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 June 30, 2004

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

For the transition period from to

Commission file number 333-102511

BRAND INTERMEDIATE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware (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: o

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

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


Class of Common Stock $.01 Par Value		Outstanding at July 31, 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 June 30						For the Six Months Ended June 30
	2003			2004			2003			2004
Revenues:
Labor	$	68,244		$	57,948		$	145,320		$	138,584
Equipment rental		18,684			15,433			37,931			33,526
Equipment sales		1,526			1,408			3,432			3,014

Total revenues	$	88,454		$	74,789			186,683			175,124
Operating expenses:
Labor		55,915			47,597			119,296			113,785
Equipment rental		10,037			7,084			20,021			14,014
Equipment sales		1,081			840			2,324			2,068
Divisional operating expenses		4,025			4,186			8,114			8,344

Total operating expenses		71,058			59,707			149,755			138,211

Gross profit		17,396			15,082			36,928			36,913
Selling and administrative expenses		11,638			11,015			23,069			22,730

Operating income		5,758			4,067			13,859			14,183
Interest expense		8,187			8,124			16,142			16,405
Interest income		(62	)		(21	)		(105	)		(101	)

Loss before benefit for income tax		(2,367	)		(4,036	)		(2,178	)		(2,121	)
Income tax benefit		(816	)		(1,302	)		(740	)		(162	)

Net loss	$	(1,551	)	$	(2,734	)	$	(1,438	)	$	(1,959	)

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

Page -3-

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)


	December 31,		June 30, 2004
	2003		(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	23,100	$	14,254
Trade accounts receivable, net of allowance for doubtful accounts of $1,365 in 2003 and $1,703 in 2004		54,005		52,241
Accrued revenue		3,137		3,466
Notes receivable		621		116
Other current assets		9,421		7,578

Total current assets		90,284		77,655

PROPERTY AND EQUIPMENT:
Land		1,237		1,236
Buildings and leasehold improvements		3,354		3,393
Vehicles and other equipment		25,736		26,232
Scaffolding equipment		188,489		193,367

Total property and equipment, at cost		218,816		224,228
Less–Accumulated depreciation and amortization		39,857		50,733

Total property and equipment, net		178,959		173,495

GOODWILL		248,347		248,494
CUSTOMER RELATIONSHIPS		48,286		46,040
OTHER ASSETS AND INTANGIBLES		24,783		25,047

TOTAL ASSETS	$	590,659	$	570,731

(Continued on following page)

Page -4-

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands except share and per share amounts)


	December 31,			June 30, 2004
	2003			(unaudited)
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt – footnote #5	$	1,250		$	103,139
Notes payable and capital lease obligations, current portion		660			580
Accounts payable and accrued expenses		33,302			33,580
Deferred revenue		1,448			1,205

Total current liabilities		36,660			138,504

LONG-TERM DEBT		305,282			185,812

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS		165			528

DEFERRED INCOME TAXES		29,173			28,828

STOCKHOLDER’S EQUITY:
Common stock, $0.01 par value, 1,000 shares authorized, issued and Outstanding		—			—
Paid-in capital		224,212			224,300
Cumulative translation adjustment		2,853			2,404
Accumulated deficit		(7,686	)		(9,645	)

Total stockholder’s equity		219,379			217,059

Total liabilities and stockholder’s equity	$	590,659		$	570,731

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

Page -5-

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	For the Six Months Ended June 30
	2003			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,438	)	$	(1,959	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization		21,297			14,555
Deferred income taxes		(740	)		(345	)
Non-cash interest		2,944			3,678
Non-cash compensation		—			88
Gain on sale of scaffolding equipment		(368	)		(408	)
Changes in operating assets and liabilities:
Trade accounts receivable, net		6,667			1,911
Accrued revenue		926			(329	)
Notes receivable		(152	)		523
Other current assets		2,386			1,843
Accounts payable and accrued expenses		(6,672	)		278
Deferred revenue		412			(243	)
Other		156			(98	)

Net cash flows from operating activities		25,418			19,494

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(6,018	)		(6,708	)
Proceeds from sale of property and equipment		796			912
Payments for acquisitions		—			(924	)

Net cash flows from investing activities		(5,222	)		(6,720	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt		(650	)		(20,574	)
Payments of deferred financing fees		—			(677	)
Payments on capital lease obligations		(1,043	)		(369	)

Net cash flows from financing activities		(1,693	)		(21,620	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		18,503			(8,846	)
CASH AND CASH EQUIVALENTS, beginning of period		4,817			23,100

CASH AND CASH EQUIVALENTS, end of period	$	23,320		$	14,254

(Continued on following page)

Page -6-

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements
(Unaudited)

The financial statements included herein for the periods ended June 30, 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 June 30, 2004, and the results of operations and cash flows for the three months and six months ended June 30, 2003 and 2004. Certain information and footnote disclosures have been condensed or omitted for these periods. The results for interim periods are not necessarily indicative of results for the entire year. Reference is made to the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, filed with the Securities and Exchange Commission.

1. Organization and Business

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

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

2. Summary of Significant Accounting Policies

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

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the

Page -8-

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 $46,000 and $88,000, respectively, for the three and six-month periods ended June 30, 2004, recorded in the caption Selling and Administrative expenses.

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

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


	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	June 30, 2003			June 30, 2004			June 30, 2003			June 30, 2004
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net loss as reported	$	(1,551	)	$	(2,734	)	$	(1,438	)	$	(1,959	)
Add: stock based compensation expense included in reported net loss		—			46			—			88
Less: stock-based compensation expense determined under fair value method for all awards		590			46			633			88

Pro forma net loss	$	(2,141	)	$	(2,734	)	$	(2,071	)	$	(1,959	)

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.

Page -9-

5. Debt and Borrowing Arrangements

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


	December 31,		June 30, 2004
	2003		(unaudited)
Credit Facility, due 2009	$	123,713	$	103,139
12% Senior Subordinated Notes, due 2012		150,000		150,000
13% Intermediate Subordinated Notes, due 2013		40,638		43,405

		314,351		296,544
Less
Current portion		1,250		103,139
Unamortized discount		7,819		7,593

	$	305,282	$	185,812

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 financial ratios become more restrictive over time. The Company violated the minimum interest coverage ratio and maximum leverage ratio for the period ended June 30, 2004; however, the Company obtained a waiver at June 30, 2004. The Company projects non-compliance with the aforementioned covenants for the period ended September 30, 2004. In accordance with EITF 86-30, “Classification of Obligations When a Violation is Waived by the Creditor,” the Company classified the entire balance of the Credit Facility as current as of June 30, 2004. Because the Company has been able to generate significant cash flow, has paid down more than $25 million on the term loans in the past year, and has $14.3 million in cash at June 30, 2004, we believe we will be able to negotiate further waivers or amendments to the Credit Facility.

For the three months and six months ended June 30, 2003, the weighted-average interest rate of loans outstanding under the Credit Facility was 5.3% and 5.4%, respectively. For the three months and six months ended June 30, 2004, the weighted-average interest rate of loans outstanding under the Credit Facility was 4.4% and 4.5%, respectively. The Credit Facility was amended on February 3, 2004. The amendment added an additional $15 million letter of credit facility to total $35 million and lowered the interest rate margin on the term debt by 0.75%.

As of June 30, 2004, JPMP holds $18.6 million of the $43.4 million Intermediate Subordinated Notes.

6. Deferred Revenue

Page -10-

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 June 30, 2003 and 2004, comprehensive income (loss) was $(0.3) million and $(3.0) million, respectively. For the six months ended June 30, 2003 and 2004, comprehensive income (loss) was $0.7 million and $(2.4) million, respectively. The difference between comprehensive income and net income is entirely related to currency translation.

9. Income Taxes

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. For the six months ended June 30, 2004, the effective tax rate benefit of 8% is less than the federal statutory rate of 35% primarily due to permanent tax items, the largest of which is a portion of the interest expense on the 13% Intermediate Notes which is not deductible for tax purposes. For the three months ended June 30, 2004, the Company adjusted its effective tax rate from an annualized expense of 60% to a benefit of 8% due to a revision in the its 2004 forecast from a net income position to a net loss position. This resulted in additional benefit of approximately $0.9 million for the three month period ended June 30, 2004. For the six months ended June 30, 2004, the benefit for income taxes is primarily attributable to deferred income taxes.

10. Acquisitions

On June 1, 2004, the Company purchased the assets of Levitator, Inc., a commercial scaffolding company, for an aggregate purchase price of approximately $0.9 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 $0.1 million based upon the allocation of the purchase price. The acquisition was accounted for using the purchase method of accounting, and accordingly has been included in the financial statements from the date of the acquisition.

11. Supplemental Consolidating Information

Page -11-

The 12% Senior Notes, which are an obligation of Brand Services, Inc. are fully and unconditionally guaranteed on a senior subordinated, joint, and several basis by the other domestic subsidiaries of Brand Intermediate Holdings (which are all 100% owned by Brand Intermediate Holdings) and by Brand Intermediate Holdings, Inc. Supplemental consolidating information of Brand Intermediate Holdings, Inc., Brand Services, Inc., the guarantor subsidiaries, and its foreign non-guarantor subsidiaries 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.

Page -12-

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIRIES
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.
Assets	Services, Inc.		Subsidiaries		Subsidiary		Inc.		Eliminations			Consolidated
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

Page -13-

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.
Liabilities and Stockholder’s Equity (Deficit)	Services, Inc.		Subsidiaries		Subsidiary			Holdings, Inc.		Eliminations			Consolidated
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

Page -14-

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

Brand Intermediate Holdings, Inc.
Condensed Consolidating Balance Sheet
June 30, 2004


							Brand					Brand
					Non-		Intermediate		Adjustments			Intermediate
	Brand		Guarantor		Guarantor		Holdings,		and			Holdings, Inc.
Assets	Services, Inc.		Subsidiaries		Subsidiary		Inc.		Eliminations			Consolidated
Current Assets:
Cash and cash equivalents	$	13,752	$	—	$	571	$	—	$	(69	)	$	14,254
Trade accounts receivable		—		47,301		4,940		—		—			52,241
Accrued revenue		—		3,312		154		—		—			3,466
Notes receivable, current portion		15		101		—		—		—			116
Other current assets		2,062		5,321		556		—		(361	)		7,578
Due from affiliates		30,784		1,747		—		—		(32,531	)		—

Total current assets		46,613		57,782		6,221		—		(32,961	)		77,655

Property and Equipment:
Land		—		866		370		—		—			1,236
Buildings and leasehold improvements		11		3,005		377		—		—			3,393
Vehicles and other equipment		6,369		15,993		3,870		—		—			26,232
Scaffolding equipment		179,620		—		13,747		—		—			193,367

Total property and equipment, at cost		186,000		19,864		18,364		—		—			224,228
Less accumulated depreciation and amortization		35,299		9,986		5,448		—		—			50,733

Total property and equipment, net		150,701		9,878		12,916		—		—			173,495

Due from affiliates		9,750		—		—		43,780		(53,530	)		—

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

Investment in subsidiaries		—		—		—		209,580		(209,580	)		—

Goodwill		248,494		—		—		—		—			248,494

Customer relationships		46,040		—		—		—		—			46,040

Intangibles and other assets		24,115		—		—		932		—			25,047

Total assets	$	525,713	$	67,660	$	19,137	$	256,667	$	(298,446	)	$	570,731

Page -15-

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

Brand Intermediate Holdings, Inc.
Condensed Consolidating Balance Sheet
June 30, 2004 (Continued)


													Brand
					Non-			Brand		Adjustments			Intermediate
	Brand		Guarantor		Guarantor			Intermediate		and			Holdings, Inc.
Liabilities and Stockholder’s Equity (Deficit)	Services, Inc.		Subsidiaries		Subsidiary			Holdings, Inc.		Eliminations			Consolidated
Current Liabilities:
Current maturities of long-term debt	$	103,139	$	—	$	—		$	—	$	—		$	103,139
Notes payable and capital lease obligations, current portion		497		83		—			—		—			580
Accounts payable and accrued expenses		26,732		6,023		1,255			—		(430	)		33,580
Deferred revenue		—		1,205		—			—		—			1,205
Due to affiliates		1,747		23,810		6,974			—		(32,531	)		—

Total current liabilities		132,115		31,121		8,229			—		(32,961	)		138,504

Long-term debt		146,204		—		—			39,608		—			185,812

Notes payable and capital lease obligations		393		135		—			—		—			528

Deferred income taxes		28,565		4		2,634			—		(2,375	)		28,828

Due to affiliates		43,780		—		9,750			—		(53,530	)		—

Total stockholder’s equity (deficit)		174,656		36,400		(1,476	)		217,059		(209,580	)		217,059

Total liabilities and stockholder’s equity (deficit)	$	525,713	$	67,660	$	19,137		$	256,667	$	(298,446	)	$	570,731

Page -16-

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 June 30, 2003


																Brand
							Non-			Brand			Adjustments			Intermediate
	Brand			Guarantor			Guarantor			Intermediate			and			Holdings, Inc.
	Services, Inc.			Subsidiaries			Subsidiary			Holdings, Inc.			Eliminations			Consolidated
Revenue:
Labor	$	—		$	65,103		$	3,141		$	—		$	—		$	68,244
Equipment rental		—			18,041			643			—			—			18,684
Equipment sales		—			2,026			30			—			(530	)		1,526
Intercompany revenue		1,947			14			—			—			(1,961	)		—

Total revenues		1,947			85,184			3,814			—			(2,491	)		88,454

Operating expenses:
Labor		—			53,470			2,871			—			(426	)		55,915
Equipment rental		7,479			1,027			1,531			—			—			10,037
Equipment sales		—			1,667			33			—			(619	)		1,081
Divisional operating expenses		134			3,774			117			—			—			4,025
Intercompany operating expenses		—			1,947			14			—			(1,961	)		—

Total operating expenses		7,613			61,885			4,566			—			(3,006	)		71,058

Gross profit (loss)		(5,666	)		23,299			(752	)		—			515			17,396
Selling and administrative expenses		4,078			7,221			339			—			—			11,638

Operating income (loss)		(9,744	)		16,078			(1,091	)		—			515			5,758
Interest expense		7,025			1			—			1,161			—			8,187
Interest income		(53	)		(2	)		(7	)		—			—			(62	)
Intercompany interest		1,161			—			—			(1,161	)		—			—
Equity in loss (income) of subsidiaries		—									1,551			(1,551	)		—

Income (loss) before provision for income tax		(17,877	)		16,079			(1,084	)		(1,551	)		2,066			(2,367	)
Provision (benefit) for income tax		(6,782	)		6,432			(466	)		—			—			(816	)

Net income (loss)	$	(11,095	)	$	9,647		$	(618	)	$	(1,551	)	$	2,066		$	(1,551	)

Page -17-

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 June 30, 2004


																Brand
							Non-			Brand			Adjustments			Intermediate
	Brand			Guarantor			Guarantor			Intermediate			and			Holdings, Inc.
	Services, Inc.			Subsidiaries			Subsidiary			Holdings, Inc.			Eliminations			Consolidated
Revenue:
Labor	$	—		$	52,113		$	5,835		$	—		$	—		$	57,948
Equipment rental		—			14,511			922			—			—			15,433
Equipment sales		—			1,244			297			—			(133	)		1,408
Intercompany revenue		5,150			24			—			—			(5,174	)		—

Total revenues		5,150			67,892			7,054			—			(5,307	)		74,789

Operating expenses:
Labor		—			43,601			5,226			—			(1,230	)		47,597
Equipment rental		5,737			984			363			—			—			7,084
Equipment sales		—			962			168			—			(290	)		840
Divisional operating expenses		28			4,025			133			—			—			4,186
Intercompany operating expenses		—			5,150			24			—			(5,174	)		—

Total operating expenses		5,765			54,722			5,914			—			(6,694	)		59,707

Gross profit (loss)		(615	)		13,170			1,140			—			1,387			15,082
Selling and administrative expenses		3,801			6,845			369			—			—			11,015

Operating income (loss)		(4,416	)		6,325			771			—			1,387			4,067
Interest expense		6,654			57			—			1,413			—			8,124
Interest income		(18	)		0			(3	)		—			—			(21	)
Intercompany interest		1,413			—			—			(1,413	)		—			—
Equity in loss (income) of subsidiaries		—									2,734			(2,734	)		—

Income (loss) before provision for income tax		(12,465	)		6,268			774			(2,734	)		4,121			(4,036	)
Provision (benefit) for income tax		(1,460	)		(210	)		368			—			—			(1,302	)

Net income (loss)	$	(11,005	)	$	6,478		$	406		$	(2,734	)	$	4,121		$	(2,734	)

Page -18-

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

Brand Intermediate Holdings, Inc.
Condensed Consolidating Statement of Operations
For the Six Months Ended June 30, 2003


																Brand
							Non-			Brand			Adjustments			Intermediate
	Brand			Guarantor			Guarantor			Intermediate			and			Holdings, Inc.
	Services, Inc.			Subsidiaries			Subsidiary			Holdings, Inc.			Eliminations			Consolidated
Revenue:
Labor	$	—		$	140,628		$	4,692		$	—		$	—		$	145,320
Equipment rental		—			36,822			1,109			—			—			37,931
Equipment sales		—			4,396			63			—			(1,027	)		3,432
Intercompany revenue		4,013			21			—			—			(4,034	)		—

Total revenues		4,013			181,867			5,864			—			(5,061	)		186,683

Operating expenses:
Labor		—			115,261			4,337			—			(302	)		119,296
Equipment rental		14,943			2,039			3,039			—			—			20,021
Equipment sales		—			3,470			58			—			(1,204	)		2,324
Divisional operating expenses		152			7,736			226			—			—			8,114
Intercompany operating expenses		—			4,013			21			—			(4,034	)		—

Total operating expenses		15,095			132,519			7,681			—			(5,540	)		149,755

Gross profit (loss)		(11,082	)		49,348			(1,817	)		—			479			36,928
Selling and administrative expenses		8,516			13,967			586			—			—			23,069

Operating income (loss)		(19,598	)		35,381			(2,403	)		—			479			13,859
Interest expense		13,795			1			—			2,346			—			16,142
Interest income		(89	)		(2	)		(14	)		—			—			(105	)
Intercompany interest		2,346			—			—			(2,346	)		—			—
Equity in loss (income) of subsidiaries		—									1,438			(1,438	)		—

Income (loss) before provision for income tax		(35,650	)		35,382			(2,389	)		(1,438	)		1,917			(2,178	)
Provision (benefit) for income tax		(13,866	)		14,153			(1,027	)		—						(740	)

Net income (loss)	$	(21,784	)	$	21,229		$	(1,362	)	$	(1,438	)	$	1,917		$	(1,438	)

Page -19-

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

Brand Intermediate Holdings, Inc.
Condensed Consolidating Statement of Operations
For the Six Months Ended June 30, 2004


															Brand
						Non-			Brand			Adjustments			Intermediate
	Brand			Guarantor		Guarantor			Intermediate			and			Holdings, Inc.
	Services, Inc.			Subsidiaries		Subsidiary			Holdings, Inc.			Eliminations			Consolidated
Revenue:
Labor	$	—		$	130,929	$	7,655		$	—		$	—		$	138,584
Equipment rental		—			32,159		1,367			—			—			33,526
Equipment sales		—			3,244		341			—			(571	)		3,014
Intercompany revenue		10,080			39		—			—			(10,119	)		—

Total revenues		10,080			166,371		9,363			—			(10,690	)		175,124

Operating expenses:
Labor		—			109,565		6,925			—			(2,705	)		113,785
Equipment rental		11,233			2,096		685			—			—			14,014
Equipment sales		—			2,680		186			—			(798	)		2,068
Divisional operating expenses		56			8,015		273			—			—			8,344
Intercompany operating expenses		—			10,080		39			—			(10,119	)		—

Total operating expenses		11,289			132,436		8,108			—			(13,622	)		138,211

Gross profit (loss)		(1,209	)		33,935		1,255			—			2,932			36,913
Selling and administrative expenses		8,343			13,677		710			—			—			22,730

Operating income (loss)		(9,552	)		20,258		545			—			2,932			14,183
Interest expense		13,462			57		—			2,886			—			16,405
Interest income		(88	)		0		(13	)		—			—			(101	)
Intercompany interest		2,886			—		—			(2,886	)		—			—
Equity in loss (income) of subsidiaries		—								1,959			(1,959	)		—

Income (loss) before provision for income tax		(25,812	)		20,201		558			(1,959	)		4,891			(2,121	)
Provision (benefit) for income tax		(8,487	)		8,080		245			—						(162	)

Net income (loss)	$	(17,325	)	$	12,121	$	313		$	(1,959	)	$	4,891		$	(1,959	)

Page -20-

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

Brand Intermediate Holdings, Inc.
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2003


										Brand		Adjustments			Brand Intermediate
	Brand Services,			Guarantor			Non-Guarantor			Intermediate		and			Holdings, Inc.
	Inc.			Subsidiaries			Subsidiary			Holdings, Inc..		Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used for) operating activities	$	24,098		$	1,488		$	(709	)		—	$	541		$	25,418

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(4,403	)		(1,488	)		(127	)		—		—			(6,018	)
Proceeds from sales of property and equipment		796			—			—			—		—			796

Net cash used for investing activities		(3,607	)		(1,488	)		(127	)		—		—			(5,222	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt		(650	)		—			—			—		—			(650	)
Payments on capital lease obligations		(1,043	)		—			—			—		—			(1,043	)

Net cash used for financing activities		(1,693	)		—			—			—		—			(1,693	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		18,798			—			(836	)		—		541			18,503
CASH AND CASH EQUIVALENTS, beginning of period		3,931			—			1,480			—		(594	)		4,817

CASH AND CASH EQUIVALENTS, end of period	$	22,729		$	—		$	644			—	$	(53	)	$	23,320

Page -21-

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

Brand Intermediate Holdings, Inc.
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2004


										Brand		Adjustments			Brand Intermediate
	Brand Services,			Guarantor			Non-Guarantor			Intermediate		and			Holdings, Inc.
	Inc.			Subsidiaries			Subsidiary			Holdings, Inc..		Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used for) operating activities	$	19,750		$	805		$	(1,282	)		—	$	221		$	19,494

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(5,559	)		(766	)		(383	)		—		—			(6,708	)
Proceeds from sales of property and equipment		912			—			—			—		—			912
Payments for acquisitions		(924	)		—			—			—		—			(924	)

Net cash used for investing activities		(5,571	)		(766	)		(383	)		—		—			(6,720	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt		(20,574	)		—			—			—		—			(20,574	)
Payments of deferred financing fees		(677	)		—			—			—		—			(677	)
Payments on capital lease obligations		(330	)		(39	)		—			—		—			(369	)

Net cash used for financing activities		(21,581	)		(39	)		—			—		—			(21,620	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(7,402	)		—			(1,665	)		—		221			(8,846	)
CASH AND CASH EQUIVALENTS, beginning of period		21,154			—			2,236			—		(290	)		23,100

CASH AND CASH EQUIVALENTS, end of period	$	13,752		$	—		$	571			—	$	(69	)	$	14,254

Page -22-

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 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

Page -23-

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.

Results of Operations

Revenue – Total revenue for the three months ended June 30, 2004 decreased by $13.7 million or 15.4% as compared to the similar prior year period. Revenue in the utility capital sector decreased $9.8 million, much of which was anticipated, due to large projects in the Northeast and West Coast that were completed in 2003. Revenue in the Refinery and Chemical sector decreased $5.7 million. This decrease is primarily due to some refineries delaying maintenance work to take advantage of high gasoline prices in the marketplace as well as some work being pulled into the first quarter from the second quarter. First quarter revenues in the refinery sector were very high for this reason as well as some fourth quarter 2003 turnarounds being delayed until the first quarter 2004. Revenues in the commercial and other industrial sectors increased slightly. Total revenue for the six months ended June 30, 2004 decreased by $11.6 million or 6.2% compared to the six months ended June 30, 2003. The biggest factor in the decrease was a $26.7 million decrease in the utility capital sector, much of which was anticipated, due to large projects in the Northeast and West Coast that were completed in 2003. This decrease was partially offset by an increase in the refinery and chemical sector, primarily due to a large number of turnarounds that were completed in the first quarter of 2004.

Gross profit – Gross profit decreased by $2.3 million, or 13.3% in the three months ended June 30, 2004 as compared to the three months ended June 30, 2003. Labor gross profit declined $2.0 million primarily due to a $10.3 million decrease in labor revenues. The percentage of labor gross profit to labor revenues remained relatively flat at 17.9% compared to 18.1%. Equipment rental gross profit declined only $0.3 million, despite a $3.3 million decrease in rental revenue. The primary reason for this is a $3.0 million decrease in depreciation expense that resulted from groups of assets that became fully depreciated at the end of 2003. For the six months ended June 30, 2004, gross profit of $36.9 million was flat with the six months ended June 30, 2003. Labor gross profit declined $1.2 million primarily due to a $6.7 million decrease in labor revenues. The percentage of labor gross profit to labor revenues remained flat at 17.9% for both the six months ended June 30, 2004 and 2003. Equipment rental gross profit increased $1.6 million despite a

Page -24-

$4.4 million decrease in rental revenue. The primary reason for the increase is due to a $6.0 million decrease in depreciation expense that resulted from groups of assets that became fully depreciated at the end of 2003. A slight increase in divisional operating expenses of $0.2 million and a slight decrease in equipment sales gross profit of $0.2 million account for the remainder of the decrease in gross profit.

Selling and administrative expenses – Selling and administrative expenses decreased by $0.6 million and $0.3 million, respectively, in the three- and six-month periods ended June 30, 2004 as compared to the similar prior year periods. For the three-month period the decrease is primarily due to $0.3 of lower depreciation expense and $0.2 million of lower bad debt expense. For the six-month period, the decrease is primarily due to $0.6 million of lower depreciation expense, partially offset by smaller increases in a number of miscellaneous accounts.

Operating income – As a result of the above events, operating income decreased by $1.7 million, or 29.4%, when comparing the three-month period ended June 30, 2004 with the similar prior year period. Operating income increased by $0.3 million, or 2.3%, comparing the six-month period ended June 30, 2004 the similar prior year period.

Interest expense – Interest expense decreased by $0.1 million in the three months ended June 30, 2004 as compared to the three months ended June 30, 2003. This was primarily due to impact of lower senior debt under the credit facility resulting from a $20 million prepayment made on March 31, 2004, partially offset by the compounding effect of interest on the 13% pay-in-kind notes. Interest expense increased by 0.3 million in the six months ended June 30, 2004 as compared to the six months ended June 30, 2003. This was primarily due to the compounding effect of interest on the pay-in-kind notes, partially offset by the lower senior debt level in the second quarter of 2004.

Income tax provision — The income tax benefit of $162 for the six months ended June 30, 2004, represents an effective rate of 8%. This effective rate is the result of the blended net losses at our domestic subsidiaries and net income at our foreign subsidiary. The rate is less than the federal statutory rate of 35% primarily due to permanent tax items, the largest of which is a portion of the interest expense on the 13% Intermediate Notes which is not deductible for tax purposes. For the three months ended June 30, 2004, the Company adjusted its effective tax rate from an expense of 60% to a benefit of 8% due to a revision in the its 2004 forecast from a net income position to a net loss position. This resulted in additional benefit of approximately $0.9 million for the three month period ended June 30, 2004.

Liquidity and Capital Resources

The Company has historically utilized internal cash flow from operations and borrowings under its Credit Facility to fund its operations, capital expenditures and working capital requirements. As of December 31, 2003 and June 30, 2004, the Company had cash of $23.1 million and $14.3 million, respectively.

Page -25-

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 six months ended June 30, 2003 and 2004, capital expenditures were $6.0 million and $6.7 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 letters of credit. The Credit Facility was amended on February 3, 2004. The amendment increased the letter of credit facilities from $20 million to $35 million and lowered the interest rate margin on the term loans by 0.75%. As of June 30, 2004, the Company had no borrowings outstanding under the revolving credit facility and had total outstanding letters of credit of $35.1 million.

The interest rate on the $103.1 million of term loans currently outstanding under the Credit Facility is variable. For the three months and six months ended June 30, 2003, the weighted average interest rate on the term loans was 4.4% and 4.5%, respectively.

We are required to make semi-annual interest payments on our 12%, $150.0 million Senior Subordinated Notes in the amount of $9.0 million in April and October of every year until the Senior Notes mature in October 2012. We are also required to make quarterly interest payments on loans under our Credit Facility, which bears interest at a floating rate based upon either the base rate (as defined in our credit agreement, for base rate loans) or the LIBOR rate (for LIBOR loans) plus a spread of 2.5% to 4.0%, depending on the ratio of our consolidated debt to EBITDA. As of June 30, 2004, the interest rate on our term loans was 4.9%. We are not required to make interest payments on our 13%, $35.0 million Intermediate Notes until 2008, as these notes are pay-in-kind notes.

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 financial ratios become more restrictive over time. The Company received a waiver from compliance for the minimum interest coverage ratio and maximum leverage ratio for the period ended June 30, 2004. The Company projects non-compliance with the aforementioned ratios for the period ended September 30, 2004; however, because the Company has been able to generate significant cash flow, has paid down more than $25 million on the term loans in the past year, and has $14.3 million in cash at June 30, 2004, we believe we will be able to negotiate further waivers or amendments to the Credit Facility, as necessary.

Page -26-

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


	Six Months Ended June 30,
	2003			2004
Net cash provided by (used for):
Operating activities	$	25,418		$	19,494
Investing activities		(5,222	)		(6,720	)
Financing activities		(1,693	)		(21,620	)

Contractual Obligations

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


			Payments due in:
	Total		2004		2005		2006		2007		2008		After 2008
Term Loan (1)	$	103,139	$	103,139	$	—	$	—	$	—	$	—	$	—
Expected Interest Payments on Term Loan (1)		24,634		2,520		5,002		4,951		4,900		4,849		2,412
Senior Notes		150,000		—		—		—		—		—		150,000
Expected Interest Payments on Senior Notes		153,000		9,000		18,000		18,000		18,000		18,000		72,000
Intermediate Notes		43,405		—		—		—		—		—		43,405
Expected Interest Payments on Intermediate Notes		74,237		—		—		—		—		8,657		65,580
Capital Leases		250		58		95		92		5		—		—
Operating Leases		8,064		1,499		2,340		1,910		1,326		676		313
Notes Payable		890		330		244		79		79		79		79

Total Contractual Cash Obligations	$	557,619	$	116,546	$	25,681	$	25,032	$	24,310	$	32,261	$	333,789

(1) The Company received a waiver from compliance for two financial ratio covenants for the period ended June 30, 2004. In accordance with EITF 86-30, the Company is classifying the entire term balance as current; however, it is the Company’s intention to seek additional waivers or amendments, as necessary. The amounts shown in the “Expected Interest Payments on Term Loan” row represent the expected interest payments to be made, at current prevailing interest rates, assuming the Company is able to negotiate additional waivers or amendments, as necessary.

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

Page -27-

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 June 30, 2004, are adequate and that the judgement applied is appropriate, such estimated liabilities could differ materially from what will actually transpire in the future.

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

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

Page -28-

expensed $46,000 and $88,000, respectively, for the three- and six-month periods ended June 30, 2004, recorded in the caption Selling and Administrative expenses.

Acquisitions

On June 1, 2004, the company purchased the assets of Levitator, Inc., a commercial scaffolding company, for an aggregate purchase price of $0.9 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 $0.1 million based upon the allocation of the purchase price. The acquisition was accounted for using the purchase method of accounting, and accordingly has been included in the financial statements from the date of the acquisition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

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

Page -29-

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 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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

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

(b) Reports on Form 8-K

None.

Page -30-


	Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2003 and 2004		3
Consolidated Balance Sheets as of December 31, 2003 and June 30, 2004		4-5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2004		6-7
Notes to the Consolidated Financial Statements		8-22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23-29
Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
Item 4. Controls and Procedures		29
PART II – OTHER INFORMATION
Item 1. Legal Proceedings		30
Item 2. Changes in Securities and Use of Proceeds		30
Item 3. Defaults Upon Senior Securities		30
Item 4. Submission of Matters to a Vote of Security Holders		30
Item 5. Other Information		30
Item 6. Exhibits and Reports on Form 8-K		30
SIGNATURES		31
EXHIBITS		32-37
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
906 Certification of Chief Executive Officer
906 Certification of Chief Financial Officer


	For the Six Months Ended June 30
	2003		2004
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid	$	13,492	$	12,783
Income taxes paid	$	1,028	$	1,367
NON-CASH TRANSACTIONS:
Capital Lease obligations		—		259
Note payable issued for acquisition		—		393


	BRAND INTERMEDIATE HOLDINGS, INC.
Date: August 16, 2004	/s/ John M. Monter
	John M. Monter
	Chief Executive Officer, President



Date: August 16, 2004	/s/ Jeffrey W. Peterson
	Jeffrey W. Peterson
	Chief Financial Officer, Vice President, Finance

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

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

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

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

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