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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
Commission file number 0-30417

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

(713) 623-8777
(Registrant’s Telephone Number, Including Area Code)

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

     Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o. No x.

     The number of shares of common stock of the Registrant outstanding at November 8, 2002 was 27,881,569.

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REPORT INDEX
TO FORM 10-Q

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Certain statements contained in this Form 10-Q constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this document, the words “anticipate,” “believe,” “estimate,” “expect”, “indicate” 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, risks discussed 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. These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. The Company does not assume any obligation to update these forward-looking statements.

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PHILIP SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

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

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PHILIP SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

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

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PHILIP SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

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

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PHILIP SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

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

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PHILIP SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1)

BASIS OF PRESENTATION

These Consolidated Financial Statements contain information relating to Philip Services Corporation (“PSC”), a Delaware corporation, and its subsidiaries (collectively, the “Company”), which has been prepared by management.

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, in any material respect, and the financial statements reflect all elimination entries and normal adjustments that are necessary for a fair statement of the results for the three and nine-months ended September 30, 2002 and September 30, 2001, respectively. Other than the adoption of Financial Accounting Standards Board Statement No. 144 discussed in Note 18, 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 2 of the Notes to the Company’s Consolidated Financial Statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2001.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements. These estimates and assumptions will also affect the reported amount of certain revenues and expenses during the reporting period. Actual results could differ materially based on any changes in estimates and assumptions that the Company uses in the preparation of its financial statements.

The Company is an industrial services and metals services company that provides industrial outsourcing, environmental services and metals services to major industry sectors throughout North America.

CREDIT FACILITIES

The Company has two credit facilities, a $335.8 million term facility with a syndicate of lenders (“credit facility”) and a $195.0 million revolving credit agreement (“revolving operating facility”). Under the credit facility and revolving operating facility (“facilities”), more fully described in Note 7, the Company is required to meet certain financial covenants. During 2001, the Company was negatively impacted by the general slowdown in the economy, poor conditions in the steel industry, the bankruptcy of major customers, and the events of September 11, among other matters. The Company was unable to meet its EBITDA and interest coverage covenants and as a result sought relief in March 2001, May 2001, November 2001, and April 2002.

Specifically, on April 12, 2002, the revolving operating facility was amended to provide additional financing for the duration of the facility (the “mezzanine financing”). See “Credit Facilities” and Note 9 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

At September 30, 2002, the Company was in compliance with the amended covenants under the facilities. Although the Company intends to replace the revolving operating facility prior to its maturity on April 8, 2003, the success of such efforts is uncertain and is material to the future operations of the Company. A revolving operating facility is essential to provide funding for the Company’s operating activities and to support classification of the Company’s term debt.

RECLASSIFICATION

Certain reclassifications of prior periods’ data have been made to conform with the current period reporting.

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(2)

ACCOUNTS RECEIVABLE (in thousands)

(3)

OTHER CURRENT ASSETS (in thousands)

(a)		Non-trade receivables include a $10,112 remaining principal balance of a $19,812 note receivable from a third-party insurance company recorded in June 2002, related to a settlement agreement entered into by the Company and the third-party insurance company in relation to certain environmental sites involving the Company.
(4)		PROPERTY, PLANT AND EQUIPMENT (in thousands)

(5)

OTHER ASSETS (in thousands)