from acquisitions	508			20.78
Exercised	(819	)		18.62
Forfeited	(363	)		26.43
Outstanding at December 31, 2004	4,059			23.94
Granted	661			21.10
Exercised	(82	)		17.31
Forfeited	(251	)		24.05
Outstanding at December 31, 2005	4,387		$	23.65

The following table summarizes information about stock options outstanding as of December 31, 2005 (shares in thousands):

	Stock Options Outstanding				Stock Options Exercisable
Range of Exercise Prices	Shares	Weighted Average Remaining Life	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
$  8.66 to $17.32	420	5.80 years	$	15.52	411	$	15.50
$17.33 to $25.99	2,991	6.08 years		21.93	2,991		21.93
$26.00 to $34.65	847	3.73 years		30.49	847		30.49
$34.66 to $43.31	13	3.08 years		36.95	13		36.95
$43.32 to $51.97	110	2.34 years		44.97	110		44.97
$51.98 to $77.97	6	3.55 years		62.27	6		62.27
	4,387	5.90 years	$	23.65	4,378	$	23.66

Restricted Stock Units:

For the year ended December 31, 2005, the Company granted 139,321 shares of restricted stock units under the 2004 Plan with a weighted average price of $17.83 per share, and recorded compensation expense of $1.3 million. For the year ended December 31, 2004, the Company granted 174,765 shares of restricted stock units under the 2004 Plan with a weighted average price of $24.88 per share, and recorded compensation expense of $683,000. Grants of restricted stock units vest over multiple cliff vesting periods and/or based on meeting performance-based targets.

F-31

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

15. Derivative Financial Instruments:

The Company enters into forward exchange contracts to minimize the impact of currency fluctuations on transactions and cash flows. These transactions are designated as cash flow hedges. The Company had forward exchange contracts for the purchase of $47.3 million and $34.4 million of Canadian dollars outstanding at December 31, 2005 and 2004, respectively, which mature within 90 days. For the year ended December 31, 2005, the Company had net gains of $1.5 million ($933,000 after tax), of which $1.5 million ($943,000 after tax) were reclassified into earnings. For the year ended December 31, 2004, the Company had gains of $2.7 million ($1.9 million after tax), of which $2.4 million ($1.6 million after tax) were reclassified into earnings. The impact of the settlement of the Company’s cash flow hedges was recorded in “payroll and related expenses” and “selling, general and administrative expenses” in the statement of income. At December 31, 2005 and 2004, the fair market value of all outstanding cash flow hedges was $436,000 and $445,000, respectively, which is included in “other assets.” All of the accumulated income and loss in other comprehensive income related to cash flow hedges at December 31, 2005 and 2004, is expected to be reclassified into earnings within the next 12 months.

The Company’s nonrecourse credit facility relating to purchased accounts receivable contains contingent payments that are accounted for as embedded derivatives. The contingent payment is equal to 40 percent of collections received after principal and interest, unless otherwise negotiated, net of servicing fees and other related charges. At issuance, the loan proceeds received were allocated to the note payable and the embedded derivative. The resulting original issue discount on the note payable is amortized to interest expense through maturity using the effective interest method. At December 31, 2005 and 2004, the estimated fair value of the embedded derivative was $5.6 million. The embedded derivative for each portfolio purchase is subject to market rate revaluation each period. Absent a readily available market for such embedded derivatives, the Company bases its revaluation on similar current period portfolio purchases’ underlying yields. During the year ended December 31, 2005, $56,000 was recorded as “other income” on the statement of income to reflect the revaluation of the embedded derivatives.

16. Fair Value of Financial Instruments:

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

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

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

Purchased Accounts Receivable:

The Company records purchased accounts receivable at cost, which is discounted from the contractual receivable balance. The carrying value of purchased accounts receivable, which is estimated based upon future cash flows, approximates fair value at December 31, 2005 and 2004.

Notes Receivable:

The Company had notes receivable of $11.2 million and $17.7 million as of December 31, 2005 and 2004, respectively. The carrying amounts reported in the balance sheets, included in current and long-term other assets, approximated market rates for notes with similar terms and maturities, and, accordingly, the carrying amounts approximated fair value. The Company reviews the recoverability of the notes receivable on a quarterly basis to determine if an impairment charge is required.

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 $117.5 million and $136.4 million as of December 31, 2005 and 2004, respectively, based on the closing market price for the convertible securities on December 31, 2005 and 2004, respectively.

F-32

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

17. Supplemental Cash Flow Information:

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

	For the Years Ended December 31,
	2005		2004		2003
Cash paid for interest	$	21,934	$	22,448	$	23,044
Cash paid for income taxes		15,539		12,280		12,310
Noncash investing and financing activities:
Fair value of assets acquired		252,600		231,610		—
Common stock issued for acquisitions		—		128,699		—
Liabilities assumed from acquisitions		38,790		103,018		—
Nonrecourse borrowings to purchase accounts receivable		17,213		42,832		20,166
Dissolution of securitized nonrecourse debt and other assets		6,399		13,673		—
Deferred portion of purchased accounts receivable		—		3,288		6,027
Contribution of note receivable for acquisition		5,154		—		—
Elimination of equity investment in connection with acquisition		2,780		—		—
Adjustment to RMH acquisition accrual		3,820		—		—
Deferred compensation from restricted stock		2,523		4,141		—
Dissolution of investment in securitization		—		—		4,515
Note receivable from disposal of net assets		—		2,040		—
Disposal of fixed assets		1,128		—		—
Warrants exercised		—		169		—

Nonrecourse borrowings to purchase accounts receivable represent Portfolio Management’s purchases of large accounts receivable portfolios financed through the nonrecourse credit facility prior to August 2005. These borrowings were noncash transactions since the lender sent payments directly to the seller of the accounts. After August 2005, all borrowings under the nonrecourse credit facility were sent directly to the Company.

18. Employee Benefit Plans:

The Company has a savings plan under Section 401(k) of the Internal Revenue Code, referred to as the Plan, for its U.S. employees. The Plan allows all eligible employees to defer up to 15 percent of their income on a pretax basis through contributions to the Plan, subject to limitations under Section 401(k) of the Internal Revenue Code. The Company will provide a matching contribution of 25 percent of the first six percent of an employee’s contribution. The Company also has similar type plans for its international employees. The charges to operations for the matching contributions were $2.7 million, $3.1 million and $2.4 million for 2005, 2004 and 2003, respectively.

On December 30, 2004, the Company adopted a deferred compensation plan, referred to as the Deferred Compensation Plan, to permit eligible employees of the Company to defer receipt and taxation of their compensation from the Company each year up to the limit in effect under Section 402(g) of the Internal Revenue Code, less amounts contributed to the Deferred Compensation Plan. The Company, at its discretion, may make a contribution that will be allocated among participants in proportion to their deferrals for such year. All executive officers and other key employees designated by the Company are eligible to participate in the Deferred Compensation Plan.

F-33

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

19. Commitments and Contingencies:

Purchase Commitments:

The Company enters into noncancelable agreements with various telecommunications companies, a foreign labor subcontractor in India, and other vendors that require minimum purchase commitments. These agreements expire between 2006 and 2009. The following represents the future minimum payments, by year and in the aggregate, under noncancelable purchase commitments (amounts in thousands):

2006	$	44,335
2007		41,244
2008		11,471
2009		1,256
	$	98,306

The Company incurred $48.4 million, $33.2 million and $18.9 million of expense in connection with these purchase commitments for the years ended December 31, 2005, 2004 and 2003, respectively.

Forward-Flow Agreements:

As of December 31, 2005, the Company had three fixed price agreements, or forward-flows, that obligate the Company to purchase, on a monthly basis, portfolios of charged-off accounts receivable meeting certain criteria. The Company is obligated to purchase accounts receivable of approximately $720,000, $450,000 and $60,000 per month through October 2006, December 2006 and May 2006, respectively.

In connection with the Marlin acquisition, the Company acquired several forward-flows with institutions to purchase medical and utility portfolios of charged-off accounts receivable meeting certain criteria, aggregating approximately $2.2 million per month. The terms of the agreements vary; they can be terminated with either 30 days, 60 days or 90 days written notice.

Litigation and Investigations:

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

Fort Washington Flood:

In June 2001, the first floor of the Company’s Fort Washington, Pennsylvania, headquarters was severely damaged by a flood caused by remnants of Tropical Storm Allison. As previously reported, during the third quarter of 2001, the Company decided to relocate its corporate headquarters to Horsham, Pennsylvania. The Company filed a lawsuit in the Court of Common Pleas, Montgomery County, Pennsylvania (Civil Action No. 01-15576) against the current landlord and the former landlord of the Fort Washington facilities to terminate the leases and to obtain other relief. The landlord and the former landlord filed counter-claims against the Company. Due to the uncertainty of the outcome of the lawsuit, the Company recorded the full amount of rent due under the remaining terms of the leases during the third quarter of 2001.

In April 2003, the former landlord defendants filed a joinder complaint against certain current and former officers and/or directors of the Company, to name such persons as additional defendants and alleging, among other things, that they breached their fiduciary duties to the Company.

In January 2004, the Court, in ruling on the preliminary objections, allowed the former landlord defendants’ suit to proceed against these individuals, but struck from the complaint the breach of fiduciary duty allegations asserting violations of duties owed by individual officers to the Company.

F-34

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

19. Commitments and Contingencies (continued):

Litigation and Investigations (continued):

Securities and Exchange Commission:

In September 2005, the Company reached a final settlement with the SEC, concluding the SEC’s investigation of the Company and certain of its officers. Without admitting or denying any wrongdoing, the Company consented to the entry of an administrative order directing it to cease and desist from committing or causing violations of certain non-fraud provisions of the federal securities laws relating to financial reporting and internal control requirements, now and in the future. The Company did not pay any civil monetary penalty in connection with the settlement. The investigation did not lead to any sanctions being levied against any of the Company’s officers.

In January 2005, the Company received notification from the Staff of the Securities and Exchange Commission (“the Staff”) informing the Company that it intended to issue a formal notification (commonly known as a “Wells notice”) to NCO and certain of its officers recommending that the Securities and Exchange Commission (“the SEC”) bring civil proceedings against NCO and such officers alleging violations of certain non-fraud provisions of the federal securities laws relating to financial reporting and internal control requirements. The potential violations related to the Company’s revenue recognition policy relating to a long-term collection contract, which the Company had previously corrected in 2003, and the Company’s revenue recognition policy regarding the timing of revenue recognized on certain cash receipts related to contingency revenues.

The notification from the Staff informed the Company that the Company’s long-standing policy with respect to the timing of revenue recognized on certain cash receipts related to contingency revenues was inconsistent with the Staff’s interpretation of Staff Accounting Bulletin No. 104 (“SAB 104”). The Company previously recognized contingency fee revenue attributable to payments postmarked prior to the end of the period and received in the mail from the consumers on the first business day after such period as applicable to the prior reporting period. This revenue recognition policy had been in effect since prior to NCO becoming a public company and was consistently applied over time. The Company corrected its policy in the fourth quarter of 2004 in order to recognize revenue when physically received. The impact of this correction was a $2.7 million reduction in revenue and a $947,000 reduction in net income, or $0.03 per diluted share, for the year ended December 31, 2004. No restatement of prior period financial statements was required for this correction, and it did not have a material impact on the comparability of operating results for the year ended December 31, 2005.

U.S. Department of Justice:

On February 24, 2006, the U.S. Department of Justice alleged certain civil damages of approximately $5.0 million. The alleged damages relate to a matter the Company self reported to federal authorities and the client in 2003 involving three employees who engaged in unauthorized student loan consolidations in connection with a client contract. The responsible employees were terminated at that time in 2003. The Company does not agree with the allegations regarding damages and has and will continue to engage in discussions with the Department of Justice in an effort to amicably resolve the matter. The Company has been advised and expects that actual damages incurred as a result of this incident, if any, will be covered by insurance.

Other:

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

F-35

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

20. Segment Reporting:

As of December 31, 2005, the Company’s business consisted of four operating divisions: ARM North America, CRM, Portfolio Management and ARM International. The accounting policies of the segments are the same as those described in note 2, “Accounting Policies.”

ARM North America provides accounts receivable management services to consumer and commercial accounts for all market sectors including financial services, healthcare, retail and commercial, telecommunications, utilities, education, and government. ARM North America serves clients of all sizes in local, regional and national markets in the United States and Canada. In addition to traditional accounts receivable collections, these services include developing the client relationship beyond bad debt recovery and delinquency management, and delivering cost-effective accounts receivable solutions to all market sectors. The Company’s acquisition of the operating assets of RMA located in North America was included in the ARM North America segment. For the years ended December 31, 2005 and 2004, ARM North America received $761.3 million and $703.2 million, respectively, of revenue from U.S. customers and $28.2 million and $29.4 million, respectively, of revenue from Canadian customers. ARM North America had total assets, net of any intercompany balances, of $826.2 million, $751.6 million and $762.3 million at December 31, 2005, 2004 and 2003, respectively. ARM North America had capital expenditures of $26.7 million, $23.6 million, and $20.2 million of capital expenditures for the years ended December 31, 2005, 2004 and 2003, respectively. ARM North America also provides accounts receivable management services to Portfolio Management. ARM North America recorded revenue of $87.0 million, $63.1 million and $49.1 million for these services for the years ended December 31, 2005, 2004 and 2003, respectively. Included in ARM North America’s intercompany revenue for the year ended December 31, 2005, was $4.9 million of commissions from the sale of portfolios by Portfolio Management.

With the April 2004 acquisition of RMH, the CRM division was formed. The CRM division provides customer relationship management services to clients in the United States and Canada through offices in the United States, Canada, the Philippines and Panama. For the year ended December 31, 2005, CRM received $186.0 million from U.S. customers and $4.4 million from Canadian customers. CRM had total assets, net of any intercompany balances, of $201.7 million and $183.6 million at December 31, 2005 and 2004, respectively. CRM had capital expenditures of $15.5 million and $3.2 million for the year ended December 31, 2005 and 2004, respectively.

Portfolio Management purchases and manages defaulted consumer accounts receivable from consumer creditors such as banks, finance companies, retail merchants, utilities, healthcare companies and other consumer oriented companies. The Company’s acquisition of the purchased portfolio assets of RMA and the acquisition of Marlin was included in the Portfolio Management segment. Portfolio Management had total assets, net of any intercompany balances, of $283.7 million, $163.4 million and $170.4 million at December 31, 2005, 2004 and 2003, respectively.

ARM International provides accounts receivable management services across the United Kingdom. The Company’s acquisition of the operating assets of RMA located in the United Kingdom was included in the ARM International segment. ARM International had total assets, net of any intercompany balances, of $16.4 million, $15.3 million and $13.4 million at December 31, 2005, 2004 and 2003, respectively. ARM International had capital expenditures of $1.3 million, $360,000, and $312,000 of capital expenditures for the years ended December 31, 2005, 2004 and 2003, respectively. ARM International also provides accounts receivable management services to Portfolio Management. ARM International recorded revenue of $272,000, $398,000 and $425,000 for these services for the years ended December 31, 2005, 2004 and 2003, respectively.

F-36

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

20. Segment Reporting (continued):

The following tables present the revenue, payroll and related expenses, selling, general and administrative expenses, and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for each segment. EBITDA is used by the Company’s management to measure the segments’ operating performance and is not intended to report the segments’ operating results in conformity with generally accepted accounting principles.

	For the year ended December 31, 2005 (amounts in thousands)
	Revenue			Payroll and Related Expenses		Selling, General and Admin. Expenses			Restructuring Charge		EBITDA
ARM North America	$	789,492		$	367,714	$	332,202		$	7,724	$	81,852
CRM		190,400			145,892		35,450			846		8,212
Portfolio Management		144,719			5,726		91,493			—		47,500
ARM International		14,992			9,600		4,781			1,051		(440	)
Eliminations		(87,320	)		—		(87,320	)		—		—
Total	$	1,052,283		$	528,932	$	376,606		$	9,621	$	137,124

	For the Year Ended December 31, 2004 (amounts in thousands)
	Revenue			Payroll and Related Expenses		Selling, General and Admin. Expenses			EBITDA
ARM North America	$	732,619		$	349,194	$	291,571		$	91,854
CRM		159,024			113,719		26,658			18,647
Portfolio Management		98,023			2,095		65,621			30,307
ARM International		13,582			7,907		3,788			1,887
Eliminations		(63,451	)		—		(63,451	)		—
Total	$	939,797		$	472,915	$	324,187		$	142,695

	For the Year Ended December 31, 2003 (amounts in thousands)
	Revenue			Payroll and Related Expenses		Selling, General and Admin. Expenses			EBITDA
ARM North America	$	713,941		$	341,068	$	274,445		$	98,428
Portfolio Management		75,456			1,734		53,612			20,110
ARM International		13,977			7,567		3,769			2,641
Eliminations		(49,558	)		—		(49,558	)		—
Total	$	753,816		$	350,369	$	282,268		$	121,179

F-37

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

21. Related Party Transactions:

Eric S. Siegel, a director of NCO Group, Inc., is a director of PSC Info Group (“PSC”), a provider of outsourced mail services and related document management services. Mr. Siegel also owns less than 1% of the outstanding common stock and provides nonoperational consulting services to PSC. For the years ended December 31, 2005 and 2004, the Company paid PSC a total of $31.5 million and $30.3 million, respectively, for producing and mailing collection letters, which the Company believes was comparable to or less than what other mail outsourcing companies would charge for similar volumes of business. Mr. Siegel has not been, and will not be involved in the negotiation or the administration of the Company’s contract with PSC.

Prior to March 2004, the Company used an airplane that was partly owned by Michael J. Barrist, Chairman, President, and Chief Executive Officer of NCO. The Company reimbursed Mr. Barrist for the use of the plane based on a per-hour rate. The per-hour rate consisted of actual operating costs plus the hourly cost equivalent for the monthly management fee, interest and depreciation. The Company paid costs of $209,000 and $719,000 for the years ended December 31, 2004 and 2003, respectively. In February 2004, the Company took an assignment of rights held by Mr. Barrist under a deposit agreement and a related maintenance agreement to purchase an interest in a new airplane. The Company believed that the assignment of the deposit agreement and maintenance agreement allowed it to purchase the interest in the new airplane, and receive maintenance, at prices less than it would otherwise have been able to obtain if it entered into new agreements with the manufacturer. Upon purchasing the interest in the new airplane in March 2004, the prior arrangement with Mr. Barrist concerning the Company’s use of his airplane was terminated. For the years ended December 31, 2005 and 2004, Mr. Barrist reimbursed the Company $100,000 and $120,000, respectively, for his personal use of the aircraft.

The Company was party to certain split-dollar life insurance policies, which were purchased in 1997. These policies separately insured: (i) the joint lives of Michael J. Barrist and his spouse; and (ii) the joint lives of Charles C. Piola, Jr. and his spouse. In November 2002, it was determined that the Company would suspend payment of premiums for these policies. Subsequently, the Company decided to terminate the split-dollar agreements. In conjunction with this termination, the Company transferred the existing policies to the insured, and was reimbursed during 2003 for all premiums paid on theses policies.

22. Recently Issued and Proposed Accounting Pronouncements:

FASB Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”:

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which is a revision of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). SFAS 123R requires that the cost of all share-based payments to employees, including stock option grants, be recognized in the financial statements based on their fair values, as currently permitted but not required under SFAS 123. The standard will apply to newly granted awards and previously granted awards that are not fully vested on the date of adoption. Companies must adopt SFAS 123R no later than the beginning of their next fiscal year that begins after June 15, 2005. Accordingly, the Company will adopt the standard on January 1, 2006.

Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used when the standard is adopted. Transition methods allowed under the standard are modified retrospective adoption, in which prior periods may be restated either as of the beginning of the year of adoption or for all periods presented, or modified prospective adoption, which requires that compensation expense be recorded for all unvested stock options at the beginning of the first quarter of adoption of SFAS 123R. The Company has determined that it will use modified prospective method of adoption.

Effective December 29, 2005, the Company accelerated the vesting of outstanding unvested stock options that have an exercise price equal to or greater than $17.25 per share (“Eligible Options”). Any shares received upon the exercise of Eligible Options are restricted and may not be sold prior to the date on which the Eligible Options would have been exercisable under the original terms. As a result of the acceleration, options to purchase 944,308 shares of the Company’s common stock became immediately exercisable. All other terms and conditions applicable to the Eligible Options remain unchanged. All terms and conditions of all options that are not Eligible Options remain unchanged. The purpose of the acceleration was to eliminate future compensation expense associated with the Eligible Options of approximately $3.9 million, net of taxes, that would have otherwise been recognized upon the Company’s adoption of SFAS 123R on January 1, 2006.

F-38

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

22. Recently Issued and Proposed Accounting Pronouncements (continued):

The Company currently accounts for stock option grants to employees under APB 25 using the intrinsic value method, as permitted by SFAS 123. Under APB 25, because the exercise price of the stock options equals the fair value of the underlying common stock on the date of grant, no compensation cost is recognized. The Company does not anticipate that the adoption of SFAS 123R will have a material impact on its cash flows or financial position, but it will reduce reported net income and earnings per share because under SFAS 123R the Company will be required to recognize compensation expense for stock options granted to employees. The impact of the adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future, stock price volatility, forfeitures and employee stock option exercise behavior. However, valuation of employee stock options under SFAS 123 is similar to SFAS 123R, with minor exceptions. The impact on the Company’s results of operations and earnings per share had the Company adopted SFAS 123, is described in note 2.

SOP 03-3 Accounting for Certain Loans or Debt Securities Acquired in a Transfer:

In October 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-03, “Accounting for Loans or Certain Securities Acquired in a Transfer,” referred to as SOP 03-3. SOP 03-3 addresses accounting for differences between contractual balances of an investor’s initial investment, or the face value, of certain acquired loans and the expected cash flows from those loans when such differences are attributable, in part, to credit quality. SOP 03-3 applies to the Company’s purchased accounts receivable portfolios and effective for portfolios acquired in fiscal years beginning after December 15, 2004, and amends Practice Bulletin No. 6 for portfolios acquired in fiscal years before the effective date.

Under SOP 03-3, if the collection estimates established when acquiring a portfolio are subsequently lowered, an allowance for impairment and a corresponding expense is established in the current period for the amount required to maintain the original internal rate of return, or “IRR,” expectations. Prior guidance required lowering the IRR for the remaining life of the portfolio. If collection estimates are raised, increases are first used to recover any previously recorded allowances and the remainder is recognized prospectively through an increase in the IRR. This updated IRR must be used for subsequent impairment testing.

The Company adopted SOP 03-3 on January 1, 2005, however previously issued annual financial statements were not restated and there is no prior period effect of these new provisions. Portfolios acquired prior to December 31, 2004 continue to be governed by PB6, as amended by SOP 03-3, which will set the IRR at December 31, 2004 as the IRR to be used for impairment testing in the future. Because any reductions in expectations are recognized as an expense in the current period and any increases in expectations are recognized over the remaining life of the portfolio, SOP 03-3 increases the probability that the Company will incur impairments in the future, and these impairments could be material.

FASB Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3”:

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”), which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principles. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. It does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of SFAS No. 154. The Company does not believe the adoption of SFAS No. 154 will have a material impact on its financial statements.

F-39

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

22. Recently Issued and Proposed Accounting Pronouncements (continued):

FASB Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140”:

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments” (“ SFAS No. 155”). This statement amends SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 155 permits fair value remeasurement for hybrid financial instruments that contain embedded derivatives that would require separate accounting. In addition, the statement establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain embedded derivatives. SFAS No. 155 is effective for all financial instruments acquired or issued beginning after an entity’s fiscal year beginning on September 15, 2006 with earlier adoption permitted. Management is evaluating the statement and does not believe that it will have a material impact on the Company’s financial statements.

23. Subsequent Events:

On January 10, 2006, the Company’s nonrecourse lender exercised their option to purchase up to 50 percent of the operating assets acquired from Marlin, after receiving an extension of the original expiration date of November 29, 2005. The transaction is expected to be completed in the first quarter of 2006, and the Company will receive $12.7 million for the 50 percent interest.

In February 2006, the Company’s employees at its call center in Surrey, British Columbia, Canada voted in favor of joining the B.C Government and Services Employees’ Union. This facility provides customer relationship management services and generated approximately two percent of the Company’s consolidated 2005 revenue. The financial impact of such organizing effort is currently not known.

24. Allowance for Doubtful Accounts:

The following table presents the activity in the allowance for doubtful accounts for the years ended December 31, 2005, 2004 and 2003 (amounts in thousands):

			Additions
	Balance at beginning of year		Charged to costs and expenses		Charged to other accounts		Deductions (1)			Balance at end of year
Year ended December 31, 2005:
Allowance for doubtful accounts	$	7,878	$	3,369	$	—	$	(3,168	)	$	8,079
Year ended December 31, 2004:
Allowance for doubtful accounts	$	7,447	$	2,321	$	—	$	(1,890	)	$	7,878
Year ended December 31, 2003:
Allowance for doubtful accounts	$	7,285	$	4,816	$	—	$	(4,654	)	$	7,447

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

 

F-40

NCO GROUP, INC.

Notes to Consolidated Financial Statements (continued)

25. Unaudited Quarterly Results:

The following tables contain selected unaudited Consolidated Statement of Income data for each quarter for the years ended December 31, 2005 and 2004 (amounts in thousands, except per share data). The operating results for any quarter are not necessarily indicative of results for any future period.

	2005 Quarters Ended
	March 31		June 30		Sept. 30		Dec. 31
Revenues	$	260,349	$	252,443	$	249,154	$	290,337
Income from operations		28,823		27,686		16,076		18,752
Net income		15,263		14,135		7,621		7,500
Net income per share:
Basic	$	0.48	$	0.44	$	0.24	$	0.23
Diluted	$	0.45	$	0.42	$	0.24	$	0.23
	2004 Quarters Ended
	March 31		June 30		Sept. 30		Dec. 31
Revenues	$	201,231	$	255,255	$	246,046	$	237,264
Income from operations		25,769		27,533		25,591		23,577
Net income		11,983		14,419		13,253		12,208
Net income per share:
Basic	$	0.46	$	0.46	$	0.42	$	0.38
Diluted	$	0.43	$	0.43	$	0.39	$	0.36

For the third and fourth quarter of 2005, the convertible debt was antidilutive, and therefore not included in the diluted EPS calculations.

In the second and third quarters of 2005, the Company classified gains on sales of aged portfolios of accounts receivable as other income. In the fourth quarter of 2005, it was determined that these sales are an integral part of the Company’s business model and such amounts should be classified as revenue. Prior quarter’s results have been restated to conform to this presentation.

During the third and fourth quarters of 2005, the Company recorded charges associated with the restructuring of the Company’s legacy operations to streamline its cost structure of $2.4 million and $7.2 million, respectively, and integration charges related to acquisitions of $1.3 million and $591,000, respectively.

In the fourth quarter of 2004, the Company corrected one of its revenue recognition policies. The impact of this correction was a reduction of revenues of $2.7 million, income from operations of $1.1 million, net income of $947,000 and $0.03 per basic and diluted share.

In the fourth quarter of 2004, the Company was able to resolve several outstanding matters. These included the settlement of two customer contracts, the negotiation of a settlement of an outstanding claim with a vendor, and the resolution of certain matters with other customers. The net result of these matters was a decrease in selling, general and administrative expenses of $3.0 million.

F-41

EX-10

                                                                   Exhibit 10.31



          SUMMARY OF DIRECTOR AND NAMED EXECUTIVE OFFICER COMPENSATION


I. DIRECTOR COMPENSATION

      Each director of the Company who is not also an employee receives an
annual fee of $35,000, plus reimbursement of expenses incurred in attending
meetings. In addition, members of the Compensation Committee receive an annual
fee of $5,000, members of the Nominating and Corporate Governance Committee
receive an annual fee of $5,000 and members of the Audit Committee receive an
annual fee of $10,000. The Chairman of the Audit Committee also receives an
additional annual fee of $30,000 for his services as Chairman of the Audit
Committee.

      Pursuant to the Company's Director Plan, as amended, each person who is
first elected or appointed to serve as a non-employee director of the Company
automatically is granted an option to purchase 15,000 shares of Common Stock at
the fair market value of the Common Stock on the date of the grant and each
person who is re-elected or continues as a non-employee director at each
subsequent annual meeting of shareholders automatically is granted an option to
purchase 3,000 shares of Common Stock at the fair market value of the Common
Stock on the date of grant. All options granted under the Director Plan become
exercisable one year after the date of grant, except that they become
immediately exercisable upon a "change in control" as defined in the Director
Plan, and, unless terminated earlier by the terms of the option, expire ten
years after the date of grant. Upon the exhaustion of shares available under the
Director Plan, the Company will issue the same number of options under the 2004
equity Incentive Plan to non-employee directors as described above.

      Pursuant to the Company's 2004 Equity Incentive Plan, each non-employee
director automatically receives an annual restricted stock award of 3,000 shares
(4,500 shares in the case of the Audit Committee Chairman). Directors who are
first elected or appointed to the Board at any time other than an annual meeting
of shareholders will receive a prorated restricted stock award upon their
initial election or appointment and will be eligible to receive annual grants of
3,000 shares at each annual meeting of shareholders thereafter. Generally,
restricted stock awards are granted to the non-employee directors for no
additional consideration and all restrictions will lapse one year after the date
of grant or earlier upon a change of control. In lieu of restricted stock
awards, the Company may issue restricted stock units or other equity
compensation available under the 2004 Equity Incentive Plan on similar terms.

      Non-employee directors are reimbursed their out-of-pocket costs in
attending Board and committee meetings.

II. EXECUTIVE COMPENSATION

     The Company's executive officers' compensation is comprised of base salary,
annual incentive compensation, long-term incentive compensation in the form of
stock options, restricted stock awards, restricted stock units or other equity
compensation, and various benefits, including those benefits that are generally
available to all full-time employees of the Company, such as participation in
group medical and life insurance plans and a 401(k) plan. Each of the executive
officers is also granted the use of an automobile leased by the Company at
prices ranging from $1,200 to $1,800 per month or receives a monthly cash
allowance for an equivalent amount. In addition, each of the executive officers
participate in the Company's Executive Salary Continuation Plan that provides
beneficiaries of participants with a salary continuation benefit in the event of
the participant's death while employed by the Company. Mr. Barrist's
compensation also includes the personal use by Mr. Barrist of 25 hours per year
of an aircraft partly owned by the Company.

     Each of the executive officers has an employment agreement with the Company
pursuant to which such officer is paid the minimum base annual compensation set
forth in the agreement subject to such increases as may be approved by the
Company's Compensation Committee. At a minimum, such base salaries are to be
adjusted each year in accordance with changes in the Consumer Price Index for
the Philadelphia area.




     The Company has an executive officer annual incentive plan, which is not
set forth in a written agreement. If the Company achieves certain performance
goals, including, but not limited to, earnings per share growth, approved by the
Compensation Committee, the Compensation Committee will establish a bonus pool
to be paid out to eligible participants. Each eligible participant's bonus will
be funded from this pool based on the attainment of their personal performance
goals. Each eligible person's maximum bonus potential is based upon a percentage
of that participant's base salary, ranging from 75 percent to 100 percent
depending on their position ("Bonus Percentage"). Eighty percent of the
aggregate amount of bonus to be paid to each participant will be paid in cash
and twenty percent will be paid in restricted stock units. Each restricted stock
unit award will vest and the stock will be issued only upon the occurrence of
any of the following prior to the expiration of the RSU: (i) the second
anniversary of the award date, (ii) a change of control of the Company, as
defined in the 2004 Plan or (iii) the death or disability of the grantee.

     The following table sets forth the current base salaries and Bonus
Percentage of the Company's CEO and each of the executive officers who were
named in the Summary Compensation Table in the Company's Proxy Statement
relating to its 2005 Annual Meeting of Shareholders and/or who are expected to
be named in the Summary Compensation Table in the Company's Proxy Statement
relating to its 2006 Annual Meeting of Shareholders. The salaries set forth
below reflect the CPI adjustment required under the employment agreements that
were made by the Compensation Committee effective as of January 1, 2006.




NAME AND PRINCIPAL POSITION                                 SALARY           BONUS PERCENTAGE
- ------------------------------------------------------------------------------------------------
                                                                                     
Michael J. Barrist                                                 $739,253                 100%
Chairman of the Board, President and Chief
Executive Officer

Charles F. Burns,                                                  $363,650                  75%
Executive Vice President,
Business Process Outsourcing

Stephen W. Elliott                                                 $311,700                  75%
Executive Vice President, Information
Technology and Chief Information Officer

Joshua Gindin, Esq.                                                $311,700                  75%
Executive Vice President
and General Counsel

Steven Leckerman                                                   $415,600                 100%
Executive Vice President and Chief Operating
Officer - Accounts Receivable Management - North
America

Steven L. Winokur                                                  $415,600                 100%
Executive Vice President,
Chief Financial Officer and Chief Operating
Officer - Shared Services

EX-10

                                                                   EXHIBIT 10.42

                                 GRANT AGREEMENT

                ACKNOWLEDGEMENT AND AGREEMENT TO STOCK OPTION AND
                 NON-INTERFERENCE, NON-DISCLOSURE AGREEMENT AND
                   CONSENT TO ELECTRONIC DELIVERY OF DOCUMENTS
                   -------------------------------------------

         By clicking "I accept this grant," and in consideration of the grant of
such stock options to me, you hereby agree as follows, intending to be legally
bound hereby:

         1. You hereby acknowledge that you have access to a copy of the
following Stock Option and of the 2004 Equity Incentive Plan ("Plan") at the
website maintained on behalf of the Company at _______________ (the "Website"),
hereby acknowledge that this stock option grant discharges any promise (either
verbal or written) of the Company made on or prior to the date of grant to give
you a stock option, and, having read it, hereby signify your understanding of,
and your agreement with, its terms and conditions. In consideration of the
grant, you hereby release any claim you may have against the Company with
respect to any promise of a stock option grant or other equity interest in the
Company.

         2. You also agree to the terms and conditions set forth in the
Non-Interference, Non-Disclosure Agreement which follows, and understand and
agree that any failure to comply with the terms of such agreement may result in
the revocation of this stock option without notice, in addition to the other
rights and remedies set forth in the Non-Interference, Non-Disclosure Agreement
or available under law or in equity.

         3. You also consent to receiving the Section 10(a) prospectus to the
Plan and any amendments or supplements thereto and any documents required to be
delivered therewith, including a copy of the Company's Form 10-K or Annual
Report to Shareholders commencing with the fiscal year ended December 31, 2003,
by email at the email address maintained for you by the Company as set forth in
its records. You further acknowledge that you may revoke this consent in whole
by providing written notice to: Brian Callahan, Vice President of Financial
Reporting, 507 Prudential Rd., Horsham, PA 19044.

At your written request, we will provide you with a paper copy of any of the
documents referenced herein without any fee.





                           NON-QUALIFIED STOCK OPTION


         You are hereby granted an option, effective as of the Grant Date, to
purchase the Granted Amount of shares of common stock, no par value ("Common
Stock"), of NCO Group, Inc., a Pennsylvania corporation (the "Company") at the
Exercise Price Per Share pursuant to the Company's 2004 Equity Incentive Plan
(the "Plan"). The Grant Date, Granted Amount and Exercise Price Per Share shall
be as specified in the "Grant Agreement" window for your account on the Website.
All other capitalized terms that are used and not defined herein shall have the
respective meanings given to them in the Plan.

         Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to 33 1/3% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
33 1/3% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after three years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
ten years from the date of its grant (the "Scheduled Termination Date"), except
if terminated earlier as hereafter provided.

         In the event of a "Change in Control" (as defined in the Plan) of the
Company, your option may, from and after the date of the Change in Control (but
in no event later than the Scheduled Termination Date), and notwithstanding the
immediately preceding paragraph, be exercised for up to 100% of the total number
of shares then subject to the option minus the number of shares previously
purchased upon exercise of the option (as adjusted for stock dividends, stock
splits, combinations of shares and what the Committee deems in its sole
discretion to be similar circumstances), except as provided in the Plan.

         You may exercise your option by giving written notice to the Secretary
of the Company as specified on the Website, accompanied by payment of the option
price for the total number of shares you specify that you wish to purchase. The
payment may be in any of the following forms: (i) wire transfer of immediately
payable funds to an account maintained by the Company for this purpose, (ii)
unless prohibited by the Committee (A) through the delivery of shares of Common
Stock which have been outstanding for at least six months (unless the Committee


                                       2



expressly approves a shorter period) and which have a fair market value on the
date of exercise at least equal to the exercise price, or (B) by delivery of an
unconditional and irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price (including in connection with
a so-called "cashless exercise" effected by such broker), or (iii) by any
combination of the permissible forms of payment. Any assignment of stock shall
be in a form and substance satisfactory to the Secretary of the Company,
including guarantees of signature(s) and payment of all transfer taxes if the
Secretary deems such guarantees necessary or desirable.

         Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of permanent and total disability
as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder ("Disability"), or death, in which
case your option will terminate one year from the date of termination of
employment due to Disability or death (but in no event later than the Scheduled
Termination Date). After the date your employment is terminated, as aforesaid,
you may exercise this option only for the number of shares which you had a right
to purchase and did not purchase on the date your employment terminated;
provided, however, that if the termination of employment was due to death or
Disability, all unexercised options at the time of such termination due to death
or Disability shall automatically become exercisable in full. If you are
employed by a Company subsidiary corporation, your employment shall be deemed to
have terminated on the date your employer ceases to be a Company subsidiary
corporation, unless you are on that date transferred to the Company or another
Company subsidiary corporation. Your employment shall not be deemed to have
terminated if you are transferred from the Company to a Company subsidiary
corporation, or vice versa, or from one Company subsidiary corporation to
another Company subsidiary corporation. In addition, in the sole discretion of
the Committee or, if you are not an executive officer of the Corporation, in the
discretion of the Chief Executive Officer of the Corporation, your employment
shall not be deemed to have terminated for the purpose of this Option if, on the
date that your employment with the Company terminates, you have a directorship,
consulting, service or other relationship with the Company that would otherwise
permit you to receive an Award under the Plan. Such determination shall be made
by the Committee or the Chief Executive Officer, as the case may be, not later
than thirty days from the date of actual termination of employment, and you
shall have thirty days to accept such offer.

         If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to all unexercised
shares then represented by the option. If your employment with the Company or a
Company parent or subsidiary corporation is terminated by reason of your
becoming disabled (within the meaning of Section 22(e)(3) of the Code and the
regulations thereunder), you or your legal guardian or custodian may at any time
within one year after the date of such termination (but in no event later than
the Scheduled Termination Date), exercise the option as to all unexercised
shares then represented by the option. Your executor, administrator, guardian or
custodian must present proof of his authority satisfactory to the Company prior
to being allowed to exercise this option.


                                       3



         Notwithstanding any other provision of the Option, the Committee (or,
if you are not an executive officer of the Corporation, the Chief Executive
Officer of the Corporation) shall have the right to cancel this Option without
notice if: (a) your employment is terminated for: (i) criminal conduct; (ii)
willful misconduct or gross negligence materially detrimental to the Company; or
(iii) conduct constituting "Cause" as defined in the Plan; or (b) regardless of
whether your employment is continuing or has been terminated, you are in breach
of or violate, in a material way, any obligation to, covenant or agreement with
or policy of the Company to which you may be a party or by which you may be
bound or subject, as the case may be, including without limitation the
NON-INTERFERENCE, NON-DISCLOSURE AGREEMENT included within and any employment
agreement, termination agreement, confidentiality agreement, non-solicitation
agreement or non-competition agreement. All determinations and findings with
respect to the cancellation of the Option shall be made by the Compensation
Committee in its sole and absolute discretion (except that, if you are not an
executive officer of the Corporation, such determinations and findings may be
made by the Chief Executive Officer of the Corporation).

         In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares and/or other property
subject to this option and the option price of such shares and/or other property
shall be appropriately adjusted in a manner to be determined in the sole
discretion of the Committee.

         This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
Disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal state, local or
securities exchange rule, regulation or law.

         Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:

                  (a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;

                  (b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or

                                       4



                  (c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.

                  (d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) the employee's portion or other federal, state and local
payroll and other taxes due in connection with the option exercise.

         The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:

                  (a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations acknowledgements and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal state, local or securities exchange rule, regulation or law.

                  (b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:

                  "The shares represented by this certificate have not been
         registered under the Securities Act of 1933, as amended, or under
         applicable state securities laws. The shares have been acquired for
         investment and may not be offered, sold, transferred, pledged or
         otherwise disposed of without an effective registration statement under
         the Securities Act of 1933, as amended, and under any applicable state
         securities laws or an opinion of counsel acceptable to the Company that
         the proposed transaction will be exempt from such registration.

The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.


                                       5



         The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.

         It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422(b) of the
Code and the regulations thereunder.

         NOTHING HEREIN SHALL MODIFY YOUR STATUS AS AN AT-WILL EMPLOYEE OF THE
COMPANY. FURTHER, NOTHING HEREIN GUARANTEES YOU EMPLOYMENT FOR ANY SPECIFIED
PERIOD OF TIME. THIS MEANS THAT EITHER YOU OR THE COMPANY MAY TERMINATE YOUR
EMPLOYMENT AT ANY TIME FOR ANY REASON, OR NO REASON. YOU RECOGNIZE THAT, FOR
INSTANCE, YOU MAY TERMINATE YOUR EMPLOYMENT OR THE COMPANY MAY TERMINATE YOUR
EMPLOYMENT PRIOR TO THE DATE ON WHICH YOUR OPTION BECOMES VESTED.

         ANY DISPUTE OR DISAGREEMENT BETWEEN YOU AND THE COMPANY WITH RESPECT TO
ANY PORTION OF THIS OPTION OR ITS VALIDITY, CONSTRUCTION, MEANING, PERFORMANCE
OR YOUR RIGHTS HEREUNDER SHALL, AT THE OPTION OF THE COMPANY, BE SETTLED BY
ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION OR ITS SUCCESSOR, AS AMENDED FROM TIME TO TIME. HOWEVER,
PRIOR TO SUBMISSION TO ARBITRATION YOU WILL ATTEMPT TO RESOLVE ANY DISPUTES OR
DISAGREEMENTS WITH THE COMPANY OVER THIS OPTION AMICABLY AND INFORMALLY, IN GOOD
FAITH, FOR A PERIOD NOT TO EXCEED TWO WEEKS. THEREAFTER, THE DISPUTE OR
DISAGREEMENT WILL BE SUBMITTED TO ARBITRATION AT THE OPTION OF THE COMPANY. AT
ANY TIME PRIOR TO A DECISION FROM THE ARBITRATOR(S) BEING RENDERED, YOU AND THE
COMPANY MAY RESOLVE THE DISPUTE BY SETTLEMENT. YOU AND THE COMPANY SHALL EQUALLY
SHARE THE COSTS CHARGED BY THE AMERICAN ARBITRATION ASSOCIATION OR ITS
SUCCESSOR, BUT YOU AND THE COMPANY SHALL OTHERWISE BE SOLELY RESPONSIBLE FOR
YOUR OWN RESPECTIVE COUNSEL FEES AND EXPENSES. THE DECISION OF THE ARBITRATOR(S)
SHALL BE MADE IN WRITING, SETTING FORTH THE AWARD, THE REASONS FOR THE DECISION
AND AWARD AND SHALL BE BINDING AND CONCLUSIVE ON YOU AND THE COMPANY. FURTHER,
NEITHER YOU NOR THE COMPANY SHALL APPEAL ANY SUCH AWARD. JUDGMENT OF A COURT OF
COMPETENT JURISDICTION MAY BE ENTERED UPON THE AWARD AND MAY BE ENFORCED AS SUCH
IN ACCORDANCE WITH THE PROVISIONS OF THE AWARD.

         This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Pennsylvania.


                                       6



                   NON-INTERFERENCE, NON-DISCLOSURE AGREEMENT
                   ------------------------------------------


The purpose of this document is to communicate to certain management and staff
employees the expectations that NCO Group, Inc. and its subsidiaries
(individually and collectively, the "Company") has with respect to protecting
trade secrets and proprietary information, and to avoid interference or
conflicts of interest with other agencies or businesses. Please take the time to
review this document and familiarize yourself with these expectations.

This agreement is made as of the date that you accept your options by indicating
your approval and acceptance thereof.

1.   RESTRICTIVE COVENANT. In consideration of the Company agreeing to your
     at-will employment, continued at-will employment, stock options and, in
     some cases, other consideration, and the certain terms and conditions as
     set forth in this Agreement, you agree as follows, intending to be legally
     bound hereby:

     (a) NON-DISCLOSURE. You recognize and acknowledge that you will have access
         to certain confidential or proprietary information of the Company and
         that such information constitutes valuable, special and unique property
         of the Company. You agree that you will not, on behalf of yourself or
         any other person or entity, for any reason or purpose whatsoever,
         during or after the term of your employment, use, remove, copy, or
         disclose any of such confidential information or trade secrets to any
         party without express authorization of the Company, except as necessary
         in the ordinary course of performing your duties. The confidential or
         proprietary information referred to in this Agreement includes, but is
         not limited to, work methods, processes, procedures for doing business,
         written proposals, client information, contract documents, monthly
         solicitor reports, client summaries, in-house account summaries, and
         customer pricing schedules.

     (b) NON-INTERFERENCE. You agree that during the term of your employment,
         and for a period of eighteen (18) months after your employment ceases,
         you shall not, unless acting pursuant hereto or with the prior written
         consent of the Chief Executive Officer of the Company, directly or
         indirectly, on behalf of yourself or any other person or entity:

         (A)  solicit business from or perform business services for any person,
              company or other entity which at any time during your employment
              by the Company was a client or customer or a business prospect of
              the Company if such business or services are of the same general
              character as those engaged in or performed by the Company. This
              restriction is not intended to stop you from working for a
              competitor of the Company which has the same clients and customers
              as the Company, provided that you do not interfere with the
              business relationship of the Company with such clients, customers
              or business prospects;

                                       7


         (B)  solicit for employment or in any fashion hire any of the employees
              of the Company; or

         (C)  use the name of the Company or the name of any of its subsidiaries
              or divisions or any names similar thereto, but nothing in this
              clause shall be deemed, by implication, to authorize or permit use
              of such names after expiration of the period covered by this
              paragraph.

         In the event that any provisions of this paragraph should ever be
         adjudicated to exceed the time, service or product limitations
         permitted by applicable law in any jurisdiction, then such provisions
         shall be deemed reformed in such jurisdiction to the maximum time,
         geographic, service or product limitations permitted by applicable law.

2.   EQUITABLE RELIEF; SURVIVAL. You acknowledge that the restrictions contained
     in paragraph 1 hereof are, in view of the nature of the business of the
     Company, reasonable and necessary to protect the legitimate interests of
     the Company, and that any violation of any provisions of such paragraph
     will result in irreparable injury to the Company. You also acknowledge that
     the Company shall be entitled to temporary and permanent injunctive relief,
     without the necessity of proving actual damages, and to an equitable
     accounting of all earnings, profits and other benefits arising from any
     such violation, which rights shall be cumulative and in addition to any
     other rights or remedies to which the Company may be entitled. The
     existence of any claim or cause of action which you and/or any other person
     or entity have against the Company or any other individual or entity shall
     not constitute a defense or bar to the enforcement of the covenants set
     forth in paragraph 1. You further irrevocably submit to the jurisdiction of
     any Pennsylvania court or Federal court sitting in the Eastern District of
     Pennsylvania, or any other court of competent jurisdiction selected by the
     Company, over any suit, action or proceeding arising out of or relating to
     this Agreement. You hereby waive, to the fullest extent permitted by law,
     any objection that you may now or hereafter have to such jurisdiction or to
     the venue of any such suit, action or proceeding brought in such a court
     and any claim that such suit, action or proceeding has been brought in any
     inconvenient forum.

3.   SEVERABILITY; AMENDMENT. In the event that any term or clause of this
     Agreement is held to be unenforceable or void, it shall be severed from the
     Agreement and the balance shall remain in full force and effect. This
     Agreement may not be changed or terminated orally, and no change,
     termination or attempted waiver of any of its provisions shall be binding
     unless in writing and signed by both you and the Chief Executive Officer of
     the Company.


                                       8

EX-10

                                                                   EXHIBIT 10.43

                                 NCO GROUP, INC.
                           2004 EQUITY INCENTIVE PLAN

                         RESTRICTED STOCK UNIT AGREEMENT
                         -------------------------------

Award Date:  _________

Grantee:  ____________

         The Grantee named above is hereby granted an Award of Restricted Stock
Units ("Units") effective as of the Award Date set forth above by NCO Group,
Inc. ("Corporation") in accordance with the following terms and conditions, and
the provisions of the NCO Group, Inc. 2004 Equity Incentive Plan, as amended
from time to time ("Plan"). All capitalized terms used and not defined herein
shall have the respective meanings given to them in the Plan.

         1. Unit Award. The Corporation hereby awards the Grantee ______ Units
pursuant to the Plan and upon the terms and conditions, and subject to the
restrictions, therein and hereinafter set forth. Each Unit represents the right
to receive one share (a "Share") of common stock, no par value per share of the
Corporation ("Common Stock"), subject to adjustment as provided in Section 13
below. A copy of the Plan as currently in effect is available to the Grantee
from the Corporation upon request and is incorporated herein by reference. If no
Effective Date (as defined in Section 2) has occurred prior thereto, this Award
shall expire and be of no further force or effect on the earlier of (i) the date
that the Grantee has a Status Change other than by reason of death or Permanent
Disability or (ii) the close of business on October 26, 2015. If this Award has
expired, then no Shares or Dividend Equivalents shall be issuable hereunder.

         2. Issuance of Shares. The Shares then issuable under the Units
represented by this Agreement shall be issuable effective as of the earlier of:

                  (a) subject to Section 3 below, the achievement of the
performance targets identified in Exhibit "A", attached hereto and incorporated
by reference herein ("Performance Target Distribution Event");

                  (b) the date that the Grantee has a Status Change by reason of
death or Permanent Disability ("Death or Disability Distribution Event"); or

                  (c) a Change in Control ("Change in Control Distribution
Event").

         The effective date as of which the Shares are issuable by reason of a
Performance Target Distribution Event (or in lieu thereof if applicable,
Deferred Effective Date or Amended Deferred Effective Date as defined below),
Death or Disability Distribution Event, or Change in Control Distribution Event
is referred to as the "Effective Date." The Grantee shall be considered the
holder of the Shares represented by the Units evidenced by this Award effective
as of the Effective Date. The Corporation shall cause its transfer agent to




issue a certificate representing the Shares as soon as practicable after the
Effective Date to the Grantee or to his estate, in the event of an Effective
Date by reason of a death.

         Subject to the restrictions set forth in the Plan, the Committee shall
have the authority, in its sole discretion, to accelerate the time at which the
Shares shall be issued whenever the Committee may determine that such action is
appropriate by reason of changes in applicable tax or other laws, or other
changes in circumstances occurring after the Award Date, provided that no such
acceleration with respect to a Grantee shall be permitted in the event that it
would cause a failure to comply with Code Section 409A.

         The Corporation shall not be required to deliver any Shares under the
Plan prior to (a) the admission of such Shares to listing on the Nasdaq Stock
Market or any stock exchange on which the Shares of Common Stock may then be
listed, and (b) the completion of such registration or other qualification of
such Shares under any state or federal law, rule or regulation, as the Committee
shall determine necessary or advisable.

         3. Deferral of Issuance of Shares.

         This Section 3 and the terms of the NCO Group, Inc. Deferred
Compensation Plan which are incorporated by reference herein shall be applicable
only if the Grantee has timely executed and delivered a duly completed Deferral
Election as defined below.

                  (a) The Grantee may elect to defer the Effective Date by
reason of a Performance Target Distribution Event to a date that is no later
than the tenth (10th) anniversary of the Award Date with respect to all, and not
less than all, of the Shares issuable under the Units represented by this
Agreement by executing the Restricted Stock Unit Executive Deferred Compensation
Election ("Deferral Election"), attached hereto and incorporated by reference
herein, and delivering that Deferral Election to the Chief Financial Officer of
the Corporation no later than the earlier of thirty (30) days after the Award
Date or the date designated by the Committee. In the event that the foregoing
execution and delivery requirements are not met, no change in the Effective Date
by reason of a Performance Target Distribution Event shall be in effect. If the
Grantee has entered into an effective Deferral Election and the deferral
provided for therein applies, the date set forth therein ("Deferred Effective
Date") shall be the Effective Date with respect to the Grantee and replace the
Performance Target Distribution Event as an Effective Date. An election made in
a Deferral Election shall be irrevocable, except as provided herein.

                  (b) Subject to the requirements of Code Section 409A, the
acceptance by the Committee, and the tenth (10th) anniversary of the Award Date
deferral limit set forth in Section 3(a) above, the Grantee shall be permitted
to make a one-time additional deferral of the Deferred Effective Date by
executing and delivering an amended Deferral Election to the Chief Financial
Officer of the Corporation which (i) may not be effective until twelve (12)
months after the date on which the election is made, (ii) in the case of an
election related to a payment by reason of separation from service (as defined
in Code Section 409A and guidance issued thereunder) other than by reason of


                                       2



death or disability, as defined below, fixed date payment, or Change in Control
Event as defined in Code Section 409A and the guidance issued thereunder, the
first payment with respect to which such election is made must be deferred for a
period of not less than five (5) years from the date such payment would
otherwise have been made, and (iii) any election related to a fixed date payment
may not be made less than 12 months prior to the date of the first scheduled
payment. If an additional deferral election applies, the date set forth therein
("Amended Deferred Effective Date") shall be the Effective Date with respect to
the Grantee and replace the Deferred Effective Date described in the prior
election as an Effective Date. Disability means unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than 12 months.

                  (c) In the event an "Unforeseeable Emergency" as defined below
occurs with respect to the Grantee on or after the Performance Target
Distribution Event, the Grantee may request that the Corporation issue to him
such number of Shares issuable under the Units that is reasonably needed to
satisfy his Unforeseeable Emergency. If such a request is granted, which action
is in the sole discretion of the Compensation Committee, the Grantee shall be
issued only such number of Shares as the Compensation Committee deems necessary
to meet the Unforeseeable Emergency plus amounts necessary to pay taxes
reasonably anticipated as a result of the distribution, but a distribution shall
not be made to the extent that the Unforeseeable Emergency may be relieved
through insurance or other reimbursement or otherwise, or liquidation of other
assets of the Grantee to the extent such liquidation would not itself cause
severe financial hardship. The Deferred Effective Date or Amended Deferred
Effective Date, as applicable, shall be deemed to have been attained with regard
to the number of Shares issuable under the Units that is issued to satisfy his
Unforeseeable Emergency. The number of Shares issuable under the Units
represented by this Agreement shall be adjusted accordingly. An Unforeseeable
Emergency shall be deemed to involve only circumstances of severe financial
hardship to the Grantee resulting from a sudden and unexpected illness or
accident of the Grantee, the Grantee's spouse, or of a dependent (as defined in
Section 152 of the Internal Revenue Code of 1986, as amended) of the Grantee,
loss of the Grantee's property due to casualty, or other similar extraordinary
and unforeseeable circumstances arising as a result of events beyond the control
of the Grantee.

                  (d) In the event that any deferral is finally determined by a
court or agreement with the Internal Revenue Service to be then income taxable
to the Grantee prior to any distribution event hereunder, the Grantee shall
notify the Corporation of the final determination of taxability and provide all
information as may be reasonably requested by the Corporation. In such an event
on or after the Performance Target Distribution Event, the Corporation may issue
the Shares issuable under the Units to the Grantee as soon as practicable.

                  (e) Notwithstanding anything contained herein to the contrary,
in the event that a Grantee has deferred the issuance of the Shares issuable
under the Units represented by the Agreement, no acceleration of the time or
schedule of any payment shall be permitted except as provided under Code Section
409A.


                                       3



         4. Cash Dividends on Shares Issuable under the Units. In the event
that: (a) one or more cash dividends, if any, is paid with regard to a Share
issuable under a Unit on or after the Award Date and prior to the issuance of
such Share to the Grantee and (b) the Grantee becomes entitled to receive the
Share issuable under the Unit, the Corporation shall pay to the Grantee, in
cash, an amount equal to such cash dividends ("Dividend Equivalents") at the
same time that the Share issuable under the Unit is issued to the Grantee.
Notwithstanding the foregoing to the contrary, if a Share is issued by reason of
an Unforeseeable Emergency as provided in Section 3 (d) above, the Dividend
Equivalents that relate to that Share shall not be paid until the last Share
issuable under the Units under this Agreement is issued to the Grantee. No
interest shall be paid with regard to such Dividend Equivalents.

         5. Restrictions on Transfer and Restricted Period. During the period
commencing on the Award Date and terminating on the Effective Date ("Restricted
Period"): (a) the Units, Grantee's rights under this Award or the Plan, and the
Dividend Equivalents may not be sold, assigned, anticipated, alienated,
hypothecated, transferred, pledged, advanced or otherwise encumbered by the
Grantee in any manner other than a transfer by will or under the laws of descent
and distribution, (b) the Shares issuable under the Units, the Units and the
Dividend Equivalents shall not be subject to attachment, garnishment or seizure
for the payment of any debts or judgments of the Grantee or any payee and (c)
the Shares issuable under the Units, the Units and the Dividend Equivalents
shall not be transferred by operation of law in the event of bankruptcy,
insolvency or otherwise.

         6. Interest of Grantee in Shares Issuable under the Units, Units and
Dividend Equivalents. The Grantee shall not acquire any property interest in the
Shares issuable under the Units, the Units, the Dividend Equivalents, or any
other asset of the Corporation, his right being limited to the Corporation's
contractual promise to issue the Shares issuable under the Units and pay the
Dividend Equivalents, if any, pursuant to the terms of the Plan and this
Agreement. To the extent that the Grantee or his estate is entitled to receipt
of the Shares issuable under the Units and if applicable, Dividend Equivalents,
such right shall be no greater than the right of any unsecured general creditor
of the Corporation. The Corporation's promise is not funded or secured in any
way. The Corporation shall not be obligated to purchase or maintain any asset,
and any reference to Common Stock or investments is solely for the purpose of
computing the amounts payable to the Grantee. The Units and Dividend
Equivalents, if applicable, shall be for bookkeeping purposes only and shall not
represent a claim against any specified assets of the Corporation. Neither this
Agreement nor any action taken pursuant to the terms of this Agreement shall be
considered to create a fiduciary relationship between the Corporation and the
Grantee or any other person, or to establish a trust in which the assets of the
Corporation or any Affiliate are beyond the claims of any unsecured creditor of
the Corporation or any Affiliate.


                                       4



         7. Provision for Taxes. The Corporation may make such provisions and
take such actions as it may deem necessary or appropriate for the withholding of
any taxes which a payee is required by any law or regulation of any governmental
authority, whether federal, state, or local, to withhold in connection with any
issuance of the Shares issuable under the Units and payment of Dividend
Equivalents under the Plan and this Agreement, including, but not limited to,
the withholding of Shares or appropriate sums from any amount otherwise payable
to the Grantee or in the event of the death of the Grantee, to the estate of the
Grantee. Each payor shall be responsible for the payment of all individual tax
liabilities with respect to any Share issuable under the Units and paid Dividend
Equivalents.

         8. Securities Laws. This Section 8 shall be applicable if, on the Award
Date, the Common Stock subject to such Award has not been registered under the
Securities Act of 1933, as amended, and under applicable state securities laws,
and shall continue to be applicable for so long as such registration has not
occurred.

         The Grantee hereby agrees, warrants and represents that Grantee is
acquiring the Units and Shares to be issued pursuant to this Agreement for
Grantee's own account for investment purposes only, and not with a view to, or
in connection with, any resale or other distribution of any of such Units or
Shares, except as hereafter permitted. The Grantee further agrees that Grantee
will not at any time make any offer, sale, transfer, pledge or other disposition
of such Units or Shares to be issued hereunder without an effective registration
statement under the Securities Act of 1933, as amended, and under any applicable
state securities laws or an opinion of counsel acceptable to the Corporation to
the effect that the proposed transaction will be exempt from such registration.
The Grantee shall execute such instruments, representations, acknowledgments and
agreements as the Corporation may, in its sole discretion, deem advisable to
avoid any violation of federal, state, local or securities exchange rule,
regulation or law.

         The certificates for the Shares to be issued pursuant to this Agreement
shall bear the following securities legend ("Securities Legend"):

         The shares represented by this certificate have not been registered
         under the Securities Act of 1933, as amended, or under applicable state
         securities laws. The shares have been acquired for investment and may
         not be offered, sold, transferred, pledged or otherwise disposed of
         without an effective registration statement under the Securities Act of
         1933, as amended, and under any applicable state securities laws or an
         opinion of counsel acceptable to the Corporation that the proposed
         transaction will be exempt from such registration.

         The Securities Legend shall be removed upon registration of the
legended shares under the Securities Act of 1933, as amended, and under any
applicable state laws or upon receipt of any opinion of counsel acceptable to
the Corporation that said registration is no longer required.


                                       5


         The sole purpose of the agreements, warranties, representations and
legend set forth in this Section is to prevent violations of the Securities Act
of 1933, as amended, and any applicable state securities laws.

         9. Status Change. If the Grantee has a Status Change during the
Restricted Period by reason of death or Permanent Disability and prior to the
Performance Target Distribution Event without regard to any deferral thereof,
all Units held by the Grantee at the time of such Status Change and Dividend
Equivalents, if any, shall automatically become free of all restrictions and
conditions, shall be fully vested in the Grantee and the Shares shall be issued
and Dividend Equivalents paid, as applicable. If the Grantee has a Status Change
during the Restricted Period which, for this sentence, shall be deemed to have
ended on the Performance Target Distribution Event without regard to any
deferral thereof, other than by reason of death or Permanent Disability, all
Units and Dividend Equivalents, if any, held by the Grantee at the time of such
Status Change shall be forfeited automatically and the Award canceled as of the
date of such Status Change. For clarification, if the Grantee has a Status
Change other than by reason of death or Permanent Disability at any time on or
after the Performance Target Distribution Event, but has a Deferral Election in
effect at such time, all Units held by the Grantee at the time of such Status
Change and Dividend Equivalents, if any, shall be issued and Dividend
Equivalents paid, as applicable, at the time provided for in the Deferral
Election.

         10. No Rights as a Shareholder. This Agreement represents only the
right to receive the Shares and if applicable, Dividend Equivalents, and until
the Effective Date with regard to a Share, the Grantee shall have no rights
hereunder as a shareholder of the Corporation with regard to that Share. Without
limiting the generality of the foregoing, until the Effective Date with regard
to a Share, the Grantee shall have no right to vote the Share represented by the
Unit or to receive dividends declared thereon except the Dividend Equivalents as
provided in Section 4 above.

         11. Limitation of Rights. The establishment of this Agreement, any
modification thereof, the creation of an account, or the payment of any benefit
shall not be construed as giving the Grantee, his estate, or any other person
whomsoever, any legal or equitable right against the Corporation, unless such
right shall be specifically provided for in this Agreement. Nothing in this
Agreement shall limit the right of the Corporation or any of its Affiliates to
terminate the Grantee's service as an officer, employee, director or otherwise
or impose upon the Corporation or any of its Affiliates any obligation to employ
or accept the services of the Grantee.

         12. Limitation of Liability. Notwithstanding anything in this Agreement
to the contrary, neither the Corporation nor any individual acting as employee
or agent of the Corporation shall be liable to the Grantee or other person for
any claim, loss, liability or expense incurred in connection with this
Agreement. The Corporation does not undertake any responsibility to the Grantee
for the tax consequences of the Grantee's election to defer or otherwise under
this Agreement.

         13. Adjustments for Changes in Capitalization of the Corporation. In
the event of any stock dividend, stock split, combination or exchange of equity


                                       6



securities, merger, consolidation, recapitalization, reorganization, divestiture
or other distribution (other than ordinary cash dividends) of assets to
shareholders, or any other event affecting the Common Stock that the Committee
deems, in its sole discretion, to be similar circumstances, the Committee may
make such adjustments as it may deem appropriate, in its sole discretion, to the
number and kind of Shares issuable under each Unit.

         14. Change in Control. Notwithstanding anything in this Agreement to
the contrary, in the event of a Change in Control prior to the Performance
Target Distribution Event without regard to any deferral thereof, all Units held
by the Grantee at the time of such Change in Control and Dividend Equivalents,
if any, shall automatically become free of all restrictions and conditions,
shall become fully vested in the Grantee and the Shares shall be issued and
Dividend Equivalents paid, if any, to the Grantee.

         15. Plan and Plan Interpretations Controlling. The Units hereby awarded
and the terms and conditions herein set forth are subject in all respects to the
terms and conditions of the Plan, which are controlling. All determinations and
interpretations by the Committee shall be binding and conclusive upon the
Grantee or Grantee's legal representatives with regard to any question arising
hereunder or under the Plan.

         16. Tax Consequences. Grantee has reviewed with Grantee's own tax
advisors the federal, state, local and foreign tax consequences of this Award
and the transactions contemplated by this Agreement. Grantee is relying solely
on such advisors and not on any statements or representations of Corporation or
any of its agents. Grantee understands that Grantee (and not Corporation) shall
be responsible for Grantee's own tax liability that may arise as a result of
this Award or the transactions contemplated by this Agreement. Grantee
understands that Section 83 of the Internal Revenue Code of 1986, as amended
(the "Code"), taxes (as ordinary income) the fair market value of the Units as
of the date any "restrictions" on the Units lapse and the Shares are issued. To
the extent that a grant hereunder is not otherwise an exempt transaction for
purposes of Section 16(b) of the Securities and Exchange Act of 1934 (the "1934
Act"), with respect to officers, directors and 10% shareholders, a "restriction"
on the Shares includes for these purposes the period after the grant of the
Shares during which such officers, directors and 10% shareholders could be
subject to suit under Section 16(b) of the 1934 Act.

         17. Entire Understanding; Amendment; Choice of Law. This Agreement
together with the Plan and the Deferral Election, if any, constitutes the entire
understanding between the Corporation and the Grantee with respect to the
subject matter hereof and no amendment, supplement or waiver of this Agreement,
in whole or in part, shall be binding upon the Corporation unless in writing and
signed by the Chief Executive Officer of the Corporation. This Agreement and the
performances of the parties hereunder shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania without giving effect
to principles of conflicts of law, except where preempted by Federal law.



                                       7



         18. Change in Law. In the event that the Grantee enters into an
effective Deferral Election and the Corporation determines that any change in
applicable law may operate to impact the intent of the Deferral Election to
provide for the deferral of the Shares issuable under the Units, and if
applicable, payment of Dividend Equivalents, the Corporation may amend this
Agreement in writing without the consent of the Grantee and in its sole
discretion to include or modify such provisions that it deems appropriate to
preserve to the extent possible the intent of this Agreement. The Corporation
shall provide any such amendment to the Grantee.

         19. Gender and Number. Whenever any word is used herein in the
masculine, feminine or neuter gender, it shall be construed as though it were
also used in another gender in all cases where it would so apply, and whenever
any word is used herein in the singular or plural form, it shall be construed as
though it was also used in the other form in all cases where it would so apply.

         20. Headings. The headings in the various sections in this Agreement
are for convenience of reference only and are not to be construed as part of
this Agreement.

         21. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Corporation, its successors and assigns, and to the Grantee,
his heirs, executors, personal representatives, successors and assigns.

         22. Grantee Acceptance. The Grantee shall signify Grantee's acceptance
of the terms and conditions of this Agreement by signing in the space provided
below.

         23. Electronic Delivery Consent. By signing and returning this
Restricted Stock Unit Agreement, the Grantee consents to receiving the Section
10(a) prospectus to the Plan and any amendments or supplements thereto and any
documents required to be delivered therewith, including a copy of the
Corporation's Form 10-K or Annual Report to Shareholders commencing with the
fiscal year ended December 31, 2003, by email at the email address maintained
for the Grantee by the Corporation as set forth below. The Grantee further
acknowledges that he may revoke this consent in whole by providing written
notice to the Chief Financial Officer of the Corporation.


                                       8


         IN WITNESS WHEREOF, the parties hereto have caused this Restricted
Stock Unit Agreement to be executed on this 26th day of October, 2005.

                                       NCO GROUP, INC.

                                       By: /s/ Michael J. Barrist
                                           -----------------------------------
                                           Name: Michael J. Barrist
                                           Title: President and CEO

                                       GRANTEE:


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


                                       (E-Mail Address)
                                       ----------------

                                       ---------------------------------------
                                       (Street Address)


                                       ---------------------------------------
                                       (City, State & Zip Code)


                                       9




                                 NCO GROUP, INC.
                           2004 EQUITY INCENTIVE PLAN

                         RESTRICTED STOCK UNIT AGREEMENT
                         -------------------------------

                                    EXHIBIT A
                                    ---------



PERFORMANCE TARGET: Achievement by NCO Group, Inc. of an average return on
invested capital ("ROIC") of 8.25% for any Rolling Three-Year Period. ROIC is
defined as (i) income from continuing operations after adding back interest
expense (net of taxes) divided by (ii) the sum of average long-term debt plus
average minority interest plus average redeemable preferred stock plus average
shareholders' equity. Rolling Three-Year Period means the period of three
successive fiscal years of NCO Group, Inc. The first such Rolling Three-Year
Period shall begin on January 1, 2005 and end on December 31, 2007. The last
such Rolling Period shall begin on January 1, 2012 and end on December 31, 2014.
The Grantee must be employed on the date that the Performance Target is met in
order to be vested in the Units as of such date. The Compensation Committee
shall make all determinations of whether the Performance Target has been met
(and the Performance Target shall not be treated as having been satisfied prior
to the date on which the Compensation Committee actually makes its determination
as to whether the Performance Target has been met) and all such determinations
thereof from time to time shall be conclusive and binding on the Grantee.


                                       10

EX-21

                                                                    EXHIBIT 21.1

                                  SUBSIDIARIES


Name                                                   Jurisdiction of Formation
- ----                                                   -------------------------

NCO Financial Systems, Inc.                                    Pennsylvania
NCO Funding, Inc.                                              Delaware
NCO Financial Services, Inc.                                   Canada
FCA Funding, Inc.                                              Delaware
NCO Portfolio Management, Inc. *                               Delaware
NCOP Capital Resource, LLC                                     Nevada
Compass International Services Corporation                     Delaware
NCO Europe, Ltd.                                               United Kingdom
NCO Financial Systems of Puerto Rico, Inc.                     Puerto Rico
JDR Holdings, Inc.                                             Delaware
NCO Holdings, Inc.                                             Delaware
NCO Group International, Inc.                                  Delaware
NCO Financial Services (Barbados) SRL                          Barbados
NCO Customer Management, Inc.                                  Pennsylvania
RMH Teleservices Asia Pacific, Inc.                            Delaware
NCO Customer Management, Ltd.                                  Canada
NCOCRM Funding, Inc.                                           Delaware
Risk Management Alternatives International Corp. Canada        Canada
Horsham Aviation LLC                                           Delaware


     *Owns 100 percent of 26 subsidiaries and 50 percent of 11 subsidiaries
     operating in the United States engaged in the ownership of delinquent
     receivables.

Note: This table does not include any subsidiary that is not required to be
listed pursuant to Item 601 (b) of Regulation S-K.

EX-23

                                                                    EXHIBIT 23.1

            Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements
(Form S-8, Nos. 333-42743, 333-62131, 333-73087, 333-83229, 333-87493,
333-61746, 333-108136, 333-115577, and Form S-4 Nos. 333-112711 and 333-112765)
of NCO Group, Inc. of our reports dated March 10, 2006, with respect to the
consolidated financial statements of NCO Group, Inc., NCO Group, Inc.
management's assessment of the effectiveness of internal control over financial
reporting, and the effectiveness of internal control over financial reporting of
NCO Group, Inc. included in this Annual Report (Form 10-K) for the year ended
December 31, 2005.



                                                        /s/ Ernst & Young LLP

Philadelphia, Pennsylvania
March 15, 2006

EX-31

                                                                    EXHIBIT 31.1


                                  CERTIFICATION

I, Michael J. Barrist, certify that:

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

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

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

         4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

                  a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

                  b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

                  c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

                  d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and


         5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):

                  a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and

                  b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal control over financial reporting.

Date: March 16, 2006
                                        /s/ Michael J. Barrist
                                        -------------------------------
                                        Michael J. Barrist
                                        Chief Executive Officer
                                        (Principal Executive Officer)

EX-31

                                                                    EXHIBIT 31.2

                                  CERTIFICATION

I, Steven L. Winokur, certify that:

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

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

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

         4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

                  a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

                  b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

                  c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and

                  d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and


         5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):

                  a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and

                  b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal control over financial reporting.

Date: March 16, 2006
                                        /s/ Steven L. Winokur
                                        ---------------------------------
                                        Steven L. Winokur
                                        Chief Financial Officer
                                        (Principal Financial Officer)

EX-32

                                                                    EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



         Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350
of Chapter 63 of Title 18 of the United States Code), each of the undersigned
officers of NCO Group, Inc. (the "Company") does hereby certify with respect to
the Annual Report of the Company on Form 10-K for the year ended December 31,
2005 (the "Report") that:

         (1)  The Report fully complies with the requirements of Section 13(a)
              or 15(d) of the Securities Exchange Act of 1934; and

         (2)  The information contained in the Report fairly presents, in all
              material respects, the financial condition and results of
              operations of the Company.





Date: March 16, 2006                     /s/ Michael J. Barrist
                                         ------------------------------
                                         Michael J. Barrist
                                         Chief Executive Officer


Date: March 16, 2006                     /s/ Steven L. Winokur
                                         ------------------------------
                                         Steven L. Winokur
                                         Chief Financial Officer


         The foregoing certification is being furnished solely pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of
Title 18 of the United States Code) and is not being filed as part of the Report
or as a separate disclosure document.