Form 10-Q


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549








x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)


OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarter ended September 30, 2004





OR





o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)


OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from ______________ to ______________





Commission file number 333-102511





BRAND INTERMEDIATE HOLDINGS, INC.


(Exact name of registrant as specified in its charter)





|Delaware                                                       | 13-3909682                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.)
|                                                               |                                     
|15450 South Outer 40, #270, Chesterfield, MO                   | 63017                               
|(Address of principal executive offices)                       | (Zip Code)                          




|Registrants telephone number, including area code: (636) 519-1000
|------------------------------------------------------------------




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: x No: o





Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes: o No: x





Indicate the number of shares outstanding of each of the Registrants classes of Common Stock as of the latest practicable date.





|Class of Common Stock | Outstanding at October 31, 2004
|--------------------- | -------------------------------
|$.01 Par Value        | 1,000 shares                   




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INDEX





|           |    |                                                                                                              | Page 
|---------- | -- | ------------------------------------------------------------------------------------------------------------ | -----
|PART I     | -  | FINANCIAL INFORMATION                                                                                        |      
|           |    |                                                                                                              |      
|Item 1.    |    | Financial Statements                                                                                         |      
|           |    | Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2003 and 2004 | 3    
|           |    |                                                                                                              |      
|           |    | Consolidated Balance Sheets as of December 31, 2003 and September 30, 2004                                   | 4-5  
|           |    |                                                                                                              |      
|           |    | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2004                  | 6-7  
|           |    |                                                                                                              |      
|           |    | Notes to the Consolidated Financial Statements                                                               | 8-20 
|           |    |                                                                                                              |      
|Item 2.    |    | Managements Discussion and Analysis of Financial Condition and Results of Operations                        | 21-25
|           |    |                                                                                                              |      
|Item 3.    |    | Quantitative and Qualitative Disclosures About Market Risk                                                   | 25   
|           |    |                                                                                                              |      
|Item 4.    |    | Controls and Procedures                                                                                      | 25   
|           |    |                                                                                                              |      
|           |    |                                                                                                              |      
|PART II    | -  | OTHER INFORMATION                                                                                            |      
|           |    |                                                                                                              |      
|Item 1.    |    | Legal Proceedings                                                                                            | 26   
|           |    |                                                                                                              |      
|Item 2.    |    | Changes in Securities and Use of Proceeds                                                                    | 26   
|           |    |                                                                                                              |      
|Item 3.    |    | Defaults Upon Senior Securities                                                                              | 26   
|           |    |                                                                                                              |      
|Item 4.    |    | Submission of Matters to a Vote of Security Holders                                                          | 26   
|           |    |                                                                                                              |      
|Item 5.    |    | Other Information                                                                                            | 26   
|           |    |                                                                                                              |      
|Item 6.    |    | Exhibits and Reports on Form 8-K                                                                             | 26   
|           |    |                                                                                                              |      
|           |    |                                                                                                              |      
|SIGNATURES | 27
|           |   

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|Index
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|PART I. | FINANCIAL INFORMATION
|------- | ---------------------




|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------







BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES


Consolidated Statements of Operations


(In thousands)


(Unaudited)





|                                    |  | For the Three Months Ended September 30, |        | For the Nine Months Ended September 30, |  
|----------------------------------- |  | ---------------------------------------- | ------ | --------------------------------------- | -
|                                    |  |                                          | 2003   |                                         |  
|Revenues:                           |  |                                          |        |                                         |  
|Labor                               |  | $                                        | 61,307 |                                         | $
|Equipment rental                    |  |                                          | 16,573 |                                         |  
|Equipment sales                     |  |                                          | 1,647  |                                         |  
|Total revenues                      |  |                                          | 79,527 |                                         | $
|Operating expenses:                 |  |                                          |        |                                         |  
|Labor                               |  |                                          | 50,880 |                                         |  
|Equipment rental                    |  |                                          | 8,185  |                                         |  
|Equipment sales                     |  |                                          | 1,249  |                                         |  
|Divisional operating expenses       |  |                                          | 3,662  |                                         |  
|Total operating expenses            |  |                                          | 63,976 |                                         |  
|Gross profit                        |  |                                          | 15,551 |                                         |  
|Selling and administrative expenses |  |                                          | 10,586 |                                         |  
|Operating income                    |  |                                          | 4,965  |                                         |  
|Interest expense                    |  |                                          | 8,180  |                                         |  
|Interest income                     |  |                                          | (93    | )                                       |  
|Loss before benefit for income tax  |  |                                          | (3,122 | )                                       |  
|Income tax benefit                  |  |                                          | (1,062 | )                                       |  
|Net loss                            |  | $                                        | (2,060 | )                                       | $




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


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|Index
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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES


Consolidated Balance Sheets


(In thousands)





|                                                                                                       |  | December 31, |         | September 30, |  
|------------------------------------------------------------------------------------------------------ |  | ------------ | ------- | ------------- | -
|                                                                                                       |  | 2003         |         | 2004          |  
|                                                                                                       |  |              |         | (unaudited)   |  
|ASSETS                                                                                                 |  |              |         |               |  
|                                                                                                       |  |              |         |               |  
|CURRENT ASSETS:                                                                                        |  |              |         |               |  
|Cash and cash equivalents                                                                              |  | $            | 23,100  |               | $
|Trade accounts receivable, net of allowance for doubtful accounts of $1,377 in 2003 and $1,561 in 2004 |  |              | 54,005  |               |  
|Accrued revenue                                                                                        |  |              | 3,137   |               |  
|Notes receivable                                                                                       |  |              | 621     |               |  
|Other current assets                                                                                   |  |              | 9,421   |               |  
|                                                                                                       |  |              |         |               |  
|Total current assets                                                                                   |  |              | 90,284  |               |  
|                                                                                                       |  |              |         |               |  
|PROPERTY AND EQUIPMENT:                                                                                |  |              |         |               |  
|Land                                                                                                   |  |              | 1,237   |               |  
|Buildings and leasehold improvements                                                                   |  |              | 3,354   |               |  
|Vehicles and other equipment                                                                           |  |              | 25,736  |               |  
|Scaffolding equipment                                                                                  |  |              | 188,489 |               |  
|                                                                                                       |  |              |         |               |  
|Total property and equipment, at cost                                                                  |  |              | 218,816 |               |  
|                                                                                                       |  |              |         |               |  
|Less-Accumulated depreciation and amortization                                                         |  |              | 39,857  |               |  
|                                                                                                       |  |              |         |               |  
|Total property and equipment, net                                                                      |  |              | 178,959 |               |  
|                                                                                                       |  |              |         |               |  
|GOODWILL                                                                                               |  |              | 248,347 |               |  
|                                                                                                       |  |              |         |               |  
|CUSTOMER RELATIONSHIPS                                                                                 |  |              | 48,286  |               |  
|                                                                                                       |  |              |         |               |  
|OTHER ASSETS AND INTANGIBLES                                                                           |  |              | 24,783  |               |  
|                                                                                                       |  |              |         |               |  
|TOTAL ASSETS                                                                                           |  | $            | 590,659 |               | $




(Continued on following page)


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|Index
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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES


Consolidated Balance Sheets


(In thousands except share and per share amounts)








|                                                                               |  | December 31, |         | September 30, |  
|------------------------------------------------------------------------------ |  | ------------ | ------- | ------------- | -
|                                                                               |  | 2003         |         | 2004          |  
|                                                                               |  |              |         | (unaudited)   |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                           |  |              |         |               |  
|                                                                               |  |              |         |               |  
|CURRENT LIABILITIES:                                                           |  |              |         |               |  
|Current maturities of long-term debt                                           |  | $            | 1,250   |               | $
|Notes payable and capital lease obligations, current portion                   |  |              | 660     |               |  
|Accounts payable and accrued expenses                                          |  |              | 33,302  |               |  
|Deferred revenue                                                               |  |              | 1,448   |               |  
|                                                                               |  |              |         |               |  
|Total current liabilities                                                      |  |              | 36,660  |               |  
|                                                                               |  |              |         |               |  
|LONG-TERM DEBT                                                                 |  |              | 305,282 |               |  
|                                                                               |  |              |         |               |  
|NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS                                    |  |              | 165     |               |  
|                                                                               |  |              |         |               |  
|DEFERRED INCOME TAXES                                                          |  |              | 29,173  |               |  
|                                                                               |  |              |         |               |  
|                                                                               |  |              |         |               |  
|STOCKHOLDERS EQUITY:                                                          |  |              |         |               |  
|Common stock, $0.01 par value, 1,000 shares authorized, issued and outstanding |  |              | -       |               |  
|Paid-in capital                                                                |  |              | 224,212 |               |  
|Cumulative translation adjustment                                              |  |              | 2,853   |               |  
|Accumulated deficit                                                            |  |              | (7,686  | )             |  
|                                                                               |  |              |         |               |  
|Total stockholders equity                                                     |  |              | 219,379 |               |  
|                                                                               |  |              |         |               |  
|Total liabilities and stockholders equity                                     |  | $            | 590,659 |               | $
|                                                                               |  |              |         |               |  




The accompanying notes to the consolidated financial statements are an integral part of the consolidated balance sheets.


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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES


Consolidated Statements of Cash Flows


(In thousands)


(Unaudited)





|                                                                         |  | For the Nine Months Ended September 30, |       
|------------------------------------------------------------------------ |  | --------------------------------------- | ------
|                                                                         |  | 2003                                    |       
|                                                                         |  |                                         |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                    |  |                                         |       
|Net loss                                                                 |  | $                                       | (3,498
|Adjustments to reconcile net loss to net
cash from operating activities: |  |                                         |       
|Depreciation and amortization                                            |  |                                         | 30,069
|Deferred income taxes                                                    |  |                                         | (1,802
|Non-cash interest                                                        |  |                                         | 4,495 
|Non-cash compensation                                                    |  |                                         | -     
|Gain on sale of scaffolding equipment                                    |  |                                         | (525  
|Changes in operating assets and liabilities:                             |  |                                         |       
|Trade accounts receivable, net                                           |  |                                         | 6,213 
|Accrued revenue                                                          |  |                                         | (2,502
|Notes receivable                                                         |  |                                         | (31   
|Other current assets                                                     |  |                                         | 5,221 
|Accounts payable and accrued expenses                                    |  |                                         | (1,106
|Deferred revenue                                                         |  |                                         | 38    
|Other                                                                    |  |                                         | 54    
|Net cash flows from operating activities                                 |  |                                         | 36,626
|                                                                         |  |                                         |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                    |  |                                         |       
|Purchase of property and equipment                                       |  |                                         | (9,446
|Proceeds from sale of property and equipment                             |  |                                         | 1,263 
|Payments for acquisitions                                                |  |                                         | -     
|Net cash flows from investing activities                                 |  |                                         | (8,183
|                                                                         |  |                                         |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                    |  |                                         |       
|Repayments of long-term debt                                             |  |                                         | (975  
|Payments of deferred financing fees                                      |  |                                         | -     
|Payments on capital lease obligations                                    |  |                                         | (1,261
|Net cash flows from financing activities                                 |  |                                         | (2,236
|                                                                         |  |                                         |       
|NET INCREASE IN CASH
AND CASH EQUIVALENTS                                |  |                                         | 26,207
|                                                                         |  |                                         |       
|CASH AND CASH EQUIVALENTS,
beginning of period                           |  |                                         | 4,817 
|                                                                         |  |                                         |       
|CASH AND CASH EQUIVALENTS, end of period                                 |  | $                                       | 31,024

(Continued on following page)


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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES


Consolidated Statements of Cash Flows


(In thousands)


(Unaudited)





|                                    |  | For the Nine Months Ended September 30, |       
|----------------------------------- |  | --------------------------------------- | ------
|                                    |  | 2003                                    |       
|SUPPLEMENTAL CASH FLOW DISCLOSURES: |  |                                         |       
|Interest paid                       |  | $                                       | 15,597
|Income taxes paid                   |  |                                         | 1,179 
|NON-CASH TRANSACTIONS:              |  |                                         |       
|Capital Lease obligations           |  |                                         | -     
|Note payable issued for acquisition |  |                                         | -     
















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


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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES





Notes to the Consolidated Financial Statements (Unaudited)





The accompanying unaudited interim financial statements included herein for the periods ended September 30, 2003 and 2004 have been prepared by the Company. In the opinion of management, all adjustments have been made which are of a normal recurring nature necessary to present fairly the Companys financial position as of September 30, 2004, and the results of operations and cash flows for the three months and nine months ended September 30, 2003 and 2004. Certain information and footnote disclosures have been condensed or omitted for these periods. The results for interim periods are not necessarily indicative of results for the entire year. Reference is made to the notes to the consolidated financial statements contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2003, filed with the Securities and Exchange Commission.





|1. | Organization and Business
|-- | -------------------------




Brand Intermediate Holdings, Inc. and its subsidiaries ("Brand") are 100% owned by Brand Holdings LLC (the "LLC"). As of September 30, 2004, the voting equity interests of the LLC are owned 74.2% by J.P. Morgan Partners and its affiliates ("JPMP") and 25.8% by other equity investors on a fully diluted basis. Brand Services, Inc. is a wholly owned subsidiary of Brand Intermediate Holdings, Inc. All references to "the Company", "we", "us", or "our" mean Brand Intermediate Holdings, Inc. and its subsidiaries.





The Company operates in one segment and provides scaffolding services primarily to refining, petrochemical, chemical, utility and pulp and paper industries, and to a lesser extent general commercial clients. Scaffolding services are typically provided in connection with periodic, routine maintenance of refineries, chemical plants and utilities, as well as for new construction and renovation projects. The Company provides personnel to erect and dismantle scaffolding structures, transport scaffolding to project sites and supervise and manage such activities. In addition, the Company rents and occasionally sells scaffolding that is classified as property and equipment on the consolidated balance sheets. The Company maintains a substantial inventory of scaffolding in the United States and Canada.





|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------




The accompanying financial statements are prepared on a consolidated basis and include those assets, liabilities, revenues and expenses directly attributable to the operations of the Company. All significant intercompany balances and transactions have been eliminated.





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





|3. | Stock Based Employee Compensation
|-- | ---------------------------------




Effective January 1, 2004, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". The Company selected the modified prospective transition method under the provisions of SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," which requires expensing options prospectively, beginning in the year of adoption. The Company expensed $56,000 and $145,000, respectively, for the three and nine-month periods ended September 30, 2004, recorded in the caption Selling and Administrative expenses.





Prior to 2004, the Company accounted for stock-based compensation under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. No stock-based employee compensation expense was reflected in 2003, as all options granted under those plans had an exercise price greater than the fair market value of the underlying equity on the date of grant.


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|Index
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The following table illustrates the effect on net loss if the fair value based method had been applied to all outstanding and unvested awards in each period (in thousands):





|                                                                                         |  | Three Months Ended September 30, 2003 (unaudited) |        | Three Months Ended September 30, 2004 (unaudited) |   | Nine Months Ended September 30, 2003 (unaudited) |   | Nine Months Ended September 30, 2004 (unaudited) |       
|---------------------------------------------------------------------------------------- |  | ------------------------------------------------- | ------ | ------------------------------------------------- | - | ------------------------------------------------ | - | ------------------------------------------------ | ------
|Net loss as reported                                                                     |  | $                                                 | (2,060 | )                                                 | $ | (3,131                                           | ) | $                                                | (3,498
|Add: stock based compensation expense included in reported net loss                      |  |                                                   | -      |                                                   |   | 56                                               |   |                                                  | -     
|                                                                                         |  |                                                   |        |                                                   |   |                                                  |   |                                                  |       
|Less: stock-based compensation expense determined under fair value method for all awards |  |                                                   | 84     |                                                   |   | 56                                               |   |                                                  | 708   
|Pro forma net loss                                                                       |  | $                                                 | (2,144 | )                                                 | $ | (3,131                                           | ) | $                                                | (4,206




|4. | Accrued Revenue
|-- | ---------------




Accrued revenue represents work performed which either due to billing cycles, contract stipulations or lacking contractual documentation requirements, could not be billed. Substantially all unbilled amounts are expected to be billed and collected within one year.





|5. | Debt and Borrowing Arrangements
|-- | -------------------------------




At December 31, 2003 and September 30, 2004, long-term debt consisted of the following (in thousands):








|                                              |  |              |         | September 30, |  
|--------------------------------------------- |  | ------------ | ------- | ------------- | -
|                                              |  | December 31, |         | 2004          |  
|                                              |  | 2003         |         | (unaudited)   |  
|Credit Facility, due 2009                     |  | $            | 123,713 |               | $
|12% Senior Subordinated Notes, due 2012       |  |              | 150,000 |               |  
|13% Intermediate Subordinated Notes, due 2013 |  |              | 40,638  |               |  
|                                              |  |              | 314,351 |               |  
|Less                                          |  |              |         |               |  
|Current portion                               |  |              | 1,250   |               |  
|Unamortized discount                          |  |              | 7,819   |               |  
|                                              |  | $            | 305,282 |               | $




The Credit Facility contains financial and operating covenants, including among other things, that the Company maintain certain financial ratios, and imposes limitations on the Companys ability to make capital expenditures, to incur indebtedness, and to pay dividends. The Company obtained a waiver from the lenders under the Credit Facility from compliance with the minimum interest coverage ratio and the maximum leverage ratio covenants for the period ended September 30, 2004; absent such waiver, the Company would have violated the covenants for this period. The Credit Facility was amended effective November 9, 2004, to reset the minimum interest coverage ratio and maximum leverage ratio covenants through December 31, 2006, and to allow the Company to borrow an additional $25 million in term debt to be used to finance a potential acquisition, if necessary. The Company projects that it will be in compliance with the reset covenants.





For the three months and nine months ended September 30, 2003, the weighted-average interest rate of loans outstanding under the Credit Facility was 5.1% and 5.3%, respectively. For the three months and nine months ended September 30, 2004, the weighted-average interest rate of loans outstanding under the Credit Facility was 4.8% and 4.6%, respectively. The Credit Facility was amended on February 3, 2004. The amendment added an additional $15 million letter of credit facility to total $35 million and lowered the interest rate margin on the term debt by 0.75%.





As of September 30, 2004, JPMP holds $19.2 million of the $44.8 million Intermediate Subordinated Notes.





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|6. | Deferred Revenue
|-- | ----------------




Deferred revenue represents amounts collected from customers at a faster rate than work was performed on these contracts. Substantially all of the costs related to these amounts will be incurred within one year.





|7. | Commitments and Contingencies
|-- | -----------------------------




In the ordinary course of conducting its business, the Company becomes involved in various pending claims and lawsuits. These primarily relate to employee matters. The outcome of these matters is not presently determinable. However, in the opinion of management, based on the advice of legal counsel, the resolution of these matters is not anticipated to have a material adverse effect on the financial position or results of operations of the Company.





|8. | Comprehensive Loss
|-- | ------------------




For the three months ended September 30, 2003 and 2004, comprehensive loss was $2.0 million and $2.3 million, respectively. For the nine months ended September 30, 2003 and 2004, comprehensive loss was $1.3 million and $4.7 million, respectively. The difference between comprehensive loss and net loss is entirely related to currency translation.





|9. | Income Taxes
|-- | ------------




Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and net operating losses. For the nine months ended September 30, 2004, the effective tax rate benefit of 25% is less than the federal statutory rate of 35% primarily due to permanent tax items, the largest of which is a portion of the interest expense on the 13% Intermediate Notes which is not deductible for tax purposes. For the three months ended September 30, 2004, the Company adjusted its effective tax rate from an annualized benefit of 8% to an annualized benefit of 25% due to a revision in the 2004 forecast. This resulted in additional benefit of approximately $0.4 million for the three month period ended September 30, 2004. For the nine months ended September 30, 2004, the benefit for income taxes is primarily attributable to deferred income taxes.





|10. | Acquisitions
|--- | ------------




On June 1, 2004, the Company purchased the assets of Levitator, Inc., a commercial scaffolding company, for an aggregate purchase price of approximately $1.0 million in cash and a $0.4 million note payable. The price was allocated to the assets and liabilities assumed, based on relative fair values. In connection with the acquisition, the Company recorded goodwill of approximately $0.2 million based upon the allocation of the purchase price. The acquisition was accounted for using the purchase method of accounting, and accordingly has been included in the financial statements from the date of the acquisition.





|11. | Supplemental Consolidating Information
|--- | --------------------------------------



The 12% Senior Notes, which are an obligation of Brand Services, Inc. are fully and unconditionally guaranteed on a senior subordinated, joint, and several basis by the other domestic subsidiaries of Brand Intermediate Holdings (which are all 100% owned by Brand Intermediate Holdings) and by Brand Intermediate Holdings, Inc. Supplemental consolidating information of Brand Intermediate Holdings, Inc., Brand Services, Inc., the guarantor subsidiaries, and its foreign non-guarantor subsidiary is presented below. Investments in subsidiaries are presented on the equity method of accounting. Separate financial statements are not provided because management has concluded that the summarized financial information below provides sufficient information to allow investors to separately determine the nature of the assets held by and the operations of the guarantor and non-guarantor subsidiaries.




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**BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**


**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**





Brand Intermediate Holdings, Inc.


Condensed Consolidating Balance Sheet


December 31, 2003





|**Assets**                                     |  | **Brand Services, Inc.** |         | **Guarantor Subsidiaries** |   | **Non-Guarantor Subsidiary** |  | **Brand Intermediate Holdings, Inc.** |        | **Adjustments and Eliminations** |   | **Brand Intermediate Holdings, Inc. Consolidated** | 
|---------------------------------------------- |  | ------------------------ | ------- | -------------------------- | - | ---------------------------- |  | ------------------------------------- | ------ | -------------------------------- | - | -------------------------------------------------- | 
|Current Assets:                                |  |                          |         |                            |   |                              |  |                                       |        |                                  |   |                                                    | 
|Cash and cash equivalents                      |  | $                        | 21,154  |                            | $ | -                            |  | $                                     | 2,236  |                                  | $ | -                                                  | 
|Trade accounts receivable                      |  |                          | -       |                            |   | 52,383                       |  |                                       | 1,622  |                                  |   | -                                                  | 
|Accrued revenue                                |  |                          | -       |                            |   | 3,102                        |  |                                       | 35     |                                  |   | -                                                  | 
|Notes receivable, current portion              |  |                          | 27      |                            |   | 594                          |  |                                       | -      |                                  |   | -                                                  | 
|Other current assets                           |  |                          | 2,491   |                            |   | 6,672                        |  |                                       | 608    |                                  |   | -                                                  | 
|Due from affiliates                            |  |                          | 44,139  |                            |   | 1,409                        |  |                                       | 207    |                                  |   | -                                                  | 
|Total current assets                           |  |                          | 67,811  |                            |   | 64,160                       |  |                                       | 4,708  |                                  |   | -                                                  | 
|Property and Equipment:                        |  |                          |         |                            |   |                              |  |                                       |        |                                  |   |                                                    | 
|Land                                           |  |                          | -       |                            |   | 855                          |  |                                       | 382    |                                  |   | -                                                  | 
|Buildings and leasehold improvements           |  |                          | 11      |                            |   | 2,953                        |  |                                       | 390    |                                  |   | -                                                  | 
|Vehicles and other equipment                   |  |                          | 6,202   |                            |   | 15,618                       |  |                                       | 3,916  |                                  |   | -                                                  | 
|Scaffolding equipment                          |  |                          | 174,752 |                            |   | -                            |  |                                       | 13,737 |                                  |   | -                                                  | 
|Total property and equipment, at cost          |  |                          | 180,965 |                            |   | 19,426                       |  |                                       | 18,425 |                                  |   | -                                                  | 
|Less accumulated depreciation and
amortization |  |                          | 26,066  |                            |   | 8,681                        |  |                                       | 5,110  |                                  |   | -                                                  | 
|Total property and equipment, net              |  |                          | 154,899 |                            |   | 10,745                       |  |                                       | 13,315 |                                  |   | -                                                  | 
|Due from affiliates                            |  |                          | 9,750   |                            |   | -                            |  |                                       | -      |                                  |   | 40,894                                             | 
|Deferred tax asset                             |  |                          | -       |                            |   | -                            |  |                                       | -      |                                  |   | 2,375                                              | 
|Investment in subsidiaries                     |  |                          | -       |                            |   | -                            |  |                                       | -      |                                  |   | 211,900                                            | 
|Goodwill                                       |  |                          | 248,347 |                            |   | -                            |  |                                       | -      |                                  |   | -                                                  | 
|Customer relationships                         |  |                          | 48,286  |                            |   | -                            |  |                                       | -      |                                  |   | -                                                  | 
|Intangibles and other assets                   |  |                          | 23,828  |                            |   | -                            |  |                                       | -      |                                  |   | 955                                                | 
|Total assets                                   |  | $                        | 552,921 |                            | $ | 74,905                       |  | $                                     | 18,023 |                                  | $ | 256,124                                            | 




|
|
|
|

|Index
|-----

**BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**


**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**





|Brand Intermediate Holdings, Inc.                            |     
|------------------------------------------------------------ | ----
|Condensed Consolidating Balance Sheet                        |     
|December 31, 2003 (continued)                                |     
|**Liabilities and Stockholders Equity**
**(Deficit)**       | ****
|Current Liabilities:                                         |     
|Current maturities of long-term debt                         |     
|Notes payable and capital lease
obligations, current portion |     
|Accounts payable and accrued expenses                        |     
|Deferred revenue                                             |     
|Due to affiliates                                            |     
|Total current liabilities                                    |     
|Long-term debt                                               |     
|Notes payable and capital lease obligations                  |     
|Deferred income taxes                                        |     
|Due to affiliates                                            |     
|                                                             |     
|Total stockholders equity (deficit)                         |     
|Total liabilities and stockholders equity                   |     




|
|
|
|

|Index
|-----

**BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**


**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**





|Brand Intermediate Holdings, Inc.              | 
|---------------------------------------------- | 
|Condensed Consolidating Balance Sheet          | 
|September 30, 2004                             | 
|                                               | 
|**Assets**                                     | 
|Current Assets:                                | 
|Cash and cash equivalents                      | 
|Trade accounts receivable                      | 
|Accrued revenue                                | 
|Notes receivable, current portion              | 
|Other current assets                           | 
|Due from affiliates                            | 
|Total current assets                           | 
|Property and Equipment:                        | 
|Land                                           | 
|Buildings and leasehold improvements           | 
|Vehicles and other equipment                   | 
|Scaffolding equipment                          | 
|Total property and equipment, at cost          | 
|Less accumulated depreciation and amortization | 
|Total property and equipment, net              | 
|Due from affiliates                            | 
|Deferred tax asset                             | 
|Investment in subsidiaries                     | 
|Goodwill                                       | 
|Customer relationships                         | 
|Intangibles and other assets                   | 
|Total assets                                   | 




|
|
|
|

|Index
|-----

**BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**


**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**





|Brand Intermediate Holdings, Inc.                            | 
|------------------------------------------------------------ | 
|Condensed Consolidating Balance Sheet                        | 
|September 30, 2004 (Continued)                               | 
|                                                             | 
|**Liabilities and Stockholders Equity (Deficit)**           | 
|Current Liabilities:                                         | 
|Current maturities of long-term debt                         | 
|Notes payable and capital lease obligations, current portion | 
|Accounts payable and accrued expenses                        | 
|Deferred revenue                                             | 
|Due to affiliates                                            | 
|Total current liabilities                                    | 
|Long-term debt                                               | 
|Notes payable and capital lease obligations                  | 
|Deferred income taxes                                        | 
|Due to affiliates                                            | 
|                                                             | 
|Total stockholders equity (deficit)                         | 
|Total liabilities and stockholders equity                   | 




|
|
|
|

|Index
|-----

**BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**


**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**





|Brand Intermediate Holdings, Inc.               | 
|----------------------------------------------- | 
|Condensed Consolidating Statement of Operations | 
|For the Three Months Ended September 30, 2003   | 
|                                                | 
|                                                | 
|Revenue:                                        | 
|Labor                                           | 
|Equipment rental                                | 
|Equipment sales                                 | 
|Intercompany revenue                            | 
|Total revenues                                  | 
|Operating expenses:                             | 
|Labor                                           | 
|Equipment rental                                | 
|Equipment sales                                 | 
|Divisional operating expenses                   | 
|Intercompany operating expenses                 | 
|Total operating expenses                        | 
|Gross profit                                    | 
|Selling and administrative expenses             | 
|Operating income (loss)                         | 
|Interest expense                                | 
|Interest income                                 | 
|Intercompany interest                           | 
|Equity in loss (income) of subsidiaries         | 
|                                                | 
|Income (loss) before provision for income tax   | 
|                                                | 
|Provision (benefit) for income tax              | 
|                                                | 
|Net income (loss)                               | 




|
|
|
|

|Index
|-----

**BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**


**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**





|Brand Intermediate Holdings, Inc.               | 
|----------------------------------------------- | 
|Condensed Consolidating Statement of Operations | 
|For the Three Months Ended September 30, 2004   | 
|                                                | 
|                                                | 
|Revenue:                                        | 
|Labor                                           | 
|Equipment rental                                | 
|Equipment sales                                 | 
|Intercompany revenue                            | 
|Total revenues                                  | 
|Operating expenses:                             | 
|Labor                                           | 
|Equipment rental                                | 
|Equipment sales                                 | 
|Divisional operating expenses                   | 
|Intercompany operating expenses                 | 
|Total operating expenses                        | 
|Gross profit (loss)                             | 
|Selling and administrative expenses             | 
|Operating income (loss)                         | 
|Interest expense                                | 
|Interest income                                 | 
|Intercompany interest                           | 
|Equity in loss (income) of subsidiaries         | 
|                                                | 
|Income (loss) before provision for              | 
|income tax                                      | 
|Provision (benefit) for income tax              | 
|                                                | 
|Net income (loss)                               | 

|
|
|
|

|Index
|-----

**BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**


**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**





|Brand Intermediate Holdings, Inc.               | 
|----------------------------------------------- | 
|Condensed Consolidating Statement of Operations | 
|For the Nine Months Ended September 30, 2003    | 
|                                                | 
|                                                | 
|Revenue:                                        | 
|Labor                                           | 
|Equipment rental                                | 
|Equipment sales                                 | 
|Intercompany revenue                            | 
|Total revenues                                  | 
|Operating expenses:                             | 
|Labor                                           | 
|Equipment rental                                | 
|Equipment sales                                 | 
|Divisional operating expenses                   | 
|Intercompany operating expenses                 | 
|Total operating expenses                        | 
|Gross profit                                    | 
|Selling and administrative expenses             | 
|Operating income (loss)                         | 
|Interest expense                                | 
|Interest income                                 | 
|Intercompany interest                           | 
|Equity in loss (income) of subsidiaries         | 
|                                                | 
|Income (loss) before provision for              | 
|income tax                                      | 
|Provision (benefit) for income tax              | 
|                                                | 
|Net income (loss)                               | 




|
|
|
|

|Index
|-----

**BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**


**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**





|Brand Intermediate Holdings, Inc.               | 
|----------------------------------------------- | 
|Condensed Consolidating Statement of Operations | 
|For the Nine Months September 30, 2004          | 
|                                                | 
|                                                | 
|Revenue:                                        | 
|Labor                                           | 
|Equipment rental                                | 
|Equipment sales                                 | 
|Intercompany revenue                            | 
|Total revenues                                  | 
|Operating expenses:                             | 
|Labor                                           | 
|Equipment rental                                | 
|Equipment sales                                 | 
|Divisional operating expenses                   | 
|Intercompany operating expenses                 | 
|Total operating expenses                        | 
|Gross profit (loss)                             | 
|Selling and administrative expenses             | 
|Operating income (loss)                         | 
|Interest expense                                | 
|Interest income                                 | 
|Intercompany interest                           | 
|Equity in loss (income) of subsidiaries         | 
|                                                | 
|Income (loss) before provision for income tax   | 
|                                                | 
|Provision (benefit) for income tax              | 
|                                                | 
|Net income (loss)                               | 




|
|
|
|

|Index
|-----

**BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**


**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**





|Brand Intermediate Holdings, Inc.                    | 
|---------------------------------------------------- | 
|Condensed Consolidating Statement of Cash Flows      | 
|For the Nine Months Ended September 30, 2003         | 
|                                                     | 
|                                                     | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                | 
|                                                     | 
|Net cash provided by (used for) operating activities | 
|                                                     | 
|CASH FLOWS FROM INVESTING ACTIVITIES:                | 
|                                                     | 
|Purchases of property and equipment                  | 
|Proceeds from sales of property and equipment        | 
|Net cash used for investing activities               | 
|                                                     | 
|CASH FLOWS FROM FINANCING ACTIVITIES:                | 
|                                                     | 
|Payments of long-term debt                           | 
|Payments on capital lease obligations                | 
|Net cash used for financing activities               | 
|                                                     | 
|INCREASE (DECREASE) IN CASH AND CASHEQUIVALENTS      | 
|                                                     | 
|CASH AND CASH EQUIVALENTS, beginning of period       | 
|                                                     | 
|CASH AND CASH EQUIVALENTS, end of period             | 




|
|
|
|

|Index
|-----

**BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**


**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**





|Brand Intermediate Holdings, Inc.                    | 
|---------------------------------------------------- | 
|Condensed Consolidating Statement of Cash Flows      | 
|For the Nine Months Ended September 30, 2004         | 
|                                                     | 
|                                                     | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                | 
|                                                     | 
|Net cash provided by (used for) operating activities | 
|                                                     | 
|CASH FLOWS FROM INVESTING ACTIVITIES:                | 
|                                                     | 
|Purchases of property and equipment                  | 
|Proceeds from sales of property and equipment        | 
|Payments for acquisitions                            | 
|Net cash used for investing activities               | 
|                                                     | 
|CASH FLOWS FROM FINANCING ACTIVITIES:                | 
|                                                     | 
|Payments of long-term debt                           | 
|Payments of deferred financing fees                  | 
|Payments on capital lease obligations                | 
|Net cash used for financing activities               | 
|                                                     | 
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     | 
|                                                     | 
|CASH AND CASH EQUIVALENTS, beginning of period       | 
|                                                     | 
|CASH AND CASH EQUIVALENTS, end of period             | 




|
|
|
|

|Index
|-----



ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 The matters discussed in this Form 10-Q of Brand Intermediate Holdings, Inc. and subsidiaries (the "Company") contain forward looking statements that involve a number of risks and uncertainties. A number of factors could cause actual results, performance, achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, the competitive environment in the industrial and commercial scaffolding industry in general and in the Companys specific market areas; changes in prevailing interest rates and the availability of and terms of financing to fund the anticipated growth of the Companys business; inflation; changes in costs of goods and services; economic conditions in general and in the Companys specific market areas; demographic changes; changes in or failure to comply with federal, state and/or local government regulations; liability and other claims asserted against the Company; changes in operating strategy or development plans; the ability to attract and retain qualified personnel; the significant indebtedness of the Company; labor disturbances; changes in the Companys acquisition and capital expenditure plans; and other factors referenced herein. The forward looking statements contained herein reflect the Companys current beliefs and specific assumptions with respect to future business decisions and are based on information currently available. Accordingly, the statements are subject to significant risks, uncertainties and contingencies, which could cause the Companys actual operating results, performance or business prospects to differ from those expressed in, or implied by, these statements.
 
 The following discussion and analysis should be read in conjunction with the attached condensed consolidated financial statements and notes thereto.
 
 Overview
  The Company is the largest North American provider of industrial scaffolding services which facilitate access to tall structures for maintenance, turnarounds and capital projects, principally in the refining, petrochemical, chemical, utility and pulp and paper industries. The Company provides turnkey services, which include equipment rental, labor for the erection and dismantlement of the scaffolding and scaffolding design services. The Company also provides scaffolding services to the commercial market (primarily nonresidential construction and renovation) and sells a small amount of scaffolding.
 
 The Company typically provides on-going maintenance services under long-term contracts; the duration of these contracts is usually one to five years. Turnarounds occur every one to four years depending on the industry and the type of turnaround being performed. Although some turnarounds may be postponed for a period of time, they are a necessary component of maintaining industrial facilities and are required to ensure the safe and efficient operation of such facilities. While the postponement of scheduled turnarounds causes fluctuations in the Companys quarterly and annual results, the Company believes the necessity for on-going maintenance and turnarounds provides a stable, recurring revenue base.
 
 The Companys business is seasonal. End-use industries such as the refining and utility industries experience increased demand for their products during the summer months. Consequently, turnarounds are generally scheduled during the first and fourth quarters of the year.
  The Company has in the past completed strategic acquisitions and it intends to continue to pursue complementary acquisitions where significant consolidation savings and economies of scale can be achieved. The scaffolding industry is characterized by single-office or regional companies, many of which are undercapitalized and have limited scaffolding inventories. The Company intends to focus its acquisition strategy on companies that have an expertise in a certain industry or scaffolding applications.
 
 Brand Intermediate Holdings, Inc. and its subsidiaries ("Brand") are 100% owned by Brand Holdings LLC (the "LLC"). As of September 30, 2004, the voting equity interests of the LLC are owned 74.2% by J.P. Morgan Partners and its affiliates ("JPMP") and 25.8% by other equity investors on a fully diluted basis. Brand Services, Inc. is a wholly owned subsidiary of Brand Intermediate Holdings, Inc. and its subsidiaries.
 
 
 Results of Operations
 
 Revenue - Total revenue for the three months ended September 30, 2004 decreased by $8.1 million or 10.2% as compared to the similar prior year period, primarily due to a decrease in the Refinery and Chemical sector of $11.6 million. This decrease is primarily due to some refineries delaying maintenance work to take advantage of high gasoline prices in the marketplace. This decrease was slightly offset by small increases in the commercial and other industrial sectors. Total revenue for the nine months ended September 30, 2004 decreased by $19.7 million or 7.4% compared to the nine months ended September 30, 2003. The biggest factor in the decrease was a $28.5 million decrease in the utility capital sector, much of which was anticipated, due to large projects in the Northeast and West Coast that were completed in the first half of 2003. This decrease was partially offset by increases in the commercial and other industrial sectors.
 -21- Index
 
 Gross profit - Gross profit decreased by $0.5 million, or 3.3% in the three months ended September 30, 2004 as compared to the three months ended September 30, 2003. Labor gross profit declined $0.3 million primarily due to a $6.7 million decrease in labor revenues. The percentage of labor gross profit to labor revenues increased to 18.4% for the three months ended September 30, 2004 compared to 17.0% for the similar prior year period, primarily due to lower insurance claims costs. Equipment rental gross profit increased $0.1 million, despite a $1.4 million decrease in rental revenue. The primary reason for this is a $1.6 million decrease in depreciation expense that resulted from groups of assets that became fully depreciated at the end of 2003. An increase in divisional operating expenses of $0.4 million also contributed to the decline in gross profit for the quarter. For the nine months ended September 30, 2004, gross profit decreased by $0.5 million as compared to the nine months ended September 30, 2003. Labor gross profit declined $1.6 million primarily due to a $13.5 million decrease in labor revenues. The percentage of labor gross profit to labor revenues improved to 18.0% for the nine months ended September 30, 2004 compared to 17.6% for the similar prior year period. Equipment rental gross profit increased $1.7 million despite a $5.8 million decrease in rental revenue. The primary reason for the increase is due to a $7.6 million decrease in depreciation expense that resulted from groups of assets that became fully depreciated at the end of 2003. An increase in divisional operating expenses of $0.7 million accounts for the remainder of the decrease in gross profit.
 
 Selling and administrative expenses - Selling and administrative expenses increased by $0.4 million and $0.1 million, respectively, in the three- and nine-month periods ended September 30, 2004 as compared to the similar prior year periods. For both periods the increase is primarily due to higher salaries and benefits expense as well as small increases in a number of miscellaneous areas, partially offset by lower depreciation expense.
 
 Operating income - As a result of the above events, operating income decreased by $0.9 million, or 18.6%, when comparing the three-month period ended September 30, 2004 with the similar prior year period. Operating income decreased by $0.6 million, or 3.2%, when comparing the nine-month period ended September 30, 2004 with the similar prior year period.
 
 Interest expense - Interest expense increased by $0.6 million and $0.9 million, respectively, in the three- and nine-month periods ended September 30, 2004 as compared to the similar prior year periods. For both periods the increase was primarily due to the impact of bank fees paid associated with obtaining waivers and amendments to our credit agreement debt covenants and the compounding effect of interest on the 13% pay-in-kind notes. These increases were partially offset by the impact of lower senior debt levels due to debt prepayments made in December of 2003 and March of 2004.
 
 Income tax provision - The income tax benefit of $1.7 million for the nine months ended September 30, 2004, represents an effective rate of 25%. This effective rate is the result of the blended net losses at our domestic subsidiaries and net income at our foreign subsidiary. The rate is less than the federal statutory rate of 35% primarily due to permanent tax items, the largest of which is a portion of the interest expense on the 13% Intermediate Notes which is not deductible for tax purposes. For the three months ended September 30, 2004, the Company adjusted its effective tax rate from an annual benefit of 8% to an annual benefit of 25% due to a revision in the 2004 forecast. This resulted in additional benefit of approximately $0.4 million for the three month period ended September 30, 2004.
 
 
 Liquidity and Capital Resources
 
 The Company has historically utilized internal cash flow from operations and borrowings under its Credit Facility to fund its operations, capital expenditures and working capital requirements. As of December 31, 2003 and September 30, 2004, the Company had cash of $23.1 million and $25.5 million, respectively.
  The Company believes that its existing working capital, borrowings available under its Credit Facility and internal cash flow from operations should provide sufficient resources to support current business activities. To the extent the Company accelerates its growth plans, consummates acquisitions or has lower than anticipated sales or increases in expenses, it may also need to raise additional capital. In particular, increased working capital needs occur whenever the Company consummates acquisitions or experiences strong incremental demand.
 
 One of the Companys major uses of cash is capital expenditures. The Companys capital expenditure requirements are comprised of maintenance and expansion expenditures. The Companys maintenance capital expenditure requirements are generally for scaffolding planks and other items used in the business, such as trucks and equipment. Expansion capital expenditures are for new scaffolding and vehicles, are discretionary and vary annually based on the Companys level of scaffolding rental activity and managements growth expectations. During the nine months ended September 30, 2003 and 2004, capital expenditures were $9.4 million and $9.9 million, respectively.
 
 -22- Index
 Our Credit Facility (the "Credit Facility") provides for $130.0 million of term loans, a $50.0 million revolving loan facility and $35.0 million letter of credit facilities. Up to $20.0 million of the $50.0 million revolving loan facility may be used for letters of credit. The Credit Facility was amended on February 3, 2004. The amendment increased the letter of credit facilities from $20 million to $35 million and lowered the interest rate margin on the term loans by 0.75%. As of September 30, 2004, the Company had no borrowings outstanding under the revolving credit facility and had total outstanding letters of credit of $35.1 million.
 
 The Credit Facility contains financial and operating covenants, including among other things, that the Company maintain certain financial ratios, and imposes limitations on the Companys ability to make capital expenditures, to incur indebtedness, and to pay dividends. The Company obtained a waiver from the lenders under the Credit Facility from compliance with the minimum interest coverage ratio and the maximum leverage ratio covenants  for the period ended September 30, 2004; absent such waver, the Company would have violated the covenants for this period. The Credit Facility was amended effective November 9, 2004, to reset the minimum interest coverage ratio and maximum leverage ratio covenants through December 31, 2006, and to allow the Company to borrow an additional $25 million in term debt to be used to finance a potential acquisition, if necessary. The Company projects that it will be in compliance with the reset covenants.
 
 The interest rate on the $103.1 million of term loans currently outstanding under the Credit Facility is variable. For the three months and nine months ended September 30, 2004, the weighted average interest rate on the term loans was 4.8% and 4.6%, respectively.
 
 We are required to make semi-annual interest payments on our 12%, $150.0 million Senior Subordinated Notes in the amount of $9.0 million in April and October of every year until the Senior Notes mature in October 2012. We are also required to make quarterly interest payments on loans under our Credit Facility, which bears interest at a floating rate based upon either the base rate (as defined in our credit agreement, for base rate loans) or the LIBOR rate (for LIBOR loans) plus a spread of 2.5% to 4.0%, depending on the ratio of our consolidated debt to EBITDA. As of September 30, 2004, the interest rate on our term loans was 4.9%. We are not required to make interest payments on our 13%, $35.0 million Intermediate Notes until 2008, as these notes are pay-in-kind notes.


A summary of the sources and uses of cash for the nine months ended September 30, 2003 and 2004, follows:





|                                 |  | Nine Months Ended September 30, |       
|-------------------------------- |  | ------------------------------- | ------
|                                 |  | 2003                            |       
|Net cash provided by (used for): |  |                                 |       
|Operating activities             |  | $                               | 36,626
|Investing activities             |  |                                 | (8,183
|Financing activities             |  |                                 | (2,236




|
|
|
|

|Index
|-----

Contractual Obligations





The following is a summary of contractual cash obligations as of September 30, 2004 (dollars in thousands):





Payments due in:





|                                                     |  | Total |         | 2004 |   | 2005   |  | 2006 |        | 2007 |   | 2008   |  | After 2008 |       
|---------------------------------------------------- |  | ----- | ------- | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | ---------- | ------
|Term Loan                                            |  | $     | 102,877 |      | $ | 262    |  | $    | 1,047  |      | $ | 1,047  |  | $          | 1,047 
|Expected Interest Payments
on Term Loan (1)          |  |       | 24,326  |      |   | 1,310  |  |      | 5,207  |      |   | 5,153  |  |            | 5,100 
|Senior Notes                                         |  |       | 150,000 |      |   | -      |  |      | -      |      |   | -      |  |            | -     
|Expected Interest Payments
on Senior Notes           |  |       | 153,000 |      |   | 9,000  |  |      | 18,000 |      |   | 18,000 |  |            | 18,000
|Intermediate Notes                                   |  |       | 44,786  |      |   | -      |  |      | -      |      |   | -      |  |            | -     
|Expected Interest Payments
on Intermediate Notes (2) |  |       | 72,895  |      |   | -      |  |      | -      |      |   | -      |  |            | -     
|Capital Leases                                       |  |       | 221     |      |   | 29     |  |      | 95     |      |   | 92     |  |            | 5     
|Operating Leases                                     |  |       | 8,167   |      |   | 752    |  |      | 2,553  |      |   | 2,118  |  |            | 1,529 
|Notes Payable                                        |  |       | 725     |      |   | 165    |  |      | 244    |      |   | 79     |  |            | 79    
|Total Contractual Cash Obligations                   |  | $     | 556,997 |      | $ | 11,518 |  | $    | 27,146 |      | $ | 26,489 |  | $          | 25,760




|(1) | The interest rate on the Term Loan is floating. For purposes of this schedule, we are using the prevailing interest rates at 9/30/04 to calculate the estimated interest payments for all future periods.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|(2) | The Intermediate Notes are pay-in-kind notes; interest payments are not required to be made in cash until 2008.
|--- | ---------------------------------------------------------------------------------------------------------------




Critical Accounting Policies





Certain of our accounting policies as discussed below require the application of significant judgement by management in selecting the appropriate assumptions for calculating amounts to record in our financial statements. By their nature, these judgements are subject to an inherent degree of uncertainty.





Labor revenues are recognized when the services are performed. Equipment rental revenue is recognized based on the number of days the equipment is rented beginning with the first day the equipment is under rental. The Company periodically sells new scaffolding directly to third parties. The Company recognizes revenue upon shipment and records as operating expense, the average cost of the scaffolding sold. The Company periodically sells scaffolding to third parties, primarily to its rental customers. The Company recognizes revenue for the proceeds of such sales and records as operating expense, the net book value of the scaffolding. Net book value is determined assuming the oldest scaffolding is sold first, as the Company maintains inventory records on a group basis.





As part of our ongoing business, we make payments for workers compensation and health benefit claims. We have purchased insurance coverage for large claims. Our workers compensation and health benefit liabilities are developed using actuarial methods based upon historical data for payment patterns, cost trends, utilization of healthcare services and other relevant factors. These estimates take into account incurred but not reported (IBNR) claims. While we believe our liabilities for workers compensation, general liability, automobile, and health benefit claims of $14.3 million as of September 30, 2004, are adequate and that the judgement applied is appropriate, such estimated liabilities could differ materially from what will actually transpire in the future.





The Company accounts for its long-lived assets excluding goodwill and tradenames, in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, which requires the Company to assess the recoverability of these assets when events or changes in circumstances indicate that the carrying amount of the long-lived asset (group) might not be recoverable. If impairment indicators exist, the Company determines whether the projected undiscounted cash flows will be sufficient to cover the carrying value of such assets. This requires the Company to make significant judgements about the expected future cash flows of the asset group. The future cash flows are dependent on general and economic conditions and are subject to change.





-24- Index


T he Company accounts for its goodwill and tradenames in accordance with SFAS No. 142, which requires the Company to test goodwill and tradenames for impairment annually and whenever events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. For purposes of applying the provisions, the Company has determined that it will perform its impairment analysis on a consolidated enterprise level. Because quoted market prices do not exist for the Company, management uses the present value of expected future cash flows to estimate fair value. Management must make significant judgements and estimates about future conditions to estimate future cash flows. Unforeseen events and changes in circumstances and market conditions including general economic and competitive conditions, could result in significant changes in those estimates and material charges to income.





Change in Accounting Principle





Effective January 1, 2004, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". The Company selected the modified prospective transition method under the provisions of SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," which requires expensing options prospectively, beginning in the year of adoption. The Company expensed $56,000 and $145,000, respectively, for the three- and nine-month periods ended September 30, 2004, recorded in the caption Selling and Administrative expenses.





Prior to 2004, the Company accounted for stock-based compensation under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. No stock-based employee compensation expense was reflected in 2003, as all options granted under those plans had an exercise price greater than the fair market value of the underlying equity on the date of grant.





Acquisitions





On June 1, 2004, the Company purchased the assets of Levitator, Inc., a commercial scaffolding company, for an aggregate purchase price of $1.0 million in cash and a $0.4 million note payable. The price was allocated to the assets and liabilities assumed, based on relative fair values. In connection with the acquisition, the Company recorded goodwill of $0.2 million based upon the allocation of the purchase price. The acquisition was accounted for using the purchase method of accounting, and accordingly has been included in the financial statements from the date of the acquisition





|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------



The Company is exposed to market risk from changes in interest rates and foreign exchange rates. The Companys net exposure to interest rate risk consists of variable-rate instruments based on LIBOR.




|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------




An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the quarter covered by this report. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the company's disclosure controls and procedures are effective to ensure that information required to be disclosed by our company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no changes in the internal control over financial reporting that occurred during the second quarter of 2004 that have materially affected, or are likely to materially affect, our internal control over financial reporting.


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|Index
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|PART II - | OTHER INFORMATION
|--------- | -----------------




|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------




From time to time, the Company is subject to legal proceedings and other claims arising in the ordinary course of its business. There are no material pending legal proceedings, other than routine litigation incidental to the business, to which the Company is a party or of which any of the Companys property is the subject.





|ITEM 2. | CHANGES IN SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------




None.





|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------




None.





|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------




None.





|ITEM 5. | OTHER INFORMATION
|------- | -----------------




None.





|ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K
|------- | --------------------------------




|(a) | Exhibits
|--- | --------






10.1
Amendment No. 2 and Limited Waiver No. 3 to Credit Agreement, dated as of November 9, 2004, and entered into by and among Brand Services, Inc., the guarantors party thereto, the lenders party thereto, and Credit Suisse First Boston Corporation, as Administrative Agent.


|31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|---- | --------------------------------------------------------------------------------------------------




|31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|---- | --------------------------------------------------------------------------------------------------




|32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|---- | --------------------------------------------------------------------------------------------------




|32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|---- | --------------------------------------------------------------------------------------------------




|(b) | Reports on Form 8-K
|--- | -------------------




None.


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|Index
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SIGNATURES





Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.









**BRAND INTERMEDIATE HOLDINGS, INC.**Date: November 15, 2004
By:
/s/ John M. MonterTitle:  Chief Executive Officer, President




**BRAND INTERMEDIATE HOLDINGS, INC.**Date: November 15, 2004
By:
/s/ Jeffrey W. PetersonTitle:  Chief Financial Officer and Vice President, Finance