10-Q 1 c62316e10-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 March 31, 2001 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 April 30, 2001 $.01 Par Value 100 shares 2 INDEX

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

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

(Continued on following page) Page -3- 5 BRAND SERVICES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands except share and per share amounts)

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

(Continued on following page) Page -5- 7 BRAND SERVICES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)

The accompanying notes to the consolidated financial statements 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 March 31, 2001 and 2000 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, 2001 and the results of operations and cash flows for the three months ending March 31, 2001 and 2000. 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. and its subsidiaries ("Brand") are 100% owned by DLJ Brand Holdings, Inc. ("Holdings"). Holdings is owned 60.7% by Credit Suisse First Boston (USA), Inc. ("CSFB"), 8.7% by Carlisle Enterprises, L.P. ("Carlisle"), 17.2% by Rust International, Inc. ("Rust International"), and 13.4% by the directors, officers and employees of the Company. Rust International is a subsidiary of Waste Management, Inc. ("WMI"). All references to "the Company", "we", "us", or "our" mean Brand Services, Inc. and its subsidiaries. We operate in one segment and provide 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 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. Page -7- 9 3. Debt and Borrowing Arrangements At March 31, 2001 and December 31, 2000 long term-debt consisted of the following (in thousands):

For the quarter ended March 31, 2001, the weighted average interest rate on loans outstanding under the term loan facility was 10.1%. 4. 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. 5. Comprehensive Income For the three months ended March 31, 2001 and 2000, comprehensive income was $3.0 million and $2.8 million, respectively. 6. Recent Accounting Pronouncement The Company has adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133") which establishes accounting and reporting standards for derivative instruments and hedging activities in 2001. SFAS 133 did not have a material impact on the Company's results of operations or financial position. Page -8- 10 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. 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 largest North American provider 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 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 Page -9- 11 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. Results of Operations Revenues - Revenues for the three months ended March 31, 2001 increased 10.0% to $74.6 million from $67.8 million for the same period in 2000. Labor revenue increased 10.3% to $55.0 million for the three months ended March 31, 2001 as compared to the same period in 2000. Rental revenue increased 7.0% to $17.3 million for the first quarter of 2001 compared to the same period in 2000. At $74.6 million, first quarter 2001 revenues were the highest of any quarterly period. The increase relates to acquired businesses and strong revenue growth from divisions in California and Texas. The Southwest Region had the strongest revenue gain compared to 2000 with a 28.6% increase. Gross Profit - Gross profit for the three months ended March 31, 2001 increased 21.5% to $19.8 million from $16.3 million for the same period in 2000. Labor gross profit (labor revenue less labor cost) was particularly strong, increasing by 22.3% to $11.6 million for the three months ended March 31, 2001 as compared to the same period in 2000. Gross profit as a percentage of revenue increased to 26.5% from 24.0% for the three month period ended March 31, 2001 as compared to the same period in 2000. Selling and Administrative Expenses - Selling and administrative expenses for the three months ended March 31, 2001 increased 23.1% to $11.1 million from $9.0 million for the same period in 2000. Selling and administrative expenses as a percentage of revenue for the three months ended March 31, 2001 increased to 14.8% from 13.3% for the same period in 2000. The increase in selling and administrative expenses was primarily attributable to the additional expenses incurred for newly acquired companies and for the opening of new divisions. Operating Income - As a result of the above, operating income for the three months ended March 31, 2001 increased 19.5% to $8.7 million from $7.3 million for the same period in 2000. Interest Expense - Interest expense for the three months ended March 31, 2001 increased 6.7% to $5.0 million from $4.7 million for the same period in 2000. For the quarters ended March 31, 2001 and 2000, the weighted average interest rate on the debt was 10.1% and 10.1%, respectively. The increase in interest expense is due to a higher outstanding debt balance. Net Income - Net income for the three months ended March 31, 2001 and 2000 was $3.7 million and $2.6 million, respectively. Page -10- 12 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 $9.1 million and $(2.2) million and cash of $2.4 million and $2.7 million, as of March 31, 2001 and 2000, 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 three months ended March 31, 2001, total capital expenditures were $6.6 million. The other major uses of cash are the payments of interest on long term debt and the payments of principal on term loans. For the three months ended March 31, 2001 interest payments were $8.0 million and principal payments were $2.1 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 accounting principles generally accepted in the United States.

Page -11- 13 PART II - OTHER INFORMATION ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K (a) No reports were filed on Form 8-K during the period for which this report is filed Exhibit Index. SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BRAND SERVICES, INC. Date: May 14, 2001 /s/ John M. Monter -------------------------------------------- John M. Monter Chief Executive Officer, President Date: May 14, 2001 /s/ Jeffrey W. Peterson -------------------------------------------- Jeffrey W. Peterson Chief Financial Officer, Vice President, Finance Page -12-

BRAND SERVICES 10-Q