**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**Form 10-Q**

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

 

**For thequarterly period ended June 30, 2006**

 

OR

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**For thetransition period from                  to                **

 

**CommissionFile Number 333-102511**

 

**BRAND ENERGY & INFRASTRUCTURE SERVICES, INC.**

(Exact name of registrant as specified in its charter)

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

#  

# Registrant’s telephonenumber, including area code:  **(678) 285-1498**

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:   o      No:   x

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

Large accelerated filer   o               Acceleratedfiler   o               Non-acceleratedfiler   x

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

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.
| Class of common stock | Outstanding at  July 31, 2006 |
|-----------------------|-------------------------------|
| $.01 par value        | 1,000 shares                  |

 

 

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INDEX

 

 
| PART I—FINANCIAL INFORMATION |   |                                                                                                                          |
|-----------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------|
|                              |   |                                                                                                                          |   |   |
| Item 1.                           |   | Financial Statements                                                                                                          |   |   |
|                              |   |                                                                                                                          |   |   |
|                              |   | Consolidated Condensed Statements of Operations for  the Three Months and Six Months Ended June 30, 2005 and 2006 (unaudited) |   |   |
|                              |   |                                                                                                                          |   |   |
|                              |   | Consolidated Condensed Balance Sheets as of December  31, 2005 and June 30, 2006 (unaudited)                                  |   |   |
|                              |   |                                                                                                                          |   |   |
|                              |   | Consolidated Condensed Statements of Cash Flows for  the Six Months Ended June 30, 2005 and 2006 (unaudited)                  |   |   |
|                              |   |                                                                                                                          |   |   |
|                              |   | Notes to the Consolidated Condensed 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

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PART I.  FINANCIAL INFORMATION

# ITEM 1. FINANCIAL STATEMENTS

BRANDENERGY & INFRASTRUCTURE SERVICES, INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Operations

(Inthousands)

(Unaudited)
| ** **                                        | ** ** | **For the Three Months Ended June 30** | ** ** | **For the Six Months Ended June 30** | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                        | ** ** | **2005**                                                             | ** ** | **2006**                                                           | ** ** | **2005** | ** ** | **2006** | ** ** |
| Revenues:                                         |       |                                                                 |       |                                                               |       |   |   |   |   |
| Labor                                             |       | $                                                                    | 71,346     |                                                               | $          | 142,533 |   | $ | 148,670 |   | $ | 280,152 |   |
| Equipment rental                                  |       | 19,225                                                               |       | 51,164                                                             |       | 38,095 |   | 99,598 |   |
| Equipment sales                                   |       | 2,523                                                                |       | 10,946                                                             |       | 4,581 |   | 22,085 |   |
| Total revenues                                    |       | 93,094                                                               |       | 204,643                                                            |       | 191,346 |   | 401,835 |   |
| Operating expenses:                               |       |                                                                 |       |                                                               |       |   |   |   |   |
| Labor                                             |       | 58,474                                                               |       | 121,930                                                            |       | 122,202 |   | 240,665 |   |
| Equipment rental                                  |       | 7,356                                                                |       | 15,033                                                             |       | 13,956 |   | 28,858 |   |
| Equipment sales                                   |       | 1,681                                                                |       | 6,443                                                              |       | 3,104 |   | 13,563 |   |
| Divisional operating expenses                     |       | 4,442                                                                |       | 8,793                                                              |       | 8,562 |   | 17,293 |   |
| Total operating expenses                          |       | 71,953                                                               |       | 152,199                                                            |       | 147,824 |   | 300,379 |   |
| Gross profit                                      |       | 21,141                                                               |       | 52,444                                                             |       | 43,522 |   | 101,456 |   |
| Selling and  administrative expenses              |       | 15,584                                                               |       | 31,443                                                             |       | 28,681 |   | 60,303 |   |
| Non-cash  compensation                            |       | 84                                                                   |       | 135                                                                |       | 687 |   | 213 |   |
| Operating income                                  |       | 5,473                                                                |       | 20,866                                                             |       | 14,154 |   | 40,940 |   |
| Interest expense                                  |       | 8,626                                                                |       | 13,583                                                             |       | 17,044 |   | 25,943 |   |
| Interest income                                   |       | (60                                                                  | )          | —                                                             |       | (159 | ) | (176 | ) |
| Foreign currency  transaction gain                |       | —                                                               |       | (2,607                                                             | )          | — |   | (2,456 | ) |
| Loss on interest  rate and foreign currency swaps |       | —                                                               |       | 3,613                                                              |       | — |   | 2,689 |   |
| Redeemable  preferred stock dividend expense      |       | —                                                               |       | 1,521                                                              |       | — |   | 2,976 |   |
| Income (loss) before income taxes                 |       | (3,093                                                               | )          | 4,756                                                              |       | (2,731 | ) | 11,964 |   |
| Income tax  expense (benefit)                     |       | (709                                                                 | )          | 2,706                                                              |       | (424 | ) | 6,254 |   |
| Net income  (loss)                                |       | $                                                                    | (2,384     | )                                                                  | $          | 2,050 |   | $ | (2,307 | ) | $ | 5,710 |   |

 

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

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BRAND ENERGY &INFRASTRUCTURE SERVICES, INC. AND SUBSIDIARIESConsolidated Condensed Balance Sheets(In thousands except share and per share amounts)
| ** **                                                                                              | ** ** | **December 31,  2005** | ** ** | **June 30, 2006  (unaudited)** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------------------|------------|
| ASSETS                                                                                                  |       |                        |       |                                     |       |
|                                                                                                    |       |                        |       |                                     |       |
| CURRENT ASSETS:                                                                                         |       |                        |       |                                     |       |
| Cash and cash equivalents                                                                               |       | $                           | 6,310      |                                     | $          | 6,304 |   |
| Trade accounts receivable, net of allowance for  doubtful accounts of $6,364 in 2005 and $9,287 in 2006 |       | 117,207                     |       | 137,741                                  |       |
| Accrued revenue                                                                                         |       | 6,292                       |       | 13,952                                   |       |
| Other current assets                                                                                    |       | 12,594                      |       | 18,589                                   |       |
|                                                                                                    |       |                        |       |                                     |       |
| Total current assets                                                                                    |       | 142,403                     |       | 176,586                                  |       |
|                                                                                                    |       |                        |       |                                     |       |
| PROPERTY AND EQUIPMENT:                                                                                 |       |                        |       |                                     |       |
| Land                                                                                                    |       | 5,190                       |       | 4,708                                    |       |
| Buildings and leasehold improvements                                                                    |       | 6,278                       |       | 6,684                                    |       |
| Vehicles and other equipment                                                                            |       | 29,997                      |       | 31,711                                   |       |
| Scaffolding equipment                                                                                   |       | 309,387                     |       | 345,976                                  |       |
|                                                                                                    |       |                        |       |                                     |       |
| Total property and equipment, at cost                                                                   |       | 350,852                     |       | 389,079                                  |       |
|                                                                                                    |       |                        |       |                                     |       |
| Less—Accumulated  depreciation and amortization                                                    |       | 74,232                      |       | 93,271                                   |       |
|                                                                                                    |       |                        |       |                                     |       |
| Total property and equipment, net                                                                       |       | 276,620                     |       | 295,808                                  |       |
|                                                                                                    |       |                        |       |                                     |       |
| GOODWILL                                                                                                |       | 292,601                     |       | 294,809                                  |       |
|                                                                                                    |       |                        |       |                                     |       |
| OTHER ASSETS AND  INTANGIBLES                                                                           |       | 111,447                     |       | 111,247                                  |       |
|                                                                                                    |       |                        |       |                                     |       |
| TOTAL ASSETS                                                                                            |       | $                           | 823,071    |                                     | $          | 878,450 |   |

 

(Continued on following page)

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BRAND ENERGY & INFRASTRUCTURE SERVICES, INC. ANDSUBSIDIARIESConsolidated Condensed Balance Sheets(In thousands except share and per share amounts)
| ** **                                                                      | ** ** | **December 31,  2005** | ** ** | **June 30, 2006  (unaudited)** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------------------|------------|
| LIABILITIES AND  STOCKHOLDER’S EQUITY                                      |       |                        |       |                                     |       |
|                                                                            |       |                        |       |                                     |       |
| CURRENT LIABILITIES:                                                            |       |                        |       |                                     |       |
| Short-term bank borrowings                                                      |       | $                           | —     |                                     | $          | 20,125 |   |
| Current maturities of long-term debt                                            |       | 2,904                       |       | 2,931                                    |       |
| Notes payable and capital lease obligations, current  portion                   |       | 370                         |       | 328                                      |       |
| Accounts payable and accrued expenses                                           |       | 79,585                      |       | 92,306                                   |       |
| Deferred revenue                                                                |       | 3,034                       |       | 3,497                                    |       |
|                                                                            |       |                        |       |                                     |       |
| Total current liabilities                                                       |       | 85,893                      |       | 119,187                                  |       |
|                                                                            |       |                        |       |                                     |       |
| LONG-TERM DEBT                                                                  |       | 481,694                     |       | 486,614                                  |       |
|                                                                            |       |                        |       |                                     |       |
| NOTES PAYABLE  AND CAPITAL LEASE OBLIGATIONS                                    |       | 458                         |       | 312                                      |       |
|                                                                            |       |                        |       |                                     |       |
| REDEEMABLE  PREFERRED STOCK                                                     |       | 32,337                      |       | 35,313                                   |       |
|                                                                            |       |                        |       |                                     |       |
| DEFERRED INCOME  TAXES                                                          |       | 18,556                      |       | 24,282                                   |       |
|                                                                            |       |                        |       |                                     |       |
| STOCKHOLDER’S EQUITY:                                                      |       |                        |       |                                     |       |
| Common stock, $0.01 par value, 1,000 shares  authorized, issued and outstanding |       | —                      |       | —                                   |       |
| Paid-in capital                                                                 |       | 225,833                     |       | 226,047                                  |       |
| Cumulative translation adjustment                                               |       | 7,248                       |       | 9,933                                    |       |
| Accumulated deficit                                                             |       | (28,948                     | )          | (23,238                                  | )          |
|                                                                            |       |                        |       |                                     |       |
| Total stockholder’s equity                                                 |       | 204,133                     |       | 212,742                                  |       |
| Total  liabilities and stockholder’s equity                                |       | $                           | 823,071    |                                     | $          | 878,450 |   |

 

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

5

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BRAND ENERGY &INFRASTRUCTURE SERVICES, INC. AND SUBSIDIARIESConsolidated Condensed Statements of Cash Flows(In thousands)(Unaudited)
| ** **                                                                    | ** ** | **For the Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2005**                                                            | ** ** | **2006** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                        |       |                                                                |       |   |   |
| Net income (loss)                                                             |       | $                                                                   | (2,307     | ) | $ | 5,710 |   |
| Adjustments to  reconcile net income to net cash from  Operating activities:  |       |                                                                |       |   |   |
| Depreciation and amortization                                                 |       | 13,512                                                              |       | 22,218 |   |
| Deferred income taxes                                                         |       | (504                                                                | )          | 5,726 |   |
| Non-cash interest                                                             |       | 3,986                                                               |       | 4,708 |   |
| Non-cash compensation                                                         |       | 686                                                                 |       | 213 |   |
| Redeemable preferred stock dividend expense                                   |       | —                                                              |       | 2,976 |   |
| Loss on interest rate and foreign currency swaps                              |       | —                                                              |       | 2,689 |   |
| Foreign currency transaction gain                                             |       | —                                                              |       | (2,456 | ) |
| Gain on sale of used rental equipment                                         |       | (922                                                                | )          | (5,939 | ) |
| Changes in  operating assets and liabilities:                                 |       |                                                                |       |   |   |
| Trade accounts receivable, net                                                |       | (9,695                                                              | )          | (20,534 | ) |
| Accrued revenue                                                               |       | (4,614                                                              | )          | (7,660 | ) |
| Other current assets                                                          |       | 56                                                                  |       | (5,018 | ) |
| Accounts payable and accrued expenses                                         |       | 6,173                                                               |       | 7,292 |   |
| Deferred revenue                                                              |       | 119                                                                 |       | 463 |   |
| Other                                                                         |       | (21                                                                 | )          | 935 |   |
| Net cash flows from operating activities                                      |       | 6,469                                                               |       | 11,323 |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                        |       |                                                                |       |   |   |
| Purchase of property and equipment                                            |       | (12,425                                                             | )          | (37,093 | ) |
| Proceeds from sales of used rental equipment                                  |       | 1,529                                                               |       | 8,358 |   |
| Payments for acquisitions                                                     |       | —                                                              |       | (254 | ) |
| Net cash flows used in investing activities                                   |       | (10,896                                                             | )          | (28,989 | ) |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                        |       |                                                                |       |   |   |
| Repayments of long-term debt                                                  |       | (523                                                                | )          | (1,464 | ) |
| Short-term bank borrowings                                                    |       | —                                                              |       | 20,125 |   |
| Payments of deferred financing fees                                           |       | —                                                              |       | (929 | ) |
| Payments on capital lease obligations                                         |       | (298                                                                | )          | (188 | ) |
| Net cash flows from (used in) financing activities                            |       | (821                                                                | )          | 17,544 |   |
| NET DECREASE IN  CASH AND CASH EQUIVALENTS                                    |       | (5,248                                                              | )          | (122 | ) |
|                                                                          |       |                                                                |       |   |   |
| IMPACT OF  FOREIGN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS  |       | —                                                              |       | 116 |   |
|                                                                          |       |                                                                |       |   |   |
| CASH AND CASH  EQUIVALENTS, beginning of period                               |       | 14,408                                                              |       | 6,310 |   |
| CASH AND CASH  EQUIVALENTS, end of period                                     |       | $                                                                   | 9,160      |   | $ | 6,304 |   |

 

(Continued on following page)

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BRAND ENERGY & INFRASTRUCTURE SERVICES, INC. ANDSUBSIDIARIESConsolidated Condensed Statements of Cash Flows(In thousands)(Unaudited)
| ** **                           | ** ** | **For the Three Months Ended June 30,** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                           | ** ** | **2005**                                                              | ** ** | **2006** | ** ** |
| SUPPLEMENTAL CASH FLOW  DISCLOSURES: |       |                                                                  |       |   |   |
| Interest paid                        |       | $                                                                     | 12,994     |   | $ | 20,316 |   |
| Income taxes  paid                   |       | 1,477                                                                 |       | 921 |   |
|                                      |            |                                                                       |            |  |  |  |  |

 

 

 

 

 

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

7

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**BRAND ENERGY & INFRASTRUCTURE SERVICES, INC.AND SUBSIDIARIES**

**Notesto the Consolidated Condensed Financial Statements(Unaudited)(in thousands except share and per share amounts)**

The financial statements included herein for theperiods ended June 30, 2005 and 2006 have been prepared by the Company inaccordance with accounting principles generally accepted in the United Statesfor interim financial reporting and with the instructions to the Form 10-Q.In the opinion of management, all adjustments have been made which are of anormal recurring nature necessary to present fairly the Company’s financialposition as of June 30, 2006, the results of operations for the three andsix months ended June 30, 2005 and 2006, and cash flows for the six monthsended June 30, 2005 and 2006. Certain information and footnote disclosureshave been condensed or omitted for these periods. The results for interimperiods are not necessarily indicative of results for the entire year.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 June 30, 2006, the voting equity interests of the LLC were owned 72.3% byJ.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 aretypically sold to 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 or group of customers within the industrial orcommercial markets and, therefore, the Company does not believe a materialconcentration of credit risk exists.

**2.**              Summary ofSignificant Accounting Policies

*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.

8

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*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 six months ended June 30, 2005 and 2006,depreciation expense was $11,223 and $18,549, respectively.

*Impairment Review Policies*

The Company accounts for its long-lived assets,excluding goodwill and tradenames, in accordance with Statement of Financial AccountingStandards No. 144, “Accounting for the Impairment or Disposal ofLong-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.

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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 incircumstances and market conditions including general economic and competitiveconditions, could result in significant changes in those estimates and materialcharges to income.

*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 notreported (IBNR) claims. These estimates are continually reviewed andadjustments, if necessary, 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 cumulative 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 (loss).The Company does not have any subsidiaries outside the United States located inhighly inflationary economies.

**3.**              New AccountingStandards

*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, includinggrants of employee stock options, to be recognized in the statement ofoperations based on their fair values.

In March 2005, the Securities and ExchangeCommission (SEC) issued Staff Accounting Bulletin No. 107 (SAB 107) whichsummarizes the views of the SEC staff regarding the interaction betweenSFAS 123R and certain SEC rules and regulations. SAB 107 provides guidanceon several topics including: valuation methods, the classification ofcompensation expense, capitalization of compensation costs related to share-basedpayment arrangements, the accounting for income tax effects of share-basedpayment arrangements, and disclosures in Management’s Discussion and Analysissubsequent to adoption of SFAS 123R.

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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-74allows companies to implement SFAS 123R at the beginning of their nextfiscal year (January 1, 2006 for the Company), instead of the nextreporting period that begins after June 15, 2005. FR-74 does not changethe accounting required by SFAS 123R, it only changes the implementationdate of the standard.

The Company adopted Statement 123(R) using themodified-prospective method on January 1, 2006 and, as furtherdiscussed in Note 14, it did not have a material impact on the Company’sfinancial position, 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 StatementNo. 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 implemented SFAS 154effective January 1, 2006, and it did not have a material impact on the Company’sfinancial 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 hybridfinancial instrument that contains

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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. TheCompany has not yet determined the timing of adoption or the full impact ofSFAS 155; however, it is not expected to materially impact the Company’sfinancial position, results of operations or cash flows.

*FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes” (“FASB InterpretationNo. 48”)*

In June 2006, theFASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes.” The interpretation clarifies the accounting for uncertainty in incometaxes recognized in a company’s financial statements in accordance withStatement of Financial Accounting Standards No. 109, “Accounting for IncomeTaxes.” Specifically, the pronouncement prescribes a recognition threshold anda measurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. Theinterpretation also provides guidance on the related derecognition,classification, interest and penalties, accounting for interim periods,disclosure and transition of uncertain tax positions. The interpretation iseffective for fiscal years beginning after December 15, 2006. The Company has not yet determined the full impact of FASBInterpretation No. 48; however, it is not expected to materially impact theCompany’s financial condition, 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                 |   | $      | 211,443 |   |
|---------------------------|--------|--------|---------|--------|
| Direct  acquisition costs |   | 6,119  |    |
|                      |   | $      | 217,562 |   |
| Liabilities  assumed      |   | 23,814 |    |
| Total purchase  price     |   | $      | 241,376 |   |

 

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 thathave accepted 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 of tangible and identifiable intangibleassets, which consists of patents, trademarks and customer relationships. Theexcess of the total purchase price over the fair value of the assets acquired,including the value of the identifiable intangible assets, has been allocatedto goodwill. These fair values are based on preliminary information and aresubject to change.

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

| Current assets                       |   |   |   | $       | 39,894  |   |
|--------------------------------------|--------|--------|--------|---------|---------|--------|
| Property and  equipment              |   |   |   | 113,841 |    |
| Identifiable  intangible assets:     |   |   |   |    |    |
| Customer relationships               |   | $      | 30,753 |    |    |   |
| Patents                              |   | 280    |   |    |    |
| Trademarks                           |   | 11,585 |   |    |    |
|                                 |   |   |   | 42,618  |    |
| Total fair value  of assets acquired |   |   |   | $       | 196,353 |   |
| Goodwill                             |   |   |   | 45,023  |    |
| Total purchase price                 |   |   |   | $       | 241,376 |   |
|                                      |        |        |        |         |         |        |  |

 

All of the goodwill arising in the Aluma acquisitionhas been assigned to the work access services segment.  The Company is amortizing customerrelationships over twelve years and patents overthe life of the related patent. Trademarks will not be amortized as thisintangible asset has an indefinite life.

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 June 30, 2005** | ** ** | **Six Months  Ended June 30, 2005** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Revenue                              |       | $                                                         | 154,605    |                                                    | $          | 317,801 |   |
| Operating  expense                   |       | 114,277                                                   |       | 230,572                                                 |       |
| Gross profit                         |       | 40,328                                                    |       | 87,229                                                  |       |
| Selling and  administrative expenses |       | 31,045                                                    |       | 64,074                                                  |       |
| Non-cash  compensation               |       | 84                                                        |       | 687                                                     |       |
| Operating income                     |       | 9,199                                                     |       | 22,468                                                  |       |
| Interest expense                     |       | 11,664                                                    |       | 23,126                                                  |       |
| Interest  (income)                   |       | (60                                                       | )          | (159                                                    | )          |
| Foreign currency  transaction loss   |       | 704                                                       |       | 932                                                     |       |
| Preferred stock  dividend expense    |       | 1,394                                                     |       | 2,793                                                   |       |
| Loss before income taxes             |       | (4,503                                                    | )          | (4,224                                                  | )          |
| Income tax  expense (benefit)        |       | (744                                                      | )          | (3                                                      | )          |
| Net loss                             |       | (3,759                                                    | )          | (4,221                                                  | )          |
|                                      |            |                                                           |            |                                                         |            |  |  |

 

**5.**              Other Current Assets

Other current assets consist of the following:                

|                  | ** ** | **December 31,  2005** | ** ** | **June 30,  2006** | ** ** |
|------------------|------------|-----------------------------|------------|-------------------------|------------|
| Prepaid expenses |       | $                           | 4,708      |                    | $          | 5,114 |   |
| Inventory        |       | 7,487                       |       | 11,835                  |       |
| Other            |       | 399                         |       | 1,640                   |       |
|             |       | $                           | 12,594     |                    | $          | 18,589 |   |

** **

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**6.**              Allowance forDoubtful 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 allowance for doubtful accounts for thesix months ended June 30, 2005 and 2006 are as follows:

|                                          | ** ** | **Six Months  Ended  June 30, 2005** | ** ** | **Six Months  Ended  June 30, 2006** | ** ** |
|------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| Balance at  beginning of year            |       | $                                                   | 1,605      |                                                | $          | 6,364 |   |
| Additions  charged to operating expenses |       | 810                                                 |       | 3,891                                               |       |
| Impact of  foreign currency translation  |       | —                                              |       | 64                                                  |       |
| Net write-offs                           |       | (80                                                 | )          | (1,032                                              | )          |
| Balance at June 30                  |       | $                                                   | 2,335      |                                                | $          | 9,287 |   |

 

**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 six months ended June 30, 2006 are as follows:

| Balance at December 31,  2005 |   | $     | 292,601 |   |
|------------------------------------|--------|-------|---------|--------|
| Goodwill  acquired                 |   | 254   |    |
| Reclassification                   |   | 674   |    |
| Foreign currency  translation      |   | 1,280 |    |
| Balance at June 30,  2006     |   | $     | 294,809 |   |

Approximately$37.5 million of the goodwill recorded at June 30, 2006 is amortizableover 15 years for tax purposes.

**8.**              Other Assets andIntangibles

Other assets and intangibles consist of the following:

|                                                                                                  | ** ** | **December 31,  2005** | ** ** | **June 30,  2006** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Deferred  financing costs, net of accumulated amortization of $4,608 in 2005 and $5,643  in 2006 |       | $                           | 14,633     |                    | $          | 14,526 |   |
| Customer  relationships                                                                          |       | 70,630                      |       | 68,399                  |       |
| Trade names                                                                                      |       | 25,566                      |       | 25,975                  |       |
| Patents                                                                                          |       | 281                         |       | 279                     |       |
| Non-compete  agreement                                                                           |       | 210                         |       | 179                     |       |
| Pre-paid IPO  expenses                                                                           |       | —                      |       | 1,763                   |       |
| Other                                                                                            |       | 127                         |       | 126                     |       |
|                                                                                             |       | $                           | 111,447    |                    | $          | 111,247 |   |

 

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In connection with theissuance 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 incurred financing fees and expenses that weredeferred and are being amortized over the lives of the individual debtinstruments. For the six months ended June 30, 2005 and 2006, amortizationexpense relating to these deferred financing costs was $748 and $1,035,respectively. Amortization of deferred financing costs is included as anelement of interest expense in the consolidated statement of operationss.

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 sixmonths ended June 30, 2005 and 2006 was $2,246 and $3,630, respectively. Tradenames are not amortized as this type of intangible asset has an indefinitelife. Patents are amortized over the life of the respective patent.Amortization expense related to patents was $8 in 2006. Amortization expenserelated to the non-compete agreements was $43 and $31 for the six months endedJune 30, 2005 and 2006, respectively.

The following summarizes the balances of intangiblesas of December 31, 2005 and June 30, 2006:
| ** **                        | ** ** | **December 31, 2005** | ** ** | **June 30, 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 |   | $ | 87,835 |   | $ | (19,436 | ) | $ | 68,399 |   |
| Non-compete agreement             |       | 1,357                           |       | (1,147                        | )          | 210 |   | 1,357 |   | (1,178 | ) | 179 |   |
| Patents                           |       | 288                             |       | (7                            | )          | 281 |   | 295 |   | (16 | ) | 279 |   |
| Unamortizable  intangible assets: |       |                            |       |                          |       |   |   |   |   |   |   |   |   |
| Trade names                       |       | 25,566                          |       | —                        |       | 25,566 |   | 25,975 |   | — |   | 25,975 |   |
|                                   |            |                                 |            |                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Aggregate amortization expense for the six monthsended June 30, 2005 and 2006 was $2,289 and $3,669, respectively.

**9.**              Accounts Payable AndAccrued Expenses

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

|                                                            | ** ** | **December 31,  2005** | ** ** | **June 30,  2006** | ** ** |
|------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Accounts payable                                           |       | $                           | 21,638     |                    | $          | 27,573 |   |
| Payroll and  related accruals                              |       | 24,979                      |       | 22,371                  |       |
| Workers’  compensation and health benefit liabilities |       | 16,029                      |       | 16,982                  |       |
| Accrued interest                                           |       | 4,785                       |       | 5,431                   |       |
| Other                                                      |       | 12,154                      |       | 19,949                  |       |
|                                                       |       | $                           | 79,585     |                    | $          | 92,306 |   |

 

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**10.**       Long-Term Debt

Long-term debt consisted of the following:
| ** **                                     | ** ** | **December 31,  2005** | ** ** | **June 30,  2006** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Amended Credit  Facility, due 2012             |       | $                           | 288,959    |                    | $          | 290,233 |   |
| 12% Senior  Subordinated Notes, due 2012       |       | 150,000                     |       | 150,000                 |       |
| 13% Intermediate  Subordinated Notes, due 2013 |       | 52,457                      |       | 55,839                  |       |
|                                           |       | 491,416                     |       | 496,072                 |       |
| Less—                                     |       |                        |       |                    |       |
| Current maturities                             |       | 2,904                       |       | 2,931                   |       |
| Unamortized discount                           |       | 6,818                       |       | 6,527                   |       |
|                                           |       | $                           | 481,694    |                    | $          | 486,614 |   |

On July 29, 2005,the Company amended and restated its existing credit facility with Credit Suisse(formerly known as Credit Suisse First Boston, acting through its CaymanIslands Branch), as administrative agent, and other institutions, to providefor supplemental term loans in the aggregate principal amount of$185 million. As amended and restated, the credit facility consists of$287 million in aggregate principal amount of term loans, a letter ofcredit facility of $20 million, a synthetic letter of credit facility of$15 million and a revolving credit facility of $50 million. Thesupplemental term loan included $57 million of debt in Canadian dollarequivalents.

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 an interest period of such durationavailable) plus 3.50%, in the case of revolving loans, 4.00%, in the case ofletter of credit facility loans or 3.00%, in the case of synthetic letter ofcredit facility loans and term loans. Indebtedness under the credit facilityfor Canadian dollar loans bears interest at (i) in the case of Canadianprime rate loans, a floating rate based upon the Canadian Prime Rate (asdefined in the credit agreement), plus 2.25% or, at our option, (ii) inthe case of bankers’ acceptance loans, Brand will pay a fee at the rate of3.25% calculated on the basis of a year of 365 days on the face amount atmaturity (or the principal amount in the case of a bankers’ acceptanceequivalent loan) of such bankers’ acceptance for the period from and includingthe date of acceptance (or advance in the case of a bankers’ acceptanceequivalent loan) of such bankers’ acceptance to but excluding the maturity dateof such bankers’ acceptance. The interest period for bankers’ acceptance loansis a 30, 60, 90 or 180 day period (in each case subject to availability).The interest rate for loans under the revolving credit facility and the letterof credit facility is subject to adjustment on a quarterly basis, based on theratio of our consolidated 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 $20.1 million in borrowings at June 30, 2006. TheCompany has classified its borrowings under the revolving facility as currentliabilities at June 30, 2006 because the Company intends to repay theseborrowings in less than one year. The term loan will mature inJanuary 2012. The term loan is subject to quarterly amortization paymentsof $733, with the balance payable on the maturity date. In addition, the creditagreement will provide for mandatory repayments, subject to certain exceptions,of the term loan based on certain asset sales, the net proceeds of certain debtand equity issuances, 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 June 30, 2006.

For the three months ended June 30, 2005 and 2006, theweighted average interest rate for long-term debtunder the credit facility was 6.0% and 7.9%, respectively. For the six monthsended June 30, 2005 and 2006 the weighted average interest rate for long-termdebt under the credit facility was 6.3% and 7.5%, respectively. For the threeand 

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six months ended June 30, 2006, the weightedaverage interest rate for short-term borrowings under the revolving facilitywas 9.9%. The Company did not borrow under its revolving facility during thefirst six months of 2005.

In 2002 our wholly owned subsidiary Brand Services,Inc. issued $150.0 million of 12% Senior Subordinated Notes (the “SeniorSubordinated Notes”) due in 2012, guaranteed by the Company, with interestpayable semi-annually. The Senior Subordinated Notes were issued at a discountof $4,216 and are subordinated to the Credit Facility (the “Credit Facility”).Amortization expense related to the discount on the Senior Subordinated Notesfor the six months ended June 30, 2005 and 2006 was $147 and $166,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 six months endedJune 30, 2005 and 2006 was $109 and $125, respectively. The IntermediateNotes are “pay-in-kind” notes due to restrictions on interest payments in theCredit Facility. Accretion of interest on the Intermediate Notes for the sixmonths ended June 30, 2005 and 2006 was $2,982 and $3,382, 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 million aggregate liquidation value of its Series A PreferredCapital 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.

The preferred stock is required to be redeemed byBrand Energy & Infrastructure Services, Inc. on October 16, 2014at their liquidation value or upon the occurrence of a change of control at101% of their liquidation value. Prior to July 1, 2008, the preferredstock may be redeemed at the option of Brand Energy & InfrastructureServices, Inc. at a redemption price equal to the sum of the presentvalues of 109% of the aggregate liquidation value of the preferred stock to andincluding July 1, 2008, discounted to the date of redemption on aquarterly basis (assuming a 360-day year consisting of twelve 30-day months) atthe U.S. Treasury rate plus 50 basis points, together with, in each case,accrued and unpaid dividends, if any at redemption date.

After July 1, 2008, the preferred stock may beredeemed at the option of Brand Energy & InfrastructureServices, Inc., at the following redemption prices (expressed aspercentages of the liquidation value thereof), plus, in each case, accrued andunpaid dividends to the date of redemption, if any:

| Period in which redemption occurs | ** ** | **Percentage** | ** ** |
|-------------------------------------------------------|------------|----------------|------------|
| July 1, 2008  through (and including) June 30, 2009   |       | 109.00         | %          |
| July 1, 2009  through (and including) June 30, 2010   |       | 104.50         | %          |
| July 1, 2010  through (and including) June 30, 2011   |       | 102.25         | %          |
| Thereafter                                            |       | 100.00         | %          |

 

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 AndContingencies

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.

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**13.**       Financial Instruments

***Off-Balance Sheet Risk***

As security for the Company’s performance under itsself-insurance obligations and to insurers, the Company is contingentlyliable under letters of credit in the amount of $34.3 million and $34.4million at December 31, 2005 and June 30, 2006, respectively. Theseletters of credit generally have no scheduled expiration date. The Company paysfees to various banks that range from 3.25% to 4.25% per annum of their facevalue. If the Company were required to replace its outstanding letters ofcredit as of June 30, 2006, it is the Company’s opinion that the replacementcost would not vary significantly from the present fee 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.

The Company did not elect to treat these swapagreements as hedges under SFAS 133 and so mark-to-market gains and losseswere recognized in net income. For the six months ended June 30, 2006, theCompany recognized a mark-to-market gain of $1.0 million on its interestrate swaps and a mark-to-market loss of $3.7 million on its foreign currencyswaps. The fair value of the interest rate swaps and foreign currency swapswere recorded in other current assets and other current liabilities,respectively, at December 31, 2005 and June 30, 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.

18

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The carrying amounts and fair values of the Company’sfinancial instruments at December 31, 2005 and June 30, 2006, are asfollows:
| ** **                                   | ** ** | **December 31, 2005** | ** ** | **June 30, 2006** | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **Carrying  Amount**            | ** ** | **Fair Value**         | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** |
| Interest rate  swaps                         |       | $                               | 231        |                        | $          | 231 |   | $ | 1,208 |   | $ | 1,208 |   |
| Currency swaps                               |       | (1,519                          | )          | (1,519                      | )          | (5,185 | ) | (5,185 | ) |
| Term loans                                   |       | 288,959                         |       | 288,959                     |       | 290,233 |   | 290,233 |   |
| Notes payable  and capital lease obligations |       | 828                             |       | 828                         |       | 639 |   | 639 |   |
| 12% Senior  Subordinated Notes (a)           |       | 150,000                         |       | 157,500                     |       | 150,000 |   | 169,500 |   |
| 13% Intermediate Notes  (a)                  |       | 52,457                          |       | 52,457                      |       | 55,839 |   | 55,839 |   |
|                                              |            |                                 |            |                             |            |  |  |  |  |  |  |  |  |

----

(a)           Excludesdiscount.

**14.**       Stock Based EmployeeCompensation

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 equityincentive program to be granted, at no cost to the individual, Class Cunits and Class C-1 units of the LLC which allow the employee to share inthe proceeds 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 liquidityevent will be determined by comparing the net equity valuation of Brand tocertain net equity valuation targets agreed to between management and the LLC.In the event that no liquidity event occurs prior to December 31, 2009,the number of the outstanding performance-based units that vest on thatdate will be determined by the fair market value of the LLC on that date.

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 financial statements;however, the related stock compensation expense is recorded on the Company’sbooks 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.

19

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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 six months ended June 30, 2005, the LLCgranted 153,488 Class B units with a fair value of $2.99 per unit at no cost toits new chief executive officer. In addition, the LLC granted 75,000 Class C-1time-based units with a fair value of $2.16 per unit and 782,932 Class C-1performance based units with a fair value of $2.18 per unit to its seniormanagement.

During the six months ended June 30, 2006, the LLCgranted 22,065 Class C time-based units with a fair value of $1.49 per unit and265,545 Class C performance-based units with a fair value of $2.99 per unit toemployees. In addition, the LLC offered two newly hired executives to purchasea total of 12,196 100%-vested Class B units at the fair market valueon 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 June 30, 2006:

|                                         | ** ** | **Units  Outstanding** | ** ** | **Weighted Fair  Unit Value** | ** ** |
|-----------------------------------------|------------|------------------------|------------|-----------------------------------------|------------|
| Time-based  Class C units          |       | 427,878                |       | $                                       | 2.02       |   |
| Performance-based  Class C units   |       | 1,478,766              |       | 1.99                                    |       |
| 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        |       | 283,341                |       | 2.20                                    |       |
|                                         |            |                        |            |                                         |            |  |

 

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

|                                  | ** ** | **Six Months  Ended  June 30, 2005** | ** ** | **Six Months  Ended  June 30, 2006** | ** ** |
|----------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| Average risk-free  interest rate |       | 3.76%                                               |       | 4.18%                                               |       |
| Expected  dividend yield         |       | 0.00%                                               |       | 0.00%                                               |       |
| Expected  volatility             |       | 52.88%                                              |       | 46.80%                                              |       |
| Expected Life (years)            |       | 3.750                                               |       | 2.625                                               |       |

 

Time based Class C and C-1 units vest overa period of five years. The Company estimates that approximately 16.67% of theperformance based Class C and C-1 units will vest in accordance withthe terms 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 atJune 30, 2006, estimated non-cash compensation expense for the next fiveyears is as follows:

| Remainder of 2006 |   | $      | 147    |   |
|-------------------|--------|--------|--------|--------|
| 2007              |   | 264    |   |
| 2008              |   | 216    |   |
| 2009              |   | 192    |   |
| 2010              |   | — |   |

** **

20

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**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 $6.5 million would have beenprovided as of June 30, 2006.

For the three and six months ended June 30, 2005and 2006, income before provision for income taxes was as follows:
| ** **    | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|---------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **    | ** ** | **2005**                                        | ** ** | **2006**                                      | ** ** | **2005** | ** ** | **2006** | ** ** |
| United States |       | $                                               | (4,115     | )                                             | $          | (871 | ) | $ | (4,112 | ) | $ | 2,752 |   |
| Foreign       |       | 1,022                                           |       | 5,627                                         |       | 1,381 |   | 9,212 |   |
|          |       | $                                               | (3,093     | )                                             | $          | 4,756 |   | $ | (2,731 | ) | $ | 11,964 |   |

The reconciliation of thestatutory federal income tax expense on the Company’s pretax income to theactual provision for income taxes for the three and six months ended June 30,2005 and 2006 follows:
| ** **                             | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|----------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                             | ** ** | **2005**                                        | ** ** | **2006**                                      | ** ** | **2005** | ** ** | **2006** | ** ** |
| Statutory  federal income taxes        |       | $                                               | (1,052     | )                                             | $          | 1,617 |   | $ | (929 | ) | $ | 4,068 |   |
| State and local  taxes, net of federal |       | (75                                             | )          | 61                                            |       | (61 | ) | 306 |   |
| Foreign tax rate  differential         |       | (4                                              | )          | 212                                           |       | — |   | 353 |   |
| Preferred stock  dividends expense     |       | —                                          |       | 522                                           |       | — |   | 1,022 |   |
| Interest expense  disallowance         |       | 144                                             |       | 153                                           |       | 280 |   | 297 |   |
| Other                                  |       | 278                                             |       | 141                                           |       | 286 |   | 208 |   |
| Provision for  income Taxes            |       | $                                               | (709       | )                                             | $          | 2,706 |   | $ | (424 | ) | $ | 6,254 |   |

 

**16.**       Comprehensive Income (Loss)

For the three and six months ended June 30, 2005 and2006, comprehensive income (loss) was as follows:
| ** **                              | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|-----------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                              | ** ** | **2005**                                        | ** ** | **2006**                                      | ** ** | **2005** | ** ** | **2006** | ** ** |
| Net income  (loss)                      |       | $                                               | (2,384     | )                                             | $          | 2,050 |   | $ | (2,307 | ) | $ | 5,710 |   |
| Impact of  foreign currency translation |       | (137                                            | )          | 2,960                                         |       | (348 | ) | 2,685 |   |
| Comprehensive  income (loss)            |       | $                                               | (2,521     | )                                             | $          | 5,010 |   | $ | (2,655 | ) | $ | 8,395 |   |

 

**17.**       Information by Segment andGeographic 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.

21

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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:

|                                        | ** ** | **Six Months Ended  June 30, 2005** | ** ** | **Six Months Ended  June 30, 2006** | ** ** |
|----------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                             | ** ** | **Revenues**                                            | ** ** | **Operating  Income**                                   | ** ** | **Revenues** | ** ** | **Operating  Income** | ** ** |
| Work access  services                  |       | $                                                       | 191,346    |                                                    | $          | 14,154 |   | $ | 349,204 |   | $ | 31,817 |   |
| Concrete forming  and shoring services |       | —                                                  |       | —                                                  |       | 52,631 |   | 9,123 |   |
|                                   |       | $                                                       | 191,346    |                                                    | $          | 14,154 |   | $ | 401,835 |   | $ | 40,940 |   |

 

|                                        | ** ** | **As of**              | ** ** | **As of**                                       | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|------------------------------------------------------|------------|--------------------------------|------------|
| ** **                             | ** ** | **December 31,  2005** | ** ** | **June 30,  2006**                              | ** ** | **June 30,  2005**        | ** ** | **June 30,  2006** | ** ** |
| ** **                             | ** ** | **Total Assets**       | ** ** | **Depreciation and  Amortization Expense** | ** ** |
|                                   |       |                        |       |                                                 |       |                           |       |   |   |
| Work access  services                  |       | $                           | 725,636    |                                                 | $          | 766,245                        |       | $ | 13,512 |   | $ | 16,678 |   |
| Concrete forming  and shoring services |       | 97,435                      |       | 112,205                                              |       | —                         |       | 5,540 |   |
|                                   |       | $                           | 823,071    |                                                 | $          | 878,450                        |       | $ | 13,512 |   | $ | 22,218 |   |

 

|                                        | ** ** | **Capital Expenditures  Six Months Ended  June 30,** | ** ** |
|----------------------------------------|------------|--------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **2005**                                                                 | ** ** | **2006** | ** ** |
| Work access  services                  |       | $                                                                        | 12,425     |   | $ | 19,745 |   |
| Concrete forming  and shoring services |       | —                                                                   |       | 17,348 |   |
|                                   |       | $                                                                        | 12,425     |   | $ | 37,093 |   |

 

22

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The table below reconciles segment operating income toconsolidated pretax income (loss) for the six months ended June 30, 2005and 2006:

|                                                   | ** ** | **Six Months Ended   June 30,** | ** ** |
|---------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                        | ** ** | **2005**                                            | ** ** | **2006** | ** ** |
| Segment  operating income                         |       | $                                                   | 14,154     |   | $ | 40,940 |   |
| Interest expense                                  |       | 17,044                                              |       | 25,943 |   |
| Interest income                                   |       | (159                                                | )          | (176 | ) |
| Loss on interest  rate and foreign currency swaps |       | —                                              |       | 2,689 |   |
| Foreign currency  transaction gain                |       | —                                              |       | (2,456 | ) |
| Redeemable  preferred stock dividend expense      |       | —                                              |       | 2,976 |   |
| Consolidated pretax  income (loss)                |       | $                                                   | (2,731     | ) | $ | 11,964 |   |

 

Information by geographicareas is as follows:

|               | ** ** | **Six Months Ended**                                   | ** ** | **As of**                                        | ** ** | **As of**              | ** ** |
|---------------|------------|------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------|------------|
| ** **    | ** ** | **June 30,  2005**                                          | ** ** | **June 30,  2006**                               | ** ** | **December 31,  2005** | ** ** | **June 30,  2006** | ** ** |
| ** **    | ** ** | **Revenues Derived From  Unaffiliated Customers** | ** ** | **Net Property, Plant and  Equipment** | ** ** |
| United States |       | $                                                                | 178,071    |                                                  | $          | 254,020                     |       | $ | 189,717 |   | $ | 201,293 |   |
| Foreign       |       | 13,275                                                           |       | 147,815                                               |       | 86,903                      |       | 94,515 |   |
|          |       | $                                                                | 191,346    |                                                  | $          | 401,835                     |       | $ | 276,620 |   | $ | 295,808 |   |

 

**18.**       Subsequent Event

**On August 3, 2006 the Company purchased the business andoperating assets of Interstate Scaffolding, Inc. (“Interstate”), an Illinoiscorporation for $30.0 million. Interstate had revenues of $48.5 millionfor the year ended December 31, 2005 and total assets of$20.3 million at December 31, 2005. The purpose of the transaction was to expand the Company’s geographicpresence on the West coast, in the Mid-West, and Northeast and to augment theCompany’s customer base in the oil refining and utilities industries.**

On August 3, 2006 the Company amended its existing credit facility withCredit Suisse, as administrative agent, and other institutions, to provide for,among other things, (i) an increase in the revolving credit facility from $50.0million to $100.0 million, (ii) the establishment of an uncommitted incrementalterm facility pursuant to which the Company will be entitled to incuradditional dollar-denominated term loans in an aggregate principal amount of upto $25.0 million and (iii) an amendment to the restrictions on acquisitionscontained therein that would permit the Company to make acquisitions in anaggregate amount of up to $70.0 million during the 2006 fiscal year. TheCompany funded the acquisition of Interstate and related fees and expenses withadditional borrowings under its amended credit facility.

 

**19.**       Supplemental ConsolidatingInformation

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 Services, Inc. (which are all 100% owned by BrandEnergy & Infrastructure Services, Inc.) and by Brand Energy &Infrastructure Services, Inc. Supplemental consolidating information of BrandEnergy & Infrastructure Services, Inc., Brand Services, Inc., theguarantor subsidiaries, and its foreign non-guarantor subsidiary is presentedbelow. Investments in subsidiaries are presented on the equity method ofaccounting. Separate financial statements are not provided because managementhas concluded that the summarized financial information below providessufficient information to allow investors to separately determine the nature ofthe assets held by and the operations of the guarantor and non-guarantorsubsidiaries.

23

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**BRAND ENERGY & INFRASTRUCTURE SERVICES, INC.AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**BRANDENERGY & INFRASTRUCTURE SERVICES, INC.**

**CONDENSEDCONSOLIDATING BALANCE SHEET**

**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                                                                 |       | (499,974                                           | )          | —                                                                              |       |
| 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 |   |

** **

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**BRAND ENERGY &INFRASTRUCTURE SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**BRANDENERGY & INFRASTRUCTURE SERVICES, INC.**

**CONDENSEDCONSOLIDATING BALANCE SHEET**

**DECEMBER31, 2005 (CONTINUED)**

| 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 capitallease 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 |   |
|                                                                 |            |                                  |            |                             |            |                                 |            |                                                                       |            |                                    |            |                                                                                 |            |  |  |  |  |  |  |

** **

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**BRAND ENERGY &INFRASTRUCTURE SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**BRANDENERGY & INFRASTRUCTURE SERVICES, INC.**

**CONDENSEDCONSOLIDATING BALANCE SHEET**

**JUNE 30,2006**

| 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                      |       | $                              | 156        |                        | $          | —                          |       | $                                                                 | 6,265      |                               | $          | —                                                                                  |       | $ | (117 | ) | $ | 6,304 |   |
| Trade  accounts receivable                      |       | —                         |       | 94,089                      |       | 43,652                          |       | —                                                            |       | —                             |       | 137,741                                                                                 |       |
| Accrued  revenue                                |       | —                         |       | 9,135                       |       | 4,817                           |       | —                                                            |       | —                             |       | 13,952                                                                                  |       |
| Other  current assets                           |       | 4,404                          |       | 9,271                       |       | 4,914                           |       | —                                                            |       | —                             |       | 18,589                                                                                  |       |
| Due  from affiliates                            |       | 21,204                         |       | 12,844                      |       | 1,732                           |       | —                                                            |       | (35,780                            | )          | —                                                                                  |       |
| Total  current assets                           |       | 25,764                         |       | 125,339                     |       | 61,380                          |       | —                                                            |       | (35,897                            | )          | 176,586                                                                                 |       |
| Property and Equipment:                         |       |                           |       |                        |       |                            |       |                                                              |       |                               |       |                                                                                    |       |
| Land                                            |       | 25                             |       | 1,620                       |       | 3,063                           |       | —                                                            |       | —                             |       | 4,708                                                                                   |       |
| Buildings  and leasehold improvements           |       | 129                            |       | 4,079                       |       | 2,476                           |       | —                                                            |       | —                             |       | 6,684                                                                                   |       |
| Vehicles  and other equipment                   |       | 8,151                          |       | 19,910                      |       | 3,650                           |       | —                                                            |       | —                             |       | 31,711                                                                                  |       |
| Scaffolding  equipment                          |       | 194,368                        |       | 52,312                      |       | 99,296                          |       | —                                                            |       | —                             |       | 345,976                                                                                 |       |
| Total  property and equipment, at cost          |       | 202,673                        |       | 77,921                      |       | 108,485                         |       | —                                                            |       | —                             |       | 389,079                                                                                 |       |
| Less  accumulated depreciation and amortization |       | 59,149                         |       | 20,152                      |       | 13,970                          |       | —                                                            |       | —                             |       | 93,271                                                                                  |       |
| Total property and  equipment, net              |       | 143,524                        |       | 57,769                      |       | 94,515                          |       | —                                                            |       | —                             |       | 295,808                                                                                 |       |
| Due from affiliates                             |       | 118,389                        |       | —                      |       | —                          |       | 56,841                                                            |       | (175,230                           | )          | —                                                                                  |       |
| Deferred tax asset                              |       | —                         |       | —                      |       | —                          |       | 2,375                                                             |       | (2,375                             | )          | —                                                                                  |       |
| Investment in  subsidiaries                     |       | 111,286                        |       | —                      |       | 167,025                         |       | 239,976                                                           |       | (518,287                           | )          | —                                                                                  |       |
| Goodwill                                        |       | 247,325                        |       | 6,976                       |       | 40,508                          |       | —                                                            |       | —                             |       | 294,809                                                                                 |       |
| Intangibles and other  assets                   |       | 65,719                         |       | 3,290                       |       | 40,877                          |       | 1,361                                                             |       | —                             |       | 111,247                                                                                 |       |
| Total assets                                    |       | $                              | 712,007    |                        | $          | 193,374                         |       | $                                                                 | 404,305    |                               | $          | 300,553                                                                                 |       | $ | (731,789 | ) | $ | 878,450 |   |

 

26

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**BRANDENERGY & INFRASTRUCTURE SERVICES, INC.**

**CONDENSEDCONSOLIDATING BALANCE SHEET**

**JUNE 30, 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                                                         |       | $                          | 20,125     |                        | $          | —                          |       | $                                                                 | —     |                               | $          | —                                                                          |       | $ | — |   | $ | 20,125 |   |
| Current  maturities of long-term debt                                   |       | 2,931                      |       | —                      |       | —                          |       | —                                                            |       | —                             |       | 2,931                                                                           |       |
| Notes  payable and capital lease obligations, current portion           |       | 100                        |       | 228                         |       | —                          |       | —                                                            |       | —                             |       | 328                                                                             |       |
| Accounts  payable and accrued expenses                                  |       | 46,154                     |       | 21,477                      |       | 24,792                          |       | —                                                            |       | (117                               | )          | 92,306                                                                          |       |
| Deferred  revenue                                                       |       | —                     |       | 2,830                       |       | 667                             |       | —                                                            |       | —                             |       | 3,497                                                                           |       |
| Due  to affiliates                                                      |       | —                     |       | 27,406                      |       | 8,374                           |       | —                                                            |       | (35,780                            | )          | —                                                                          |       |
| Total  current liabilities                                              |       | 69,310                     |       | 51,941                      |       | 33,833                          |       | —                                                            |       | (35,897                            | )          | 119,187                                                                         |       |
| Long-term debt                                                          |       | 434,116                    |       | —                      |       | —                          |       | 52,498                                                            |       | —                             |       | 486,614                                                                         |       |
| Notes payable and  capital lease obligations                            |       | 169                        |       | 143                         |       | —                          |       | —                                                            |       | —                             |       | 312                                                                             |       |
| Redeemable Preferred Stock                                              |       | —                     |       | —                      |       | —                          |       | 35,313                                                            |       | —                             |       | 35,313                                                                          |       |
| Deferred income taxes                                                   |       | 17,693                     |       | —                      |       | 8,964                           |       | —                                                            |       | (2,375                             | )          | 24,282                                                                          |       |
| Due to affiliates                                                       |       | 56,842                     |       | —                      |       | 118,388                         |       | —                                                            |       | (175,230                           | )          | —                                                                          |       |
| Total stockholder’s  equity                                        |       | 133,877                    |       | 141,290                     |       | 243,120                         |       | 212,742                                                           |       | (518,287                           | )          | 212,742                                                                         |       |
| Total liabilities and stockholder’s equity                         |       | $                          | 712,007    |                        | $          | 193,374                         |       | $                                                                 | 404,305    |                               | $          | 300,553                                                                         |       | $ | (731,789 | ) | $ | 878,450 |   |

** **

27

----

**BRAND ENERGY & INFRASTRUCTURE SERVICES, INC.**

**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS**

**FOR THE THREE MONTHS ENDED JUNE 30, 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                                    |       | $                              | —     |                        | $          | 64,829                                |       | $                                                                 | 6,517      |                                           | $          | —                                                                          |       | $ | — |   | $ | 71,346 |   |
| Equipment  rental                        |       | —                         |       | 18,065                      |       | 1,160                                 |       | —                                                            |       | —                                         |       | 19,225                                                                          |       |
| Equipment  sales                         |       | —                         |       | 2,592                       |       | 217                                   |       | —                                                            |       | (286                                           | )          | 2,523                                                                           |       |
| Intercompany  revenue                    |       | 6,468                          |       | 48                          |       | —                                |       | —                                                            |       | (6,516                                         | )          | —                                                                          |       |
| Total  revenues                          |       | 6,468                          |       | 85,534                      |       | 7,894                                 |       | —                                                            |       | (6,802                                         | )          | 93,094                                                                          |       |
| Operating expenses:                      |       |                           |       |                        |       |                                  |       |                                                              |       |                                           |       |                                                                            |       |
| Labor                                    |       | —                         |       | 53,423                      |       | 5,808                                 |       | —                                                            |       | (757                                           | )          | 58,474                                                                          |       |
| Equipment  rental                        |       | 5,194                          |       | 1,699                       |       | 463                                   |       | —                                                            |       | —                                         |       | 7,356                                                                           |       |
| Equipment  sales                         |       | —                         |       | 1,900                       |       | 31                                    |       | —                                                            |       | (250                                           | )          | 1,681                                                                           |       |
| Divisional  operating expenses           |       | (13                            | )          | 4,285                       |       | 170                                   |       | —                                                            |       | —                                         |       | 4,442                                                                           |       |
| Intercompany  operating expenses         |       | —                         |       | 6,468                       |       | 48                                    |       | —                                                            |       | (6,516                                         | )          | —                                                                          |       |
| Total  operating expenses                |       | 5,181                          |       | 67,775                      |       | 6,520                                 |       | —                                                            |       | (7,523                                         | )          | 71,953                                                                          |       |
| Gross  profit                            |       | 1,287                          |       | 17,759                      |       | 1,374                                 |       | —                                                            |       | 721                                            |       | 21,141                                                                          |       |
| Selling and  administrative expenses     |       | 8,077                          |       | 7,156                       |       | 351                                   |       | —                                                            |       | —                                         |       | 15,584                                                                          |       |
| Non-cash compensation                    |       | 84                             |       | —                      |       | —                                |       | —                                                            |       | —                                         |       | 84                                                                              |       |
| Operating  income (loss)                 |       | (6,874                         | )          | 10,603                      |       | 1,023                                 |       | —                                                            |       | 721                                            |       | 5,473                                                                           |       |
| Interest expense                         |       | 6,980                          |       | 38                          |       | 5                                     |       | 1,603                                                             |       | —                                         |       | 8,626                                                                           |       |
| Interest income                          |       | (55                            | )          | (1                          | )          | (4                                    | )          | —                                                            |       | —                                         |       | (60                                                                             | )          |
| Intercompany interest                    |       | 1,603                          |       | —                      |       | —                                |       | (1,603                                                            | )          | —                                         |       | —                                                                          |       |
| Equity in loss (income)  of subsidiaries |       | —                         |       | —                      |       | —                                |       | 2,384                                                             |       | (2,384                                         | )          | —                                                                          |       |
| Income  (loss) before for income taxes   |       | (15,402                        | )          | 10,566                      |       | 1,022                                 |       | (2,384                                                            | )          | 3,105                                          |       | (3,093                                                                          | )          |
| Income tax expense  (benefit)            |       | (5,000                         | )          | 3,936                       |       | 355                                   |       | —                                                            |       | —                                         |       | (709                                                                            | )          |
| Net income (loss)                        |       | $                              | (10,402    | )                           | $          | 6,630                                 |       | $                                                                 | 667        |                                           | $          | (2,384                                                                          | )          | $ | 3,105 |   | $ | (2,384 | ) |

** **

28

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**BRAND ENERGY & INFRASTRUCTURE SERVICES, INC.**

**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS**

**FOR THE THREE MONTHS ENDED JUNE 30, 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                                                  |       | $                              | —     |                        | $          | 92,020                          |       | $                                                                 | 51,141     |                                           | $          | —                                                                          |       | $ | (628 | ) | $ | 142,533 |   |
| Equipment  rental                                      |       | —                         |       | 32,770                      |       | 18,394                          |       | —                                                            |       | —                                         |       | 51,164                                                                          |       |
| Equipment  sales                                       |       | —                         |       | 4,131                       |       | 7,122                           |       | —                                                            |       | (307                                           | )          | 10,946                                                                          |       |
| Intercompany  revenue                                  |       | 7,979                          |       | (4                          | )          | —                          |       | —                                                            |       | (7,975                                         | )          | —                                                                          |       |
| Total  revenues                                        |       | 7,979                          |       | 128,917                     |       | 76,657                          |       | —                                                            |       | (8,910                                         | )          | 204,643                                                                         |       |
| Operating expenses:                                    |       |                           |       |                        |       |                            |       |                                                              |       |                                           |       |                                                                            |       |
| Labor                                                  |       | —                         |       | 77,618                      |       | 45,936                          |       | —                                                            |       | (1,624                                         | )          | 121,930                                                                         |       |
| Equipment  rental                                      |       | 5,245                          |       | 4,749                       |       | 5,039                           |       | —                                                            |       | —                                         |       | 15,033                                                                          |       |
| Equipment  sales                                       |       | —                         |       | 2,588                       |       | 4,407                           |       | —                                                            |       | (552                                           | )          | 6,443                                                                           |       |
| Divisional  operating expenses                         |       | 14                             |       | 6,962                       |       | 1,817                           |       | —                                                            |       | —                                         |       | 8,793                                                                           |       |
| Intercompany  operating expenses                       |       | (4                             | )          | 7,977                       |       | 2                               |       | —                                                            |       | (7,975                                         | )          | —                                                                          |       |
| Total  operating expenses                              |       | 5,255                          |       | 99,894                      |       | 57,201                          |       | —                                                            |       | (10,151                                        | )          | 152,199                                                                         |       |
| Gross  profit                                          |       | 2,724                          |       | 29,023                      |       | 19,456                          |       | —                                                            |       | 1,241                                          |       | 52,444                                                                          |       |
| Selling and  administrative expenses                   |       | 9,440                          |       | 11,666                      |       | 10,337                          |       | —                                                            |       | —                                         |       | 31,443                                                                          |       |
| Non-cash compensation                                  |       | 135                            |       | —                      |       | —                          |       | —                                                            |       | —                                         |       | 135                                                                             |       |
| Operating  income (loss)                               |       | (6,851                         | )          | 17,357                      |       | 9,119                           |       | —                                                            |       | 1,241                                          |       | 20,866                                                                          |       |
| Interest expense                                       |       | 11,747                         |       | —                      |       | —                          |       | 1,836                                                             |       | —                                         |       | 13,583                                                                          |       |
| Interest income                                        |       | —                         |       | —                      |       | —                          |       | —                                                            |       | —                                         |       | —                                                                          |       |
| Intercompany interest                                  |       | (836                           | )          | —                      |       | 2,672                           |       | (1,836                                                            | )          | —                                         |       | —                                                                          |       |
| Foreign  currencytransaction (gain) loss               |       | (2,902                         | )          | 338                         |       | (43                             | )          | —                                                            |       | —                                         |       | (2,607                                                                          | )          |
| Gain on interest rate  and foreign currency rate swaps |       | 3,613                          |       | —                      |       | —                          |       | —                                                            |       | —                                         |       | 3,613                                                                           |       |
| Redeemable preferred  stock dividend expense           |       | —                         |       | —                      |       | —                          |       | 1,521                                                             |       | —                                         |       | 1,521                                                                           |       |
| Equity in loss (income)  of subsidiaries               |       | —                         |       | —                      |       | —                          |       | (3,571                                                            | )          | 3,571                                          |       | —                                                                          |       |
| Income (loss) before  income taxes                     |       | (18,473                        | )          | 17,019                      |       | 6,490                           |       | 2,050                                                             |       | (2,330                                         | )          | 4,756                                                                           |       |
| Income tax expense  (benefit)                          |       | (6,547                         | )          | 6,516                       |       | 2,737                           |       | —                                                            |       | —                                         |       | 2,706                                                                           |       |
| Net income (loss)                                      |       | $                              | (11,926    | )                           | $          | 10,503                          |       | $                                                                 | 3,753      |                                           | $          | 2,050                                                                           |       | $ | (2,330 | ) | $ | 2,050 |   |

 

29

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**BRAND ENERGY &INFRASTRUCTURE SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**BRANDENERGY & INFRASTRUCTURE SERVICES, INC.**

**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS**

**FOR THE SIX MONTHS ENDED JUNE 30, 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                                    |       | $                              | —     |                        | $          | 137,705                             |       | $                                                                         | 10,965     |                                     | $          | —                                                                                      |       | $ | — |   | $ | 148,670 |   |
| Equipment  rental                        |       | —                         |       | 36,081                      |       | 2,014                               |       | —                                                                    |       | —                                   |       | 38,095                                                                                      |       |
| Equipment  sales                         |       | —                         |       | 5,191                       |       | 296                                 |       | —                                                                    |       | (906                                     | )          | 4,581                                                                                       |       |
| Intercompany  revenue                    |       | 11,963                         |       | 78                          |       | —                              |       | —                                                                    |       | (12,041                                  | )          | —                                                                                      |       |
| Total  revenues                          |       | 11,963                         |       | 179,055                     |       | 13,275                              |       | —                                                                    |       | (12,947                                  | )          | 191,346                                                                                     |       |
| Operating expenses:                      |       |                           |       |                        |       |                                |       |                                                                      |       |                                     |       |                                                                                        |       |
| Labor                                    |       | —                         |       | 114,321                     |       | 9,862                               |       | —                                                                    |       | (1,981                                   | )          | 122,202                                                                                     |       |
| Equipment  rental                        |       | 9,962                          |       | 3,151                       |       | 843                                 |       | —                                                                    |       | —                                   |       | 13,956                                                                                      |       |
| Equipment  sales                         |       | —                         |       | 4,069                       |       | 78                                  |       | —                                                                    |       | (1,043                                   | )          | 3,104                                                                                       |       |
| Divisional  operating expenses           |       | 6                              |       | 8,234                       |       | 322                                 |       | —                                                                    |       | —                                   |       | 8,562                                                                                       |       |
| Intercompany  operating expenses         |       | —                         |       | 11,963                      |       | 78                                  |       | —                                                                    |       | (12,041                                  | )          | —                                                                                      |       |
| Total  operating expenses                |       | 9,968                          |       | 141,738                     |       | 11,183                              |       | —                                                                    |       | (15,065                                  | )          | 147,824                                                                                     |       |
| Gross  profit                            |       | 1,995                          |       | 37,317                      |       | 2,092                               |       | —                                                                    |       | 2,118                                    |       | 43,522                                                                                      |       |
| Selling and  administrative expenses     |       | 13,697                         |       | 14,268                      |       | 716                                 |       | —                                                                    |       | —                                   |       | 28,681                                                                                      |       |
| Non-cash compensation                    |       | 687                            |       | —                      |       | —                              |       | —                                                                    |       | —                                   |       | 687                                                                                         |       |
| Operating  income (loss)                 |       | (12,389                        | )          | 23,049                      |       | 1,376                               |       | —                                                                    |       | 2,118                                    |       | 14,154                                                                                      |       |
| Interest expense                         |       | 13,882                         |       | 39                          |       | 5                                   |       | 3,118                                                                     |       | —                                   |       | 17,044                                                                                      |       |
| Interest income                          |       | (148                           | )          | (1                          | )          | (10                                 | )          | —                                                                    |       | —                                   |       | (159                                                                                        | )          |
| Intercompany interest                    |       | 3,118                          |       | —                      |       | —                              |       | (3,118                                                                    | )          | —                                   |       | —                                                                                      |       |
| Equity in loss (income)  of subsidiaries |       | —                         |       | —                      |       | —                              |       | 2,307                                                                     |       | (2,307                                   | )          | —                                                                                      |       |
| Income (loss) before  income taxes       |       | (29,241                        | )          | 23,011                      |       | 1,381                               |       | (2,307                                                                    | )          | 4,425                                    |       | (2,731                                                                                      | )          |
| Income tax expense  (benefit)            |       | (9,478                         | )          | 8,572                       |       | 482                                 |       | —                                                                    |       | —                                   |       | (424                                                                                        | )          |
| Net income (loss)                        |       | $                              | (19,763    | )                           | $          | 14,439                              |       | $                                                                         | 899        |                                     | $          | (2,307                                                                                      | )          | $ | 4,425 |   | $ | (2,307 | ) |

** **

30

----

** **

**BRAND ENERGY &INFRASTRUCTURE SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**BRANDENERGY & INFRASTRUCTURE SERVICES, INC.**

**CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS**

**FOR THE SIX MONTHS ENDED JUNE 30, 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                                                  |       | $                              | —     |                        | $          | 181,032                         |       | $                                                                 | 99,748     |                                     | $          | —                                                                          |       | $ | (628 | ) | $ | 280,152 |   |
| Equipment  rental                                      |       | —                         |       | 65,269                      |       | 34,329                          |       | —                                                            |       | —                                   |       | 99,598                                                                          |       |
| Equipment  sales                                       |       | —                         |       | 8,721                       |       | 13,738                          |       | —                                                            |       | (374                                     | )          | 22,085                                                                          |       |
| Intercompany  revenue                                  |       | 16,519                         |       | —                      |       | —                          |       | —                                                            |       | (16,519                                  | )          | —                                                                          |       |
| Total  revenues                                        |       | 16,519                         |       | 255,022                     |       | 147,815                         |       | —                                                            |       | (17,521                                  | )          | 401,835                                                                         |       |
| Operating expenses:                                    |       |                           |       |                        |       |                            |       |                                                              |       |                                     |       |                                                                            |       |
| Labor                                                  |       | —                         |       | 153,761                     |       | 89,823                          |       | —                                                            |       | (2,919                                   | )          | 240,665                                                                         |       |
| Equipment  rental                                      |       | 10,263                         |       | 9,635                       |       | 8,960                           |       | —                                                            |       | —                                   |       | 28,858                                                                          |       |
| Equipment  sales                                       |       | —                         |       | 5,690                       |       | 8,701                           |       | —                                                            |       | (828                                     | )          | 13,563                                                                          |       |
| Divisional  operating expenses                         |       | 20                             |       | 13,741                      |       | 3,532                           |       | —                                                            |       | —                                   |       | 17,293                                                                          |       |
| Intercompany  operating expenses                       |       | —                         |       | 16,515                      |       | 4                               |       | —                                                            |       | (16,519                                  | )          | —                                                                          |       |
| Total  operating expenses                              |       | 10,283                         |       | 199,342                     |       | 111,020                         |       | —                                                            |       | (20,266                                  | )          | 300,379                                                                         |       |
| Gross  profit                                          |       | 6,236                          |       | 55,680                      |       | 36,795                          |       | —                                                            |       | 2,745                                    |       | 101,456                                                                         |       |
| Selling and  administrative expenses                   |       | 16,200                         |       | 23,854                      |       | 20,249                          |       | —                                                            |       | —                                   |       | 60,303                                                                          |       |
| Non-cash compensation                                  |       | 213                            |       | —                      |       | —                          |       | —                                                            |       | —                                   |       | 213                                                                             |       |
| Operating  income (loss)                               |       | (10,177                        | )          | 31,826                      |       | 16,546                          |       | —                                                            |       | 2,745                                    |       | 40,940                                                                          |       |
| Interest expense                                       |       | 22,361                         |       | 1                           |       | 9                               |       | 3,572                                                             |       | —                                   |       | 25,943                                                                          |       |
| Interest income                                        |       | (156                           | )          | (9                          | )          | (11                             | )          | —                                                            |       | —                                   |       | (176                                                                            | )          |
| Intercompany interest                                  |       | (1,697                         | )          | —                      |       | 5,269                           |       | (3,572                                                            | )          | —                                   |       | —                                                                          |       |
| Foreign currency  transaction (gain) loss              |       | (2,888                         | )          | 284                         |       | 148                             |       | —                                                            |       | —                                   |       | (2,456                                                                          | )          |
| Gain on interest rate  and foreign currency rate swaps |       | 2,689                          |       | —                      |       | —                          |       | —                                                            |       | —                                   |       | 2,689                                                                           |       |
| Redeemable preferred  stock dividend expense           |       | —                         |       | —                      |       | —                          |       | 2,976                                                             |       | —                                   |       | 2,976                                                                           |       |
| Equity in loss (income)  of subsidiaries               |       | —                         |       | —                      |       | —                          |       | (8,686                                                            | )          | 8,686                                    |       | —                                                                          |       |
| Income (loss) before  income taxes                     |       | (30,486                        | )          | 31,550                      |       | 11,131                          |       | 5,710                                                             |       | (5,941                                   | )          | 11,964                                                                          |       |
| Income tax expense  (benefit)                          |       | (9,964                         | )          | 12,080                      |       | 4,138                           |       | —                                                            |       | —                                   |       | 6,254                                                                           |       |
| Net income (loss)                                      |       | $                              | (20,522    | )                           | $          | 19,470                          |       | $                                                                 | 6,993      |                                     | $          | 5,710                                                                           |       | $ | (5,941 | ) | $ | 5,710 |   |

** **

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** **

**BRAND ENERGY &INFRASTRUCTURE SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**BRANDENERGY & INFRASTRUCTURE SERVICES, INC.**

**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS**

**FOR THE SIX MONTHS ENDED JUNE 30, 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 |       | $                          | (16,400    | )                           | $          | 23,857                          |       | $                                                                 | (1,335     | )                                  | $          | —                                                            |       | $ | 347 |   | $ | 6,469 |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| Purchases of property  and equipment                  |       | (10,705                    | )          | (923                        | )          | (797                            | )          | —                                                            |       | —                             |       | (12,425                                                           | )          |
| Proceeds from sales of  used rental equipment         |       | 1,529                      |       | —                      |       | —                          |       | —                                                            |       | —                             |       | 1,529                                                             |       |
| Payments for  acquisitions                            |       | —                     |       | —                      |       | —                          |       | —                                                            |       | —                             |       | —                                                            |       |
| Net cash used for  investing activities               |       | (9,176                     | )          | (923                        | )          | (797                            | )          | —                                                            |       | —                             |       | (10,896                                                           | )          |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                |       |                       |       |                        |       |                            |       |                                                              |       |                               |       |                                                              |       |
| Payments of long-term  debt                           |       | (523                       | )          | —                      |       | —                          |       | —                                                            |       | —                             |       | (523                                                              | )          |
| Intercompany loans and  advances                      |       | 20,693                     |       | (22,890                     | )          | 2,197                           |       | —                                                            |       | —                             |       | —                                                            |       |
| Payments on capital  lease obligations                |       | (254                       | )          | (44                         | )          | -                               |       | —                                                            |       | —                             |       | (298                                                              | )          |
| Net cash used for  financing activities               |       | 19,916                     |       | (22,934                     | )          | 2,197                           |       | —                                                            |       | —                             |       | (821                                                              | )          |
| INCREASE (DECREASE) IN  CASH AND CASH EQUIVALENTS     |       | (5,660                     | )          | —                      |       | 65                              |       | —                                                            |       | 347                                |       | (5,248                                                            | )          |
| CASH AND CASH  EQUIVALENTS, beginning of period       |       | 13,336                     |       | —                      |       | 1,525                           |       | —                                                            |       | (453                               | )          | 14,408                                                            |       |
| CASH AND CASH EQUIVALENTS, end of period              |       | $                          | 7,676      |                        | $          | —                          |       | $                                                                 | 1,590      |                               | $          | —                                                            |       | $ | (106 | ) | $ | 9,160 |   |

** **

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** **

**BRAND ENERGY &INFRASTRUCTURE SERVICES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**BRANDENERGY & INFRASTRUCTURE SERVICES, INC.**

**CONDENSEDCONSOLIDATING STATEMENT OF CASH FLOWS**

**FOR THE SIX MONTHS ENDED JUNE 30, 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          |       | $                          | (21,787    | )                                 | $          | 38,158                          |       | $                                                                 | (5,200     | )                                  | $          | —                                                            |       | $ | 152 |   | $ | 11,323 |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                         |       |                       |       |                              |       |                            |       |                                                              |       |                               |       |                                                              |       |
| Purchases of property  and equipment                           |       | (14,912                    | )          | (11,958                           | )          | (10,223                         | )          | —                                                            |       | —                             |       | (37,093                                                           | )          |
| Proceeds from sales of  used rental equipment                  |       | 1,262                      |       | 3,169                             |       | 3,927                           |       | —                                                            |       | —                             |       | 8,358                                                             |       |
| Payments for  acquisitions                                     |       | (254                       | )          | —                            |       | —                          |       | —                                                            |       | —                             |       | (254                                                              | )          |
| Net cash used for  investing activities                        |       | (13,904                    | )          | (8,789                            | )          | (6,296                          | )          | —                                                            |       | —                             |       | (28,989                                                           | )          |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                         |       |                       |       |                              |       |                            |       |                                                              |       |                               |       |                                                              |       |
| Payments of long-term  debt                                    |       | (1,464                     | )          | —                            |       | —                          |       | —                                                            |       | —                             |       | (1,464                                                            | )          |
| Short-term bank  borrowings                                    |       | 20,125                     |       | —                            |       | —                          |       | —                                                            |       | —                             |       | 20,125                                                            |       |
| Payments of deferred  financing fees                           |       | (929                       | )          | —                            |       | —                          |       | —                                                            |       | —                             |       | (929                                                              | )          |
| Intercompany loans and  advances                               |       | 17,849                     |       | (30,561                           | )          | 12,712                          |       | —                                                            |       | —                             |       | —                                                            |       |
| Payments on capital  lease obligations                         |       | (89                        | )          | (99                               | )          | —                          |       | —                                                            |       | —                             |       | (188                                                              | )          |
| Net cash provided  by/(used for) financing activities          |       | 35,492                     |       | (30,660                           | )          | 12,712                          |       | —                                                            |       | —                             |       | 17,544                                                            |       |
| INCREASE (DECREASE) IN  CASH AND CASH EQUIVALENTS              |       | (199                       | )          | (1,291                            | )          | 1,216                           |       | —                                                            |       | 152                                |       | (122                                                              | )          |
| IMPACT OF FOREIGN  CURRENCY RATES ON CASH AND CASH EQUIVALENTS |       | —                     |       | —                            |       | 116                             |       | —                                                            |       | —                             |       | 116                                                               |       |
| CASH AND CASH  EQUIVALENTS, beginning of period                |       | 355                        |       | 1,291                             |       | 4,933                           |       | —                                                            |       | (269                               | )          | 6,310                                                             |       |
| CASH AND CASH EQUIVALENTS, end of period                       |       | $                          | 156        |                              | $          | —                          |       | $                                                                 | 6,265      |                               | $          | —                                                            |       | $ | (117 | ) | $ | 6,304 |   |

 

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**ITEM 2. MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION 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,”and other words and terms of similar meaning in connection with any discussionof the timing or nature of future operating or financial performance or otherevents.

These forward-looking statements are based onour expectations 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;

·                  the potentialloss of a key customer;

·                  increases in thecost of labor;

·                  downturns inindustries 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;

·                  the potentialloss of key personnel; and

·                  costs related tothe 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 is relevant only as of the date onwhich it is made, and, except as required by law, we undertake no obligation toupdate any forward-looking statement to reflect events or circumstancesafter the date on which it is made or to reflect the occurrence of anticipatedor unanticipated events or circumstances.

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

**Overview**

We believe we are the largest North American providerof scaffolding work access services, based on management’s knowledge of theindustry and publicly available information about our competitors. Work accessservices 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,

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chemical, power generation, offshore oil production and otherindustries. In energy-related markets, our services support the ongoingmaintenance, inspection and periodic overhauls (“turnarounds”) of our customer’sfacilities. We also provide work access services associated with theconstruction of new facilities and the expansion or upgrading of existingsites. In the commercial and infrastructure markets, we support newconstruction and renovation projects, including for high-rise buildings,hospitals, airports, churches, bridges, dams and other construction andrenovation projects throughout North America and in select internationalregions.

Our work access service offerings facilitate access toour customer’s tall and complex structures. The core of our work accessbusiness is comprised of work access services for ongoing maintenance at ourcustomer’s facilities, many of which we have serviced for over 20 years.In our forming and shoring business, we provide customized applications thatsupport our customer’s concrete formwork needs. Our modular formwork systemscan be deployed more rapidly than custom-made forms, which we believe enablesour customers to shorten construction times and thereby reduce labor costs. Wealso provide our customers with specialty craft labor services, includinginsulation, carpentry and safety services. We believe that providing theseservices strengthens our relationships with our core customer base and providesus with a source of revenues that requires no additional capital investment.

On July 29, 2005 we acquired the operations of AlumaEnterprises, a Canada-based provider of work access and forming andshoring services. Approximately 60% of Aluma’s business serves the Canadian refiningindustry, including the Alberta Oil Sands. Through this acquisition we alsoacquired a concrete forming and shoring business which has a strong presence inselect 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 range offactors, 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 gasoline demand for automobiles during the summer,most refineries prefer to close down for turnarounds during the spring andfall. In addition, cold temperatures in the first and fourth fiscal quarterstypically limit activity on maintenance and capital projects in the Alberta OilSands. Our utility clients follow a similar pattern. On the other hand,non-residential construction, particularly in the renovation business, occursthroughout the year, but is heaviest in the second and third fiscal quarters.The effects of seasonal fluctuations in demand for our services may lead 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.

*Effects on our Revenues of Economic Conditions in a Small Group ofIndustries*

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:

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·                  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, capacity enhancementof existing facilities and refurbishment of inactive 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 Exchange Rates*

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 June 30, 2006, our total long-term indebtedness was$496.1 million of which approximately $290.2 million was subject tovariable interest rates. If interest rates were to increase by 100 basispoints, our annualized cash interest expense would increase by approximately$2.9 million.

*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.

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**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 of scaffolding equipment. Wegenerally rent equipment under month-to month rental contracts. We provideservices, such as the erection and dismantling of scaffolding or forming andshoring units under both price-per-unit and time-and-materials contracts. Wetypically provide work access services for ongoing maintenance at our customer’sfacilities, many of which we have serviced for over 20 years. Turnaroundsoccur every one to four years depending on the industry and the type ofturnaround being performed. Although some turnarounds may be postponed for aperiod of time, they are a necessary component of maintaining industrialfacilities and are required to ensure the safe and efficient operation of thesefacilities. While the postponement of scheduled turnarounds causes fluctuationsin our quarterly and annual results, ongoing maintenance and turnaroundsprovide stable and recurring revenues. Historically, approximately 75% of ourrevenues have been attributable to serving the industrial market with ongoingmaintenance, turnarounds and capital projects 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, thecost of equipment rental revenues, the cost of equipment sales, and divisionaloperating expenses, the most significant of which is the cost of labor. Thecost of labor as a percentage of operating expenses was 79.5%, 81.1% and 75.9%for fiscal years 2003, 2004 and 2005, respectively, and 82.7% and 80.1% for thesix months ended June 30, 2005 and 2006, respectively. The cost of laborconsists of salaries and related payroll expenses that we pay to our employeeswho provide our work access and forming and shoring services. In periods ofhigh demand for our services, we may supplement our permanent workforce with asmany as 5,000 temporary workers. During periods of intense competition for suchtemporary workers, our cost of labor increases. For example, a tightening labormarket along the Gulf Coast and in Western Canada increased our cost of laborin recent periods. Insurance and related expenses represent a significantcomponent of our cost of labor. In 2005 our insurance costs of$10.6 million represented 3.6% of our cost of labor. If our insurancepremiums or related costs rise significantly in the future, our profitabilitycould be reduced.

The cost of equipment rental, the cost of equipment salesand divisional operating expenses represented 11.7%, 2.6% and 6.3%,respectively of our operating expenses for the year ended December 31,2005 and 9.6%, 4.5% and 5.8%, respectively, of our operating expenses for thesix months ended June 30, 2006. The cost of equipment rentals principallyconsists of depreciation expense and the costs to transport our rentalequipment to and from our customer sites. The cost of equipment sales consistsof our purchase costs of the equipment sold. Divisional operating expenses arethe costs to staff and operate our field locations. These costs tend to varydirectly with total revenues.

*Gross Margin*

We use the gross margin percent (gross profit divided byrevenues) of each of our revenue sources to monitor the profitability of ourbusiness. Because we price our services as a function of our estimated costs,we expect our gross margin to be relatively stable despite the variable cost oflabor. Consequently, we expect that our labor revenues will vary directly withour cost of labor. Nevertheless, although our contracts typically provide forre-pricing on an annual basis, volatility in our variable costs, principallythe cost of labor, may have a short term impact on our gross margin to theextent that pricing adjustments cannot be made immediately to reflect suchincreased costs.

Because a large component of our cost of rental revenuesis depreciation expense, which is a semi-variable cost, we expect that ourgross margins on rental revenues should increase as rental revenues increase.

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*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 and professional 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 Currency Swaps*

When we acquired the assets and operations of Aluma, weincreased 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 2005.As we more fully describe in note 13 of our consolidated financialstatements, we determined that we would not account for these as hedges. As aresult, we record the change in fair market value of these financial instrumentsin this line of our statement of operations.

*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 statement ofoperations. In particular, because we have a net Canadian receivable on thebooks of a U.S. subsidiary, we will record unrealized gains if the Canadiandollar strengthens against the U.S. dollar. On the other hand, if the Canadiandollar weakens against 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 statement of operations.

**Critical Accounting Policies**

A summary of our significant account policies is includedin note 2 to our consolidated financial statements. The preparation offinancial statements requires our management to make estimates and assumptionsthat affect the amounts reported in the consolidated financial statements andaccompanying notes. Our estimates and assumptions are based on historicalexperiences and changes in the business environment. However, actual resultsmay differ from estimates under different conditions, sometimes materially.Critical accounting policies and estimates are defined as those that are bothmost important to the portrayal of our financial condition and results andrequire management’s most subjective judgments. Our most critical accountingpolicies 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 statement of operations from the respective date ofacquisition. We allocated the purchase price of each acquisition to itsidentifiable assets and liabilities, and we recorded any excess of the costover the fair value of the net identifiable assets acquired as goodwill. Ourinitial allocation of purchase price is based on preliminary information,

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which is subject to adjustments upon obtaining complete valuationinformation. While the delay in finalizing purchase price allocations inconnection with our acquisitions has historically not had a material impact onour consolidated results of operations, we cannot guarantee the that this willbe the case in the future.

*Impairment Policies*

We account for our long-lived assets, excluding goodwilland tradenames, in accordance with SFAS No. 144, which requires us toassess 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, without regard to interest expense or futurefluctuations in foreign currency exchange rates, will be sufficient to coverthe carrying value of such assets. This requires our management to makesignificant judgments about the expected future cash flows of the asset group.The future cash flows are dependent on general and economic conditions and aresubject to change.

We account for goodwill and tradenames in accordance withSFAS 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 an operating segment level. Becausequoted market prices are not available, management uses the present value ofexpected future cash flows to estimate fair value. Management must makesignificant judgments and estimates about future conditions to estimate futurecash flows. With respect to our October 1, 2003 impairment test, weestimated that, on an interest-free basis, we would generate cash flows fromoperations of $50.7 million in fiscal 2004 and spend $12.3 million onnet capital expenditures. We actually generated $53.2 million in cashflows from operations on an interest-free basis (actual cash flows fromoperations plus cash interest expense less taxes at 38% on the cash interestexpense) and spent $10.1 million on net capital expenditures (purchases ofproperty and equipment less proceeds from sales of property and equipment).With respect to our October 1, 2004 impairment test, we estimated that, onan interest-free basis, we would generate cash flows from operations of$40.6 million in fiscal 2005 and spend $13.5 million on net capitalexpenditures. We actually generated $45.1 million in cash flows fromoperations on an interest-free basis and spent $11.7 million on netcapital expenditures (purchases of property and equipment less proceeds fromsales of property and equipment). Unforeseen events and changes incircumstances and market conditions, including general economic and competitiveconditions, could result in significant changes in those estimates and materialcharges 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 estimatedliabilities for workers’ compensation and health benefit claims of$17.0 million as of June 30, 2006, are adequate and that the judgment appliedis appropriate, such estimated liabilities could differ materially from ouractual future liabilities related to workers’ compensation and health benefitclaims.

*Revenue Recognition*

We generally rent equipment under month-to-month rentalcontracts and provide services under both price-per-unit and time-and-materialsshort-term contracts. Price-per-unit contracts establish a fixed price per unitof scaffolding deployed. We recognize revenues on price-per-unit contracts overthe contractual period based upon the percentage of completion method. Wedetermine percentage of completion by comparing costs actually incurred on eachcontract to total estimated costs to complete each contract. We recognizelosses on individual contracts as soon as we determine that our total estimatedcosts exceed our fixed fee arrangement for that contract. We recognize revenuesfor services provided on a time-and-materials basis when we provide the relatedservice.

We periodically sell new and used scaffolding andconcrete forming and shoring equipment directly to third parties. We recognizerevenue upon shipment and record as operating expense the cost of thescaffolding or concrete forming equipment sold on the first-in first-outmethod. In addition, we periodically sell used scaffolding and concrete formingand shoring equipment to third parties, primarily to rental customers. Werecognize revenue for the proceeds

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of such sales and record as operating expense the net book value of thescaffolding or concrete forming equipment. We determine net book value assumingthe oldest inventory is sold first, as we maintain inventory records on a groupbasis.

*Stock-BasedCompensation*

As further discussed in Note 14 to our consolidatedfinancial statements, as a means of compensating our employees for past andfuture service, our employees are granted ownership units of Brand LLC. BrandLLC currently owns 100% of our outstanding common stock.

Prior to January 1, 2004, we accounted for theissuance of these units using the intrinsic value method under the recognitionand measurements provisions of Accounting Principles Board Opinion 25,Accounting for Stock Issued to Employees (APB25). As a result, we did notrecord any compensation expense related to the issuance of Brand LLC ownershipunits to employees in fiscal 2003.

Effective January 1, 2004, we adopted the fair valuerecognition provisions of SFAS No. 123, “Accounting for Stock BasedCompensation.” We selected the modified prospective transition method under theprovisions of SFAS No. 148, “Accounting for Stock Based CompensationTransition and Disclosure,” which requires us to expense stock optionsprospectively, beginning in the year of adoption. We expensed $0.2 millionand $1.4 million of stock options for the years ended December 31,2004 and 2005, recorded in our consolidated statements of operations undernon-cash compensation. We also determined that, if we had adopted thisaccounting as of January 1, 2003, we would have recorded $0.8 millionin stock option expense for the year ended December 31, 2003.

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.

Given the lack of a public market for our common stockand for the ownership units of Brand LLC, during 2005 we engaged an independentvaluation specialist to determine the fair value of the Brand LLC ownershipunits on a retrospective basis for each quarter of 2005. We recognized that thepurchase of Aluma was a milestone event in the history of our company thatincreased the value of our common stock and the Brand LLC ownership units. Inestablishing the estimates of fair value, the specialist considered theguidance set forth in the AICPA Practice Guide, “Valuation of Privately-Held-CompanyEquity Securities Issued as Compensation” and made retrospective determinationsof fair value.

Determining the fair value of our common stock and theBrand LLC ownership units requires making complex and subjective judgments. Ourapproach to valuation is based on a discounted future cash flow approach thatuses our estimates of revenue, driven by assumed market growth rates, andestimated costs as well as appropriate discount rates. These estimates areconsistent with the plans and estimates that we use to manage our business.There is inherent uncertainty in making these estimates. In April 2006 westarted the process of an initial public offering of our common stock by filinga Form S-1 with the Securities and Exchange Commission. Although it is reasonableto expect that the completion of an initial public offering of our common stockwill add value to the shares because they will have increased liquidity andmarketability, the amount of additional value cannot be measured with precisionor certainty.

To determine the fair value of our common stock andthe Brand LLC ownership units, we also must make certain assumptions related tothe possibility of a taxable sale of our company. These assumptions include aprobability-weighted time frame of such a sale. In determining the valueof our common stock and the Brand LLC ownership units in 2004, we used aprobability weighted time frame for a taxable sale of our company of fiveyears. In 2005, we reduced our estimate of the time frame to three years. In general,shortening the time frame for a taxable sale has the impact of increasing theestimate of fair value of our common stock in an immaterial amount because thecurrent fair value of the common stock and the Brand LLC ownership units isbased upon a discounted value of the future anticipated sales proceeds. Thediscount rate used is the risk-free rate of return specified by SFASNo. 123. For the year ended December 31, 2005, this discount rateranged from 3.45% to 4.18%.

As further described in note 14 to ourconsolidated financial statements, certain of the Brand LLC ownership unitshave performance-based vesting provisions related to the value of ourcompany. The determination date for the

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vesting of these units isthe earlier of (i) a liquidity event as defined in Brand LLC’s limitedliability company agreement or (ii) December 31, 2009. In determiningcompensation expense related to performance-based Brand LLC ownershipunits, based upon our estimates of the fair value of our company, we estimatedthat 16.7% of these units would vest upon a liquidity event or atDecember 31, 2009. If the value of our company is actually higher than ourestimates at either of these dates, the actual number of performance-basedunits that vest could be higher than our estimate. As a result, we would recordadditional compensation expense related to these units if we determine that weneed to change our estimate of vesting percentages.

As of December 31, 2005, we estimate the fairvalue of Brand LLC ownership units issued to employees to be $6.2 million.As further discussed in note 16 to our consolidated financial statementsfor the year ended December 31, 2005, we have or will recognize$2.5 million in non-cash compensation expense related to these units.There are two reasons that the fair value of the units is significantly morethan the amount of compensation expense that we have or will recognize relatedto these units.

·                  Themajority of these units were issued to employees in fiscal periods prior toJanuary 1, 2004. As previously discussed, prior to that date we accountedfor the issuance of these units using the intrinsic value method under therecognition and measurements provisions of APB25. As a result, we did notrecord any compensation expense related to the issuance of Brand LLC ownershipunits to employees in fiscal 2003.

·                  Aspreviously discussed, the acquisition of Aluma added to the value of our commonstock and the Brand LLC ownership units. In recognizing compensation expenserelated to the issuance of these units, we use the grant date of the Brand LLCownership units as the measurement date. We do not recognize additionalcompensation expense if the fair value of these units increases after themeasurement date.

In May 2006, we initiated the process of aninitial public offering (“IPO”) of our common stock. If we are successful incompleting this process, we expect to record a significant charge to earningsas of the date of the completion of the IPO for compensation expense related tothese Brand LLC ownership units for the following reasons:

·                  TheIPO transaction contemplated in the Form S-1 which we filed with the Securitiesand Exchange Commission constitutes a liquidity event as defined in Brand LLC’slimited liability company agreement. As a result, all Brand LLC time-basedownership units vest 100% as of the date of the liquidity event. As a result,we must adjust our estimate of the time-frame for vesting of these units.

·                  TheIPO transaction accelerates the date of determination of vesting of theperformance-based Brand LLC ownership units. As a result, we must adjustour estimates of vesting percentages and the time-frame for vesting of theperformance-based Brand LLC ownership units.

**Acquisition of Aluma**

On July 29, 2005, we purchased substantially all ofthe 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 $241.4 million,consisting of purchase price and acquisition related costs of$217.6 million and assumed liabilities of $23.8 million. Theacquisition was principally financed through borrowings under our creditfacility (See note 10 to our consolidated financial statements), andthrough the issuance of our redeemable preferred stock (See note 11 to ourconsolidated financial statements). In connection with the acquisition, werecorded goodwill of $45.0 million based upon the allocation of the excessof the purchase price over the net fair value of the assets acquired.

**Change in Accounting Principle**

Effective January 1,2006, we adopted the provisions of Statement of Financial Accounting Standards(“SFAS”) No. 123 (Revised 2004) “Share-Based Payment” (“SFASNo. 123(R)”) using the modified prospective

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method, which requires measurement of compensationcost for all stock-based awards at fair value on date of grant and recognitionof compensation 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 theprovisions of SFAS No. 148, “Accounting for Stock-Based Compensation-Transitionand Disclosure,” which requires us to expense stock options prospectively,beginning in the year of adoption.

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

**Results of Operations**

***Three Months Ended June 30, 2006 asCompared to Three Months Ended June 30, 2005***

Revenue.  Totalrevenues increased to $204.6 million for the three months ended June 30, 2006from $93.1 million for the three months ended June 30, 2005, whichrepresented an increase of $111.5 million or 119.8%. The increase inrevenues was principally attributable to the acquisition of Aluma, whichaccounted for $90.7 million, or 81.3%, 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 $8.9 million from the sameperiod in the prior year driven by increased turnaround activity. TheCommercial segment also grew $2.3 million driven by continued strength innew construction and renovation work, particularly in the southeast and westernUnited States.

Gross Profit. Gross profit for the three months ended June 30, 2006 was$52.4 million or 25.6% of revenues compared to 2005 gross profit of$21.1 million or 22.7% of revenues. The acquisition of Aluma accounted for$26.4 million of this increase.

Gross profit on labor services for the three months endedJune 30, 2006 increased 60.1% to $20.6 million or 14.5% of labor revenuesas compared to the three months ended June 30, 2005 gross profit on laborservices, which was $12.9 million or 18.0% of labor revenues. Theacquisition of Aluma accounted for $5.3 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 204.4% to$36.1 million in 2006 or 70.6% of equipment revenues as compared to 2005gross profit on equipment rentals of $11.9 million or 61.7% of equipmentrental revenues. The acquisition of Aluma accounted for $20.9 million of2006 equipment gross profit. The increase in gross margin on equipment rentalwas driven by the Aluma acquisition and a 15.5% increase in equipment rentalrevenues in our existing business while total equipment rental costs for ourexisting business decreased 4.5% between years. Divisional operating costsincreased 98.0% to $8.8 million in 2006 or 4.3% of total revenues ascompared to 2005 divisional operating costs of $4.4 million or 4.8% oftotal revenues. The acquisition of Aluma accounted for $3.6 million of theincreases in divisional operating costs.

Selling and Administrative Expenses.  Selling and administrative expenses increased$15.9 million to $31.4 million for the three months ended June 30,2006. The acquisition of Aluma accounted for $13.7 million of theincrease. Selling and administrative expenses also increased as a result ofincreases in travel expense of $0.3 million, bonus and sales commissionexpenses of $1.4 million, and legal, audit and consulting expenses of$0.8 million.

Operating Income. As a result of the factors discussed above, operating income increasedby $15.4 million to $20.9 million for the three months ended June 30,2006 from $5.5 million for the three months ended June 30, 2005.

Interest Expense. Interest expense increased by $5.0 million to $13.6 millionfor the three months ended June 30, 2006, from $8.6 million for the threemonths ended June 30, 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 acquisition ofAluma and the compounding effect of interest on our 13% senior subordinatedpay-in-kind notes due 2013.

Redeemable Preferred Stock Dividend Expense.  Preferred stock dividend expense in 2006arose from our issuance in July 2005 of preferred stock to finance theacquisition of Aluma. As further discussed in note 11 to our

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consolidated financial statements, because the preferred stock has amandatory 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 borrowedCDN$70.3 million under our credit facility to fund the acquisition ofAluma. Simultaneously, Brand Services loaned CDN$132.0 million to itsCanadian subsidiary to purchase the Canadian assets of Aluma. As a result ofthese transactions, Brand Services has a net receivable exposure ofapproximately CDN$61.7 million on which it recognizes currency gains andlosses. From March 31, 2006 to June 30, 2006, the U.S. dollar weakenedagainst the Canadian dollar by approximately 10.3% resulting in a foreigncurrency transaction gain of $2.6 million.

Gain on Interest and Foreign Currency Rate Swaps.  During the second half of 2005 we enteredinto several interest and currency swaps to mitigate our interest rate exposurein connection with our variable interest rate debt and our currency rateexposure related to our investment in Aluma. We did not elect to treat theseswap agreements as hedges under SFAS No. 133 and, accordingly, recordedmark-to-market gains and losses in net income. For the three months ended June30, 2006, we recorded a gain of $0.5 million on our interest rate swapsand a loss of $4.1 million on our currency swaps.

Provision for Taxes. For the three months ended June 30, 2006, the provision for income taxeswas recorded at an effective rate of 56.9% versus an effective tax rate of22.9% for the three months ended June 30, 2005. The primary reason for theincrease in the effective tax rate is that we reported a pretax loss of$3.1 million for the three months ended June 30, 2005 versus pretax incomeof $4.8 million for the three months ended June 30, 2006. As a result, theimpact of nondeductible items had a significant impact on the effective taxrate in both years. We explain the differences between our effective tax rateand the federal statutory rate of 34% in greater detail in Note 15 to ourconsolidated financial statements.

***Six Months Ended June 30, 2006 asCompared to Six Months Ended June 30, 2005***

Revenue.  Total revenues increasedto $401.8 million for the six months ended June 30, 2006 from$191.3 million for the six months ended June 30, 2005, which representedan increase of $210.5 million or 110.0%. The increase in revenues wasprincipally attributable to the acquisition of Aluma, which accounted for$174.7 million, or 83.0%, of this increase, and strong demand for workaccess solutions in all of our markets in 2006. Our revenues derived from therefinery and chemical market increased $17.8 million from the same periodin the prior year driven by increased turnaround activity. The Commercialsegment also grew $6.1 million driven by continued strength in newconstruction and renovation work, particularly in the southeast and westernUnited States.

Gross Profit. Gross profit for the six months ended June 30, 2006 was$101.5 million or 25.2% of revenues compared to 2005 gross profit of$43.5 million or 22.7% of revenues. The acquisition of Aluma accounted for$49.3 million of this increase.

Gross profit on labor services for the six months endedJune 30, 2006 increased 49.2% to $39.5 million or 14.1% of labor revenuesas compared to the six months ended June 30, 2005 gross profit on laborservices, which was $26.5 million or 17.8% of labor revenues. Theacquisition of Aluma accounted for $10.2 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 193.1% to$70.7 million in 2006 or 71.0% of equipment revenues as compared to 2005gross profit on equipment rentals of $24.1 million or 63.4% of equipment rentalrevenues. The acquisition of Aluma accounted for $39.2 million of 2006equipment gross profit. The increase in gross margin on equipment rental wasdriven by the Aluma acquisition and a 19.1% increase in equipment rentalrevenues in our existing business while total equipment rental costs for ourexisting business decreased 0.8% between years. Divisional operating costsincreased 102.0% to $17.3 million in 2006 or 4.3% of total revenues ascompared to 2005 divisional operating costs of $8.6 million or 4.5% oftotal revenues. The acquisition of Aluma accounted for $7.2 million of theincreases in divisional operating costs.

Selling and Administrative Expenses.  Selling and administrative expenses increased$31.6 million to $60.3 million for the six months ended June 30,2006. The acquisition of Aluma accounted for $26.7 million of theincrease. Selling and administrative expenses also increased as a result ofincreases in travel expenses of $0.5 million, bonus and sales commissionexpenses of $2.4 million, and legal, and audit and consulting expenses of$0.5 million.

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Operating Income. As a result of the factors discussed above, operating income increasedby $26.7 million to $40.9 million for the six months ended June 30,2006 from $14.2 million for the six months ended June 30, 2005.

Interest Expense. Interest expense increased by $8.9 million to $25.9 millionfor the six months ended June 30, 2006, from $17.0 million for the sixmonths ended June 30, 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 acquisition ofAluma and the compounding effect of interest on our 13% senior subordinatedpay-in-kind notes due 2013.

Redeemable Preferred Stock Dividend Expense.  Preferred stock dividend expense in 2006arose from our issuance in July 2005 of preferred stock to finance theacquisition of Aluma. As further discussed in note 11 to our consolidatedfinancial statements, because the preferred stock has a mandatory redemptiondate, it is reflected as debt in our consolidated financial statements and therelated dividends are recorded as preferred stock dividend expense.

Foreign Currency Transaction Gain.  On July 29, 2005 Brand Services borrowedCDN$70.3 million under the credit facility to fund the acquisition ofAluma. Simultaneously, Brand Services loaned CDN$132.0 million to itsCanadian subsidiary to purchase the Canadian assets of Aluma. As a result ofthese transactions, Brand Services has a net receivable exposure ofapproximately CDN$61.7 million on which it recognizes currency gains andlosses. From December 31, 2005 to June 30, 2006, the U.S. dollar weakenedagainst the Canadian dollar by approximately 10.3% resulting in a foreigncurrency transaction gain of $2.5 million.

Gain on Interest and Foreign Currency Rate Swaps.  During the second half of 2005 we enteredinto several interest and currency swaps to mitigate our interest rate exposurein connection with our variable interest rate debt and our currency rateexposure related to our investment in Aluma. We did not elect to treat theseswap agreements as hedges under SFAS No. 133 and, accordingly, recordedmark-to-market gains and losses in net income. For the six months ended June30, 2006, we recorded a gain of $1.0 million on our interest rate swapsand a loss of $3.7 million on our currency swaps.

Provision for Taxes. For the six months ended June 30, 2006, the provision for income taxeswas recorded at an effective rate of 52.3% versus an effective tax rate of15.5% for the six months ended June 30, 2005. The primary reason for theincrease in the effective tax rate is that we reported a pretax loss of$2.7 million for the six months ended June 30, 2005 versus pretax incomeof $12.0 million for the six months ended June 30, 2006.  As a result, the impact of nondeductibleitems had a significant impact on the effective tax rate in both years. Weexplain the differences between our effective tax rate and the federalstatutory rate of 34% in greater detail in note 15 to our consolidatedfinancial statements.

**Liquidity and Capital Resources**

We have historically utilized cash flow from operationsand borrowings under our amended credit facility to fund our operations,capital expenditures and working capital requirements. As of December 31,2005 and June 30, 2006, we had working capital of $56.5 million and$57.4 million and cash of $6.3 million and $6.3 million,respectively. Our practices relating to working capital are similar to those ofother industrial service providers. These practices include standard accountsreceivable payment terms of 30 days to 60 days, with progress payments requiredand standard accounts payable payment terms of 30 days to 60 days.

For the six months ended June 30, 2005 and 2006, cashprovided by operating activities was $6.5 million and $11.3 million,respectively.

As our work accessbusiness grows, so do our working capital requirements.   This islargely a function of the timing differences between the payment of our workforce and receipt of payments from customers.   If we are successfulin our strategy of providing additional services to our customers that arecomplementary to our work access services, the percentage of our revenuesgenerated through the provision of labor services may increase, which couldcause an increase in our working capital requirements that is in excess of ourrevenue growth.   We believe that our existing working capitalborrowings available under our credit facility and cash flow from operationsshould provide sufficient resources to support our current revenue levels until2012.  If, however, our revenues increase or the mix between serviceand rental revenue changes significantly, we may need to arrange additionalworking capital borrowings. In 2012 our$150.0 million 12% senior subordinated notes and our term debt

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underour credit facility will be due and payable. As a result we will need to obtainapproximately $421.5 million in long-term financing at that time. Prior to2012, to the extent we accelerate our growth plans, consummate acquisitions orhave lower than anticipated sales or increases in expenses, we may also need toraise additional capital. In particular, we will require additional workingcapital whenever we consummate acquisitions or experience strong incrementaldemand.

In July 2005, we amended our credit facility inconnection with our acquisition of Aluma. Following such amendment, our creditfacility provided for $287.0 million of term loans, a $50.0 millionrevolving loan facility, a $20.0 million letter of credit facility and asynthetic letter of credit facility of up to $15.0 million. Up to$20.0 million of the $50.0 million revolving loan facility may beused for additional letters of credit. As of December 31, 2005, we had noborrowings outstanding under the revolving portion of our credit facility andhad total outstanding letters of credit of $34.3 million. As of June 30,2006, we had borrowings of $20.1 million outstanding under the revolvingportion of our credit facility and had total outstanding letters of credit of$34.4 million.

In June 2006, we further amended our credit facilityin connection with our anticipated intital public offering of our common stock.Effective upon the consummation of an initial public offering of our commonstock, our credit facility will provide for $388.0 million of term loans,a $75.0 million revolving loan facility and a synthetic letter of creditfacility of up to $35.0 million.

Our credit facility contains financial and operatingcovenants, which require, among other things, that we maintain certainfinancial ratios, and imposes limitations on our ability to make capitalexpenditures, to incur indebtedness, and to pay dividends. The most significantof these covenants are as follows:

Minimum Interest Coverage Ratio.  Prior to certain amendments to our creditfacility which will become effective upon the consummation of an initial publicoffering of our common stock, our ratio of EBITDA (as defined in our creditfacility) to consolidated cash interest expense for any four-fiscal quarterperiod ending during any of the periods set forth below cannot be less than theratio indicated:
| **Period**                                 | ** ** | **Minimum Interest  Coverage Ratio** | ** ** |
|--------------------------------------------|------------|------------------------------------------------|------------|
| Through September  30, 2006                |       | 1.75:1.00                                      |       |
| October 1, 2006  through December 31, 2008 |       | 2.00:1.00                                      |       |
| January 1, 2009 and  thereafter            |       | 2.25:1.00                                      |       |

 

Maximum Leverage Ratio. Prior to certain amendments to our credit facility which will becomeeffective upon the consummation of an initial public offering of our commonstock, our ratio of period end consolidated total debt (net of cash and cashequivalents) to EBITDA (as defined in our credit facility) for any four-fiscalquarter period ending during any of the periods set forth below cannot exceedthe ratio indicated:
| **Period**                                 | ** ** | **Maximum  Leverage Ratio** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|
| Through  September 30, 2006                |       | 6.00:1.00                        |       |
| October 1, 2006  through December 31, 2006 |       | 5.75:1.00                        |       |
| January 1, 2007  through December 31, 2007 |       | 4.75:1.00                        |       |
| January 1, 2008  through December 31, 2008 |       | 4.00:1.00                        |       |
| January 1, 2009 and  thereafter            |       | 3.00:1.00                        |       |

 

In August  2006 weamended our existing credit facility to provide for, among other things, (i) anincrease in the revolving credit facility from $50.0 million to $100.0 million,(ii) the establishment of an uncommitted incremental term facility pursuant towhich we will be entitled to incur additional dollar-denominated term loans inan aggregate principal amount of up to $25.0 million and (iii) an amendment tothe restrictions on acquisitions contained therein that would permit us to makeacquisitions in an aggregate amount of up to $70.0 million during the 2006fiscal year. As discussed in note 18 to our consolidated financial statements,we funded the acquisition of the business and operating assets of InterstateScaffolding, Inc. with additional borrowings under our amended credit facility.

As of December 31, 2005 and June 30, 2006, we werein compliance with the financial covenants contained in our credit facility. Asof June 30, 2006, our interest coverage ratio was 2.86:1.00 compared to theminimum requirement (prior to the effectiveness of the amendments describedabove) of 1.75:1.00. As of June 30, 2006, our leverage ratio was 3.85:1.00compared to the maximum allowable level (prior to the effectiveness of theamendments described above) of 6.00:1.00.

The interest rate on the term loans under our creditfacility is variable. For the six months ended June 30, 2005 and 2006, theweighted average interest rate on the term loans was 6.3% and 7.5%,respectively. For the six months ended June 30, 2006, the weighted averageinterest rate for borrowings under the revolving portion of our credit facilitywas 9.9%.

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Our estimated interest payment obligation under ourcredit facility for 2006 is $22.5 million, including commitment and letterof credit fees. We are required to make semi-annual interest payments on our12% senior subordinated notes in the amount of $9.0 million in April andOctober of every year until our 13% senior subordinated pay-in-kind notes due2013 mature in October 2012. We are not required to begin making interestpayments on the 13% senior subordinated pay-in-kind notes due 2013 until 2008,as these notes are pay-in-kind.

*Cash Flows From Operating Activities*

Cash flows from operating activities were$6.5 million for the six months ended June 30, 2005 compared to$11.3 million for the six months ended June 30, 2006. The primary reasonsfor the increase is that we reported a net loss of $2.3 million for the sixmonths ended June 30, 2005 versus net income of $5.7 million for the six monthsended June 30, 2006. The increase in net income was partially offset be anincrease in overall aging of our accounts receivable. The percentage of totalaccounts receivable over 90 days past due increased from 17.2% at December31, 2005 to 17.6% at June 30, 2006.

*Cash Flows Used in Investing Activities*

During 2005 we acquired substantially all of theoperations and operating assets of Aluma. The aggregate purchase price forAluma was $241.4 million, consisting of the purchase price and acquisitionrelated costs of $217.6 million and assumed liabilities of$23.8 million.

One of our major uses of cash is capital expenditures,primarily comprised of equipment expenditures. Our maintenance capitalexpenditures generally relate to acquiring scaffolding planks, trucks and otherequipment. Expansion capital expenditures are discretionary and generallyrelate to acquiring new work access solutions and vehicles. These expendituresvary annually based on our level of work access solutions and forming andshoring rental activity and growth opportunities.

Capital expenditures for the six months ended June 30,2006 were $37.1 million compared to $12.4 million for the same periodin 2005. Capital expenditures for the six months ended June 30, 2006 weresignificantly higher than for the same period in 2005 due to(i) additional capital expenditure requirements of the Aluma operations weacquired and (ii) increased expansion capital expenditures required tomeet anticipated increased demand for our services.

*Cash Flows From Financing Activities*

In general, our credit facility called for nominal annualdebt repayments. In July 2005, to finance the purchase of Aluma, weamended our credit facility and borrowed an additional $185.2 millionunder this facility. In addition, we issued $30.0 million in redeemablepreferred stock to obtain additional funds to accomplish the purchase of Aluma.In connection with these transactions we incurred $5.6 million in relatedfinancing fees. As a result, our minimum required repayment of long-term debtincreased between years.

During the first six months of 2006, we borrowed$20.1 million under the revolving loan facility of our credit facility tofinance the growth in working capital requirements resulting from the growth inour business.

In connection with our planned initial public offering ofour common stock, we renegotiated our credit agreement to allow us to borrow$100.0 million to retire our 12% senior subordinated notes, 13% seniorsubordinated pay-in-kind notes, and redeemable preferred stock. Theamended agreement does not take effect until we achieve an initial publicoffering of our common stock. However, to secure this amendment, we paiddeferred financing fees of $0.9 million in May 2006.

*Free Cash Flow*

Free cash flow (cash flows from operations less netcapital expenditures) was $(4.4) million and $(17.4) million for the six monthsended June 30, 2005, and 2006, respectively. Our net capital expenditurestypically exceed our cash flows from operations in the first six months of eachyear because we purchase our equipment approximately

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30-60 days in advance of actually employing it toproduce revenues. The decline in free cash flows from 2005 to 2006 isprincipally due to the fact that we increased our net capital expenditures to$28.7 million in 2006 from $10.9 million in 2005 to meet anticipatedincreased demand for our services.

Free cash flow consists of cash flows from operationsless net capital expenditures. Free cash flow is not a measure of performancedefined by, or calculated in accordance with, GAAP. We believe that free cashflow is a useful measure of financial performance that shows a company’sability to fund its operations. Free cash flow is used by us to compare ourperformance to that of our peers and is commonly used by analysts and investorsin assessing performance. You should not consider free cash flow as analternative to operating or net income, determined in accordance with GAAP, asan indicator of our operating performance, or as an alternative to cash flowsfrom operations, determined in accordance with GAAP, as an indicator of cashflows or as a measure of liquidity. Free cash flow, as calculated by us, maynot be comparable to similarly titled measures employed by other companies.

**Off-Balance Sheet Arrangements**

As security for our performance to insurers, we werecontingently liable under letters of credit in the amounts of$34.3 million and $34.4 million at December 31, 2005 and June30, 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 June 30, 2006, management believes that the replacementcost would not vary significantly from the present fee structure.

**Contractual Obligations**

The following is a summary of payments due under ourcontractual cash obligations as of June 30, 2006:
| ** **                                                               | ** ** | **Payments due in** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                               | ** ** | **Total**                     | ** ** | **2006 (1)** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **After 2010** | ** ** |
| ** **                                                               | ** ** | **(in thousands)**       | ** ** |
| Term loan  principal                                                     |       | $                             | 290,233    |   | $ | 1,466 |   | $ | 2,931 |   | $ | 2,931 |   | $ | 2,931 |   | $ | 2,931 |   | $ | 277,043 |   |
| Expected  interest payments on term loan(2)                              |       | 126,160                       |       | 11,612 |   | 23,049 |   | 22,813 |   | 22,578 |   | 22,344 |   | 23,764 |   |
| 12% senior  subordinated notes principal                                 |       | 150,000                       |       | — |   | — |   | — |   | — |   | — |   | 150,000 |   |
| Expected  interest payments on 12% senior subordinated notes             |       | 117,000                       |       | 9,000 |   | 18,000 |   | 18,000 |   | 18,000 |   | 18,000 |   | 36,000 |   |
| 13% senior  subordinated pay-in-kind notes principal                     |       | 55,839                        |       | — |   | — |   | — |   | — |   | — |   | 55,839 |   |
| Expected  interest payments on 13% senior subordinated pay-in-kind notes |       | 61,067                        |       | — |   | — |   | 8,538 |   | 8,538 |   | 8,538 |   | 35,453 |   |
| Redeemable  preferred stock                                              |       | 35,313                        |       | — |   | — |   | — |   | — |   | — |   | 35,313 |   |
| Expected  dividends on redeemable preferred stock                        |       | 119,013                       |       | — |   | — |   | — |   | — |   | — |   | 119,013 |   |
| Operating leases                                                         |       | 15,941                        |       | 4,336 |   | 4,637 |   | 2,681 |   | 1,944 |   | 852 |   | 1,491 |   |
| Notes payable  and capital leases                                        |       | 640                           |       | 228 |   | 356 |   | 56 |   | — |   | — |   | — |   |
| Total contractual cash  obligations                                      |       | $                             | 971,206    |   | $ | 26,642 |   | $ | 48,973 |   | $ | 55,019 |   | $ | 53,991 |   | $ | 52,665 |   | $ | 733,916 |   |

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(1)      Second half of 2006.

(2)      The interest rate on the term loan underour credit facility is floating. For purposes of this table we are using theJune 30, 2006 interest rate of 8.0% for all periods. Also, we have the optionto make voluntary prepayments on the term loan and are required by the creditfacility to make prepayments equal to 50% of the free cash flow generated ineach year as defined in the credit facility. For purposes of this table we havenot attempted to estimate what, if any, prepayments might be made throughoutthe life of the term loan.

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**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 fiscalquarters typically limit activity on maintenance and capital projects in theAlberta Oil Sands. Our work for power utilities follows a similar seasonalpattern. Conversely, non-residential building construction, particularly in therenovation business, occurs throughout the year, but is heaviest in the secondand third fiscal quarters.

**New Accounting Standards**

***SFAS No. 123 (Revised 2004), “Share-BasedPayment” (“SFAS No. 123R”)***

In December 2004, the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 123R, which is a revision of SFASNo. 123, “Accounting for Stock-Based Compensation.” SFASNo. 123R supersedes APB Opinion No. 25, “Accounting for Stock Issuedto Employees,” and amends SFAS No. 95, “Statement of Cash Flows.”Generally, the approach in SFAS No. 123R is similar to the approachdescribed in SFAS No. 123. However, SFAS No. 123R requires all share-basedpayments to employees, including grants of employee stock options, to berecognized in the statement of operations 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-basedpayment arrangements, and disclosures in Management’s Discussion and Analysissubsequent to adoption of SFAS No. 123R.

In April 2005, the SEC issued FR-74, “Amendment toRule 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 does notchange 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 as further discussed in note 14 to ourconsolidated financial statements, it did not have a material impact on ourfinancial condition, results of operations or cash flows.

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

In November 2004, the FASB issued SFAS No. 151,which amends Accounting Research Bulletin No. 43, Chapter 4, “InventoryPricing” (“ARB No. 43”). SFAS No. 151 clarifies that abnormal amountsof idle facility expense, freight, handling costs and wasted materials(spoilage) should be expensed rather than capitalized as inventory. Theprovisions 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, “AccountingChanges and Error Corrections, a replacement of APB Opinion No. 20 andFASB Statement No. 3” (“SFAS No. 154”)***

In May 2005, the FASB issued SFAS No. 154. SFASchanges the requirements for the accounting and reporting of a change inaccounting principle or correction of an error. It requires, 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. SFASNo. 154 is effective for accounting changes and

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correction of errors made in fiscal years beginning after December 15,2005. We implemented SFAS No. 154 effective January 1, 2006, and itdid not have a material impact on our financial condition, results ofoperations or cash flows.

***FASB Interpretation No. 47, “Accountingfor Conditional Asset Retirement Obligations, an interpretation of FASBStatement No. 143” (“FIN No. 47”)***

In March 2005, the FASB issued FIN No. 47 whichclarifies that the term “conditional asset retirement obligation” as used inSFAS 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 cash flows.

***SFAS No. 155, “Accounting forCertain Hybrid Financial Instruments—An Amendment of FASB StatementsNo. 133 and 140” (“SFAS No. 155”)***

In February 2006, the FASB issued SFAS No. 155,which amends SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities” (“SFAS No. 133”), and SFAS No. 140, “Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities.” SFAS No. 155 addresses several issues relating to accountingfor financial instruments, including permitting fair value measurement of anyhybrid financial instrument that contains an embedded derivative andeliminating the prohibition on a qualifying special-purpose entity fromholding certain derivative instruments. SFAS No. 155 also providesclarification that concentrations of credit risk in the form of subordinationare not embedded derivatives. SFAS No. 155 is effective for all financialinstruments issued or acquired after the fiscal year that begins afterSeptember 15, 2006 (January 1, 2007 for us), with earlier applicationpermitted. We have not yet determined the timing of adoption or the full impactof SFAS No. 155. However, we do not expect that it will have a materialimpact on our financial condition, results of operations or cash flows.

***FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes” (“FASB Interpretation No. 48”)***

In June 2006, theFASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes.” The interpretation clarifies the accounting for uncertainty in incometaxes recognized in a company’s financial statements in accordance withStatement of Financial Accounting Standards No. 109, “Accounting for IncomeTaxes.” Specifically, the pronouncement prescribes a recognition threshold anda measurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. Theinterpretation also provides guidance on the related derecognition,classification, interest and penalties, accounting for interim periods,disclosure and transition of uncertain tax positions. The interpretation iseffective for fiscal years beginning after December 15, 2006. We have not yet determined the full impact of FASBInterpretation No. 48. However, we do not expect that it will have a materialimpact on our financial condition, results of operations or cash flows.

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**ITEM 3.  QUANTITATIVE AND 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 June 30, 2006, we heldapproximately $496.1 million of long-term debt, with approximately$290.2 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.

*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 November 2005and reconciled the results of the physical inventory to the amounts recorded inour books and records. As a result, we identified $14.0 million ofscaffolding equipment that could no longer be physically located. Managementbelieves that these scaffolding assets were most likely lost, stolen, scrappedor installed at a client site, in each case without having been properlyrecorded in our scaffolding equipment perpetual records and other books andrecords.

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

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documentation and controls over these activities, wecould not specifically identify or allocate the scaffolding equipment assetwrite-offs to distinct fiscal years with any certainty. Accordingly, the fullamount of the scaffolding equipment asset write-offs are recorded as a non-cashcharge 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 1934Rules 13a- 15(e)) as of June 30, 2006. Based upon this evaluation,management, including the Chief Executive Officer and Chief Financial Officer,has concluded that our disclosure controls and procedures were ineffective asof June 30, 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:

·                  We willreconcile our scaffolding equipment perpetual inventory records with our otherbooks and records on a quarterly basis.

·                  We haveinstituted new policies to ensure that all scaffolding equipment transactionsare 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.

**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.

In May2006, US Immigration and Customs Enforcement (“ICE”) asked to review copies ofimmigration Forms I-9 maintained by our Denver branch office. Since February2006, that branch has terminated approximately 30 employees for presentingfraudulent identification cards to obtain employment with us, about half ofwhom were detained by ICE for the same conduct. ICE is conducting aninvestigation into the situation, with which we are cooperating.

**ITEM 1A. RISK FACTORS**

There have been no material changes in the riskfactors previously disclosed in our Annual Report on Form 10-K for the fiscalyear ended December 31, 2005.

**ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES ANDUSE OF PROCEEDS**

None.

**ITEM 3.  DEFAULTS UPON SENIOR SECURITIES**

None.

**ITEM 4. SUBMISSION OF MATTERS TOA VOTE OF SECURITY HOLDERS**

None.

**ITEM 5.  OTHER INFORMATION**

None.

**ITEM 6.  EXHIBITS**

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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.

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** **

**SIGNATURES**

Pursuant to therequirement of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                   | BRAND ENERGY &  INFRASTRUCTURE SERVICES, INC. |
|------------------------|---------------------------------------------------|
|                   |                                              |
| Date: August 11,  2006 | /s/ Paul T. Wood                                  |
|                   | Paul T. Wood                                      |
|                   | Chief Executive  Officer and President            |
|                   |                                              |
| Date: August 11,  2006 | /s/ Anthony A. Rabb                               |
|                   | Anthony A. Rabb                                   |
|                   | Chief Financial  Officer and                      |
|                   | Vice President,  Finance                          |

 

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