UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

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

For the transition period from to

Commission file number 333-102885

THE BRICKMAN GROUP, LTD.

(Exact name of registrant as specified in its charter)


Delaware		23-2949247
(State of incorporation)		(I.R.S. Employer Identification No.)

18227 Flower Hill Way, Suite D Gaithersburg, Maryland		20879
(Address of Principal Executive Offices)		(Zip Code)
(Address of Principal Executive Offices)		(Zip Code)

(301) 987-9200

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

None

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 Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The Brickman Group, Ltd. is a wholly owned subsidiary of Brickman Group Holdings, Inc. None of its, or Brickman Group Holdings, Inc.’s, common equity is publicly traded.

**The Brickman Group, Ltd. is not currently required by law to file reports under Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended, because at the beginning of its current fiscal year its 11.75% senior subordinated notes due 2009 were held of record by less than 300 persons. The Brickman Group, Ltd. is therefore not currently an “issuer” for purposes of Section 2(a)(7) of the Sarbanes-Oxley Act of 2002. The Brickman Group, Ltd. voluntarily files quarterly and annual reports on Forms 10-Q and 10-K and current reports on Form 8-K with the Securities and Exchange Commission in compliance with the indenture governing its senior subordinated notes.

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION		3
	Item 1.	Financial Statements	3
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3	Quantitative and Qualitative Disclosures About Market Risk	19
	Item 4.	Controls and Procedures	19

PART II.	OTHER INFORMATION		20
	Item 1.	Legal Proceedings	20
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
	Item 3	Defaults Upon Senior Securities	20
	Item 4	Submission of Matters to a Vote of Security Holders	20
	Item 5.	Other Information	20
	Item 6	Exhibits	21

SIGNATURES			22

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE BRICKMAN GROUP, LTD.

BALANCE SHEETS

(dollars in thousands except for share data)


	December 31, 2003			(Unaudited) September 30, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	15,929		$	5,435
Accounts receivable, net of allowance for doubtful accounts		38,103			37,135
Unbilled revenue		3,116			20,620
Deferred tax asset		6,449			6,501
Other current assets		2,214			2,408

Total current assets		65,811			72,099
Property and equipment, net of accumulated depreciation		26,130			30,854
Deferred tax asset		452			2,832
Deferred charges, net of accumulated amortization		8,272			7,184
Intangible assets, net of accumulated amortization		97,970			87,372
Goodwill		32,663			32,663
Restricted investments and other assets		1,015			1,154

Total	$	232,313		$	234,158

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,677		$	8,146
Deferred revenue		2,686			6,081
Capital lease obligation - current portion		307			269
Long-term debt - current portion		5,000			6,448
Accrued interest		734			5,140
Accrued expenses		21,370			25,493

Total current liabilities		40,774			51,577
Long-term debt and other liabilities
Capital lease obligation		215			—
Long-term debt		190,000			181,222
Other liabilities		804			935

Total liabilities		231,793			233,734

Commitments and contingencies

Shareholders’ equity:
Class A voting common stock, $.01 par value; 51,317 authorized, issued and outstanding both periods		1			1
Class A non-voting common stock, $.01 par value; 283,548 authorized, issued and outstanding both periods		3			3
Class B non-voting common stock, $.01 par value; 117,517 authorized, issued and outstanding both periods		1			1
Class C non-voting common stock, $.01 par value; 75,000 authorized, issued and outstanding both periods		1			1
Paid-in capital		191,514			187,606
Retained earnings		—			3,812
Continuing shareholders’ basis adjustment		(191,000	)		(191,000	)

Total shareholders’ equity		520			424

Total liabilities and shareholders’ equity	$	232,313		$	234,158

The accompanying notes and the notes to the Company’s Audited Financial Statements are an integral part of the financial statements.

THE BRICKMAN GROUP, LTD.

STATEMENTS OF OPERATIONS

(unaudited)

(dollars in thousands)


	For the three months ended September 30,				For the nine months ended September 30,
	2003		2004		2003		2004
Net service revenues	$	87,757	$	102,510	$	269,076	$	292,737
Cost of services provided		58,105		66,050		187,644		199,019

Gross profit		29,652		36,460		81,432		93,718
General and administrative expenses		15,131		16,424		45,969		50,593
Amortization expense		5,810		5,241		17,430		15,627

Income from operations		8,711		14,795		18,033		27,498
Interest expense		5,121		4,990		15,219		14,860

Income before income taxes		3,590		9,805		2,814		12,638
Income tax provision		980		3,962		638		5,123

Net income	$	2,610	$	5,843	$	2,176	$	7,515

The accompanying notes and the notes to the Company’s Audited Financial Statements are an integral part of the financial statements.

THE BRICKMAN GROUP, LTD.

STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)


	For the nine months ended September 30,
	2003			2004
Cash flows from operating activities:
Net income	$	2,176		$	7,515
Adjustments to reconcile net income to net change in cash from operating activities:
Depreciation		7,487			8,498
Amortization		17,430			15,627
Deferred taxes		(3,150	)		(2,432	)
Provision for doubtful accounts		487			616
Loss on disposal of assets		64			1,040
Changes in operating assets and liabilities, net of businesses acquired		(7,811	)		(7,557	)

Net change in cash from operating activities		16,683			23,307

Cash flows from investing activities:
Purchase of property and equipment		(9,387	)		(14,335	)
Cost of acquired businesses		—			(4,820	)
Proceeds from sale of property and equipment		100			548

Net change in cash from investing activities		(9,287	)		(18,607	)

Cash flows from financing activities:
Transaction fees paid		(478	)		—
Distributions to Brickman Group Holdings, Inc.		—			(7,611	)
Payments on long-term debt		(2,740	)		(7,583	)

Net change in cash from financing activities		(3,218	)		(15,194	)

Net change in cash		4,178			(10,494	)

Cash, beginning of period	$	6,281		$	15,929

Cash, end of period	$	10,459		$	5,435

The accompanying notes and the notes to the Company’s Audited Financial Statements are an integral part of the financial statements.

THE BRICKMAN GROUP, LTD.

Notes to Financial Statements

(Unaudited)

(dollars in thousands)

1. Business:

The Brickman Group, Ltd. (the “Company”) performs landscape maintenance, landscape construction and enhancement, and snow removal services for commercial customers in major metropolitan areas in 23 states throughout the United States. Landscape maintenance services are generally provided under cancelable contracts ranging from 1 to 8 years in length. The Company provides these services to a diverse set of customers with one or more sites, including regional and national commercial, retail, and industrial property owners, corporations, residential communities, schools and universities, hotels, hospitals, and municipal facilities. Services include grass mowing, planting and care of flower beds, tree and shrub pruning, bed edging, controlling weed and pests, fertilizing, planting of grass, groundcovers, shrubs and trees, grading, and removing snow and ice.

2. Summary of Significant Accounting Policies:

Basis of Presentation:

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial statements and on the same basis of presentation as the Company’s annual financial statements. Accordingly, they do not include all information required by GAAP. All significant intercompany transactions and account balances have been eliminated.

These financial statements have been prepared by management, are unaudited, and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s audited financial statements for the year ended December 31, 2001, the period from January 1, 2002 to December 19, 2002, the period from December 20 to December 31, 2002, and the year ended December 31, 2003. In the opinion of management, all adjustments (consisting of normal recurring accruals and other adjustments) considered necessary for a fair presentation have been included. Due to the seasonality of the Company’s business, the results for the interim periods are not necessarily indicative of the results for the year. Business seasonality results in higher revenues during the second and third quarters as compared with the first and fourth quarters of the year, while the methods of accounting for fixed costs, such as depreciation and amortization, are not significantly impacted by business seasonality.

Use of Estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. On an ongoing basis, management reviews its estimates, including those related to allowances for doubtful accounts, revenue recognition, valuation of operating supplies, self-insurance reserves, purchase accounting estimates, useful lives for depreciation and amortization, realizability of deferred tax assets, and litigation based on currently available information. Changes in facts and circumstances may result in revised estimates and actual results may differ from estimates.

THE BRICKMAN GROUP, LTD.

Notes to Financial Statements

(Unaudited)

(dollars in thousands)

Recent Accounting Pronouncements:

In December 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 46R, Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The Company is required to apply FIN 46R to variable interests in variable interest entities (“VIE”) created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. The Company has no variable interest entities and, therefore, FIN 46R did not have an impact on the Company’s consolidated financial statements.

In October 2004, FASB elected to defer the effective date for public companies of its proposed statement, Share-Based Payment. The proposed statement would amend FASB Statement No. 123, Accounting for Stock-Based Compensation (FAS 123), and is tentatively known as FASB Statement No. 123R, Share-Based Payment (Revised 2004). The FASB expects to issue a final standard by December 31, 2004. FASB Statement 123R will retain the same general definition from FAS 123 of a public entity, which is an entity whose equity securities trade in public markets. Entities with only publicly traded debt would be nonpublic entities for purposes of applying FASB Statement 123R. The FASB will discuss the effective date and transition provisions for nonpublic entities at a future meeting, and it is expected that those provisions will be different than those for public companies (as defined by the provision).

3. Accounts Receivable:

Components of accounts receivable are as follows:


	December 31, 2003			September 30, 2004
Accounts receivable	$	40,333		$	39,295
Allowance for doubtful accounts		(2,230	)		(2,160	)

Accounts receivable, net	$	38,103		$	37,135

Accounts receivable amounts include retention on incomplete projects that will be completed within one year. All other amounts are due currently.

THE BRICKMAN GROUP, LTD.

Notes to Financial Statements

(Unaudited)

(dollars in thousands)

4. Accrued Expenses:

Accrued expenses consist of the following:


	December 31, 2003		September 30, 2004
Payroll-related accruals	$	8,515	$	8,327
Insurance reserves		6,479		7,594
Accrued income taxes		3,420		5,237
Other accrued expenses		2,956		4,335

Total accrued expenses	$	21,370	$	25,493

5. Long-term Debt:

Long-term debt consists of the following:


	December 31, 2003			September 30, 2004
11.75% Senior subordinated notes due 2009	$	150,000		$	150,000
Senior bank facility, due 2008 bearing interest at 4.87% in 2004		45,000			37,670

Total long-term debt	$	195,000		$	187,670
Less:
Current portion		(5,000	)		(6,448	)

Long-term debt, net	$	190,000		$	181,222

As of September 30, 2004, there was no balance outstanding on the Company’s revolving portion of its senior credit facility bearing interest at 5.75%. The term loan portion of the senior credit facility was fixed on a LIBOR contract maturing in December 2004 at a rate of 4.87%.

In April 2004 the Company’s parent company, Brickman Group Holdings, Inc., borrowed $45 million from a group of lenders. The loan initially bears interest at 5.5% over LIBOR. The interest rate is subject to reduction based on the Company’s consolidated leverage ratio, and the loan amortizes through November 2009. The parent company is a holding company and as such will rely on the Company’s cash flow to service this obligation. In connection with this borrowing,

THE BRICKMAN GROUP, LTD.

Notes to Financial Statements

(Unaudited)

(dollars in thousands)

the Company entered into an amendment of the Company’s senior credit facility. The amendment, among other things, i) permits the parent company to incur this indebtedness, ii) permits the Company to make distributions with respect to equity securities to the parent company to service the parent company’s indebtedness to the extent such distributions are permitted under the Company’s Senior Subordinated Note Indenture, iii) provides that an acceleration of obligations under the parent company’s indebtedness not satisfied within 90 days of such acceleration constitutes an event of default under the Company’s senior credit facility, and iv) reduces the excess cash flow prepayment obligations required under the Company’s senior credit facility. Principal is due on the note as follows: $2.0 million in 2004, $4.5 million in 2005, $5.5 million in 2006, $6.5 million in 2007, $7.5 million in 2008, and $19.0 million in 2009. The proceeds from the parent company’s indebtedness were used to redeem the parent company’s Class L Common Stock, make a distribution to holders of the parent company’s Class A Common Stock, and pay fees and expenses associated with the financing.

6. Stock-based Compensation:

The Company accounts for stock-based compensation in accordance with the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, no compensation expense has been recognized for grants because the exercise price of the options granted equaled the fair market value of the underlying stock on the dates of grants. Had the Company applied the fair market value based recognition and measurement provisions of FASB statement No. 123 to stock-based compensation, net income would have decreased as follows:


	For the three months ended September 30,				For the nine months ended September 30,
	2003		2004		2003		2004
Net income, as reported	$	2,610	$	5,843	$	2,176	$	7,515
Deduct: Total stock-based compensation determined under the fair value based method for all grants, net of related tax effects		45		54		90		99

Pro forma net income	$	2,565	$	5,789	$	2,086	$	7,416

7. Supplemental Cash Flow Information:


	For the nine months ended September 30,
	2003		2004
Cash paid for interest	$	10,517	$	10,454
Cash paid for income taxes	$	2,419	$	5,719

THE BRICKMAN GROUP, LTD.

Notes to Financial Statements

(Unaudited)

(dollars in thousands)

Changes in operating assets and liabilities are as follows:


	For the nine months ended September 30,
	2003			2004
Accounts receivable	$	1,466		$	961
Unbilled revenue		(14,487	)		(17,554	)
Other current assets		(876	)		(112	)
Restricted investments and other assets		(322	)		(139	)
Accounts payable		(4,376	)		(2,768	)
Deferred revenue		2,383			3,395
Accrued interest		4,702			4,406
Accrued expenses		3,385			4,123
Other liabilities		314			131

Total	$	(7,811	)	$	(7,557	)

8. Commitments and Contingencies:

Risk Management: The Company carries general liability, vehicle collision and liability, workers compensation, professional liability, directors and officers’ liability, and employee health care insurance policies as well as umbrella liability insurance to cover claims over the liability limits contained in the primary policies.

The Company’s insurance programs for workers compensation, vehicle collision and liability, general liability and employee health care contain self-insured retention amounts. Claims in excess of the self-insured retention amounts are insured at levels considered prudent by management. The Company’s accrual for unpaid and incurred but not reported claims under these programs were $7,594 and $6,479 at September 30, 2004 and December 31, 2003, respectively and is included with accrued expenses in the accompanying Balance Sheets in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies. While the ultimate outcome of these claims is dependent on future developments, in management’s opinion, recorded accruals are adequate to cover these claims.

Other: There are no other significant commitments or contingencies as of September 30, 2004 that have not already been disclosed.

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

Note Regarding Forward-Looking Statements

The Management’s Discussion and Analysis and other sections of this Form 10-Q may contain forward-looking statements that are based on current expectations, estimates and projections about the industries in which we operate and our management’s beliefs and assumptions. Forward-looking statements in this report include, but are not limited to: (1) statements regarding our belief that our internal cash flows and borrowings under our credit facility will provide us sufficient liquidity and capital resources and (2) statements regarding management’s expectation that various items would not reasonably be expected to have a material adverse effect on our financial position, results of operations or cash flows. We caution readers that all forward-looking statements are based on assumptions that we believe are reasonable, but are subject to a wide range of risks including, but not limited to, risks associated with the uncertainty of future financial results, acquisitions and dispositions, additional financing requirements, increased labor costs, loss of customers, ability to manage growth, the seasonal demand for our services and varying weather conditions, the effect of competitive services on pricing, reliance on key management personnel, the effect of changes in government regulations and immigration law, the outcome of legal proceedings and a variety of other factors. Due to these and other uncertainties, we cannot assure readers that any forward-looking statements will prove to have been correct. All forward-looking statements are subject to the safe harbor protections created by the Private Securities Litigation Reform Act of 1995. For further information on these and other risks, see the “Risk Factors” section of our S-4 Registration Statement filed June 11, 2003, as well as our other filings with the Securities and Exchange Commission. We assume no obligation to update publicly our forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are one of the largest providers of commercial landscape services in the United States, servicing over 9,000 commercial properties in 23 states. We were founded in 1939 and have been continually managed by members of the Brickman family. We provide landscape maintenance services, including lawn care, flower bed planting and care, tree and shrub pruning, leaf removal, weed and pest control, irrigation system maintenance, lawn fertilization and plant bed mulching, to a diverse set of customers pursuant to maintenance contracts. The majority of our customers use our services at more than one property. Our customers include regional and national property owners and managers of office parks, hotels, corporate facilities, retail centers, schools and universities, hospitals, professionally-managed residential properties and municipal facilities. We also provide snow removal services to our landscape maintenance customers in order to satisfy their needs and to leverage our infrastructure during the winter months. In addition, we provide our customers with landscape design/build services, which enhance our technical capabilities and brand recognition.

We recognize contract revenue on a monthly basis in proportion to our costs incurred compared to total expected costs. Each month, we divide the actual labor, material, and subcontractor costs incurred on each contract by the total labor, material, and subcontractor costs estimated to be incurred to complete the contract. The resulting ratio is multiplied by the total contract price and the difference between this product and the revenue previously recognized on

the contract is recognized as revenue in the month. In the event estimated total contract costs exceed total contract price, the estimated loss on the contract is accrued in the period in which the loss is identified. The current asset (unbilled revenue) and the current liability (deferred revenue) result from differences between the timing of billings and the recognition of service revenues on uncompleted contracts. Because our work has seasonal peaks (e.g., mulch, flowers, and intensive mowing in the spring, and flowers and intensive mowing in the early fall), on calendar contracts, billings generally exceed revenue until March and then revenue exceeds billings until the completion of contracts at the end of the year.

Costs of services includes both direct costs that are charged to specific projects (e.g., labor and materials) and indirect costs that are not charged to specific projects (e.g., overtime, debris disposal, small tools, depreciation and fuel) and are expensed as incurred. The majority of our costs on a dollar basis are variable and the largest of these are labor and materials. Many of our contracts contain provisions allowing us to periodically adjust our pricing to reflect increases in these costs.

General and administrative expenses are comprised of salaries and related expenses, including benefits and bonuses, for non-field personnel. Other general and administrative expenses include rent, office expenses, professional fees, insurance and depreciation of leaseholds, computer hardware, software licenses and office equipment.

Results of Operations

The following table for the three month and nine month periods ended September 30, 2003 and 2004 depicts costs as a percentage of revenue.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2003		2004		2003		2004
Net Service revenue	100	%	100	%	100	%	100	%
Cost of service	66	%	64	%	70	%	68	%
Gross profit	34	%	36	%	30	%	32	%
General and administrative expenses	17	%	16	%	17	%	17	%
Amortization	7	%	5	%	6	%	5	%
Income from operations	10	%	15	%	7	%	10	%
Interest expense	6	%	5	%	6	%	5	%
Income before taxes	4	%	10	%	1	%	5	%
Income tax provision	1	%	4	%	0	%	2	%
Net income	3	%	6	%	1	%	3	%

Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2004

Revenue. Revenue for the three months ended September 30, 2004 increased by $14.7 million, or 16.8%, to $102.5 million from $87.8 million for the same period in 2003. The increase was principally driven by a $17.7 million increase in landscape maintenance revenue offset by a decrease in design/build revenue. Landscape maintenance revenue was the largest component of revenues, accounting for 93.3% of total revenue for the three months ended September 30, 2004. The increase in maintenance revenues was the result of strong new maintenance sales and improved customer retention. The decrease in design/build revenue reflected lower revenue in this service offering which can fluctuate from period to period based on the timing of projects.

Gross profit. Gross profit for the three months ended September 30, 2004 increased by $6.8 million, or 23.0%, to $36.5 million from $29.7 million for the same period in 2003. The increase in gross profit was the result of the additional landscape maintenance described above and improved margins compared to the same period in 2003 when above normal rainfall amounts in many of our markets presented production and scheduling challenges. Gross margin (gross profit as a percentage of revenue) increased from 33.8% for the three month period ended September 30, 2003 to 35.6% for the three month period ended September 30, 2004.

General and administrative expenses. General and administrative expenses for the three months ended September 30, 2004 increased $1.3 million, or 8.6%, to $16.4 million from $15.1 million for the same period in 2003. General and administrative expenses as a percentage of revenue decreased to 16.0% for the three months ended September 30, 2004 from 17.2% for the three months ended September 30, 2003. The decrease in general and administrative expenses as a percentage of revenue reflects a leveraging of fixed expenses over a larger base of revenue.

Amortization expense. Amortization expense decreased for the three months ended September 30, 2004 by $0.6 million to $5.2 million from $5.8 million for the same period in 2003. Amortization expense relates to the customer contracts and relationships intangible asset established in connection with the December 2002 financing transaction and the February 2004 acquisition of two related landscape companies. Customer contracts and relationships have estimated useful lives of 1 to 14 years.

Income from operations. Income from operations for the three months ended September 30, 2004 increased $6.1 million to $14.8 million from $8.7 million for the same period in 2003. The increase in gross profit from landscape maintenance, described above, was principally responsible for the increase.

Interest expense. Interest expense for the three months ended September 30, 2004 decreased $0.1 million to $5.0 million from $5.1 million for the same period in 2003. Average debt outstanding in the third quarter of 2004 decreased to $191.1 million from $200.5 million in the third quarter of 2003. The weighted average rate of interest on the borrowings increased to 10.4% for the three months ended September 30, 2004 from 10.2% for the same period in 2003.

Income taxes. An income tax provision was recorded for the three months ended September 30, 2004 at an effective rate of 40%. The expected effective rate for the year ended December 31, 2004 is 41%. This rate differs from the federal statutory rate of 35% primarily as a result of state taxes.

Net income. Net income for the three months ended September 30, 2004 increased $3.2 million to $5.8 million from $2.6 million for the same period in 2003 primarily as a result of increased revenues and improved margins described above.

Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2004

Revenue. Revenue for the nine months ended September 30, 2004 increased by $23.6 million, or 8.8%, to $292.7 million from $269.1 million for the same period in 2003. The increase was driven by a $36.7 million increase in landscape maintenance revenue, offset by a $0.3 million decrease in design/build revenue and a $12.8 million decrease in snow removal revenue. Landscape maintenance revenue was the largest component of revenue accounting for 82.8% of total revenue for the nine months ended September 30, 2004. The increase in maintenance revenues was the result of strong new maintenance sales and improved customer retention. The decrease in design/build revenue reflected lower revenue in this service offering which can fluctuate from period to period based on the timing of projects. The decrease in snow removal revenues was primarily the result of more normal snowfall levels this winter compared to last winter.

Gross profit. Gross profit for the nine months ended September 30, 2004 increased by $12.3 million, or 15.1%, to $93.7 million from $81.4 million for the same period in 2003. The increase in gross profit was the result of the additional landscape maintenance volume described above. Gross margin increased from 30.3% for the nine months ended September 30, 2003 to 32.0% for the same period in 2004. The increase was the result of a lower percentage of revenue from lower margin snow removal activities in 2004 (9.8%) as compared to 2003 (15.4%). Additionally, in 2003, wet weather and persistent snowfall in many markets presented production and scheduling challenges for landscape maintenance activities.

General and administrative expenses. General and administrative expenses for the nine months ended September 30, 2004 increased $4.6 million or 10.1% to $50.6 million from $46.0 million for the same period in 2003. General and administrative expenses as a percentage of revenue increased to 17.3% for the nine months ended September 30, 2004 from 17.1% for the nine months ended September 30, 2003. This increase included a write-off of $1.2 million in capitalized software licenses and development costs and system specific hardware associated with the implementation of a new computer system that was discontinued in June 2004.

Amortization expense. Amortization expense decreased for the nine months ended September 30, 2004 by $1.8 million to $15.6 million from $17.4 million for the same period in 2003. Amortization expense relates to the customer contracts and relationships intangible asset established in connection with the December 2002 financing transaction and the February 2004 acquisition of two related landscape companies. Customer contracts and relationships have estimated useful lives of 1 to 14 years.

Income from operations. Income from operations for the nine months ended September 30, 2004 increased $9.5 million to $27.5 million from $18.0 million for the same period in 2003. Additional gross profit was principally responsible for the increase.

Interest expense. Interest expense for the nine months ended September 30, 2004 decreased $0.3 million to $14.9 million from $15.2 million for the same period in 2003. Average

debt outstanding decreased to $191.7 million from $199.5 million as a result of scheduled as well as voluntary payments of bank debt during the period. The weighted average rate of interest on the borrowings increased to 10.3% for the nine months ended September 30, 2004 from 10.2% for the same period in 2003.

Income taxes. An income tax provision was recorded for the nine months ended September 30, 2004 at an effective rate of 41%, the expected effective rate for the year ended December 31, 2004. This rate differs from the federal statutory rate of 35% primarily due to state taxes.

Net income. The net income of $7.5 million for the nine months ended September 30, 2004 represented an increase of $5.3 million from $2.2 million in the same period in 2003. This increase is primarily as a result of increased revenues and improved margins described above.

Liquidity and Capital Resources

We have historically used internal cash flow from operations and borrowings under our existing credit facility to fund our operations, capital expenditures and working capital requirements. For the nine month periods ended September 30, 2004 and 2003, cash provided by operating activities was $23.3 million and $16.7 million, respectively. The increase is primarily attributed to increase in net income.

Our capital expenditure requirements are primarily comprised of landscape equipment, trucks and trailers. Our capital expenditures were $14.3 million and $9.4 million, for the nine months ended September 30, 2004 and 2003, respectively. The increase in capital expenditures is attributable to strong new sales and the expansion of a program started in 2003 to reduce the replacement cycle for lawn mowing equipment from five years to two years. In addition to the foregoing capital expenditures, in the nine months ended September 30, 2004 we acquired two related landscape companies.

In the nine months ended September 30, 2004, net cash used in financing activities was $15.2 million, consisting of debt repayments of $7.6 million, including a voluntary prepayment of $5.0 million, and distributions to our parent company, Brickman Group Holdings, Inc., totaling $7.6 million. The distributions to our parent company consisted of a distribution of $5.0 million in connection with the April 16, 2004 transaction described below, distributions for debt service totaling $1.7 million, and distributions to fund parent company stock redemptions from terminated employees totaling $0.9 million. In the nine months ended September 30, 2003, net cash used in financing activities was $3.2 million, primarily consisting of debt repayments of $2.7 million.

On April 16, 2004, our parent company, Brickman Group Holdings, Inc., borrowed $45.0 million from a group of lenders. The loan initially bears interest at 5.5% over LIBOR, which is subject to reduction based on our consolidated leverage ratio, and amortizes through November 2009. Our parent company is a holding company and as such will rely on our cash flow to service this obligation. In connection with this borrowing, we entered into an amendment of our senior credit facility. The amendment, among other things, i) permits our parent company to incur this indebtedness, ii) permits us to make distributions with respect to equity securities to our parent company to service our parent company’s indebtedness to the extent such distributions are permitted under our Senior Subordinated Note Indenture, iii) provides that an acceleration of obligations under our parent company’s indebtedness not satisfied within 90 days

of such acceleration constitutes an event of default under our senior credit facility, and iv) reduces the excess cash flow prepayment obligations required under our senior credit facility. Principal is due on the note as follows: $2.0 million in 2004, $4.5 million in 2005, $5.5 million in 2006, $6.5 million in 2007, $7.5 million in 2008, and $19.0 million in 2009. The proceeds from our parent company’s indebtedness were used to redeem our parent company’s Class L Common Stock, make a distribution to holders of our parent company’s Class A Common Stock, and pay fees and expenses associated with the financing.

As of September 30, 2004, we had no balance outstanding on the $30.0 million revolving portion of our senior credit facility and the term loan portion of our senior credit facility was fixed on a 180-day LIBOR contract expiring in December 2004 at a rate of 4.87%. As of September 30, 2004, availability on the revolving credit facility, after deducting outstanding letters of credit, was $23.6 million.

We believe that our internal cash flows and borrowings under the revolving portion of our credit facility will provide us with sufficient liquidity and capital resources to meet our current and future financial obligations for the next twelve months, including funding our operations, debt service and capital expenditures and making distributions to our parent company to enable it to meet its obligations under its loan described above. Our future operating performance will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. If our future cash flow from operations and other capital resources are insufficient to pay our obligations as they may mature or to fund our liquidity needs, including making distributions to our parent company, we may be forced to reduce or delay our business activities and capital expenditures, sell assets, obtain additional debt or equity capital or restructure or refinance all or a portion of our debt, including our senior subordinated notes, on or before maturity. We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the terms of our existing and future indebtedness, including our senior subordinated notes and our senior credit facility, may limit our ability to pursue any of these alternatives.

Seasonality

Our landscape business is seasonal. Losses generally occur in the first quarter since, in most of our markets, there is very little landscape revenue to be recognized, but fixed overheads (e.g., management and supervisory salaries and benefits, rent, depreciation) continue.

Effect of Inflation

Inflation has generally not been a material factor affecting our business. Our general operating expenses, such as wages and salaries, employee benefits and materials and facilities costs, are subject to normal inflationary pressures.

Critical Accounting Policies

Certain of our accounting policies as discussed below require the application of significant judgment by management in selecting the appropriate estimates and assumptions for calculating amounts to record in our financial statements. Actual results could differ from those estimates and assumptions, impacting the reported results of operations and our financial position. Our significant accounting policies are more fully described in the notes to the 2003

Form 10-K. Certain accounting policies, however, are considered to be critical in that they are most important to the depiction of our financial condition and results of operations and their application requires management’s most subjective judgment in making estimates about the effect of matters that are inherently uncertain.

Goodwill: Goodwill, representing the excess of the cost over the net tangible and identifiable assets acquired in business combinations, is stated at cost. Goodwill and intangibles with indefinite lives are not amortized but tested for impairment no less frequently than annually. Impairment is measured by comparing the carrying value to fair value using quoted market prices, a discounted cash flow model, or a combination of both.

Impairment or Disposal of Long-lived Assets: In the event that facts and circumstances indicate that the carrying value of long-lived assets, primarily property and equipment and certain identifiable intangible assets with defined lives, may be impaired, we perform a recoverability evaluation. If the evaluation indicates that the carrying amount of the asset is not recoverable from the undiscounted cash flows related to the asset, an impairment loss is recorded for the difference between the carrying amount of the asset and its fair value.

Service Revenues: We perform landscape maintenance, landscape construction and enhancement, and snow removal services. Revenue is recognized based upon the service provided and the contract terms.

Landscape maintenance:

Landscape maintenance services are generally provided under annual contracts. Revenue for these services is recognized as follows: each month, we divide the actual labor, material, and subcontractor costs incurred on each contract by the total labor, material, and subcontractor costs estimated to be incurred to complete the contract. The resulting ratio is multiplied by the contract price and the difference between this product and the revenue previously recognized on the contract is recognized as revenue in the month. In the event estimated total contract costs exceed total contract price, the estimated loss on the contract is accrued in the period in which the loss is identified.

Landscape construction and enhancement:

Landscape construction and enhancement services are generally provided under contracts of less than one year. Revenue for these services is recognized as follows: each month, we divide the actual labor, material, and subcontractor costs incurred on each contract by the total labor, material, and subcontractor costs estimated to be incurred to complete the contract. The resulting ratio is multiplied by the total contract price and the difference between this product and the revenue previously recognized on the contract is recognized as revenue in the month. In the event estimated total contract costs exceed total contract price, the estimated loss on the contract is accrued in the period in which the loss is identified.

Snow Removal:

Snow removal services are generally provided under time and material contracts. Revenue for these services is recognized in the period in which the services are performed.

The current asset, unbilled revenue, and the current liability, deferred revenue, result from differences between the timing of billings and the recognition of service revenues on uncompleted contracts.

Risk Management: We carry general liability, vehicle collision and liability, workers compensation, professional liability, directors and officers’ liability, and employee health care insurance policies as well as umbrella liability insurance to cover claims over the liability limits contained in the primary policies.

Our insurance programs for general liability, vehicle collision and liability, workers compensation and employee health care contain self-insured retention amounts. Claims in excess of the self-insurance retention amounts are insured at levels considered reasonable by management. Our accrual for unpaid and incurred but not reported claims under these programs at December 31, 2003 and September 30, 2004 was $6.5 million and $7.6 million, respectively and is included in accrued expenses in the accompanying Balance Sheet in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies.” While the ultimate amount of these claims is dependent on future developments, in management’s opinion recorded accruals are adequate to cover these claims.

Recent Accounting Pronouncements:

In December 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 46R, Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The Company is required to apply FIN 46R to variable interests in variable interest entities (“VIE”) created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. The Company believes it has no variable interest entities and, therefore, FIN 46R did not have an impact on the Company’s consolidated financial statements.

applying FASB Statement 123R. The FASB will discuss the effective date and transition provisions for nonpublic entities at a future meeting, and it is expected that those provisions will be different than those for public companies (as defined by the provision).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, 2004, there were no changes with regard to market risk that would require further quantitative or qualitative disclosure. For our quantitative and qualitative disclosures about market risk, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of our Annual Report on Form 10-K filed March 30, 2004.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon this evaluation, our Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic SEC reports is recorded, processed, summarized, and reported as and when required. There have been no significant changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are from time to time a party to litigation arising in the normal course of business. Generally, such litigation involves claims for personal injury and property damage incurred in connection with operations. We are not currently involved in any litigation that we believe is likely to have a material adverse effect on our financial condition, results of operations or cash flows.

ITEM 2. UNREGISTERED SALES OF EQUITY 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


Number		Description
31.1		Certification by Charles B. Silcox, Chief Financial Officer, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

31.2		Certification by Scott W. Brickman, Chief Executive Officer, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

32.1		Certification by Charles B. Silcox, Chief Financial Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

32.2		Certification by Scott W. Brickman, Chief Executive Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

SIGNATURES

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


		The Brickman Group, Ltd.
		(Registrant)

Date: November 8, 2004

		/s/ Charles B. Silcox
		Name: Charles B. Silcox
		Title: Chief Financial Officer
		Principal Financial and Principal Accounting Officer

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BRICKMAN GROUP LTD 10-Q