**Form 10-Q**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

----

 

**ý****  QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended March 31, 2006**

 

**OR**

 

**o****  TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from               to               **

 

**CommissionFile Number 333-102511**

 

**BRANDENERGY & INFRASTRUCTURE SERVICES, INC.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                                     | ** ** | **13-3909682**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                                             |       |                                  |
| **2505  South Main Street Kennesaw, GA**                         | ** ** | **30144**                             |
| (Address of  principal executive offices)                        |       | (Zip Code)                            |

#  

# Registrant’s telephonenumber, including area code:  **(770) 514-1411**

#  

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes:  oNo:  ý

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. See definitionof “accelerated filer and large accelerated filer” in Rule 12b-2 of theExchange Act. (Check one):

 
| Large  accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer ý |
|----------------------------|--------|----------------------|--------|-------------------------------|

 

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct). Yes:  o No:  ý

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date.

 

| **Class of  common stock** | ** ** | **Outstanding  at April 30, 2006** |
|----------------------------|------------|------------------------------------|
| $.01 par value             |       | 1,000 shares                       |

 

 

----

 

INDEX

 
| PART I – FINANCIAL INFORMATION |                                                                                                 |
|-------------------------------------|------------------------------------------------------------------------------------------------------|
|                                |                                                                                                 |
| Item 1.                             | Financial Statements                                                                                 |   |
|                                |                                                                                                 |   |
|                                | Unaudited Consolidated Income  Statements for the Three  Months Ended March 31, 2005 and 2006        |   |
|                                |                                                                                                 |   |
|                                | Consolidated Balance Sheets as of  December 31, 2005 and  March 31, 2006 (unaudited)                 |   |
|                                |                                                                                                 |   |
|                                | Unaudited Consolidated Statements  of Cash Flows for the  Three Months Ended March 31, 2005 and 2006 |   |
|                                |                                                                                                 |   |
|                                | Notes to the Consolidated  Financial Statements                                                      |   |
|                                |                                                                                                 |   |
| Item  2.                            | Management’s  Discussion and Analysis of Financial  Condition and Results of Operations         |   |
|                                |                                                                                                 |   |
| Item  3.                            | Quantitative  and Qualitative Disclosures About Market Risk                                          |   |
|                                |                                                                                                 |   |
| Item  4.                            | Controls and  Procedures                                                                             |   |
|                                |                                                                                                 |   |
| PART II – OTHER  INFORMATION   |                                                                                                 |
|                                |                                                                                                 |
| Item 1.                             | Legal Proceedings                                                                                    |   |
|                                |                                                                                                 |   |
| Item 1A.                            | Risk Factors                                                                                         |   |
|                                |                                                                                                 |   |
| Item  2.                            | Unregistered  Sales of Equity Securities and Use of Proceeds                                         |   |
|                                |                                                                                                 |   |
| Item  3.                            | Defaults  Upon Senior Securities                                                                     |   |
|                                |                                                                                                 |   |
| Item  4.                            | Submission  of Matters to a Vote of Security Holders                                                 |   |
|                                |                                                                                                 |   |
| Item 5.                             | Other Information                                                                                    |   |
|                                |                                                                                                 |   |
| Item 6.                             | Exhibits                                                                                             |   |
|                                |                                                                                                 |   |
| SIGNATURES                          |                                                                                                 |

 

2

----

 

PART I.FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

 

BRAND ENERGY & INFRASTRUCTURE SERVICES, INC. ANDSUBSIDIARIESConsolidated Income statements(In thousands)(Unaudited)

 
| ** **                                             | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                             | ** ** | **2005**                                                           | ** ** | **2006** | ** ** |
|                                                   |       |                                                               |       |   |   |
| Revenues:                                              |       |                                                               |       |   |   |
| Labor                                                  |       | $                                                                  | 77,324     |   | $ | 137,619 |   |
| Equipment rental                                       |       | 18,870                                                             |       | 48,434 |   |
| Equipment sales                                        |       | 2,058                                                              |       | 11,139 |   |
| Total revenues                                         |       | 98,252                                                             |       | 197,192 |   |
| Operating  expenses:                                   |       |                                                               |       |   |   |
| Labor                                                  |       | 63,728                                                             |       | 118,735 |   |
| Equipment rental                                       |       | 6,600                                                              |       | 13,825 |   |
| Equipment sales                                        |       | 1,423                                                              |       | 7,120 |   |
| Divisional  operating expenses                         |       | 4,120                                                              |       | 8,500 |   |
| Total operating  expenses                              |       | 75,871                                                             |       | 148,180 |   |
| Gross profit                                           |       | 22,381                                                             |       | 49,012 |   |
| Selling and  administrative expenses                   |       | 13,097                                                             |       | 28,860 |   |
| Non-cash  compensation                                 |       | 603                                                                |       | 78 |   |
| Operating income                                       |       | 8,681                                                              |       | 20,074 |   |
| Interest expense                                       |       | 8,418                                                              |       | 12,360 |   |
| Interest income                                        |       | (99                                                                | )          | (176 | ) |
| Foreign currency  loss                                 |       | —                                                             |       | 151 |   |
| Gain on interest  rate and foreign currency rate swaps |       | —                                                             |       | (924 | ) |
| Redeemable  preferred stock dividend expense           |       | —                                                             |       | 1,455 |   |
| Income before  provision for income tax                |       | 362                                                                |       | 7,208 |   |
| Income tax  provision                                  |       | 285                                                                |       | 3,548 |   |
| Net income                                             |       | $                                                                  | 77         |   | $ | 3,660 |   |

 

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

 

3

----

 

BRAND ENERGY & INFRASTRUCTURE SERVICES, INC. ANDSUBSIDIARIESConsolidated Balance Sheets(In thousands)

 
| ** **                                                                                               | ** ** | **December 31,  2005** | ** ** | **March 31, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                                                                               | ** ** | ** **                  | ** ** | **(unaudited)**              | ** ** |
| ASSETS                                                                                                   | ** ** | ** **                  | ** ** | ** **                   | ** ** |
|                                                                                                     |       |                        |       |                         |       |
| CURRENT ASSETS:                                                                                          |       |                        |       |                         |       |
| Cash and cash  equivalents                                                                               |       | $                           | 6,310      |                         | $          | 3,789 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $6,364 in 2005 and  $6,745 in 2006 |       | 117,207                     |       | 129,680                      |       |
| Accrued revenue                                                                                          |       | 6,292                       |       | 16,790                       |       |
| Other current  assets                                                                                    |       | 12,594                      |       | 15,315                       |       |
|                                                                                                     |       |                        |       |                         |       |
| Total current  assets                                                                                    |       | 142,403                     |       | 165,574                      |       |
|                                                                                                     |       |                        |       |                         |       |
| PROPERTY AND  EQUIPMENT:                                                                                 |       |                        |       |                         |       |
| Land                                                                                                     |       | 5,190                       |       | 5,188                        |       |
| Buildings and  leasehold improvements                                                                    |       | 6,278                       |       | 6,388                        |       |
| Vehicles and  other equipment                                                                            |       | 29,997                      |       | 30,878                       |       |
| Scaffolding  equipment                                                                                   |       | 309,387                     |       | 323,558                      |       |
|                                                                                                     |       |                        |       |                         |       |
| Total property  and equipment, at cost                                                                   |       | 350,852                     |       | 366,012                      |       |
| Less–Accumulated  depreciation and amortization                                                     |       | 74,232                      |       | 83,482                       |       |
|                                                                                                     |       |                        |       |                         |       |
| Total property  and equipment, net                                                                       |       | 276,620                     |       | 282,530                      |       |
|                                                                                                     |       |                        |       |                         |       |
| GOODWILL                                                                                                 |       | 292,601                     |       | 292,646                      |       |
|                                                                                                     |       |                        |       |                         |       |
| OTHER ASSETS AND  INTANGIBLES                                                                            |       | 111,447                     |       | 109,017                      |       |
|                                                                                                     |       |                        |       |                         |       |
| TOTAL ASSETS                                                                                             |       | $                           | 823,071    |                         | $          | 849,767 |   |

 

4

----

 

BRANDENERGY & INFRASTRUCTURE SERVICES, INC. AND SUBSIDIARIESConsolidatedBalance Sheets(In thousands except share and per share amounts)

 
| ** **                                                                      | ** ** | **December 31,  2005** | ** ** | **March 31,  2006** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| ** **                                                                      | ** ** | ** **                  | ** ** | **(unaudited)**          | ** ** |
| LIABILITIES AND  STOCKHOLDER’S EQUITY                                      |       |                        |       |                     |       |
|                                                                            |       |                        |       |                     |       |
| CURRENT  LIABILITIES:                                                           |       |                        |       |                     |       |
| Short-term bank  borrowings                                                     |       | $                           | —     |                     | $          | 13,500 |   |
| Current  maturities of long-term debt                                           |       | 2,904                       |       | 2,903                    |       |
| Notes payable  and capital lease obligations, current portion                   |       | 370                         |       | 356                      |       |
| Accounts payable  and accrued expenses                                          |       | 79,585                      |       | 84,678                   |       |
| Deferred revenue                                                                |       | 3,034                       |       | 3,263                    |       |
|                                                                            |       |                        |       |                     |       |
| Total current  liabilities                                                      |       | 85,893                      |       | 104,700                  |       |
| LONG-TERM DEBT                                                                  |       | 481,694                     |       | 482,692                  |       |
|                                                                            |       |                        |       |                     |       |
| NOTES PAYABLE  AND CAPITAL LEASE OBLIGATIONS                                    |       | 458                         |       | 411                      |       |
|                                                                            |       |                        |       |                     |       |
| REDEEMABLE  PREFERRED STOCK                                                     |       | 32,337                      |       | 33,793                   |       |
|                                                                            |       |                        |       |                     |       |
| DEFERRED INCOME  TAXES                                                          |       | 18,556                      |       | 20,575                   |       |
|                                                                            |       |                        |       |                     |       |
| STOCKHOLDER’S  EQUITY:                                                     |       |                        |       |                     |       |
| Common stock, $0.01  par value, 1,000 shares authorized, issued and outstanding |       | —                      |       | —                   |       |
| Paid-in capital                                                                 |       | 225,833                     |       | 225,911                  |       |
| Cumulative  translation adjustment                                              |       | 7,248                       |       | 6,973                    |       |
| Accumulated  deficit                                                            |       | (28,948                     | )          | (25,288                  | )          |
| Total  stockholder’s equity                                                |       | 204,133                     |       | 207,596                  |       |
| Total  liabilities and stockholder’s equity                                |       | $                           | 823,071    |                     | $          | 849,767 |   |

 

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

 

5

----

 

BRAND ENERGY & INFRASTRUCTURE SERVICES, INC. ANDSUBSIDIARIESConsolidatedStatements of Cash Flows(In thousands)(Unaudited)

 
| ** **                                                                  | ** ** | **For the Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                  | ** ** | **2005**                                                           | ** ** | **2006** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                      |       |                                                               |       |   |   |
| Net income                                                                  |       | 77                                                                 |       | 3,660 |   |
| Adjustments to  reconcile net income to net cash from Operating activities: |       |                                                               |       |   |   |
| Depreciation and  amortization                                              |       | 6,569                                                              |       | 10,909 |   |
| Deferred income  taxes                                                      |       | 285                                                                |       | 2,019 |   |
| Non-cash  interest                                                          |       | 1,949                                                              |       | 2,357 |   |
| Non-cash  compensation                                                      |       | 603                                                                |       | 78 |   |
| Redeemable  preferred stock dividend expense                                |       | —                                                             |       | 1,455 |   |
| Gain on interest  rate and foreign currency swaps                           |       | —                                                             |       | (924 | ) |
| Foreign currency  loss                                                      |       | —                                                             |       | 151 |   |
| Gain on sale of  scaffolding equipment                                      |       | (287                                                               | )          | (1,820 | ) |
| Changes in  operating assets and liabilities:                               |       |                                                               |       |   |   |
| Trade accounts  receivable, net                                             |       | (10,699                                                            | )          | (12,473 | ) |
| Accrued revenue                                                             |       | (5,074                                                             | )          | (10,498 | ) |
| Other current  assets                                                       |       | 1,976                                                              |       | (2,228 | ) |
| Accounts payable  and accrued expenses                                      |       | 10,249                                                             |       | 5,524 |   |
| Deferred revenue                                                            |       | 146                                                                |       | 229 |   |
| Other                                                                       |       | (33                                                                | )          | 211 |   |
| Net cash flows  from (used in) operating activities                         |       | 5,761                                                              |       | (1,350 | ) |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                      |       |                                                               |       |   |   |
| Purchase of  property and equipment                                         |       | (7,750                                                             | )          | (16,478 | ) |
| Proceeds from  sales of property and equipment                              |       | 515                                                                |       | 3,081 |   |
| Payments for  acquisitions                                                  |       | —                                                             |       | (186 | ) |
| Net cash flows  used in investing activities                                |       | (7,235                                                             | )          | (13,583 | ) |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                      |       |                                                               |       |   |   |
| Repayments of  long-term debt                                               |       | (262                                                               | )          | (730 | ) |
| Short-term bank  borrowings                                                 |       | —                                                             |       | 13,500 |   |
| Payments on  capital lease obligations                                      |       | (181                                                               | )          | (61 | ) |
| Net cash flows  from (used in) financing activities                         |       | (443                                                               | )          | 12,709 |   |
| NET DECREASE IN  CASH AND CASH EQUIVALENTS                                  |       | (1,917                                                             | )          | (2,224 | ) |
|                                                                        |       |                                                               |       |   |   |
| IMPACT OF  FOREIGN CURRENCY ON CASH                                         |       | —                                                             |       | (297 | ) |
|                                                                        |       |                                                               |       |   |   |
| CASH AND CASH  EQUIVALENTS, beginning of period                             |       | 14,408                                                             |       | 6,310 |   |
| CASH AND CASH  EQUIVALENTS, end of period                                   |       | $                                                                  | 12,491     |   | $ | 3,789 |   |
| SUPPLEMENTAL  CASH FLOW DISCLOSURES:                                        |       |                                                               |       |   |   |
| Interest paid                                                               |       | $                                                                  | 1,903      |   | $ | 5,879 |   |
| Income taxes  paid                                                          |       | 1,210                                                              |       | 85 |   |

 

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

 

6

----

 

**BRANDENERGY & INFRASTRUCTURE SERVICES, INC. AND SUBSIDIARIES**

 

**Notes to the Consolidated Financial Statements(Unaudited)(in thousands except share and per share amounts)**

** **

The financial statements included herein for theperiods ended March 31, 2005 and 2006 have been prepared by the Company withoutaudit. In the opinion of management, all adjustments have been made which areof a normal recurring nature necessary to present fairly the Company’s financialposition as of March 31, 2006, and the results of operations and cash flows forthe three months ended March 31, 2005 and 2006. Certain information andfootnote disclosures have been condensed or omitted for these periods. The resultsfor interim periods are not necessarily indicative of results for the entireyear. Reference is made to the notes to the consolidated financial statementscontained in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2005, filed with the Securities and Exchange Commission.

 

**1.****              Organization andBusiness**

 

Brand Energy & Infrastructure Services, Inc.and its subsidiaries (“Brand”) are 100% owned by Brand Holdings, LLC (the “LLC”).As of March 31, 2006, the voting equity interests of the LLC were owned 72.3%by J.P. Morgan Partners and its affiliates (“JPMP”), and 27.7% by other equityinvestors, on a fully diluted basis. Brand Services, Inc. is a whollyowned subsidiary of Brand Energy & Infrastructure Services, Inc. Allreferences to “the Company”, “we”, “us”, or “our” mean Brand Energy &Infrastructure Services, Inc. and its subsidiaries.

 

Prior to the acquisition of Aluma (Note 4) inJuly 2005, the Company operated in one segment, “Work Access Services”,providing work access services primarily to refining, petrochemical, chemical,utility and pulp and paper industries, and to a lesser extent generalcommercial clients. Work access services are typically provided in connectionwith periodic, routine cleaning and maintenance of refineries, chemical plantsand utilities, as well as for new construction projects. The Company providespersonnel to erect and dismantle scaffolding structures, transport scaffoldingto project sites and supervise and manage such activities. In addition, theCompany rents and occasionally sells scaffolding that is classified as propertyand equipment on the consolidated balance sheets. The Company maintains asubstantial inventory of scaffolding in the United States and Canada. As aresult of the acquisition of the operations of Aluma, the Company also providesengineered forming and shoring solutions for complex concrete constructionprojects ranging from pre-engineered technology systems to custom-designedformwork and shoring solutions to meet specific customer needs (the “Formingand Shoring Services” business). In the U.S. and Canada, pre-engineeredtechnology systems are typically rented to customers on a project-by-projectbasis whereas custom-designed formwork and shoring solutions are typically soldto owners or project managers for use on large civil projects, such as bridges.

 

The Company’s services are not rendered to ordependent on any single customer within the industrial or commercial marketsand, therefore, the Company does not believe a material concentration of creditrisk exists.

 

**2.**              Summary of Significant AccountingPolicies

** **

*Basis of Presentation*

 

The accompanying financial statements are prepared ona consolidated basis and include those assets, liabilities, revenues andexpenses directly attributable to the operations of the Company. Allsignificant intercompany balances and transactions have been eliminated.

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities, the disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ fromthose estimates.

 

7

----

 

*Revenue Recognition*

 

The Company rents equipment under month-to-monthrental contracts and provides services under both fixed-fee andtime-and-materials short-term contracts. Services provided on a fixed-fee basisare recognized over the contractual period based upon the percentage ofcompletion method. Percentage of completion is measured by the percentage ofcosts incurred for work completed to total estimated costs for each contract.Any losses on contracts are recognized in full in the period it becomes evidentthat such losses will occur. Services provided on a time-and-materials basisare recognized when earned as services are performed.

 

The Company periodically sells new scaffolding andconcrete forming and shoring equipment directly to third parties. The Companyrecognizes revenue upon shipment and records as operating expense, the cost ofthe scaffolding or concrete forming and shoring equipment sold on the first-infirst-out cost method. The Company periodically sells used scaffolding andconcrete forming and shoring equipment to third parties, primarily to itsrental customers. The Company recognizes revenue for the proceeds of such salesand records as operating expense, the net book value of the scaffolding orconcrete forming and shoring equipment. Net book value is determined assumingthe oldest is sold first, as the Company maintains inventory records on a groupbasis.

 

*Cash and Cash Equivalents*

 

The Company considers all short-term depositspurchased with original maturities of three months or less to be cashequivalents.

 

*Accrued Revenue*

 

Accrued revenue represents work performed which eitherdue to contract stipulations or lacking contractual documentation requirementscould not be billed. Substantially all unbilled amounts are expected to bebilled and collected within one year.

 

*Inventories*

 

The Company maintains minimal amounts of finishedgoods inventories for sales to customers. Inventories are accounted for usingthe first-in first-out (FIFO) cost method.

 

*Property and Equipment*

 

Property and equipment (including major repairs andimprovements that extend the useful life of the asset) are capitalized andstated at cost. Ordinary maintenance and repairs of equipment are charged toexpense. The cost of property and equipment is depreciated over its estimateduseful life on the straight-line method as follows:

 
| Buildings                                      |   | 10 to 30 years                                                                 |
|------------------------------------------------|--------|--------------------------------------------------------------------------------|
| Vehicles and  other equipment                  |   | 3 to 8 years                                                                   |
| Scaffolding and  forming and shoring equipment |   | 2 to 20 years                                                                  |
| Leasehold  improvements                        |   | Life of the  applicable lease or life of the improvement, whichever is shorter |

 

For the three months ended March 31, 2005 and 2006,depreciation expense was $5,424 and $9,081, respectively.

 

*Impairment Review Policies*

 

The Company accounts for its long-lived assets,excluding goodwill and tradenames, in accordance with Statement of FinancialAccounting Standards No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets” (SFAS 144), which requires the Company to assess therecoverability of these assets when events or changes in circumstances indicatethat the carrying amount of the long-lived asset (group) might not berecoverable. If impairment indicators exist, the Company determines whether theprojected undiscounted cash flows will be sufficient to cover the carryingvalue of such assets. This requires the Company to make significant judgementsabout the expected future cash flows of the asset group. The future cash flowsare dependent on general and economic conditions and are subject to change.

 

8

----

 

Goodwill and intangible assets with indefinite livesare not amortized but tested for impairment at the reporting unit level.SFAS 142 defines a reporting unit as an operating segment or one levelbelow an operating segment (referred as a component). A component of a segmentis a reporting unit if the component constitutes a business for which discretefinancial information is available and segment management regularly reviews theoperating results of that segment. According, the Company performs theimpairment test on goodwill and intangible assets with indefinite lives at theoperating segment for its Scaffolding Services business and its Forming andShoring Services business. These impairment tests are performed on an annualbasis as of October 1 and between annual tests whenever events orcircumstances indicate that the carrying value of a reporting unit’s goodwilland intangible assets with indefinite lives may exceed its fair value. Adiscounted cash flow model is used to estimate the fair value of a reportingunit. Management must make significant judgments and estimates about futureconditions to estimate future cash flows. Unforeseen events and changes in circumstancesand market conditions including general economic and competitive conditions,could result in significant changes in those estimates and material charges toincome.

 

*Deferred Revenue*

 

Deferred revenue represents amounts billed orcollected from customers in excess of revenues contractually earned. All ofthese amounts will be earned within one year.

 

*Workers’ Compensation and Health BenefitLiabilities*

 

The estimates of workers’ compensation and healthbenefit liabilities are developed using actuarial methods based upon historicaldata for payment patterns, cost trends, utilization of health care services andother relevant factors. These estimates take into account incurred but not reported(IBNR) claims. These estimates are continually reviewed and adjustments, ifnecessary, are reflected in the period known.

 

*Foreign Currency Translation*

 

The financial statements of the Company’s subsidiariesoutside the United States are measured using the local currency as thefunctional currency. Assets and liabilities of these subsidiaries aretranslated at the exchange rates as of the balance sheet date. Resultingtranslation adjustments are recorded in the cumulate translation adjustmentaccount as a separate component of other comprehensive income (loss). Incomeand expense items are translated at average monthly exchange rates. Gains andlosses from foreign currency transactions are included in net income. TheCompany does not have any subsidiaries outside the United States located inhighly inflationary economies.

 

**3.**              New Accounting Standards

** **

*SFAS No. 123 (revised 2004), Shared-BasedPayment” (SFAS 123R)*

 

In December 2004, the Financial AccountingStandards Board (FASB) issued SFAS 123R which is a revision ofSFAS 123, “Accounting for Stock-Based Compensation”. SFAS 123Rsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”,and amends SFAS 95, “Statement of Cash Flows”. Generally, the approach inSFAS 123R is similar to the approach described in SFAS 123. However,SFAS 123R requires all share-based payments to employees, including grantsof employee stock options, to be recognized in the income statement based ontheir fair values.

 

In March 2005, the Securities and exchange Commission(SEC) issued Staff Accounting Bulletin No. 107 (SAB 107) which summarizesthe views of the SEC staff regarding the interaction between SFAS 123R andcertain SEC rules and regulations. SAB 107 provides guidance on several topicsincluding: valuation methods, the classification of compensation expense,capitalization of compensation costs related to share-based paymentarrangements, the accounting for income tax effects of share-based paymentarrangements, and disclosures in Management’s Discussion and Analysissubsequent to adoption of SFAS 123R.

 

9

----

 

In April 2005, the SEC issued FR-74, “Amendmentto Rule 4-01(a) of Regulation S-X Regarding the Compliance Date forStatement of Financial Accounting Standards No. 123 (Revised 2004), *Share-Based Payment*” (FR-74). FR-74 allowscompanies to implement SFAS 123R at the beginning of their next fiscalyear (January 1, 2006 for the Company), instead of the next reportingperiod that begins after June 15, 2005. FR-74 does not change theaccounting required by SFAS 123R, it only changes the implementation dateof the standard.

 

The Company adopted Statement 123(R) using themodified-prospective method on January 1, 2006 and, as further discussedin Note 14, it did not have a material impact on the Company’s financialposition, results of operations or cash flows.

 

*SFAS No. 151, “Inventory Costs, an amendmentof ARB No. 43, Chapter 4” (SFAS 151)*

 

In November 2004, the FASB issued SFAS 151,which amended Accounting Research Bulletin No. 43, Chapter 4, “InventoryPricing” (ARB 43). SFAS 151 clarifies that abnormal amounts of idlefacility expense, freight, handling costs and wasted materials (spoilage)should be expensed rather than capitalized as inventory. The provisions ofSFAS 151 are applicable to inventory costs incurred during fiscal yearsbeginning after June 15, 2005 (as of January 1, 2006 for the Company)with earlier application permitted. The Company implemented SFAS 151effective January 1, 2006, and it did not have a material impact on theCompany’s financial position, results of operations or cash flows.

 

*SFAS No. 154, “Accounting Changes and ErrorCorrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3”(SFAS 154)*

 

In May 2005, the FASB issued SFAS 154. SFASchanges the requirements for the accounting and reporting of a change inaccounting principle or correction of an error. It establishes, unlessimpracticable, retrospective application of the required method for reporting achange in accounting principle in the absence of explicit transitionrequirements specific to the newly adopted accounting principle. SFAS 154is effective for accounting changes and correction of errors made in fiscalyears beginning after December 15, 2005. The Company implementedSFAS 154 effective January1, 2006, and it did not have a material impacton the Company’s financial position, results of operations or cash flows.

 

*FASB Interpretation No. 47, “Accounting forConditional Asset Retirement Obligations, an interpretation of FASB Statement No 143” (FIN 47)*

 

In March 2005, the FASB issued FIN 47 whichclarifies that the term “conditional asset retirement obligation” as used inSFAS No. 143, “Accounting for Asset Retirement Obligations”(SFAS 143), refers to a legal obligation to perform an asset retirementactivity in which the timing and/or method of settlement are conditional on afuture event that may or may not be within the control of the entity. Theobligation to perform the asset retirement activity is unconditional eventhough uncertainty exists about the timing and/or method of settlement.Accordingly, an entity is required to recognize a liability for the fair valueof a conditional asset retirement obligation, if the fair value of theliability can be reasonably estimated. The fair value of a liability for theconditional asset retirement obligation should be recognized when incurred,generally upon acquisition, construction, or development and/or through thenormal operation of the asset. Uncertainty about the timing and/or method ofsettlement of a conditional asset retirement obligation should be factored intothe measurement of the liability when sufficient information exists. FIN 47also clarifies when an entity would have sufficient information to reasonablyestimate the fair value of an asset retirement obligation. The Companyimplemented FIN 47 as of December 31, 2005 and it did not have a materialimpact on the Company’s financial position, results of operations, or cashflows.

 

*SFAS No. 155, “Accounting for Certain HybridFinancial Instruments—An Amendment of FASB Statements No. 133 and 140”(SFAS 155)*

 

In February 2006, the FASB issued SFAS 155,which amends SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities” (SFAS 133), and SFAS No. 140, “Accounting forTransfers and Servicing of Financial Assets and Extinguishments of Liabilities”.SFAS 155 addresses several issues relating to accounting for financialinstruments, including permitting fair value measurement of any hybrid financialinstrument that contains

 

10

----

 

an embedded derivative and eliminating the prohibitionon a qualifying special-purpose entity from holding certain derivativeinstruments. SFAS 155 also provides clarification that concentrations ofcredit risk in the form of subordination are not embedded derivatives.SFAS 155 is effective for all financial instruments issued or acquireafter the fiscal year that begins after September 15, 2006 (January 1,2007 for the Company), with earlier application permitted. The Company has notyet determined the timing of adoption or the full impact of SFAS 155;however, it is not expected to materially impact the Company’s financialposition, results of operations or cash flows.

 

**4.**              Acquisitions

** **

On July 29, 2005, the Company purchasedsubstantially all of the operations and the net operating assets of AlumaEnterprises, Inc. (“Aluma”), as defined by the terms of the Asset PurchaseAgreement dated May 19, 2005. The purpose of the transaction was to expandthe Company’s market position in Canada and obtain entry into the forming andshoring business. The results of Aluma are included in the Company’sconsolidated financial statements from the date of the acquisition.

 

The purchase price paid for this acquisition was asfollows:

 
| Cash paid                 |   | $      | 211,334 |   |
|---------------------------|--------|--------|---------|--------|
| Direct  acquisition costs |   | 6,119  |    |
|                      |   | $      | 217,453 |   |
| Liabilities  assumed      |   | 23,814 |    |
| Total purchase  price     |   | $      | 241,267 |   |

 

Included in the total purchase price is$4.5 million of severance related costs, change in control payments to twoformer Aluma executives and estimated exit costs related to two existing Alumafacility leases which the Company determined, prior to the acquisition, itwould not use. The affected employees were notified of their terminationconcurrent with the closing of the transaction and payments for the severancerelated costs were made on the date of the acquisition. The change in controlpayments assumed by the Company were earned by former Aluma executives that haveaccepted executive positions with the Company.

 

The acquisition was principally financed throughborrowings under the Company’s amended and restated secured credit facility(Note 10) and through the issuance of the Company’s redeemable preferredstock (Note 11).

 

The Company obtained an independent third-partyvaluation oftangible and identifiable intangible assets, which consists of patents,trademarks and customer relationships. The excess of the total purchase priceover the fair value of the assets acquired, including the value of theidentifiable intangible assets, has been allocated to goodwill. These fairvalues are based on preliminary information and are subject to change.

 

The following table presents the estimated fair valuesof the assets acquired and the amount allocated to goodwill:

 
| Current assets                       |   |   |   | $       | 39,894  |   |
|--------------------------------------|--------|--------|--------|---------|---------|--------|
| Property and  equipment              |   |   |   | 114,515 |    |
| Identifiable  intangible assets:     |   |   |   |    |    |
| Customer  relationships              |   | $      | 30,753 |    |    |   |
| Patents                              |   | 280    |   |    |    |
| Trademarks                           |   | 11,585 |   |    |    |
|                                 |   |   |   | 42,618  |    |
| Total fair value  of assets acquired |   |   |   | $       | 197,027 |   |
| Goodwill                             |   |   |   | 44,240  |    |
| Total purchase  price                |   |   |   | $       | 241,267 |   |
|                                      |        |        |        |         |         |        |  |

 

All of the goodwill arising in the Aluma acquisitionhas been assigned to the work access services segment. The Company isamortizing customer relationships over twelve years and patents over thelife of the related patent. Trademarks will not be amortized as this intangibleasset has an indefinite life.

 

11

----

 

The following unaudited pro forma information assumesthe acquisition occurred as of the beginning of fiscal 2005. The pro formaresults are not necessarily indicative of what actually would have occurred hadthe acquisition been in effect for the periods presented. In addition, they arenot intended to be a projection of future results that may be achieved from thecombined operations.

 
| ** **                           | ** ** | **Three Months  Ended March  31, 2005** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------|------------|
| Revenue                              |       | $                                                      | 163,196    |   |
| Operating  expense                   |       | 116,295                                                |       |
| Gross profit                         |       | 46,901                                                 |       |
| Selling and  administrative expenses |       | 33,029                                                 |       |
| Non-cash compensation                |       | 603                                                    |       |
| Operating income                     |       | 13,269                                                 |       |
| Interest expense                     |       | 11,462                                                 |       |
| Interest  (income)                   |       | (99                                                    | )          |
| Foreign currency  transaction gain   |       | 228                                                    |       |
| Preferred stock  dividend expense    |       | 1,399                                                  |       |
| Income before  provision for taxes   |       | 279                                                    |       |
| Provision for  income taxes          |       | 741                                                    |       |
| Net loss                             |       | (462                                                   | )          |
|                                      |            |                                                        |            |  |

 

**5.**              Other Current Assets

** **

Other current assets consist of the following:

 
| ** **       | ** ** | **December 31,  2005** | ** ** | **March 31,  2006** | ** ** |
|------------------|------------|-----------------------------|------------|--------------------------|------------|
| Prepaid expenses |       | $                           | 4,708      |                     | $          | 4,367 |   |
| Inventory        |       | 7,487                       |       | 9,767                    |       |
| Other            |       | 399                         |       | 1,181                    |       |
|             |       | $                           | 12,594     |                     | $          | 15,315 |   |

 

**6.**              Allowance for Doubtful Accounts

** **

The Company’s accounts receivable are recorded at theamounts invoiced to customers less an allowance for doubtful accounts.Management estimates the allowance based on a review of the portfolio takinginto consideration historical collection patterns, the economic climate, andaging statistics based on contractual due dates. Accounts are written off oncecollection efforts are exhausted.

 

Activity in the allowancefor doubtful accounts for the three months ended March 31, 2005 and 2006 are asfollows:

 
| ** **                               | ** ** | **Three Months  Ended March  31, 2005** | ** ** | **Three Months  Ended March  31, 2006** | ** ** |
|------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Balance at  beginning of year            |       | $                                                      | 1,605      |                                                   | $          | 6,364 |   |
| Additions  charged to operating expenses |       | 360                                                    |       | 854                                                    |       |
| Impact of  foreign currency translation  |       | —                                                 |       | (14                                                    | )          |
| Net write-offs                           |       | (37                                                    | )          | (459                                                   | )          |
| Balance at March  31                     |       | $                                                      | 1,928      |                                                   | $          | 6,745 |   |

 

12

----

 

**7.**              Goodwill

** **

Goodwill represents the amount paid in connection withthe Transaction and acquisitions in excess of the fair value of theidentifiable net assets acquired. The Company completed its annual requiredimpairment test as of October 1, 2005, and in doing so determined thatgoodwill was not impaired. The Company used the present value of expectedfuture cash flows to estimate fair value. The Company must make significantjudgments about future conditions to estimate future cash flows. Unforeseenevents and changes in circumstances and market conditions including generaleconomic and competitive conditions, could result in significant changes inthose estimates and material charges to income. All goodwill has been assignedto the work access services business segment. Changes in the carrying amount ofgoodwill for the three months ended March 31, 2006 are as follows:

 
| Balance at December  31, 2005 |   | $    | 292,601 |   |
|-------------------------------|--------|------|---------|--------|
| Goodwill  acquired            |   | 186  |    |
| Foreign currency  translation |   | (141 | )       |
| Balance at March  31, 2006    |   | $    | 292,646 |   |

 

Approximately $35.9 million of the goodwillrecorded at March 31, 2006 is amortizable over 15 years for tax purposes.

 

**8.**              Other Assets and Intangibles

** **

Other assets and intangibles consist of the following:

 
| ** **                                                                                       | ** ** | **December  31, 2005** | ** ** | **March  31, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Deferred  financing costs, net of accumulated amortization of $4,608 in 2005 and $5,179  in 2006 |       | $                           | 14,633     |                     | $          | 14,062 |   |
| Customer relationships                                                                           |       | 70,630                      |       | 68,800                   |       |
| Trade names                                                                                      |       | 25,566                      |       | 25,559                   |       |
| Patents                                                                                          |       | 281                         |       | 276                      |       |
| Non-compete  agreement                                                                           |       | 210                         |       | 194                      |       |
| Other                                                                                            |       | 127                         |       | 126                      |       |
|                                                                                             |       | $                           | 111,447    |                     | $          | 109,017 |   |

 

In connection with the issuance of its credit facility(Note 10), the $150.0 million, 12% Senior Subordinated Notes(Note 10), the $35.0 million, 13%, pay-in-kind notes (Note 10)and the redeemable preferred stock (Note 11), the Company incurredfinancing fees and expenses that were deferred and are being amortized over thelives of the individual debt instruments. For the three months ended March 31,2005 and 2006, amortization expense relating to these deferred financing costswas $374 and $571, respectively. Amortization of deferred financing costs isincluded as an element of interest expense in the consolidated incomestatements.

 

Customer relationships, trade names and patents wererecorded at their fair values as a result of the Transaction and theacquisition of Aluma. The fair values assigned to customer relationships, tradenames and patents were based on the future discounted cash flows that areexpected to result from the respective intangible existing at the date of therespective transaction. Customer relationships are being amortized over twelveyears. Amortization expense relating to customer relationships for the threemonths ended March 31, 2005 and 2006 was $1,123 and $1,809, respectively.Trade names are not amortized as this type of intangible asset has anindefinite life. Patents are amortized over the life of the respective patent.Amortization expense related to patents was $4 in 2006. Amortization expenserelated to the non-compete agreements was $22 and $15 for the three monthsended March 31, 2005 and 2006, respectively.

 

13

----

 

The following summarizes the balances of intangiblesas of December 31, 2005 and March 31, 2006:

 
| ** **                        | ** ** | **December 31, 2005** | ** ** | **March 31, 2006**  | ** ** |
|-----------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                        | ** ** | **Gross  Carrying  Amount**     | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** |
| Amortizable  intangible assets:   |       |                            |       |                          |       |   |   |   |   |   |   |   |   |
| Customer  relationships           |       | $                               | 86,355     |                          | $          | (15,725 | ) | $ | 70,630 |   | $ | 86,322 |   | $ | (17,522 | ) | $ | 68,800 |   |
| Non-compete  agreement            |       | 1,357                           |       | (1,147                        | )          | 210 |   | 1,357 |   | (1,163 | ) | 194 |   |
| Patents                           |       | 288                             |       | (7                            | )          | 281 |   | 288 |   | (12 | ) | 276 |   |
| Unamortizable  intangible assets: |       |                            |       |                          |       |   |   |   |   |   |   |   |   |
| Trade names                       |       | 25,566                          |       | —                        |       | 25,566 |   | 25,559 |   | — |   | 25,559 |   |
|                                   |            |                                 |            |                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Aggregate amortization expense for the three monthsended March 31, 2005 and 2006 was $1,145 and $1,828, respectively.

 

**9.**              Accounts Payable And Accrued Expenses

** **

The major components of accounts payable and accruedexpenses are as follows:

 
| ** **                                                 | ** ** | **December  31, 2005** | ** ** | **March  31, 2006** | ** ** |
|------------------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| Accounts payable                                           |       | $                           | 21,638     |                     | $          | 21,321 |   |
| Payroll and  related accruals                              |       | 24,979                      |       | 20,571                   |       |
| Workers’  compensation and health benefit liabilities |       | 16,029                      |       | 16,045                   |       |
| Accrued interest                                           |       | 4,785                       |       | 9,094                    |       |
| Other                                                      |       | 12,154                      |       | 17,647                   |       |
|                                                       |       | $                           | 79,585     |                     | $          | 84,678 |   |

**10.**       Long-Term Debt

 

Long-term debt consisted of the following:

 
| ** **                                     | ** ** | **December  31, 2005** | ** ** | **March 31,  2006** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|---------------------|------------|
| Amended Credit  Facility, due 2012             |       | $                           | 288,959    |                | $          | 288,170 |   |
| 12% Senior  Subordinated Notes, due 2012       |       | 150,000                     |       | 150,000             |       |
| 13% Intermediate  Subordinated Notes, due 2013 |       | 52,457                      |       | 54,098              |       |
|                                           |       | 491,416                     |       | 492,268             |       |
| Less—                                     |       |                        |       |                |       |
| Current  maturities                            |       | 2,904                       |       | 2,903               |       |
| Unamortized  discount                          |       | 6,818                       |       | 6,673               |       |
|                                           |       | $                           | 481,694    |                | $          | 482,692 |   |

 

On July 29, 2005, the Company amended andrestated its existing credit facility with Credit Suisse (formerly known asCredit Suisse First Boston, acting through its Cayman Islands Branch), asadministrative agent, and other institutions, to provide for supplemental termloans in the aggregate principal amount of $185 million. As amended andrestated, the credit facility consists of $287 million in aggregateprincipal amount of term loans, a letter of credit facility of$20 million, a synthetic letter of credit facility of $15 million anda revolving credit facility of $50 million. The supplemental term loanincluded $57 million of debt in Canadian dollar equivalents.

 

Indebtedness under the credit facility for US dollarloans bears interest at a floating rate based upon (i) the Base Rate (asdefined in the credit agreement) in each case, plus 2.25%, in the case ofrevolving loans, 2.75%, in the case of letter of credit facility loans, or2.00%, in the case of synthetic letter of credit facility loans and term loans,or, at our option, (ii) the LIBOR Rate (as defined in the creditagreement) for one, two, three or six month period, (or a nine or twelve monthperiod if, at the time of the relevant LIBOR Rate Loan, all Lendersparticipation therein agree to make

 

14

----

 

an interest period of such duration available) plus3.50%, in the case of revolving loans, 4.00%, in the case of letter of credit facilityloans or 3.00%, in the case of synthetic letter of credit facility loans andterm loans. Indebtedness under the credit facility for Canadian dollar loansbears interest at (i) in the case of Canadian prime rate loans, a floatingrate based upon the Canadian Prime Rate (as defined in the credit agreement),plus 2.25% or, at our option, (ii) in the case of bankers’ acceptanceloans, Brand will pay a fee at the rate of 3.25% calculated on the basis of ayear of 365 days on the face amount at maturity (or the principal amountin the case of a bankers’ acceptance equivalent loan) of such bankers’acceptance for the period from and including the date of acceptance (or advancein the case of a bankers’ acceptance equivalent loan) of such bankers’acceptance to but excluding the maturity date of such bankers’ acceptance. Theinterest period for bankers’ acceptance loans is a 30, 60, 90 or 180 dayperiod (in each case subject to availability). The interest rate for loansunder the revolving credit facility and the letter of credit facility issubject to adjustment on a quarterly basis, based on the ratio of ourconsolidated debt to EBITDA (as defined).

 

The revolving facility will mature inOctober 2008. The Company had no borrowings under the revolving facilityat December 31, 2005 and $13.5 million in borrowings at March 31, 2006.The term loan will mature in January 2012. The term loan is subject toquarterly amortization payments of $726, with the balance payable in equalinstallments on the maturity date. In addition, the credit agreement willprovide for mandatory repayments, subject to certain exceptions, of the termloan based on certain asset sales, the net proceeds of certain debt and equityissuances, excess cash flow and insurance proceeds.

 

The amended credit agreement contains financial andoperating covenants, including among other things, that the Company maintaincertain financial ratios, and imposes limitations on the Company’s ability tomake capital expenditures, to incur indebtedness, and to pay dividends. TheCompany was in compliance with all loan covenants at March 31, 2006.

 

For the three months ended March 31, 2005 and 2006,the weighted averageinterest rate for long-term debt under the credit facility was 5.8% and 7.6%,respectively. For the three months ended March 31, 2006, the weighted averageinterest rate for short-term borrowings under the revolving facility was 9.8%.The Company did not borrow under its revolving facility during the first threemonths of 2005.

 

In 2002 our wholly owned subsidiary Brand Services,Inc. issued $150.0 million of 12% Senior Subordinated Notes (the “Senior SubordinatedNotes”) due in 2012, guaranteed by the Company, with interest payablesemi-annually. The Senior Subordinated Notes were issued at a discount of$4,216 and are subordinated to the Credit Facility (the “Credit Facility”).Amortization expense related to the discount on the Senior Subordinated Notesfor the three months ended March 31, 2005 and 2006 was $73 and $82,respectively.

 

The Company also issued $35.0 million of 13%pay-in-kind notes (the “Intermediate Notes”) that are subordinated to theCredit Facility and rank equally with the Senior Subordinated Notes. TheIntermediate Notes were issued at a discount of $4,098. Amortization expenserelated to the discount on the Intermediate Notes for the three months ended March 31,2005 and 2006 was $54 and $63, respectively. The Intermediate Notes are “pay-in-kind”notes due to restrictions on interest payments in the Credit Facility.Accretion of interest on the Intermediate Notes for the three months ended March 31,2005 and 2006 was $1,447 and $1,641, respectively.

 

**11.**       Redeemable Preferred Stock

** **

On July 29, 2005, the Company issued and sold toJ.P. Morgan Partners Global Investors, L.P., J.P. Morgan Partners GlobalInvestors (Cayman), L.P., J.P. Morgan Partners Global Investors A, L.P., J.P.Morgan Partners Global Investors (Cayman) II, L.P., J.P. Morgan Partners(BHCA), L.P. and J.P. Morgan Partners Global Investors (Selldown), L.P. $30.0 millionaggregate liquidation value of its Series A Preferred Capital Stock.

 

Dividends on the preferred stock accrue cumulativelyon a daily basis at a rate of 18% per annum (computed on the basis of a 360-dayyear of twelve 30-day months) on the liquidation value of the preferred stock.The dividend rate will increase (a) by 0.25% each quarter after theoccurrence of certain events of default, up to a maximum rate of 20.0% perannum and (b) to 20% per annum after a default in any payment due on thepreferred stock.

 

15

----

 

The preferred stock is required to be redeemed by BrandEnergy & Infrastructure Services, Inc. on October 16, 2014 attheir liquidation value or upon the occurrence of a change of control at 101%of their liquidation value. Prior to July 1, 2008, the preferred stock maybe redeemed at the option of Brand Energy & Infrastructure Services, Inc.at a redemption price equal to the sum of the present values of 109% of theaggregate liquidation value of the preferred stock to and includingJuly 1, 2008, discounted to the date of redemption on a quarterly basis(assuming a 360-day year consisting of twelve 30-day months) at the U.S.Treasury rate plus 50 basis points, together with, in each case, accrued andunpaid dividends, if any at redemption date.

 

After July 1, 2008, the preferred stock may beredeemed at the option of Brand Energy & Infrastructure Services, Inc.,at the following redemption prices (expressed as percentages of the liquidationvalue thereof), plus, in each case, accrued and unpaid dividends to the date ofredemption, if any:

 
| **Period in which redemption occurs** | ** ** | **Percentage** | ** ** |
|-----------------------------------------------------------|------------|----------------|------------|
| July 1, 2008  through (and including) June 30, 2009       |       | 109            | %          |
| July 1, 2009  through (and including) June 30, 2010       |       | 104.5          | %          |
| July 1, 2010  through (and including) June 30, 2011       |       | 102.25         | %          |
| Thereafter                                                |       | 100            | %          |

 

Because the preferred stock has mandatory redemptionsterms, it is accounted for as a long-term liability and the related accrueddividends are recorded as preferred stock dividend expense.

 

**12.**       Commitments And Contingencies

** **

In the ordinary course of conducting its business, theCompany becomes involved in various pending claims and lawsuits. Theseprimarily relate to employee matters. The outcome of these matters is notpresently determinable; however, in the opinion of management, based on theadvice of legal counsel, the resolution of these matters is not anticipated tohave a material adverse effect on the financial position or results ofoperations of the Company.

 

**13.**       Financial Instruments

** **

***Off-Balance Sheet Risk***

 

As security for the Company’s performance under itsself-insurance obligations and to insurers, the Company is contingently liableunder letters of credit in the amount of $34.3 million at both December 31,2005 and March 31, 2006. These letters of credit generally have no scheduledexpiration date. The Company pays fees to various banks that range from 3.25%to 4.25% per annum of their face value. If the Company were required to replaceits outstanding letters of credit as of March 31, 2006, it is the Company’sopinion that the replacement cost would not vary significantly from the presentfee structure.

 

***Derivative Instruments andHedging Activities***

 

In order to mitigate the interest rate risk related tochanges on its variable rate debt, in December 2005 the Company entered intotwo interest rate swap agreements. Under these agreements, the Company will payfixed interest rates for three years and will receive floating interest ratepayments based on the U.S. 90 day LIBOR and 90 day Canadian bankersacceptances. During years one and two the notional amounts of the U.S. Dollarswap is $50 million and reduces to $25 million in the final year ofthe agreement, while the notional amount of the Canadian dollar swap is$35 million in years one and two, reducing to $17.5 million in thefinal year of the agreement

 

Foreign currency exposures arise from transactionsdenominated in a currency other than the U.S. dollar. As a result of theCompany’s purchase of substantially all of the operations and the net operatingassets of Aluma effective July 29, 2005, the Company is subject to foreigncurrency risk associated with its Canadian investment. In order to mitigate theCompany’s exposure to changes in the value of the Canadian dollar due to itsinvestment in Aluma, during the second half of 2005 the Company entered into an$80 million U.S. dollar / Canadian dollar currency swap for a period ofthree years. The notional amount of the swap is $80 million during yearsone and two and reduces to $40 million during the final year of theagreement.

 

16

----

 

The Company did not elect to treat these swapagreements as hedges under SFAS 133 and so mark-to-market gains wererecognized in net income. For the three months ended March 31, 2006, theCompany recognized a mark-to-market gain of $0.5 million on its interest rateswaps and a mark-to-market gain of $0.4 million on its foreign currency swaps.The fair value of the interest rate swaps and foreign currency swaps wererecorded in other current assets and other current liabilities, respectively,at December 31, 2005 and March 31, 2006.

 

***Fair Value of FinancialInstruments***

 

The following methods and assumptions were used by theCompany in estimating its fair value disclosures for financial instruments:

 

Interest Rate and U.S. Dollar/Canadian dollar currencyswaps—Fair value quotes from brokers.

 

Term loans under the Credit Facility—The carryingamounts of the term loans approximate their fair value because such loans carryvariable interest rates.

 

Notes Payable and Capital Lease Obligations—Recordedamounts of the notes payable and capital lease obligations approximate theirfair value.

 

12% Senior Subordinated Notes—The fair value of theSenior Subordinated Notes is based upon market rates obtained from dealers.

 

13% Intermediate Notes—The carrying value of theIntermediate Notes approximates fair value.

 

The carrying amounts and fair values of the Company’sfinancial instruments at December 31, 2005 and March 31, 2006, are asfollows:

 
| ** **                                   | ** ** | **December 31, 2005** | ** ** | **March 31, 2006** | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|------------------------------|------------|
| ** **                                   | ** ** | **Carrying  Amount**            | ** ** | **Fair Value**          | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** |
| Interest rate  swaps                         |       | $                               | 231        |                         | $          | 231 |   | $ | 724 |   | $ | 724 |   |
| Currency swaps                               |       | (1,519                          | )          | (1,519                       | )          | (1,088 | ) | (1,088 | ) |
| Term loans                                   |       | 288,959                         |       | 288,959                      |       | 288,170 |   | 288,170 |   |
| Notes payable  and capital lease obligations |       | 828                             |       | 828                          |       | 767 |   | 767 |   |
| 12% Senior  Subordinated Notes (a)           |       | 150,000                         |       | 157,500                      |       | 150,000 |   | 160,500 |   |
| 13% Intermediate  Notes (a)                  |       | 52,457                          |       | 52,457                       |       | 54,098 |   | 54,098 |   |
|                                              |            |                                 |            |                              |            |  |  |  |  |  |  |  |  |

 

----

(a)           Excludesdiscount.

 

**14.**       Stock Based Employee Compensation

** **

Subsequent to the Transaction, the LLC adopted aManagement Equity Incentive Program (the “Management Equity Incentive Program”).Under this program, employees of Brand are eligible to participate in both atime-based equity incentive program and a performance-based equity incentiveprogram to be granted, at no cost to the individual, Class C units andClass C-1 units of the LLC which allow the employee to share in theproceeds of certain liquidity events (as defined by the LLC operatingagreement). Under the time-based equity incentive program, for so long as amember of management remains employed by Brand, and subject to an acceleratedvesting in the event of certain liquidity events, the time-based incentiveunits issued to each employee vest over a five-year period. Under theperformance-based equity incentive program, the number of outstandingperformance-based units that will vest upon the occurrence of a liquidity eventwill be determined by comparing the net equity valuation of Brand to certainnet equity valuation targets agreed to between management and the LLC. In theevent that no liquidity event occurs prior to December 31, 2009, thenumber of the outstanding performance-based units that vest on that date willbe determined by the fair market value of the LLC on that date.

 

17

----

 

Beginning in April 2003, certain members of theCompany’s management team were offered the opportunity to acquire 100%-vestedClass B units of the LLC, at the fair market value on date of issuance,through a leveraged co-investment loan. As in the case of the Class C andClass C-1 units, Class B units allow the employee to share in theproceeds of certain liquidity events (as defined by the LLC operatingagreement). These co-investment loans are limited recourse loans, bear interestat the rate of 3.27%, and mature on April 15, 2011. For financialreporting purposes, these management loans are recorded in the LLC financialstatements; however, the related stock compensation expense is recorded on theCompany’s books and records, based on the fair value at the date of issuance.

 

From time-to-time, certain members of the Company’smanagement team were granted fully-vested Class B units at no cost. Forfinancial reporting purposes, the compensation expense related to these grantsis recorded on the Company’s books and records, as applicable.

 

Effective January 1, 2006, the Company adoptedthe provisions of Statement of Financial Accounting Standards (“SFAS”)No. 123 (Revised 2004) “Share-Based Payment” (“SFAS No. 123(R)”)using the modified prospective method, which requires measurement ofcompensation cost for all stock-based awards at fair value on date of grant andrecognition of compensation over the service periods for awards expected tovest.

 

Previously, effective January 1, 2004, theCompany adopted the fair value recognition provisions of Statement of FinancialAccounting Standards (“SFAS”) No. 123, “Accounting for Stock-BasedCompensation”. The Company selected the modified prospective transition methodunder the provisions of SFAS No. 148, “Accounting for Stock-BasedCompensation-Transition and Disclosure,” which requires expensing optionsprospectively, beginning in the year of adoption.

 

The principal difference to the Company between thetwo methods of accounting for stock based compensation is that, under SFAS 123the Company recorded the impact of forfeitures as they occurred, whereas underSFAS 123 (R) the Company must estimate the impact of future forfeitures oncurrent periodic expense. Because the Company has historically encountered verylow turnover in its management and does not anticipate any increase in turnoverin the future, the impact of adoption of SFAS 123 (R) was immaterial to itsresults of operations and financial position.

 

During the three months ended March 31, 2005, theCompany granted 153,488 Class B units with a fair value of $2.99 per unit at nocost to its new chief executive officer. In addition, the Company granted75,000 Class C-1 time-based units with a fair value of $2.16 per unit and450,000 Class C-1 performance based units with a fair value of $2.16 per unitto its new chief executive officer.

 

During the three months ended March 31, 2006, theCompany granted 22,065 Class C time-based units with a fair value of $1.49 perunit and 170,545 Class C performance-based units with a fair value of $1.49 perunit to employees. In addition, the Company offered two newly hired executivesto purchase a total of 12,196 100%-vested Class B units at the fair marketvalue on date of grant, through a leveraged co-investment loan.

 

The following table summarizes the number of units andweighted fair unit value of Class C, Class C-1 and co-leveragedClass B units of the LLC awards outstanding to the employees of Brand asof March 31, 2006:

 
| ** **                         | ** ** | **Units  Outstanding** | ** ** | **Weighted Fair  Unit Value** | ** ** |
|------------------------------------|------------|------------------------|------------|-----------------------------------------|------------|
| Time-based Class  C units          |       | 428,158                |       | $                                       | 2.02       |   |
| Performance-based  Class C units   |       | 1,392,366              |       | 1.74                                    |       |
| Time-based Class  C-1 units        |       | 75,000                 |       | 2.16                                    |       |
| Performance-based  Class C-1 units |       | 917,398                |       | 2.72                                    |       |
| Co-leveraged  Class B units        |       | 287,591                |       | 2.20                                    |       |
|                                    |            |                        |            |                                         |            |  |

 

18

----

 

The fair value of each award was estimated on the dateof grant using a binomial option pricing model and the following assumptions:

 
| ** **                       | ** ** | **Three Months  Ended  March 31, 2005** | ** ** | **Three Months  Ended  March 31, 2006** | ** ** |
|----------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Average  risk-free interest rate |       | 3.45                                                   | %          | 4.18                                                   | %          |
| Expected  dividend yield         |       | 0.00                                                   | %          | 0.00                                                   | %          |
| Expected  volatility             |       | 51.88                                                  | %          | 46.80                                                  | %          |
| Expected Life  (years)           |       | 3.875                                                  |       | 2.875                                                  |       |

 

Time based Class C and C-1 units vest over aperiod of five years. The Company estimates that approximately 16.67% of theperformance based Class C and C-1 units will vest in accordance with theterms of the LLC agreement.

 

No awards have been exercised or expired sinceinception. Expense for time-based awards is being recorded over a gradedvesting schedule, while expense for performance based awards is being recordedover a straight-line vesting schedule. Based on the awards outstanding at March31, 2006, estimated non-cash compensation expense for the next five years is asfollows:

 
| 2006 |   | $      | 233    |   |
|------|--------|--------|--------|--------|
| 2007 |   | 245    |   |
| 2008 |   | 197    |   |
| 2009 |   | 172    |   |
| 2010 |   | — |   |

 

**15.**       Income Taxes

** **

Deferred income taxes reflect the tax effects oftemporary differences between the carrying amounts of assets and liabilitiesfor financial reporting purposes and the amounts used for income tax purposes.Deferred income taxes are not provided on undistributed earnings of the Company’sforeign subsidiary because those earnings are considered to be permanentlyinvested. If these amounts were not considered indefinitely reinvested,additional deferred taxes of approximately $4.6 million would have beenprovided as of March 31, 2006.

 

For the three months ended March 31, 2005 and 2006,income before provisions for income tax was as follows:

 
| ** **    | ** ** | **Three Months  Ended March 31,** | ** ** |
|---------------|------------|--------------------------------------------------|------------|
| ** **    | ** ** | **2005**                                         | ** ** | **2006** | ** ** |
| United States |       | $                                                | 3          |   | $ | 2,567 |   |
| Foreign       |       | 359                                              |       | 4,641 |   |
|          |       | $                                                | 362        |   | $ | 7,208 |   |

 

The reconciliation of the statutory federal income taxexpense on the Company’s pretax income to the actual provision for income taxesfor the three months ended March 31, 2005 and 2006 follows:

 
| ** **                             | ** ** | **Three Months  Ended March 31,** | ** ** |
|----------------------------------------|------------|--------------------------------------------------|------------|
| ** **                             | ** ** | **2005**                                         | ** ** | **2006** | ** ** |
| Statutory  federal income taxes        |       | $                                                | 123        |   | $ | 2,450 |   |
| State and local  taxes, net of federal |       | 14                                               |       | 245 |   |
| Foreign tax rate  differential         |       | 4                                                |       | 141 |   |
| Preferred stock  dividends expense     |       | —                                           |       | 500 |   |
| Interest expense  disallowance         |       | 136                                              |       | 144 |   |
| Other                                  |       | 8                                                |       | 68 |   |
| Provision for  income Taxes            |       | $                                                | 285        |   | $ | 3,548 |   |

 

19

----

 

**16.**       Comprehensive Income

 

For the three months ended March 31, 2005 and 2006,comprehensive income (loss) was as follows:

 
| ** **                                          | ** ** | **Three Months Ended  Ended March 31,** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2005**                                                    | ** ** | **2006** | ** ** |
| Net income                                          |       | $                                                           | 77         |   | $ | 3,660 |   |
| Impact of  foreign currency translation, net of tax |       | (211                                                        | )          | (275 | ) |
| Comprehensive  income (loss)                        |       | $                                                           | (134       | ) | $ | 3,385 |   |

** **

**17.**       Information by Segment and Geographic Area

** **

The Company reports information about its operatingsegment using the “management approach” in accordance with SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information” (“SFAS 131”).This approach is based upon the way management organizes and reports thesegments within the enterprise for making operating decisions and assessingperformance. The Company’s reportable segments are identified based upondifferences in products, services and markets served. There were no significantinter-segment sales.

 

Prior to the acquisition of the assets and operationsof Aluma in July 2005, the Company operated in one business segment,providing work access services primarily to refining, petrochemical, chemical,utility and pulp and paper industries, and to a lesser extent generalcommercial clients.

 

As a result of the acquisition of the operations ofAluma, the Company commenced operations in a second business segment, providingengineered concrete forming and shoring solutions for complex concreteconstruction projects ranging from pre-engineered technology systems to custom-designedformwork and shoring solutions to meet specific customer needs.

 

Information by segment is as follows:

 
| ** **                             | ** ** | **Three Months Ended  March 31, 2005** | ** ** | **Three Months Ended  March 31, 2006** | ** ** |
|----------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                             | ** ** | **Revenues**                                               | ** ** | **Operating  Income**                                      | ** ** | **Revenues** | ** ** | **Operating  Income** | ** ** |
| Work access  services                  |       | $                                                          | 98,252     |                                                       | $          | 8,681 |   | $ | 172,990 |   | $ | 16,450 |   |
| Concrete forming  and shoring services |       | —                                                     |       | —                                                     |       | 24,202 |   | 3,624 |   |
|                                   |       | $                                                          | 98,252     |                                                       | $          | 8,681 |   | $ | 197,192 |   | $ | 20,074 |   |
|                                        |            |                                                            |            |                                                            |            |  |  |  |  |  |  |  |  |  |

 
| ** **                             | ** ** | **Total Assets**                   | ** ** | **Depreciation and  Amortization Expense** | ** ** |
|----------------------------------------|------------|-----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                             | ** ** | **As of  December  31, 2005** | ** ** | **As of  March  31, 2006**                 | ** ** | **Three  Months  Ended  March 31,  2005** | ** ** | **Three  Months  Ended  March 31,  2006** | ** ** |
| Work access  services                  |       | $                                       | 725,636    |                                                 | $          | 747,402 |   | $ | 6,569 |   | $ | 9,353 |   |
| Concrete forming  and shoring services |       | 97,435                                  |       | 102,365                                              |       | — |   | 1,556 |   |
|                                   |       | $                                       | 823,071    |                                                 | $          | 849,767 |   | $ | 6,569 |   | $ | 10,909 |   |
|                                        |            |                                         |            |                                                      |            |  |  |  |  |  |  |  |  |  |

 

20

----

 
| ** **                             | ** ** | **Capital Expenditures**                    | ** ** |
|----------------------------------------|------------|--------------------------------------------------|------------|
| ** **                             | ** ** | **Three Months Ended  March 31,** | ** ** |
| ** **                             | ** ** | **2005**                                         | ** ** | **2006** | ** ** |
| Work access  services                  |       | $                                                | 7,750      |   | $ | 9,272 |   |
| Concrete forming  and shoring services |       | —                                           |       | 7,206 |   |
|                                   |       | $                                                | 7,750      |   | $ | 16,478 |   |

 

The table below reconciles segment operating income toconsolidated pretax income for the three months ended March 31, 2005 and 2006:

 
| ** **                                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                        | ** ** | **2005**                                         | ** ** | **2006** | ** ** |
| Segment  operating income                         |       | $                                                | 8,681      |   | $ | 20,074 |   |
| Interest expense                                  |       | 8,418                                            |       | 12,360 |   |
| Interest income                                   |       | (99                                              | )          | (176 | ) |
| Gain on interest  rate and foreign currency swaps |       | —                                           |       | (924 | ) |
| Foreign currency  transaction gain                |       | —                                           |       | 151 |   |
| Preferred stock  dividend expense                 |       | —                                           |       | 1,455 |   |
| Consolidated  pretax income                       |       | $                                                | 362        |   | $ | 7,208 |   |

 

Information by geographic areas is as follows:

 
| ** **    | ** ** | **Revenues Derived  From Unaffiliated  Customers** | ** ** | **Net Property, Plant and  Equipment** | ** ** |
|---------------|------------|--------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **    | ** ** | **Three  Months  Ended  March 31,  2005**               | ** ** | **Three  Months  Ended  March 31,  2006**        | ** ** | **As of  December 31,  2005** | ** ** | **As of  March 31,  2006** | ** ** |
| United States |       | $                                                            | 92,871     |                                                  | $          | 126,034 |   | $ | 189,717 |   | $ | 196,740 |   |
| Foreign       |       | 5,381                                                        |       | 71,158                                                |       | 86,903 |   | 85,790 |   |
|          |       | $                                                            | 98,252     |                                                  | $          | 197,192 |   | $ | 276,620 |   | $ | 282,530 |   |
|               |            |                                                              |            |                                                       |            |  |  |  |  |  |  |  |  |  |

** **

**18.**       Supplemental Consolidating Information

** **

The 12% Senior Subordinated Notes, which are anobligation of Brand Services, Inc., are fully and unconditionally guaranteed ona senior subordinated, joint, and several basis by the other domesticsubsidiaries of Brand Energy & Infrastructure Services, Inc. (which are all100% owned by Brand Energy & Infrastructure Services, Inc.) and by BrandEnergy & Infrastructure Services, Inc. Supplemental consolidatinginformation of Brand Energy & Infrastructure Services, Inc., BrandServices, Inc., the guarantor subsidiaries, and its foreign non-guarantorsubsidiary is presented below. Investments in subsidiaries are presented on theequity method of accounting. Separate financial statements are not providedbecause management has concluded that the summarized financial informationbelow provides sufficient information to allow investors to separatelydetermine the nature of the assets held by and the operations of the guarantorand non-guarantor subsidiaries.

 

21

----

 

**BRAND ENERGY & INFRASTRUCTURESERVICES, INC.**

**CONDENSED CONSOLIDATING BALANCESHEET**

**DECEMBER 31, 2005**

 
| **Assets**                                      | ** ** | **Brand  Services, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiary** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.** | ** ** | **Adjustments  and  Eliminations** | ** ** | **Brand Energy &  Infrastructure  Services, Inc.  Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|-------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| Current Assets:                                 |       |                           |       |                        |       |                          |       |                                                              |       |                               |       |                                                                                |       |
| Cash and cash  equivalents                      |       | $                              | 355        |                        | $          | 1,291                         |       | $                                                                 | 4,933      |                               | $          | —                                                                              |       | $ | (269 | ) | $ | 6,310 |   |
| Trade accounts  receivable                      |       | —                         |       | 86,961                      |       | 30,246                        |       | —                                                            |       | —                             |       | 117,207                                                                             |       |
| Accrued revenue                                 |       | —                         |       | 5,560                       |       | 732                           |       | —                                                            |       | —                             |       | 6,292                                                                               |       |
| Other current  assets                           |       | 3,159                          |       | 5,675                       |       | 3,760                         |       | —                                                            |       | —                             |       | 12,594                                                                              |       |
| Due from  affiliates                            |       | 32,269                         |       | 5,469                       |       | —                        |       | —                                                            |       | (37,738                            | )          | —                                                                              |       |
| Total current  assets                           |       | 35,783                         |       | 104,956                     |       | 39,671                        |       | —                                                            |       | (38,007                            | )          | 142,403                                                                             |       |
| Property and  Equipment:                        |       |                           |       |                        |       |                          |       |                                                              |       |                               |       |                                                                                |       |
| Land                                            |       | —                         |       | 2,260                       |       | 2,930                         |       | —                                                            |       | —                             |       | 5,190                                                                               |       |
| Buildings and  leasehold improvements           |       | 45                             |       | 4,045                       |       | 2,188                         |       | —                                                            |       | —                             |       | 6,278                                                                               |       |
| Vehicles and  other equipment                   |       | 7,595                          |       | 19,531                      |       | 2,871                         |       | —                                                            |       | —                             |       | 29,997                                                                              |       |
| Scaffolding  equipment                          |       | 173,047                        |       | 49,250                      |       | 87,090                        |       | —                                                            |       | —                             |       | 309,387                                                                             |       |
| Total property  and equipment at cost           |       | 180,687                        |       | 75,086                      |       | 95,079                        |       | —                                                            |       | —                             |       | 350,852                                                                             |       |
| Less accumulated  depreciation and amortization |       | 49,584                         |       | 16,472                      |       | 8,176                         |       | —                                                            |       | —                             |       | 74,232                                                                              |       |
| Total property  and equipment, net              |       | 131,103                        |       | 58,614                      |       | 86,903                        |       | —                                                            |       | —                             |       | 276,620                                                                             |       |
| Due from  affiliates                            |       | 113,221                        |       | —                      |       | —                        |       | 53,270                                                            |       | (166,491                           | )          | —                                                                              |       |
| Deferred tax  asset                             |       | —                         |       | —                      |       | —                        |       | 2,375                                                             |       | (2,375                             | )          | —                                                                              |       |
| Investment in  subsidiaries                     |       | 110,716                        |       | —                      |       | 159,734                       |       | 229,524                                                           |       | (449,974                           | )          | —                                                                              |       |
| Goodwill                                        |       | 247,325                        |       | 6,976                       |       | 38,300                        |       | —                                                            |       | —                             |       | 292,601                                                                             |       |
| Intangibles and  other assets                   |       | 66,276                         |       | 3,296                       |       | 40,451                        |       | 1,424                                                             |       | —                             |       | 111,447                                                                             |       |
| Total assets                                    |       | $                              | 704,424    |                        | $          | 173,842                       |       | $                                                                 | 365,059    |                               | $          | 286,593                                                                             |       | $ | (706,847 | ) | $ | 823,071 |   |

 

22

----

 

**BRAND ENERGY & INFRASTRUCTURESERVICES, INC.**

**CONDENSED CONSOLIDATING BALANCESHEET**

**DECEMBER 31, 2005**

 
| **Liabilities and  Stockholder’s Equity  (Deficit)**     | ** ** | **Brand  Services,  Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.** | ** ** | **Adjustments  and  Eliminations** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.  Consolidated** | ** ** |
|---------------------------------------------------------------|------------|----------------------------|------------|-----------------------------|------------|---------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| Current  Liabilities:                                         |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                                            |       |
| Current  maturities of long-term debt                         |       | $                          | 2,904      |                        | —     |                            | $          | —                                                            |       | $                                  | —     |                                                                            | $          | — |   | $ | 2,904 |   |
| Notes payable  and capital lease obligations, current portion |       | 100                        |       | 270                         |       | —                          |       | —                                                            |       | —                             |       | 370                                                                             |       |
| Accounts payable  and accrued expenses                        |       | 41,420                     |       | 18,042                      |       | 20,392                          |       | —                                                            |       | (269                               | )          | 79,585                                                                          |       |
| Deferred revenue                                              |       | —                     |       | 2,182                       |       | 852                             |       | —                                                            |       | —                             |       | 3,034                                                                           |       |
| Due to  affiliates                                            |       | 5,468                      |       | 31,286                      |       | 984                             |       | —                                                            |       | (37,738                            | )          | —                                                                          |       |
| Total current  liabilities                                    |       | 49,892                     |       | 51,780                      |       | 22,228                          |       | —                                                            |       | (38,007                            | )          | 85,893                                                                          |       |
| Long-term debt                                                |       | 432,704                    |       | —                      |       | —                          |       | 48,990                                                            |       | —                             |       | 481,694                                                                         |       |
| Notes payable  and capital lease obligations                  |       | 258                        |       | 200                         |       | —                          |       | —                                                            |       | —                             |       | 458                                                                             |       |
| Redeemable  preferred stock                                   |       | —                     |       | —                      |       | —                          |       | 32,337                                                            |       | —                             |       | 32,337                                                                          |       |
| Deferred income  taxes                                        |       | 15,331                     |       | —                      |       | 5,600                           |       | —                                                            |       | (2,375                             | )          | 18,556                                                                          |       |
| Due to  affiliates                                            |       | 53,270                     |       | —                      |       | 113,221                         |       | —                                                            |       | (166,491                           | )          | —                                                                          |       |
| Total  stockholder’s equity                              |       | 152,969                    |       | 121,862                     |       | 224,010                         |       | 205,266                                                           |       | (499,974                           | )          | 204,133                                                                         |       |
| Total liabilities  and stockholder’s equity              |       | $                          | 704,424    |                        | $          | 173,842                         |       | $                                                                 | 365,059    |                               | $          | 286,593                                                                         |       | $ | (706,847 | ) | $ | 823,071 |   |
|                                                               |            |                            |            |                             |            |                                 |            |                                                                   |            |                                    |            |                                                                                 |            |  |  |  |  |  |  |

 

23

----

 

**BRAND ENERGY & INFRASTRUCTURESERVICES, INC.**

**CONDENSED CONSOLIDATING BALANCESHEET**

**MARCH 31, 2006**

 
| **Assets**                                      | ** ** | **Brand  Services,  Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.** | ** ** | **Adjustments  and  Eliminations** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.  Consolidated** | ** ** |
|-------------------------------------------------|------------|----------------------------|------------|-----------------------------|------------|---------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| Current Assets:                                 |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                                            |       |
| Cash and cash  equivalents                      |       | $                          | 612        |                        | $          | 1,160                           |       | $                                                                 | 2,257      |                               | $          | —                                                                          |       | $ | (240 | ) | $ | 3,789 |   |
| Trade accounts  receivable                      |       | —                     |       | 94,606                      |       | 35,074                          |       | —                                                            |       | —                             |       | 129,680                                                                         |       |
| Accrued revenue                                 |       | —                     |       | 11,301                      |       | 5,489                           |       | —                                                            |       | —                             |       | 16,790                                                                          |       |
| Other current  assets                           |       | 3,983                      |       | 7,609                       |       | 3,723                           |       | —                                                            |       | —                             |       | 15,315                                                                          |       |
| Due from  affiliates                            |       | 29,689                     |       | 11,579                      |       | 3,931                           |       | —                                                            |       | (45,199                            | )          | —                                                                          |       |
| Total current  assets                           |       | 34,284                     |       | 126,255                     |       | 50,474                          |       | —                                                            |       | (45,439                            | )          | 165,574                                                                         |       |
| Property and  Equipment:                        |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                                            |       |
| Land                                            |       | —                     |       | 2,261                       |       | 2,927                           |       | —                                                            |       | —                             |       | 5,188                                                                           |       |
| Buildings and  leasehold improvements           |       | 38                         |       | 4,166                       |       | 2,184                           |       | —                                                            |       | —                             |       | 6,388                                                                           |       |
| Vehicles and  other equipment                   |       | 7,954                      |       | 19,835                      |       | 3,089                           |       | —                                                            |       | —                             |       | 30,878                                                                          |       |
| Scaffolding  equipment                          |       | 187,895                    |       | 47,067                      |       | 88,596                          |       | —                                                            |       | —                             |       | 323,558                                                                         |       |
| Total property  and equipment, at cost          |       | 195,887                    |       | 73,329                      |       | 96,796                          |       | —                                                            |       | —                             |       | 366,012                                                                         |       |
| Less accumulated  depreciation and amortization |       | 53,961                     |       | 18,515                      |       | 11,006                          |       | —                                                            |       | —                             |       | 83,482                                                                          |       |
| Total property  and equipment, net              |       | 141,926                    |       | 54,814                      |       | 85,790                          |       | —                                                            |       | —                             |       | 282,530                                                                         |       |
| Due from  affiliates                            |       | 113,103                    |       | —                      |       | —                          |       | 55,006                                                            |       | (168,109                           | )          | —                                                                          |       |
| Deferred tax  asset                             |       | —                     |       | —                      |       | —                          |       | 2,375                                                             |       | (2,375                             | )          | —                                                                          |       |
| Investment in  subsidiaries                     |       | 111,177                    |       | —                      |       | 159,568                         |       | 233,309                                                           |       | (504,054                           | )          | —                                                                          |       |
| Goodwill                                        |       | 247,325                    |       | 6,976                       |       | 38,345                          |       | —                                                            |       | —                             |       | 292,646                                                                         |       |
| Intangibles and  other assets                   |       | 64,599                     |       | 3,293                       |       | 39,733                          |       | 1,392                                                             |       | —                             |       | 109,017                                                                         |       |
| Total assets                                    |       | $                          | 712,414    |                        | $          | 191,338                         |       | $                                                                 | 373,910    |                               | $          | 292,082                                                                         |       | $ | (719,977 | ) | $ | 849,767 |   |

 

24

----

 

**BRAND ENERGY & INFRASTRUCTURESERVICES, INC.**

**CONDENSED CONSOLIDATING BALANCESHEET**

**MARCH 31, 2006**

 
| **Liabilities and Stockholder’s  Equity (Deficit)**      | ** ** | **Brand  Services,  Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.** | ** ** | **Adjustments  and  Eliminations** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.  Consolidated** | ** ** |
|---------------------------------------------------------------|------------|----------------------------|------------|-----------------------------|------------|---------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| Current  Liabilities:                                         |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                                            |       |
| Revolving loan                                                |       | $                          | 13,500     |                        | $          | —                          |       | $                                                                 | —     |                               | $          | —                                                                          |       | $ | — |   | $ | 3,500 |   |
| Current  maturities of long-term debt                         |       | 2,903                      |       | —                      |       | —                          |       | —                                                            |       | —                             |       | 2,903                                                                           |       |
| Notes payable  and capital lease obligations, current portion |       | 100                        |       | 256                         |       | —                          |       | —                                                            |       | —                             |       | 356                                                                             |       |
| Accounts payable  and accrued expenses                        |       | 40,689                     |       | 19,973                      |       | 24,256                          |       | —                                                            |       | (240                               | )          | 84,678                                                                          |       |
| Deferred revenue                                              |       | —                     |       | 2,626                       |       | 637                             |       | —                                                            |       | —                             |       | 3,263                                                                           |       |
| Due to  affiliates                                            |       | 4,956                      |       | 38,246                      |       | 1,997                           |       | —                                                            |       | (45,199                            | )          | —                                                                          |       |
| Total current  liabilities                                    |       | 62,148                     |       | 61,101                      |       | 26,890                          |       | —                                                            |       | (45,439                            | )          | 104,700                                                                         |       |
| Long-term debt                                                |       | 431,999                    |       | —                      |       | —                          |       | 50,693                                                            |       | —                             |       | 482,692                                                                         |       |
| Notes payable  and capital lease obligations                  |       | 263                        |       | 148                         |       | —                          |       | —                                                            |       | —                             |       | 411                                                                             |       |
| Redeemable  Preferred Stock                                   |       | —                     |       | —                      |       | —                          |       | 33,793                                                            |       | —                             |       | 33,793                                                                          |       |
| Deferred income  taxes                                        |       | 17,327                     |       | —                      |       | 5,623                           |       | —                                                            |       | (2,375                             | )          | 20,575                                                                          |       |
| Due to  affiliates                                            |       | 55,006                     |       | —                      |       | 113,103                         |       | —                                                            |       | (168,109                           | )          | —                                                                          |       |
|                                                          |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                                            |       |
| Total  stockholder’s equity                              |       | 145,671                    |       | 130,089                     |       | 228,294                         |       | 207,596                                                           |       | (504,054                           | )          | 207,596                                                                         |       |
| Total  liabilities and stockholder’s equity              |       | $                          | 712,414    |                        | $          | 191,338                         |       | $                                                                 | 373,910    |                               | $          | 292,082                                                                         |       | $ | (719,977 | ) | $ | 849,767 |   |

 

25

----

 

**BRAND ENERGY & INFRASTRUCTURESERVICES, INC.**

**CONDENSED CONSOLIDATING INCOMESTATEMENT**

**FOR THE THREE MONTHS ENDED MARCH31, 2005**

 
| ** **                                     | ** ** | **Brand  Services, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.** | ** ** | **Adjustments  and  Eliminations** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.  Consolidated** | ** ** |
|------------------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|---------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| Revenue:                                       |       |                           |       |                        |       |                            |       |                                                              |       |                               |       |                                                                            |       |
| Labor                                          |       | $                              | —     |                        | $          | 72,876                          |       | $                                                                 | 4,448      |                               | $          | —                                                                          |       | $ | — |   | $ | 77,324 |   |
| Equipment rental                               |       | —                         |       | 18,016                      |       | 854                             |       | —                                                            |       | —                             |       | 18,870                                                                          |       |
| Equipment sales                                |       | —                         |       | 2,599                       |       | 79                              |       | —                                                            |       | (620                               | )          | 2,058                                                                           |       |
| Intercompany  revenue                          |       | 5,495                          |       | 30                          |       | —                          |       | —                                                            |       | (5,525                             | )          | —                                                                          |       |
| Total revenues                                 |       | 5,495                          |       | 93,521                      |       | 5,381                           |       | —                                                            |       | (6,145                             | )          | 98,252                                                                          |       |
| Operating  expenses:                           |       |                           |       |                        |       |                            |       |                                                              |       |                               |       |                                                                            |       |
| Labor                                          |       | —                         |       | 60,898                      |       | 4,054                           |       | —                                                            |       | (1,224                             | )          | 63,728                                                                          |       |
| Equipment rental                               |       | 4,768                          |       | 1,452                       |       | 380                             |       | —                                                            |       | —                             |       | 6,600                                                                           |       |
| Equipment sales                                |       | —                         |       | 2,169                       |       | 47                              |       | —                                                            |       | (793                               | )          | 1,423                                                                           |       |
| Divisional operating  expenses                 |       | 19                             |       | 3,949                       |       | 152                             |       | —                                                            |       | —                             |       | 4,120                                                                           |       |
| Intercompany  operating expenses               |       | —                         |       | 5,495                       |       | 30                              |       | —                                                            |       | (5,525                             | )          | —                                                                          |       |
| Total operating  expenses                      |       | 4,787                          |       | 73,963                      |       | 4,663                           |       | —                                                            |       | (7,542                             | )          | 75,871                                                                          |       |
| Gross profit                                   |       | 708                            |       | 19,558                      |       | 718                             |       | —                                                            |       | 1,397                              |       | 22,381                                                                          |       |
| Selling and  administrative expenses           |       | 5,620                          |       | 7,112                       |       | 365                             |       | —                                                            |       | —                             |       | 13,097                                                                          |       |
| Non-cash  compensation                         |       | 603                            |       | —                      |       | —                          |       | —                                                            |       | —                             |       | 603                                                                             |       |
| Operating income  (loss)                       |       | (5,515                         | )          | 12,446                      |       | 353                             |       | —                                                            |       | 1,397                              |       | 8,681                                                                           |       |
| Interest expense                               |       | 6,902                          |       | 1                           |       | —                          |       | 1,515                                                             |       | —                             |       | 8,418                                                                           |       |
| Interest income                                |       | (93                            | )          | —                      |       | (6                              | )          | —                                                            |       | —                             |       | (99                                                                             | )          |
| Intercompany  interest                         |       | 1,515                          |       | —                      |       | —                          |       | (1,515                                                            | )          | —                             |       | —                                                                          |       |
| Equity in loss  (income) of subsidiaries       |       | —                         |       | —                      |       | —                          |       | (77                                                               | )          | 77                                 |       | —                                                                          |       |
| Income (loss)  before provision for income tax |       | (13,839                        | )          | 12,445                      |       | 359                             |       | 77                                                                |       | 1,320                              |       | 362                                                                             |       |
| Provision  (benefit) for income tax            |       | (4,478                         | )          | 4,636                       |       | 127                             |       | —                                                            |       | —                             |       | 285                                                                             |       |
|                                           |       |                           |       |                        |       |                            |       |                                                              |       |                               |       |                                                                            |       |
| Net income  (loss)                             |       | $                              | (9,361     | )                           | $          | 7,809                           |       | $                                                                 | 4232       |                               | $          | 77                                                                              |       | $ | 1,320 |   | $ | 77 |   |

 

26

----

 

**BRAND ENERGY & INFRASTRUCTURESERVICES, INC.**

**CONDENSED CONSOLIDATING INCOMESTATEMENT**

**FOR THE THREE MONTHS ENDED MARCH31, 2006**

 
| ** **                                             | ** ** | **Brand  Services, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.** | ** ** | **Adjustments  and  Eliminations** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.  Consolidated** | ** ** |
|--------------------------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|---------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| Revenue:                                               |       |                           |       |                        |       |                            |       |                                                              |       |                               |       |                                                                            |       |
| Labor                                                  |       | $                              | —     |                        | $          | 89,012                          |       | $                                                                 | 48,607     |                               | $          | —                                                                          |       | $ | — |   | $ | 137,619 |   |
| Equipment rental                                       |       | —                         |       | 32,499                      |       | 15,935                          |       | —                                                            |       | —                             |       | 48,434                                                                          |       |
| Equipment sales                                        |       | —                         |       | 4,590                       |       | 6,616                           |       | —                                                            |       | (67                                | )          | 11,139                                                                          |       |
| Intercompany  revenue                                  |       | 8,540                          |       | 4                           |       | —                          |       | —                                                            |       | (8,544                             | )          | —                                                                          |       |
| Total revenues                                         |       | 8,540                          |       | 126,105                     |       | 71,158                          |       | —                                                            |       | (8,611                             | )          | 197,192                                                                         |       |
| Operating  expenses:                                   |       |                           |       |                        |       |                            |       |                                                              |       |                               |       |                                                                            |       |
| Labor                                                  |       | —                         |       | 76,143                      |       | 43,887                          |       | —                                                            |       | (1,295                             | )          | 118,735                                                                         |       |
| Equipment rental                                       |       | 5,018                          |       | 4,886                       |       | 3,921                           |       | —                                                            |       | —                             |       | 13,825                                                                          |       |
| Equipment sales                                        |       | —                         |       | 3,102                       |       | 4,294                           |       | —                                                            |       | (276                               | )          | 7,120                                                                           |       |
| Divisional  operating expenses                         |       | 6                              |       | 6,779                       |       | 1,715                           |       | —                                                            |       | —                             |       | 8,500                                                                           |       |
| Intercompany  operating expenses                       |       | 4                              |       | 8,538                       |       | 2                               |       | —                                                            |       | (8,544                             | )          | —                                                                          |       |
| Total operating  expenses                              |       | 5,028                          |       | 99,448                      |       | 53,819                          |       | —                                                            |       | (10,115                            | )          | 148,180                                                                         |       |
| Gross profit                                           |       | 3,512                          |       | 26,657                      |       | 17,339                          |       | —                                                            |       | 1,504                              |       | 49,012                                                                          |       |
| Selling and  administrative expenses                   |       | 6,760                          |       | 12,188                      |       | 9,912                           |       | —                                                            |       | —                             |       | 28,860                                                                          |       |
| Non-cash  compensation                                 |       | 78                             |       | —                      |       | —                          |       | —                                                            |       | —                             |       | 78                                                                              |       |
| Operating income  (loss)                               |       | (3,326                         | )          | 14,469                      |       | 7,427                           |       | —                                                            |       | 1,504                              |       | 20,074                                                                          |       |
| Interest expense                                       |       | 10,614                         |       | 1                           |       | 9                               |       | 1,736                                                             |       | —                             |       | 12,360                                                                          |       |
| Interest income                                        |       | (156                           | )          | (9                          | )          | (11                             | )          | —                                                            |       | —                             |       | (176                                                                            | )          |
| Intercompany  interest                                 |       | (861                           | )          | —                      |       | 2,597                           |       | (1,736                                                            | )          | —                             |       | —                                                                          |       |
| Foreign currency  loss                                 |       | 14                             |       | (54                         | )          | 191                             |       | —                                                            |       | —                             |       | 151                                                                             |       |
| Gain on interest  rate and foreign currency rate swaps |       | (924                           | )          | —                      |       | —                          |       | —                                                            |       | —                             |       | (924                                                                            | )          |
| Redeemable  preferred stock dividend expense           |       | —                         |       | —                      |       | —                          |       | 1,455                                                             |       | —                             |       | 1,455                                                                           |       |
| Equity in loss  (income) of subsidiaries               |       | —                         |       | —                      |       | —                          |       | (5,115                                                            | )          | 5,115                              |       | —                                                                          |       |
| Income (loss)  before provision for income tax         |       | (12,013                        | )          | 14,531                      |       | 4,641                           |       | 3,660                                                             |       | (3,611                             | )          | 7,208                                                                           |       |
| Provision  (benefit) for income tax                    |       | (3,417                         | )          | 5,564                       |       | 1,401                           |       | —                                                            |       | —                             |       | 3,548                                                                           |       |
|                                                   |       |                           |       |                        |       |                            |       |                                                              |       |                               |       |                                                                            |       |
| Net income  (loss)                                     |       | $                              | (8,596     | )                           | $          | 8,967                           |       | $                                                                 | 3,240      |                               | $          | 3,660                                                                           |       | $ | (3,611 | ) | $ | 3,660 |   |

 

27

----

 

**BRAND ENERGY & INFRASTRUCTURESERVICES, INC.**

**CONDENSED CONSOLIDATING STATEMENTOF CASH FLOWS**

**FOR THE THREE MONTHSENDED MARCH 31, 2005**

 
| ** **                                            | ** ** | **Brand  Services,  Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.** | ** ** | **Adjustments  and  Eliminations** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.** | ** ** |
|-------------------------------------------------------|------------|----------------------------|------------|-----------------------------|------------|---------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------|------------|-------------------------------------------------------------------|------------|
| CASH FLOWS FROM  OPERATING ACTIVITIES:                |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| Net cash  provided by (used for) operating activities |       | $                          | 5,339      |                        | $          | 502                             |       | $                                                                 | (268       | )                                  | $          | —                                                            |       | $ | 188 |   | $ | 5,761 |   |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| Purchases of  property and equipment                  |       | (6,921                     | )          | (486                        | )          | (343                            | )          | —                                                            |       | —                             |       | (7,750                                                            | )          |
| Proceeds from  sales of property and equipment        |       | 515                        |       | —                      |       | —                          |       | —                                                            |       | —                             |       | 515                                                               |       |
| Payments for  acquisitions                            |       | —                     |       | —                      |       | —                          |       | —                                                            |       | —                             |       | —                                                            |       |
| Net cash used  for investing activities               |       | (6,406                     | )          | (486                        | )          | (343                            | )          | —                                                            |       | —                             |       | (7,235                                                            | )          |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| Payments of long-term  debt                           |       | (262                       | )          | —                      |       | —                          |       | —                                                            |       | —                             |       | (262                                                              | )          |
| Short-term bank  borrowings                           |       | —                     |       | —                      |       | —                          |       | —                                                            |       | —                             |       | —                                                            |       |
| Payments on  capital lease obligations                |       | (165                       | )          | (16                         | )          | —                          |       | —                                                            |       | —                             |       | (181                                                              | )          |
| Net cash used  for financing activities               |       | (427                       | )          | (16                         | )          | —                          |       | —                                                            |       | —                             |       | (443                                                              | )          |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS     |       | (1,494                     | )          | —                      |       | (611                            | )          | —                                                            |       | 188                                |       | (1,917                                                            | )          |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| CASH AND CASH  EQUIVALENTS, beginning of period       |       | 13,336                     |       | —                      |       | 1,525                           |       | —                                                            |       | (453                               | )          | 14,408                                                            |       |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| CASH AND CASH  EQUIVALENTS, end of period             |       | $                          | 11,842     |                        | $          | —                          |       | $                                                                 | 914        |                               | $          | —                                                            |       | $ | (265 | ) | $ | 12,491 |   |

 

28

----

 

**BRAND ENERGY & INFRASTRUCTURESERVICES, INC.**

**CONDENSED CONSOLIDATING STATEMENTOF CASH FLOWS**

**FOR THETHREE MONTHS ENDED MARCH 31, 2006**

 
| ** **                                            | ** ** | **Brand  Services,  Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiary** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.** | ** ** | **Adjustments  and  Eliminations** | ** ** | **Brand Energy  &  Infrastructure  Services, Inc.** | ** ** |
|-------------------------------------------------------|------------|----------------------------|------------|-----------------------------|------------|---------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------|------------|-------------------------------------------------------------------|------------|
| CASH FLOWS FROM  OPERATING ACTIVITIES:                |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| Net cash  provided by (used for) operating activities |       | $                          | (5,102     | )                           | $          | 2,919                           |       | $                                                                 | 914        |                               | $          | —                                                            |       | $ | 29 |   | $ | (1,240 | ) |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| Purchases of  property and equipment                  |       | (7,779                     | )          | (4,493                      | )          | (4,206                          | )          | —                                                            |       | —                             |       | (16,478                                                           | )          |
| Proceeds from  sales of property and equipment        |       | 664                        |       | 1,504                       |       | 913                             |       | —                                                            |       | —                             |       | 3,081                                                             |       |
| Payments for  acquisitions                            |       | (296                       | )          | —                      |       | —                          |       | —                                                            |       | —                             |       | (296                                                              | )          |
| Net cash used  for investing activities               |       | (7,411                     | )          | (2,989                      | )          | (3,293                          | )          | —                                                            |       | —                             |       | (13,693                                                           | )          |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| Payments of long-term  debt                           |       | (730                       | )          | —                      |       | —                          |       | —                                                            |       | —                             |       | (730                                                              | )          |
| Short-term bank  borrowings                           |       | 13,500                     |       | —                      |       | —                          |       | —                                                            |       | —                             |       | 13,500                                                            |       |
| Payments on  capital lease obligations                |       | —                     |       | (61                         | )          | —                          |       | —                                                            |       | —                             |       | (61                                                               | )          |
| Net cash  provided by/(used for) financing activities |       | 12,770                     |       | (61                         | )          | —                          |       | —                                                            |       | —                             |       | 12,709                                                            |       |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS     |       | 257                        |       | (131                        | )          | (2,379                          | )          | —                                                            |       | 29                                 |       | (2,224                                                            | )          |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| IMPACT OF  CURRENCY ON CASH                           |       | —                     |       | —                      |       | (297                            | )          | —                                                            |       | —                             |       | (297                                                              | )          |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| CASH AND CASH  EQUIVALENTS, beginning of period       |       | 355                        |       | 1,291                       |       | 4,933                           |       | —                                                            |       | (269                               | )          | 6,310                                                             |       |
|                                                  |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| CASH AND CASH  EQUIVALENTS, end of period             |       | $                          | 612        |                        | $          | 1,160                           |       | $                                                                 | 2,257      |                               | $          | —                                                            |       | $ | (240 | ) | $ | 3,789 |   |

 

29

----

 

**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

This Form 10-Q of Brand Energy & InfrastructureServices, Inc. and subsidiaries (the “Company”) includes forward-lookingstatements that are subject to risks and uncertainties. All statements otherthan statements of historical facts included in this Form 10-Q that addressactivities, events or developments that we expect, believe or anticipate willor may occur in the future are forward-looking statements. Forward-lookingstatements give our current expectations and projections relating to thefinancial condition, results of operations, plans, objectives, futureperformance and business of Brand Energy and its subsidiaries. You can identifythese statements by the fact that they do not relate strictly to historical orcurrent facts. These statements may include words such as “anticipate,” “believe,”“estimate,” “could,” “expect,” “future,” “intend,” “plan,” “predict,” “project,”“will” and other words and terms of similar meaning in connection with anydiscussion of the timing or nature of future operating or financial performanceor other events.

 

These forward-looking statements are based on ourexpectations and beliefs concerning future events affecting us. They aresubject to uncertainties and factors relating to our operations and businessenvironment, all of which are difficult to predict and many of which are beyondour control. Although we believe that the expectations reflected in our forward-lookingstatements are reasonable, we do not know whether our expectations will provecorrect. They can be affected by inaccurate assumptions we might make or byknown or unknown risks and uncertainties. Many factors mentioned in ourdiscussion in this 10-Q, including the risks outlined under “Risk Factors,”will be important in determining future results. Actual future results may varymaterially as a result of various risks and uncertainties, including but notlimited to:

 

•                  seasonalfluctuations and cyclicality in the scaffolding markets;

 

•                  thepotential loss of a key customer;

 

•                  increasesin the cost of labor;

 

•                  downturnsin industries that we serve, such as the oil, petrochemical, chemical,utilities, pulp and paper and construction industries;

 

•                  unanticipatedcost overruns on unit-price contracts;

 

•                  on-the-jobaccidents;

 

•                  thepotential loss of key personnel; and

 

•                  costsrelated to the integration of acquisitions.

 

Because of these factors, we caution that investorsshould not place undue reliance on any of our forward-looking statements.Further, any forward-looking statement speaks only as of the date on which itis made, and, except as required by law, we undertake no obligation to updateany forward-looking statement to reflect events or circumstances after the dateon which it is made or to reflect the occurrence of anticipated orunanticipated events or circumstances.

 

The following discussion and analysis should be readin conjunction with the attached condensed consolidated financial statementsand notes thereto.

 

**Overview**

 

We are a leading industrial services company. We believewe are the largest North American provider of scaffolding work access services,which include design engineering, project management, labor for the erectionand dismantlement of complex scaffolding systems and the associated equipmentrental. Additionally, we provide concrete forming and shoring and specialtycraft labor services. We primarily service North American energy-relatedmarkets, with clients in the refining, chemical, power generation, offshore oilproduction and other

 

30

----

 

industries. In energy-related markets, our services support the ongoingmaintenance, inspection and periodic overhauls (“turnarounds”) of our customers’facilities. We also provide work access services associated with the constructionof new facilities and the expansion or upgrading of existing sites. In thecommercial and infrastructure markets, we support new construction andrenovation projects, including for high-rise buildings, hospitals, airports,churches, bridges, dams and other construction and renovation projectsthroughout North America and in select international regions.

 

Our work access service offerings facilitate access toour customers’ tall and complex structures. The core of our work accessbusiness is comprised of work access services for ongoing maintenance at ourcustomers’ facilities, many of which we have serviced for over 20 years.In our forming and shoring business, we provide customized applications thatsupport our customers concrete formwork needs. The modular formwork systems weprovide enable our customers to shorten construction times and reduce laborcosts. We also provide our customers with specialty craft labor services,including insulation, carpentry and safety services. We believe that providingthese services strengthens our relationships with our core customer base andprovides us with a source of revenues that requires no additional capitalinvestment.

 

In the second half of 2005 we acquired the operationsof Aluma Enterprises, a leading provider of work access and forming and shoringservices in Canada. Approximately 60% of Aluma’s business serves the Canadianrefining market, including the Alberta Oil Sands. Through this acquisition wealso acquired a concrete forming and shoring business which has a strongpresence in select North American regions and international markets.

 

We deliver our services through an extensive fieldservice organization consisting of 6,000 to 7,000 skilled craftspeople(depending on seasonal needs), 88 field offices and an additional 74 facilitieslocated at customer sites throughout the United States, Canada and selectedinternational locations.

 

**Key Factors Affecting Our Business**

 

Our operating results are influenced by a broad rangeof factors, including those outlined below.

 

*Effects of Seasonality*

 

The market for industrial work access solutions andforming and shoring services experiences seasonal fluctuations in demand. Forinstance, because of high demand for gasoline for automobiles during thesummer, most refineries prefer to close down for turnarounds during the springand fall. In addition, cold temperatures in the first and fourth fiscalquarters typically limit activity on maintenance and capital projects in theAlberta Oil Sands. Our utility clients follow a similar pattern. On the otherhand, non-residential construction, particularly in the renovation business,occurs throughout the year, but is heaviest in the second and third fiscalquarters. The effects of seasonal fluctuations in demand for our services maylead to:

 

•                  lowinventory utilization during periods of low demand;

 

•                  aninability to service all of our customers during periods of high demand;

 

•                  competitivepricing pressure during periods of low demand;

 

•                  periodsof low cash flow; and

 

•                  quarter-to-quartervolatility in net income.

 

31

----

 

*Effects on our Revenues of Economic Conditions in aSmall Group of Industries*

 

Historically, the demand for our industrial workaccess and forming and shoring services has varied significantly from year toyear, principally due to our dependence on maintenance and capital spending bycompanies in the refining, petrochemical, chemical, utility, pulp and paper andbuilding construction and renovation industries. The spending of companies inthese cyclical industries, in turn, is influenced by the strength of themarkets for their products as well as regulatory, macroeconomic andgeopolitical factors. For example:

 

•                  Strongdemand, high utilization rates and rising energy prices in the refining andpetrochemical industries have driven work access spending on maintenance andcapital projects, including construction of new facilities, capacityenhancement of existing facilities and refurbishment of mothballed facilities.

 

•                  Technologicaladvances and high prices for oil have led to major capital investments inextraction and refining facilities in areas such as the Alberta Oil Sands,which has driven demand for our industrial work access services.

 

•                  Emissionsregulations have led to increased capital spending by utilities and companiesin the refining, petrochemical and utility industries for the installation ofenvironmentally compliant technologies, which has driven demand for our workaccess services.

 

•                  Highnatural gas prices have led to an increasing reliance on high-maintenancecoal-fired generating facilities, driving work access spending in the utilityindustry.

 

•                  Federalinvestment in transportation infrastructure has driven spending on forming andshoring projects by the building construction and renovation industries.

 

•                  Economicgrowth and demographic shifts, particularly in the Southern and Western UnitedStates, have driven construction and renovation activity, which has led toincreased commercial work access spending.

 

•                  Therising cost of lumber, plywood and structural steel, traditional alternativesto concrete construction, have contributed to increased spending on concreteconstruction projects that require forming and shoring services.

 

*Effects of Changes in Foreign Currency ExchangeRates*

 

Our acquisition of Aluma significantly increased ourexposure to exchange rate fluctuations between the Canadian dollar and the U.S.dollar. We record the financial results of our non-U.S. operations in U.S.dollars. Consequently, a weakening of the Canadian dollar against the U.S.dollar would reduce the contribution, in U.S. dollar terms, of our Canadianoperations, even if, in local currency terms, the results of these Canadiansubsidiaries improved or remained the same relative to prior years.Approximately 30% of our revenues are generated in Canadian dollars. In futureyears we expect our Canadian results of operations will be an increasinglyimportant component of our consolidated results of operations. As a result, theimpact of changes in the exchange rate between the Canadian dollar and the U.S.dollar in future years will be increasingly important to our reported levels ofrevenues and operating income. In general we do not hedge against ourtranslational exposure to changes in the U.S. dollar/Canadian dollar exchangerate, though we do hedge to some extent our exposure to certain Canadian dollarreceivables, as described below.

 

*Effects of Changes in Interest Rates*

 

As of March 31, 2006, our total long-term indebtednesswas $492.3 million, of which approximately $288.2 million was subjectto variable interest rates. If interest rates were to increase by 100 basispoints, our annualized cash interest expense would increase by approximately$2.9 million.

 

32

----

 

*Effects of Competition and Concentrated Client Base*

 

We operate in a highly competitive industry. The workaccess solutions industry is comprised of a few large work access solutionscompanies and a large number of engineering and construction firms, multi-craftproviders and other local work access solutions providers. As a result, wecompete on the basis of delivered price as well as on the basis of customerservice and safety. Our 10 largest customers accounted for 36% of our 2005revenues. The loss of any of our large customers to a competitor or otherwisewould have a material adverse effect on our financial condition, results ofoperations and cash flows.

 

**Key Factors Affecting Our Results**

 

*Revenues*

 

Our revenues consist of revenues from labor, equipmentrental and equipment sales. We derive the bulk of our revenues from the laborservices we provide in connection with the rental or sale of scaffoldingequipment. We generally rent equipment under month-to month rental contracts.We provide services, such as the erection and dismantlement of scaffolding orforming and shoring units, under both price-per-unit and time-and-materialscontracts. We typically provide work access services for ongoing maintenance atour customers’ facilities, many of which we have serviced for over20 years. Turnarounds occur every one to four years depending on theindustry and the type of turnaround being performed. Although some turnaroundsmay be postponed for a period of time, they are a necessary component ofmaintaining industrial facilities and are required to ensure the safe andefficient operation of such facilities. While the postponement of scheduledturnarounds causes fluctuations in our quarterly and annual results, ongoingmaintenance and turnarounds provide stable and recurring revenues.Historically, approximately 75% of our revenues have been attributable toserving the industrial market with ongoing maintenance, turnarounds and capitalprojects of industrial facilities.

 

We derive incremental revenues by providing specialtycraft services, such as carpentry, insulation and safety services. We alsoperiodically sell new scaffolding and concrete forming and shoring equipment tothird parties.

 

*Operating Expenses*

 

Our operating expenses consist of the cost of labor,the cost of equipment rental revenues, the cost of equipment sales, anddivisional operating expenses, the most significant of which is the cost oflabor. The cost of labor as a percentage of operating expenses was 84.0% and 80.1%for the three months ended March 31, 2005 and 2006, respectively. The cost oflabor consists of salaries and related payroll expenses that we pay to ouremployees who provide our work access and forming and shoring services. Inperiods of high demand for our services, we may supplement our permanentworkforce with as many as 5,000 temporary workers. During periods of intensecompetition for such temporary workers, our cost of labor increases. Forexample, a tightening labor market along the Gulf Coast and in Western Canadaincreased our cost of labor in recent periods. Insurance and related expensesrepresent a significant component of our cost of labor. In 2005 our insurancecosts of $10.6 million represented 3.6% of our cost of labor. If ourinsurance premiums or related costs rise significantly in the future, ourprofitability could be reduced.

 

The cost of equipment rental, the cost of equipmentsales and divisional operating expenses represented 9.3%, 4.8%, and 5.7%,respectively, of our operating expenses for the three months ended March 31,2006. The cost of equipment rentals principally consists of depreciationexpense and the costs to transport our rental equipment to and from ourcustomer sites. The cost of equipment sales consists of our purchase costs ofthe equipment sold. Divisional operating expenses are the costs to man andoperate our field locations. These costs tend to vary directly with totalrevenues.

 

*Gross Margin*

 

We use the gross margin (gross profit divided by revenues)of each of our revenue sources to monitor the profitability of our business.Because we price our services as a function of our estimated costs, we expectour gross margin to be relatively stable despite the variable cost of labor.Consequently, we expect that our labor revenues will vary directly with ourcost of labor. Nevertheless, although our contracts typically provide forre-pricing on an

 

33

----

 

annual basis, volatility in our variable costs, principally the cost oflabor, may have a short term impact on our gross margins to the extent thatpricing adjustments cannot be made immediately to reflect such increased costs.

 

Because a large component of our cost of rentalrevenues is depreciation expense, which is a semi-variable cost, we expect thatour gross margins on rental revenues should increase as rental revenuesincrease. From time to time we sell scaffolding and concrete forming andshoring equipment.

 

*Selling and Administrative Expenses*

 

Our selling and administrative expenses consist ofsalaries and other payroll-related costs for our executive, administrative,financial and marketing functions, as well as certain taxes, insurance andprofessional service fees.

 

*Interest Expense*

 

Our interest expense includes the interest on ourlong-term debt, any borrowings under our revolving debt facility and notespayable, commitment fees for our credit facility and amortization of therelated fees to execute required financing arrangements. As a result of ourhigh debt levels, interest expense has represented a significant proportion ofour expenses during the periods under review.

 

*Gain (Loss) on Interest Rate and Foreign CurrencySwaps*

 

When we acquired the assets and operations of Aluma,we increased our exposure to changes in foreign currency exchange rates becausethe majority of Aluma’s assets and operations are located in Canada. Inaddition, we increased our exposure to changes in interest rates because thedebt we assumed to acquire Aluma is variable interest rate debt. To mitigateour risk related to changes in the rate of exchange between the Canadian dollarand the U.S. dollar and to mitigate our risk related to rising interest rates,we entered into several interest rate and foreign currency swaps during thesecond half of 2005. As we more fully describe in note 13 of ourconsolidated financial statements, we determined that we would not account forthese as hedges. As a result, we record the change in fair market value ofthese financial instruments in this line of our income statement.

 

*Foreign Currency Transaction Gain*

 

To fund the acquisition of Aluma, our U.S. subsidiary,Brand Services, borrowed CDN$70.3 million under our credit facility andloaned CDN$132.0 million to our Canadian subsidiary to purchase theCanadian assets of Aluma. As a result, we have a Canadian dollar denominatednet receivable on the books of our U.S. subsidiary which changes in value asthe rate of exchange rate between the Canadian dollar and the U.S. dollarchanges. We record this change in value in this line of our income statement.In particular, because we have a net Canadian receivable on the books of a U.S.subsidiary, we will record unrealized gains if the Canadian dollar strengthensagainst the U.S. dollar. On the other hand, if the Canadian dollar weakensagainst the U.S. dollar, we will record unrealized losses.

 

*Redeemable Preferred Stock Expense*

 

We issued redeemable preferred stock during 2005 tofinance the acquisition of Aluma. As we more fully discuss in note 12 ofour consolidated financial statements, we account for the redeemable preferredstock as debt because it has a mandatory redemption feature. As a result, wecharge the related dividends to expense in this line of our income statement.

 

**Critical Accounting Policies**

 

A summary of our significant account policies isincluded in note 2 to our consolidated financial statements. Thepreparation of financial statements requires our management to make estimatesand assumptions that affect the amounts reported in the consolidated financialstatements and accompanying notes. Our estimates and assumptions are based onhistorical experiences and changes in the business environment. However, actualresults may differ from estimates under different conditions, sometimesmaterially. Critical accounting policies and estimates are defined as thosethat are both most important to the portrayal of our financial condition andresults and

 

34

----

 

require management’s most subjective judgments. Our most criticalaccounting policies and estimates are described below.

 

*Acquisition Accounting*

 

We have made several acquisitions in recent years. Wehave accounted for all of these acquisitions in accordance with the purchasemethod, and accordingly, we have included the results of their operations inour consolidated income statement from the respective date of acquisition. Weallocated the purchase price of each acquisition to its identifiable assets andliabilities, and we recorded any excess of the cost over the fair value of thenet identifiable assets acquired as goodwill. Our initial allocation ofpurchase price is based on preliminary information, which is subject toadjustments upon obtaining complete valuation information. While the delayedfinalization of a purchase price has historically not had a material impact onour consolidated results of operations, we cannot guarantee the same results infuture acquisitions.

 

*Impairment Policies*

 

We account for our long-lived assets, excludinggoodwill and tradenames, in accordance with SFAS No. 144, which requiresus to assess the recoverability of these assets when events or changes incircumstances indicate that the carrying amount of the long-lived asset mightnot be recoverable. If impairment indicators exist, we determine whether theprojected undiscounted cash flows will be sufficient to cover the carryingvalue of such assets. This requires our management to make significantjudgments about the expected future cash flows of the asset group. The futurecash flows are dependent on general and economic conditions and are subject tochange.

 

We account for goodwill and tradenames in accordancewith SFAS No. 142, which requires us to test goodwill and tradenames forimpairment annually and whenever events occur or circumstances change thatwould, more likely than not, reduce the fair value of the reporting unit belowits carrying value. For purposes of SFAS No. 142, we have determined thatwe will perform our impairment analysis on a consolidated enterprise level.Because quoted market prices are not available, management uses the presentvalue of expected future cash flows to estimate fair value. Management mustmake significant judgments and estimates about future conditions to estimatefuture cash flows. Unforeseen events and changes in circumstances and marketconditions, including general economic and competitive conditions, could resultin significant changes in those estimates and material charges to income.

 

*Workers’ Compensation and Health Benefit Claims*

 

As part of our ongoing business, we make payments onclaims for workers’ compensation and health benefits. We have purchasedinsurance coverage for large claims. We estimate our future workers’compensation and health benefit liabilities using actuarial methods based uponhistorical data for payment patterns, cost trends, utilization of healthcareservices and other relevant factors. These liabilities take into accountincurred but not reported (IBNR) claims. While we believe our liabilities forworkers’ compensation and health benefit claims of $16.0 million as of March 31,2006, are adequate and that the judgment applied is appropriate, such estimatedliabilities could differ materially from our actual future liabilities relatedto workers’ compensation and health benefit claims.

 

*Revenue Recognition*

 

We generally rent equipment under month-to-monthrental contracts and provide services under both price-per-unit andtime-and-materials short-term contracts. Price-per-unit contracts establish afixed price per unit of scaffolding deployed. We recognize revenues onprice-per-unit contracts over the contractual period based upon the percentageof completion method. We determine percentage of completion by comparing costsactually incurred on each contract to total estimated costs to complete eachcontract. We recognize losses on individual contracts as soon as we determinethat our total estimated costs exceed our fixed fee arrangement for thatcontract. We recognize revenues for services provided on a time-and-materialsbasis when we provide the related service.

 

We periodically sell new scaffolding and concreteforming and shoring equipment directly to third parties. We recognize revenueupon shipment and record as operating expense the cost of the scaffolding orconcrete forming equipment sold on the first-in first-out method. In addition,we periodically sell used scaffolding and

 

35

----

 

concrete forming and shoring equipment to third parties, primarily torental customers. We recognize revenue for the proceeds of such sales andrecord as operating expense the net book value of the scaffolding or concreteforming equipment. We determine net book value assuming the oldest inventory issold first, as we maintain inventory records on a group basis.

 

**Acquisition of Aluma**

 

On July 29, 2005, we purchased substantially allof the operations and the net operating assets of Aluma. The purpose of thetransaction was to expand our market position in Canada and obtain entry intothe forming and shoring business. The results of Aluma are included in ourconsolidated financial statements from July 29, 2005 to December 31,2005. The aggregate purchase price for Aluma was $241.3 million,consisting of purchase price and acquisition related costs of $217.5 millionand assumed liabilities of $23.8 million. The acquisition was principallyfinanced through borrowings under our credit facility (See note 10 to ourconsolidated financial statements), and through the issuance of our redeemablepreferred stock (See note 11 to our consolidated financial statements). Inconnection with the acquisition, we recorded goodwill of $44.2 millionbased upon the allocation of the excess of the purchase price over the net fairvalue of the assets acquired.

 

**Results of Operations**

 

*Revenue*. Total revenues increasedto $197.2 million for the three months ended March 31, 2006 from$98.3 million for the three months ended March 31, 2005, whichrepresented an increase of $98.9 million or 100.7%. The increase inrevenues was principally attributable to the acquisition of Aluma, whichaccounted for $84.0 million, or 84.9%, of this increase, and strong demandfor work access solutions in all of our markets in 2006. Our revenues derivedfrom the refinery and chemical market increased $11.6 million from prior yeardriven by increased turnaround activity. The Commercial segment also grew $3.8million driven by continued strength in new construction and renovation work,particularly in the southeast and western United States.

 

*Gross Profit*. Gross profit forthe three months ended March 31, 2006 was $49.0 million or 24.9% ofrevenues compared to 2005 gross profit of $22.4 million or 22.8% ofrevenues. The acquisition of Aluma accounted for $22.9 million of thisincrease.

 

Gross profit on labor services for the three monthsended March 31, 2006 increased 38.9% to $18.9 million or 13.7% of laborrevenues as compared to the three months ended March 31, 2005 gross profit onlabor services, which was $13.6 million or 17.6% of labor revenues. Theacquisition of Aluma accounted for $4.9 million of 2006 labor grossprofit. The decrease in labor gross margin percentage was principally due tothe Aluma acquisition and higher than normal labor costs in the Gulf Coastregion. Gross profit on equipment rentals increased 182.1% to$34.6 million in 2006 or 71.5% of equipment revenues as compared to 2005gross profit on equipment rentals of $12.2 million or 65.0% of equipmentrental revenues. The acquisition of Aluma accounted for $18.2 million of2006 equipment gross profit. The increase in gross margin on equipment rentalwas driven by the Aluma acquisition and a 22.8% increase in equipment rentalrevenues in our existing business while total equipment rental costs for ourexisting business decreased 3.3% between years. Divisional operating costsincreased 106.3% to $8.5 million in 2006 or 4.3% of total revenues ascompared to 2005 divisional operating costs of $4.1 million or 4.2% oftotal revenues. The acquisition of Aluma accounted for $3.5 million of theincreases in divisional operating costs.

 

*Selling and Administrative Expenses*.Selling and administrative expenses increased $15.8 million to $28.9 millionfor the three months ended March 31, 2006. The acquisition of Aluma accountedfor $13.0 million of the increase. Selling and administrative expensesalso increased as a result of increases in salaries of $0.6 million, benefitsexpense of $0.5 million, bonus and sales commission expenses of $1.0 million,and bad debt expenses of $0.5 million.

 

*Operating Income*. As a result ofthe factors discussed above, operating income increased by $11.4 millionto $20.1 million for the three months ended March 31, 2006 from$8.7 million for the three months ended March 31, 2005.

 

*Interest Expense*. Interestexpense increased by $3.9 million to $12.4 million for the threemonths ended March 31, 2006, from $8.4 million for the three monthsended March 31, 2005. This increase was primarily due to the impact ofhigher interest rates on our outstanding senior debt under our credit facility,the interest expense in respect of the additional $185.0 million in seniordebt under our credit facility drawn in connection with the

 

36

----

 

acquisition of Aluma and the compounding effect of interest on our 13%senior subordinated pay-in-kind notes due 2013.

 

*Redeemable Preferred Stock Dividend Expense*.Preferred stock dividend expense in 2006 arose from our issuance in July 2005 ofpreferred stock to finance the acquisition of Aluma. As further discussed innote 11 to our consolidated financial statements, because the preferredstock has a mandatory redemption date, it is reflected as debt in our consolidatedfinancial statements and the related dividends are recorded as preferred stockdividend expense.

 

*Foreign Currency Transaction Gain*.On July 29, 2005 Brand Services borrowed CDN$70.3 million under thecredit facility to fund the acquisition of Aluma. Simultaneously, BrandServices loaned CDN$132.0 million to its Canadian subsidiary to purchasethe Canadian assets of Aluma. As a result of these transactions, Brand Serviceshas a net receivable exposure of approximately CDN$61.7 million on whichit recognizes currency gains and losses. From December 31, 2005 to March31, 2006, the U.S. dollar strengthened against the Canadian dollar byapproximately 0.1% resulting in a foreign currency transaction loss of$0.2 million.

 

*Gain on Interest and Foreign Currency Rate Swaps*.During the second half of 2005 we entered into several interest and currencyswaps to mitigate our interest rate exposure in connection with our variableinterest rate debt and our currency rate exposure related to our investment inAluma. We did not elect to treat these swap agreements as hedges under SFASNo. 133 and, accordingly, recorded mark-to-market gains and losses in netincome. For the three months ended March 31, 2006, we recorded a gain of$0.5 million on our interest rate swaps and a gain of $0.4 million onour currency swaps.

 

*Provision for Taxes*. For thethree months ended March 31, 2006, the provision for income taxes wasrecorded at an effective rate of 49.2% versus an effective tax rate of 78.7%for the three months ended March 31, 2005. The primary reason for thedecrease in the effective tax rate is that pretax income increased from $0.4million for the three months ended March 31, 2005 to $7.2 million for the threemonths ended March 31, 2006. We explain the differences between our effectivetax rate and the federal statutory rate of 34% in greater detail in Note 15to our consolidated financial statements.

 

**Liquidity and CapitalResources**

 

We have historically utilizedinternal cash flow from operations and borrowings under our credit facility tofund our operations, capital expenditures and working capital requirements. Asof December 31, 2005 and March 31, 2006, we had working capital of $56.5million and $60.9 million and cash of $6.3 million and $3.8 million,respectively.

 

We believe that our existingworking capital, borrowings available under our credit facility and internalcash flow from operations should provide sufficient resources to supportcurrent business activities. To the extent we accelerate our growth plans,consummate acquisitions or have lower than anticipated sales or increases inexpenses, we may also need to raise additional capital. In particular,increased working capital needs occur whenever we consummate acquisitions orexperience strong incremental demand.

 

One of our major uses of cash iscapital expenditures. Our capital expenditure requirements are comprised ofmaintenance and expansion expenditures. Our maintenance capital expenditurerequirements are generally for scaffolding planks and other items used in thebusiness, such as trucks and equipment. Expansion capital expenditures are fornew scaffolding and vehicles, are discretionary and vary annually based on ourlevel of scaffolding rental activity and management’s growth expectations.During the three months ended March 31, 2005 and 2006, capital expenditureswere $7.8 million and $16.5 million, respectively.

 

In July 2005, we amended our former creditfacility in connection with the acquisition of Aluma. Our amended creditfacility provides for $287.0 million of term loans, a $50.0 million revolvingloan facility, a $20.0 million letter of credit facility and a syntheticletter of credit facility of up to $15.0 million. Up to $20.0 millionof the $50.0 million revolving loan facility may be used for additionalletters of credit. As of March 31, 2006, we had $13.5 million inborrowings outstanding under the revolving portion of our credit facility andhad total outstanding letters of credit of $34.3 million. Under thisfacility, we and our subsidiaries are subject to numerous financial covenants.In addition to customary events of default, this facility contains certainfinancial covenants as well as covenants which, among other things, limit theamount of capital expenditures, the incurrence of additional indebtedness,investments, dividends, transactions with

 

37

----

 

affiliates, asset sales, acquisitions, mergers and consolidations,prepayments of other indebtedness, liens and encumbrances and other matterscustomarily restricted in such agreements. At March 31, 2006, we were incompliance with the financial covenants related to our credit facility.

 

The interest rate on the term loans and revolvingloans under our credit facility is variable. For the three months ended March31, 2005 and 2006, the weighted average interest rate on the term loans was5.8% and 7.6%, respectively. For the three months ended March 31, 2006, the weightedaverage interest rate for borrowings under the revolving portion of our creditfacility was 9.8%.

 

We are required to make semi-annual interest paymentson our 12%, $150.0 million senior subordinated notes in the amount of $9.0million in April and October of every year until the senior subordinated notesmature in October 2012. We are also required to make quarterly interestpayments on loans under our credit facility, which bears interest at a floatingrate based upon either the base rate (as defined in our credit agreement, forbase rate loans) or the LIBOR rate (for LIBOR loans) plus a spread of 1.75% to3.25%, depending on the ratio of our consolidated debt to EBITDA. We are notrequired to make interest payments on our 13%, senior subordinated pay-in-kindnotes, until 2008 as these are pay-in-kind notes.

 

A summary of the sources and uses of cash for thethree months ended March 31, 2005 and 2006 follows:

 
| ** **                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------|------------|--------------------------------------------------|------------|
| ** **                        | ** ** | **2005**                                         | ** ** | **2006** | ** ** |
| Net cash  provided by (used for): |       |                                             |       |   |   |
| Operating  activities             |       | $                                                | 5,761      |   | $ | (1,240 | ) |
| Investing  activities             |       | (7,235                                           | )          | (13,693 | ) |
| Financing  activities             |       | (443                                             | )          | 12,709 |   |
|                                   |            |                                                  |            |  |  |  |  |

 

**Off-Balance Sheet Arrangements**

 

As security for our performance to insurers, we arecontingently liable under letters of credit in the amounts of$34.3 million and $34.3 million at December 31, 2005 and March31, 2006, respectively. These letters of credit generally have no scheduledexpiration date. We pay fees to various banks that range from 3.25% to 4.25%per annum of their face value. If we were required to replace outstandingletters of credit as of March 31, 2006, management believes that the replacementcost would not vary significantly from the present fee structure.

 

38

----

 

**Contractual Obligations**

 

The following is a summary of contractual cash obligationsas of March 31, 2006 (dollars in thousands):

 
| ** **                                                               | ** ** | **Payments due in:** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                               | ** ** | **Total**                      | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **After  2010** | ** ** |
| Term loan                                                                |       | $                              | 288,170    |   | $ | 2,178 |   | $ | 2,903 |   | $ | 2,903 |   | $ | 2,903 |   | $ | 2,903 |   | $ | 274,380 |   |
| Expected interest  payments on term loans(1)                             |       | 123,466                        |       | 20,809 |   | 20,625 |   | 20,414 |   | 20,203 |   | 19,993 |   | 21,422 |   |
| 12% senior  subordinated notes                                           |       | 150,000                        |       | — |   | — |   | — |   | — |   | — |   | 150,000 |   |
| Expected interest  payments on 12% senior subordinated notes             |       | 126,000                        |       | 18,000 |   | 18,000 |   | 18,000 |   | 18,000 |   | 18,000 |   | 36,000 |   |
| 13% senior  subordinated pay-in-kind notes                               |       | 54,098                         |       | — |   | — |   | — |   | — |   | — |   | 54,098 |   |
| Expected interest  payments on 13% senior subordinated pay-in-kind notes |       | 62,808                         |       | — |   | — |   | 8,538 |   | 8,538 |   | 8,538 |   | 37,194 |   |
| Redeemable preferred  stock                                              |       | 33,793                         |       | — |   | — |   | — |   | — |   | — |   | 33,793 |   |
| Expected dividend  payments on redeemable preferred stock                |       | 120,533                        |       | — |   | — |   | — |   | — |   | — |   | 120,533 |   |
| Operating leases                                                         |       | 15,875                         |       | 5,010 |   | 4,312 |   | 2,527 |   | 1,805 |   | 760 |   | 1,461 |   |
| Notes payable and  capital leases                                        |       | 767                            |       | 356 |   | 356 |   | 55 |   | — |   | — |   | — |   |
| Total contractual  cash obligations                                      |       | $                              | 975,510    |   | $ | 46,353 |   | $ | 46,196 |   | $ | 52,437 |   | $ | 51,449 |   | $ | 50,194 |   | $ | 728,881 |   |

 

----

(1)                                  The interestrate on the term loan under our credit facility is floating. For purposes ofthis table we are using the March 31, 2006 interest rate of 7.61% for allperiods. Also, we have the option to make voluntary prepayments on the termloan and are required under our credit facility to make prepayments equal to50% of the free cash flow generated in each year as defined in our credit facility.For purposes of this schedule we have not attempted to estimate what, if any,prepayments might be made throughout the life of the term loans.

 

**Effect of Inflation; Seasonality**

 

Inflation has not generally been a material factoraffecting our financial condition, results of operations or cash flows. Ourgeneral operating expenses, such as salaries, employee benefits and facilitiescosts are subject to normal inflationary pressures.

 

The market for industrial work access solutions andformwork and shoring services experiences seasonal fluctuations in demand. Inparticular, because of high demand for gasoline for automobiles during thesummer, most refineries prefer to close down for turnarounds during the springand fall. In addition, cold temperatures in the first and fourth fiscal quarterstypically limit activity on maintenance and capital projects in the Alberta OilSands. Our work for power utilities follows a similar seasonal pattern.Conversely, non-residential building construction, particularly in therenovation business, occurs throughout the year, but is heaviest in the secondand third fiscal quarters.

 

**Change in Accounting Principle**

 

Effective January 1, 2006, we adopted theprovisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(Revised 2004) “Share-Based Payment” (“SFAS No. 123(R)”) using themodified prospective method, which requires measurement of compensation costfor all stock-based awards at fair value on date of grant and recognition ofcompensation over the service periods for awards expected to vest.

 

Previously, effective January 1, 2004, we adopted thefair value recognition provisions of SFAS No. 123, “Accounting for Stock-BasedCompensation”. We selected the modified prospective transition method under the

 

39

----

 

provisions of SFAS No. 148, “Accounting for Stock-BasedCompensation-Transition and Disclosure,” which requires us to expense stockoptions prospectively, beginning in the year of adoption.

 

Because we had already adopted the fair value recognitionprovisions of SFAS No. 123, as further discussed in footnote 14 of ourconsolidated financial statements, the impact of adoption of SFAS No. 123(R)did not have a material impact on our results of  operations or financial position.

 

**New Accounting Standards**

 

*SFASNo. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”)*

 

In December 2004, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 123R, which is a revision of SFASNo. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123Rsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,”and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approachin SFAS No. 123R is similar to the approach described in SFASNo. 123. However, SFAS No. 123R requires all share-based payments toemployees, including grants of employee stock options, to be recognized in theincome statement based on their fair values.

 

In March 2005, the SEC issued Staff AccountingBulletin No. 107 (“SAB No. 107”) which summarizes the views of theSEC staff regarding the interaction between SFAS No. 123R and certain SECrules and regulations. SAB No. 107 provides guidance on several topicsincluding: valuation methods, the classification of compensation expense,capitalization of compensation costs related to share-based paymentarrangements, the accounting for income tax effects of share-based paymentarrangements, and disclosures in Management’s Discussion and Analysissubsequent to adoption of SFAS No. 123R.

 

In April 2005, the SEC issued FR-74, “Amendmentto Rule 4-01(a) of Regulation S-X Regarding the Compliance Date forStatement of Financial Accounting Standards No. 123 (Revised 2004), Share-BasedPayment” (“FR-74”). FR-74 allows companies to implement SFAS No. 123R atthe beginning of their next fiscal year (January 1, 2006 for us), insteadof the next reporting period that begins after June 15, 2005. FR-74 doesnot change the accounting required by SFAS No. 123R; it only changes theimplementation date of the standard.

 

We adopted SFAS No. 123R using the modified-prospectivemethod on January 1, 2006 and it did not have a material impact on ourfinancial condition, results of operations or cash flows.

 

*SFAS No. 151, “Inventory Costs, an amendmentof ARB No. 43, Chapter 4” (“SFAS No. 151”)*

 

In November 2004, the FASB issued SFASNo. 151, which amends Accounting Research Bulletin No. 43, Chapter 4,“Inventory Pricing” (“ARB No. 43”). SFAS No. 151 clarifies thatabnormal amounts of idle facility expense, freight, handling costs and wastedmaterials (spoilage) should be expensed rather than capitalized as inventory.The provisions of SFAS No. 151 are applicable to inventory costs incurredduring fiscal years beginning after June 15, 2005 (as of January 1,2006 for us) with earlier application permitted. We implemented SFASNo. 151 effective January 1, 2006, and it did not have a materialimpact on our financial condition, results of operations or cash flows.

 

*SFAS No. 154, “Accounting Changes and ErrorCorrections, a replacement of APB Opinion No. 20 and FASB StatementNo. 3” (“SFAS No. 154”)*

 

In May 2005, the FASB issued SFAS No. 154.SFAS changes the requirements for the accounting and reporting of a change inaccounting principle or correction of an error. It requires, unless impracticable,retrospective application of the required method for reporting a change inaccounting principle in the absence of explicit transition requirementsspecific to the newly adopted accounting principle. SFAS No. 154 iseffective for accounting changes and correction of errors made in fiscal yearsbeginning after December 15, 2005. We implemented SFAS No. 154effective January 1, 2006, and it did not have a material impact on ourfinancial condition, results of operations or cash flows.

 

40

----

 

*FASB Interpretation No. 47, “Accounting forConditional Asset Retirement Obligations, an interpretation of FASB StatementNo. 143” (“FIN No. 47”)*

 

In March 2005, the FASB issued FIN No. 47which clarifies that the term “conditional asset retirement obligation” as usedin SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFASNo. 143”), refers to a legal obligation to perform an asset retirementactivity in which the timing and/or method of settlement are conditional on afuture event that may or may not be within the control of the entity. Theobligation to perform the asset retirement activity is unconditional eventhough uncertainty exists about the timing and/or method of settlement.Accordingly, an entity is required to recognize a liability for the fair valueof a conditional asset retirement obligation, if the fair value of theliability can be reasonably estimated. The fair value of a liability for theconditional asset retirement obligation should be recognized when incurred,generally upon acquisition, construction, or development and/or through thenormal operation of the asset. Uncertainty about the timing and/or method ofsettlement of a conditional asset retirement obligation should be factored intothe measurement of the liability when sufficient information exists. FINNo. 47 also clarifies when an entity would have sufficient information toreasonably estimate the fair value of an asset retirement obligation. Weimplemented FIN No. 47 as of December 31, 2005 and it did not have amaterial impact on our financial condition, results of operations, or cashflows.

 

*SFAS No. 155, “Accounting for Certain HybridFinancial Instruments—An Amendment of FASB Statements No. 133 and 140” (“SFASNo. 155”)*

 

In February 2006, the FASB issued SFASNo. 155, which amends SFAS No. 133, “Accounting for DerivativeInstruments and Hedging Activities” (“SFAS No. 133”), and SFASNo. 140, “Accounting for Transfers and Servicing of Financial Assets andExtinguishments of Liabilities.” SFAS No. 155 addresses several issuesrelating to accounting for financial instruments, including permitting fairvalue measurement of any hybrid financial instrument that contains an embeddedderivative and eliminating the prohibition on a qualifying special-purposeentity from holding certain derivative instruments. SFAS No. 155 alsoprovides clarification that concentrations of credit risk in the form ofsubordination are not embedded derivatives. SFAS No. 155 is effective forall financial instruments issued or acquired after the fiscal year that beginsafter September 15, 2006 (January 1, 2007 for us), with earlierapplication permitted. We have not yet determined the timing of adoption or thefull impact of SFAS No. 155. However, we do not expect that it will have amaterial impact on our financial condition, results of operations or cashflows.

 

**ITEM 3.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Market risk represents the risk of changes in value ofa financial instrument, whether derivative or non-derivative, caused byfluctuations in interest rates and foreign exchange rates. Changes in thesefactors could cause fluctuations in our results of operations and cash flows.In addition, in the ordinary course of business, we are exposed to foreigncurrency and interest rate risks.

 

*Interest Rate Risk*

 

We are exposed to interest rate risk related tochanges in interest rates on our variable rate debt. At March 31, 2006, weheld approximately $492.3 million of long-term debt, with approximately$288.2 million subject to variable interest rates. If interest ratesincreased by 100 basis points, our annualized cash interest expense wouldincrease by approximately $2.9 million, not taking into consideration theeffect of the interest rate swaps discussed below.

 

In order to mitigate the interest rate risk related toour variable rate debt, we have entered into two interest rate swap agreementswith terms commencing December 31, 2005. Under these agreements, we willpay fixed interest rates for three years and will receive floating interestrate payments. Our U.S. dollar interest rate swap is based on the U.S. 90-dayLIBOR and our Canadian dollar interest rate swap is based on 90-day Canadianbankers acceptances. During years one and two the notional value of the U.S.Dollar swap is $50.0 million and reduces to $25.0 million in thefinal year of the agreement, while the notional value of the Canadian dollarswap is $35.0 million in years one and two, reducing to $17.5 millionin the final year of the agreement. Based upon current variable debtoutstanding, if interest rates increased by 100 basis points, annualized cashinterest expense would increase by approximately $2.1 million after takinginto consideration the effect of these interest rate swaps.

 

41

----

 

*Foreign Currency Exchange Rate Risk*

 

Foreign currency exposures arise from transactionsdenominated in a currency other than our reporting currency, U.S. dollars, andfrom foreign financial statement items translated into U.S. dollars. As aresult of our purchase of substantially all of the operations and the operatingassets of Aluma effective July 29, 2005, we are subject to foreigncurrency risk associated with our investment in a Canadian company. In order tomitigate our exposure to changes in the value of the Canadian dollar relativeto the U.S. dollar we entered into an $80.0 million U.S. dollar/Canadiandollar currency swap agreement for a period of three years commencing onDecember 31, 2005. The notional amount of the swap is $80.0 millionduring years one and two and reduces to $40.0 million during the finalyear of the agreement. A depreciation in the Canadian dollar against the U.S.dollar of 10% would decrease our annual net income by approximately$1.3 million, excluding the impact of U.S. Canadian dollar hedges. We earnan immaterial portion of our revenues in currencies other than U.S. or Canadiandollars, including Mexican pesos. We do not hedge against fluctuations in thoseother currencies.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

As discussed in Note 14 to our consolidatedfinancial statements for the year ended December 31, 2005 contained in our Form10-K for the year ended December 31, 2005, we initiated a physical inventory ofour scaffolding equipment  in November2005 and reconciled the results of the physical inventory to the amountsrecorded in our books and records. As a result, we identified$14.0 million of scaffolding equipment that could no longer be physicallylocated. Management believes that these scaffolding assets were most likelylost, stolen, scrapped or installed at a client site, in each case withouthaving been properly recorded in our scaffolding equipment perpetual recordsand other books and records.

 

The absence of the $14.0 million in scaffoldingequipment has been attributed to deficiencies in internal controls overtransfers of scaffolding equipment between our locations and our failure toperform periodic comprehensive reconciliations of our perpetual scaffoldingequipment records to our fixed asset system and other books and records.

 

These internal control issues represented a materialweakness in our system of internal controls which led to inaccurate recordingof these types of scaffolding equipment transactions over a period of severalyears. Due to the number of transactions, passage of time since many of thetransactions have occurred, and the deficiencies in the documentation andcontrols over these activities, we could not specifically identify or allocatethe scaffolding equipment asset write-offs to distinct fiscal years with anycertainty. Accordingly, the full amount of the scaffolding equipment assetwrite-offs are recorded as a non-cash charge in the fourth quarter of 2005.

 

As a result of the deficiencies discussed above,management, under the direction of the Chief Executive Officer and ChiefFinancial Officer, has evaluated the effectiveness of our disclosure controlsand procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)) as of March 31, 2006. Based upon this evaluation, management, includingthe Chief Executive Officer and Chief Financial Officer, has concluded that ourdisclosure controls and procedures were ineffective as of March 31, 2006,due to the material weakness noted above.

 

We have taken corrective actions to institute newpolicies and procedures for the tracking of scaffolding equipment disposals andtransfers between our locations, including the following:

 

•                  Wewill reconcile our scaffolding equipment perpetual inventory records with ourother books and records on a quarterly basis.

 

•                  Wehave instituted new policies to ensure that all scaffolding equipmenttransactions are recorded in the perpetual inventory records on a timely basis.

 

In addition, we have adopted a new policy to conductphysical inventories of these assets at each location at least once a year.

 

Management believes that implementation of thesepolicies and procedures will remediate the material weakness described above.

 

42

----

 

**PART II – OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

We are a party to variouslegal proceedings and administrative actions, all of which are of an ordinaryor routine nature incidental to our operations. In the opinion of ourmanagement, such proceedings and actions should not, individually or in theaggregate, have a material adverse effect on our financial condition or resultsof operations.

 

**ITEM 1A. RISK FACTORS**

 

There have been no material changes in the risk factorspreviously disclosed in our Annual Report on Form 10-K for the fiscal yearended December 31, 2005.

 

**ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIESAND USE OF PROCEEDS**

 

None.

 

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

None.

 

**ITEM 5. OTHER INFORMATION**

 

None.

 

**ITEM 6. EXHIBITS**

 

31.1.        Certificationof Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2.        Certificationof Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1         Certificationof Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2         Certificationof Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

 

43

----

 

SIGNATURES

 

Pursuant to the requirement of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.

 
|               | BRAND ENERGY &  INFRASTRUCTURE SERVICES, INC. |
|--------------------|---------------------------------------------------|
| Date: May 12, 2006 | /s/ Paul T. Wood                                  |   |
|               | Paul T. Wood                                      |
|               | Chief Executive Officer  and President            |
|               |                                              |
|               |                                              |
| Date: May 12, 2006 | /s/ Anthony A. Rabb                               |   |
|               | Anthony A. Rabb                                   |
|               | Chief Financial Officer  and                      |
|               | Vice President, Finance                           |

 

44

----