Form
10-Q
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 
 [X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 For the
quarter ended March 31, 2005
 
 OR
 
 [ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 For the
transition period from ______________ to ______________
 
 Commission
file number 333-102511
 
 BRAND
INTERMEDIATE HOLDINGS, INC.
 (Exact
name of registrant as specified in its charter)
 
 Delaware
    13-3909682(State
      or other jurisdiction of
      incorporation
      or organization)
    (I.R.S.
      employer identification no.)15450
      South Outer 40, #270, Chesterfield, MO
    63017(Address
      of principal executive offices)
    (Zip
      Code)
 
 Registrant’s
telephone number, including area code: (636) 519-1000
 
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes: [ X] No: [ ]
 
 Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes: [ ] No: [X]
 
 Indicate
the number of shares outstanding of each of the Registrant’s classes of Common
Stock as of the latest practicable date.
 
 Class
      of Common Stock
    Outstanding
      at April 30, 2005$.01
      Par Value
    1,000
      shares
 
    
  
 INDEX
 
 Page
 
 PART I -
FINANCIAL INFORMATION
 
 Item
      1.
    Financial StatementsConsolidated Statements of Operations for
      the Three Months Ended March 31, 2004 and 2005
    3Consolidated Balance Sheets as of December 31,
      2004 and March 31, 2005
    4-5Consolidated Statements of Cash Flows for the Three
      Months Ended March 31, 2004 and 2005
    6-7Notes to the Consolidated Financial
      Statements
    8-18Item
      2.
    Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
    19-24Item
      3.
    Quantitative and Qualitative Disclosures About Market
      Risk
    24Item
      4.
    Controls and Procedures
    24
 
 PART II -
OTHER INFORMATION
 
 Item
      1.
    Legal Proceedings
    25Item
      2.
    Changes in Securities and Use of
      Proceeds
    25Item
      3.
    Defaults Upon Senior Securities
    25Item
      4.
    Submission of Matters to a Vote of Security
      Holders
    25Item
      5.
    Other Information
    25Item
      6.
    Exhibits and Reports on Form 8-K
    25
 
 SIGNATURES
    
    26
  -2-
 INDEX
  
 
 PART I.
FINANCIAL INFORMATION
 
 ITEM 1.
FINANCIAL STATEMENTS
 
 
 BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
 Consolidated Statements of
Operations
 (In
thousands)
 (Unaudited)
 
 For
      the Three Months Ended March 31,2004
    
    2005Revenues:Labor
    
    $
    80,636
    
    $
    77,324Equipment
      rental
    
    
    18,093
    
    
    18,870Equipment
      sales
    
    
    1,606
    
    
    2,058Total
      revenues
    
    
    100,335
    
    
    98,252Operating
      expenses:Labor
    
    
    66,188
    
    
    63,728Equipment
      rental
    
    
    6,930
    
    
    6,600Equipment
      sales
    
    
    1,228
    
    
    1,423Divisional
      operating expenses
    
    
    4,158
    
    
    4,120Total
      operating expenses
    
    
    78,504
    
    
    75,871Gross
      profit
    
    
    21,831
    
    
    22,381Selling
      and administrative expenses
    
    
    11,673
    
    
    13,097Non-cash
      compensation
    
    
    42
    
    
    603Operating
      income
    
    
    10,116
    
    
    8,681Interest
      expense
    
    
    8,281
    
    
    8,418Interest
      income
    
    
    (80
    )
    
    (99
    )Income
      before provision for income tax
    
    
    1,915
    
    
    362Income
      tax provision
    
    
    1,140
    
    
    285Net
      income
    
    $
    775
    
    $
    77
 
 
 
 
 
 
 The
accompanying notes to the consolidated financial statements are an integral part
of the consolidated financial statements.
  -3-
 INDEX
  
 BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
 Consolidated Balance Sheets
 (In
thousands)
 
 December
      31, 2004
    
    March
      31, 2005
      (unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
    
    $
    14,408
    
    $
    12,491Trade
      accounts receivable, net of allowance for doubtful accounts of $1,605 in
      2004and $1,928 in 2005
    
    
    56,639
    
    
    67,338Accrued
      revenue
    
    
    2,115
    
    
    7,189Notes
      receivable
    
    
    176
    
    
    176Other
      current assets
    
    
    8,847
    
    
    6,871Total
      current assets
    
    
    82,185
    
    
    94,065PROPERTY
      AND EQUIPMENT:Land
    
    
    1,283
    
    
    1,276Buildings
      and leasehold improvements
    
    
    3,518
    
    
    3,546Vehicles
      and other equipment
    
    
    29,090
    
    
    29,524Scaffolding
      equipment
    
    
    195,356
    
    
    201,896Total
      property and equipment, at cost
    
    
    229,247
    
    
    236,242Less-Accumulated
      depreciation and amortization
    
    
    59,554
    
    
    64,677Total
      property and equipment, net
    
    
    169,693
    
    
    171,565GOODWILL
    
    
    247,325
    
    
    247,325CUSTOMER
      RELATIONSHIPS
    
    
    43,794
    
    
    42,671OTHER
      ASSETS AND INTANGIBLES
    
    
    24,578
    
    
    24,182TOTAL
      ASSETS
    
    $
    567,575
    
    $
    579,808
 
 
 
 (Continued
on following page)
 
  -4-
 INDEX
  
 BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
 Consolidated
Balance Sheets
 (In
thousands except share and per share amounts)
 
 
 December
      31, 2004
    
    March
      31, 2005 (unaudited)LIABILITIES
      AND STOCKHOLDER’S EQUITYCURRENT
      LIABILITIES:Current
      maturities of long-term debt
    
    $
    1,047
    
    $
    1,047Notes
      payable and capital lease obligations, current portion
    
    
    350
    
    
    186Accounts
      payable and accrued expenses
    
    
    37,264
    
    
    47,513Deferred
      revenue
    
    
    1,514
    
    
    1,660Total
      current liabilities
    
    
    40,175
    
    
    50,406LONG-TERM
      DEBT
    
    
    290,467
    
    
    291,779NOTES
      PAYABLE AND CAPITAL LEASE OBLIGATIONS
    
    
    427
    
    
    410DEFERRED
      INCOME TAXES
    
    
    22,546
    
    
    22,784STOCKHOLDER’S
      EQUITY:Common
      stock, $0.01 par value, 1,000 shares authorized, issued and
      outstanding
    
    
    -
    
    
    -Paid-in
      capital
    
    
    224,445
    
    
    225,048Cumulative
      translation adjustment
    
    
    4,007
    
    
    3,796Accumulated
      deficit
    
    
    (14,492
    )
    
    (14,415
    )Total
      stockholder’s equity
    
    
    213,960
    
    
    214,429Total
      liabilities and stockholder’s equity
    
    $
    567,575
    
    $
    579,808
 
 
 
 The
accompanying notes to the consolidated financial statements are an integral part
of the consolidated balance sheets.
  -5-
 INDEX
  
 BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
 Consolidated Statements of Cash Flows
 (In
thousands)
 (Unaudited)
 For
      the Three Months Ended March 31,2004
    
    2005CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
    
    $
    775
    
    $
    77Adjustments
      to reconcile net income to net cash from
      Operating
      activities:Depreciation
      and amortization
    
    
    7,184
    
    
    6,569Deferred income
      taxes
    
    
    1,015
    
    
    285Non-cash
      interest
    
    
    1,864
    
    
    1,949Non-cash
      compensation
    
    
    42
    
    
    603Gain on
      sale of scaffolding equipment
    
    
    (149
    )
    
    (287
    )Changes
      in operating assets and liabilities:Trade
      accounts receivable, net
    
    
    (15,515
    )
    
    (10,699
    )Accrued
      revenue
    
    
    (2,120
    )
    
    (5,074
    )Notes
      receivable
    
    
    172
    
    
    -Other
      current assets
    
    
    2,918
    
    
    1,976Accounts
      payable and accrued expenses
    
    
    9,904
    
    
    10,249Deferred
      revenue
    
    
    49
    
    
    146Other
    
    
    (83
    )
    
    (33
    )Net
      cash flows from operating activities
    
    
    6,056
    
    
    5,761CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property and equipment
    
    
    (4,284
    )
    
    (7,750
    )Proceeds
      from sales of property and equipment
    
    
    438
    
    
    515Net
      cash flows from investing activities
    
    
    (3,846
    )
    
    (7,235
    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Repayments
      of long-term debt
    
    
    (20,312
    )
    
    (262
    )Payments
      of deferred financing fees
    
    
    (677
    )
    
    -Payments
      on capital lease obligations
    
    
    (182
    )
    
    (181
    )Net
      cash flows from financing activities
    
    
    (21,171
    )
    
    (443
    )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (18,961
    )
    
    (1,917
    )CASH
      AND CASH EQUIVALENTS, beginning of period
    
    
    23,100
    
    
    14,408CASH
      AND CASH EQUIVALENTS, end of period
    
    $
    4,139
    
    $
    12,491
 (Continued
on following page)
  -6-
 INDEX
  BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
 Consolidated
Statements of Cash Flows
 (In
thousands)
 (Unaudited)
 
 For
      the Three Months Ended March 31,2004
    
    2005SUPPLEMENTAL
      CASH FLOW DISCLOSURES:Interest
      paid
    
    $
    1,955
    
    $
    1,903Income
      taxes paid
    
    
    122
    
    
    1,210NONCASH
      INVESTING AND FINANCING ACTIVITIESCapital
      lease obligations
    
    
    259
    
    
    -
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 The
accompanying notes to the consolidated financial statements are an integral part
of the consolidated financial statements.
  -7-
 INDEX
  
 BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
 
 Notes to the Consolidated Financial Statements
 (Unaudited)
 
 The
financial statements included herein for the periods ended March 31, 2004 and
2005 have been prepared by the Company without audit. In the opinion of
management, all adjustments have been made which are of a normal recurring
nature necessary to present fairly the Company’s financial position as of March
31, 2005, and the results of operations and cash flows for the three months
ended March 31, 2004 and 2005. Certain information and footnote disclosures have
been condensed or omitted for these periods. The results for interim periods are
not necessarily indicative of results for the entire year. Reference is made to
the notes to the consolidated financial statements contained in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2004, filed with the
Securities and Exchange Commission.
 
 1.
    Organization
      and Business
 
 Brand
Intermediate Holdings, Inc. and its subsidiaries ("Brand") are 100% owned by
Brand Holdings LLC (the "LLC:). As of March 31, 2005, the voting equity
interests of the LLC are owned 73.0% by J.P. Morgan Partners and its affiliates
("JPMP") and 27.0% by other equity investors on a fully diluted basis. Brand
Services, Inc. is a wholly owned subsidiary of Brand Intermediate Holdings, Inc.
All references to "the Company", "we", "us", or "our" mean Brand Intermediate
Holdings, Inc. and its subsidiaries.
 
 
 The
Company operates in one segment and provides scaffolding services primarily to
refining, petrochemical, chemical, utility and pulp and paper industries, and to
a lesser extent general commercial clients. Scaffolding services are typically
provided in connection with periodic, routine maintenance of refineries,
chemical plants and utilities, as well as for new construction and renovation
projects. The Company provides personnel to erect and dismantle scaffolding
structures, transport scaffolding to project sites and supervise and manage such
activities. In addition, the Company rents and occasionally sells scaffolding
that is classified as property and equipment on the consolidated balance sheets.
The Company maintains a substantial inventory of scaffolding in the United
States and Canada.
 
 2.
    Summary
      of Significant Accounting Policies
 
 The
accompanying financial statements are prepared on a consolidated basis and
include those assets, liabilities, revenues and expenses directly attributable
to the operations of the Company. All significant intercompany balances and
transactions have been eliminated.
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 3.
    Stock
      Based Employee Compensation
 
 Effective
January 1, 2004, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation". The Company selected the modified prospective
transition method under the provisions of SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which requires expensing
options prospectively, beginning in the year of adoption. The Company expensed
$42 and $603 for the three-month periods ended March 31, 2004 and 2005,
respectively, which is recorded in the caption Non-cash compensation.
  -8-
 INDEX
  
 
 4.
    Accrued
      Revenue
 
 Accrued
revenue represents work performed which either due to billing cycles, contract
stipulations or lacking contractual documentation requirements, could not be
billed. Substantially all unbilled amounts are expected to be billed and
collected within one year.
 
 5.
    Debt
      and Borrowing Arrangements
 
 At
December 31, 2004 and March 31, 2005, long-term debt consisted of the following
(in thousands):
 
 December
      31, 2004
    
    March
      31, 2005 (unaudited)Credit
      Facility, due 2009
    
    $
    102,615
    
    $
    102,35312%
      Senior Subordinated Notes, due 2012
    
    
    150,000
    
    
    150,00013%
      Intermediate Subordinated Notes, due 2013
    
    
    46,249
    
    
    47,696298,864
    
    
    300,049LessCurrent
      portion
    
    
    1,047
    
    
    1,047Unamortized
      discount
    
    
    7,350
    
    
    7,223$
    290,467
    
    $
    291,779
 
 For the
three months ended March 31, 2004, the weighted-average interest rate of loans
outstanding under the Credit Facility was 4.6%. For the three months ended March
31, 2005, the weighted-average interest rate of loans outstanding under the
Credit Facility was 5.8%.
 
 Substantially
all of the assets of the Company are pledged as collateral for the Credit
Facility. The Credit Facility contains financial and operating covenants,
including among other things, that the Company maintain certain financial
ratios, and imposes limitations on the Company’s ability to make capital
expenditures, to incur indebtedness, and to pay dividends. The Company was in
compliance with all loan covenants at March 31, 2005.
 
 6.
    Deferred
      Revenue
 
 Deferred
revenue represents amounts collected from customers at a faster rate than work
was performed on these contracts. Substantially all of the costs related to
these amounts will be incurred within one year.
 
 7.
    Commitments
      and Contingencies
 
 In the
ordinary course of conducting its business, the Company becomes involved in
various pending claims and lawsuits. These primarily relate to employee matters.
The outcome of these matters is not presently determinable. However, in the
opinion of management, based on the advice of legal counsel, the resolution of
these matters is not anticipated to have a material adverse effect on the
financial position or results of operations of the Company.
 
 8.
    Comprehensive
      Income
 
 For the
three months ended March 31, 2004 and 2005, comprehensive income/(loss) was $0.6
million and $(0.1) million, respectively. The difference between comprehensive
income and net income is entirely related to currency translation.
  -9-
 INDEX
  
 9.
    Income
      Taxes
 
 Deferred
income taxes reflect the tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The effective tax rate of 78.8% for
the three months ended March 31, 2005 is greater than the federal statutory rate
of 34%, primarily due to the impact of a portion of the interest on the 13%
Intermediate Notes not being deductible and state income taxes. The
provision for income taxes for the three months ended March 31, 2004 and 2005,
is principally attributable to deferred income taxes.
 
 10.
    Acquisitions
 
 On June
1, 2004, the Company purchased the assets of Levitator, Inc., a commercial
scaffolding company, for an aggregate purchase price of approximately $1.0
million in cash and a $0.4 million note payable. The price was allocated to the
assets and liabilities assumed, based on relative fair values. In connection
with the acquisition, the Company recorded goodwill of approximately $0.2
million based upon the allocation of the purchase price. The acquisition was
accounted for using the purchase method of accounting, and accordingly has been
included in the financial statements from the date of the
acquisition.
 
 11. New
Accounting Standards
  On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of
FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees,
and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the
approach in Statement 123(R) is similar to the approach described in Statement
123.  However, Statement 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. We expect to adopt Statement 123(R) on January 1,
2006.
  The
Company plans to adopt Statement 123(R) using the modified-prospective method.
  The
Company adopted the fair-value-based method of accounting for share-based
payments effective January 1, 2004 using the "modified prospective method"
described in FASB Statement No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure.  Currently, the Company uses the
minimal value method of the Black-Scholes formula to estimate the value of stock
options granted to employees. The minimal value method is not allowable under
Statement 123(R), and the Company is currently researching other acceptable
methods. The Company does not anticipate that adoption of Statement 123(R) will
have a material impact on its results of operations or its financial
position.
 
  12.
    Supplemental
      Consolidating Information
  The 12%
Senior Subordinated Notes, which are an obligation of Brand Services, Inc., are
fully and unconditionally guaranteed on a senior subordinated, joint, and
several basis by the other domestic subsidiaries of Brand Intermediate Holdings,
Inc. (which are all 100% owned by Brand Intermediate Holdings, Inc.) and by
Brand Intermediate Holdings, Inc. Supplemental consolidating information of
Brand Intermediate Holdings, Inc., Brand Services, Inc., the guarantor
subsidiaries, and its foreign non-guarantor subsidiary is presented below.
Investments in subsidiaries are presented on the equity method of accounting.
Separate financial statements are not provided because management has concluded
that the summarized financial information below provides sufficient information
to allow investors to separately determine the nature of the assets held by and
the operations of the guarantor and non-guarantor subsidiaries.
  
 -10-
 INDEX
   **BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIRIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 Brand
      Intermediate Holdings, Inc.Condensed
      Consolidating Balance SheetDecember
      31, 2004**Assets**
    
    **Brand**
      **Services,
      Inc.**
    
    **Guarantor
      Subsidiaries**
    
    **Non-Guarantor
      Subsidiary**
    
    **Brand
      Intermediate Holdings, Inc.**
    
    **Adjustments
      and Eliminations**
    
    **Brand
      Intermediate Holdings, Inc. Consolidated**Current
      Assets:Cash
      and cash equivalents
    
    $
    13,336
    
    $
    —
    
    $
    1,525
    
    $
    —
    
    $
    (453
    )
    $
    14,408Trade
      accounts receivable
    
    
    —
    
    
    52,626
    
    
    4,013
    
    
    —
    
    
    —
    
    
    56,639Accrued
      revenue
    
    
    —
    
    
    1,967
    
    
    148
    
    
    —
    
    
    —
    
    
    2,115Notes
      receivable, current portion
    
    
    15
    
    
    161
    
    
    —
    
    
    —
    
    
    —
    
    
    176Other
      current assets
    
    
    2,865
    
    
    5,614
    
    
    368
    
    
    —
    
    
    —
    
    
    8,847Due
      from affiliates
    
    
    31,648
    
    
    1,649
    
    
    -
    
    
    —
    
    
    (33,297
    )
    
    —Total
      current assets
    
    
    47,864
    
    
    62,017
    
    
    6,054
    
    
    —
    
    
    (33,750
    )
    
    82,185Property
      and Equipment:Land
    
    
    —
    
    
    866
    
    
    417
    
    
    —
    
    
    —
    
    
    1,283Buildings
      and leasehold improvements
    
    
    13
    
    
    3,080
    
    
    425
    
    
    —
    
    
    —
    
    
    3,518Vehicles
      and other equipment
    
    
    6,726
    
    
    17,866
    
    
    4,498
    
    
    —
    
    
    —
    
    
    29,090Scaffolding
      equipment
    
    
    179,859
    
    
    —
    
    
    15,497
    
    
    —
    
    
    —
    
    
    195,356Total
      property and equipment, at cost
    
    
    186,598
    
    
    21,812
    
    
    20,837
    
    
    —
    
    
    —
    
    
    229,247Less
      accumulated depreciation and amortization
    
    
    41,650
    
    
    11,292
    
    
    6,612
    
    
    —
    
    
    —
    
    
    59,554Total
      property and equipment, net
    
    
    144,948
    
    
    10,520
    
    
    14,225
    
    
    —
    
    
    —
    
    
    169,693Due
      from affiliates
    
    
    9,750
    
    
    —
    
    
    —
    
    
    46,752
    
    
    (56,502
    )
    
    —Deferred
      tax asset
    
    
    —
    
    
    —
    
    
    —
    
    
    2,375
    
    
    (2,375
    )
    
    —Investment
      in subsidiaries
    
    
    —
    
    
    —
    
    
    —
    
    
    206,481
    
    
    (206,481
    )
    
    —Goodwill
    
    
    247,325
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    247,325Customer
      Relationships
    
    
    43,794
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    43,794Intangibles
      and other assets
    
    
    23,671
    
    
    —
    
    
    —
    
    
    907
    
    
    —
    
    
    24,578Total
      assets
    
    $
    517,352
    
    $
    72,537
    
    $
    20,279
    
    $
    256,515
    
    $
    (299,108
    )
    $
    567,575
  -11-
 INDEX
  **BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 
 Brand
      Intermediate Holdings, Inc.Condensed
      Consolidating Balance SheetDecember
      31, 2004 (continued)**Liabilities
      and Stockholder’s Equity (Deficit)**
    **Brand**
      **Services,
      Inc.**
    
    **Guarantor
      Subsidiaries**
    
    **Non-Guarantor
      Subsidiary**
    
    **Brand
      Intermediate Holdings, Inc.**
    
    **Adjustments**
      **and
      Eliminations**
    
    **Brand
      Intermediate Holdings, Inc. Consolidated**Current
      Liabilities:Revolving
      loan
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —Current
      maturities of long-term debt
    
    
    1,047
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    1,047Notes
      payable and capital lease obligations, current portion
    
    
    265
    
    
    85
    
    
    —
    
    
    —
    
    
    —
    
    
    350Accounts
      payable and accrued expenses
    
    
    27,532
    
    
    6,397
    
    
    3,788
    
    
    —
    
    
    (453
    )
    
    37,264Deferred
      revenue
    
    
    —
    
    
    1,514
    
    
    —
    
    
    —
    
    
    —
    
    
    1,514Due
      to affiliates
    
    
    1,649
    
    
    25,109
    
    
    6,539
    
    
    —
    
    
    (33,297
    )
    
    —Total
      current liabilities
    
    
    30,493
    
    
    33,105
    
    
    10,327
    
    
    —
    
    
    (33,750
    )
    
    40,175Long-term
      debt
    
    
    247,912
    
    
    —
    
    
    —
    
    
    42,555
    
    
    —
    
    
    290,467Notes
      payable and capital lease obligations
    
    
    336
    
    
    91
    
    
    —
    
    
    —
    
    
    —
    
    
    427Deferred
      income taxes
    
    
    21,882
    
    
    4
    
    
    3,035
    
    
    —
    
    
    (2,375
    )
    
    22,546Due
      to affiliates
    
    
    46,752
    
    
    —
    
    
    9,750
    
    
    —
    
    
    (56,502
    )
    
    —Total
      stockholder’s equity (deficit)
    
    
    169,977
    
    
    39,337
    
    
    (2,833
    )
    
    213,960
    
    
    (206,481
    )
    
    213,960Total
      liabilities and stockholder’s equity (deficit)
    
    $
    517,352
    
    $
    72,537
    
    $
    20,279
    
    $
    256,515
    
    $
    (299,108
    )
    $
    567,575
  -12-
 INDEX
  **BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 Brand
      Intermediate Holdings, Inc.Condensed
      Consolidating Balance SheetMarch
      31, 2005**Assets**
    
    **Brand**
      **Services,
      Inc.**
    
    **Guarantor
      Subsidiaries**
    
    **Non-Guarantor
      Subsidiary**
    
    **Brand
      Intermediate Holdings, Inc.**
    
    **Adjustments**
      **and**
      **Eliminations**
    
    **Brand
      Intermediate Holdings, Inc. Consolidated**Current
      Assets:Cash
      and cash equivalents
    
    $
    11,842
    
    $
    -
    
    $
    914
    
    $
    -
    
    $
    (265
    )
    $
    12,491Trade
      accounts receivable
    
    
    -
    
    
    62,877
    
    
    4,461
    
    
    -
    
    
    -
    
    
    67,338Accrued
      revenue
    
    
    -
    
    
    7,145
    
    
    44
    
    
    -
    
    
    -
    
    
    7,189Notes
      receivable, current portion
    
    
    15
    
    
    161
    
    
    -
    
    
    -
    
    
    -
    
    
    176Other
      current assets
    
    
    2,942
    
    
    3,674
    
    
    255
    
    
    -
    
    
    -
    
    
    6,871Due
      from affiliates
    
    
    35,792
    
    
    1,972
    
    
    -
    
    
    -
    
    
    (37,764
    )
    
    -Total
      current assets
    
    
    50,591
    
    
    75,829
    
    
    5,674
    
    
    -
    
    
    (38,029
    )
    
    94,065Property
      and Equipment:Land
    
    
    -
    
    
    866
    
    
    410
    
    
    -
    
    
    -
    
    
    1,276Buildings
      and leasehold improvements
    
    
    13
    
    
    3,115
    
    
    418
    
    
    -
    
    
    -
    
    
    3,546Vehicles
      and other equipment
    
    
    6,938
    
    
    18,172
    
    
    4,414
    
    
    -
    
    
    -
    
    
    29,524Scaffolding
      equipment
    
    
    186,302
    
    
    -
    
    
    15,594
    
    
    -
    
    
    -
    
    
    201,896Total
      property and equipment, at cost
    
    193,253
    
    
    22,153
    
    
    20,836
    
    
    -
    
    
    -
    
    
    236,242Less
      accumulated depreciation and amortization
    
    
    45,978
    
    
    11,911
    
    
    6,788
    
    
    -
    
    
    -
    
    
    64,677Total
      property and equipment, net
    
    147,275
    
    
    10,242
    
    
    14,048
    
    
    -
    
    
    -
    
    
    171,565Due
      from affiliates
    
    
    9,750
    
    
    -
    
    
    -
    
    
    48,267
    
    
    (58,017
    )
    
    -Deferred
      tax asset
    
    
    -
    
    
    -
    
    
    -
    
    
    2,375
    
    
    (2,375
    )
    
    -Investment
      in subsidiaries
    
    
    -
    
    
    -
    
    
    -
    
    
    207,234
    
    
    (207,234
    )
    
    -Goodwill
    
    
    247,325
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    247,325Customer
      relationships
    
    
    42,671
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    42,671Intangibles
      and other assets
    
    
    23,289
    
    
    -
    
    
    -
    
    
    893
    
    
    -
    
    
    24,182Total
      assets
    
    $
    520,901
    
    $
    86,071
    
    $
    19,722
    
    $
    258,769
    
    $
    (305,655
    )
    $
    579,808
  -13-
 INDEX
  **BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 
 Brand
      Intermediate Holdings, Inc.Condensed
      Consolidating Balance SheetMarch
      31, 2005**Liabilities
      and Stockholder’s Equity (Deficit)**
    
    **Brand
      Services, Inc.**
    
    **Guarantor
      Subsidiaries**
    
    **Non-Guarantor
      Subsidiary**
    
    **Brand
      Intermediate Holdings, Inc.**
    
    **Adjustments
      and Eliminations**
    
    **Brand
      Intermediate Holdings, Inc. Consolidated**Current
      Liabilities:Current
      maturities of long-term debt
    
    $
    1,047
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    1,047Notes
      payable and capital lease obligations, current portion
    
    
    100
    
    
    86
    
    
    -
    
    
    -
    
    
    -
    
    
    186Accounts
      payable and accrued expenses
    
    
    35,945
    
    
    9,487
    
    
    2,346
    
    
    -
    
    
    (265
    )
    
    47,513Deferred
      revenue
    
    
    -
    
    
    1,631
    
    
    29
    
    
    -
    
    
    -
    
    
    1,660Due
      to affiliates
    
    
    1,972
    
    
    28,498
    
    
    7,294
    
    
    -
    
    
    (37,764
    )
    
    -Total
      current liabilities
    
    
    39,064
    
    
    39,702
    
    
    9,669
    
    
    -
    
    
    (38,029
    )
    
    50,406Long-term
      debt
    
    
    247,723
    
    
    -
    
    
    -
    
    
    44,056
    
    
    -
    
    
    291,779Notes
      payable and capital lease obligations
    
    
    342
    
    
    68
    
    
    -
    
    
    -
    
    
    -
    
    
    410Deferred
      income taxes
    
    
    22,045
    
    
    -
    
    
    3,114
    
    
    -
    
    
    (2,375
    )
    
    22,784Due
      to affiliates
    
    
    48,267
    
    
    -
    
    
    9,750
    
    
    -
    
    
    (58,017
    )
    
    -Total
      stockholder’s equity (deficit)
    
    
    163,460
    
    
    46,301
    
    
    (2,811
    )
    
    214,713
    
    
    (207,234
    )
    
    214,429Total
      liabilities and stockholder’s equity (deficit)
    
    $
    520,901
    
    $
    86,071
    
    $
    19,722
    
    $
    258,769
    
    $
    (305,655
    )
    $
    579,808
 
 
 
 
 
 
 
 
 
  -14-
 INDEX
  **BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 
 DLJ
      Brand Holdings, Inc. (Predecessor)Condensed
      Consolidating Statement of OperationsFor
      the Three Months Ended March 31, 2004**Brand**
      **Services,
      Inc.**
    
    **Guarantor
      Subsidiaries**
    
    **Non-Guarantor
      Subsidiary**
    
    **Brand
      Intermediate Holdings, Inc.**
    
    **Adjustments**
      **and**
      **Eliminations**
    
    **Brand
      Intermediate Holdings, Inc. Consolidated**Revenue:Labor
    
    $
    -
    
    $
    78,816
    
    $
    1,820
    
    $
    -
    
    $
    -
    
    $
    80,636Equipment
      rental
    
    
    -
    
    
    17,648
    
    
    445
    
    
    -
    
    
    -
    
    
    18,093Equipment
      sales
    
    
    -
    
    
    2,000
    
    
    44
    
    
    -
    
    
    (438
    )
    
    1,606Intercompany
      revenue
    
    
    4,930
    
    
    15
    
    
    -
    
    
    -
    
    
    (4,945
    )
    
    -Total
      revenues
    
    
    4,930
    
    
    98,479
    
    
    2,309
    
    
    -
    
    
    (5,383
    )
    
    100,335Operating
      expenses:Labor
    
    
    
    
    
    65,964
    
    
    1,699
    
    
    -
    
    
    (1,475
    )
    
    66,188Equipment
      rental
    
    
    5,496
    
    
    1,112
    
    
    322
    
    
    -
    
    
    -
    
    
    6,930Equipment
      sales
    
    
    -
    
    
    1,718
    
    
    18
    
    
    -
    
    
    (508
    )
    
    1,228Divisional
      operating expenses
    
    
    28
    
    
    3,990
    
    
    140
    
    
    -
    
    
    -
    
    
    4,158Intercompany
      operating expenses
    
    
    -
    
    
    4,930
    
    
    15
    
    
    -
    
    
    (4,945
    )
    
    -Total
      operating expenses
    
    
    5,524
    
    
    77,714
    
    
    2,194
    
    
    -
    
    
    (6,928
    )
    
    78,504Gross
      profit
    
    
    (594
    )
    
    20,765
    
    
    115
    
    
    -
    
    
    1,545
    
    
    21,831Selling
      and administrative expenses
    
    
    4,500
    
    
    6,832
    
    
    341
    
    
    -
    
    
    -
    
    
    11,673Non-cash
      compensation
    
    
    42
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    42Operating
      income (loss)
    
    
    (5,136
    )
    
    13,933
    
    
    (226
    )
    
    -
    
    
    1,545
    
    
    10,116Interest
      expense
    
    
    6,808
    
    
    -
    
    
    -
    
    
    1,473
    
    
    -
    
    
    8,281Interest
      income
    
    
    (70
    )
    
    -
    
    
    (10
    )
    
    -
    
    
    -
    
    
    (80
    )Intercompany
      interest
    
    
    1,473
    
    
    -
    
    
    -
    
    
    (1,473
    )
    
    -
    
    
    -Equity
      in loss (income) of subsidiaries
    
    
    -
    
    
    -
    
    
    -
    
    
    (775
    )
    
    775
    
    
    -Income
      (loss) before provision for income tax
    
    
    (13,347
    )
    
    13,933
    
    
    (216
    )
    
    775
    
    
    770
    
    
    1,915Provision
      (benefit) for income tax
    
    
    (7,027
    )
    
    8,290
    
    
    (123
    )
    
    -
    
    
    -
    
    
    1,140Net
      income (loss)
    
    $
    (6,320
    )
    $
    5,643
    
    $
    (93
    )
    $
    775
    
    $
    770
    
    $
    775
 
  -15-
 INDEX
  
 
 **BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 
 DLJ
      Brand Holdings, Inc. (Predecessor)Condensed
      Consolidating Statement of OperationsFor
      the Three Months Ended March 31, 2005**Brand**
      **Services,
      Inc.**
    
    **Guarantor
      Subsidiaries**
    
    **Non-Guarantor
      Subsidiary**
    
    **Brand
      Intermediate Holdings, Inc.**
    
    **Adjustments**
      **and**
      **Eliminations**
    
    **Brand
      Intermediate Holdings, Inc. Consolidated**Revenue:Labor
    
    $
    -
    
    $
    72,876
    
    $
    4,448
    
    $
    -
    
    $
    -
    
    $
    77,324Equipment
      rental
    
    
    -
    
    
    18,016
    
    
    854
    
    
    -
    
    
    -
    
    
    18,870Equipment
      sales
    
    
    -
    
    
    2,599
    
    
    79
    
    
    -
    
    
    (620
    )
    
    2,058Intercompany
      revenue
    
    
    5,495
    
    
    30
    
    
    -
    
    
    -
    
    
    (5,525
    )
    
    -Total
      revenues
    
    
    5,495
    
    
    93,521
    
    
    5,381
    
    
    -
    
    
    (6,145
    )
    
    98,252Operating
      expenses:Labor
    
    
    
    
    
    60,898
    
    
    4,054
    
    
    -
    
    
    (1,224
    )
    
    63,728Equipment
      rental
    
    
    4,768
    
    
    1,452
    
    
    380
    
    
    -
    
    
    -
    
    
    6,600Equipment
      sales
    
    
    -
    
    
    2,169
    
    
    47
    
    
    -
    
    
    (793
    )
    
    1,423Divisional
      operating expenses
    
    
    19
    
    
    3,949
    
    
    152
    
    
    -
    
    
    -
    
    
    4,120Intercompany
      operating expenses
    
    
    -
    
    
    5,495
    
    
    30
    
    
    -
    
    
    (5,525
    )
    
    -Total
      operating expenses
    
    
    4,787
    
    
    73,963
    
    
    4,663
    
    
    -
    
    
    (7,542
    )
    
    75,871Gross
      profit
    
    
    708
    
    
    19,558
    
    
    718
    
    
    -
    
    
    1,397
    
    
    22,381Selling
      and administrative expenses
    
    
    5,620
    
    
    7,112
    
    
    365
    
    
    -
    
    
    -
    
    
    13,097Non-cash
      compensation
    
    
    603
    
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    603Operating
      income (loss)
    
    
    (5,515
    )
    
    12,446
    
    
    353
    
    
    -
    
    
    1,397
    
    
    8,681Interest
      expense
    
    
    6,902
    
    
    1
    
    
    -
    
    
    1,515
    
    
    -
    
    
    8,418Interest
      income
    
    
    (93
    )
    
    -
    
    
    (6
    )
    
    -
    
    
    -
    
    
    (99
    )Intercompany
      interest
    
    
    1,515
    
    
    -
    
    
    -
    
    
    (1,515
    )
    
    -
    
    
    -Equity
      in loss (income) of subsidiaries
    
    
    -
    
    
    -
    
    
    -
    
    
    (77
    )
    
    77
    
    
    -Income
      (loss) before provision for income tax
    
    
    (13,839
    )
    
    12,445
    
    
    359
    
    
    77
    
    
    1,320
    
    
    362Provision
      (benefit) for income tax
    
    
    (4,478
    )
    
    4,636
    
    
    127
    
    
    -
    
    
    -
    
    
    285Net
      income (loss)
    
    $
    (9,361
    )
    $
    7,809
    
    $
    232
    
    $
    77
    
    $
    1,320
    
    $
    77
 
  -16-
 INDEX
  
 **BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 
 
 Brand
      Intermediate Holdings, Inc.Condensed
      Consolidating Statement of Cash FlowsFor
      the Three Months Ended March 31, 2004**Brand
      Services, Inc.**
    
    **Guarantor
      Subsidiaries**
    
    **Non-Guarantor
      Subsidiary**
    
    **Brand
      Intermediate Holdings, Inc.**
    
    **Adjustments
      and Eliminations**
    
    **Brand
      Intermediate Holdings, Inc. Consolidated**CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      cash provided by (used for) operating activities
    
    $
    6,482
    
    $
    423
    
    $
    (927
    )
    $
    -
    
    $
    78
    
    $
    6,056CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
    
    
    (3,632
    )
    
    (406
    )
    
    (246
    )
    
    -
    
    
    -
    
    
    (4,284
    )Proceeds
      from sales of property and equipment
    
    
    438
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    438Investment
      in subsidiaries
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Net
      cash used for investing activities
    
    
    (3,194
    )
    
    (406
    )
    
    (246
    )
    
    -
    
    
    -
    
    
    (3,846
    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Payments
      of long-term debt
    
    
    (20,312
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (20,312
    )Payments
      of deferred financing fees
    
    
    (677
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (677
    )Payments
      on capital lease obligations
    
    
    (165
    )
    
    (17
    )
    
    -
    
    
    -
    
    
    -
    
    
    (182
    )Net
      cash provided by/(used for) financing activities
    
    
    (21,154
    )
    
    (17
    )
    
    -
    
    
    -
    
    
    -
    
    
    (21,171
    )INCREASE
      (DECREASE) IN CASH AND CASH
      EQUIVALENTS
    
    
    (17,866
    )
    
    -
    
    
    (1,173
    )
    
    -
    
    
    78
    
    
    (18,961
    )CASH
      AND CASH EQUIVALENTS, beginning of period
    
    
    21,154
    
    
    -
    
    
    2,236
    
    
    -
    
    
    (290
    )
    
    23,100CASH
      AND CASH EQUIVALENTS, end of period
    
    $
    3,288
    
    $
    -
    
    $
    1,063
    
    $
    -
    
    $
    (212
    )
    $
    4,139
 
  -17-
 INDEX
  
 **BRAND
INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 
 Brand
      Intermediate Holdings, Inc.Condensed
      Consolidating Statement of Cash FlowsFor
      the Three Months Ended March 31, 2005**Brand
      Services, Inc.**
    
    **Guarantor
      Subsidiaries**
    
    **Non-Guarantor
      Subsidiary**
    
    **Brand
      Intermediate Holdings, Inc.**
    
    **Adjustments
      and Eliminations**
    
    **Brand
      Intermediate Holdings, Inc. Consolidated**CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      cash provided by (used for) operating activities
    
    $
    5,339
    
    $
    502
    
    $
    (268
    )
    $
    -
    
    $
    188
    
    $
    5,761CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
    
    
    (6,921
    )
    
    (486
    )
    
    (343
    )
    
    -
    
    
    -
    
    
    (7,750
    )Proceeds
      from sales of property and equipment
    
    
    515
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    515Investment
      in subsidiaries
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Net
      cash used for investing activities
    
    
    (6,406
    )
    
    (486
    )
    
    (343
    )
    
    -
    
    
    -
    
    
    (7,235
    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Payments
      of long-term debt
    
    
    (262
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (262
    )Payments
      of deferred financing fees
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Payments
      on capital lease obligations
    
    
    (165
    )
    
    (16
    )
    
    -
    
    
    -
    
    
    -
    
    
    (181
    )Net
      cash provided by/(used for) financing activities
    
    
    (427
    )
    
    (16
    )
    
    -
    
    
    -
    
    
    -
    
    
    (443
    )INCREASE
      (DECREASE) IN CASH AND CASH
      EQUIVALENTS
    
    
    (1,494
    )
    
    -
    
    
    (611
    )
    
    -
    
    
    188
    
    
    (1,917
    )CASH
      AND CASH EQUIVALENTS, beginning of period
    
    
    13,336
    
    
    -
    
    
    1,525
    
    
    -
    
    
    (453
    )
    
    14,408CASH
      AND CASH EQUIVALENTS, end of period
    
    $
    11,842
    
    $
    -
    
    $
    914
    
    $
    -
    
    $
    (265
    )
    $
    12,491
 
 
 -18-
 INDEX
   ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS
 
 The
matters discussed in this Form 10-Q of Brand Intermediate Holdings, Inc. and
subsidiaries (the "Company") contain forward looking statements that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors include,
but are not limited to, the competitive environment in the industrial and
commercial scaffolding industry in general and in the Company’s specific market
areas; changes in prevailing interest rates and the availability of and terms of
financing to fund the anticipated growth of the Company’s business; inflation;
changes in costs of goods and services; economic conditions in general and in
the Company’s specific market areas; demographic changes; changes in or failure
to comply with federal, state and/or local government regulations; liability and
other claims asserted against the Company; changes in operating strategy or
development plans; the ability to attract and retain qualified personnel; the
significant indebtedness of the Company; labor disturbances; changes in the
Company’s acquisition and capital expenditure plans; and other factors
referenced herein. The forward looking statements contained herein reflect the
Company’s current beliefs and specific assumptions with respect to future
business decisions and are based on information currently available.
Accordingly, the statements are subject to significant risks, uncertainties and
contingencies, which could cause the Company’s actual operating results,
performance or business prospects to differ from those expressed in, or implied
by, these statements.
 
 The
following discussion and analysis should be read in conjunction with the
attached condensed consolidated financial statements and notes thereto.
 
 Overview
  The
Company is the one of the largest North American providers of industrial
scaffolding services which facilitate access to tall structures for maintenance,
turnarounds and capital projects, principally in the refining, petrochemical,
chemical, utility and pulp and paper industries. The Company provides turnkey
services, which include equipment rental, labor for the erection and
dismantlement of the scaffolding and scaffolding design services. The Company
also provides scaffolding services to the commercial market (primarily
nonresidential construction and renovation) and sells a small amount of
scaffolding.
 
 The
Company typically provides on-going maintenance services under long-term
contracts; the duration of these contracts is usually one to five years.
Turnarounds occur every one to four years depending on the industry and the type
of turnaround being performed. Although some turnarounds may be postponed for a
period of time, they are a necessary component of maintaining industrial
facilities and are required to ensure the safe and efficient operation of such
facilities. While the postponement of scheduled turnarounds causes fluctuations
in the Company’s quarterly and annual results, the Company believes the
necessity for on-going maintenance and turnarounds provides a stable, recurring
revenue base.
 
 The
Company’s business is seasonal. End-use industries such as the refining and
utility industries experience increased demand for their products during the
summer months. Consequently, turnarounds are generally scheduled during the
first and fourth quarters of the year.
 
 The
Company has in the past completed strategic acquisitions and it intends to
continue to pursue complementary acquisitions where significant consolidation
savings and economies of scale can be achieved. The scaffolding industry is
characterized by single-office or regional companies, many of which are
undercapitalized and have limited scaffolding inventories. The Company intends
to focus its acquisition strategy on companies that have an expertise in a
certain industry or scaffolding applications.
  -19-
 INDEX
  
 
 Brand
Intermediate Holdings, Inc. and its subsidiaries ("Brand") are 100% owned by
Brand Holdings LLC (the "LLC"). As of March 31, 2005, the voting equity
interests of the LLC are owned 73.0% by J.P. Morgan Partners and its affiliates
("JPMP") and 27.0% by other equity investors on a fully diluted basis. Brand
Services, Inc. is a wholly owned subsidiary of Brand Intermediate Holdings, Inc.
and its subsidiaries.
 
 Results
of Operations
 
 Revenue -
Total revenue decreased by 2.1%, to $98.3 million from $100.3 million, for the
three months ended March 31, 2005 as compared to the three months ended March
31, 2004. Labor revenues decreased by $3.3 million for the three months ended
March 31, 2005 as compared to the three months ended March 31, 2004, offset by
increases in equipment rental revenue and equipment sales revenue of $0.8
million and $0.4 million, respectively. Overall, revenue decreased primarily due
to a $11.2 million decrease in the refinery and chemical sector due to an
unusually large number of turnarounds in the refinery and chemical sector in the
first quarter 2004. This was partially offset by increases in the other
industrial and commercial sectors. The revenue mix shifted slightly more towards
equipment rental from labor primarily because commercial and other industrial
jobs tend to have a higher percentage of rental revenue than refinery jobs.
 
 Gross
Profit - Gross profit increased by $0.6 million, or 2.5%, for the three months
ended March 31, 2005 as compared to the three months ended March 31, 2004. Labor
gross profit decreased $0.9 million for the three months ended March 31, 2005 as
compared to the three months ended March 31, 2004, primarily due to the $3.3
million decrease in labor revenues. The percentage of labor gross profit to
labor revenue decreased slightly to 17.6% for the three months ended March 31,
2005 compared to 17.9% for the three months ended March 31, 2004. Equipment
rental gross profit increased by $1.1 million for the three months ended March
31, 2005 as compared to the three months ended March 31, 2004. This increase is
primarily due to the $0.8 million increase in rental revenue and a $0.6 million
decrease in depreciation expense due to assets that became fully depreciated in
2004. Sales gross profit increased $0.3 million, primarily due to a $0.45
million increase in sales revenue.
 
 Selling
and administrative expenses - Selling and administrative expenses increased by
$1.4 million for the three months ended March 31, 2005 as compared to the three
months ended March 31, 2004. Higher salaries and benefit expenses account for
approximately $0.5 million of the increase, while higher professional fees
related to tax, audit, recruiting and legal account for approximately $0.7
million of the increase. The remainder of the increase is due to small increases
in a number of miscellaneous accounts.
 
 Non-cash
compensation - Non-cash compensation increased by $0.6 million for the three
months ended March 31, 2005 as compared to the three months ended March 31,
2004. The primary reason for the increase is due to Class A and B unit awards
granted to the Company’s new CEO, who was hired effective January 1, 2005, as
part of his employment agreement.
 
 Operating
income - As a result of the above events, operating income decreased by $1.4
million, or 14.2%, for the three months ended March 31, 2005 as compared to the
three months ended March 31, 2004.
 
 Interest
expense - Interest expense increased by $0.1 million for the three months ended
March 31, 2005 compared to the three months ended March 31, 2004, primarily due
to the compounding effect of interest on the 13% Intermediate pay-in-kind notes.
The impact of higher average interest rates on the Credit Facility was offset by
the impact of a $20 million principal prepayment that was made at the end of
March 2004.
  -20-
 INDEX
  
 Income
tax provision - The income tax provision of $0.3 million for the three months
ended March 31, 2005, represents an effective rate of 78.7%, which is greater
than the federal statutory rate of 34% primarily due to a portion of the
interest on the pay in kind Intermediate Notes not being deductible for tax
purposes and state income taxes. This rate is higher than the first quarter 2004
rate of 59.5%, primarily because pre-tax income was lower in first quarter 2005;
therefore, the pay in kind interest permanent difference had a greater
percentage impact in 2005.
  Liquidity
and Capital Resources
 
 The
Company has historically utilized internal cash flow from operations and
borrowings under its credit facility to fund its operations, capital
expenditures and working capital requirements. As of December 31, 2004 and March
31, 2005, the Company had working capital of $42.0 million and $43.7 million and
cash of $14.4 million and $12.5 million, respectively.
 
 The
Company believes that its existing working capital, borrowings available under
its Credit Facility and internal cash flow from operations should provide
sufficient resources to support current business activities. To the extent the
Company accelerates its growth plans, consummates acquisitions or has lower than
anticipated sales or increases in expenses, it may also need to raise additional
capital. In particular, increased working capital needs occur whenever the
Company consummates acquisitions or experiences strong incremental
demand.
 
 One of
the Company’s major uses of cash is capital expenditures. The Company’s capital
expenditure requirements are comprised of maintenance and expansion
expenditures. The Company’s maintenance capital expenditure requirements are
generally for scaffolding planks and other items used in the business, such as
trucks and equipment. Expansion capital expenditures are for new scaffolding and
vehicles, are discretionary and vary annually based on the Company’s level of
scaffolding rental activity and management’s growth expectations. During the
three months ended March 31, 2004 and 2005, capital expenditures were $4.3
million and $7.8 million, respectively.
 
 Our
Credit Facility (the "Credit Facility") provides for $130.0 million of term
loans, a $50.0 million revolving loan facility and $35.0 million letter of
credit facilities. Up to $20.0 million of the $50.0 million revolving loan
facility may be used for additional letters of credit. As of March 31, 2005, the
Company had no borrowings outstanding under the revolving credit facility and
had total outstanding letters of credit of $36.6 million.
 
 The
interest rate on the term loans under the Credit Facility is variable. For the
three months ended March 31, 2005, the weighted average interest rate on the
term loans was 5.8%.
 
 We are
required to make semi-annual interest payments on our 12%, $150.0 million Senior
Subordinated Notes in the amount of $9.0 million in April and October of every
year until the Senior Notes mature in October 2012. We are also required to make
quarterly interest payments on loans under our Credit Facility, which bears
interest at a floating rate based upon either the base rate (as defined in our
credit agreement, for base rate loans) or the LIBOR rate (for LIBOR loans) plus
a spread of 1.75% to 3.25%, depending on the ratio of our consolidated debt to
EBITDA. As of March 31, 2005, the interest rate on our term loans was 6.1%. We
are not required to make interest payments on our 13%, Intermediate Notes, until
2008 as these are pay-in-kind notes.
 
 The
Credit Facility requires financial and operating covenants, including among
other things, that the Company maintain certain financial ratios, and imposes
limitations on the Company’s ability to make capital expenditures, to incur
indebtedness, and to pay dividends. The Company was in compliance with all loan
covenants at March 31, 2005.
  -21-
 INDEX
  
 A summary
of the sources and uses of cash for the three months ended March 31, 2004 and
2005, follows:
 
 Three
      Months EndedMarch
      31,2004
    
    2005Net
      cash provided by (used for):Operating
      activities
    
    $
    6,056
    
    $
    5,761Investing
      activities
    
    
    (3,846
    )
    
    (7,235
    )Financing
      activities
    
    
    (21,171
    )
    
    (443
    )
 
 Contractual
Obligations
 
 The
following is a summary of contractual cash obligations as of March 31, 2005
(dollars in thousands):
 Payments
due in:
 Total
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    After
      2009Term
      Loan
    
    $
    102,353
    
    $
    785
    
    $
    1,047
    
    $
    1,047
    
    $
    1,047
    
    $
    98,427
    
    $
    -Expected
      Interest Payments on Term Loan (1)
    
    
    25,258
    
    
    4,649
    
    
    6,144
    
    
    6,080
    
    
    6,016
    
    
    2,369
    
    
    -Senior
      Notes
    
    
    150,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    150,000Expected
      Interest Payments on Senior Notes
    
    
    144,000
    
    
    18,000
    
    
    18,000
    
    
    18,000
    
    
    18,000
    
    
    18,000
    
    
    54,000Intermediate
      Notes
    
    
    47,696
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    47,696Expected
      Interest Payments on Intermediate Notes
    
    
    70,194
    
    
    -
    
    
    -
    
    
    -
    
    
    8,689
    
    
    8,689
    
    
    52,816Capital
      Leases
    
    
    169
    
    
    72
    
    
    92
    
    
    5
    
    
    -
    
    
    -
    
    
    -Operating
      Leases
    
    
    8,452
    
    
    2,170
    
    
    2,529
    
    
    1,940
    
    
    1,175
    
    
    557
    
    
    81Notes
      Payable
    
    
    421
    
    
    84
    
    
    84
    
    
    84
    
    
    84
    
    
    85
    
    
    -Total
      Contractual Cash Obligations
    
    $
    548,543
    
    $
    25,760
    
    $
    27,896
    
    $
    27,156
    
    $
    35,011
    
    $
    128,127
    
    $
    304,593
 
 (1)
    The
      interest rate on the Term Loan is floating. For purposes of this schedule
      we are using the March 31, 2005 interest rate of 6.08% for all periods.
      Also, we have the option to make voluntary prepayments on the Term Loan
      and are required by the credit agreement to make prepayments equal to 50%
      of the free cash flow generated in each year as defined in the Credit
      Agreement. For purposes of this schedule we have not attempted to estimate
      what, if any, prepayments might be made throughout the life of the
      agreement.
 
 Critical
Accounting Policies
 
 Certain
of our accounting policies as discussed below require the application of
significant judgement by management in selecting the appropriate assumptions for
calculating amounts to record in our financial statements. By their nature,
these judgements are subject to an inherent degree of uncertainty.
 
 Labor
revenues are recognized when the services are performed. Equipment rental
revenue is recognized based on the number of days the equipment is rented
beginning with the first day the equipment is under rental. The Company
periodically sells new scaffolding directly to third parties. The Company
recognizes revenue upon shipment and records as operating expense, the average
cost of the scaffolding sold. The Company periodically sells scaffolding to
third parties, primarily to its rental customers. The Company recognizes revenue
for the proceeds of such sales and records as operating expense, the net book
value of the scaffolding. Net book value is determined assuming the oldest
scaffolding is sold first, as the Company maintains inventory records on a group
basis.
  -22-
 INDEX
  
 As part
of our ongoing business, we make payments for workers’ compensation and health
benefit claims. We have purchased insurance coverage for large claims. Our
workers’ compensation and health benefit liabilities are developed using
actuarial methods based upon historical data for payment patterns, cost trends,
utilization of healthcare services and other relevant factors. These estimates
take into account incurred but not reported (IBNR) claims. While we believe our
liabilities for workers’ compensation, general liability, automobile, and health
benefit claims of $14.9 million as of March 31, 2005, are adequate and that the
judgement applied is appropriate, such estimated liabilities could differ
materially from what will actually transpire in the future.
 
 The
Company accounts for its long-lived assets excluding goodwill and tradenames, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
which requires the Company to assess the recoverability of these assets when
events or changes in circumstances indicate that the carrying amount of the
long-lived asset (group) might not be recoverable. If impairment indicators
exist, the Company determines whether the projected undiscounted cash flows will
be sufficient to cover the carrying value of such assets. This requires the
Company to make significant judgements about the expected future cash flows of
the asset group. The future cash flows are dependent on general and economic
conditions and are subject to change.
 
 The
Company accounts for its goodwill and tradenames in accordance with SFAS No.
142, which requires the Company to test goodwill and tradenames for impairment
annually and whenever events occur or circumstances change that would more
likely than not reduce the fair value of the reporting unit below its carrying
value. For purposes of applying the provisions, the Company has determined that
it will perform its impairment analysis on a consolidated enterprise level.
Because quoted market prices do not exist for the Company, management uses the
present value of expected future cash flows to estimate fair value. Management
must make significant judgements and estimates about future conditions to
estimate future cash flows. Unforeseen events and changes in circumstances and
market conditions including general economic and competitive conditions, could
result in significant changes in those estimates and material charges to
income.
 
 Change in
Accounting Principle
 
 Effective
January 1, 2004, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation". The Company selected the modified prospective
transition method under the provisions of SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which requires expensing
options prospectively, beginning in the year of adoption. The Company expensed
$603 and $42 for the three-month periods ended March 31, 2005 and 2004,
respectively, recorded in the caption Non-cash compensation.
 
 Acquisitions
 
 On June
1, 2004, the Company purchased the assets of Levitator, Inc., a commercial
scaffolding company, for an aggregate purchase price of $1.0 million in cash and
a $0.4 million note payable. The price was allocated to the assets and
liabilities assumed, based on relative fair values. In connection with the
acquisition, the Company recorded goodwill of $0.2 million based upon the
allocation of the purchase price. The acquisition was accounted for using the
purchase method of accounting, and accordingly has been included in the
financial statements from the date of the acquisition.
   -23-
 INDEX
  New
Accounting Standards
  On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of
FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees,
and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the
approach in Statement 123(R) is similar to the approach described in Statement
123.  However, Statement 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. We expect to adopt Statement 123(R) on January 1,
2006.
  The
Company plans to adopt Statement 123(R) using the modified-prospective method.
  The
Company adopted the fair-value-based method of accounting for share-based
payments effective January 1, 2004 using the "modified prospective method"
described in FASB Statement No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure.  Currently, the Company uses the
minimal value method of the Black-Scholes formula to estimate the value of stock
options granted to employees. The minimal value method is not allowable under
Statement 123(R), and the company is currently researching other acceptable
methods. The Company does not anticipate that adoption of Statement 123(R) will
have a material impact on its results of operations or its financial position.
  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
  The
Company is exposed to interest rate risk related to changes in interest rates on
its variable rate debt. At March 31, 2005, the Company held approximately $300.0
million of long-term debt, with approximately $102.4 million subject to variable
interest rates based upon LIBOR plus an applicable margin. If interest rates
increased by 100 basis points, annualized cash interest expense would increase
by approximately $1.0 million. This analysis does not reflect the effect that
interest rates would have on other items, such as new borrowings nor the
favorable impact declining rates would have on cash interest expense. The
Company did not have any derivative financial instruments in place at December
31, 2004.
  ITEM 4.
CONTROLS AND PROCEDURES
 
 An
evaluation was carried out under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act
of 1934) as of the end of the quarter covered by this report. Based on their
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that the company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by our company in reports that
it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms. There were no changes in the internal control over
financial reporting that occurred during the first quarter of 2005 that have
materially affected, or are likely to materially affect, our internal control
over financial reporting.
  -24-
 INDEX
  
 PART II -
OTHER INFORMATION
 
 ITEM 1.
LEGAL PROCEEDINGS
 
 From time
to time, the Company is subject to legal proceedings and other claims arising in
the ordinary course of its business. There are no material pending legal
proceedings, other than routine litigation incidental to the business, to which
the Company is a party or of which any of the Company’s property is the
subject.
 
 ITEM 2.
CHANGES IN SECURITIES AND USE OF
PROCEEDS
 
 None.
 
 ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
 
 None.
 
 ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 None.
 
 ITEM 5.
OTHER INFORMATION
 
 None.
 
 ITEM 6.
EXHIBITS
 
 31.1
    Certification
      of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of
      2002.
 
 31.2
    Certification
      of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of
      2002.
 
 32.1
    Certification
      of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of
      2002.
  32.2
    Certification
      of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of
      2002.
  
 
 
 
  -25-
 INDEX
  
 SIGNATURES
 
 Pursuant
to the requirement of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
  **BRAND
      INTERMEDIATE HOLDINGS, INC.**Date: May 11, 2005
    By:
    /s/ Paul T. WoodChief
      Executive Officer and President
  Date: May 11, 2005
    By:
    /s/ Anthony A. RabbChief
      Financial Officer and Vice President,
Finance
 
 -26-