NCO Group, Inc. Announces Fourth Quarter Results

NCO Group, Inc. (“NCO”)(NasdaqNM:NCOG), a leading provider of accounts receivable management and collection services, announced today that during the fourth quarter it achieved net income of $0.31 per share, on a diluted basis.

Revenue in the fourth quarter of 2001 was $172.9 million, an increase of 12.3%, or $18.9 million, from revenue of $154.0 million in the fourth quarter of the previous year. Net income was $8.2 million, or $0.31 per share, on a diluted basis, as compared to $11.6 million, or $0.45 per share, on a diluted basis, in the fourth quarter a year ago.

Revenue for 2001 was $701.5 million, an increase of 15.8% or $95.6 million, from revenue of $605.9 million for 2000. Net income for 2001, excluding the after-tax effects of $23.8 million of one-time charges, was $40.4 million, or $1.49 per share, on a diluted basis, as compared to income from continuing operations of $46.1 million, or $1.79 per share, on a diluted basis, for 2000. Including the one-time charges, net income for 2001 was $25.9 million, or $0.99 per share, on a diluted basis. The one-time charges incurred during the second and third quarters related to a comprehensive streamlining of NCO’s expense structure designed to counteract the effects of operating in a more difficult collection environment as well as NCO’s decision to relocate its corporate headquarters as a result of a flood that occurred in June 2001.

NCO’s operations are currently organized into market specific divisions that include: U.S. Operations, Portfolio Management, and International Operations. These divisions accounted for $155.5 million, $16.2 million and $10.0 million of the revenue for the fourth quarter of 2001, respectively. Included in the U.S. Operations’ revenue was $7.1 million from Portfolio Management. International Operations’ revenue included $1.7 million from U.S. Operations. In the fourth quarter of 2000, these divisions accounted for $142.7 million, $5.4 million and $8.3 million of the revenue, respectively, before intercompany eliminations of $2.4 million related to Portfolio Management. These divisions accounted for $633.4 million, $62.9 million and $37.8 million of the revenue for 2001, respectively. Included in the U.S. Operations’ 2001 revenue was $27.5 million from Portfolio Management. International Operations’ 2001 revenue included $5.1 million from U.S. Operations. In 2000, these divisions accounted for $566.7 million, $13.2 million and $31.7 million of the revenue, respectively, before intercompany eliminations of $5.7 million related to Portfolio Management.

Income from operations for the fourth quarter of 2001 decreased 14.3% to $20.7 million from $24.1 million for the same period a year ago. Income from operations for 2001, excluding the one-time charges, decreased 1.6% to $98.7 million from $100.3 million for the same period a year ago. Including the one-time charges, income from operations decreased to $75.0 million for 2001.

NCO’s payroll and related expenses as a percentage of revenue remained flat and its selling, general, and administrative expenses as a percentage of revenue increased for the fourth quarter of 2001 as compared to the same period in the prior year. Compared to last year, the increase in NCO’s selling, general, and administrative expenses related to the incremental costs associated with increasing collection efforts in order to maximize collections for clients in the current economic environment.

Commenting on the quarter, Michael J. Barrist, Chairman and Chief Executive Officer, stated, “During the fourth quarter, NCO’s revenue and profitability continued to come under pressure as a result of the downturn in the economy, as well as the residual effects of the events of September 11th. Despite this environment, we view our fourth quarter results as positive and we enter 2002 with cautious optimism. We believe that we have made the right decisions in dealing with the downturn in the economy, and as a result, we have been the beneficiary of numerous new revenue opportunities and have seen many positive trends in our expense structure based on the operational changes we have made to date. While we are not anticipating any near term improvement in consumer payment patterns, we believe that we have best positioned NCO to enter 2002 with a reasonable growth plan and a path to improved profitability that will position us to take full advantage of the opportunities that will be presented when the economy improves.”

In addition, NCOG also announced that it expects earnings per share (“EPS”), on a diluted basis, to be approximately $0.40 to $0.42 per share for the first quarter of 2002, and $0.47 to $0.50 per share for the second quarter of 2002. The projected earnings per share amounts include the elimination of goodwill amortization in accordance with the adoption of the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

Commenting on the guidance, Michael J. Barrist stated, “NCO, like many companies, has been challenged by the task of revalidating its forecasting model to take into account changes in the economy and the effect of the events of September 11th. Based on the fourth quarter results, as well as projected new business opportunities, seasonality, and an improving cost structure, we are comfortable with our forecasting model for the first and second quarters of 2002. We will continue to monitor results and provide additional guidance as it becomes available.”

NCO will host an investor conference call on Wednesday, February 13, 2002 at 11:30 a.m., ET, to discuss the items discussed in this press release in more detail and to allow the investment community an opportunity to ask questions. Interested parties can access the conference call by dialing (800) 219-6110 (domestic callers) or (303) 262-2127 (international callers). A taped replay of the conference call will be made available for seven days and can be accessed by interested parties by dialing (800) 405-2236 (domestic callers) or (303) 590-3000 (international callers) and providing the pass code 443469.

NCO Group, Inc. is the largest provider of accounts receivable collection services in the world. NCO provides services to clients in the financial services, healthcare, retail, commercial, education, telecommunications, utilities and government sectors.

Certain statements in this press release, including, without limitation, statements as to NCO’s or management’s outlook as to financial results in 2002, statements as to the effects of the events of September 11th and the economy on NCO’s business, statements concerning projections of earnings per share, statements as to the effects of potential business opportunities, statements as to initiatives to improve margins, statements as to fluctuations in quarterly operating results, statements as to trends, statements as to NCO’s or management’s beliefs, expectations or opinions, and all other statements in this press release, other than historical facts, are forward- looking statements, as such term is defined in the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created thereby. Forward-looking statements are subject to risks and uncertainties, are subject to change at any time and may be affected by various factors that may cause actual results to differ materially from the expected or planned results. In addition to the factors discussed above, certain other factors, including without limitation, the risk that NCO will not be able to implement its five-year strategy as and when planned, risks related to past and possible future terrorists attacks, risks related to the economy, the risk that NCO will not be able to improve margins, risks relating to growth and future acquisitions, risks related to fluctuations in quarterly operating results, risks related to the timing of contracts, risks related to strategic acquisitions and international operations, and other risks detailed from time to time in NCO’s filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K, filed on March 16, 2001, can cause actual results and developments to be materially different from those expressed or implied by such forward-looking statements.

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