AHL SERVICES INC - 10-K Annual Report

Back to GetFilings.com

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

COMMISSION FILE NUMBER 000-22195

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

AHL Services, Inc.
(Exact name of registrant as specified in its charter)

GEORGIA 58-2277249
(State of organization) (IRS Employer Identification No.)

1000 WILSON BLVD, SUITE 910
ARLINGTON, VA 22209
(Address of Principal Executive Offices, including Zip Code)

(703) 528-9688
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

TITLE OF EACH CLASS
Common Stock, $.01 par value

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

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

The aggregate market value of the voting common stock held by
non-affiliates of the registrant (based upon the closing sale price on The
Nasdaq Stock Market) on March 15, 2002 was approximately $15,643,000.

As of March 15, 2002, there were 15,246,792 shares of common stock, $.01
par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement in connection with its Annual
Meeting of Shareholders to be held May 14, 2002 are incorporated by reference in
Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

AHL SERVICES, INC.

TABLE OF CONTENTS

i

PART I

ITEM 1. BUSINESS

GENERAL

AHL Services, Inc. ("AHL"), headquartered in Arlington, Virginia, is a
leading provider of outsourced marketing services. Our integrated marketing
execution solutions enhance the effectiveness and efficiency of many of the
world's most respected marketing companies. We deliver programs developed by
manufacturers, retailers, service providers and advertising agencies, and are
active in both business-to-consumer and business-to-business arenas. Our
strategic offerings include integrated product, promotional and point-of-sale
fulfillment and distribution; information management and business intelligence;
customer relationship management; and in-store merchandising. Our successful
delivery of these product offerings has enabled us to establish long-term client
relationships with many of the largest companies in the world, with partnerships
extending over several decades. Clients span a range of Global 500 companies
including major enterprises in the automotive, consumer products, entertainment,
retail and technology sectors.

AHL experienced significant organizational changes in 2001. Our continuing
operations, which are comprised of our marketing services businesses, conducted
a significant restructuring in order to position the operations for internal
growth. Historically, we also have operated specialized staffing businesses in
the United Kingdom and Germany. On March 19, 2002, we sold our United Kingdom
specialized staffing services business for $29.5 million in cash. We are
currently in the process of divesting our German staffing business. Upon the
completion of this divestiture, our operations will be focused solely on
outsourced marketing services.

Our marketing services are performed by two divisions: Gage Marketing
Services ("Gage") and ServiceAdvantage. Gage provides trade fulfillment
services, consumer fulfillment services and customer contact management
services. Gage has fulfillment centers located in Detroit, Michigan;
Minneapolis, Minnesota; Kankakee, Illinois; Los Angeles, California; and Juarez,
Mexico. Gage's customer service centers are located in both the United States
and Canada. Our ServiceAdvantage division provides retail merchandising services
across the United States through a network of field offices, with sales offices
in Minneapolis, Minnesota; Troy, Michigan; Bentonville, Arkansas; and
Taylorville, Illinois.

AHL Services, Inc. was incorporated in Georgia in 1997. We recently moved
our corporate headquarters from Atlanta, Georgia to Arlington, Virginia. Our
corporate headquarters are located at 1000 Wilson Boulevard, Suite 910,
Arlington, Virginia 22209. Our telephone number is (703) 528-9688.

INDUSTRY OVERVIEW

Marketing services includes a broad spectrum of activities that are
required to implement a company's strategies and plans. Important segments of
the marketing services industry include customer contact management,
fulfillment, merchandising, direct mail, lead generation, Web design, database
management and mining, continuity, loyalty, promotional and market research. The
marketing services industry is large, with significant growth expected as
companies place greater emphasis on retaining existing customers by appealing to
them on a more personalized basis.

We believe that a fundamental change is happening across marketing
industries -- the move to customer centricity. Marketing has always been focused
on the customer, but in the recent past has been hampered by the lack of
customer specific information and slower than desired product development,
delivery and execution. Explosive growth of the Internet and the introduction of
sophisticated business intelligence applications have changed marketing at the
most fundamental level. Technology-enabled change has moved marketing program
focus from the generic masses to the individual.

The move to one-on-one interactive marketing and real time delivery has
forced many companies to look outside their own marketing divisions to augment,
enhance and extend their marketing execution capabilities. There is increasing
demand for customer contact management, on both the customer service side as
well as through customer analytics and profiling. Fulfillment and merchandising
are also in demand as companies

1

accelerate product development and sales and marketing campaign cycles. Many
companies are seeking seamless customer service, fulfillment and merchandising
services to ensure every customer has access to products whether the 'store' is
down the street or online.

STRATEGY

AHL experienced significant organizational changes in 2001. Our continuing
operations, which are comprised of our marketing services businesses, conducted
a significant restructuring in order to position the operations for internal
growth. On March 19, 2002, we sold our United Kingdom specialized staffing
services business, and we are currently in the process of divesting our German
staffing business. Upon the completion of this divestiture, our operations will
be focused solely on outsourced marketing services. Our marketing services
businesses hold a diverse repertoire of long-term clients. We expect to utilize
our client base to grow our business in 2002. Specific strategies that are being
pursued include:

Restore Our Capital Base. Our first priority is to restore our capital
base in order to begin execution on our growth strategy. The first step in
restoring our capital base is the sale of the European specialized staffing
businesses. The sale of the United Kingdom staffing business was completed on
March 19, 2002, and we expect that we will complete the sale of the German
staffing business in 2002. The proceeds from the sale of the staffing entities
will be used to reduce our outstanding indebtedness. The proceeds from these
sales will not be sufficient to create the platform necessary for us to execute
upon our growth strategy, and therefore we intend to raise additional capital
through the issuance of common or preferred debt or equity in 2002.

Partner with Clients at a Higher Level within the Organization to Meet
Their Marketing Needs. To drive this effort, we hired five sales and marketing
vice presidents in early 2001. Each of these sales vice presidents is an expert
in specific client industries. These industries include consumer products,
retail, entertainment, automotive and technology. As a result of this
investment, we have seen recent sales gains in several of these industries.

Exploit Merchandising Market Opportunity. The retail merchandising market
is fragmented with predominantly unsophisticated competitors. Most outsource
merchandising companies are small, family operations that do not have the skills
or resources to satisfy complex demands of Fortune 500 companies and large
retailers. Furthermore, manufacturers' internal organizations are expensive,
burdened with heavy overhead costs and subject to chronic downsizing as
retailers continue to transfer costs and squeeze manufacturers' margins.
Companies with internal merchandising groups are aligning with outsource
partners to handle surge periods. As one of the largest merchandising suppliers
with a guarantee of superior quality and execution, we believe we are well
positioned to benefit from these market opportunities.

Transform Merchandising Revenue Base and Build Continuity Business. Our
primary initiatives in transforming our revenue base include (i) eliminating
business with unprofitable projects and chronic slow payers; and (ii) building
our revenue base around a premier client list. For 2002, we are focused on
building a foundation for large continuity business. We will accomplish this
objective by targeting in-house merchandising organizations and focusing on
large premier clients. In addition, we will focus on converting one-time
projects to a continuity-based business.

Continue to Upgrade and Improve Facilities. We have invested significantly
in new facilities over the past two years. The new trade fulfillment facility in
Romulus, Michigan opened in February 2001. In October 2001, the new facility in
Rogers, Minnesota opened. This facility allowed us to consolidate seven
warehouses into one large 400,000 square feet facility, while increasing
available capacity. In 2000, we expanded our customer service business by adding
a new call center in Selkirk, Canada. This enables us to further utilize the
efficient labor force available in Manitoba, Canada. In 2002, we will be
exploring new facility options for our Minnesota-based consumer fulfillment
operations, with the intent to upgrade facilities in 2003. We will also be
looking to further expand our customer service business by adding another call
center.

Improve Merchandising Service Quality. We have begun several initiatives
to improve our quality of merchandising service. Among these key initiatives
are: (i) changes in merchandiser reporting and monitoring to allow us to
guarantee 95% completion on time and 100% completion within 24 hours of
commitment;

2

(ii) movement to Internet reporting in order to allow clients on-line access to
store execution updates; and (iii) movement to merchandisers with Internet
access which will allow faster and less costly communications with
merchandisers.

Develop and Enhance Information Technology Systems. We will continue to
enhance our information technology systems in 2002. We intend to expand the
Oracle based platform, Global Enterprise Management ("GEM"), across all trade
fulfillment businesses and to the consumer fulfillment business. In April 2002,
we will go live with the first client utilizing the consumer fulfillment GEM
system. We continue to build customized Web sites for our trade fulfillment
customers to enable order placement directly into the GEM system via the Web.

Continue to Reduce Costs of Operations. We have begun several initiatives
that will reduce our costs of operations. These initiatives include (i)
increased application of technology throughout operations; (ii) standardization
of technology platforms as discussed previously; (iii) focus on economies of
scale and productivity gains; (iv) utilization of cross-business teams to
develop and implement consistent procedures and measurements; and (v)
measurement of performance against standards in each facility.

SERVICES PROVIDED

We provide a comprehensive array of marketing execution services, enabling
us to execute and administer complex, multifaceted marketing programs for our
clients. These programs include the following:

CONSUMER FULFILLMENT SERVICES

Our consumer fulfillment division provides a link between our clients and
their consumers through a broad range of marketing programs, including the
execution of rebate and premium programs, sweepstakes and continuity marketing
programs. We are one of the largest and best-recognized providers of these
services in the United States.

Consumer fulfillment is an important method of building loyalty for our
client's customers, and we provide integrated programs that include customer
database management, processing and fulfilling orders. Our execution and
administration of consumer promotion programs and direct response fulfillment
services typically involves:

- set up of systems to meet client specific requirements and reports;

- receiving consumer orders, via mail, telephone or the Internet;

- processing the order for compliance and validation of materials
submitted;

- fulfilling the order by developing or selecting from inventory the
refund, coupon, premium, sample or merchandise;

- packing, labeling and shipping the order to the consumer;

- reporting program results to the client, either by mail or
electronically;

- providing customer service regarding the product, promotion or order
status; and

- providing related data entry services, including information from
warranty cards, credit cards and promotion media.

TRADE FULFILLMENT SERVICES

Our trade fulfillment division provides the link between our customers and
their retail locations or business customers. Many corporations use our trade
fulfillment services to distribute point-of-purchase displays, new product
introduction literature, posters, banners, demonstration kits, signs, samples
and other

3

sales and marketing materials throughout extensive distribution and franchise
networks. In providing these services, we:

- receive, store, control and manage inventory owned by the client;

- print and personalize trade materials;

- manage and coordinate shipment of materials;

- provide database management and information processing services; and

- operate call centers to process requests for information.

Our dedicated account teams respond quickly and efficiently to Internet,
mail, fax and telephone orders. We provide 24/7 access with interactive voice
response, electronic data interface, Internet and intranet access. Orders can be
processed and shipped within 24 hours, with same day shipping for rush orders.

We provide distribution services for companies seeking to maximize
efficiency and speed to market. By acting as the hub for the entire distribution
process, we can consolidate shipments for our clients. Our services include:

- collecting and sorting of memoranda and informational mailings, training
and support materials and other communications;

- packaging and shipping the information; and

- providing in-bound customer contact support to answer questions and solve
problems for the client's trade channels.

CUSTOMER CONTACT MANAGEMENT

We provide customer service support for order processing and service
inquiries in both business-to-consumer and business-to-business marketplaces. We
provide highly customized inbound customer contact and help-care services
utilizing state-of-the-art technology and processes. Transactions span the range
of order processing to inquiries relating to billing, product information,
product uses, product problems or concerns and client services. We have
particular expertise in consumer electronics, publishing, retail and consumer
products.

Our experienced, well-trained professional customer service representatives
provide quality customer service via the phone and the Internet, order entry,
data capture and market research, sales and technical support, dealer locator,
customer surveys and other linked services with 7-day, 24-hour availability. Our
Canadian locations can also accommodate special projects and overflow services.

RETAIL MERCHANDISING SERVICES

We provide merchandising services to major consumer products manufacturers
and large retail chains. Our retail merchandising division helps retailers and
manufacturers ensure that in-store marketing plans are properly executed,
product is properly displayed in the store and product remains available for
purchase. We serve some of America's largest consumer product companies, such as
The Gillette Company, The Scotts Company and SC Johnson. In addition, we provide
these services within the largest retail stores, including Wal-Mart Stores,
Inc., Target Corporation and Kmart Corporation.

We provide a broad array of merchandising services on a national, regional,
and local basis to manufacturers and retailers including merchandising and sales
services primarily on behalf of consumer product manufacturers at mass
merchandiser, drug and retail grocery stores. We provide two principal types of
merchandising and sales services: dedicated continuity services and project
services.

Continuity Services. Continuity services consist of regularly scheduled,
routed merchandising services provided at the store level for manufacturers. We
can provide shared services for multiple manufacturers, including, in some
cases, manufacturers whose products are in the same product category.

4

Project Services. Project services consist primarily of specific in-store
services initiated by retailers and manufacturers, such as new product launches,
special seasonal or promotional merchandising, focused product support and
product recalls. These services are used typically for large-scale
implementations. We also perform other project services, such as new store sets
and existing store resets, re-merchandising, remodels and category
implementations, under shared service contracts or stand-alone project
contracts.

Our retail merchandising division provides a vital link between the
manufacturers and the consumers to enable manufacturers to track promotional and
product responses without being lost in a large superstore.

MANAGEMENT SYSTEMS

Our internal management systems contribute significantly to our daily
operations, financial performance and customer service. We have invested, and
will continue to invest, resources in the development of systems to grow and
support the business needs of our clients and to provide the internal
infrastructure required to deliver real time processing.

Our state-of-the-art marketing and sales support applications and related
infrastructure provide the business with order entry and inventory control
automation, organized distribution facilities, efficient out-bound logistics and
valuable management database and reporting systems. Across all of our business
lines, we have utilized technology to simplify, automate and integrate the
administrative and management processes that serve our business units.

We utilize an open-systems strategy providing for substantial portability,
scalability and flexibility. Technology supports our capacity since growth can
be readily and economically accommodated in the core businesses by adding
hardware and/or software that is consistent with the information technology
strategy.

Our Global Enterprise Management ("GEM") system is a proprietary,
web-enabled, real-time, order entry, inventory management, fulfillment and
shipping system that is one of the most advanced in the industry. Our database
systems are custom built on Oracle relational databases. The system allows
rapid, accurate order execution and high levels of real time inventory
management. The GEM framework is designed to be easily customized to implement
client specific business rules.

The order management capabilities include but are not limited to:

- Partial Order and Back Order Shipments -- Allows processing and shipment
of orders even if some individual items are temporarily out-of-stock
(back ordered). Back ordered items automatically ship once the items are
received.

- Replacement Capability -- Automatically replaces backorder or expired
items with another item that is in stock or not expired, as specified by
the client.

- Sophisticated Kitting Capability -- Supports dynamic replacement of
components and complex kitting requirements.

- Discontinued Inventory Notification -- Alerts the user when a
discontinued item is ordered. This option allows items in stock to ship
until the supply has been exhausted. Once the supply is exhausted, orders
for these items can be automatically canceled and reported accordingly.

- Item Valuation -- Allows for multiple inventory valuations. A fixed cost
per item can be entered and periodically updated. A fixed sales price per
item can also be entered and periodically updated.

- Drop Ship Orders -- Drop ship orders are automatically forwarded to drop
ship vendors electronically.

- Order Confirmation -- Confirms orders as they are shipped in our system.
Scanning confirmation is virtually instantaneous. Tracking is
accomplished by using our web-based links into the carrier's web sites.
This allows client tracking on a 24/7 basis.

5

CLIENTS

We provided marketing services to over 150 clients in 2001, with our
current client base consisting primarily of companies engaged in the automotive,
consumer products, entertainment and retail industries. We generally enter into
one to three year contracts with our clients, pursuant to which we agree to
provide services for a fixed number of programs per year. The scope and
magnitude of the programs are customized to the need of the client. In fiscal
2001, our ten largest clients accounted for approximately 40% of our revenue.
Only one client, Ford Motor Company, accounted for greater than 10% of revenues.
A few of our premier clients are:

- - Ford Motor Company
- - General Mills
- - The Gillette Company
- - H&R Block
- - Kmart Corporation
- - Levi Strauss & Co.
- - Motorola
- - Publishers Clearing House
- - SC Johnson
- - The Scotts Company
- - Taco Bell
- - Target Corporation

SALES AND MARKETING

Our objective is to develop long-term relationships with existing and
potential clients to become the preferred provider of outsourced marketing
services. We target large corporations and institutions that have significant
outsourcing needs, marketing our services to potential clients through senior
management, field managers and our sales force. As part of our operating
philosophy, we emphasize building and maintaining relationships with personnel
at various levels of our clients' organizations, including relationships with
both senior executives and operating personnel.

The force behind our sales and marketing strategy is market penetration
through a vertical sales force and focused business unit sales forces. We have
developed a sales and marketing infrastructure by marketing category. The
following table details our vertical market structure and the percentage of
total sales for each category.

The vertical category focus gained several significant new clients during
2001, including Universal Studios and The Gillette Company. In addition to these
significant additions, the vertical sales force created a strong platform to
establish significant sales entering 2002. We will enter new vertical categories
when opportunities fit within our growth strategies.

COMPETITION

The outsourcing industry is extremely competitive and highly fragmented,
with limited barriers to entry. Companies within the outsourcing industry
compete on the basis of the quality of service provided, the range of services
offered and price. We believe our competitive advantages include our reputation
for providing high quality service and our ability to serve large clients. Many
of our competitors offer a more limited range of services and focus on a few
specific industries.

We compete in national, regional and local markets with outsourcing
companies, specialized contract service providers and in-house organizations
that provide services to potential clients and third parties. Our principal
national competitors include Harte-Hanks, Inc., Young America Corporation, DDS
Distribution Services Ltd. and Spar Group, Inc.

6

EMPLOYEES

At December 31, 2001, our marketing services operations had 10,202
employees, as detailed in the table below. We utilize contract employees
obtained through agreements with independent employment agencies as business
needs dictate. Approximately 7,800 of the non-exempt retail merchandising
employees indicated below are part-time non-benefits eligible merchandisers.
Approximately 150 employees in Michigan and Minnesota are represented under
collective bargaining agreements expiring in 2003 and 2004, respectively. We
consider our relations with our employees to be good.

EUROPEAN SPECIALIZED STAFFING OPERATIONS

We currently own specialized staffing businesses in Germany. We divested
our United Kingdom staffing business on March 19, 2002. We expect that the sale
of the German staffing business will occur during 2002. The proceeds from those
divestitures will be used to reduce outstanding indebtedness and position the
Company for the growth and expansion of our marketing services offerings.

Our specialized staffing businesses have a large base of skilled and
semi-skilled workers assisting large, Global 500 clients primarily in the
automotive, engineering, aeronautical, food, call center and consumer products
industries. Our employees perform skilled, semi-skilled and customer service
tasks. Examples of these workers include electricians, welders, plumbers and
mechanics.

DIVESTITURES AND ABANDONMENTS

On March 19, 2002, we sold our United Kingdom specialized staffing services
business for $29.5 million in cash. We are also currently in the process of
divesting our German staffing business. Deutsche Bank has been retained as our
advisors and discussions are underway with potential acquirers of the German
staffing business. We intend to complete this divestiture during the first half
of 2002. On December 29, 2000, we sold our U.S. and European aviation and
facility services businesses, for $185 million in cash to Securicor plc.
("Securicor"), a business services company headquartered in the United Kingdom.
On October 13, 2000, we sold the assets of our U.S. specialized staffing
business to an investor group led by the President of our Baltimore staffing
operation for $22.5 million. On December 28, 2000, we made the decision to
abandon operations of our store set-up business unit, formerly called PIMMS. On
June 30, 1999, we sold our United Kingdom bus transportation business to
National Express Group PLC.

ACQUISITIONS

Since 1997, we have completed five acquisitions of marketing services
businesses. In December 1999, we acquired ServiceAdvantage, headquartered in
Taylorville, Illinois for $19.9 million. In September 1999, we acquired CDI,
headquartered in Minneapolis, Minnesota for $5.2 million. CDI has since been
integrated into the consumer fulfillment division of Gage Marketing Services
("Gage"). In April 1999, we acquired PIMMS, headquartered in Minneapolis,
Minnesota for $65.0 million. PIMMS was subsequently closed in late 2000, with
operations ceasing in the first quarter of 2001. In July 1998, we acquired Gage
Marketing Services for $81.1 million. The Gage businesses included the consumer
fulfillment, trade fulfillment and customer service divisions. In October 1997,
we acquired RightSide Up for $16.5 million. RightSide Up has since been combined
into the trade fulfillment division of Gage. These acquisitions were financed
with borrowings under

7

our bank revolving Credit Facility (the "Credit Facility") and proceeds from our
follow-on public offering in January 1999.

ITEM 2. PROPERTIES

Our executive headquarters were relocated to Arlington, Virginia in late
2001. We lease 4,400 square feet for our executive offices under an operating
lease expiring in December 2003. In addition, our administrative offices are
located in Plymouth, Minnesota in leased facilities expiring in May 2004. The
lease on the former executive headquarters in Atlanta, Georgia expires June
2003; in March 2002 we negotiated a sublease for the remaining term. At December
31, 2001, we have reserved $400,000 for the lease costs on the remaining term of
the lease.

We maintain 18 offices and facilities for marketing services in various
metropolitan areas in North America as detailed in the table below. All
properties are under operating leases, expiring from 2002 to 2016.

Our German specialized staffing services business currently has 84
branches.

ITEM 3. LEGAL PROCEEDINGS

We are involved in various routine litigation, disputes and claims in the
ordinary course of business, primarily related to employee and customer contract
issues. While unfavorable outcomes are possible, management is of the opinion
that the resolution of these matters will not have a material effect on the
results of operations or financial condition of AHL.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT

The name, age, position and employment history for our executive officers
as of April 1, 2002 is described below.

A. Clayton Perfall was appointed Chief Executive Officer and director in
October 2001. From January 2001 to September 2001, he was Chief Executive
Officer of Convergence Holdings LLC, a private investment company. Mr. Perfall
was Chief Financial Officer and a director of Snyder Communications, Inc., an
international marketing company, from September 1996 to November 2000. Prior to
that, he was with Arthur Andersen LLP for 15 years.

8

Heinz Stubblefield was appointed Chief Financial Officer on April 1, 2002.
Prior to joining AHL, Mr. Stubblefield served as Senior Vice President and Chief
Financial Officer of XM Satellite Radio, Inc. since June 1998. From March 1996
to May 1998, he was Chief Financial Officer for WorldSpace International. From
February 1993 to February 1996, Mr. Stubblefield was Corporate Controller for
Next Software Corporation.

Steven D. Anderson has been with AHL since we purchased Gage Marketing
Services in July 1998. He served as Vice President and Controller prior to being
promoted to Vice President of Finance in late 1999. Prior to joining AHL, Mr.
Anderson spent six years with Gage Marketing Group. During his tenure with Gage
Marketing Group, he held positions in operations management and finance with
responsibility for various operations of the consumer fulfillment business, and
all Gage finance functions.

Debra McCreight has been with AHL since we purchased Gage Marketing
Services in July 1998. Prior to joining AHL, she spent six years with Gage
Marketing Group where Ms. McCreight was promoted from Director of Human
Resources to Vice President of Human Resources.

Ernest Patterson has been Chief Executive, European Operations of AHL since
June 1997. From 1996 to 1997, Mr. Patterson was a Group Chief Executive Officer
for National Express Group PLC. From 1990 to 1996, he was the Chief Executive
Officer, Worldwide Distribution Services for B.E.T. PLC.

9

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

We completed our initial public offering on March 27, 1997 and, since that
date, our common stock has traded on the Nasdaq National Market under the symbol
"AHLS." The following table sets forth the high and low sales prices per share
for the common stock, for the periods indicated, as reported by the Nasdaq
National Market.

On March 15, 2002, the last sale price of our common stock as reported on
the Nasdaq National Market was $2.27 per share, and there were 61 holders of
record of our common stock.

DIVIDEND POLICY

We have never paid any dividends on our common stock, and currently intend
to retain all earnings to finance continued growth of our business for the
forseeable future. The payment of any dividends will be at the discretion of our
board of directors and will depend upon, among other things, results of
operations, financial condition, Credit Facility terms, cash requirements and
other factors deemed relevant by the board of directors. Under the terms of our
current Credit Facility, we are prohibited from paying dividends.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data are qualified by reference to and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and related notes appearing elsewhere in this report. The selected
financial data presented below as of and for each of the fiscal years in the
five-year period ended December 31, 2001, have been derived from our financial
statements, which have been audited by Arthur Andersen LLP, independent public
accountants. Except as otherwise stated, all amounts represent continuing
operations of AHL.

10

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

(1) Our United States operations' fiscal year ends on the last Friday in
December. Fiscal years 2001, 2000, 1998, and 1997 consist of 52 weeks.
Fiscal year 1999 consists of 53 weeks.

(2) Reported results from continuing operations for fiscal 1998 includes the
operations of Gage Marketing Services from its acquisition date of July 1998
through the end of the fiscal year.

(3) Reported results from continuing operations for fiscal 1997 consists of the
operations of RightSide Up from its acquisition date of October 1997 through
the end of the fiscal year.

(4) Reported results from continuing operations include the marketing services
businesses and the abandoned PIMMS store set-up business which closed
operations on March 16, 2001. Revenues from PIMMS were $918,000, $36.6
million and $36.3 million for fiscal years 2001, 2000, and 1999,
respectively. Income (loss) from continuing operations from the PIMMS
business was $(1.5) million, $(49.3) million, and $1.9 million for fiscal
years 2001, 2000 and 1999, respectively.

11

(5) Fiscal 2001 loss from continuing operations includes $37.5 million in
non-recurring charges as further discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Financial
Data" and our consolidated financial statements and related notes appearing
elsewhere in this report. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Actual results may
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including but not limited to the risks discussed in
this report.

OVERVIEW

AHL Services, Inc. is a leading provider of outsourced marketing services.
Our 1999 acquisition of Gage Marketing Services, which has been in the marketing
services business for over 45 years, provided us with experienced personnel that
have an understanding of the industry. Our integrated marketing execution
solutions enhance the effectiveness and efficiency of many of the world's most
respected marketing companies. We deliver programs developed by manufacturers,
retailers, service providers and advertising agencies, and are active in both
business-to-consumer and business-to-business arenas. Our strategic offerings
include integrated product, promotional and point-of-sale fulfillment and
distribution; information management and business intelligence; customer
relationship management and in-store merchandising. Our successful delivery of
these product offerings has enabled us to establish long-term client
relationships with many of the largest companies in the world, with partnerships
extending over several decades. Clients span a range of Global 500 companies
including major enterprises in the automotive, consumer products, entertainment,
retail and technology sectors.

On March 19, 2002, we sold our United Kingdom specialized staffing services
business for $29.5 million in cash. We are also currently in the process of
divesting our German staffing business. Deutsche Bank has been retained as our
advisors and discussions are underway with potential acquirers of the German
staffing business. We intend to complete this divestiture during the first half
of 2002. On December 29, 2000, we sold our U.S. and European aviation and
facility services businesses for $185 million in cash to Securicor plc.
("Securicor"), a business services company headquartered in the United Kingdom.
On October 13, 2000, we sold the assets of our U.S. specialized staffing
business to an investor group led by the President of our Baltimore staffing
operation for $22.5 million. On December 28, 2000, we made the decision to
abandon operations of our store set-up business unit, formerly called PIMMS. On
June 30, 1999, we sold our United Kingdom bus transportation business to
National Express Group PLC.

RESULTS OF OPERATIONS

We derive our revenue primarily from two sources: (1) fulfillment
operations and (2) the delivery of business services. Our fulfillment services
operations record revenue at the conclusion of the material selection, packaging
and shipping process. Our customer services businesses recognize revenue based
on the number of calls and agents assigned, according to written pricing
agreements. We recognize revenues as programs are completed, services are
rendered and/or as products are shipped in accordance with the terms of the
contracts. Some of the contracts include postage and other items purchased by us
as an agent on behalf of our client. For these items, we record the net billings
to our customers as revenue.

Cost of services represents the direct costs attributable to a specific
contract, predominantly wages and related benefits, as well as certain related
expenses such as workers' compensation and other direct labor-related expenses.

Field operating expenses represent primarily fixed expenses which directly
support business operations, such as plant management, facility expenses (such
as rent, utilities and communication costs), equipment leasing, maintenance,
information technology expenses, sales, marketing, finance, human resources and
divisional management.

12

Corporate general and administrative expenses include the cost of the
corporate management team and corporate, legal, audit and outside service fees
incurred to support and manage our operations and facilities.

The following table sets forth consolidated statements of operations data
as a percentage of revenues for the periods indicated:

FISCAL 2001 COMPARED TO FISCAL 2000

Reported continuing operating results for 2001 and 2000 include the
marketing services businesses, as well as the PIMMS store set-up business which
ceased operations during the first quarter of 2001. Discontinued operations for
2001 include the European specialized staffing business. Discontinued operations
for 2000 include the divested U.S. and European aviation and facility services
businesses and the U.S. and European specialized staffing services businesses.

Revenues. Revenues decreased $52.0 million, or 27%, to $141.3 million for
fiscal 2001 from $193.3 million for fiscal 2000. Revenues for fiscal 2001 and
2000 included $918,000 and $36.6 million, respectively, for the abandoned PIMMS
operation. Excluding PIMMS, revenues for fiscal 2001 decreased $16.3 million, or
10%. Compared to fiscal 2000, revenues for fiscal 2001 were negatively impacted
by three large one-time marketing promotion projects for three consumer product
customers which were completed in May 2000. Sales were also negatively impacted
by the decline in e-business, the effect of the slow-down in the economy on our
customers and the reduction in services outsourced by a major retailer to our
merchandising services division.

13

Cost of Services. Cost of services decreased $27.6 million, or 30%, to
$64.6 million for fiscal 2001 from $92.2 million for fiscal 2000. Cost of
services for fiscal 2001 and 2000 included $389,000 and $24.2 million,
respectively, for the abandoned PIMMS operation. Excluding PIMMS, costs of
services decreased $3.8 million, or 6%. As a percentage of revenues, excluding
PIMMS, cost of services increased to 45.8% for fiscal 2001 from 43.4% for fiscal
2000. This increase was due primarily to changes in business mix and the
reduction in services outsourced by a major retailer to our merchandising
services division, replaced by smaller projects at several retailers.

Gross Margin. Gross margin decreased $24.5 million, or 24%, to $76.7
million for fiscal 2001 from $101.2 million for fiscal 2000. Gross margin for
fiscal 2001 included $529,000 from the abandoned PIMMS operation, while gross
margin for 2000 included $12.5 million for the abandoned PIMMS operation.
Excluding PIMMS, gross margin decreased $12.5 million, or 14%, and as a
percentage of revenues, gross margin decreased to 54.2% for fiscal 2001 from
56.6% for fiscal 2000, due to the reasons discussed above.

Field Operating Expenses. Field operating expenses decreased $8.9 million,
or 10%, to $84.3 million for fiscal 2001 from $93.2 million for fiscal 2000.
Field operating expenses for fiscal 2001 and fiscal 2000 included $529,000 and
$25.1 million, respectively, for the abandoned PIMMS operations. Due to the
difficult economic environment, we performed a strategic review of operations in
the third and fourth quarters of 2001, and recorded charges to field operating
expenses of $15.8 million, consisting of $4.4 million for estimated
uncollectible accounts receivable; $3.8 million for the estimated costs of
buying out unattractive or redundant leases; $2.9 million for workers'
compensation claims, legal and other expenses related to the abandoned PIMMS
operation; and $4.7 million for severance, legal, bonus and other costs
associated with the our efforts to streamline operations. In the fourth quarter
of 2001, we recorded an additional charge of $2.9 million to reserve against an
outstanding receivable for a customer in bankruptcy proceedings. Excluding the
charges and PIMMS, field operating expenses decreased $3.0 million, or 4%, and
as a percentage of revenues, field operating expenses increased to 46.3% for
fiscal 2001 as compared to 43.5% for fiscal 2000, due to the decrease in revenue
for 2001, an investment in new state-of-the-art facilities, the expansion of our
customer contact operations, the expansion of our merchandising services
national merchandiser infrastructure and the establishment of a vertical channel
sales organization during 2001.

Corporate General and Administrative. Corporate general and administrative
expenses increased $7.9 million, or 105%, to $15.4 million for fiscal 2001 from
$7.5 million for fiscal 2000. As part of the strategic review of operations
during 2001, corporate general and administrative expenses for fiscal 2001
included charges of $10.9 million consisting of $3.7 million to adjust the note
receivable balance due from the sale of our U.S. specialized staffing businesses
to its estimated net realizable value; a charge of $3.8 million to expense
various business development costs incurred which, based on the current economic
environment, will not be realized; and charges of $2.6 million and $823,000 for
severance costs for twelve employees and lease costs, respectively, incurred in
conjunction with the closing of the Atlanta corporate offices. Excluding the
charges and PIMMS, corporate general and administrative expense decreased $2.9
million, or 38%, and as a percentage of revenues, these expenses decreased to
3.3% for the fiscal 2001 as compared to 4.8% for fiscal 2000, due to cost
reductions taken during 2001.

Depreciation and Amortization. Depreciation and amortization increased
$7.0 million, or 72%, to $16.7 million for fiscal 2001 from $9.7 million for
fiscal 2000. Depreciation and amortization for fiscal 2000 included $2.2 million
for the abandoned PIMMS operation. As part of the strategic review of operations
during 2001, we recorded charges to depreciation and amortization expense of
$7.9 million consisting of $4.4 million for various equipment and leasehold
improvements at the facilities replaced during 2001 and $3.5 million for
internally developed software which was replaced during 2001. Excluding the
charges and the abandoned PIMMS operation, depreciation and amortization
increased $1.2 million, or 17%, and as a percentage of revenues, depreciation
and amortization increased to 6.2% for fiscal 2001 from 4.8% for fiscal 2000,
primarily due to the additional amortization in 2001 related to the
ServiceAdvantage acquisition earn-out of $12.9 million paid on January 2, 2001.

Impairment Charges. Impairment and other related charges in fiscal 2000
represent certain costs related to the abandonment of the PIMMS operation. In
December 2000, we committed to abandon

14

operations of our PIMMS store set-up business unit, which we purchased in April
1999 for $65.0 million. A comprehensive strategic review of the unprofitable
store set-up business indicated we had more attractive options and that the
store set-up business did not meet criteria for continued investment. The store
set-up business had become more project driven than anticipated with increasing
surge capacity requirements and difficult-to-forecast utilization rates. To
become a profitable business would have required significant additional
investment to develop geographic density and maintain a national infrastructure.
We recorded $66.7 million in impairment and other related costs in December
2000, which included: a write-off of goodwill of $60.1 million; a write-off of
assets, primarily computer systems which will no longer be utilized, of $2.6
million; severance paid during 2000 of $2.6 million; and the accrual for lease
termination costs for the PIMMS facility of $1.4 million. In addition, we
recorded, in field operating expenses, $12.8 million in working capital
adjustments related to the abandoned PIMMS operations, primarily for disputed
accounts receivable.

Final PIMMS Severance Costs. Final PIMMS severance costs represent
severance costs related to the abandonment of the PIMMS operation. We completed
the closing of the PIMMS operation on March 16, 2001. We took a charge for the
related severance expense of $2.5 million for 2001.

Operating Loss. Operating loss was $42.2 million for fiscal 2001 as
compared to $76.0 million for fiscal 2000. The operating loss for fiscal 2001
included charges of $37.5 million as discussed above and a $2.5 million charge
for the abandoned PIMMS operation. The operating loss for fiscal 2000 included a
loss of $81.6 million for the abandoned PIMMS operation. Excluding the charges
and the abandoned PIMMS operation, operating loss was $2.3 million in fiscal
2001, as compared to operating income of $5.6 million in 2000. As a percentage
of revenues, operating loss was 1.6% for fiscal 2001 as compared to operating
income of 3.6% for fiscal 2000, primarily as a result of the decrease in gross
margin and the investment in operating facilities as discussed above.

Interest Expense, Net. Interest expense, net, represents the interest on
our outstanding debt allocated to the continuing operations. Net interest
expense increased $1.0 million, or 31%, to $4.4 million for fiscal 2001 from
$3.4 million for fiscal 2000, primarily due to the interest related to the debt
incurred for the payment of the ServiceAdvantage acquisition earn-out in January
2001 and our stock repurchase program. As a percentage of revenues, excluding
the abandoned PIMMS operation, net interest expense was 3.1% for fiscal 2001 as
compared to 1.7% for fiscal 2000.

Income Tax Benefit. Income tax benefit decreased $26.0 million to $5.7
million for fiscal 2001 from $31.7 million for fiscal 2000. We provided for
income taxes at an annual rate of 36.0% in 2001, reduced by a valuation
allowance for all tax benefits in excess of net operating loss carry-backs. We
provided for income taxes at a rate of 40% for fiscal 2000.

Discontinued Operations

On March 19, 2002, we sold our United Kingdom specialized staffing services
business. As announced on July 20, 2001, we intend to divest our German
specialized staffing business in 2002. On December 29, 2000, we sold our U.S.
and European aviation and facility services businesses. On October 13, 2000, we
sold the assets of our U.S. specialized staffing business. In accordance with
the provisions of Accounting Principles Board Opinion No. 30, we have reflected
the results of our U.S. and European aviation and facility services businesses
and our U.S. and European specialized staffing businesses as discontinued
operations in the consolidated balance sheets and statements of operations and
cash flows. For all periods presented, this presentation reflects the net assets
of these operations as a single line segregated from the assets and liabilities
of continuing operations, and the earnings of these businesses as single line
items segregated from the results of continuing operations.

Income (Loss) from Discontinued Operations -- U.S. and European Specialized
Staffing Services Businesses. Revenues were $227.9 million and $217.3 million
for fiscal 2001 and 2000, respectively, for the European specialized staffing
businesses and $41.0 million for fiscal 2000 for the U.S. specialized staffing
business. The loss from discontinued operations of $10.3 million for fiscal 2001
is net of the applicable interest expense of $2.9 million and income tax
provision of $1.1 million. Income from discontinued operations of $9.5 million
for fiscal 2000 include the results of operations of $7.1 million and $2.4
million, respectively, for

15

the European specialized staffing businesses and the U.S. specialized staffing
business, net of the applicable interest expense of $4.4 million and income tax
provision of $7.0 million, respectively. The loss from discontinued operations
for fiscal 2001 was due to the structuring costs associated with positioning the
European specialized staffing business for sale, the strength of the U.S.
dollar, and an investment in new branch openings in 2001.

Loss from Discontinued Operations -- U.S. and European Aviation and
Facility Services Businesses. Revenues from these businesses were $448.7 million
for fiscal 2000. The loss from discontinued operations of $5.8 million for
fiscal 2000 was net of the applicable interest expense of $10.9 million and
income tax benefit of $3.8 million.

Loss on Sale of Businesses -- U.S. and European Specialized Staffing
Services Businesses. On July 20, 2001, we announced, as part of the strategic
transformation of the business, our intention to divest the European specialized
staffing services business. After a comprehensive review of the business by
Deutsche Bank, and due to current economic and capital market conditions, we
adjusted the net basis of the European specialized staffing services business in
the third quarter of 2001 to approximately $92.0 million, taking a charge of
$25.0 million. On March 19, 2002, we sold our United Kingdom specialized
staffing services business for $29.5 million in cash. We recorded a charge of
$9.4 million in the fourth quarter of 2001 to reduce the net assets of the UK
business to their realizable value. We are in discussions with potential
acquirers of the German staffing business. Based on current negotiations, and
concurrent with the $9.4 million charge taken in the fourth quarter of 2001 for
the UK business, we recorded an additional charge of $20.8 million related to
the impairment of goodwill on the German business. We recorded a tax valuation
allowance equal to the full amount of the tax benefit of this charge as the
ultimate realization of these net operating loss carry-forwards is not assured.
On October 13, 2000, we sold the assets of our U.S. specialized staffing
business to an investor group led by the President of AHL's Baltimore staffing
operation for $22.5 million, which included notes receivable from the purchaser
of $9.5 million, resulting in a loss of $1.7 million, net of tax benefit of $1.2
million.

Gain (Loss) on Sale of Businesses -- U.S. and European Aviation and
Facility Services Businesses. On December 29, 2000, we sold our U.S. and
European aviation and facility services businesses for $185 million in cash to
Securicor plc. The sale resulted in a gain of $50.0 million, net of taxes of
$30.1 million, on a net book value of assets and liabilities of $82.7 million,
less disposal and transaction costs of $12.2 million and less a reserve for a
possible downward purchase price adjustment of $10.0 million. The sale price for
the U.S. and European aviation and facilities services businesses was subject to
post-closing adjustments based upon the 2001 actual performance of the
businesses and a reconciliation of actual closing-date working capital to a
target level of working capital. On April 12, 2002, we entered into a definitive
settlement agreement with Securicor pursuant to which we agreed to pay Securicor
$13.0 million with respect to the adjustments. Securicor also released us from
all pending and potential indemnity claims related to the sale of the U.S. and
European aviation and facility services businesses, with limited exceptions. In
connection with the settlement, we agreed to pay Mr. Frank Argenbright, the
Chairman of our board of directors, $5.0 million. Mr. Argenbright entered into
his settlement agreement on April 12, 2002, simultaneously with our execution of
a settlement agreement with Securicor. At December 31, 2000, we had recorded a
total of $12.8 million for the settlement, with $10.0 million classified as a
settlement obligation in the accompanying consolidated balance sheets, and an
additional $2.8 million in accrued expenses for the closing date working capital
adjustment. In 2001, we recorded an additional reserve of $5.2 million to accrue
to the final settlement. In addition to the $18.0 million reserved for the
settlement, in 2001 we expensed $4.3 million for various costs related to the
sale, including $2.0 million paid to Mr. Argenbright in satisfaction and
termination of his performance bonus agreement, $1.0 million in estimated legal
fees and $1.3 million in working capital adjustments. We recorded a related tax
benefit of $974,000.

Net Income (Loss)

Net income (loss) decreased $119.3 million to a loss of $(114.9) million
for fiscal 2001 as compared to income of $4.4 million for fiscal 2000 due to the
reasons discussed above.

16

FISCAL 2000 COMPARED TO FISCAL 1999

Reported continuing operating results include the marketing services
businesses, as well as the PIMMS store set-up business. Discontinued operations
include the U.S. and European divested aviation and facility services businesses
and the U.S. and European specialized staffing services businesses.

Revenues. Revenues increased $36.9 million, or 24%, to $193.3 million for
fiscal 2000 from $156.4 million for fiscal 1999. Revenues for fiscal 2000 and
1999 included $36.6 million and $36.3 million, respectively, for the abandoned
PIMMS operation. Excluding PIMMS, revenues for fiscal 2000 increased $36.6
million, or 30%. The increase was due primarily to fiscal 2000 having a full
year of revenues from our ServiceAdvantage business, which was acquired in
December 1999. In addition, in fiscal 2000 there was strong growth in our
customer service and consumer fulfillment services.

Cost of Services. Cost of services increased $19.1 million, or 26%, to
$92.2 million for fiscal 2000 from $73.1 million for fiscal 1999. Cost of
services for fiscal 2000 and 1999 included $24.2 million and $22.1 million,
respectively, for the abandoned PIMMS operation. Excluding PIMMS, costs of
services increased $17.0 million, or 33%. The increase is a result of fiscal
2000 including a full year of expenses from the ServiceAdvantage acquisition. As
a percentage of revenues, excluding PIMMS, cost of services increased to 43.4%
for fiscal 2000 from 42.5% for fiscal 1999.

Gross Margin. Gross margin increased $17.8 million, or 21%, to $101.2
million for fiscal 2000 from $83.4 million for fiscal 1999. Gross margin for
fiscal 2000 and 1999 included $12.5 million and $14.3 million, respectively, for
the abandoned PIMMS operation. Excluding PIMMS, gross margin increased $19.6
million, or 28%. The full year of operating results from ServiceAdvantage was
the primary contributor in the gross margin increase. As a percentage of
revenues, excluding PIMMS, gross margin decreased to 56.6% for fiscal 2000 from
57.5% for fiscal 1999. This change was due to the addition of our
ServiceAdvantage division, which has historically experienced lower margins.

Field Operating Expenses. Field operating expenses increased $32.1
million, or 53%, to $93.2 million for fiscal 2000 from $61.1 million for fiscal
1999. Field operating expenses for fiscal 2000 and 1999 included $25.1 million
and $9.1 million, respectively, for the abandoned PIMMS operation. The expense
for fiscal 2000 includes $12.8 million in working capital adjustments primarily
for disputed accounts receivable related to the decision to abandon the PIMMS
operation in December 2000. Excluding PIMMS, field operating expenses increased
$16.1 million, or 31%. The increase between years is a result of fiscal 2000
including a full year of expenses from the ServiceAdvantage acquisition. As a
percentage of revenues, excluding PIMMS, field operating expenses remained
consistent at 43.5% for fiscal 2000 as compared to 43.3% for fiscal 1999.

Corporate General and Administrative. Corporate general and administrative
expenses increased $414,000 or 6%, to $7.5 million for fiscal 2000 from $7.1
million for fiscal 1999. As a percentage of revenues, excluding the abandoned
PIMMS operation, these expenses decreased to 4.8% for fiscal 2000 from 5.9% for
fiscal 1999, due to better leveraging of corporate personnel.

Depreciation and Amortization. Depreciation and amortization increased
$3.7 million, or 62%, to $9.7 million for fiscal 2000 from $6.0 million for
fiscal 1999. Depreciation and amortization for fiscal 2000 and 1999 included
$2.2 million and $1.5 million, respectively, for the abandoned PIMMS operation.
Excluding PIMMS, depreciation and amortization increased $3.0 million, or 67%.
The increase is a result of fiscal 2000 including a full year of amortization of
goodwill and other intangibles from our acquisitions of ServiceAdvantage and
CDI, which were purchased during 1999. As a percentage of revenues, excluding
PIMMS, depreciation and amortization were 4.8% for fiscal 2000 and 3.7% for
fiscal 1999.

Impairment Charges. Impairment and other related charges represent certain
costs related to the abandonment of the PIMMS operation in fiscal 2000. In
December 2000, we committed to abandon operations of our store set-up business
unit, formerly called PIMMS, which we purchased in April 1999, for $65.0
million. A comprehensive strategic review of the unprofitable store set-up
business indicated we had more attractive options and that the store set-up
business did not meet criteria for continued investment. The store set-up
business had become more project driven than anticipated with increasing surge
capacity requirements and difficult-to-forecast utilization rates. To become a
profitable business would have required

17

significant additional investment to develop geographic density and maintain a
national infrastructure. We recorded $66.7 million in impairment and other
related costs in December 2000, which included write-off of goodwill of $60.1
million, write-off of assets, primarily computer systems which will no longer be
utilized, of $2.6 million, severance paid during 2000 of $2.6 million and the
accrual for lease termination costs for the PIMMS facility of $1.4 million. In
addition, we recorded, in field operating expenses, $12.8 million in working
capital adjustments related to the abandoned PIMMS operations, primarily for
disputed accounts receivable. We completed the closing of PIMMS on March 16,
2001, and took a final charge for the related severance expense of approximately
$2.5 million in the first quarter of 2001.

Operating Income (Loss). Operating income (loss) decreased $85.2 million
to an operating loss of ($76.0) million for fiscal 2000 from operating income of
$9.2 million for fiscal 1999. The operating loss for fiscal 2000 included an
($81.6) million loss for the abandoned PIMMS operation. Operating income for
fiscal 1999 included $3.7 million for the abandoned PIMMS operation. Excluding
PIMMS, operating income remained consistent between years. As a percentage of
revenues, excluding PIMMS, operating income was 3.6% for fiscal 2000 as compared
to 4.6% for fiscal 1999.

Interest Expense, Net. Interest expense, net, represents the interest on
the outstanding debt of the Company allocated to the continuing operations. Net
interest expense increased $1.8 million, or 108%, to $3.4 million for fiscal
2000 from $1.6 for fiscal 1999. This increase was due to the increase in the
outstanding debt balance in fiscal 2000 compared to fiscal 1999 due to the use
of our Credit Facility to fund acquisitions, the repurchase of shares of our
common stock in fiscal 2000 and the significant rise in interest rates in fiscal
2000 compared to fiscal 1999.

Income Tax Provision (Benefit). Income tax provision (benefit) decreased
$34.7 million to a benefit of ($31.7) million for fiscal 2000 from a provision
of $3.0 million for fiscal 1999. The 2000 tax benefit resulted from the charges
incurred in exiting the PIMMS operations. We provided income taxes at a rate of
40.0% for fiscal 2000 and 39.5% for fiscal 1999.

Discontinued Operations

On July 20, 2001, we announced our intention to divest the European
specialized staffing business. On December 29, 2000, we sold our U.S. and
European aviation and facility services businesses. On October 13, 2000, we sold
the assets of our U.S. specialized staffing business. In accordance with the
provisions of Accounting Principles Board Opinion No. 30, we have reflected the
results of our U.S. and European aviation and facility services businesses and
our U.S. and European specialized staffing businesses as discontinued operations
in the consolidated balance sheets and statements of operations and cash flows.
For all periods presented, this presentation reflects the net assets of these
operations as a single line segregated from the assets and liabilities of
continuing operations, and the earnings of these businesses as single line items
segregated from the results of continuing operations.

Income (Loss) from Discontinued Operations -- U.S. and European Specialized
Staffing Services Businesses. Revenues from these businesses were $217.3
million and $165.5 million for fiscal 2000 and 1999, respectively, for the
European specialized staffing businesses and $41.0 and $50.5 million for fiscal
2000 and 1999, respectively, for the U.S. specialized staffing business. Income
from discontinued operations of $9.5 million and $9.1 million for fiscal 2000
and 1999, respectively, include operating income of $7.1 million and $7.3
million, respectively, for the European specialized staffing businesses and
operating income of $2.4 million and $1.8 million, respectively, for the U.S.
specialized staffing business. The results are net of the applicable interest
expense of $4.4 million and $3.1 million, respectively, and income tax provision
of $7.0 million and $5.9 million, respectively.

Income (Loss) from Discontinued Operations -- U.S. and European Aviation
and Facility Services Businesses. Revenues from these businesses were $448.7
million and $442.0 million for fiscal 2000 and fiscal 1999, respectively. Income
(loss) from discontinued operations of ($5.8) million and $5.9 million for
fiscal 2000 and 1999, respectively, is net of the applicable interest expense of
$10.9 million and $7.8 million, respectively, and income tax provision (benefit)
of ($3.8) million and $3.9 million, respectively.

18

Loss on Sale of Businesses -- U.S. Specialized Staffing Services
Businesses. On October 13, 2000, we sold the assets of our U.S. specialized
staffing business to an investor group led by the President of AHL's Baltimore
staffing operation for $22.5 million, which included notes receivable from the
purchaser of $9.5 million, resulting in a loss of $1.7 million, net of tax
benefit of $1.2 million.

Gain on Sale of Businesses -- U.S. and European Aviation and Facility
Services Businesses. On December 29, 2000, we sold the U.S. and European
aviation and facility services businesses for $185 million in cash to Securicor
plc., a business services company headquartered in the United Kingdom. The final
purchase price was subject to post-closing adjustments based upon the 2001
actual performance of the businesses and a reconciliation of actual closing-date
working capital to a target level of working capital. The sale resulted in a
gain of $50.0 million, net of taxes of $30.1 million, on a net book value of
assets and liabilities of $82.7 million, less disposal and transaction costs of
$12.2 million and less a reserve for the possible downward purchase price
adjustment of $10.0 million.

Net Income

Net income decreased $15.2 million, or 78%, to $4.4 million, or 2.3% of
revenues, for fiscal 2000 from net income of $19.6 million, or 12.5% of
revenues, for fiscal 1999. This decrease was a result of one-time gains and
costs associated with our strategic transformation in the fourth quarter of 2000
in which we sold our U.S. specialized staffing business, sold our aviation and
facility services businesses and abandoned operations of our PIMMS store set-up
business.

DIVESTITURES AND ABANDONMENTS

Discontinued Operations

EUROPEAN SPECIALIZED STAFFING BUSINESSES

On March 19, 2002, we sold our United Kingdom specialized staffing services
business for $29.5 million in cash. Net of transaction costs of $2.7 million,
the sale yielded $26.8 million of proceeds, which were used to reduce
outstanding debt. We recorded a charge of $9.4 million in the fourth quarter of
2001 to reduce the net assets of the UK business to their realizable value.

On July 20, 2001, we announced, as part of the strategic transformation of
the business, our intention to divest the European specialized staffing services
business. Deutsche Bank has been retained as our advisors and discussions are
underway with potential acquirers of the German staffing business. After a
comprehensive review of the business by Deutsche Bank, and due to current
economic and capital market conditions, we adjusted the net basis of the
European specialized staffing services business in the third quarter of 2001 to
approximately $92.0 million, taking a charge of $25.0 million. Based on current
negotiations, and concurrent with the $9.4 million charge taken in the fourth
quarter of 2001 for the UK business, we recorded an additional charge of $20.8
million related to the impairment of goodwill on the German business. We intend
to complete this divestiture during the first half of 2002. Net proceeds from
the divestiture will be used to further reduce outstanding debt.

U.S. AND EUROPEAN AVIATION AND FACILITY SERVICES BUSINESSES

On December 29, 2000, we sold our U.S. and European aviation and facility
services businesses for $185.0 million in cash to Securicor plc. ("Securicor"),
a business services company headquartered in the United Kingdom. The sale
resulted in a gain of $50.0 million, net of taxes of $30.1 million, on a net
book value of assets and liabilities of $82.7 million, less disposal and
transaction costs of $12.2 million and less a reserve for a possible downward
purchase price adjustment of $10.0 million. Net after-tax proceeds were used to
reduce debt. The sale price for the U.S. and European aviation and facilities
services businesses was subject to post-closing adjustments based upon the 2001
actual performance of the businesses and a reconciliation of actual closing-date
working capital to a target level of working capital.

On April 12, 2002, we entered into a definitive settlement agreement with
Securicor pursuant to which we agreed to pay Securicor $13.0 million with
respect to the adjustments. Securicor also released us from all

19

pending and potential indemnity claims related to the sale of the U.S. and
European aviation and facility services businesses, with limited exceptions. In
connection with the settlement, we agreed to pay to Mr. Frank Argenbright, the
Chairman of our board of directors, $5.0 million.

Our obligation to pay Securicor the $13.0 million settlement payment is
evidenced by two secured, subordinated promissory notes in the amounts of $10.0
million and $3.0 million. Our obligation to pay the $13.0 million settlement
payment matures in two installments. The first installment, in the amount of
$9.0 million, matures on April 12, 2003; the remaining installment of $4.0
million matures on October 12, 2003. We may prepay the notes at any time without
premium or penalty. If we pay $10.0 million of the settlement amount on or
before October 12, 2002, Securicor is obligated to forgive the remaining $3.0
million. The notes are secured by a lien on substantially all of our assets and
a lien on substantially all of the assets of our U.S. subsidiaries. Our
obligation to pay the settlement amount, and the lien securing our obligation,
is subordinate to our obligation to pay all amounts outstanding or due pursuant
to our existing credit agreement and any substitute or replacement senior
secured bank credit arrangement. The notes bear interest at a rate of 7% per
annum. Interest on the notes will accrue and be added to the principal until we
repay or refinance the amounts outstanding under our Credit Facility, at which
time interest on the notes will be payable quarterly. Our obligation to pay Mr.
Argenbright $5.0 million is unsecured and does not bear interest. The obligation
matures on October 12, 2003. Our obligation to pay Mr. Argenbright is subject to
our prior payment of all amounts owing to Securicor; however, if we repay $10.0
million of the amount we owe Securicor on or before October 12, 2002, then we
have agreed, at the same time, to pay Mr. Argenbright $3.0 million of the amount
we owe him.

At December 31, 2000, we had recorded a total of $12.8 million for the
final settlement, with $10.0 million classified as a settlement obligation in
the accompanying consolidated balance sheets, and an additional $2.8 million in
accrued expenses for the closing date working capital adjustment. In 2001, we
recorded an additional reserve of $5.2 million to accrue to the final
settlement. In addition to the $18.0 million reserved for the settlement, in
2001 we expensed $4.3 million for various costs related to the sale, including
$2.0 million paid to Mr. Argenbright in satisfaction and termination of his
performance bonus agreement, $1.0 million in estimated legal fees and $1.3
million in working capital adjustments.

U.S. SPECIALIZED STAFFING SERVICES BUSINESS

On October 13, 2000, we sold the assets of our U.S. specialized staffing
business to an investor group led by the President of our Baltimore staffing
operation for $22.5 million, which included notes receivable from the purchaser
of $9.5 million, resulting in a loss of $1.7 million, net of tax benefit of $1.2
million. Due to the current economic downturn affecting the U.S. specialized
staffing industry, in 2001 the term of the $2.0 million note receivable due in
October 2001 was extended, and therefore has been reclassified as a non-current
note receivable. Interest payments on the notes receivable have not been
received since May 2001, and thus we have ceased accruing interest income.
Management believes the notes receivable, as well as interest thereon, will
ultimately be collected, however, such collection could be dependent upon the
economic conditions impacting the U.S. specialized staffing industry and the
borrower's ability to obtain additional capital. As a result, in 2001 we
adjusted the net carrying value of the notes receivable balance to $5.0 million,
taking an additional charge of $3.7 million recorded in corporate general and
administrative expenses in the accompanying consolidated statements of
operations.

In accordance with the provisions of Accounting Principles Board Opinion
No. 30, we have reflected the results of our U.S. and European aviation and
facility services businesses and our U.S. and European specialized staffing
businesses as discontinued operations in the accompanying consolidated balance
sheets and statements of operations and cash flows. For all periods presented
this presentation reflects the net assets of these operations as a single line
segregated from the assets and liabilities of continuing operations, and the
earnings of these businesses as single line items segregated from the results of
continuing operations.

20

Other Divestitures and Abandonments

On December 28, 2000, we made the decision to abandon operations of our
store set-up business unit, formerly called PIMMS. A comprehensive strategic
review of the unprofitable store set-up business indicated we had more
attractive options, and that the store set-up business did not meet criteria for
continued investment. The store set-up business had become more project-driven
than anticipated with increasing surge capacity requirements and difficulties in
forecasting utilization rates. To become a profitable business would have
required significant additional investment to develop geographic density and
maintain a national infrastructure. As a result of this decision, we recorded
$66.7 million in impairment and other related costs in December 2000, including
a write-off of goodwill of $60.1 million, a write down of assets, primarily
computer systems which will no longer be utilized, of $2.6 million, severance
costs paid during 2000 of $2.6 million and the accrual for lease termination
costs for the PIMMS facility of $1.4 million. In addition, we recorded, in field
operating expenses, $12.8 million in working capital adjustments related to the
abandoned PIMMS operations, primarily for disputed accounts receivable. We
completed the closing of the PIMMS business unit on March 16, 2001, and recorded
a final charge for the related severance expense of approximately $2.5 million
in 2001. The results of the PIMMS business are reflected within continuing
operations from the date of acquisition, April 30, 1999, through the closing
date in the accompanying consolidated financial statements.

On June 30, 1999, we sold our United Kingdom bus transportation business to
National Express Group PLC. The shuttle bus business generated approximately
$6.0 million in revenues in 1998. As a result of this divestiture, we recorded a
gain of approximately $400,000 in the year ended December 31, 1999 and assigned
approximately $4.0 million in lease obligations to the purchaser.

QUARTERLY RESULTS AND SEASONALITY

The following table sets forth consolidated statements of operations data
for the four quarters of fiscal 2001 and 2000. This quarterly information is
unaudited but has been prepared on a basis consistent with our audited
consolidated financial statements presented elsewhere herein and, in our
opinion, includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented. Amounts for all periods reflect the U.S. and European
specialized staffing services businesses and the U.S. and European aviation and
facility services businesses as discontinued operations. The operating results
for any quarter are not necessarily indicative of results for any future period.

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

(1) The total of the four quarterly amounts for net earnings (loss) per share
may not equal the net earnings (loss) per share for the year ended.
Differences result from the use of a weighted average to compute the number
of shares outstanding for each quarter and for the year.

Although our operating results are not subject to seasonality, our
quarterly revenues and profitability can be impacted by the timing of our
clients' programs, the availability of client-provided merchandise to fulfill
consumer requests or clients' decisions not to repeat specific marketing
programs. Program timing can affect quarterly revenues and profitability because
most of the marketing programs that we support are short in duration.

LIQUIDITY AND CAPITAL RESOURCES

2001 TO 2000

Cash used by operating activities of continuing operations was $145,000 for
fiscal 2001, compared to cash provided by operating activities of continuing
operations of $22.2 million for fiscal 2000. The decrease in cash was primarily
due to the $48.5 million decrease in noncash charges for depreciation and
amortization and impairment and other related charges from fiscal 2000 to 2001,
offset by the decrease in the loss from continuing operations of $6.8 million
from fiscal 2000 to 2001. In addition, changes in working capital provided
operating cash from continuing operations of $14.8 million in fiscal 2001,
compared to a use of operating cash from continuing operations of $4.6 million
in fiscal 2000.

Cash used in investing activities of continuing operations was $23.6
million for fiscal 2001, compared to $10.6 million for fiscal 2000. In fiscal
2001, we used $12.9 million in cash to pay the ServiceAdvantage earn-out.
Purchases of property and equipment for continuing operations were $10.7 million
in fiscal 2001 compared to $10.6 million in fiscal 2000.

Cash provided by financing activities of continuing operations was $35.1
million for fiscal 2001, compared to cash used by financing activities of
continuing operations of $161.5 million for fiscal 2000. For fiscal 2001, we
received net borrowings under our Credit Facility of $38.4 million, offset by
payment of expenses associated with amending the Credit Facility of $1.1
million. We repurchased 260,000 shares of common stock for $2.3 million. For
fiscal 2000, we made net payments on our Credit Facility of $143.8 million and
repurchased 1,920,600 shares of our common stock for $17.7 million.

22

2000 TO 1999

Cash provided by operating activities of continuing operations was $22.2
million for fiscal 2000, compared to $8.0 million for fiscal 1999. This increase
in cash was primarily the result of a $16.2 million increase in income (loss)
from continuing operations before depreciation and amortization and the noncash
impairment charges on the abandonment of PIMMS.

Cash used in investing activities of continuing operations for fiscal 2000
was $10.6 million, compared to $94.2 million for fiscal 1999. Investing
activities from continuing operations in 2000 consisted solely of additions to
property and equipment of $10.6 million. The use of cash for investing
activities of $94.2 million in fiscal 1999 was principally a result of
acquisition consideration paid and additions to property and equipment made
during the period.

Cash used in financing activities of continuing operations for fiscal 2000
was $161.5 million, compared to cash provided by financing activities of
continuing operations of $147.5 million for fiscal 1999. We used the proceeds
from the sale of our U.S. staffing services and aviation and facility services
businesses to reduce our Credit Facility by $143.8 million in fiscal 2000. We
repurchased 1,920,600 shares of our common stock in fiscal 2000 for $17.7
million. During the first quarter of 1999, we completed a follow-on public
offering of our common stock. We issued 3,255,570 shares at an offering price of
$31 per share. The total proceeds, net of underwriting discounts and offering
expenses, were approximately $95.6 million, of which we used a portion to repay
a $10 million subordinated convertible debenture. The remaining $85.6 million
was used to reduce the outstanding balance under the Credit Facility.

CAPITAL EXPENDITURES

Capital expenditures for continuing operations were $10.7 million, $10.6
million and $12.3 million in fiscal 2001, 2000 and 1999, respectively. In 2001
we moved into two large state-of-the-art facilities in Rogers, Minnesota and
Romulus, Michigan. In conjunction with these relocations, we incurred capital
expenditures for leasehold improvements and equipment at these facilities. As a
result, our capital expenditures for 2002 are anticipated to be significantly
lower than the last two fiscal years.

INITIAL PUBLIC OFFERING

We completed our initial public offering of common stock in March 1997,
raising net proceeds of approximately $22.0 million. These proceeds were used to
repay all outstanding amounts under our Credit Facility, to repurchase an
outstanding warrant, and to retire other outstanding acquisition-related debt.
We completed a follow-on public offering in October 1997, raising net proceeds
of approximately $41.0 million. These proceeds were used to repay outstanding
debt used to fund acquisitions of approximately $16.0 million, with the balance
used for general corporate purposes, including working capital to support our
growth and acquisitions. We completed another follow-on public offering in
January 1999, raising net proceeds of approximately $95.6 million. These
proceeds were used to reduce outstanding indebtedness.

CREDIT FACILITY

We obtain our working capital from borrowings pursuant to a Credit Facility
with a syndicate of commercial banks. Wachovia Bank, National Association is the
Administrative Agent for the lenders. Our borrowings under the Credit Facility
are secured by a lien on substantially all of our assets and the assets of our
operating subsidiaries.

At December 31, 2001, we were not in compliance with a number of the
covenants under the Credit Facility. On April 12, 2002, we reached agreement
with our banks to amend the facility. The amendment eliminated the default,
extended the maturity of the Credit Facility from April 15, 2002 to January 3,
2003, reduced the amount we are permitted to borrow, increased the interest
rates that we are required to pay and modified our financial covenants. Under
the amended agreement, at April 12, 2002, we were permitted to borrow up to
$89.2 million. The amount that we are permitted to borrow decreases
incrementally each month to approximately $74.1 million as of December 31, 2002.

23

Under the Credit Facility, we are required to satisfy covenants relating to
minimum consolidated adjusted EBITDA, fixed charge coverage ratios and
limitations on capital expenditures, among others. We have monthly targets for
each financial covenant that we must meet. If we fail to comply with the
covenants, we will be in default. Upon the occurrence of a default, unless our
lenders grant a further waiver, we will not be permitted to borrow additional
amounts under the Credit Facility, and the outstanding amounts will become
immediately due and payable.

As required by our amended Credit Facility, we have retained an investment
banking firm and are diligently pursuing opportunities for raising cash through
the sale of debt or equity securities. Any proceeds from the sale of such
securities will be used to reduce the outstanding amounts under the Credit
Facility.

As previously announced, we are diligently pursuing the sale of our German
specialized staffing business. Management believes that the Company will be able
to dispose of the business in the upcoming months. The net cash proceeds from
the sale will be used to reduce the outstanding amounts under the Credit
Facility.

Even if we are successful in completing the sale of our German business and
close on the sale of debt or equity securities in the upcoming months, we may
not be able to fully repay the amounts outstanding under the Credit Facility,
and we may be required to obtain additional cash pursuant to a replacement
senior secured credit facility. We are in preliminary discussions with several
lenders about providing the necessary financing. If we have not repaid the
facility in full by September 30, 2002, we are required to pursue other measures
to obtain funds sufficient to repay the borrowings, including a business
combination transaction.

We cannot provide assurance that we will successfully complete the
disposition of our German business, the issuance of debt or equity securities or
the refinancing of any amounts that remain outstanding under the Credit
Facility. We are dependent on the availability of borrowings pursuant to the
Credit Facility to meet our working capital needs, capital expenditure
requirements and other cash flow requirements. If borrowings under the Credit
Facility are unavailable, we will be required to seek additional sources of
financing in order to fund our working capital needs. If we are unable to obtain
additional sources of financing and cannot repay the outstanding balance of our
Credit Facility when it becomes due, it is likely that a business combination
transaction, restructuring or liquidation will be required in whole or in part.
Our ability to achieve these tasks is subject to the performance of our core
marketing services business and to other factors.

CONTRACTUAL OBLIGATIONS

We are obligated to make future payments under various contracts we have
entered into, including amounts pursuant to the Credit Facility, equipment notes
and non-cancelable operating lease agreements. Future contractual obligations
related to these items at December 31, 2001 are as follows:

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements were prepared in conformity with
accounting principles generally accepted in the United States. As such,
management is required to make certain estimates, judgments and assumptions that
they believe are reasonable based upon the information available. These
estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. The significant accounting policies

24

which management believes are the most critical to aid in fully understanding
and evaluating our reported financial results include the following:

REVENUE RECOGNITION

We derive our revenue primarily from two sources: (1) fulfillment
operations and (2) the delivery of business services. Our fulfillment services
operations record revenue at the conclusion of the material selection, packaging
and shipping process. Unbilled revenue is recorded in certain situations when
the materials have been shipped, but invoicing did not occur until the
subsequent accounting period. Work in process consists of labor and material
costs for fulfillment programs and merchandising support services provided to
customers that have not been completed. Work in process is not included in
revenue at the end of an accounting period. Our customer services businesses
recognize revenue according to written pricing agreements based on the number of
calls, agents assigned or in-store visits.

The Securities and Exchange Commission issued Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition", which provides guidance on the
application of generally accepted accounting principles to revenue recognition
practices. Management believes that our revenue recognition policy is
appropriate and in accordance with generally accepted accounting principles and
SAB No. 101.

During the year ended December 31, 2001, we had one customer that accounted
for greater than 10% of revenues from continuing operations. During 2000 and
1999, there were no individual customers that accounted for more than 10% of our
revenues from continuing operations.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We perform ongoing credit evaluations of our customers and adjust credit
limits based upon payment history and the customer's current credit worthiness,
as determined by management's review of their current credit information. We
continuously monitor collections and payments from our customers and maintain a
provision for estimated credit losses based upon historical experience and any
specific customer collection issues that have been identified. While credit
losses have historically been within management's expectations and the
provisions established, we cannot guarantee that we will continue to experience
the same credit loss rates that we have in the past.

SELF-INSURANCE AND OTHER RESERVES

We participate in partially self-insured, high-deductible workers'
compensation and auto insurance plans. Exposure is limited per occurrence
($250,000 for workers' compensation and auto liability claims) and in the
aggregate. In addition, we are partially self-insured for health claims for
certain U.S. employees. Reserves are estimated for both reported and unreported
claims. The determination of our obligation and expenses for workers'
compensation, auto and health insurance is dependent on certain assumptions used
in calculating such amounts. Those assumptions include, among others, the
discount rate, projected claims and the rate of increase in compensation and
health care costs. Revisions to estimated reserves are recorded in the periods
in which they become known. While there can be no assurance that actual future
claims will not exceed the amount of our reserves, in the opinion of our
management, any future adjustments to estimated reserves included in the
accompanying consolidated balance sheets will not have a material impact on the
consolidated financial statements.

As part of the strategic review of operations performed during 2001, we
recorded additional reserves for various items, including costs of buying out
unattractive or redundant leases, severance costs incurred in conjunction with
the closing of the Atlanta corporate offices, legal and other expenses related
to the abandoned PIMMS operation, and other related items. Significant
management judgment was required in determining the amount of these reserves,
and while there can be no assurance that future costs will not exceed the amount
of our reserves, in the opinion of our management, any future adjustments to
estimated reserves included in the accompanying consolidated balance sheets will
not have a material impact on the consolidated financial statements.

25

IMPAIRMENT OF LONG-LIVED ASSETS AND VALUATION OF DEFERRED TAX ASSETS

Our long-lived assets include goodwill and other intangibles. At December
31, 2001, we had $103.6 million in net intangible assets, accounting for
approximately 43.2% of our total assets. In assessing the recoverability of our
goodwill and other intangibles, we must make assumptions regarding estimated
future cash flows and other factors to determine the fair value of the
respective assets. If these estimates or their related assumptions change in the
future, we may be required to record impairment charges for these assets.

In July 2001, Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets", was issued. Under SFAS No. 142, goodwill
and indefinite lived intangible assets are no longer amortized but are reviewed
annually for impairment. We adopted the provisions of SFAS No. 142 effective
January 1, 2002. This change in accounting will increase 2002 net income by
approximately $2.2 million or $0.15 per share because goodwill will no longer be
amortized. The standard also requires a reassessment of the useful lives of
identifiable intangible assets other than goodwill and a test for impairment of
goodwill and intangibles with indefinite lives annually, unless events and
circumstances indicate that the carrying amounts may not be recoverable. We do
not anticipate recording any related impairment losses.

We recognize deferred tax assets and liabilities based on the differences
between the financial statement carrying amounts and the tax basis of assets and
liabilities. We regularly review our deferred tax assets for recoverability and
establish a valuation allowance based on historical taxable income, projected
future taxable income, and the expected timing of the reversals of existing
temporary differences. If we continue to operate at a loss or are unable to
generate sufficient future taxable income, or if there is a material change in
the actual effective tax rates or time period within which the underlying
temporary differences become taxable or deductible, we could be required to
establish a valuation allowance against all of our deferred tax assets,
resulting in an increase in our effective tax rate and a material adverse impact
on operating results.

DISCONTINUED OPERATIONS

Our financial statements were prepared using discontinued operations
accounting for the discontinued aviation and facility services and specialized
staffing services businesses. Under discontinued operations accounting, we
accrued estimates of our expected liabilities related to discontinued operations
through their eventual discharge, which, in many cases, was expected to be
several years in the future. At December 31, 2001, $18.0 million was recorded as
the total liability remaining for the final settlement on the sale of the
aviation and facility services businesses, in accordance with the settlement
agreement effective April 12, 2002. Management believes this amount accurately
reflects the obligation due from this sale, and does not anticipate further
charges for this business.

On March 19, 2002, we sold our United Kingdom specialized staffing services
business, and based upon the transaction consideration, recorded a charge of
$9.4 million in the fourth quarter of 2001 to reduce the net assets of the UK
business to their realizable value. We are in the process of divesting the
German specialized staffing services business. Based on current negotiations,
and concurrent with the $9.4 million charge taken in the fourth quarter of 2001
for the UK business, we recorded an additional charge of $20.8 million related
to the impairment of goodwill on the German business. Although management
anticipates the divestiture to be completed in 2002, there can be no assurance
that additional charges will not be incurred in the eventual sale of the
business.

INFLATION

We do not believe that inflation has had a material effect on our results
of operations in recent years. However, there can be no assurance that our
business will not be affected by inflation in the future.

RISK FACTORS

Certain statements made in this Annual Report on Form 10-K and other
written or oral statements made by or on behalf of AHL may constitute
"forward-looking statements" within the meaning of the federal securities laws.
When used in this report, the words "believes," "expects," "anticipates,"
"estimates" and

26

similar expressions are intended to identify forward-looking statements.
Statements regarding future events and developments and our future performance,
as well as our expectations, beliefs, plans, estimates or projections relating
to the future, are forward-looking statements within the meaning of these laws.
All forward-looking statements are subject to certain risks and uncertainties
that could cause actual events to differ materially from those projected.
Management believes that these forward-looking statements are reasonable;
however, you should not place undue reliance on such statements. These
statements are based on current expectations and speak only as of the date of
such statements. We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of future events, new information
or otherwise, other than as required by law. Factors that could cause actual
results to differ materially include, but are not limited to, those set forth
below.

WE HAVE ENTERED INTO AN AMENDED CREDIT FACILITY UNDER WHICH WE MUST SATISFY
CERTAIN FINANCIAL AND OTHER COVENANTS.

On April 12, 2002, we reached agreement with our banks to amend our Credit
Facility. Among other things, the amendment eliminated the default under our
previous agreement, extended the maturity date to January 3, 2003, reduced the
amount we are permitted to borrow and modified our financial covenants. Under
the amended agreement, at April 12, 2002, we were permitted to borrow up to
$89.2 million. The amount that we are permitted to borrow decreases
incrementally each month to approximately $74.1 million as of December 31, 2002.

Although we have amended our Credit Facility and reduced our indebtedness
from the amount that was outstanding at December 31, 2001, we still have
substantial indebtedness. Our substantial indebtedness could have negative
consequences for our business, including the following:

- limiting our ability to obtain additional financing in the future;

- limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
debt service;

- limiting our flexibility in reacting to changes in our industry and
changes in market conditions;

- increasing our vulnerability to a downturn in our business; and

- increasing our interest expense due to increases in prevailing interest
rates, because a substantial portion of our indebtedness bears interest
at floating rates.

Under the amended Credit Facility, we are required to satisfy covenants
relating to minimum consolidated adjusted EBITDA, fixed charge coverage ratios
and limitations on capital expenditures, among others. We have monthly targets
for each financial covenant that we must meet. If we fail to comply with the
covenants, we will be in default. Upon the occurrence of a default, unless our
lenders grant a further waiver, we will not be permitted to borrow additional
amounts under the Credit Facility, and the outstanding amounts will become
immediately due and payable. Our borrowings under the Credit Facility are
secured by a lien on substantially all of our assets and the assets of our
operating subsidiaries.

As required by our amended Credit Facility, we have retained an investment
banking firm and are diligently pursuing opportunities for raising cash through
the sale of debt or equity securities. We also are diligently pursuing the sale
of our German specialized staffing business. The net cash proceeds received from
these activities will be used to reduce the outstanding amounts under the Credit
Facility.

Even if we are successful in completing the sale of our German business and
close on the sale of debt or equity securities in the upcoming months, we may
not be able to fully repay the amounts outstanding under the Credit Facility,
and we may be required to obtain additional cash pursuant to a replacement
senior secured credit facility. We are in preliminary discussions with several
lenders about providing the necessary financing. If we have not repaid the
facility in full by September 30, 2002, we are required to pursue other measures
to obtain funds sufficient to repay the borrowings, including a business
combination transaction.

27

We cannot assure you that we will successfully complete the disposition of
our German business, the issuance of debt or equity securities or the
refinancing of any amounts that remain outstanding under the Credit Facility. We
are dependent on the availability of borrowings pursuant to the Credit Facility
to meet our working capital needs, capital expenditure requirements and other
cash flow requirements. If borrowings under the Credit Facility are unavailable,
we will be required to seek additional sources of financing in order to fund our
working capital needs. If we are unable to obtain additional sources of
financing and cannot repay the outstanding balance of our Credit Facility when
it becomes due, it is likely that a business combination transaction,
restructuring or liquidation will be required in whole or in part.

WE HAVE NOT COMPLETED THE SALE OF OUR GERMAN STAFFING BUSINESS.

We are in negotiations with several interested parties with respect to the
sale of our German staffing business. We expect to use the proceeds of the sale
to repay a portion of our Credit Facility. We cannot guarantee the timing of
when we will complete the sale of the business or the amount of proceeds we will
receive from the sale.

WE MAY NOT BE ABLE TO FINANCE OUR GROWTH STRATEGY.

Even if we complete the sale of our German staffing business, we will not
be able to repay the entire Credit Facility, and our ability to grow will be
limited. We have publicly announced our intention to issue debt or equity
securities to investors, with the proceeds being used to repay the outstanding
balance of the Credit Facility. We cannot assure you that we will be able to
sell debt or equity securities on terms that are acceptable to management or at
all. In the event that we are unsuccessful at raising additional capital, we may
be required to consider a restructuring, business combination transactions or
liquidation.

WE HAVE EXPERIENCED NET LOSSES.

We incurred net losses from continuing operations of $40.8 million for
fiscal 2001. We have had net losses from continuing operations for the fourth
quarter of 2000 and all four quarters in 2001. In addition, we anticipate that
we will have a net loss from continuing operations for the first quarter of
2002. We cannot assure you that losses will not continue in the future.

OUR STOCK PRICE IS VOLATILE.

The market price of our common stock has been highly volatile and could be
subject to wide fluctuations in response to quarterly variations in operating
results, our success in implementing our business strategies, announcements of
new contracts or contract cancellations, announcements of technological
innovations or new products and services by us or our competitors, changes in
financial estimates by securities analysts, or other events or factors. In
addition, the stock market has experienced substantial price and volume
fluctuations that have particularly affected the market prices of equity
securities of many companies, and that have often been unrelated to the
operating performance of such companies. These broad market fluctuations may
adversely affect the market price of our common stock.

Since only a relatively small portion of our outstanding common stock is
currently available for trading without restriction under Rule 144, and since
our stock often trades at a relatively low volume level, any change in demand
for our stock can be expected to substantially influence the market prices for
our common stock. The price of our stock varied from a high of $11.50 to a low
of $1.21 during 2001.

WE DEPEND ON OUR LABOR FORCE.

Our success is largely dependent on our ability to recruit, hire, train and
retain qualified employees. Our business is labor intensive and continues to
experience relatively high personnel turnover. Our operations generally require
specially trained employees. Increases in our employee turnover rate could
increase our recruiting and training costs and decrease our operating efficiency
and productivity. The addition of new clients or implementation of new projects
for existing clients may require us to recruit, hire and train personnel at
accelerated rates. There can be no assurance that we will be able to
successfully recruit, hire, train and

28

retain sufficient qualified personnel to adequately staff for existing business
or future growth. Additionally, since a substantial portion of our operating
expenses consist of labor-related costs, continued labor shortages together with
increases in wages (including minimum wages as mandated by the U.S. federal
government, employee benefit costs, employment tax rates, and other
labor-related expenses) could have a material adverse effect on our business,
operating profit and financial condition. Furthermore, certain of our facilities
are located in areas with relatively low unemployment rates, thus potentially
making it more difficult and costly to hire qualified personnel.

WE DEPEND ON KEY MANAGEMENT PERSONNEL THAT HAVE ONLY RECENTLY JOINED AHL.

We have recently had a change in some of our key management positions,
including a new chief executive officer in October 2001 and a new chief
financial officer in April 2002. We also depend in large part on the abilities
and continuing efforts of the officers and senior management within our
marketing services business. Our business and prospects could be materially
adversely affected if our new management team is not able to effectively manage
our operations or if current officers and managers do not continue in their key
roles. In order to support growth, we must effectively recruit, develop and
retain additional qualified management personnel. We cannot assure you that in
the future we will be able to recruit and retain additional qualified managers.

WE ARE CONTROLLED BY OUR PRINCIPAL SHAREHOLDERS.

As of March 1, 2002, Frank A. Argenbright, Jr., our Chairman of the board,
beneficially owns approximately 47.9% of our outstanding common stock, and Edwin
C. "Skip" Gage, one of our directors, owns approximately 5.1% of our stock. As a
group, our executive officers and directors own approximately 58.8% of our
stock. As a result, Messrs. Argenbright, Gage and our executive officers and
directors are able to control substantially all matters requiring action by our
shareholders.

OUR BUSINESS RELIES ON THE TREND TOWARD OUTSOURCING.

We believe there has recently been a significant increase in businesses
outsourcing services not directly related to their principal business
activities. Our business, results of operations and financial condition could be
materially adversely affected if the outsourcing trend declines or reverses, or
if corporations bring previously outsourced functions back in-house.
Particularly during general economic downturns, businesses may bring previously
outsourced functions in-house in order to avoid or delay layoffs.

WE RELY ON A SMALL NUMBER OF CLIENTS FOR A SIGNIFICANT PORTION OF OUR
REVENUES.

We focus on developing long-term relationships with large corporations and
institutions. In 2001, our ten largest clients accounted for approximately 40%
of our marketing services revenues. Our success depends substantially upon
retaining our significant clients. We may lose clients due to a merger or
acquisition, business failure, contract expiration, conversion to a competitor
or conversion to an in-house system. We cannot guarantee that we will be able to
retain long-term relationships or secure renewals of short-term relationships
with our significant clients in the future. If we lose one or more of our
largest clients, then our business, results of operations and financial
condition could be materially adversely affected.

WE DO NOT HAVE LONG-TERM CONTRACTS WITH MANY OF OUR CLIENTS.

Though we have written agreements with many of our clients, we do not have
written agreements with some of our major clients. We currently provide services
to those clients pursuant to oral agreements. The written agreements that we
have are generally terminable for cause and can often be terminated without
cause on short notice. Many of our agreements do not assure specific volume or
revenue levels. In addition, our contracts generally do not provide that we will
be the client's exclusive service provider.

29

WE DEPEND ON CERTAIN CLIENT INDUSTRIES.

We derive our revenue primarily from the automotive, consumer products,
entertainment and retail industries. Fundamental changes in the business
practices of any of these client industries, whether due to regulatory,
technological, or other developments, could cause a material reduction in demand
by our clients for the services offered by us. Any reduction in demand could
have a material adverse effect on our results of operations.

OUR QUARTERLY OPERATING RESULTS MAY VARY.

We have experienced and expect to continue to experience, quarterly
variations in revenues and operating results as a result of a variety of
factors, many of which are outside our control, including:

- timing of existing and future client product launches or service
offerings;

- expiration or termination of client projects;

- timing and amount of costs incurred to expand capacity in order to
provide for further revenue growth from existing and future clients;

- seasonal nature of certain clients' businesses; and

- changes in the amount and growth rate of revenues generated from our
principal clients.

WE MAY NOT BE ABLE TO KEEP PACE WITH CHANGING TECHNOLOGY.

The markets for our business process outsourcing services are subject to
rapid technological changes and rapid changes in client requirements. This trend
could adversely affect our business and financial results and result in the loss
of clients and our ability to attract clients. While our Global Enterprise
Management proprietary system is one of the most advanced in the industry, we
cannot assure you that our competitors will not develop more sophisticated or
cost-effective systems. We cannot assure you that we will select, invest in and
develop new and enhanced technology on a timely basis in the future in order to
meet our clients' needs and maintain competitiveness. We cannot guarantee that
we will be successful in customizing products and services that incorporate new
technology on a timely basis. Our failure to successfully and timely implement
sophisticated technology or to respond effectively to technological changes
would have a material adverse effect on our success, growth prospects, results
of operations and financial condition.

WE FACE COMPETITION IN OUR INDUSTRY.

The markets in which we operate are highly competitive. Management expects
competition to persist in the future. Our competitors include small firms
offering specific applications, divisions of large companies, large independent
firms and in-house operations of our existing and potential clients. A number of
competitors have or may develop financial and other resources greater than ours.
Similarly, there can be no assurance additional competitors with greater name
recognition and resources than us will not enter the markets in which we
operate. Our performance and growth could be materially and adversely affected
if our clients decide to retain in-house the services they currently outsource,
or if potential clients retain or increase their in-house capabilities. A
decision by our large clients to consolidate their outsourced services with a
company other than ours would materially and adversely affect our business.
Competitive pressures from current or future competitors could result in
substantial price erosion, which could materially and adversely affect our
business, results of operations and financial condition.

WE MAY SUFFER LOSSES FROM BUSINESS INTERRUPTIONS.

Our operations depend on our ability to protect our facilities, clients'
products, confidential client information, computer equipment,
telecommunications equipment and software systems against damage from Internet
interruption, fire, power loss, telecommunications interruption, e-commerce
interruption, natural disaster, theft, unauthorized intrusion, computer viruses
and other emergencies. While we maintain certain procedures and contingency
plans to minimize the detrimental impact of such events, there can be no

30

assurance such procedures and plans will be successful. In the event we
experience temporary or permanent interruptions or other emergencies at one or
more of our facilities that cause interruptions in our ability to meet our
clients' requirements, it could result in decreased revenues, net income and
earnings per share. While we maintain property and business interruption
insurance, it may not adequately and/or timely compensate us for all losses we
may incur.

Further, some of our operations require timely and consistent access to
telephone, Internet, e-commerce, e-mail, facsimile connections and other forms
of communication 24 hours per day, seven days per week. We are substantially
dependent upon telephone companies, Internet service providers and various
telecommunications infrastructure to provide these forms of communication. If
such communications are interrupted on a short or long-term basis, our services
would be similarly interrupted and delayed.

We also rely on third-party carriers including United Parcel Service, Inc.
and the United States Postal Service to ship and mail products from our
distribution facility to purchasers. If our shippers experience interruptions
from labor strikes or other events, our ability to distribute products could be
impaired.

WE FACE RISKS ASSOCIATED WITH GENERAL ECONOMIC CONDITIONS.

We operate within U.S. and international economies which are subject to
various economic, market and other factors. We, as well as our clients, can be
vulnerable to recession or other significant economic events or downturn. The
U.S. economy and related financial markets have generally experienced downward
fluctuations in the past twelve months. Economic instability or continued
downturn may continue for the foreseeable future. These broad economic factors
can adversely affect our revenue.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY RISK

Our discontinued operations for 2001 include the European specialized
staffing business. Discontinued operations in 2000 and 1999 include the divested
U.S. and European aviation and facility services businesses and the U.S. and
European specialized staffing services businesses. Revenues included in
discontinued operations are received, and operating costs are incurred, in
foreign currencies (primarily the British pound and the Euro/German mark). The
denomination of foreign subsidiaries' account balances in their local currency
exposes us to certain foreign exchange rate risks. We address the exposure by
financing most working capital needs in the applicable foreign currencies. We
have not engaged in hedging transactions to reduce exposure to fluctuations in
foreign currency exchange rates.

INTEREST RATE RISK

We maintain a Credit Facility which subjects us to the risk of loss
associated with movements in market interest rates. Our Credit Facility had a
balance outstanding at December 31, 2001, of $103.9 million, which was at a
variable rate of interest. We have historically maintained an interest rate swap
agreement in an effort to hedge against increasing interest rates. The interest
rate swap agreement expired November 1, 2001. This agreement was effective
November 1, 2000, and was in the notional amount of Euro 61.6 million at a fixed
rate of 4.63% plus the applicable margin. It replaced the three-year swap
agreement effective May 14, 1999, at a notional amount of approximately $45.0
million, and the January 31, 2000 additional interest rate swap agreement in the
notional amount of approximately $15.0 million.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires recognition of all derivatives
as either assets or liabilities in the statement of financial position at their
fair value. SFAS No. 133 was subsequently amended by SFAS No. 137 and SFAS No.
138 to, among other things, defer the effective date of SFAS No. 133. AHL
adopted SFAS No. 133 on January 1, 2001. The new standard did not have a
material impact on our financial position or results of operations.

31

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements are listed under Item 14(a) of this Annual Report
on Form 10-K and are filed as part of this report on the pages indicated. The
supplementary data are included under Item 7 of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The sections under the heading "Election of Directors" entitled "Nominees
for Election -- Term Expiring 2005", "Nominee for Election -- Term Expiring
2004", Nominee for Election -- Term Expiring 2003", "Incumbent Director -- Term
Expiring 2004" and "Incumbent Director -- Term Expiring 2003" of the Proxy
Statement for the Annual Meeting of Shareholders to be held May 14, 2002 (the
"Proxy Statement") are incorporated herein by reference. See Item 4.1 in Part I
hereof for information regarding executive officers of the Registrant. The
section under the heading "Other Matters" entitled "Section 16(a) Beneficial
Ownership Reporting Compliance" of the Proxy Statement is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

The section under the heading "Election of Directors" entitled
"Compensation of Directors" of the Proxy Statement and the sections under the
heading "Executive Compensation" entitled "Summary Compensation Table", "Option
Grants Table", "Fiscal Year-End Option Value", "Employment and Severance
Agreements" and "Compensation Committee Interlocks and Insider Participation" of
the Proxy Statement are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The section under the heading "Common Stock Ownership by Management and
Principal Shareholders" of the Proxy Statement is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The section under the heading "Certain Transactions and Business
Relationships" of the Proxy Statement is incorporated herein by reference.

32

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements and Schedules

1. The following financial statements and schedules are filed herewith:

(i) Consolidated Balance Sheets as of December 31, 2001 and 2000.

(ii) Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999.

(iii) Consolidated Statements of Shareholders' Equity for the years
ended December 31, 2001, 2000 and 1999.

(iv) Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999.

(v) Notes to consolidated financial statements.

(vi) Schedule II -- Valuation and Qualifying Accounts.

2. Exhibits

See Item 14(c) below.

(b) The Registrant filed no Reports on Form 8-K during its fourth fiscal
quarter.

(c) Exhibits.

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

* Filed herewith.

34

AHL SERVICES, INC.

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

Independent Auditors' Report................................ F-2

Consolidated Balance Sheets................................. F-3

Consolidated Statements of Operations....................... F-4

Consolidated Statements of Shareholders' Equity............. F-5

Consolidated Statements of Cash Flows....................... F-6

Notes to Consolidated Financial Statements.................. F-7

Schedule II -- Valuation and Qualifying Accounts............ F-24

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To AHL Services, Inc.:

We have audited the accompanying consolidated balance sheets of AHL
SERVICES, INC. (a Georgia corporation) AND SUBSIDIARIES as of December 31, 2001
and 2000, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and the
schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AHL Services, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
April 12, 2002

F-2

AHL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The accompanying notes are an integral part of these consolidated financial
statements.
F-3

AHL SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of these consolidated financial
statements.
F-4

AHL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

The accompanying notes are an integral part of these consolidated financial
statements.
F-5

AHL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.
F-6

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS

ORGANIZATION AND BUSINESS

The continuing operations of AHL Services, Inc. ("AHL" or the "Company"), a
Georgia corporation incorporated in March 1997, provide outsourced marketing
services. The Company's service offerings include trade and consumer fulfillment
services, customer contact management and in-store merchandising. The Company
currently operates in one segment, with continuing operations in North America.

BASIS OF PRESENTATION

On July 20, 2001, AHL announced, as part of the strategic transformation of
the business, its intention to divest the European specialized staffing services
business. On March 19, 2002, the Company sold its United Kingdom specialized
staffing services business for $29.5 million in cash (see Note 13). AHL is in
discussions with potential acquirers of the German staffing business. It is the
intention of the Company to complete this divestiture during the first half of
2002. On December 29, 2000, wholly-owned subsidiaries of AHL sold the stock in
the Company's subsidiaries Argenbright Security, Inc. and The ADI Group Limited,
AHL's U.S. and European aviation and facility services businesses. On October
13, 2000, AHL sold the assets of its U.S. specialized staffing business to an
investor group led by the President of AHL's Baltimore staffing operation. On
December 28, 2000, AHL made the decision to abandon operations of its store
set-up business unit, formerly called PIMMS.

Reported results from operations include the continuing marketing services
businesses as well as the abandoned PIMMS store set-up business. The results of
the aviation and facility services businesses and specialized staffing services
businesses have been presented as discontinued operations for all periods
presented (see Note 3). The accompanying notes to the consolidated financial
statements, except Note 3, relate only to the continuing operations of AHL.

PUBLIC OFFERING

AHL completed its initial public offering of common stock in March 1997,
raising net proceeds of approximately $22.0 million. The Company completed a
follow-on public offering in October 1997, raising net proceeds of approximately
$41.0 million. In January 1999, the Company completed a follow-on public
offering of 3,255,570 shares of its common stock at an offering price of $31 per
share. The total proceeds, net of underwriting discounts and offering expenses,
were approximately $95.6 million. The proceeds were used to repay debt.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
AHL and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

FISCAL YEAR-END

The Company's fiscal year-end is December 31. The Company's U.S. operations
maintains its books by using a 52/53-week fiscal year ending on the last Friday
in December. The Company's U.S. operation's fiscal years ended on December 28,
2001, December 29, 2000, and December 31, 1999. Fiscal years 2001 and 2000
include 52 weeks. Fiscal year 1999 includes 53 weeks. Management believes that
the impact of the use of different year-ends is immaterial to the Company's
consolidated financial statements taken as a whole.

F-7

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain prior period amounts, including those of discontinued operations,
have been reclassified to conform with current year presentation.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents, which include highly liquid investments with
original purchase maturities of three months or less, are stated at cost which
approximates fair value.

REVENUE RECOGNITION

AHL derives its revenue primarily from two sources: (1) fulfillment
operations and (2) the delivery of business services. AHL's fulfillment services
operations record revenue at the conclusion of the material selection, packaging
and shipping process. AHL's customer services businesses recognize revenue
according to written pricing agreements based on the number of calls, agents
assigned or in-store visits. The Company recognizes revenues as programs are
completed, services are rendered and/or as products are shipped in accordance
with the terms of the contracts. Some of the contracts include postage and other
items purchased by the Company as an agent on behalf of its client. For these
items, the Company records the net billings to its customers as revenue.

The Securities and Exchange Commission ("SEC") staff issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements", that was applicable to AHL in its fourth quarter of fiscal year
2000. SAB No. 101 reflects the basic principles of revenue recognition in
existing accounting principles generally accepted in the United States and does
not supersede any existing authoritative literature. SAB No. 101 represents the
interpretations and practices of the SEC in administering the disclosure
requirements of the United States securities laws. Some of the topics addressed
by SAB No. 101 include persuasive evidence of an arrangement, delivery or
performance, customer acceptance and a fixed or determinable price. These
guidelines did not have a material impact on AHL's revenue recognition
practices.

During the year ended December 31, 2001, the Company had one customer that
accounted for greater than 10% of revenues. During 2000 and 1999, there were no
individual customers that accounted for more than 10% of the Company's revenues
from continuing operations.

INTEREST ALLOCATION

The Company allocates interest expense to discontinued operations in
accordance with Emerging Issues Task Force ("EITF") No. 87-24, which generally
requires an allocation based on the net assets of the discontinued operations
relative to the total net assets plus debt of the consolidated company, or based
on debt that can be identified as being directly attributable to the
discontinued operations. For fiscal years 2001, 2000 and 1999, interest expense
of approximately $2.9 million, $15.3 million and $10.9 million, respectively,
was allocated to discontinued operations.

F-8

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

UNBILLED SERVICES

Unbilled services represent revenues recorded on services rendered,
programs completed, or product that has been shipped for which the customer has
yet to be billed.

WORK IN PROCESS

Work in process consists of labor and material costs for fulfillment
programs and merchandising support services provided to customers that have not
been completed. Work in process is recognized as a cost in future periods as the
revenue is recognized.

REIMBURSABLE CUSTOMER EXPENSES

Reimbursable customer expenses consist of amounts billed to customers for
freight and postage related to fulfillment services and travel expenses related
to merchandising services.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided using the
straight-line method over estimated useful lives of three to 10 years for
furniture and equipment and three to five years for computer software. Leasehold
improvements are amortized over the lesser of their useful lives or the terms of
the related leases. When assets are retired or sold, the cost and related
accumulated depreciation and amortization are removed from the accounts and any
gain or loss is reflected in income.

The Company accounts for internally developed software in accordance with
Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 provides for the
capitalization of certain internal software development costs and amortization
over the life of the related software. Amounts capitalized during fiscal years
2001 and 2000 were $6.4 million and $3.1 million, respectively.

Property and equipment consist of the following:

Depreciation and amortization expense was $11.1 million, $4.0 million and
$1.5 million for the years ended December 31, 2001, 2000 and 1999, respectively.
In 2001, depreciation and amortization expense included a write off of $7.9
million, consisting of $4.4 million for various equipment and leasehold
improvements replaced during 2001 and $3.5 million for internally developed
software replaced during 2001.

F-9

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTANGIBLES, NET

Intangible assets consist of the following:

Goodwill equal to the fair value of consideration paid in excess of the
fair value of net assets purchased has been recorded in conjunction with several
of the Company's acquisitions and is being amortized on a straight line basis
over periods of 20 to 40 years. Other intangibles consist of customer lists,
non-compete agreements and other items, and are being amortized over periods of
10 to 20 years. Amortization expense for goodwill and other intangibles was $5.6
million, $5.7 million and $4.5 million for the years ended December 31, 2001,
2000 and 1999, respectively.

When conditions or events occur that management believes might indicate
that the goodwill or any other intangible asset is impaired, an analysis of
estimated future undiscounted cash flows is undertaken to determine if any write
down in the carrying value of the asset is required. The analysis of estimated
future undiscounted cash flows showed that no impairment of goodwill or other
intangible assets existed as of December 31, 2001. The preparation of
projections of future undiscounted cash flows involves the use of a combination
of available facts, data, assumptions and judgment. It is therefore possible
that actual results may differ materially from the projections used to conclude
that no impairment of goodwill or other intangible assets existed at December
31, 2001.

EARNINGS PER SHARE

Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", has been applied to all periods presented in these financial statements.
SFAS No. 128 requires disclosure of basic and diluted earnings per share. Basic
earnings per share is based on the weighted average number of shares outstanding
during the period. Diluted earnings per share is based on the weighted average
number of shares outstanding and the dilutive effect, if any, of common stock
equivalent shares issuable upon the conversion of stock options (using the
treasury stock method). Because of the loss from continuing operations for the
years ended December 31, 2001 and 2000, diluted earnings per share for these
fiscal years do not consider the incremental shares from assumed conversion of
stock options granted. The number of potential shares of common stock excluded
from the calculation of diluted shares outstanding for fiscal years 2001 and
2000 were 38,000 and 92,000, respectively.

F-10

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table reconciles the denominator of the basic and diluted
earnings per share computations:

FOREIGN CURRENCY TRANSLATION AND EXPOSURE

In the accompanying consolidated balance sheets, all asset and liability
accounts of foreign subsidiaries are included as net assets of discontinued
operations, and have been translated into U.S. dollars at the rate of exchange
in effect at the balance sheet date. All income statement accounts of foreign
subsidiaries included in discontinued operations in the accompanying
consolidated statements of operations are translated at average exchange rates
during the year. Gains or losses on foreign currency transactions are included
in income as incurred. The denomination of foreign subsidiaries' account
balances in their local currencies exposes the Company to certain foreign
exchange rate risks. The Company addresses the exposure by financing most
working capital needs in the applicable foreign currencies. The Company does not
engage in other purchased hedging transactions to reduce any remaining exposure
to fluctuations in foreign currency exchange rates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of the fair value, or the amount at which the instrument
could be exchanged in a current transaction between willing parties, of certain
financial instruments. The Company's carrying value of debt approximated fair
value since most of the debt matures within 30-90 days of incurrence and is
renewed at current interest rates. The carrying value of all other financial
instruments approximated fair value due to their short-term nature. Cash and
cash equivalents, accounts receivable, unbilled services and accounts payable
approximate fair value because of the relatively short maturity of these
instruments.

NEW ACCOUNTING PRONOUNCEMENTS

SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires recognition of all derivatives
as either assets or liabilities in the statement of financial position at their
fair value. SFAS No. 133 was subsequently amended by SFAS No. 137 and SFAS No.
138 to, among other things, defer the effective date of SFAS No. 133. AHL
adopted SFAS No. 133 on January 1, 2001. The new standard did not have a
material impact on the Company's financial position or results of operations.

In July 2001, SFAS No. 141, "Business Combinations", was issued. SFAS No.
141 prospectively eliminates the pooling-of-interests method of accounting for
business combinations and further clarifies the criteria to recognize intangible
assets separately from goodwill. SFAS No. 141 is effective for any business
combination completed after June 30, 2001. The adoption of SFAS No. 141 did not
have an effect on the Company's financial position or results of operations.

In July 2001, SFAS No. 142, "Goodwill and Other Intangible Assets", was
issued. Under SFAS No. 142, goodwill and indefinite lived intangible assets are
no longer amortized but are reviewed annually for impairment. Separable
intangible assets that are not deemed to have indefinite life will continue to
be
F-11

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

amortized over their useful lives. The Company will adopt the provisions of SFAS
No. 142 effective January 1, 2002. This change in accounting will increase 2002
net income by approximately $2.2 million or $0.15 per share, because goodwill
will no longer be amortized. The standard also requires a reassessment of the
useful lives of identifiable intangible assets other than goodwill and a test
for impairment of goodwill and intangibles with indefinite lives annually,
unless events and circumstances indicate that the carrying amounts may not be
recoverable. The Company does not anticipate recording any related impairment
charges.

In August 2001, SFAS No. 143, "Accounting for Asset Retirement
Obligations", (effective for AHL January 1, 2003) and SFAS No. 144, "Accounting
for Impairment or Disposal of Long-Lived Assets", (effective for AHL January 1,
2002) were issued. SFAS No. 143 requires that entities recognize the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred if a reasonable estimate of fair value can be made. SFAS No. 144
addresses financial accounting and reporting for the impairment of long-lived
assets and for long-lived assets to be disposed of. The statement supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", and among other factors, establishes
criteria beyond that previously specified in SFAS No. 121 to determine when a
long-lived asset is to be considered as held for sale. The adoption of SFAS No.
143 and SFAS No. 144 is not expected to have a significant impact on the
Company's financial position or results of operations.

3. DIVESTITURES AND ABANDONMENTS

DISCONTINUED OPERATIONS

On March 19, 2002, AHL sold its United Kingdom specialized staffing
services business for $29.5 million in cash. Net of transaction costs of $2.7
million, the sale yielded $26.8 million of proceeds, which were used to reduce
outstanding debt. AHL recorded a charge of $9.4 million in the fourth quarter of
2001 to reduce the net assets of the UK business to their realizable value.

On July 20, 2001, AHL announced, as part of the strategic transformation of
the business, its intention to divest the European specialized staffing services
business. Deutsche Bank has been retained as its advisors and discussions are
underway with potential acquirers of the German staffing business. After a
comprehensive review of the business by Deutsche Bank, and due to current
economic and capital market conditions, the Company adjusted the net basis of
the European specialized staffing services business in the third quarter of 2001
to approximately $92.0 million, taking a charge of $25.0 million. Based on
current negotiations, and concurrent with the $9.4 million charge taken in the
fourth quarter of 2001 for the UK business, AHL recorded an additional charge of
$20.8 million related to the impairment of goodwill on the German business. The
Company intends to complete this divestiture during the first half of 2002. Net
proceeds from the divestiture will be used to further reduce outstanding debt.

On December 29, 2000, AHL sold its U.S. and European aviation and facility
services businesses for $185 million in cash to Securicor plc ("Securicor"), a
business services company headquartered in the United Kingdom. The sale resulted
in a gain of $50.0 million, net of taxes of $30.1 million, on a net book value
of assets and liabilities of $82.7 million, less disposal and transaction costs
of $12.2 million and less a reserve for the possible downward purchase price
adjustment of $10.0 million. Net after-tax proceeds were used to reduce debt.
The sale price for the U.S. and European aviation and facilities services
businesses was subject to post-closing adjustments based upon the 2001 actual
performance of the businesses and a reconciliation of actual closing-date
working capital to a target level of working capital.

On April 12, 2002, AHL entered into a definitive settlement agreement with
Securicor pursuant to which AHL agreed to pay Securicor $13.0 million with
respect to the adjustments. Securicor also released AHL from all pending and
potential indemnity claims related to the sale of the U.S. and European aviation
and facility services businesses, with limited exceptions. In connection with
the settlement, AHL agreed to pay to Mr. Frank Argenbright, the Chairman of its
board of directors, $5.0 million.

F-12

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

AHL's obligation to pay Securicor the $13.0 million settlement payment is
evidenced by two secured, subordinated promissory notes in the amounts of $10.0
million and $3.0 million. AHL's obligation to pay the $13.0 million settlement
payment matures in two installments. The first installment, in the amount of
$9.0 million, matures on April 12, 2003; the remaining installment of $4.0
million matures on October 12, 2003. AHL may prepay the notes at any time
without premium or penalty. If AHL pays $10.0 million of the settlement amount
on or before October 12, 2002, Securicor is obligated to forgive the remaining
$3.0 million. The notes are secured by a lien on substantially all of AHL's
assets and a lien on substantially all of the assets of its U.S. subsidiaries.
AHL's obligation to pay the settlement amount, and the lien securing the
obligation, is subordinate to its obligation to pay all amounts outstanding or
due pursuant to our existing credit agreement and any substitute or replacement
senior secured bank credit arrangement. The notes bear interest at a rate of 7%
per annum. Interest on the notes will accrue and be added to the principal until
AHL repays or refinances the amounts outstanding under the credit agreement, at
which time interest on the notes will be payable quarterly. AHL's obligation to
pay Mr. Argenbright $5.0 million is unsecured and does not bear interest. The
obligation matures on October 12, 2003. The obligation to pay Mr. Argenbright is
subject to AHL's prior payment of all amounts owing to Securicor; however, if
AHL repays $10.0 million of the amount owed to Securicor on or before October 12
2002, then AHL has agreed, at the same time, to pay Mr. Argenbright $3.0 million
of the amount owed to him.

At December 31, 2000, AHL had recorded a total of $12.8 million for the
final settlement, with $10.0 million classified as a settlement obligation in
the accompanying consolidated balance sheets, and an additional $2.8 million in
accrued expenses for the closing date working capital adjustment. In 2001, AHL
recorded an additional reserve of $5.2 million to accrue to the final
settlement. In addition to the $18.0 million reserved for the settlement, in
2001 AHL expensed $4.3 million for various costs related to the sale, including
$2.0 million paid to Mr. Argenbright in satisfaction and termination of his
performance bonus agreement, $1.0 million in estimated legal fees and $1.3
million in working capital adjustments.

On October 13, 2000, AHL sold the assets of its U.S. specialized staffing
business to an investor group led by the President of AHL's Baltimore staffing
operation for $22.5 million, which included notes receivable from the purchaser
of $9.5 million, resulting in a loss of $1.7 million, net of tax benefit of $1.2
million. Due to the current economic downturn affecting the U.S. specialized
staffing industry, in 2001 the term of the $2.0 million note receivable due in
October 2001 was extended, and therefore has been reclassified as a non-current
note receivable. Interest payments on the notes receivable have not been
received since May 2001, and thus the Company has ceased accruing interest
income. Management believes the notes receivable, as well as interest thereon,
will ultimately be collected, however, such collection could be dependent upon
the economic conditions impacting the U.S. specialized staffing industry and the
borrower's ability to obtain additional capital. As a result, in 2001 the
Company adjusted the net carrying value of the notes receivable balance to $5.0
million, taking an additional charge of $3.7 million recorded in corporate
general and administrative expenses in the accompanying consolidated statements
of operations.

In accordance with the provisions of Accounting Principles Board Opinion
No. 30, the Company has reflected the results of its U.S. and European aviation
and facility services businesses and its U.S. and European specialized staffing
businesses as discontinued operations in the accompanying consolidated balance
sheets and statements of operations and cash flows. For all periods presented
this presentation reflects the net assets of these operations as a single line
segregated from the assets and liabilities of continuing operations, and the
earnings of these businesses as single line items segregated from the results of
continuing operations.

Revenues of discontinued operations were $227.9 million, $707.0 million and
$658.0 million in fiscal 2001, 2000 and 1999, respectively. It is the Company's
policy to allocate interest expense to discontinued operations in accordance
with EITF 87-24, which generally requires an allocation based on the net assets
of the discontinued operations relative to the total net assets plus debt of the
consolidated company, or based on debt that can be identified as being directly
attributable to the discontinued operations. Interest allocated to

F-13

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

discontinued operations was $2.9 million, $15.3 million and $10.9 million for
fiscal 2001, 2000 and 1999, respectively. Income (loss) from discontinued
operations of ($74.1) million, $52.0 million, and $15.0 million in fiscal 2001,
2000, and 1999 respectively, are net of income taxes of $147,000, $32.2 million
and $9.8 million, for fiscal 2001, 2000 and 1999, respectively.

OTHER DIVESTITURES AND ABANDONMENTS

On December 28, 2000, AHL made the decision to abandon operations of its
store set-up business unit, formerly called PIMMS. A comprehensive strategic
review of the unprofitable store set-up business indicated AHL had more
attractive options, and that the store set-up business did not meet criteria for
continued investment. The store set-up business had become more project-driven
than anticipated with increasing surge capacity requirements and difficulties in
forecasting utilization rates. To become a profitable business would have
required significant additional investment to develop geographic density and
maintain a national infrastructure. AHL completed the closing of the PIMMS
business unit on March 16, 2001. The results of the PIMMS business are reflected
within continuing operations from the date of acquisition, April 30, 1999,
through the closing date in the accompanying consolidated financial statements.

On June 30, 1999, AHL sold its United Kingdom bus transportation business
to National Express Group PLC. The shuttle bus business generated approximately
$6.0 million in revenues in 1998. As a result of this divestiture, AHL recorded
a gain of approximately $400,000 in the year ended December 31, 1999 and
assigned approximately $4.0 million in lease obligations to the purchaser.

4. ACQUISITIONS

During 1999, AHL completed three acquisitions of marketing services
businesses. In December 1999, the Company acquired ServiceAdvantage,
headquartered in Taylorville, Illinois for $19.9 million. In September 1999, the
Company acquired CDI, headquartered in Minneapolis, Minnesota for $5.2 million.
In April 1999, the Company acquired PIMMS, headquartered in Minneapolis,
Minnesota for $65.0 million. These acquisitions were financed with borrowings
under AHL's bank revolving Credit Facility and proceeds from its follow-on
public offering in January 1999.

The acquisitions were accounted for using the purchase method of
accounting. As a result, the purchase prices have been allocated to the assets
acquired, including intangibles, based on their respective estimated fair
values. Certain purchase agreements required additional payments based upon
future operating results. Any contingent consideration amounts, when earned,
were applied to goodwill of the respective acquisition. In January 2001, the
Company paid $12.9 million for the final contingent consideration payment on the
ServiceAdvantage acquisition. The amount was included as a contingent
consideration payable at December 31, 2000 in the accompanying consolidated
balance sheets.

F-14

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's unaudited pro forma results of continuing operations for the
year ended December 31, 1999 are presented assuming that the acquisitions had
been consummated January 1, 1999, and are not necessarily indicative of the
results of operations which would have actually been obtained.

Pro forma adjustments were recorded to include (i) increased interest
expense to reflect interest on long-term debt borrowed to effect the
acquisitions; (ii) increased depreciation and amortization expense as a result
of the excess of the purchase price over the book value; and, (iii) provision
for income taxes for net income of the acquired companies and pro forma
adjustments.

5. RESTRUCTURE AND OTHER UNUSUAL ITEMS

Due to the difficult economic environment, the Company performed a
strategic review of continuing operations and recorded charges to operations of
$37.5 million during the third and fourth quarters of 2001. Charges to field
operating expenses totaled $15.8 million and consisted of $4.4 million for
estimated uncollectible accounts receivable, $3.8 million for the estimated
costs of buying out unattractive or redundant leases, $2.9 million for workers'
compensation claims, legal and other expenses related to the abandoned PIMMS
operation, and $4.7 million for legal, bonus, severance for 66 employees and
other costs associated with the Company's efforts to streamline operations. In
the fourth quarter of 2001, the Company recorded an additional charge for $2.9
million to reserve against an outstanding receivable for a customer in
bankruptcy proceedings. Charges to corporate general and administrative expenses
totaled $10.9 million and included a charge of $3.7 million to adjust the note
receivable balance due from the sale of the Company's U.S. specialized staffing
businesses to its estimated net realizable value. The remaining $7.2 million in
charges included $3.8 million to expense various business development costs
incurred which, based on the current economic environment, will not be realized
and charges of $2.6 million and $823,000 for severance for twelve employees and
lease costs, respectively, incurred in conjunction with the closing of the
Atlanta corporate offices. Finally, the Company recorded additional charges to
depreciation and amortization expense of $7.9 million during 2001, consisting of
$4.4 million for various equipment and leasehold improvements at the facilities
replaced during 2001 and $3.5 million for internally developed software which
was replaced during 2001.

On December 28, 2000, AHL made the decision to abandon operations of its
store set-up business unit, formerly called PIMMS. As a result of this decision,
the Company recorded $66.7 million in impairment and other related costs in
December 2000, including a write-off of goodwill of $60.1 million, a write down
of assets, primarily computer systems which will no longer be utilized, of $2.6
million, severance costs paid during 2000 of $2.6 million and the accrual for
lease termination costs for the PIMMS facility of $1.4 million. In addition, the
Company recorded, in field operating expenses, $12.8 million in working capital
adjustments related to the abandoned PIMMS operations, primarily for disputed
accounts receivable. The Company completed the closing of the PIMMS business
unit on March 16, 2001, and recorded a final charge for the related severance
expense for 188 employees of approximately $2.5 million in 2001.

F-15

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The restructure charges are recorded in accordance with EITF No. 94-3,
"Liability Recognition for Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)". The following table summarizes the activity in
the restructuring liability accounts for the years ended December 31, 2001 and
2000:

6. INCOME TAXES

The income tax (benefit) provision attributable to continuing operations
consists of the following:

For the years ended December 31, 2001, 2000 and 1999, income tax expense of
$147,000, $32.2 million and $9.8 million has been allocated to discontinued
operations.

The reconciliation of the federal statutory rate to the Company's effective
tax provision attributable to continuing operations is as follows:

F-16

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts. The tax effect of significant temporary differences
representing deferred tax assets and liabilities is as follows:

The Company has established a valuation allowance of $9.3 million at
December 31, 2001 to reserve for approximately 85% of the net deferred tax
asset. The valuation allowance was established due to the uncertainty regarding
the realization of these assets.

As a result of passage of the Job Creation and Worker Assistance Act of
2002, at December 31, 2001, the Company has federal general business credit
carryforwards available of approximately $2 million, which begin to expire in
2018, and foreign tax credit carryforwards available of approximately $1
million, which expire in 2006. The utilization of these carryforwards is
dependent upon the Company's ability to generate sufficient taxable income
and/or foreign source income during the carryforward periods, and are subject to
limitations imposed under Section 382 of the Internal Revenue Code.

F-17

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM DEBT

Long-term debt consists of the following:

Future aggregate annual maturities of long-term debt are as follows at
December 31, 2001:

The Company obtains its working capital from borrowings pursuant to a
Credit Facility with a syndicate of commercial banks. Wachovia Bank, National
Association is the Administrative Agent for the lenders. The Company's
borrowings under the Credit Facility are secured by a lien on substantially all
of its assets and the assets of its operating subsidiaries.

The Company was not in compliance with certain of its covenants as of
December 31, 2001, and has received a waiver from its bank group with respect to
the non-compliance with these covenants for the periods of November 9, 2001
through April 15, 2002. On April 12, 2002, AHL reached an agreement with its
banks to amend the facility. The amendment eliminated the default, extended the
maturity of the Credit Facility from April 15, 2002 to January 3, 2003, reduced
the amount the Company is permitted to borrow, increased the interest rates on
the Credit Facility and modified the financial covenants. Under the amended
agreement, at April 12, 2002, the Company is permitted to borrow up to $89.2
million. The amount that the Company is permitted to borrow decreases
incrementally each month to approximately $74.1 million as of December 31, 2002.

Under the Credit Facility, AHL is required to satisfy covenants relating to
minimum consolidated adjusted EBITDA, fixed charge coverage ratios and
limitations on capital expenditures, among others. The Company has monthly
targets for each financial covenant that it must meet. If the Company fails to
comply with the covenants, it will be in default. Upon the occurrence of a
default, unless the lenders grant a further waiver, the Company will not be
permitted to borrow additional amounts under the Credit Facility, and the
outstanding amounts will become immediately due and payable.

F-18

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As required by the amended Credit Facility, AHL has retained an investment
banking firm and is diligently pursuing opportunities for raising cash through
the sale of debt or equity securities. Any proceeds from the sale of such
securities will be used to reduce the outstanding amounts under the Credit
Facility.

As previously announced, AHL is diligently pursuing the sale of its German
specialized staffing business. Management believes that the Company will be able
to dispose of the business in the upcoming months. The net cash proceeds from
the sale will be used to reduce the outstanding amounts under the Credit
Facility.

Even if AHL is successful in completing the sale of its German business and
close on the sale of debt or equity securities in the upcoming months, the
Company may not be able to fully repay the amounts outstanding under the Credit
Facility, and may be required to obtain additional cash pursuant to a
replacement senior secured credit facility. AHL is in preliminary discussions
with several lenders about providing the necessary financing. If the Company has
not repaid the facility in full by September 30, 2002, it is required to pursue
other measures to obtain funds sufficient to repay the borrowings, including a
business combination transaction.

At December 31, 2001, $103.9 million was outstanding, (with approximately
$58.0 million denominated in Euros) and $1.9 million was utilized under standby
letters of credit. The carrying value of the Credit Facility approximates its
fair value.

Of the $103.9 million in aggregate commitments, the U.S. dollar equivalent
of $58.0 million is available in certain foreign currencies. At December 31,
2001, the interest rate under the Credit Facility is based, at the Company's
option, upon LIBOR plus an applicable margin, the domestic base rate plus an
applicable margin (in the case of United States dollar borrowings) or the
foreign base rate plus an applicable margin (in the case of borrowings
denominated in pounds sterling or Euros/German marks). The domestic base rate is
the greater of the rate publicly announced by First Union National Bank as its
prime rate or the federal funds rate plus 50 basis points. The foreign base rate
is the domestic prime rate. The applicable margin for LIBOR borrowings is based
on a matrix ranging from 137.5 basis points to 212.5 basis points, based on the
ratio of the Company's most recently reported total indebtedness to pro forma
adjusted EBITDA.

Effective December 29, 2000, AHL amended its Credit Facility to reduce the
aggregate commitments from its lenders, subsequent to the sale of the U.S. and
European aviation and facility services businesses, to $201.3 million from
$375.0 million and to change the maturity date to April 15, 2002.

The Company has historically maintained an interest rate swap agreement in
an effort to hedge against increasing interest rates. The interest rate swap
agreement expired November 1, 2001. This agreement was effective November 1,
2000, and was in the notional amount of Euro 61.6 million at a fixed rate of
4.63% plus the applicable margin. It replaced the three-year swap agreement
effective May 14, 1999, at a notional amount of approximately $45.0 million, and
the January 31, 2000 additional interest rate swap agreement in the notional
amount of approximately $15.0 million.

8. SEGMENT REPORTING

Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. The Company's chief operating decision maker is its
senior management team. Although the Company has historically operated in
several segments, continuing operations include only the Company's marketing
services operations. Within these operations, the Company has several divisions
providing outsourced marketing services. Because each of the divisions has
similar economic characteristics, clients and services, however, they have been
aggregated into one reportable segment.

F-19

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. RELATED-PARTY TRANSACTIONS

In the normal course of business, the Company records revenues from a
customer that is controlled by a member of the board of directors of the
Company. Approximately $189,000 and $146,000 were due from this customer as of
December 31, 2001 and 2000, respectively, and revenues recognized from this
customer for the years ended December 31, 2001, 2000 and 1999, totaled $718,000,
$1.4 million, and $1.3 million, respectively.

In connection with the Company's settlement agreement with Securicor over
the sale of its U.S. and European aviation and facility services businesses, the
Company agreed to pay $5 million to AHL's Chairman of the board of directors,
Frank Argenbright Jr. The payment is due October 12, 2003. In addition, upon the
cessation of Mr. Argenbright's employment with AHL in 2001, the Company paid
$2.0 million to Mr. Argenbright in satisfaction and termination of his
performance bonus agreement.

10. STOCK-BASED COMPENSATION

In October 1996, the Company issued nonqualified stock options to purchase
107,500 shares of common stock at $4.64 per share to a former officer. The
options became exercisable upon grant. In December 1996, the Company issued
nonqualified stock options to purchase 591,250 shares of common stock at $11.76
per share. The options become exercisable ratably over five years. Effective
February 28, 1997, the Company amended its employment agreements with three
former officers. The amendment provided for 16,250 additional options to
purchase shares of common stock at $10.75 per share, exercisable ratably over
periods up to five years. The amendment also reduced the exercise price of the
December 1996 option grants from $11.76 per share to $10.75 per share.
Concurrent with the initial public offering in March 1997, the exercise price
was changed from $10.75 to $10 per share.

STOCK OPTION PLAN

The Company's stock option plan (the "Plan") provides for the award of
incentive stock options to officers and employees of the Company and
nonqualified stock options to officers, employees and independent directors of
the Company. In February 1997, the Company reserved 385,000 shares of common
stock for issuance under the Plan. The Company expanded the Plan in May 1998 by
approving the reservation of 3,115,000 additional shares. An additional
1,000,0000 shares were added to the Plan effective October 2001, subject to
shareholder approval. As of December 31, 2001, 1,908,050 options to purchase
common stock were reserved under the Plan. The Plan is administered by the
compensation committee of the board of directors. The purchase price of common
stock upon grant of stock options must not be less than the fair market value of
the common stock on the date of grant. The maximum term of any stock option is
10 years. The aggregate fair market value on the date of the grant of the stock
for which stock options are exercisable for the first time by an employee during
any calendar year may not exceed $100,000. Options are exercisable over a period
of time in accordance with the terms of option agreements entered into at the
time of grant. Options granted under the Plan are generally nontransferable by
the optionee and, unless otherwise determined by the compensation committee,
must be exercised by the optionee during the period of the optionee's employment
or service with the Company.

During 2001, the Company filed a tender offer statement whereby certain
employees were offered the opportunity to exchange their existing options to
purchase shares of common stock as granted under the Plan for new options to be
granted under the Plan on or after July 1, 2002. The number of shares to be
granted to employees will be equal to the number of shares exchanged by the
option holder, subject to adjustments for any stock splits, stock dividends and
similar events that occur prior to the replacement date. The exercise price of
the new option will be equal to the closing sale price of common stock as
reported on the replacement grant date, or $5.00, whichever is greater.
Directors and Officers of the Company were not eligible to participate in the
exchange.

F-20

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STOCK OPTION SUMMARY

The following is a summary of the Company's stock option information:

The Company accounts for stock option grants using the intrinsic value
method under APB Opinion No. 25, "Accounting for Stock Issued to Employees",
under which no compensation cost has been recognized. Had compensation cost for
these plans been determined using the fair value method consistent with SFAS No.
123, "Accounting for Stock-Based Compensation", the Company's net income and
earnings per share would have been reduced to the following pro forma amounts
during 2001, 2000 and 1999:

F-21

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted average fair value of options granted was $4.30, $4.45 and
$13.74 for fiscal years 2001, 2000 and 1999, respectively. The fair value of
each option granted is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 2001, 2000 and 1999:

11. EMPLOYEE BENEFIT PLANS

EMPLOYEE STOCK PURCHASE PLAN

The Company adopted, effective July 29, 1997, an employee stock purchase
plan. Effective April 1, 1999 the plan was amended and restated. The plan
permits employees to purchase shares of common stock at a price equal to 90% of
the purchase price on the date of purchase. The Company has historically
purchased such shares of common stock on the open market.

DEFERRED COMPENSATION PLAN

The Company has a nonqualified deferred compensation plan covering
management and highly compensated employees. The plan allows participants to
defer a portion of their annual compensation, with a minimum requirement of
$1,000 but not to exceed 35% of compensation, to the plan. The plan allows the
Company to make discretionary matching contributions to the plan; employees vest
ratably over five years on all matching contributions. Employees may elect to
have deferrals made to either a retirement, education or fixed plan account. The
Company has never made a matching contribution to this plan. Approximately
$538,000 and $680,000 related to this plan is included in other current
liabilities at December 31, 2001 and 2000, respectively, in the accompanying
consolidated balance sheets.

401(K) PLAN

The Company has a 401(k) plan offered to all employees who meet the age and
service requirements. New employees may participate in the plan after three
months of employment. The plan requires the Company to match a certain
percentage of the amounts contributed by the employees. Employees are eligible
for the Company match after one year of employment. The Company expensed
$840,000, $764,000 and $416,000 for the employer match for the years ended
December 31, 2001, 2000 and 1999, respectively.

12. COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases office and warehouse space and equipment under lease
agreements expiring through October 2016. Rental expense under these operating
leases was $13.1 million, $11.7 million and $8.5 million in fiscal 2001, 2000
and 1999, respectively.

The lease on the former executive headquarters in Atlanta, Georgia expires
June 2003; effective March 2002, the Company has negotiated a sublease with a
third party for the lease term. At December 31, 2001, AHL has reserved $400,000
for the lease costs on the remaining term of the lease. Funds received for the
sublease of the headquarters in 2002 and 2003 will be used to reduce rent
expense for those periods.

F-22

AHL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum lease payments for noncancelable leases were as follows at
December 31, 2001:

INSURANCE

The Company participates in partially self-insured, high-deductible
workers' compensation and auto insurance plans. Exposure is limited per
occurrence ($250,000 for workers' compensation and auto liability claims) and in
the aggregate. In addition, the Company is partially self-insured for health
claims for certain U.S. employees. Reserves are estimated for both reported and
unreported claims. Revisions to estimated reserves are recorded in the periods
in which they become known. Estimated self-insurance reserves for workers'
compensation and auto liability claims as of December 31, 2001 and 2000,
totaling $1.8 million and $2.0 million, respectively, represent management's
best estimate. While there can be no assurance that actual future claims will
not exceed the amount of the Company's reserves, in the opinion of the Company's
management, any future adjustments to estimated reserves included in the
accompanying consolidated balance sheets will not have a material impact on the
consolidated financial statements.

The Company is exposed to liability for the acts or negligence of its
employees. The Company has policies, guidelines and insurance to reduce its
exposure to these risks.

LITIGATION, DISPUTES AND CLAIMS

The Company is involved in various routine litigation, disputes and claims
arising in the ordinary course of business, primarily related to employee and
customer contract issues. While unfavorable outcomes are possible, management is
of the opinion that the resolution of these matters will not have a material
effect on the results of operations or financial condition of the Company.

13. SUBSEQUENT EVENTS

On March 19, 2002, AHL sold its United Kingdom specialized staffing
services business for $29.5 million in cash. Net of transaction costs of $2.7
million, the sale yielded $26.8 million of proceeds, which were used to reduce
outstanding debt. The Company recorded a charge of $9.4 million in the fourth
quarter of 2001 to reduce the net assets of the UK business to their realizable
value.

On April 12, 2002, AHL reached agreement with its banks to amend its Credit
Facility. The amendment extended the maturity of the Credit Facility from April
15, 2002 to January 3, 2003, reduced the amount the Company is permitted to
borrow, increased the interest rates that the Company is required to pay and
modified the financial covenants. Under the amended agreement, at April 12,
2002, AHL was permitted to borrow up to $89.2 million. The amount that AHL is
permitted to borrow decreases incrementally each month to approximately $74.1
million as of December 31, 2002.

On April 12, 2002, AHL entered into a definitive settlement agreement with
Securicor pursuant to which AHL agreed to pay Securicor $13.0 million with
respect to the post-closing adjustments from the sale of the U.S. and European
aviation and facility services businesses. Securicor released AHL from all
pending and potential indemnity claims related to the sale, with limited
exceptions. In connection with the settlement, AHL agreed to pay to Mr. Frank
Argenbright, the Chairman of its board of directors, $5.0 million.
F-23

AHL SERVICES, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

F-24

SIGNATURES

Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 15th day of
April, 2002.

AHL SERVICES, INC. (Registrant)

By: /s/ A. CLAYTON PERFALL
------------------------------------
A. Clayton Perfall
Chief Executive Officer
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated on April 15, 2002.

F-25