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, 2005

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 333-102511

BRAND INTERMEDIATE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

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

15450 South Outer 40, #270, Chesterfield, MO	63017
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (636) 519-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: [ X] No: [ ]

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

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

Class of Common Stock	Outstanding at April 30, 2005
$.01 Par Value	1,000 shares

INDEX

Page

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2005	3

	Consolidated Balance Sheets as of December 31, 2004 and March 31, 2005	4-5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2005	6-7

	Notes to the Consolidated Financial Statements	8-18

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19-24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	25

Item 2.	Changes in Securities and Use of Proceeds	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	Submission of Matters to a Vote of Security Holders	25

Item 5.	Other Information	25

Item 6.	Exhibits and Reports on Form 8-K	25

SIGNATURES		26

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands)

(Unaudited)

	For the Three Months Ended March 31,
	2004			2005

Revenues:
Labor	$	80,636		$	77,324
Equipment rental		18,093			18,870
Equipment sales		1,606			2,058
Total revenues		100,335			98,252
Operating expenses:
Labor		66,188			63,728
Equipment rental		6,930			6,600
Equipment sales		1,228			1,423
Divisional operating expenses		4,158			4,120
Total operating expenses		78,504			75,871
Gross profit		21,831			22,381
Selling and administrative expenses		11,673			13,097
Non-cash compensation		42			603
Operating income		10,116			8,681
Interest expense		8,281			8,418
Interest income		(80	)		(99	)
Income before provision for income tax		1,915			362
Income tax provision		1,140			285
Net income	$	775		$	77

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, 2004		March 31, 2005 (unaudited)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	14,408	$	12,491
Trade accounts receivable, net of allowance for doubtful accounts of $1,605 in 2004
and $1,928 in 2005		56,639		67,338
Accrued revenue		2,115		7,189
Notes receivable		176		176
Other current assets		8,847		6,871

Total current assets		82,185		94,065

PROPERTY AND EQUIPMENT:
Land		1,283		1,276
Buildings and leasehold improvements		3,518		3,546
Vehicles and other equipment		29,090		29,524
Scaffolding equipment		195,356		201,896

Total property and equipment, at cost		229,247		236,242
Less-Accumulated depreciation and amortization		59,554		64,677

Total property and equipment, net		169,693		171,565

GOODWILL		247,325		247,325

CUSTOMER RELATIONSHIPS		43,794		42,671

OTHER ASSETS AND INTANGIBLES		24,578		24,182

TOTAL ASSETS	$	567,575	$	579,808

(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, 2004			March 31, 2005 (unaudited)
LIABILITIES AND STOCKHOLDER’S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	1,047		$	1,047
Notes payable and capital lease obligations, current portion		350			186
Accounts payable and accrued expenses		37,264			47,513
Deferred revenue		1,514			1,660

Total current liabilities		40,175			50,406
LONG-TERM DEBT		290,467			291,779
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS		427			410
DEFERRED INCOME TAXES		22,546			22,784


STOCKHOLDER’S EQUITY:
Common stock, $0.01 par value, 1,000 shares authorized, issued and outstanding		-			-
Paid-in capital		224,445			225,048
Cumulative translation adjustment		4,007			3,796
Accumulated deficit		(14,492	)		(14,415	)
Total stockholder’s equity		213,960			214,429
Total liabilities and stockholder’s equity	$	567,575		$	579,808

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

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INDEX

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	For the Three Months Ended March 31,
	2004			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	775		$	77
Adjustments to reconcile net income to net cash from Operating activities:
Depreciation and amortization		7,184			6,569
Deferred income taxes		1,015			285
Non-cash interest		1,864			1,949
Non-cash compensation		42			603
Gain on sale of scaffolding equipment		(149	)		(287	)
Changes in operating assets and liabilities:
Trade accounts receivable, net		(15,515	)		(10,699	)
Accrued revenue		(2,120	)		(5,074	)
Notes receivable		172			-
Other current assets		2,918			1,976
Accounts payable and accrued expenses		9,904			10,249
Deferred revenue		49			146
Other		(83	)		(33	)
Net cash flows from operating activities		6,056			5,761

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(4,284	)		(7,750	)
Proceeds from sales of property and equipment		438			515
Net cash flows from investing activities		(3,846	)		(7,235	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt		(20,312	)		(262	)
Payments of deferred financing fees		(677	)		-
Payments on capital lease obligations		(182	)		(181	)
Net cash flows from financing activities		(21,171	)		(443	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(18,961	)		(1,917	)

CASH AND CASH EQUIVALENTS, beginning of period		23,100			14,408

CASH AND CASH EQUIVALENTS, end of period	$	4,139		$	12,491

(Continued on following page)

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INDEX

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	For the Three Months Ended March 31,
	2004		2005
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid	$	1,955	$	1,903
Income taxes paid		122		1,210
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations		259		-

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

Notes to the Consolidated Financial Statements

(Unaudited)

The financial statements included herein for the periods ended March 31, 2004 and 2005 have been prepared by the Company without audit. In the opinion of management, all adjustments have been made which are of a normal recurring nature necessary to present fairly the Company’s financial position as of March 31, 2005, and the results of operations and cash flows for the three months ended March 31, 2004 and 2005. Certain information and footnote disclosures have been condensed or omitted for these periods. The results for interim periods are not necessarily indicative of results for the entire year. Reference is made to the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission.

1.	Organization and Business

Brand Intermediate Holdings, Inc. and its subsidiaries ("Brand") are 100% owned by Brand Holdings LLC (the "LLC:). As of March 31, 2005, the voting equity interests of the LLC are owned 73.0% by J.P. Morgan Partners and its affiliates ("JPMP") and 27.0% by other equity investors on a fully diluted basis. Brand Services, Inc. is a wholly owned subsidiary of Brand Intermediate Holdings, Inc. All references to "the Company", "we", "us", or "our" mean Brand Intermediate Holdings, Inc. and its subsidiaries.

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

2.	Summary of Significant Accounting Policies

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

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

3.	Stock Based Employee Compensation

Effective January 1, 2004, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". The Company selected the modified prospective transition method under the provisions of SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," which requires expensing options prospectively, beginning in the year of adoption. The Company expensed $42 and $603 for the three-month periods ended March 31, 2004 and 2005, respectively, which is recorded in the caption Non-cash compensation.

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4.	Accrued Revenue

Accrued revenue represents work performed which either due to billing cycles, contract stipulations or lacking contractual documentation requirements, could not be billed. Substantially all unbilled amounts are expected to be billed and collected within one year.

5.	Debt and Borrowing Arrangements

At December 31, 2004 and March 31, 2005, long-term debt consisted of the following (in thousands):

	December 31, 2004		March 31, 2005 (unaudited)
Credit Facility, due 2009	$	102,615	$	102,353
12% Senior Subordinated Notes, due 2012		150,000		150,000
13% Intermediate Subordinated Notes, due 2013		46,249		47,696
		298,864		300,049
Less
Current portion		1,047		1,047
Unamortized discount		7,350		7,223
	$	290,467	$	291,779

For the three months ended March 31, 2004, the weighted-average interest rate of loans outstanding under the Credit Facility was 4.6%. For the three months ended March 31, 2005, the weighted-average interest rate of loans outstanding under the Credit Facility was 5.8%.

Substantially all of the assets of the Company are pledged as collateral for the Credit Facility. The Credit Facility contains financial and operating covenants, including among other things, that the Company maintain certain financial ratios, and imposes limitations on the Company’s ability to make capital expenditures, to incur indebtedness, and to pay dividends. The Company was in compliance with all loan covenants at March 31, 2005.

6.	Deferred Revenue

Deferred revenue represents amounts collected from customers at a faster rate than work was performed on these contracts. Substantially all of the costs related to these amounts will be incurred within one year.

7.	Commitments and Contingencies

In the ordinary course of conducting its business, the Company becomes involved in various pending claims and lawsuits. These primarily relate to employee matters. The outcome of these matters is not presently determinable. However, in the opinion of management, based on the advice of legal counsel, the resolution of these matters is not anticipated to have a material adverse effect on the financial position or results of operations of the Company.

8.	Comprehensive Income

For the three months ended March 31, 2004 and 2005, comprehensive income/(loss) was $0.6 million and $(0.1) million, respectively. The difference between comprehensive income and net income is entirely related to currency translation.

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9.	Income Taxes

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The effective tax rate of 78.8% for the three months ended March 31, 2005 is greater than the federal statutory rate of 34%, primarily due to the impact of a portion of the interest on the 13% Intermediate Notes not being deductible and state income taxes. The provision for income taxes for the three months ended March 31, 2004 and 2005, is principally attributable to deferred income taxes.

10.	Acquisitions

On June 1, 2004, the Company purchased the assets of Levitator, Inc., a commercial scaffolding company, for an aggregate purchase price of approximately $1.0 million in cash and a $0.4 million note payable. The price was allocated to the assets and liabilities assumed, based on relative fair values. In connection with the acquisition, the Company recorded goodwill of approximately $0.2 million based upon the allocation of the purchase price. The acquisition was accounted for using the purchase method of accounting, and accordingly has been included in the financial statements from the date of the acquisition.

11. New Accounting Standards

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. We expect to adopt Statement 123(R) on January 1, 2006.

The Company plans to adopt Statement 123(R) using the modified-prospective method.

The Company adopted the fair-value-based method of accounting for share-based payments effective January 1, 2004 using the "modified prospective method" described in FASB Statement No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. Currently, the Company uses the minimal value method of the Black-Scholes formula to estimate the value of stock options granted to employees. The minimal value method is not allowable under Statement 123(R), and the Company is currently researching other acceptable methods. The Company does not anticipate that adoption of Statement 123(R) will have a material impact on its results of operations or its financial position.

12.	Supplemental Consolidating Information

The 12% Senior Subordinated Notes, which are an obligation of Brand Services, Inc., are fully and unconditionally guaranteed on a senior subordinated, joint, and several basis by the other domestic subsidiaries of Brand Intermediate Holdings, Inc. (which are all 100% owned by Brand Intermediate Holdings, Inc.) and by Brand Intermediate Holdings, Inc. Supplemental consolidating information of Brand Intermediate Holdings, Inc., Brand Services, Inc., the guarantor subsidiaries, and its foreign non-guarantor subsidiary is presented below. Investments in subsidiaries are presented on the equity method of accounting. Separate financial statements are not provided because management has concluded that the summarized financial information below provides sufficient information to allow investors to separately determine the nature of the assets held by and the operations of the guarantor and non-guarantor subsidiaries.

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BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIRIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Assets	Brand Services, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiary		Brand Intermediate Holdings, Inc.		Adjustments and Eliminations			Brand Intermediate Holdings, Inc. Consolidated
Current Assets:
Cash and cash equivalents	$	13,336	$	—	$	1,525	$	—	$	(453	)	$	14,408
Trade accounts receivable		—		52,626		4,013		—		—			56,639
Accrued revenue		—		1,967		148		—		—			2,115
Notes receivable, current portion		15		161		—		—		—			176
Other current assets		2,865		5,614		368		—		—			8,847
Due from affiliates		31,648		1,649		-		—		(33,297	)		—
Total current assets		47,864		62,017		6,054		—		(33,750	)		82,185
Property and Equipment:
Land		—		866		417		—		—			1,283
Buildings and leasehold improvements		13		3,080		425		—		—			3,518
Vehicles and other equipment		6,726		17,866		4,498		—		—			29,090
Scaffolding equipment		179,859		—		15,497		—		—			195,356
Total property and equipment, at cost		186,598		21,812		20,837		—		—			229,247
Less accumulated depreciation and amortization		41,650		11,292		6,612		—		—			59,554
Total property and equipment, net		144,948		10,520		14,225		—		—			169,693
Due from affiliates		9,750		—		—		46,752		(56,502	)		—
Deferred tax asset		—		—		—		2,375		(2,375	)		—
Investment in subsidiaries		—		—		—		206,481		(206,481	)		—
Goodwill		247,325		—		—		—		—			247,325
Customer Relationships		43,794		—		—		—		—			43,794
Intangibles and other assets		23,671		—		—		907		—			24,578
Total assets	$	517,352	$	72,537	$	20,279	$	256,515	$	(299,108	)	$	567,575

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INDEX

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Brand Intermediate Holdings, Inc.
Condensed Consolidating Balance Sheet
December 31, 2004 (continued)
Liabilities and Stockholder’s Equity (Deficit)	Brand Services, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiary			Brand Intermediate Holdings, Inc.		Adjustments and Eliminations			Brand Intermediate Holdings, Inc. Consolidated
Current Liabilities:
Revolving loan	$	—	$	—	$	—		$	—	$	—		$	—
Current maturities of long-term debt		1,047		—		—			—		—			1,047
Notes payable and capital lease obligations, current portion		265		85		—			—		—			350
Accounts payable and accrued expenses		27,532		6,397		3,788			—		(453	)		37,264
Deferred revenue		—		1,514		—			—		—			1,514
Due to affiliates		1,649		25,109		6,539			—		(33,297	)		—
Total current liabilities		30,493		33,105		10,327			—		(33,750	)		40,175
Long-term debt		247,912		—		—			42,555		—			290,467
Notes payable and capital lease obligations		336		91		—			—		—			427
Deferred income taxes		21,882		4		3,035			—		(2,375	)		22,546
Due to affiliates		46,752		—		9,750			—		(56,502	)		—
Total stockholder’s equity (deficit)		169,977		39,337		(2,833	)		213,960		(206,481	)		213,960
Total liabilities and stockholder’s equity (deficit)	$	517,352	$	72,537	$	20,279		$	256,515	$	(299,108	)	$	567,575

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INDEX

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Brand Intermediate Holdings, Inc.
Condensed Consolidating Balance Sheet
March 31, 2005

Assets	Brand Services, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiary		Brand Intermediate Holdings, Inc.		Adjustments and Eliminations			Brand Intermediate Holdings, Inc. Consolidated
Current Assets:
Cash and cash equivalents	$	11,842	$	-	$	914	$	-	$	(265	)	$	12,491
Trade accounts receivable		-		62,877		4,461		-		-			67,338
Accrued revenue		-		7,145		44		-		-			7,189
Notes receivable, current portion		15		161		-		-		-			176
Other current assets		2,942		3,674		255		-		-			6,871
Due from affiliates		35,792		1,972		-		-		(37,764	)		-
Total current assets		50,591		75,829		5,674		-		(38,029	)		94,065
Property and Equipment:
Land		-		866		410		-		-			1,276
Buildings and leasehold improvements		13		3,115		418		-		-			3,546
Vehicles and other equipment		6,938		18,172		4,414		-		-			29,524
Scaffolding equipment		186,302		-		15,594		-		-			201,896
Total property and equipment, at cost		193,253		22,153		20,836		-		-			236,242
Less accumulated depreciation and amortization		45,978		11,911		6,788		-		-			64,677
Total property and equipment, net		147,275		10,242		14,048		-		-			171,565
Due from affiliates		9,750		-		-		48,267		(58,017	)		-
Deferred tax asset		-		-		-		2,375		(2,375	)		-
Investment in subsidiaries		-		-		-		207,234		(207,234	)		-
Goodwill		247,325		-		-		-		-			247,325
Customer relationships		42,671		-		-		-		-			42,671
Intangibles and other assets		23,289		-		-		893		-			24,182
Total assets	$	520,901	$	86,071	$	19,722	$	258,769	$	(305,655	)	$	579,808

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INDEX

BRAND INTERMEDIATE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Brand Intermediate Holdings, Inc.
Condensed Consolidating Balance Sheet
March 31, 2005

Liabilities and Stockholder’s Equity (Deficit)	Brand Services, Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiary			Brand Intermediate Holdings, Inc.		Adjustments and Eliminations			Brand Intermediate Holdings, Inc. Consolidated
Current Liabilities:
Current maturities of long-term debt	$	1,047	$	-	$	-		$	-	$	-		$	1,047
Notes payable and capital lease obligations, current portion		100		86		-			-		-			186
Accounts payable and accrued expenses		35,945		9,487		2,346			-		(265	)		47,513
Deferred revenue		-		1,631		29			-		-			1,660
Due to affiliates		1,972		28,498		7,294			-		(37,764	)		-
Total current liabilities		39,064		39,702		9,669			-		(38,029	)		50,406
Long-term debt		247,723		-		-			44,056		-			291,779
Notes payable and capital lease obligations		342		68		-			-		-			410
Deferred income taxes		22,045		-		3,114			-		(2,375	)		22,784
Due to affiliates		48,267		-		9,750			-		(58,017	)		-

Total stockholder’s equity (deficit)		163,460		46,301		(2,811	)		214,713		(207,234	)		214,429
Total liabilities and stockholder’s equity (deficit)	$	520,901	$	86,071	$	19,722		$	258,769	$	(305,655	)	$	579,808

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INDEX

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 Services, Inc.			Guarantor Subsidiaries		Non-Guarantor Subsidiary			Brand Intermediate Holdings, Inc.			Adjustments and Eliminations			Brand Intermediate Holdings, Inc. Consolidated
Revenue:
Labor	$	-		$	78,816	$	1,820		$	-		$	-		$	80,636
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		4,500			6,832		341			-			-			11,673
Non-cash compensation		42			-		-			-			-			42
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

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INDEX

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, 2005
	Brand Services, Inc.			Guarantor Subsidiaries		Non-Guarantor Subsidiary			Brand Intermediate Holdings, Inc.			Adjustments and Eliminations			Brand Intermediate Holdings, Inc. Consolidated
Revenue:
Labor	$	-		$	72,876	$	4,448		$	-		$	-		$	77,324
Equipment rental		-			18,016		854			-			-			18,870
Equipment sales		-			2,599		79			-			(620	)		2,058
Intercompany revenue		5,495			30		-			-			(5,525	)		-
Total revenues		5,495			93,521		5,381			-			(6,145	)		98,252
Operating expenses:
Labor					60,898		4,054			-			(1,224	)		63,728
Equipment rental		4,768			1,452		380			-			-			6,600
Equipment sales		-			2,169		47			-			(793	)		1,423
Divisional operating expenses		19			3,949		152			-			-			4,120
Intercompany operating expenses		-			5,495		30			-			(5,525	)		-
Total operating expenses		4,787			73,963		4,663			-			(7,542	)		75,871
Gross profit		708			19,558		718			-			1,397			22,381
Selling and administrative expenses		5,620			7,112		365			-			-			13,097
Non-cash compensation		603					-			-			-			603
Operating income (loss)		(5,515	)		12,446		353			-			1,397			8,681
Interest expense		6,902			1		-			1,515			-			8,418
Interest income		(93	)		-		(6	)		-			-			(99	)
Intercompany interest		1,515			-		-			(1,515	)		-			-
Equity in loss (income) of subsidiaries		-			-		-			(77	)		77			-
Income (loss) before provision for income tax		(13,839	)		12,445		359			77			1,320			362
Provision (benefit) for income tax		(4,478	)		4,636		127			-			-			285

Net income (loss)	$	(9,361	)	$	7,809	$	232		$	77		$	1,320		$	77

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INDEX

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 Services, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiary			Brand Intermediate Holdings, Inc.		Adjustments and Eliminations			Brand Intermediate Holdings, Inc. Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:

Net cash provided by (used for) operating activities	$	6,482		$	423		$	(927	)	$	-	$	78		$	6,056

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

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INDEX

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, 2005

	Brand Services, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiary			Brand Intermediate Holdings, Inc.		Adjustments and Eliminations			Brand Intermediate Holdings, Inc. Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:

Net cash provided by (used for) operating activities	$	5,339		$	502		$	(268	)	$	-	$	188		$	5,761

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment		(6,921	)		(486	)		(343	)		-		-			(7,750	)
Proceeds from sales of property and equipment		515			-			-			-		-			515
Investment in subsidiaries		-			-			-			-		-			-
Net cash used for investing activities		(6,406	)		(486	)		(343	)		-		-			(7,235	)

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments of long-term debt		(262	)		-			-			-		-			(262	)
Payments of deferred financing fees		-			-			-			-		-			-
Payments on capital lease obligations		(165	)		(16	)		-			-		-			(181	)
Net cash provided by/(used for) financing activities		(427	)		(16	)		-			-		-			(443	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(1,494	)		-			(611	)		-		188			(1,917	)

CASH AND CASH EQUIVALENTS, beginning of period		13,336			-			1,525			-		(453	)		14,408

CASH AND CASH EQUIVALENTS, end of period	$	11,842		$	-		$	914		$	-	$	(265	)	$	12,491

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The matters discussed in this Form 10-Q of Brand Intermediate Holdings, Inc. and subsidiaries (the "Company") contain forward looking statements that involve a number of risks and uncertainties. A number of factors could cause actual results, performance, achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, the competitive environment in the industrial and commercial scaffolding industry in general and in the Company’s specific market areas; changes in prevailing interest rates and the availability of and terms of financing to fund the anticipated growth of the Company’s business; inflation; changes in costs of goods and services; economic conditions in general and in the Company’s specific market areas; demographic changes; changes in or failure to comply with federal, state and/or local government regulations; liability and other claims asserted against the Company; changes in operating strategy or development plans; the ability to attract and retain qualified personnel; the significant indebtedness of the Company; labor disturbances; changes in the Company’s acquisition and capital expenditure plans; and other factors referenced herein. The forward looking statements contained herein reflect the Company’s current beliefs and specific assumptions with respect to future business decisions and are based on information currently available. Accordingly, the statements are subject to significant risks, uncertainties and contingencies, which could cause the Company’s actual operating results, performance or business prospects to differ from those expressed in, or implied by, these statements.

The following discussion and analysis should be read in conjunction with the attached condensed consolidated financial statements and notes thereto.

Overview

The Company is the one of the largest North American providers of industrial scaffolding services which facilitate access to tall structures for maintenance, turnarounds and capital projects, principally in the refining, petrochemical, chemical, utility and pulp and paper industries. The Company provides turnkey services, which include equipment rental, labor for the erection and dismantlement of the scaffolding and scaffolding design services. The Company also provides scaffolding services to the commercial market (primarily nonresidential construction and renovation) and sells a small amount of scaffolding.

The Company typically provides on-going maintenance services under long-term contracts; the duration of these contracts is usually one to five years. Turnarounds occur every one to four years depending on the industry and the type of turnaround being performed. Although some turnarounds may be postponed for a period of time, they are a necessary component of maintaining industrial facilities and are required to ensure the safe and efficient operation of such facilities. While the postponement of scheduled turnarounds causes fluctuations in the Company’s quarterly and annual results, the Company believes the necessity for on-going maintenance and turnarounds provides a stable, recurring revenue base.

The Company’s business is seasonal. End-use industries such as the refining and utility industries experience increased demand for their products during the summer months. Consequently, turnarounds are generally scheduled during the first and fourth quarters of the year.

The Company has in the past completed strategic acquisitions and it intends to continue to pursue complementary acquisitions where significant consolidation savings and economies of scale can be achieved. The scaffolding industry is characterized by single-office or regional companies, many of which are undercapitalized and have limited scaffolding inventories. The Company intends to focus its acquisition strategy on companies that have an expertise in a certain industry or scaffolding applications.

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Brand Intermediate Holdings, Inc. and its subsidiaries ("Brand") are 100% owned by Brand Holdings LLC (the "LLC"). As of March 31, 2005, the voting equity interests of the LLC are owned 73.0% by J.P. Morgan Partners and its affiliates ("JPMP") and 27.0% by other equity investors on a fully diluted basis. Brand Services, Inc. is a wholly owned subsidiary of Brand Intermediate Holdings, Inc. and its subsidiaries.

Results of Operations

Revenue - Total revenue decreased by 2.1%, to $98.3 million from $100.3 million, for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004. Labor revenues decreased by $3.3 million for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004, offset by increases in equipment rental revenue and equipment sales revenue of $0.8 million and $0.4 million, respectively. Overall, revenue decreased primarily due to a $11.2 million decrease in the refinery and chemical sector due to an unusually large number of turnarounds in the refinery and chemical sector in the first quarter 2004. This was partially offset by increases in the other industrial and commercial sectors. The revenue mix shifted slightly more towards equipment rental from labor primarily because commercial and other industrial jobs tend to have a higher percentage of rental revenue than refinery jobs.

Gross Profit - Gross profit increased by $0.6 million, or 2.5%, for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004. Labor gross profit decreased $0.9 million for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004, primarily due to the $3.3 million decrease in labor revenues. The percentage of labor gross profit to labor revenue decreased slightly to 17.6% for the three months ended March 31, 2005 compared to 17.9% for the three months ended March 31, 2004. Equipment rental gross profit increased by $1.1 million for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004. This increase is primarily due to the $0.8 million increase in rental revenue and a $0.6 million decrease in depreciation expense due to assets that became fully depreciated in 2004. Sales gross profit increased $0.3 million, primarily due to a $0.45 million increase in sales revenue.

Selling and administrative expenses - Selling and administrative expenses increased by $1.4 million for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004. Higher salaries and benefit expenses account for approximately $0.5 million of the increase, while higher professional fees related to tax, audit, recruiting and legal account for approximately $0.7 million of the increase. The remainder of the increase is due to small increases in a number of miscellaneous accounts.

Non-cash compensation - Non-cash compensation increased by $0.6 million for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004. The primary reason for the increase is due to Class A and B unit awards granted to the Company’s new CEO, who was hired effective January 1, 2005, as part of his employment agreement.

Operating income - As a result of the above events, operating income decreased by $1.4 million, or 14.2%, for the three months ended March 31, 2005 as compared to the three months ended March 31, 2004.

Interest expense - Interest expense increased by $0.1 million for the three months ended March 31, 2005 compared to the three months ended March 31, 2004, primarily due to the compounding effect of interest on the 13% Intermediate pay-in-kind notes. The impact of higher average interest rates on the Credit Facility was offset by the impact of a $20 million principal prepayment that was made at the end of March 2004.

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INDEX

Income tax provision - The income tax provision of $0.3 million for the three months ended March 31, 2005, represents an effective rate of 78.7%, which is greater than the federal statutory rate of 34% primarily due to a portion of the interest on the pay in kind Intermediate Notes not being deductible for tax purposes and state income taxes. This rate is higher than the first quarter 2004 rate of 59.5%, primarily because pre-tax income was lower in first quarter 2005; therefore, the pay in kind interest permanent difference had a greater percentage impact in 2005.

Liquidity and Capital Resources

The Company has historically utilized internal cash flow from operations and borrowings under its credit facility to fund its operations, capital expenditures and working capital requirements. As of December 31, 2004 and March 31, 2005, the Company had working capital of $42.0 million and $43.7 million and cash of $14.4 million and $12.5 million, respectively.

The Company believes that its existing working capital, borrowings available under its Credit Facility and internal cash flow from operations should provide sufficient resources to support current business activities. To the extent the Company accelerates its growth plans, consummates acquisitions or has lower than anticipated sales or increases in expenses, it may also need to raise additional capital. In particular, increased working capital needs occur whenever the Company consummates acquisitions or experiences strong incremental demand.

One of the Company’s major uses of cash is capital expenditures. The Company’s capital expenditure requirements are comprised of maintenance and expansion expenditures. The Company’s maintenance capital expenditure requirements are generally for scaffolding planks and other items used in the business, such as trucks and equipment. Expansion capital expenditures are for new scaffolding and vehicles, are discretionary and vary annually based on the Company’s level of scaffolding rental activity and management’s growth expectations. During the three months ended March 31, 2004 and 2005, capital expenditures were $4.3 million and $7.8 million, respectively.

Our Credit Facility (the "Credit Facility") provides for $130.0 million of term loans, a $50.0 million revolving loan facility and $35.0 million letter of credit facilities. Up to $20.0 million of the $50.0 million revolving loan facility may be used for additional letters of credit. As of March 31, 2005, the Company had no borrowings outstanding under the revolving credit facility and had total outstanding letters of credit of $36.6 million.

The interest rate on the term loans under the Credit Facility is variable. For the three months ended March 31, 2005, the weighted average interest rate on the term loans was 5.8%.

We are required to make semi-annual interest payments on our 12%, $150.0 million Senior Subordinated Notes in the amount of $9.0 million in April and October of every year until the Senior Notes mature in October 2012. We are also required to make quarterly interest payments on loans under our Credit Facility, which bears interest at a floating rate based upon either the base rate (as defined in our credit agreement, for base rate loans) or the LIBOR rate (for LIBOR loans) plus a spread of 1.75% to 3.25%, depending on the ratio of our consolidated debt to EBITDA. As of March 31, 2005, the interest rate on our term loans was 6.1%. We are not required to make interest payments on our 13%, Intermediate Notes, until 2008 as these are pay-in-kind notes.

The Credit Facility requires financial and operating covenants, including among other things, that the Company maintain certain financial ratios, and imposes limitations on the Company’s ability to make capital expenditures, to incur indebtedness, and to pay dividends. The Company was in compliance with all loan covenants at March 31, 2005.

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INDEX

A summary of the sources and uses of cash for the three months ended March 31, 2004 and 2005, follows:

	Three Months Ended
	March 31,
	2004			2005
Net cash provided by (used for):
Operating activities	$	6,056		$	5,761
Investing activities		(3,846	)		(7,235	)
Financing activities		(21,171	)		(443	)

Contractual Obligations

The following is a summary of contractual cash obligations as of March 31, 2005 (dollars in thousands):

Payments due in:

	Total		2005		2006		2007		2008		2009		After 2009
Term Loan	$	102,353	$	785	$	1,047	$	1,047	$	1,047	$	98,427	$	-
Expected Interest Payments on Term Loan (1)		25,258		4,649		6,144		6,080		6,016		2,369		-
Senior Notes		150,000		-		-		-		-		-		150,000
Expected Interest Payments on Senior Notes		144,000		18,000		18,000		18,000		18,000		18,000		54,000
Intermediate Notes		47,696		-		-		-		-		-		47,696
Expected Interest Payments on Intermediate Notes		70,194		-		-		-		8,689		8,689		52,816
Capital Leases		169		72		92		5		-		-		-
Operating Leases		8,452		2,170		2,529		1,940		1,175		557		81
Notes Payable		421		84		84		84		84		85		-
Total Contractual Cash Obligations	$	548,543	$	25,760	$	27,896	$	27,156	$	35,011	$	128,127	$	304,593

(1)

The interest rate on the Term Loan is floating. For purposes of this schedule we are using the March 31, 2005 interest rate of 6.08% for all periods. Also, we have the option to make voluntary prepayments on the Term Loan and are required by the credit agreement to make prepayments equal to 50% of the free cash flow generated in each year as defined in the Credit Agreement. For purposes of this schedule we have not attempted to estimate what, if any, prepayments might be made throughout the life of the agreement.

Critical Accounting Policies

Certain of our accounting policies as discussed below require the application of significant judgement by management in selecting the appropriate assumptions for calculating amounts to record in our financial statements. By their nature, these judgements are subject to an inherent degree of uncertainty.

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

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INDEX

As part of our ongoing business, we make payments for workers’ compensation and health benefit claims. We have purchased insurance coverage for large claims. Our workers’ compensation and health benefit liabilities are developed using actuarial methods based upon historical data for payment patterns, cost trends, utilization of healthcare services and other relevant factors. These estimates take into account incurred but not reported (IBNR) claims. While we believe our liabilities for workers’ compensation, general liability, automobile, and health benefit claims of $14.9 million as of March 31, 2005, are adequate and that the judgement applied is appropriate, such estimated liabilities could differ materially from what will actually transpire in the future.

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

The Company accounts for its goodwill and tradenames in accordance with SFAS No. 142, which requires the Company to test goodwill and tradenames for impairment annually and whenever events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. For purposes of applying the provisions, the Company has determined that it will perform its impairment analysis on a consolidated enterprise level. Because quoted market prices do not exist for the Company, management uses the present value of expected future cash flows to estimate fair value. Management must make significant judgements and estimates about future conditions to estimate future cash flows. Unforeseen events and changes in circumstances and market conditions including general economic and competitive conditions, could result in significant changes in those estimates and material charges to income.

Change in Accounting Principle

Effective January 1, 2004, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". The Company selected the modified prospective transition method under the provisions of SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," which requires expensing options prospectively, beginning in the year of adoption. The Company expensed $603 and $42 for the three-month periods ended March 31, 2005 and 2004, respectively, recorded in the caption Non-cash compensation.

Acquisitions

On June 1, 2004, the Company purchased the assets of Levitator, Inc., a commercial scaffolding company, for an aggregate purchase price of $1.0 million in cash and a $0.4 million note payable. The price was allocated to the assets and liabilities assumed, based on relative fair values. In connection with the acquisition, the Company recorded goodwill of $0.2 million based upon the allocation of the purchase price. The acquisition was accounted for using the purchase method of accounting, and accordingly has been included in the financial statements from the date of the acquisition.

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New Accounting Standards

The Company plans to adopt Statement 123(R) using the modified-prospective method.

The Company adopted the fair-value-based method of accounting for share-based payments effective January 1, 2004 using the "modified prospective method" described in FASB Statement No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. Currently, the Company uses the minimal value method of the Black-Scholes formula to estimate the value of stock options granted to employees. The minimal value method is not allowable under Statement 123(R), and the company is currently researching other acceptable methods. The Company does not anticipate that adoption of Statement 123(R) will have a material impact on its results of operations or its financial position.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to interest rate risk related to changes in interest rates on its variable rate debt. At March 31, 2005, the Company held approximately $300.0 million of long-term debt, with approximately $102.4 million subject to variable interest rates based upon LIBOR plus an applicable margin. If interest rates increased by 100 basis points, annualized cash interest expense would increase by approximately $1.0 million. This analysis does not reflect the effect that interest rates would have on other items, such as new borrowings nor the favorable impact declining rates would have on cash interest expense. The Company did not have any derivative financial instruments in place at December 31, 2004.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the quarter covered by this report. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the company's disclosure controls and procedures are effective to ensure that information required to be disclosed by our company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no changes in the internal control over financial reporting that occurred during the first quarter of 2005 that have materially affected, or are likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

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

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

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

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

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SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	BRAND INTERMEDIATE HOLDINGS, INC.

Date: May 11, 2005	By:	/s/ Paul T. Wood
		Chief Executive Officer and President


Date: May 11, 2005	By:	/s/ Anthony A. Rabb
		Chief Financial Officer and Vice President, Finance

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