BRAND INTERMEDIATE HOLDINGS INC - 10-Q Quarterly Report

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, 2004


[ ]		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 (State or other jurisdiction of incorporation or organization)		13-3909682 (I.R.S. employer identification no.)


15450 South Outer 40, #270, Chesterfield, MO (Address of principal executive offices)		63017 (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 $.01 Par Value		Outstanding at April 30, 2004 1,000 shares

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,
	2003			2004
Revenues:
Labor	$	77,076		$	80,636
Equipment rental		19,247			18,093
Equipment sales		1,906			1,606

Total revenues		98,229			100,335
Operating expenses:
Labor		63,381			66,188
Equipment rental		9,984			6,930
Equipment sales		1,243			1,228
Divisional operating expenses		4,089			4,158

Total operating expenses		78,697			78,504

Gross profit		19,532			21,831
Selling and administrative expenses		11,431			11,715

Operating income		8,101			10,116
Interest expense		7,955			8,281
Interest income		(43	)		(80	)

Income before provision for income tax		189			1,915
Income tax provision		76			1,140

Net income	$	113		$	775

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

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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)


	December 31,		March 31, 2004
	2003		(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		23,100	$	4,139
Trade accounts receivable, net of allowance for doubtful Accounts of $1,365 in 2003 and $1,600 in 2004		54,005		68,189
Accrued revenue		3,137		5,257
Notes receivable		621		467
Other current assets		9,421		7,834

Total current assets		90,284		85,886

PROPERTY AND EQUIPMENT:
Land		1,237		1,243
Buildings and leasehold improvements		3,354		3,401
Vehicles and other equipment		25,736		26,073
Scaffolding equipment		188,489		191,814

Total property and equipment, at cost		218,816		222,531
Less–Accumulated depreciation and amortization		39,857		45,439

Total property and equipment, net		178,959		177,092

GOODWILL		248,347		248,347
CUSTOMER RELATIONSHIPS		48,286		47,163
OTHER ASSETS AND INTANGIBLES		24,783		25,099

TOTAL ASSETS	$	590,659	$	583,587

(Continued on following page)

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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands except share and per share amounts)


	December 31,			March 31, 2004
	2003			(unaudited)
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	1,250		$	1,047
Notes payable and capital lease obligations, current portion		660			742
Accounts payable and accrued expenses		33,302			43,206
Deferred revenue		1,448			1,497

Total current liabilities		36,660			46,492

LONG-TERM DEBT		305,282			286,699

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS		165			160

DEFERRED INCOME TAXES		29,173			30,188

STOCKHOLDER’S EQUITY:
Common stock, $0.01 par value, 1,000 shares authorized, issued and outstanding		—			—
Paid-in capital		224,212			224,254
Cumulative translation adjustment		2,853			2,706
Accumulated deficit		(7,686	)		(6,912	)

Total stockholder’s equity		219,379			220,048

Total liabilities and stockholder’s equity	$	590,659		$	583,587

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

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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	For the Three Months Ended
	March 31,
	2003			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		113			775
Adjustments to reconcile net income to net cash from Operating activities:
Depreciation and amortization		10,626			7,184
Deferred income taxes		76			1,015
Non-cash interest		1,358			1,864
Non-cash compensation		—			42
Gain on sale of scaffolding equipment		(197	)		(149	)
Changes in operating assets and liabilities:
Trade accounts receivable, net		(5,808	)		(15,515	)
Accrued revenue		843			(2,120	)
Notes receivable		336			172
Other current assets		1,505			2,918
Accounts payable and accrued expenses		1,121			9,904
Deferred revenue		(177	)		49
Other		(17	)		(83	)

Net cash flows from operating activities		9,779			6,056

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(2,897	)		(4,284	)
Proceeds from sales of property and equipment		461			438

Net cash flows from investing activities		(2,436	)		(3,846	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt		(325	)		(20,312	)
Payments of deferred financing fees		—			(677	)
Payments on capital lease obligations		(842	)		(182	)

Net cash flows from financing activities		(1,167	)		(21,171	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		6,176			(18,961	)
CASH AND CASH EQUIVALENTS, beginning of period		4,817			23,100

CASH AND CASH EQUIVALENTS, end of period	$	10,993		$	4,139

(Continued on following page)

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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

The financial statements included herein for the periods ended March 31, 2003 and 2004 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, 2004, and the results of operations and cash flows for the three months ended March 31, 2003 and 2004. Certain information and footnote disclosures have been condensed or omitted for these periods. The results for interim periods are not necessarily indicative of results for the entire year. Reference is made to the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, filed with the Securities and Exchange Commission.

1. Organization and Business

Brand Intermediate Holdings, Inc. and its subsidiaries (“Brand”) are 100% owned by Brand Holdings LLC (the “LLC”). As of March 31, 2004, the voting equity interests of the LLC are owned 74.1% by J.P. Morgan Partners and its affiliates (“JPMP”) and 25.9% 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

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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 $42,000 for the three-month period ended March 31, 2004, recorded in the caption Selling and Administrative expenses.

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

The following table illustrates the effect on net income if the fair value based method had been applied to all outstanding and unvested awards in each period:


	Three Months Ended		Three Months Ended
	March 31, 2003		March 31, 2004
	(unaudited)		(unaudited)
Net income as reported	$	113	$	775
Add: stock based compensation expense included in reported net income		—		42
Less: stock-based compensation expense determined under fair value method for all awards		44		42

Pro forma net income	$	69	$	775

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

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


	December 31,		March 31, 2004
	2003		(unaudited)
Credit Facility, due 2009	$	123,713	$	103,400
12% Senior Subordinated Notes, due 2012		150,000		150,000
13% Intermediate Subordinated Notes, due 2013		40,638		42,052

		314,351		295,452
Less
Current portion		1,250		1,047
Unamortized discount		7,819		7,706

	$	305,282	$	286,699

For the three months ended March 31, 2003, the weighted-average interest rate of loans outstanding under the Credit Facility was 5.4%. For the three months ended March 31, 2004, the weighted-average interest rate of loans outstanding under the Credit Facility was 4.6%. The credit facility was amended on February 3, 2004. The amendment added an additional $15 million letter of credit facility and lowered the interest rate margin on the term debt by 0.75%.

As of March 31, 2004, JPMP holds $18.0 million of the $42.1 million Intermediate Subordinated Notes.

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, 2003 and 2004, comprehensive income was $1.0 million and $0.6 million, respectively.

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 59.5% for the

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three months ended March 31, 2004 is greater than the federal statutory rate of 35%, primarily due to state income taxes and the impact of a portion of the interest on the 13% Intermediate Notes not being deductible. The provision for income taxes for the three months ended March 31, 2003 and 2004, is principally attributable to deferred income taxes.

1. 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.

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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Brand Intermediate Holdings, Inc.
Condensed Consolidating Balance Sheet
December 31, 2003


							Brand					Brand
							Intermediate		Adjustments			Intermediate
	Brand		Guarantor		Non-Guarantor		Holdings,		and			Holdings, Inc.
	Services, Inc.		Subsidiaries		Subsidiary		Inc.		Eliminations			Consolidated
Assets
Current Assets:
Cash and cash equivalents	$	21,154	$	—	$	2,236	$	—	$	(290	)	$	23,100
Trade accounts receivable		—		52,383		1,622		—		—			54,005
Accrued revenue		—		3,102		35		—		—			3,137
Notes receivable, current portion		27		594		—		—		—			621
Other current assets		2,491		6,672		608		—		(350	)		9,421
Due from affiliates		44,139		1,409		207		—		(45,755	)		—

Total current assets		67,811		64,160		4,708		—		(46,395	)		90,284

Property and Equipment:
Land		—		855		382		—		—			1,237
Buildings and leasehold improvements		11		2,953		390		—		—			3,354
Vehicles and other equipment		6,202		15,618		3,916		—		—			25,736
Scaffolding equipment		174,752		—		13,737		—		—			188,489

Total property and equipment, at cost		180,965		19,426		18,425		—		—			218,816
Less accumulated depreciation and amortization		26,066		8,681		5,110		—		—			39,857

Total property and equipment, net		154,899		10,745		13,315		—		—			178,959

Due from affiliates		9,750		—		—		40,894		(50,644	)		—

Deferred tax asset		—		—		—		2,375		(2,375	)		—

Investment in subsidiaries		—		—		—		211,900		(211,900	)		—

Goodwill		248,347		—		—		—		—			248,347

Customer relationships		48,286		—		—		—		—			48,286

Intangibles and other assets		23,828		—		—		955		—			24,783

Total assets	$	552,921	$	74,905	$	18,023	$	256,124	$	(311,314	)	$	590,659

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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Brand Intermediate Holdings, Inc.
Condensed Consolidating Balance Sheet
December 31, 2003 (continued)


													Brand
					Non-			Brand		Adjustments			Intermediate
	Brand		Guarantor		Guarantor			Intermediate		and			Holdings, Inc.
	Services, Inc.		Subsidiaries		Subsidiaries			Holdings, Inc.		Eliminations			Consolidated
Liabilities and Stockholder’s Equity (Deficit)
Current Liabilities:
Current maturities of long-term debt	$	1,250	$	—	$	—		$	—	$	—		$	1,250
Notes payable and capital lease obligations, current portion		660		—		—			—		—			660
Accounts payable and accrued expenses		26,075		7,553		314			—		(640	)		33,302
Deferred revenue		—		1,448		—			—		—			1,448
Due to affiliates		1,409		37,519		6,827			—		(45,755	)		—

Total current liabilities		29,394		46,520		7,141			—		(46,395	)		36,660

Long-term debt		268,537		—		—			36,745		—			305,282

Notes payable and capital lease obligations		165		—		—			—		—			165

Deferred income taxes		29,076		—		2,472			—		(2,375	)		29,173

Due to affiliates		40,894		—		9,750			—		(50,644	)		—

Total stockholder’s equity (deficit)		184,855		28,385		(1,340	)		219,379		(211,900	)		219,379

Total liabilities and stockholder’s equity (deficit)	$	552,921	$	74,905	$	18,023		$	256,124	$	(311,314	)		590,659

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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Brand Intermediate Holdings, Inc.
Condensed Consolidating Balance Sheet
March 31, 2004


							Brand					Brand
					Non-		Intermediate		Adjustments			Intermediate
	Brand		Guarantor		Guarantor		Holdings,		and			Holdings, Inc.
	Services, Inc.		Subsidiaries		Subsidiary		Inc.		Eliminations			Consolidated
Assets
Current Assets:
Cash and cash equivalents	$	3,288	$	—	$	1,063	$	—	$	(212	)	$	4,139
Trade accounts receivable		—		66,473		1,716		—		—			68,189
Accrued revenue		—		5,088		169		—		—			5,257
Notes receivable, current portion		15		452		—		—		—			467
Other current assets		2,512		5,197		474		—		(349	)		7,834
Due from affiliates		47,592		1,644		1,283		—		(50,519	)		—

Total current assets		53,407		78,854		4,705		—		(51,080	)		85,886

Property and Equipment:
Land		—		864		379		—		—			1,243
Buildings and leasehold improvements		11		3,003		387		—		—			3,401
Vehicles and other equipment		6,331		15,858		3,884		—		—			26,073
Scaffolding equipment		178,024		—		13,790		—		—			191,814

Total property and equipment, at cost		184,366		19,725		18,440		—		—			222,531
Less accumulated depreciation and amortization		30,793		9,346		5,300		—		—			45,439

Total property and equipment, net		153,573		10,379		13,140		—		—			177,092

Due from affiliates		9,750		—		—		42,367		(52,117	)		—

Deferred tax asset		—		—		—		2,375		(2,375	)		—

Investment in subsidiaries		—		—		—		212,820		(212,820	)		—

Goodwill		248,347		—		—		—		—			248,347

Customer relationships		47,163		—		—		—		—			47,163

Intangibles and other assets		24,155		—		—		944		—			25,099

Total assets	$	536,395	$	89,233	$	17,845	$	258,506	$	(318,392	)	$	583,587

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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Brand Intermediate Holdings, Inc.
Condensed Consolidating Balance Sheet
March 31, 2004


													Brand
					Non-			Brand		Adjustments			Intermediate
	Brand		Guarantor		Guarantor			Intermediate		and			Holdings, Inc.
	Services, Inc.		Subsidiaries		Subsidiary			Holdings, Inc.		Eliminations			Consolidated
Liabilities and Stockholder’s Equity (Deficit)
Current Liabilities:
Current maturities of long-term debt	$	1,047	$	—	$	—		$	—	$	—		$	1,047
Notes payable and capital lease obligations, current portion		660		82		—			—		—			742
Accounts payable and accrued expenses		33,964		9,283		520			—		(561	)		43,206
Deferred revenue		—		1,496		1			—		—			1,497
Due to affiliates		1,644		42,048		6,827			—		(50,519	)		—

Total current liabilities		37,315		52,909		7,348			—		(51,080	)		46,492

Long-term debt		248,492		—		—			38,207		—			286,699

Notes payable and capital lease obligations		—		160		—			—		—			160

Deferred income taxes		30,235		—		2,328			—		(2,375	)		30,188

Due to affiliates		42,367		—		9,750			—		(52,117	)		—

Total stockholder’s equity (deficit)		177,986		36,164		(1,581	)		220,299		(212,820	)		220,048

Total liabilities and stockholder’s equity (deficit)	$	536,395	$	89,233	$	17,845		$	258,506	$	(318,392	)	$	583,587

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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Brand Intermediate Holdings, Inc.
Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2003


															Brand
						Non-			Brand			Adjustments			Intermediate
	Brand			Guarantor		Guarantor			Intermediate			and			Holdings, Inc.
	Services, Inc.			Subsidiaries		Subsidiary			Holdings, Inc.			Eliminations			Consolidated
Revenue:
Labor	$	—		$	75,525	$	1,551		$	—		$	—		$	77,076
Equipment rental		—			18,781		466			—			—			19,247
Equipment sales		—			2,370		33			—			(497	)		1,906
Intercompany revenue		2,066			7		—			—			(2,073	)		—

Total revenues		2,066			96,683		2,050			—			(2,570	)		98,229

Operating expenses:
Labor		124			61,791		1,466			—			—			63,381
Equipment rental		7,464			1,012		1,508			—			—			9,984
Equipment sales		—			1,803		25			—			(585	)		1,243
Divisional operating expenses		18			3,962		109			—			—			4,089
Intercompany operating expenses		—			2,066		7			—			(2,073	)		—

Total operating expenses		7,606			70,634		3,115			—			(2,658	)		78,697

Gross profit		(5,540	)		26,049		(1,065	)		—			88			19,532
Selling and administrative expenses		4,438			6,746		247			—			—			11,431

Operating income (loss)		(9,978	)		19,303		(1,312	)		—			88			8,101
Interest expense		6,770			—		—			1,185			—			7,955
Interest income		(36	)		—		(7	)		—			—			(43	)
Intercompany interest		1,185			—		—			(1,185	)		—			—
Equity in loss (income) of subsidiaries		—			—		—			(113	)		113			—

Income (loss) before provision for Income tax		(17,897	)		19,303		(1,305	)		113			(25	)		189
Provision (benefit) for income tax		(7,084	)		7,721		(561	)		—			—			76

Net income (loss)	$	(10,813	)	$	11,582	$	(744	)	$	113		$	(25	)	$	113

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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

DLJ Brand Holdings, Inc. (Predecessor)
Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 2004


															Brand
						Non-			Brand			Adjustments			Intermediate
	Brand			Guarantor		Guarantor			Intermediate			and			Holdings, Inc.
	Services, Inc.			Subsidiaries		Subsidiary			Holdings, Inc.			Eliminations			Consolidated
Revenue:
Labor	$	—		$	78,816	$	1,820		$	—		$	—		$	80,636
Equipment rental		—			17,648		445			—			—			18,093
Equipment sales		—			2,000		44			—			(438	)		1,606
Intercompany revenue		4,930			15		—			—			(4,945	)		—

Total revenues		4,930			98,479		2,309			—			(5,383	)		100,335

Operating expenses:
Labor					65,964		1,699			—			(1,475	)		66,188
Equipment rental		5,496			1,112		322			—			—			6,930
Equipment sales		—			1,718		18			—			(508	)		1,228
Divisional operating expenses		28			3,990		140			—			—			4,158
Intercompany operating expenses		—			4,930		15			—			(4,945	)		—

Total operating expenses		5,524			77,714		2,194			—			(6,928	)		78,504

Gross profit		(594	)		20,765		115			—			1,545			21,831
Selling and administrative expenses		4,542			6,832		341			—			—			11,715

Operating income (loss)		(5,136	)		13,933		(226	)		—			1,545			10,116
Interest expense		6,808			—		—			1,473			—			8,281
Interest 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			1,915
Provision (benefit) for income tax		(7,027	)		8,290		(123	)		—			—			1,140

Net income (loss)	$	(6,320	)	$	5,643	$	(93	)	$	775		$	770		$	775

Page -17-

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Brand Intermediate Holdings, Inc.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2003


															Brand
							Non-			Brand		Adjustments			Intermediate
	Brand			Guarantor			Guarantor			Intermediate		and			Holdings, Inc.
	Services, Inc.			Subsidiaries			Subsidiary			Holdings, Inc.		Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used for) operating activities	$	9,278		$	666		$	(579	)	$	—	$	414		$	9,779

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(2,171	)		(666	)		(60	)		—		—			(2,897	)
Proceeds from sales of property and equipment		461			—			—			—		—			461

Net cash used for investing activities		(1,710	)		(666	)		(60	)		—		—			(2,436	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt		(325	)		—			—			—		—			(325	)
Payments on capital lease obligations		(842	)		—			—			—		—			(842	)

Net cash used for financing activities		(1,167	)		—			—			—		—			(1,167	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		6,401			—			(639	)		—		414			6,176
CASH AND CASH EQUIVALENTS, beginning of period		3,931			—			1,480			—		(594	)		4,817

CASH AND CASH EQUIVALENTS, end of period	$	10,332		$	—		$	841		$	—	$	(180	)	$	10,993

Page -18-

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Brand Intermediate Holdings, Inc.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2004


															Brand
							Non-			Brand		Adjustments			Intermediate
	Brand			Guarantor			Guarantor			Intermediate		and			Holdings, Inc.
	Services, Inc.			Subsidiaries			Subsidiary			Holdings, Inc.		Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used for) operating activities	$	6,482		$	423		$	(927	)	$	—	$	78		$	6,056

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(3,632	)		(406	)		(246	)		—		—			(4,284	)
Proceeds from sales of property and equipment		438			—			—			—		—			438
Investment 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	)		23,100

CASH AND CASH EQUIVALENTS, end of period	$	3,288		$	—		$	1,063		$	—	$	(212	)	$	4,139

Page -19-

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

Page -20-

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.

Results of Operations

Revenue – Total revenue increased by 2.1%, from $98.2 million to $100.3 million, for the three months ended March 31, 2004 as compared to the three months ended March 31, 2003. Labor revenues increased by $3.6 million for the three months ended March 31, 2004 as compared to the three months ended March 31, 2003, offset by decreases in equipment rental revenue and equipment sales revenue of $1.2 million and $0.3 million, respectively. Overall, revenue increased due to a large number of turnarounds in the refinery and chemical sector in the first quarter 2004. This more than offset a decrease in the utility capital sector. The revenue mix has shifted more towards labor from equipment rental primarily due to a significant amount of overtime work related to the turnarounds, as well as the impact of the shift to refinery turnaround work from utility capital work.

Gross Profit – Gross profit increased by $2.3 million, or 11.8%, for the three months ended March 31, 2004 as compared to the three months ended March 31, 2003. The percentage of labor gross profit to labor revenue remained relatively flat at 17.9% for the three months ended March 31, 2004 compared to 17.8% for the three months ended March 31, 2003. Equipment rental gross profit increased by $1.9 million for the three months ended March 31, 2004 as compared to the three months ended March 31, 2003, despite the $1.2 million decrease in rental revenue. This increase is almost entirely due to a $3.1 million decrease in depreciation expense that resulted from groups of assets that became fully depreciated at the end of 2003.

Selling and administrative expenses – Selling and administrative expenses increased by $0.2 million for the three months ended March 31, 2004 as compared to the three months ended March 31, 2003. As a percentage of revenue these expenses remained flat at 11.6%.

Operating income – As a result of the above events, operating income increased by $2.0 million, or 24.9%, for the three months ended March 31, 2004 as compared to the three months ended March 31, 2003.

Page -21-

Interest expense – Interest expense increased by $0.3 million from for the three months ended March 31, 2004 compared to the three months ended March 31, 2003, primarily due to the compounding effect of interest on the 13% Intermediate pay-in-kind notes.

Income tax provision — The income tax provision of $76,000 for the three months ended March 31, 2003, represents an effective rate of 40.2%, which is greater than the federal statutory rate of 35% primarily due to state income taxes. The income tax provision of $1.1 million for the three months ended March 31, 2004, represents an effective rate of 59.5%, which is greater than the federal statutory rate of 35% primarily due to state income taxes and the determination that a portion of the interest on the pay in kind Intermediate Notes is not deductible.

Liquidity and Capital Resources

The Company has historically utilized internal cash flow from operations and borrowings under its credit facility to fund its operations, capital expenditures and working capital requirements. As of December 31, 2003 and March 31, 2004, the Company had working capital of $53.6 million and $39.4 million and cash of $23.1 million and $4.1 million, respectively.

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, 2003 and 2004, capital expenditures were $2.9 million and $4.5 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 of letter of credit facilities. Up to $20.0 million of the $50.0 million revolving loan facility may be used for letters of credit. The Credit Facility was amended on February 3, 2004. The amendment increased the letter of credit facilities from $20 million to the $35 million mentioned above, and lowered the interest rate margin on the term loans by 0.75%. As of March 31, 2004, the Company had no borrowings outstanding under the revolving credit facility and had total outstanding letters of credit of $35.1 million.

The interest rate on the $130.0 million of term loans under the Credit Facility is variable. For the three months ended March 31, 2004, the weighted average interest rate on the term loans was 4.6%.

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

Page -22-

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, 2004, the interest rate on our term loans was 4.4%. 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, 2004.

A summary of the sources and uses of cash for the three months ended March 31, 2003 and 2004, follows:


	Three Months Ended
	March 31,
	2003			2004
Net cash provided by (used for):
Operating activities	$	9,779		$	6,056
Investing activities		(2,436	)		(4,105	)
Financing activities		(1,167	)		(20,912	)

Contractual Obligations

The following is a summary of contractual cash obligations as of March 31, 2004 (dollars in thousands):


			Payments due in:
	Total		2004		2005		2006		2007		2008		After 2008
Term Loan	$	103,400	$	785	$	1,047	$	1,047	$	1,047	$	1,047	$	98,427
Expected Interest Payments on Term Loan		23,045		3,368		4,451		4,406		4,360		4,314		2,146
Senior Notes		150,000		—		—		—		—		—		150,000
Expected Interest Payments on Senior Notes		162,000		18,000		18,000		18,000		18,000		18,000		72,000
Intermediate Notes		42,052		—		—		—		—		—		42,052
Expected Interest Payments on Intermediate Notes		75,401										8,657		66,744
Capital Leases		278		86		95		92		5		—		—
Operating Leases		8,463		2,192		2,285		1,852		1,267		607		260
Notes Payable		660		495		165		—		—		—		—

Total Contractual Cash Obligations	$	565,299	$	24,926	$	26,043	$	25,397	$	24,679	$	32,625	$	431,629

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.

Page -23-

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

As part of our ongoing business, we make payments for workers’ compensation and health benefit claims. We have purchased insurance coverage for large claims. Our workers’ compensation and health benefit liabilities are developed using actuarial methods based upon historical data for payment patterns, cost trends, utilization of healthcare services and other relevant factors. These estimates take into account incurred but not reported (IBNR) claims. While we believe our liabilities for workers’ compensation, general liability, automobile, and health benefit claims of $14.5 million as of March 31, 2004, are adequate and that the judgement applied is appropriate, such estimated liabilities could differ materially from what will actually transpire in the future.

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

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.

Page -24-

Change in Accounting Principle

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

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

Page -25-

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits


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.

(b) Reports on Form 8-K

None.

Page -26-


	Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2004		3
Consolidated Balance Sheets as of December 31, 2003 and March 31, 2004		4-5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2004		6-7
Notes to the Consolidated Financial Statements		8-19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20-25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		25
Item 4. Controls and Procedures		25
PART II – OTHER INFORMATION
Item 1. Legal Proceedings		26
Item 2. Changes in Securities and Use of Proceeds		26
Item 3. Defaults Upon Senior Securities		26
Item 4. Submission of Matters to a Vote of Security Holders		26
Item 5. Other Information		26
Item 6. Exhibits and Reports on Form 8-K		26
SIGNATURES		27
Certification of Chief Executive Officer
Certification of Chief Financial Officer
906 Certification of Chief Executive Officer
906 Certification of Chief Financial Officer


	For the Three Months Ended
	March 31,
	2003		2004
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid	$	2,401	$	1,955
Income taxes paid		54		122
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations		—		259


		BRAND INTERMEDIATE HOLDINGS, INC.

Date: May 17, 2004		/s/ John M. Monter

		John M. Monter
		Chief Executive Officer, President

Date: May 17, 2004		/s/ Jeffrey W. Peterson

		Jeffrey W. Peterson
		Chief Financial Officer,
		Vice President, Finance

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