PSC Contemplates Return to Bankruptcy Protection

The U.S. company that emerged from the bankruptcy of Hamilton's once-mighty Philip Services Corp. says it may now have to seek bankruptcy protection to get out from under a crippling debt load.

PSC, as it is known, has about 4,600 employees at 147 locations in North America.

Officials at the head office in Houston explained the situation to managers across the continent in a conference call earlier this week.

Chris Maheu, PSC vice-president of sales and marketing, said the company reported an operating loss of $59 million on revenue of $1.1 billion in 2002, an improvement over the $78 million lost in 2001.

Philip Services reported to the U.S. Securities and Exchange Commission last Thursday that the April 8 expiration of a revolving credit facility providing day-to-day working capital had been extended to June 2.

It said it would use the time to prepare to restructure its balance sheet and "it is anticipated that the restructuring would be effected through a proceeding under Chapter 11 of the Bankruptcy Code."

PSC said it had retained bankruptcy counsel and begun discussions with lenders on possible debtor-in-possession financing.

The company also reported figures for both the quarter and the full year. Fourth quarter operating results improved from a loss of $33.2 million in 2001 to a loss of $7.4 million in 2002. Operating results for the full year improved to $7.4 million in 2002 compared to a loss of $41.3 million in 2001. For the twelve-month period ending December 31, 2002, net loss was $59.2 million compared with a net loss of $78.1 million for the same period of 2001.

"We are continuing to execute our business strategy in the face of challenging economic conditions," said Michael Ramirez, CFO for PSC. "While we are reporting a loss for the quarter, we are encouraged by the progress we've made in restructuring our operations."

PSC completed the merger of its former Environmental Services and Industrial Cleaning organizations in late 2002 and closed on the sale of five Project Services Division business groups last month.

"Our restructuring efforts will now focus more towards PSC's capital structure," added Ramirez. The company has filed a Current Report on Form 8-K with the SEC announcing the extension of its operating credit facility to June 2, 2003. PSC intends to use the extension to prepare to restructure its balance sheet and refinance its debt. It is anticipated that this financial restructuring will be completed through the filing of a proceeding under Chapter 11 of the U.S. Bankruptcy Code. No filing, however, has yet been made.

Revenue for the three-month period ending December 31, 2002, was $288.1 million, compared to $251.7 million for the same period in 2001. For the twelve-month period revenue was $1.118 billion, compared to $1.115 billion for the same period in 2001. The increase in revenue for the three-month period is due principally to the increased revenue associated with price increases for ferrous scrap metal and the demand for finished steel products.

The decline in revenue for the year is due primarily to PSC's Industrial Services Group experiencing reductions in work scope and postponements of projects and the divestiture in the first quarter of 2002 of certain operations. The decline was partially offset by increased revenue from PSC's Metals Services Group associated with price increases for ferrous scrap metal and the demand for finished steel products. 

Loss from operations was $7.4 million for the quarter, compared with a loss of $33.2 million for the same period of 2001. Loss from operations for the three-month period was positively impacted by improved ferrous scrap metal prices and the demand for finished steel products. Also, PSC's waste services business line realized improved operating profit of $7.3 million during the three-month period when compared to 2001 due to higher demand for services in 2002 as compared to depressed levels immediately following the events of September 11, 2001.