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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



[MARK ONE]



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



For the quarterly period ended March 31, 2003



OR



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



For the transition period from 
to



Commission File No. 000-22195



AHL SERVICES, INC.

(Exact name of registrant as specified in its charter)



|GEORGIA                                                        |  | 58-2277249                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                              
|1000 WILSON BLVD, STE 910 ARLINGTON, VA                        |  | 22209                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



Registrants telephone number, including area code (703) 528-9688



Not Applicable

Former name, former address and former fiscal year, if
changed since last report.



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



Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date: 15,246,792 shares on May 1, 2003.





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AHL SERVICES, INC.



TABLE OF
CONTENTS



|                             |  |                                                                                                    |  | PAGE
|---------------------------- |  | -------------------------------------------------------------------------------------------------- |  | ----
|PART IFINANCIAL INFORMATION
|                            
|Item 1.                      |  | Financial Statements                                                                               |  |     
|                             |  | Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002                   |  | 1   
|                             |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002 |  | 2   
|                             |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002 |  | 3   
|                             |  | Notes to Condensed Consolidated Financial Statements                                               |  | 4   
|                            
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 11  
|                            
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                         |  | 16  
|                            
|Item 4.                      |  | Controls and Procedures                                                                            |  | 17  
|                            
|PART IIOTHER INFORMATION   
|                            
|Item 1.                      |  | Legal Proceedings                                                                                  |  | 18  
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                                   |  | 18  
|                            
|SIGNATURE                    |  | 20                                                                                                
|CERTIFICATIONS               |  | 21                                                                                                





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PART IFINANCIAL INFORMATION

ITEM 1FINANCIAL STATEMENTS



AHL SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)



|                                                                                      |  | March 31, 2003 |            |   | December 31, 2002 |  
|------------------------------------------------------------------------------------- |  | -------------- | ---------- | - | ----------------- | -
|ASSETS                                                                                |  |                | (Unaudited | ) |                   |  
|Current assets:                                                                       |  |                |            |   |                   |  
|Cash and cash equivalents                                                             |  | $              | 3,716      |   |                   | $
|Accounts receivable                                                                   |  |                | 40,902     |   |                   |  
|Unbilled services                                                                     |  |                | 4,771      |   |                   |  
|Work in process                                                                       |  |                | 937        |   |                   |  
|Reimbursable customer expenses                                                        |  |                | 8,313      |   |                   |  
|Prepaid expenses and other                                                            |  |                | 6,394      |   |                   |  
|Income taxes receivable                                                               |  |                | 2,748      |   |                   |  
|Net assets of discontinued operations                                                 |  |                | 438        |   |                   |  
|                                                                                      |  |                |            |   |                   |  
|Total current assets                                                                  |  |                | 68,219     |   |                   |  
|                                                                                     
|Property and equipment, net                                                           |  |                | 24,170     |   |                   |  
|Other assets                                                                          |  |                | 385        |   |                   |  
|Intangibles, net                                                                      |  |                | 3,994      |   |                   |  
|Goodwill                                                                              |  |                | 63,396     |   |                   |  
|                                                                                      |  |                |            |   |                   |  
|Total assets                                                                          |  | $              | 160,164    |   |                   | $
|                                                                                      |  |                |            |   |                   |  
|                                                                                     
|LIABILITIES AND SHAREHOLDERS EQUITY                                                  |  |                |            |   |                   |  
|Current liabilities:                                                                  |  |                |            |   |                   |  
|Accounts payable                                                                      |  | $              | 4,587      |   |                   | $
|Accrued payroll and related benefits                                                  |  |                | 20,730     |   |                   |  
|Accrued expenses                                                                      |  |                | 19,299     |   |                   |  
|Customer deposits                                                                     |  |                | 6,255      |   |                   |  
|Current portion of self-insurance reserves                                            |  |                | 892        |   |                   |  
|Current portion of settlement obligations                                             |  |                | 18,000     |   |                   |  
|Current portion of debt                                                               |  |                | 76,150     |   |                   |  
|                                                                                      |  |                |            |   |                   |  
|Total current liabilities                                                             |  |                | 145,913    |   |                   |  
|                                                                                     
|Self-insurance reserves, less current portion                                         |  |                | 1,424      |   |                   |  
|Other non current liabilities                                                         |  |                | 1,464      |   |                   |  
|                                                                                      |  |                |            |   |                   |  
|Total liabilities                                                                     |  |                | 148,801    |   |                   |  
|                                                                                      |  |                |            |   |                   |  
|                                                                                     
|Shareholders equity:                                                                 |  |                |            |   |                   |  
|Common stock, $.01 par value: 17,427,392 shares issued; 15,246,792 shares
outstanding |  |                | 175        |   |                   |  
|Preferred stock, no par value: no shares outstanding                                  |  |                |           |   |                   |  
|Paid-in capital                                                                       |  |                | 177,011    |   |                   |  
|Accumulated deficit                                                                   |  |                | (143,610   | ) |                   |  
|Foreign currency translation adjustment                                               |  |                | (2,213     | ) |                   |  
|Treasury stock at cost: 2,180,600 shares                                              |  |                | (20,000    | ) |                   |  
|                                                                                      |  |                |            |   |                   |  
|Total shareholders equity                                                            |  |                | 11,363     |   |                   |  
|                                                                                      |  |                |            |   |                   |  
|Total liabilities and shareholders equity                                            |  | $              | 160,164    |   |                   | $
|                                                                                      |  |                |            |   |                   |  



The
accompanying notes are an integral part of these condensed consolidated financial statements.



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AHL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(Amounts in thousands, except per share data)



|                                                                    |  | Three Months Ended March 31, |       
|------------------------------------------------------------------- |  | ---------------------------- | ------
|                                                                    |  | 2003                         |       
|Revenues                                                            |  | $                            | 69,376
|Cost of services                                                    |  |                              | 37,488
|                                                                    |  |                              |       
|Gross margin                                                        |  |                              | 31,888
|                                                                   
|Costs and expenses:                                                 |  |                              |       
|Operating                                                           |  |                              | 27,946
|Corporate general and administrative                                |  |                              | 583   
|Depreciation and amortization                                       |  |                              | 1,652 
|                                                                    |  |                              |       
|Operating income (loss)                                             |  |                              | 1,707 
|                                                                   
|Interest expense, net                                               |  |                              | 2,775 
|Other expense, net                                                  |  |                              | 623   
|                                                                    |  |                              |       
|Loss from continuing operations before income taxes                 |  |                              | (1,691
|Income tax provision                                                |  |                              | 106   
|                                                                    |  |                              |       
|Loss from continuing operations                                     |  |                              | (1,797
|                                                                    |  |                              |       
|Loss from discontinued operations                                   |  |                              |      
|                                                                    |  |                              |       
|Net loss before cumulative effect of change in accounting principle |  |                              | (1,797
|Cumulative effect of change in accounting principle                 |  |                              |      
|                                                                    |  |                              |       
|Net loss                                                            |  | $                            | (1,797
|                                                                    |  |                              |       
|                                                                   
|Basic and diluted loss per share:                                   |  |                              |       
|Loss from continuing operations                                     |  | $                            | (0.12 
|Loss from discontinued operations                                   |  |                              |      
|Cumulative effect of change in accounting principle                 |  |                              |      
|                                                                    |  |                              |       
|Net loss                                                            |  | $                            | (0.12 
|                                                                    |  |                              |       
|                                                                   
|Basic and diluted weighted average common shares                    |  |                              | 15,247
|                                                                    |  |                              |       



The
accompanying notes are an integral part of these condensed consolidated financial statements.



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AHL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Amounts in thousands)



|                                                                                                                                          |  | Three Months Ended March 31, |       
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ------
|                                                                                                                                          |  | 2003                         |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                                     |  |                              |       
|Net loss                                                                                                                                  |  | $                            | (1,797
|Less: Loss from discontinued operations                                                                                                   |  |                              |      
|Loss from continuing operations before cumulative effect of change in accounting
principle                                                |  |                              | (1,797
|Cumulative effect of change in accounting principle                                                                                       |  |                              |      
|Adjustments to reconcile loss from continuing operations to net cash provided by (used
in) operating activities of continuing operations: |  |                              |       
|Depreciation and amortization                                                                                                             |  |                              | 1,652 
|Changes in operating assets and liabilities:                                                                                              |  |                              |       
|Accounts receivable and unbilled services, net                                                                                            |  |                              | (5,663
|Work in process, prepaid expenses and other                                                                                               |  |                              | (4,395
|Accounts payable                                                                                                                          |  |                              | (2,554
|Accrued expenses and other current liabilities                                                                                            |  |                              | 9,227 
|Self-insurance reserves                                                                                                                   |  |                              | 28    
|Income taxes receivable                                                                                                                   |  |                              | 140   
|                                                                                                                                          |  |                              |       
|Net cash provided by (used in) operating activities of continuing
operations                                                              |  |                              | (3,362
|Net cash provided by operating activities of discontinued operations                                                                      |  |                              | 1,018 
|                                                                                                                                          |  |                              |       
|Net cash provided by (used in) operating activities                                                                                       |  |                              | (2,344
|                                                                                                                                         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                                     |  |                              |       
|Purchases of property and equipment, net                                                                                                  |  |                              | (1,427
|Proceeds on sale of UK specialized staffing services business, net                                                                        |  |                              |      
|                                                                                                                                          |  |                              |       
|Net cash provided by (used in) investing activities                                                                                       |  |                              | (1,427
|                                                                                                                                         
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                                     |  |                              |       
|Net borrowings (repayments) under Credit Facility                                                                                         |  |                              | 2,926 
|                                                                                                                                         
|Effect of exchange rates on cash                                                                                                          |  |                              | 55    
|                                                                                                                                          |  |                              |       
|Net increase (decrease) in cash and cash equivalents                                                                                      |  |                              | (790  
|Cash and cash equivalents at beginning of period                                                                                          |  |                              | 4,506 
|                                                                                                                                          |  |                              |       
|Cash and cash equivalents at end of period                                                                                                |  | $                            | 3,716 
|                                                                                                                                          |  |                              |       



The
accompanying notes are an integral part of these condensed consolidated financial statements.



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AHL SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003

(UNAUDITED)



|1. |  | BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
|-- |  | ----------------------------------------------



BUSINESS DESCRIPTION



The continuing operations of AHL Services, Inc. (AHL or the Company), a Georgia corporation incorporated in March 1997, provide
outsourced marketing support services in the United States and specialized staffing services in Germany. The Companys marketing support service offerings include trade promotion and fulfillment services, consumer promotion and fulfillment
services and retail merchandising. AHLs specialized staffing services provide electricians, welders, plumbers, customer service representatives and industrial workers for clients throughout Germany.



BASIS OF PRESENTATION



The condensed consolidated financial statements included herein, except for
the December 31, 2002 balance sheet, which was extracted from the audited financial statements of December 31, 2002, have been prepared by AHL without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the
opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (all of which are normal and recurring in nature) that are necessary for a fair presentation of the interim periods presented. Certain
information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The
results of operations for the three month period ended March 31, 2003 are not necessarily indicative of the results to be expected for any subsequent quarter or the year ending December 31, 2003. These unaudited consolidated financial statements and
the notes included herein should be read in conjunction with the financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2002.



Reported results from operations include the marketing support services
business and the German specialized staffing business. On March 19, 2002, the Company sold its UK specialized staffing services business for $29.5 million in cash. The results of the UK specialized staffing services business have been presented as
discontinued operations for all periods presented. In accordance with the provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for all periods presented, this presentation reflects the net assets of this operation segregated from the assets and liabilities of continuing
operations, and the earnings of this business segregated from the results of continuing operations.



CONTEMPLATED SALE, GOING CONCERN, LIQUIDITY AND MANAGEMENT PLANS



On March 31, 2003, AHL announced a proposed merger with Huevos Holdings, Inc.
(Huevos Holdings), a wholly owned subsidiary of CGW Southeast Partners IV, L.P. (CGW). On March 28, 2003, AHL entered into a merger agreement, as subsequently amended on May 8, 2003, pursuant to which Frank A Argenbright,
Jr., AHLs Chairman; certain affiliates of Mr. Argenbright; A. Clayton Perfall, AHLs chief executive officer; Caledonia Investments plc (who are referred to collectively as the Re-Investing Shareholders) and Huevos Holdings
agreed to acquire, through the proposed merger, the outstanding shares of AHL not already held by the group. The proposed merger, if consummated, would result in AHL no longer being a publicly traded company. In the proposed merger, holders of AHL
common stock, other than the Re-Investing Shareholders, will receive $1.50 in cash for each share of AHL common stock held by such shareholder immediately prior to the proposed merger. Each share of AHL common stock held by the Re-Investing
Shareholders will be converted into 1.5 shares of AHLs newly created series B participating preferred stock. Huevos Holdings will own approximately 60% of the equity interest in AHL following the proposed merger. The remaining equity interests
in AHL will be owned by the Re-Investing Shareholders and the senior lenders under AHLs new credit facility.



The proposed merger is expected to be completed in the third quarter of 2003. The proposed merger is subject to the approval of a majority of the holders
of a majority of the shares of AHL common stock outstanding as well as the approval of a majority of the shares of outstanding AHL common stock not held by the Re-Investing Shareholders. The



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proposed merger is subject to
Huevos Holdings and CGW obtaining necessary financing and other customary closing conditions.



In connection with the proposed merger, AHL obtained the consent of its senior lenders to a further extension of the maturity of its credit agreement, which was scheduled to expire on March 31, 2003.
As extended, the credit agreement will expire on August 29, 2003, unless the proposed merger is cancelled, in which event it will expire on the date the proposed merger is cancelled. As a result, the debt outstanding under the Credit Facility is
reflected as a current liability in the accompanying condensed consolidated balance sheet.



The Companys condensed consolidated financial statements have been prepared assuming it will continue as a going concern. As described in these condensed consolidated financial statements, the
Companys $76.2 million in bank borrowings are due no later than August 29, 2003. The Company had a net working capital deficit of approximately $77.7 million at March 31, 2003 and has incurred recurring operating losses in recent years.
Although management has entered into a proposed merger with an affiliate of CGW which, if executed as planned, will result in the retirement of a large portion of the debt and the recapitalization of the company, there can be no assurance that such
transactions will close as contemplated. If the proposed merger is terminated, management will attempt to negotiate with its lenders to extend the maturity of its debt and undertake additional efforts to raise capital and reduce costs. However,
there can be no assurance that such negotiations, if required, will be successful. There also can be no assurance that the Company will be able to obtain any replacement credit facility or that other sources of liquidity will be available if the
proposed merger is not completed and the Credit Facility is cancelled. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the
amounts and classification of liabilities that might result from the outcome of this uncertainty.



|2. |  | DIVESTITURES
|-- |  | ------------



On March 19, 2002, AHL sold its UK 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 remaining net assets of discontinued operations of $0.4 million at March 31, 2003 include approximately $0.9 million for an income tax refund receivable, net of $0.5 million of accrued liabilities relating
primarily to the remaining lease costs associated with the vacated UK administrative offices.



On December 29, 2000, AHL sold its US 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 sales price for the US 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 amount of the adjustments to the purchase price. Securicor also released the Company from all
pending and potential indemnity claims related to the sale of the US and European aviation and facility services businesses, with limited exceptions. In connection with the settlement, AHL agreed to pay Mr. Frank Argenbright, the Chairman of
AHLs board of directors, $5.0 million to induce him to enter into the settlement agreement with Securicor. Mr. Argenbright entered into his settlement agreement with Securicor on April 12, 2002, simultaneously with AHLs execution of its
settlement agreement with Securicor. The agreement contained a release of the Company from certain claims asserted against the Company by Securicor and was conditioned upon a release by both the Company and Mr. Argenbright of certain claims against
Securicor.



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. The Companys obligation to pay the $13.0 million settlement payment matures in two installments. The first
installment, in the amount of $9.0 million, matured 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. The notes are secured by a second lien on
substantially all of the Companys assets. AHLs obligation to pay the settlement amount, and the lien securing its obligation, is subordinate to its obligation to pay all amounts outstanding or due pursuant to its existing Credit Facility
(the Credit Facility) and any substitute or replacement senior secured bank credit arrangement. AHL did not repay the $9.0 million installment of principal on the secured, subordinated promissory notes issued to Securicor that were due
on April 12, 2003 because it had not repaid in



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full all amounts pursuant to the Credit Facility on such date. The notes bear interest at a rate of 7% per
annum. Interest on the notes will accrue and be added to the principal until the Company repays or refinances the amounts outstanding under its Credit Facility, 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. However, the Company is not permitted to pay Mr. Argenbright the principal amount of the obligations prior to its repayment in full
of all amounts outstanding under the Credit Facility and the termination of the Credit Facility and its payment in full of all amounts owing to Securicor.



|3. |  | GOODWILL AND INTANGIBLE ASSETS
|-- |  | ------------------------------



In July 2001, SFAS No. 142, Goodwill and Other Intangible Assets, was issued. Under SFAS No. 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. 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 adopted the provisions of SFAS No.
142 effective January 1, 2002. Using the services of an independent third party valuation expert, AHL performed a valuation of goodwill relating to its marketing support services business utilizing a combination of discounted cash flows, the quoted
market price of its common stock and a comparison to the value of comparable companies. Based on this analysis, as of January 1, 2002 the Company recorded an impairment charge in the amount of $20.7 million, which is reflected as a cumulative change
in accounting principle in the accompanying condensed consolidated statements of operations. The Companys marketing support services business completed its annual impairment analysis in the fourth quarter of 2002 and recorded an additional
impairment charge in the amount of $45.1 million. The Companys German specialized staffing business recognized an impairment charge of $4.2 million in the second quarter of 2002 resulting from the estimated loss on disposal of German
operations in accordance with APB No. 30.



Intangible asset
amortization was $0.1 million for the three months ended March 31, 2003 and 2002.



|4. |  | DEBT
|-- |  | ----



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.



As of December 31, 2001, the Company was not in compliance with certain of its covenants, and received a waiver from its bank
group with respect to non-compliance with these covenants through April 15, 2002. On April 12, 2002, AHL reached an agreement with its banks to amend the facility. The amendment eliminated the defaults, extended the maturity of the Credit Facility
from April 15, 2002 to January 3, 2003, reduced the amount the Company was permitted to borrow, increased the interest rates on the Credit Facility and modified the financial covenants. The Company subsequently entered into additional amendments to
the Credit Facility. Under the amendments, AHL is permitted to borrow up to $82.0 million. On March 28, 2003, in connection with the proposed merger, AHL obtained the consent of its senior secured lenders to further extend the maturity date under
its credit agreement, which was scheduled to expire on March 31, 2003. As extended, the Credit Facility will expire on August 29, 2003, unless the proposed merger with CGW is cancelled, in which event it will expire on the date the proposed merger
is cancelled.



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. The Credit Facility also prohibits the Company from paying dividends to shareholders. The Company had satisfied all covenant requirements under the Credit Facility, as amended, at March 31, 2003.



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In connection with the
proposed merger, CGW is expected to obtain new financing arrangements to fund AHLs operations following the proposed merger. The existing Credit Facility will be repaid with proceeds from the new financing and then terminated. If the proposed
merger is not consummated for any reason, the Credit Facility will expire on the date the proposed merger is cancelled. If the proposed merger is cancelled, management would attempt to negotiate with its lenders to extend the maturity of its debt
and undertake additional efforts to raise capital and reduce costs. However, there can be no assurance that such negotiations, if required, will be successful. AHL also cannot provide assurance that it will be able to obtain any replacement credit
facility or that other sources of liquidity will be available to AHL if the proposed merger is not completed and its Credit Facility is cancelled.



|5. |  | RESTRUCTURING CHARGES
|-- |  | ---------------------



Due to the difficult economic environment, the Company performed a strategic review of marketing support services operations and recorded restructuring
charges to operations of $7.9 million during the third and fourth quarters of 2001. Restructuring charges to operating expenses totaled $4.6 million and consisted of $4.2 million for the estimated costs of buying out unattractive or redundant leases
and $0.4 million for severance for 66 employees. Restructuring charges to corporate general and administrative expenses totaled $3.3 million and included $0.8 million of lease charges incurred in conjunction with the closing of the Atlanta corporate
offices and $2.5 million for severance for twelve employees. During 2002, the favorable settlements on facility and lease terminations resulted in a reversal of $0.9 million of the reserve.



The restructuring 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 from December 31, 2002 to March 31, 2003:

|                                         |  | December 31, 2002 |       | Amounts paid |   |      | March 31, 2003
|---------------------------------------- |  | ----------------- | ----- | ------------ | - | ---- | --------------
|                                         |  | (In thousands)   
|Severance and related personnel expenses |  | $                 | 31    |              | $ | (31  | )             
|Lease termination costs                  |  |                   | 1,436 |              |   | (365 | )             
|                                         |  |                   |       |              |   |      |               
|Total                                    |  | $                 | 1,467 |              | $ | (396 | )             
|                                         |  |                   |       |              |   |      |               



Management believes that
the remaining reserves for restructuring are adequate to complete its plan. The restructuring reserves are included in accrued expenses.



|6. |  | STOCK-BASED COMPENSATION
|-- |  | ------------------------



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 for the periods indicated:



|                                             |  | Three Months Ended March 31,          |       
|-------------------------------------------- |  | ------------------------------------- | ------
|                                             |  | 2003                                  |       
|                                             |  | (In thousands, except per share data) |       
|Net loss as reported                         |  | $                                     | (1,797
|Pro forma effect of stock based compensation |  |                                       | (873  
|                                             |  |                                       |       
|Pro forma net loss                           |  | $                                     | (2,670
|                                             |  |                                       |       
|                                            
|Basic and diluted loss per share:            |  |                                       |       
|Loss per share as reported                   |  | $                                     | (0.12 
|                                             |  |                                       |       
|Pro forma loss per share                     |  | $                                     | (0.18 
|                                             |  |                                       |       





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The pro forma effect on net
income is not representative of the pro forma effect on net income in future periods because the options vest over several years and additional awards may be made in the future.



|7. |  | OTHER COMPREHENSIVE LOSS
|-- |  | ------------------------



The Company reports comprehensive income or loss in accordance with the provisions of SFAS No. 130, Reporting Comprehensive Income. SFAS No.
130 establishes standards for reporting comprehensive income and loss and its components in financial statements. For the Company, the difference between reported net loss and comprehensive loss is due to foreign currency translation adjustments.
Total comprehensive loss for the three months ended March 31, 2003 and 2002 was $1.4 million and $24.7 million, respectively. Tax effects of the components of other comprehensive income or loss are not considered material for any periods presented.



|8. |  | OTHER EXPENSE
|-- |  | -------------



Other expense for the three months ended March 31, 2003 includes approximately $1.1 million of expenses associated with the proposed merger, offset by a foreign currency gain of approximately $0.5
million arising from the translation of intercompany borrowings.



|9. |  | EARNINGS PER SHARE
|-- |  | ------------------



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 computed based on the weighted average number of common 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 periods presented, diluted earnings per share
do not consider the incremental shares from assumed conversion of stock options granted. For all periods presented, the options outstanding were out-of-the-money.



|10. |  | COMMITMENTS AND CONTINGENCIES
|--- |  | -----------------------------



Contractual Costs Associated with Proposed Merger



In connection with the proposed merger, the Company entered into a conditional amendment, dated March 28, 2003, to its chief executive officers
employment agreement. According to the conditional amendment, if the proposed merger is consummated, the chief executive officer will be entitled to receive 1,900,000 restricted shares of AHLs series B participating preferred stock in lieu of
the $2.5 million lump-sum cash payment which would be due to the officer upon a change in control of AHL pursuant to the officers past employment agreement.



The Company entered into an employment agreement with its chief financial officer on April 1, 2002, which upon a change of
control before April 1, 2004, provides for a lump-sum payment of $500,000, which would be reduced to $250,000 if a change of control occurs after this date.



In addition to these costs, the Company has contracted for and expects to incur other customary costs associated with the proposed merger transaction such
as financial advisor and fairness valuation services.



Related
Party Transactions



In September 2001, in connection with
the satisfaction and termination of the Performance Bonus Program approved by AHLs shareholders in May 2001, AHL agreed to guarantee up to $10,000,000 of the Chairman of our Boards personal debt for a period of three years from the date
of the sale of AHLs European staffing business or such earlier time as allowed by the Companys Credit Facility with such guaranty subject to approval by the holders of the Credit Facility. In connection with the proposed merger, AHL
entered into an agreement with the Chairman, dated March 28, 2003,



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pursuant to which it may elect to terminate its obligation to guarantee Mr. Argenbrights personal
indebtedness at any time in return for a payment to Mr. Argenbright of $2,000,000.



|11. |  | SEGMENT REPORTING
|--- |  | -----------------



Under SFAS No. 131, 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. The Companys business is organized
into two distinct operating segments, which have separate management structures, which then report to the Companys senior level executives. A brief summary of these segments is as follows:



| | · |  | Marketing support services include consumer and trade promotion and fulfillment and retail merchandising;
| | - |  | ---------------------------------------------------------------------------------------------------------

| | · |  | German specialized staffing services provide electricians, welders, plumbers, customer service representatives, and industrial workers for clients.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



The Companys corporate offices provide
executive management functions such as treasury, finance and legal, which are not included in the operating segments measure of operating income.



The following table presents information regarding the Companys operating segments:



|                                             |  | Three Months Ended March 31, |        
|-------------------------------------------- |  | ---------------------------- | -------
|                                             |  | 2003                         |        
|                                             |  | (In thousands)               |        
|Revenues:                                    |  |                              |        
|Marketing support services                   |  | $                            | 32,050 
|German specialized staffing services         |  |                              | 37,326 
|                                             |  |                              |        
|                                             |  | $                            | 69,376 
|                                             |  |                              |        
|Operating income (loss):                     |  |                              |        
|Marketing support services                   |  | $                            | 1,224  
|German specialized staffing services         |  |                              | 1,066  
|Corporate general and administrative         |  |                              | (583   
|                                             |  |                              |        
|                                             |  | $                            | 1,707  
|                                             |  |                              |        
|Assets:                                      |  |                              |        
|Marketing support services                   |  | $                            | 99,567 
|German specialized staffing services         |  |                              | 59,611 
|Corporate and other                          |  |                              | 548    
|Discontinued operations                      |  |                              | 438    
|                                             |  |                              |        
|                                             |  | $                            | 160,164
|                                             |  |                              |        
|Depreciation and amortization expense:       |  |                              |        
|Marketing support services                   |  | $                            | 1,398  
|German specialized staffing services         |  |                              | 252    
|Corporate and other                          |  |                              | 2      
|                                             |  |                              |        
|                                             |  | $                            | 1,652  
|                                             |  |                              |        
|Capital expenditures including acquisitions: |  |                              |        
|Marketing support services                   |  | $                            | 1,233  
|German specialized staffing services         |  |                              | 194    
|Discontinued operations                      |  |                              |       
|                                             |  |                              |        
|                                             |  | $                            | 1,427  
|                                             |  |                              |        





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The following table presents information regarding the Companys different geographic regions:



|                        |  | Three Months Ended March 31,
|----------------------- |  | ----------------------------
|                        |  | 2003                        
|                        |  | (In thousands)              
|Revenues:               |  |                             
|North America           |  | $                           
|Germany                 |  |                             
|                        |  |                             
|                        |  | $                           
|                        |  |                             
|Assets:                 |  |                             
|North America           |  | $                           
|Germany                 |  |                             
|Discontinued operations |  |                             
|                        |  |                             
|                        |  | $                           
|                        |  |                             





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ITEM 2MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS



Certain statements made in this Quarterly Report on Form 10-Q 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 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.



Among the important factors that could cause actual results to differ materially from those indicated in our forward-looking statements
are: our ability to close the proposed merger; our ability to continue to satisfy our covenants under our Credit Facility; reliance on the trend toward outsourcing marketing services; reliance on a small number of clients for a significant portion
of our revenues; dependence on our labor force; competition in our industry; and general economic conditions. These and other risks are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (the 2002
10-K), filed with the Securities and Exchange Commission on April 15, 2003.



The following discussion and analysis of the financial condition and results of operations of AHL should be read in conjunction with the consolidated financial statements and related notes for the year
ended December 31, 2002, and included in our 2002 10-K as filed with the Securities and Exchange Commission.



In our 2002 10-K, we identified critical accounting policies and estimates for our business. There have been no material changes to these
policies and estimates for our business.



OVERVIEW



AHL, headquartered in
Arlington, Virginia, is a leading provider of outsourced business services, including marketing support services in the United States and specialized staffing services in Germany. Our marketing support services strategic offerings include consumer
promotion and fulfillment services, trade promotion and fulfillment services and retail merchandising. Our specialized staffing services provide electricians, welders, plumbers, customer service representatives and industrial workers for clients
throughout Germany. Clients span a range of Global 500 companies, including major enterprises in the automotive, consumer products, entertainment and retail sectors.



Our 1998 acquisition of Gage Marketing Services, now known as Archway Marketing Services, which
has been in the marketing support services business for over 50 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
successful delivery of our marketing service 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.



Historically, our specialized staffing operations also
included operations in the United Kingdom and the United States. On March 19, 2002, we sold our UK specialized staffing services business for $29.5 million in cash. On October 13, 2000, we sold the assets of our US specialized staffing business to
an investor group led by the former President of our Baltimore staffing operation for $22.5 million. In previous years, we also operated aviation and facility services businesses. On December 29, 2000, we sold our US and European aviation and
facility services businesses for $185 million in cash to Securicor. In addition, on December 28, 2000, we abandoned operations of a division of marketing support services that was engaged in the store set-up business. The closing of this division,
formerly called PIMMS, was completed on March 16, 2001.



The operating results, including impairment charges and related balance sheet accounts, of AHLs German specialized staffing services business have been reclassified from discontinued operations to continuing operations in



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the condensed consolidated financial statements for the period ended March 31, 2002. Beginning in the
third quarter of 2001 and continuing into the fourth quarter of 2002, these operations were being actively marketed for sale and were therefore presented in accordance with Accounting Principles Board (APB) Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions as discontinued operations. This reclassification to
continuing operations was required as a result of AHLs proposed merger and our decision to cease marketing the German specialized staffing business.



RECENT DEVELOPMENTS



On March 31, 2003, AHL announced a proposed merger with Huevos Holdings, a wholly owned subsidiary of CGW. On March 28, 2003, AHL entered
into a merger agreement, as subsequently amended on May 8, 2003, pursuant to which the Re-Investing Shareholders and Huevos Holdings agreed to acquire, through the proposed merger, the outstanding shares of AHL not already held by the group. The
proposed merger, if consummated, would result in AHL no longer being a publicly traded company. In the proposed merger, holders of AHL common stock, other than the Re-Investing Shareholders, will receive $1.50 in cash for each share of AHL common
stock held by such shareholder immediately prior to the proposed merger. Each share of AHL common stock held by the Re-Investing Shareholders will be converted into 1.5 shares of AHLs newly created series B participating preferred stock.
Huevos Holdings will own approximately 60% of the equity interest in AHL following the proposed merger. The remaining equity interests in AHL will be owned by the Re-Investing Shareholders and the senior lenders under AHLs new credit facility.



The proposed merger is expected to be completed
in the third quarter of 2003. The proposed merger is subject to the approval of a majority of the holders of a majority of the shares of AHL common stock outstanding as well as the approval of a majority of the shares of outstanding AHL common stock
not held by the Re-Investing Shareholders. The proposed merger is subject to Huevos Holdings and CGW obtaining necessary financing and other customary closing conditions.



In addition, in connection with the proposed merger, AHL obtained the consent of its senior secured lenders
to further extend the maturity date under its credit agreement, which was scheduled to expire on March 31, 2003. As extended, the credit agreement will expire on August 29, 2003, unless the proposed merger is cancelled, in which event it will expire
on the date the proposed merger is cancelled.



RESULTS OF OPERATIONS



We derive
our marketing support services revenue primarily from three sources: (1) consumer promotion and fulfillment services, (2) trade promotion and fulfillment services and (3) retail merchandising services. Within our consumer promotion and fulfillment
services operations, our call centers recognize revenue based on the number of calls and agents assigned, according to written pricing agreements. Our consumer and trade promotion and fulfillment services operations record revenue at the conclusion
of the material selection, packaging and shipping process. Our retail merchandising services operations recognize revenue as services are rendered, based on contracted hourly billing rates. In general, 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, who generally dictates all
facets of the transaction, including the common carriers and level of postage class to be used. For these items, we record the net billings to our customers as revenue.



Our German specialized staffing services operations record revenue as services are rendered, based on
contracted hourly billing rates.



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



Operating expenses represent primarily fixed
expenses which 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.



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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:



|                                                                    |  | Three Months Ended March 31, |   
|------------------------------------------------------------------- |  | ---------------------------- | --
|                                                                    |  | 2003                         |   
|Revenues                                                            |  | 100.0                        | % 
|Cost of services                                                    |  | 54.0                         |   
|                                                                    |  |                              |   
|Gross margin                                                        |  | 46.0                         |   
|                                                                   
|Costs and expenses:                                                 |  |                              |   
|Operating                                                           |  | 40.3                         |   
|Corporate general and administrative                                |  | 0.8                          |   
|Depreciation and amortization                                       |  | 2.4                          |   
|                                                                    |  |                              |   
|Operating income (loss)                                             |  | 2.5                          |   
|                                                                   
|Interest expense, net                                               |  | 4.0                          |   
|Other expense, net                                                  |  | 0.9                          |   
|                                                                    |  |                              |   
|Loss from continuing operations before income taxes                 |  | (2.4                         | ) 
|Income tax provision                                                |  | 0.2                          |   
|                                                                    |  |                              |   
|Loss from continuing operations                                     |  | (2.6                         | ) 
|                                                                   
|Loss from discontinued operations                                   |  |                             |   
|                                                                    |  |                              |   
|Net loss before cumulative effect of change in accounting principle |  | (2.6                         | ) 
|                                                                   
|Cumulative effect of change in accounting principle                 |  |                             |   
|                                                                    |  |                              |   
|Net loss                                                            |  | (2.6                         | %)
|                                                                    |  |                              |   



COMPARISON OF RESULTSTHREE MONTHS ENDED MARCH 31, 2003 AND 2002



Revenues. Revenues increased $9.9 million, or 17%, to $69.4 million for the three months ended March 31, 2003 from $59.5 million for the same period in 2002. Marketing support services revenue
decreased $0.1 million between periods, to $32.1 million for the three months ended March 31, 2003 from $32.2 million for the same period in 2002. The decrease in revenues from this segment is due to the sale of a non core marketing operation in May
2002, which contributed $1.1 million of revenues for the three month period ended March 31, 2002, offset by increased revenues from sales to new clients within our retail merchandising and consumer fulfillment operations of marketing support
services in 2003. German specialized staffing services revenue increased $10.0 million between periods, to $37.3 million for the three months ended March 31, 2003 from $27.3 million for the same period in 2002. Approximately $6.0 million of this
increase can be attributed to a strengthening of the Euro against the dollar between periods. In addition, our German specialized staffing services operations have increased marketing and sales efforts, resulting in the increased revenues between
periods.



Cost of Services. Cost of
services increased $4.4 million, or 13%, to $37.5 million for the three months ended March 31, 2003 from $33.1 million for the same period in 2002. Approximately $4.2 million of the increase can be attributed to the strengthening of the Euro against
the dollar. In addition, cost of services in our German specialized staffing services operations increased to service the additional revenue earned in the three months ended March 31, 2003 as compared to the prior period. These increases were offset
by an 8% decrease in cost of service expenses from our marketing support services operations. The decrease in cost of services in this segment is primarily a result of the elimination of expenses from the non core marketing operation that was sold
in 2002, as well as cost savings gained from the implementation of labor and shipping cost reduction programs across all marketing support services operations



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in 2002. As a percentage of revenues, cost of services decreased to 54.0% for the three months ended March
31, 2003 from 55.6% for the same period in 2002.



Gross Margin. Gross margin increased $5.5 million, or 21%, to $31.9 million for the three months ended March 31, 2003 from $26.4 million for the same period in 2002. As a percentage of revenues, gross margin increased to 46.0%
for the three months ended March 31, 2003 from 44.4% for the same period in 2002. Both our marketing support services operations and our German specialized staffing services operations had improved margins for the three months ended March 31, 2003
from the same period in 2002. In our marketing support services segment, this increase is attributable to the implementation of labor and shipping cost reduction programs as discussed above. Our German specialized staffing services segment had
increased margins due to a higher utilization of specialized staffing employees in 2003 compared to the same period in 2002.



Operating. Operating expenses increased $3.2 million, or 13%, to $27.9 million for the three months ended March 31, 2003 from $24.7
million for the same period in 2002. Approximately $2.4 million of the increase can be attributed to the strengthening of the Euro. Our marketing support services segment experienced an increase in operating expenses as a result of increased
facility expenses associated with the opening of two new warehouses and the expansion of our Canadian call center operations in the first quarter of 2003. Our German specialized staffing services segment had increased operating costs due to their
increased sales and marketing efforts. As a percentage of revenues, operating expenses decreased to 40.3% for the three months ended March 31, 2003 as compared to 41.5% for the same period in 2002.



Corporate General and Administrative. Corporate general
and administrative expenses decreased $0.3 million, or 33%, to $0.6 million for the three months ended March 31, 2003 from $0.9 million for the same period in 2002. The decrease is primarily attributed to reduced legal, accounting and travel costs
between periods. As a percentage of revenues, corporate general and administrative expenses decreased to 0.8% for the three months ended March 31, 2003 from 1.5% for the same period in 2002.



Depreciation and Amortization. Depreciation and
amortization increased $0.3 million, or 21%, to $1.7 million for the three months ended March 31, 2003 from $1.4 million for the same period in 2002. As a percentage of revenues, depreciation and amortization remained consistent at 2.4% between
periods.



Operating Income (Loss).
Operating income was $1.7 million for the three months ended March 31, 2003 as compared to an operating loss of $0.6 million for the same period in 2002. As a percentage of revenues, operating income was 2.5% for the three months ended March 31,
2003 as compared to an operating loss of 1.0% for the same period in 2002, primarily due to the improvement in margin in 2003.



Interest Expense, Net. Interest expense, net, represents the interest on our outstanding debt and our settlement obligations. Net
interest expense increased $0.7 million, or 33%, to $2.8 million for the three months ended March 31, 2003 from $2.1 million for the same period in 2002. The increase is due increased interest rates in 2003, as well as interest expense from our
settlement obligations which were agreed to in April of 2002. As a percentage of revenues, net interest expense was 4.0% for the three months ended March 31, 2003 as compared to 3.5% for the same period in 2002.



Other Expense, Net.Other expense for the three months
ended March 31, 2003 includes approximately $1.1 million of expenses associated with the proposed merger, offset by a foreign currency gain of approximately $0.5 million arising from the translation of intercompany borrowings.



Income Tax Provision. Income tax provision of $0.1
million for the three months ended March 31, 2003 represents state and Canadian taxes due for the quarter. Due to the uncertainty regarding the realization of our federal general business credit carryforwards, we have recorded a valuation allowance
against our federal income tax benefit for 2003 and 2002.



Loss From Discontinued Operations.On March 19, 2002, we sold our United Kingdom specialized staffing services business. In accordance with the provisions of APB No. 30, we have reflected the results of our UK specialized
staffing business as discontinued operations in the condensed consolidated balance sheets and statements of operations and cash flows. For all periods presented, this presentation reflects the net assets of this operation segregated from the assets
and liabilities of continuing operations, and the earnings of this businesses segregated from the results of continuing



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operations. Revenues of discontinued operations were $18.8 million for the three months ended March 31,
2002. Loss from discontinued operations of $0.6 million for the three months ended March 31, 2002 is net of the applicable interest expense of $0.2 million and income tax expense of $0.1 million.



Cumulative Effect of Change in Accounting Principle.
AHL adopted the provisions of SFAS No. 142 effective January 1, 2002. Using the services of an independent third party valuation expert, we performed a valuation of goodwill relating to our marketing support services business utilizing a combination
of discounted cash flows, the quoted market price of our common stock and a comparison to the value of comparable companies. Based on this analysis, as of January 1, 2002, we recorded an impairment charge in the amount of $20.7 million, which is
reflected as a cumulative change in accounting principle in the accompanying condensed consolidated statements of operations.



Net Loss. Net loss decreased $22.2 million to $1.8 million for the three months ended March 31, 2003 from a loss of $24.0 million
for the same period in 2002. Approximately $20.7 million of this decrease is due to the cumulative effect of change in accounting principle recorded in 2002.



LIQUIDITY AND CAPITAL RESOURCES



Cash used in operating activities was $2.3 million for the three months ended March 31, 2003, compared to
cash provided by operating activities of $3.7 million for the same period in 2002. Of the $2.3 million of cash used in operating activities for the period ended March 31, 2003, $3.3 million of cash was used by continuing operations, while
discontinued operations provided $1.0 million of cash through the collection of an escrow due from the sale of the business. The use of cash from continuing operations was the result of an increase in working capital. For the same period in 2002,
cash provided by continuing operations was $3.2 million, while discontinued operations provided $0.5 million of cash. The continuing operations provision of cash in 2002 is primarily the result of a federal tax refund offset in part by an increase
in working capital.



Cash used in investing
activities for the three months ended March 31, 2003 was $1.4 million, compared to cash provided by investing activities of $24.2 million for the same period in 2002. Purchases of property and equipment comprised the cash used in investing
activities for 2003. In 2002, cash was generated through the sale of the United Kingdom specialized staffing business for $26.8 million, offset by additions to property and equipment of $2.6 million.



Cash provided by financing activities for the three months
ended March 31, 2003 was $2.9 million compared to cash used by financing activities of $26.2 million for the same period in 2002. We borrowed $2.9 million in the three months ended March 31, 2003 to fund working capital. The March 19, 2002 sale of
the UK specialized staffing services business provided funds for net repayments on our Credit Facility of $26.2 million.



Credit Facility



We finance our working capital from borrowings pursuant to a Credit Facility (the 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 defaults, 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 $89.3
million.



Subsequent to April 12, 2002, we
entered into additional amendments to the Credit Facility. Under the amendments, we are permitted to borrow up to $82.0 million. On March 28, 2003, in connection with the proposed merger, we obtained the consent of our senior secured lenders to
further extend the maturity date under our credit agreement, which was scheduled to expire on March 31, 2003. As extended, the credit agreement will expire on August 29, 2003, unless the proposed merger is cancelled or an event of default occurs
under the Credit Facility, in which event it will expire on the date the proposed merger is cancelled or an event of default occurs. At May 2, 2003, we had borrowings outstanding of $67.5 million under the Credit Facility.



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In connection
with the proposed merger, CGW is expected to obtain new financing arrangements to fund AHLs operations following the proposed merger. Our existing Credit Facility will be repaid with proceeds from the new financing and then terminated. If the
proposed merger is not consummated for any reason, our Credit Facility will expire on the date the proposed merger is cancelled. If the proposed merger is cancelled, management will attempt to negotiate with its lenders to extend the maturity of the
Credit Facility. However, we cannot assure you that such negotiations, if required, will be successful. We also cannot assure you that we will be able to obtain any replacement credit facility or that other sources of liquidity will be available to
us if the proposed merger is not completed and our Credit Facility is cancelled.



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. We are required to maintain a monthly consolidated adjusted EBITDA that exceeds specified levels as set forth in the agreement. Our aggregate capital expenditures and disbursements
relating to restructuring charges, as defined, from the period of November 1, 2002, through the end of each fiscal month ending July 2003 must not exceed the amounts specified in the terms of the agreement. Finally, we have monthly minimum fixed
charge ratios which we must maintain. 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.



Going Concern



Our
condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. As described in our condensed consolidated financial statements, we have $76.2 million in bank borrowings outstanding at March 31,
2003, which are due no later than August 29, 2003. In addition, we had a net working capital deficit of approximately $77.7 million at March 31, 2003, and we have incurred recurring operating losses in recent years. Although the proposed merger, if
completed as planned, would result in the retirement of a large portion of the debt and the recapitalization of the Company, there can be no assurance that such transactions will close as contemplated. If the proposed merger is terminated,
management would attempt to negotiate with its lenders to extend the maturity of its Credit Facility. Furthermore, in such event, management will undertake additional efforts to raise capital and reduce costs. However, there can be no assurance that
such negotiations, if required, will be successful. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and
classification of liabilities that might result from the outcome of this uncertainty.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



FOREIGN CURRENCY RISK



Our continuing operations include the German specialized staffing business. Our discontinued operations include the UK specialized
staffing business. Revenues from foreign operations are received, and operating costs are incurred, in foreign currencies (primarily the British pound and the Euro). 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. However, our Credit Facility requires that we convert indebtedness outstanding in
foreign currencies into dollars for purposes of determining the total amount of indebtedness outstanding. An increase in the value of a foreign currency relative to the dollar has the effect of reducing the amount we are otherwise permitted to
borrow pursuant to the Credit Facility. 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 increased interest expense associated with movements in market interest
rates. Our Credit Facility had a balance outstanding of $76.2 million at March 31, 2003, which was at a variable rate of interest. Based on outstanding borrowings, it is estimated that an increase in the prevailing interest rates of 100 basis points
would result in a decrease in net income of approximately $0.4 million, or $0.03 per share, for the year ended December 31, 2003.



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##### Table of Contents

ITEM 4. CONTROLS AND PROCEDURES



As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures within 90 days of the filing of this quarterly report. This evaluation was carried out under the
supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of our disclosure controls and
procedures are effective. There were no significant changes to our internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.



Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and
communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.



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##### Table of Contents

PART II  OTHER INFORMATION



ITEM 1. 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 believes that
resolving these matters will not have a material effect on the Companys results of operations or financial condition.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | Exhibits:
|--- |  | ---------



|EXHIBIT NUMBER |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Agreement and Plan of Merger, dated March 28, 2003, by and among Huevos Holdings, Inc., AHL Services, Inc., Frank A.
Argenbright, Jr., Kathleen B. Argenbright, Argenbright Partners, L.P., Francis A. Argenbright, Jr. Charitable Remainder Trust, A. Clayton Perfall and Caledonia Investments plc (incorporated by reference to AHLs Current Report on Form 8-K,
dated March 31, 2003).
|              
|2.2*           |  | First Amendment to Agreement and Plan of Merger dated May 8, 2003, by and among Huevos Holdings, Inc., AHL Services,
Inc., Frank A. Argenbright, Jr., Kathleen B. Argenbright, Argenbright Partners, L.P., Francis A. Argenbright, Jr. Charitable Remainder Trust, A. Clayton Perfall and Caledonia Investments plc.                                                                       
|              
|3.1            |  | Restated and Amended Articles of Incorporation of AHL (incorporated by reference to the Registration Statement on Form
8-A dated March 3, 1997).                                                                                                                                                                                                                                           
|              
|3.2            |  | Bylaws of AHL, effective as of October 31, 2001 (incorporated by reference to AHLs Annual Report on Form 10-K
for the year ended December 31, 2001).                                                                                                                                                                                                                                      
|              
|4.1            |  | Specimen Common Stock Certificate (incorporated by reference to AHLs Registration Statement on Form S-1 (File
No. 333-20315)).                                                                                                                                                                                                                                                            
|              
|4.2            |  | Articles 2, 3 and 9 of the Amended and Restated Articles of Incorporation of AHL (incorporated by reference to
AHLs Registration Statement on Form 8-A, dated March 25, 1997).                                                                                                                                                                                                            
|              
|4.3            |  | Articles I, V, VII and IX of the Bylaws of AHL, effective as of October 1, 2001 (incorporated b reference to
AHLs Annual Report on Form 10-K for the year ended December 31, 2001).                                                                                                                                                                                                       
|              
|10.1*          |  | Indemnification agreement, dated March 3, 2003, by and between AHL Services, Inc. and Thomas V.
Beard.                                                                                                                                                                                                                                                                                     
|              
|10.2*          |  | Indemnification agreement, dated March 3, 2003, by and between AHL Services, Inc. and John W.
Ward.                                                                                                                                                                                                                                                                                        
|              
|10.3*          |  | Indemnification agreement, dated March 3, 2003, by and between AHL Services, Inc. and Wyck A. Knox,
Jr.                                                                                                                                                                                                                                                                                    
|              
|99.1*          |  | Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                     
|              
|99.2*          |  | Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                     



|* |  | Filed herewith.
|- |  | ---------------



|(b) |  | Reports on Form 8-K:
|--- |  | --------------------





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##### Table of Contents



The following report on Form
8-K was filed during the quarter ended March 31, 2003:



On March
31, 2003, AHL Services, Inc. filed a Current Report on Form 8-K announcing the that a group led by Cravey, Green & Wahlen (CGW), a private equity firm specializing in middle-market investments, had agreed to acquire the outstanding
shares of AHL not already held by the group, and take AHL private.



19



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##### Table of Contents

SIGNATURE



Pursuant to the requirements
of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                  |  | AHL SERVICES, INC. (REGISTRANT)
|----------------- |  | -------------------------------
|                 
|Date: May 9, 2003 |  | By:                            
|                  |  |                                
|                  |  |                                





20



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##### Table of Contents

CERTIFICATIONS



I, A. Clayton Perfall, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of AHL Services, Inc.;
| | -- |  | -------------------------------------------------------------------------



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



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



| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | b) Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: May 9, 2003



/s/ A. Clayton Perfall

A. Clayton Perfall

Chief Executive Officer





21



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##### Table of Contents

CERTIFICATIONS



I, Heinz Stubblefield, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of AHL Services, Inc.;
| | -- |  | -------------------------------------------------------------------------



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



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



| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | b) Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly
report (the Evaluation Date); and
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: May 9, 2003



/s/ Heinz Stubblefield

Heinz Stubblefield

Chief Financial Officer





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##### Table of Contents

INDEX TO EXHIBITS



|EXHIBIT NUMBER |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Agreement and Plan of Merger, dated March 28, 2003, by and among Huevos Holdings, Inc., AHL Services, Inc., Frank A.
Argenbright, Jr., Kathleen B. Argenbright, Argenbright Partners, L.P., Francis A. Argenbright, Jr. Charitable Remainder Trust, A. Clayton Perfall and Caledonia Investments plc (incorporated by reference to AHLs Current Report on Form 8-K,
dated March 31, 2003).
|              
|2.2*           |  | First Amendment to Agreement and Plan of Merger dated May 8, 2003, by and among Huevos Holdings, Inc., AHL Services,
Inc., Frank A. Argenbright, Jr., Kathleen B. Argenbright, Argenbright Partners, L.P., Francis A. Argenbright, Jr. Charitable Remainder Trust, A. Clayton Perfall and Caledonia Investments plc.                                                                       
|              
|3.1            |  | Restated and Amended Articles of Incorporation of AHL (incorporated by reference to the Registration Statement on Form
8-A dated March 3, 1997).                                                                                                                                                                                                                                           
|              
|3.2            |  | Bylaws of AHL, effective as of October 31, 2001 (incorporated by reference to AHLs Annual Report on Form 10-K
for the year ended December 31, 2001).                                                                                                                                                                                                                                      
|              
|4.1            |  | Specimen Common Stock Certificate (incorporated by reference to AHLs Registration Statement on Form S-1 (File
No. 333-20315)).                                                                                                                                                                                                                                                            
|              
|4.2            |  | Articles 2, 3 and 9 of the Amended and Restated Articles of Incorporation of AHL (incorporated by reference to
AHLs Registration Statement on Form 8-A, dated March 25, 1997).                                                                                                                                                                                                            
|              
|4.3            |  | Articles I, V, VII and IX of the Bylaws of AHL, effective as of October 1, 2001 (incorporated b reference to
AHLs Annual Report on Form 10-K for the year ended December 31, 2001).                                                                                                                                                                                                       
|              
|10.1*          |  | Indemnification agreement, dated March 3, 2003, by and between AHL Services, Inc. and Thomas V.
Beard.                                                                                                                                                                                                                                                                                     
|              
|10.2*          |  | Indemnification agreement, dated March 3, 2003, by and between AHL Services, Inc. and John W.
Ward.                                                                                                                                                                                                                                                                                        
|              
|10.3*          |  | Indemnification agreement, dated March 3, 2003, by and between AHL Services, Inc. and Wyck A. Knox,
Jr.                                                                                                                                                                                                                                                                                    
|              
|99.1*          |  | Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                     
|              
|99.2*          |  | Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                     



|* |  | Filed herewith.
|- |  | ---------------





23