10-Q 1 c58370e10-q.txt FORM 10-Q 1 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 September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- -------------- Commission file number 333-56813 BRAND SERVICES, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3909681 (State or other jurisdiction of incorporation or (I.R.S. employer organization) 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 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 October 31, 2000 $.01 Par Value 100 shares 2 INDEX

~~Three~~Page ~~Months~~PART ~~Ended~~I ~~Six Months Ended June 30 June 30 (unaudited) (unaudited)~~ --~~-------------------------------------------------------------~~ ~~2000~~FINANCIAL ~~1999~~INFORMATION ~~2000~~Item ~~1999~~1. ~~---------------------------------------------------------------~~Financial ~~Revenue~~Statements ~~.............................................~~Consolidated $Statements ~~69,086~~of $Operations ~~53,936~~for $the ~~136,896~~Three $Months ~~113,063~~and ~~Operating~~Nine ~~expenses~~Months ~~..................................~~Ended ~~53,167~~September 4130,~~937~~ ~~104,718~~2000 ~~87,767~~and ~~---------~~1999 ~~---------~~2 ~~---------~~Consolidated ~~---------~~Balance ~~Gross~~Sheets ~~profit~~at ~~......................................~~September 1530,~~919~~ ~~11,999~~2000 ~~32,178 25,296 Selling~~ and ~~administrative~~December ~~expenses ................. 9~~31,~~334~~ ~~8,081~~1999 ~~18,324 16,016 --------- --------- --------- --------- Operating income .................................. 6,585~~ 3~~,918 13,854 9,280 Interest expense ....................................~~ -4~~,813~~ ~~4,574~~Consolidated ~~9,517~~Statements ~~9,053~~of ~~Interest~~Cash ~~income~~Flows ~~.....................................~~for ~~(3)~~the ~~(3)~~Nine ~~(30)~~Months ~~(40)~~Ended ~~---------~~September ~~--------- --------- --------- Pretax income ..................................... 1~~30,~~775~~ ~~(653)~~2000 ~~4,367~~and ~~267~~1999 ~~Provision for income tax ............................~~ 5--6 --Notes --to --Consolidated ~~---------~~Financial ~~---------~~Statements 7-~~--------~~9 ~~---------~~Item ~~Net income~~ 2.~~.......................................~~ ~~1,775~~Management's ~~(653)~~Discussion ~~4,367~~and ~~267~~Analysis ~~Less accretion~~ of ~~preferred~~Financial ~~stock~~Condition ~~dividends~~and ~~.........~~Results ~~(1,555)~~of ~~(1,349)~~Operations ~~(3,056) (2,651)~~ 10-~~--------~~13 ~~---------~~PART ~~---------~~II --~~-------~~ ~~Net~~OTHER ~~income(loss)applicable~~INFORMATION toItem ~~common stock~~ 6.~~.......~~ ~~$ 220 $~~ (~~2,002~~a) $Exhibits ~~1,311~~14 $ (~~2,384~~b) ~~=========~~Reports ~~=========~~on ~~=========~~Form ~~=========~~8-K SIGNATURES 14

Page -1- 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BRAND SERVICES, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands)

~~June~~Three Months Ended Nine Months Ended September 30, ~~2000~~September ~~December~~30 (unaudited) ~~31,~~(unaudited) ~~1999~~ --------------------------------------------------- ~~ASSETS~~2000 ~~CURRENT~~1999 ~~ASSETS:~~2000 ~~Cash~~1999 ~~and~~------------ ~~cash~~------------ ~~equivalents~~------------ ----------- Revenue .......................................... $ 157,~~195~~758 $ ~~244~~44,509 ~~Trade~~$ ~~accounts receivable~~194,654 ~~net of allowance for doubtful accounts:~~ $~~893~~ ~~and~~157,572 ~~$770~~Operating expenses ................................. 4543,~~116~~295 3734,~~346~~538 ~~Costs~~148,013 ~~and~~122,305 ~~estimated~~--------- ~~earnings~~--------- in--------- ~~excess~~--------- ofGross ~~billings~~profit ~~on uncompleted contracts~~ ...................................~~......~~ 214,~~411~~463 19,~~786~~971 ~~Notes~~46,641 ~~receivable~~35,267 ~~current~~Selling ~~portion~~and ~~..................................~~administrative ~~300~~expenses ~~194 Other current assets~~ ..............~~.................................~~ 49,~~596~~752 37,~~225~~544 28,076 23,560 --------- --------- ~~Total current assets ........................................... 53,618 42,795~~ --------- --------- ~~PROPERTY~~Operating ~~AND~~income ~~EQUIPMENT: Land~~ ...............................~~................................~~ 14,~~655~~711 12,~~652~~427 ~~Buildings .......................................................... 2~~18,~~944~~565 211,~~829~~707 ~~Vehicles~~Interest ~~and~~expense ~~other equipment~~ .................................~~......~~ 165,~~204~~673 174,~~634~~419 ~~Scaffolding equipment .............................................. 209~~15,~~296~~190 ~~184~~13,~~152~~472 ~~Leasehold~~Interest ~~improvements~~income ..................................~~...........~~ ~~874~~(55) ~~704~~(13) (85) (53) --------- --------- ~~Total~~--------- ~~property~~--------- ~~and~~Pretax ~~equipment,~~income ~~at cost~~ .................................. ~~230~~(907) (1,~~973~~979) ~~206~~3,~~971~~460 ~~Less-Accumulated~~(1,712) ~~depreciation~~Provision ~~and~~for ~~amortization~~income tax ......................... ~~56,235~~-- ~~45,118~~-- -- -- --------- --------- ~~Total property and equipment, net .............................. 174,738 161,853~~ --------- --------- ~~OTHER~~Net ~~ASSETS:~~income ~~Intangible assets, net~~ .....................................~~........~~ ~~3,652~~(907) ~~968 Deferred financing costs~~(1,979) ~~net ...................................... 4~~3,~~417~~460 4(1,~~779~~712) ~~Notes~~Less ~~receivable,~~accretion ~~net~~ of ~~current~~preferred ~~portion~~stock dividends ......~~.....................~~ ~~374~~(1,574) ~~477~~(1,398) (4,630) (4,048) --------- --------- ~~Total other assets ............................................. 8,443 6,224~~ --------- --------- ~~TOTAL~~Net ~~ASSETS~~income(loss)applicable to common stock .....~~....................................................~~ ~~236~~$ (2,~~799~~481) ~~210~~$ (3,~~872~~377) $ (1,170) $ (5,760) ========= ========= ========= =========

The accompanying notes are an integral part of the consolidated financial statements. Page -2- 4 BRAND SERVICES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)

~~June~~September 30, 2000 December (~~Unaudited~~unaudited) 31, 1999 ----------- ------------~~----~~ ~~LIABILITIES~~ASSETS ~~AND STOCKHOLDER'S EQUITY (DEFICIT)~~ CURRENT ~~LIABILITIES~~ASSETS: ~~Revolving~~Cash ~~loan~~and cash equivalents ........................ $ 685 $ 244 Trade accounts receivable, net of allowance for doubtful accounts: $541 and $770 ...............~~.................~~ $40,122 1737,~~300~~346 $Costs ~~3,960~~and ~~Current~~estimated ~~maturities~~earnings in excess of ~~long-term~~billings ~~debt~~on uncompleted contracts .......................~~...........~~ 72,~~050~~234 61,~~000~~786 ~~Accounts~~Notes ~~payable~~receivable, current portion ................ 202 194 Other current assets .............................~~.........~~ 56,~~477~~240 3,~~896~~225 ~~Accrued~~-------- ~~expenses~~ -------- ~~Payroll~~Total ~~and~~current ~~related~~assets ~~accruals~~ .........................~~...............~~ 649,~~124~~483 642,~~137~~795 ~~Workers~~-------- ~~compensation~~-------- ~~and~~PROPERTY ~~health~~AND ~~benefits~~EQUIPMENT: Land ............................ ~~10,151 8,947 Other~~ ................. 1,713 1,652 Buildings ........................................~~......~~ 83,~~724~~034 72,~~571~~829 ~~Billings~~Vehicles ~~in excess of costs~~ and ~~estimated~~other ~~earnings~~equipment ~~on uncompleted contracts~~ .....................~~.......................~~ 117,~~273~~296 ~~731~~17,634 ~~---------~~Scaffolding ~~---------~~equipment ~~Total current liabilities~~ ............................~~.............~~ 56214,~~099~~063 37184,~~242~~152 ~~---------~~Leasehold ~~---------~~improvements ~~LONG-TERM DEBT~~ ...........................~~...............................~~ ~~148,425~~893 ~~147,500~~704 --------- --------- ~~NOTES~~Total ~~PAYABLE~~property ~~AND~~and ~~CAPITAL LEASE OBLIGATIONS 5~~equipment,~~551~~ ~~3,499~~at ~~---------~~cost ~~--------- DEFERRED INCOME TAXES~~ .......... 236,999 206,971 Less-Accumulated depreciation and amortization ...~~......................................~~ 260,~~000~~947 245,~~195~~118 --------- --------- ~~14.5%~~Total ~~SENIOR~~property ~~EXCHANGEABLE~~and ~~PREFERRED~~equipment, ~~STOCK~~net ............~~.........................................~~ 44176,~~460~~052 41161,~~404~~853 --------- --------- ~~STOCKHOLDER'S~~OTHER ~~EQUITY (DEFICIT)~~ASSETS: ~~Common~~Intangible ~~stock~~assets, ~~$0.01~~net ~~par value, 100 shares authorized, issued and outstanding~~ ...........................~~.......~~ --3,895 --968 ~~Paid-in~~Deferred ~~capital~~financing costs, net ....................~~...................................~~ 194,~~446~~232 194,~~369~~779 ~~Receivable~~Notes ~~from~~receivable, ~~sale~~net of ~~Holding's~~current ~~Common~~portion ~~Stock~~ .........~~...............~~ ~~(822)~~318 ~~(822)~~477 ~~Predecessor~~-------- ~~basis~~-------- ~~adjustment~~Total ~~..........................................~~other ~~(13,038)~~assets ~~(13,038) Cumulative translation adjustment~~ ...........................~~..........~~ (18,~~008)~~445 ~~(851) Accumulated deficit ................................................... (24~~6,~~314)~~224 ~~(25,626)~~ --------- --------- ~~Total~~TOTAL ~~stockholder's~~ASSETS ~~equity (deficit)~~ ................................ ~~(19,736) (20,968) --------- --------- Total liabilities and stockholder's equity (deficit)~~ .......~~.........~~ $ ~~236~~233,~~799~~980 $ 210,872 ========= =========

The accompanying notes are an integral part of the consolidated financial statements. Page -3- 5 BRAND SERVICES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)

~~Six~~September ~~months~~30, ~~ended~~2000 ~~June~~December 3031, (~~unaudited~~Unaudited) ~~------------------------------ 2000~~ 1999 ----------- ------------~~-------~~ ~~CASH~~LIABILITIES ~~FLOWS~~AND ~~FROM~~STOCKHOLDER'S ~~OPERATING~~EQUITY ~~ACTIVITIES~~(DEFICIT) CURRENT LIABILITIES: ~~Net~~Revolving ~~income~~loan ........................................................~~....~~ $ ~~4,367~~-- $ ~~267~~3,960 ~~Adjustments~~Current tomaturities ~~reconcile~~of ~~net income (loss) to net cash Provided by operating activities~~ long-term ~~Depreciation~~debt ~~and amortization~~ ..................................~~.....~~ 127,~~268~~800 106,~~037~~000 ~~Gain~~Accounts onpayable ~~sale of fixed assets other than scaffolding~~ ................. ~~(33) (36) Changes in operating assets and liabilities - Trade accounts receivable, net~~ ....................................... (73,~~757)~~034 13,~~362~~896 ~~Costs~~Accrued ~~and~~expenses ~~estimated~~-- ~~earnings~~Payroll inand ~~excess~~related ofaccruals ~~billings on uncompleted contracts~~ .......................................... ~~(625)~~5,586 ~~775~~6,137 ~~Notes~~Workers ~~receivable~~compensation ~~....................................................~~and 56health ~~100~~benefits ~~Scaffolding equipment~~ ............................~~...................~~ 19,~~474~~882 18,~~632~~947 ~~Accounts~~Other ~~payable~~ .................................................... ~~1,275 (1,587) Accrued expenses~~ ...........~~.........................................~~ 14,~~684~~953 ~~(15)~~7,571 Billings in excess of costs and estimated earnings on uncompleted contracts ............................................ ~~538~~976 50731 ~~Other~~--------- --------- Total current liabilities .........................................~~......................~~ (132,~~371)~~231 ~~648~~37,242 --------- --------- ~~Net~~LONG-TERM ~~cash~~DEBT ~~used by operating activities~~ ........................... ~~11,876 13,233 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment~~ ...............................~~.....~~ ~~(21~~171,~~562)~~100 ~~(14~~147,~~079)~~500 ~~Acquisitions~~--------- --------- NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS .......................................................... (45,~~200)~~388 ~~(875)~~3,499 ~~Receipts~~--------- on--------- ~~note~~DEFERRED ~~receivable~~INCOME ~~from~~TAXES ~~WMIS~~ ................................. ~~-- 1,450 Proceeds from sales of property and equipment Other than scaffolding~~ .................. 2,000 2,195 --------- --------- 14.5% SENIOR EXCHANGEABLE PREFERRED STOCK ............................. ~~33 45 -------- -------- Net cash used by investing activities~~ .........................~~...~~ ~~(25~~46,~~729)~~034 ~~(13~~41,~~459)~~404 --------- --------- ~~CASH~~STOCKHOLDER'S ~~FLOWS~~EQUITY ~~FROM~~(DEFICIT): ~~FINANCING~~Common ~~ACTIVITIES:~~stock, ~~Proceeds~~$0.01 ~~from~~par ~~long-term~~value, ~~debt~~100 shares Authorized, issued and outstanding ..................................~~........~~ ~~5,000~~-- -- ~~Payments of long~~Paid-~~term~~in ~~debt~~capital ....................................................... (319,~~025)~~455 (219,~~500)~~369 ~~Redemption~~Receivable from sale of Holding's Common Stock ........................~~..........~~ (~~167~~822) (5822) ~~Capital~~Predecessor ~~Contributions~~basis ~~from~~adjustment ~~Holdings~~ .......................................... ~~244~~(13,038) ~~-- Borrowings/~~(~~payments~~13,038) ofCumulative ~~revolving~~translation ~~loan~~adjustment ..................................... ~~13,340~~ (1,~~005~~572) ~~Payments~~(851) onAccumulated ~~capital~~deficit ~~lease obligations~~ ................................. ~~(588) (421) -------- -------- Net cash provided by financing activities~~ ..................~~........~~ 14(26,~~804~~796) (125,~~921~~626) --------- --------- ~~INCREASE/(DECREASE)~~Total INstockholder's ~~CASH~~equity ~~AND~~(deficit) ~~CASH EQUIVALENTS~~ ................................~~...........................~~ ~~951~~ (222,~~147~~773) ~~CASH AND CASH EQUIVALENTS~~(20,968) ~~beginning of Period ................................................................. 244 3,125~~ --------- --------- ~~CASH~~Total ~~AND~~liabilities ~~CASH~~and ~~EQUIVALENTS,~~stockholder's ~~end~~equity of(deficit) ~~period~~ ................~~................~~ $ 1233,~~195~~980 $ ~~978~~210,872 ========= =========

The accompanying notes are an integral part of the consolidated financial statements. Page -4- 6 BRAND SERVICES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)

~~Six~~Nine months ended ~~June~~September 30 (unaudited) ---------------------- 2000 1999 ---------- ~~2000~~-------- ~~1999~~CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................... $ 3,460 $ (1,712) Adjustments to reconcile net income (loss) to net cash Provided by operating activities -- Depreciation and amortization ...................... 17,556 15,034 Gain on sale of fixed assets other than scaffolding (42) (71) Changes in operating assets and liabilities -- Trade accounts receivable, net ...................... (2,763) 3,780 Costs and estimated earnings in excess of billings on uncompleted contracts ......................... (448) (283) Notes receivable ................................... 210 150 Scaffolding equipment .............................. 2,256 2,109 Accounts payable ................................... (1,168) (392) Accrued expenses ................................... (2,894) (2,293) Billings in excess of costs and estimated earnings on uncompleted contracts ......................... 241 68 Other .............................................. (3,015) 766 -------- -------- Net cash used by operating activities .......... 13,393 17,156 -------- -------- ~~SUPPLEMENTAL~~ CASH ~~FLOW~~FLOWS ~~DISCLOSURES~~FROM INVESTING ACTIVITIES: ~~Interest~~Purchase ~~paid~~of $9property and equipment ................... (27,~~633~~887) $(18,326) 8Acquisitions ......................................... (5,~~505~~882) ~~==============================~~(2,071) ~~NONCASH~~Receipts ~~TRANSACTIONS~~on note receivable from WMIS ................ -- 2,175 Proceeds from sales of property and equipment other than scaffolding ............................. 42 58 -------- -------- Net cash used by investing activities ........... (33,727) (18,164) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: ~~Paid~~Proceeds infrom long-~~kind~~term ~~accretion~~debt ......................... 30,000 -- Payments of ~~preferred~~long-term ~~stock~~debt ~~dividends~~........................... $(4,600) (3,~~056~~750) Redemption of Holding's Common Stock ................. (168) (5) Capital Contributions from Holdings .................. 254 -- Borrowings/(payments) of revolving loan .............. (3,960) 3,235 Payments on capital lease obligations ................ (751) (417) -------- -------- Net cash provided by financing activities ......... 20,775 (937) -------- -------- INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS .......................................... 441 (1,945) CASH AND CASH EQUIVALENTS, beginning of period .............................................. 244 3,125 -------- -------- CASH AND CASH EQUIVALENTS, end of period ............... $ 2685 $ 1,~~651~~180 ======== ========~~==============~~

The accompanying notes are an integral part of the consolidated financial statements. Page -5- 7 BRAND SERVICES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (continued) (In thousands)

~~June~~Nine ~~30,~~months ~~2000~~ended ~~December~~September ~~31,~~30 (unaudited) ~~1999~~ ------------------------------~~----~~ ~~Revolving~~2000 ~~Loan.............................~~1999 ~~$ 17,300 $ 3,960 Term Loans................................. 25,475 23,500 10 1/4% Senior Notes....................... 130,000 130,000 Less Current Portion..................... (24,350) (9,960)~~ -------------- ---------------~~-----~~ ~~Long-Term~~SUPPLEMENTAL ~~Debt.............................~~CASH FLOW DISCLOSURES: Interest paid $~~148~~18,~~425~~550 $~~147~~ 15,~~500~~731 ============== =============== NONCASH TRANSACTIONS: Paid in-kind accretion of preferred stock dividends . $4,630 $ 4,048 ============== ===============

The accompanying notes are an integral part of the consolidated financial statements. Page -6- 8 BRAND SERVICES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements The financial statements included herein for the periods ended September 30, 2000 and 1999 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 September 30, 2000 and the results of operations and cash flows for the nine months ended September 30, 2000 and 1999. 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. 1. Organization and Business Brand Services, Inc. (a Delaware corporation) and its subsidiaries (the "Company") are 100% owned by DLJ Brand Holdings, Inc. ("Holdings"). Holdings is owned 62.9% by Donaldson, Lufkin & Jenrette, Inc. ("DLJ"), 9.0% by Carlisle Enterprises, L.P. ("Carlisle"), 17.9% by Rust International, Inc. ("Rust International") through its wholly owned subsidiary Rust International Services, Inc. ("RIS"), and 10.2% by the directors, officers and employees of the Company. Rust International is a subsidiary of Waste Management Services, Inc. ("WMIS"). The Company believes it operates in one segment. The Company provides scaffolding services primarily to refining, chemical, petrochemical, utility and pulp and paper industries, and to a lesser extent, general commercial clients. Scaffolding services are typically provided in connection with periodic, routine cleaning and maintenance of refineries, chemical plants and utilities, as well as for new construction 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 sheet. 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 generally accepted accounting principles 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. Page -7- 9 3. Acquisitions In February 2000, the Company acquired the stock of Kwikrig, Inc. for a purchase price of $3.0 million, consisting of $1.0 million of cash and $2.0 million of possible future payments conditioned upon the operating performance of Kwikrig over the period of three years. Kwikrig provides specialty scaffolding services for the film production industry and operates primarily in Southern California. In March 2000, the Company acquired the operating assets of Mike Brown Grandstands for a purchase price of $6.5 million ($3.2 million in cash and $3.3 million in a note to be paid quarterly over the next 60 months). In conjunction with the acquisition, the Company recorded goodwill in the amount of $2.4 million based on the preliminary allocation of the purchase price of the acquisition. Mike Brown Grandstands is a major supplier of temporary seating to the outdoor sports and special events market and operates from service locations in California, Nevada, and Arizona. In July 2000, the Company acquired the operating assets of AA Scaffolding for a purchase price of $1.8 million of cash. AA Scaffolding was integrated with the existing Brand division in Washington, DC. These acquisitions were accounted for using the purchase method of accounting and the results of operations were included in the Company's results from the date of acquisition. 4. Debt and Borrowing Arrangements At September 30, 2000 and December 31, 1999 long term-debt consisted of the following (in thousands):

~~Six~~September ~~Months~~30, ~~Ended~~2000 ~~June~~December 3031, (unaudited) 1999 ----------------~~------------~~ ~~2000 1999~~ -----------------~~-----------~~ ~~Net~~Revolving ~~Income~~Loan .......................... $ ~~4,367~~- $ ~~267~~3,960 ~~Depreciation~~Term &Loans ~~Amortization~~.............................. ~~Expense~~48,900 1223,~~268~~500 10~~,037~~ ~~Interest~~1/4% ~~Expense~~Senior 9Notes .................... 130,~~517~~000 9130,~~053~~000 ~~Interest~~Less ~~Income~~Current Portion .................. (307,800) (409,960) ---------------- ----------------- ~~EBITDA~~Long-Term Debt .......................... $26171,~~122~~100 $ 19147,~~317~~500 ================ =================

At September 30, 2000, the total proceeds available under the revolving loan commitment was $30.0 million. A Term B loan facility in the amount of $5.0 million was drawn in March 2000. During the 3rd quarter, the Term B loan facility was increased from $5.0 million to $30.0 million. The Term B loan facility amortizes at the rate of $75,000 per quarter in 2000, 2001 and 2002 and $9.7 million per quarter in 2003, with a final maturity of September 30, 2003. For the quarter ended September 30, 2000, the weighted average interest rate on loans outstanding under the term loan facility was 10.2%. Page -8- 10 5. 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. 6. Comprehensive Income For the three months ended September 30, 2000 and 1999, comprehensive income (loss) was $(1.5) million and $(2.3) million, respectively, and for the nine months ended September 30, 2000 and 1999, comprehensive income (loss) was $2.7 million and $(1.4) million, respectively. 7. Accounting Standard Not Yet Implemented In June 1998, the Financial Accounting Standards Board ("FASB") adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. The Company has not yet quantified the impacts of adopting SFAS No. 133 on its consolidated financial statements nor has it determined the timing or method of its adoption of SFAS No. 133. However, SFAS No. 133 could increase volatility in earnings and other comprehensive income. Page -9- 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The matters discussed in this Form 10-Q of Brand Services, Inc. (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 financial statements and notes thereto. Overview In September 1999, with unanimous consent of the Board of Directors of Brand Scaffold Services, Inc. the name of the corporation and the Certificate of Incorporation were changed to Brand Services, Inc. effective January 1, 2000. The Company is the largest North American provider of industrial scaffolding rental, erection, dismantlement and design services. The Company provides industrial turnkey 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 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 three to five years. Page -10- 12 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. The Company believes the necessity for on-going maintenance and turnarounds provide 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. In February 2000, the Company acquired the stock of Kwikrig, Inc. for a purchase price of $3.0 million, consisting of $1.0 million of cash and $2.0 million of possible future payments conditioned upon the operating performance of Kwikrig over the period of three years. Kwikrig provides specialty scaffolding services for the film production industry and operates primarily in Southern California. Sustaining established relationships with a number of film production studios, Kwikrig will augment Brand's existing strength in the industrial and commercial scaffolding market segments of Southern California. In March 2000, the Company acquired the operating assets of Mike Brown Grandstands for a purchase price of $6.5 million ($3.2 million in cash and $3.3 million in a note to be paid quarterly over the next 24 months). In conjunction with the acquisition, the Company recorded goodwill in the amount of $2.4 million based on the preliminary allocation of the purchase price of the acquisition. Mike Brown Grandstands is a major supplier of temporary seating to the outdoor sports and special events market and operates from service locations in California, Nevada, and Arizona. With their established market position in the Southwest and diversified seating product line, Mike Brown Grandstands will increase Brand's market share in the special events market. In July 2000, the Company acquired the operating assets of AA Scaffolding for a purchase price of $1.8 million of cash. AA Scaffolding was integrated with the existing Brand division and will add to Brand's strength in the Washington, DC and Baltimore markets. These acquisitions were accounted for using the purchase method of accounting and the results of operations were included in the Company's results from the date of acquisition Results of Operations Revenues -- Revenues for the three months ended September 30, 2000 increased 29.8% to $57.8 million from $44.5 million for the same period in 1999. Revenues for the nine month period ended September 30, 2000 increased 23.5% to $194.7 million from $157.6 million for the same period in 1999. Labor revenue increased 32.1% to $40.1 million for the three months ended September 30, 2000 as compared to the same period in 1999 and 22.7% to $139.8 million for the nine month period ended September 30, 2000 as Page -11- 13 compared to the same period in 1999. Rental revenue increased 24.7% to $16.1 million for the third quarter of 2000 compared to the same period in 1999 and 26.8% to $50.1 million for the nine month period ended September 30, 2000 as compared to the same period in 1999. The increase in revenues was attributable to the acquisitions made in 1999 and 2000 and the strong performance of divisions servicing our industrial customers. In particular, the Northern Region had a revenue gain of 65.1% when comparing the first nine months of 1999 to 2000. Gross Profit - Gross profit for the three months ended September 30, 2000 increased 45.1% to $14.5 million from $10.0 million for the same period in 1999. Gross profit for the nine month period ended September 30, 2000, increased 32.3% to $46.6 million from $35.3 million for the same period in 1999. Labor gross profit (labor revenue less labor cost) increased 33.8% to $7.2 million for the three months ended September 30, 2000 as compared to the same period in 1999 and 29.3% to $25.7 million for the nine month period ended September 30, 2000 as compared to the same period in 1999. Gross profit as a percentage of revenue increased for the three month period ended September 30, 2000 as compared to the same period in 1999, increasing to 25.0% from 22.4%. Gross profit as a percentage of revenue for the nine month period ended September 30, 2000, increased to 24.0% from 22.4% for the same period in 1999. The increase in gross profit is mainly the result of higher revenue and a slight shift in the revenue mix from less profitable labor to more profitable rental. Also, an improvement in the overall labor gross profit has contributed to the gross profit increase. Selling and Administrative Expenses - Selling and administrative expenses for the three months ended September 30, 2000 increased 29.3% to $9.8 million from $7.5 million for the same period in 1999. Selling and administrative expenses for the nine month period ended September 30, 2000 increased 19.2% to $28.1 million from $23.6 million for the same period in 1999. Selling and administrative expenses as a percentage of revenue for the three month period ended September 30, 2000 remained unchanged at 16.9% when compared to the same period in 1999. Selling and administrative expenses as a percentage of revenue for the nine month period ended September 30, 2000 decreased to 14.4% from 15.0% for the same period in 1999. The increase in SG&A costs comparing 2000 to 1999 relate to the addition of expenses from acquired companies and increases in payroll and payroll related expenses. Operating Income - As a result of the above, operating income for the three months ended September 30, 2000 increased 94.2% to $4.7 million from $2.4 million for the same period in 1999 and increased 58.6% for the nine months ended September 30, 2000 to $18.6 million from $11.7 million for the same period in 1999. Interest Expense - Interest expense for the three months ended September 30, 2000 increased 28.4% to $5.7 million from $4.4 million for the same period in 1999. Interest expense for the nine month period ended September 30, 2000 increased 12.8% to $15.2 million from $13.5 million for the same period in 1999. The increase is due to a higher weighted average interest rate on all outstanding debt for the nine month period and a higher average outstanding Page -12- 14 debt balance. For the quarters ended September 30, 2000 and 1999, the weighted average interest rate was 10.18% and 9.88%, respectively, and for the first nine months of 2000 and 1999, the weighted average interest rate was 10.18% and 9.84%, respectively. The increase in interest expense is due to a higher outstanding debt balance and a higher average interest rate on outstanding debt. Net Income (Loss) - Net income (loss) for the three months ended September 30, 2000 and 1999 was $(0.9) million and $(2.0) million respectively, and was $3.5 million and $(1.7) million respectively, for the nine month period ended September 30, 2000 and 1999. Liquidity and Capital Resources The Company has historically utilized internal cash flow from operations and borrowings under the bank facility to fund its operations, capital expenditures, and working capital requirements. The Company had working capital of $17.3 million and $5.6 million and cash of $0.7 million and $0.2 million, as of September 30, 2000 and December 31, 1999, respectively. One of the Company's major uses of cash is capital expenditures. The Company's capital expenditure requirements are comprised of maintenance and expansion expenditures. The Company's maintenance capital expenditure requirements are generally for scaffolding planks and other items used in the business, such as trucks. Expansion capital expenditures are for new scaffolding, are discretionary and vary annually based on the Company's level of scaffolding rental activity and management's growth expectations. During the nine months ended September 30, 2000, net capital expenditures were $24.7 million. The other major uses of cash were the payment of interest on long term debt and principal on term loans. For the nine months ended September 30, 2000 interest payments were $18.6 million and principal payments were $4.6 million. Other Data EBITDA is defined as earnings before interest income, cash interest expense, income taxes, depreciation and amortization. EBITDA is commonly used to analyze companies on the basis of operating performance, leverage and liquidity. EBITDA is not intended to represent cash flows for the period, nor has it been presented as an alternative to operating income as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Page -13- 15

PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit Index 27. Financial Data Schedule (b) No reports were filed on Form 8-K during the period for which this report is filed. 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 SERVICES, INC. Date: November 9, 2000 /s/ John M. Monter ------------------------------------ John M. Monter Chief Executive Officer, President Date: November 9, 2000 /s/ Ian Alexander ------------------------------------ Ian Alexander Chief Financial Officer, Vice President, Finance Page -14-

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