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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM 10-Q

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

For the quarterly period ended September 30, 1999
Commission file number 0-20854

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

PHILIP SERVICES CORP.
(Exact Name of Registrant as Specified in its Charter)

ONTARIO N/A
(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification Number)
or Organization)

100 KING STREET WEST, HAMILTON, ONTARIO L8N 4J6
(Address of Principal Executive Offices) (Zip Code)

(905) 521-1600
(Registrant's Telephone Number, Including Area Code)

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

The number of shares of Common Shares of the Registrant, outstanding at
November 12, 1999 was 131,144,013.

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2

REPORT INDEX

PART AND ITEM NO. PAGE NO.
- ----------------- --------

PART I -- Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998......................... 2
Consolidated Statements of Earnings for the Three and Nine
Months Ended September 30, 1999 and September 30, 1998
(unaudited)............................................... 3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and September 30, 1998
(unaudited)............................................... 4
Notes to Consolidated Financial Statements (unaudited)...... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and
Results of Operations..................................... 21
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 31

PART II -- Other Information
Item 1. Legal Proceedings........................................... 32
Item 2. Changes in Securities....................................... 35
Item 3. Defaults Upon Senior Securities............................. 35
Item 4. Submission of Matters to a Vote of Securities Holders....... 36
Item 5. Other Information........................................... 36
Item 6. Exhibits and Reports on Form 8-K............................ 36
Signature................................................... 39

1
3

PHILIP SERVICES CORP.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)

SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
(UNAUDITED)

ASSETS
Current Assets:
Cash and equivalents...................................... $ 58,643 $ 60,727
Accounts receivable (net of allowance for doubtful
accounts of $23,629; December 31, 1998 -- $24,354)..... 286,001 302,204
Inventory for resale...................................... 34,121 32,633
Other current assets...................................... 155,763 185,390
---------- ----------
534,528 580,954
Fixed assets................................................ 340,455 416,936
Other assets................................................ 72,815 100,967
---------- ----------
$ 947,798 $1,098,857
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities Not Subject to Compromise:
Current Liabilities:
Accounts payable....................................... $ 101,341 $ 86,584
Accrued liabilities.................................... 117,484 182,707
Current maturities of long-term debt................... 14,091 1,083,831
---------- ----------
232,916 1,353,122
Long-term debt............................................ 4,904 13,715
Deferred income taxes..................................... 16,935 15,982
Other liabilities......................................... 95,059 109,163
Liabilities Subject to Compromise (Note 6).................. 1,136,468 --
Contingencies
Shareholders' equity (deficit).............................. (538,484) (393,125)
---------- ----------
$ 947,798 $1,098,857
========== ==========

The accompanying notes are an integral part of these financial statements.
2
4

PHILIP SERVICES CORP.

CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT
SHARE AND PER SHARE AMOUNTS)

FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------- -----------------------
1999 1998 1999 1998
--------- --------- ---------- ----------

Revenue........................................ $358,067 $422,876 $1,055,481 $1,505,648
Operating expenses............................. 324,941 352,232 925,327 1,255,324
Special charges (Note 10)...................... -- 356,633 -- 356,633
Selling, general and administrative costs...... 36,167 110,014 136,244 216,452
Depreciation and amortization.................. 13,259 25,886 41,664 75,664
-------- -------- ---------- ----------
Loss from operations........................... (16,300) (421,889) (47,754) (398,425)
Interest expense............................... 591 20,275 52,490 53,297
Other income and expense -- net................ (1,981) 19,191 (3,409) 726
Cumulative effect of change in accounting
principle (Note 11).......................... -- -- 1,543 --
-------- -------- ---------- ----------
Loss from continuing operations before tax and
reorganization costs......................... (14,910) (461,355) (98,378) (452,448)
Reorganization costs (Note 12)................. 64,032 -- 78,356 --
Income taxes................................... 1,237 37,224 5,587 35,007
-------- -------- ---------- ----------
Loss from continuing operations................ (80,179) (498,579) (182,321) (487,455)
Discontinued operations (net of tax) (Note
2)........................................... (3,064) (146,820) 34,668 (231,522)
-------- -------- ---------- ----------
Net loss....................................... $(83,243) (645,399) $ (147,653) $ (718,977)
======== ======== ========== ==========
Basic and diluted earnings (loss) per share
Continuing operations........................ $ (0.61) $ (3.80) $ (1.39) $ (3.72)
Discontinued operations...................... (0.02) (1.12) 0.26 (1.76)
-------- -------- ---------- ----------
$ (0.63) $ (4.92) $ (1.13) $ (5.48)
======== ======== ========== ==========
Weighted average number of common shares
outstanding (000's).......................... 131,144 131,144 131,144 131,126
======== ======== ========== ==========

The accompanying notes are an integral part of these financial statements.
3
5

PHILIP SERVICES CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED IN THOUSANDS OF U.S. DOLLARS)

FOR THE NINE MONTHS
ENDED SEPTEMBER 30
---------------------
1999 1998
--------- ---------

OPERATING ACTIVITIES
Net loss from continuing operations......................... $(182,321) $(487,455)
Items included in earnings not affecting cash
Depreciation and amortization............................. 41,664 55,810
Amortization of goodwill.................................. -- 19,854
Accrued but unpaid interest (Note 6a)..................... 49,540 --
Deferred income taxes..................................... 2,135 31,129
Writedown of investments.................................. 4,220 --
Gain on sale of assets.................................... (3,523) (16,843)
Non-cash reorganization costs............................. 64,239 --
Special charges (Note 10)................................. -- 447,897
--------- ---------
Cash flow from continuing operations........................ (24,046) 50,392
Changes in non-cash working capital......................... 11,571 (103,298)
--------- ---------
Cash used in continuing operating activities................ (12,475) (52,906)
Cash provided by (used in) discontinued operating
activities................................................ 2,834 (11,077)
--------- ---------
Cash used in operating activities........................... (9,641) (63,983)
--------- ---------
INVESTING ACTIVITIES
Proceeds from sale of operations............................ 23,085 104,922
Acquisitions -- including acquired cash (bank
indebtedness)............................................. -- (21,483)
Purchase of fixed assets.................................... (21,711) (46,951)
Proceeds from sale of fixed assets.......................... 12,292 23,798
Other -- net................................................ (295) (24,780)
--------- ---------
Cash provided by continuing investing activities............ 13,371 35,506
Cash provided by (used in) investing activities of
discontinued operations................................... 66,969 (13,315)
--------- ---------
Cash provided by investing activities....................... 80,340 22,191
--------- ---------
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 140 176,962
Principal payments on long-term debt........................ (75,438) (93,007)
Common shares issued for cash............................... -- 566
--------- ---------
Cash provided by (used in) continuing financing
activities................................................ (75,298) 84,521
Cash provided by (used in) financing activities of
discontinued operations................................... 2,515 (21,283)
--------- ---------
Cash provided by (used in) financing activities............. (72,783) 63,238
--------- ---------
Net change in cash for the period........................... (2,084) 21,446
Cash and equivalents, beginning of period................... 60,727 27,391
--------- ---------
Cash and equivalents, end of period......................... $ 58,643 $ 48,837
========= =========

The accompanying notes are an integral part of these financial statements.
4
6

PHILIP SERVICES CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Philip
Services Corp. and its subsidiaries (the "Company") and have been prepared in
U.S. dollars using accounting principles generally accepted in the United
States. There have been no significant changes in the accounting policies of the
Company during the periods presented. For a description of these policies, see
Note 1 of Notes to the Company's audited Consolidated Financial Statements
included in the Company's Form 10-K for the fiscal year ended December 31, 1998.

The consolidated financial statements herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). As applicable under such regulations,
certain information and footnote disclosures normally included in complete
annual financial statements have been condensed or omitted. The Company believes
that the presentation and disclosures herein are adequate to make the
information not misleading, and the financial statements reflect all elimination
entries and normal adjustments which are necessary for a fair statement of the
results for the three months and nine months ended September 30, 1999 and
September 30, 1998.

For all periods presented, the Consolidated Financial Statements and Notes
to the Consolidated Financial Statements disclose the Utilities Management
division sold in May 1999 and the Company's Copper and Non-ferrous operations
discontinued in 1998 as discontinued operations, as discussed in Note 2.

BANKRUPTCY FILING AND PLAN OF REORGANIZATION

On June 25, 1999, the Company and substantially all of its wholly-owned
subsidiaries located in the United States (the "U.S. Debtors") filed voluntary
petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code with
the United States Bankruptcy Court for the District of Delaware (the "U.S.
Court"). The Company and substantially all of its wholly-owned subsidiaries
located in Canada (the "Canadian Debtors") commenced proceedings under the
Companies' Creditors Arrangement Act ("CCAA") in Canada in the Ontario Superior
Court of Justice (the "Canadian Court") on the same date. The U.S. Debtors and
the Canadian Debtors (collectively the "Debtors") are currently operating as
debtors-in-possession under the supervision of the U.S. Court and Canadian Court
(collectively the "Courts"). Under these proceedings, substantially all
liabilities, litigation and claims against the Debtors in existence at the
filing date are stayed unless the stay is modified or lifted or payment has been
otherwise authorized by the Courts. The Debtors are authorized to continue to
pay in the ordinary course of their business both the pre-petition and
post-petition claims of trade creditors who continue to supply trade credit on
terms at least as favourable as those previously extended and to pay the
outstanding and future wages, salaries, employee benefits and other like amounts
due or accruing to current employees. With the interim and final orders received
in July 1999, the Courts have also authorized and directed the Debtors to enter
into debtor-in-possession ("DIP") financing which will provide financing of up
to $100 million and allows the Debtors access to $93 million of proceeds
remaining from previous sales of non-core assets. As of September 30, 1999, the
Company has drawn $52.2 million of these proceeds and except for up to $20
million in letters of credit, no amounts can be drawn on the DIP facility until
all of the asset proceeds are utilized.

On July 12, 1999, the U.S. Debtors filed a Joint Plan of Reorganization
(the "U.S. Plan") with the U.S. Court and on July 15, 1999, the Canadian Debtors
filed a Plan of Compromise and Arrangement (the "Canadian Plan") with the
Canadian Court. In August 1999, a number of motions were brought before the
Canadian Court challenging the fairness of the Canadian Plan. The motions were
brought by, among others, certain of the Company's creditors claiming
contribution and indemnity from the Company, including Deloitte & Touche LLP,
the underwriters of the Company's November 1997 public offering (the
"Underwriters") and certain former directors and officers. In respect of the
August 1999 motions, it was held that the Canadian Plan as initially filed,
failed to comply with the procedural and statutory requirements of the CCAA
5
7
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

1. BASIS OF PRESENTATION (continued)
regime. As a result of the decision, the Company filed a plan in the U.S. Court
on September 21, 1999 (the "Amended U.S. Plan") and an amended plan in the
Canadian Court on September 24, 1999 (the "Amended Canadian Plan"). In summary,
the Amended Canadian Plan provided that in order for the Company to be able to
propose a restructuring plan to its unsecured creditors, the Company had to by
October 27, 1999, either (a) arrive at a settlement with each of the
contribution and indemnity claimants or (b) agree with each of the contribution
and indemnity claimants as to the amount of each of their claims and have the
agreement of each such claimant that they would vote in favour of the plan. In
an attempt to arrive at a global settlement and therefore meet the conditions of
the Amended Canadian Plan, a mediation was held on October 25th and October
26th, 1999 involving various parties. As the mediation was unsuccessful, the
Company brought a motion returnable November 1, 1999, to cancel the meeting of
the affected unsecured creditors scheduled for November 2, 1999 and filed a
Supplement to the Amended Canadian Plan (the "Canadian Plan Supplement"). The
Canadian Plan Supplement amended and restated the Amended Canadian Plan such
that the only affected class of creditors is the holders of secured lender
claims and unsecured creditors would no longer be affected. The Canadian Plan
Supplement provides that substantially all of the assets of the Canadian debtors
will be transferred to new companies that, on the implementation of the Amended
U.S. Plan will be wholly owned subsidiaries of Philip Services (Delaware), Inc
("PSI"). All the shares held by the Company in PSI will be cancelled under the
Amended U.S. Plan. The motions brought by the Company, Deloitte & Touche LLP and
the Underwriters were heard in the Canadian Courts on November 1, 1999 at which
time the judge reserved decision until November 5, 1999. On November 3, 1999 a
hearing was held in the U.S. Court to consider confirmation of the Amended U.S.
Plan. At that hearing, the U.S. court overruled all remaining objections to the
Amended U.S. Plan and scheduled a hearing on November 30, 1999 to review the
terms of the exit facility. On November 4, 1999, the Canadian Court allowed the
motion to cancel the meeting of the unsecured creditors in Canada and the
motions of Deloitte & Touche LLP and the Underwriters were dismissed. On
November 5, 1999, the Company's lenders voted to approve the Canadian Plan
Supplement. As the judge has dismissed the only outstanding objections to the
Company completing its financial reorganization under the CCAA, a hearing will
be scheduled in the Canadian Court to sanction the Canadian Plan Supplement.

The Amended U.S. Plan and the Canadian Plan Supplement (collectively the
"Plan") provides that the existing syndicated debt of approximately $1 billion
be converted into $250 million of senior secured debt, $100 million of
convertible secured payment in-kind debt and 91% of the common shares of PSI.
The payment in-kind debt is convertible into 25% of the common shares of PSI on
a fully diluted basis as of the plan implementation date. The senior secured
debt and the secured payment in-kind debt each have a term of five years. The
Plan also provides for the conversion of certain specified impaired unsecured
claims, into $60 million of unsecured payment in-kind notes and 5% of the common
shares of PSI as of the plan implementation date. Certain holders of the
unsecured claims to be compromised may elect to receive $1.50 in face amount of
unsecured convertible notes in exchange for every $1.00 in face amount of
unsecured payment in-kind notes that such holder would have received under the
Plan. The aggregate amount of unsecured convertible notes to be issued shall not
exceed $18 million. The Company has also reached an agreement in principle with
the Canadian and U.S. class action plaintiffs to settle all class action claims
for 1.5% of the common shares of PSI. This agreement is subject to final
documentation and the approval of the Courts. Other potential equity claimants
will receive 0.5% of the common shares of PSI and existing shareholders will
receive 2% of the common shares of PSI. The Plan provides that the Board of
Directors of PSI consists of nine directors who will be nominated by the new 91%
shareholders (i.e., the lenders). The nominees will include two members of the
existing Board and two members will be nominated by High River Limited
Partnership ("High River") provided that High River and any lender acting in
concert with it beneficially own at least 25% of the syndicated debt.

6
8
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

1. BASIS OF PRESENTATION (continued)
These consolidated financial statements have been prepared on the basis of
accounting principles applicable to a going concern which in this situation
assumes that the Company will realize the carrying value of its assets, and
satisfy its obligations and commitments except as otherwise disclosed, in the
normal course of business. However, as a result of the filings and the
circumstances relating to this event, such realization of assets and liquidation
of liabilities is subject to significant uncertainty. Furthermore, the Company's
ability to continue as a going concern is dependent upon the confirmation of the
Plan by the Courts, achievement of profitable operations and the ability to
generate sufficient cash from operations and financing sources to meet
obligations. While under protection and with the approval of the Courts, the
Company may sell or otherwise dispose of assets and liquidate or settle
liabilities for amounts other than those reflected in the consolidated financial
statements. Further, implementation of the Plan could materially change the
amounts and classifications reported in the consolidated financial statements.
The financial statements do not give effect to any adjustments to the carrying
value of assets or amounts and priority of liabilities that might be necessary
as a consequence of the Plan and the application of fresh start accounting.
These financial statements do not reflect the adjustments and disclosures that
would be necessary if the Plan were not confirmed.

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect reported amounts of assets, liabilities, income and
expenses and disclosures of contingencies. Actual results could differ from the
estimates and judgments made in preparing these financial statements which
include assumptions made concerning the acceptance of the Plan.

REFLECTING THESE EVENTS IN THE FINANCIAL STATEMENTS

In preparing the Company's financial statements, management has assessed
the degree to which the events or changes in circumstances impact the
recoverability of the carrying amount of the Company's assets and the amounts
owing to lenders and creditors.

The Company's financial statements as of September 30, 1999 have been
presented in conformity with the AICPA's Statement of Position 90-7 "Financial
Reporting By Entities In Reorganization Under the Bankruptcy Code" ("SOP 90-7").
The statement requires that the amounts owing to the Company's lending syndicate
as well as any other pre-petition liabilities that are subject to compromise
under the Plan be segregated in the Company's Consolidated Balance Sheet as
liabilities subject to compromise and the identification of all transactions and
events that are directly associated with the reorganization of the Company in
the Consolidated Statement of Earnings. The liabilities are recorded at the
amounts expected to be allowed as claims by the Courts, rather than the amounts
for which those allowed claims may ultimately be settled. As the claims are
settled, the amounts included in the Consolidated Balance Sheet at September 30,
1999, as liabilities subject to compromise, may be subject to adjustment.

2. DISCONTINUED OPERATIONS (in thousands)

On May 18, 1999, the Company sold its investment in Philip Utilities
Management Corp. ("PUMC") for cash proceeds of $70,104, resulting in a gain on
sale of $39,115. The operations of PUMC, previously reported as the Utilities
Management division of the Industrial Services group, are now reflected as
discontinued operations. In December 1998, the Company made the decision to
discontinue the Non-Ferrous and Copper operations of its Metals Services
business. The sale of certain aluminum operations included in the Non-Ferrous
operations closed on January 11, 1999 for a total consideration of approximately
$69,500. Certain of the Copper and Non-ferrous operations or assets are
anticipated to be sold while the remainder of the operations in these segments
will be closed during 1999.

7
9
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

2. DISCONTINUED OPERATIONS (in thousands) (continued)
Revenue from the Non-Ferrous, Copper and Utilities Management operations,
net of intercompany revenue, was $8,228 and $66,468 for the three and nine
months ended September 30, 1999, respectively. Net earnings from discontinued
operations in the Consolidated Statement of Earnings is presented net of
applicable income tax provision of nil and $674 for the three and nine months
ended September 30, 1999, respectively. No interest or general corporate
overhead was allocated to these discontinued operations.

Revenue from the Non-Ferrous, Copper and Utilities Management operations,
net of intercompany revenue, was $114,363 and $393,482 for the three and nine
months ended September 30, 1998, respectively. Loss from discontinued operations
in the Consolidated Statement of Earnings is presented net of applicable income
tax provision of $47,212 and $48,409 for the three and nine months ended
September 30, 1998, respectively.

3. OTHER CURRENT ASSETS (in thousands)

SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------

Restricted cash(a).......................................... $ 77,579 $ 28,423
Work in progress............................................ 16,489 17,209
Small parts and supplies.................................... 17,531 18,128
Prepaid expenditures........................................ 10,410 14,052
Non-trade receivables....................................... 13,682 9,911
Other....................................................... 17,096 13,149
Net current assets from discontinued operations(b).......... 2,976 84,518
-------- --------
$155,763 $185,390
======== ========

(a) Restricted cash represents funds used as collateral for letters of credit,
and proceeds from the sale of assets which are currently held by the
Company's lenders and to which the Company has access under a stipulation
and order authorizing the use of cash collateral made by the U.S. Court on
June 28, 1999.

(b) Net current assets from discontinued operations for December 31, 1998
include proceeds receivable of approximately $69,500 from the sale of the
aluminum operations (Note 2).

4. OTHER ASSETS (in thousands)

SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------

Restricted investments(a)................................... $32,430 $ 31,016
Deferred financing costs.................................... -- 836
Investments................................................. 13,807 18,810
Other intangibles........................................... 5,551 9,046
Other....................................................... 21,027 28,089
Net long-term assets of discontinued operations............. -- 13,170
------- --------
$72,815 $100,967
======= ========

(a) Restricted investments support the Company's self-insurance program and are
invested and managed by the Company's wholly-owned insurance subsidiary.

8
10
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

5. ACCRUALS (in thousands)

Accrued liabilities consist of the following:

SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------

Accrued employee compensation and benefit costs............. $ 27,360 $ 40,537
Accrued insurance costs..................................... 29,001 32,678
Accrued purchases........................................... 13,589 20,062
Income taxes payable........................................ 8,147 8,058
Accrued restructuring costs................................. 10,674 17,520
Accrued other............................................... 28,713 63,852
-------- --------
$117,484 $182,707
======== ========

6. LIABILITIES SUBJECT TO COMPROMISE (in thousands)

SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------

Bank term loan(a)........................................... $1,004,086 $ --
Convertible subordinated debentures(b)...................... 27,609 --
Other long-term debt(c)..................................... 24,137 --
Accrued liabilities......................................... 28,698 --
Other long-term liabilities................................. 27,460 --
Liabilities of discontinued operations...................... 24,478 --
---------- ----------
$1,136,468 $ --
========== ==========

(a) In August 1997, the Company signed a $1.5 billion revolving credit agreement
which was amended in October 1997, February 1998, June 1998, October 1998
and December 1998 (the "Credit Facility") with a syndicate of international
lenders which replaced the 1996 revolving term loan agreement and refinanced
certain other long-term debt. The Credit Facility expires in August of 2002,
and contains certain restrictive covenants and financial covenants including
that: (a) the Company must meet specified interest coverage ratio, debt to
EBITDA ratio, fixed charge ratio and working capital ratio tests, and (b)
acquisitions by the Company are subject to lenders' approval.

Borrowings under the Credit Facility are guaranteed, jointly and severally
by the Company and its direct and indirect wholly-owned subsidiaries and
are secured by a pledge of the issued and outstanding securities of the
Company's direct and indirect wholly-owned subsidiaries, and a charge over
the present and future assets of the Company and its direct and indirect
wholly-owned subsidiaries. The Credit Facility bears interest based on a
moving grid. In June 1998, the Credit Facility was reduced from $1.5
billion to $1.2 billion, the interest rate charged was increased by 100
basis points, the Company was permitted access to $60 million of the
proceeds arising from an asset disposition of which $20 million was
allocated to provide collateral for letters of credit and the Company
agreed to a standstill until September 30, 1998 respecting the incurrence
of additional debt and the occurrence of dispositions or acquisitions. On
October 20, 1998, the Credit Facility was further amended to permit the use
of the letter of credit facility for general corporate and other purposes
and to extend the Company standstill on certain

9
11
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

6. LIABILITIES SUBJECT TO COMPROMISE (in thousands) (continued)
activities until June 30, 1999. In November 1998, the Company suspended
payments of interest under the Credit Facility. Interest on the borrowings
under the Credit Facility ceased to accrue at the filing date. The interest
expense that would have accrued on the outstanding Credit Facility for the
third quarter of 1999 was $23.9 million.

The Plan sets forth a new capital structure for the Company and the
conditions that govern the restructuring of approximately $1.0 billion in
secured term loans outstanding, which includes accrued but unpaid interest,
under the Credit Facility. Under the terms of the Plan, the lenders will
convert the outstanding $1.0 billion of secured debt into $250 million of
senior secured debt, $100 million of convertible secured payment in-kind
debt and 91% of the common shares of PSI. The secured payment in-kind debt
is convertible into 25% of the common shares of PSI on a fully diluted
basis as of the plan implementation date. The senior secured debt and the
secured payment in-kind debt each have a term of five years.

(b) On the acquisition of Allwaste, Inc. ("Allwaste") the Company assumed the
indenture with respect to Allwaste's 7 1/4% Convertible Subordinated
Debentures ("debenture") which are due 2014. At any time up to and including
June 1, 2014 the holder of any debenture will have the right to convert the
principal amount of such debenture into common shares equal to the principal
amount of the debenture surrendered for conversion divided by $19.5376. The
debentures are redeemable for cash at the option of the Company. The
debentures provide for annual mandatory sinking fund payments equal to 5% of
the aggregate principal amount of the debenture issued, commencing June 1,
1999. Interest is payable semi-annually on June 1 and December 1. Effective
December 1, 1998, the Company suspended payments of interest on the
debenture which created a default under the indenture. Interest accrued on
the debenture as at September 30, 1999 is approximately $2 million. The
amount of the debentures outstanding was classified as a current liability
on the Consolidated Balance Sheet at December 31, 1998. Interest on the
debenture ceased to accrue as of the filing date. The interest expense that
would have accrued on the outstanding debenture for the third quarter of
1999 was $0.5 million.

(c) Included in other long-term debt are promissory notes, relating to certain
1996 and 1997 acquisitions, totalling $16,000 which are in default as
principal repayments required were not made. At December 31, 1998, $11,000
of these notes were in default and therefore were classified as a current
liability on the Company's December 31, 1998 Consolidated Balance Sheet.

The Plan provides for the conversion of liabilities subject to compromise
other than the Bank term loan into $60 million of unsecured payment in-kind
notes and 5% of the common shares of PSI as of the plan implementation
date. The holders of the liabilities to be compromised may elect to receive
$1.50 in face amount of unsecured convertible notes in exchange for every
$1.00 in face amount of unsecured payment in-kind notes that such holder
would have received under the Plan. The aggregate amount of unsecured
convertible notes to be issued shall not exceed $18 million.

10
12
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

7. LONG-TERM DEBT (in thousands)

SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------

Bank term loan (Note 6a).................................... $ -- $1,025,253
Convertible subordinated debentures (Note 6b)............... -- 25,609
Secured loans bearing interest at a weighted average fixed
rate of 6.1% maturing at various dates up to 2020(a)...... 9,344 12,431
Secured loans bearing interest at prime plus a weighted
average floating rate of 0.7% maturing at various dates up
to 2008................................................... 1,917 3,100
Loans unsecured, bearing interest at a weighted average
fixed rate of 6.6%, maturing at various dates up to 2005
(Note 6c)................................................. 384 17,136
Obligations under capital leases on equipment bearing
interest at rates varying from 6% to 12% maturing at
various dates to 2004..................................... 7,350 12,800
Other....................................................... -- 1,217
------- ----------
18,995 1,097,546
Less current maturities of long-term debt................... 14,091 1,083,831
------- ----------
$ 4,904 $ 13,715
======= ==========

(a) Included in the fixed rate secured loans are industrial development bonds
totaling $7,700 which were in default as at December 31, 1998, and September
30, 1999 as principal repayments required were not made. Therefore, these
loans have been classified as a current liability on the Company's
Consolidated Balance Sheets at December 31, 1998 and September 30, 1999.

8. SHAREHOLDERS' EQUITY (DEFICIT) (in thousands, except number of shares)

SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------

Share capital............................................... $1,351,482 $1,351,482
Retained earnings (deficit)................................. (1,820,799) (1,673,146)
Cumulative foreign currency translation adjustment.......... (69,167) (71,461)
---------- ----------
$ (538,484) $ (393,125)
========== ==========

The issued capital of the Company is comprised of 131,144,013 common shares
(December 31, 1998 -- 131,144,013).

9. CHANGES IN NON-CASH WORKING CAPITAL (in thousands)

NINE MONTHS ENDED
SEPTEMBER 30
---------------------
1999 1998
-------- ---------

Accounts receivable......................................... $ (84) $ 25,126
Inventory for resale........................................ (1,405) 14,030
Other....................................................... 31,896 (61,182)
Accounts payable and accrued liabilities.................... (16,284) (73,130)
Income taxes................................................ (2,552) (8,142)
-------- ---------
$ 11,571 $(103,298)
======== =========

11
13
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

9. CHANGES IN NON-CASH WORKING CAPITAL (in thousands) (continued)
STATEMENTS OF CASH FLOWS

The supplemental cash flow disclosures and non-cash transactions for the
nine months ended September 30, 1999 and 1998 are as follows:

NINE MONTHS ENDED
SEPTEMBER 30
-----------------
1999 1998
------ -------

Supplemental Disclosures:
Interest paid............................................... $2,182 $68,207
Income taxes paid........................................... 7,687 --
Non Cash Transactions:
Capital leases and debt obligations for the purchase of
property and equipment.................................... -- 2,764
Debt and liabilities incurred or assumed in acquisitions.... -- 189
Notes receivable for the sale of equipment.................. 1,875 --

10. SPECIAL CHARGES (in thousands)

1998

The following table summarizes the special charges recorded by the Company
in the three and nine months ended September 30, 1998 and identifies where they
are disclosed in the Statements of Earnings:

Asset impairments and other costs recorded as special
charges(a).................................................. $356,633
Costs recorded as selling, general and administrative
expenses(b)............................................... 53,000
Writedowns of investments recorded as other income and
expenses(c)............................................... 38,250
--------
Pre-tax..................................................... $447,883
========
After tax................................................... $447,883
========

(a) For the nine months ended September 30, 1998, the Company recorded a charge
of $356,633 reflecting the effects of (i) decisions made with respect to the
potential disposition of certain operations, (ii) impairments of fixed
assets and related goodwill resulting both from decisions to exit various
business locations or activities and dispose of the related assets, and
(iii) assessments of the recoverability of fixed assets and the related
goodwill of business units in continuing use as a result of the significant
deterioration in metal markets and business operations of the Company in the
third quarter of 1998.

All businesses assessed for asset impairment were acquired in purchase
business combinations and, accordingly, the goodwill that arose in the
transactions was included in the tests for recoverability. Assets to be
disposed of were valued at their estimated net realizable value while the
value of the assets of the business units to be continued were assessed at
fair value principally using discounted cash flow methods.

12
14
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

10. SPECIAL CHARGES (in thousands) (continued)
The special charges related to asset impairments and other costs are
comprised of the following items:

Business units, locations or activities to be exited:
Fixed assets written down to estimated net realizable
value of $4,900.................................... $ 12,000
Future lease and other exiting costs.................. 8,400
Business units to be continued:
Goodwill written off.................................. 325,000
Fixed assets written down to estimated net realizable
value of $1,000.................................... 11,233
--------
$356,633
========

(b) Included in selling, general and administrative costs in the three months
ended September 30, 1998 are costs of $20,000 relating to charges for
financing fees and debt restructuring costs. Deferred financing costs which
were previously amortized over the life of the credit agreement were written
off as the existing credit agreement will be replaced. The Company's
financial position, its planned divestitures, litigation with debtors,
unexpected financial difficulties of certain customers and a general
deterioration in customer market conditions necessitated the recording of an
additional provision for doubtful accounts of $25,000. The remainder of the
charges recorded in selling, general and administrative costs related to
severance payments and other costs recorded in the three months ended
September 30, 1998 relating to ongoing cost reduction measures and
restructuring.

(c) The Company's 24.2% investment in Innovative Valve Technologies Inc.
("Invatec"), is accounted for using the equity method of accounting. Invatec
is a publicly traded company which provides comprehensive maintenance
repair, replacement and value-added distribution services of industrial
valves and process system components. The reduction in carrying value of
$25,000 at September 30, 1998 recognized a potentially long-term impairment
in value which was reflected by the market performance of Invatec's shares.

The Company's investment in Strategic Holdings Inc., which was accounted
for at cost, was divested in the fourth quarter of 1998 for less than its
book value. Accordingly, a writedown of the investment of $13,250 was
recorded in the three months ended September 30, 1998 as part of Other
income and expense-net.

11. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING POLICY

The American Institute of Certified Public Accountants has issued Statement
of Position 98.5 "Reporting on the Costs of Start-Up Activities" which is
effective for fiscal years beginning after December 15, 1998. This statement
requires that all pre-operating costs be expensed as incurred. The statement
also requires that upon initial application any previous pre-operating costs
that had been deferred be expensed and reported as a cumulative effect of a
change in accounting principle.

13
15
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

12. REORGANIZATION COSTS (in thousands)

The expenses resulting from the Company's reorganization filings has been
segregated from expenses related to operations in the accompanying Statements of
Earnings and includes the following:

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------ ------------------

Write-off of unamortized debt issue costs on
subordinated debentures................................ $ -- $ 800
Provision for future lease rejections.................. -- 6,164
Provision for litigation claims........................ -- 6,360
Assets written down to net realizable value............ 49,915 49,915
Professional fees...................................... 6,839 6,839
Employee retention and severance costs................. 6,424 6,424
Other.................................................. 854 1,854
------- -------
$64,032 $78,356
======= =======

13. COMPREHENSIVE INCOME (in thousands)

Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Comprehensive income for the Company is as follows:

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- ----------------------
1999 1998 1999 1998
-------- --------- --------- ---------

Net loss................................... $(83,243) $(645,399) $(147,653) $(718,977)
Other comprehensive income, net of tax:
Translations adjustments................. 2,836 (16,454) 2,294 (28,939)
-------- --------- --------- ---------
Comprehensive loss......................... $(80,407) $(661,853) $(145,359) $(747,916)
======== ========= ========= =========

14. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

15. SEGMENTED INFORMATION (in thousands)

The Company has two distinct business operations, Metals Services and
Industrial Services. The Industrial Services operations have two business
segments, By-Products Recovery and Industrial Outsourcing Services. By-Products
recovery includes solvent distillation, engineered fuel blending, paint
overspray recovery, organic and inorganic processing and polyurethane recycling.
Industrial Outsourcing Services includes cleaning and maintenance, waste
collection and transportation, decommissioning and remediation, analytical
services, emergency response services, container services and tank cleaning,
turnaround and outage services, mechanical contracting and refractory services.

14
16
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

15. SEGMENTED INFORMATION (in thousands) (continued)
The Metals Services operations have two business segments, Ferrous Services
and Industrial Metals Services ("IMS"). Ferrous services include the collection
and processing of ferrous scrap materials for shipment to steel mills as well as
significant brokerage services for scrap materials and primary metals. The IMS
group provides mill services and engineering and consulting services.

NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------------
INDUSTRIAL CORPORATE
BY-PRODUCTS OUTSOURCING FERROUS AND
RECOVERY SERVICES SERVICES IMS ELIMINATIONS TOTAL
----------- ----------- -------- ------- ------------ ----------

Revenue.................. $112,392 $ 598,887 $328,335 $15,867 $ -- $1,055,481
Income (loss) from
operations............. (909) (15,726) 7,333 (5,613) (32,839) (47,754)
Total assets............. 119,136 1,200,595 267,906 11,549 (651,388) 947,798
Depreciation and
amortization........... 6,004 22,725 10,688 259 1,988 41,664
Capital expenditures..... 882 14,428 5,507 702 192 21,711
Equity investments....... -- 3,109 4,643 -- 3,569 11,321

NINE MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------------------------------------------
INDUSTRIAL CORPORATE
BY-PRODUCTS OUTSOURCING FERROUS AND
RECOVERY SERVICES SERVICES IMS ELIMINATIONS TOTAL
----------- ----------- -------- ------- ------------ ----------

Revenue.................. $152,974 $ 706,871 $613,434 $32,369 $ -- $1,505,648
Income (loss) from
operations............. 1,375 15,920 (317,239) (883) (97,598) (398,425)
Total assets............. 169,928 1,699,135 508,153 32,640 (450,539) 1,959,317
Depreciation and
amortization........... 8,018 34,434 24,615 950 7,647 75,664
Capital expenditures..... 1,936 24,188 18,021 2,034 3,536 49,715
Equity investments....... -- 8,369 3,167 -- 4,833 16,369

The geographical segmentation of the Company's business is as follows:

NINE MONTHS ENDED
----------------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------ ------------------------
LONG-LIVED LONG-LIVED
REVENUE ASSETS REVENUE ASSETS
---------- ---------- ---------- ----------

Canada.................................... $ 142,639 $ 98,684 $ 196,652 $129,802
United States............................. 834,762 245,655 1,224,109 317,143
Europe.................................... 78,080 61,236 84,887 85,561
---------- -------- ---------- --------
$1,055,481 $405,575 $1,505,648 $532,506
========== ======== ========== ========

16. CONTINGENCIES (in thousands)

(a) The Company in the normal course of its business expends funds for
environmental protection and remediation but does not expect these
expenditures to have a materially adverse effect on its financial condition
or results of operations.

15
17
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

16. CONTINGENCIES (in thousands) (continued)
Certain of the Company's facilities are contaminated primarily as a result
of operating practices at the sites prior to their acquisition by the
Company. The Company has established procedures to routinely evaluate these
sites giving consideration to the nature and extent of the contamination.
The Company has provided for the remediation of these sites based upon
management's judgement and prior experience. The Company has estimated the
liability to remediate these sites to be $66,832 (December 31, 1998 --
$66,097).

As well, certain subsidiaries acquired by the Company have been named as
potentially responsible or liable parties in connection with sites listed
on the Superfund National Priority List ("NPL"). In the majority of the
cases, the Company's connection with NPL sites relates to allegations that
its subsidiaries or their predecessors transported waste to the site in
question. The Company has reviewed the nature and extent of its alleged
connection to these sites, the number, connection and financial ability of
other named and unnamed potentially responsible parties and the nature and
estimated cost of the likely remedy. Based on its review, the Company has
accrued its estimate of its liability to remediate these sites at $20,592
(December 31, 1998 -- $20,827). If it is determined that more expensive
remediation approaches may be required in the future, the Company could
incur additional obligations of up to $35,000.

The liabilities discussed above are disclosed in the Consolidated Balance
Sheets as follows:

SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------

Net current assets from discontinued operations.......... $ 1,400 $ 1,400
Accrued liabilities...................................... 8,507 7,051
Other long-term liabilities.............................. 76,131 78,473
Liabilities subject to compromise........................ 1,386 --
------- -------
$87,424 $86,924
======= =======

(b) Various class actions have been filed against the Company, certain of its
past and present directors and officers, the underwriters of the Company's
1997 public offering and the Company's auditors. Each action alleges that
the Company's financial disclosures for various time periods between 1995
and 1997 contained material misstatements or omissions in violation of U.S.
federal securities laws (provisions of the Securities Act of 1933 and of the
Securities Exchange Act of 1934) and seeks to represent a class of
purchasers of the Company's common shares. On June 2, 1998 the Judicial
Panel on Multidistrict Litigation ordered that the class actions be
consolidated and transferred to the United States District Court, Southern
District of New York. On July 23, 1998, two pre-trial orders of the District
Court were made. Pre-Trial Order No. 1 dealt with various administrative
matters relating to the consolidation of the actions and a schedule for the
plaintiffs to serve and file a consolidated amended class action complaint
and for the Company's response. Pre-Trial Order No. 2 appointed a lead
plaintiff and lead counsel. On November 13, 1998, the Company filed a motion
for an order dismissing the class action on the grounds of forum non
conveniens. On May 12, 1999, the Company received notice that the United
States District Court, Southern District of New York, ruled in favour of the
Company's motion to dismiss the U.S. plaintiffs' consolidated and amended
class action complaint on forum non conveniens grounds. The District Court
declined to assume jurisdiction over the complaint on the grounds that
Ontario provides an adequate alternative forum for litigation of the class
action plaintiff's claims, and ruled that adjudication in Ontario would be
more convenient and best serve the public interest. The plaintiffs are
appealing this decision.

16
18
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

16. CONTINGENCIES (in thousands) (continued)
A claim brought under the Ontario Class Proceedings Act was commenced on
October 26, 1998 against the Company, the underwriters of the Company's
1997 public offering and the Company's auditors. The claim was brought on
behalf of persons in Canada who purchased common shares of the Company
between November 6, 1997 and December 18, 1997 and also seeks damages on
behalf of persons in Canada who purchased common shares between May 21,
1996 and April 23, 1998. The claim contains various allegations that are
similar in nature to those made in the U.S. class action claims dismissed
on May 4, 1999.

On June 25, 1999, the Company, the U.S. class action plaintiffs and the
Canadian class action plaintiffs entered into a memorandum of understanding
(the "MOU") with respect to the settlement of the U.S. and Canadian class
actions (collectively the "Security Claims"). The MOU provides that the
U.S. and Canadian class action plaintiffs will receive 1.5% of the common
shares of PSI in exchange for a release and discharge of all claims. The
settlement contemplated by the MOU is subject to the execution of
definitive documentation and to the approval of the U.S. Court and the
Canadian Court. Additionally, the MOU provides that the Debtors will
support a joint application for attorneys' fees and reasonable expenses of
plaintiff's counsel not to exceed $575,000, subject to approval by the
Courts, and which shall not be payable until after the plan implementation
date. The claims and causes of actions against the Debtors described in the
preceding two paragraphs are classified in the Amended U.S. Plan as Class
8B Securities Claims. Under the Amended U.S. Plan, the Securities Claims
will be discharged as of the plan implementation date. There can be no
assurance that the Amended U.S. Plan will be confirmed by the U.S. Court.
If the Plan is not confirmed there can be no assurance that the U.S. and
Canadian class actions will not have a material adverse effect on the
financial condition or results of operations of the Company.

Similar claims have been asserted against the Company and certain of its
past and present officers and directors by the former shareholders of the
Steiner-Liff Metals group of companies (the "Liff Actions") and the
Southern-Foundry Supply group of companies (the "Chazen Actions"). Philip
acquired these companies in October of 1997 and issued the Company's common
shares in partial payment of the purchase price. The claims allege that the
Company's financial disclosures for various time periods between 1995 and
1997 contain material misstatements or omissions and that these constitute
a breach of certain representations and warranties made to the former
shareholders or, alternatively, a violation of U.S. securities laws.

Under the Amended U.S. Plan, the claims in the Liff Actions and the Chazen
Actions are classified as Class 8C claims. The Amended U.S. Plan provides
that the claims against the Debtors arising from the Liff Actions and the
Chazen Actions will be discharged on the plan implementation date.
Therefore, if the Amended U.S. Plan is confirmed and consummated, after the
plan implementation date, the claims arising from the Liff Actions and the
Chazen Actions cannot be pursued against the reorganized Debtors. There can
be no assurance that the Amended U.S. Plan will be confirmed by the U.S.
Court. If the Amended U.S. Plan is not confirmed there can be no assurance
that the Liff Actions or Chazen Actions will not have a material adverse
effect on the financial condition or results of operations of the Company.

(c) Upon the acquisition of Allwaste, the Company assumed the pre-existing
indenture with respect to the Allwaste's 7 1/4% Convertible Subordinated
Debentures ("Old Debentures") which are due in 2014. Effective December 1,
1998, the Company suspended payments of interest on the Old Debentures which
created a default under the indenture. Following the Company's failure to
cure the payment default within thirty days, on April 22, 1999, First Union
National Bank (the "Indenture Trustee") invoked an acceleration clause and
declared the principal of all the Old Debentures to be immediately due and
payable. On April 27, 1999, the Indenture Trustee filed suit in the 11th
Judicial District Court of Harris

17
19
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

16. CONTINGENCIES (in thousands) (continued)
County, Texas seeking the full amount due and owing under the Old
Debentures (the "Allwaste Collection Action").

The commencement of the Chapter 11 cases automatically stayed the further
prosecution of the Allwaste Collection Action. Moreover, the Debtors
believe that the U.S. Court has exclusive jurisdiction over the causes of
action asserted in the Allwaste collection action and that such matters
will be adjudicated in the Chapter 11 cases by the U.S. Court. Under the
Amended U.S. Plan, claims arising out of the Old Debentures are classified
as Class 7 Impaired Unsecured Claims and will receive the treatment
afforded such claims and will be discharged under the Amended U.S. Plan as
of the plan implementation date. Therefore, if the Amended U.S. Plan is
confirmed and consummated, after the plan implementation date, the
Reorganized Debtors will have no liability as to the Old Debentures and the
Allwaste Collection Action will be fully resolved and will be dismissed
with prejudice. There can be no assurance that the Amended U.S. Plan will
be confirmed by the U.S. Court. If the Amended U.S. Plan is not confirmed
there can be no assurance that the Allwaste Collection Action will not have
a material adverse effect on the financial condition or results of
operations of the Company.

On May 25, 1999, the Indenture Trustee filed suit against the Company and
the Lenders in the 11th Judicial District Court of Harris County, Texas
(the "Allwaste Avoidance Action") alleging that any and all liens, security
interests, and obligations conveyed or transferred by the Company to its
lending syndicate were avoidable as fraudulent conveyances. The Debtors
believe that the commencement of the Chapter 11 cases have vested exclusive
standing to prosecute avoidance actions, including those asserted by the
Indenture Trustee against the defendant Lenders in the Allwaste Avoidance
Action, in the Debtors pursuant to the Bankruptcy Code. Therefore, the
Debtors believe that the causes of action alleged in the Allwaste Avoidance
Action are property of the Debtors' estates and that further prosecution of
the Allwaste Avoidance Action is stayed. Under the terms of the Amended
U.S. Plan, the causes of action asserted by the Indenture Trustee against
the defendant Lenders will be deemed to be settled and released as a
consequence of the treatment of all claims and interests, including the
claims of the Lenders and the holders of Old Debentures under the Amended
U.S. Plan. Therefore, if the Amended U.S. Plan is confirmed and
consummated, as of the plan implementation date, the Allwaste Avoidance
Action will be fully resolved and will be dismissed with prejudice. There
can be no assurance that the Amended U.S. Plan will be confirmed by the
U.S. Court. If the Amended U.S. Plan is not confirmed there can be no
assurance that the Allwaste Avoidance Action will not have a material
adverse effect on the financial condition or results of operations of the
Company.

(d) In June 1997, pursuant to a share purchase agreement, Republic Environmental
Systems, Inc. ("Republic") sold certain corporate entities to RESI
Acquisition (Delaware), Inc. ("RESI") for $17 million. As consideration for
the transaction, RESI paid $8 million in cash and executed two promissory
notes in favor of Republic in a combined amount of $9 million. After the
notes were executed, the parties made several modifications to the payment
schedule, allowing RESI extra time to fulfill its obligations. However, RESI
eventually defaulted and Republic thereafter brought an action in the
Superior Court of the State of Delaware against the Company and RESI to
collect on the notes (the "U.S. Republic Action"). In addition to the note
involved in the U.S. Republic Action, another note issued by Philip
Enterprises Inc. in conjunction with the RESI acquisition exists and is the
subject of litigation in Canada that has now been stayed in connection with
the Canadian filing (the "Canadian Republic Action"). The Company filed
counterclaims alleging damages from the 1997 Share Purchase Agreement. On
June 3, 1999, the court issued judgement granting Republic's Motion for
Final Judgement on the Pleadings as to the notes and guaranty, and denying
the Company's motion to dismiss. On June 4, 1999, RESI filed a petition for
relief under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. As a result of the CCAA and
Chapter 11 filings,
18
20
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

16. CONTINGENCIES (in thousands) (continued)
U.S. Republic Action and the Canadian Republic Action are now stayed. The
claims of Republic, which are classified under the Amended U.S. Plan as
Class 7 Impaired Unsecured Claims, will receive the treatment afforded such
claims, and will be discharged under the Amended U.S. Plan as of the plan
implementation date. Therefore, if the Amended U.S. Plan is confirmed and
consummated, as of the plan implementation date, the reorganized Debtors
will have no liability as to the U.S. Republic Action or the Canadian
Republic Action and the actions will be fully resolved and will be
dismissed with prejudice. There can be no assurance that the Amended U.S.
Plan will be confirmed by the U.S. Court. If the Amended U.S. Plan is not
confirmed there can be no assurance that the U.S. Republic Action or the
Canadian Republic Action will not have a material adverse effect on the
financial condition or results of operations of the Company.

(e) In January 1999, Exxon Chemical Company ("Exxon") asserted a claim against
International Catalyst, Inc. ("INCAT"), an indirect wholly-owned subsidiary
of the Company, for damages of $32.1 million arising from certain work
conducted by INCAT at Exxon's Baytown, Texas chemical plant. Exxon alleges
that INCAT was responsible for the purchase and installation in 1996 of
improper gasket materials in the internal bed piping flange joints of the
Baytown plant which caused damages to the facility and consequential losses
arising from the shutdown of the plant while repairs were made. INCAT has
conducted a preliminary review of these claims and determined that it is not
feasible to predict or determine the final outcome of these proceedings.
INCAT intends to vigorously defend the claims and believes that it may have
insurance coverage for such claims. There can be no assurance, though, that
the outcome of the claims will not have a material adverse effect upon the
financial condition or results of operations of INCAT.

(f) In November 1998, the Company ceased paying interest on its $1.0 billion in
outstanding secured syndicated debt, which includes accrued but unpaid
interest of $67.9 million, and stopped making payments on certain other
unsecured debt and contractual obligations ("the Unsecured Obligations").
The Company has reached an agreement with its lending syndicate on the terms
of a financial restructuring of the Company. On June 25, 1999, the Company
and substantially all of its wholly-owned subsidiaries located in the United
States filed voluntary petitions for reorganization under Chapter 11 of the
U.S. Bankruptcy Code. The Company and substantially all of its wholly-owned
subsidiaries located in Canada commenced proceedings under the Companies'
Creditors Arrangement Act in Canada on the same date. Pursuant to the
Amended U.S. Plan, outstanding syndicated debt of $1 billion will be
converted into $250 million of senior secured debt, $100 million in
convertible secured payment in-kind debt and 91% of the common shares of
PSI. The senior secured debt and the secured payment in-kind debt each have
a term of five years. The Amended U.S. Plan also provides for the conversion
of certain specified impaired unsecured claims, into $60 million of payment
in-kind notes and 5% of the common shares of PSI as of the plan
implementation date. The implementation of the Amended U.S. Plan is subject
to the fulfillment of certain conditions. There can be no assurance that the
Amended U.S. Plan will be confirmed by the U.S. Court. If the Amended U.S.
Plan is not approved, there can be no assurance that the Company will
continue as a going concern. If the Amended U.S. Plan is not confirmed, the
Unsecured Obligations could have a material adverse effect upon the
financial condition or results of operations of the Company.

(g) The Company's operations are subject to various comprehensive laws and
regulations related to the protection of the environment. The Company's
facilities are subject to periodic unannounced inspections by federal,
provincial, state and local authorities to ensure compliance with operating
permits and applicable laws and regulations. If violations are found or
deficiencies, if any, are not remedied, an enforcement action could be
commenced against the Company or the Company could be charged with an
offense and may incur substantial fines. A charge is outstanding against the
Company under the
19
21
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

16. CONTINGENCIES (in thousands) (continued)
Environmental Protection Act of Ontario in respect of a discharge in
October 1997 of an odor from the Company's Vulcan Ave., Toronto, Ontario
facility. The Company is also aware of ongoing investigations of certain of
its facilities that could give rise to charges or the issuance of notices
of violation. Based on the information available and reviews conducted by
the Company, the Company does not expect the outstanding charge or the
investigations of any single facility to give rise to monetary sanctions
that would exceed $100,000.

(h) The Company is named as a defendant in several lawsuits which have arisen in
the ordinary course of its business. Management believes that none of these
suits is likely to have a material adverse effect on the Company's business
or financial condition and therefore has made no provision in these
financial statements for the potential liability, if any.

20
22

PHILIP SERVICES CORP.

PART 1

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion reviews the Company's operations for the three and
nine months ended September 30, 1999 and 1998 and should be read in conjunction
with the Company's audited Consolidated Financial Statements and related notes
thereto included in the Company's Form 10-K for the fiscal year ended December
31, 1998. The Company reports in U.S. dollars and in accordance with U.S.
generally accepted accounting principles.

The Company has not been in compliance with the provisions of its credit
agreement since June 30, 1998. On June 25, 1999, the Company and substantially
all of its wholly-owned subsidiaries located in the United States (the "U.S.
Debtors") filed voluntary petitions for reorganization under Chapter 11 of the
U.S. Bankruptcy Code with the United States Bankruptcy Court for the District of
Delaware (the "U.S. Court"). The Company and substantially all of its
wholly-owned subsidiaries located in Canada (the "Canadian Debtors") commenced
proceedings under the Companies' Creditors Arrangement Act in Canada in the
Ontario Superior Court of Justice (the "Canadian Court") on the same date. The
U.S. Debtors and the Canadian Debtors (collectively the "Debtors") are currently
operating as debtors-in-possession under the supervision of the U.S. Court and
Canadian Court (collectively the "Courts"). Under these proceedings,
substantially all liabilities, litigation and claims against the Debtors in
existence at the filing date are stayed unless the stay is modified or lifted or
payment has been otherwise authorized by the Courts. The Debtors are authorized
to continue to pay in the ordinary course of their business both the
pre-petition and post-petition claims of trade creditors who continue to supply
trade credit on terms at least as favourable as those previously extended and to
pay the outstanding and future wages, salaries, employee benefits and other like
amounts due or accruing to current employees.

As a result of the financial uncertainty surrounding the Company, the
results of operations for the three and nine months ended September 30, 1999
were significantly impacted by actions to retain customers, suppliers'
tightening trade terms and employee attrition. Until this uncertainty is removed
and the new capital and debt structure is in place, the reported financial
information discussed herein may not be indicative of future operating results
or future financial condition.

INTRODUCTION

The Company is a supplier of metals recovery and industrial services. The
Company has over 260 operating facilities and over 12,000 employees located
throughout North America and Europe, that provide services to more than 40,000
industrial and commercial customers. The Company's primary base of operations is
in the United States.

The Company's business is organized into two operating divisions -- the
Metals Services Group and the Industrial Services Group. The Metals Services
Group processes or recycles ferrous scrap materials (the "Ferrous Operations")
and provides mill services and engineering and consulting services ("Industrial
Metals Services" or "IMS"), at multiple locations throughout North America and
Europe. The Ferrous Operations include the collection and processing of ferrous
scrap materials for shipment to steel mills as well as significant brokerage
services for scrap materials. The Metals Services Group primarily services the
steel, foundry and automotive industry sectors. In December 1998, the Company
decided to discontinue the non-ferrous and copper operations of its Metals
Services Group. The non-ferrous operations included the refining of second grade
copper into prime ingot, and the production of deoxidizing products and alloys
from aluminum scrap for use in the steel and automotive industries ("Non-Ferrous
Operations"). The Copper Operations processed wire and cable scrap to recover
copper ("Copper Operations"). For all periods presented, the consolidated
financial results disclose the Company's Non-Ferrous and Copper Operations as
discontinued operations.

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The Industrial Services Group provides industrial outsourcing services and
by-products recovery services with a network of over 230 facilities. Industrial
outsourcing services include cleaning and maintenance, waste collection and
transportation, decommissioning and remediation, analytical services, emergency
response services, container services and tank cleaning, turnaround and outage
services, mechanical contracting and refractory services. By-products recovery
includes solvent distillation, engineered fuel blending, paint overspray
recovery, organic and inorganic processing and polyurethane recycling. The
Industrial Services Group services the automotive, refining and petrochemical,
steel, oil and gas, pulp and paper and transportation sectors. On May 18, 1999,
the Company sold its utilities management business, which was previously
included in the Industrial Services Group, for proceeds of $70.1 million. For
all periods presented the consolidated financial results disclose the Company's
Utilities Management business as discontinued operations.

The Company earns revenue by providing industrial services, from the sale
of recovered commodities and from fees charged to customers for by-product
transfer and processing, collection and disposal services. The Company receives
by-products and, after processing, disposes of the residuals at a cost lower
than the fees charged to its customers. Other sources of revenue include fees
charged for environmental consulting and engineering and other services.

The Company's operating expenses include direct labour, indirect labour,
payroll related taxes, benefits, fuel, maintenance and repairs of equipment and
facilities, depreciation, property taxes, and accrual for future closure and
remediation costs. Selling, general and administrative expenses include
management salaries, clerical and administrative costs, professional fees,
facility rentals and insurance costs, as well as costs related to the Company's
marketing and sales force. Professional fees related to restructuring of the
Company incurred prior to the filing have been included in selling, general and
administrative expenses in 1998 and 1999.

DISCONTINUED OPERATIONS AND DIVESTITURES

In June 1999, the Company sold its Birmingham, Alabama based civil
construction and maintenance business for $23.1 million resulting in a gain on
sale of $1.0 million. The business, whose results are included in the Industrial
Services Group, generated annual revenue of $70 million and income from
operations of $4.5 million in 1998.

On May 18, 1999, the Company sold its investment in Philip Utilities
Management Corp. ("PUMC") for cash proceeds of $70.1 million resulting in a gain
of $39.1 million. The operations of PUMC, which were previously reported as a
segment of the Industrial Services Group, are now treated as discontinued
operations.

In December 1998, the Company made the decision to discontinue the
Non-Ferrous Operations and Copper Operations. A sale of certain of the aluminum
operations included in Non-Ferrous Operations closed on January 11, 1999 for a
total consideration of approximately $69.5 million. Certain copper and
non-ferrous operations or assets are anticipated to be sold and the remainder of
the operations in these segments closed during 1999.

On July 7, 1998, the Company's Houston, Texas based steel distribution
business was sold for cash proceeds of $95 million, resulting in a gain on sale
of approximately $17 million. The results of operations for the steel
distribution business are included in the Ferrous operations segment of the
Metal Services business. The business generated annual revenue in excess of $130
million and income from operations of $12.5 million in 1997.

The Company continues to review the divestiture of certain of its non-core
businesses or investments. The proceeds which may be raised from these
divestitures is unknown. A gain or loss may be recorded on the divestitures but
the amount cannot be determined until definitive agreements are reached. In
addition, costs with respect to restructuring operations may be necessary but
are not quantifiable at this time.

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RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the results of
operations and the percentage relationships which the various items in the
Consolidated Statements of Earnings bear to the consolidated revenue from
continuing operations.

THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
------------------------------- ---------------------------------
1999 1998 1999 1998
------------- --------------- --------------- ---------------
($ ) MILLIONS ($ ) MILLIONS

Revenue........................ $358.1 100% $ 422.9 100% $1,055.5 100% $1,505.6 100%
Operating expenses............. 324.9 91% 352.3 84% 925.3 87% 1,255.3 83%
Special charges................ -- -- 356.6 84% -- -- 356.6 24%
Selling, general and
administrative costs......... 36.2 10% 110.0 26% 136.3 13% 216.5 14%
Depreciation and
amortization................. 13.3 4% 25.9 6% 41.7 4% 75.7 5%
------ ---- ------- ----- -------- ---- -------- ----
Loss from operations........... (16.3) (5%) (421.9) (100%) (47.8) (4%) (398.5) (26%)
Interest expense............... 0.6 -- 20.3 5% 52.5 5% 53.3 4%
Other income and expense-net... (2.0) (1%) 19.2 4% (3.4) -- 0.7 --
Cumulative effect of change in
accounting principle......... -- -- -- -- 1.5 -- -- --
------ ---- ------- ----- -------- ---- -------- ----
Loss from continuing operations
before tax and reorganization
costs........................ (14.9) (4%) (461.4) (109%) (98.4) (9%) (452.5) (30%)
Reorganization costs........... 64.0 18% -- -- 78.4 8% -- --
Income taxes................... 1.3 -- 37.2 9% 5.6 -- 35.0 2%
------ ---- ------- ----- -------- ---- -------- ----
Loss from continuing
operations................... (80.2) (22%) (498.6) (118%) (182.4) (17%) (487.5) (32%)
Discontinued operations
(net of tax)................. (3.0) (1%) (146.8) (35%) 34.7 3% (231.5) (16%)
------ ---- ------- ----- -------- ---- -------- ----
Net loss....................... $(83.2) (23%) $(645.4) (153%) $ (147.7) (14%) $ (719.0) (48%)
====== ==== ======= ===== ======== ==== ======== ====

EARNINGS FROM CONTINUING OPERATIONS

For the three months ended September 30, 1999, the Company incurred a loss
from continuing operations of $80.2 million or $0.61 per share including
reorganization costs of $64 million. This compares to a loss from continuing
operations of $498.6 million or $3.80 per share for the three months ended
September 30, 1998. For the nine months ended September 30, 1999, the Company
incurred a loss from continuing operations of $182.4 million or $1.39 per share.
This compares to a loss from continuing operations of $487.5 million or $3.72
per share for the nine months ended September 30, 1998.

OPERATING RESULTS

The operating results for the Metals Services Group reflect the following:

THREE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------
1999 1998
------------------------ -------------------------
FERROUS IMS TOTAL FERROUS IMS TOTAL
------- ----- ------ ------- ----- -------
($ ) MILLIONS

Revenue.................................. $139.2 $ 5.3 $144.5 $ 133.2 $14.2 $ 147.4
Income (loss) from operations............ 4.0 (1.4) 2.6 (341.8) (2.0) (343.8)
Income (loss) from operations excluding
special charges........................ 4.0 (1.4) 2.6 (2.1) 1.5 (0.6)

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NINE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------
1999 1998
------------------------ -------------------------
FERROUS IMS TOTAL FERROUS IMS TOTAL
------- ----- ------ ------- ----- -------
($ ) MILLIONS

Revenue.................................. $328.3 $15.9 $344.2 $ 613.4 $32.4 $ 645.8
Income (loss) from operations............ 7.3 (5.6) 1.7 (317.2) (0.9) (318.1)
Income (loss) from operations excluding
special charges........................ 7.3 (5.6) 1.7 22.5 2.6 25.1

The decrease in revenue for the ferrous operations of $285.1 million for
the nine months ended September 30, 1999, compared with the same period of 1998
relates primarily to the first six months of 1999 where there was a significant
reduction in the average selling price of ferrous scrap from $144 per ton in the
first six months of 1998 to $99 per ton. In addition, revenue has been impacted
by the sale of the Company's steel distribution business in July 1998 and as
well the ferrous operations' volumes have been adversely impacted by the
negative financial situation of the Company. Income from operations excluding
special charges as a percentage of revenue, was 2.2% for the nine months ended
September 30, 1999, compared to 3.7% for the nine months ended September 30,
1998, respectively which reflects the lower prices and volumes. Income from
operations for the three months ended September 30, 1999 was $4.0 million or
2.9% as a percentage of revenue compared to a loss from operations of $2.1
million or 1.6% in the same period of 1998. This improvement in profit is due to
the increasing average price of ferrous scrap in the third quarter of 1999
compared to the third quarter of 1998 where the average price of ferrous scrap
was decreasing.

The revenue from the Industrial Metals Services operations decreased by
$8.9 million and $16.5 million for the three and nine months ended September 30,
1999 respectively compared with the same period in 1998. Income (loss) from
operations excluding special charges as a percentage of revenue was (26.4)% and
(35.2)% for the three and nine months ended September 30, 1999, respectively
compared to 10.6% and 8.0% for the three and nine months ended September 30,
1998 resulting from the failure to bring to fruition development projects due to
the Company's financial uncertainty. Certain non-core components of the
Industrial Metals Services group are being wound down, which is expected to be
completed by year end.

The operating results for the Industrial Services Group reflect the
following:

THREE MONTHS ENDED SEPTEMBER 30
-----------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
INDUSTRIAL INDUSTRIAL
BY-PRODUCTS OUTSOURCING BY-PRODUCTS OUTSOURCING
RECOVERY SERVICES TOTAL RECOVERY SERVICES TOTAL
----------- ----------- ------ ----------- ----------- ------
($ MILLIONS)

Revenue............................ $39.1 $174.5 $213.6 $58.1 $217.4 $275.5
Income (loss) from operations...... 0.9 (15.6) (14.7) 0.5 (7.7) (7.2)
Income (loss) from operations
excluding special charges........ 0.9 (15.6) (14.7) 0.5 8.7 9.2

NINE MONTHS ENDED SEPTEMBER 30
-----------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
INDUSTRIAL INDUSTRIAL
BY-PRODUCTS OUTSOURCING BY-PRODUCTS OUTSOURCING
RECOVERY SERVICES TOTAL RECOVERY SERVICES TOTAL
----------- ----------- ------ ----------- ----------- ------
($ MILLIONS)

Revenue............................ $112.4 $598.9 $711.3 $153.0 $706.9 $859.9
Income (loss) from operations...... (0.9) (15.7) (16.6) 1.4 15.9 17.3
Income (loss) from operations
excluding special charges........ (0.9) (15.7) (16.6) 1.4 32.3 33.7

The revenue and income from operations for the nine months ended September
30, 1999 for the By-Products Recovery group have decreased compared to 1998 due
to the fact that certain customers are

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reluctant to enter into service agreements until the uncertainty from the
Company's reorganization filings is resolved. The increase in income from
operations for the three months ended September 30, 1999 when compared to the
same period in 1998 is due to cost reduction programs which have begun to take
effect.

Revenue for the Industrial Outsourcing Services operations decreased by
$42.9 million and $108 million for the three and nine months ended September 30,
1999, respectively. Income (loss) from operations for the Industrial Outsourcing
Services operations for the three months and nine months ended September 30,
1999 was impacted by $2.3 million and $6.7 million, respectively, related to
Year 2000 costs and employee benefit liability adjustments. Income (loss) from
operations as a percentage of revenue for the Industrial Outsourcing Services
operations, excluding special charges and non-recurring costs, was (7.6)% and
(1.5)% for the three and nine months ended September 30, 1999, respectively
compared with 4.0% and 4.6% for the three and nine months ended September 30,
1998, respectively. The reorganization filings, which occurred at the beginning
of the third quarter of 1999, had a significant impact on the revenue and
profitability of the Industrial Outsourcing Services business. The perceived
financial instability has caused customers to decline to consider the awarding
of large outage service and fabrication contracts to the Company until it
emerges from its financial restructuring process. In the first half of 1999, the
operating results were also impacted by deteriorating market conditions in the
petroleum refining sector caused by the instability of crude oil prices and the
merger of key petroleum customers. For example, while oil and gas prices have
been depressed, customers in this industry have elected to postpone significant
maintenance and capital expenditures, including turnaround projects, which has
reduced both revenue and profitability.

Cash conservation measures by the Company have reduced the amount of
capital expenditures for the first nine months of 1999. As a result, the
operating results for both the Metals and Industrial Services groups have been
impacted as higher repair and maintenance costs and rental expenses are being
incurred.

SPECIAL CHARGES 1998

For the nine months ended September 30, 1998, the Company recorded a charge
of $356.6 million reflecting the effects of (a) decisions made with respect to
the potential disposition of certain operations, (b) impairment of fixed assets
and related goodwill resulting both from decisions to exit various business
locations or activities and dispose of the related assets, and as a result of
the significant deterioration in the metals market and business operations of
the company in the third quarter of 1998 and, (c) assessments of the
recoverability of fixed assets and the related goodwill of business units in
continuing use, as a result of the significant deterioration in the metals
markets and business operations of the Company in the third quarter of 1998.

Included in selling, general and administrative costs in the three months
ended September 30, 1998 are special charges of $53 million of which $20 million
related to charges for financing fees and debt restructuring costs. On August
31, 1998, the Company filed its quarterly compliance certificate with its
syndicate of lenders which indicated the Company was not in compliance with the
provisions of its credit agreement. Deferred financing costs which were
previously amortized over the life of the credit agreement were written off as
the credit facility will be replaced with a new facility. In addition, the
Company's financial position, its planned divestitures, litigation with debtors,
unexpected financial difficulties of certain customers and a general
deterioration in customer market conditions necessitated the recording of an
additional provision for doubtful accounts of $25 million. The remainder of the
charges recorded in selling, general and administrative costs related to
severance payments and other costs recorded in the three months ended September
30, 1998 relating to ongoing cost reduction measures and restructuring.

In the third quarter of 1998, the Company recorded writedowns on
investments of $38.3 million in Other income and expense -- net. The Company's
24.2% investment in Innovative Valve Technologies Inc. ("Invatec"), is accounted
for using the equity method of accounting. Invatec is a publicly traded company
providing comprehensive maintenance, repair, replacement and value added
distribution services of industrial valves and process system components. In
1998, Invatec was in default of its covenants with its lenders and was
experiencing operating losses. The reduction in carrying value of $25 million
gave effect to an other than temporary decline in value which was reflected by
the market performance of Invatec's shares at Septem-

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ber 30, 1998. The Company's investment in Strategic Holdings, Inc., which was
accounted for at cost, was sold in the fourth quarter of 1998 for less than its
book value. Accordingly, a writedown of the investment of $13.3 million was
recorded in the three months ended September 30, 1998 as part of Other income
and expense -- net.

SELLING, GENERAL AND ADMINISTRATIVE COSTS

Selling, general and administrative costs as a percentage of revenue were
10% and 13% for the three and nine months ended September 30, 1999 respectively
compared to 26% and 14% over the same periods in 1998. The higher costs in 1998
reflect the recording of special charges of $53 million in the third quarter as
discussed above. Included in the nine months ended September 30, 1999 are
professional fees of $13.0 million related to the financial restructuring of the
Company and $5 million related to Year 2000 costs.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization of fixed assets and goodwill for the three
and nine months ended September 30, 1999 was $13.3 million and $41.7 million
respectively, representing a decrease of $12.6 million or 48.7% and $34.0
million or 44.9% over the same periods in 1998. This decrease was due to the
write-offs of goodwill and fixed assets of $1.1 billion during 1998.

INTEREST EXPENSE

Interest expense for the three and nine months ended September 30, 1999 was
$0.6 million and $52.5 million, respectively. This decrease in interest expense
of $19.7 million in the third quarter of 1999 compared with the same period of
1998 is the result of interest on the credit facility being stayed in the
reorganization filings. The interest expense that would have accrued on
outstanding debt is approximately $25 million. Although the interest expense was
stayed in the third quarter of 1999, for the nine months ended September 30,
1999 the interest expense is approximately the same as the same period in 1998
since the borrowing rates in 1999 increased due to increases in the prime rate
and an increase of 100 basis points in the June 1998 amendment to the Credit
Facility. Although the Company suspended payments of interest under the Credit
Facility in November 1998, all amounts owing were expensed and included in the
balance of the bank term loan up to the date of the filings of June 25, 1999.

OTHER INCOME AND EXPENSE -- NET

Other income and expense -- net for the nine months ended September 30,
1999 consists of gains on sale of assets of $3.5 million, a writedown of the
investment in Innovative Valve Technologies Inc. of $4.2 million and interest
and equity income on investments.

Other income and expense -- net for the nine months ended September 30,
1998 consists primarily of net proceeds on the termination of the merger
agreement to acquire Safety Kleen Corp. of $14.7 million, a gain of $17.2
million on the sale of the steel distribution business, writedowns in
investments of $38.3 million as described in Special Charges, and interest and
equity income on investments.

INCOME TAXES

The Company is required to record a valuation allowance for deferred tax
assets when management believes it is more likely than not that the asset will
not be realized. Based on the level of historical taxable income and projections
for future taxable income over the periods in which the net operating losses are
deductible, it was determined that it is more likely than not that the Company
will not realize the benefit of the Canadian and U.S. deferred tax debits which
arose in the nine months ended September 30, 1999. The Company's plan to
restructure the secured bank term loans in 1999 in accordance with the Plan
indicated in Note 1 to the Consolidated Financial Statements appearing elsewhere
herein, may result in a gain that will be sufficient to utilize the deferred tax
assets. However, given that this gain is contingent on Court confirmation, the
Company has not recorded the gain nor the related deferred tax assets. The
valuation allowance recorded as of September 30, 1999 is $283 million.
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28

FINANCIAL CONDITION

LIQUIDITY AND CREDIT FACILITY

In August 1997, the Company signed a five year revolving term credit
agreement, which was amended in October 1997, February 1998, June 1998, October
1998 and December 1998 ("the Credit Facility"), with a syndicate of
international lenders (the "lenders"). The Credit Facility originally provided
for up to $1.5 billion in borrowings, subject to compliance with specified
availability tests. Borrowings under the Credit Facility are guaranteed by the
Company and its direct and indirect wholly-owned subsidiaries and are secured by
a pledge of the issued and outstanding securities of the Company's direct and
indirect wholly-owned subsidiaries and a charge over the present and future
assets of the Company and its direct and indirect wholly-owned subsidiaries.

Since June 30, 1998, the Company has not been in compliance with certain
covenants in the Credit Facility, including the financial covenants, which
require the Company to maintain a specified interest coverage ratio, debt to
EBITDA ratio, fixed charge ratio and working capital ratio. As the Company was
not in compliance with the terms of the Credit Facility, the debt outstanding
under the Credit Facility was classified as a current liability on the Company's
Consolidated Balance Sheet at December 31, 1998. The debt outstanding under the
Credit facility is classified as a Liability Subject to Compromise on the
Company's Consolidated Balance Sheet at September 30, 1999. In June 1998, the
Credit Facility was reduced from $1.5 billion to $1.2 billion, the interest rate
charged was increased by 100 basis points, the Company was permitted access to
$60 million of the proceeds arising from an asset disposition of which $20
million was allocated to provide collateral for letters of credit and the
Company agreed to a standstill until September 30, 1998 respecting the
incurrence of additional debt and the occurrence of dispositions or
acquisitions. On October 20, 1998, the Credit Facility was further amended to
permit the use of the letter of credit facility for general corporate and other
purposes and to extend the Company standstill on certain activities until June
30, 1999. In November 1998, the Company suspended payments of interest under the
Credit Facility.

On June 25, 1999, the Company and substantially all of its wholly-owned
subsidiaries located in the United States filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Court.
The Company and substantially all of its wholly-owned subsidiaries located in
Canada filed petitions under the Companies' Creditors Arrangement Act in Canada
in the Canadian Court on the same date. The Debtors are currently operating as
debtors-in-possession under the supervision of the Courts. Under these
proceedings, substantially all liabilities, litigation and claims against the
Debtors in existence at the filing date are stayed unless the stay is modified
or lifted or payment has been otherwise authorized by the Courts. The Debtors
are authorized to continue to pay in the ordinary course of their business both
the pre-petition and post-petition claims of trade creditors who continue to
supply trade credit on terms at least as favourable as those previously extended
and to pay the outstanding and future wages, salaries, employee benefits and
other like amounts due or accruing to current employees. With the interim and
final orders received in July 1999, the Courts have also authorized and directed
the Debtors to enter into debtor-in-possession ("DIP") financing which will
provide financing of up to $100 million and allows the Debtors access to $93
million of proceeds remaining from previous sales of non-core assets. As of
September 30, 1999, the Company has drawn $52.2 million of these proceeds and
except for up to $20 million in letters of credit, no amounts can be drawn on
the DIP facility until all of the asset proceeds are utilized.

On July 12, 1999, the U.S. Debtors filed a Joint Plan of Reorganization
(the "U.S. Plan") with the U.S. Court and on July 15, 1999, the Canadian Debtors
filed a Plan of Compromise and Arrangement (the "Canadian Plan") with the
Canadian Court. In August 1999, a number of motions were brought before the
Canadian Court challenging the fairness of the Canadian Plan. The motions were
brought by, among others, certain of the Company's creditors claiming
contribution and indemnity from the Company, including Deloitte & Touche LLP,
the underwriters of the Company's November 1997 public offering (the
"Underwriters") and certain former directors and officers. In respect of the
August 1999 motions, it was held that the Canadian Plan as initially filed,
failed to comply with the procedural and statutory requirements of the CCAA
regime. As a result of the decision, the Company filed a plan in the U.S. Court
on September 21, 1999 (the "Amended U.S. Plan") and an amended plan in the
Canadian Court on September 24, 1999 (the "Amended Canadian Plan"). In summary,
the Amended Canadian Plan provided that in order for the

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29

Company to be able to propose a restructuring plan to its unsecured creditors,
the Company had to by October 27, 1999, either (a) arrive at a settlement with
each of the contribution and indemnity claimants or (b) agree with each of the
contribution and indemnity claimants as to the amount of each of their claims
and have the agreement of each such claimant that they would vote in favour of
the plan. In an attempt to arrive at a global settlement and therefore meet the
conditions of the Amended Canadian Plan, a mediation was held on October 25th
and October 26th, 1999 involving various parties. As the mediation was
unsuccessful, the Company brought a motion returnable November 1, 1999, to
cancel the meeting of the affected unsecured creditors scheduled for November 2,
1999 and filed a Supplement to the Amended Canadian Plan (the "Canadian Plan
Supplement"). The Canadian Plan Supplement amended and restated the Amended
Canadian Plan such that the only affected class of creditors is the holders of
secured lender claims and unsecured creditors would no longer be affected. The
Canadian Plan Supplement provides that substantially all of the assets of the
Canadian debtors will be transferred to new companies that, on the
implementation of the Amended U.S. Plan will be wholly owned subsidiaries of
Philip Services (Delaware), Inc ("PSI"). All the shares held by the Company in
PSI will be cancelled under the Amended U.S. Plan. The motions brought by the
Company, Deloitte & Touche LLP and the Underwriters were heard in the Canadian
Courts on November 1, 1999 at which time the judge reserved decision until
November 5, 1999. On November 3, 1999 a hearing was held in the U.S. Court to
consider confirmation of the Amended U.S. Plan. At that hearing, the U.S. court
overruled all remaining objections to the Amended U.S. Plan and scheduled a
hearing on November 30, 1999 to review the terms of the exit facility. On
November 4, 1999, the Canadian Court allowed the motion to cancel the meeting of
the unsecured creditors in Canada and the motions of Deloitte & Touche LLP and
the Underwriters were dismissed. On November 5, 1999, the Company's lenders
voted to approve the Canadian Plan Supplement. As the judge has dismissed the
only outstanding objections to the Company completing its financial
reorganization under the CCAA, a hearing will be scheduled in the Canadian Court
to sanction the Canadian Plan Supplement.

On the acquisition of Allwaste Inc. ("Allwaste"), the Company assumed the
pre-existing indenture with respect to Allwaste's 7 1/4% Convertible
Subordinated Debentures ("old debenture") of $25.6 million which are due 2014.
Interest is payable semi-annually on June 1 and December 1. Effective December
1, 1998, the Company suspended payments of interest on the debenture which
created default under the indenture. Interest accrued on the debenture as at
September 30, 1999 is approximately $2.0 million. The amount of the debentures
is classified as a Liability Subject to Compromise at September 30, 1999 and was
classified as a current liability on the Consolidated Balance Sheet at December
31, 1998.

Liabilities Subject to Compromise include promissory notes relating to
certain 1996 and 1997 acquisitions totalling $16.0 million which were in default
as principal repayments required were not made. At

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30

December 31, 1998 $11.0 million of these notes were in default and therefore,
were classified as a current liability.

The fixed rate secured loans include industrial development bonds totalling
$7.7 million which are in default as at September 30, 1999 and December 31, 1998
since principal repayments required were not made.

The Company believes that cash generated from operations and the proceeds
from the sale of operations together with amounts available under the debtor-in
possession facility will be adequate to meet its capital expenditures and
working capital needs, although no assurance can be given in this regard.

CAPITAL EXPENDITURES

Capital expenditures for continuing operations were $21.7 million for the
nine month period ending September 30, 1999 compared to $49.7 million for the
same period in 1998.

YEAR 2000

STATE OF READINESS

The Year 2000 issue affects computer systems that have time sensitive
programs that may not properly recognize the year 2000. The Company's Year 2000
project is divided into four main areas: enterprise applications, supply chain,
site equipment, and computer and network infrastructure.

Enterprise applications include both purchased and custom developed
software packages that are used at multiple sites within the Company. Supply
chain addresses both the Company's customers and suppliers. The Company has
developed and implemented a program to communicate and co-ordinate with key
customers, including responding to several surveys and audits. A program to
identify critical vendors and track their progress towards Year 2000 readiness
has been developed. Site equipment includes industrial equipment,
instrumentation, stand-alone computer hardware, software, and building
infrastructure at the site level. Computer and network infrastructure deals with
the local area network, wide area network, file servers and network components
that connect the Company's critical applications.

Each area must follow the seven phases of the Company's Year 2000
methodology: awareness, inventory, assessment, planning, remediation, testing,
and implementation. Each phase requires a sign off from the location manager,
with a final sign off authorized by the Regional Vice President. The Year 2000
Quality Assurance team also reviews and or approves all deliverables and signs
off on completion.

The Company's numerous locations both in North America and Europe have
completed the awareness, inventory, assessment and planning stages with the
majority of the work effort complete in remediation/testing and implementation
stages. The project schedule indicates all locations will be materially
compliant by November 15, 1999 with continued testing until the end of the year.
From November 1st to the end of the calendar year the Company will be ensuring
that all documentation is in place. The Year 2000 team will continue to monitor
the process into the New Year.

COSTS

The total costs for the three and nine months ended September 30, 1999 for
the Year 2000 project were $2.1 million and $5 million, respectively and all
costs were expensed as incurred. Total costs to date for the Year 2000 project
has been $10 million.

Management has estimated the balance of the costs to complete the project
to be approximately $3.5 million including approximately $1 million in costs for
software and hardware upgrades based on management's best estimates which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third parties' Year 2000 readiness and other
factors.

RISKS

The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially or adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, the Company is unable to
determine at this time either whether its Year 2000 plan

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will be completed on a timely basis or whether the consequences of the Year 2000
failures will have a material impact on the results of operations, liquidity and
financial condition.

CONTINGENCY PLANS

The Year 2000 project will have contingency plans in place for all four
major sections of the project. Contingency plans are in the development stage
while all environmental sites have emergency response and contingency plans in
place as part of their regular practice. Specifically, the Year 2000 project
team has developed contingency plans for all systems assessed to be critical to
the business. A standard contingency plan has been developed and is being used
to develop site specific contingency plans, if required. The Company has an
Emergency Response team established to be available to assist with any issues
arising during the Year 2000 transition period and additional resources will be
on call to assist the team, if necessary. Alternative energy and communication
equipment will be available should critical systems require support.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires that an entity recognize these items as assets
or liabilities in the statement of financial position and measure them at fair
value. The effect on the Company of the adoption of this standard is not
anticipated to be material. In June 1999, the Financial Accounting Standards
Board issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133" which
extended the effective date of implementation to fiscal years beginning after
June 15, 2000.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the results of operations and businesses of the Company. When used in this
document, the words "anticipate," "believe" "estimate" and "expect" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Many factors could cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements that may be expressed or implied by
such forward-looking statements, including, among others: (1) ability to
continue as a going concern is dependent upon restructuring; (2) disruption of
operations due to restructuring; (3) control of PSI's Board of Directors by the
Company's lending syndicate; (4) effect of financial uncertainty on future
operating results; (5) outcome of legal proceedings may have a material adverse
effect on results of operations; (6) ability to trade common shares in the
United States; (7) risks associated with acquisitions including potential future
liabilities; (8) heightened competition, including the intensification of price
competition and the entry of new competitors; (9) dependence on outsourcing and
vendor reduction trends; (10) environmental and regulatory risks; (11) closure
costs for the Company's operating sites may exceed bonding amounts; (12) loss of
key employees; (13) commodity price and credit risks; (14) failure to obtain new
customers or retain existing customers; (15) general economic and business
conditions which are less favourable than expected; (16) the Year 2000 issue and
(17) unanticipated changes in industry trends. These factors and other risks are
discussed in the Company's Form 10-K for the fiscal year ended December 31, 1998
as well as from time to time in the Company's filings with the Securities and
Exchange Commission and other regulatory authorities. Should one or more of
these risks or uncertainties materialize, or should assumptions underlying the
forward-looking statements prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated or expected.
Philip does not intend, and does not assume any obligation, to update these
forward-looking statements.

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PHILIP SERVICES CORP.

PART 1, ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to financial risk resulting from volatility in
foreign exchange rates, interest rates and commodity prices. The Company seeks
to minimize these risks through its regular operating and financing activities
and, when deemed appropriate, through the use of derivative financial
instruments. In 1999, the use of derivative instruments has been limited.

FOREIGN CURRENCY RATE RISK

The revenue and expenses of the Company's Canadian and European
subsidiaries are generally denominated using the local currency. The functional
currency of these subsidiaries is the local currency and therefore, foreign
currency translation adjustments made on consolidation are reflected as a
component of shareholders' equity (deficit) as stated in the Company's
accounting policies. Changes in the foreign exchange rates compared to the
United States dollar can have an effect on the Company's revenue and
profitability. The sensitivity of the net loss from continuing operations before
tax to the changing foreign currency rates is estimated to be approximately $0.4
million for a 1% change in the foreign currencies, based on the 1998 operating
results from foreign subsidiaries.

INTEREST RATE RISK

Substantially all of the Company's long-term debt bears interest at a
floating rate determined based on the U.S. prime lending rate. The debt
structure contemplated by the Plan provides for a fixed rate of interest to be
used on the majority of the debt, effective on the plan implementation date,
which will significantly reduce the Company's exposure to interest rate risk. At
September 30, 1999, the Company had no interest swaps outstanding.

COMMODITY PRICE RISK

In December 1998, the Company made the decision to discontinue the
Non-Ferrous and Copper Operations of its Metals Services group which were the
operations with the most sensitivity to commodity prices for copper and
aluminum. Therefore, for 1999, the commodity price risk for the remaining
operations is not anticipated to be material.

Prices for the Ferrous operations of the Metals Services group are set and
adjusted monthly by the major steel producers. The price of ferrous scrap is a
significant factor influencing the profitability of the Metals Services group.
In 1998, the Company's average selling price of ferrous scrap fell 46% to
approximately $82 per ton at December 31, 1998. In the nine months ended
September 30, 1999, the average selling price of ferrous scrap increased 40% to
$115 per ton. The Company manages its commodity price risk by acquiring ferrous
metal scrap as it is needed for its customers and maintaining relatively low
inventories of scrap and processed materials. Based on results of the Ferrous
operations for the third quarter of 1999, a 10% change in the price of ferrous
scrap is estimated to change the Company's loss from continuing operations
before tax by $3.4 million.

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33

PHILIP SERVICES CORP.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company is named a defendant in legal actions
arising out of the normal course of business. The Company maintains liability
insurance against risks arising out of the normal course of business. There can
be no assurance that such insurance will be adequate to cover all such
liabilities. The following describes pending legal proceedings other than
ordinary, routine litigation incidental to its business.

(A)

Various class actions have been filed against the Company, certain of its
past and present directors and officers, the underwriters of the Company's 1997
public offering and the Company's auditors. Each action alleges that the
Company's financial disclosures for various time periods between 1995 and 1997
contained material misstatements or omissions in violation of U.S. federal
securities laws (provisions of the Securities Act of 1933 and of the Securities
Exchange Act of 1934) and seeks to represent a class of purchasers of the
Company's common shares. On June 2, 1998 the Judicial Panel on Multidistrict
Litigation ordered that the class actions be consolidated and transferred to the
United States District Court, Southern District of New York. On July 23, 1998,
two pre-trial orders of the District Court were made. Pre-Trial Order No. 1
dealt with various administrative matters relating to the consolidation of the
actions and a schedule for the plaintiffs to serve and file a consolidated
amended class action complaint and for the Company's response. Pre-Trial Order
No. 2 appointed a lead plaintiff and lead counsel. On November 13, 1998, the
Company filed a motion for an order dismissing the class action on the grounds
of forum non conveniens. On May 12, 1999, the Company received notice that the
United States District Court, Southern District of New York, ruled in favour of
the Company's motion to dismiss the U.S. plaintiffs' consolidated and amended
class action complaint on forum non conveniens grounds. The District Court
declined to assume jurisdiction over the complaint on the grounds that Ontario
provides an adequate alternative forum for litigation of the class action
plaintiff's claims, and ruled that adjudication in Ontario would be more
convenient and best serve the public interest. The plaintiffs are appealing this
decision.

A claim brought under the Ontario Class Proceedings Act was commenced on
October 26, 1998 against the Company, the underwriters of the Company's 1997
public offering and the Company's auditors. The claim was brought on behalf of
persons in Canada who purchased common shares of the Company between November 6,
1997 and December 18, 1997 and also seeks damages on behalf of persons in Canada
who purchased common shares between May 21, 1996 and April 23, 1998. The claim
contains various allegations that are similar in nature to those made in the
U.S. class action claims dismissed on May 4, 1999.

On June 25, 1999, the Company, the U.S. class action plaintiffs and the
Canadian class action plaintiffs entered into a memorandum of understanding (the
"MOU") with respect to the settlement of the U.S. and Canadian class actions
(collectively the "Security Claims"). The MOU provides that the U.S. and
Canadian class action plaintiffs will receive 1.5% of the common shares of PSI
in exchange for a release and discharge of all claims. The settlement
contemplated by the MOU is subject to the execution of definitive documentation
and to the approval of the U.S. Court and the Canadian Court. Additionally, the
MOU provides that the Debtors will support a joint application for attorneys'
fees and reasonable expenses of plaintiff's counsel not to exceed $575,000,
subject to approval by the Courts, and which shall not be payable until after
the plan implementation date. The claims and causes of actions against the
Debtors described in the preceding two paragraphs are classified in the Amended
U.S. Plan as Class 8B Securities Claims. Under the Amended U.S. Plan, the
Securities Claims will be discharged as of the plan implementation date. There
can be no assurance that the Amended U.S. Plan will be confirmed by the U.S.
Court. If the Plan is not confirmed there can be no assurance that the U.S. and
Canadian class actions will not have a material adverse effect on the financial
condition or results of operations of the Company.

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the Southern-Foundry Supply group of companies (the "Chazen Actions"). Philip
acquired these companies in October of 1997 and issued the Company's common
shares in partial payment of the purchase price. The claims allege that the
Company's financial disclosures for various time periods between 1995 and 1997
contain material misstatements or omissions and that these constitute a breach
of certain representations and warranties made to the former shareholders or,
alternatively, a violation of U.S. securities laws.

Under the Amended U.S. Plan, the claims in the Liff Actions and the Chazen
Actions are classified as Class 8C claims. The Amended U.S. Plan provides that
the claims against the Debtors arising from the Liff Actions and the Chazen
Actions will be discharged on the plan implementation date. Therefore, if the
Amended U.S. Plan is confirmed and consummated, after the plan implementation
date, the claims arising from the Liff Actions and the Chazen Actions cannot be
pursued against the reorganized Debtors. There can be no assurance that the
Amended U.S. Plan will be confirmed by the U.S. Court. If the Amended U.S. Plan
is not confirmed there can be no assurance that the Liff Actions or Chazen
Actions will not have a material adverse effect on the financial condition or
results of operations of the Company.

(B)

Upon the acquisition of Allwaste, the Company assumed the pre-existing
indenture with respect to the Allwaste's 7 1/4% Convertible Subordinated
Debentures ("Old Debentures") which are due in 2014. Effective December 1, 1998,
the Company suspended payments of interest on the Old Debentures which created a
default under the indenture. Following the Company's failure to cure the payment
default within thirty days, on April 22, 1999, First Union National Bank (the
"Indenture Trustee") invoked an acceleration clause and declared the principal
of all the Old Debentures to be immediately due and payable. On April 27, 1999,
the Indenture Trustee filed suit in the 11th Judicial District Court of Harris
County, Texas seeking the full amount due and owing under the Old Debentures
(the "Allwaste Collection Action").

The commencement of the Chapter 11 cases automatically stayed the further
prosecution of the Allwaste Collection Action. Moreover, the Debtors believe
that the U.S. Court has exclusive jurisdiction over the causes of action
asserted in the Allwaste collection action and that such matters will be
adjudicated in the Chapter 11 cases by the U.S. Court. Under the Amended U.S.
Plan, claims arising out of the Old Debentures are classified as Class 7
Impaired Unsecured Claims and will receive the treatment afforded such claims
and will be discharged under the Amended U.S. Plan as of the plan implementation
date. Therefore, if the Amended U.S. Plan is confirmed and consummated, after
the plan implementation date, the Reorganized Debtors will have no liability as
to the Old Debentures and the Allwaste Collection Action will be fully resolved
and will be dismissed with prejudice. There can be no assurance that the Amended
U.S. Plan will be confirmed by the U.S. Court. If the Amended U.S. Plan is not
confirmed there can be no assurance that the Allwaste Collection Action will not
have a material adverse effect on the financial condition or results of
operations of the Company.

On May 25, 1999, the Indenture Trustee filed suit against the Company and
the Lenders in the 11th Judicial District Court of Harris County, Texas (the
"Allwaste Avoidance Action") alleging that any and all liens, security
interests, and obligations conveyed or transferred by the Company to its lending
syndicate were avoidable as fraudulent conveyances. The Debtors believe that the
commencement of the Chapter 11 cases have vested exclusive standing to prosecute
avoidance actions, including those asserted by the Indenture Trustee against the
defendant Lenders in the Allwaste Avoidance Action, in the Debtors pursuant to
the Bankruptcy Code. Therefore, the Debtors believe that the causes of action
alleged in the Allwaste Avoidance Action are property of the Debtors' estates
and that further prosecution of the Allwaste Avoidance Action is stayed. Under
the terms of the Amended U.S. Plan, the causes of action asserted by the
Indenture Trustee against the defendant Lenders will be deemed to be settled and
released as a consequence of the treatment of all claims and interests,
including the claims of the Lenders and the holders of Old Debentures under the
Amended U.S. Plan. Therefore, if the Amended U.S. Plan is confirmed and
consummated, as of the plan implementation date, the Allwaste Avoidance Action
will be fully resolved and will be dismissed with prejudice. There can be no
assurance that the Amended U.S. Plan will be confirmed by the U.S. Court. If the
Amended U.S. Plan is not confirmed there can be no assurance that the Allwaste

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Avoidance Action will not have a material adverse effect on the financial
condition or results of operations of the Company.

(C)

In June 1997, pursuant to a share purchase agreement, Republic
Environmental Systems, Inc. ("Republic") sold certain corporate entities to RESI
Acquisition (Delaware), Inc. ("RESI") for $17 million. As consideration for the
transaction, RESI paid $8 million in cash and executed two promissory notes in
favor of Republic in a combined amount of $9 million. After the notes were
executed, the parties made several modifications to the payment schedule,
allowing RESI extra time to fulfill its obligations. However, RESI eventually
defaulted and Republic thereafter brought an action in the Superior Court of the
State of Delaware against the Company and RESI to collect on the notes (the
"U.S. Republic Action"). In addition to the note involved in the U.S. Republic
Action, another note issued by Philip Enterprises Inc. in conjunction with the
RESI acquisition exists and is the subject of litigation in Canada that has now
been stayed in connection with the Canadian filing (the "Canadian Republic
Action"). The Company filed counterclaims alleging damages from the 1997 Share
Purchase Agreement. On June 3, 1999, the court issued judgement granting
Republic's Motion for Final Judgement on the Pleadings as to the notes and
guaranty, and denying the Company's motion to dismiss. On June 4, 1999, RESI
filed a petition for relief under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware. As a result of the
CCAA and Chapter 11 filings, the U.S. Republic Action and the Canadian Republic
Action are now stayed. The claims of Republic, which are classified under the
Amended U.S. Plan as Class 7 Impaired Unsecured Claims, will receive the
treatment afforded such claims, and will be discharged under the Amended U.S.
Plan as of the plan implementation date. Therefore, if the Amended U.S. Plan is
confirmed and consummated, as of the plan implementation date, the reorganized
Debtors will have no liability as to the U.S. Republic Action or the Canadian
Republic Action and the actions will be fully resolved and will be dismissed
with prejudice. There can be no assurance that the Amended U.S. Plan will be
confirmed by the U.S. Court. If the Amended U.S. Plan is not confirmed there can
be no assurance that the U.S. Republic Action or the Canadian Republic Action
will not have a material adverse effect on the financial condition or results of
operations of the Company.

(D)

In January 1999, Exxon Chemical Company ("Exxon") asserted a claim against
International Catalyst, Inc. ("INCAT"), an indirect wholly-owned subsidiary of
the Company, for damages of $32.1 million arising from certain work conducted by
INCAT at Exxon's Baytown, Texas chemical plant. Exxon alleges that INCAT was
responsible for the purchase and installation in 1996 of improper gasket
materials in the internal bed piping flange joints of the Baytown plant which
caused damages to the facility and consequential losses arising from the
shutdown of the plant while repairs were made. INCAT has conducted a preliminary
review of these claims and determined that it is not feasible to predict or
determine the final outcome of these proceedings. INCAT intends to vigorously
defend the claims and believes that it may have insurance coverage for such
claims. There can be no assurance, though, that the outcome of the claims will
not have a material adverse effect upon the financial condition or results of
operations of INCAT.

(E)

In November 1998, the Company ceased paying interest on its $1.0 billion in
outstanding secured syndicated debt, which includes accrued but unpaid interest
of $67.9 million, and stopped making payments on certain other unsecured debt
and contractual obligations ("the Unsecured Obligations"). The Company has
reached an agreement with its lending syndicate on the terms of a financial
restructuring of the Company. On June 25, 1999, the Company and substantially
all of its wholly-owned subsidiaries located in the United States filed
voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. The Company and substantially all of its wholly-owned subsidiaries located
in Canada commenced proceedings under the Companies' Creditors Arrangement Act
in Canada on the same date. Pursuant to the Amended U.S. Plan, outstanding
syndicated debt of $1 billion will be converted into $250 million of senior
secured debt,

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36

$100 million in convertible secured payment in-kind debt and 91% of the common
shares of PSI. The senior secured debt and the secured payment in-kind debt each
have a term of five years. The Amended U.S. Plan also provides for the
conversion of certain specified impaired unsecured claims, into $60 million of
payment in-kind notes and 5% of the common shares of PSI as of the plan
implementation date. The implementation of the Amended U.S. Plan is subject to
the fulfillment of certain conditions. There can be no assurance that the
Amended U.S. Plan will be confirmed by the U.S. Court. If the Amended U.S. Plan
is not approved, there can be no assurance that the Company will continue as a
going concern. If the Amended U.S. Plan is not confirmed, the Unsecured
Obligations could have a material adverse effect upon the financial condition or
results of operations of the Company.

(F)

In January 1997, the State of Missouri brought an enforcement action
against Solvent Recovery Company ("SRC"), an indirect wholly-owned subsidiary of
the Company, in state court alleging numerous violations of hazardous waste
regulations at SRC's Kansas City, Missouri facility. Included were allegations
that alterations or additions to the facility's operations had been implemented
without required modification of the facility's hazardous waste permit as well
as allegations of numerous deficiencies under regulations and SRC's permit in
the accumulation, record keeping, inspection, labelling, transportation and
handling of such waste. SRC and the State of Missouri have agreed upon a payment
of $225,000 to be made in two installments and a payment of approximately
$125,000 which payment is suspended and will be waived if the facility remains
in compliance with applicable federal and state environmental standards for
three years. Philip does not expect that the matter will have a material adverse
effect on its results of operations or financial position.

(G)

The Company's operations are subject to various comprehensive laws and
regulations related to the protection of the environment. The Company's
facilities are subject to periodic unannounced inspections by federal,
provincial, state and local authorities to ensure compliance with operating
permits and applicable laws and regulations. If violations are found or
deficiencies, if any, are not remedied, an enforcement action could be commenced
against the Company or the Company could be charged with an offense and may
incur substantial fines. A charge is outstanding against the Company under the
Environmental Protection Act of Ontario in respect of a discharge in October
1997 of an odor from the Company's Vulcan Ave., Toronto, Ontario facility. The
Company is also aware of ongoing investigations of certain of its facilities
that could give rise to charges or the issuance of notices of violation. Based
on the information available and reviews conducted by the Company, the Company
does not expect the outstanding charge or the investigations of any single
facility to give rise to monetary sanctions that would exceed $100,000.

ITEM 2. CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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proceeds arising from an asset disposition of which $20 million was allocated to
provide collateral for letters of credit and the Company agreed to a standstill
until September 30, 1998 respecting the incurrence of additional debt and the
occurrence of dispositions or acquisitions. On October 20, 1998, the Credit
Facility was further amended to permit the use of the letter of credit facility
for general corporate and other purposes and to extend the Company standstill on
certain activities until June 30, 1999. In November 1998, the Company suspended
payments of interest under the Credit Facility. Interest on the borrowings under
the Credit Facility ceased to accrue at the filing date.

The Plan sets forth a new capital structure for the Company and the
conditions that govern the restructuring of approximately $1.0 billion in
secured term loans outstanding, which includes accrued but unpaid interest,
under the Credit Facility. Under the terms of the Plan, the lenders will convert
the outstanding $1.0 billion of secured debt into $250 million of senior secured
debt, $100 million of convertible secured payment in-kind debt and 91% of the
common shares of PSI. The secured payment in-kind debt is convertible into 25%
of the common shares of PSI on a fully diluted basis as of the plan
implementation date. The senior secured debt and the secured payment in-kind
debt each have a term of five years.

On the acquisition of Allwaste, Inc. ("Allwaste") the Company assumed the
indenture with respect to Allwaste's 7 1/4% Convertible Subordinated Debentures
("debenture") which are due 2014. At any time up to and including June 1, 2014
the holder of any debenture will have the right to convert the principal amount
of such debenture into common shares equal to the principal amount of the
debenture surrendered for conversion divided by $19.5376. The debentures are
redeemable for cash at the option of the Company. The debentures provide for
annual mandatory sinking fund payments equal to 5% of the aggregate principal
amount of the debenture issued, commencing June 1, 1999. Interest is payable
semi-annually on June 1 and December 1. Effective December 1, 1998, the Company
suspended payments of interest on the debenture which created a default under
the indenture. Interest accrued on the debenture as at September 30, 1999 is
approximately $2 million. The amount of the debentures outstanding was
classified as a current liability on the Consolidated Balance Sheet at December
31, 1998.

Included in other long-term debt are promissory notes, relating to certain
1996 and 1997 acquisitions, totalling $16,000 which are in default as principal
repayments required were not made. At December 1998, $11,000 of these notes were
in default and therefore were classified as a current liability on the Company's
December 31, 1998 Consolidated Balance Sheet.

Included in the fixed rate secured loans are industrial development bonds
totaling $7,700 which were in default as at December 31, 1998, and September 30,
1999 as principal repayments required were not made. Therefore, these loans have
been classified as a current liability on the Company's Consolidated Balance
Sheets at December 31, 1998 and September 30, 1999.

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

No matters were submitted to a vote of shareholders of the Company during
the third quarter of the fiscal year ending December 31, 1999.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

3.1* Articles of Amalgamation of Lincoln Waste Management Inc.
(previous name of the Registrant) dated April 15, 1991
3.2* Articles of Amendment of the Registrant dated June 26, 1991
3.3* Articles of Amendment of the Registrant dated July 10, 1991
3.4* Articles of Amendment of the Registrant dated May 22, 1997
3.5* Bylaws of Lincoln Waste Management Inc. (previous name of
the Registrant) dated August 16, 1990
4.1* Indenture dated as of June 1, 1989, 7 1/4% Convertible
Subordinated Debentures due 2014 between Allwaste, Inc. and
Texas Commerce Trust Company of New York
4.2* First Supplemental Indenture dated as of July 30, 1997
supplementing and amending the June 1, 1989 Indenture
4.3* Specimen of Common Stock Certificate
10.1* 1991 Stock Option Plan
10.2* 1997 Amended and Restated Stock Option Plan
10.3+ Credit Agreement dated as of August 11, 1997 among Philip
Services Corp., Philip Environmental (Delaware), Inc.,
Canadian Imperial Bank of Commerce, Bankers Trust Company,
Dresdner Bank of Canada, Dresdner Bank (AG/New York/New York
Branch), Royal Bank of Canada and the various persons from
time to time subject to the Credit Agreement as Lenders
10.4* Amending Agreement No. 1 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of October 31, 1997
10.5* Amending Agreement No. 2 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of February 19, 1998
10.6** Amending Agreement No. 3 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of June 24, 1998
10.7*** Amending Agreement No. 4 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of October 20, 1998
10.8(o) Amending Agreement No. 5 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of December 4, 1998
10.9(o) Lock-up Agreement dated as of April 5, 1999 among Philip
Services Corp. and certain lenders of Philip Services
Corp.'s lending syndicate
10.10(o) Proceeds Agreement dated as of April 5, 1999 among Canadian
Imperial Bank of Commerce, in its capacity as Administrative
Agent, Philip Services Corp. and certain subsidiaries of
Philip Services Corp.
10.11(x) Joint Plan of Reorganization of Philip Services (Delaware)
Inc. et al, United States Bankruptcy Court for the District
of Delaware, Chapter 11, Case No 99-02385 (MFW) (Jointly
Administered)
10.12(x) Disclosure Statement with respect to Joint Plan of
Reorganization of Philip Services (Delaware) Inc. et al
United States Bankruptcy Court for the District of Delaware,
Chapter 11, Case No 99-02385 (MFW) (Jointly Administered)
10.13(x) Plan of Compromise and Arrangement dated July 15, 1999 of
Philip Services Corp. and its Canadian Subsidiaries,
Companies' Creditors' Arrangement Act, Ontario Superior
Court of Justice (Commercial List), Court File No.:
99-CL-3442

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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

10.14(x) Credit Agreement dated as of June 28, 1999 between Philip
Services Corp. and Philip Services (Delaware) Inc. as
Debtors-In-Possession, the Subsidiaries of the Borrowers
Named Therein as Subsidiary Guarantors, Bankers Trust
Company as DIP Agent, Bankers Trust Company and Canadian
Imperial Bank of Commerce as DIP Co-Arrangers, for the
amount of $100,000,000.
10.15(x) Amendment to the Lockup Agreement dated June 21, 1999 among
the Lenders under a Credit Agreement dated as of August 11,
1997, as amended and Philip Services Corp.
10.16(u) Disclosure Statement with respect to the Amended Joint Plan
of Reorganization of Philip Services (Delaware), Inc., et
al, dated September 21, 1999, as filed with the United
States Bankruptcy Court for the District of Delaware.
10.17(u) Amended and Restated Joint Plan of Reorganization of Philip
Services Corp., Philip Services (Delaware), Inc. and certain
of their subsidiaries, dated September 21, 1999.
10.18 Amended and Restated Plan of Compromise and Arrangement
dated September 24, 1999 of Philip Services Corp. and its
Canadian Subsidiaries, Companies, Creditors Arrangement Act,
Ontario Superior Court of Justice (Commercial List), Court
File No. 99-CL-3442.
10.19 Supplement dated October 27, 1999 to the Amended and
Restated Plan of Compromise and Arrangement dated September
24, 1999.
21(o) Subsidiaries of the Registrant
27 Financial Data Schedule

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

+ incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form S-1 (Registration Statement No. 333-36549)

* incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1997.

** incorporated by reference to the exhibits filed with the Company's Quarterly
Report for the three months ended June 30, 1998.

*** incorporated by reference to the exhibits filed with the Company's Quarterly
Report for the three months ended September 30, 1998.

(o) incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.

(x) incorporated by reference to the exhibits filed with the Company's
Quarterly Report for the three months ended June 30, 1999.

(u) incorporated by reference to the exhibits filed with the Company's
Application for Qualification of Indentures dated September 29, 1999.

(B) REPORTS ON FORM 8-K

Form 8-K dated July 12, 1999 relating to the Company's press releases in
relation to (i) an amended Lock-Up Agreement entered into by the Company and the
Company's lending syndicate, and (ii) the filing by the Company of a voluntary
application to reorganize and voluntary petition under the Companies' Creditors
Arrangement Act with the Ontario Superior Court of Justice in Toronto, Canada
and under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court
for the District of Delaware, respectively.

Form 8-K dated September 27, 1999 (amended October 7, 1999) relating to the
Company's press release announcing the filing of an Amended and Restated Plan of
Compromise and Arrangement under the Companies' Creditors Arrangement Act with
the Ontario Superior Court of Justice in Toronto and an Amended Joint Plan of
Reorganization and a Disclosure Statement under Chapter 11 of the U.S.
Bankruptcy Code with the U.S. Bankruptcy Court for the District of Delaware,
respectively.

38
40

SIGNATURES

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

PHILIP SERVICES CORP.
By: /s/ PHILLIP C. WIDMAN
- ----------------------------------------
Phillip C. Widman
Executive Vice President and
Chief Financial Officer

Dated: November 15, 1999

39
41

PHILIP SERVICES CORP.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

COLUMN A COLUMN B COLUMN C - ADDITIONS COLUMN D COLUMN E
- -------- ------------ ------------------------- ------------- ------------
BALANCE, CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE, END
DESCRIPTION PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) OF PERIOD
- ----------- ------------ ----------- ----------- ------------- ------------

ALLOWANCE FOR DOUBTFUL ACCOUNTS
September 30, 1999............. (24,353,680 (5,361,818) -- 6,086,533 (23,628,965)
December 31, 1998.............. (17,643,048) (28,759,609) 113,740 21,933,231 (24,353,680)
December 31, 1997.............. (5,051,308) (5,050,801) (13,652,894) 6,111,955 (17,643,048)

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

(1) Opening balances in companies acquired in the year net of closing balances
of companies sold in the year.

(2) Write-off of uncollectible accounts.

42
EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
- -------- -----------

3.1* Articles of Amalgamation of Lincoln Waste Management Inc.
(previous name of the Registrant) dated April 15, 1991
3.2* Articles of Amendment of the Registrant dated June 26, 1991
3.3* Articles of Amendment of the Registrant dated July 10, 1991
3.4* Articles of Amendment of the Registrant dated May 22, 1997
3.5* Bylaws of Lincoln Waste Management Inc. (previous name of
the Registrant) dated August 16, 1990
4.1* Indenture dated as of June 1, 1989, 7 1/4% Convertible
Subordinated Debentures due 2014 between Allwaste, Inc. and
Texas Commerce Trust Company of New York
4.2* First Supplemental Indenture dated as of July 30, 1997
supplementing and amending the June 1, 1989 Indenture
4.3* Specimen of Common Stock Certificate
10.1* 1991 Stock Option Plan
10.2* 1997 Amended and Restated Stock Option Plan
10.3+ Credit Agreement dated as of August 11, 1997 among Philip
Services Corp., Philip Environmental (Delaware), Inc.,
Canadian Imperial Bank of Commerce, Bankers Trust Company,
Dresdner Bank of Canada, Dresdner Bank (AG/New York/New York
Branch), Royal Bank of Canada and the various persons from
time to time subject to the Credit Agreement as Lenders
10.4* Amending Agreement No. 1 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of October 31, 1997
10.5* Amending Agreement No. 2 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of February 19, 1998
10.6** Amending Agreement No. 3 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of June 24, 1998
10.7*** Amending Agreement No. 4 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of October 20, 1998
10.8(o) Amending Agreement No. 5 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of December 4, 1998
10.9(o) Lock-up Agreement dated as of April 5, 1999 among Philip
Services Corp. and certain lenders of Philip Services
Corp.'s lending syndicate
10.10(o) Proceeds Agreement dated as of April 5, 1999 among Canadian
Imperial Bank of Commerce, in its capacity as Administrative
Agent, Philip Services Corp. and certain subsidiaries of
Philip Services Corp.
10.11(oe) Joint Plan of Reorganization of Philip Services (Delaware)
Inc. et al, United States Bankruptcy Court for the District
of Delaware, Chapter 11, Case No 99-02385 (MFW) (Jointly
Administered)
10.12(oe) Disclosure Statement with respect to Joint Plan of
Reorganization of Philip Services (Delaware) Inc. et al
United States Bankruptcy Court for the District of Delaware,
Chapter 11, Case No 99-02385 (MFW) (Jointly Administered)
10.13(oe) Plan of Compromise and Arrangement dated July 15, 1999 of
Philip Services Corp. and its Canadian Subsidiaries,
Companies' Creditors' Arrangement Act, Ontario Superior
Court of Justice (Commercial List), Court File No.:
99-CL-3442

EXHIBIT
NUMBER DESCRIPTION
- -------- -----------

10.14(oe) Credit Agreement dated as of June 28, 1999 between Philip
Services Corp. and Philip Services (Delaware) Inc. as
Debtors-In-Possession, the Subsidiaries of the Borrowers
Named Therein as Subsidiary Guarantors, Bankers Trust
Company as DIP Agent, Bankers Trust Company and Canadian
Imperial Bank of Commerce as DIP Co-Arrangers, for the
amount of $100,000,000.
10.15(oe) Amendment to the Lock-up Agreement dated June 21, 1999 among
the Lenders under a Credit Agreement dated as of August 11,
1997, as amended and Philip Services Corp.
10.16(u) Disclosure Statement with respect to the Amended Joint Plan
of Reorganization of Philip Services (Delaware), Inc., et
al, dated September 21, 1999, as filed with the United
States Bankruptcy Court for the District of Delaware.
10.17(u) Amended and Restated Joint Plan of Reorganization of Philip
Services Corp., Philip Services (Delaware), Inc. and certain
of their subsidiaries, dated September 21, 1999.
10.18 Amended and Restated Plan of Compromise and Arrangement
dated September 24, 1999 of Philip Services Corp. and its
Canadian Subsidiaries, Companies, Creditors Arrangement Act,
Ontario Superior Court of Justice (Commercial List), Court
File No. 99-CL-3442.
10.19 Supplement dated October 27, 1999 to the Amended and
Restated Plan of Compromise and Arrangement dated September
24, 1999.
21(o) Subsidiaries of the Registrant
27 Financial Data Schedule

- ---------------
+ incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form S-1 (Registration Statement No. 333-36549)

* incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1997.

** incorporated by reference to the exhibits filed with the Company's Quarterly
Report for the three months ended June 30, 1998.

*** incorporated by reference to the exhibits filed with the Company's Quarterly
Report for the three months ended September 30, 1998.

(o) incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.

(oe) incorporated by reference to the exhibits filed with the Company's
Quarterly Report for the three months ended June 30, 1999.

(u) incorporated by reference to the exhibits filed with the Company's
Application for Qualification of Indentures dated September 29, 1999.