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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

EXCHANGE ACT OF 1934

For the fiscal year ended DECEMBER 31, 2002

Commission File Number 000-22195

AHL SERVICES, INC.

(Exact name of registrant as specified in its charter)

1000 Wilson Blvd, Suite 910

        Arlington, VA 22209        

(Address of Principal Executive Offices, including Zip Code)

(703) 528-9688

(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

(Title of each class)

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 Act). Yes ¨ No x

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

The aggregate market value of the voting common stock held by non-affiliates of the registrant (based upon the closing sale price on The Nasdaq Small Cap Stock Market) on June 30, 2002 was approximately $15,061,000.

As of April 1, 2003, there were 15,246,792 shares of common stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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AHL SERVICES, INC.

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PART I

ITEM 1.    BUSINESS

GENERAL

AHL Services, Inc. (“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.

Historically, AHL has also owned specialized staffing businesses in the United States and the United Kingdom and aviation and facility services businesses in the United States and Europe. The UK specialized staffing business was sold on March 19, 2002, and the US specialized staffing business was sold on October 13, 2000. The US and European aviation and facility services businesses were sold on December 29, 2000. In addition, on December 28, 2000, AHL 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.

AHL was incorporated in Georgia in 1997. Our corporate headquarters are located at 1000 Wilson Boulevard, Suite 910, Arlington, Virginia 22209. Our telephone number is (703) 528-9688.

RECENT DEVELOPMENTS

On March 31, 2003, AHL announced that an affiliate (the “Purchaser”) of CGW Southeast Partners IV, L.P. (“CGW”), a private equity firm specializing in middle-market investments, and certain AHL officers, directors and shareholders (the “Continuing Shareholders”) have agreed to acquire the outstanding shares of AHL not already held by CGW and the Continuing Shareholders through a proposed merger of AHL and the Purchaser (the “proposed merger”). The proposed merger, if completed, would constitute a going private transaction and would result in AHL no longer being publicly traded and no longer filing annual, quarterly and current reports with the SEC. In the proposed merger, holders of AHL’s common stock at the time of the proposed merger, other than Frank A. Argenbright, Jr., our Chairman, Kathleen B. Argenbright, Argenbright Partners, L.P., Francis A. Argenbright, Jr. Charitable Remainder Trust, A. Clayton Perfall, our chief executive officer, and Caledonia Investments plc, each of whom is a Continuing Shareholder, 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 Continuing Shareholders will be converted into 1.5 shares of AHL’s newly-created Series B participating preferred stock. Following the transaction, the Continuing Shareholders will maintain an approximate 40% equity interest in AHL, and CGW will own the remaining equity interest of approximately 60%.

The proposed merger is expected to be completed in the third quarter of fiscal year 2003. The transaction is subject to the approval of the holders of a majority of AHL’s outstanding common stock, as well as the approval of a majority of the shares of AHL common stock not held by the Continuing Shareholders. It is also subject to 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.

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INDUSTRY OVERVIEW

The market for outsourced business services has evolved as companies increasingly outsource non-core functions. The outsourcing company provides on-site management of staff, assumes responsibility for a particular function and shares in the economic benefits derived from improved execution of the function. As businesses centralize purchasing decisions and seek to reduce the number of vendors with whom they do business, the ability of providers to offer national and international coverage is growing in importance. These trends, as well as the increasing need for capital and management depth for growth, are creating consolidation opportunities in the highly fragmented outsourcing services industry.

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

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

The move to one-on-one interactive marketing and real time delivery has forced many companies to look outside their own marketing divisions to augment, enhance and extend their marketing execution capabilities. There is increasing demand for customer contact management, on both the customer service side as well as through customer analytics and profiling. Fulfillment and merchandising are also in demand as companies accelerate product development and sales and marketing campaign cycles. Many companies are seeking seamless customer service, fulfillment and merchandising services to ensure every customer has access to products whether the ‘store’ is down the street or online.

Temporary staffing is used primarily to manage short-term fluctuations in employment needs. Those needs may arise due to the seasonal nature of certain businesses or the geographic allocation of employment resources. Temporary staffing is also utilized in highly regulated employment countries to satisfy longer term needs to provide flexibility in the event of a change in demand for services or products. The dynamics of the temporary staffing industry make it highly sensitive to fluctuation in the broader economy. As a result, the industry is early cyclical, meaning that upon early signs of improving demand, companies tend to hire temporary rather than permanent workers.

With approximately 40 million employees, the German labor market has the potential to be one of the largest staffing markets globally. However, Germany continues to have restrictive regulations for temporary staffing, resulting in a relatively low penetration rate as compared to other European countries. Recent German legislation includes provisions that would remove many of the regulatory barriers to using temporary staffing to satisfy businesses’ employment flexibility requirements.

STRATEGY

In 2002, AHL focused on expanding its marketing support services to existing clients and creating operating efficiencies within its marketing support services businesses. Our marketing support services businesses serve a

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diverse group of long-term clients. We expect to leverage our strong client base to continue to grow our business in 2003. Our specific strategies include:

Partnering with clients at a higher level within the organization to meet their marketing needs.    For more than two years, we have targeted business development efforts to senior marketing executives in five primary industries: consumer products, automotive, entertainment, retail and financial services. Demonstrating our industry expertise and our service offerings to senior levels within our clients’ organizations has proven beneficial to both AHL and our clients. We believe this strategic focus is the primary reason AHL has seen growth in these industries.

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

Transforming merchandising revenue base and building continuity business.    Our primary initiatives in transforming our revenue base include (1) eliminating business with unprofitable projects and chronic slow payers and (2) building our revenue base around a premier client list. For 2003, we are focused on building a foundation for large continuity business. We expect to accomplish this objective by targeting in-house merchandising organizations and focusing on large premier clients. In addition, we will focus on converting one-time projects to a continuity-based business.

Continuing to upgrade and improve facilities.    We have invested significantly in new facilities over the past few years. Within our trade promotion and fulfillment business, we have consolidated seven warehouses into one large 400,000 square feet facility, which significantly reduced our operating costs in 2002, while increasing available capacity. In 2003, we have already expanded our operations by opening warehouse facilities in Pennsylvania and Ontario, Canada. In 2003 and 2004, we intend to upgrade facilities for our Minnesota-based consumer fulfullment operations. We also intend to continue expansion of our customer service facilities in Canada.

Improving merchandising service quality.    We have begun several initiatives to improve the quality of our merchandising service. Among these key initiatives are: (1) changes in merchandiser reporting and monitoring to allow us to guarantee 95% completion on time and 100% completion within 24 hours of commitment, (2) movement to Internet reporting in order to allow clients on-line access to store execution updates, and (3) movement to merchandisers with Internet access which will allow faster and less costly communications with merchandisers.

Developing and enhancing information technology systems.    In 2003, we will evaluate additional value-added warehouse management modules to incorporate into our enterprise Oracle-based platform, Global Enterprise Management (“GEM”). We believe it will be cost effective to select off-the-shelf components for resource scheduling and labor planning. Also, in 2003 we intend to upgrade our retail merchandising platform to create the additional capacity required by our new e-merchandising offering. We are also launching new web based reporting and modeling systems that we believe are the leading edge in the marketing support services industry.

Continuing to reduce operating costs.    We have begun several initiatives that will reduce our operating costs. These initiatives include (1) increased application of technology throughout operations; (2) standardization of technology platforms as discussed previously; (3) focus on economies of scale and productivity gains;

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(4) utilization of cross-business teams to develop and implement consistent procedures and measurements; and (5) measurement of performance against standards in each facility.

SERVICES PROVIDED

The following table presents the percentage of AHL’s revenues by business line for the periods shown:

Marketing Support Services

Our marketing support services are performed by two operations: Archway Marketing Services (“Archway”), formerly known as Gage Marketing Services, and ServiceAdvantage. Archway provides consumer promotion and fulfillment services, which includes customer service operations, and trade promotion and fulfillment services. Archway has fulfillment centers located in Detroit, Michigan; Minneapolis, Minnesota; Kankakee, Illinois; Los Angeles, California; Allentown, Pennsylvania; Toronto, Canada; and Juarez, Mexico. Archway’s customer service centers are located in both the United States and Canada. Our ServiceAdvantage operations provide retail merchandising services across the United States through a network of field offices, with sales offices in Minneapolis, Minnesota; Troy, Michigan; Bentonville, Arkansas; and Taylorville, Illinois.

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

Consumer Promotion and Fulfillment Services

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

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

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

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

Trade Promotion and Fulfillment Services

Our trade fulfillment services link our customers and their retail locations or business customers. Many corporations use our trade fulfillment services to distribute point-of-purchase displays, new product introduction literature, posters, banners, demonstration kits, signs, samples and other sales and marketing materials throughout extensive distribution and franchise networks. In providing these services, we:

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

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

Retail Merchandising Services

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

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

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

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

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

German Specialized Staffing Services

AHL provides specialized staffing services throughout Germany. We have skilled and semi-skilled workers assisting large, Global 500 clients primarily in the automotive, engineering, aeronautical, food, call center and consumer packaged goods industries. Our employees perform skilled, semi-skilled and customer service tasks. Examples of these workers include electricians, welders, plumbers and mechanics. Although Germany continues to have restrictive regulations for temporary staffing, the restrictive labor market builds consistent demand for strategic temporary services, in which certain companies permanently lease a certain percentage of their staff to keep the highest possible flexibility. This situation is particularly true in the light industrial and automotive segments that AHL operates.

Historically, we also operated specialized staffing businesses in the United Kingdom. On March 19, 2002, we sold our UK specialized staffing services business for $29.5 million in cash. After the sale, 100% of our staffing business is in Germany. We entered the German staffing market in 1998 and through a series of acquisitions have built Germany’s sixth largest specialized staffing company.

MANAGEMENT SYSTEMS

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

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

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

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

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CLIENTS

Marketing Support Services

We provided marketing support services to over 150 clients in 2002, with our current client base consisting primarily of companies engaged in the automotive, consumer products, entertainment and retail industries. We generally enter into one- to three-year contracts with our clients, pursuant to which we agree to provide services for a fixed number of programs per year. The scope and magnitude of the programs are customized to the need of the client. In fiscal 2002, our ten largest marketing support services clients accounted for approximately 40% of our marketing support services revenue, with no client individually exceeding 10% of consolidated revenues. A sample of our marketing support services clients include:

German Specialized Staffing Services

In the German specialized staffing business, we generally enter into contracts with our clients pursuant to which we agree to provide specialized staffing on an as needed basis at a specific rate to the client. In fiscal 2002, our top ten German specialized staffing services customers accounted for approximately 36% of our German specialized staffing services revenue, with one customer, BMW, providing 13% of consolidated revenues. A few of our German specialized staffing services clients include:

SALES AND MARKETING

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

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

COMPETITION

The outsourcing industry is extremely competitive and highly fragmented, with limited barriers to entry. Companies within the outsourcing industry compete on the basis of the quality of service provided, the range of

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services offered and price. We believe our competitive advantages include our reputation for providing high quality service and our ability to serve large clients. Many of our competitors offer a more limited range of services and focus on a few specific industries.

We compete in national, regional and local markets with outsourcing companies, specialized contract service providers and in-house organizations that provide services to potential clients and third parties. Our principal national competitors include:

EMPLOYEES

At December 31, 2002, our marketing support services operations had 8,266 employees, as detailed in the table below. We utilize contract employees obtained through agreements with independent employment agencies as business needs dictate. Approximately 6,200 of the non-exempt retail merchandising employees indicated below are part-time non-benefits eligible merchandisers. Approximately 150 employees in Michigan and Minnesota are represented under collective bargaining agreements expiring in 2003 and 2004, respectively. We consider our relations with our employees to be good.

Our German specialized staffing operations have a large base of skilled and semi-skilled workers assisting large, Global 500 clients primarily in the automotive, engineering, aeronautical, food, call center and consumer packaged goods industries. Our employees perform skilled, semi-skilled and customer service tasks. Examples of these workers include electricians, welders, plumbers and mechanics. At December 31, 2002, we had a total of 5,301 employees in this segment, with 4,992 employees in our specialized staffing operations and 309 administrative employees. None of these employees are parties to collective bargaining agreements.

DIVESTITURES AND ABANDONMENTS

On March 19, 2002, we sold our UK specialized staffing services business for $29.5 million in cash. On December 29, 2000, we sold our 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. 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. On December 28, 2000, we made the decision to abandon operations of our store set-up business unit, formerly called PIMMS.

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ACQUISITIONS

The following table details our acquisitions of marketing support services businesses and German specialized staffing services businesses since our incorporation in 1997.