<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
COMMISSION FILE NUMBER 0-20854
PHILIP SERVICES CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
ONTARIO N/A
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
100 KING STREET WEST, L8N 4J6
HAMILTON, ONTARIO (Zip Code)
(Address of Principal Executive Offices)
(905) 521-1600
(Registrant's Telephone Number, Including Area Code)
</TABLE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ___. No X .
The number of shares of Common Shares of the Registrant, outstanding at May
12, 1999 was 131,144,013.
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<PAGE> 2
REPORT INDEX
<TABLE>
<CAPTION>
PART AND ITEM NO. PAGE NO.
- ----------------- --------
<S> <C>
PART I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets as of March 31, 1999
(unaudited) and
December 31, 1998............................ 2
Consolidated Statements of Earnings for the Three
Months Ended March 31, 1999
and March 31, 1998 (unaudited)............... 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31,
1999 and March 31, 1998 (unaudited).......... 4
Notes to Consolidated Financial Statements
(unaudited)..................................... 5
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 15
Item 3 -- Quantitative and Qualitative Disclosures About
Market Risk............................................ 22
PART II -- Other Information
Item 1 -- Legal Proceedings............................... 23
Item 2 -- Changes in Securities........................... 24
Item 3 -- Defaults upon Senior Securities................. 24
Item 4 -- Submission of Matters to a Vote of Securities
Holders................................................ 25
Item 5 -- Other Information............................... 25
Item 6 -- Exhibits and Reports on Form 8-K................ 26
Signature................................................. 27
</TABLE>
1
<PAGE> 3
PHILIP SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents...................................... $ 59,644 $ 61,564
Accounts receivable (net of allowance for doubtful
accounts of $23,407; December 31, 1998 -- $24,396)..... 323,228 325,509
Inventory for resale...................................... 34,653 32,633
Other current assets...................................... 181,817 181,314
---------- ----------
599,342 601,020
Fixed assets................................................ 426,529 435,164
Goodwill.................................................... 22,286 21,871
Other assets................................................ 86,722 89,624
---------- ----------
$1,134,879 $1,147,679
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.......................................... $ 99,514 $ 99,293
Accrued liabilities....................................... 191,055 188,936
Current maturities of long-term debt...................... 1,114,090 1,084,959
---------- ----------
1,404,659 1,373,188
Long-term debt.............................................. 20,847 22,819
Deferred income taxes....................................... 16,003 17,349
Other liabilities........................................... 128,129 127,448
Contingencies
Shareholders' equity (deficit).............................. (434,759) (393,125)
---------- ----------
$1,134,879 $1,147,679
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
PHILIP SERVICES CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
Revenue..................................................... $379,014 $547,675
Operating expenses.......................................... 323,723 453,384
Selling, general and administrative costs................... 52,517 50,272
Depreciation and amortization............................... 15,563 25,523
-------- --------
Income (loss) from operations............................... (12,789) 18,496
Interest expense............................................ 26,853 15,015
Other income and expense - net.............................. (1,655) (16,129)
Cumulative effect of change in accounting principle (Note
9)........................................................ 1,775 --
-------- --------
Earnings (loss) from continuing operations before tax....... (39,762) 19,610
Income taxes................................................ 2,135 5,389
-------- --------
Earnings (loss) from continuing operations.................. (41,897) 14,221
Discontinued operations (net of tax)........................ -- (14,786)
-------- --------
Net loss.................................................... $(41,897) $ (565)
======== ========
Basic and diluted earnings (loss) per share
Continuing operations..................................... $ (0.32) $ 0.11
Discontinued operations................................... -- (0.11)
-------- --------
$ (0.32) $ --
======== ========
Weighted average number of common shares outstanding
(000's)................................................... 131,144 131,092
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
PHILIP SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) from continuing operations.............. $(41,897) $ 14,221
Items included in earnings not affecting cash
Depreciation and amortization............................. 15,421 18,772
Amortization of goodwill.................................. 142 6,751
Deferred income taxes..................................... 2,135 (2,509)
-------- --------
Cash flow from continuing operations........................ (24,199) 37,235
Changes in non-cash working capital......................... 4,711 ( 83,390)
-------- --------
Cash used in continuing operating activities................ (19,488) (46,155)
Cash used in discontinued operating activities.............. (3,156) 11,981
-------- --------
Cash used in operating activities........................... (22,644) (34,174)
-------- --------
INVESTING ACTIVITIES
Acquisitions -- including acquired cash (bank
indebtedness)............................................. -- (22,606)
Purchase of fixed assets.................................... (8,214) (21,323)
Proceeds from sale of fixed assets.......................... 2,016 17,045
Other -- net................................................ 2,769 (8,176)
-------- --------
Cash used in continuing investing activities................ (3,429) (35,060)
Cash used in investing activities of discontinued
operations................................................ (2,979) (3,280)
-------- --------
Cash used in investing activities........................... (6,408) (38,340)
-------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 28,534 109,395
Principal payments on long-term debt........................ (1,579) (41,481)
Common shares issued for cash............................... -- 419
-------- --------
Cash provided by continuing financing activities............ 26,955 68,333
Cash provided by (used in) financing activities of
discontinued operations................................... 177 (26,076)
-------- --------
Cash provided by financing activities....................... 27,132 42,257
-------- --------
Net change in cash for the period........................... (1,920) (30,257)
Cash and equivalents, beginning of period................... 61,564 28,852
-------- --------
Cash and equivalents, end of period......................... $ 59,644 $ (1,405)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Philip
Services Corp. and its subsidiaries (the "Company") and have been prepared in US
dollars using accounting principles generally accepted in the United States.
There have been no significant changes in the accounting policies of the Company
during the periods presented. For a description of these policies, see Note 1 of
Notes to the Company's audited Consolidated Financial Statements included in the
Company's Form 10-K for the fiscal year ended December 31, 1998.
The consolidated financial statements herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). As applicable under such regulations,
certain information and footnote disclosures normally included in complete
annual financial statements have been condensed or omitted. The Company believes
that the presentation and disclosures herein are adequate to make the
information not misleading, and the financial statements reflect all elimination
entries and normal adjustments which are necessary for a fair statement of the
results for the three months ended March 31, 1999 and March 31, 1998.
For all periods presented, the Consolidated Financial Statements and Notes
to the Consolidated Financial Statements disclose the Company's copper and
non-ferrous operations discontinued in 1998 as discontinued operations, as
discussed in Note 2.
As at March 31, 1999, the Company was not in compliance with the provisions
of its existing credit agreement as amended (the "Credit Facility") and
therefore, certain amounts of debt previously recorded as long-term, have been
classified as current liabilities. On April 26, 1999 the Company's lending
syndicate approved a lock-up agreement (the "Lock-up Agreement") which sets
forth a new capital structure for the Company and the conditions that govern the
restructuring of $1.05 billion in secured term loans outstanding, which includes
accrued but unpaid interest of $0.04 billion, under the Credit Facility. Under
the terms of the Lock-up Agreement, the lenders will convert the outstanding
$1.05 billion of secured syndicated debt into $300 million of senior secured
debt, $100 million of convertible secured payment in-kind notes and 90% of the
common shares of the restructured Company. The payment in-kind notes are
convertible into 25% of the common shares of the restructured Company on a fully
diluted basis as of the restructuring date. The senior secured debt and the
secured payment in-kind notes each have a term of five years. The Lock-up
Agreement enables the Company to use $68.5 million in proceeds from the January
1999 sale of the Company's aluminum assets and allows access to future asset
sale proceeds of up to $24.5 million. The Lock-up Agreement also provides that
the Board of Directors of the restructured Company will consist of nine
directors, who will be nominated by the new 90% shareholders (i.e., the
lenders). The nominees will include two members of the existing Board.
The Company plans to file a pre-packaged plan of reorganization with the
appropriate courts in Canada and the United States in June 1999. The plan will
include, in addition to the arrangements reached with the Company's lenders
described above, proposals that would adjust the amounts owing to certain
unsecured creditors and the realization value of the Company's assets. Upon
filing the pre-packaged plan of reorganization, the Company will have access to
$100 million of debtor-in-possession financing to support its working capital
requirements during the restructuring process. On the plan implementation date,
the $100 million debtor-in-possession financing will be repaid by a $100 million
working capital facility to be established.
The ability of the Company to continue as a going concern is dependent on
the courts' approval of the pre-packaged plan of reorganization contemplated by
the Lock-up Agreement.
These consolidated financial statements have been prepared on the basis of
accounting principles applicable to a going concern which, in this situation
assumes that the Company will realize the carrying value
5
<PAGE> 7
of its assets, and satisfy the obligations and commitments as set forth in the
court approved reorganization plan, in the normal course of operations, after
the Company emerges from the creditor protection process. These consolidated
financial statements do not reflect the adjustments and disclosures that would
be necessary if the Company was to be petitioned into involuntary bankruptcy or
liquidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect reported amounts of assets, liabilities, income and
expenses and disclosures of contingencies. Actual results could differ from the
estimates and judgments made in preparing these financial statements, which
include assumptions made concerning the court's approval of the proposed
reorganization plan, amounts owing to unsecured creditors and realizable values
of assets.
REFLECTING THESE EVENTS IN THE FINANCIAL STATEMENTS
In preparing the Company's financial statements, management has assessed
the degree to which the events or changes in circumstances impact the
recoverability of the carrying amount of the Company's assets and the amounts
owing to lenders and creditors.
Generally accepted accounting principles require that the amounts owing to
the Company's secured lenders as at March 31, 1999 not be adjusted to reflect
the Lock-up Agreement described above as the Company continues to be bound by
the provisions of its August 1997 credit agreement, as amended. If the proposed
restructuring plan is approved by the courts, in accordance with the Lock-up
Agreement, the restructuring of debt will give rise to a gain, net of related
non-cash tax effects, that will be reported as income in 1999 at the time of
plan implementation, in accordance with US generally accepted accounting
principles. The amount of such gain cannot be predicted with assurance until the
restructuring plan is finalized.
The issuance of shares and restructuring of the Company's shareholders'
equity (deficit) has also not been adjusted at March 31, 1999 to reflect the
terms and conditions of the Lock-up Agreement.
(2) DISCONTINUED OPERATIONS (in thousands)
In December 1998, the Company made the decision to discontinue the
Non-Ferrous and Copper operations of its Metals Services business. The sale of
certain aluminum operations included in the Non-Ferrous operations closed on
January 11, 1999 for a total consideration of approximately $69,500. Certain of
the copper and non-ferrous operations or assets are anticipated to be sold while
the remainder of the operations in these segments will be closed during 1999.
The proceeds from the sale are included on the Consolidated Balance Sheet as
restricted cash (Note 3b) as the funds are held by the Company's lenders and to
which the Company has access under the proceeds agreement dated April 5, 1999.
Revenue from the Non-Ferrous and Copper operations, net of intercompany
revenue, was $128,556 for the three months ended March 31, 1998. Loss from
discontinued operations in the Consolidated Statement of Earnings is presented
net of applicable income tax recovery of $9,518 for the three months ended March
31, 1998. No interest or general corporate overhead was allocated to these
discontinued operations.
(3) OTHER CURRENT ASSETS (in thousands)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
-------- -----------
<S> <C> <C>
Net current assets from discontinued
operations(a)................................. $ -- $ 72,459
Restricted cash(b).............................. 96,377 28,423
Work in progress................................ 22,457 23,018
Small parts and supplies........................ 18,778 19,020
Prepaid expenditures............................ 19,344 14,527
Other........................................... 24,861 23,867
-------- --------
$181,817 $181,314
======== ========
</TABLE>
6
<PAGE> 8
(a) Net current assets from discontinued operations for December 31, 1998
include proceeds receivable of approximately $69,500 from the sale of the
aluminum operations (Note 2).
(b) Restricted cash represents funds used as collateral for letters of credit,
and proceeds from the sale of the aluminum operations received in 1999 which
are currently held by the Company's lenders and to which the Company has
access under the proceeds agreement dated April 5, 1999.
(4) OTHER ASSETS (in thousands)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
---------- -----------
<S> <C> <C>
Restricted investments(a)..................... $ 29,912 $ 31,016
Deferred financing costs...................... 823 836
Investments................................... 19,055 18,837
Other intangibles............................. 8,839 9,052
Other......................................... 28,093 29,883
---------- ----------
$ 86,722 $ 89,624
========== ==========
</TABLE>
(a) Restricted investments support the Company's self-insurance program and are
invested and managed by the Company's wholly-owned insurance subsidiary.
(5) ACCRUALS (in thousands)
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
---------- -----------
<S> <C> <C>
Accrued employee compensation and benefit
costs....................................... $ 38,289 $ 40,936
Accrued insurance costs....................... 27,839 32,993
Accrued purchases............................. 25,651 21,993
Income taxes payable.......................... 10,814 8,500
Accrued restructuring costs................... 17,286 17,520
Accrued other................................. 58,067 66,994
Net current liabilities of discontinued
operations.................................. 13,109 --
---------- ----------
$ 191,055 $ 188,936
========== ==========
</TABLE>
7
<PAGE> 9
(6) LONG-TERM DEBT (in thousands)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
---------- -----------
<S> <C> <C>
Bank term loan(a)............................. $1,051,828 $1,025,253
Convertible subordinated debentures(b)........ 25,609 25,609
Loans bearing interest at a weighted average
fixed rate of 6.5% maturing at various dates
up to 2020(d)............................... 14,500 14,686
Loans bearing interest at prime plus a
weighted average floating rate of 0.8%
maturing at various dates up to 2008........ 5,754 4,037
Loans unsecured, bearing interest at a
weighted average fixed rate of 7.1%,
maturing at various dates up to 2005(c)..... 23,613 23,681
Obligations under capital leases on equipment
bearing interest at rates varying from 6% to
12% maturing at various dates to 2004....... 12,401 13,295
Other......................................... 1,232 1,217
---------- ----------
1,134,937 1,107,778
Less current maturities of long-term debt..... 1,114,090 1,084,959
---------- ----------
$ 20,847 $ 22,819
========== ==========
</TABLE>
(a) In August 1997, the Company signed a $1.5 billion revolving credit agreement
which was amended in October 1997, February 1998, June 1998, October 1998
and December 1998 with a syndicate of international lenders which replaced
the 1996 revolving term loan agreement and refinanced certain other
long-term debt. The Credit Facility expires in August of 2002, and contains
certain restrictive covenants and financial covenants including that: (a)
the Company must meet specified interest coverage ratio, debt to EBITDA
ratio, fixed charge ratio and working capital ratio tests, and (b)
acquisitions by the Company are subject to lenders' approval.
Since June 30, 1998, the Company has not been in compliance with certain
covenants in the Credit Facility, including the financial covenants, which
require the Company to maintain a specified interest coverage ratio, debt to
EBITDA ratio, fixed charge ratio and working capital ratio. As the Company
is not in compliance with the terms of its Credit Facility, the debt
outstanding under the Credit Facility is classified as a current liability
on the Company's Consolidated Balance Sheets at March 31, 1999 and December
31, 1998.
Borrowings under the Credit Facility are guaranteed, jointly and severally
by the Company and its direct and indirect wholly-owned subsidiaries and are
secured by a pledge of the issued and outstanding securities of the
Company's direct and indirect wholly-owned subsidiaries, and a charge over
the present and future assets of the Company and its direct and indirect
wholly-owned subsidiaries. The Credit Facility bears interest based on a
moving grid. At March 31, 1999, the interest rate was approximately 9.5% on
these borrowings. In June 1998, the Credit Facility was reduced from $1.5
billion to $1.2 billion, the interest rate charged was increased by 100
basis points, the Company was permitted access to $60 million of the
proceeds arising from an asset disposition of which $20 million was
allocated to provide collateral for letters of credit and the Company agreed
to a standstill until September 30, 1998 respecting the incurrence of
additional debt and the occurrence of dispositions or acquisitions. On
October 20, 1998, the Credit Facility was further amended to permit the use
of the letter of credit facility for general corporate and other purposes
and to extend the Company standstill on certain activities until June 30,
1999. In November 1998, the Company suspended payments of interest under the
Credit Facility.
On April 26, 1999 the Company's lenders approved a Lock-up Agreement which
sets forth a new capital structure for the Company and the conditions that
govern the restructuring of $1.05 billion in secured term loans
outstanding, which includes accrued but unpaid interest of $0.04 billion,
under the Credit
8
<PAGE> 10
Facility. Under the terms of the Lock-up Agreement, the lenders will
convert the outstanding $1.05 billion of secured debt into $300 million of
senior secured debt, $100 million of convertible secured payment in-kind
notes and 90% of the common shares of the restructured Company. The secured
payment in-kind notes are convertible into 25% of the common shares of the
restructured Company on a fully diluted basis as of the restructuring date.
The senior secured debt and the secured payment in-kind notes each have a
term of five years. The Lock-up Agreement enables the Company to use
$68,500 in proceeds from the January 1999 sale of the Company's aluminum
assets and allows access to future asset sale proceeds of up to $24,500.
The Lock-up Agreement also provides that the Board of Directors of the
restructured Company will consist of nine directors, who will be nominated
by the new 90% shareholders (i.e., the lenders). The nominees include two
members of the existing Board of Directors. The Company has agreed to a
reduction in the current facility from $1.2 billion to the current amount
outstanding.
(b) On the acquisition of Allwaste, the Company assumed the indenture with
respect to Allwaste's 7 1/4% Convertible Subordinated Debentures
("debenture") which are due 2014. At any time up to and including June 1,
2014 the holder of any debenture will have the right to convert the
principal amount of such debenture into common shares equal to the principal
amount of the debenture surrendered for conversion divided by $19.5376. The
debentures are redeemable for cash at the option of the Company. The
debentures provide for annual mandatory sinking fund payments equal to 5% of
the aggregate principal amount of the debenture issued, commencing June 1,
1999. Interest is payable semi-annually on June 1 and December 1. Effective
December 1, 1998, the Company suspended payments of interest on the
debenture which created a default under the indenture. Interest accrued on
the debenture as at March 31, 1999 is approximately $1,550. The amount of
the debentures outstanding has been classified as a current liability on the
Consolidated Balance Sheets at March 31, 1999 and December 31, 1998.
(c) Included in the unsecured loans are promissory notes, relating to certain
1997 acquisitions, totalling $16,000 which were in default at March 31, 1999
and December 31, 1998 and have been classified as a current liability on the
Company's Consolidated Balance Sheets. Principal repayments which were
required on these notes in 1998 and 1999 were not made, causing a default
under provisions of the promissory note.
(d) Included in the fixed rate secured loans are industrial development bonds
totalling $7,700 which were in default at March 31, 1999 and December 31,
1998 since principal repayments required were not made.
(7) SHAREHOLDERS' EQUITY (DEFICIT) (in thousands, except number of shares)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
---------- -----------
<S> <C> <C>
Share capital................................. $1,351,482 $1,351,482
Retained earnings (deficit)................... (1,715,043) (1,673,146)
Cumulative foreign currency translation
adjustment.................................. (71,198) (71,461)
---------- ----------
$ (434,759) $ (393,125)
========== ==========
</TABLE>
The issued capital of the Company is comprised of 131,144,013 common shares
(December 31, 1998 -- 131,144,013).
9
<PAGE> 11
(8) CHANGE IN NON-CASH WORKING CAPITAL (in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
Accounts receivable.............................. $ 6,361 $(30,270)
Inventory for resale............................. (2,420) 6,790
Other............................................ 14,107 (31,143)
Accounts payable and accrued liabilities......... (13,467) (29,077)
Income taxes..................................... 130 310
-------- --------
Changes in non-cash working capital.............. $ 4,711 $(83,390)
======== ========
</TABLE>
STATEMENTS OF CASH FLOWS
The supplemental cash flow disclosures and non-cash transactions for the
three months ended March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
MARCH 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
Supplemental Disclosures:
Interest paid...................................... $ 740 $16,375
Income taxes paid.................................. 1,905 --
Non Cash Transactions:
Capital leases and debt obligations for the
purchase of property and equipment............... -- 2,764
Debt and liabilities incurred or assumed in
acquisitions..................................... -- 189
</TABLE>
(9) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING POLICY
The American Institute of Certified Public Accountants has issued Statement
of Position 98.5 "Reporting on the Costs of Start-Up Activities" which is
effective for fiscal years beginning after December 15, 1998. This statement
requires that all pre-operating costs be expensed as incurred. The statement
also requires that upon initial application any previous pre-operating costs
that had been deferred be expensed and reported as a cumulative effect of a
change in accounting principle.
(10) COMPUTATION OF EARNINGS PER SHARE (in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
Net loss for the period -basic and diluted....... $(41,897) $ (565)
======== ========
Number of common shares outstanding.............. 131,144 131,122
-------- --------
Effect of using weighted average common shares
outstanding.................................... -- (30)
-------- --------
Basic and diluted weighted average number of
common shares outstanding...................... $131,144 $131,092
======== ========
</TABLE>
10
<PAGE> 12
(11) COMPREHENSIVE INCOME (in thousands)
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Comprehensive income for the Company is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------
1999 1998
-------- ------
<S> <C> <C>
Net loss........................................... $(41,897) $ (565)
Other comprehensive income, net of tax:
Translations adjustments........................... 263 2,411
-------- ------
Comprehensive income (loss)........................ $(41,634) $1,846
======== ======
</TABLE>
(12) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires that an entity recognize these items as assets
or liabilities in the statement of financial position and measure them at fair
value. The effect on the Company of the adoption of this standard is not
anticipated to be material.
(13) SEGMENTED INFORMATION (in thousands)
The Company has two distinct business operations, Metals Services and
Industrial Services. The Industrial Services operations have three business
segments By-Products Recovery, Utilities Management and Industrial Outsourcing
Services. By-Products recovery includes solvent distillation, engineered fuel
blending, paint overspray recovery, organic and inorganic processing and
polyurethane recycling. Utilities management provides services to industrial and
municipal water and wastewater treatment plants, power plants and related
infrastructure. Industrial Outsourcing Services includes cleaning and
maintenance, waste collection and transportation, decommissioning and
remediation, analytical services, emergency response services, container
services and tank cleaning, turnaround and outage services, mechanical
contracting and refactory services.
The Metals Services operations have two business segments, Ferrous Services
and Industrial Metals Services ("IMS"). Ferrous services include the collection
and processing of ferrous scrap materials for shipment to steel mills as well as
significant brokerage services for scrap materials and primary metals. The IMS
group provides mill services and engineering and consulting services.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------------------------------------------------------
INDUSTRIAL CORPORATE
BY-PRODUCTS UTILITIES OUTSOURCING FERROUS AND
RECOVERY MANAGEMENT SERVICES SERVICES IMS ELIMINATIONS TOTAL
----------- ---------- ----------- ---------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.......................... $ 39,960 $22,072 $ 218,335 $ 92,680 $ 5,967 $ -- $ 379,014
Income (loss) from operations.... 127 (1,360) 4,136 508 (1,241) (14,959) (12,789)
Total assets..................... 167,428 78,014 1,160,158 285,264 15,065 (571,050) 1,134,879
Depreciation and amortization.... 2,342 846 7,849 3,675 194 657 15,563
Capital expenditures............. -- 834 3,652 3,048 149 531 8,214
Equity investments............... -- -- 7,891 3,959 -- 4,743 16,593
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------------------------------------
INDUSTRIAL CORPORATE
BY-PRODUCTS UTILITIES OUTSOURCING FERROUS AND
RECOVERY MANAGEMENT SERVICES SERVICES IMS ELIMINATIONS TOTAL
----------- ---------- ----------- ---------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.......................... $ 44,612 $ 9,538 $ 232,707 $ 252,484 $ 8,334 $ -- $ 547,675
Income (loss) from operations.... (3,352) 159 13,953 14,598 516 (7,378) 18,496
Total assets..................... 191,694 54,898 1,749,782 1,001,778 24,400 (285,853) 2,736,699
Depreciation and amortization.... 2,477 544 11,836 7,015 315 3,336 25,523
Capital expenditures............. -- 549 14,173 8,233 887 245 24,087
Equity investments............... -- -- 33,061 3,167 -- -- 36,228
</TABLE>
The geographical segmentation of the Company's business is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
MARCH 31, 1999 MARCH 31, 1998
--------------------- ---------------------
LONG-LIVED LONG-LIVED
REVENUE ASSETS REVENUE ASSETS
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Canada........................ $ 51,615 $131,843 $ 73,360 $121,632
United States................. 303,314 305,975 445,509 368,964
Europe........................ 24,085 62,072 28,806 77,438
-------- -------- -------- --------
$379,014 $499,890 $547,675 $568,034
======== ======== ======== ========
</TABLE>
(14) CONTINGENCIES (in thousands)
(a) The Company in the normal course of its business expends funds for
environmental protection and remediation but does not expect these
expenditures to have a materially adverse effect on its financial condition
or results of operations since its business is based on compliance with
environmental laws and regulations.
Certain of the Company's facilities are contaminated primarily as a result
of operating practices at the sites prior to their acquisition by the
Company. The Company has established procedures to routinely evaluate these
sites giving consideration to the nature and extent of the contamination.
The Company has provided for the remediation of these sites based upon
management's judgement and prior experience. The Company has estimated the
liability to remediate these sites to be $68,036 (December 31, 1998 --
$66,097).
As well, certain subsidiaries acquired by the Company have been named as
potentially responsible or liable parties in connection with sites listed
on the Superfund National Priority List ("NPL"). In the majority of the
cases, the Company's connection with NPL sites relates to allegations that
its subsidiaries or their predecessors transported waste to the site in
question. The Company has reviewed the nature and extent of its alleged
connection to these sites, the number, connection and financial ability of
other named and unnamed potentially responsible parties and the nature and
estimated cost of the likely remedy. Based on its review, the Company has
accrued its estimate of the liability to remediate these sites at $20,827
(December 31, 1998 -$20,827).
The liabilities discussed above are disclosed in the Consolidated Balance
Sheets as follows:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
-------- -----------
<S> <C> <C>
Net current assets from discontinued
operations..................................... $ 1,400 $ 1,400
Net long-term assets from discontinued
operations..................................... 1,980 1,980
Accrued liabilities.............................. 7,686 7,051
Accrued environmental costs...................... 77,797 76,493
------- -------
$88,863 $86,924
======= =======
</TABLE>
12
<PAGE> 14
If it is determined that more expensive remediation approaches may be
required in the future, the Company could incur additional obligations of
up to $35,000.
(b) Various class actions have been filed against the Company, certain of its
past and present directors and officers, the underwriters of the Company's
1997 public offering and the Company's auditors. Each action alleges that
the Company's financial disclosures for various time periods between 1995
and 1997 contained material misstatements or omissions in violation of U.S.
federal securities laws (provisions of the Securities Act of 1933 and of the
Securities Exchange Act of 1934) and seeks to represent a class of
purchasers of the Company's common shares. On June 2, 1998 the Judicial
Panel on Multidistrict Litigation ordered that the class actions be
consolidated and transferred to the United States District Court, Southern
District of New York. On July 23, 1998, two pre-trial orders of the District
Court were made. Pre-Trial Order No. 1 dealt with various administrative
matters relating to the consolidation of the actions and a schedule for the
plaintiffs to serve and file a consolidated amended class action complaint
and for the Company's response. Pre-Trial Order No. 2 appointed a lead
plaintiff and lead counsel. On November 13, 1998, the Company filed a motion
for an order dismissing the class action on the grounds of forum non
conveniens. On May 12, 1999, the Company received notice that the United
States District Court, Southern District of New York, ruled in favour of the
Company's motion to dismiss the U.S. plaintiffs' consolidated and amended
class action complaint on forum non conveniens grounds. The District Court
declined to assume jurisdiction over the complaint on the grounds that
Ontario provides an adequate alternative forum for litigation of the class
action plaintiff's claims, and ruled that adjudication in Ontario would be
more convenient and best serve the public interest.
Similar claims have been asserted against the Company and certain of its
past and present officers and directors by the former shareholders of the
Steiner-Liff Metals group of companies and the Southern-Foundry Supply
group of companies. Philip acquired these companies in October of 1997 and
issued the Company's common shares in partial payment of the purchase
price. The claims allege that the Company's financial disclosures for
various time periods between 1995 and 1997 contain material misstatements
or omissions and that these constitute a breach of certain representations
and warranties made to the former shareholders or, alternatively, a
violation of US securities laws.
A claim brought under the Ontario Class Proceedings Act was commenced on
October 26, 1998 against the Company, the underwriters of the Company's
1997 public offering and the Company's auditors. The claim was brought on
behalf of persons in Canada who purchased common shares of the Company
between November 6, 1997 and December 18, 1997 and also seeks damages on
behalf of persons in Canada who purchased common shares between May 21,
1996 and April 23, 1998. The claim contains various allegations that are
similar in nature to those made in the US class action claims.
The Company has conducted a review of the claims and determined that it is
not feasible to predict or determine the final outcome of these
proceedings. The Company intends to vigorously defend all claims but there
can be no assurance that the outcome of the class actions and related
actions will not have a material adverse effect upon the financial
condition or results of operations of the Company.
(c) In January 1999, Exxon Chemical Company ("Exxon") asserted a claim against
International Catalyst, Inc. ("INCAT"), an indirect wholly owned subsidiary
of the Company, for damages of $32.1 million arising from certain work
conducted by INCAT at Exxon's Baytown, Texas chemical plant. Exxon alleges
that INCAT was responsible for the purchase and installation in 1996 of
improper gasket materials in the internal bed piping flange joints of the
Baytown plant which caused damages to the facility and consequential losses
arising from the shutdown of the plant while repairs were made. In
addition, in March 1999, Westlake PetroChemicals Corporation ("Westlake")
commenced an action against Piping Companies, Inc. ("PCI"), an indirect
wholly owned subsidiary of the Company, alleging that welding work
conducted by PCI in December 1995 was defective and gave rise to a fire
which caused considerable damage to Westlake's Sulfur, Louisiana ethylene
plant. The Company has conducted a preliminary review of these claims and
determined that it is not feasible to predict or determine the final
outcome of these proceedings. The Company intends to vigorously defend the
claims and believes that it has insurance coverage for such claims. There
can be no assurance, though, that the outcome of the
13
<PAGE> 15
claims will not have a material adverse effect upon the financial condition
or results of operations of the Company.
(d) In November 1998, the Company ceased paying interest on its $1.05 billion in
outstanding secured syndicated debt, which includes accrued but unpaid
interest of $0.04 billion, and stopped making payments on certain other
unsecured debt and contractual obligations ("the Unsecured Obligations").
The Company may not have a defense to claims asserted or actions commenced
for the payment of these obligations, or compliance with such contracts.
The Company has reached an agreement with its lending syndicate on the
terms of a financial restructuring of the Company whereby outstanding
syndicated debt of $1.05 billion will be converted into $300 million of
senior secured debt, $100 million in convertible secured payment in-kind
notes and 90% of the common shares of the restructured Company. The Company
is preparing a pre-packaged plan of reorganization which it expects to file
under Chapter 11 of the United States Bankruptcy Code and in Canada under
the Companies' Creditors Arrangement Act. The filing of a pre-packaged plan
of reorganization is subject to the fulfillment of certain conditions.
There can be no assurance that the pre-packaged plan of reorganization will
be filed and if filed, that it will be approved by the required
stakeholders and the courts having jurisdiction over such matters. If the
pre-packaged plan of reorganization is not approved, there can be no
assurance that the Company will continue as a going concern. The Company is
seeking to impair the Unsecured Obligations as part of the US and Canadian
pre-packaged plan of reorganization filings. There can be no assurance that
the Unsecured Obligations will be resolved as part of the Company's
pre-packaged plan of reorganization. If not resolved, the Unsecured
Obligations could have a material adverse effect upon the financial
condition or results of operations of the Company.
(e) 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.
(15) SUBSEQUENT EVENT (in thousands)
On March 26, 1999, the Company announced that it had entered into a
definitive agreement to sell its 68% interest in Philip Utilities Management
Corporation for net proceeds of approximately $67,000 in cash. The proceeds of
the disposition will be used to pay down the Company's outstanding debt under
the Credit Agreement. Under the terms of Lock-up Agreement, if the Company
completes the sale of Philip Utilities Management Corporation, the senior
secured debt of the restructured Company will be reduced from $300,000 to
$250,000.
14
<PAGE> 16
PHILIP SERVICES CORP.
PART 1, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion reviews the Company's operations for the three
months ended March 31, 1999 and 1998 and should be read in conjunction with the
Company's audited Consolidated Financial Statements and related notes thereto
included in the Company's Form 10-K for the fiscal year ended December 31, 1998.
The Company reports in US dollars and in accordance with US generally accepted
accounting principles.
The Company has not been in compliance with the provisions of its credit
agreement since June 30, 1998. On April 26, 1999 the Company's lending syndicate
approved a lock-up agreement ("Lock-up Agreement") which sets forth a new
capital structure for the Company and the conditions that govern the
restructuring of $1.05 billion in secured term loans outstanding, which includes
accrued but unpaid interest of $0.04 billion, under the Credit Facility. As a
result of the financial uncertainty surrounding the Company, the results of
operations for the first quarter of 1999 were significantly impacted by actions
to retain customers, suppliers' tightening trade terms and employee attrition.
Until this uncertainty is removed and the new capital and debt structure is in
place, the reported financial information discussed herein may not be
necessarily indicative of future operating results or future financial
condition.
INTRODUCTION
The Company is a supplier of metals recovery and industrial services. The
Company has over 280 operating facilities and over 13,000 employees located
throughout North America and Europe, that provide services to more than 45,000
industrial and commercial customers. The Company has achieved its position in
the metals recovery and industrial services market through internal growth and
through the acquisition of over 40 companies since the beginning of 1996. The
Company's primary base of operations is in the United States.
The Company's business is organized into two operating divisions -- the
Metals Services Group and the Industrial Services Group. The Metals Services
Group processes or recycles ferrous scrap materials (the "Ferrous Operations")
and provides mill services and engineering and consulting services ("Industrial
Metals Services" or "IMS"), at multiple locations throughout North America and
Europe. The Ferrous Operations include the collection and processing of ferrous
scrap materials for shipment to steel mills as well as significant brokerage
services for scrap materials. The Metals Services Group primarily services the
steel, foundry and automotive industry sectors. In December 1998, the Company
decided to discontinue the non-ferrous and copper operations of its Metals
Services Group. The non-ferrous operations included the refining of second grade
copper into prime ingot, and the production of deoxidizing products and alloys
from aluminum scrap for use in the steel and automotive industries ("Non-Ferrous
Operations"). The Copper Operations processed wire and cable scrap to recover
copper ("Copper Operations"). For all periods presented, the consolidated
financial results disclose the Company's Non-Ferrous and Copper Operations as
discontinued operations.
The Industrial Services Group provides industrial outsourcing services,
by-products recovery and utilities management services with a network of over
250 facilities. Industrial outsourcing services include cleaning and
maintenance, waste collection and transportation, decommissioning and
remediation, analytical services, emergency response services, container
services and tank cleaning, turnaround and outage services, mechanical
contracting and refractory services. By-products recovery includes solvent
distillation, engineered fuel blending, paint overspray recovery, organic and
inorganic processing and polyurethane recycling. The Utilities Management
business provides services to industrial and municipal water and wastewater
treatment plants, power plants and related infrastructure. The Industrial
Services Group services the automotive, refining and petrochemical, steel, oil
and gas, pulp and paper and transportation sectors, as well as public sector
clients responsible for water and wastewater treatment.
The Company earns revenue by providing industrial services, from the sale
of recovered commodities and from fees charged to customers for by-product
transfer and processing, collection and disposal services. The Company receives
by-products and, after processing, disposes of the residuals at a cost lower
than the fees
15
<PAGE> 17
charged to its customers. Other sources of revenue include fees charged for
environmental consulting and engineering and other services.
The Company's operating expenses include direct labour, indirect labour,
payroll related taxes, benefits, fuel, maintenance and repairs of equipment and
facilities, depreciation, property taxes, and accrual for future closure and
remediation costs. Selling, general and administrative expenses include
management salaries, clerical and administrative costs, professional services,
facility rentals and insurance costs, as well as costs related to the Company's
marketing and sales force. Professional fees related to restructuring of the
Company have been included in selling, general and administrative expenses in
1998 and 1999.
DISCONTINUED OPERATIONS AND DIVESTITURES
In December 1998, the Company made the decision to discontinue the
Non-Ferrous and Copper Operations of its Metals Services business. A sale of
certain of the aluminum operations included in Non-Ferrous Operations closed on
January 11, 1999 for a total consideration of approximately $69.5 million.
Certain copper and non-ferrous operations or assets are anticipated to be sold
and the remainder of the operations in these segments will be closed during
1999.
On July 7, 1998, the Company's Houston, Texas based steel distribution
business was sold for cash proceeds of $95 million, resulting in a gain on sale
of approximately $17 million. The results of operations for the steel
distribution business are included in the Ferrous operations segment of the
Metal Services business. The business generated annual revenue in excess of $130
million and income from operations of $12.5 million in 1997.
The Company continues to review the divestiture of certain of its non-core
businesses or investments. The proceeds which may be raised from these
divestitures is unknown. A gain or loss may be recorded on the divestitures but
the amount cannot be determined until definitive agreements are reached. In
addition, costs with respect to restructuring operations may be necessary but
are not quantifiable at this time.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the results of
operations and the percentage relationships which the various items in the
Consolidated Statements of Earnings bear to the consolidated revenue from
continuing operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
($ MILLIONS)
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C> <C> <C>
Revenue......................................... $379.0 100% $547.7 100%
Operating expenses.............................. 323.7 85% 453.4 83%
Selling, general and administrative costs....... 52.5 14% 50.3 9%
Depreciation and amortization................... 15.6 4% 25.5 5%
------ ---- ------ ----
Income (loss) from operations................... (12.8) (3%) 18.5 3%
Interest expense................................ 26.9 7% 15.0 2%
Other income and expense-net.................... (1.7) -- (16.1) (3%)
Cumulative effect of change in accounting
principle..................................... 1.8 -- -- --
------ ---- ------ ----
Earnings (loss) from continuing operations
before tax.................................... (39.8) (10%) 19.6 4%
Income taxes.................................... 2.1 (1%) 5.4 1%
------ ---- ------ ----
Earnings (loss) from continuing operations...... (41.9) (11%) 14.2 3%
Discontinued operations (net of tax)............ -- -- (14.8) (3%)
------ ---- ------ ----
Net loss........................................ $(41.9) (11%) $ (0.6) --
====== ==== ====== ====
</TABLE>
16
<PAGE> 18
EARNINGS FROM CONTINUING OPERATIONS
For the three months ended March 31, 1999, the Company incurred a loss from
continuing operations of $41.9 million or $0.32 per share. This compares to
earnings from continuing operations of $14.2 million or $0.11 per share for the
three months ended March 31, 1998.
OPERATING RESULTS
The operating results for the Metals Services Group reflect the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 ($MILLIONS)
----------------------------------------------
1999 1998
---------------------- ---------------------
FERROUS IMS TOTAL FERROUS IMS TOTAL
------- ---- ----- ------- --- -----
<S> <C> <C> <C> <C> <C> <C>
Revenue............................................... 92.7 5.9 98.6 252.6 8.3 260.9
Income (loss) from operations......................... 0.5 (1.2) (0.7) 14.6 0.5 15.1
</TABLE>
The decrease in revenue for the ferrous operations of $159.9 million for
the three months ended March 31, 1999 compared to the same period of 1998 was
due to the sale of the steel distribution business in July 1998 and a reduction
in the average selling price of ferrous scrap from $147 per ton in the first
quarter of 1998 to $98 per ton in the first quarter of 1999. In addition, the
ferrous operations' volumes have been adversely impacted by the negative
financial situation of the Company. Income from operations as a percentage of
revenue, which was 0.5% for the three months ended March 31, 1999 compared to
5.8% for the three months ended March 31, 1998, reflects the change in lower
prices and volumes.
The revenue from the Industrial Metals Services operations decreased $2.4
million in the first quarter of 1999 compared to the first quarter of 1998.
Income (loss) from operations as a percentage of revenue was (20.0%) for the
three months ended March 31, 1999, compared to 6% for the three months ended
March 31, 1998 resulting from the failure to bring to fruition development
projects due to the Company's financial uncertainty.
The operating results for the Industrial Services Group reflect the
following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 ($MILLIONS)
----------------------------------------------
INDUSTRIAL
BY-PRODUCTS UTILITIES OUTSOURCING
RECOVERY MANAGEMENT SERVICES TOTAL
----------- ---------- ----------- -----
<S> <C> <C> <C> <C>
Revenue.......................................... 40.0 22.1 218.3 280.4
Income (loss) from operations.................... 0.1 (1.4) 4.2 2.9
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 ($MILLIONS)
----------------------------------------------
INDUSTRIAL
BY-PRODUCTS UTILITIES OUTSOURCING
RECOVERY MANAGEMENT SERVICES TOTAL
----------- ---------- ----------- -----
<S> <C> <C> <C> <C>
Revenue.......................................... 44.6 9.5 232.7 286.8
Income (loss) from operations.................... (3.3) 0.2 13.9 10.8
</TABLE>
The revenue for the first quarter of 1999 for the By-Products Recovery
group was not significantly different than the revenue recorded for the same
period in the prior year, however profitability of the operations has improved.
Certain operations which were operating at a loss in 1998 have now been closed
or restructured.
The increase in revenue from Utilities Management of $12.6 million for the
three months ended March 31, 1999 was due primarily to acquisitions in 1998.
Income (loss) from operations as a percentage of revenue was (6.3%) for the
three months ended March 31, 1999 compared to 2% for the three months ended
March 31, 1998 due primarily to increased costs at certain sites acquired in
1998.
17
<PAGE> 19
Income from operations as a percentage of revenue for the Industrial
Outsourcing Services operations was 1.9% for the three months ended March 31,
1999 compared with 6% for the three months ended March 31, 1998 due to margin
deterioration, given competitive market pressures and the negative impact of the
financial instability of the Company. In addition, while oil and gas prices have
been depressed, customers in this industry have elected to postpone significant
maintenance and capital expenditures, including turnaround projects, which has
reduced both revenue and profitability.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling, general and administrative costs as a percentage of revenue
increased to 14% for the three months ended March 31, 1999 compared to 9% over
the same period in 1998 primarily due to professional fees of $7.1 million
related to the financial restructuring in the first quarter of 1999, $1.6
million related to Year 2000 costs and a reduction in revenue caused by the
decrease in ferrous scrap selling prices in the first quarter of 1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of fixed assets and goodwill for the three
months ended March 31, 1999 was $15.6 million, representing a decrease of $9.9
million or 39% over the same period in 1998. This decrease was due to the
write-offs of goodwill and fixed assets of $1.1 billion during 1998.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 1999 was $26.9
million, representing an increase of $11.9 million or 79% over the same period
in 1998. This increase was partially attributable to increased borrowings to
finance the Company's working capital requirements. Also, a portion of the
increase in interest expense can be attributed to increased borrowing rates in
1999 both from increases in the prime rate and an increase of 100 basis points
in the June 1998 amendment to the Credit Facility. Although the Company
suspended payments of interest under the Credit Facility in November 1998, all
amounts owing were expensed and included in the balance of the bank term loan as
at March 31, 1999.
OTHER INCOME AND EXPENSE -- NET
Other income and expense -- net for the three months ended March 31, 1999
consists of interest income and equity income on investments.
Other income and expense -- net for the three months ended March 31, 1998
consists primarily of net proceeds on the termination of the merger agreement to
acquire Safety Kleen Corp. of $14.7 million.
INCOME TAXES
The Company is required to record a valuation allowance for deferred tax
assets when management believes it is more likely than not that the asset will
not be realized. Based on the level of historical taxable income and projections
for future taxable income over the periods in which the net operating losses are
deductible, it was determined that it is more likely than not that the Company
will not realize the benefit of the Canadian and US deferred tax debits which
arose in the three months ended March 31, 1999. The Company's plan to
restructure the secured bank term loans in 1999 in accordance with the Lock-up
Agreement indicated in Note 1 to the Consolidated Financial Statements appearing
elsewhere herein, may result in a gain that will be sufficient to utilize the
deferred tax assets. However, given that this gain is contingent on Court
confirmation, the Company has not recorded the gain nor the related deferred tax
assets. The valuation allowance recorded as of March 31, 1999 is $224 million.
18
<PAGE> 20
FINANCIAL CONDITION
LIQUIDITY AND CREDIT FACILITY
In August 1997, the Company signed a five year revolving term credit
agreement, which was amended in October 1997, February 1998, June 1998, October
1998 and December 1998 ("the Credit Facility"), with a syndicate of
international lenders. The Credit Facility originally provided for up to $1.5
billion in borrowings, subject to compliance with specified availability tests.
Borrowings under the Credit Facility are guaranteed by the Company and its
direct and indirect wholly-owned subsidiaries and are secured by a pledge of the
issued and outstanding securities of the Company's direct and indirect
wholly-owned subsidiaries and a charge over the present and future assets of the
Company and its direct and indirect wholly-owned subsidiaries.
Since June 30, 1998, the Company has not been in compliance with certain
covenants in the Credit Facility, including the financial covenants, which
require the Company to maintain a specified interest coverage ratio, debt to
EBITDA ratio, fixed charge ratio and working capital ratio. As the Company is
not in compliance with the terms of the Credit Facility, the debt outstanding
under the Credit Facility is classified as a current liability on the Company's
Consolidated Balance Sheets at March 31, 1999 and December 31, 1998. In June
1998, the Credit Facility was reduced from $1.5 billion to $1.2 billion, the
interest rate charged was increased by 100 basis points, the Company was
permitted access to $60 million of the proceeds arising from an asset
disposition of which $20 million was allocated to provide collateral for letters
of credit and the Company agreed to a standstill until September 30, 1998
respecting the incurrence of additional debt and the occurrence of dispositions
or acquisitions. On October 20, 1998, the Credit Facility was further amended to
permit the use of the letter of credit facility for general corporate and other
purposes and to extend the Company standstill on certain activities until June
30, 1999. In November 1998, the Company suspended payments of interest under the
Credit Facility.
On April 26, 1999, the Company's lending syndicate approved a Lock-up
Agreement which sets forth a new capital structure for the Company and the
conditions that govern the restructuring of $1.05 billion in secured term loans
outstanding, which includes accrued but unpaid interest of $0.04 billion, under
the Credit Facility. Under the terms of the Lock-up Agreement, the lenders will
convert the outstanding $1.05 billion of secured debt into $300 million of
senior secured debt, $100 million of convertible secured payment in-kind notes
and 90% of the common shares of the restructured Company. The secured payment
in-kind notes are convertible into 25% of the common shares of the restructured
Company on a fully diluted basis as of the restructuring date. The senior
secured debt and the secured payment in-kind notes each have a term of five
years. The Lock-up Agreement enables the Company to use $68.5 million in
proceeds from the January 1999 sale of the Company's aluminum assets and allows
access to future asset sale proceeds of up to $24.5 million. The Lock-up
Agreement also provides that the Board of Directors of the restructured Company
will consist of nine directors, who will be nominated by the new 90 %
shareholders (i.e., the lenders). The nominees will include two members of the
existing Board of Directors. The Company has agreed to a reduction in the Credit
Facility from $1.2 billion to the current amount outstanding.
The Company plans to file a pre-packaged plan of reorganization with the
appropriate courts in Canada and the United States in June 1999. The plan will
include, in addition to the arrangements reached with the Company's lenders
described above, proposals that would adjust the amounts owing to certain
unsecured creditors and the realization value of the Company's assets. Upon
filing the pre-packaged plan of reorganization, the Company will have access to
$100 million of debtor-in-possession financing to support its working capital
requirements during the restructuring process. On the plan implementation date,
the $100 million debtor-in-possession financing will be repaid by a $100 million
working capital facility to be established.
The ability of the Company to continue as a going concern is dependent on
the courts' approval of the pre-packaged plan of reorganization contemplated by
the Lock-up Agreement.
On the acquisition of Allwaste, the Company assumed the indenture with
respect to Allwaste's 7 1/4% Convertible Subordinated Debentures ("debenture")
totalling $25.6 million which are due 2014. Interest is payable semi-annually on
June 1 and December 1. Effective December 1, 1998, the Company suspended
payments of interest on the debenture which created a default under the
indentures. Interest accrued on the
19
<PAGE> 21
debenture as at March 31, 1999 is approximately $1,550. The amount of the
debentures outstanding has been classified as a current liability on the
Consolidated Balance Sheets at March 31, 1999 and December 31, 1998.
Unsecured loans relating to certain 1997 acquisitions totalling $16,000
were in default as at March 31, 1999 and December 31, 1998, since principal
repayments required on these notes in 1998 were not made, and therefore, the
loans have been classified as a current liability on the Company's Consolidated
Balance Sheets.
Fixed rate secured loans include industrial development bonds totalling
$7,700 which were in default as at March 31, 1999 and December 31, 1998 since
principal repayments required were not made.
The Company believes that cash generated from operations and the proceeds
from the sale of operations together with amounts available under the debtor-in
possession/working capital facility will be adequate to meet its capital
expenditures and working capital needs, although no assurance can be given in
this regard.
CAPITAL EXPENDITURES
Capital expenditures for continuing operations were $8.2 million for the
three month period ending March 31, 1999 compared to $24.1 million for the same
period in 1998.
YEAR 2000
STATE OF READINESS
The Year 2000 issue affects computer systems that have time sensitive
programs that may not properly recognize the year 2000. The Company is actively
engaged, but has not yet completed, reviewing, correcting and testing all of the
Year 2000 compliance issues. The Company has conducted detailed inventories and
has identified items with potential Year 2000 impact. The Company is in the
process of testing and remediating critical enterprise applications. All other
systems considered to be critical to the operations have been inventoried,
ranked in order of priority, and planning, testing and remediation are in
progress.
The Company's Year 2000 project is divided into four main areas: enterprise
applications, supply chain, site equipment, and computer and network
infrastructure.
Enterprise applications include both purchased and custom developed
software packages that are used at multiple sites within the Company. Supply
chain addresses both the Company's customers and suppliers. The Company has
developed and implemented a program to communicate and co-ordinate with key
customers, including responding to several surveys and audits. A program to
identify critical vendors and track their progress towards Year 2000 readiness
has been developed. Site equipment includes industrial equipment,
instrumentation, stand-alone computer hardware, software, and building
infrastructure at the site level. Computer and network infrastructure deals with
the local area network, wide area network, file servers and network components
that connect the Company's critical applications.
The Company has largely completed the awareness, inventory, and assessment
phases of the Year 2000 project and initiated the planning, remediation,
testing, and implementation phases in a parallel manner across all four of the
above mentioned areas.
COSTS
The total costs for the three months ended March 31, 1999 for the Year 2000
project were $1.6 million and all costs were expensed as incurred. Management
has estimated the balance of the costs to complete the project to be
approximately $13 million including approximately $6 million in costs for
software and hardware upgrades based on management's best estimates which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third parties' Year 2000 readiness and other
factors.
20
<PAGE> 22
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially or adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, the Company is unable to
determine at this time either whether its Year 2000 plan will be completed on a
timely basis or whether the consequences of the Year 2000 failures will have a
material impact on the results of operations, liquidity and financial condition.
CONTINGENCY PLANS
The Year 2000 project will have contingency plans in place for all four
major sections of the project. However, since system testing is not complete, no
Year 2000 specific contingency plans have been developed at this time.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires that an entity recognize these items as assets
or liabilities in the statement of financial position and measure them at fair
value. The effect on the Company of the adoption of this standard is not
anticipated to be material.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the results of operations and businesses of the Company. When used in this
document, the words "anticipate," "believe" "estimate" and "expect" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Many factors could cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements that may be expressed or implied by
such forward-looking statements, including, among others: (1) ability to
continue as a going concern is dependent upon restructuring; (2) disruption of
operations due to restructuring; (3) control of the restructured Company's Board
of Directors by the Company's lending syndicate; (4) effect of financial
uncertainty on future operating results; (5) outcome of legal proceedings may
have a material adverse effect on results of operations; (6) common shares may
be delisted by the New York Stock Exchange; (7) risks associated with
acquisitions including potential future liabilities; (8) heightened competition,
including the intensification of price competition and the entry of new
competitors; (9) dependence on outsourcing and vendor reduction trends; (10)
environmental and regulatory risks; (11) closure costs for the Company's
operating sites may exceed bonding amounts; (12) loss of key employees; (13)
commodity price and credit risks; (14) failure to obtain new customers or retain
existing customers; (15) general economic and business conditions which are less
favourable than expected; (16) the Year 2000 issue and (17) unanticipated
changes in industry trends. These factors and other risks are discussed in the
Company's Form 10-K for the fiscal year ended December 31, 1998 as well as from
time to time in the Company's filings with the Securities and Exchange
Commission and other regulatory authorities. Should one or more of these risks
or uncertainties materialize, or should assumptions underlying the
forward-looking statements prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated or expected.
Philip does not intend, and does not assume any obligation, to update these
forward-looking statements.
21
<PAGE> 23
PHILIP SERVICES CORP. AND SUBSIDIARIES
PART I, ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial risk resulting from volatility in
foreign exchange rates, interest rates and commodity prices. The Company seeks
to minimize these risks through its regular operating and financing activities
and, when deemed appropriate, through the use of derivative financial
instruments. In 1999, the use of derivative instruments has been limited.
FOREIGN CURRENCY RATE RISK
The revenue and expenses of the Company's Canadian and European
subsidiaries are generally denominated using the local currency. The functional
currency of these subsidiaries is the local currency and therefore, foreign
currency translation adjustments made on consolidation are reflected as a
component of shareholders' equity (deficit) as clearly stated in the Company's
accounting policies. Changes in the foreign exchange rates compared to the
United States dollar can have an effect on the Company's revenue and
profitability. The sensitivity of the net loss from continuing operations before
tax to the changing foreign currency rates is estimated to be approximately $0.4
million for a 1% change in the foreign currencies, based on the 1998 operating
results from foreign subsidiaries.
INTEREST RATE RISK
Substantially all of the Company's long-term debt bears interest at a
floating rate determined based on the US prime lending rate. At March 31, 1999,
the Company had $80 million of interest rate swaps outstanding. These swaps
effectively change the floating interest rate on $80 million of long-term debt
to a 6.95% fixed rate through the period ending July 1999. Based on the $1.1
billion of long-term and short-term debt outstanding at December 31, 1998, a 1%
change in the interest rates is estimated to change the loss from continuing
operations before tax by $9.0 million, net of the effect of the interest rate
swap.
The debt structure contemplated by the Lock-up Agreement provides for a
fixed rate of interest to be used on the majority of the debt, effective on the
plan implementation date, which will significantly reduce the Company's exposure
to interest rate risk.
COMMODITY PRICE RISK
In December 1998, the Company made the decision to discontinue the
Non-Ferrous and Copper Operations of its Metals Services group which were the
operations with the most sensitivity to commodity prices for copper and
aluminum. Therefore, for 1999, the commodity price risk for the remaining
operations is not anticipated to be material.
Prices for the Ferrous operations of the Metals Services group are set and
adjusted monthly by the major steel producers. The price of ferrous scrap is a
significant factor influencing the profitability of the Metals Services group.
In 1998, the Company's average selling price of ferrous scrap fell 46% to
approximately $82 per ton at December 31, 1998. In the first quarter of 1999,
the average selling price of ferrous scrap increased 19.5% to $98 per ton. The
Company manages its commodity price risk by acquiring ferrous metal scrap as it
is needed for its customers and maintaining relatively low inventories of scrap
and processed materials. Based on results of the Ferrous operations for the
first quarter of 1999, a 10% change in the price of ferrous scrap is estimated
to change the Company's loss from continuing operations before tax by $3.1
million.
22
<PAGE> 24
PHILIP SERVICES CORP. AND SUBSIDIARIES
PART II -- OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
From time to time, the Company is named a defendant in legal actions
arising out of the normal course of business. The Company maintains liability
insurance against risks arising out of the normal course of business. There can
be no assurance that such insurance will be adequate to cover all such
liabilities. The following describes pending legal proceedings other than
ordinary, routine litigation incidental to its business.
3(A)
Various class actions have been filed against the Company, certain of its
past and present directors and officers, the underwriters of the Company's 1997
public offering and the Company's auditors. Each action alleges that the
Company's financial disclosures for various time periods between 1995 and 1997
contained material misstatements or omissions in violation of U.S. federal
securities laws (provisions of the Securities Act of 1933 and of the Securities
Exchange Act of 1934) and seeks to represent a class of purchasers of the
Company's common shares. On June 2, 1998, the Judicial Panel on Multidistrict
Litigation ordered that the class actions be consolidated and transferred to the
United States District Court, Southern District of New York. On July 23, 1998,
two pre-trial orders of the District Court were made. Pre-Trial Order No. 1
dealt with various administrative matters relating to the consolidation of the
actions and a schedule for the plaintiffs to serve and file a consolidated
amended class action complaint and for the Company's response. Pre-Trial Order
No. 2 appointed a lead plaintiff and lead counsel. On November 13, 1998, the
Company filed a motion for an order dismissing the class action on the grounds
of forum non conveniens. On May 12, 1999, the Company received notice that the
United States District Court, Southern District of New York, ruled in favour of
the Company's motion to dismiss the U.S. plaintiffs' consolidated and amended
class action complaint on forum non conveniens grounds. The District Court
declined to assume jurisdiction over the complaint on the grounds that Ontario
provides an adequate alternative forum for litigation of the class action
plaintiff's claims, and ruled that adjudication in Ontario would be more
convenient and best serve the public interest.
Similar claims have been asserted against the Company and certain of its
past and present officers and directors by the former shareholders of the
Steiner-Liff Metals group of companies and the Southern-Foundry Supply group of
companies. Philip acquired these companies in October 1997 and issued the
Company's common shares in partial payment of the purchase price. The claims
allege that the Company's financial disclosures for various time periods between
1995 and 1997 contain material misstatements or omissions and that these
constitute a breach of certain representations and warranties made to the former
shareholders or, alternatively, a violation of U.S. securities laws.
A claim brought under the Ontario Class Proceedings Act was commenced on
October 26, 1998 against the Company, the underwriters of the Company's 1997
public offering and the Company's auditors. The claim was brought on behalf of
persons in Canada who purchased common shares of the Company between November 6,
1997 and December 18, 1997, and also seeks damages on behalf of persons in
Canada who purchased common shares between May 21, 1996 and April 23, 1998. The
claim contains various allegations that are similar in nature to those made in
the U.S. class action claims.
The Company has conducted a review of the claims and determined that it is
not feasible to predict or determine the final outcome of these proceedings. The
Company intends to vigorously defend all claims but there can be no assurance
that the outcome of the class actions and related actions will not have a
material adverse effect upon the financial condition or results of operations of
the Company.
3(B)
In January 1997, the State of Missouri brought an enforcement action
against Solvent Recovery Company ("SRC"), an indirect wholly owned subsidiary of
the Company, in state court alleging numerous violations of hazardous waste
regulations at SRC's Kansas City, Missouri facility. Included were allegations
that alterations or additions to the facility's operations had been implemented
without required modification of
23
<PAGE> 25
the facility's hazardous waste permit as well as allegations of numerous
deficiencies under regulations and SRC's permit in the accumulation, record
keeping, inspection, labelling, transportation and handling of such waste. SRC
and the State of Missouri have agreed upon a payment of $225,000 to be made in
two instalments and a payment of approximately $125,000 which payment is
suspended and will be waived if the facility remains in compliance with
applicable federal and state environmental standards for three years. Philip
does not expect that the matter will have a material adverse effect on its
results of operations or financial position.
3(C)
In January 1999, Exxon Chemical Company ("Exxon") asserted a claim against
International Catalyst, Inc. ("INCAT"), an indirect wholly owned subsidiary of
the Company, for damages of $32.1 million arising from certain work conducted by
INCAT at Exxon's Baytown, Texas chemical plant. Exxon alleges that INCAT was
responsible for the purchase and installation in 1996 of improper gasket
materials in the internal bed piping flange joints of the Baytown plant which
caused damages to the facility and consequential losses arising from the
shutdown of the plant while repairs were made. In addition, in March 1999,
Westlake PetroChemicals Corporation ("Westlake") commenced an action against
Piping Companies, Inc. ("PCI"), an indirect wholly-owned subsidiary of the
Company, alleging that welding work conducted by PCI in December 1995 was
defective and gave rise to a fire which caused considerable damage to Westlake's
Sulfur, Louisiana ethylene plant. The Company has conducted a preliminary review
of these claims and determined that it is not feasible to predict or determine
the final outcome of these proceedings. The Company intends to vigorously defend
the claims and believes that it has insurance coverage for such claims. There
can be no assurance that the outcome of the claims will not have a material
adverse effect upon the financial condition or results of operations of the
Company.
3(D)
In November 1998, the Company ceased paying interest on its $1.05 billion
in outstanding secured syndicated debt, which includes accrued but unpaid
interest of $0.04 billion, and stopped making payments on certain other
unsecured debt and contractual obligations (the "Unsecured Obligations"). The
Company may not have a defense to claims asserted or actions commenced for the
payment of these obligations, or compliance with such contracts. The Company has
reached an agreement with its lending syndicate on the terms of a financial
restructuring of the Company whereby outstanding syndicated debt of $1.05
billion will be converted into $300 million of senior secured debt and $100
million in convertible secured payment in-kind notes and 90% of the common
shares of the restructured Company. The Company is preparing a pre-packaged plan
of reorganization which it expects to file under Chapter 11 of the United States
Bankruptcy Code and in Canada under the Companies Creditors Arrangement Act. The
filing of a pre-packaged plan of reorganization is subject to the fulfillment of
certain conditions. There can be no assurance that the pre-packaged plan of
reorganization will be filed and if filed, that it will be approved by the
registered stakeholders and the courts having jurisdiction over such matters. If
the pre-packaged plan of reorganization is not approved, there can be no
assurance that the Company will continue as a going concern. The Company is
seeking to impair the Unsecured Obligations as part of the US and Canadian
pre-packaged plan of reorganization filings. There can be no assurance that the
Unsecured Obligations will be resolved as part of the Company's pre-packaged
plan of reorganization. If not resolved, Unsecured Obligations could have a
material adverse effect upon the financial condition or results of operations of
the Company.
ITEM 2: CHANGES IN SECURITIES
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Since June 30, 1998, the Company has not been in compliance with certain
covenants in the Credit Facility, including the financial covenants, which
require the Company to maintain a specified interest coverage ratio, debt to
EBITDA ratio, fixed charge ratio and working capital ratio. As the Company is
not in
24
<PAGE> 26
compliance with the terms of its Credit Facility, the debt outstanding under the
Credit Facility is classified as a current liability on the Company's
Consolidated Balance Sheets.
In June 1998, the Credit Facility was reduced from $1.5 billion to $1.2
billion, the interest rate charged was increased by 100 basis points, the
Company was permitted access to $60 million of the proceeds arising from an
asset disposition of which $20 million was allocated to provide collateral for
letters of credit and the Company agreed to a standstill until September 30,
1998 respecting the incurrence of additional debt and the occurrence of
dispositions or acquisitions. On October 20, 1998, the Credit Facility was
further amended to permit the use of the letter of credit facility for general
corporate and other purposes and to extend the Company standstill on certain
activities until June 30, 1999. In November 1998, the Company suspended payments
of interest under the Credit Facility.
On April 26, 1999 the Company's lending syndicate approved a Lock-up
Agreement which sets forth a new capital structure for the Company and the
conditions that govern the restructuring of $1.05 billion outstanding, which
includes accrued but unpaid interest of $0.04 billion, under the Credit
Facility. Under the terms of the Lock-up Agreement, the lenders will convert the
outstanding $1.05 billion of secured debt into $300 million of senior secured
debt, $100 million of convertible secured payment in-kind notes and 90% of the
common shares of the restructured Company. The secured payment in-kind notes are
convertible into 25% of the common shares of the restructured Company on a fully
diluted basis as of the restructuring date. The senior secured debt and the
secured payment in-kind notes each have a term of five years. The Lock-up
Agreement enables the Company to use $68.5 million in proceeds from the January
1999 sale of the Company's aluminum assets and allows access to future asset
sale proceeds of up to $24.5 million. The Lock-up Agreement also provides that
the Board of Directors of the restructured Company will consist of nine
directors, who will be nominated by the new 90% shareholders (i.e., the
lenders). The nominees include two members of the existing Board of Directors.
The Company has agreed that the existing facility will be reduced from $1.2
billion to the current amount outstanding.
On the acquisition of Allwaste, the Company assumed the indenture with
respect to Allwaste's 7 1/4% Convertible Subordinated Debentures ("debenture")
of $25.6 million which are due 2014. At any time up to and including June 1,
2014. Interest is payable semi-annually on June 1 and December 1. Effective
December 1, 1998, the Company suspended payments of interest on the debenture
which created default under the indenture. Interest accrued on the debenture as
at March 31, 1999 is approximately $1.55 million. The amount of the debentures
outstanding has been classified as a current liability on the Consolidated
Balance Sheets at March 31, 1999 and December 31, 1998.
The unsecured loans disclosed in long-term debt include promissory notes
relating to certain 1997 acquisitions totalling $16.0 million which were in
default at March 31, 1999 and December 31, 1998 and have been classified as a
current liability on the Company's Consolidated Balance Sheets. Principal
repayments which were required on these notes in 1998 and 1999 were not made,
causing a default under provisions of the promissory note.
The fixed rate secured loans include industrial development bonds totalling
$7.7 million which are in default as at March 31, 1999 and December 31, 1998
since principal repayments required were not made.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of shareholders of the Company during
the first quarter of the fiscal year ending December 31, 1999.
ITEM 5: OTHER INFORMATION
None.
25
<PAGE> 27
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<C> <S>
3.1 * Articles of Amalgamation of Lincoln Waste Management Inc.
(previous name of the Registrant) dated April 15, 1991
3.2 * Articles of Amendment of the Registrant dated June 26, 1991
3.3 * Articles of Amendment of the Registrant dated July 10, 1991
3.4 * Articles of Amendment of the Registrant dated May 22, 1997
3.5 * Bylaws of Lincoln Waste Management Inc. (previous name of
the Registrant) dated August 16, 1990
4.1 * Indenture dated as of June 1, 1989, 7 1/4% Convertible
Subordinated Debentures due 2014 between Allwaste, Inc. and
Texas Commerce Trust Company of New York
4.2 * First Supplemental Indenture dated as of July 30, 1997
supplementing and amending the June 1, 1989 Indenture
4.3 * Specimen of Common Stock Certificate
10.1 * 1991 Stock Option Plan
10.2 * 1997 Amended and Restated Stock Option Plan
10.3 + Credit Agreement dated as of August 11, 1997 among Philip
Services Corp., Philip Environmental (Delaware), Inc.,
Canadian Imperial Bank of Commerce, Bankers Trust Company,
Dresdner Bank of Canada, Dresdner Bank AG/New York/ New York
Branch), Royal Bank of Canada and the various persons from
time to time subject to the Credit Agreement as Lenders
10.4 * Amending Agreement No. 1 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of October 31, 1997
10.5 * Amending Agreement No. 2 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of February 19, 1998
10.6 ** Amending Agreement No. 3 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of June 24, 1998
10.7 *** Amending Agreement No. 4 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of October 20, 1998
10.8 (o) Amending Agreement No. 5 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of December 4, 1998
10.9 (o) Lock-up Agreement dated as of April 5, 1999 among Philip
Services Corp. and certain lenders of Philip Services
Corp.'s lending syndicate
10.10(o) Proceeds Agreement dated as of April 5, 1999 among Canadian
Imperial Bank of Commerce, in its capacity as Administrative
Agent, Philip Services Corp. and certain subsidiaries of
Philip Services Corp.
21(o) Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
- ---------------
+ incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form S-1 (Registration Statement No. 333-36549)
* incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.
** incorporated by reference to the exhibits filed with the Company's Quarterly
Report for the three months ended June 30, 1998.
*** incorporated by reference to the exhibits filed with the Company's Quarterly
Report for the three months ended September 30, 1998.
(o) incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
(B) REPORTS ON FORM 8-K
Form 8-K dated January 12, 1999 relating to the Company's press release in
relation to a negotiated term sheet with a sub-committee of the Steering
Committee of the Company's lending syndicate.
26
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Philip Services Corp., has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHILIP SERVICES CORP.
/s/ PHILLIP WIDMAN
By:
--------------------------------------
Phillip Widman
Executive Vice President and
Chief Financial Officer
Dated: May 17, 1999
27
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------------------------------------------------------
<C> <S>
3.1 * Articles of Amalgamation of Lincoln Waste Management Inc.
(previous name of the Registrant) dated April 15, 1991
3.2 * Articles of Amendment of the Registrant dated June 26, 1991
3.3 * Articles of Amendment of the Registrant dated July 10, 1991
3.4 * Articles of Amendment of the Registrant dated May 22, 1997
3.5 * Bylaws of Lincoln Waste Management Inc. (previous name of
the Registrant) dated August 16, 1990
4.1 * Indenture dated as of June 1, 1989, 7 1/4% Convertible
Subordinated Debentures due 2014 between Allwaste, Inc. and
Texas Commerce Trust Company of New York
4.2 * First Supplemental Indenture dated as of July 30, 1997
supplementing and amending the June 1, 1989 Indenture
4.3 * Specimen of Common Stock Certificate
10.1 * 1991 Stock Option Plan
10.2 * 1997 Amended and Restated Stock Option Plan
10.3 + Credit Agreement dated as of August 11, 1997 among Philip
Services Corp., Philip Environmental (Delaware), Inc.,
Canadian Imperial Bank of Commerce, Bankers Trust Company,
Dresdner Bank of Canada, Dresdner Bank AG/New York/ New York
Branch), Royal Bank of Canada and the various persons from
time to time subject to the Credit Agreement as Lenders
10.4 * Amending Agreement No. 1 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of October 31, 1997
10.5 * Amending Agreement No. 2 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of February 19, 1998
10.6 ** Amending Agreement No. 3 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of June 24, 1998
10.7 *** Amending Agreement No. 4 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of October 20, 1998
10.8 (o) Amending Agreement No. 5 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of December 4, 1998
10.9 (o) Lock-up Agreement dated as of April 5, 1999 among Philip
Services Corp. and certain lenders of Philip Services
Corp.'s lending syndicate
10.10(o) Proceeds Agreement dated as of April 5, 1999 among Canadian
Imperial Bank of Commerce, in its capacity as Administrative
Agent, Philip Services Corp. and certain subsidiaries of
Philip Services Corp.
21(o) Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
- ---------------
+ incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form S-1 (Registration Statement No. 333-36549)
* incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.
** incorporated by reference to the exhibits filed with the Company's Quarterly
Report for the three months ended June 30, 1998.
*** incorporated by reference to the exhibits filed with the Company's Quarterly
Report for the three months ended September 30, 1998.
(o) incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
28
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 59,644
<SECURITIES> 0
<RECEIVABLES> 346,635
<ALLOWANCES> (23,407)
<INVENTORY> 34,653
<CURRENT-ASSETS> 599,342
<PP&E> 605,950
<DEPRECIATION> (179,421)
<TOTAL-ASSETS> 1,134,879
<CURRENT-LIABILITIES> 1,404,659
<BONDS> 0
<COMMON> 1,351,482
0
0
<OTHER-SE> (1,786,241)
<TOTAL-LIABILITY-AND-EQUITY> 1,134,879
<SALES> 0
<TOTAL-REVENUES> 379,014
<CGS> 0
<TOTAL-COSTS> 323,723
<OTHER-EXPENSES> 68,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,853
<INCOME-PRETAX> (39,762)
<INCOME-TAX> 2,135
<INCOME-CONTINUING> (41,897)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,897)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
