PHILIP SERVICES CORP, 424B1, 1997-11-10

PHILIP SERVICES CORP
424B1, 1997-11-10
SANITARY SERVICES

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<PAGE> 1

PROSPECTUS FILED PURSUANT TO

RULE 424(B)(1)

FILE NO. 333-36549
20,000,000 SHARES

PHILIP SERVICES CORP.
COMMON SHARES
(NO PAR VALUE)

All of the common shares (the "Common Shares") offered hereby are being issued
and sold by Philip Services Corp. ("Philip" or the "Company"). Of the Common
Shares offered globally, 15,000,000 Common Shares are being offered by the U.S.
Underwriters (as defined herein) in the United States (the "U.S. Offering") and
5,000,000 Common Shares are being offered by the International Underwriters (as
defined herein) in a concurrent offering outside the United States (the
"International Offering" and, together with the U.S. Offering, the "Offerings"),
subject to transfers between the U.S. Underwriters and the International
Underwriters (collectively, the "Underwriters"). The public offering price and
the underwriting commission per share are identical for the U.S. Offering and
the International Offering. The closing of each of the U.S. Offering and the
International Offering is conditioned upon the other. See "Underwriting."

The outstanding Common Shares are listed on the New York Stock Exchange (the
"NYSE"), The Toronto Stock Exchange (the "TSE") and the Montreal Exchange (the
"ME") under the symbol "PHV." On November 4, 1997, the last reported sale price
of the Common Shares on the NYSE, the TSE and the ME was US$17.00, Cdn$23.80 and
Cdn$23.90, respectively. See "Price Range and Trading Volume of the Common
Shares."

SEE "RISK FACTORS" COMMENCING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC COMMISSION COMPANY(1)
<S> <C> <C> <C>
Per Share.............................. US$16.50 US$0.66 US$15.84
Total(2)............................... US$330,000,000 US$13,200,000 US$316,800,000
</TABLE>

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

(1) Before deducting expenses payable by the Company estimated at US$2,500,000.

(2) The Company has granted to the U.S. Underwriters and the International
Underwriters 30-day options to purchase up to 2,250,000 and 750,000
additional Common Shares, respectively, at the Price to Public, solely to
cover over-allotments, if any. If the Underwriters exercise such options in
full, the total Price to Public, Underwriting Commission and Proceeds to
Company will be US$379,500,000, US$15,180,000 and US$364,320,000,
respectively. See "Underwriting."

The Common Shares are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Common Shares will be made at the office of
Salomon Brothers Inc, Seven World Trade Center, New York, New York, or through
the facilities of The Depository Trust Company, on or about November 12, 1997.

SALOMON BROTHERS INC MERRILL LYNCH & CO.

BT ALEX. BROWN

CIBC OPPENHEIMER

MORGAN STANLEY DEAN WITTER

The date of this Prospectus is November 6, 1997.

LOGO
<PAGE> 2

INSIDE FRONT COVER

[MAP OF FACILITIES]

[THE FOLLOWING NAMES APPEAR IN AN ORGANIZATIONAL CHART OF THE COMPANY'S BUSINESS
UNITS:]

Philip Services Corp.
Metals Recovery Group (Steel, Copper, Aluminum)
Industrial Services Group (On-Site Services, By-Products Recovery,
Environmental Services, Utilities Management)

CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON SHARES PRIOR TO THE PRICING OF
THE OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON SHARES AND
THE PURCHASE OF COMMON SHARES FOLLOWING THE PRICING OF THE OFFERING TO COVER A
SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING
THE PRICE OF THE COMMON STOCK. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE> 3

GATEFOLD 1

<TABLE>
<C> <S>
Photograph: Shot of steel scrap bundles
Caption STEEL
Philip's facilities can annually process over 4 million tons of ferrous scrap,
a significant raw material in steel manufacturing.
Photograph: Cable and wire scrap being loaded onto conveyor by bobcat.
Caption: COPPER
Philip is the largest processor of cable and wire scrap in North America,
recovering copper, aluminum and plastics.
Photograph: Man in white hardhat ladling molten aluminum into ingots to produce deoxidizing
products.
Caption: ALUMINUM
Deoxidizing products processed from aluminum scrap are supplied to steel mills
and are used to eliminate gas bubbles in molten steel.
Photograph: Worker welding pipes at refinery.
Caption: INDUSTRIAL SERVICES
Philip provides integrated maintenance services for refineries, petrochemical
facilities and power plants, including specialized welding services.
Photograph: Two men in yellow suits in front on CN train.
Caption: INDUSTRIAL SERVICES
Philip provides single vendor on-site industrial cleaning and waste management
services to CN Rail facilities.
</TABLE>
<PAGE> 4

GATEFOLD 2

[DESCRIPTION OF BACKGROUND FOR GATEFOLD SPREAD: THREE PHILIP EMPLOYEES IN
COMPLETE PROTECTIVE CLOTHING LEANING ON SHOVELS AND STANDING IN FRONT OF
ELECTRIC ARC FURNACE AT STEEL MILL.]

[PHILIP LOGO]
<PAGE> 5

ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES

Philip is a corporation existing under the laws of the Province of Ontario,
Canada. A majority of Philip's current directors and officers, and certain
experts named herein, are residents of Canada, and all or a substantial portion
of the assets of such persons and a substantial part of the assets of Philip are
located outside the United States. Consequently, it may be difficult for United
States investors to effect service of process within the United States on such
persons, or to realize, in the United States, upon judgments rendered against
Philip or such persons predicated upon the civil liability provisions of the
U.S. Federal securities laws. In addition, there is substantial doubt as to the
enforceability in Canada against Philip or such persons, in original actions or
in actions for enforcement of judgments of United States courts, of liabilities
predicated solely upon the U.S. Federal securities laws.

FORWARD-LOOKING STATEMENTS

This prospectus 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. These forward-looking
statements involve certain risks and uncertainties. Factors that may cause
actual results to differ materially from those contemplated or projected,
forecast, estimated or budgeted in such forward-looking statements include,
among others, the following possibilities: (1) heightened competition, including
the intensification of price competition and the entry of new competitors; (2)
adverse state, federal and Canadian legislation and regulation; (3) failure to
obtain new customers or retain existing customers; (4) inability to carry out
marketing and/or expansion plans; (5) failure to successfully integrate acquired
businesses and/or to acquire additional businesses on favorable terms; (6) loss
of key executives; (7) changes in interest rates; (8) general economic and
business conditions which are less favorable than expected and (9) unanticipated
changes in industry trends. See "Risk Factors."

PRESENTATION OF FINANCIAL INFORMATION

The historical consolidated financial statements of Philip contained in
this Prospectus are reported in Canadian dollars and have been prepared in
accordance with generally accepted accounting principles in Canada ("Canadian
GAAP"). These principles conform in all material respects with accounting
principles generally accepted in the United States ("U.S. GAAP"), except as
described in Note 18 to the audited historical consolidated financial statements
of Philip (the "Consolidated Financial Statements of the Company") included
elsewhere in this Prospectus.

Except for the Consolidated Financial Statements of the Company and except
where otherwise indicated, all dollar amounts in this Prospectus are expressed
in U.S. dollars. References to $ are to U.S. dollars, and references to Cdn$ are
to Canadian dollars.

5
<PAGE> 6

EXCHANGE RATE INFORMATION

The following table sets forth, for each period indicated, the high and low
exchange rates for Canadian dollars expressed in U.S. dollars, the average of
such exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period, based on the inverse of the noon buying
rate in The City of New York for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rate"):

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, FISCAL YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Low.............. 0.7145 0.7235 0.7235 0.7023 0.7103 0.7439 0.7761
High............. 0.7487 0.7391 0.7513 0.7527 0.7632 0.8046 0.8757
End.............. 0.7241 0.7322 0.7301 0.7323 0.7128 0.7544 0.7865
Average.......... 0.7269 0.7310 0.7330 0.7307 0.7302 0.7733 0.8242
</TABLE>

On November 4, 1997, the inverse of the Noon Buying Rate was $0.7123 per
Cdn$1.00.
------------------------------------

Fast Draw(R), Fast Clean(R), Life Guard(R), WeldSmart (R) and EPOC(R) are
trademarks, trade names or servicemarks of the Company or its subsidiaries that
are registered or otherwise protected under laws of various jurisdictions.

6
<PAGE> 7

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus. In this Prospectus, the terms "Company" or "Philip" mean Philip
Services Corp., its predecessors and its direct and indirect subsidiaries,
unless the context otherwise indicates. Prospective investors should carefully
consider the factors set forth herein under "Risk Factors" and are urged to read
this Prospectus in its entirety. Unless otherwise specifically indicated, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment options. All dollar references ($) in this Prospectus are to U.S.
dollars unless otherwise specifically indicated. References to Cdn$ are to
Canadian dollars.

THE COMPANY

The Company is one of North America's leading suppliers of resource
recovery and industrial services. The Company has the largest integrated network
of metals recovery and industrial services operations in North America,
servicing over 50,000 industrial and commercial customers from over 300
locations. The Company applies proprietary technologies to reduce the cost and
downtime associated with industrial cleaning and plant turnaround activities,
and to recover value from industrial by-products and metal bearing residuals.
The Company has achieved its leading position in the metals recovery and
industrial services markets through internal growth and through the acquisition
and integration of 40 companies since the beginning of 1996. As a result, the
Company is viewed as a leading consolidator in the metals recovery and
industrial services industries. The Company's primary base of operations is in
the United States, with over 70% of the Company's worldwide revenue generated in
U.S. dollars in the six months ended June 30, 1997. At November 4, 1997, the
aggregate market value of the outstanding Common Shares was $1.836 billion.

The Company's business is organized into two operating divisions -- the
Metals Recovery Group and the Industrial Services Group. The Metals Recovery
Group's three primary business operations are ferrous (steel), copper and
aluminum processing and recycling. The ferrous metals operations include the
collection and processing of ferrous scrap materials for shipment to steel mills
and the provision of related mill services. Ferrous operations also include
steel service centers that process and distribute structural steel products.
Copper operations are comprised of cold process mechanical recovery facilities,
scrap management, the management of material recycling centers for the
telecommunications industry, and copper refining. The group's aluminum recycling
operations process aluminum dross, a by-product of primary aluminum production,
and produce aluminum deoxidizing products and alloys from aluminum scrap. Both
the ferrous and non-ferrous operations of Philip provide significant brokerage
capabilities for scrap materials and primary metals, including steel, copper,
aluminum and tin. The Company services the steel, telecommunications, aluminum,
wire and cable and automotive industries, as well as utilities. Major customers
for the Company's ferrous processing operations include Armco, ASW, Copperweld,
Dofasco, Republic Engineered Steels, Stelco and Timken. Major customers for the
Company's non-ferrous processing operations include AK Steel, Bethlehem Steel,
Chrysler Canada, Noranda and Southwire.

The Industrial Services Group is the largest integrated provider of on-site
industrial services, by-products recovery and environmental services in North
America, with a network of over 250 facilities. The Industrial Services Group's
operations are divided into four main activities: on-site industrial services,
by-products recovery, environmental services and utilities management. On-site
industrial services include industrial cleaning and maintenance, waste
collection and transportation, container services and tank cleaning, turnaround
and outage services, mechanical contracting and refractory services. By-products
recovery includes distillation, engineered fuel blending, paint overspray
recovery, organic and inorganic processing and polyurethane recycling.
Environmental services include strategic resource management, decommissioning,
remediation, environmental consulting and engineering, and analytical and
emergency response services. Major clients include BASF, Boise Cascade, Chevron,
Conoco, Dupont, Ford, General Electric, General Motors, Monsanto, PPG and Shell.

7
<PAGE> 8

According to industry sources, the North American market for resource
recovery and industrial services is estimated to be a $50 billion market growing
at over 10% annually. The market is driven by manufacturers' desire to increase
efficiency and enhance competitiveness through increased outsourcing of non-core
services, a reduction in the number of vendors from which outsourced services
are purchased, and by maximizing resource recovery opportunities from waste and
by-products streams. The market for industrial services and resource recovery is
fragmented and primarily served by small, specialized regional service
providers. Resource recovery and industrial services are prime candidates for
outsourcing as neither are core activities and both benefit from the expertise
and economies of scale an outside supplier can provide.

The Company believes that it has developed a strategy to enhance its
leadership position by capitalizing on these industry trends. Key elements of
the Company's strategy include the following:

- Increase sales to existing customers by cross-selling services;

- Pursue strategic acquisitions that will broaden the Company's services
to existing customers or in key geographic regions with significant
industrial activity;

- Continue to vertically integrate its collection, processing and
distribution network; and

- Continue to develop and apply innovative process and service
technologies.

COMPETITIVE STRENGTHS

The Company believes the following competitive strengths enhance its
leadership position in the resource recovery and industrial services sectors:

Broadest Range of Integrated Services: Philip offers the broadest range of
metals recovery, by-products recovery and industrial and environmental services
in the industry. The Company believes it can better assist its clients achieve
lower costs and improve operating efficiencies by providing single source
solutions.

Broad Geographic Network: The Company's broad geographic network, unlike
its regional competitors, can support the requirements of its customers
throughout North America. This network enables the Company to effectively
package and cross-sell services to large North American accounts.

Proprietary Technologies: The Company has developed a series of
proprietary waste minimization, recovery and industrial cleaning and turnaround
processes. These proprietary technologies enable the Company to recover a higher
percentage of usable components and reduce both disposal costs and downtime
associated with turnaround operations.

Leading Consolidator: The industrial services sector is highly fragmented
and is undergoing rapid consolidation in response to market demands for vendor
reduction and broad geographic service capabilities. Philip is a leading
consolidator in the industry as a result of its financial strength, focused
strategy and multi-service capabilities.

RECENT ACQUISITIONS

Over the past five years, the Company has focused on increasing its revenue
base, its range of services and its geographic network of facilities throughout
North America through a series of strategic acquisitions. The Company intends to
continue to selectively pursue acquisitions in the United States and Canada in
the resource recovery and industrial services industries. The Company also
intends to pursue international markets by expanding its ferrous operations in
the United Kingdom and by supporting the European operations of its North
American clients. The following are the principal acquisitions completed by the
Company since June 30, 1997. Since revenues reported by the acquired businesses
were in certain instances prepared on a different basis of presentation than
those of the Company, such reported revenues are not necessarily indicative of
the revenues that would have been recognized by the Company on a pro forma basis
or that will be recognized by the Company in future periods.

8
<PAGE> 9

METALS RECOVERY

Luria/Steiner-Liff/Southern Foundry. On October 10, 1997, the Company
acquired the operating assets of Luria Brothers ("Luria") and on October 28,
1997 acquired the Steiner-Liff Metals group of companies ("Steiner-Liff") and
the Southern Foundry Supply group of companies ("Southern Foundry"). These
companies provide scrap processing and mill services to the U.S. steel industry.
Luria is one of the largest ferrous scrap companies in the United States and
operates ten processing facilities throughout the Midwestern and Eastern United
States, most of which are located in close proximity to major steel mills or
foundries. Luria has multi-year contracts with major steel mills to perform mill
services including scrap management and on-site scrap preparation, inventory
control, slag management and brokerage arrangements. Steiner-Liff consists of
five companies, centered in Nashville, Tennessee, Knoxville, Tennessee, St.
Louis, Missouri, and Birmingham, Alabama. Steiner-Liff is the oldest and largest
scrap processor in the middle Tennessee market. The Southern Foundry group is
headquartered in Chattanooga, Tennessee and consists of two companies operating
from six locations. Luria, Steiner-Liff and Southern Foundry process or broker
over 5.4 million gross tons of ferrous scrap, and over 165 million pounds of
non-ferrous material a year and reported aggregate sales of $775 million,
including brokerage revenue, for the fiscal year ended December 31, 1996. With
these acquisitions, the Company believes that it is the largest ferrous
processor in North America. The aggregate consideration paid for these
businesses was $495.9 million, which included the assumption of $32.6 million in
debt. Part of the purchase price was satisfied by the issuance of approximately
5.6 million Common Shares.

Intermetco. In August 1997, Philip completed the acquisition of Intermetco
Limited ("Intermetco"), a Canadian corporation, for a total consideration of
Cdn$66 million, including the assumption of Cdn$8 million in debt. The
acquisition price was paid with Cdn$4.7 million in cash and by the issuance of
approximately 2.7 million Common Shares. Intermetco is a scrap and recycling
processor which also manufactures and distributes pipe and tubular products.
Intermetco reported sales of Cdn$194.9 million for the fiscal year ended
December 31, 1996. The acquisition enhances Philip's ability to supply its steel
industry clients with fully integrated services, from raw materials to
by-products processing and distribution services. The Company believes that
significant synergies will be realized through the increased tonnage processed
at the Company's existing facilities, and through the integration of
Intermetco's pipe and tubular products operations into Philip's southwestern and
southeastern steel processing and distribution networks.

Roth. In July 1997, Philip purchased Roth Bros. Smelting Corp. ("Roth"), a
private company based in Syracuse, New York, for a total consideration of
approximately $52 million, including the assumption of $6.7 million in debt. The
acquisition price was paid with $37.5 million in cash and by the issuance of
approximately 422,000 Common Shares. Roth is a manufacturer of secondary
aluminum alloy products for the automotive and other industrial manufacturing
industries which recorded sales of approximately $94 million for the fiscal year
ended December 31, 1996. The Company believes the acquisition of Roth expands
its aluminum alloy operations and will result in greater market penetration of
the automotive manufacturers that are heavily concentrated in the Great Lakes
region.

INDUSTRIAL SERVICES

Allwaste. In July 1997, Philip acquired Allwaste, Inc. ("Allwaste") for a
total consideration of $502 million, including the assumption of $142 million in
debt. The acquisition price was paid by the issuance of approximately 23 million
Common Shares. Allwaste is an integrated provider of industrial and
environmental services which reported revenues of $382.2 million for the fiscal
year ended August 31, 1996. The Company believes the acquisition of Allwaste
significantly broadens the Company's service offerings, expands its geographical
presence in the United States and significantly increases its customer list. In
addition, Allwaste is expected to provide the Company with opportunities to
rationalize operations, to enhance revenues through the cross-selling of
services and to improve asset utilization.

Serv-Tech. In July 1997, Philip completed the acquisition of Serv-Tech
Inc. ("Serv-Tech") for a total consideration of $58 million, including the
assumption of $15 million in debt. The acquisition price was paid by the
issuance of approximately 2.7 million Common Shares. Serv-Tech is an integrated
provider of specialty services and products, including turnaround project
management services, electrical

9
<PAGE> 10

and instrumentation management services, and specialty chemicals products.
Serv-Tech reported revenues of $142.4 million for the fiscal year ended December
31, 1996. The Company believes the acquisition will strengthen its position in
industrial maintenance and turnaround services. In addition, the acquisition
will broaden the Company's customer base in the petrochemical and oil and gas
utility industries.

CREDIT FACILITY

On August 11, 1997, the Company and Philip Environmental (Delaware) Inc.
("PEI"), a wholly owned subsidiary of the Company, entered into a Credit
Agreement with a group of Canadian and United States financial institutions,
providing for a revolving credit facility (the "Credit Facility") up to a
maximum amount of $1.5 billion. The Credit Facility, which is secured by a
pledge of all securities held by the Company and PEI in all of their material
subsidiaries has a five-year term. Borrowings under the Credit Facility bear
interest at varying rates, depending on the nature of the loan and the Company's
compliance with certain financial ratios. See "Description of Certain
Indebtedness -- Credit Facility."

RECENT DEVELOPMENTS

On November 5, 1997, the Company announced certain financial information
for the nine months ended September 30, 1997. Revenues and income from
operations for such period were $1,126 million and $98 million, respectively,
compared to $382 million and $36 million, respectively, for the nine months
ended September 30, 1996. See "Recent Developments."
------------------------------------

Philip is a corporation existing under the laws of the Province of Ontario.
The Company's head office is located at 100 King Street West, P.O. Box 2440,
LCD1, Hamilton, Ontario, Canada, L8N 4J6 and its telephone number is (905)
521-1600.

10
<PAGE> 11

THE OFFERINGS

<TABLE>
<S> <C>
COMMON SHARES OFFERED:
U.S. OFFERING............... 15,000,000 Shares
INTERNATIONAL OFFERING...... 5,000,000 Shares
-------------------
TOTAL.................... 20,000,000 Shares
</TABLE>

COMMON SHARES TO BE
OUTSTANDING AFTER THE
OFFERINGS................ 128,019,291 shares(1)

USE OF PROCEEDS............ Estimated net proceeds of the Offerings in the
amount of approximately $314.3 million will be used
to repay indebtedness outstanding under the
Company's Credit Facility. See "Use of Proceeds."

NYSE, TSE AND ME STOCK
EXCHANGE SYMBOL.......... "PHV"
- ---------------

(1) Based on 108,019,291 Common Shares outstanding as of November 4, 1997.
Excludes options outstanding at November 4, 1997 to purchase up to 9,140,005
Common Shares, of which options to acquire 4,440,187 Common Shares were then
exercisable, at prices ranging from Cdn$6.75 to Cdn$26.75.

11
<PAGE> 12

SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA

The following table presents summary historical consolidated financial data
of Philip for the periods indicated, including the accounts of all companies
acquired prior to the end of the respective reporting periods. These companies,
all of which were acquired in transactions accounted for as purchases, are
included from their respective dates of acquisition. The selected historical
consolidated financial data for Philip as of and for the three years ended
December 31, 1996 is derived from the audited Consolidated Financial Statements
of Philip and as of and for the six months ended June 30, 1996 and 1997 is
derived from the unaudited interim consolidated financial statements of Philip,
which in the opinion of management include all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly the financial
information for such periods. Interim results are not necessarily indicative of
the results which may be expected for any other interim period or for a full
year. For all periods indicated, the selected historical consolidated financial
data reflects Philip's former municipal and commercial solid waste operations,
which were sold in August 1996, as a discontinued operation. Philip prepares its
Consolidated Financial Statements in accordance with Canadian GAAP. The summary
historical consolidated financial data set forth below is presented in both
Canadian GAAP and U.S. GAAP. Canadian GAAP conforms in all material respects
with U.S. GAAP, except as described in Note 18 to the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus. The selected
historical consolidated financial data should be read in conjunction with the
accompanying Consolidated Financial Statements of the Company and the related
Notes thereto included elsewhere in this Prospectus. Selected historical
consolidated financial data of the Company presented in U.S. GAAP (in U.S.
dollars) is disclosed in this Prospectus following the Consolidated Financial
Statements of the Company. Philip did not pay any cash dividends during the
periods set forth below.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, FISCAL YEARS ENDED DECEMBER 31,
------------------------ --------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CANADIAN GAAP:
STATEMENTS OF EARNINGS DATA:
Revenue.............................................. $ 856,629 $ 323,397 $ 802,490 $ 648,311 $ 489,740
Operating expenses................................... 701,300 251,586 615,462 489,569 366,649
Selling, general and administrative.................. 63,461 33,445 78,053 66,563 51,216
Depreciation and amortization........................ 24,148 15,438 33,966 25,510 21,354
---------- ---------- ---------- ---------- ----------
Income from operations............................... 67,720 22,928 75,009 66,669 50,521
Interest expense..................................... 19,212 15,023 24,598 28,187 21,750
Other income and expense-net......................... (5,522) (2,459) (4,782) (3,689) (2,122)
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations before tax....... 54,030 10,364 55,193 42,171 30,893
Income taxes......................................... 16,392 2,707 15,180 12,354 8,769
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations.................. 37,638 7,657 40,013 29,817 22,124
Discontinued operations (net of tax)................. -- 7,234 (1,005) 2,894 2,502
---------- ---------- ---------- ---------- ----------
Net earnings......................................... $ 37,638 $ 14,891 $ 39,008 $ 32,711 $ 24,626
========== ========== ========== ========== ==========
Basic earnings per share:
Continuing operations.............................. $ 0.53 $ 0.19 $ 0.79 $ 0.80 $ 0.61
Discontinued operations............................ -- 0.18 (0.02) 0.08 0.07
---------- ---------- ---------- ---------- ----------
$ 0.53 $ 0.37 $ 0.77 $ 0.88 $ 0.68
========== ========== ========== ========== ==========
Fully diluted earnings per share:
Continuing operations.............................. $ 0.52 $ 0.19 $ 0.72 $ 0.68 $ 0.55
Discontinued operations............................ -- 0.14 (0.01) 0.05 0.05
---------- ---------- ---------- ---------- ----------
$ 0.52 $ 0.33 $ 0.71 $ 0.73 $ 0.60
========== ========== ========== ========== ==========
Weighted average number of common shares outstanding
(000s)............................................. 70,970 40,586 50,632 37,342 36,209
========== ========== ========== ========== ==========
BALANCE SHEET DATA (END OF PERIOD):

Working capital...................................... $ 526,982 $ 156,563 $ 347,501 $ 106,604 $ 88,269
Total assets......................................... 1,694,437 1,030,988 1,345,719 1,002,912 860,583
Total debt(1)........................................ 692,280 404,282 414,768 421,355 400,251
Shareholders' equity................................. 692,383 420,842 623,351 312,102 277,882
OTHER DATA:
Amortization......................................... $ 7,055 $ 5,188 $ 11,720 $ 9,798 $ 7,869
Depreciation......................................... 17,093 10,250 22,246 15,712 13,485
Additions to property, plant & equipment............. 44,539 22,810 59,847 37,016 29,910
</TABLE>

12
<PAGE> 13

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
FISCAL YEARS ENDED DECEMBER 31,
-------------------------- --------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- -------- --------
(THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
U.S. GAAP:
STATEMENTS OF EARNINGS DATA:
Revenue....................................... $ 856,629 $ 323,397 $ 742,975 $648,311 $489,740
Operating expenses............................ 701,300 251,586 563,393 489,569 366,649
Selling, general and administrative........... 63,461 33,445 75,674 66,563 51,216
Depreciation and amortization................. 24,148 15,438 33,006 25,510 21,354
---------- ---------- ---------- -------- --------
Income from operations........................ 67,720 22,928 70,902 66,669 50,521
Interest expense.............................. 19,212 13,639 22,157 25,557 19,339
Other income and expense-net.................. (5,522) (2,459) (4,708) (3,689) (2,122)
---------- ---------- ---------- -------- --------
Earnings from continuing operations before
tax......................................... 54,030 11,748 53,453 44,801 33,304
Income taxes.................................. 16,392 2,707 13,755 12,354 8,769
---------- ---------- ---------- -------- --------
Earnings from continuing operations........... 37,638 9,041 39,698 32,447 24,535
Discontinued operations (net of tax).......... -- 7,234 (1,005) 2,894 2,502
---------- ---------- ---------- -------- --------
Net earnings.................................. $ 37,638 $ 16,275 $ 38,693 $ 35,341 $ 27,037
========== ========== ========== ======== ========
Primary earnings per share:
Continuing operations....................... $ 0.53 $ 0.22 $ 0.79 $ 0.87 $ 0.68
Discontinued operations..................... -- 0.18 (0.02) 0.08 0.07
---------- ---------- ---------- -------- --------
$ 0.53 $ 0.40 $ 0.77 $ 0.95 $ 0.75
========== ========== ========== ======== ========
Fully diluted earnings per share:
Continuing operations....................... $ 0.52 $ 0.19 $ 0.69 $ 0.68 $ 0.55
Discontinued operations..................... -- 0.14 (0.01) 0.05 0.02
---------- ---------- ---------- -------- --------
$ 0.52 $ 0.33 $ 0.68 $ 0.73 $ 0.57
========== ========== ========== ======== ========
Weighted average number of common shares
outstanding (000s).......................... 70,970 40,586 50,073 37,342 36,209
========== ========== ========== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Working capital............................... $ 526,982 $ 156,563 $ 347,501 $106,604 $ 88,269
Total assets.................................. 1,687,430 1,026,211 1,338,692 998,135 855,681
Total debt(1)................................. 692,280 418,645 414,768 437,100 419,082
Shareholders' equity.......................... 685,376 401,702 616,324 291,580 254,150
OTHER DATA:
Amortization.................................. $ 7,055 $ 5,188 $ 11,016 $ 9,798 $ 7,869
Depreciation.................................. 17,093 10,250 21,990 15,712 13,485
Additions to property, plant and equipment.... 44,539 22,810 59,847 37,016 29,910
</TABLE>

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

(1) Total debt includes the current portion of long-term debt.

13
<PAGE> 14

The following table presents summary historical consolidated financial data
of Philip on the same basis as set forth above, in U.S. Dollars and on the basis
of U.S. GAAP.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, FISCAL YEARS ENDED DECEMBER 31,
------------------------ ------------------------------------
1997 1996 1996 1995 1994
---------- -------- -------- -------- --------
(thousands of dollars,
except share and per share amounts)
<S> <C> <C> <C> <C> <C>
U.S. GAAP
STATEMENTS OF EARNINGS DATA:
Revenue........................................... $ 623,358 $236,506 $545,344 $472,358 $358,784
Operating expenses................................ 510,282 183,991 413,013 356,699 268,606
Selling, general and administrative............... 46,254 24,460 56,063 48,496 37,522
Depreciation and amortization..................... 17,590 11,291 24,225 18,587 15,644
---------- -------- -------- -------- --------
Income from operations............................ 49,232 16,764 52,043 48,576 37,012
Interest expense.................................. 13,979 9,973 16,263 18,621 14,167
Other income and expense - net.................... (4,051) (1,799) (3,456) (2,688) (1,553)
---------- -------- -------- -------- --------
Earnings from continuing operations before tax.... 39,304 8,590 39,236 32,643 24,398
Income taxes...................................... 11,923 1,979 10,098 9,001 6,424
---------- -------- -------- -------- --------
Earnings from continuing operations............... 27,381 6,611 29,138 23,642 17,974
Discontinued operations (net of tax).............. -- 5,298 (716) 2,109 1,833
---------- -------- -------- -------- --------
Net earnings...................................... $ 27,381 $ 11,909 $ 28,422 $ 25,751 $ 19,807
========== ======== ======== ======== ========
Primary earnings per share:
Continuing operations........................... $ 0.39 $ 0.17 $ 0.58 $ 0.63 $ 0.50
Discontinued operations......................... -- 0.12 (0.01) 0.06 0.05
---------- -------- -------- -------- --------
$ 0.39 $ 0.29 $ 0.57 $ 0.69 $ 0.55
========== ======== ======== ======== ========
Fully diluted earnings per share:
Continuing operations........................... $ 0.38 $ 0.14 $ 0.51 $ 0.49 $ 0.40
Discontinued operations......................... -- 0.10 (0.01) 0.04 0.02
---------- -------- -------- -------- --------
$ 0.38 $ 0.24 $ 0.50 $ 0.53 $ 0.42
========== ======== ======== ======== ========
Weighted average number of common shares
outstanding (000s).............................. 70,970 40,586 50,073 37,342 36,209
========== ======== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Working capital................................... $ 382,062 $114,698 $253,675 $ 78,098 $ 63,050
Total assets...................................... 1,223,387 751,802 977,236 731,234 611,213
Total debt(1)..................................... 501,904 306,699 302,781 320,220 299,347
Shareholders' equity.............................. 496,898 294,287 449,907 213,611 181,541
OTHER DATA:
Amortization...................................... $ 5,138 $ 3,795 $ 8,085 $ 7,139 $ 5,765
Depreciation...................................... 12,452 7,496 16,140 11,448 9,879
Additions to property, plant and equipment........ 25,900 11,177 30,004 23,347 17,223
</TABLE>

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

(1) Total debt includes the current portion of long-term debt.

14
<PAGE> 15

SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA

The summary unaudited pro forma consolidated financial data set forth below
should be read in conjunction with the Unaudited Pro Forma Consolidated
Financial Information and related Notes included elsewhere in this Prospectus.
The summary unaudited pro forma financial information is presented as if the
acquisitions of Allwaste (completed on July 31, 1997), Intsel Southwest Limited
Partnership (completed on September 27, 1996) ("Intsel") and Luntz Corporation
(completed on December 23, 1996) ("Luntz") had occurred on January 1, 1996 (for
Statements of Earnings purposes) and as if the acquisition of Allwaste had
occurred on June 30, 1997 (for Balance Sheet purposes). The summary unaudited
pro forma statement of earnings data and balance sheet data do not take into
consideration other acquisitions completed by Philip in 1996 and 1997, which
acquisitions are not sufficiently material, either individually or in the
aggregate, to require pro forma disclosure under applicable disclosure rules.
The summary unaudited pro forma financial information is presented in U.S.
dollars and on the basis of U.S. GAAP, and excludes Philip's former municipal
and commercial solid waste operations and Allwaste's former glass recycling
operations since they are discontinued operations. This pro forma financial
information does not purport to represent what Philip's results of operations or
financial position would have been had the acquisitions of Allwaste, Intsel and
Luntz occurred on the dates indicated or for any future period or at any future
date.

<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------------------------
SIX MONTHS ENDED FISCAL YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
---------------- -----------------
(thousands of dollars, except share and per share
amounts)
<S> <C> <C>
U.S. GAAP
STATEMENTS OF EARNINGS DATA:
Revenue............................................... $817,843 $ 1,162,306
Operating expenses.................................... 656,721 907,720
Selling, general and administrative................... 66,536 113,251
Depreciation and amortization......................... 37,003 67,935
-------- -----------
Income from operations................................ 57,583 73,400
Interest expense...................................... 18,926 32,479
Other income and expense-net.......................... (5,870) (6,765)
-------- -----------
Earnings from continuing operations before tax........ 44,527 47,686
Income taxes.......................................... 16,071 18,193
Minority interest..................................... 138 (101)
-------- -----------
Earnings from continuing operations................... $ 28,318 $ 29,594
======== ===========
Primary earnings per share............................ $ 0.30 $ 0.39
-------- -----------
Fully diluted earnings per share...................... $ 0.29 $ 0.36
======== ===========
Weighted average number of common shares
outstanding (000s).................................. 94,026 75,351
======== ===========
OTHER DATA:
Amortization.......................................... $ 10,655 $ 15,990
Depreciation.......................................... 26,348 51,945
Additions to property, plant and equipment............ 50,254 66,677
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED(1)
----------- --------------
(thousands of dollars)
<S> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Working capital................................................................. $ 364,424 $ 364,424
Total assets.................................................................... 1,886,500 1,886,500
Total debt(2)................................................................... 607,396 293,096
Shareholders' equity............................................................ 888,617 1,202,917
</TABLE>

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

(1) As adjusted for the Offerings and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."

(2) Total debt includes the current portion of long-term debt.

15
<PAGE> 16

RISK FACTORS

In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Common Shares.

RISKS ASSOCIATED WITH ACQUISITIONS

The Company's consolidation strategy depends on its ability to identify and
acquire appropriate businesses for its industrial services and metals recovery
operations and to integrate the acquired operations effectively. There can be no
assurance that the Company will be able to locate acquisition candidates in
markets or on terms the Company deems attractive or that any identified
candidates will be acquired. The completion of acquisitions requires the
expenditure of sizeable amounts of capital, and the competition among companies
pursuing similar acquisition strategies may increase such capital requirements.
In order to finance any such acquisitions, it may be necessary for the Company
to raise additional funds either through public or private financings. Any
necessary equity or debt financing, if available at all, may be on terms that
are not favorable to the Company and may result in dilution to its shareholders.

In connection with its acquisitions, there may be liabilities that the
Company fails or is unable to discover, including liabilities arising from
pollution of the environment or non-compliance with environmental laws by prior
owners, and for which the Company, as a successor owner, may be responsible.
Indemnities and warranties for such liabilities from sellers, if obtained, may
not fully cover the liabilities due to their limited scope, amounts, or
duration, the financial limitations of the indemnitor or warrantor, or other
reasons.

Although the Company pursues its consolidation strategy with the
expectation that its acquisitions will result in beneficial synergistic effects
for the combined companies, there are significant uncertainties and risks
relating to the integration of an acquired company's operations. Whether the
anticipated benefits of the Company's acquisitions are ultimately achieved will
depend on a number of factors, including the ability of the combined companies
to achieve administrative cost savings, insurance and bonding cost reductions,
general economies of scale and, generally, to capitalize on the combined asset
base and strategic position of the combined companies. The timing and manner of
the implementation of decisions made with respect to the ongoing business of the
combined companies following the acquisition will materially affect the
operations of the combined companies. Given the range of potential outcomes
arising from such decisions and the interrelationships among decisions to be
made, it is difficult to quantify with precision the impact of such decisions on
the results of operations and financial condition of the combined companies. In
particular, reserves established or charges recorded in connection with
acquisitions or the integration thereof may be insufficient and the Company may
be required to establish additional reserves or record additional charges at a
later date. There can be no assurance that any expected synergies will be
realized or that the results of the combined operations will be improved in a
timely manner, if at all. In addition, the process of integrating the acquired
company's operations into those of the Company could cause the interruption of,
or the loss of momentum in, the activities of either or both companies, which
could have an adverse effect on the combined operations.

The Company believes that consolidation within its industry will continue
to occur and that, to be a leader, its strategy must take account of this trend.
The Company expects to continue to evaluate acquisition opportunities on a
regular basis, including opportunities involving companies offered for sale in a
public auction process, and expects to pursue those situations which it believes
are in its long term best interests. The Company is currently engaged in
discussions concerning a number of possible acquisitions some of which, if they
are completed, would have a significant impact on the financial position
(including level of debt), results of operations and cash flows of the Company.
The terms of the Company's Credit Facility may restrict the Company's ability to
consummate certain acquisitions. There can be no assurance that any such
discussions will result in definitive agreements or completed transactions.

In particular, the Company has executed a confidentiality agreement and
submitted an initial expression of interest in connection with the possible sale
of Safety-Kleen Corp. ("Safety-Kleen"), which has announced that it is exploring
strategic options. The Company believes that it is one of a number of potential
purchasers. At November 4, 1997, the aggregate market value of Safety-Kleen's
outstanding

16
<PAGE> 17

common stock was $1.5 billion, based on 58.3 million shares of common stock
outstanding and a closing price on the NYSE of $25.75. The Company may submit a
proposal, which could be comprised entirely of equity of the Company, or cash,
or any combination thereof. In order to finance the cash component of its
proposal, if made and accepted, the Company may be required to incur a
significant amount of debt. No assurance can be given as to the impact of such
debt on the Company's financial position, results of operations or cashflows. In
addition, any equity portion of the Company's proposal, if made, could result in
dilution to the Company's existing shareholders. There can be no assurance that
the Company's proposal, if made, will be accepted or that any such transaction
will be consummated. There can be no assurance that any such acquisition of
Safety-Kleen will be successful or that the Company would be able to realize any
synergies or cost efficiencies from the transaction.

COMPETITION

The Company's primary competitors in the metals recovery industry are other
scrap processors in regions where its metals recovery operations are located.
The Company faces competition both on the purchase and sales sides of its
business; however, competition is particularly significant on the purchase side
for access to scrap. The Metals Recovery Group competes on the basis of price,
technological capability and service. The availability of scrap depends on a
number of factors, including the general level of economic activity in the
industries serviced by the Metals Recovery Group, many of which are cyclical in
nature, and market prices for scrap. Competition for access to scrap may
intensify during periods of scrap scarcity. There can be no assurance that the
Company will continue to have adequate access to scrap supplies at economic
prices.

The industrial services sector is also highly competitive and fragmented.
The Company competes with numerous local, regional and national companies of
varying sizes and financial resources. Competition for industrial services is
based primarily on hourly rates, productivity, safety, innovative approaches and
quality of service. The hazardous waste management industry competes with the
Company's industrial services operations by providing a price competitive
disposal alternative to a number of the Company's waste management and
by-products recovery services. The hazardous waste management industry currently
has substantial excess capacity caused by overbuilding, continuing efforts by
hazardous waste generators to reduce volume and to manage their waste on-site,
and the uncertain regulatory environment regarding hazardous waste management
and remediation requirements. These factors have led to downward pressure on
pricing in a number of the markets served by the Company's industrial services
operations. The Company expects these conditions to continue for the foreseeable
future. Competition could have a material adverse effect on the Company's
results of operations and financial condition by depressing prices or by causing
waste to be diverted to competitors. In addition, such competition could
materially affect the Company's ability to service its customers profitably, to
attract new customers and to retain such customers upon the expiration of
existing contracts.

DEPENDENCE ON OUTSOURCING AND VENDOR REDUCTION TRENDS

The Company's growth is dependent on the continuation of outsourcing and
vendor reduction trends within industrial enterprises. As these enterprises
focus on their core business, they are increasingly outsourcing non-core,
non-revenue generating activities in order to reduce costs. Such activities can
generally be performed on a more cost effective basis by specialized industrial
service and resource

17
<PAGE> 18

recovery companies which have greater expertise, technology advantages and
economies of scale. In addition, industrial enterprises are evidencing a desire
to reduce the number of vendors of industrial and resource recovery services by
purchasing services only from those suppliers that can provide a "total service"
solution, thereby providing further administrative and cost reductions. If the
pace of either of these trends slows or reverses, it could have a material
adverse effect on the Company's financial position and results of operations.

MANAGEMENT OF GROWTH

The Company expects its business to continue to experience growth in
revenues, employees and customers. This growth is expected to place significant
and increasing demands on the Company's management and operational resources.
The Company's future performance will depend, in part, on its ability to manage
expanding operations. The failure of the Company to manage its growth could have
a material adverse effect on the financial position and results of operations of
the Company.

ENVIRONMENTAL AND REGULATORY RISKS

Environmental Regulations. The Company's operations are subject to various
comprehensive laws and regulations related to the protection of the environment.
Such laws and regulations, among other things, (i) regulate the nature of the
industrial by-products and wastes that the Company can accept for processing at
its treatment, storage and disposal facilities, the nature of the treatment they
can provide at such facilities and the location and expansion of such
facilities; (ii) impose liability for remediation and clean-up of environmental
contamination, both on-site and off-site, resulting from past and present
operations at the Company's facilities; and (iii) may require financial
assurance that funds will be available for the closure and post-closure care of
sites, including acquired facilities. In addition, because the Company provides
its customers with services designed to protect the environment by cleaning and
removing materials or substances from their customers' equipment or sites that
must be properly handled, recycled or removed for ultimate disposal, the
Company's operations are subject to regulations which impose liability on
persons involved in handling, processing, generating or transporting hazardous
materials. These requirements may also be imposed as conditions of operating
permits or licenses that are subject to renewal, modification or revocation.
These laws and regulations have become and are likely to continue to become
increasingly stringent. Existing laws and regulations, and new laws and
regulations, may require the Company to modify, supplement, replace or curtail
its operating methods, facilities or equipment at costs which may be substantial
without any corresponding increase in revenues.

Hazardous substances are present in some of the processing, transfer,
storage, disposal and landfill facilities owned or used by the Company.
Remediation will be required at these sites at substantial cost. For each of
these sites, the Company, in conjunction with an environmental consultant, has
developed or is developing cost estimates that are periodically reviewed and
updated, and the Company maintains reserves for these matters based on such cost
estimates. Estimates of the Company's liability for remediation of a particular
site and the method and ultimate cost of remediation require a number of
assumptions and are inherently difficult. There can be no assurance that the
ultimate cost and expense of corrective action will not substantially exceed
such reserves and have a material adverse impact on the Company's operations or
financial condition.

In the normal course of its business, and as a result of the extensive
governmental regulation of industrial and environmental services and resource
recovery, the Company has been the subject of administrative and judicial
proceedings by regulators and has been subject to requirements to remediate
environmental contamination or to take corrective action. There will be
administrative or court proceedings in the future in connection with the
Company's present and future operations or the operations of acquired
businesses. In such proceedings in the past, the Company has been subject to
monetary fines and certain orders requiring the Company to take environmental
remedial action. In the future, the Company may be subject to monetary fines,
penalties, remediation, clean-up or stop orders, injunctions or orders to cease
or suspend certain of its practices. The outcome of any proceeding and
associated costs and expenses could have a material adverse impact on the
operations or financial condition of the Company.

18
<PAGE> 19

The Company's industrial services businesses are subject to extensive
governmental regulation, and the complexity of such regulation makes consistent
compliance with such laws and regulations extremely difficult. In addition, the
demand for certain of the Company's services may be adversely affected by the
amendment or repeal of federal, state, provincial, or foreign laws and
regulations or by changes in the enforcement policies of the regulatory agencies
concerning such laws and regulations.

Public Concerns. There is a high level of public concern over industrial
by-products recovery and waste management operations, including the siting and
operation of transfer, processing, storage and disposal facilities and the
collection, processing or handling of industrial by-products and waste
materials, particularly hazardous materials. Zoning, permit and licensing
applications and proceedings and regulatory enforcement proceedings are all
matters open to public scrutiny and comment. As a result, from time to time, the
Company has been, and may in the future be, subject to citizen opposition and
publicity which may have a negative effect on its operations and delay or limit
the expansion and development of operating properties and could have a material
adverse effect on its operations or financial condition.

Environmental Insurance Coverage. Consistent with industry trends, the
Company may not be able to obtain adequate amounts of environmental impairment
insurance at a reasonable premium to cover liability to third parties for
environmental damages. Accordingly, if the Company were to incur liability for
environmental damage either not provided for under such coverage or in excess of
such coverage, the Company's financial position and results of operations could
be materially and adversely affected.

Jurisdictional Restrictions on Waste Transfers. In the past, various
states, provinces, counties and municipalities have attempted to restrict the
flow of waste across their borders, and various U.S. and Canadian federal,
provincial, state, county and municipal governments may seek to do the same in
the future. Any such border closing may result in the Company incurring
increased third-party disposal costs in connection with alternate disposal
arrangements.

For a more detailed description of the impact of environmental and other
governmental regulation upon the Company, see "The Company -- Government
Regulation."

RELIANCE ON KEY PERSONNEL

The Company's operations are dependent on the abilities, experience and
efforts of its senior management. While the Company has entered into employment
agreements with certain members of its senior management, should any of these
persons be unable or unwilling to continue his employment with the Company, the
business prospects of the Company could be materially and adversely affected.

COMMODITY PRICE AND CREDIT RISKS

The Company is exposed to commodity price risk during the period that it
has title to products that are held in inventory for processing and/or resale.
Prices of commodities can be volatile due to numerous factors beyond the control
of the Company, including general economic conditions, labor costs, competition,
import duties, tariffs and currency exchange rates. In an increasing price
environment, competitive conditions will determine how much of the commodity
price increases can be passed on to the Company's customers. There can be no
assurance that the Company will not have a significant net exposure due to
significant price swings or failure of a counterparty to perform pursuant to the
contract.

SEASONALITY AND FLUCTUATIONS IN FINANCIAL RESULTS

The Company's Industrial Services Group tends to follow seasonal patterns,
with higher levels of activity during the period from April through November and
lower levels during the adverse weather conditions of winter and early spring.
These operations are also affected by the spending decisions of the Company's
customers, which in turn are influenced by general economic conditions and other
factors. As a result of all these factors, the Company's financial performance
can vary significantly from period to period.

ONGOING CAPITAL REQUIREMENTS AND LIQUIDITY

It is likely that the Company will need access to greater amounts of
financing or capital as its business continues to grow, particularly in
connection with future acquisitions. There can be no assurance that the Company
will be able to obtain additional financing when needed to develop further its

19
<PAGE> 20

business or fund its operations or that, if available, such financing would be
on terms acceptable to it. Certain of the Company's loan agreements may restrict
the Company's ability to finance such expansion and capital expenditures with
borrowed funds.

LIMITED PROTECTION OF INTELLECTUAL PROPERTY RIGHTS; RISK OF INFRINGEMENT

The Company uses a number of proprietary processes in its operations. The
Company possesses a number of United States patents and various foreign
counterparts of those patents. The Company relies primarily, however, on a
combination of trade secrets, confidentiality procedures and contractual
provisions to protect its intellectual property rights. The Company's patents
may be circumvented or invalidated and afford only limited protection. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to obtain and use information that the Company regards as
confidential and proprietary, and there can be no assurance that the Company's
means of protecting its proprietary rights will be adequate. The Company is not
aware of any material claims that any of its intellectual property infringes on
the proprietary rights of third parties. There can be no assurance, however,
that third parties will not assert infringement claims against the Company,
which may be costly.

SHARES ELIGIBLE FOR FUTURE SALE

As consideration for the acquisitions of Steiner-Liff and Southern Foundry,
the Company issued an aggregate of 5.6 million Common Shares at the closings of
such transactions. The purchase agreements for these acquisitions contain
provisions restricting the public sale of these Common Shares for a period of
time following the closings of the transactions. The Company may issue
additional Common Shares in consideration for other future acquisitions, which
may or may not be subject to similar restrictions. Resales of substantial
amounts of such Common Shares in the public market when such restrictions are no
longer applicable could adversely affect the market price of the Common Shares.

USE OF PROCEEDS

The net proceeds from the sale of the Common Shares offered hereby,
estimated to be $314.3 million (or $361.8 million if the over-allotment options
are exercised in full) after deducting the underwriting commission and estimated
offering expenses payable by the Company, will be used to repay indebtedness
outstanding under the Company's Credit Facility (described below), a substantial
portion of which was incurred to retire an existing credit facility and repay
approximately $130 million of the bank debt of Allwaste and Serv-Tech after
consummation of the acquisition of each of these companies.

The Company's Credit Facility provides for an aggregate maximum borrowing
of up to $1.5 billion. Borrowings under the Credit Facility bear interest at
varying rates, depending on the nature of the loan and the Company's compliance
with certain financial ratios. From August 11, 1997 through November 4, 1997,
interest rates under the Credit Facility ranged from prime plus 0.25% to prime
plus 1.25%. The Credit Facility terminates on August 12, 2002. As of November 4,
1997, the Company had borrowed an aggregate of $1.27 billion under the Credit
Facility. See "Description of Certain Indebtedness -- Credit Facility" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity."

The reduction in indebtedness will provide the Company with renewed
borrowing capacity for capital expenditures, future acquisitions and general
corporate purposes.

DIVIDEND POLICY AND RECORD

The Company has not declared or paid cash dividends on its Common Shares
during the last five years. The Company currently intends to retain any earnings
for use in its business and does not anticipate paying any cash dividends on its
Common Shares in the foreseeable future. Any future declaration and payment of
dividends will be subject to the discretion of the Company's Board of Directors
and to applicable law and will depend upon the Company's results of operations,
earnings, financial condition, contractual limitations, cash requirements,
future prospects and other factors deemed

20
<PAGE> 21

relevant by the Company's Board of Directors. The Company's Credit Facility
restricts the payment of cash dividends.

PRICE RANGE AND TRADING VOLUME OF THE COMMON SHARES

The Company's Common Shares trade in the United States on the NYSE, and in
Canada on the TSE and the ME, under the symbol "PHV." The Company's Common
Shares traded in the United States on the Nasdaq National Market System
("Nasdaq") prior to April 30, 1996. The following tables set forth for the
fiscal periods indicated (based on the fiscal year ending December 31) the high
and low sale prices per share and trading volume of the Company's Common Shares
as reported by the NYSE, Nasdaq and the TSE, the principal Canadian exchange for
the trading of the Company's Common Shares. For current price information,
shareholders are encouraged to consult publicly available sources.

<TABLE>
<CAPTION>
PRICE RANGE AND TRADING VOLUME OF THE COMMON SHARES
--------------------------------------------------------------------
NYSE & NASDAQ TSE
--------------------------------- -------------------------------
HIGH LOW VOLUME HIGH LOW VOLUME
------- ------- ----------- ------- ------- ---------
(U.S. DOLLARS) (CANADIAN DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
1995
First quarter.................. $ 6.13 $ 5.13 90,500 $ 8.50 $ 7.25 4,418,600
Second quarter................. 7.30 6.00 76,000 10.13 8.25 5,832,400
Third quarter.................. 7.50 6.38 50,100 10.25 8.25 6,078,700
Fourth quarter................. 7.25 6.00 1,481,300 9.75 7.88 4,777,400
1996
First quarter.................. $ 6.88 $ 6.13 368,900 $ 9.38 $ 8.00 3,399,100
Second quarter................. 8.88 6.50 29,040,400 12.00 8.75 1,760,100
Third quarter.................. 9.75 6.63 8,773,100 13.20 9.25 5,580,800
Fourth quarter................. 15.75 9.38 19,652,000 21.50 12.75 2,781,100
1997
First quarter.................. $ 18.38 $ 13.63 26,356,700 $ 24.75 $ 18.50 8,232,300
April.......................... 15.75 12.25 8,234,400 21.50 17.25 1,304,700
May............................ 15.88 12.38 15,886,900 22.00 17.15 4,340,000
June........................... 16.00 14.00 11,561,000 22.10 19.45 2,858,000
July........................... 15.88 14.38 9,147,200 21.90 19.95 2,918,868
August......................... 18.38 14.94 15,292,900 25.50 20.60 8,323,303
September...................... 19.94 17.38 9,720,300 27.91 24.00 5,467,100
October........................ 19.00 16.88 6,819,400 26.45 23.50 3,563,205
November (through November 4).. 17.06 17.00 621,000 24.10 23.80 101,017
</TABLE>

On November 4, 1997, the last reported sale price on the NYSE of the Common
Shares was $17.00 and the last reported sales price on the TSE was Cdn$23.80. On
November 4, 1997, there were 108,019,291 Common Shares issued and outstanding
and held of record by approximately 2,199 shareholders.

21
<PAGE> 22

CONSOLIDATED CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as at the dates indicated and as adjusted to give effect to the
Offerings and the application of the net proceeds therefrom. See "Use of
Proceeds." This table has been presented in U.S. dollars and in accordance with
U.S. GAAP. This table should be read in conjunction with the Consolidated
Financial Statements of the Company, the notes thereto and the other financial
data included elsewhere in this Prospectus. This table does not include an
aggregate of 5.6 million Common Shares issued in connection with the
acquisitions of Steiner-Liff and Southern Foundry or the increase in long-term
debt associated with these acquisitions and the acquisition of Luria in the
aggregate amount of $400 million.

<TABLE>
<CAPTION>
JUNE 30, 1997 SEPTEMBER 30, 1997
--------------------------------------- -------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED ACTUAL AS ADJUSTED
-------- ------------ ----------- ---------- -----------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
SHORT-TERM DEBT:
Current portion of long-term
debt...................... $ 7,956 $ 12,016 $ 12,016 $ 11,775 $ 11,775
======== ========== =========== ========== ===========
LONG-TERM DEBT:
Bank debt and other long-term
debt...................... 493,948 675,268 360,968 871,656 557,356
-------- ---------- ----------- ---------- -----------
SHAREHOLDERS' EQUITY:
Common Shares(2)(3).......... 383,824 905,863 1,220,163 887,562 1,201,862
Retained earnings............ 138,338 138,338 138,338 163,632 163,632
Cumulative foreign currency
translation account....... (25,264) (25,264) (25,264) (28,014) (28,014)
-------- ---------- ----------- ---------- -----------
Total shareholders' equity... 496,898 1,018,937 1,333,237 1,023,180 1,337,480
-------- ---------- ----------- ---------- -----------
Total consolidated
capitalization............ $990,846 $1,694,205 $ 1,694,205 $1,894,836 $ 1,894,836
======== ========== =========== ========== ===========
</TABLE>

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

(1) The pro forma column at June 30, 1997 is pro forma for the acquisitions of
Allwaste and Serv-Tech in July 1997, in which an aggregate of 25,819,903
Common Shares were issued; completion of the takeover bid for Intermetco in
August 1997 and subsequent compulsory acquisition in which an aggregate of
2,684,371 Common Shares were issued; completion of the acquisition of Roth
in July 1997, in which an aggregate of 422,331 Common Shares were issued;
and completion of the acquisition of D&L, Inc. in July 1997, in which an
aggregate of 286,418 Common Shares were issued. All of such increases
occurred prior to September 30, 1997. The pro forma number of Common Shares
issued and outstanding at June 30, 1997 is 100,682,388.

(2) An unlimited number of Common Shares are authorized. There were 71,469,365
Common Shares issued and outstanding at June 30, 1997 and 102,229,218 Common
Shares issued and outstanding at September 30, 1997.

(3) Excludes (i) options outstanding at June 30, 1997 to purchase up to
5,867,729 Common Shares, of which options to acquire 2,500,386 Common Shares
were then exercisable, at prices ranging from Cdn$6.75 to Cdn$21.75, and
(ii) options outstanding at September 30, 1997 to purchase up to 9,176,361
Common Shares, of which options to acquire 4,543,571 Common Shares were then
exercisable, at prices ranging from Cdn$6.75 to Cdn$26.75.

22
<PAGE> 23

UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION

The accompanying unaudited pro forma consolidated balance sheet of Philip
includes the June 30, 1997 historical consolidated balance sheet of Philip and
the May 31, 1997 historical consolidated balance sheet of Allwaste as if the
acquisition of Allwaste had been consummated on June 30, 1997. The unaudited pro
forma combined statement of earnings of Philip for the fiscal year ended
December 31, 1996 combines the historical consolidated statement of earnings of
Philip for the fiscal year ended December 31, 1996 and the historical
consolidated statement of operations of Allwaste for the twelve months ended
November 30, 1996 as if the acquisition of Allwaste had occurred on January 1,
1996. The unaudited pro forma consolidated statement of earnings of Philip for
the six months ended June 30, 1997 combines the historical consolidated
statement of earnings of Philip for the six months ended June 30, 1997 and the
historical consolidated statement of operations of Allwaste for the six months
ended May 31, 1997 as if the acquisition of Allwaste had occurred on January 1,
1997. The financial information relating to Philip has been presented in U.S.
dollars and in accordance with U.S. GAAP.

The unaudited pro forma consolidated statement of earnings for the year
ended December 31, 1996 also includes the pro forma effects of the acquisitions
by Philip of Intsel (completed on September 27, 1996) and Luntz (completed on
December 23, 1996) as if such acquisitions had occurred on January 1, 1996. The
historical consolidated statements of earnings of Philip include operating
results of such acquired businesses subsequent to the respective dates of their
acquisitions. The unaudited pro forma consolidated statement of earnings for the
year ended December 31, 1996 includes the historical operating results of such
acquired businesses from January 1, 1996 to the respective dates of such
acquisitions.

The unaudited pro forma consolidated financial statements give effect to
the acquisitions of Allwaste, Intsel and Luntz using the purchase method of
accounting and include the adjustments described in the notes thereto. The
unaudited pro forma consolidated financial statements also give effect to the
issuance of Common Shares in exchange for the Allwaste common stock. The
unaudited pro forma consolidated financial statements exclude Philip's former
municipal and commercial solid waste operations and Allwaste's former glass
recycling operations since they are discontinued operations.

The unaudited pro forma consolidated financial statements do not take into
consideration other acquisitions completed by Philip in 1996 and 1997. See
"Recent Acquisitions" and "Risk Factors -- Risks Associated with Acquisitions."

The unaudited pro forma consolidated financial statements are presented for
illustrative purposes only and do not purport to represent what Philip's results
of operations or financial position would have been had the acquisitions of
Allwaste, Intsel or Luntz occurred on the dates indicated or for any future
period or at any future date, and are therefore qualified in their entirety by
reference to and should be read in conjunction with the historical consolidated
financial statements of Philip and the historical consolidated financial
statements of Allwaste, Intsel and Luntz contained elsewhere in this Prospectus.

23
<PAGE> 24

PHILIP SERVICES CORP.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997

(thousands of dollars, except share and per share amounts)

<TABLE>
<CAPTION>
PRO FORMA AS
ADJUSTED FOR
HISTORICAL RECLASSIFICATION THE
PHILIP ALLWASTE ENTRIES (NOTE 4) ADJUSTMENTS NOTE ALLWASTE MERGER
---------- -------- ---------------- ----------- ---- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenue...................... $ 623,358 $194,485 $-- $-- $ 817,843
Operating expenses........... 510,282 144,239 2,200 -- 656,721
Selling, general &
administrative............. 46,254 37,945 (17,663) -- 66,536
Depreciation and
amortization............... 17,590 -- 15,463 3,950 5 37,003
-------- -------- -------- ------- ---------
Income from operations....... 49,232 12,301 -- (3,950) 57,583
Interest expense............. 13,979 4,947 -- -- 18,926
Other income and expense --
net........................ (4,051) (1,819) -- -- (5,870)
-------- -------- -------- ------- ---------
Earnings before tax.......... 39,304 9,173 -- (3,950) 44,527
Income taxes................. 11,923 4,148 -- -- 16,071
Minority interest............ -- 138 -- -- 138
-------- -------- -------- ------- ---------
Net Earnings................. $ 27,381 $ 4,887 $-- $(3,950) $ 28,318
======== ======== ======== ======= =========
Primary earnings per share... $ 0.39 $ 0.30
======== =========
Fully diluted earnings per
share...................... $ 0.38 $ 0.29
======== =========
Weighted average number of
common shares outstanding
(000s) (Note 6)............ 70,970 94,026
======== =========
</TABLE>

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

24
<PAGE> 25

PHILIP SERVICES CORP.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996

(thousands of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
PRO RECLASSIFICATION
HISTORICAL NOTE FORMA ENTRIES
PHILIP LUNTZ INTSEL ADJUSTMENTS 2 PHILIP ALLWASTE (NOTE 4) ADJUSTMENTS
---------- -------- ------- ----------- ----- -------- -------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............ $545,344 $123,541 $99,014 $11,133 a $779,032 $383,274 $ -- $ --
Operating
expenses.......... 413,013 107,441 84,369 12,153 a,b,d 616,976 287,809 2,935
Selling, general &
administrative.... 56,063 8,649 5,485 585 a 70,782 76,200 (33,731)
Depreciation and
amortization...... 24,225 2,860 699 1,505 b 29,289 -- 30,796 7,850
-------- -------- ------- ------- -------- -------- -------- --------
Income from
operations........ 52,043 4,591 8,461 (3,110) 61,985 19,265 -- (7,850)
Interest expense... 16,263 711 -- 6,000 c 22,974 9,505 -- --
Other income and
expense -- net.... (3,456) (435) 332 -- (3,559) (3,206) -- --
-------- -------- ------- ------- -------- -------- -------- --------
Earnings (loss)
from continuing
operations before
tax............... 39,236 4,315 8,129 (9,110) 42,570 12,966 -- (7,850)
Income taxes....... 10,098 1,796 2,800 (2,814) 11,880 6,313 -- --
Minority
interest.......... -- -- -- -- -- (101) -- --
-------- -------- ------- ------- -------- -------- -------- --------
Earnings (loss)
from continuing
operations........ $ 29,138 $ 2,519 $ 5,329 $(6,296) $ 30,690 $ 6,754 $ -- $ (7,850)
======== ======== ======= ======= ======== ======== ======== ========
Primary earnings
per share......... $ 0.58
========
Fully diluted
earnings per
share............. $ 0.51
========
Weighted average
number of common
shares outstanding
(000s) (Note 6)... 50,073
========

<CAPTION>
PRO FORMA
AS
ADJUSTED
FOR THE
ALLWASTE
NOTE MERGER
----- ----------
<S> <C> <C>
Revenue............ $1,162,306
Operating
expenses.......... 907,720
Selling, general &
administrative.... 113,251
Depreciation and
amortization...... 5 67,935
----------
Income from
operations........ 73,400
Interest expense... 32,479
Other income and
expense -- net.... (6,765)
----------
Earnings (loss)
from continuing
operations before
tax............... 47,686
Income taxes....... 18,193
Minority
interest.......... (101)
----------
Earnings (loss)
from continuing
operations........ $ 29,594
==========
Primary earnings
per share......... $ 0.39
==========
Fully diluted
earnings per
share............. $ 0.36
==========
Weighted average
number of common
shares outstanding
(000s) (Note 6)... 75,351
==========
</TABLE>

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

25
<PAGE> 26

PHILIP SERVICES CORP.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1997

(thousands of dollars)

<TABLE>
<CAPTION>
PRO FORMA AS
ADJUSTED FOR
THE
PHILIP ALLWASTE ADJUSTMENTS NOTE ALLWASTE MERGER
---------- -------- ----------- ---- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents............ $ 7,602 $ 2,017 $ -- $ 9,619
Accounts receivable............. 257,088 86,326 -- 343,414
Inventory for resale............ 239,312 -- -- 239,312
Other current assets............ 36,862 17,313 -- 54,175
---------- -------- --------- -----------
540,864 105,656 -- 646,520
Fixed assets, net................. 341,494 126,056 -- 467,550
Goodwill.......................... 261,929 85,529 301,843 3 649,301
Other assets...................... 79,100 32,029 12,000 123,129
---------- -------- --------- -----------
$1,223,387 $349,270 $ 313,843 $ 1,886,500
========== ======== ========= ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Accounts payable and accrued
liabilities.................. $ 150,846 $ 59,070 $ 61,777 3 $ 271,693
Current maturities of long-term
debt......................... 7,956 2,447 -- 10,403
---------- -------- --------- -----------
158,802 61,517 61,777 282,096
Long-term debt.................... 493,948 103,045 -- 596,993
Deferred income taxes............. 33,714 12,090 -- 45,804
Other liabilities................. 40,025 706 -- 40,731
Convertible subordinated debt..... -- 32,259 -- 32,259
Shareholders' equity.............. 496,898 139,653 252,066 3 888,617
---------- -------- --------- -----------
$1,223,387 $349,270 $ 313,843 $ 1,886,500
========== ======== ========= ===========
</TABLE>

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

26
<PAGE> 27

PHILIP SERVICES CORP.

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. BASIS OF PRESENTATION

The unaudited pro forma consolidated balance sheet and statement of
earnings present the financial position of Philip as at June 30, 1997 and
results of its operations for the six months ended June 30, 1997 and the
year ended December 31, 1996, as if the acquisitions discussed in Notes 2
and 3 below had occurred at the beginning of the year ended December 31,
1996. These pro forma consolidated financial statements have been prepared
on the basis of U.S. GAAP.

The unaudited pro forma consolidated statement of earnings for the year
ended December 31, 1996 was prepared by combining the following:

- the unaudited pro forma consolidated statement of earnings of Philip,
which includes the significant acquisitions completed during the fiscal
year ended December 31, 1996 (Note 2), and

- the unaudited consolidated statement of earnings for Allwaste for the
twelve months ended November 30, 1996.

The unaudited pro forma consolidated statement of earnings for the six
months ended June 30, 1997 was prepared by combining the following:

- the unaudited historical consolidated statement of earnings of Philip
for the six months ended June 30, 1997.

- the unaudited consolidated statement of earnings for Allwaste for the
six months ended May 31, 1997.

The unaudited pro forma consolidated balance sheet at June 30, 1997 was
prepared by combining the unaudited balance sheet of Philip as at June 30,
1997 and the unaudited balance sheet of Allwaste as at May 31, 1997.

The consolidated statement of earnings of Philip for the year ended
December 31, 1996 and the consolidated statement of Philip for the six
months ended June 30, 1997 presented in the pro forma consolidated
financial statements were prepared by translating Philip's Canadian dollar
Consolidated Financial Statements presented elsewhere in this Prospectus to
U.S. dollar disclosure by using the average exchange rates of Cdn$1.00
equals $0.73 and Cdn$1.00 equals $0.728 respectively.

The consolidated balance sheet of Philip at June 30, 1997 presented in the
pro forma consolidated financial statements was prepared by translating
Philip's Canadian dollar Consolidated Financial Statements presented
elsewhere in this Prospectus to U.S. dollar disclosure by using the June
30, 1997 period and exchange rate of Cdn$1.00 equals $0.725.

The pro forma consolidated financial statements should be read in
conjunction with the historical consolidated financial statements of
Philip, Allwaste, Intsel and Luntz included elsewhere in this Prospectus.

Certain figures from the Allwaste, Intsel and Luntz consolidated financial
statements have been reclassified to conform with the basis of presentation
used by Philip in preparing Philip's Consolidated Financial Statements.

The acquisition of Allwaste has been accounted for using the purchase
method of accounting.

The pro forma consolidated financial statements do not purport to be
indicative of the financial position of Philip or the results of operations
that might have occurred, had the acquisitions been concluded on January 1,
1996, nor are they necessarily indicative of future results.

27
<PAGE> 28

PHILIP SERVICES CORP.

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) -- (CONTINUED)

2. ACQUISITIONS PRIOR TO DECEMBER 31, 1996

Statement of Earnings:

The audited consolidated statement of earnings of Philip for the year ended
December 31, 1996 as translated above, was adjusted to include the
acquisitions of Intsel and Luntz as if they had occurred on January 1, 1996
as follows:

(i) the results of operations of Luntz for the period from January 1, 1996
to the date of acquisition, which was December 23, 1996, have been
included in the unaudited pro forma consolidated statement of earnings;
and

(ii) the results of operations for Intsel for the period from January 1,
1996 to the date of acquisition, which was September 27, 1996, have
been included in the unaudited pro forma consolidated statement of
earnings.

The pro forma consolidated statement of earnings of Philip ("Pro Forma
Philip") incorporates the following pro forma assumptions:

(a) actual revenue and expenses for the month of December 1996 for Luntz
have been recorded as an adjustment in order to reflect a full 12 month
period in the pro forma consolidated statement of earnings. The effect
of this adjustment is to record additional revenue of $11,133,
operating expenses of $10,248, and selling, general and administrative
expenses of $585;

(b) the amortization of goodwill and other intangibles and the depreciation
of the incremental fair market value increases relating to the
acquisitions have been included in the pro forma consolidated statement
of earnings from January 1, 1996 at rates consistent with those
disclosed in Note 1 to the Consolidated Financial Statements of the
Company. The amortization of goodwill was increased by approximately
$1,500 and the operating expenses were increased by approximately $500
as a result of this adjustment;

(c) interest on increased borrowings necessary to finance the acquisitions
has been included from January 1, 1996 for the acquisitions of Intsel
and Luntz. This adjustment increased interest expense by $6,000; and

(d) inventory for resale is valued on the last-in-first-out or "LIFO" basis
of accounting in the historical financial statements of Luntz. To be
consistent with the accounting policies employed by Philip, the basis
of accounting for inventory for resale has been adjusted to reflect the
lower of average purchase cost and net realizable value. As a result,
operating expenses have been increased by $1,388.

Balance Sheet:

The historical consolidated balance sheet for Philip includes the balance
sheets of Intsel and Luntz as at June 30, 1997 and, therefore, separate
balance sheets for these companies are not included.

3. ACQUISITION OF ALLWASTE

The acquisition of Allwaste has been accounted for using the purchase
method of accounting. The pro forma consolidated statement of earnings of
Allwaste for the twelve months ended November 30, 1996 used in the December
31, 1996 pro forma consolidated statement of earnings, was determined by
subtracting the results for fiscal quarter ended November 30, 1995 from the
annual audited financial statements of Allwaste for the fiscal year ended
August 31, 1996 and adding the financial results for the fiscal quarter
ended November 30, 1996.

28
<PAGE> 29

PHILIP SERVICES CORP.

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) -- (CONTINUED)

3. ACQUISITION OF ALLWASTE (CONTINUED)
The purchase price for the acquisition of Allwaste has been calculated as
follows:

<TABLE>
<CAPTION>
NOTE
----
<S> <C> <C> <C>
Value of Philip common shares issued.................... $360,388 3a
Value of options issued by Philip....................... 31,331 3b
Severance accruals...................................... 16,500 3c
Site rationalization accruals........................... 6,800 3c
Transaction bonuses..................................... 1,000 8
Transaction costs....................................... 16,320 3c
Costs for new signage and repainting equipment.......... 4,495 3c
Other accruals.......................................... 6,941 3c
--------
443,775
Book value of net assets acquired -- May 31, 1997....... $139,653
Adjust book value of net assets to July 31, 1997........ (9,721) 129,932 3d
-------- --------
Excess purchase price over book value................... $313,843
========
Allocated to:
Investments........................................ $ 12,000 3d
Goodwill........................................... 301,843
--------
$313,843
========
</TABLE>

(a) The calculation of the value of Philip common shares is based on the
following:

<TABLE>
<S> <C>
Number of Allwaste common shares outstanding.............................. 37,735
Conversion ratio.......................................................... 0.611
---------
Number of Philip common shares issued..................................... 23,056
=========
Adjusted weighted average market price of Philip common shares............ $ 15.631
=========
Value of Philip common shares............................................. $ 360,388
=========
</TABLE>

The number of Philip common shares above issued in connection with the
Merger was determined based upon the number of shares of Allwaste common
stock outstanding as of July 30, 1997, the last business day preceding the
effective time of the Allwaste Merger.

The weighted average market price of Philip common shares above was
determined based on the average trading activity of Philip common shares on
the NYSE for the 10 day period before and after March 6, 1997, which was
the date of the announcement of the acquisitions. The weighted average
market price was then reduced for transaction costs that would have been
incurred if these common shares had been issued for cash.

29
<PAGE> 30

PHILIP SERVICES CORP.

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) -- (CONTINUED)

3. ACQUISITION OF ALLWASTE (CONTINUED)
(b) Under the Allwaste Merger agreement, Philip assumed the employee stock
options of Allwaste. The value of outstanding options as at July 30,
1997 for Allwaste is as follows:

<TABLE>
<S> <C>
Allwaste options outstanding.............................................. 4,388,063
=========
Fair value of Philip options.............................................. $ 11.69
Exchange ratio............................................................ 0.611
---------
Fair value of equivalent Philip options................................... $ 7.14
=========
Fair value of options to be included in the purchase price................ $ 31,331
=========
</TABLE>

The fair value of the options was determined using the Black-Scholes option
valuation model with the following assumptions: (i) risk free rate of
6.96%, (ii) expected volatility of 32.74% for Philip, (iii) expected option
life of ranging from 5 to 10 years for Philip and (iv) no annualized
dividend yield.

(c) Transaction costs such as fees for legal, accounting and other
financial advisors, registration fees, printing and travel costs have
been included in the purchase price and recorded in accounts payable
and accrued liabilities in the Pro Forma Balance Sheet. Accruals for
site rationalization costs of Allwaste facilities of $6,800, accruals
for severance of Allwaste employees of $16,500, accruals for new
signage and repainting of Allwaste equipment to reflect the name change
of $4,495, and other accruals for unfavorable lease contracts,
environmental liabilities, self-insurance reserves and income taxes of
$6,941 have been included in the purchase price and recorded in
accounts payable and accrued liabilities in the Pro Forma Balance
Sheet.

(d) The fair value of net assets acquired was determined as follows:

(i) Receivables -- were recorded at amounts to be recovered less
allowances for uncollectible amounts;

(ii) Fixed assets -- were assessed to be recorded at current replacement
costs since approximately 90% of the fixed assets were purchased in
the last three years;

(iii) Other assets (other than the investment in Safe Seal Company,
Inc.) -- were recorded at cost; and

(iv) Accounts payable and accrued liabilities and long-term debt -- were
recorded at the present value of amounts to be paid.

Allwaste has a 36.5% investment in Safe Seal Company, Inc. ("Safe Seal")
with a book value of $7,000 at July 31, 1997. Safe Seal, along with six
other arms-length companies have agreed to merge to form a company called
Innovative Value Technologies, Inc., subject to the completion of an
initial public offering (the "IPO"). The registration statement related
thereto is currently under review by the Securities and Exchange Commission
(the "Commission"). As a result of this pending transaction, the Allwaste
investment has an estimated value of $19,000, and therefore, the value of
the investment has been increased by $12,000. If the IPO is not successful
or the value of the investment changes upon completion of the IPO, the
amount allocated to the Safe Seal investment and goodwill will be adjusted
accordingly.

As a result of the Allwaste Merger, certain assets of Allwaste were
determined to be redundant such as computer software and hardware and
deferred financing costs and therefore were written off in the July 31,
1997 financial statements.

30
<PAGE> 31

PHILIP SERVICES CORP.

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) -- (CONTINUED)

3. ACQUISITION OF ALLWASTE (CONTINUED)
(e) The adjustment to record the purchase accounting of Allwaste as at June
30, 1997 is as follows:

<TABLE>
<CAPTION>
DR (CR)
---------
<S> <C>
Investment in Safe Seal................................................... $ 12,000
Goodwill.................................................................. 301,843
Shareholders' equity...................................................... 139,653
Accounts payable and accrued liabilities.................................. (61,777)
Share capital............................................................. (391,719)
---------
$ --
=========
</TABLE>

4. RECLASSIFICATION ENTRIES

Reclassification entries have been made to disclose information in the
statement of earnings for Allwaste on a basis consistent with the
historical Consolidated Financial Statements of the Company. Specifically,
items such as supervisory wages and benefits, rent, utilities, business and
realty taxes, and repairs of operating facilities which amounted to
approximately $29,000 for the year ended December 31, 1996 and
approximately $14,500 for the six months ended June 30, 1997, have been
reclassified from selling, general and administrative expenses to operating
expenses. Depreciation and amortization expenses amounting to $30,796 for
the year ended December 31, 1996 and $15,463 for the six months ended June
30, 1997 have been reclassified from operating expenses and selling,
general and administrative expenses to a separate line disclosure format,
consistent with the Company's historical consolidated statement of
earnings.

5. PRO FORMA ADJUSTMENTS

(a) Amortization of goodwill has been recorded in the pro forma statement
of earnings based on the allocation of the purchase price as discussed
in Note 3 above. Goodwill will be amortized on a straight-line basis
over 40 years.

(b) Depreciation expense in the pro forma statement of earnings is based on
the following estimated useful lives:

<TABLE>
<S> <C>
Buildings and Improvements........................................... 20-40 years
Machinery and Equipment.............................................. 3-20 years
</TABLE>

No adjustment to depreciation expense is required.

31
<PAGE> 32

PHILIP SERVICES CORP.

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) -- (CONTINUED)

6. PRO FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

Pro Forma weighted average number of common shares outstanding has been
computed as follows (in thousands):

<TABLE>
<S> <C>
Year ended December 31, 1996:
Historical Philip weighted average number of common shares outstanding....... 50,073
Effect of recording the equity transactions at beginning of the period:
Shares issued for acquisitions prior to December 31, 1996.................... 2,222
Shares issued for Allwaste (Note 3).......................................... 23,056
------
Pro forma weighted average number of common shares outstanding............... 75,351
======
Six months ended June 30, 1997:
Historical Philip weighted average number of common shares outstanding....... 70,970
Effect of recording the equity transactions at beginning of the period:
Shares issued for Allwaste (Note 3).......................................... 23,056
------
Pro forma weighted average number of common shares outstanding............... 94,026
======
</TABLE>

7. NON-RECURRING COSTS

Philip expects that it will incur non-recurring costs relating to
severance, relocation and other integration costs. These costs are not
quantifiable at this time.

8. RELATED PARTY TRANSACTIONS

(a) Certain of the Allwaste executive officers are parties to executive
severance agreements with Allwaste. Under these severance agreements,
the executive officers were entitled to receive payment if they were
employed by Allwaste on the effective date of the Allwaste Merger or if
they were terminated. On the date of the Allwaste Merger and on the six
month anniversary date of the Allwaste Merger, severance payments
amounting to approximately $3.0 million are required; total severance is
approximately $6.0 million. In addition, the Company will pay an
additional $2.6 million to compensate the executive officers for related
excise taxes.

The severance agreements also provide that, in connection with the
Allwaste Merger, certain accelerations will occur in the dates on which:
(i) unexercised portions of an Allwaste executive officer's option
granted would become vested and exercisable and (ii) the restrictions
applicable to any restricted shares of Allwaste common stock issued to
any Allwaste executive officer under any Allwaste stock plan would lapse
or be deemed satisfied in full. If an Allwaste executive officer becomes
entitled to any payment or benefit pursuant to the severance agreements
which is subject to excise tax, Philip will pay the Allwaste executive
officer an additional amount such that the net amount retained by the
Allwaste executive officer will be equal to the severance payment. The
amount of excise tax due under these amounts is approximately $3.0
million.

The total of the amounts due to Allwaste executive officers is
approximately $11.6 million, which was included in the severance
accruals amount in the calculation of the purchase price.

(b) Transaction Bonuses

Pursuant to the Allwaste Merger Agreement, a retention bonus totalling
$1.0 million will be paid to the Allwaste executive officers. Each
Allwaste executive officer was entitled to receive one-half of the
retention bonus payment on the effective date of the Allwaste Merger and
will be entitled to the remaining portion on the three month anniversary
of such date. These amounts have been included in the calculation of the
purchase price.

32
<PAGE> 33

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

The following table presents selected historical consolidated financial
data of Philip for the periods indicated, including the accounts of all
companies acquired prior to the end of the respective reporting periods. These
companies, all of which were acquired in transactions accounted for as purchases
during the past five years, are included from their respective dates of
acquisition. The selected historical consolidated financial data for Philip as
of and for the five years ended December 31, 1996 is derived from the audited
Consolidated Financial Statements of Philip and as of and for the six months
ended June 30, 1996 and 1997 is derived from the unaudited interim consolidated
financial statements of Philip, which in the opinion of management include all
adjustments (consisting solely of normal recurring adjustments) necessary to
present fairly the financial information for such periods. Interim results are
not necessarily indicative of the results which may be expected for any other
interim period or for a full year. For all periods indicated, the selected
historical consolidated financial data reflects Philip's former municipal and
commercial solid waste operations, which were sold in August 1996, as a
discontinued operation. Philip prepares its Consolidated Financial Statements in
accordance with Canadian GAAP and the summary historical consolidated financial
data set forth below is presented in Canadian GAAP. Canadian GAAP conforms in
all material respects with U.S. GAAP, except as described in Note 18 to the
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus. The selected historical consolidated financial data should be read
in conjunction with the accompanying Consolidated Financial Statements of the
Company and the related Notes thereto included elsewhere in this Prospectus.
Selected historical consolidated financial data of the Company presented in U.S.
GAAP (in U.S. dollars) is disclosed in this Prospectus following the
Consolidated Financial Statements of the Company. Philip did not pay any cash
dividends during the periods set forth below.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, FISCAL YEARS ENDED DECEMBER 31,
----------------------- -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- -------- -------- -------
(THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CANADIAN GAAP:
STATEMENTS OF EARNINGS DATA:
Revenue.................................. $ 856,629 $ 323,397 $ 802,490 $ 648,311 $489,740 $170,283 $60,401
Operating expenses....................... 701,300 251,586 615,462 489,569 366,649 108,331 27,165
Selling, general and administrative...... 63,461 33,445 78,053 66,563 51,216 27,228 12,783
Depreciation and amortization............ 24,148 15,438 33,966 25,510 21,354 10,339 3,212
---------- ---------- ---------- ---------- -------- -------- -------
Income from operations................... 67,720 22,928 75,009 66,669 50,521 24,385 17,241
Interest expense......................... 19,212 15,023 24,598 28,187 21,750 9,092 2,197
Other income and expense-net............. (5,522) (2,459) (4,782) (3,689) (2,122) (1,888) (491)
---------- ---------- ---------- ---------- -------- -------- -------
Earnings from continuing operations
before tax............................. 54,030 10,364 55,193 42,171 30,893 17,181.. 15,535
Income taxes............................. 16,392 2,707 15,180 12,354 8,769 1,689 6,191
---------- ---------- ---------- ---------- -------- -------- -------
Earnings from continuing operations...... 37,638 7,657 40,013 29,817 22,124 15,492 9,344
Discontinued operations (net of tax)..... -- 7,234 (1,005) 2,894 2,502 3,780 8,929
---------- ---------- ---------- ---------- -------- -------- -------
Net earnings............................. $ 37,638 $ 14,891 $ 39,008 $ 32,711 $ 24,626 $ 19,272 $18,273
========== ========== ========== ========== ======== ======== =======
Basic earnings per share:
Continuing operations.................. $ 0.53 $ 0.19 $ 0.79 $ 0.80 $ 0.61 $ 0.47 $ 0.31
Discontinued operations................ -- 0.18 (0.02) 0.08 0.07 0.11 0.29
---------- ---------- ---------- ---------- -------- -------- -------
$ 0.53 $ 0.37 $ 0.77 $ 0.88 $ 0.68 $ 0.58 $ 0.60
========== ========== ========== ========== ======== ======== =======
Fully diluted earnings per share:
Continuing operations.................. $ 0.52 $ 0.19 $ 0.72 $ 0.68 $ 0.55 $ 0.43 $ 0.29
Discontinued operations................ -- 0.14 (0.01) 0.05 0.05 0.09 0.28
---------- ---------- ---------- ---------- -------- -------- -------
$ 0.52 $ 0.33 $ 0.71 $ 0.73 $ 0.60 $ 0.52 $ 0.57
========== ========== ========== ========== ======== ======== =======
Weighted average number of common shares
outstanding (000s)..................... 70,970 40,586 50,632 37,342 36,209 32,827 30,377
========== ========== ========== ========== ======== ======== =======
BALANCE SHEET DATA (END OF PERIOD):
Working capital.......................... $ 526,982 $ 156,563 $ 347,501 $ 106,604 $ 88,269 $ 20,566 $ 9,969
Total assets............................. 1,694,437 1,030,988 1,345,719 1,002,912 860,583 717,925 348,101
Total debt(1)............................ 692,280 404,282 414,768 421,355 400,251 303,654 111,035
Shareholders' equity..................... 692,383 420,842 623,351 312,102 277,882 243,675 171,008
OTHER DATA:
Amortization............................. $ 7,055 $ 5,188 $ 11,720 $ 9,798 $ 7,869 $ 2,620 $ 1,095
Depreciation............................. 17,093 10,250 22,246 15,712 13,485 7,719 2,117
Additions to property, plant &
equipment.............................. 44,539 22,810 59,847 37,016 29,910 31,320 14,329
</TABLE>

33
<PAGE> 34

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
FISCAL YEARS ENDED DECEMBER 31,
-------------------------- --------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- -------- --------
(THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
U.S. GAAP:
STATEMENTS OF EARNINGS DATA:
Revenue....................................... $ 856,629 $ 323,397 $ 742,975 $648,311 $489,740
Operating expenses............................ 701,300 251,586 563,393 489,569 366,649
Selling, general and administrative........... 63,461 33,445 75,674 66,563 51,216
Depreciation and amortization................. 24,148 15,438 33,006 25,510 21,354
---------- ---------- ---------- -------- --------
Income from operations........................ 67,720 22,928 70,902 66,669 50,521
Interest expense.............................. 19,212 13,369 22,157 25,557 19,339
Other income and expense-net.................. (5,522) (2,459) (4,708) (3,689) (2,122)
---------- ---------- ---------- -------- --------
Earnings from continuing operations before
tax......................................... 54,030 11,748 53,453 44,801 33,304
Income taxes.................................. 16,392 2,707 13,755 12,354 8,769
---------- ---------- ---------- -------- --------
Earnings from continuing operations........... 37,638 9,041 39,698 32,447 24,535
Discontinued operations (net of tax).......... -- 7,234 (1,005) 2,894 2,502
---------- ---------- ---------- -------- --------
Net earnings.................................. $ 37,638 $ 16,275 $ 38,693 $ 35,341 $ 27,037
========== ========== ========== ======== ========
Primary earnings per share:
Continuing operations....................... $ 0.53 $ 0.22 $ 0.79 $ 0.87 $ 0.68
Discontinued operations..................... -- 0.18 (0.02) 0.08 0.07
---------- ---------- ---------- -------- --------
$ 0.53 $ 0.40 $ 0.77 $ 0.95 $ 0.75
========== ========== ========== ======== ========
Fully diluted earnings per share:
Continuing operations....................... $ 0.52 $ 0.19 $ 0.69 $ 0.68 $ 0.55
Discontinued operations..................... -- 0.14 (0.01) 0.05 0.02
---------- ---------- ---------- -------- --------
$ 0.52 $ 0.33 $ 0.68 $ 0.73 $ 0.57
========== ========== ========== ======== ========
Weighted average number of common shares
outstanding (000s).......................... 70,970 40,586 50,073 37,342 36,209
========== ========== ========== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Working capital............................... $ 526,982 $ 156,563 $ 347,501 $106,604 $ 88,269
Total assets.................................. 1,687,430 1,026,211 1,338,692 998,135 855,681
Total debt(1)................................. 692,280 418,645 414,768 437,100 419,082
Shareholders' equity.......................... 685,376 401,702 616,324 291,580 254,150
OTHER DATA:
Amortization.................................. $ 7,055 $ 5,188 $ 11,016 $ 9,798 $ 7,869
Depreciation.................................. 17,093 10,250 21,990 15,712 13,485
Additions to property, plant & equipment...... 44,539 22,810 59,847 37,016 29,910
</TABLE>

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

(1) Total debt includes the current portion of long-term debt.

34
<PAGE> 35

The following table presents summary historical consolidated financial data
of Philip on the same basis as set forth above, in U.S. Dollars and on the basis
of U.S. GAAP.

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

(1) Total debt includes the current portion of long-term debt.

35
<PAGE> 36

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The Company is one of North America's leading suppliers of resource
recovery and industrial services. The Company has an integrated network of
metals recovery and industrial services operations in North America, servicing
over 50,000 industrial and commercial customers from over 300 locations. The
Company applies proprietary technologies to reduce the cost and downtime
associated with industrial cleaning and turnaround activities, and to recover
value from industrial by-products and metal bearing residuals. The Company's
business is organized into two operating divisions -- the Metals Recovery Group
and the Industrial Services Group. The Metals Recovery Group's three primary
business operations are ferrous (steel), copper, and aluminum processing and
recycling. The Industrial Services Group is a fully integrated provider of
on-site industrial services, by-products recovery and environmental services in
North America, with a network of over 250 facilities. The Industrial Services
Group's operations are divided into four main activities: on-site industrial
services, by-products recovery, environmental services and utilities management.

The Company has, through acquisitions, as well as internal growth,
substantially increased the revenue from its metals recovery and industrial
services operations. In the metals recovery operations, the Company's
acquisitions include Waxman Resources Inc. ("Waxman") in 1993, and Luntz
Corporation ("Luntz") of Canton, Ohio, the aluminum alloy processing assets
formerly owned by Alcan in Guelph, Ontario ("Alloys") and Intsel Southwest
Limited Partnership ("Intsel") of Houston, Texas in 1996. Luntz is a provider of
ferrous scrap and mill services in the United States. Alloys expands the
Company's ability to recover and process aluminum and aluminum alloy products.
Intsel is a distributor of a broad range of heavy carbon steel products. In 1997
the Company acquired Allied Metals Limited in the United Kingdom, the Reynolds
Metals Bellwoods facility and Intermetco Limited, one of Canada's largest
recyclers and processors of scrap metal products. Since the acquisition of
Waxman in 1993, the Company has been able to renew many contracts with existing
customers and enter into contracts with new customers for the processing of
copper, aluminum and ferrous materials. This, together with acquisitions, has
increased the annual revenue of the Company's metals recovery business from
approximately Cdn$50 million in 1993 to approximately Cdn$634 million in the
first six months of 1997. Industrial services acquisitions include Nortru, Inc.
and Burlington Environmental in 1993, and RMF Global, Inc. and Serv-Tech Inc. in
1997. In July 1997, the Company also acquired Allwaste, Inc., which provides
integrated industrial and environmental services and acts as an outsourcing
provider of on-site facility processes and services, primarily in North America.
Allwaste reported $382.2 million in revenues for the fiscal year ended August
31, 1996, and Serv-Tech reported revenues of $142.4 million for the fiscal year
ended December 31, 1996. The annual revenue of Philip's industrial services
business has grown from Cdn$160.1 million in the first six months of 1996 to
Cdn$210 million in the first six months of 1997. As a result of the Company's
significant expansion in recent years, the comparison set forth below may not be
a meaningful indicator of the future growth or performance of the Company.

In 1996, the Company disposed of its municipal and commercial solid waste
business in Ontario, Quebec and Michigan. The Consolidated Financial Statements
of the Company therefore disclose the results of this business as "discontinued
operations". Management's discussion and analysis of financial condition and
results of operations gives retroactive effect to discontinued operations as
discussed in Note 4 to the Consolidated Financial Statements of the Company.
Income from discontinued operations was Cdn$6.8 million in 1996, Cdn$2.9 million
in 1995 and Cdn$2.5 million in 1994. Interest expense has been allocated to the
municipal and commercial solid waste business segment based upon the
relationship of the net assets of the solid waste business to the Company's
consolidated net assets.

The Company earns revenue from the delivery of on-site industrial services,
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, and revenue from the sale of steel

36
<PAGE> 37

products. In its metals recovery operations, the Company is exposed to commodity
price risk during the period that it has title to products that are held in
inventory for processing and/or resale. Depending on the commodity, the Company
attempts to reduce its commodity price risk through various methods, including
partially matching purchases of recoverable materials with current and future
physical sales and the limited use of certain financial instruments.

Revenue by geographic segment is as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, FISCAL YEARS ENDED DECEMBER 31,
-------------------------------- --------------------------------------------------
1997 1996 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
(Canadian dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States....... $514.7 60.1% $ 99.4 30.7% $373.4 46.5% $213.4 32.9% $166.7 34.0%
Canada.............. 277.4 32.4 224.0 69.3 429.1 53.5 434.9 67.1 323.0 66.0
Other............... 64.5 7.5 -- -- -- -- -- -- -- --
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
$856.6 100.0% $323.4 100.0% $802.5 100.0% $648.3 100.0% $489.7 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>

The increase in revenue generated in the United States is a direct result
of the Company acquiring more businesses located in the United States and the
continuing expansion of business by subsidiary companies located in the United
States.

In October 1996, Philip entered into an agreement with the Ontario
Teachers' Pension Plan Board ("Teachers"'), whereby Teachers' acquired a 30%
equity interest in Philip Utilities Management Corporation ("PUMC"). Effective
from November 1, 1996, Philip's investment in PUMC has been recognized using the
proportionate consolidation method. Therefore, Philip's share of PUMC revenue
has been described as "utilities management" revenue.

Operating expenses include direct and indirect labor and the related taxes
and benefits, fuel, maintenance and repairs of equipment and facilities,
depreciation, property taxes, and accruals for future closure costs.

Selling, general and administrative expenses include management salaries,
clerical and administrative costs, professional services, facility rentals and
insurance costs, as well as costs related to the Company's marketing and sales
force.

The resource recovery and industrial services businesses are highly
competitive. Price competition in the metals recovery and industrial services
business is significant. Competition comes directly from companies in the
recovery and recycling business and indirectly from waste disposal companies
that charge competitive rates for disposal of waste products. The Company's
industrial services business is also sensitive to a broad range of competition
as customers seek out those firms with the reputation of having the best
industrial cleaning, maintenance and turnaround services and the processing and
transportation of industrial products and wastes. Competition could have a
material adverse effect on the Company's results of operations and financial
condition by depressing prices or by causing waste to be diverted to
competitors. In addition, such competition could materially affect the Company's
ability to service its customers profitably, to attract new customers and to
retain such customers upon the expiration of existing contracts.

Impact of Inflation, Economic Conditions and Seasonality

As a result of weather related circumstances during the winter months, and
a general economic slowdown over the Christmas holiday period, the Company
experiences lower levels of activity in December and during the first quarter of
its fiscal year. Therefore, the first quarter results may not be indicative of
the results that will be achieved during the entire year.

Impact of Political and Social Climate

The Company believes that public awareness of the need to handle and
dispose of by-product waste materials properly, and increasingly strict
regulatory controls affecting the treatment and handling of such waste, affect
the resource recovery and industrial services industry by increasing the demand
for the

37
<PAGE> 38

Company's services and reliance on experienced and licensed operators of
transfer, processing and disposal facilities. In addition, since the Company
places heavy emphasis on reuse and recycling as part of its overall operating
strategy, the Company is benefiting and expects to continue to benefit from the
increasing use of recycled products as raw materials. Nevertheless, the demand
for certain of the Company's services may be adversely affected by the amendment
or repeal of federal, state, provincial or foreign laws and regulations or by
changes in the enforcement policies of the regulating agencies concerning such
laws and regulations.

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:

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, FISCAL YEARS ENDED DECEMBER 31,
--------------------------------- ----------------------------------------------------
1997 1996 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
(Canadian dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Metals recovery......... $634.4 74.1% $163.3 50.5% $452.4 56.4% $308.8 47.6% $217.5 44.4%
Industrial services..... 210.4 24.5% 160.1 49.5% 348.3 43.4% 339.5 52.4% 272.2 55.6%
Utilities management.... 11.8 1.4% -- -- 1.8 0.2% -- -- -- --
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
856.6 100.0% 323.4 100.0% 802.5 100.0% 648.3 100.0% 489.7 100.0%
Operating expenses........ 701.3 81.9% 251.6 77.8% 615.5 76.7% 489.6 75.5% 366.6 74.8%
Selling, general and
administrative.......... 63.5 7.4% 33.5 10.3% 78.1 9.7% 66.5 10.3% 51.2 10.5%
Depreciation and
amortization............ 24.1 2.8% 15.4 4.8% 33.9 4.2% 25.5 3.9% 21.4 4.4%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Income from operations.... 67.7 7.9% 22.9 7.1% 75.0 9.4% 66.7 10.3% 50.5 10.3%
Interest expense.......... 19.2 2.2% 15.0 4.6% 24.6 3.1% 28.2 4.3% 21.7 4.4%
Other income and expense-
net..................... (5.5) (0.6)% (2.5) (0.7)% (4.8) (0.6)% (3.7) (0.5)% (2.1) (0.4)%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Earnings from continuing
operations before tax... 54.0 6.3% 10.4 3.2% 55.2 6.9% 42.2 6.5% 30.9 6.3%
Income taxes.............. 16.4 1.9% 2.7 0.8% 15.2 1.9% 12.4 1.9% 8.8 1.8%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Earnings from continuing
operations.............. 37.6 4.4% 7.7 2.4% 40.0 5.0% 29.8 4.6% 22.1 4.5%
Discontinued operations
(net of tax)............ -- -- 7.2 2.2% (1.0) (0.1)% 2.9 0.4% 2.5 0.5%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Net earnings.............. $ 37.6 4.4% $ 14.9 4.6% $ 39.0 4.9% $ 32.7 5.0% $ 24.6 5.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

Revenue. Consolidated revenue in the first half of 1997 of Cdn$856.6
million represented an increase of Cdn$533.2 million or 165% over the first half
of 1996. The increase was attributable to internal growth in revenue of
approximately Cdn$52.7 million and Cdn$480.5 million from acquisitions.

The increase in metals recovery revenue in the first half of 1997 compared
to the first half of 1996 was Cdn$471.2 million or 288.5%. The acquisition of
two new businesses in the first half of 1997 and four new businesses in late
1996 in the metals recovery group contributed 94% of the increase. Industrial
services revenue increased Cdn$50.2 million in the first half of 1997, or 31.4%
over the first half of 1996. This increase was generally attributable to higher
volumes of waste material being processed by Philip's by-products recovery
facilities, although market prices for these services were generally flat
compared to the prior year period, and the acquisition of one new environmental
service business in the first half of 1997.

Operating Expenses. Operating expenses for the first half of 1997 were
Cdn$701.3 million, an increase of Cdn$449.7 million or 179% over the same period
in 1996. The increase in costs is due mainly to the acquisition of new
businesses in late 1996 and the first half of 1997, the results of which were

38
<PAGE> 39

consolidated with other Philip operations for the first time in the first half
of 1997. As a percentage of revenues, operating expenses increased from 77.8% in
the first half of 1996 to 81.9% in the first half of 1997. This increase is the
result of newly acquired businesses in the Metals Recovery Group which generally
have higher operating expense margins than other service categories.
Approximately Cdn$480.5 million of Philip's revenue generated in the first half
of 1997 came from these newly acquired businesses which had an operating margin
of approximately 7.0%.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses were Cdn$63.5 million for the first half of 1997,
representing an increase of Cdn$30.0 million or 89.7% over the first half of
1996. The increase is attributable to the consolidation for the first time of
selling, general and administrative expenses of companies acquired in late 1996
and in the first half of 1997 and to the addition of selling and corporate staff
to manage the increased volume of business. However, as a percentage of revenue,
selling, general and administrative expenses decreased to 7.4% of revenue in the
first half of 1997 compared to 10.3% in the first half of 1996 because the
selling, general and administrative costs associated with companies acquired, as
a percentage of revenue, were lower than these same costs for existing
businesses.

Depreciation and Amortization. Depreciation and amortization of fixed
assets in the first half of 1997 was Cdn$17.1 million, representing an increase
of Cdn$6.8 million or 66.0% over the first half of 1996. This increase was due
to acquisitions, to a continued high level of fixed asset additions, and to the
full year effect of acquisitions completed by the Company in the prior year.

Interest Expense. Interest expense for the first half of 1997 was Cdn$19.2
million, representing an increase of Cdn$4.2 million or 28% over the first half
of 1996. This increase was primarily attributable to the increased borrowing to
finance the Company's growth by acquisition and fixed asset expansion, together
with working capital requirements to support the Company's increased revenue
base.

Other Income and Expense -- Net. Other income and expense -- net for the
first half of 1997 included a Cdn$3.8 million gain before tax on the sale of USA
Waste shares received as part of the proceeds on the sale of the municipal and
commercial solid waste business. The shares, which were restricted at the time
of receipt, were sold by Philip in February 1997 following the removal of the
restriction.

Income Taxes. Philip's effective income tax rate increased to 30.3% in the
first half of 1997 from 26.0% in the first half of 1996, due to a shift in
business to higher income tax rate jurisdictions. This effective income tax rate
was lower than the Canadian statutory federal rate due to the effect of Philip's
significant business in other jurisdictions where rates are generally lower than
income tax rates in Canada.

FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995

Revenue. Consolidated revenue in 1996 of Cdn$802.5 million represented an
increase of Cdn$154.2 million or 23.8% over 1995. The increase was attributable
to internal growth of approximately Cdn$3.2 million and approximately Cdn$151.0
million from acquisitions.

The increase in metals recovery revenue in 1996 was Cdn$143.6 million or
46.5%. The acquisition of four new businesses in the metals recovery group
contributed approximately Cdn$127.8 million of the increase. The remainder of
the increase, or approximately Cdn$15.8 million, came from new contracts or the
renewal of existing contracts for the receipt and processing of additional
materials.

Industrial services revenue increased by approximately Cdn$8.8 million in
1996, or 2.6% over 1995 as a result of higher volumes of material processed by
the industrial services group and the acquisition of two businesses that added
Cdn$23.2 million compared to the prior year, offset by lower pricing levels
generally for this group compared to the prior year and a decline in
environmental services revenues of Cdn$15.1 million due to the closing of
non-contributing offices in the United States. In addition, a delay in the
licensing approval process for the continued use of the Taro landfill site
resulted in a decrease in revenue of approximately Cdn$13 million from 1995
levels. The approval was received in the fourth quarter of 1996.

39
<PAGE> 40

Operating Expenses. Operating expenses in 1996 were Cdn$615.5 million, an
increase of Cdn$125.9 million or 25.7% over 1995. These increased costs resulted
from the increased level of business activity in 1996 and from acquisitions
completed during the year. Operating expenses as a percentage of revenue
increased to 76.7% in 1996 as compared to 75.5% in 1995. The higher operating
expenses are a direct result of generally higher expenses in each of metals
recovery and industrial services during 1996 and a further shift in the
Company's business mix to include a higher percentage of metals recovery
business which typically has higher operating expenses.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1996 were Cdn$78.1 million, representing an increase
of Cdn$11.5 million or 17.3% over 1995. The increase in 1996 is in part
attributable to the addition of selling and administrative costs of companies
acquired during the year and the full year effect of acquisitions completed in
the prior year, as well as to an increase in the general sales staff and a
general increase in costs over the prior year. As a percentage of revenue,
selling, general and administrative expenses decreased to 9.7% in 1996, largely
as a result of the increase in revenue.

Depreciation and Amortization. Depreciation and amortization of fixed
assets in 1996 was Cdn$22.2 million, representing an increase of Cdn$6.5 million
or 42% over 1995. This increase was due to acquisitions, to a continued high
level of fixed asset additions, and to the full year affect of acquisitions
completed by the Company during the prior year.

Interest Expense. Aggregate interest expense in 1996 was Cdn$24.6 million,
representing a decrease of Cdn$3.6 million or 12.7% over 1995. In May of 1996,
the Company issued common shares and used the proceeds to reduce the amount of
long-term debt outstanding. In addition, in 1996, all the remaining 6%
convertible subordinated debentures were converted into common shares of the
Company, further reducing the Company's outstanding debt. Both these factors
contributed to a lowering of interest expense in 1996.

Income Taxes. For the year ended December 31, 1996, the effective income
tax rate for the Company was approximately 28% as compared to an effective
income tax rate of 29% in 1995. This effective income tax rate reflects the
Company's significant business in other jurisdictions where rates are generally
lower than income tax rates in Canada.

Income from Discontinued Operations. Income from discontinued operations
increased in 1996 to Cdn$6.8 million, principally as a result of the Company
having been awarded several new contracts for municipal solid waste collection
and disposal which commenced January 1,1996. In 1995, income from discontinued
operations was Cdn$2.9 million, compared to the Cdn$2.5 million earned for the
year ended December 31, 1994.

FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994

Revenue. Consolidated revenue in 1995 of Cdn$648.3 million represented an
increase of Cdn$158.6 million or 32.4% over 1994. The increase was attributable
to internal growth in revenue of approximately Cdn$105.6 million and Cdn$53.0
million from acquisitions.

The increase in metals recovery revenue in 1995 was Cdn$91.3 million or
42.0%. The acquisition of major new contracts for the receipt and processing of
additional materials added approximately Cdn$66.0 million to 1995 revenue, by
increasing the volume of copper and brass materials available for processing and
sale. Approximately Cdn$10.0 million of the increased revenue was attributable
to a 25% increase in production capacity which resulted from the Company opening
a wire and cable processing plant in the United States in June 1995. Lastly, an
increase in the volume of ferrous scrap sales produced Cdn$9.4 million in
additional 1995 revenue.

The increase in industrial services revenue in 1995 of Cdn$67.3 million was
attributable in part to Cdn$52.0 million in revenue generated by four new
businesses acquired in 1995 which were consolidated with the revenue of the
Company for the first time. The remainder of the increase was attributable to
the full year's consolidation of businesses acquired in the prior year,
including Cdn$21.0 million of additional revenue generated by the Delsan group,
a company acquired in late 1994, and the increased

40
<PAGE> 41

volume of materials handled by and the increased level of other business
services provided by this group in 1995. Pricing levels for services rendered by
this group were low throughout 1995 reflecting, in part, the over-capacity of
processing facilities in the chemical waste disposal market throughout North
America.

Operating Expenses. Operating expenses in 1995 were Cdn$489.6 million, an
increase of Cdn$122.9 million or 33.5% over 1994. These increased costs resulted
from the increased level of business activity in 1995, from acquisitions
completed in that year and the consolidation for a full year of acquisitions
completed in 1994, as well as internal growth. Operating expenses as a
percentage of revenue increased from 74.8% of revenue in 1994 to 75.5% of
revenue in 1995, due in part to the higher percentage of metals recovery
business and lower margins in industrial services than in the prior year.

Selling General and Administrative Expenses. Selling general and
administrative expenses in 1995 were Cdn$66.5 million, representing an increase
of Cdn$15.4 million or 30.0% over 1994. The increase in 1995 is in part
attributable to the addition of selling and administrative costs of companies
acquired during the year and the full year effect of acquisitions completed in
the prior year as well as to an increase in the general sales staff and a
general increase in costs over the prior year. As a percentage of revenue,
selling, general and administrative expenses decreased to 10.3% in 1995 from
10.5% in 1994, largely as a result of the increase in revenue.

Depreciation and Amortization. Depreciation and amortization of fixed
assets in 1995 was Cdn$15.7 million, representing an increase of Cdn$2.2 million
or 16.5%. This increase was due to acquisitions, a continued high level of fixed
asset additions, and to the full year effect of acquisitions completed by the
Company during the prior year.

Interest Expense. Aggregate interest expense in 1995 was Cdn$28.2 million,
representing an increase of Cdn$6.4 million or 29.6% over 1994. This increase
was primarily attributable to the increased level of borrowing to finance the
Company's growth by acquisition and fixed asset expansion, together with working
capital requirements to support the Company's increased revenue base.

Income Taxes. For the year ended December 31, 1995, the effective income
tax rate for the Company was approximately 29% as compared to an effective
income tax rate of 28% in 1994. This effective income tax rate reflects the
Company's significant business in other jurisdictions where rates are generally
lower than income tax rates in Canada.

LIQUIDITY

At June 30, 1997, Philip's working capital was Cdn$527.0 million,
representing an increase of Cdn$179.5 million over December 31, 1996. Inventory
for resale was a significant component of Philip's working capital at June 30,
1997 and increased Cdn$82.0 million over December 31, 1996. Of this increase,
Cdn$47.0 million was added through companies acquired since December 31, 1996,
Cdn$6.0 million was added by reason of new plant facilities opened since
December 31, 1996 and the remainder resulted from inventories acquired in
connection with new contracts or renewed contracts entered into by the Metals
Recovery Group. In addition, accounts receivable at June 30, 1997 increased by
Cdn$80.7 million from December 31, 1996. Accounts receivable acquired as part of
new business acquisitions in the first half of 1997 were Cdn$93.3 million while
accounts receivable for existing business have decreased due to collection
efforts.

At June 30, 1997, Philip had long-term debt outstanding of Cdn$692.3
million, which represented 50% of Philip's total capitalization. This compares
to Cdn$414.8 million in long-term debt at December 31, 1996, which represented
40% of Philip's total capitalization. In August 1997 Philip entered into a
credit facility with a syndicate of lenders which provides for aggregate
borrowings of up to US$1.5 billion, which was used to retire an existing credit
facility and repay approximately US$130 million of bank debt of Allwaste and
Serv-Tech after consummation of the acquisition of each of these companies. As
of November 4, 1997, a total of US$1.27 billion was drawn under this facility.
The Company believes that cash generated from operations, together with amounts
available under the Credit Facility will be adequate to meet its capital
expenditures and working capital needs for the foreseeable future, although no
assurance can be given in this regard.

41
<PAGE> 42

The Company's future operating performance will be subject to future
economic conditions and to financial, business and other factors that are beyond
the Company's control.

CAPITAL EXPENDITURES

The following table describes the major components of the Company's capital
expenditures:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ -----------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C> <C> <C>
Equipment additions and replacements........ $33,300 $18,300 $42,800 $28,300 $17,000
Facilities acquisitions..................... 7,500 1,700 3,200 3,600 10,000
Landfill.................................... 3,700 2,800 13,800 5,100 2,900
------- ------- ------- ------- -------
$44,500 $22,800 $59,800 $37,000 $29,900
======= ======= ======= ======= =======
</TABLE>

The Company's capital expenditure program for the second half of fiscal
1997 is expected to be approximately Cdn$30 million. The Company expects to fund
these expenditures by utilizing cash flow generated from continuing operations
or by drawing down more funds from the Company's Credit Facility.

RECENT DEVELOPMENTS

On November 5, 1997, the Company announced its financial results for the
three months ended September 30, 1997.

The Company reported net earnings of $25.4 million for the three month
period ended September 30, 1997, a 105% increase over the $12.4 million from
continuing operations for the same period in 1996. Revenue for the three month
period ended September 30, 1997 increased 246% to $502.2 million from $145.2
million for the same quarter last year. Basic earnings per share for the third
quarter of 1997 were $0.28 compared to $0.23 from continuing operations for the
third quarter of 1996 and fully diluted earnings per share were $0.27, a 42%
increase over the $0.19 from continuing operations for the same period last
year. Net earnings from continuing operations for the nine month period ended
September 30, 1997 were $52.7 million ($0.68 per share basic and $0.67 per share
fully diluted) compared to $19.0 million for the same period last year ($0.42
per share basic and $0.36 per share fully diluted). Revenue for the nine month
period ended September 30, 1997 was $1,126 million compared to $381.7 million.
The average number of shares outstanding for the three month period ended
September 30, 1997 was 91,369,000 an increase of 72% over the same period in
1996.

PHILIP SERVICES CORP.
BALANCE SHEET INFORMATION
(IN THOUSANDS OF DOLLARS AND IN U.S. GAAP)

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(unaudited)
<S> <C> <C>
Working capital........................................ $ 547,235 $ 253,675
Fixed assets........................................... 553,329 254,087
Total assets........................................... 2,354,059 977,236
Long-term debt, net of current maturities.............. 871,656 282,825
Shareholders' equity................................... 1,023,180 449,907
</TABLE>

42
<PAGE> 43

PHILIP SERVICES CORP.
CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
1997 1996 1997 1996
-------- -------- ---------- --------
(in thousands of dollars, except share and per
share amounts and in U.S. GAAP)
(unaudited)
<S> <C> <C> <C> <C>
Revenue (Note A)
Metals Recovery........................... $296,976 $ 73,609 $ 758,722 $192,987
Industrial Services....................... 205,176 71,544 366,788 188,672
-------- -------- -------- ---------
502,152 145,153 1,125,510 381,659
Operating expenses.......................... 399,985 105,524 910,255 289,515
Selling, general and administrative costs... 35,582 14,123 81,848 38,583
Depreciation and amortization............... 17,698 6,016 35,288 17,307
-------- -------- -------- ---------
Income from operations...................... 48,887 19,490 98,119 36,254
Interest expense............................ 13,073 3,813 27,052 13,786
Other income and expense -- net............. (1,290) (429) (5,341) (2,228)
-------- -------- -------- ---------
Earnings from continuing operations before
tax....................................... 37,104 16,106 76,408 24,696
Income taxes................................ 11,743 3,723 23,666 5,702
-------- -------- -------- ---------
Earnings from continuing operations......... 25,361 12,383 52,742 18,994
Discontinued operations (net of tax)........ -- (6,014) -- (716)
-------- -------- -------- ---------
Net earnings................................ $ 25,361 $ 6,369 52,742 $ 18,278
======== ======== ======== =========
Basic earnings per share
Continuing operations..................... $ 0.28 $ 0.23 $ 0.68 $ 0.42
Discontinued operations................... -- $ (0.11) -- $ (0.01)
-------- -------- -------- ---------
$ 0.28 $ 0.12 $ 0.68 $ 0.41
======== ======== ======== =========
Fully diluted earnings per share
Continuing operations..................... $ 0.27 $ 0.19 0.67 $ 0.36
Discontinued operations................... -- (0.08) -- (0.01)
-------- -------- -------- ---------
$ 0.27 $ 0.11 $ 0.67 $ 0.35
======== ======== ======== =========
Weighted average number of common shares
outstanding (000's)....................... 91,369 53,178 77,844 44,814
======== ======== ======== =========
</TABLE>

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

Notes:

A. Revenue figures have been reclassified to disclose the Company's
By-Products Recovery and Environmental Services operations as Industrial
Services.

43
<PAGE> 44

BUSINESS

INTRODUCTION

The Company is one of North America's leading suppliers of resource
recovery and industrial services. The Company has the largest integrated network
of metals recovery and industrial services operations in North America,
servicing over 50,000 industrial and commercial customers from over 300
locations. The Company applies proprietary technologies to reduce the cost and
downtime associated with industrial cleaning and plant turnaround activities,
and to recover value from industrial by-products and metal bearing residuals.
The Company has achieved its leading position in the metals recovery and
industrial services markets through internal growth and through the acquisition
and integration of 40 companies since the beginning of 1996. As a result, the
Company is viewed as a leading consolidator in the metals recovery and
industrial services industries. The Company's primary base of operations is in
the United States, with over 70% of the Company's worldwide revenue generated in
U.S. dollars for the six months ended June 30, 1997. At November 4, 1997, the
aggregate market value of the outstanding Common Shares was $1.836 billion.

The Company's business is organized into two operating divisions -- the
Metals Recovery Group and the Industrial Services Group. The Metals Recovery
Group's three primary business operations are ferrous (steel), copper and
aluminum processing and recycling. The ferrous metals operations include the
collection and processing of ferrous scrap materials for shipment to steel mills
and the provision of related mill services. Ferrous operations also include
steel service centers that process and distribute structural steel products.
Copper operations are comprised of cold process mechanical recovery facilities,
scrap management, management of material recycling centers for the
telecommunications industry, and copper refining. The group's aluminum recycling
operations process aluminum dross, a by-product of primary aluminum production,
and produce aluminum deoxidizing products and alloys from aluminum scrap. Both
the non-ferrous and ferrous operations of Philip provide significant brokerage
capabilities for scrap materials and primary metals, including steel, copper,
aluminum and tin. The Company services the steel, telecommunications, aluminum,
wire and cable and automotive industries, as well as utilities. Major customers
for the Company's ferrous processing operations include Armco, ASW, Copperweld,
Dofasco, Republic, Stelco and Timken. Major customers for the Company's non-
ferrous processing operations include AK Steel, Bethlehem Steel, Chrysler
Canada, Noranda and Southwire.

For the six months ended June 30, 1997 and 1996 and each of the years in
the three year period ended December 31, 1996, the Company's revenue from
continuing operations by service category, as well as the percentage of total
revenue, was as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------- ---------------------------------------------------
1997 1996 1996 1995 1994
--------------- --------------- --------------- --------------- ---------------
(MILLIONS OF CANADIAN DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Metals Recovery...... $634.4 74.1% $163.3 50.5% $452.4 56.4% $308.8 47.6% $217.5 44.4%
Industrial
Services(1)........ 222.2 25.9 160.1 49.5 350.1 43.6 339.5 52.4 272.2 55.6
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$856.6 100.0% $323.4 100.0% $802.5 100.0% $648.3 100.0% $489.7 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

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

(1) Industrial Services revenues include utilities management revenues which, as
a percentage of aggregate revenues were 1.4%, 0.0% and 0.2% for the six
months ended June 30, 1997, the six months ended June 30, 1996 and the
fiscal year ended December 31, 1996, respectively. No revenues were recorded
in prior years.

44
<PAGE> 45

INDUSTRY OVERVIEW

Manufacturers are seeking to improve competitiveness by focusing on their
core business and by reducing costs in non-core, non-revenue producing
activities. Three key trends that have developed as a result are: (i) increased
outsourcing of non-core services, (ii) a reduction by manufacturers in the
number of vendors from which outsourced services are purchased and (iii)
maximizing resource recovery opportunities from waste and by-product streams.
The Company believes that the industrial services and resource recovery
industries are positioned to benefit from these three major trends.

Many non-core activities can be performed on a more cost effective basis by
specialized industrial service and resource recovery providers that have greater
expertise, technology advantages, access to markets for recovered materials and
economies of scale. As a result, companies which outsource non-core activities
are able to lower operating and capital costs, increase access to new
technologies, enhance by-product recovery and reduce liabilities by redirecting
accountability. In addition, by reducing the number of vendors from which
outsourced activities are purchased, and acquiring services from those suppliers
that can provide a "total service" solution on a national basis, manufacturers
can further lower administrative costs, reduce management overhead, and increase
supplier accountability while reducing potential liabilities. Recovery of
resources from waste and by-product streams improves manufacturing efficiency by
reducing and reusing manufacturing residuals and by-products, thereby lowering
operating costs, including raw material costs, and reducing environmental
liabilities.

As industries continue to outsource additional non-core services and
develop close relationships with outside service providers to deliver these
on-site services, the result is often a seamless integration between customer
and supplier. Companies which can deliver bundled services to these customers
realize significant competitive advantages through economies of scale and the
opportunity to share research and development and capital costs associated with
by-product recovery and outsourcing.

According to industry sources, the industrial services and resource
recovery market in North America is estimated to be a $50 billion market growing
at 10% annually. Metals recovery accounts for 44% of the services to this
market, 38% for in-plant services, 10% for chemical recovery and 8% for
disposal. The market is fragmented with industry participants ranging from
several large companies to thousands of small local companies. Few competitors
in the industry offer a full range of resource recovery and industrial services.
Most of the almost 20,000 companies supplying this market are specialized
regional service providers, often with limited financial resources. In response
to the demand for integrated services, the industrial services and resource
recovery industry is expected to consolidate rapidly over the next few years.

STRATEGY

The Company's strategies to realize continued growth from the outsourcing,
vendor reduction and resource recovery trends are as follows:

Increase sales to existing customers by cross-selling services. The
Company's customer base has grown significantly over the last few years, as a
result of both internal growth and acquisitions. As a result, the Company
possesses a large customer base across diverse industries. However, Philip's
metals and by-products recovery operations have historically been concentrated
in the steel, telecommunications, automotive, aluminum, chemical and paint
industries, whereas many of its newer industrial services customers are in the
refining, petrochemical, electric utility, pulp and paper and food processing
industries. The Company believes significant growth can be achieved by realizing
upon the resultant opportunities to cross-sell its additional service
capabilities to its significantly expanded customer base. For instance, the
Company foresees that its refinery turnaround services may be sold to the steel,
chemical, paint and other process industries. Also, Philip has historically
provided paint booth overspray recovery services to the automotive industry,
whereas Allwaste provided paint booth cleaning and management services.

Pursue strategic acquisitions that will broaden the Company's services to
existing customers or in key geographic regions with significant industrial
activity. The Company's geographic and service breadth strategy is designed not
only to provide a broad range of services nationally, but also to establish

45
<PAGE> 46

a leadership position for certain areas of its business in key geographic
markets. The Company intends to pursue strategic acquisitions to implement this
strategy. For instance, the Company recently acquired Intermetco, the largest
ferrous metals recycler in Canada. The acquisition enhances Philip's ability to
meet its clients' raw material requirements and deliver additional industrial
services and establishes Philip as the largest provider of ferrous scrap to the
concentration of steel mills in the Great Lakes region.

Continue to vertically integrate its collection, processing and
distribution network. Through the acquisition and integration of new
businesses, Philip is creating vertically integrated collection, processing and
distribution networks in its Metals Recovery and Industrial Services Groups.
Such vertical integration of services expands the Company's services package and
provides multiple entry points for the sale of services to customers and results
in expanded markets for sale of recovered or recycled products. For instance,
the acquisitions of Luntz and Intsel added collection and processing of steel
scrap, and processing and distribution of finished steel products. These
activities add to the Company's integrated services package for the steel
industry and provide additional sales entry points to customers. The Allwaste
acquisition provides the Company's by-products recovery operations with
additional waste and by-product streams that had previously been delivered to
third parties for processing and disposal. Consequently, Allwaste can reduce
disposal costs for its industrial cleaning and maintenance customers through
by-products recovery and recycling. Another recently acquired company, Warrenton
Resources Inc. ("Warrenton"), refines copper scrap produced by the Company,
thereby enabling the Company to sell its processed scrap into the lower grade
commodity markets or refine it and sell it into higher value added markets.

Continue to develop and apply innovative process and service
technologies. The Company will continue to work in partnership with its
customers to develop and apply innovative applied technologies that minimize
waste generation, maximize the value of industrial by-products generated and
reduce the cost of services provided to customers. Examples of such innovative
solutions include: the EPOC paint overspray recovery program for the automotive
industry; cryogenic processing of polyvinyl chloride ("PVC") and polyethylene
("PE") plastic residue from cable and wire scrap for recycling; the polyurethane
recycling facility developed in association with the BASF Corporation; and the
Fast Draw and Fast Clean technologies, which provide remote control extraction
and semi-robotic cleaning of heat exchanger bundles, thereby lowering cost and
improving safety.

COMPETITIVE STRENGTHS

The Company believes the following competitive strengths enhance its
leadership position in the resource recovery and industrial services sectors:

46
<PAGE> 47

BUSINESS UNITS

METALS RECOVERY

The Company's Metals Recovery Group applies customized process technologies
to recover metals from industrial by-products. The group's three primary
businesses include ferrous (steel), copper and aluminum processing and
recycling. The Company is North America's leading recycler of cable and wire
scrap, is the most fully integrated provider of services to the steel industry
in North America and is the largest producer of aluminum deoxidizing products,
an essential element in the manufacture of steel, in the northeastern United
States. The Company is also one of the largest ferrous scrap processors in the
United Kingdom. The Metals Recovery Group has approximately 2,000 employees and
is headquartered in Hamilton, Ontario.

The ferrous metals operations include the collection and processing of
ferrous scrap materials for shipment to steel mills and the provision of mill
services. Ferrous operations also include steel service centers that process and
distribute structural and flat rolled steel products. Copper operations are
comprised of cold process mechanical recovery facilities, scrap management and
copper refining. The group's aluminum recycling operations produce aluminum
deoxidizing products and alloys from aluminum scrap and process aluminum dross,
a by-product of primary aluminum production. Both the non-ferrous and ferrous
operations of Philip provide significant brokerage capabilities for scrap
materials and primary metals, including steel, copper, aluminum and tin. The
Company services the steel, telecommunications, aluminum, wire and cable, and
automotive industries, as well as utilities.

The Company intends to become the North American market leader in
delivering integrated metals recovery and related services through regional
concentration of its services in areas of high industrial activity, through
continued integration of its collection, processing and distribution
capabilities and through the development and use of proprietary technology. Set
forth below is a description of the operations of the Company's Metals Recovery
Group.

Ferrous Processing Operations. The Metals Recovery Group is a processor
and broker of ferrous scrap to steel mills and foundries located in the lower
Great Lakes region, the Pittsburgh-Ohio corridor and in the United Kingdom. As a
result of recent acquisitions and capital improvements, the Company's processing
capacity has grown from 450,000 tons annually in 1995 to more than four million
tons annually. The Company is also the most fully integrated service provider to
the North American steel industry, supplying scrap steel, deoxidizing product,
electric arc furnace dust management and other services such as mill scale
recovery, industrial vacuum, slag recovery, wastewater treatment,
decommissioning, and analytical and emergency response services.

Ferrous scrap is generated as a by-product of automotive stamping and
fabrication and is also derived from post-consumer sources (cars, refrigerators,
etc.). It is processed by baling, separation, or shredding during which time the
material is graded and sorted. The primary consumer of ferrous scrap is the
mini-mill steel industry, which uses electric arc furnace technology to reduce
scrap to molten form to produce steel. Production capacity in the mini-mill
steel industry is expected to continue to increase and to account for a rising
share of overall steel production in North America. This is expected to result
in increased demand for high quality ferrous scrap.

The Company's operations are regionally concentrated close to industrial
scrap producers and other suppliers and to local steel mills. Unlike many of the
Company's competitors that secure their supply of ferrous scrap indirectly
through ferrous scrap dealers, the Metals Recovery Group obtains most of its
ferrous scrap directly from industrial scrap producers pursuant to long standing
relationships. Accordingly, the Metals Recovery Group has access to consistent
volumes of high quality ferrous scrap from which it can supply the necessary
grades and mixtures required by the steel industry. As production capacity of
the mini-mill industry continues to increase, the Company believes that its
ability to consistently supply required volumes of quality scrap will make it
the supplier of choice in the regions it serves, and that the resulting
relationships will provide opportunities to sell additional services to such
customers.

47
<PAGE> 48

The Metals Recovery Group also processes and distributes a broad range of
heavy carbon steel products through distribution and processing facilities
located in Houston, Texas, and five additional distribution centers located
across the southwestern and southeastern United States. The Company is one of
the largest distributors of structural steel products in these regions. Through
its acquisition of Intermetco, the Company also provides processing of steel
coils and produces spiral weld pipe. These operations enable the Company to
provide further services to the steel industry through bulk purchases that are
inventoried and further processed, cut or formed, for resale to steel
purchasers. This service expands the Company's package of integrated services to
the steel industry and provides the Company with another entry point through
which to sell additional services.

The Company has also established itself in the European scrap processing
and mill services industry with its recent acquisition of Allied Metals Limited
("Allied Metals") from ASW Holdings PLC ("ASW"). Allied Metals is one of the
largest steel scrap processing and mill services companies in the United
Kingdom. Allied Metals' principal business involves the collection of
post-consumer scrap and the sale of processed metal as a raw material to steel
mills and foundries that use electric arc furnace technology. In 1996, Allied
Metals processed approximately 670,000 tons of scrap steel. At its heavy media
separation facility, Allied Metals uses a proprietary process to recover copper,
aluminum and zinc from the residue of its auto shredding operations. Allied
Metals' facilities are concentrated in Southwest England and South Wales, from
which it supplies local steel mills and foundries and the export market through
its two seaport facilities. Approximately two thirds of Allied Metals' sales are
domestic and one third to foreign markets, primarily Europe and Asia. The
Company also provides on-site slag management and electric arc furnace dust
recycling at ASW's steel mill.

The Metals Recovery Group sets and adjusts its prices for ferrous metals
sold based upon prices set monthly by the major steel producers. 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 metals.

Copper Processing Operations. The Metals Recovery Group is North America's
leading processor of wire and cable scrap, recycling over 400 million pounds
annually. The primary metal recovered is copper. The wire and cable
manufacturing industry is the largest generator of scrap wire and cable in North
America. Other principal generators include the telecommunications industry
(through the dismantling and regeneration of telecommunications lines),
utilities and the automotive industry. The availability of wire and cable scrap
depends upon a number of factors, including the general level of economic
activity in the industries served by the Metals Recovery Group, many of which
are cyclical in nature, and market prices for copper and the other metals
recovered. The Metals Recovery Group has not historically had difficulties in
obtaining volumes of wire and cable scrap. The Metals Recovery Group operates
eleven wire and cable scrap processing lines located in Hamilton, Ontario (four
lines), Kendallville, Indiana (two lines), Orangeburg, New York (two lines),
Ashland Virginia (one line) and Phoenix, Arizona (two lines).

Through a proprietary granulation and separation system, the Metals
Recovery Group recovers copper and in some cases, aluminum, as well as PVC and
PE plastics from wire and cable insulation. Scrap is first chopped into fine
pieces and the metallic particles are physically separated from the plastic
insulation through a mechanical density process and a proprietary second stage
electrostatic separation system. The plastics are separated into PVC and PE
polymer streams through water-based separation and a proprietary cryogenic
process. The separate polymers are sold to plastic and resin manufacturers
instead of being disposed of in landfills, thereby reducing the customer's
disposal cost and risk. Through its use of proprietary technology and expertise,
the Company believes that its Metals Recovery Group is able to recover more
components and generate higher yields from wire and cable scrap than its
competitors.

Depending on the grade of the material, recovered copper is either sold as
#1 or #2 scrap, or refined into prime ingots for sale to brass mills or rod
mills, or to copper smelters throughout North America. The Metals Recovery Group
also negotiates toll and conversion contracts for its wire and cable
manufacturing customers through which scrap materials are exchanged for new raw
materials. Under tolling contracts, the Metals Recovery Group receives a fee for
processing scrap and returning the

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<PAGE> 49

recovered metals to the customer. Under conversion contracts, the Metals
Recovery Group acquires wire and cable scrap from the customer and delivers
back, directly or through secondary metals processors, specified amounts of
merchant copper and other metals. The Metals Recovery Group also enters into
brokerage contracts to supply merchant copper and other metals to significant
customers where quantities required exceed the amounts recovered from the scrap
supplied. This service results in the customer having to deal with fewer
suppliers.

The Metals Recovery Group also manages recycling centers for four regional
Bell operating companies under multi-year contracts. Under these contracts, the
Company collects scrap from the dismantling and regeneration of
telecommunications lines, categorizes it, and prepares the scrap for resale. In
certain cases, the Company has the first right to purchase the wire and cable
scrap, and in other cases the Company is paid a fee for collecting the material
and may also bid for the scrap once it is collected.

Through recently acquired Conversion Resources Inc. of Cleveland, Ohio
("Conversion Resources"), the Metals Recovery Group also provides resource
recovery programs that separate and process copper, brass and aluminum from
scrap produced by industrial clients. These metals are then sold to tube mills,
brass mills, foundries, specialty consumers and copper refineries. Through
recently acquired Warrenton Resources Inc. of Warrenton Missouri ("Warrenton"),
the Metals Recovery Group refines copper scrap into copper ingots and other
customer specified shapes and is the sole manufacturer of fire-refined copper
ingot in North America. Warrenton uses #2 copper scrap as input for the
production of its ingots, which is generated from the Company's copper cable and
wire chopping operations. As a result of this acquisition, cable and wire scrap
processing is vertically integrated to include collection, processing and
refining. This integration permits the Company to maximize the value of
recovered copper by enabling it to sell either into the lower grade commodity
markets or into the higher value added refined copper markets, as market
conditions vary.

The Company is exposed to commodity price risk during the period that it
has title to materials that are held in inventory for processing and/or resale.
The Company attempts to reduce its commodity price risk through various methods,
including partially matching purchases of recoverable materials with current and
future physical sales and the limited use of certain financial instruments.

Aluminum Processing Operations. Through its Guelph, Ontario and Syracuse,
New York plants, the Company is a leading producer of aluminum alloys for the
automotive industry situated in the Great Lakes region. The Company operates
furnaces for the production of foundry alloys, primarily from aluminum scrap.
The facilities have an annual capacity of 280 million pounds. The use of
lightweight aluminum in automotive production continues to increase as
manufacturers comply with increasingly stringent fuel consumption and air
emission guidelines. The Company's alloys facilities also provide molten
aluminum to its customers, primarily automotive parts manufacturers. The Company
is one of a small number of molten aluminum suppliers, which requires the use of
high cost "crucibles" and specialized vehicles to transport the molten aluminum.
This also requires that the Company's facilities be close to those of its
customers, which proximity provides a competitive advantage.

The Company is also a major producer of aluminum deoxidizing product for
the steel industry at facilities located in Painesville, Ohio and Richmond,
Virginia. Aluminum deoxidizing product is used in the manufacture of steel to
eliminate gas bubbles during the production process. The Company's aluminum
deoxidizing product is marketed to over 30 major North American steel mills and
provides another essential product offering to steel mills. Production of the
aluminum deoxidizing product also supports the vertical integration of the
Company's aluminum operations since aluminum recovered from dross provides a raw
material for aluminum deoxidizing production.

The Metals Recovery Group aluminum processing operations also recover
aluminum from dross, a by-product formed in the primary smelting of aluminum.
Aluminum producers deliver dross to the Company's rotary kiln furnaces where it
is melted and processed to produce aluminum ingots that are returned to the
customer for a tolling fee. The Metals Recovery Group operates three rotary kiln
furnaces in two locations in the province of Quebec which service the major
aluminum producers located within the province. Transportation costs associated
with aluminum dross recycling require that the Metals

49
<PAGE> 50

Recovery Group's recycling operations be located closely to the primary smelters
served. The proximity of the Metals Recovery Group's Quebec operations to the
aluminum smelters, in combination with its contractual relationships with the
smelters, has resulted in the absence of significant competitors for the Metals
Recovery Group's aluminum dross recycling operations. The Metals Recovery Group
is the largest recycler of aluminum dross in Canada.

INDUSTRIAL SERVICES

Through its Industrial Services Group, the Company is the single largest
integrated industrial services provider in North America with over 250
locations, over 9,000 employees and a wide range of services geared towards the
industrial customer. The Company is the leading provider of on-site industrial
services and operates the largest network of solid and liquid industrial
by-product recovery facilities. The Industrial Services Group is headquartered
in Houston, Texas.

The increasing focus by industrial enterprises on their core competencies
has led to greater outsourcing of non-core, non-revenue generating activities in
order to reduce costs. Such activities can generally be performed on a more cost
effective basis by specialized industrial service companies which have greater
expertise, technology advantages and economies of scale. Such activities include
industrial cleaning and maintenance, waste management and transportation,
demolition and remediation, and resource recovery. In addition, industrial
customers are evidencing a desire to reduce the number vendors of industrial
services and to acquire services from those suppliers that can provide a "total
service" solution on a national basis, thereby providing further administrative
and cost reductions.

The Company has expanded rapidly through acquisitions to provide it with
the range of products and services and the geographic coverage necessary to
respond to these trends. The acquisitions of Allwaste and Serv-Tech have
resulted in a significant expansion of Philip's historical by-products recovery
and environmental services businesses by adding industrial cleaning and
maintenance, container services, waste transportation, refinery turnaround and
refactory services. This broader range of services better positions the Company
to take advantage of the vendor reduction trend. It has also provided the
Company with significant cross selling opportunities to the customer base of
each company, since Philip has historically been strong in the steel,
telecommunications, automotive, aluminum, chemical and paint industries, whereas
Allwaste and Serv-Tech serve the refining, petrochemical, electric utility, pulp
and paper and food processing industries. In addition, Allwaste and Serv-Tech
were previously reliant upon third parties for processing and disposal of wastes
generated from their industrial cleaning and turnaround projects. These waste
streams may now be processed at Philip's network of by-product recovery
facilities. This integration of on-site cleaning and maintenance with
transportation, processing and disposal allows the Company to provide to its
customers single source environmental accountability and competitive pricing.

The acquisitions of Allwaste and Serv-Tech have also given the Company a
significant presence in the heavily industrialized regions of the Gulf coast and
southeastern and southwestern United States, which complements Philip's
concentration in the Great Lakes and industrial northeast regions. The
Industrial Services Group is now organized into five operating regions: Central,
Midwest, Northeast, Southeast and Western, each with a mandate to provide the
complement of industrial services to customers in that region. In addition, many
of the Company's specialized services are marketed across all regions by
specialized groups through the coordination of sales, analysis, delivery and
execution, and technical support. These specialized services include demolition
and decommissioning services, turnaround services, chemical services and
products, analytical laboratories, container services and tank cleaning.

The Industrial Services Group is divided into four principal segments:
on-site industrial services, by-products recovery operations; environmental
services and utilities management.

On-Site Industrial Services. The Industrial Services Group is a leading
provider of on-site industrial services throughout North America. Industries
served include the refining, petrochemical, oil and gas, electric utility, pulp
and paper, automotive, food processing, paint and coatings, and transportation
industries. The Industrial Services Group provides industrial and commercial
customers with a range of

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<PAGE> 51

industrial and environmental services, including on-site industrial cleaning and
maintenance (including hydroblasting, gritblasting, air-moving and liquid
vacuuming and container services, and tank cleaning); waste collection and
transportation; turnaround and outage services; refactory services; project
management services; inspection and analysis services; electrical and
instrumentation; and other general plant support services.

Hydroblasting is performed using high pressure pumps to remove hard
deposits from surfaces, such as heat exchangers, boilers, aboveground storage
tanks and pipelines, that may be unsuitable for other conventional cleaning
techniques. Gritblasting utilizes both abrasive and non-abrasive media to clean
surfaces on electrostatic precipitators and boilers and to prepare metal
surfaces for protective coatings and non-destructive testing. Air-moving and
liquid vacuuming remove and handle industrial wastes or salvageable materials
contained in customers' tanks, containers or other process configurations.
Container services include cleaning, inspection and repair of highway
tank-trailers, railcar tanks, intermodal containers and intermediate bulk
containers. The Industrial Services Group also inspects all cleaned containers,
in accordance with applicable governmental regulations, to ensure no product or
moisture remains in the cleaned container. The Company believes that its
container cleaning and repair service business is the largest noncarrier
operation in the industry in terms of total revenues and number of containers
serviced. Tank cleaning involves the removal of sludge and residual products
from the interior of storage tanks to allow inspection, repair and/or product
changeover. The Industrial Services Group is the largest cleaner of above ground
storage tanks in North America. The Company believes that the Industrial
Services Group has the most comprehensive mix of tank cleaning technologies and
service capabilities of any contractor in North America.

Waste collection and transportation services provide comprehensive on-site
by-product and waste management programs for facility waste streams. Waste is
tested and classified in order to determine the recyclability of the material
and third party disposal requirements. Manifests and other shipping
documentation are prepared and the waste material is sent to the Company's
recycling and reclamation facilities wherever possible, or to contracted third
party treatment and disposal facilities. The Industrial Services Group operates
a large fleet of collection vehicles.

Turnaround and outage services provide customers in refineries,
petrochemical facilities and power plants a single source integrated package of
turnaround maintenance services and other specialty services for the scheduled
maintenance, repair or replacement of process equipment, operating machinery and
piping systems. Sophisticated maintenance programs play an increasingly
important role in the continuous improvement of performance in plant operations.
Services provided include project management, planning and scheduling,
decontamination, heat exchange maintenance, refactory services and heat treating
services. The Company is a North American leader in providing turnaround
services to the petrochemical industry. This is largely due to its patented
technologies that reduce labor costs and turnaround costs, including those
associated with the cost of down-time. These technologies also significantly
reduce the safety risks associated with heat bundle extraction and cleaning. The
Company intends to expand the application of these technologies to other key
industry sectors, including steel, chemicals and utilities.

By-Products Recovery. The Industrial Services Group's by-products recovery
operations apply customized process technologies to recover or create useable
products from liquid and solid industrial by-products (primarily hazardous and
non-hazardous chemical waste) and thereby reduce the cost and quantity of
materials destined for final disposal. The Industrial Services Group collects
organic industrial by-products which are processed into engineered fuels or
distilled into solvents and also provides on-site waste minimization and
inorganic waste processing.

Producing engineered fuels involves the blending of liquid and solid
industrial by-products into a customized fuel for use in industrial furnaces,
principally cement kilns. Distillation of spent solvents occurs through both
simple and fractional methods with recovered solvents either returned to the
generator or sold to the automotive aftermarket. Inorganic processing
capabilities include the treatment of waste waters and cyanide residuals, and
the recovery of metals from sludges, slags and foundry

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<PAGE> 52

sands. The Industrial Services Group also provides wastewater treatment, sludge
management and paint overspray recovery services to automotive and parts
manufacturers that use paint spray booth systems.

The revenue of the by-products recovery operations is derived from the fees
paid to the Company by generators of industrial by-products or waste, from the
sale of recovered materials or from tolling fees charged to customers for
services rendered. The operations provide services to in excess of 15,000
customers, primarily from the automotive, petrochemical, paint and coatings and
aviation industries and the military. Company activities include the following:

<TABLE>
<CAPTION>
INDUSTRY SERVED BY-PRODUCT KEY REUSABLE PRODUCT REUSE APPLICATION
- ------------------- ---------------------- --------------------- ------------------------------
<S> <C> <C> <C>
Air pollution Baghouse dust Iron, calcium Cement component
control..........
After-automotive Oil filters and oily Oil, steel, metals Fuel supplement; oil recovery;
and industrial water secondary metals recovery;
markets.......... steel production
Automotive Grinding swarf Steel Steel production
Paint overspray Solvents, resin Adhesives; fuel
recovery
Polyurethane Polyols Automotive parts
scrap
Automotive, Solvent-laden Solvents/high Engineered fuel
chemical sludges and BTU material supplement; solvent recovery
industries and solids
small quantity
generators
Chemical industry Off-spec carbon Carbon black Fuel supplement; reducing
black agent for pyrol processing
Commercial and Spent chlorinated Solvents Commercial and industrial
industrial solvents cleaning; cement component
cleaning
Plating industry Inorganic sludges Zinc phosphate, Fertilizer; secondary metals
non-ferrous recovery
metals
Steel industry Steel sludges, Ferrous metal, iron, Steel production; cement and
mill scale, silica, brass aggregate component
foundry sands
</TABLE>

The Company's network of facilities and application of proprietary
technologies enables Philip to process higher volumes of by-products at reduced
cost. By developing new technologies or customizing available technologies, the
Company has achieved competitive processing and recovery efficiencies. For
example, the Company has developed a container processing system which enables
it to handle large volumes of drummed by-products quickly and effectively. The
system operates in an inert atmosphere using automatic control and video
monitoring to empty or shred drummed by-products, which are then transferred to
feed storage tanks where product separation is controlled. Supplemental fuels
can then be blended from this material. By using this technology, the
by-products recovery facilities in Detroit and South Carolina can each process
approximately 15,000 drums of material per month. Philip has also established an
engineered fuel processing system ("Super Blender"), which emulsifies solids
with liquid chemical by-products and suspends these solids in a supplemental
fuel for industrial use. Through this process, the Company produces a
supplemental fuel that contains up to 50% solids by weight, providing its
customers a more environmentally suitable and lower cost alternative to the
disposal of solid hazardous waste. Super Blenders are located at the Company's
Detroit, Kansas City and South Carolina facilities.

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<PAGE> 53

Solid and liquid chemical and industrial waste residues constitute the bulk
of materials managed by the by-products recovery operations. The hazardous waste
management industry, which provides disposal services, including incineration
and hazardous waste landfills, is a significant competitor to the Company for
by-product waste streams. As a result of overbuilding and the success of its
customer's waste minimization efforts, significant excess capacity has developed
in the hazardous waste management industry, leading to downward pricing
pressures in the markets served by the Company's by-products operations. To
counter this situation, the Company continues to develop and employ innovative
technologies that minimize on-site waste generation for its customers and
maximize the value and reuse opportunities for industrial by-products. By
developing increasingly value-added applications for the materials it manages,
in partnership with its key industrial customers, the Company maximizes its
margins and differentiates itself from conventional disposal alternatives.
Examples of this strategy include the patented Emulsion for Paint Overspray
Control ("EPOC") system installed at automotive and equipment manufacturing
facilities. In consultation with automotive manufacturers, the Industrial
Services Group developed the EPOC system for paint overspray recovery. This
technology eliminates the need to landfill paint sludge, a significant waste
stream and production bottleneck in automotive manufacturing. The system
captures paint overspray in an emulsion and then recovers for reuse the active
ingredient in the emulsion, together with the residual paint, at the Company's
dedicated processing facility. The EPOC system improves the efficiency of the
painting process and reduces costs by eliminating build up in the paint booth
and decreasing paint usage. The EPOC system is used in over 20 parts
manufacturing and automotive assembly plants throughout the United States,
including automotive production facilities where the Company provides on-site
operating personnel.

A further example is the Company's association with BASF Corporation
("BASF") to recycle rigid polyurethane for the automotive sector. Approximately
2.5 million tons of polyurethanes are produced annually in North America. The
majority are used in flexible foam systems of which approximately 800 million
pounds are recycled. Molded parts made from rigid polyurethanes such as bumpers,
interior panels and steering wheels are not recycled and are disposed of in
landfills. Philip has been chosen by BASF to build and operate the first
polyurethane recycling facility in North America, using BASF technology. This
Detroit based facility has an initial processing capacity of 10 million pounds
per year. At the facility, polyurethane scrap is ground, chopped and added to a
reactor containing solvents such as glycol, catalysts and other ingredients. It
is then thermally treated and cooled to ambient temperature. The polyol produced
from this process can be used as a virgin material in rigid polyurethane
applications.

Philip also owns a rock quarry covering approximately 190 acres in Stoney
Creek, Ontario ("Taro-East"). Philip has received regulatory authority to
utilize the Taro-East site as an industrial non-hazardous landfill with a total
capacity of 11 million tons and an annual fill rate of 825,000 tons. The site is
used for the disposal of solid non-hazardous residuals from the Company's
by-products management and recovery operations located in Hamilton, Ontario.

Environmental Services. The Company's environmental services operations
include a broad range of remediation and environmental services, including
strategic resource management, site remediation, decommissioning and investment
recovery, abatement, environmental consulting and engineering, and analytical
and emergency response services.

Site remediation includes project management, risk assessment, demolition,
on-site treatment and transportation services to address environmental
contamination problems. Remediation can range from simple soil excavation and
disposal to complex programs that in some cases involve assumption by the
Company of management of all aspects of its customers' environmental and
regulatory programs. Combined with investment recovery, the Industrial Services
Group's site remediation services not only address environmental problems and
support the closure and decommissioning of facilities, they can generate revenue
for customers.

Decommissioning involves the closing down of operations, removal of process
equipment, buildings and structures and site cleanup and remediation. The
Industrial Services Group provides project planning and management, including
design, planning and control, health and safety, waste reduction, demolition,
and final site rehabilitation. All decommission projects start with an
investment recovery audit. The

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<PAGE> 54

Company's extensive resource and by-products recovery capabilities enables it to
recover value from process equipment, building components, and ferrous and non
ferrous metals. Proceeds from the sale of these materials reduce the cost of
demolition and decommissioning for its customers.

The Industrial Services Group operates the largest network of environmental
laboratories in Canada, from which it provides analytical testing for its
customers across North America and from as far away as Japan. The Company
provides advanced air quality analysis and dioxin testing. The Industrial
Services Group also provides emergency response services, including containment,
clean-up, remediation and disposal of material resulting from the inadvertent
release of dangerous goods, hazardous materials, wastes or spills of material
that are unusual to the environment in quantity or quality. The Company is the
largest emergency response provider in Canada and is the designated responder
for its U.S. customers which bring material into Canada for processing disposal.

The competitive strengths of the Company's environmental services
operations include its ability to provide integrated cost competitive "back end"
solutions, such as decommissioning, remediation and investment recovery, to
problems identified through the risk assessment and consulting services phase of
the contract. Remediation services focus on proven technical solutions, such as
the treatment of solvent contamination by methane injection, and other acquired
or developed technologies.

Utilities Management. The Company provides turnkey wastewater treatment at
customers' facilities, including design, procurement, installation, start-up and
operation. The Company is able to design and construct economical and efficient
treatment systems and provide a guarantee of performance and assurance of
operability. The Company has operational responsibility for over 30 industrial
wastewater treatment facilities.

A portion of the Company's utilities management business is operated
through 70%-owned Philip Utilities Management Corporation ("PUMC"), which
designs, builds, operates and manages municipal water and wastewater treatment
facilities. PUMC has contracts with eight Ontario municipalities to operate and
manage their water and wastewater treatment facilities. PUMC has a 51% interest
in Southwest Utilities Inc., the sole provider of water services to a number of
communities located within a 75-mile radius of Houston, Texas, and an operator
of two wastewater treatment plants. PUMC also designs and installs supervisory
control and data acquisition systems which increase operating efficiencies of
water and wastewater treatment plants and reduce emergency maintenance and
overtime costs.

The Company also specializes in water and sewer pipeline rehabilitation and
maintenance and services the rapidly growing North American market for
trenchless technologies. Trenchless technologies allow pipeline repairs to take
place through entry and exit points, rather than excavation of entire pipelines.
This results in lower costs and reduces interruption of services. The Company
holds eight trenchless technology licenses that cover locations throughout North
America. The Company also cleans commercial and industrial pipelines using
high-pressure water systems and provides pipeline inspection, survey and mapping
services using closed-circuit television and licensed asset management software.

CDM Philip, a joint venture owned 80% by PUMC and 20% by Camp Dresser &
McKee Inc., a large U.S. engineering firm, recently announced that it had signed
a twenty-five year contract to design, build and operate a water treatment
facility for the city of Seattle. The Seattle contract is the largest water
treatment design, build and operate contract in North America. The design and
build component of the project is valued at $68 million and is expected to take
three years to complete.

PROPRIETARY TECHNOLOGY

The Company develops and applies proprietary technologies to provide
on-site waste minimization, by-products recovery and industrial services that
reduce customer costs, safety risks and potential environmental liabilities.

In its Metals Recovery Group, the Company applies proprietary technology to
obtain better yields from scrap and by-products and to develop further uses for
material that would otherwise be landfilled. Development and use of this
technology increases margins, reduces environmental risk for the Company and its
customers and adds to the integrated package of services provided by the
Company, making it

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<PAGE> 55

more attractive as a single source vendor. For example, the Company's second
stage electrostatic separator used in its copper recovery operations increases
the percentage of copper or aluminum recovered from cable and wire scrap. This
results in a higher yield of both the metal and plastics streams. The Company's
cryogenic process for separating plastics resins is also proprietary and further
increases margins. As this material is regulated as a hazardous waste in the
United States, the reduction of landfill volumes also represents a reduction of
the disposal cost and liability for the generator. Through a joint venture with
Harbison Walker Refactories, the Company has developed a technology to process
the residual material from its dross operations into calcium aluminate, which
acts as a slag conditioner in steel production. This process increases yield and
margin from the dross operations, provides an alternative to disposal for its
customers in the aluminum industry and adds to the Company's integrated steel
services portfolio.

The Company's Industrial Services Group applies proprietary technologies to
minimize waste, increase recovery and reuse of industrial by-products and
provide on-site industrial services that minimize downtime and costs associated
with industrial cleaning, maintenance and turnaround projects. These
technologies include engineered fuel blending, using a "Super Blender" to
emulsify solid and liquid chemical by-products into a fuel for cement kilns; the
EPOC paint overspray recovery system that reduces paint usage and eliminates the
landfilling of paint sludge; and the Company's association with BASF to recycle
rigid polyurethane, primarily generated from automotive production and
automotive scrap, into polyols for reuse in polyurethane applications.
Turnaround technologies primarily for the petrochemical and oil and gas
industries include Fast Draw, a remote control heat exchanger bundle extraction
technology; Fast Clean, a semi-robotic heat exchanger bundle cleaning process,
and Life Guard, a technology for decontaminating hydrocarbons in refinery towers
and vessels to reduce potential health and safety impacts during cleaning and
maintenance activities.

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<PAGE> 56

The following table outlines certain of the Company's proprietary
technologies.

<TABLE>
<CAPTION>
TECHNOLOGY APPLICATION COMPETITIVE ADVANTAGE INDUSTRY SERVED
- --------------------- -------------------- ----------------------- ----------------------
<S> <C> <C> <C>
Fast Draw Remote control Reduced turnaround Petrochemical;
extraction of heat time and labor; Hydrocarbon
exchanger bundles Enhanced safety processing
Fast Clean Semi-robotic Reduced turnaround Petrochemical;
cleaning time and labor; Hydrocarbon
of heat exchanger Enhanced safety processing
bundles
Life Guard Decontamination of Elimination of personal Petrochemical;
hydrocarbons in safety risks; Hydrocarbon
refinery towers and Improved heat transfer processing
vessels performance
WeldSmart Welding; Reduces energy All welding
Heat treatment consumption and applications
increases
productivity
EPOC Paint overspray Reduces paint usage Automotive and
capture and and eliminates equipment
recovery landfilling of paint manufacturers
sludge
Super Blender Processing of solid Reduces disposal costs Petrochemical;
and liquid by- and eliminates Paint;
products into landfilling; Automotive;
engineered fuels Low cost fuel to cement Cement
industry
Plastics Recycling Cryogenic processing Alternative to disposal Cable and wire;
to separate PVC of cable and wire Telecommunications
and PE polymer insulation
streams
Calcium Aluminate Processes aluminum Eliminates landfilling; Aluminum;
Recovery dross residuals for Raw material for steel Steel
reuse manufacturing
Electric Arc Furnace Thermal treatment of Eliminates landfilling Steel
("EAF") Dust EAF to produce and reduces disposal
Recycling zinc concentrate costs
Rigid Polyurethane Thermal/chemical Eliminates landfilling; Automotive;
Recycling processing of rigid Supports "recyclable Polyurethane
polyurethane car" objective of applications
automotive parts automotive
into virgin polyols manufacturers
</TABLE>

Although the Company possesses patents for certain of the above
technologies, it relies primarily on trade secret protection and confidentiality
to protect its proprietary technology. While the time and capital investment
associated with these technologies provide a barrier to entry, there can be no
assurance that the Company will be able to maintain the confidentiality of this
technology.

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<PAGE> 57

SALES AND MARKETING

The Company's sales and marketing strategy is focused on establishing close
working relationships with customers, developing a thorough understanding of
their business, working jointly on research and development to achieve waste
reduction and by-products recovery efficiency, and bundling services to achieve
maximum efficiencies and cost reductions for customers. Philip strives to become
an integral part of its customers business through redesigning process
technologies, operating resource recovery facilities and delivering a broad
range of industrial outsourcing services.

The Company's relationship managers, who are assigned to industrial
accounts, are critical to the success of the sales and marketing program. These
individuals are responsible for managing all aspects of service delivery to that
customer, ensuring the customer has one point of contact for information,
service and accountability. This individual then consults other Company
specialists drawing upon their expertise as required to provide information and
implement a broad range of services.

The Company places less emphasis on traditional sales approaches, and more
on cross selling a broad range of services to its existing large industrial
customer base. Through its acquisition program, the Company has established a
large customer base in all key industrial sectors. Through the integration
process, the Company identifies services it is providing these customers and
opportunities for additional cross-selling. This process is carried out in
conjunction with the sales or operating personnel in the acquired company who
have relationships with these customers.

The Company also participates in competitive bidding processes to obtain
contracts granted by municipalities, local governments or private enterprises
for services such as site redemption and decommissioning contract services.
Contracts are generally awarded on the basis of sealed bids submitted by
interested bidders, and competition for these contracts is generally intense.

CUSTOMERS

Philip provides a broad range of metals recovery and industrial services to
major industry sectors including aluminum, automotive, chemical, food and
beverage, oil and gas, paint and coatings, petrochemical, pulp and paper, steel,
telecommunications, transportation, utilities, and wire and cable.

The Company's steel scrap processing and mill services operations serve
customers in the steel industry, while the processing and distribution
operations primarily serve industrial and commercial construction clients and
manufacturing industries such as barge and ship building; copper processing
operations purchase materials from the cable and wire, automotive and
telecommunications sectors and provide processed copper and materials management
services to brass and copper mills, and the cable and wire, automotive and
telecommunications industries; and aluminum processing operations purchase
materials from primary smelters and industrial aluminum scrap generators and
supply aluminum deoxidizing product, secondary aluminum alloys and recovered
aluminum ingots to the steel, automotive and aluminum industries, respectively.
The Company's industrial services cross a number of industry sectors, primarily
automotive, refining and petrochemical, oil and gas, pulp and paper, steel,
transportation and utilities.

Major clients for the Company's ferrous processing operations include
Armco, ASW, Copperweld, Dofasco, Republic Engineered Steels, Stelco and Timken.
Major customers for the Company's non-ferrous processing operations include AK
Steel, Bethlehem Steel, Chrysler Canada, Noranda and Southwire. Major customers
for the Company's industrial services include BASF, Boise Cascade, Chevron,
Conoco, Dupont, Ford, General Electric, General Motors, Monsanto and Shell. No
customer accounts for more than 5% of the Company's consolidated revenue.

Philip seeks to enter into Master Service Agreements with large customers
to establish the Company as an approved vendor. Master Service Agreements are a
primary vehicle for large companies to reduce their suppliers, while
concurrently establishing high standards of service delivery with fewer
suppliers which can provide more services, and which are financially strong and
geographically diverse. In some cases, these agreements approve less than three
suppliers in the area of resource recovery and industrial services, providing
the Company with a strong competitive advantage. In other cases, a number of

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suppliers are approved and the Master Service Agreement serves only to assist
the Company in selling its services on a plant by plant basis. Philip has
entered into twenty-four national Master Service Agreements to date with such
companies as ARCO, BASF, Canadian National Railways, Dupont, General Electric,
Northrop-Grumman, Valspar and Weyerhauser. These Master Service Agreements
provide the Company with significant opportunity to package and cross-sell a
number of services to large national accounts.

COMPETITION

The resource recovery and industrial services industries are highly
competitive and require substantial capital resources. Competition is both
national and regional in nature and the level of competition faced by the
Company in its various lines of business is significant. Potential customers of
the Company typically evaluate a number of criteria, including price, service,
reliability, prior experience, financial capability and liability management. In
servicing its customers, the Company believes its primary competitive strengths
are: (i) that it offers the broadest range of metals recovery, by-products
recovery and industrial and environmental services in the industry; (ii) its
broad geographic network; (iii) its proprietary technologies; and (iv) the fact
that it is a leading consolidator in the industry due to its financial strength,
focused strategy, and multi-service capabilities. Although the Company believes
it is the leading integrated provider of metals recovery and industrial services
in North America, it competes with a variety of companies that may be larger in
particular business lines in which the Company operates.

The primary competitors of the Metals Recovery Group are other scrap
processors in regions where the Metals Recovery Group operates. Although the
Metals Recovery Group competes in both the purchase and sale sides of its
businesses, competition is primarily on the purchase side for access to scrap,
which may become more intense during times of scrap scarcity. Availability
depends upon the level of economic activity in the industries from which the
Company acquires its scrap, and market prices. The Company believes that its
longstanding relationship with generators of metal bearing scrap give it an
advantage over its competitors, a majority of which purchase scrap from dealers.
In its ferrous metals processing operations, the Company competes for access to
scrap with a small number of larger regional operators as well as a large number
of smaller operators. In its copper operations the Metals Recovery Group
competes for scrap with a limited number of regional competitors in the regions
that it serves. The Company enhances its competitive position through the use of
proprietary technology to separate and recycle the polymer streams, thereby
providing additional service and reducing landfilling costs and liability for
the scrap producing customer. The Company's aluminum dross recycling operations
face limited competition due to their geographic proximity to the primary
aluminum refiners. In its aluminum alloys business, the Company faces
substantial competition for aluminum scrap from a number of larger competitors,
including primary refiners. One advantage the Company has is that it generates
substantial amounts of aluminum scrap internally through its ferrous operations
(e.g., automobile engine blocks). In the Company's aluminum deoxidizing product
business, the Company competes for scrap supply with a number of smaller
regional competitors.

On the sales side of the Metals Recovery Group, the Company seeks to
enhance its competitive position by enhancing the efficiency of its operations
through economies of scale and increased recovery rates, thereby lowering its
costs, which increase margins and give it pricing flexibility. The Company also
accompanies its product sales with a broad range of services, or vertically
integrates its operations to gain access to multiple markets. In its ferrous
operations, the Company's acquisitions have resulted in economies of scale that
generate efficiencies in its delivery capabilities. The Company has constructed
a shredder with an annual capacity of 750,000 tons in Hamilton, Ontario which
enables the Company to process volumes faster and process especially heavy steel
that traditional shredders cannot handle. The Metals Recovery Group also
competes on the sale side by offering a more secure supply of high quality scrap
than a majority of its competitors and by providing a broad range of additional
mill services. In its copper operations, the Metals Recovery Group's products
are generally sold into commodity markets where prices are set by the
marketplace. However, the Company competes through its use of proprietary
technology to maximize yield and margins. In addition, through the recent
acquisition of Warrenton, the Company now has the alternative of selling its
processed scrap into the lower grade commodity markets

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or refining it and selling it into the higher value added markets, as market
conditions vary. In the Company's alloys business, the Company competes against
two competitors whose alloy operations are larger than those of the Company. The
Company differentiates itself through its ability to supply molten aluminum and
a broad range of alloy types. In the aluminum deox business, the Company
competes against a number of smaller regional competitors. The Company believes
that the size of its operations and the broad range of aluminum deoxidizing
products it supplies provide it with a competitive advantage.

The industrial services sector is also highly competitive and fragmented.
The Company competes with numerous local, regional and national companies of
varying sizes and financial resources. Competition for industrial services is
based primarily on hourly rates, productivity, safety, innovative approaches and
quality of service. The hazardous waste management industry competes with the
Company's industrial services operations by providing a price competitive
disposal alternative to a number of the Company's waste management and
by-products recovery services. The hazardous waste management industry currently
has substantial excess capacity caused by overbuilding, continuing efforts by
hazardous waste generators to reduce volumes and to manage their waste on-site,
and the uncertain regulatory environment regarding hazardous waste management
and remediation requirements. These factors have led to downward pressure on
pricing in a number of the markets served by the Company's industrial services
operations. The Company expects these conditions to continue for the foreseeable
future. The Company competes by developing and employing innovative technologies
that minimize on-site waste generation for its customers and maximize the value
and reuse opportunities for the industrial by-products. Through developing
increasingly value-added applications for the materials it manages, in
partnership with its key industrial customers, the Company maximizes its margins
and differentiates itself from conventional disposal alternatives. Examples of
this strategy include the patented EPOC system installed at automotive and
equipment manufacturing facilities, and the Company's association with BASF to
recycle rigid polyurethane for the automotive sector.

GOVERNMENT REGULATION

The Company is subject to government regulation including stringent
environmental laws and regulations. Among other things, these laws and
regulations impose requirements to control air, soil and water pollution, and
regulate health, safety, zoning, land use and the handling and transportation of
industrial by-products and waste materials. This regulatory framework imposes
compliance burdens and costs on the Company. Notwithstanding the burdens of this
compliance, the Company believes that its business prospects are enhanced by the
enforcement of laws and regulations by government agencies.

Applicable federal and state or provincial laws and regulations regulate
many aspects of the resource recovery and industrial services industry. Laws and
regulations typically provide operating standards for treatment, storage,
management and disposal facilities and monitoring and spill containment
requirements and set limits on the release of contaminants into the environment.
Such laws and regulations, among other things, (i) regulate the nature of the
industrial by-products and wastes that the Company can accept for processing at
its treatment, storage and disposal facilities, and the nature of the treatment
they can provide at such facilities and the location and expansion of such
facilities; (ii) impose liability for remediation and clean-up of environmental
contamination, both on-site and off-site, resulting from past and present
operations at the Company's facilities; and (iii) may require financial
assurance that funds will be available for the closure and post-closure care of
sites. Such laws and regulations also require manifests to be completed and
delivered in connection with any shipment of prescribed materials so that the
movement and disposal of such material can be traced and the persons responsible
for any mishandling of such material identified.

In particular, the regulatory process requires the Company to obtain and
retain numerous governmental approvals, licenses and permits to conduct its
operations, any of which may be subject to revocation, modification or denial.
Operating permits need to be renewed periodically and may be subject to
revocation, modification, denial or non-renewal for various reasons, including
failure of the Company to satisfy regulatory concerns. Adverse decisions by
governmental authorities on permit applications submitted by the Company may
result in abandonment or delay of projects, premature closure of facilities

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or restriction of operations, all of which could have a material adverse effect
on the Company's earnings for one or more fiscal quarters or years.

Federal, state, provincial, local and foreign governments have also from
time to time proposed or adopted other types of laws, regulations or initiatives
with respect to the resource recovery and industrial services industry. Included
among them are laws, regulations and initiatives to ban or restrict the
international, interprovincial, intraprovincial, interstate or intrastate
shipment of wastes, impose higher taxes on out-of-state-waste shipments than
in-state shipments, reclassify certain categories of non-hazardous wastes as
hazardous and regulate disposal facilities as public utilities. Certain state
and local governments have promulgated "flow control" regulations, which attempt
to require that all waste generated within the state or local jurisdiction must
go to certain disposal sites. From time to time legislation is considered that
would enable or facilitate such laws, regulations or initiatives. Due to the
complexity of regulation of the industry and to public pressure, implementation
of existing or future laws, regulations or initiatives by different levels of
governments may be inconsistent and are difficult to foresee.

Also subject to regulation are spills of certain industrial by-products and
waste materials. While the specific provisions of spills related laws and
regulations vary among jurisdictions, such laws and regulations typically
require that the relevant authorities be notified promptly, that the spill be
cleaned up promptly and that remedial action be taken by the responsible party
to restore the environment to its pre-spill condition. Generally, the
governmental authorities are empowered to act to clean up and remediate spills
and environmental damage and to charge the costs of such clean-up to one or more
of the owners of the property, the person responsible for the spill, the
generator of the contaminant and certain other parties. Such authorities may
also impose a tax or other liens to secure such parties' reimbursement
obligations.

The Company's facilities are subject to periodic unannounced inspection by
federal, provincial, state and local authorities to ensure compliance with
license terms and applicable laws and regulations. The Company works with the
authorities to remedy any deficiencies found during such inspections. If serious
violations are found or deficiencies, if any, are not remedied, the Company
could incur substantial fines and could be required to close a site. See
"Business -- Legal Proceedings."

Environmental laws and regulations impose strict operational requirements
on the performance of certain aspects of hazardous substances remedial work.
These requirements specify complex methods for identification, storage,
treatment and disposal of waste materials managed during a project. Failure to
meet these requirements could result in termination of contracts, substantial
fines and other penalties.

Governmental authorities have a variety of administrative enforcement and
remedial orders available to them to cause compliance with environmental laws or
remedy or punish violations of such laws. Such orders may be directed to various
parties, including present or former owners or operators of the concerned sites,
or parties that have or had control over the sites. In certain instances, fines
may be imposed.

In the event that administrative actions fail to cure the perceived problem
or where the relevant regulatory agency so desires, an injunction or temporary
restraining order or damages may be sought in a court proceeding. In addition,
public interest groups, local citizens, local municipalities and other persons
or organizations may have a right to seek relief from court for purported
violations of law. In some jurisdictions recourse to the courts for individuals
under common law principles such as nuisance have been or may be enhanced by
legislation providing members of the public with statutory rights of action to
protect the environment. In such cases, even if an industrial by-products or
waste materials treatment, storage or disposal facility is operated in full
compliance with applicable laws and regulations, local citizens and other
persons and organizations may seek compensation for damages caused by the
operation of the facility.

While, in general, the Company's businesses have benefited substantially
from increased governmental regulation, the resource recovery and industrial
services industry in North America has become subject to extensive and evolving
regulation. The Company makes a continuing effort to anticipate

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<PAGE> 61

relevant material regulatory, political and legal developments, but it cannot
predict the extent to which any future legislation or regulation may affect its
operations. The Company believes that with heightened legal, political and
citizen awareness and concerns, all companies in the resource recovery and
industrial services industry may be faced, in the normal course of operating
their businesses, with fines and penalties and the need to expend funds for
capital projects, remedial work and operating activities, such as environmental
contamination monitoring, and related activities. Regulatory or technological
developments relating to the environment may require companies engaged in the
industrial services and resource recovery industry to modify, supplement or
replace equipment and facilities at costs which may be substantial. Because the
businesses in which the Company is engaged are intrinsically connected with the
protection of the environment and the potential discharge of materials into the
environment, a substantial portion of the Company's capital expenditures is
expected to relate, directly or indirectly, to such equipment and facilities.
Moreover, it is possible that future developments, such as increasingly strict
requirements of environmental laws and regulations, and enforcement policies
thereunder, could affect the manner in which the Company operates its projects
and conducts its business, including the handling, processing or disposal of the
industrial by-products and waste materials generated thereby.

HAZARDOUS SUBSTANCES LIABILITY

Canadian and U.S. laws impose liability on the present or former owners or
operators of facilities which release hazardous substances into the environment.
Furthermore, companies may be required by law to provide financial assurances
for operating facilities in order to ensure their performance of obligations
complies with applicable laws and regulations. Similar liability may be imposed
upon the generators and transporters of waste which contain hazardous
substances. All such persons may be liable for waste site investigation costs,
waste site clean-up costs and natural resource damages, regardless of fault, the
exercise of due care or compliance with relevant laws and regulations; such
costs and damages can be substantial.

In the United States, such liability stems primarily from CERCLA and its
state equivalents (collectively, "Superfund") and RCRA and similar state
statutes. CERCLA imposes joint and several liability for the costs of
remediation and natural resource damages on the owner or operator of a facility
from which there is a release or a threat of a release of a hazardous substance
into the environment and on the generators and transporters of those hazardous
substances. Under RCRA and equivalent state laws, regulatory authorities may
require, pursuant to administrative order or as a condition of an operating
permit, that the owner or operator of a regulated facility take corrective
action with respect to contamination resulting from past or present operations.
Such laws also require that the owner or operator of regulated facilities
provide assurance that funds will be available for the closure and post-closure
care of its facilities. Since the Company has operations in, and has shipped and
continues to ship hazardous waste to disposal sites in the United States, the
Company is exposed to potential liability in the United States under RCRA,
CERCLA and their state law equivalents resulting from the handling and
transportation of such wastes and for alleged environmental damage associated
with past, present and future waste disposal practices.

The Company is aware that hazardous substances are present in some of the
landfills and transfer, storage processing and disposal facilities used by it.
Certain of these sites have experienced environmental problems and clean-up and
remediation is required. The Company has grown in the past (and expects to
continue to grow in part in the future) by acquiring other businesses. As a
result, the Company has acquired, or may in the future acquire, landfills and
other transfer and processing sites which contain hazardous substances or which
have other potential environmental problems and related liabilities, and may
acquire businesses which may in the future incur substantial liabilities arising
out of their respective past practices, including past disposal practices.

Certain of Philip's and its U.S. subsidiaries' transfer, storage,
processing and disposal facilities are contaminated as a result of operating
practices at the sites, and remediation will be required at a substantial cost.
Investigations of these sites have characterized to varying degrees the nature
and extent of the contamination. Philip and these subsidiaries, in conjunction
with environmental regulatory

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agencies, have in some instances commenced to remediate the sites in accordance
with approved corrective action plans, pursuant to permits or other agreements
with regulatory authorities.

For each of these sites, the Company, in conjunction with an environmental
consultant, has developed or is developing cost estimates that are periodically
reviewed and updated. Estimated remediation costs, for individual sites and in
the aggregate, are substantial. While the Company maintains reserves for these
matters based upon cost estimates, there can be no assurance that the ultimate
cost and expense of corrective action will not exceed such reserves and have a
material adverse impact on the Company's operations or financial condition.

The Company is required under certain U.S. and Canadian laws and
regulations to demonstrate financial responsibility for possible bodily injury
and property damage to third parties caused by both sudden and non-sudden
occurrences. The Company is also required to provide financial assurance that
funds will be available when needed for closure and post-closure care at certain
of its treatment, storage and disposal facilities, the costs of which could be
substantial. Such laws and regulations allow the financial assurance
requirements to be satisfied by various means, including letters of credit,
surety bonds, trust funds, a financial (net worth) test and a guarantee by a
parent corporation. In the United States, a company must pay the closure costs
for a waste treatment, storage or disposal facility owned by it upon the closure
of the facility and thereafter pay post-closure care costs. There can be no
certainty that these costs will not materially exceed the amounts provided
pursuant to financial assurance requirements. In addition, if such a facility is
closed prior to its originally anticipated time, it is unlikely that sufficient
funds will have been accrued over the life of the facility to fund such costs,
and the owner of the facility could suffer a material adverse impact as a
result. Consequently, it may be difficult to close such facilities to reduce
operating costs at times when, as is currently the case in the hazardous waste
services industry, excess treatment, storage or disposal capacity exists.

Subsidiaries acquired by Philip have been named as potentially responsible
or liable parties ("PRPs") under U.S. federal and state Superfund laws, with
respect to several sites. These proceedings are based principally on allegations
that subsidiaries of Philip (or their predecessors) disposed of hazardous
substances at the sites in question. The Company routinely reviews and evaluates
its potential liability at third-party sites based upon its judgment and
experience at similar sites and the advice of environmental consultants and
maintains reserves based upon such review and evaluation. There can be no
assurance that the Company will not subsequently incur liabilities at such sites
or at additional sites that materially exceed the amounts reserved.

Estimates of the Company's liability for remediation of a particular site
and the method and ultimate cost of remediation require a number of assumptions
and are inherently difficult, and the ultimate outcome may differ from current
estimates. As additional information becomes available, estimates are adjusted.
While the Company does not anticipate that any such adjustment would be material
to its financial statements, it is possible that technological, regulatory or
enforcement developments, the results of environmental studies or other factors
could alter this expectation and necessitate the recording of additional
liabilities which could be material. Moreover, because the Philip and various of
its subsidiaries have disposed of waste materials at more than 200 third-party
disposal facilities, it is possible that Philip and its subsidiaries will be
identified as PRPs at additional sites. The impact of such future events cannot
be estimated at the current time.

The Company may also be required to indemnify customers who incur liability
in connection with the foregoing pursuant to the terms of contracts between such
customers and the subsidiaries involved.

EMPLOYEES

As of August 31, 1997, Philip employed over 11,000 people, approximately
1,400 of whom are unionized. Of such employees, over 2,000 work in the Metals
Recovery Group, over 9,000 work in the Industrial Services Group and
approximately 120 work in the Company's corporate office.

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PROPERTIES

The Company currently operates approximately 300 facilities throughout
North America, South America and Western Europe. The Company believes that its
primary existing facilities are effectively utilized, well maintained, and in
good condition. The Company believes that its facilities are adequate for its
current needs and that suitable additional space will be available as required.

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 is not a party to any
pending legal proceeding the resolution of which the management of the Company
believes will have a material adverse effect on the Company's results of
operations or financial condition or to any other pending legal proceedings
other than ordinary, routine litigation incidental to its business. The Company
maintains liability insurance against risks arising out of the normal course of
business.

In January 1997, the State of Missouri brought an enforcement action
against Solvent Recovery Corporation and the Company in state court alleging
numerous violations of hazardous waste regulations at the Company'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 the permit in the accumulation, record
keeping, inspection, labeling, transportation and handling of such waste.
Through subsequent meetings and correspondence, the state has required (1)
submittal of a comprehensive application for permit modification; (2) submittal
of a plan for achieving and maintaining compliance with respect to operations;
and (3) payment of a penalty of approximately $560,000. The Company has
submitted permit application documents and a compliance plan and is negotiating
with the State for resolution of this matter. While settlement may require
payment of a substantial penalty, the Company does not expect that the matter
will have a material adverse effect on the Company's results of operations or
financial position.

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RECENT ACQUISITIONS

Over the past five years, the Company has focused on increasing its revenue
base, its range of services and its geographic network of facilities throughout
North America through a series of strategic acquisitions. The Company intends to
continue to selectively pursue acquisitions in the United States and Canada in
the resource recovery and industrial services industries. The Company also
intends to pursue international markets through its expanding ferrous operations
in the United Kingdom and by supporting the European operations of its North
American clients. The following table sets forth acquisitions since January 1996
for which the purchase price, including debt assumed, was in excess of $10
million. The acquisitions of Steiner-Liff and Southern Foundry closed on October
28, 1997.

<TABLE>
<CAPTION>
COMPANY OR
CLOSING DATE ASSETS ACQUIRED PRIMARY LOCATION BUSINESS UNIT
- -------------------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C>
October 1997.................... Steiner-Liff Metals Nashville, Metals Recovery
Tennessee (Ferrous)
October 1997.................... Southern Foundry Knoxville, Metals Recovery
Supply Tennessee (Ferrous)
October 1997.................... Luria Brothers Cleveland, Ohio Metals Recovery
(Ferrous)
August 1997..................... Intermetco Limited Hamilton, Ontario Metals Recovery
(Ferrous)
July 1997....................... Allwaste, Inc. Houston, Texas Industrial Services
July 1997....................... Serv-Tech, Inc. Houston, Texas Industrial Services
July 1997....................... Roth Bros. Smelting Syracuse, New York Metals Recovery
Corp. (Aluminum)
July 1997....................... 21st Century Providence, Rhode Industrial Services
Environmental Island
Management Inc.
July 1997....................... International Hatfield, Industrial Services
Alliance Pennsylvania
Services, Inc.
May 1997........................ Reynolds Metals' Bellwood, Virginia Metals Recovery
Bellwood, Virginia (Aluminum)
facility
February 1997................... RMF Global, Inc. Toledo, Ohio Industrial Services
February 1997................... Conversion Cleveland, Ohio Metals Recovery
Resources, Inc. (Copper)
February 1997................... Warrenton Warrenton, Missouri Metals Recovery
Resources, Inc. (Copper)
January 1997.................... Allied Metals Great Britain Metals Recovery
Limited (Ferrous)
December 1996................... Luntz Corporation Canton, Ohio Metals Recovery
(Ferrous)
December 1996................... Alcan Aluminum's Guelph, Ontario Metals Recovery
Guelph Alloy Plant (Aluminum)
September 1996.................. Reclaimers Inc. Kendalville, Metals Recovery
Indiana (Copper)
September 1996.................. Intsel Southwest LP Houston, Texas Metals Recovery
(Ferrous)
</TABLE>

The following are the principal acquisitions completed by the Company since
June 30, 1997. Since revenues reported by the acquired businesses were in
certain instances prepared on a different basis of presentation than those of
the Company, such reported revenues are not necessarily indicative of the

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revenues that would have been recognized by the Company on a pro forma basis or
that will be recognized by the Company in future periods.

Intermetco. In August 1997, Philip completed the acquisition of the
outstanding shares of Intermetco, a Canadian corporation, for a total
consideration of Cdn$66 million, including the assumption of Cdn$8 million in
debt. The acquisition price was paid with Cdn$4.7 million in cash and by the
issuance of approximately 2.7 million Common Shares. In addition to its core
recycling and scrap processing operations, Intermetco is also a manufacturer and
distributor of pipe and tubular products. Intermetco employs approximately 250
people at its 12 North American facilities. For the fiscal year ended December
31, 1996, Intermetco reported Cdn$194.9 million in revenues, including brokerage
revenues. The acquisition enhances Philip's ability to supply its steel industry
clients with fully integrated services, from raw materials to by-product
processing and distribution services. The Company believes that synergies will
be realized through the increased tonnage processed at the Company's existing
facilities, and through the integration of Intermetco's pipe and tubular
products operations into Philip's southwestern and southeastern steel processing
and distribution networks.

Allwaste. In July 1997, Philip acquired Allwaste in a stock-for-stock
transaction for a total consideration of $502 million, including the assumption
of $142 million in debt. The acquisition price was paid by the issuance of
approximately 23 million Common Shares. Allwaste is an integrated provider of
industrial and environmental services and acts as an outsourcing provider of
on-site facility processes and services primarily in the United States, Canada,
and Mexico. Allwaste operates 180 facilities throughout North America and has
approximately 3,800 employees. For the fiscal year ended August 31, 1996,
Allwaste reported $382.2 million in revenues. The acquisition of Allwaste
significantly broadens the Company's industrial service offerings, expands its
geographical presence in the United States and significantly increases its
customer base. In addition, Allwaste is expected to provide the Company with
opportunities to rationalize operations, to enhance revenues through the
cross-selling of services and to improve asset utilization.

Serv-Tech. In July 1997, Philip acquired Serv-Tech in a stock-for-stock
transaction for a total consideration of $58 million, including the assumption
of $15 million in debt. The acquisition price was paid by the issuance of
approximately 2.7 million Common Shares. Serv-Tech is an integrated provider of
specialty services and products, including turnaround project management
services, electrical and instrumentation management services, and specialty
chemicals products primarily to the refinery and petrochemical industries. As of
December 31, 1996, the Company had 969 full-time employees and a total of 23
operating facilities located in California, Georgia, Louisiana and Texas. For
the fiscal year ended December 31, 1996, Serv-Tech reported $142.4 million in
revenues. The Company believes the

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acquisition will strengthen its position in industrial maintenance and
turnaround services. In addition, the acquisition broadens the Company's
customer base in the petrochemical and oil and gas utility industries.

Roth. In July 1997, Philip acquired Roth, a private company based in
Syracuse, New York, for a total consideration of approximately $52 million,
including the assumption of $6.7 million in debt. The acquisition price was paid
with $37.5 million in cash and by the issuance of approximately 422,000 Common
Shares. Roth is a manufacturer of secondary aluminum alloy products for the
automotive and other industrial manufacturing industries which recorded sales of
approximately $94 million for the fiscal year ended December 31, 1996. The
Company believes the acquisition of Roth expands its aluminum alloy operations
and will result in greater market penetration of the automotive manufacturers
that are heavily concentrated in the Great Lakes region.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The name, age and position of each of the directors and executive officers
of Philip as of November 4, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF
RESIDENCE AGE POSITION WITH PHILIP
- --------------------------------- ---- ------------------------------------------------
<S> <C> <C>
ALLEN FRACASSI................... 44 President, Chief Executive Officer and Director
Ancaster, Ontario
PHILIP FRACASSI.................. 38 Executive Vice-President, Chief Operating
Ancaster, Ontario Officer and Director
HOWARD BECK...................... 64 Chairman and Director
Toronto, Ontario
ROY CAIRNS....................... 72 Director
St-Catharines, Ontario
DERRICK ROLFE.................... 43 Director
Toronto, Ontario
NORMAN FOSTER.................... 59 Director
Bloomfield Hills, Michigan
FELIX PARDO...................... 60 Director
Cambridge, Massachusetts
HERMAN TURKSTRA.................. 63 Director
Hamilton, Ontario
WILLIAM E. HAYNES................ 54 Director
Houston, Texas
ROBERT L. KNAUSS................. 66 Director
Hanover, New Hampshire
ROBERT WAXMAN.................... 42 President, Metals Recovery Group and Director
Ancaster, Ontario
MARVIN BOUGHTON.................. 57 Executive Vice-President and Chief Financial
Burlington, Ontario Officer
ROBERT M. CHISTE................. 50 President, Industrial Services Group
Houston, Texas
PETER CHODOS..................... 46 Executive Vice-President, Corporate Development
Toronto, Ontario
ANTONIO PINGUE................... 48 Executive Vice-President, Corporate & Government
Niagara Falls, Ontario Affairs
COLIN SOULE...................... 41 Executive Vice-President, General Counsel and
Toronto, Ontario Corporate Secretary
JOHN WOODCROFT................... 39 Executive Vice-President, Operations
Dundas, Ontario
</TABLE>

MR. ALLEN FRACASSI has been the President, Chief Executive Officer and a
director of Philip since December 1990. Allen Fracassi and Philip Fracassi, the
founders of the Company, are brothers.

MR. PHILIP FRACASSI has been the Executive Vice-President, Chief Operating
Officer and a director of Philip since December 1990. Philip Fracassi and Allen
Fracassi, the founders of the Company, are brothers.

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MR. BECK was appointed Chairman of Philip on March 9, 1994 and has been a
director of Philip since December 1990. From 1991 to 1993, he was Vice-Chairman
of Barrick Gold Corporation (formerly American Barrick Gold Corporation), an
integrated gold mining company, and of The Horsham Corporation, a holding
company.

MR. CAIRNS has been a director of Philip since December 1990. Mr. Cairns
has been counsel to, and was previously a partner with, Chown, Cairns, a law
firm.

MR. ROLFE has been a director of Philip since January 1991. Since 1992, Mr.
Rolfe has been the President and Chief Executive Officer of RM Capital
Corporation, an investment company. Mr. Rolfe is also a director of Consolidated
Envirowaste Inc., an organic waste processing company.

MR. FOSTER has been a director of Philip since January 1994. Mr. Foster was
the President, By-Products Recovery Group, of Philip from February 1996 to July
1997. Mr. Foster was President and Chief Executive Officer of Nortru, Inc. from
prior to 1991 to July 1997 and President and Chief Executive Officer of
Burlington Environmental Inc. from December 1993 to July 1997.

MR. PARDO has been a director of Philip since March 1994. Since May 1993,
Mr. Pardo has been President and Chief Executive Officer of Ruhr-American Coal
Corporation. From 1992, Mr. Pardo was Chairman of Newalta Corporation, an oil
field waste management company and a partner and director of Quorum Funding, an
investment company.

MR. TURKSTRA has been a member of Turkstra, Mazza, Shinehoft, Mihailovich,
Associates, a law firm, since 1959.

MR. HAYNES has been a director of Philip since August 6, 1997, and until
July 31, 1997 was a director of Allwaste from June 1996. He is the Chairman,
President and Chief Executive Officer of Innovative Valve Technologies, Inc., an
industrial valve repair and distribution company in which Philip owns a minority
equity interest. He served as the President and Chief Executive Officer of
LYONDELL-CITGO Refining Company Ltd. from July 1992 to December 1995.

MR. KNAUSS has been a director of Philip since August 6, 1997, and until
July 31, 1997 was a director of Allwaste from March 1988. He is the President
and Chief Executive Officer of Baltic International U.S.A., Inc., an aviation
investment company, and a director of the Mexico Fund, Inc., an investment fund
based in Mexico City, and Equus II, Inc., an investment fund based in Houston,
Texas. Mr. Knauss served for 12 years as the Dean and Distinguished University
Professor of the University of Houston Law Center.

MR. WAXMAN has been a director of Philip since January 1994. Mr. Waxman has
been the President, Metals Recovery Group, since February 28, 1996. Since
September 1993, Mr. Waxman has been President and Chief Executive Officer of
Waxman Resources Inc. From 1989 to 1993, Mr. Waxman was Chief Operating Officer
of I. Waxman & Sons Limited.

MR. BOUGHTON has been the Executive Vice-President and Chief Financial
Officer of Philip since January 1994 and May 1992, respectively. He was
Vice-President, Finance of Philip from September 1991 to December 1993.

MR. CHISTE became President of the Company's Industrial Services Group upon
completion of the Allwaste Merger. Prior to that he was President and Chief
Executive Officer of Allwaste from 1994. Prior to that he was Chief Executive
Officer of American National Power, Inc., a successor to Transco Energy Company
focused on the power generation business in North and South America, from 1984
to 1986. Mr. Chiste is a director of Franklin Credit Management Corp., a
financial services company.

MR. CHODOS has been Executive Vice-President, Corporate Development, of
Philip since June 1996. Prior to that time, he was Vice President and Director
of BZW Canada, an investment bank, from May 1992 to June 1996 and was Managing
Partner of Loewen, Ondaatje, McCutcheon & Company Limited, an investment bank,
from May 1983 to April 1992.

MR. PINGUE has been Executive Vice-President, Corporate and Government
Affairs since May 1997. Prior to that he was Senior Vice-President, Corporate &
Government Affairs, of Philip from March 1995. Prior to that, he was Senior-Vice
President, Environmental Services and Regulatory Affairs of the

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<PAGE> 69

Company from January 1994, and was Vice-President, Environmental and Regulatory
Affairs, of the Company from 1991 to December 1993.

MR. SOULE has been the General Counsel of Philip since October 1991, was
appointed Corporate Secretary of Philip in January 1992, was appointed Senior
Vice-President of Philip in May 1994 and Executive Vice-President of Philip in
May 1997.

MR. WOODCROFT has been Executive Vice-President, Operations since May 1997.
Prior to that he was Senior Vice President, Operations, of Philip from January
1994 and was Vice-President, Acquisitions and Development, of Philip from May
1991 to December 1993.

The Directors of Philip are elected annually by the shareholders and serve
until the next annual meeting.

DIRECTORS' COMPENSATION

Each director of the Company who is not a salaried officer or employee of
the Company is paid an annual fee of Cdn$25,000 and a fee of Cdn$1,000 per
meeting (including committee meetings) attended, and receives a one time award
of 20,000 options to acquire common shares of the Company. The options are
granted at an exercise price equal to the closing price of the Common Shares on
The Toronto Stock Exchange on the last trading day preceding the date of the
grant and vest over a period of three years from the date of the grant.

EXECUTIVE COMPENSATION

The table below sets forth the compensation in respect of each of the last
three fiscal years earned by the President and Chief Executive Officer and the
four other most highly compensated executive officers of the Company (the "Named
Executive Officers").

SUMMARY COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) OPTIONS/SARS COMPENSATION(4)
- --------------------------- ---- ------- ------- ---------------- ------------ ----------------
($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
ALLEN FRACASSI............. 1996 366,757 586,800 32,743(3) 75,000 3,484
President and 1995 364,299 404,007 45,285(3) -- 5,100
Chief Executive Officer 1994 366,300 401,099 34,733(3) -- 5,128
PHILIP FRACASSI............ 1996 293,406 440,100 -- 75,000 4,309
Executive Vice-President
and...................... 1995 291,439 312,113 -- -- 5,282
Chief Operating Officer 1994 293,040 309,982 -- -- 4,945
JOHN WOODCROFT............. 1996 201,716 330,075 -- 60,000 5,043
Executive Vice-President, 1995 163,934 98,361 -- 30,000 4,918
Operations 1994 135,531 33,883 -- 30,000 4,066
MARVIN BOUGHTON............ 1996 194,381 256,725 -- 60,000 4,520
Executive Vice-President
and...................... 1995 193,078 96,539 -- 30,000 5,255
Chief Financial Officer 1994 194,139 87,363 -- 30,000 4,945
COLIN SOULE................ 1996 154,038 220,050 -- 60,000 4,621
Executive
Vice-President,.......... 1995 145,719 72,860 -- 30,000 4,372
General Counsel & 1994 135,531 33,883 -- 30,000 4,066
Corporate Secretary
</TABLE>

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

(1) All amounts have been converted to U.S. dollars based upon average exchange
rates of Canadian dollars per $1.00 of 1.3633, 1.3725 and 1.3650 for 1996,
1995, and 1994, respectively.

(2) Except as noted, perquisites and other personal benefits do not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus for the Named
Executive Officers.

(3) Represents imputed interest benefit on housing loan.

(4) Represents Company's contribution to a retirement savings plan.

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<PAGE> 70

STOCK OPTIONS

The table below sets forth the options granted to the Named Executive
Officers under the Company's stock option plans during the fiscal year ended
December 31, 1996.

OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1996(1)

<TABLE>
<CAPTION>
POTENTIAL
% OF REALIZABLE VALUE AT
TOTAL OPTIONS ASSUMED ANNUAL
SECURITIES GRANTED TO EXERCISE RATES OF STOCK
UNDER OPTIONS EMPLOYEES IN OR PRICE APPRECIATION
NAME GRANTED FISCAL YEAR(2) BASE PRICE(3) FOR OPTION TERM EXPIRATION DATE
- --------------------- ------------- --------------- -------------- -------------------- ---------------
(#) ($/Share) 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Allen Fracassi....... 75,000 6% 8.00 377,337 956,245 August 6, 2006
Philip Fracassi...... 75,000 6% 8.00 377,337 956,245 August 6, 2006
John Woodcroft....... 60,000 5% 8.00 301,869 764,996 August 6, 2006
Marvin Boughton...... 60,000 5% 8.00 301,869 764,996 August 6, 2006
Colin Soule.......... 60,000 5% 8.00 301,869 764,996 August 6, 2006
</TABLE>

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

(1) The Company's employee stock option plans provide for the granting of stock
options to purchase common shares of the Company to employees and directors
of the Company at the discretion of the Board of Directors. All options are
subject to certain conditions of service and the provision of a
non-competition agreement. Options granted to Named Executive Officers in
fiscal 1996 vest in equal monthly amounts over 36 months from the date they
were granted.

(2) A total of 1,220,000 options were granted under the Company's employee stock
option plans during the fiscal year ending December 31, 1996.

(3) Amounts have been converted to U.S. dollars based upon an average exchange
rate of Canadian dollars per $1.00 of 1.3633.

The table below sets forth each exercise of options during the fiscal year
ended December 31, 1996 by the Named Executive Officers.

AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR
ENDED DECEMBER 31, 1996 AND FISCAL YEAR-END
OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SECURITIES AGGREGATE OPTIONS AT OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1996 DECEMBER 31, 1996
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------- ----------- --------- -------------------------- --------------------------
(#) ($) (#) ($)
<S> <C> <C> <C> <C>
Allen Fracassi(1)........ -- -- 18,320/66,680 430,743/139,512
Philip Fracassi(2)....... -- -- 18,320/66,680 430,743/139,512
John Woodcroft........... 27,500 111,740 55,552/74,448 429,474/502,826
Marvin Boughton.......... 20,000 47,850 65,552/74,448 515,240/502,826
Colin Soule.............. 7,500 30,750 75,552/74,448 583,671/502,826
</TABLE>

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

(1) Allen Fracassi holds an additional 389,031 exercisable options to acquire
Common Shares which were granted to him in connection with his sale to the
Company in 1990 of his interest in Philip Environmental Corporation.

(2) Philip Fracassi holds an additional 387,355 exercisable options to acquire
Common Shares which were granted to him in connection with his sale to the
Company in 1990 of his interest in Philip Environmental Corporation.

(3) The closing price of the Common Shares on The Toronto Stock Exchange on
December 31, 1996 was Cdn$19.75. All amounts have been converted to U.S.
dollars based upon an exchange rate of Canadian dollars per $1.00 of 1.3700
as of December 31, 1996.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with each of the Named
Executive Officers. The agreements set forth the benefits to which a Named
Executive Officer would be entitled in the event of termination without cause
before or after an event which gives rise to a change of control of the Company
or in the event of a change in the executive's responsibilities, title,
authority or compensation

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<PAGE> 71

after an event which gives rise to a change of control of the Company. In the
event of termination without cause prior to a change of control, a Named
Executive Officer would be entitled to a severance payment equal to two times
his base salary plus two times the annual average bonus and cash value of
benefits earned by the Named Executive Officer in the previous two years. In the
event of termination without cause after a change of control or in the event of
a change in the executive's responsibilities, title, authority or compensation
within two years of a change in control, a Named Executive Officer would be
entitled to a severance payment equal to three times his base salary plus three
times the annual average of the bonus and cash value of benefits earned by the
Named Executive Officer in the previous two years. In addition, stock options
granted to the Named Executive Officer will fully vest on termination and will
remain exercisable until the expiry of the original term of such options.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors has a Compensation Committee comprised of Howard L.
Beck, Derrick Rolfe and Roy Cairns, all of whom are outside directors. The
Compensation Committee meets as required to consider the compensation packages
of the President and Chief Executive Officer, the Executive Vice Presidents and
the Chief Operating Officer. The Compensation Committee also makes
recommendations to the full Board of Directors with respect to the remuneration
of directors.

CERTAIN TRANSACTIONS

In connection with the December 1993 acquisition of Nortru, Inc. ("Nortru")
from Norman Foster, the Company guaranteed a $5,950,000 note payable by a
wholly-owned subsidiary of the Company to Mr. Foster. The note, which was
unsecured, bore interest at U.S. prime plus 2% and was payable in equal monthly
installments of $165,000 plus interest maturing on May 20, 1997. The outstanding
balance of the note was paid in full by the Company on May 21, 1997. Upon
consummation of the acquisition of Nortru, Mr. Foster became a director of the
Company.

In addition, the Company entered into a non-competition and retention
agreement with Mr. Foster, pursuant to which the Company agreed to pay Mr.
Foster an aggregate of $7 million in consideration for certain non-compete and
employment covenants from Mr. Foster. Payments of $1.4 million are due under
this agreement on December 31, 1997 and 1998.

As at November 4, 1997, the aggregate amount of indebtedness due to the
Company from all current or former officers, directors and employees was
Cdn$737,200, consisting of the outstanding balance of a loan made to Allen
Fracassi, the President and Chief Executive Officer of the Company, for the
purpose of purchasing a home. The loan is unsecured, non-interest bearing and
payable on demand. The largest aggregate amount outstanding under the loan
during the fiscal year ended December 31, 1996 was Cdn$787,200.

The law firm of Turkstra, Mazza, Shinehoft, Mihailovich Associates, of
which Herman Turkstra is of counsel, provided services to the Company in 1995,
1996 and 1997. Fees paid to Mr. Turkstra's firm in 1995, 1996 and through
November 4, 1997 totalled Cdn$769,160, Cdn$921,456 and Cdn$570,212,
respectively.

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

Based upon publicly available information filed with the Securities and
Exchange Commission (the "Commission"), no person beneficially owns more than 5%
of the outstanding Common Shares as of November 4, 1997.

71
<PAGE> 72

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares as of November 4, 1997 by (i) each
director of the Company, (ii) the Named Executive Officers, and (iii) all
current directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
------------------------
NUMBER OF SHARES PRIOR TO AFTER
DIRECTORS AND EXECUTIVE OFFICERS(1) BENEFICIALLY OWNED OFFERINGS OFFERINGS
- -------------------------------------------------- ------------------ --------- ---------
<S> <C> <C> <C>
Allen Fracassi(2)(3).............................. 2,361,797 2.19 1.84
Philip Fracassi(2)(4)............................. 2,031,985 1.88 1.59
John Woodcroft(2)(5).............................. 109,445 * *
Marvin Boughton(2)(6)............................. 129,445 * *
Colin Soule(2)(7)................................. 104,445 * *
Howard Beck(2)(8)................................. 423,889 * *
Roy Cairns(2)(9).................................. 923,889 * *
Derrick Rolfe(2)(10).............................. 23,889 * *
Norman Foster(2)(11).............................. 272,088 * *
Felix Pardo(2)(12)................................ 22,889 * *
Herman Turkstra(2)(13)............................ 28,548 * *
William E. Haynes(2)(14).......................... 4,378 * *
Robert L. Knauss(2)(15)........................... 51,727 * *
Robert Waxman(2)(16).............................. 98,000 * *
Peter Chodos (2)(17).............................. 61,805 * *
Robert M. Chiste(2)(18)........................... 567,114 * *
Antonio Pingue(2)(19)............................. 139,445 * *
All Directors and Executive Officers as a Group 7,354,778 6.81 5.75
(17 persons)....................................
</TABLE>

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

* Indicates less than 1.0%.

(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from November 4, 1997, whether
pursuant to the exercise of options, conversion of securities or otherwise.
Each beneficial owner's percentage of ownership is determined by assuming
that options to purchase Common Shares that are held by such person and
which are exercisable within 60 days of November 4, 1997 have been
exercised. Unless otherwise noted in the footnotes below, the Company
believes all persons named in the table have sole voting power and
investment power with respect to all Common Shares beneficially owned by
them. Options to acquire Common Shares which vest after 60 days after
November 4, 1997 are indicated separately in the notes that follow.

(2) The address of each of the directors and Named Executive Officers is 100
King Street West, P.O. Box 2440 LCD1, Hamilton, Ontario, Canada L8N 4J6.

(3) Includes 510,142 Common Shares issuable upon the exercise of employee stock
options. Does not include 363,889 Common Shares subject to options which
are not exercisable within 60 days.

(4) Includes 489,021 Common Shares issuable upon the exercise of employee stock
options. Does not include 283,334 Common Shares subject to options which
are not exercisable within 60 days.

(5) Includes 109,445 Common Shares issuable upon the exercise of employee stock
options. Does not include 240,555 Common Shares subject to options which
are not exercisable within 60 days.

(6) Includes 128,445 Common Shares issuable upon the exercise of employee stock
options. Does not include 240,555 Common Shares subject to options which
are not exercisable within 60 days.

(7) Includes 104,445 Common Shares issuable upon the exercise of employee stock
options. Does not include 240,555 Common Shares subject to options which
are not exercisable within 60 days.

(8) Includes 423,889 Common Shares issuable upon the exercise of employee stock
options. Does not include 16,111 Common Shares subject to options which are
not exercisable within 60 days.

(9) Includes 23,889 Common Shares issuable upon the exercise of employee stock
options. Does not include 16,111 Common Shares subject to options which are
not exercisable within 60 days.

(10) Includes 23,889 Common Shares issuable upon the exercise of employee stock
options. Does not include 16,111 Common Shares subject to options which are
not exercisable within 60 days.

(11) Includes 100,000 Common Shares issuable upon the exercise of employee stock
options.

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<PAGE> 73

(12) Includes 18,889 Common Shares issuable upon the exercise of employee stock
options. Does not include 16,111 Common Shares subject to options which are
not exercisable within 60 days.

(13) Includes 12,222 Common Shares issuable upon the exercise of employee stock
options. Does not include 27,778 Common Shares subject to options which are
not exercisable within 60 days.

(14) Includes 2,222 Common Shares issuable upon the exercise of employee stock
options. Does not include 17,778 Common Shares subject to options which are
not exercisable within 60 days.

(15) Includes 49,571 Common Shares issuable upon the exercise of employee stock
options. Does not include 17,778 Common Shares subject to options which are
not exercisable within 60 days.

(16) Includes 95,000 Common Shares issuable upon the exercise of employee stock
options. Does not include 235,000 Common Shares subject to options which
are not exercisable within 60 days.

(17) Includes 61,805 Common Shares issuable upon the exercise of employee stock
options. Does not include 213,195 Common Shares subject to options which
are not exercisable within 60 days.

(18) Includes 411,554 Common Shares issuable upon the exercise of employee stock
options. Does not include 137,185 Common Shares subject to options which
are not exercisable within 60 days.

(19) Includes 139,445 Common Shares issuable upon the exercise of employee stock
options. Does not include 240,555 Common Shares subject to options which
are not exercisable within 60 days.

SHARE CAPITAL OF THE COMPANY

The Company's authorized capital consists of an unlimited number of Common
Shares, 108,019,291 of which were issued and outstanding as of November 4, 1997.
In addition, options to acquire a further 9,140,005 Common Shares were
outstanding on November 4, 1997.

The holders of Common Shares are entitled to receive dividends when, if and
as declared by the directors and, on liquidation, dissolution or winding up, to
receive pro rata the remaining property of the Company available for
distribution after the payment of the Company's creditors. The holders of Common
Shares are entitled to receive notice of and to attend meetings of shareholders,
and to vote on the basis of one vote per Common Share held. Holders of the
Common Shares of the Company have no pre-emptive, subscription, redemption or
conversion rights. All outstanding shares are fully paid and non-assessable.

The Board of Directors of the Company adopted a Shareholder Rights Plan
(the "Plan") on April 11, 1995. The Plan was amended by the Board of Directors
on May 19, 1995 and approved by the shareholders of the Company on May 24, 1995.
Under the Plan, the Board of Directors declared a dividend distribution of one
right (a "Right") for each Common Share to holders of record. The Plan does not
affect the acquisition of up to 20% of the issued and outstanding Common Shares
and other voting shares ("Voting Shares") of the Company. If a person acquires
20% or more of the Voting Shares of the Company other than by means of a
Permitted Bid or Competing Bid without the approval of the Board of Directors,
holders of Rights other than the acquiror may acquire Common Shares at a
significant discount to prevailing market prices. Accordingly, in such a case,
the Rights will cause significant dilution to an acquiror other than through a
Permitted Bid, a Competing Bid or on terms approved by the Board of Directors.
Under the Plan, as amended, a "Permitted Bid" is a take-over bid which provides
for a minimum deposit period of at least 60 days that is made to the holders of
all Voting Shares of the Company. A Permitted Bid must satisfy certain
conditions provided for in the Plan including that the bid be accepted by
holders independent of the bidder depositing at least 50% of their shares in
acceptance of the bid, in which case the bid must then be extended for a further
period of 10 business days. The Plan, as amended, is operative for a three year
period expiring June 30, 1998.

DESCRIPTION OF CERTAIN INDEBTEDNESS

CREDIT FACILITY

The Company and Philip Environmental (Delaware) Inc. ("PEI"), a
wholly-owned subsidiary of the Company, entered into a Credit Agreement, dated
August 11, 1997, with a syndicate of lenders composed of Canadian and United
States financial institutions. The Company's Credit Facility provides for an
aggregate maximum borrowing amount of up to $1.5 billion available in seven
tranches, each tranche differentiated by the aggregate maximum amount of
available credit, the applicable group of

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<PAGE> 74

lenders and the eligible borrowers. Borrowings under the Credit Facility bear
interest at varying rates, depending on the nature of the loan and the Company's
compliance with certain financial ratios. From August 11, 1997 through November
4, 1997, interest rates under the Credit Facility ranged from prime plus 0.25%
to prime plus 1.25%. The Company's and PEI's obligations under the Credit
Facility are secured by a pledge of all of the issued and outstanding securities
held by the Company or PEI in all of their material subsidiaries. The Credit
Facility terminates and all unpaid principal, interest, fees and other amounts
are due on August 12, 2002.

The terms of the Credit Agreement restrict the payment of cash dividends to
stockholders and require the Company to comply with a number of financial
covenants, including the maintenance of specified financial ratios. As of
September 30, 1997, the Company was in compliance with these covenants. As of
November 4, 1997, the Company had borrowed an aggregate of $1.27 billion under
the Credit Facility.

ALLWASTE 7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2014

In connection with the acquisition of Allwaste, Philip assumed and became
co-obligor of, by supplemental indenture (the "Supplemental Indenture"), the due
and punctual performance and observance of all the covenants and conditions to
be performed by Allwaste under the indenture (the "Indenture") with respect to
Allwaste's 7 1/4% Convertible Subordinated Debentures Due 2014 (the "Allwaste
Debentures"). The Supplemental Indenture provides that at any time up to and
including June 1, 2014, the holder of any Allwaste Debenture will have the right
to convert the principal amount of such Allwaste Debenture (or any portion
thereof equal to $1,000 or an integral multiple thereof) into Common Shares
equal to the principal amount of the Allwaste Debentures surrendered for
conversion divided by $19.5376; provided, however, that if such Allwaste
Debenture or any portion thereof is called for redemption prior to June 1, 2014,
then the right of such holder to convert such Allwaste Debenture into Common
Shares will terminate after the close of business on the fifth day prior to the
redemption date. As of November 4, 1997, there were outstanding $25.7 million
aggregate principal amount of Allwaste Debentures. If all Allwaste Debentures
outstanding on that date were converted, the Company would be required to issue
approximately 1.48 million Common Shares.

The Company's acquisition of Allwaste constituted a "Redemption Event"
pursuant to the Indenture. Accordingly, each holder of Allwaste Debentures has
the right to require Allwaste to redeem all or any portion (equal to $1,000 or
any integral multiple thereof) of such holder's Allwaste Debentures for cash at
the principal amount thereof, together with accrued interest thereon to the 90th
day following the acquisition; provided, however, that Allwaste is not obligated
to redeem any Allwaste Debenture at any time when the subordination provisions
of the Allwaste Debentures would not permit Allwaste to make a payment of
principal, premium or interest on the Allwaste Debentures.

MATERIAL INCOME TAX CONSIDERATIONS

The following discussion is not intended to be, nor should it be construed
to be, legal or tax advice to any particular prospective purchaser. This
discussion does not purport to deal with all aspects of Canadian and United
States federal income taxation that may be relevant to prospective purchasers of
Common Shares and does not take into account Canadian provincial or territorial
tax laws, United States state or local tax laws, or tax laws of jurisdictions
outside of Canada and the United States. The following discussion is based upon
the tax laws of Canada and the United States as in effect on the date of this
Prospectus, which are subject to change. Prospective purchasers should consult
their own tax advisors with respect to their particular circumstances.

MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

The following sets forth the opinion of Stikeman, Elliott, Canadian counsel
to the Company, as to the material Canadian federal income tax considerations
generally applicable to a person who acquires Common Shares pursuant to this
Prospectus and who for the purposes of the Income Tax Act (Canada) (the "Act")
and the Canada-United States Income Tax Convention, 1980 (the "Convention") (i)
throughout the period during which the purchaser owns the Common Shares, is not
resident in

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<PAGE> 75

Canada and is a resident of the United States, (ii) holds Common Shares as
capital property, (iii) deals at arm's length with the Company, (iv) does not
use or hold, and is not deemed to use or hold, such Common Shares in, or in the
course of, carrying on a business or providing independent personal services in
Canada, and (v) does not own (or is not treated as owning) 10% or more of the
outstanding voting shares of the Company (a "U.S. Holder"). Special rules, which
are not addressed in this discussion, may apply to a U.S. Holder that is (i) an
insurer that carries on an insurance business in Canada and elsewhere or (ii) a
"financial institution" subject to special provisions of the Act applicable to
income gain or loss arising from "mark to market" property.

This discussion is based on the current provisions of the Convention, the
Act and the regulations thereunder (the "Regulations"), all specific proposals
to amend the Act and Regulations announced by the Minister of Finance (Canada)
prior to the date of this Prospectus and counsel's understanding of the current
published administrative practices of Revenue Canada. This discussion is not
exhaustive of all potential Canadian tax consequences to a U.S. Holder and does
not take into account or anticipate any other changes in law, whether by
judicial, governmental or legislative decision or action, nor does it take into
account the tax legislation or considerations of any province, territory or
foreign jurisdiction.

Dividends paid or credited or deemed to be paid or credited on Common
Shares owned by a U.S. Holder will be subject to Canadian withholding tax under
the Act at a rate of 25% on the gross amount of the dividends. The rate of
withholding tax generally is reduced under the Convention to 15% where the U.S.
Holder is the beneficial owner of the dividends. Under the Convention, dividends
paid to certain religious, scientific, charitable and similar tax exempt
organizations and certain pension organizations that are resident, and exempt
from tax, in the United States and who have complied with certain administrative
procedures are exempt from this Canadian withholding tax.

A gain realized by a U.S. Holder on a disposition or deemed disposition of
Common Shares generally will not be subject to tax under the Act unless such
Common Shares constitute taxable Canadian property within the meaning of the Act
at the time of disposition or deemed disposition. Common Shares generally will
not be taxable Canadian property provided the Common Shares are listed on a
prescribed stock exchange and at no time within the five-year period immediately
preceding the disposition did the U.S. Holder, persons with whom the U.S. Holder
did not deal at arm's length, or the U.S. Holder together with such persons, own
25% or more of the issued shares (and in the view of Revenue Canada, taking into
account any interest therein or options in respect thereof that belonged to the
U.S. Holder, persons with whom the U.S. Holder did not deal at arm's length, or
the U.S. Holder and such persons) of any class or series of the Company's
shares. A deemed disposition of Common Shares will arise on the death of a U.S.
Holder. If the Common Shares are taxable Canadian property to a U.S. Holder, any
capital gain realized on a disposition or deemed disposition of such shares will
generally be exempt from tax under the Act by virtue of the Convention if the
value of the Common Shares at the time of the disposition or deemed disposition
is not derived principally from real property situated in Canada (as defined by
the Convention).

The Company has advised that the Common Shares do not now derive their
value principally from real property situated in Canada; however, the
determination as to whether Canadian tax would be applicable on a disposition or
deemed disposition of Common Shares must be made at the time of that disposition
or deemed disposition.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following sets forth the opinion of Skadden, Arps, Slate, Meagher &
Flom LLP, U.S. counsel to the Company, as to the material United States federal
income tax consequences of an investment in the Common Shares generally
applicable to the following persons who invest in and hold such Common Shares as
capital assets ("United States Shareholders"): (i) citizens or residents (as
defined for United States federal income tax purposes) of the United States,
(ii) corporations or partnerships created or organized in the United States or
under the laws of the United States or of any state or the District of Columbia,
(iii) estates, the income of which is subject to United States federal income
taxation regardless of its source, (iv) any trust if (x) a United States court
is unable to exercise primary

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<PAGE> 76

supervision over the administration of the trust and (y) one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust, and (v) certain trusts in existence on August 20, 1996 which were
treated as United States persons under the law in effect immediately prior to
such date and which make a valid election to be treated as a "United States
Person" under the Internal Revenue Code of 1986, as amended (the "Code"). This
discussion does not purport to be a comprehensive description of all the tax
considerations that may be relevant to a United States Shareholder's decision to
acquire Common Shares. In particular, this discussion does not address (a) the
tax treatment of special classes of United States Shareholders, such as banks,
insurance companies, tax-exempt organizations or dealers in securities, (b) the
tax treatment of United States Shareholders that own (directly or indirectly by
attribution) 10 percent or more of the voting shares of the Company, or (c) any
aspect of state, local or non-United States tax laws.

This discussion is based on the Code, judicial decisions, administrative
pronouncements, and existing and proposed Treasury regulations, changes to any
of which after the date of this Prospectus could have retroactive effect.
Additionally, the implementation of certain aspects of the PFIC rules (discussed
below) and other matters discussed herein requires the issuance of Treasury
regulations which have not yet been promulgated and which may have retroactive
effect.

Prospective investors should consult their tax advisors as to the tax
consequences of an investment in the Common Shares in light of their particular
circumstances, including the effect of any foreign, United States state or local
tax laws.

TAXATION OF CAPITAL GAINS

Gain or loss, if any, recognized by a United States Shareholder on the sale
or other disposition of Common Shares will be subject to United States federal
income taxation as capital gain or loss in an amount equal to the difference
between the United States Shareholder's adjusted tax basis in the Common Shares
and the amount realized on the disposition. Any such gain or loss will generally
be treated as long-term or short-term capital gain or loss, depending on whether
the United States Shareholder's holding period with respect to the Common Shares
is longer than one year. In general, long-term capital gains with respect to
Common Shares held for more than 18 months are subject to a maximum tax rate of
20% and long-term capital gains with respect to Common Shares held for more than
12 months but not more than 18 months are subject to a maximum tax rate of 28%.

A holder of Common Shares who is not a United States Shareholder (a "Non
United States Shareholder") generally will not be subject to United States
federal income tax or withholding tax in respect of gain recognized on a
disposition of Common Shares unless such gain is effectively connected with a
trade or business of the Non United States Shareholder in the United States, or
in the case of an individual Non United States Shareholder, such Non United
States Shareholder is present in the United States for 183 or more days in the
calendar year in which such disposition of Common Shares takes place and such
Non United States Shareholder either (i) has a tax home (as defined in the Code)
in the United States, or (ii) such gain is attributable to an office or other
fixed place of business in the United States.

DIVIDENDS ON COMMON SHARES

The gross amount of any distribution by the Company (including any Canadian
taxes withheld therefrom) with respect to Common Shares generally will be
includible in the gross income of a United States Shareholder as foreign source
dividend income to the extent paid out of current or accumulated earnings and
profits of the Corporation, as determined under United States federal income tax
principles. To the extent that the amount of any distribution exceeds the
Company's current and accumulated earnings and profits for a taxable year, the
distribution will first be treated as a tax-free return of capital to the extent
of the United States Shareholder's adjusted tax basis in the Common Shares and
to the extent that such distribution exceeds the United States Shareholder's
adjusted tax basis in the Common Shares, will be taxed as a capital gain. Such
dividends will not be eligible for the dividends received deduction generally
allowed to corporations under the Code. If a United States Shareholder receives
a dividend in Canadian dollars, the amount of the dividend for United States
federal income tax purposes will be the U.S. dollar value of the dividend
(determined at the spot rate on the date of such payment)

76
<PAGE> 77

regardless of whether the payment is later converted into U.S. dollars. In such
case, the United States Shareholder may recognize ordinary income or loss as a
result of currency fluctuations between the date on which the dividend is paid
and the date the dividend amount is converted into U.S. dollars.

A Non United States Shareholder generally will not be subject to United
States federal income or withholding tax on dividends received on Common Shares,
unless such income is effectively connected with the conduct of a trade or
business of such Non United States Shareholder in the United States.

Credit for Foreign Taxes Withheld. Subject to the limitations set forth in
Sections 901 and 904 of the Code (including certain holding period
requirements), the foreign tax withheld or paid with respect to dividends on the
Common Shares generally will be eligible for credit against a United States
Shareholder's federal income tax liability. Alternatively, a United States
Shareholder may claim a deduction for such amount of withheld foreign taxes, but
generally only for a year for which such United States Shareholder elects to do
so with respect to all foreign income taxes. The overall limitation on foreign
taxes eligible for credit is calculated separately with respect to specific
classes of income.

PASSIVE FOREIGN INVESTMENT COMPANY DISCUSSION

The foregoing discussion assumes that the Company is not currently, and
will not be in the future, classified as a "passive foreign investment company"
("PFIC") within the meaning of the Code. Based on its current and projected
income, assets and activities, the Company does not believe it will be
classified as a PFIC for its current or any succeeding taxable year. However, if
during any taxable year of the Company, 75% or more of the Company's gross
income consists of certain types of "passive" income, or if the average value
during a taxable year of the Company's "passive assets" (generally assets that
generate passive income) is 50% or more of the average value of all assets held
by the Company, the Company will be classified as a PFIC for such year and in
succeeding years. If the Company is classified as a PFIC, a United States
Shareholder holding Common Shares will be subject to increased tax liability in
respect of gain realized on the sale of the Common Shares or upon the receipt of
certain dividends, unless such person makes an election to be taxed currently on
its pro rata portion of the Company's income, whether or not such income is
distributed in the form of dividends or otherwise.

77
<PAGE> 78

UNDERWRITING

Subject to the terms and conditions set forth in the U.S. Underwriting
Agreement (the "U.S. Underwriting Agreement"), the Company has agreed to sell to
each of the underwriters named below (the "U.S. Underwriters"), and each of the
U.S. Underwriters, for whom Salomon Brothers Inc and Merrill Lynch, Pierce,
Fenner & Smith Incorporated are acting as representatives (the "U.S.
Representatives"), has severally agreed to purchase from the Company the number
of Common Shares set forth opposite its name below:

<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
-------------------------------------------------------------------- ----------------
<S> <C>
Salomon Brothers Inc ............................................... 3,294,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................ 3,294,000
BT Alex. Brown Incorporated......................................... 1,404,000
CIBC Oppenheimer Corp............................................... 1,404,000
Morgan Stanley & Co. Incorporated................................... 1,404,000
Credit Suisse First Boston Corporation.............................. 475,000
Donaldson, Lufkin & Jenrette Securities Corporation................. 475,000
Lehman Brothers Inc. ............................................... 475,000
Schroder & Co. Inc. ................................................ 475,000
Smith Barney Inc. .................................................. 475,000
Furman Selz LLC..................................................... 475,000
Arnhold and S. Bleichroeder, Inc. .................................. 225,000
Blackford Securities Corp........................................... 225,000
First Albany Corporation............................................ 225,000
Janney Montgomery Scott Inc. ....................................... 225,000
McDonald & Company Securities, Inc. ................................ 225,000
Wm Smith Securities, Incorporated................................... 225,000
--------
Total........................................................ 15,000,000
========
</TABLE>

In the U.S. Underwriting Agreement, the several U.S. Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
the Common Shares offered in the U.S. Offering if any such Common Shares are
purchased. In the event of a default by any U.S. Underwriter, the U.S.
Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated. The U.S. Underwriters have agreed to
purchase such Common Shares from the Company at the public offering price set
forth on the cover page of this Prospectus and the Company has agreed to pay the
U.S. Underwriters the underwriting commission set forth on the cover page of
this Prospectus for each Common Share so purchased. The Company has been advised
by the U.S. Representatives that the several U.S. Underwriters propose initially
to offer such Common Shares to the public at the public offering price set forth
on the cover page of this Prospectus, and to certain dealers at such price, less
a concession not in excess of $0.40 per Common Share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $0.10 per
Common Share to other dealers. After the Offerings, the public offering price
and such concessions may be changed.

The Company has also entered into an International Underwriting Agreement
with the underwriters named therein (the "International Underwriters"), for whom
Salomon Brothers International Limited and Merrill Lynch International are
acting as representatives (the "International Representatives"), providing for
the concurrent offer and sale of 5,000,000 Common Shares outside of the United
States.

The public offering price and underwriting commission per Common Share for
each of the Offerings are identical. The closing of each of the Offerings is
conditioned upon the closing of the other.

The Company has granted to the U.S. Underwriters an option, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 2,250,000 additional Common

78
<PAGE> 79

Shares at the same public offering price per Common Share as set forth on the
cover page of this Prospectus to cover over-allotments, if any. The Company has
agreed to pay the U.S. Underwriters the underwriting commission set forth on the
cover page of this Prospectus for each additional Common Share so purchased. To
the extent that the U.S. Underwriters exercise such option, each U.S.
Underwriter will have a firm commitment, subject to certain conditions, to
purchase the same proportion of such Common Shares as the number of Common
Shares to be purchased and offered by such U.S. Underwriter in the above table
bears to the total number of Common Shares initially offered by the U.S.
Underwriters. The Company has also granted to the International Underwriters an
option, exercisable during the 30-day period after the date of this Prospectus,
to purchase up to an aggregate of 750,000 additional Common Shares at the same
public offering price per Common Share to cover over-allotments, if any.

The U.S. Underwriters and the International Underwriters have entered into
an Agreement Between U.S. Underwriters and International Underwriters (the
"Agreement Between U.S. Underwriters and International Underwriters"), pursuant
to which each U.S. Underwriter has severally agreed that, as part of the
distribution of the Common Shares offered by the U.S. Underwriters, (i) it is
not purchasing any Common Shares for the account or benefit of anyone other than
a U.S. Person and (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any Common Shares or distribute this Prospectus to any
person outside the United States or to anyone other than a U.S. Person. Each
International Underwriter has severally agreed that, as part of the distribution
of the Common Shares by the International Underwriters, (i) it is not purchasing
any Common Shares for the account or benefit of any U.S. Person, and (ii) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
Common Shares or distribute any Prospectus relating to the International
Offering to any person within the United States or to anyone who is a U.S.
Person. The foregoing limitations do not apply to stabilization transactions or
to certain other transactions specified in the Agreement Between U.S.
Underwriters and International Underwriters. As used herein, "United States"
means the United States of America (including the District of Columbia) and its
territories, its possessions and other areas subject to its jurisdiction, and
"U.S. Person" means a resident of the United States, a corporation, partnership
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, and certain other persons and entities,
and includes any United States branch of a person other than a U.S. Person.

Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the Underwriters of such number of
Common Shares as may be mutually agreed. The price of any Common Shares so sold
shall be the public offering price as set forth on the cover page to this
Prospectus, less an amount not greater than the concession to securities
dealers. To the extent that there are sales between U.S. Underwriters and
International Underwriters pursuant to the Agreement Between U.S. Underwriters
and International Underwriters, the number of Common Shares initially available
for sale by U.S. Underwriters or International Underwriters may be more or less
than the amount appearing on the cover page of this Prospectus.

No action has been or will be taken in any jurisdiction by the Company or
by any Underwriter that would permit a public offering of the Common Shares or
possession or distribution of a prospectus in any jurisdiction where action for
that purpose is required, other than in the United States and Canada. Persons
into whose possession this Prospectus comes are advised by the Company and the
Underwriters to inform themselves about, and to observe any restrictions as to,
the offering of the Common Shares and the distribution of this Prospectus.

This Prospectus may be used in connection with offers and sales of Common
Shares initially offered outside the United States in the International Offering
insofar as such Common Shares are re-offered or resold from time to time in the
United States or to U.S. Persons in transactions that require registration under
the Securities Act.

In connection with the Offerings, rules of the Commission permit the
Underwriters to engage in certain transactions that stabilize the price of the
Common Shares. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Shares.

79
<PAGE> 80

If the Underwriters over-allot or create short positions in the Common
Shares in connection with the Offerings by selling more Common Shares than are
set forth on the cover page of this Prospectus, the Underwriters may reduce that
short position by purchasing Common Shares in the open market. The Underwriters
may also elect to reduce any short position by exercising all or part of the
over-allotment option described above.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of Common Shares. In addition, neither the
Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

CIBC Oppenheimer Corp. and BT Alex. Brown Incorporated are affiliates of
banks that are lenders to the Company under its Credit Facility. The net
proceeds of this offering will be used by the Company to reduce the debt owing
under such Credit Facility. These banks did not participate in the decision to
make the offering, the determination of the terms of the distribution or the use
of the proceeds thereof. The Company is in compliance with its obligations under
this Credit Facility. Under Rule 2710, the Corporate Financing Rule of the
National Association of Securities Dealers, Inc. (the "NASD"), when more than
10% of the net offering proceeds, not including underwriting compensation, are
intended to be paid to an NASD member participating in the offering of an
issuer's equity securities, or associated or affiliated persons of such member,
certain conflict of interest criteria set forth in NASD Rule 2710(c)(3) are
applicable to the pricing of the offering. However, in accordance with such
Rule, and because a bona fide independent market exists for the Common Shares,
no qualified independent underwriter is required to establish the price of the
Common Shares offered hereby.

The U.S. Underwriting Agreement and the International Underwriting
Agreement each provide that the Company will indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.

The Company and its executive officers and directors have agreed that none
of them will, directly or indirectly, offer, sell, announce an intention to
sell, contract to sell, pledge, hypothecate, grant any option to purchase or
otherwise dispose of, any Common Shares or securities convertible or
exchangeable into or exercisable for any Common Shares without the prior written
consent of Salomon Brothers Inc for a period of 90 days after the date of this
Prospectus, except in the case of the executive officers and directors for an
aggregate of 500,000 Common Shares, and subject to certain additional
exceptions.

The Underwriters and their affiliates have provided and will in the future
continue to provide investment banking and other financial services for the
Company in the ordinary course of business for which they have received and will
receive customary compensation.

80
<PAGE> 81

LEGAL MATTERS

Certain Canadian legal matters relating to the Common Shares offered hereby
will be passed upon, on behalf of the Company, by its General Counsel and by
Stikeman, Elliott (Toronto) and, on behalf of the Underwriters, by Osler, Hoskin
& Harcourt (Toronto). Certain U.S. legal matters relating to the Common Shares
offered hereby will be passed upon, on behalf of the Company, by Skadden, Arps,
Slate, Meagher & Flom LLP (Toronto and New York) and, on behalf of the
Underwriters, by Testa, Hurwitz & Thibeault, LLP (Boston).

EXPERTS

The consolidated balance sheets of the Company and its subsidiaries as of
December 31, 1996 and 1995 and the consolidated statements of earnings, retained
earnings and changes in financial position for each of the three years in the
period ended December 31, 1996, included in this Prospectus have been included
herein in reliance on the report of Deloitte & Touche, independent auditors, as
stated in their reports, given on the authority of that firm as experts in
accounting and auditing.

The consolidated balance sheets of Allwaste and its subsidiaries at August
31, 1996 and 1995, and the consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended August
31, 1996 included in this Prospectus have been included herein in reliance on
the report of Arthur Andersen LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.

The combined statements of income and of cash flows of Pechiney (ISW),
Inc., PPC (ISW), Inc. and Intsel Southwest Limited Partnership for the nine
months ended September 26, 1996 included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

The consolidated statements of income and cash flows of Luntz Corporation
for the fiscal year ended December 31, 1995 included in this Prospectus have
been included herein in reliance on the report of Ernst & Young LLP, independent
auditors, given on the authority of that firm as experts in accounting and
auditing.

81
<PAGE> 82

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Shares offered
hereby. The Prospectus omits certain information contained in the Registration
Statement. For further information with respect to the Company and the Common
Shares offered hereby, reference is hereby made to the Registration Statement
and to the exhibits and schedules filed therewith. Statements contained in this
Prospectus regarding the contents of any agreement or other document filed as an
exhibit to the Registration Statement are not necessarily complete, and in each
instance reference is made to the copy of such agreement filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, DC 20549,
and copies of all or any part thereof may be obtained from such office upon
payment of the prescribed fees.

The Company is subject to the information requirements of the Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder. In
accordance therewith, the Company files periodic reports and other information
with the Commission. The reports and other information filed by the Company,
including the Registration Statement and the exhibits and schedules thereto, may
be inspected and copied at the public reference facilities maintained by the
Commission at its principal offices at 450 Fifth Street, N.W., Washington, D.C.
20549, and at its regional offices located at Seven World Trade Center, New
York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of all or any part thereof may be obtained from the Public
Reference Section of the Commission in Washington, D.C., upon payment of certain
fees prescribed by the Commission and are also publicly available through the
Commission's web site (http://www.sec.gov). The Common Shares are listed on the
NYSE. Reports and other information described above may be inspected and copied
at facilities maintained by the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.

82
<PAGE> 83

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF PHILIP SERVICES CORP.
Auditors' Report to Shareholders....................................................... F-2
Unaudited Consolidated Balance Sheets at June 30, 1997 and Audited Consolidated Balance
Sheets at December 31, 1996 and 1995................................................. F-3
Unaudited Consolidated Statements of Earnings for the six months ended June 30, 1997
and 1996 and Audited Consolidated Statements of Earnings for the fiscal years ended
December 31, 1996, 1995 and 1994..................................................... F-4
Unaudited Consolidated Statements of Retained Earnings for the six months ended June
30, 1996 and 1997 and Audited Consolidated Statements of Retained Earnings for the
fiscal years ended December 31, 1996, 1995 and 1994.................................. F-5
Unaudited Consolidated Statements of Changes in Financial Position for the six months
ended June 30, 1997 and 1996 and Audited Consolidated Statements of Changes in
Financial Position for the fiscal years ended December 31, 1996, 1995 and 1994....... F-6
Notes to Consolidated Financial Statements............................................. F-7
UNAUDITED SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA PRESENTED IN U.S. GAAP
(IN U.S. DOLLARS).................................................................... F-27
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF ALLWASTE, INC.
Condensed Consolidated Balance Sheets at May 31, 1997 (unaudited) and August 31,
1996................................................................................. F-28
Condensed Consolidated Statements of Operations for the nine and three month periods
ended May 31, 1997 and May 31, 1996 (unaudited)...................................... F-29
Condensed Consolidated Statements of Cash Flows for the nine month periods ended May
31, 1997 and May 31, 1996 (unaudited)................................................ F-30
Notes to Condensed Consolidated Financial Statements (unaudited)....................... F-31
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF ALLWASTE, INC.
Report of Independent Public Accountants............................................... F-35
Audited Consolidated Balance Sheets at August 31, 1996 and 1995........................ F-36
Audited Consolidated Statements of Operations for the fiscal years ended August 31,
1996, 1995 and 1994.................................................................. F-37
Audited Consolidated Statements of Shareholders' Equity at August 31, 1996, 1995, 1994
and 1993............................................................................. F-38
Audited Consolidated Statements of Cash Flows for the fiscal years ended
August 31, 1996, 1995 and 1994....................................................... F-39
Notes to Consolidated Financial Statements............................................. F-40
FINANCIAL STATEMENTS OF PECHINEY (ISW), INC., PPC (ISW), INC. AND
INTSEL SOUTHWEST LIMITED PARTNERSHIP
Report of Independent Accountants...................................................... F-58
Audited Combined Statement of Income for the nine month period ended September 26,
1996................................................................................. F-59
Audited Combined Statement of Cash Flows for the nine month period ended September 26,
1996................................................................................. F-60
Audited Notes to Combined Financial Statements......................................... F-61
FINANCIAL STATEMENTS OF LUNTZ CORPORATION
Report of Independent Auditors......................................................... F-64
Unaudited Consolidated Statement of Income for the eleven month period ended November
30, 1996 and Audited Consolidated Statement of Income for the fiscal year ended
December 31, 1995.................................................................... F-65
Unaudited Consolidated Statement of Cash Flows for the eleven month period ended
November 30, 1996 and Audited Consolidated Statement of Cash Flows for the fiscal
year ended December 31, 1995......................................................... F-66
Notes to Consolidated Statements of Income and Cash Flows.............................. F-67
</TABLE>

F-1
<PAGE> 84

AUDITORS' REPORT TO SHAREHOLDERS

TO THE SHAREHOLDERS OF PHILIP SERVICES CORP. (FORMERLY PHILIP ENVIRONMENTAL
INC.)

We have audited the consolidated balance sheets of Philip Services Corp. as
at December 31, 1996 and 1995, and the consolidated statements of earnings,
retained earnings and changes in financial position for each of the years in the
three year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1996 and 1995 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended December 31, 1996
in accordance with accounting principles generally accepted in Canada.

Deloitte & Touche
Chartered Accountants

Mississauga, Ontario
February 26, 1997
(November 5, 1997 with respect to Note 18(d) and Note 22)

F-2
<PAGE> 85

PHILIP SERVICES CORP.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------
1997 1996 1995
---------- ---------- ----------
(unaudited) (Restated)
(in thousands of Canadian dollars)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents............................ $ 10,485 $ 8,279 $ --
Accounts receivable (net of allowance for
doubtful accounts of $8,092; 1995 --
$5,528)...................................... 354,604 273,865 138,180
Inventory for resale............................ 330,085 248,055 99,442
Other current assets (Note 5)................... 50,845 61,219 71,322
---------- ---------- ----------
746,019 591,418 308,944
Fixed assets (Note 6)............................. 471,026 348,065 351,849
Goodwill.......................................... 368,289 329,809 292,610
Other assets (Note 7)............................. 108,366 75,690 48,722
Due from an officer and director.................. 737 737 787
---------- ---------- ----------
$1,694,437 $1,345,719 $1,002,912
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities........ $ 208,064 $ 216,580 $ 126,531
Interim financing loans payable (Note 3)........ -- -- 53,000
Current maturities of long-term debt and loans
from related parties (Notes 8 and 17(b))..... 10,973 27,337 22,809
---------- ---------- ----------
219,037 243,917 202,340
Long-term debt (Note 8)........................... 681,307 387,431 249,534
Loans from related parties (Note 17(b))........... -- -- 1,128
Deferred income taxes............................. 46,503 42,777 31,430
Other liabilities (Note 10)....................... 55,207 48,243 58,494
Convertible subordinated debentures (Note 11)..... -- -- 147,884
Contingencies (Note 19)
Shareholders' equity (Note 12).................... 692,383 623,351 312,102
---------- ---------- ----------
$1,694,437 $1,345,719 $1,002,912
========== ========== ==========
Signed on behalf of the Board of Directors.

HERMAN TURKSTRA ALLEN FRACASSI
Director Director
</TABLE>

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

F-3
<PAGE> 86

PHILIP SERVICES CORP.

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------------------- ----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- -------- ---------- ----------
(unaudited) (unaudited) (Restated) (Restated)
(in thousands of Canadian dollars except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 856,629 323,397 802,490 648,311 489,740
Operating expenses........................ 701,300 251,586 615,462 489,569 366,649
Selling, general and administrative....... 63,461 33,445 78,053 66,563 51,216
Depreciation and amortization............. 24,148 15,438 33,966 25,510 21,354
--------- --------- -------- -------- --------
Income from continuing operations......... 67,720 22,928 75,009 66,669 50,521
Interest -- short-term.................. 304 570 1,180 2,089 2,355
-- long-term..................... 18,908 14,453 23,418 26,098 19,395
Other income and expense -- net......... (5,522) (2,459) (4,782) (3,689) (2,122)
--------- --------- -------- -------- --------
Earnings from continuing operations before
tax..................................... 54,030 10,364 55,193 42,171 30,893
Income taxes (Note 15).................... 16,392 2,707 15,180 12,354 8,769
--------- --------- -------- -------- --------
Earnings from continuing operations....... 37,638 7,657 40,013 29,817 22,124
Discontinued operations (net of tax) (Note
4)...................................... -- 7,234 (1,005) 2,894 2,502
--------- --------- -------- -------- --------
Net earnings.............................. $ 37,638 $ 14,891 $ 39,008 $ 32,711 $ 24,626
--------- --------- -------- -------- --------
Basic earnings per share
Continuing operations................... $ 0.53 $ 0.19 $ 0.79 $ 0.80 $ 0.61
Discontinued operations................. -- $ 0.18 $ (0.02) $ 0.08 $ 0.07
--------- --------- -------- -------- --------
$ 0.53 $ 0.37 $ 0.77 $ 0.88 $ 0.68
========= ========= ======== ======== ========
Fully diluted earnings per share
Continuing operations................... $ 0.52 $ 0.19 $ 0.72 $ 0.68 $ 0.55
Discontinued operations................. -- $ 0.14 $ (0.01) $ 0.05 $ 0.05
--------- --------- -------- -------- --------
$ 0.52 $ 0.33 $ 0.71 $ 0.73 $ 0.60
========= ========= ======== ======== ========
Weighted average number of common shares
outstanding (000s)...................... 70,970 40,586 50,632 37,342 36,209
========= ========= ======== ======== ========
</TABLE>

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

F-4
<PAGE> 87

PHILIP SERVICES CORP.

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

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

F-5
<PAGE> 88

PHILIP SERVICES CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- --------- ---------- ----------
(unaudited) (unaudited) (Restated) (Restated)
(in thousands of Canadian dollars)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings from continuing
operations............................ $ 37,638 $ 7,657 $ 40,013 $ 29,817 $ 22,124
Items included in earnings not affecting
cash
Depreciation and amortization......... 19,006 11,690 26,236 18,458 15,383
Amortization of goodwill.............. 5,142 3,748 7,730 7,052 5,971
Deferred income taxes................. 2,589 (3,941) 19,542 15,542 11,503
Net gain on sale of assets............ -- -- (2,241) (1,215) --
--------- --------- --------- --------- ---------
Cash flow from continuing operations.... 64,375 19,154 91,280 69,654 54,981
Change in non-cash working capital (Note
14)................................... (131,283) (42,759) (180,518) (49,818) (63,308)
--------- --------- --------- --------- ---------
Cash provided by (used in) continuing
operating activities.................. (66,908) (23,605) (89,238) 19,836 (8,327)
Cash provided by discontinued operating
activities............................ -- 29,494 28,830 15,114 21,649
--------- --------- --------- --------- ---------
Cash provided by (used in) operating
activities............................ (66,908) 5,889 (60,408) 34,950 13,322
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Proceeds from sale of solid waste
operations (Notes 3 & 4).............. -- 53,250 210,800 -- --
Acquisitions -- including acquired cash
(bank indebtedness) (Note 3).......... (175,612) (16,335) (222,440) (11,727) (33,997)
Purchase of fixed assets................ (44,539) (22,810) (59,847) (37,016) (29,910)
Other -- net............................ (8,991) (28,573) (35,903) (26,584) (989)
--------- --------- --------- --------- ---------
Cash used in continuing investing
activities............................ (229,142) (14,468) (107,390) (75,327) (64,896)
Cash used in investing activities of
discontinued operations............... -- (14,059) (17,307) (55,824) (18,421)
--------- --------- --------- --------- ---------
Cash used in investing activities....... (229,142) (28,527) (124,697) (131,151) (83,317)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Proceeds from long-term debt............ 390,317 48,164 338,704 52,643 193,177
Principal payments of long-term debt.... (120,483) (102,613) (255,914) (11,927) (108,671)
Conversion of convertible subordinated
debentures............................ -- -- (147,884) -- (170)
Common shares issued.................... 28,422 93,896 291,869 1,466 9,824
Other (Note 12)......................... -- -- (20,708) -- (22)
--------- --------- --------- --------- ---------
Cash provided by continuing financing
activities............................ 298,256 39,447 206,067 42,182 94,138
Cash provided by (used in) financing
activities of discontinued
operations............................ -- (15,980) (12,683) 38,215 (1,903)
--------- --------- --------- --------- ---------
Net cash provided by financing
activities............................ 298,256 23,467 193,384 80,397 92,235
--------- --------- --------- --------- ---------
Net change in cash for the year......... 2,206 829 8,279 (15,804) 22,240
Cash position, beginning of year........ 8,279 -- -- 15,804 (6,436)
--------- --------- --------- --------- ---------
Cash position, end of year.............. $ 10,485 $ 829 $ 8,279 $ -- $ 15,804
========= ========= ========= ========= =========
</TABLE>

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

F-6
<PAGE> 89

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

1. BASIS OF PRESENTATION

Philip Services Corp. (the "Company") is an integrated resource recovery
and industrial services company, which provides metal recovery and processing
services, by-products recovery, and industrial services to major industry
sectors throughout North America. These consolidated financial statements
include the accounts of the Company and all of its subsidiary companies.

2. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in Canadian
dollars using accounting principles generally accepted in Canada ("Canadian
GAAP") which, except for the matters as described in note 18, conform in all
material respects with accounting principles generally accepted in the United
States ("US GAAP").

The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingencies at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from the Company's estimates.

For all periods presented, the Consolidated Financial Statements and Notes
to the Consolidated Financial Statements disclose the Company's municipal and
commercial solid waste business as discontinued operations, as discussed in note
4.

Revenue recognition

Revenue from by-products recovery operations is recognized upon receipt and
acceptance of materials for processing. Treatment, transportation and disposal
costs are accrued when the related revenue is recognized.

Revenue from environmental service contracts is recorded using the
percentage of completion basis for fixed rate contracts and as the related
service is provided for time and material contracts.

Revenue from the sale of recovered commodities and steel products is
recognized at the time of shipment. For contracts where the Company brokers
materials between two parties, only the commission on the transaction is
recorded.

Cash and equivalents

Cash and equivalents consist of cash on deposit and term deposits in money
market instruments with maturity dates of less than three months from the date
they are acquired.

Inventory

Inventory is recorded at the lower of average purchased cost and net
realizable value.

Fixed assets

Fixed assets are stated at cost and are depreciated over their estimated
useful lives generally on the following basis: buildings 20 to 40 years
straight-line; equipment 5% to 30% straight-line. Landfill sites and
improvements thereto are recorded at cost and amortized over the life of the
landfill site based on the estimated landfill capacity as determined by
engineering studies and the landfill capacity utilized during the year is based
on actual tonnage received by the site. Operating costs associated with landfill
sites are charged to operations as incurred. Assets under development include
the direct cost of land, buildings

F-7
<PAGE> 90

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and equipment acquired for future use together with engineering, legal and other
costs incurred before the assets are brought into operation.

The Company periodically reviews the carrying value of its fixed assets to
determine whether such values are recoverable. Any resulting write-downs are
charged to earnings.

Goodwill

Goodwill represents the excess of the purchase price of businesses acquired
over the fair value of the identifiable assets acquired and is amortized over
periods not exceeding 40 years. At each balance sheet date management assesses
the appropriateness of the goodwill balance based on the undiscounted future
cash flow from operating results.

Other Assets

Deferred financing costs are amortized over the life of the related debt
instrument. Other intangibles such as non-compete agreements are amortized over
periods relating to the terms of the agreements.

Environmental liability

The Company accrues the estimated costs relating to the closure and
post-closure monitoring of its landfill sites. The Company charges earnings with
these estimated future costs based on engineering estimates over the fill rate
of landfill sites. The accrued liability for environmental and closure costs is
disclosed in the consolidated balance sheet under other liabilities. Amounts
required to dispose of waste materials located at the Company's transfer and
processing facilities are included in accounts payable and accrued liabilities.

Interest capitalization

The Company includes, as part of the cost of its fixed assets, all
financing costs incurred prior to the asset becoming available for operation,
providing the resulting capital cost of the fixed asset does not exceed the net
recoverable amount of the asset.

Foreign currency translation

Assets and liabilities denominated in foreign currencies are translated at
the exchange rates in effect at the balance sheet date. Gains and losses on
translation are reflected in net earnings of the period, except: (i) unrealized
foreign currency gains and losses on long-term monetary assets and liabilities
which are deferred and amortized over the remaining lives of the related items
on a straight-line basis; (ii) unless the item has been designated as a hedge of
the net investment in self-sustaining foreign operations, in which case the
translation gains and losses are included in the cumulative foreign currency
translation adjustment.

The assets and liabilities denominated in a foreign currency for foreign
operations, all of which are self-sustaining, are translated at exchange rates
in effect at the balance sheet date. The resulting gains and losses are
accumulated in a separate component of shareholders' equity. Revenue and expense
items are translated at average exchange rates prevailing during the period.

F-8
<PAGE> 91

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments

The Company's accounts receivable and long-term debt constitute financial
instruments. The Company's accounts receivable approximated their fair value as
at December 31, 1996 and 1995. Concentration of credit risk in accounts
receivable is limited, due to the large number of customers the Company
services. The Company performs ongoing credit evaluations of its customers, but
does not require collateral to support customer accounts receivable. The Company
establishes an allowance for doubtful accounts based on the credit risk
applicable to particular customers, historical and other information.

3. ACQUISITIONS AND DIVESTITURES (in thousands)

During 1996, the Company acquired eleven businesses, including Intsel
Southwest Limited Partnership ("Intsel") and Luntz Corporation ("Luntz"). Intsel
is a distributor of a broad range of heavy carbon steel products based in
Houston, Texas. Luntz, based in Canton, Ohio, provides ferrous scrap and mill
services in the USA. During 1995, six businesses were acquired and during 1994,
two businesses were acquired.

All business combinations have been accounted for using the purchase method
of accounting and are summarized below:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------- --------------------------------------------------------------------
1997 1996 1996 1995 1994
-------- ------- -------------------------------------------- -------- --------
INTSEL LUNTZ OTHER TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchase consideration
Cash........................ $131,576 $ 7,377 $ 84,020 $ 2,473 $ 62,595 $149,088 $ 2,565 $ 6,650
Company's common shares..... 23,644 13,000 -- 27,200 13,000 40,200 1,700 8,500
Deferred payments and
long-term debt............ 8,681 (4,084) -- 24,480 5,940 30,420 6,140 17,000
Acquisition costs and
accruals.................. 1,868 43 270 791 4,202 5,263 944 116
-------- ------- -------- -------- -------- -------- -------- --------
$165,769 $16,336 $ 84,290 $ 54,944 $ 85,737 $224,971 $ 11,349 $ 32,266
======== ======= ======== ======== ======== ======== ======== ========
Fair value of net assets
acquired
Cash (bank indebtedness).... $ (9,843) $ 1 $ 2,709 $ -- $ (178) $ 2,531 $ (378) $ (1,731)
Long-term debt.............. (4,946) (308) -- (12,593) (7,134) (19,727) (338) (3,799)
Assets, excluding cash &
intangibles............... 181,607 6,607 68,036 93,070 70,577 231,683 19,358 26,499
Liabilities................. (62,544) (1,449) (24,889) (40,678) (20,366) (85,933) (18,441) (13,516)
Goodwill.................... 43,243 8,116 37,066 12,425 39,469 88,960 10,308 23,313
Other intangibles........... 18,252 3,369 1,368 2,720 3,369 7,457 840 1,500
-------- ------- -------- -------- -------- -------- -------- --------
$165,769 $16,336 $ 84,290 $ 54,944 $ 85,737 $224,971 $ 11,349 $ 32,266
======== ======= ======== ======== ======== ======== ======== ========
</TABLE>

F-9
<PAGE> 92

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

3. ACQUISITIONS AND DIVESTITURES (CONTINUED)
The following table summarizes the unaudited consolidated pro-forma results
of operations, assuming the 1996 acquisitions of Luntz and Intsel had occurred
at the beginning of 1995. This information does not purport to be indicative of
the results of the operations that actually would have resulted if the
acquisitions had occurred on January 1, 1995.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1996 1995
- ------------------------------------------------------------ ----------- -----------
(unaudited)
<S> <C> <C>
Revenue..................................................... $ 1,064,210 $ 1,028,758
Earnings from continuing operations......................... $ 47,637 $ 38,191
Fully diluted earnings per share from continuing
operations................................................ $ 0.83 $ 0.74
</TABLE>

In July 1995, the Company acquired the 30% minority interest in Intersan
Inc. ("Intersan") not previously owned by the Company for $40,000.

The Company arranged interim financing (the "Interim Financing") to acquire
the 30% minority interest and to repay a $13,000 advance from the former
minority shareholder. The Interim Financing bore interest at a rate of 10% per
annum and was secured by the assets of Intersan.

In November 1995, the Company reached an agreement to sell the Greater
Montreal Area solid waste collection and transfer business of Intersan (the
"Intersan Business") for $43,250. As part of the sale of the Intersan Business,
the Company entered into a disposal services agreement with the purchaser. The
initial consideration for the disposal service agreement amounted to $10,000 and
was recorded as deferred revenue (note 10).

The proceeds from the sale of the Intersan Business, and the disposal
services agreement, which amounted to $53,250, were received in January 1996,
and used to repay in full the Interim Financing.

Subsequent to the year end, the Company acquired three additional
businesses. RMF Global, Inc. of Toledo, Ohio provides industrial maintenance and
mechanical services, remediation, cleaning and abatement services. Warrenton
Resources, Inc. of Warrenton, Missouri, and Conversion Resources, Inc., of
Cleveland, Ohio, two sister companies are processors of non-ferrous metals.
Allied Metals Limited ("Allied") is a steel scrap processing and mill services
company in the United Kingdom. The total consideration paid for these acquired
businesses amounted to approximately $113,500 and was made up of $94,700 in
cash, $18,400 in shares of the Company and $400 in deferred payments to the
vendors. All three business combinations will be accounted for using the
purchase method of accounting in 1997.

4. DISCONTINUED OPERATIONS (in thousands)

In August 1996, the Company sold its municipal and commercial solid waste
business (the "Solid Waste Business") for a total consideration of US $115,000
to USA Waste Services, Inc. ("USA Waste"). The consideration included US $60,000
in cash, US $38,000 in unrestricted common shares of USA Waste, and US $17,000
in restricted common shares of USA Waste (in total, representing less than 2% of
USA Waste's voting stock). The unrestricted common shares of USA Waste were sold
in September 1996 for US $39,508, resulting in a gain before tax of US $1,508
which is included in Other income and expense -- net in the Consolidated
Statements of Earnings. The restriction on the US $17,000 common shares of USA
Waste ($23,290 at December 31, 1996) was removed in January 1997 and in February
1997, the Company sold these shares for US $19,800, resulting in a further gain
before tax of US $2,800.

F-10
<PAGE> 93

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

4. DISCONTINUED OPERATIONS (CONTINUED)
As part of the sale of the Solid Waste Business, the Company entered into a
five year disposal services agreement with the purchaser at preferential tipping
rates to utilize disposal capacity at two of the landfills which were sold. No
value was assigned to this agreement in the calculation of the loss which
resulted on the sale of the Solid Waste Business. The value of this agreement,
estimated to be US $3,000 on a discounted basis, will be recognized as a
reduction in future disposal costs as capacity at the landfills is utilized.

The sale of the Solid Waste Business in 1996 included the remaining portion
of Intersan, and the disposal services agreement, as described in note 3.

Revenue of the Solid Waste Business, net of intercompany revenue, was
$51,962, $83,850 and $80,573 for the fiscal years ended December 31, 1996, 1995
and 1994, respectively. Income from discontinued operations in the Consolidated
Statements of Earnings is presented net of allocated interest expense of $5,133,
$7,000 and $4,500 and net of applicable income taxes of $4,394, $2,363 and
$2,218 for the fiscal years ended December 31, 1996, 1995 and 1994,
respectively. Interest was allocated based upon the ratio of the net assets of
the Solid Waste Business to the Company's consolidated net assets. No general
corporate overhead was allocated to the discontinued operations.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1996 1995 1994
- ----------------------------------------------------------- ------- ------ ------
<S> <C> <C> <C>
Loss on sale of Solid Waste Business, net of income taxes
recoverable of $3,607.................................... $(7,848) $ -- $ --
Income from discontinued operations (net of tax)........... 6,843 2,894 2,502
-------- ------ ------
Discontinued operations.................................... $(1,005) $2,894 $2,502
======== ====== ======
</TABLE>

5. OTHER CURRENT ASSETS (in thousands)

<TABLE>
<CAPTION>
JUNE DECEMBER 31,
30, --------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Shares of USA Waste (note 4)............................ $ -- $23,290 $ --
Parts and supply inventory.............................. 12,485 10,048 7,361
Deposits on contracts................................... 17,963 14,049 4,848
Income taxes (payable) recoverable...................... (6,058) 1,790 (1,244)
Prepaid expenses........................................ 3,127 1,660 2,847
Other................................................... 23,328 10,382 4,260
Proceeds receivable from sale of the Intersan Business
and the disposal services agreement (note 3).......... -- -- 53,250
------- ------- -------
$50,845 $61,219 $71,322
======= ======= =======
</TABLE>

F-11
<PAGE> 94

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

6. FIXED ASSETS (in thousands)

<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------------------- --------------------------------- ---------------------------------
ACCUMULATED NET BOOK ACCUMULATED NET BOOK ACCUMULATED NET BOOK
COST DEPRECIATION VALUE COST DEPRECIATION VALUE COST DEPRECIATION VALUE
-------- ----------- -------- -------- ----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Land............... $ 69,823 $ -- $ 69,823 $ 54,835 $-- $ 54,835 $ 51,798 $-- $ 51,798
Landfill sites..... 24,947 2,219 22,728 21,279 891 20,388 95,048 12,650 82,398
Buildings.......... 98,421 16,564 81,857 81,336 10,694 70,642 59,836 5,072 54,764
Equipment.......... 370,174 93,254 276,920 254,841 74,102 180,739 177,928 38,728 139,200
Assets under
development...... 19,698 -- 19,698 21,461 -- 21,461 23,689 -- 23,689
-------- --------- -------- -------- ------- -------- -------- ------- --------
$583,063 $ 112,037 $471,026 $433,752 $85,687 $348,065 $408,299 $56,450 $351,849
======== ========= ======== ======== ======= ======== ======== ======= ========
</TABLE>

7. OTHER ASSETS (in thousands)

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Restricted investments (a)............................. $ 35,972 $32,420 $21,205
Deferred financing costs............................... 14,770 15,188 8,735
Other.................................................. 57,624 28,082 18,782
-------- ------- -------
$108,366 $75,690 $48,722
======== ======= =======
</TABLE>

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

F-12
<PAGE> 95

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

8. LONG TERM DEBT (in thousands)

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Bank term loan (including US $150,794 in 1996; US
$9,950 in 1995)(a)................................. $ 630,811 $ 339,889 $ 219,846
Bank term loan (b)................................... -- -- 13,900
Loans (including US $767 in 1996; US $1,122 in 1995)
collateralized by certain assets of subsidiaries of
the Company having a net book value of $11,947
bearing interest at a weighted average fixed rate
of 5.7% (1995 -- 9.21%) maturing at various dates
up to 2002......................................... 6,704 7,089 1,920
Loans (including US $3,608 in 1996; US $615 in 1995)
collateralized by certain assets of subsidiaries of
the Company having a net book value of $16,565
bearing interest at prime plus a weighted average
floating rate of 1.87% (1995 -- 1.14%) maturing at
various dates up to 2002........................... 4,948 7,508 4,287
Loans (including US $25,625), unsecured, bearing
interest at prime plus a weighted average floating
rate of 3.37% maturing at various dates up to
2001............................................... 25,248 35,698 --
Obligations under capital leases on equipment bearing
interest at rates varying from 6% to 12% maturing
at various dates to 2002........................... 22,754 19,841 16,336
Other................................................ 1,815 3,611 12,111
--------- --------- ---------
692,280 413,636 268,400
Less current maturities of long-term debt (c)........ 10,973 26,205 18,866
--------- --------- ---------
$ 681,307 $ 387,431 $ 249,534
========= ========= =========
</TABLE>

(a) In September 1996, the Company signed a new US $550 million term loan
agreement with a syndicate of Canadian and US lenders which replaced the
1994 revolving term loan agreement and refinanced certain other long-term
debt. The new term loan agreement expires in September of 2000, and
contains certain restrictive covenants and financial covenants including
the following:

- the Company must meet interest ratio coverage tests as well as total
debt and secured debt ratio coverage tests

- the Company must maintain a prescribed level of shareholders' equity

- certain acquisitions by the Company must be reviewed by the lenders
prior to completion

At December 31, 1996 the Company is in compliance with all of the covenants
of the credit agreement.

Borrowings under the credit facility are guaranteed, jointly and severally
by the Company's wholly owned subsidiaries and are collateralized by a
fixed and floating charge on substantially all of the assets of the Company
and its wholly owned subsidiaries. The facility bears interest based on a
moving grid. At December 31, 1996, the Company was paying prime rate, which
was 4.75%, on these borrowings.

F-13
<PAGE> 96

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

8. LONG TERM DEBT (CONTINUED)
At December 31, 1996, the Company had undrawn credit capacity under this
facility of approximately $395,200, net of outstanding letters of credit
which amounted to $18,400.

(b) Intersan (note 3) had a separate term loan which bore interest at rates
varying from prime to prime plus 0.25% and was collateralized by
substantially all of the assets of Intersan. This loan was repaid in
January of 1996.

(c) The aggregate amount of payments required to meet long-term debt
installments in each of the next five years is as follows:

9. FINANCIAL INSTRUMENTS (in thousands)

Derivative financial instruments are used to fix the interest rate on a
portion of the Company's floating rate debt, thereby maintaining interest rate
risk at an acceptable level. This is accomplished by swapping the Company's
floating rate interest obligations, on a notional amount of debt, with
commercial banks having a fixed rate interest obligation. As a result the
Company is reliant upon the counterparty to fulfill its obligations and provide
protection from interest rate fluctuations. This credit risk exposure is
controlled by dealing only with counterparties with strong public credit
ratings. A summary of these interest rate swap agreements is as follows:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Notional amount................................................... $ 260,000 $ 180,000
Weighted average term to maturity (years)......................... 1.1 1.5
Average interest rate to maturity................................. 6.60% 6.72%
</TABLE>

10. OTHER LIABILITIES (in thousands)

<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 ----------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Deferred payments (a)................................... 22,497 $ 16,129 $ 20,143
Accrued environmental and closure costs................. 21,604 25,819 24,107
Deferred revenue........................................ -- -- 10,000
Other................................................... 11,106 6,295 4,244
-------- -------- --------
$ 55,207 $ 48,243 $ 58,494
======== ======== ========
</TABLE>

(a) Deferred payments relate to acquisitions (see Acquisitions and Divestitures
note 3), whereby the former owners of the businesses have agreed to accept
part of their payment over future periods of time. All such amounts are
non-interest bearing and are unsecured.

F-14
<PAGE> 97

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

11. CONVERTIBLE SUBORDINATED DEBENTURES (in thousands except per share amounts)

<TABLE>
<CAPTION>
1996 1995
--------- ----------
(restated)
<S> <C> <C>
6% Convertible subordinated debentures............................ $ -- $ 147,884
</TABLE>

In 1993, the Company issued US $120,000, 6% convertible subordinated
debentures due October 15, 2000 unless previously redeemed, with interest
payable each April 15 and October 15. The debentures were convertible at the
option of the holder into common shares of the Company at any time up to October
15, 2000 at a conversion price of US$6.25 per common share. In 1994, debentures
of US$125 were converted.

During 1996, all of the remaining 6% convertible subordinated debentures
outstanding were converted into common shares of the Company. Notwithstanding
the conversion of these debentures, the January 1996 pronouncement from the
Canadian Institute of Chartered Accountants ("CICA") referred to as Section 3860
and entitled "Financial Instruments -- Disclosure and Presentation" is
applicable for the Company's year ended December 31, 1996 and, as required,
Section 3860 has been applied retroactively.

Where a financial instrument consists of both a liability and an equity
component, Section 3860 requires that each part be reported separately in
accordance with guidance provided in the pronouncement. The Company has
therefore restated the liability represented by the 6% convertible subordinated
debentures. In addition, shareholders' equity has been restated to include the
component of the 6% convertible subordinated debentures deemed to be "other paid
in capital" under Section 3860 and amounting to $20,708 at December 31, 1995.
Interest expense has been increased for the years ended December 31, 1996, 1995
and 1994 by $2,060, $2,630 and $2,411, respectively to disclose the restated
interest expense, and net earnings have been correspondingly reduced. Basic
earnings per share have been restated to reflect the reduced net earnings which
result from the application of this pronouncement. Fully diluted earnings per
share previously reported by the Company remain unchanged for each of the years
ended December 31, 1996, 1995 and 1994 since the number of common shares
represented by the 6% convertible subordinated debentures remains unchanged and
the interest expense of the related liability regardless of how determined, is
eliminated in the computation of fully diluted earnings per share.

F-15
<PAGE> 98

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

12. SHAREHOLDERS' EQUITY (in thousands except number of shares)

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------
1997 1996 1995
----------- ----------- -----------
(restated)
<S> <C> <C> <C>
Share capital................................ $ 505,193 $ 476,771 $ 184,901
Other paid in capital (note 11).............. -- -- 20,708
Retained earnings............................ 183,317 145,679 106,671
Cumulative foreign currency translation
adjustment................................. 3,873 901 (178)
----------- ----------- -----------
$ 692,383 $ 623,351 $ 312,102
=========== =========== ===========
SHARE CAPITAL CONSISTS OF:
Authorized
Unlimited number of common shares
ISSUED
Common shares and equivalents
Number....................................... 71,469,365 69,876,868 37,453,833
Dollars...................................... $ 505,193 $ 476,771 $ 184,901
</TABLE>

The issued share capital of the Company is comprised of the following:

<TABLE>
<CAPTION>
COMMON SHARES
------------------------
NUMBER AMOUNT
---------- --------
<S> <C> <C>
BALANCE -- DECEMBER 31, 1994.................................... 37,271,522 $183,436
Shares issued in respect of acquisitions during 1995............ 194,116 1,700
Shares cancelled................................................ (68,404) (670)
Other........................................................... 32,985 246
Share options exercised for cash................................ 23,614 189
---------- --------
BALANCE -- DECEMBER 31, 1995.................................... 37,453,833 184,901
Shares issued in respect of acquisitions during 1996............ 3,600,102 40,200
Shares issued on conversion of convertible subordinated
debentures.................................................... 19,180,000 146,059
Other paid in capital (note 11)................................. -- 20,708
Shares issued for cash.......................................... 8,625,000 76,065
Share options exercised for cash................................ 953,724 8,365
Other........................................................... 64,209 473
---------- --------
BALANCE -- DECEMBER 31, 1996.................................... 69,876,868 476,771
Shares issued in respect of acquisitions during 1997............ 1,035,347 23,644
Share options exercised for cash................................ 514,738 3,978
Other........................................................... 42,412 800
---------- --------
BALANCE -- JUNE 30, 1997........................................ 71,469,365 $505,193
========== ========
</TABLE>

F-16
<PAGE> 99

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

12. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS

Common share options issued and outstanding are as follows:

<TABLE>
<CAPTION>
NUMBER $/SHARE
--------- ------------------
<S> <C> <C> <C> <C>
Employee stock option plans (a)
Year of grant
1992......................................................... 50,000 8.00 to 10.375
1993......................................................... 134,000 8.18 to 9.00
1994......................................................... 842,080 6.75 to 8.00
1995......................................................... 843,812 7.875 to 9.875
1996......................................................... 1,210,800 8.50 to 11.90
Issued in conjunction with the acquisition of Philip
Environmental Corporation (c).............................. 776,386 7.05 to 8.00
Issued to a director of the Company (b)(c)................... 200,000 7.35
---------
Total outstanding December 31, 1996.......................... 4,057,078
=========
</TABLE>

(a) The Company has allotted and reserved 4,257,149 common shares under its 1991
and 1994 Employee Stock Option Plans. Under the plans, options may be
granted to purchase common shares of the Company at the then current market
price. All options currently expire five to ten years from the date of
grant. All the options outstanding were issued at the then current market
price.

(b) These options were issued in 1991 at a discount to the then current market.

13. INVESTMENT IN PHILIP UTILITIES MANAGEMENT CORPORATION (in thousands)

In October 1996, the Company entered into an agreement with the Ontario
Teachers' Pension Plan Board ("Teachers"'), whereby Teachers' acquired an equity
position in Philip Utilities Management Corporation ("PUMC"), a subsidiary of
the Company. Under the terms of the agreement, Teachers' invested $10 million in
equity and will purchase $10 million in subordinated convertible debentures in
return for a 30% voting and a 6.4% non-voting interest, respectively, in PUMC.
As of December 31, 1996 Teachers' had not purchased any subordinated convertible
debentures.

Prior to divesting of its 30% ownership interest in PUMC, the Company
consolidated the results of the subsidiary. The Company recorded in income only
the net fees earned by PUMC for management services rendered, which were
insignificant. The shareholders agreement between Teachers' and the Company
provides for joint control of all economic activities of PUMC and therefore,
from November 1, 1996, the Company's investment in PUMC has been recognized
using the proportionate consolidation method. The disposition of the Company's
30% interest in PUMC resulted in a gain of $2,241 which is included in Other
income and expense -- net in the Consolidated Statements of Earnings.

F-17
<PAGE> 100

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

13. INVESTMENT IN PHILIP UTILITIES MANAGEMENT CORPORATION (CONTINUED)
At December 31, 1996, the Company's interest in the financial position of
PUMC was as follows:

<TABLE>
<S> <C>
Current assets................................................................. $ 12,524
Long-term assets............................................................... $ 14,853
Current liabilities............................................................ $ 7,831
Long-term liabilities.......................................................... $ 4,388
Financial results of PUMC for the two month period ended December 31, 1996 were as follows:
Revenue........................................................................ $ 1,812
Expenses....................................................................... $ 1,816
Net loss....................................................................... $ (4)
Cash used in operating activities.............................................. $ (83)
Cash provided by financing activities.......................................... $ 74
Cash used in investing activities.............................................. $ (1,493)
</TABLE>

14. CHANGE IN NON-CASH WORKING CAPITAL (in thousands)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Accounts receivable................................. $ (51,135) $ (27,078) $ (18,472)
Inventory for resale................................ (77,316) (33,121) (49,424)
Other............................................... (47,544) (18,215) (3,105)
Accounts payable and accrued liabilities............ 1,155 20,943 12,559
Income taxes........................................ (5,678) 7,653 (4,866)
---------- --------- ---------
$ (180,518) $ (49,818) $ (63,308)
========== ========= =========
</TABLE>

15. INCOME TAXES (in thousands)

The Company's income tax provision is comprised of the following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income tax based on the Federal and Provincial
effective income tax rates........................ $ 24,627 $ 18,820 $ 13,697
Increase (decrease) in income taxes resulting from:
Lower income tax rates in the USA and other
jurisdictions.................................. (6,236) (5,249) (5,484)
Manufacturing and processing allowances........... (5,526) (3,394) (1,037)
Non-deductible expenses for income tax purposes,
principally goodwill amortization.............. 3,298 3,854 2,825
Utilization of unrecognized loss carryforwards.... -- (1,160) --
Other............................................... (983) (517) (1,232)
-------- -------- --------
Income taxes........................................ $ 15,180 $ 12,354 $ 8,769
======== ======== ========
</TABLE>

F-18
<PAGE> 101

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

15. INCOME TAXES (CONTINUED)
The allocation between current and deferred income taxes results primarily
from the accelerated write-off of expenditures for income tax purposes and
certain accounting accruals not currently deductible for income tax purposes,
offset by the accounting recognition of loss carryforwards.

16. INTEREST CAPITALIZATION (in thousands)

During the years ended December 31, 1996, 1995 and 1994 the Company
included $3,040, $2,427, and $747 respectively of financing costs as part of the
cost of assets under development.

17. RELATED PARTIES (in thousands)

(a) The following transactions were recorded with the directors and officers of
the Company:

<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Advances from (repayments to) directors............ $ (3,943) $ (18,311) $ (3,889)
Interest paid to directors......................... 267 1,891 2,040
Unsecured advances to an officer and
director-net..................................... (50) (50) (37)
</TABLE>

(b) Loans from related parties consist of:

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Note payable (US$826 in 1996; US$2,810 in 1995) to the former
owner of an acquired company who is a director of the Company
(i)........................................................... $ 1,132 $ 3,835
Mortgage payable to a company owned in part by a director of the
Company (ii).................................................. -- 1,236
------- -------
1,132 5,071
Less current maturities of loans................................ 1,132 3,943
------- -------
$ -- $ 1,128
======= =======
</TABLE>

(i) The $1,132 (1995 -- $3,835) advance is unsecured and bears interest at
US prime plus 2% per annum and is payable in monthly installments of
$226 plus interest.

(ii) The mortgage was secured by the property acquired and bore interest at
a rate of 12.84% per annum. This mortgage was paid in full in January
1996 and therefore was included as part of current maturities at
December 31, 1995.

18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (in thousands)

These consolidated financial statements have been prepared in accordance
with Canadian GAAP which conforms in all material respects with US GAAP except
as noted below:

(a) Balance Sheets

The Financial Accounting Standards Board SFAS No. 109 "Accounting for
Income Taxes" requires pre-acquisition losses to be recognized as a reduction in
goodwill rather than as a reduction in the income tax provision. Therefore,
under US GAAP, the goodwill and the retained earnings disclosed in the
Consolidated Balance Sheets at December 31, 1996 and 1995 would be reduced by
$4,652 and $4,777 respectively.

F-19
<PAGE> 102

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
The separate reporting of the liability and equity components of a
financial instrument required by the January 1996 pronouncement by the CICA
referred to in note 11 to the Consolidated Financial Statements as Section 3860,
is not permitted under US GAAP. Therefore, the restatement of the Company's
Consolidated Financial Statements discussed in note 11 must be eliminated to
reflect US GAAP. Specifically, under US GAAP, the liability represented by the
6% convertible subordinated debentures would be $163,629 at December 31, 1995,
the other paid in capital at December 31, 1995 would be zero, and the share
capital of the Company would be $469,853 at December 31, 1996.

The retained earnings of the Company would be $150,875, $112,182, and
$76,841 as at December 31, 1996, 1995 and 1994, respectively, after adjusting
for the impact of Section 3860 as discussed above and adjusting for Luntz as
described in paragraph (b) of this note.

(b) Statements of Earnings

The statements of earnings for the years ended December 31, 1996, 1995, and
1994 have to be adjusted to eliminate the effect of the increased interest
expense required under CICA Section 3860, which is not permitted under US GAAP
(note 11 to the Consolidated Financial Statements).

In addition, under US GAAP, the revenue and expenses of Luntz would not
have been included in the Consolidated Statements of Earnings until such time as
the Shareholders of Luntz had definitively approved the purchase and sale
agreement which occurred on or about December 23, 1996. In 1994, the Company had
negotiated a separate line of credit which provided the Company with flexibility
if the former minority shareholder of Intersan exercised his right to require
the Company to purchase his minority interest in Intersan for $30 million in
common shares of the Company. The Company therefore deleted these shares from
the calculation of the fully diluted earnings per share for the year ended
December 31, 1994. As a result, the basic earnings per share for the year ended
December 31, 1994 would not be materially different under US GAAP, but the fully
diluted earnings per share for the year ended December 31, 1994 would be
reduced.

F-20
<PAGE> 103

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
The consolidated statements of earnings which follow have been adjusted to
disclose the above noted differences between Canadian GAAP and US GAAP.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- --------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands of Canadian dollars except share and per
share amounts)
<S> <C> <C> <C> <C> <C>
Revenue............................... $856,629 $323,397 $742,975 $648,311 $489,740
Operating expenses.................... 701,300 251,586 563,393 489,569 366,649
Selling, general and administrative... 63,461 33,445 75,674 66,563 51,216
Depreciation and amortization......... 24,148 15,438 33,006 25,510 21,354
-------- -------- -------- -------- --------
Income from continuing operations..... 67,720 22,928 70,902 66,669 50,521
Interest -- short-term................ 304 570 1,180 2,089 2,355
-- long-term................. 18,908 14,453 20,977 23,468 16,984
Other income and expense -- net..... (5,522) (2,459) (4,708) (3,689) (2,122)
-------- -------- -------- -------- --------
Earnings from continuing operations
before tax.......................... 54,030 10,364 53,453 44,801 33,304
Income taxes.......................... 16,392 2,707 13,755 12,354 8,769
-------- -------- -------- -------- --------
Earnings from continuing operations... 37,638 7,657 39,698 32,447 24,535
Discontinued operations (net of
tax)................................ -- 7,234 (1,005) 2,894 2,502
-------- -------- -------- -------- --------
$ 37,638 $ 14,891 $ 38,693 $ 35,341 $ 27,037
======== ======== ======== ======== ========
</TABLE>

F-21
<PAGE> 104

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(c) Statements of Changes in Financial Position

Amounts included in the Consolidated Statements of Changes in Financial
Position include items which were of a non-cash transaction basis and would not
be included for US GAAP reporting. The following is a summary of the changes in
operating, investing and financing activities under US GAAP.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEARS ENDED DECEMBER 31,
------------------------ ------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- --------- ---------
(in thousands of Canadian dollars)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings from continuing
operations....................... $ 37,638 $ 9,040 $ 39,698 $ 32,447 $ 24,535
Items included in earnings not
affecting cash................... 26,737 11,497 50,307 39,837 32,857
---------- ---------- ---------- --------- ---------
Cash flow from continuing
operations....................... 64,375 20,537 90,005 72,284 57,392
Change in non-cash working
capital.......................... (154,731) (43,034) (154,172) (51,286) (71,312)
---------- ---------- ---------- --------- ---------
Cash provided by (used in)
continuing operating
activities....................... (90,356) (22,497) (64,167) 20,998 (13,920)
Cash provided by discontinued
operating activities............. -- 29,495 28,830 15,114 21,649
---------- ---------- ---------- --------- ---------
Cash provided by (used in)
operating activities............. (90,356) 6,998 (35,337) 36,112 7,729
---------- ---------- ---------- --------- ---------
INVESTING ACTIVITIES
Proceeds from sale of solid waste
operations....................... 23,448 53,250 187,510 -- --
Acquisitions -- including acquired
cash (bank indebtedness)......... (143,149) (7,346) (151,821) (3,887) (7,997)
Purchase of fixed assets........... (35,503) (15,269) (40,877) (32,044) (23,510)
Other -- net....................... (19,643) (24,289) (44,291) (30,800) (11,489)
---------- ---------- ---------- --------- ---------
Cash used in continuing investing
activities....................... (174,847) 6,346 (49,479) (66,731) (42,996)
Cash used in investing activities
of discontinued operations....... -- (14,059) (17,307) (15,237) (18,421)
---------- ---------- ---------- --------- ---------
Cash used in investing
activities....................... (174,847) (7,713) (66,786) (81,968) (61,417)
---------- ---------- ---------- --------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings of
long-term debt................... 388,439 40,623 294,820 44,585 185,348
Principal payments of long-term
debt............................. (124,882) (103,994) (255,914) (11,927) (108,675)
Common shares issued............... 3,852 80,896 84,179 189 893
---------- ---------- ---------- --------- ---------
Cash provided by continuing
financing activities............. 267,409 17,525 123,085 32,847 77,566
Cash used in financing activities
of discontinued operations....... -- (15,980) (12,683) (2,795) (1,638)
---------- ---------- ---------- --------- ---------
Cash provided by financing
activities....................... $ 267,409 $ 1,545 $ 110,402 $ 30,052 $ 75,928
---------- ---------- ---------- --------- ---------
</TABLE>

F-22
<PAGE> 105

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
There is no impact on the Company's cash position as a result of the variances
between Canadian GAAP and US GAAP.

(d) Additional Disclosure

The following additional disclosures would be provided under US GAAP.

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
(I) Cash paid for interest.............................. $ 26,551 $ 37,701 $ 26,459
Cash paid for income taxes......................... $ 1,526 $ 3,168 $ 3,919
</TABLE>

(II) SEGMENTED INFORMATION

<TABLE>
<CAPTION>
1994
------------------------
CANADA US
<S> <C> <C>
Revenue....................................................... $ 390,768 $ 179,545
Gross Profit.................................................. $ 90,675 $ 41,229
Total Assets.................................................. $ 613,962 $ 246,621
</TABLE>

(III) SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON SHARES
------------------------
NUMBER AMOUNT
<S> <C> <C>
Balance -- December 31, 1993................................ 35,906,500 $173,612
Shares issued in respect of acquisitions during 1994........ 1,117,914 8,500
Shares issued on conversion of subordinated debentures...... 20,000 170
Other....................................................... 47,108 470
Share options exercised for cash............................ 180,000 684
---------- --------
Balance -- December 31, 1994................................ 37,271,522 $183,436
========== ========
</TABLE>

(IV) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Stock Options

SFAS No. 123 "Accounting for Stock Based Compensation", issued in October
1995, defines a fair value based method of accounting for employee stock
options. Under this fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
exercise period. However, SFAS No. 123 allows an entity to continue to
measure compensation cost in accordance with Accounting Principle Board
Statement No. 25 ("APB 25"). The Company has elected to measure
compensation costs related to stock options in accordance with ABP 25 and
recognizes no compensation expense for stock options granted. Accordingly,
the Company has adopted the disclosure-only provisions of SFAS No. 123.

F-23
<PAGE> 106

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
If compensation costs were measured using the fair value of the stock
options on the date of grant, during 1995 and 1996, in accordance with SFAS
No. 123, the Company's net earnings would be as follows:

<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
AS REPORTED AS ADJUSTED AS REPORTED AS ADJUSTED
----------- ------------ ----------- ------------
For SFAS 123 For SFAS 123
<S> <C> <C> <C> <C>
Net earnings under US GAAP.... $38,693 $ 35,634 $35,341 $ 34,077
Basic earnings per share...... $ 0.77 $ 0.71 $ 0.95 $ 0.91
Fully Diluted earnings per
share....................... $ 0.68 $ 0.63 $ 0.73 $ 0.71
</TABLE>

The weighted average fair value of options granted in 1996 and 1995 were
$1.98 and $1.63 respectively. The fair value of each option was determined
using the Black-Scholes option valuation model with the following
assumptions for 1996 and 1995: (i) risk free interest rate of 6.96 and 7.58
percent, respectively, (ii) expected volatility of 32.74 and 23.95 percent,
respectively, (iii) expected option life of ranging from 5 to 10 years and
(iv) no annualized dividend yield.

Earnings per Share

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings per Share" which is effective for years ending after December
15, 1997 (fiscal 1997 for the Company). This statement replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share ("EPS"). Basic EPS excludes the dilution effect of
common stock equivalents previously included in primary EPS and is computed
by dividing net earnings by the weighted-average number of common shares
outstanding for the period. The calculation of diluted EPS will not change
under SFAS No. 128.

The adoption of SFAS No. 128 by the Company, will not materially change the
amounts disclosed as basic EPS.

(V) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of long-term debt is estimated to approximate fair value
based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.

The Company's fair value obligation for all interest rate derivative
contracts disclosed in Note 9 to the Consolidated Financial Statements as
of December 31, 1996 and December 31, 1995 approximate the face value due
to the short-term nature of these instruments.

The fair value of the Company's convertible subordinated debentures as at
December 31, 1995 was estimated to be $147.8 million based on the
discounted value of the required future cash payments using an estimated
current borrowing rate of a similar liability at December 31, 1995 of 8.5%.

F-24
<PAGE> 107

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(VI) INCOME TAXES

The following disclosure is required under the Financial Accounting
Standards Board SFAS No. 109 "Accounting for income taxes":

The net deferred tax liability consists of the following temporary
differences:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Difference in fixed assets and goodwill basis................. $ 60,998 $ 41,959
Net operating loss carryforwards.............................. (21,482) (16,252)
Other......................................................... 3,261 5,723
--------- ---------
Net deferred tax liability.................................... $ 42,777 $ 31,430
========= =========
</TABLE>

The net operating loss carryforwards expire between the years 2002 and
2011. In assessing the value of the deferred tax assets, management
considers whether it is more likely than not that all of the deferred tax
assets be realized. Projected future income, tax planning strategies and
the expected reversal of deferred tax liabilities are considered in making
this assessment. Based on the level of historical taxable income and
projections for future taxable income over the periods which the net
operating losses are deductible, it is more likely than not the Company
will realize the benefits of these deferred tax assets and therefore, has
recorded no valuation allowance. The amount of the deferred tax asset
considered realizable, however, could be reduced in the future if estimates
of future taxable income during the carryforward period are reduced.

(VII)ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Accounts payable................................. $ 155,939 $ 152,325 $ 76,204
Accrued liabilities.............................. 52,125 64,255 50,327
--------- --------- ---------
$ 208,064 $ 216,580 $ 126,531
========= ========= =========
</TABLE>

19. CONTINGENCIES (in thousands)

(a) Certain operating subsidiaries acquired by the Company have been named as a
potentially responsible or liable party in respect of several US federal or
state superfund sites. These proceedings are principally based on
allegations that the subsidiaries (or their predecessors) disposed of
hazardous substances at the sites in question. Based on its review of these
claims, the Company has estimated its share of the cost to remediate these
sites and has accrued $574 as at December 31, 1996 (1995 -- $1,332) to
cover these costs, as disclosed in the table below.

(b) Certain of the Company's US subsidiaries' transfer, storage and disposal
facilities are contaminated as a result of operating practices at the sites
prior to their acquisition by the Company. Investigations of these sites
have substantially characterized the nature and extent of the
contamination.

The subsidiaries, in conjunction with US federal and state environmental
regulatory agencies, have developed corrective action plans for the sites
and in some instances have commenced to remediate the sites in accordance
with approved corrective action plans. The Company estimates the remaining
liability to remediate these sites to be $26,650 and has accrued this
amount in its December 31, 1996 financial statements (1995 -- $24,322).

F-25
<PAGE> 108

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

19. CONTINGENCIES (CONTINUED)
The contingent liabilities discussed under parts (a) and (b) of this note
are disclosed in the Consolidated Balance Sheets as follows:

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accounts payable and accrued liabilities........................ $ 1,405 $ 1,547
Accrued environmental and closure costs (note 10)............... 25,819 24,107
-------- --------
$ 27,224 $ 25,654
======== ========
</TABLE>

(c) 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. COMMITMENTS (in thousands)

Future rental payments required under operating leases for premises and
equipment are as follows:

<TABLE>
<S> <C>
1997..................................................... $9,850
1998..................................................... 8,389
1999..................................................... 5,898
2000..................................................... 4,080
2001 and thereafter...................................... 6,248
</TABLE>

Letters of credit issued in relation to various supply contracts and third
party insurance policies amounted to $18,400 as at December 31, 1996 (1995 --
$6,294).

21. SEGMENTED INFORMATION (in thousands)

The Company operates in one business segment but has a significant
component of US based revenues and earnings. The geographic segmentation of the
Company's business is as follows:

<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
UNITED UNITED
CANADA STATES CANADA STATES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue................................. $ 429,037 $ 373,453 $ 434,857 $ 213,454
Gross Profit............................ $ 113,044 $ 51,738 $ 100,135 $ 42,895
Total assets............................ $ 782,230 $ 563,489 $ 705,709 $ 297,203
</TABLE>

22. SUBSEQUENT EVENTS

(a) Acquisitions

Subsequent to the year-end, and prior to the end of the third quarter, the
Company has completed a number of acquisitions, of which only Allwaste, Inc. was
individually material. The consideration for this purchase was US$360.4 million
settled by the issuance of common shares of the Company. The preliminary
determination of the excess of the purchase price over the net assets of
Allwaste is US$272,309, allocated as to investments US$12,000 and as to goodwill
US$260,309.

The allocations of the purchase price to the fair market value of the net
assets acquired in fiscal 1997 are based upon preliminary estimates of fair
market values.

F-26
<PAGE> 109

PHILIP SERVICES CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)

22. SUBSEQUENT EVENTS (CONTINUED)
In addition, in the fourth quarter, the Company acquired the business and
assets of Luria Brothers and purchased Steiner-Liff Metals, and the Southern
Foundry Supply group of companies. Aggregate consideration for these
acquisitions, which will be accounted for as purchase transactions, will be
US$495.9 million, consisting of the assumption of debt of US$32.9 million, the
issue of 5.6 million common shares of the Company, and cash of US$368.8 million.
Based on the most recently available audited financial statements, generally
December 31, 1996, and prior to the determination of the current fair values of
assets acquired and liabilities assumed, the excess of purchase consideration
over net assets is approximately US$400 million.

(b) Public Offering

In November 1997, the Company filed offering documents with securities
regulators in Canada and the United States for the issue of 20,000,000 common
shares. Estimated net proceeds of US$314.3 million are to be used to repay
indebtedness outstanding under the Company's Credit Facility.

F-27
<PAGE> 110

PHILIP SERVICES CORP.

UNAUDITED SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA PRESENTED IN U.S. GAAP
(IN U.S. DOLLARS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, FISCAL YEARS ENDED DECEMBER 31,
------------------------- --------------------------------------
1997 1996 1996 1995 1994
---------- -------- -------- -------- --------
(in thousands of U.S. dollars -- except share and per share amounts)
<S> <C> <C> <C> <C> <C>
U.S. GAAP
STATEMENTS OF EARNINGS DATA:
Revenue........................................ $ 623,358 $236,506 $545,344 $472,358 $358,784
Operating expenses............................. 510,282 183,991 413,013 356,699 268,606
Selling, general and administrative............ 46,254 24,460 56,063 48,496 37,522
Depreciation and amortization.................. 17,590 11,291 24,225 18,587 15,644
---------- -------- -------- -------- --------
Income from operations......................... 49,232 16,764 52,043 48,576 37,012
Interest expense............................... 13,979 9,973 16,263 18,621 14,167
Other income and expense -- net................ (4,051) (1,799) (3,456) (2,688) (1,553)
---------- -------- -------- -------- --------
Earnings from continuing operations before
tax.......................................... 39,304 8,590 39,236 32,643 24,398
Income taxes................................... 11,923 1,979 10,098 9,001 6,424
---------- -------- -------- -------- --------
Earnings from continuing operations............ 27,381 6,611 29,138 23,642 17,974
Discontinued operations (net of tax)........... -- 5,298 (716) 2,109 1,833
---------- -------- -------- -------- --------
Net earnings................................... $ 27,381 $ 11,909 $ 28,422 $ 25,751 $ 19,807
========== ======== ======== ======== ========
Primary earnings per share:
Continuing operations........................ $ 0.39 $ 0.17 $ 0.58 $ 0.63 $ 0.50
Discontinued operations...................... $ -- $ 0.12 $ (0.01) $ 0.06 $ 0.05
---------- -------- -------- -------- --------
$ 0.39 $ 0.29 $ 0.57 $ 0.69 $ 0.55
========== ======== ======== ======== ========
Fully diluted earnings per share:
Continuing operations........................ $ 0.38 $ 0.14 $ 0.51 $ 0.49 $ 0.40
Discontinued operations...................... $ -- $ 0.10 $ (0.01) $ 0.04 $ 0.02
---------- -------- -------- -------- --------
$ 0.38 $ 0.24 $ 0.50 $ 0.53 $ 0.42
========== ======== ======== ======== ========
Weighted average number of common shares
outstanding (000s)........................... 70,970 40,586 50,073 37,342 36,209
========== ======== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Working capital................................ $ 382,062 $114,698 $253,675 $ 78,098 $ 63,050
Fixed assets, net.............................. 341,494 267,296 254,087 257,765 240,374
Total assets................................... 1,223,387 751,802 977,236 731,234 611,213
Long-term debt (excluding current portion)..... 493,948 179,012 282,825 183,635 167,619
Convertible subordinated debentures............ -- 119,875 -- 119,875 119,875
Shareholders' equity........................... 496,898 294,287 449,907 213,611 181,541
</TABLE>

F-28
<PAGE> 111

ALLWASTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1996
------------ ----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 2,017 $ 2,436
Receivables, net................................................ 86,326 75,114
Prepaid expenses................................................ 9,105 3,796
Deferred income taxes and other assets.......................... 8,208 11,170
---------- ----------
Total current assets......................................... 105,656 92,516
---------- ----------
Investments....................................................... 16,986 11,030
Property and equipment, at cost................................... 256,344 248,280
Less -- Accumulated depreciation................................ (130,288) (119,307)
---------- ----------
126,056 128,973
---------- ----------
Goodwill, net of accumulated amortization......................... 85,529 88,032
Notes receivable.................................................. 11,840 13,517
Other assets...................................................... 3,203 3,119
---------- ----------
Total assets................................................. $ 349,270 $ 337,187
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 22,394 $ 19,250
Accrued liabilities:
Income taxes payable......................................... 689 5,383
Other........................................................ 35,987 42,892
Current maturities of long-term and convertible subordinated
debt........................................................ 2,447 6,249
---------- ----------
Total current liabilities.................................... 61,517 73,774
---------- ----------
Long-term debt, net of current maturities......................... 103,045 87,971
Convertible subordinated debt, net of current maturities.......... 32,259 33,924
Deferred income taxes and other liabilities....................... 12,796 10,572
Commitments and contingencies
Shareholders' equity:
Common Stock.................................................... 404 398
Additional paid-in capital...................................... 62,196 55,699
Retained earnings............................................... 91,389 84,163
---------- ----------
153,989 140,260
Less:
Treasury Stock............................................... (13,756) (8,561)
Unearned compensation related to outstanding restricted
Common Stock................................................ (580) (753)
---------- ----------
Total shareholders' equity.............................. 139,653 130,946
---------- ----------
Total liabilities and shareholders' equity.............. $ 349,270 $ 337,187
========== ==========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

F-29
<PAGE> 112

ALLWASTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
------------------------------ ------------------------------
MAY 31, 1997 MAY 31, 1996 MAY 31, 1997 MAY 31, 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues........................... $295,392 $286,807 $105,374 $ 98,731
Cost of operations................. 218,690 213,901 76,236 72,237
-------- -------- -------- --------
Gross profit..................... 76,702 72,906 29,138 26,494
Selling, general and administrative
expenses......................... 57,082 60,156 20,076 19,815
Interest expense................... (7,282) (7,327) (2,522) (2,506)
Interest income.................... 1,082 773 602 280
Other income (expense), net........ 1,001 1,263 158 535
-------- -------- -------- --------
Income from continuing operations
before income tax provision
and minority interest......... 14,421 7,459 7,300 4,988
Income tax provision............... (6,562) (3,580) (3,322) (2,443)
Minority interest, net of taxes.... (117) 62 (16) 38
-------- -------- -------- --------
Income from continuing
operations.................... 7,742 3,941 3,962 2,583
Discontinued operations
Gain on sale of glass
recycling operations, net of
applicable income taxes..... -- 3,764 -- --
-------- -------- -------- --------
Net income............... $ 7,742 $ 7,705 $ 3,962 $ 2,583
======== ======== ======== ========
Net income per common share:
Continuing operations............ $ .21 $ .10 $ .10 $ .07
Discontinued operations.......... -- .10 -- --
-------- -------- -------- --------
Net income per common
share.................. $ .21 $ .20 $ .10 $ .07
======== ======== ======== ========
Weighted average number of common
shares outstanding............... 37,592 39,262 38,678 39,063
======== ======== ======== ========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

F-30
<PAGE> 113

ALLWASTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
----------------------
MAY 31, MAY 31,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income...................................................... $ 7,742 $ 7,705
Reconciliation of net income to cash provided by operating
activities:
Depreciation................................................. 20,848 21,537
Amortization................................................. 2,313 2,097
Gain on sale of glass recycling operations................... -- (3,764)
(Gain) loss on sale of property and equipment................ 365 (821)
Common Stock received in lawsuit settlement.................. (854) --
Amortization of unearned compensation -- restricted stock.... 173 95
Change in assets and liabilities, net of effect of
acquisitions accounted for as purchases:
Receivables, net........................................... (11,240) (1,176)
Prepaid expenses and other current assets.................. (2,347) (2,108)
Notes receivable and other assets.......................... (759) 25
Accounts payable and accrued liabilities................... (8,081) (9,361)
Deferred income taxes and other non-cash items............. 2,232 2,223
-------- --------
Cash provided by operating activities...................... 10,392 16,452
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of glass recycling operations........... -- 41,500
Additions to property and equipment........................ (21,880) (23,265)
Purchase of long-term investment, net of debt issued....... (5,965) (2,619)
Proceeds from sale of property and equipment............... 4,903 2,893
Payments for acquisitions accounted for as purchases, net
of cash acquired.......................................... -- (1,113)
-------- --------
Cash provided by (used in) investing activities............ (22,942) 17,396
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of Common Stock.................... 3,163 553
Net increase (decrease) in revolving credit facility....... 15,180 (28,370)
Net increase (decrease) in other long term borrowings...... 2,052 (850)
Purchases of convertible subordinated debentures........... (19) (3,264)
Increases in Treasury Stock................................ (7,729) (5,482)
-------- --------
Cash provided by (used in) financing activities.............. 12,647 (37,413)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES................................... (516) (144)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS............................. (419) (3,709)
CASH AND CASH EQUIVALENTS, beginning of period.................... 2,436 4,029
-------- --------
CASH AND CASH EQUIVALENTS, end of period.......................... $ 2,017 $ 320
======== ========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

F-31
<PAGE> 114

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1) SIGNIFICANT ACCOUNTING POLICIES --

The condensed consolidated financial statements include the accounts of
Allwaste, Inc. and its subsidiaries (the "Company"). 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
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the fiscal year ended August 31, 1996 and the Company's Proxy Statement
dated June 30, 1997, included in the Registration Statement on Form F-4 of
Philip Services Corp. ("Philip"), formerly Philip Environmental Inc., filed with
the SEC on April 22, 1997, in connection with the acquisition of the Company by
Philip. Certain prior period amounts have been reclassified to conform with the
current period presentation.

On March 6, 1997, the Company announced that a definitive agreement had
been reached to merge with Philip. The agreement is subject to stockholder
approval, regulatory approvals and certain other conditions. All necessary
regulatory approvals required by the agreement have been met. Upon receiving
stockholder approval and the satisfaction of certain other conditions, the
Company will become an indirect wholly-owned subsidiary of Philip. Under the
terms of the agreement, each share of Allwaste Common Stock will be exchanged
for 0.611 shares of Philip Common Stock.

(2) ACQUISITIONS AND INVESTMENTS --

On January 31, 1997, the Company exercised warrants to purchase additional
shares of the Safe Seal Company, Inc. ("Safe Seal"). Consideration for this
increase in the investment from 10% to 36.5% included three subordinated notes
totaling $3.3 million and cash of $0.6 million. The Company now owns 2,502,518
shares of common stock and 20,000 shares of redeemable Class A preferred stock
of Safe Seal for a total investment of $6.6 million (including goodwill of $2.9
million). The Company appropriately changed its method of accounting for the
investment from the cost method to the equity method. The effect of this change
on the Company's financial statements for prior periods presented is immaterial
and accordingly have not been restated. The Company's equity in losses (net of
goodwill amortization over 40 years) for the nine and three months ended May 31,
1997 was $9 thousand. The Company also guarantees $17.8 million of indebtedness
for Safe Seal and its affiliates.

(3) INCOME TAXES --

With respect to continuing operations, income tax provisions for interim
periods are estimated based on projections of the annual effective tax rates.
Certain assumptions have been made in this regard in estimating the effective
tax rate for fiscal 1997, the outcome of which may not be resolved until the end
of the fiscal year. The effective tax rate of 46% for the nine months ended May
31, 1997 reflects the estimated U.S. federal and state income taxes and foreign
taxes on the earnings of the Company's foreign subsidiaries.

F-32
<PAGE> 115

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

(3) INCOME TAXES -- (CONTINUED)
Deferred tax assets and liabilities are determined based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities. On the accompanying Condensed Consolidated Balance
Sheets, deferred tax assets and liabilities are netted within each tax
jurisdiction. The following table sets forth the gross deferred tax assets
(liabilities) recorded (in thousands):

<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1996
-------- ----------
<S> <C> <C>
Current deferred tax assets....................................... $ 7,262 $ 8,681
Non-current deferred tax assets................................... 183 3,383
Valuation allowance............................................... (1,230) (1,230)
-------- ---------
Total deferred tax assets.................................... 6,215 10,834
-------- ---------
Non-current deferred tax liabilities.............................. $(12,273) $ (13,238)
-------- ---------
Net deferred tax liabilities...................................... $ (6,058) $ (2,404)
======== =========
</TABLE>

The components of the net deferred tax assets (liabilities) are as follows
(in thousands):

<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1996
-------- ----------
<S> <C> <C>
Depreciation and amortization........................................ $(17,766) $ (15,753)
Financial reserves and accruals not yet deductible................... 11,708 13,349
-------- ---------
Total........................................................... $ (6,058) $ (2,404)
======== =========
</TABLE>

(4) LONG-TERM DEBT --

The Company's long-term debt consists of a revolving credit agreement with
a group of banks. The agreement, as last amended in January 1997, provides for
an unsecured $160 million revolving line of credit to the Company through
January 31, 1999, at which time any outstanding borrowings convert to a term
loan due in equal quarterly installments through January 31, 2003. At July 10,
1997, after utilizing $33.1 million of the credit facility for letters of credit
to secure certain insurance obligations and performance bonds, available
borrowing capacity under this agreement was $24.1 million. Management believes
that the Company was in compliance with all applicable covenants under the
revolving credit agreement as of May 31, 1997. Borrowing availability is subject
to the Company maintaining certain minimum financial ratios as set forth in the
agreement.

(5) SIGNIFICANT NON-CASH FINANCING ACTIVITIES --

During March 1997, the Company issued 79,904 shares of its Common Stock and
959,277 shares of treasury stock in exchange for $7.6 million of convertible
subordinated note which were issued as partial consideration to former owners of
certain acquired businesses. At May 31, 1997 and August 31, 1996, the Company
had outstanding $1.9 million and $11.0 million, respectively, of convertible
subordinated notes issued as partial consideration to acquire certain
businesses.

(6) NET INCOME PER COMMON SHARE --

Net income per common share has been computed based on the weighted average
number of shares of Common Stock and Common Stock equivalents outstanding. The
calculation of fully-diluted net income per common share is not materially
different from the primary calculation. The following table

F-33
<PAGE> 116

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

(6) NET INCOME PER COMMON SHARE -- (CONTINUED)
presents the primary weighted average number of shares outstanding for the nine
and three months ended May 31, 1997 and May 31, 1996 (in thousands).

<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS ENDED THREE MONTHS ENDED
------------------ ------------------
MAY 31, MAY 31, MAY 31, MAY 31,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Common shares outstanding, beginning of fiscal period..... 39,799 39,609 39,799 39,609
Weighted average number of common shares outstanding:
Stock options, treasury stock method................. 586 73 1,321 30
Purchased companies.................................. -- 24 -- 25
Exercise of stock options............................ 140 98 396 136
Treasury stock and other, net........................ (2,933) (542) (2,838) (737)
------ ------ ------ ------
Total weighted average common shares outstanding........ 37,592 39,262 38,678 39,063
====== ====== ====== ======
</TABLE>

(7) INCENTIVE PLANS --

On October 26, 1995, the Company's Board of Directors adopted a limited
single-purpose incentive plan for certain key employees. Pursuant to this plan,
each participating key employee that purchased shares of the Company's Common
Stock, based on a designated percentage of his annual salary, was granted a
number of shares of restricted Common Stock equal to two times the number of the
shares purchased and an option to purchase a number of shares of Common Stock
equal to four times the number of shares purchased. Shares of Common Stock
issued under this incentive plan were treasury shares. At May 31, 1997, 206,826
shares of restricted Common Stock and options to purchase 423,464 shares of
Common Stock had been granted in connection with this incentive plan. The
Company does not contemplate that any additional restricted shares will be
issued under the incentive plan or that any options to purchase shares of Common
Stock will be granted in connection with the plan.

The value of restricted shares awarded under this incentive plan through
May 31, 1997 was $0.9 million. These amounts were recorded as unearned
compensation related to outstanding restricted stock and are shown as a separate
component of Shareholders' Equity. Unearned compensation is being amortized to
expense over a four-year vesting period and amounted to $0.2 million and $0.1
million for the nine and three months ended May 31, 1997, respectively.

Effective September 1, 1996, in connection with the implementation of the
Economic Value Added ("EVA(R)") integrated management system, the Compensation
Committee of the Board of Directors approved the adoption of the Allwaste EVA
Incentive Compensation Plan (the "EVA Plan"). The EVA Plan governs incentive
compensation available to the Company's executive officers and other key
employees. Under the EVA Plan, eligible participants are entitled to receive
incentive payments based on their meeting or exceeding certain thresholds as
established by the Compensation Committee in the case of executive management
and by executive management in the case of other participants. A portion of each
fiscal years awards (generally, one-third) carry forward to the following year
and are added to incentive awards earned for that succeeding fiscal year.

(8) DISCONTINUED OPERATIONS --

In September 1995, the Company sold its glass recycling operations to
Strategic Holdings, Inc. ("SHI"), a company formed by Equus II, Incorporated
("Equus"). In October 1996, the Company and Equus finalized an agreement with
respect to certain post-closing issues which were unresolved on the

F-34
<PAGE> 117

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

(8) DISCONTINUED OPERATIONS -- (CONTINUED)
date of the sales transaction. The total consideration, as adjusted, was $56.1
million, including $41.5 million in cash, $8.0 million of redeemable Series A
preferred stock redeemable beginning in 2002, and a $6.6 million subordinated
note receivable due in 2002. The redeemable Series A preferred stock dividend is
$.065 per share for the period prior to September 1, 1996 and $.06 per share
thereafter. The subordinated note receivable interest rate is 11% for the period
prior to September 1, 1996 and 10.5% thereafter. The agreement also provided
that all dividends and interest due prior to August 31, 1997 will not be paid
when due, but "paid in kind" in the form of two 8.036% subordinated notes
issuable September 30, 1996 and June 30, 1997 in the amounts of $1.3 million and
$0.9 million, respectively. Principal on these two notes will be due on November
30, 2002. At May 31, 1997, the Company had accrued $0.9 million for dividends
and $1.4 million for interest. For the nine months ended May 31, 1997, the
Company recognized $0.6 million as interest income and $0.4 million as dividend
income which is reflected in other income (expense) in the accompanying
Condensed Consolidated Statements of Income. The Company also received warrants
to purchase shares of SHI common stock, providing the Company the right to own
up to approximately 33% of the outstanding stock of SHI. The Company may receive
additional consideration in the form of an adjustment to the purchase price in
the event that Equus' internal rate of return, as defined, exceeds certain
predetermined targets. The amount of such additional consideration, if any, is
not presently determinable. The Company recorded a gain on the sale of its glass
recycling operations of $3.8 million, net of applicable income taxes of $1.6
million, in the first quarter of fiscal 1996.

F-35
<PAGE> 118

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO ALLWASTE, INC.:

We have audited the accompanying Consolidated Balance Sheets of Allwaste,
Inc. (a Delaware corporation) and subsidiaries as of August 31, 1996 and 1995,
and the related Consolidated Statements of Operations, Shareholders' Equity and
Cash Flows for each of the three years in the period ended August 31, 1996.
These Consolidated Financial Statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these Consolidated
Financial Statements based on our audits.

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

In our opinion, the Consolidated Financial Statements referred to above
present fairly, in all material respects, the financial position of Allwaste,
Inc. and subsidiaries as of August 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1996, in conformity with generally accepted accounting principles.

Houston, Texas ARTHUR ANDERSEN LLP
November 15, 1996

F-36
<PAGE> 119

ALLWASTE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)

<TABLE>
<CAPTION>
AUGUST 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 2,436 $ 4,029
Receivables, net of allowance for doubtful accounts............... 75,114 80,065
Prepaid expenses.................................................. 3,796 3,609
Deferred taxes and other current assets........................... 11,170 10,216
--------- ---------
Total current assets........................................... 92,516 97,919
--------- ---------
Investments......................................................... 11,030 --
Property and equipment, at cost..................................... 248,280 230,291
Less -- Accumulated depreciation.................................. (119,307) (99,193)
--------- ---------
128,973 131,098
--------- ---------
Goodwill, net of accumulated amortization........................... 88,032 88,122
Notes receivable.................................................... 13,517 4,893
Other assets........................................................ 3,119 4,050
Net assets of discontinued operations............................... -- 46,151
--------- ---------
Total assets................................................... $ 337,187 $ 372,233
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 19,250 $ 28,737
Accrued liabilities:
Payroll and related benefits...................................... 9,911 8,282
Workers' compensation insurance................................... 14,751 11,686
Other insurance................................................... 6,381 5,550
Income taxes and other current liabilities........................ 17,232 13,368
Current maturities of long-term and convertible subordinated debt... 6,249 3,371
--------- ---------
Total current liabilities...................................... 73,774 70,994
--------- ---------
Long-term debt, net of current maturities........................... 87,971 120,535
Convertible subordinated debt, net of current maturities............ 33,924 41,972
Deferred income taxes and other liabilities......................... 10,572 10,441
Commitments and contingencies
Shareholders' equity:
Preferred Stock, 500,000 shares authorized, none issued or
outstanding.................................................... -- --
Common Stock, $.01 par value, 100,000,000 shares authorized,
39,799,029 and 39,609,429 shares issued in 1996 and 1995,
respectively................................................... 398 396
Additional paid-in capital........................................ 55,699 54,958
Retained earnings................................................. 84,163 73,999
--------- ---------
140,260 129,353
Less:
Treasury Stock, at cost, 1,945,805 and 250,000 shares in 1996
and 1995, respectively........................................ (8,561) (1,062)
Unearned compensation related to outstanding restricted Common
Stock......................................................... (753) --
--------- ---------
Total shareholders' equity................................... 130,946 128,291
--------- ---------
Total liabilities and shareholders' equity................... $ 337,187 $ 372,233
========= =========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-37
<PAGE> 120

ALLWASTE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
---------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues............................................. $ 382,165 $ 344,245 $ 286,861
Cost of operations................................... 286,412 254,596 204,492
--------- --------- ---------
Gross profit....................................... 95,753 89,649 82,369
Write-downs of operating equipment................... -- 6,908 --
Selling, general and administrative expenses......... 77,011 72,976 59,020
Interest expense..................................... (9,581) (8,785) (5,617)
Interest income...................................... 1,041 402 484
Other income (expense), net.......................... 2,360 (3,499) (1,302)
--------- --------- ---------
Income (loss) from continuing operations before
income tax provision and minority interest...... 12,562 (2,117) 16,914
Income tax provision................................. (6,030) (2,170) (6,725)
Minority interest, net of taxes...................... 82 408 407
--------- --------- ---------
Income (loss) from continuing operations........... 6,614 (3,879) 10,596
Discontinued operations
Income from discontinued operations,
net of applicable income taxes................ -- 2,773 2,501
Gain on sale of glass recycling operations, net
of applicable income taxes.................... 3,764 -- --
--------- --------- ---------
Net income (loss).................................. $ 10,378 $ (1,106) $ 13,097
========= ========= =========
Net income (loss) per common share:
Continuing operations.............................. $ .17 $ (.10) $ .29
Discontinued operations............................ .10 .07 .07
--------- --------- ---------
Net income (loss) per common share............ $ .27 $ (.03) $ .36
========= ========= =========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-38
<PAGE> 121

ALLWASTE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)

<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NUMBER PAID-IN RETAINED TREASURY UNEARNED SHAREHOLDERS'
OF SHARES AMOUNT CAPITAL EARNINGS STOCK COMPENSATION EQUITY
--------- ------ ---------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1993............ 36,740 $367 $ 43,097 $61,732 $ -- $-- $ 105,196
Net income.......................... -- -- -- 13,097 -- -- 13,097
Issuance of Common Stock for
purchased businesses.............. 934 9 4,093 -- -- -- 4,102
Issuance of Common Stock pursuant to
stock option plans and related tax
benefits.......................... 67 -- 292 -- -- -- 292
Treasury Stock acquired in lawsuit
settlement........................ -- -- -- -- (1,062) -- (1,062)
Change in cumulative translation
adjustment........................ -- -- -- (407) -- -- (407)
------ ---- -------- ------- ------- ------ ---------
BALANCE, AUGUST 31, 1994............ 37,741 376 47,482 74,422 (1,062) -- 121,218
Net loss............................ -- -- -- (1,106) -- -- (1,106)
Issuance of Common Stock for
acquired businesses............... 1,432 15 5,079 810 -- -- 5,904
Issuance of Common Stock pursuant to
stock option plans and related tax
benefits.......................... 436 5 2,397 -- -- -- 2,402
Change in cumulative translation
adjustment........................ -- -- -- (127) -- -- (127)
------ ---- -------- ------- ------- ------ ---------
BALANCE, AUGUST 31, 1995............ 39,609 396 54,958 73,999 (1,062) -- 128,291
Net income.......................... -- -- -- 10,378 -- -- 10,378
Issuance of Common Stock for
previously acquired business...... 25 -- 128 -- -- -- 128
Issuance of Common Stock pursuant to
stock option plans and related tax
benefits.......................... 165 2 638 -- -- -- 640
Issuance of treasury shares......... -- -- (25) -- 1,714 (925) 764
Compensation expense................ -- -- -- -- -- 172 172
Purchase of Treasury Stock.......... -- -- -- -- (9,213) -- (9,213)
Change in cumulative translation
adjustment........................ -- -- -- (214) -- -- (214)
------ ---- -------- ------- ------- ------ ---------
BALANCE, AUGUST 31, 1996............ 39,799 $398 $ 55,699 $84,163 $(8,561) $ (753) $ 130,946
====== ==== ======== ======= ======= ====== =========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-39
<PAGE> 122

ALLWASTE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 10,378 $ (1,106) $ 13,097
Reconciliation of net income (loss) to cash provided by
operating activities:
Depreciation............................................ 28,639 25,715 20,635
Amortization............................................ 2,909 2,611 2,824
Write-downs of operating equipment...................... -- 6,908 --
Gain on sale of glass recycling operations, net of
taxes................................................. (3,764) -- --
Allowances on notes receivable.......................... -- 1,000 790
Write-downs of investments.............................. -- 1,950 950
Amortization of unearned compensation -- restricted
stock................................................. 172 -- --
Gain on purchases of convertible subordinated
debentures............................................ (153) -- --
Gain on sales of property and equipment................. (1,081) (777) (146)
Equity in losses of unconsolidated partnership.......... -- -- 2,805
Gain on sale of Common Stock investment................. -- -- (2,688)
Common Stock received in lawsuit settlement............. -- -- (1,062)
Change in assets and liabilities, net of effect of
acquisitions accounted for as purchases:
Receivables........................................... 4,545 (10,787) (9,412)
Prepaid expenses, deferred taxes and other current
assets............................................. (112) (2,309) (2,556)
Notes receivable and other assets..................... (1,602) 722 (3,310)
Accounts payable...................................... (9,556) 8,278 (13)
Accrued liabilities................................... 2,187 7,170 (2,067)
Deferred income taxes and other liabilities........... 366 (1,259) 1,521
--------- --------- ---------
Cash provided by operating activities................. 32,928 38,116 21,368
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of glass recycling operations........... 41,500 -- --
Additions to property and equipment........................ (27,541) (47,193) (34,145)
Proceeds from sales of property and equipment.............. 3,249 2,394 2,112
Purchase of investments.................................... (3,030) -- --
Payments for acquisitions accounted for as purchases, net
of cash acquired of $123, $1,337 and $241............... (2,145) (19,320) (7,468)
Proceeds from sale of investment in marketable security.... -- -- 2,982
Cash used in discontinued operations....................... -- (4,233) (7,013)
--------- --------- ---------
Cash provided by (used in) investing activities....... 12,033 (68,352) (43,532)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of Common Stock.................... 665 2,279 292
Net increase (decrease) in revolving credit facility....... (32,309) 35,670 32,910
Net decrease in other long term borrowings................. (4,575) (6,577) (10,469)
Purchases of convertible subordinated debentures........... (908) -- --
Purchases of Treasury Stock................................ (9,213) -- --
--------- --------- ---------
Cash provided by (used in) financing activities....... (46,340) 31,372 22,733
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES.............................. (214) (127) (407)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (1,593) 1,009 162
CASH AND CASH EQUIVALENTS, beginning of year................. 4,029 3,020 2,858
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year....................... $ 2,436 $ 4,029 $ 3,020
========= ========= =========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-40
<PAGE> 123

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --

Description of business

Allwaste, Inc. ("Allwaste" or the "Company") provides integrated industrial
and environmental services and acts as an outsourcing provider of on-site
facility processes and services, primarily in the United States, Canada and
Mexico. The Company, through its operating subsidiaries and affiliates, provides
to its industrial and commercial customers a range of industrial and
environmental services, including: on-site industrial and waste management
services (including hydroblasting and gritblasting and air-moving and liquid
vacuuming); waste transportation and processing; wastewater services; site
remediation; maintenance services; turnaround and outage services; container
cleaning and repair services; emergency spill response services; and other
general plant support services.

Principles of consolidation and basis of presentation

The Consolidated Financial Statements include the accounts of Allwaste,
Inc. and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. For all periods presented, the Consolidated Financial Statements
and Notes to Consolidated Financial Statements reflect the Company's glass
recycling operations as a discontinued operation, as discussed in Note 3.
Additionally, certain prior year amounts have been reclassified to conform with
the fiscal 1996 presentation.

Revenue recognition

Revenues are recorded as services are performed. Revenues derived from
services provided under fixed-price contracts are recognized on a
percentage-of-completion basis, using the cost-to-cost method. If it is
determined that a contract may result in a loss, a provision for the loss is
accrued at that time.

Property and equipment

Property and equipment are carried at cost and depreciated over the
estimated useful life of the asset using the straight-line method. The costs of
major improvements are capitalized. Expenditures for maintenance, repairs and
minor improvements are expensed as incurred. When property and equipment are
sold or retired, the cost and related accumulated depreciation are removed and
the resulting gain or loss is included in results of operations.

Interest paid in connection with the construction of major facilities and
equipment is capitalized. The capitalized interest is recorded as a part of the
related asset and is depreciated over the asset's estimated useful life.
Capitalized interest related primarily to expansions and improvements at
container service facilities was $0.1 million, $0.3 million and $0.1 million for
the years ended August 31, 1996, 1995 and 1994, respectively.

Goodwill

Goodwill represents the excess of the aggregate purchase price over the net
tangible and identifiable intangible assets of acquired businesses accounted for
under the purchase method of accounting and is amortized on a straight-line
basis over a period of 40 years. Subsequent to purchase, the Company continually
evaluates whether events or circumstances have occurred that indicate the
remaining estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. When factors indicate that
goodwill should be evaluated for possible impairment, the Company uses an
estimate of the acquired business' undiscounted future cash flows compared to
the carrying value of goodwill to determine whether goodwill is deemed to be
impaired. Management believes there have been no events or circumstances which
warrant revision to the remaining useful life or

F-41
<PAGE> 124

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
which affect the recoverability of the Company's recorded goodwill. Accumulated
amortization of goodwill as of August 31, 1996 and 1995 was $9.1 million and
$6.6 million, respectively.

Income taxes

The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". Under SFAS
No. 109, the Company provides deferred income taxes for the tax effects of
temporary differences between the financial reporting and income tax bases of
the Company's assets and liabilities.

Environmental expenditures

Environmental expenditures are expensed or capitalized based upon their
future economic benefit. Costs which improve a property, as compared with the
condition of the property when originally constructed or acquired, and costs
which prevent future environmental contamination are capitalized. Costs related
to environmental damage resulting from operating activities subsequent to
acquisition are expensed. Liabilities for these expenditures are recorded when
it is probable that obligations have been incurred and the amounts can be
reasonably estimated.

Minority interest

The Company owns an aggregate 60% joint venture interest in each of two
companies in Mexico, and a Mexican company owns the remaining 40% interest in
each entity. One of the companies performs various industrial services,
including site remediation and aboveground storage tank cleaning services. The
primary operations of the other company are underground storage tank testing
services.

For financial reporting purposes, the joint ventures' assets and
liabilities are consolidated with those of the Company. The Mexican company's
minority interests, $0.5 million and $0.4 million at August 31, 1996 and 1995,
respectively, are included in the Company's Consolidated Balance Sheets in
deferred income taxes and other liabilities. The joint venture experienced
pretax losses of $0.3 million, $1.2 million and $0.9 million in fiscal 1996,
1995 and 1994, respectively.

Per share amounts

Per share amounts are calculated based on the weighted average number of
common and common equivalent shares outstanding for each year (see Note 13).

Foreign currency translation

The Company's Canadian and Mexican subsidiaries maintain their books and
records in Canadian dollars and Mexican pesos, respectively. Assets and
liabilities of these operations are translated into United States ("U.S.")
dollars at the exchange rate in effect at the end of each accounting period;
and, income and expense accounts are translated at the average exchange rate
prevailing during the respective period. Gains and losses resulting from such
translation are included in retained earnings. Gains and losses from
transactions in foreign currencies are credited or charged to operations
currently and are not material.

Investment activity

In September 1995, the Company sold its glass recycling operations to
Strategic Holdings, Inc. ("SHI"), a company formed by Equus II Incorporated
("Equus"). As partial consideration for the sale, the Company received $8.0
million of redeemable Series A preferred stock. The stock is redeemable by SHI
beginning in 2002. This investment is recorded using the cost method and is
included in investments in the accompanying Consolidated Balance Sheets (See
Note 3).

F-42
<PAGE> 125

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
In October 1995, the Company acquired a 10% interest in The Safe Seal
Company, Inc. ("Safe Seal") which specializes in valve repair and leak sealing.
This $2.6 million investment consists of 20,000 shares of redeemable Class A
preferred stock, 422,000 shares of common stock and warrants to purchase common
shares and is recorded using the cost method.

For most of fiscal 1994, the Company owned a 40% interest in a wastewater
pretreatment facility and recorded such investment using the equity method of
accounting. Prior to increasing its ownership interest in late fiscal 1994 to
100%, the Company's equity in losses of this partnership was $1.8 million for
the year ended August 31, 1994 and were included in other income (expense), net
in the accompanying Consolidated Statements of Operations. Additionally, in
fiscal 1994, the Company recorded $1.0 million in losses relating to its
investment in this facility which is recorded in other income (expense), net in
the accompanying Consolidated Statements of Operations.

The Company acquired 181,000 shares of Sanifill, Inc. ("Sanifill"), a
publicly traded corporation involved in the collection and disposal of solid
waste, pursuant to a private offering in 1989 at an average cost of $1.62 per
share. In November 1993, the Company sold all of its shares of Sanifill. The
sale resulted in a pretax gain for fiscal year 1994 of $2.7 million which is
reflected in other income (expense), net in the accompanying Consolidated
Statements of Operations.

Fiscal 1995 special charges

During fiscal 1995, the Company recorded special charges of $11.9 million.
Such charges include $6.9 million of charges classified as write-downs of
operating equipment in the accompanying Consolidated Statements of Operations.
These write-downs related to the permanent impairment of certain operating
equipment in Mexico and California, a wastewater pretreatment facility,
equipment relating to two small businesses exited and various owned facilities
held for sale. Included in SG&A expenses in the accompanying Consolidated
Statements of Operations are $1.1 million of charges primarily representing the
write-off of organizational expenses relating to the Mexico joint ventures. The
Consolidated Statements of Operations also reflect $0.6 million in interest
expense relating to the write-off of previously unamortized loan costs in
connection with the bank amendment to the revolving credit facility completed in
August 1995. Other income (expenses), net in the accompanying Consolidated
Statements of Operations reflects $3.6 million in charges relating to an
allowance provided for a note receivable and the write-off of the Company's
remaining investment in IAM/Environmental, Inc. ("IAM") and another
previously-owned business, as well as the settlement of a lawsuit related to the
previously discontinued asbestos abatement business. The write-off related to
IAM of $2.0 million reduced the Company's carrying value in this investment to
zero. Certain of the charges relating to the Mexico joint venture are partially
offset by the minority interest effect of such charges.

Cash flow reporting

Highly liquid debt instruments with an original maturity of three months or
less are considered to be cash equivalents. Cash payments for interest during
the years ended August 31, 1996, 1995 and 1994 were $9.6 million, $10.0 million
and $6.3 million, respectively, and cash payments for income taxes during the
years ended August 31, 1996, 1995 and 1994 were $4.9 million, $4.5 million and
$8.4 million, respectively.

New financial accounting standards

In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" which is effective for years beginning after December
15, 1995 (fiscal 1997 for the Company). This statement established

F-43
<PAGE> 126

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
criteria for recognizing, measuring and disclosing impairments of long-lived
assets, identifiable intangibles and goodwill. The Company will adopt SFAS No.
121 in the first quarter of fiscal year 1997; however, management does not
expect that the adoption will have a material effect on the Company's financial
position or results of operations.

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" which is effective for years
beginning after December 15, 1995 (fiscal 1997 for the Company). This statement
allows entities to choose between a new fair value based method of accounting
for employee stock options or similar equity instruments and the current
intrinsic value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25. Entities electing to remain with the accounting in APB
Opinion No. 25 must make pro forma disclosures of net income and earnings per
share as if the fair value method of accounting had been applied. The Company
expects to continue accounting for employee stock options and similar equity
instruments in accordance with APB Opinion No. 25. The pro forma effect for
fiscal 1996 has not yet been determined.

Use of estimates

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

2. ACQUISITIONS --

Under the purchase method of accounting, the results of acquired businesses
are included with the Company's results from their respective acquisition dates.
The following table summarizes the Company's business acquisitions accounted for
under the purchase method (dollars in thousands):

<TABLE>
<CAPTION>
BUSINESSES CASH AND CONVERTIBLE SHARES OF TOTAL
PURCHASED PROMISSORY NOTES SUBORDINATED NOTES COMMON STOCK CONSIDERATION
---------- ---------------- ------------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Fiscal 1996.... 4 $ 2,445 -$- -- $ 2,445
Fiscal 1995.... 13 23,231 4,985 1,426,096 36,766
Fiscal 1994.... 9 7,875 534 934,290 12,511
</TABLE>

The allocations of the purchase price to the fair market value of the net
assets acquired in the fiscal 1996 acquisitions are based on preliminary
estimates of fair market value and may be revised when additional information
concerning asset and liability valuations is obtained.

As an integral part of each of the above acquisitions, all former
shareholders signed non-compete agreements and key management entered into
agreements with the Company to continue managing these businesses.

In connection with two acquisitions made prior to fiscal 1996, the Company
agreed to make contingent payments to the former owners over periods up to five
years based on formulas in the respective acquisition agreements. At the
Company's option, these payments may be made in either cash or common stock of
the Company. At August 31, 1996, the maximum aggregate amount of contingent
payments was $3.2 million. In management's opinion, based on the current
performance levels of the individual acquisitions involved, the ultimate
settlement of these contingent payment obligations is likely to be substantially
less than the $3.2 million maximum aggregate. Approximately $0.3 million in
contingent payments were made during 1996. Amounts earned under the terms of
these agreements are recorded as additional goodwill and amortized over the
remaining amortization period.

F-44
<PAGE> 127

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. DISCONTINUED OPERATIONS --

In September 1995, the Company sold its glass recycling operations to SHI,
a company formed by Equus. In October 1996, the Company and Equus finalized an
agreement with respect to certain post-closing issues which were unresolved on
the date of the sales transaction. The total consideration, as adjusted, was
$56.1 million, including $41.5 million in cash, $8.0 million of redeemable
Series A preferred stock redeemable beginning in 2002, and a $6.6 million
subordinated note receivable due in 2002. The redeemable Series A preferred
stock dividend is $.065 per share for the period prior to September 1, 1996 and
$.06 per share thereafter. The subordinated note receivable interest rate is 11%
for the period prior to September 1, 1996 and 10.5% thereafter. The agreement
also provided that all dividends and interest due prior to August 31, 1997 will
not be paid when due, but "paid in kind" in the form of two 8.036% subordinated
notes issued September 30, 1996 and June 30, 1997 in the amounts of $1.3 million
and $0.9 million, respectively. Principal on these two notes will be due on
November 30, 2002. At August 31, 1996, the Company had accrued $0.5 million for
dividends and $0.8 million for interest which is reflected in other income
(expense) in the accompanying Consolidated Statements of Operations. The Company
also received warrants to purchase shares of SHI common stock, providing the
Company the right to own up to approximately 33% of the outstanding stock of
SHI. The Company may receive additional consideration in the form of an
adjustment to the purchase price in the event that Equus' internal rate of
return, as defined, exceeds certain predetermined targets. The amount of such
additional consideration, if any, is not presently determinable. The Company
recorded a gain on the sale of its glass recycling operations of $3.8 million,
net of estimated applicable income taxes of $1.6 million, in the first quarter
of fiscal 1996. Revenues of the glass recycling operations, net of intercompany
sales, were $70.0 million and $63.2 million for the fiscal years ended August
31, 1995 and 1994, respectively.

The net assets of the glass recycling operations consisted of the following
as of August 31, 1995 (in thousands):

<TABLE>
<S> <C>
Net working capital..................................... $ 7,726
Property and equipment, net............................. 21,335
Goodwill and other assets............................... 19,264
Long-term debt.......................................... 440
Deferred income taxes and other......................... 1,734
</TABLE>

Income from discontinued operations in the Consolidated Statements of
Operations is presented net of allocated interest expense of $1.6 million and
$1.0 million and net of applicable income taxes of $1.8 million and $1.6 million
for fiscal years 1995 and 1994, respectively. The interest was allocated based
upon the net assets of the glass recycling operations in relation to the
Company's consolidated net assets plus general corporate debt.

4. RECEIVABLES --

Receivables included in current assets consisted of the following (in
thousands):

<TABLE>
<CAPTION>
AUGUST 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Trade accounts........................................................ $ 76,378 $ 80,619
Employees............................................................. 567 996
Other................................................................. 489 2,133
-------- --------
77,434 83,748
Less -- Allowance for doubtful accounts............................... (2,320) (3,683)
-------- --------
$ 75,114 $ 80,065
======== ========
</TABLE>

F-45
<PAGE> 128

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. RECEIVABLES -- (CONTINUED)
Notes receivable recorded as non-current assets consisted of the following
(in thousands):

<TABLE>
<CAPTION>
AUGUST 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Notes receivable from employees....................................... $ 2,702 $ 2,483
Notes receivable from sale of discontinued asbestos abatement
operation........................................................... 2,888 2,888
Notes receivable from sale of discontinued glass recycling operations:
Subordinated note receivable..................................... 6,610 --
Accrued interest and dividends................................... 1,285 --
Notes receivable from sale of other businesses........................ 350 790
Other................................................................. 682 522
-------- --------
14,517 6,683
Less -- Loss reserves................................................. (1,000) (1,790)
-------- --------
$ 13,517 $ 4,893
======== ========
</TABLE>

5. PROPERTY AND EQUIPMENT --

The principal categories and estimated useful lives of property and
equipment were as follows (dollars in thousands):

<TABLE>
<CAPTION>
AUGUST 31,
ESTIMATED ------------------------
USEFUL LIVES 1996 1995
------------- ---------- ---------
<S> <C> <C> <C>
Land................................................. $ 6,412 $ 6,226
Building and improvements............................ 10 - 30 years 34,421 28,127
Service equipment and related vehicles............... 2 - 20 years 188,309 178,162
Other................................................ 3 - 10 years 19,138 17,776
---------- ---------
248,280 230,291
Less: accumulated depreciation....................... (119,307) (99,193)
---------- ---------
Property and equipment, net.......................... $ 128,973 $ 131,098
========== =========
</TABLE>

6. DEBT --

LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):

<TABLE>
<CAPTION>
AUGUST 31,
-----------------------
1996 1995
-------- ---------
<S> <C> <C>
Revolving credit agreement......................................... $ 87,770 $ 120,079
Notes payable to individuals in connection with acquisitions of
businesses (see Note 2), banks and financial institutions,
weighted average interest rate of 8.4% at August 31, 1996,
payable in various installments through 1999..................... 385 1,142
-------- ---------
88,155 121,221
Less -- Current maturities......................................... (184) (686)
-------- ---------
$ 87,971 $ 120,535
======== =========
</TABLE>

F-46
<PAGE> 129

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. DEBT -- (CONTINUED)
Revolving credit agreement

In December 1993, the Company entered into a revolving credit agreement
with a group of banks. This agreement, as amended most recently in August 1996,
provides an unsecured $160 million revolving credit line to the Company through
January 31, 1999, at which time any outstanding borrowings convert to a term
loan due in equal quarterly installments through January 31, 2003. Interest on
outstanding borrowings is charged, at the Company's option, at the banks' prime
rate (8 1/4% at August 31, 1996), adjusted Eurodollar Rate or the banks' reserve
adjusted certificate of deposit rate (CD rate) plus 0% to 1.625% as determined
by the calculation of the debt to cash flow ratio (as defined). A commitment fee
of .25% is payable on the unused portion of the line. Three of the banks
participating in the revolving credit agreement have also extended to the
Company uncommitted, short-term lines of credit with interest rates which may be
more favorable to the Company than those available under the revolving credit
agreement. As of August 31, 1996, the Company had $87.8 million outstanding
under the revolving credit agreement and the uncommitted lines of credit and had
utilized $30.1 million of the facility for letters of credit to secure certain
insurance obligations and performance bonds. Under the terms of the agreement,
the Company must maintain a minimum fixed charge coverage ratio (as defined) and
certain other minimum financial ratios. Borrowing availability is subject to the
Company meeting minimum leverage and other ratios. Management believes it is in
compliance with all applicable covenants under the revolving credit agreement as
of August 31, 1996. As of November 15, 1996, available borrowing capacity, as
defined under the agreement, was $39.0 million. The credit agreement prohibits
the payment of cash dividends.

Maturities of long-term debt outstanding at August 31, 1996 are as follows
(in thousands):

<TABLE>
<S> <C>
For the year ending August 31 --
1997............................................................................ $ 184
1998............................................................................ 191
1999............................................................................ 10,982
2000............................................................................ 21,943
2001............................................................................ 21,943
Thereafter...................................................................... 32,912
--------
$ 88,155
========
</TABLE>

In August 1996, the Company purchased a three year interest rate cap
agreement of 7.0% on $30,000,000 from two of the banks which participate in the
Company's revolving credit agreement. Quarterly payments under the agreement are
based on the difference between a floating rate based on a three-month LIBOR and
the cap rate. The cost was $0.3 million and is being amortized over the term of
the agreement.

CONVERTIBLE SUBORDINATED DEBT

Convertible Subordinated Debentures

In June 1989, the Company completed a public offering of $30.0 million of
7.25% Convertible Subordinated Debentures due June 1, 2014 (the "Debentures");
net proceeds to the Company were $28.7 million. Direct offering costs related to
the Debentures are included in other assets in the accompanying Consolidated
Balance Sheets and are being amortized over the term of the Debentures. The
Debentures are convertible by the holder, at any time, into shares of the
Company's Common Stock at a price of $11.94 per share and 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

F-47
<PAGE> 130

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. DEBT -- (CONTINUED)
amount of the Debentures issued, commencing June 1, 1999. Interest is payable
semi-annually, on June 1 and December 1. In fiscal 1996, the Company repurchased
$1.1 million of these Debentures at 85% of face value. The related gain of $0.2
million was included in interest expense in the accompanying Consolidated
Statements of Operations.

In October 1994, the Company entered into an interest rate swap agreement
through June 1997 to potentially lower the overall cost of borrowings. The
agreement modified the $30.0 million of 7.25% fixed rate debt to LIBOR plus .24%
debt, which was reset quarterly. On May 31, 1995, the Company terminated the
agreement and is amortizing the $0.5 million received as a reduction of interest
expense on a straight-line basis over the remaining term of the original swap.

Convertible Subordinated Notes

At August 31, 1996, the Company had outstanding $11.1 million of
convertible subordinated notes to former owners of certain acquired businesses
(the "Notes") which were issued as partial consideration of the acquisition
purchase price. The Notes bear interest, payable quarterly, at a weighted
average rate of 6.2% and are convertible by the holder into shares of the
Company's Common Stock at a weighted average price of $7.24 per share. The Notes
are redeemable for cash or the Company's Common Stock at the option of the
Company at any time after one year of issuance.

Maturities of the Notes outstanding at August 31, 1996 are as follows (in
thousands):

<TABLE>
<S> <C>
For the year ending August 31 --
1997............................................................................ $ 6,065
1998............................................................................ 4,985
-------
$11,050
========
</TABLE>

7. INCOME TAXES --

The Company and its U.S. subsidiaries file a consolidated federal income
tax return. Acquired entities file appropriate tax returns through their
respective acquisition dates (absent certain administrative elections) and,
thereafter, are included in the Company's consolidated return. Foreign income
taxes consist primarily of Canadian federal and provincial taxes attributable to
the Company's Canadian subsidiaries.

Foreign pretax book income (loss) net of certain intercompany interest
expense and other items was $0.5 million (consisting of a Mexican loss of $0.2
million and Canadian income of $0.7 million,) ($0.4 million) and $1.2 million
for the years ended August 31, 1996, 1995 and 1994, respectively.

F-48
<PAGE> 131

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES -- (CONTINUED)
Federal, state and foreign income tax provisions (benefits) are as follows
(in thousands):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
---------------------------------
1996 1995 1994
------ ------- ------
<S> <C> <C> <C>
Federal --
Current............................................... $4,941 $ 6,536 $1,327
Deferred.............................................. 706 (6,260) 3,819
------ ------- ------
5,647 276 5,146
------ ------- ------
State --
Current............................................... 1,034 1,494 584
Deferred.............................................. (448) (430) 179
------ ------- ------
586 1,064 763
------ ------- ------
Foreign --
Current............................................... 290 667 840
Deferred.............................................. (493) 163 (24)
------ ------- ------
(203) 830 816
------ ------- ------
$6,030 $ 2,170 $6,725
====== ======= ======
</TABLE>

The differences in the income taxes provided and the amount determined by
applying the U.S. federal statutory rate to income before income taxes are
summarized as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
AUGUST 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate............................... 35% 35% 35%
Effect of valuation allowance...................................... 1 (55) --
State income taxes, net of benefit for federal deduction........... 3 (33) 3
Effect of meals and entertainment limitation....................... 4 (21) --
Effect of other nondeductible amortization of goodwill............. 4 (16) 2
Effect of other nondeductible expenses............................. 1 (7) --
Foreign income taxes at higher rates............................... -- (3) 1
Other.............................................................. -- (3) (1)
--- ---- ---
48% (103)% 40%
=== ==== ===
</TABLE>

F-49
<PAGE> 132

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES -- (CONTINUED)
Deferred income tax expense results principally from the use of different
capital recovery and revenue and expense recognition methods for tax and
financial accounting purposes. The sources of these temporary differences and
related tax effect were as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
--------------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Depreciation and amortization............................. $ 2,417 $ 901 $1,361
Accruals and reserves not deductible until paid........... 1,031 (5,186) 1,926
Write-downs of assets..................................... -- (1,580) --
Sale of certain leasing operations........................ (141) (305) (222)
Sale of glass recycling operations........................ (2,932) -- --
Other, net................................................ (610) (357) 909
------- ------- ------
Total deferred income tax provision (benefit)............. $ (235) $(6,527) $3,974
======= ======= ======
</TABLE>

Deferred tax assets and liabilities are determined based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities. On the accompanying Consolidated Balance Sheets,
current and non-current deferred tax assets and liabilities are netted within
each tax jurisdiction. The following table sets forth the gross deferred tax
assets (liabilities) recorded as of August 31 (in thousands):

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current deferred tax assets....................................... $ 8,681 $ 8,512
Non-current deferred tax assets................................... 3,383 5,003
Valuation allowance............................................... (1,230) (1,156)
-------- --------
Total deferred tax assets......................................... 10,834 12,359
-------- --------
Non-current deferred tax liabilities.............................. (13,238) (14,998)
-------- --------
Net deferred tax liabilities...................................... $ (2,404) $ (2,639)
======== ========
</TABLE>

The Company is required to record valuation allowances for deferred tax
assets which management believes it is more likely than not that the tax asset
will not be realized. Accordingly, the Company established valuation allowances
against certain deferred tax assets: primarily those attributable to the
Company's net operating losses of its joint ventures in Mexico.

Prepaid income taxes of $0.7 and $1.2 million are included in prepaid
expenses at August 31, 1996 and 1995, respectively.

8. SHAREHOLDERS' EQUITY --

Preferred Stock

The Company can issue up to 500,000 shares of Preferred Stock, none of
which are issued or outstanding. The Board of Directors is authorized to provide
for the issuance of the Preferred Stock in series, to establish the number of
shares to be included in each such series and to fix the designation, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations or restrictions thereof. This includes, among other things, any
voting rights, conversion privileges, dividend rates, redemption rights, sinking
fund provisions and liquidation rights which shall be superior to the Common
Stock. No holder of Preferred Stock will have preemptive rights.

F-50
<PAGE> 133

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. SHAREHOLDERS' EQUITY -- (CONTINUED)
Stock option plans

In January 1995, the Company's stockholders approved the Amended and
Restated 1989 Replacement Non-Qualified Stock Option Plan (the "Plan"), which
increased the number of shares issuable under the Plan from 3,000,000 shares to
4,500,000 shares. Under the Plan and notwithstanding certain restrictions placed
upon grants of options to persons subject to Section 16(a) of the Securities
Exchange Act of 1934, through August 31, 1999, all forfeited, expired and
exercised options automatically become available for grants of new options under
the Plan; therefore, the number of granted option shares plus those remaining
available for grant shall remain constant at 4,500,000 through such date. Stock
options are granted under the Plan at an exercise price which equals the fair
market value of the Common Stock on the date of grant or on the date which marks
the occurrence of the event pursuant to which the options are granted.

In July 1996, the compensation committee of the Board of Directors approved
a stock option exchange offer program (the "Exchange Program"), pursuant to
which all holders of stock options under the Plan were offered the opportunity
to exchange existing outstanding option grants for new option grants with a new
exercise price of $4.81 per share, a new eight-year term and a new four-year
vesting schedule. Options to purchase an aggregate of 2,251,961 shares of Common
Stock (of which, options to purchase an aggregate of 287,526 shares were
initially granted during fiscal 1996) were exchanged under the Exchange Program.

At August 31, 1996, options to purchase 3,419,878 shares were outstanding
under the Plan at prices ranging from $3.88 to $6.75 per share, of which options
to purchase 404,568 shares were exercisable. Subsequent to August 31, 1996,
options to purchase an additional 949,950 shares were granted under the Plan at
the per share exercise price of $4.25.

In October 1992, the Company's Board of Directors adopted a supplemental
option plan ("Supplemental Plan") to enable the Company to fulfill obligations
to former employees. A total of 1,500,000 shares are issuable under the amended
Supplemental Plan. At August 31, 1996, options to purchase 1,018,812 shares were
outstanding under the Supplemental Plan at prices ranging from $4.00 to $10.88
per share, of which options to purchase 689,818 shares were exercisable.
Subsequent to August 31, 1996, there were no options granted under the
Supplemental Plan.

The following table summarizes aggregate stock option activity of both the
Company's stock option plans for each of the three years ended August 31:

<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Options outstanding, beginning of year... 4,220,271 3,422,925 3,153,791
Granted................................ 2,440,601 1,895,400 871,740
Exercised.............................. (164,600) (430,526) (66,377)
Forfeited and canceled................. (2,057,587) (667,528) (536,229)
------------- ------------- -------------
Options outstanding, end of year......... 4,438,685 4,220,271 3,422,925
============= ============= =============

Option prices per share:
Granted................................ $4.00 - 6.50 $4.00 - 6.25 $4.00 - 6.75
Exercised.............................. $0.50 - 4.25 $4.00 - 5.88 $4.00 - 5.63
Forfeited and canceled................. $4.00 - 10.88 $4.00 - 12.19 $4.00 - 12.19
</TABLE>

F-51
<PAGE> 134

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. SHAREHOLDERS' EQUITY -- (CONTINUED)
Treasury Stock

In July 1995, the Board of Directors of the Company approved a Stock
Repurchase Plan which authorizes management of the Company to repurchase up to
5,000,000 shares of Common Stock, either on the open market or in privately
negotiated transactions, at prevailing market prices over a two year period. As
of August 31, 1996, 2,075,900 shares of Common Stock had been repurchased under
the plan at an average price of $4.44 per share. During fiscal 1996, the Company
used 380,095 of these treasury shares for incentive plans, employment agreements
and various other uses. Subsequent to August 31, 1996, the Company has
repurchased 1,029,400 additional shares of its Common Stock at an average cost
of $4.67 per share. Future repurchases of the Company's Common Stock will be
dependent on prevailing market conditions and other investment opportunities.

In October 1993, the Company reached a settlement of a lawsuit with a
former owner of an acquired business and other parties. In exchange for a full
and complete release of all claims against the parties, the Company received
$1.0 million in cash and 250,000 shares of the Company's Common Stock. This
transaction resulted in a gain of $1.4 million, net of related fiscal 1994 legal
expenses, which is reflected in other income (expense), net in the Consolidated
Statements of Operations.

Stockholder Rights Plan

The Company's Stockholder Rights Plan (the "Rights Plan"), adopted in
August 1996, is designed to deter coercive or unfair takeover tactics and to
prevent a person or group from gaining control of the Company without offering a
fair price to all stockholders.

All stockholders of record on August 15, 1996 were issued, for each share
of Common Stock held, one "right" entitling them to purchase from the Company
one-thousandth of a share of Series One Junior Participating Preferred Stock of
the Company at an exercise price of $20 (the "Rights"). The Rights are
distributable on the earlier of: 10 days (the "Shares Acquisition Date") after a
public announcement that a person or group has acquired beneficial ownership of
15% or more of the Company's Common Stock (an "Acquiring Person") or 10 business
days after a person or group commences a tender or exchange offer upon
consummation of which such person or group would, if successful, beneficially
own 20% or more of the Company's outstanding Common Stock.

The Company will generally be entitled to redeem the Rights in full, at
$.01 per Right, at any time until close of business up to 10 days following the
Shares Acquisition Date. The Rights will expire on August 5, 2006, unless
redeemed earlier by the Company's Board of Directors.

If a person (and its affiliates) becomes the beneficial owner of 20% or
more of the outstanding shares of the Common Stock (a "Flip-In Triggering
Event"), each Right (other than those Rights held by an Acquiring Person or its
transferees, which Rights are void) becomes exercisable for shares of the
Company's Common Stock having a value of twice the exercise price of such
Rights. Alternatively, in the event the Company is involved in a merger or other
business combination in which the Company would not be the surviving corporation
or its Common Stock is changed or converted, or it sells 50% or more of its
assets or earning power to another person or group, each Right would entitle the
holder to purchase, at the Right's then current exercise price, common shares of
such other person or group having a value of twice the exercise price of the
Right.

F-52
<PAGE> 135

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. COMMITMENTS AND CONTINGENCIES --

Lease commitments

The Company has entered into various operating lease agreements, primarily
for office space, service facilities and service equipment utilized for
operations. Minimum annual rental payments under noncancellable operating leases
as of August 31, 1996 were as follows (in thousands):

<TABLE>
<S> <C>
For the year ending August 31 --
1997............................................................................ $ 5,324
1998............................................................................ 4,528
1999............................................................................ 3,385
2000............................................................................ 2,268
2001............................................................................ 1,400
Thereafter...................................................................... 4,444
-------
$21,349
========
</TABLE>

Rental expense under operating leases was $16.0 million, $15.1 million and
$11.8 million for the years ended August 31, 1996, 1995 and 1994, respectively.
These amounts include a service facility leased from the Company's Chairman of
the Board of Directors, for which rental expense was $0.1 million for each of
the years ended August 31, 1996, 1995 and 1994.

Legal matters

In the normal course of its operations, the Company can become involved in
a variety of legal disputes. Currently, the Company is a defendant in several
legal proceedings, including workers' compensation matters and minor business
disputes, the majority of which are being handled or are expected to be handled
by the Company's insurance carriers. As a company that handles and transports
hazardous waste, the Company is involved in various administrative and court
proceedings under environmental laws and regulations relating to permit
applications, operating authorities and alleged liabilities related to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended. Management of the Company believes that a decision adverse to the
Company in any one or in all of these proceedings would not have a material
effect on the financial position or the results of operations of the Company.

Insurance

The Company maintains workers' compensation insurance for its employees and
other coverages for normal business risks. A substantial portion of the
Company's current and prior year insurance coverages are "high deductible" or
retrospective policies in which the Company, in many cases, is responsible for
the payment of incurred claims up to specified individual and aggregate limits,
over which a third party insurer is contractually liable for any additional
payment of such claims. Accordingly, the Company bears significant economic
risks related to these coverages. On a continual basis, and as of each balance
sheet date, the Company records an accrual equal to the estimated costs expected
to result from incurred claims plus an estimate of claims incurred but not
reported as of such date based on the best available information at such date.
However, the nature of these claims is such that actual development of the
claims may vary significantly from the estimated accruals. All changes in the
accrual estimates are accounted for on a prospective basis and can have a
significant impact on the Company's financial position or results of operations.

Insurance for environmental accidents and pollution has historically been
expensive and difficult to obtain. The Company currently maintains insurance for
environmental accidents and pollution relating to the performance of services at
certain customer locations. To date, the Company has not incurred

F-53
<PAGE> 136

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
material fines, penalties or liabilities for pollution, environmental damage or
toxic torts. However, in the event a claim is successful against the Company for
pollution or toxic tort liability for which the Company is only partially
insured or completely uninsured, there could be a material adverse effect on the
Company's financial position or results of operations.

Environmental Proceedings

In November 1996, the West Virginia Department of Environmental Protection
(the "West Virginia DEP") issued a draft consent order against one of the
Company's subsidiaries, which order seeks to impose an aggregate of
approximately $229,000 in fines against the Company relating to a
transportation-related spill in West Virginia in November 1995. The Company
voluntarily remediated this spill in December 1995. The draft consent order
alleges that in remediating the spill, the Company did not comply with certain
technical West Virginia DEP remediation regulations relating to recordkeeping
and generator requirements. The Company believes that the West Virginia DEP
remediation regulations cited by the West Virginia DEP as the basis of this
draft consent order are not relevant in the context of an emergency spill
response. Therefore, the Company believes that it may be able to successfully
negotiate the imposition by the West Virginia DEP of significantly lower
penalties in the final consent order. The Company is actively negotiating the
draft consent order with the West Virginia DEP and does not believe that the
final consent order will have a material adverse effect on the Company's results
of operations or financial position.

Other matters

In August 1995, the Company entered into an agreement with Resource
Recovery Techniques of Arizona, Inc. ("RRT"), a start-up operation that was in
the process of constructing a wastewater treatment facility located in Phoenix,
Arizona (the "Facility"). As part of the agreement, the Company caused the
issuance of a Letter of Credit in the amount of $4.2 million for the benefit of
holders of tax exempt bonds (the "Bonds") issued to finance the construction of
the Facility. The Letter of Credit is subject to draw under the terms of a
certain Trust Indenture and Reimbursement Agreement executed in connection with
the issuance of the Bonds. As consideration, the Company was issued warrants,
with 10 year terms, to purchase 10% of the common stock of RRT and upon the
occurrence of certain conditions, an additional 15% of the common stock of RRT.

10. RETIREMENT PLANS --

Effective October 1, 1990, the Company established a defined contribution
employee benefit plan, the Allwaste Retirement Savings Plan, which covered
substantially all full-time non-union U.S. employees having at least one year of
service. On July 1, 1995, the Company adopted the Allwaste Employee Retirement
Plan (the "Retirement Plan"), which amended and restated the Allwaste Retirement
Savings Plan. Eligible employees may contribute up to 15% of their compensation,
subject to certain Internal Revenue Code limitations. The Company matches 50% of
each participant's contributions up to 3% of eligible compensation. Retirement
Plan participants may select among six investment options, one of which is the
Company's Common Stock. At August 31, 1996, the Retirement Plan held 626,723
shares of the Company's Common Stock (market value of $2.6 million) which
represented 24.3% of the Retirement Plan's assets. In addition to the Plan, the
Company maintains three other defined contribution employee benefit plans which
cover a small group of union employees. Defined contribution expense related to
all plans for the Company was $0.8 million, $0.6 million and $0.5 million for
fiscal years 1996, 1995 and 1994, respectively.

F-54
<PAGE> 137

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. INCENTIVE PLANS --

On October 26, 1995, the Company's Board of Directors adopted a limited
single-purpose incentive plan (the "Incentive Plan") for certain key employees
("Participants") of the Company. Under this plan, each Participant that
purchased shares of the Company's Common Stock, based on a designated percentage
of the Participant's annual salary (the "Qualifying Shares"), was granted a
number of shares of restricted Common Stock equal to two times the number of
Qualifying Shares purchased by the Participant. On completion of the purchases
by a Participant, the Compensation Committee, in exercise of its discretion and
under the Company's Amended and Restated 1989 Replacement Non-qualified Stock
Option Plan, granted to such Participant an option to purchase a number of
shares of Common Stock equal to four times the number of Qualifying Shares
purchased by the Participant. Shares of Common Stock issued under this Incentive
Plan are treasury shares. At August 31, 1996, 203,366 shares of restricted
Common Stock and options to purchase 423,464 shares of Common Stock have been
granted to Participants. Additionally, 3,460 shares of restricted Common Stock
were earned and not yet issued. The Company does not contemplate that any
additional restricted shares will be issued under the Incentive Plan or that any
options to purchase shares of Common Stock will be granted under the Plan in
relation to purchases of Qualifying Shares pursuant to the Incentive Plan.

The value of restricted shares awarded under this Incentive Plan during
fiscal 1996 was $0.9 million. These amounts were recorded as unearned
compensation related to outstanding restricted stock and are shown as a separate
component of Shareholders' Equity. Unearned compensation is being amortized to
expense over a predominately four year vesting period and amounted to $0.2
million for the year ended August 31, 1996.

During fiscal 1996, the Company adopted an Interim Management Bonus Plan
("Interim Plan") for eligible personnel, as defined. Under this Interim Plan,
eligible personnel may receive bonus payments contingent upon the Company
meeting or exceeding certain predetermined earnings levels, as determined by the
Compensation Committee of the Board of Directors, and individual performance. At
August 31, 1996, compensation earned and recorded in operating expense was $1.0
million.

12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS --

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to do so.

The Company's notes receivable are estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.

Long-term investments are based on the carrying value of the asset.

The Company's long-term debt and convertible subordinated debt are
estimated based on quotations obtained from broker-dealers who make markets in
these and similar securities. The bank credit facilities are based on floating
interest rates and, as such, the carrying amount is a reasonable estimate of
fair value.

Letters of credit are based on the face amount of the related obligations
and performance bonds.

Interest rate cap agreements are based on quotes from the market makers of
these instruments and represent the amounts that the Company would expect to
receive to terminate the agreements.

F-55
<PAGE> 138

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments are as
follows (in thousands):

<TABLE>
<CAPTION>
AUGUST 31,
-------------------------------------------------
1996 1995
--------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Notes receivable............................... $ 13,517 $ 13,120 $ 4,893 $ 4,428
Long-term investments.......................... 11,030 11,030 -- --
Long-term debt and convertible subordinated
debentures................................... 128,144 123,064 165,878 162,126
Letters of credit.............................. -- 30,090 -- 25,072
Interest Rate Cap Agreement.................... 270 377 -- --
</TABLE>

13. NET INCOME (LOSS) PER COMMON SHARE --

Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of Common Stock and equivalents
outstanding during the year as shown below (in thousands, except per share
data):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income (loss) from continuing operations, net of income
taxes................................................. $ 6,614 $ (3,879) $ 10,596
Discontinued Operations
Income from discontinued operations, net of applicable
income taxes....................................... -- 2,773 2,501
Gain on sale of glass recycling operations, net of
applicable income taxes............................ 3,764 -- --
-------- -------- --------
Net income (loss)....................................... $ 10,378 $ (1,106) $ 13,097
======== ======== ========
Shares outstanding, beginning of year................... 39,609 37,741 36,740
Weighted average number of common shares outstanding:
Stock options, treasury stock method............... 63 290 188
Purchased companies, including earnouts............ 25 816 132
Exercise of stock options.......................... 113 208 4
Treasury stock and other, net...................... (755) (250) (212)
-------- -------- --------
Total weighted average common shares outstanding........ 39,055 38,805 36,852
======== ======== ========
Net income (loss) per common share:
Continuing operations................................. $ .17 $ (.10) $ .29
Discontinued operations............................... .10 .07 .07
-------- -------- --------
Net income (loss) per common share...................... $ .27 $ (.03) $ .36
======== ======== ========
</TABLE>

Fully diluted net income per common share is not presented for any period
as it is not materially different from the above primary calculations.

Common stock equivalents include stock options to purchase Common Stock.
The convertible subordinated debt is not a common stock equivalent and does not
have a material dilutive effect on net income (loss) per common share for any of
the three years presented.

F-56
<PAGE> 139

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. BUSINESS OPERATIONS AND GEOGRAPHIC INFORMATION --

The primary business of the Company involves the provision of on-site
industrial cleaning and waste management services (including hydroblasting and
gritblasting and air moving and liquid vacuuming), waste transportation and
processing, wastewater services, site remediation, maintenance services,
turnaround and outage services, container cleaning and repair services,
emergency spill response services and other general plant support services to
the industrial customer. The Company's operations are located in the United
States, Canada and Mexico, as summarized below (in thousands):

<TABLE>
<CAPTION>
UNITED
STATES CANADA MEXICO TOTAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996 --
Revenues................................... $ 347,484 $ 32,952 $ 1,729 $ 382,165
Operating income (loss).................... 16,978 2,120 (356) 18,742
Total assets............................... 320,222 16,522 443 337,187
1995 --
Revenues................................... $ 322,644 $ 20,484 $ 1,117 $ 344,245
Operating income (loss).................... 11,253 1,375 (2,863) 9,765
Total assets............................... 359,507 12,257 469 372,233
1994 --
Revenues................................... $ 263,210 $ 22,611 $ 1,040 $ 286,861
Operating income (loss).................... 22,165 2,690 (1,506) 23,349
Total assets............................... 297,063 9,578 2,622 309,263
</TABLE>

F-57
<PAGE> 140

ALLWASTE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. QUARTERLY FINANCIAL DATA (UNAUDITED) --

The table below sets forth consolidated operating results by fiscal quarter
for the years ended August 31, 1996 and 1995, excluding the Company's
discontinued glass recycling operations (in thousands, except per share data):

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- --------
<S> <C> <C> <C> <C>
1996 --
Revenues.................................. $99,798 $88,278 $98,731 $ 95,358
Gross profit.............................. 26,744 18,659 25,621 24,729
Net income (loss)
Continuing operations.................. 2,715 (1,357) 2,583 2,673
Discontinued operations................ 3,764 -- -- --
------- ------- ------- --------
$ 6,479 $(1,357) $ 2,583 $ 2,673
======= ======= ======= ========
Net income (loss) per common share
Continuing operations.................. $ .07 $ (.03) $ .07 $ .07
Discontinued operations................ .09 -- -- --
------- ------- ------- --------
$ .16 $ (.03) $ .07 $ .07
======= ======= ======= ========
1995 --
Revenues.................................. $82,591 $78,433 $86,638 $ 96,583
Gross profit.............................. 22,846 20,903 23,384 22,516
Net income (loss)
Continuing operations.................. 2,926 1,507 2,170 (10,482)
Discontinued operations................ 794 825 872 282
------- ------- ------- --------
$ 3,720 $ 2,332 $ 3,042 $(10,200)
======= ======= ======= ========
Net income (loss) per common share
Continuing operations.................. $ .08 $ .04 $ .06 $ (.27)
Discontinued operations................ .02 .02 .02 .01
------- ------- ------- --------
$ .10 $ .06 $ .08 $ (.26)
======= ======= ======= ========
</TABLE>

Due to changes in weighted average common shares outstanding, the sum of
the quarterly per share amounts for fiscal 1996 and 1995 do not equal earnings
(loss) per share for the respective years.

F-58
<PAGE> 141

REPORT OF INDEPENDENT ACCOUNTANTS

To the Boards of Directors of
PECHINEY (ISW), INC., PPC (ISW), INC., and INTSEL SOUTHWEST LIMITED
PARTNERSHIP

We have audited the accompanying combined statements of income and of cash
flows for the nine months ended September 26, 1996 of Pechiney (ISW), Inc., PPC
(ISW), Inc. and Intsel Southwest Limited Partnership (collectively, the
Company). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements audited by us present fairly, in
all material respects, the combined results of operations and cash flows of
Pechiney (ISW), Inc., PPC (ISW), Inc., and Intsel Southwest Limited Partnership
for the nine months ended September 26, 1996, in conformity with accounting
principles generally accepted in the United States of America.

PRICE WATERHOUSE LLP
Houston, Texas
April 7, 1997

F-59
<PAGE> 142

PECHINEY (ISW), INC., PPC (ISW), INC. AND
INTSEL SOUTHWEST LIMITED PARTNERSHIP

COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1996
(in thousands of U.S. dollars)

<TABLE>
<S> <C>
Revenue......................................................................... $ 99,014
Cost of sales................................................................... 84,369
--------
Gross profit.................................................................... 14,645
--------
Operating expenses:
Selling, general and administrative........................................... 5,485
Depreciation expense.......................................................... 699
--------
Total operating expenses.............................................. 6,184
--------
Operating income................................................................ 8,461
--------
Other expenses:
Management fees............................................................... 182
Net interest expense.......................................................... 150
--------
Total other expenses.................................................. 332
--------
Income before income taxes...................................................... 8,129
Provision for income taxes...................................................... 2,800
--------
Net income...................................................................... $ 5,329
========
</TABLE>

The accompanying notes are an integral part of this statement.

F-60
<PAGE> 143

PECHINEY (ISW), INC., PPC (ISW), INC. AND
INTSEL SOUTHWEST LIMITED PARTNERSHIP

COMBINED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1996
(in thousands of U.S. dollars)

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 5,329
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization................................................. 699
Gains on sale of assets....................................................... (81)
Deferred income taxes......................................................... 565
Changes in assets and liabilities:
Decrease in accounts receivable............................................ 1,267
Increase in inventories.................................................... (4,783)
Increase in prepaid expenses............................................... (94)
Increase in receivable from a related party................................ (5,761)
Decrease in deposits....................................................... 8
Decrease in accounts payable and accrued expenses.......................... (743)
Decrease in accounts payable to a related party............................ (72)
Increase in income taxes payable........................................... 2,235
Increase in accrued pension liability...................................... 3
Increase in accrued post-retirement benefits............................... 134
-------
Net cash used by operating activities.................................... (1,294)
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets........................................................ (315)
-------
Proceeds from sale of assets.................................................... 96
-------
Net cash used by investing activities......................................... (219)
-------
Net decrease in cash and cash equivalents....................................... (1,513)
Cash and cash equivalents at December 27, 1995.................................. 1,513
-------
Cash and cash equivalents at September 26, 1996................................. $ --
=======
</TABLE>

The accompanying notes are an integral part of this statement.

F-61
<PAGE> 144

PECHINEY (ISW), INC., PPC (ISW), INC. AND
INTSEL SOUTHWEST LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION:

Effective September 27, 1996, Philip Metals, Inc. and PEN Metals, Inc.
(subsidiaries of Philip Environmental Inc.) purchased their respective 100%
ownership interests in Pechiney (ISW), Inc. and PPC (ISW), Inc. from Pechiney
North America, Inc. (Pechiney) for $614,000 and $60,782,000, respectively.

Pechiney (ISW), Inc. owns a one-percent interest in, and is the general
partner of, Intsel Southwest Limited Partnership (Intsel).

PPC (ISW), Inc. owns a 99-percent interest in, and is the sole limited
partner of, Intsel.

Intsel is a distributor of heavy carbon steel products throughout the
Southwestern and Southeastern regions of the United States.

The combined financial statements include the accounts of Pechiney (ISW),
Inc., PPC (ISW), Inc. and Intsel (collectively referred to as the Company or the
Partnership). All significant intercompany transactions have been eliminated in
combination.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:

The combined financial statements have been prepared on the accrual basis
using accounting principles generally accepted in the United States of America.

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of revenue and expenses at the date of
the financial statements. Actual results could differ from those estimates.

Revenue recognition

Revenue from the distribution of heavy carbon steel products is recognized
at the time of shipment.

Cash and cash equivalents

Cash and cash equivalents consist of demand deposits and term deposits in
money market instruments with original maturity dates of three months or less.
Fair market value approximates cost for cash and cash equivalents.

Inventory

Inventory is recorded at the lower of average cost or net realizable value.

Fixed assets

Fixed assets are depreciated over their estimated useful lives using the
straight-line method. Assets are depreciated beginning the month they are placed
in service. Repair and maintenance costs associated with assets are charged to
operations as incurred. The estimated useful lives of each asset class are as
follows:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings................................................. 5-20
Production machinery...................................... 2-10
Vehicles.................................................. 2-10
Furniture, fixtures and equipment......................... 2-7
Leasehold improvements.................................... 3
</TABLE>

F-62
<PAGE> 145

PECHINEY (ISW), INC., PPC (ISW), INC. AND
INTSEL SOUTHWEST LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (SFAS 121), which requires accounting for impairment
of long-lived assets and certain identifiable intangibles held for sale based on
an analysis of future net cash flows for those assets. The adoption of SFAS 121
did not have a material effect on the Company's financial position or results of
operations.

Income taxes

The Company accounts for deferred income taxes using the liability method
which provides for the recognition of deferred tax assets and liabilities based
upon temporary differences between the tax basis of assets and liabilities and
their carrying value for financial reporting purposes. Deferred tax expense or
benefit is the result of changes in deferred tax assets and liabilities during
the period. In estimating future tax consequences, all expected future events
are considered other than enactments of changes in the tax law or rates.

NOTE 3 -- POST-RETIREMENT BENEFITS:

The Company participates in the post-retirement benefit plan of Pechiney
World Trade (USA). The defined benefit post-retirement plan provides certain
health care and life insurance benefits for retired employees. Substantially all
employees become eligible for these benefits if they have met certain age and
service requirements at retirement. The Partnership had fully accrued the
accumulated benefit obligation in accordance with the provisions of SFAS No.
106, "Employers' Accounting for Post-retirement Benefits Other Than Pensions",
which requires accrual of these benefits during the years an employee provides
service.

Net periodic post-retirement benefit cost for the nine months ended
September 26, 1996 was comprised of the following elements (in thousands of U.S.
dollars):

<TABLE>
<S> <C>
Current year service cost................................... $ 64
Interest accrued on post-retirement benefit obligations..... 34
----
Net periodic post-retirement benefit cost................... $ 98
====
</TABLE>

The assumed healthcare cost trend rate used in measuring the benefit
obligation is 11% pre-age 65 in 1996 and 9% post-age 65 in 1996, declining at a
rate of 1% per year to an ultimate rate of 6% in the year 2001 pre-age 65 and 5%
post-age 65. A one percent increase in this rate in each year would increase the
aggregate service and interest cost for 1996 by $51,000. The weighted average
discount rates used in determining the benefit obligation at December 31, 1996
is 8%.

F-63
<PAGE> 146

PECHINEY (ISW), INC., PPC (ISW), INC. AND
INTSEL SOUTHWEST LIMITED PARTNERSHIP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- INCOME TAXES:

The provision for income taxes (which is primarily federal) for the nine
months ended September 26, 1996 consists of the following (in thousands of U.S.
dollars):

<TABLE>
<S> <C>
Current.................................................. $2,235
Deferred................................................. 565
------
$2,800
======
</TABLE>

The difference between income taxes at the statutory federal and effective
income tax rates for the nine months ended September 26, 1996 is as follows (in
thousands of U.S. dollars):

<TABLE>
<S> <C>
Taxes computed by applying federal statutory rate........ $2,845
Other.................................................... (45)
------
$2,800
======
</TABLE>

NOTE 5 -- RELATED PARTIES:

During the nine months ended September 26, 1996, Pechiney funded the
Company's cash requirements in excess of operating cash flows or borrowed the
excess operating cash flow from the Company on a daily basis. The resulting
liability/receivable accrued interest at 5.656% to 6.088% during the nine months
ended September 26, 1996. During the nine months ended September 26, 1996, the
Company paid $166,000 of interest expense to Pechiney and received $16,000 of
interest income. These amounts have been netted for financial statement
purposes.

The Partnership obtains certain insurance coverages through its parent
companies. Total allocation of insurance expense for the nine months ended
September 26, 1996 was approximately $282,000. During the nine months ended
September 26, 1996, the Company incurred $182,000 of management fees to
Pechiney.

During the nine months ended September 26, 1996, eligible employees of the
Company participated in the pension plans provided by Pechiney. The Company
recorded pension expense of $200,000 and contributed $191,000 to the Pechiney
pension plans during the nine months ended September 26, 1996.

NOTE 6 -- COMMITMENTS:

Future lease payments required under operating leases for premises,
equipment and vehicles are as follows (in thousands of U.S. dollars):

The Company incurred $255,000 in lease expense during the nine months ended
September 26, 1996.

NOTE 7 -- CONTINGENCIES:

The Company is named as a defendant in a lawsuit which has arisen in the
ordinary course of its business. Management believes that this suit is not
likely to have a material adverse effect on the Company's business or financial
condition.

F-64
<PAGE> 147

REPORT OF INDEPENDENT AUDITORS

Board of Directors
LUNTZ CORPORATION

We have audited the accompanying consolidated statements of income and cash
flows of Luntz Corporation and subsidiary for the year ended December 31, 1995.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the consolidated statements of income and cash flows
referred to above present fairly, in all material respects, the consolidated
results of operations and cash flows of Luntz Corporation and subsidiary for the
year ended December 31, 1995, in conformity with generally accepted accounting
principles.

Canton, Ohio Ernst & Young LLP
February 19, 1996

F-65
<PAGE> 148

LUNTZ CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
(in thousands of US dollars)

<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31 NOVEMBER 30
1995 1996
----------- -------------
(Unaudited)
<S> <C> <C>
Revenue:
Net sales.................................................. $ 149,988 $ 123,541
Expenses:
Cost of sales.............................................. 135,588 110,301
Office and administrative expenses......................... 7,281 8,649
Interest expense........................................... 617 711
Other (income) -- net...................................... (439) (435)
--------- ---------
143,047 119,226
--------- ---------
Income before income taxes................................... 6,941 4,315
Provision for income taxes................................... 2,617 1,796
--------- ---------
Net income................................................... $ 4,324 $ 2,519
========= =========
</TABLE>

See accompanying notes.

F-66
<PAGE> 149

LUNTZ CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of US dollars)

<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31 NOVEMBER 30
1995 1996
----------- -------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................... $ 4,324 $ 2,519
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization.............................. 2,665 2,860
Deferred income taxes...................................... (1,382) 234
Gain on sale of equipment.................................. (12) (21)
Changes in operating assets and liabilities:
Accounts receivable..................................... (3,076) (3,393)
Inventories............................................. 2,909 (2,389)
Prepaid expenses and other assets....................... (264) (132)
Accounts payable........................................ (2,904) (35)
Accrued expenses and other liabilities.................. 6,536 56
------- -------
Net cash provided (used) by operating activities............. 8,796 (301)
INVESTING ACTIVITIES
Purchases of property, plant and equipment................... (8,834) (4,153)
Proceeds from sale of equipment.............................. 199 97
Change in short-term investments............................. (19) (64)
------- -------
Net cash used in investing activities........................ (8,654) (4,120)
FINANCING ACTIVITIES
Change in notes payable to banks -- net...................... -- 6,200
Proceeds from long-term borrowings........................... 4,299 35
Principal payments on long-term debt......................... (661) (889)
Principal payments on long-term obligations.................. (384) (284)
Dividends paid............................................... (97) (180)
Purchase of treasury stock................................... -- (171)
------- -------
Net cash provided by financing activities.................... 3,157 4,711
------- -------
Increase in cash and cash equivalents........................ 3,299 290
Cash and cash equivalents at beginning of period............. 1,575 4,874
------- -------
Cash and cash equivalents at end of period................... $ 4,874 $ 5,164
======= =======
</TABLE>

See accompanying notes.

F-67
<PAGE> 150

LUNTZ CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS
DECEMBER 31, 1995

1. ACCOUNTING POLICIES

Description of Business

The Corporation sells scrap metal, ferrous and non-ferrous, to industrial
steel producers located principally in Ohio, Pennsylvania and the surrounding
states. The financial statements of the Corporation are presented in U.S.
dollars and are prepared in accordance with U.S. generally accepted accounting
principles.

Principles of Consolidation

The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiary. Significant intercompany accounts
and transactions have been eliminated upon consolidation.

Cash Equivalents

The Corporation considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Concentration of Credit Risk

Credit is extended based on an evaluation of the customer's financial
condition and generally collateral is not required. Credit terms are consistent
with the industry and losses from credit sales are provided for in the financial
statements.

Inventories

Inventories are valued at the lower of cost or market principally by the
last-in, first-out (LIFO) method. In 1995, inventory quantities were reduced,
resulting in a liquidation of LIFO inventory quantities carried at lower costs
prevailing in prior years as compared with the current costs. The effect of this
liquidation was to increase 1995 net income by approximately $400,000.

Property, Plant and Equipment

Expenditures for repairs and maintenance are charged to operations as
incurred, while expenditures for additions and improvements are capitalized.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets. Useful lives range from 5 to 40 years for
buildings and improvements, 5 to 20 years for machinery and equipment and 5 to
10 years for furniture and fixtures.

Intangible Assets

Amortization is computed using the straight-line method over the estimated
useful life of the intangible assets -- 4 to 15 years.

Revenue Recognition

Revenue from the sale/brokerage of ferrous and non-ferrous scrap metal is
recognized at the time of shipment.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

F-68
<PAGE> 151

LUNTZ CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS -- (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)
Interim Financial Information

The accompanying unaudited consolidated statements of income and cash flows
for the eleven months ended November 30, 1996, have been prepared by the
Corporation in accordance with generally accepted accounting principles for
interim financial information and with Article 10 of Regulation S-X.
Accordingly, these statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the results of the interim period have been included.

2. INCOME TAXES

The provision for income taxes consists of the following for the year ended
December 31, 1995:

<TABLE>
<S> <C>
Current:
Federal............................................ $3,238,000
State and local.................................... 761,000
----------
3,999,000
Deferred (credit).................................... (1,382,000)
----------
$2,617,000
==========
</TABLE>

The effective income tax rate varied from the statutory federal income tax
rate as follows:

<TABLE>
<CAPTION>
1995
------
<S> <C>
Statutory federal income tax rate......................... 34.0%
Adjustments:
State and local taxes, net of federal tax benefit....... 7.2
Other items............................................. (3.5)
------
Effective income tax rate................................. 37.7%
======
</TABLE>

3. RETIREMENT PLANS

The Corporation sponsors noncontributory trusteed retirement plans which
cover certain hourly employees. These plans provide defined benefits based on
years of credited service. The Corporation's funding policy is to contribute
amounts to the plans sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974, plus additional
amounts as the Corporation may determine to be appropriate.

Assumptions used in accounting for defined benefit retirement plans for the
year ended December 31, 1995 are as follows:

<TABLE>
<S> <C>
Expected long-term rate of return on assets................ 8.0%
Discount rate.............................................. 7.5%
</TABLE>

F-69
<PAGE> 152

LUNTZ CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS -- (CONTINUED)

3. RETIREMENT PLANS (CONTINUED)
The periodic pension expense for these plans for the year ended December
31, 1995 include the following:

<TABLE>
<S> <C>
Service cost -- benefits earned during the period..... $ 81,000
Interest cost on projected benefit obligation......... 173,000
Actual return on plan assets.......................... (677,000)
Net amortization and deferral......................... 424,000
---------
Total pension expense................................. $ 1,000
=========
</TABLE>

At December 31, 1995, approximately 95 percent of the plans' assets were
invested in listed stocks and bonds.

The Corporation also sponsors a defined contribution 401(k) plan and a
profit-sharing plan for its salaried employees. The 401(k) plan allows
participants to make contributions, by salary reduction, pursuant to Section
401(k) of the Internal Revenue Code. The Corporation currently contributes 3% of
an employee's compensation and also matches employees' contributions, limited to
the lesser of 6% of total compensation or the statutory limit, at a rate of 50%.
Employees vest immediately in their contributions and over a seven year period
for the Corporation's contribution. The Corporation's contribution to the plan
was $227,000 in 1995. The profit-sharing plan provides for an annual
contribution of profits, at the discretion of the Board Directors, subject to
the limitations of the plan. The Corporation expensed $250,000 in 1995 related
to the profit-sharing plan.

4. DEFERRED COMPENSATION AGREEMENTS

The Corporation has provided deferred compensation agreements to certain
retired executives. A liability equal to the present value of expected future
payments has been accrued relating to these agreements. Office and
administrative expenses included approximately $259,000 for 1995 relating to the
deferred compensation agreements.

5. RELATED PARTY TRANSACTIONS

Rental expense amounted to approximately $359,000 in 1995, which included
$261,000, paid to affiliates under short-term leases for facilities.

6. COMMITMENTS AND CONTINGENCIES

The Corporation is subject to legal proceedings and claims which arise in
the ordinary course of their business. The Corporation is also involved in
environmental claims relating to cleanup costs with environmental protection
agencies with respect to certain sites.

The Corporation, together with other parties, has been designated a
potentially responsible party (PRP) under federal and state environmental
protection laws for the remediation of alleged hazardous materials at
third-party sites and one corporate owned site. Also, third parties have sought
to have the Corporation designated as a PRP for certain other sites. In general,
environmental protection laws provide that PRPs may be held jointly and
severally liable for investigation and remediation costs regardless of fault.
The Corporation has been aggressive in its continued pursuit of claims for
reimbursement against the parties responsible for such environmental liabilities
pursuant to the federal and state environmental laws that also allow such
third-party claims and has aggressively defended itself against the above
referenced environmental claims. Further, the Corporation has pursued claims
against third-parties that are responsible for either causing such damages or
paying for such claims, or both. Accordingly, the Corporation believes that any
liabilities which may result from the resolution of these matters, will not have
a material adverse effect on the financial condition, liquidity or cash flow of
the Corporation.

F-70
<PAGE> 153

INSIDE BACK COVER

<TABLE>
<C> <C> <S>
Photograph: Heat exchanger bundle being removed by an extractor unit at a refinery.
Caption: Philip is a North American leader in providing "turnaround", or
scheduled maintenance services, to the petrochemical industry.
Photograph: Man dressed in complete protection suit gritblasting the inside of a
tank.
Caption: Philip provides gritblasting services to clean surfaces on
electrostatic precipitators and boilers.
Photograph: Man painting blue truck in assembly plant.
Caption: Philip's EPOC paint overspray recovery process eliminates the
landfilling of paint sludge, a significant waste stream generated in
automobile production.
Photograph: Mill scale being transported by grab hook at steel mill.
Caption: Mill scale, a high iron-bearing by-product of steel manufacturing, is
processed by Philip for reuse as a raw material in steel production.
Photograph: Liquid aluminum pouring from furnace and cast into ingots.
Caption: Philip is a large processor of aluminum dross, a by-product of aluminum
smelting, and recovers aluminum for reuse by refiners.
</TABLE>

[DESCRIPTION OF BACKGROUND: CLOSE UP PHOTO OF ALUMINUM DEOXIDIZING PRODUCTS,
WHICH ARE CONE SHAPED AND GOLD TONED IN COLOR.]

[PHILIP LOGO]

F-71
<PAGE> 154

NO DEALER, SALES PERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Enforceability of Certain Civil
Liabilities.......................... 5
Forward-Looking Statements............. 5
Presentation of Financial
Information.......................... 5
Exchange Rate Information.............. 6
Prospectus Summary..................... 7
Risk Factors........................... 16
Use of Proceeds........................ 20
Dividend Policy and Record............. 20
Price Range and Trading Volume of
the Common Shares.................... 21
Consolidated Capitalization............ 22
Unaudited Pro Forma Consolidated
Financial Information................ 23
Selected Consolidated Historical
Financial Data....................... 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 36
Recent Developments.................... 42
Business............................... 44
Recent Acquisitions.................... 64
Management............................. 67
Certain Transactions................... 71
Security Ownership of Certain
Beneficial Owners and Management..... 71
Share Capital of the Company........... 73
Description of Certain Indebtedness.... 73
Material Income Tax Considerations..... 74
Underwriting........................... 78
Legal Matters.......................... 81
Experts................................ 81
Available Information.................. 82
Index to Financial Statements.......... F-1
</TABLE>

20,000,000 SHARES

PHILIP SERVICES CORP.

COMMON SHARES
(NO PAR VALUE)

LOGO

SALOMON BROTHERS INC

MERRILL LYNCH & CO.
BT ALEX. BROWN

CIBC OPPENHEIMER

MORGAN STANLEY DEAN WITTER

PROSPECTUS

DATED NOVEMBER 6, 1997